Q1 2022 Amedisys Inc Earnings Call
We continue to feel a tremendous amount of interest for hospital at home and other high acuity products.
The competitive landscape continues to evolve as another large payer acquired assets in our space.
And we recently saw the hospital proposed payment rule released <unk>.
'twenty two is off to a roaring start indeed.
On the regulatory front on March 32022, CMS issued the fiscal year 'twenty three hospice payment rate update with a proposed two 7% update to the hospice payments and a corresponding increase to the hospice aggregate cap.
This represents the fourth consecutive year, where Medicare has increased hospice payments by at least 2%.
In addition to the annual payment update.
CMS is also proposing to place a 5% permanent cap on wage index decreases to smooth year over year changes in providers wage indexes.
We appreciate the Cms's approach to hospice providers and this year's proposed rule and we look forward to submitting our formal comments at the end of May.
Yes.
With that let's jump into our segment performance starting with home health.
For the quarter home health grew total emissions by 2%.
As we mentioned during our last call the omicron wave that hit the U S. In early January caused a record number of clinicians to be out on quarantine, which resulted in a loss volume of approximately 2300 patients.
Had we captured this volume total volume growth for the quarter would have been 2%.
Elective procedures as a percent of our total episodes has been volatile over the course of the first quarter.
As the omicron variance set in we saw electives declined to six 5% of total episodes as compared to eight 5% pre pandemic.
We are seeing continued improvement in this number post omicron surge and today electors makeup about seven 4% of total episodes.
For the quarter, we performed 13.0 visits per episode.
Downpour seven visits sequentially and down <unk> nine visits year over year.
Our implementation and utilization of Metalogic continues to pay dividends as we continue to make progress optimizing the care, we deliver to our patients while constantly focusing on improving our quality scores.
On clinical mix in Q1, we achieved 48% LPN utilization and 53% PTA utilization.
We've made tremendous progress on our clinical mix and will continue to increase our utilization of both lpns and ptas throughout the year.
Now moving onto hospice.
For the quarter Hospice same store I missed grew 2% and ADC was down 3%.
We ended the quarter with a hospice BD FTE count of 514, which is down sequentially and we are budgeted to grow to 550 by year end.
As we've discussed we've made great progress in 2021 ramping up ramping up our BD head count after the anticipated turnover during the second quarter of last year.
We are now going back and being more targeted in who we add and where we add them, making sure that our reps are producing an increasing their production as they grow their tenure.
Hospice ADC remained pressured in Q1 as we continue to see a trend of patients coming on to service. Much later in the dying process and not realizing the full value of the benefit.
In our 2022 guidance, we modeled a discharges as a percent of ADC rate that was higher than 2021, a year in which we saw new highs and discharges.
In Q1, we saw higher than modeled discharge rates, but over the course of the last few weeks. We have seen this number moderate to levels that we had modeled.
This trend is something that we're constantly monitoring and if the experience over the last month continues you will see that translate into a better than expected ADC growth.
To quantify the discharge rate in January of 2020 discharges as a percent of ADC were 32, 3% versus 39, 1% in January of 2022.
We have seen positive movement in this number and as of this call April discharge is as a percent of ADC is around 32%, which is below our internal expectations.
The ADC impact from elevated discharge rate is approximately 170, <unk> ADC or $2 5 million for the quarter.
Though we are behind on ADC, we continue to hold excess clinical capacity for when ADC returns.
Our hospice discharge average length of stay fell to 89 days in Q1 from 90 days in Q4.
And medium length of stay dropped to 21 days from 23 days.
These decreases were driven by an increased percentage of deaths on sensus.
Now I'd like to discuss <unk> performance during the quarter.
Contessa, our high acuity care segment, which specializes in homebase clinical programs for high acuity patients.
Continued its momentum from 2021 with a strong Q1 performance.
While Contessa had two primary lines of business for the first quarter with his hospital and sniff and home care models. It also launched a homebase palliative care model in the first quarter with Mount Sinai in New York, creating additional opportunity for the segment going forward.
As a reminder, the hospital and sniff and home models have emissions that fall into two reimbursement categories full risk and limited risk with full risk being more favorable from a top line revenue perspective.
Total admissions in Q1 were 333, which was slightly behind expectations as we continue to integrate the business into our core operations.
This integration is essential as it creates the infrastructure needed to recruit and retain nursing staff to accept patients referred to contestants programs.
While meaningful progress has been made on the integration efforts related to nurse staffing.
We continue to see a positive shift in reimbursement mix as an increasing number of patients admitted into contestants programs are full risk versus limited risk.
I'm also pleased to announce that we have deepened our partnership relationship with Mount Sinai Health system and reached a significant milestone as Mount Sinai contributed as home Health agency in South Nassau to our existing joint venture for high acuity services.
In addition to expanding the Mount Sinai partnership to include home health.
<unk> also launched its first risk based palliative care at home contract in New York with Medicare advantage plan in late January .
We are seeing early positive patient engagement trends in this program, which will be important beyond this partnership as we expand this business line to two new geographies and contract structures that have increasing levels of financial risk.
Through this transaction and new service offering our Mount Sinai partnership now offers a full continuum of home based care that includes home health Hospital at home sniff at home and palliative care at home.
This strategy is truly one of a kind in the industry and a major reason for why we see tremendous opportunity to capitalize on partnerships going forward as the only operator to provide an integrated home care offering.
Moving on to operational performance Contessa continues to demonstrate success in the clinical management of patients admitted into these programs.
We again saw favorable MLR performance relative to expectations, while keeping quality and satisfaction metrics at the forefront.
Lastly, with respect to growth, we announced in February that Contessa closed another deal with yet another industry, leading health system in Virginia Mason Franciscan health.
This collaboration is an expansion of the existing common spirit joint venture partnership and will bring hospital level care into patients' homes in the Seattle Tacoma, Washington market.
Implementation is currently underway and the program is go live is expected later this year.
We also expect at Penn State Hershey partnership that we announced late in Q4 to launch towards the end of Q2 and remain confident in our ability to meet the goal of five new partnerships for 2022.
In summary, I'm proud of the results we produced during the first quarter of this year each of our lines of business face their own challenges, which forced us to think differently and the innovative Lee about how we operate our business and deliver care.
We remain acutely focused on doing all we can to enable our clinicians to be able to deliver the highest quality care.
So long as we do that financial results will follow as they did this quarter.
Through the continued volatility in the marketplace. We delivered EBITDA ahead of our internal modeling and street consensus.
We know we have work to do are excited about what is in front of us and look forward to besting our expectations.
With that I'll turn it over to Scott, who will take us through a more detailed review of our financial performance for the quarter.
Thanks, Chris for the first quarter of 2022 on a GAAP basis, we delivered net income of 97 per diluted share on $545 million in revenue a revenue increase of 8 million or 2% compared to the first quarter of 2021.
For the quarter, our results were impacted by income or expense items adjusting our GAAP results that we have characterized as noncore temporary or onetime in nature.
14 of our supplemental slides provides detail regarding these items in the income statement line items each adjustment impacts.
For the first quarter on an adjusted basis, our results were as follows.
Revenue grew eight may in our 2% to $545 million EBITDA decreased $12 million or 16% to $66 million, excluding the acquisition of Intesa. The EBITDA decline was $6 million.
This was driven by the surge of almost comp cases in January which impacted volumes hospital discharge rates and continue to drive labor pressures.
EBITDA as a percentage of revenue decreased 240 basis points to 12, 2%.
Excluding contest that EBITDA as a percentage of revenue was 13, 4% EPS decreased 31, a 20% to $1 23 per share.
Contessa drove <unk> <unk> of the decline sequentially revenue was below our internal efforts.
Our expectations due to a higher discharge rate in hospice low revenue per episode of due to a shift in mix, resulting in higher loop within last billing periods and home health and a delay in the closing of the acquisition and our high acuity segment.
Our sequential EBITDA performance was better than expected despite the topline pressure.
Now turning to our first quarter adjusted segment performance.
In mind segment level EBITDA is pre corporate allocation.
In home health revenue was $336 million up 7 million or 2% compared to prior year.
Revenue per episode was up $82 or 3% as a result of a three 2% increase in reimbursement, partially offset by higher LUPA and lost billing period.
Visiting clinician cost per visit is up 9% year over year and down a little less than 1% sequentially visits per episode declined, 6%, which offset much of the cost per visit impact, resulting in a Medicare cost per episode increase of two 4% and a gross margin decrease of only 10 basis points.
The increase in cost per visit was driven by planned wage increases sign on bonuses wage inflation, new higher pay and the impact of lower visits on this metric.
G&A increased approximately $3 million, mainly driven by planned wage increases.
Additional business development resources higher traveling training and the full rollout of an additional <unk> product that began in 2021.
Segment, EBITDA was $70 million with an EBITDA margin of 21% or two 8% increase in revenue per episode and the decrease in visits per episode were not enough to overcome the impact of <unk> volume and labor pressures, resulting in a slight increase in EBITDA and a 60 basis point decline in EBITDA margin.
Sequentially segment, EBITDA was up 7 million, mainly driven by the CMS rate increase and the seasonality related to health insurance expense.
Now turning to our hospice segment results for the first quarter revenue was $193 million up $2 million over prior year.
Net revenue per day was up 4% driven by a 2% hospice rate increase that went into effect October one 2021, and lower revenue adjustments hostas cost per day increased to $8 58.
Primarily due to fixed costs associated with salary employees on lower census contract utilization planned wage increases wage inflation sign on bonuses and higher visits performed by our employees as prior year's impact by access restrictions due to COVID-19.
EBITDA was 37 million down approximately $11 million.
G&A increased five named as planned wage increases additional business development resources higher travel costs and the rollout of Metalogic Muse.
Sequentially admissions were flat with ADC declined 2% due to higher discharge rates driven by patients coming on to hospice census, later in the dying process and delaying care due to COVID-19, as Chris mentioned, the discharge rate exceeded our 2020 rates. Thanks.
Segment, EBITDA decreased $4 million decline in ADC, driven by an elevated discharge rate higher Capex spent this Q4 benefited from a positive cap adjustment.
Set by lower G&A spend and health costs.
Turning to our total general and administrative expenses on adjusted basis total G&A was $179 million or 32, 9% of total revenue up 110 basis points, mainly due to the Contessa acquisition, which added $7 million in additional G&A.
Excluding catastrophes, our G&A as a percentage of revenue was flat over prior year.
And down sequentially 4 million.
For the quarter, we generated $49 million in cash flow from operations, our net leverage ratio at the end of the quarter was unchanged from Q4 at one three times.
We did see a sequential increase in DSO driven by CMS processing delays.
We expect this issue to be corrected and cash collections to recover in Q2.
Turning to M&A as stated on our last earnings call. We have signed and closed as of April 1st the acquisition of evolution health, which which will add 15 care centers to our Texas, Oklahoma and Ohio footprint.
Evolution is very much of a turnaround we are excited about the opportunity to increase our density and believe the longer term growth and profitability outlook for the asset is compelling.
Also signed and closed the assisted care home health deal, adding two locations in the ceiling state of North Carolina.
I am very pleased with our M&A efforts to kick off 2022 and remain confident that we will sign additional deals as we move on throughout the year.
We are reaffirming our previously stated revenue EBITDA and EPS guidance.
The ranges, which can be found on page 16 of our supplemental slide deck, we will evaluate whether we need to update our guidance ranges for revenue EBITDA and EPS as we monitor performance throughout the quarter, we have updates on that warranted, we will do so during our Q2 2022 call.
Normal seasonality of our business would suggest a step up in both revenue and EBITDA from Q1 to Q2, while we do expect a meaningful increase in revenue we have a number of new headwinds in Q2, this year that will impact the EBITDA progression.
These items are retiring sequestration at 1%, which will be a $5 million impact at <unk>.
<unk> increase in losses, a contestant a $1 million and a sequential increase in long term incentive compensation of $2 million.
In addition to these new headwinds we have a normal seasonality increase in health insurance costs of approximately $7 million to $8 million.
We expect our increase in revenue and other operational improvements will offset nearly all of these headwinds, leaving Q2 EBITDA is slightly below Q1.
This ends our prepared remarks, operator, please open the line for questions.
Thank you.
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One moment, please slightly with your question.
Our first question is from Brian <unk>.
Jeff. Please go ahead.
Yes.
Hey, good morning, guys congrats on the quarter and congrats also to Nick for the promotion.
Yes.
Chris I guess my first question for you.
One of your key peers or competitors, obviously is in the middle of getting hit.
So just curious what your thoughts are in terms of what Youre seeing with your business is there anything that.
It sounded like maybe <unk> or anything youre seeing.
Maybe.
Okay.
Are there even if they sold it.
Maybe give me more specific on that we've got a lot of questions from people about Medicare advantage and.
And how that can be potentially pressure points for home health.
Is that something that you are concerned about at this point.
Yes, Hey, thanks, Brian and thanks for the question.
Talking about kind of the the announced transaction is absolutely didn't come as a surprise to any of US I mean, we saw what what kindred did with Humana deal with Kindred and we also knew that other plans were very vocal about wanting to actually get into the provider space in the homes. So.
And when you step back and look at it.
The plan it does make sense I mean in terms of having that capability and its one of the last probably levers that plants can actually pull in order to really kind of drive down their total.
Total cost of care for their patients and also shows their appreciation for.
For care in the home so.
Given the announcement that was really not such a surprise to us, but and we've also been very vocal over the last several years about number one we know what the penetration Medicare advantages to the senior population and that's accelerating.
<unk> also stated many times that we have.
Got to be able to change the relationship between providers and Medicare advantage in order to really extract good value out of the care that we drive and get paid fairly for it.
And as you know there is there is a significant discount that we're taking for the per visit Medicare advantage business today. So.
That's why we've been focused on just kind of new relationships and we've talked about this in the last probably couple of earnings calls around <unk>.
Striking a relationship with plans that really actually satisfies both sides.
Do believe that Leverages, moving kind of more into our place.
With regards to the fact that.
We're not able to convert all of the referrals that come over from Medicare advantage based on our clinical capacity constraints.
And so and that's not going to lighten up anytime soon so.
So plans are wanting more access to care in the home, there's still really not fair payment for that so we're looking at models out there and we hope to have something to announce hopefully pretty soon on a new kind of model that really actually drives us more into Medicare advantage.
Wanting to take more of that allows us to expand our margins on that business and also frees up capacity with our existing clinical staff. So.
We're really close to having something done with with with a couple of plants today and we hope to have at least one of them announced here relatively soon.
The long.
The long game is is that that's who we're going to be doing business with and we've got to find ways to basically hold our ground in terms of what we're willing to accept in rates.
At the same time really leverage the fact that quality does matter and care in the home can actually drive down the total cost of care.
Understand Chris follow up question, maybe for you and Scott just on the staffing side, everyone. Obviously, it's pretty focused on that.
Looks like you guys have done a good job, bringing voluntary turnover down cost per visit down sequentially.
Anything you can call out in terms of what Youre seeing and where you think you can bring.
Some of your staffing kpis down to you and any color you can share on the conduct R&D.
Minority acquisition, how you think that helps the staffing picture for our medicines.
Yes.
Take that and I'll see if Scott wants to add anything to it but I would say that.
One of the key drivers and just kind of your cost of labor is utilization of contract staff and utilizing contract staff is not necessarily a bad thing when you're trying to flex in a in a difficult market or youre trying to accommodate some some unique circumstances in that market and we've historically had around maybe two to two 5% of our visits have been.
Performed by contract staff, while we saw happened during the pandemic.
As a result of either turnover or labor shortage or really corn teens is.
Heavier dependence on that contract staffing and its adding to the tune of about $5 five bucks a visit to our total visit cost today.
We see that the best thing we can do is really kind of the lower our dependency on that drive up retention, which we're seeing good results. So far this year on our home health and hospice retention side through our clinical staff.
We're seeing some pretty good hiring.
Metrics as well around clinicians as well so hiring up at retaining our staff should allow us to soften our dependency on the contract staffing and then we're looking at new models and the connect are in kind of investment for US is really one that you can actually turn on clinical capacity as needed or just in time versus.
Signing into these multi month contracts with the staffing companies.
I think that it is starting to get a little bit better out there thats, allowing us to see some softening in the in the.
The wage inflation that we saw happened in Q4 and Q1.
A lot of the sign on bonuses are having and are coming back down to kind of a more realistic level.
Absolutely guests discipline around it so we think that we're going to be able to manage through.
The labor side.
And do so by retention as well as <unk>.
Utilizing some new ways of unlocking staffing on demand and then.
One thing Scott can walk through a little bit of the episodic math that we have.
On home health, because we've seen.
Like a 9% increase in our cost per visit but it hasnt translated in a 9% increase in our cost per episode, Scott just kind of walk through that.
If you'll recall on our last call we talked about as we saw these pressures on inflation.
We look at it in our total cost per episode so to speak so cost per episode versus the cost per visit metric and how those aligned together I think as I said about two five reduction in our <unk>.
<unk> would help offset about 2% of that cost per visit increase and then our map today. If you look at just kind of our numbers and amusing to if you want to check my math here visiting clinician cost per visit as Chris said Thats up about 9%.
A 0.9 declined the VP that really brings that total cost per episode down about 2% level, which.
Certainly thats, a manageable number and certainly with a three 2% base rate increase in that business coming out the gate here. So.
I think people were all surprised we weren't as well.
We're a little more growth and our ability to manage it I think that kind of shows while we felt that way. We will continue to work hard on that and Chris called out the key points around contract utilization and other factors that we can help mitigate the cost but.
So get out of the game here and the number would be in line with where we thought we'd be for the most part.
Thanks, guys.
You bet Thanks, Brian .
Thank you.
Next question is from Matt Larew William.
William Blair. Please go ahead.
Sure.
Hey, good morning, I, just want to follow up on Bryan's question, a little bit on the staffing side, Chris you gave us some good metrics around utilization of contract labor cost per visit patients could you give us maybe for what youre running at today.
Then extent, obviously you are still finding some of these <unk>.
Contracts with staffing agencies that you're trying to ramp connect Iran.
Are you finding that you can negotiate much more favorable rates or.
Perhaps less.
Onerous contract links as Youre doing that.
Yes, yes.
Good question. So couple of things to think about what happened in Q1, obviously when omicron came on strong we ended up with about 7% of our clinicians on quarantine. So we added depend heavily on contract labor, but the entire health care ecosystem was also having to do the same hospitals were strained other agencies were strange so.
There is a lot of competition and it gave the contract agencies a lot of leverage to really kind of drive up their price points on that so we saw that.
Spike in Q1 at a very high level.
Another thing that kind of started to emerge in Q1 was this concept of guaranteed 40 hour.
Contracts, so regardless of our utilization of the contractor on some occasions, we had to guarantee a 40 hour payment for those services.
So two things that we've seen since omicron has started has decided is that.
<unk> has come down pretty reasonably I'd say around 10% to 15% today and there's still continues to come down which is a good sign and then also the demand for these 40 hour.
Kind of guarantees is starting to be off the table for us and we're not we're not accepting that and we're also in the two markets that we have launched with connect or in looking absolutely first to go to utilization of.
That kind of option versus a contractor and then the last piece and I'll give you the statistics on our utilization, but last piece also to think about is is that we talked a lot in previous earnings calls about our PRN staff or as needed staff and so we've had a lot of internal initiatives around increasing.
Utilization of our PRN staff and we saw we've seen that go from about 6% of our skilled business to about 10% of our skilled business. So that's obviously kind.
A winner for us to be able to utilize our own W. Two staff on these visits when we need them.
Okay. That's all helpful. And then just on test obviously, it not finance.
Encouraging, particularly in the cycle.
Maybe future deals.
But obviously that the revenue contribution tracking I think a bit behind where you had expected. It was always in the back half loaded, but maybe you could just update us on maybe what appropriate expectations are for full year revenue and maybe how to think about.
Glide path into 2023.
Yes.
Hey, Matt This is Scott, we feel pretty good still around or how we get there.
And really nothing has really changed dramatically I think we've said before the first half revenue would come in around 20% in the first half and 80% of that number in the second half right I'm, sorry, that's kind of where we think today. Originally we said 75 and 75 in the second half and 25 in the first so it's only moved a little bit as we said before I think a lot of the delay.
That you saw in that revenue line here in the first quarter was around.
Acquisition that they had signed that when we sign the deal they did not get it closed because of regulatory delays, which causes about two months, so that will start coming through that's probably.
Somewhere around 850 to $900000 a month in revenue so that could be a that's going to be a good number of them and we consider continue to see a build out into the revenues into the second half of the year, we talked about the EBITDA drag.
And most of that still remain at 60% in the first half and about 40% in the second.
Even there is a little little hold up there with the transaction, we really haven't moved off our belief in where this number ends up for a full year perspective.
Okay I appreciate all the detail. Thank you.
Thanks, Matt.
Our next question is from Matt.
I'm, Justin <unk> with Deutsche Bank. Please go ahead.
Hi, good morning, everyone.
Good morning.
Hey, good morning, Chris.
Wanted to piggyback on contests, and just to ask the question a little differently about how how long is that.
Now that it's been under your belt for a couple of quarters.
Earlier, you talked about.
<unk>.
Some new initiatives Youre working on with MA plans.
I'm curious how.
Contessa his kind of shape the dialogue with MAA in.
Some of the initiatives, there and maybe your ability to kind of package, some innovative products and bring those to market.
Yes, so thanks, Justin I would say the one thing that we saw kind of.
Emerged quickly within MA plans was utilizing some contestants internal capabilities to launch launch a.
Kind of a risk based palliative model out there. So we announced the one in New York Theres going to be contributing to the top line and starting in Q2 and then we have another sizable one we think we're going to be able to get announced sometime this quarter that will actually be a strong top line driver for us so.
From the plan perspective is still staying more around the higher acuity type of care.
Identifying patients that could be that would normally should land in the hospital and having them cared for in the home, where instead of having them care for in home, but now it's starting to evolve more into also being able to work with plans to identify patients who can receive levels of care in the home that can help prevent those hospitalizations. So we see this as a <unk>.
And the direction all of the Oxford, not still connected between home health Hospice and palliative care hospital at homes and home, but we do see that that's the that's the end game.
So and when that actually does.
<unk> materialize, we see the plans are going to be able to really kind of trust companies like us to take a high risk population and kind of manage their care in the home setting versus letting them bounce into the hospital. So I.
I would say, it's still early stages, but the emergence of the risk based out of care. So soon after our acquisition I would say, it's a very encouraging sign.
Thank you and then just one quick follow up I mean, which is about as challenging operating environment.
As we've seen in a long time if ever.
<unk> and.
I know you guys executed very well, but I can.
You can imagine that some of them.
More operators out there or.
Are struggling a little more and.
I'm just curious how that's impacting kind of the.
The M&A environment and multiples.
Yes first.
And analysts we spoke to recently that said, it's tough out there.
I think thats actually a very very kind of kind of spot on comment.
What we're seeing out there as the operating environment is challenging but the good solid operators in the companies out there that have kind of are focusing on the right things I think will still be able to navigate through some of this chop and naturally take advantage of some of the less kind of sophisticated or <unk>.
Operationally sound businesses out there and market share is there for the taking right now.
And it starts with having clinical capacity again to be able to take the patients. So we're focused on the right things we haven't started to see.
Some of the fallout within the smaller agencies, yet, but some of that may be happening without us actually.
Having having inside it could have be happening quietly out there.
Smaller companies a lot of times, it's not even an option for them to sell because the.
Companies like us and our competitors out there have a pretty high bar when it comes to clinical clients and in due diligence and so a lot of times, there's just really not an avenue for them to actually transact and also did you end up and you just start to see kind of attrition of the provider numbers out there I suspect some of that is <unk>.
Turning around now.
Still feel like by the end of this year early next year Youre going to start to see the cumulative effect of sequestration going away.
Labor pressures and wage inflation Medicare advantage penetration in on substandard payments on the per visit side.
Making its making the model tougher.
Kind of be successful in but again I think this is a time, where the bigger kind of more established companies that can leverage the size and scale are going to be opportunistic and we will as well and start to see kind of some some additional roll up of the business, which I think that's ultimately what we want to get too.
I appreciate all the color I'll hop back in queue.
Alright.
Thank you our next.
Next question is from John Ransom, Evan James Please go ahead.
Hey, Good morning can you hear me.
Yes.
Hey, John .
I never know Abaxis Apple Airpods.
Second half.
You've been talking for a while about.
Getting a payer deal done.
Could you please help us with.
What that would look like kind of at a high level is it still a fee per visit with a kicker.
One of the things youll be measured on as an upside downside or upside or is it episodic.
Maybe just help us understand what you're trying to drive that and also just.
If you put yourself in their shoes, it seems like such an obvious thing and yet.
Contentious three or four years, with MAA and and home health and just what do you think in your mind has changed but they're now more willing to compensate.
Yeah, So I would say kind of the <unk>.
<unk> that we're kicking around as more of a case rate model. So it's going to be a per admission model.
It allows us to utilize tools, such as telehealth metal largest products and other things to the right level of business for that patient treat those patients the same way, we treat our Pts space sure PD GM patient.
But really kind of drive that right utilization for those for those for those patients and what that should do over time, because we've seen this and working with some <unk> over the past couple of years.
There is a way to really drive down length of stay and drive down visits per admission and maintain good quality for the patient outcomes for the patients, but the economics are not fair on us and doing it in that way. So if we can lock in.
This rate basis that actually starts with a day one discount for the plan allows us to basically manage those patients with strong strong clinical management and oversight.
What will happen is we will drive down.
Business for episode and linked to stay a bit but we'll also guarantee the quality outcomes. So there'll be hospitalization rate guarantees there'll be timely initiation of care guarantees and really what's what's getting attracted to the plans as we will guarantee that will take more of their business.
And as we take more of their business, then that gives them the ability to lock into a sizeable provider out there thats going to be there when they call.
And what we will see there is also by managing kind of the utilization a little tighter around that type of business.
We're going to be able to see margin expansion as well so it's not going to get to Medicare fee for service margins. We don't expect it to do that but we're in the low 20% range right now on most of our per visit Medicare advantage business today, and we think we can get it into that high <unk> to low <unk>, which is fair for all so if the plan gets.
More access to care in a day, one discount off of what they've historically paid and we actually deliver on that and they got guarantees around quality outcomes and hospitalization rate in our in our acceptance rate and.
And then we see margin expansion and we will want to lean more into that type of business and that creates more of a value.
Composition for all of all of the constituents of the plans.
Providers like us as well as the patients.
Yes.
Great. That's a great answer and that's all I have thank you.
Thanks, John Thanks, Sean.
Thank you. Our next question is from Andrew Mok with.
UBS. Please go ahead.
Hi, Good morning, I wanted to ask about what is it.
<unk> finished the quarter at 13 point out it sounds like that's tracking slightly ahead of plan what were the drivers of lower <unk> in the quarter and do you think BP is sustainable at these levels. Thanks.
Yes, yes. Thanks, Thanks, Andrew So yes, we do think it's sustainable number one we did see some mix shift in our episodes in in Q1 that there were some puts and takes.
On the positive side, we did see some shorter length of stay patients and we saw a bump in our rehab business that did not require skilled visits skilled nursing visits and so we saw that drive down visits per episode a little bit so our therapy was down a little bit.
Actually it was down a little bit I'm sorry.
In Q1.
But also what we saw that come from that was higher LUPA rates, a little bit lower in higher lost building periods, which actually drove down our revenue per episode and we missed our internal target by about 42 Bucks.
An episode, which actually cost us about $3 million topline, but back to the business per episode. So we've seen we've seen kind of everything normalize back into the normal mix right.
Metalogic status suggest we still have some opportunity there and some business that we are providing that don't provide any incremental.
You to the patients.
<unk> is launching a new product later this summer.
Powered politicking at right now.
Is going to give us intra episode recommendations, that's going to give us calibrated recommendations based off of the most recent visit for the patient. So this could be a very much a game changer and they can appropriately identify patients that need more visits but what it also will do is identify those patients that are on the road.
Every faster and help us calibrate our business per episode real time during the episodes. So we think it's going to settle in.
For 2022, maybe in the 13% to $13 two five visits per episode right, but over time as new product comes out and we get really precise you could see it drop down a little bit below where it is today.
Got it and then on corporate expenses, they were down about $6 million year over year, but that number might reset higher with the incentive comp accrual can you help us understand the drivers of that cost reduction.
$36 million number a good run rate to think about from here. Thanks.
Yes, we did have some favorable things break for US we had some lower LTI I think that will build back up I can add that in my commentary. So that number kind of builds here into next quarter you have some additional G&A G&A spinoff intesa that kind of handheld back with some delays. So I think that number creeps up a bit on this as we go forward.
Certainly we are.
Internally, we are managing well below our budgeted numbers, what you used to set all of this I feel good that we'll keep the G&A down from where we originally thought it was going to be in building our numbers.
But I do think theres going to be a step up here from Q1 to Q2.
Got it thanks for all the color.
Thank you. Our next question is from Matt Borsch with.
BMO capital markets. Please go ahead.
Yes, My first question.
Can you hear me.
Yes.
Okay great.
Regarding your home health patients can you do you track the ages.
In any way.
Lastly, you used in the analysis.
Just curious if you're seeing any noticeable pick up.
From the demographic wave.
Baby Boomers reach.
<unk>.
And passing age 75.
Yes so.
Our typical or average age is about 78 services patients that we serve that's not changed over the years is still stay it stayed pretty consistent there, but when you think about the baby boomers that are aging into that demographic I think the oldest baby boomers today or 70 677 years old So we think.
The wave is starting to kind of kind of hit our demographic typical demographic for our patients and we expect to see volumes come from that in terms of utilization of our services. So and then you think about the tail.
Baby Boomers.
How long that's going to last is it'll be a bit.
That's why we're so optimistic about Canada.
<unk> in this industry, because it's cost effective care in the right setting.
And the demand is Roger at our doorstep and we've just got to focus on building out the clinical capacity to take that business on.
Right.
<unk>.
The other factor, although maybe this is more anecdotal than really established is.
The evidence of the increased preference for the home.
The care setting amongst that generation as compared to the one before it I'm just curious if you can.
Package of data on that.
Yes.
A lot of specific data, but what we did learn even with the non baby boomers that got care in the home during the pandemic that would normally have landed in a sniff or stayed in a hospital a little bit longer.
We are absolutely seeing that those that's opening up the eyes to the to the availability of care in the home versus another setting an institutional setting and then with contests.
Absolutely, we see a very high adoption rate.
Somebody has identified as being a hospital at home potential.
Potential patient versus an facility patient.
So we have an over 90% acceptance rate whenever that's offered to them. So we feel like theres more and more focus on the home and there's a lot of emerging companies out there that are increasing capabilities in the home as well so.
I think that over time, youre going to see kind of this <unk>.
Boom generation, just really start to understand what's available to them and to actually take advantage of that.
Okay. Thank you.
Thanks, Matt.
Sure.
Thank you. Our next question is from Sarah James with Barclays. Please go ahead.
Sarah Thank you.
Hi, I wanted to go back to that Dot talking plain about it's tough out there.
So one area that I think about is referral patterns and market share shifts.
With the staffing challenges that may be hitting the mom and pop harder you guys are probably able to provide.
More consistent availability.
And are you seeing that have.
Have any impact in your local market share or referral pattern.
Yes, it's a great question, what we do watch a lot is kind of you know and we track pretty closely is the number of accounts that refer to us and the volume that we get out of those accounts and also how many we gain per quarter and how many we lose per quarter and what we're what we've noticed over the last couple of years is significantly up.
Side in terms of us having access into new accounts and actually getting a patient or two from that.
<unk> source, and then we leverage our quality and our customer service and typically we are able to hook them in and actually get more penetration into that account and sometimes it is really a function of they've had their favorite little agency they've worked within the past and that agency. Just does not have staff anymore is it very inconsistent and their ability to take take on their <unk>.
<unk> and their referrals and it creates a little bit of a window of opportunity for us. Our goal now is to really utilize claims data.
The best we can to identify those opportunities out there it would be very very purposeful and targeting some accounts, where we may feel like they have been loyal to our more vulnerable.
Mom and pop agency in the past.
And utilizing our knowledge to be able to give more targeted.
And how we approach that so I'm hopeful we're going to be able to kind of really show some of those results overtime, but generally right now when we look at the actual total volumes out there.
Some of the information that we have it's clear that we are taking market share in many of the markets. If not most of the markets that we're in today and where we're not taking market share a lot of times. It really is because we also are having struggles with staffing and clinical capacity or some of the competitive environment, but I feel.
A really good about our penetration today and unexpected to see that continue to grow.
Great and then just the other aspect of that market share shift and when you talk about.
Setting up the value based care contracts with the Payors are you seeing any.
Early examples of where you've established that and you see a change in your market share.
In particular county.
Yes, so I mean kind of the case rate model hasn't really materialized international deal yet, but we do think that when that does happen, there's going to be significant shift in market share in that because it's going to be our commitment to take more of that business and we plan on upholding that commitment and deepening that relationship while we do see now.
And some of our other kind of relationships out there is that we have.
<unk> in place about 25% of our per visit.
Medicare advantage business out there today is has some sort of upside opportunity based on hospitalization rates and outcomes for the patients.
Wherever we have struck those deals we have seen more referral flow into our business. So we see that as a good sign of both sides wanted to have.
Kind of a partnership but we still got we've got to change the game to really make the economic model work because it's it is a significant discount on the per visit side than it is just not going to create an environment, where we'll have when we have limited clinical capacity that we're going to aggressively want to go out and take more of that business.
And frankly, what youre going to have to see happen then youll likely will see happen is that theres going to be some sort.
Contract cancellations over time, if there's just not a willingness to work with the providers.
That's very helpful. Thank you.
Yes, Thanks Sarah.
Thank you. Our next question is with.
Which Mayo from SBB Securities. Please go ahead.
Hey, thanks.
Scott you kind of snuck in a comment in your prepared remarks about the second quarter being lower than the first quarter. I think you cited a number of headwinds I think I get most of those are there any specific tailwind that you can point us to for the second half just looking at the ramp in the second half.
Kind of implying ballpark I don't know 55% of the full year earnings in the second half. So is there anything you can point us to that gives us increased confidence on the bridge from point a to point b.
Yes, I think the biggest thing out there.
As I called out the pieces that will go back to them again, but certainly having to deal with sequestration, you've got to deal with that.
And the Q1 to Q2 and Q2 to Q3, so thats certainly a little bit of noise for us but from.
From a positive point really hospice ADC and you've seen the discharge rates really improve on us and thats really going to be a big catalyst going forward as we build out the rest of the year I mean, I would say.
I think when we talked about this year that was going to be the big barometer for our performance and I would say, we're exiting and feel good about how that's performing.
Certainly going to be a big one that's important to us I do think that as we continue to deliver on some of the reductions on the cost side I think that'll be helpful. We do have right now a positive hospital hospice rule in the back half of the year that'll be helpful. So theres certainly.
The good thing and we can test the losses are going to be meaningfully different in the second half of the year. So that's.
Think there's enough things out there clearly in our modeling around that.
That makes us feel good that we can deliver that number and haven't things always look different once you kicked off the year from where you think and from a revenue from a cost perspective, and we will have to continue to pull every lever we can but.
We feel there is a path forward would also I mentioned that $42 Delta in revenue per episode in Q1, that's coming down the revenue per episode is coming up a bit so far in Q2 contracted utilization is coming down for both home health and hospice. So those are good cost levers that we're pulling as well so.
There is some momentum in some of the material areas that we think is going to contribute to kind of us to continue to build for.
For the year.
I was just thinking that from a top line perspective to just get this out there and we closed two deals.
They aren't contemplating any numbers right now, but that those from an annualized basis.
Somewhere around $50 million in revenue the combination of those two youll see that start to come through in next quarter.
No that's a good point.
Back to the whatever you said $7 million to $8 million on the self insured accrual is this a one time or is this a recurring expense.
Yes.
Yes, I would say I just called it out just remind people as you look at the numbers and whether if you're thinking through just kind of some of our cost per visit move that's a typical move from Q1 to Q2 that is really not new in.
Kind of separate that from the other kind of three items I called out as a new item Thats a typical build we're self insured people hit deductibles investors generally the build and the spin so.
I would say that's kind of a normal progression.
Okay. That's helpful and one last one I'm just trying to think.
You think about like the dollar amount that you're spending on contract labor right now could you share what's in your plan for like a dollar amount and maybe what it was last year and I ask it because I'm just looking at the sort of it's like what could potentially be a stranded cost that could go away.
And in an environment, where.
Covid is so much of an issue. Thanks.
Yes, so we've kind of.
What our spend is at.
At around 5% to $6 on $1 7 million of business, you're talking about spend in eight eight type of fair amount of money, they're almost 10 million type of number on contractor.
To date that continues to go down for Us I would say the <unk>.
Raw number of contracted visits is down 14% from Q1 last year to Q1 of this year. So that continues to come down we expect that utilization number to continue to drop we were at $4 six last year with somewhere four 3% right now and that includes the elevated January with the AUM across so we see that continuing the tail out.
Tail off in both rate and the raw number of visits so I think that'll that'll continue to trend.
What are you using that $5.
61 on about $1 7 million visits is how that math would work to get the exact number.
I'm not quick enough to do all this math as Theyre just like a simple way to think about like our plan has this much for contract labor. This year. This is what we spent last year and maybe what a normal year is on I'm. So.
Maybe we can just take this offline I can talk yes, I would say that we would if you think about that using our visit numbers roughly.
About $1 7 million visits a quarter, we're going to our utilization is four 3% of that right now we'd like to pull that down into the 38 35 type of a number as we exit the year. So I would just think of it.
That way.
Okay. Thanks, guys.
Okay. Thanks, a lot.
Thank you. Our next question is from Joanna <unk> with Bank of America. Please go ahead.
Alright. Thank you so I have two questions. The first one.
So in terms of that.
Hiring trends you were talking about is there a mercury. Thank you Ross in terms of net new hires this quarter.
I guess January probably was.
Very small I guess typically its still about that kind of how I guess things that shocking.
In April the <unk>.
Nice quarter.
Yes. Thanks, Joanne this is Chris.
So we set our targets on hiring.
By month and by quarter and for the first quarter, we actually did well we were about 98% of our internal targets with our historical turnover rate, but our turnover came down in Q1, which actually helped us build capacity, which we were excited about that so far in April it's not it's not materially different.
So we're excited about that there are some very specific markets that were still have kind of we have to double down our efforts to be able to get clinician.
Clinicians in the door and then also we have to fight with competitors.
<unk> also with very high.
Sign on bonuses and we're trying to maintain as much discipline around that as we possibly can but.
We know that we need to hire about 175.
Tom.
Parton nurses on the home health side and about 110 on the hospice side every month in order to meet our demands with today's turnover rates, but again, we focus hard on driving down that turnover that actually builds that capacity as well so feeling pretty good about that.
And on the turnover.
It's Ben.
Moving to the right direction has been improving is that.
Yes, so last year nursing turnover was down 9%.
From 'twenty.
And then this year, it's ticked down in Q1, as well and right on top of our targets, but we still we want to go we want to go lower than where it is today.
Sure. Thank you that makes sense and my question.
In terms of Medicare reimbursement. So you mentioned that the hospice proposal I guess it sounds like.
Potentially it could be better in the final rack.
<unk> got more data on the win.
Wage index and whatnot, but what are your expectations for that home health deal, which you mentioned.
In terms of debate out there about what about that changes the behavioral adjustment, especially given that the proposed regulations wanted to ask him fulfill does that include this behavioral adjustment I mean, obviously.
Two different industries.
And and whatnot, but kind of just.
High level thoughts on.
What are you expecting to see proposal. Thank you.
Yes, I'll start with that and kind of talk about the rate piece I'll, let Dave Kimberly answer the answer the piece around what we believe in how the SNP ROE impacts us it relates to our rule. So on the surface we are.
Feel good about the ability for those rates to go up I mean hospice came in at $2. Seven if you look at what's in the Federal Register around the market basket and the market payment updates. It suggests that number continues to move up into the threes. We would expect a similar type of number kind of in that 3% to 4% range on home health based on peer data on the market basket.
Absent any other noise, but that's what our expectation so feel good about that on the surface that there'll be good news for US certainly doesn't cover all the increases that the industry has seen but it certainly is that a step in the right direction and ill, let Dave talk about the other piece, yes, Joanna thanks for the question.
We don't have any indication from CMS during the inclusion of additional behavioral assumption cause to achieve budget neutrality. As you noted there are statutory prohibited from sharing with us what's going to be in a proposal having said that.
There are a couple of distinctions are distinguishing factors between Smith and home health budget neutrality that you should take note of and first is the sniff. When does this move to the PDP M payment model in late 19 early 'twenty. They didn't have any behavioral assumption cuts on the front end, unlike when home health move.
The PDGF January one 2020, we had behavioral assumption cuts on the front end as Youll recall, so it's not surprising that CMS came back and do what they call parity adjustment on the Smith second Theres two independent studies.
Independent of CMS. It indicates it was actually a decrease in home health spend in 2020 versus 2019, and one was in Med tax March report to Congress and it found I think around four 7% decline in home health spending in 2020, which equated around seven or $800 million.
And on the contrary Medpac found an increase in <unk> spending somewhere around I think about 5%. So big difference there secondarily Dobson Davanzo did a study commissioned by the industry and they also found a decrease in spending in 2020 of about $768 million somewhere around that which was consistent with the.
<unk> so you've got two studies out there say spinning as we decreased in 'twenty versus <unk> 19.
On a positive note I'd say to taking a look at the sniff rule Youll see that CMS did make some changes in their budget neutrality methodology.
And the proposal versus what they had kind of put out there in the sniff 2022 proposed rule. So that did show a willingness to move on their methodology. So we expect CMS to similarly consider industry comments that we gave last year on budget neutrality and once we will get this year if they go down that path again.
And finally, I'd say that we and the industry.
Our fully unified prepared and engaged already with regulatory and legislative strategy in the event that.
There are some behavioral assumptions included in the proposed rule and that would that would include conversations with CMS OMB, obviously with Congress congressional members and staff. So.
Bottom line is we don't know what's going to be in there, but we think.
<unk>.
The sniff rule is interesting to read through it and see what that might mean for us or not mean for us, but we don't know.
And <unk>.
I can't share that with us, but we feel like there's a lot of reasons that we.
We can handle and deal with any behavioral something cuts that are proposed and as you know typically historically between proposed rule and final rules both year round rates things change and so we feel comfortable with the data and we feel comfortable of our position.
Kind of blunt or.
Avoiding any of those cuts proposed.
Scott anything Chris No I think that's fair.
Great. Thank you so much.
Thank you.
Thank you. Our next question is from AG Rice with Credit Suisse. Please go ahead.
Hi, everybody.
Good question.
Just I guess.
Your LCN ratio it looks like it declined in Q4, you were about 49% you were about 47, 8% in Q1.
Was that just noise in the omicron.
Situation or is there something about the labor dynamics is making it harder to pick up those Lps.
Do you still think you can get to slightly above 50% for this year.
Yes, we don't think that there is anything kind of.
To be concerned about some of it is calibrating your visits when you had in Q1 at one 7% of your clinicians on quarantine. So sometimes you had to utilize.
Our ends when Lps were on corn. So we felt good about that but also when you think about drop in visits per episode and about half of our visits are nursing visits that we provide for our patients.
And the way an episode works the first visit.
Our first visit the emission and the reset of our discharge or resumption of care does it have to be oasis business that are done by our ends.
The lower you go in visits per episode the tougher it is to actually optimize your.
Youre LPN utilization, but with that said at 13 visits per episode right. Now we feel like we can get north of 50% on our on our LPN utilization barring kind of any other kind of surge that puts a bunch of our clinicians on quarantine.
Okay.
The other follow up question was around.
Nursing homes I know on the one hand, some of their issues through the pandemic. It sort of helps you on the home health side, because you've gotten referrals.
That would have maybe stayed in the nursing home for a little while and they've just come directly out of the hospital to you.
And then alternatively, though on the hospice side I know that's a good referral source for you and it's been tougher.
What's happening with respect to that or the referrals from the hospital to home.
Any of those getting diverted back to the nursing home or an.
Are you able to get in and capture the.
The hospice opportunities again or is that still sort of.
And progress.
Well I'd say that still Theres data suggests that nursing home occupancies are still well below where they were pre pandemic.
Which means the pie opportunity has shrunk for us but it also can suggest that still patients who are being diverted past the nursing home to the home and we're getting them on the home health side, and we can see that we're absolutely taking market share on the business, that's getting to the home going onto home health.
What we do in our nursing homes, as we've been able to maintain pretty pretty nicely.
Our relationships with facilities in half.
Kind.
Kind of build a census, if you will within facilities on the hospice side, where we have good strong relationships.
And in the event that.
Nursing home occupancy goes from where it is right now I think in the mid Seventy's, maybe the mid eighties.
Time, then we just see that as incremental opportunity for us to deepen that relationship. So.
I would say that.
We see nursing home recovery more when it does actually occur more of an opportunity and upside for us than we see it as a threat for us losing the business from the hospitals.
Okay, great. Thanks, a lot.
You bet.
Yes.
Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session.
And I would like to turn the call back to Chris Gillard for closing remarks.
Yes, Thank you Peter and thanks to everyone, who joined us on our call today and once again. Thank you to all the <unk> employees, who have helped to deliver another strong quarter of performance.
Everyone stays well and I look forward to seeing you on the road in the coming weeks. Thank you.
Thank you.
This concludes today's conference you.
You may disconnect your lines at this time, thank you for your participation.
Yes.