Q2 2022 Amedisys Inc Earnings Call
In fact, we believe there has been no overpayment at all the <unk>.
Budget neutrality methodology employed by the agency is extremely flawed.
As we have in the past <unk> has been prepared to engage with CMS directly and alongside our colleagues in the home health industry.
The proposed cuts based on behavior adjustments is unsound and we're working on a comment letter that will thoroughly outlined our position around the assumptions are experienced throughout the first two years of PDGF and the impact of the ongoing pandemic.
It is also confusing to us in the industry as well as members of Congress and congressional staff why CMS is making such a drastic cut to reimbursement during times of extraordinary inflation.
With that being said we have been preparing for this scenario and have been in discussions with our congressional champions for months to formulate a thoughtful legislative approach that prohibit CMS from instituting these drastic proposed cuts.
On Monday, Senator Debbie Stabenow Democrat for Michigan, and Senator Susan Collins Republican from Maine introduced preserving access to home Health Act in the U S Senate and we expect a companion bill to be introduced in the house in the coming days.
Thank you to senator stepping out and Senator Collins for your bipartisan commitment to championing a pause to the potential cuts to home health agencies and maintaining access for home health patients.
This legislation upon enactment would pause the implementation of any temporary or permanent adjustments to the base payment rate under the budget neutrality mandate of PDGF until 2026.
This was a long time for this industry and CMS to work on a much more reasonable and predictable methodology that adequately measures the impact and transition from old <unk> 60 day payment system with a new PD GM 30 day payment system as well as fully accounting for the impact that COVID-19 has had.
On utilization patient mix and the level of care provided by home health agencies.
Yes.
Based on limited data and information released by CMS to date the.
The proposed cuts to reimbursement in 2023 appears to be the result of a flawed methodology and lack of full recognition of current labor inflation.
Now that the Bill has been introduced we along with the industry will continue explaining to staff and members of Congress the impact of the proposed cuts on home health agencies patient access and the need to pass this legislation by the end of the year.
With that let's jump into the segment performance and we will start with home health.
For the quarter home health same store total admissions were flat lower utilization of home health benefit largely driven by less total discharges to post acute settings, coupled with elevated utilization of telehealth and in some markets clinical staffing challenges impacted our ability to growth during the quarter.
On the quality front I am excited to announce that for the October 2020 to preview our home health quality of patient care Star score is 449 stars with 100% of our care centers, reaching four stars or greater.
Quality has been and always will be core to all we do at our medicines and this continued improvement is really something all of US here at <unk> are proud of.
For the quarter, we performed $13 two visits per episode up point to visit sequentially and down one visit year over year.
Our implementation and utilization of Metalogic has helped us to continue to make progress optimizing the care, we deliver to our patients.
While constantly focusing on improving our quality scores.
On clinical mix in Q2, we achieved 48% LPN utilization and 53% PTA utilization.
We have made tremendous progress on our clinical mix and we will continue to increase our utilization of both lpns and ptas throughout the year.
However, as we optimize visits per episode, increasing these percentages becomes more challenging.
Now moving on to hospice.
For the quarter Hospice same store admits grew 6% and ADC was slightly positive at <unk>, 2%.
This represents our first quarter of ADC growth since Q3 of 2020.
Additionally, we saw a two 5% sequential increase in ADC.
Continued progress on the ADC front will help to drive performance in the second half of the year.
As we continue to focus on both admission and ADC growth, we're going back and being more targeted and where we're adding our BD reps are.
Our focus is shifting away from simply growing our head count to driving productivity as our risk move throughout the tenure bands.
Also adding to the improvement in ADC has been the normalization of discharge is as a percent of ADC.
As we discussed in our Q1 call discharge rate peaked at 39% in January and has sequentially improved versus our internal modeling since that point.
To quantify how impactful discharged has been to our performance had discharge rates mirror 2019 and experience.
Year to date June ADC would have been 874 higher resulting in an additional $29 million in revenue and $20 million in EBITDA for the hospice segment.
Now I would like to discuss <unk> performance during the quarter.
We continue to be pleased with the progress Contessa, our higher acuity segment is making as its generating meaningful growth in Q2 and positioning yourself for material ramp in both admissions and revenue for the second half of 2022.
Total admissions in Q2 for hospital and sniff at home were 345.
Representing year over year growth of 35% for contested.
Despite the favorable growth. This performance was behind budget due to delays in closing scheduled partnerships.
This volume represents 35% of the budgeted emissions Miss for the quarter.
Contest is still tracking towards closing these partnerships to eventually bring this additional volume on platform.
Contestants palliative at home model continues to demonstrate strong progress and momentum evidenced.
Evidenced by hitting 131% of budgeted engaged member months in the second quarter.
The volume softness catastrophe experience on hospital at home and significant home models was partially offset by business continuing momentum towards increasingly favorable reimbursement mix.
In Q2, Contessa had 30% of episodes at full risk and 70% as limited risk compared to 21% and 79% respectively. At the end of last year.
Contessa continues to focus on finalizing health plan contracts with managed care organizations to shift volume into the full risk bucket.
Contessa continues to demonstrate strong abilities to manage medical spend through its clinical management of patients admitted onto its programs.
For a third straight quarter, we saw favorable direct MLR performance relative to expectations, largely due to high quality outcomes, which resulted in patient satisfaction approximately 90% for.
For the quarter segment EBITDA on a consolidated basis was a favorable to budget by 5%.
This was driven by appropriate cost control measures at the corporate level.
While volume was behind for the quarter Condesa made meaningful strides in two key areas to bridge the gap to meet target metrics for the year.
Contessa accelerated business development efforts by launching its previously announced partnership with Penn State Hershey.
And in mid June closing, two additional partners partnerships with marquee systems, Baylor, Scott <unk> White health and Memorial Hermann Health system.
We expect these systems to be operational by year end.
Secondly, we continue making progress on integrating the nursing function into our medicines home health operations as opposed to relying upon third party home care agencies.
This places the responsibility of recruiting and managing the nursing staff necessary to accept all referred patients squarely in our control.
As of the close of Q2, Contessa Hadfield, 81% of required nursing staff thus.
Thus, increasing the team's ability to meet targeted emission metrics.
We anticipate having this integration completed by August one.
The one year anniversary of closing on the acquisition of Contessa.
We are confident Contessa, we'll continue making significant progress with more partnerships as we close out the second half of the year, both with health systems as well as health plans that are interested in direct relationships.
In summary, I am proud of the results we produced during the second quarter of this year.
Though the environment and markets we operate in have changed we continue to gain share.
Oliver the highest quality care and differentiate ourselves.
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 Scott.
Thanks, Chris for the second quarter of 2022 on a GAAP basis, we delivered net income of 91 per diluted share on 558 million in revenue.
Revenue decrease of $6 million or 1% compared to the second 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 side.
Slide 14 of our supplemental slides provides detail regarding these items in the income statement line items each adjustment impacts.
For the second quarter on adjusted basis, our results were as follows.
Revenue increased $9 million or 2% to $566 million.
EBITDA decreased $9 million or 11% to $74 million.
Excluding the acquisition of Intesa. The EBITDA decline was $2 million decline in our base business was largely driven by the partial return of sequestration and lower volumes.
EBITDA as a percentage of revenue decreased to 190 basis points to 13, 1%.
Excluding contessa EBITDA as a percentage of revenue declined 40 basis points to 14, 6%.
<unk> decreased 22, or 13% to $1 47 per share.
<unk> drove 18 cents of the decline.
Sequentially EBITDA increased $8 million on a revenue increase of $21 million growth in volumes and the closing of two acquisitions offset a partial return of sequestration, which was a negative impact of $4 million.
While we are encouraged with our sequential improvement Q2 volumes are below our internal expectations.
Now turning to our second quarter adjusted segment performance keep in mind segment level EBITDA as pre corporate allocation.
In home health revenue was $349 million down Onemain from prior year, which includes $14 million from our Q2 acquisitions and a $4 million impact related to sequestration.
Revenue per episode was up $2 or 2% as a result of a three 2% increase in reimbursement, partially offset by the reinstatement of a sequestration at 1%.
Visiting clinician cost per visit is up 6% year over year and flat sequentially.
<unk> declined, 7%, which offset the cost per visit impact, resulting in a cost per episode decrease of 2%.
The increase in cost per visit was driven by planned wage increases which were effective August one 2021 sign on bonuses wage inflation, new higher pay visit mix and an increase in salary employees.
G&A increased approximately $7 million, mainly driven by our Q2 acquisitions, which added $4 million. The remainder of the increase was driven by planned wage increases additional BD resources and higher travel and training costs.
Segment, EBITDA was 72 million with an EBITDA margin of 21% EBITDA declined $9 million on lower than anticipated volumes.
Pact of episodic payers shifting to per visit contracts.
Short term sequestration and races.
Sequentially segment, <unk> was up $1 million on a 13 million increase in revenue, which is net of a 3 million impact from sequestration.
Now turning to our hospice segment results for the second quarter revenue was $198 million up $7 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, partially offset by the reinstatement of sequestration.
Hospice cost per day increased $2 88.
Primarily due to raises wage inflation and sign on bonuses.
EBITDA was $42 million up approximately $1 million G&A.
G&A increased two mandated planned wage increases higher travel costs and the rollout of Metalogic smedes.
Sequentially segment, EBITDA increased $5 million on a 5 million increase in revenue the sequential improvement in revenue and EBITDA was driven by a two 5% increase in ADC.
Both the revenue and EBITDA increases of net of the $2 million sequestration impact.
Turning to our total general and administrative expenses on an adjusted basis total G&A was $182 million or 32, 2% of total revenue up 150 basis points.
Mainly the Contessa in a recent home health acquisitions, which added $9 million and $4 million and additional G&A respectively.
Excluding <unk> and our home health acquisitions, our G&A is down $1 million over prior year.
Sequentially G&A is up 3 million however, excluding our home health acquisitions G&A is down Onemain.
For the quarter, we generated $57 million in cash flow from operations, our net leverage ratio at the end of the quarter was one five times.
During the quarter, we spent 17 million on stock buybacks, we have 83 million remaining under our previously approved buyback authorization.
Turning to M&A as stated in our last earnings call, we have signed and closed out the evolution of assisted care acquisition of <unk>.
<unk> remains full with both home health and hospice acquisitions, and we will look to deploy capital opportunistically throughout the remainder of the year.
That said until we have better line of sight into 2023 home health reimbursement I'd expect M&A to be slower to materialize.
We are updating our 2022 guidance of revenue given the volume impacts in the first half of the year.
Reiterating our EBITDA and EPS guidance ranges, which can be found on page 16 of our supplemental slide deck.
New revenue guide is 229 billion at $2 31 billion.
The volumes in both home health and houses have been slower to return than original modeling, we have significantly outperformed from a cost management perspective.
Continued progress in both total emissions for home health in ADC for hospice along with decelerating.
Losses of Intesa, and our continued cost management I think our previous stated guidance ranges for EBITDA and EPS achievable.
As we move from Q2 to Q3, we will see impact from normal seasonality items, such as an increased health and increase in health costs of $3 million to $4 million.
Our annual rate cycle, which is effective August 1st with an expected impact of $5 million.
One additional holiday totaling $2 million.
And for this year, we have the additional negative impacts from the China full sequestration of $4 million.
And $2 million related to convenience.
This ends our prepared remarks, operator, please open the lines for questions.
Thank you.
We'll now be conducting a question and answer session.
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Thank you and our first question comes from the line of Brian <unk> with Jefferies. Please proceed with your questions.
Hey, good morning, guys.
I guess my question for you.
In the past.
Composite you've talked about.
Got it got it.
Yes.
Yes.
Great.
David.
Moving on to the line of Matt Larew with William Blair, We've lost a previous caller. Please go ahead Sir.
Okay. Thanks.
Hey, good morning.
Just wanted to ask about gearing.
Relative trends in May.
Okay.
Scott could you just kind of remind us or level set us with where.
Margins today's set for.
On the MH side private episodic relative.
Well take care fee for service and then maybe where some of the bank.
Callouts or other than the rate maybe that's something.
<unk> driving those differences in margins.
Yes, Thanks, Matt.
We're still in that kind of 25% to 30% with some decent movement on the and I would like to see the rate get better but it is moving that way I think some of the other relationships in some of the other.
Even on some of the convenience, we're getting some better rates. So we expect to see that over time improve as we shift.
But certainly that's still some some ground for us to cover <unk>.
Order to decrease that differential because it's still significantly different where our margins are as we talked to episodic visits visit margins have been expanding really pleased what's going on there with a rate increase plus a decrease in really our cost per episode, So nice things there, but youre still in that 20 to 30 versus.
The mid mid forties.
So the higher before you consider some other.
Costs related to Jose.
There is a gap to cover.
Hey, Matt It's Chris I would add that we do have some new contracts that have come online recently that are going to drive better margins also we've been talking about some new payment models. We've been working on was hoping to have something announced by today, but we literally with one of our two one of our biggest plans top five plans that we do.
Business with where we're pencils down on a on a new payment arrangement a case rate arrangement just waiting for <unk> to get on the paper before we can talk about it. So we expect to have something to announce really soon on that that's going to allow us to actually expand some of that margin and the last thing I'm going to say is on the on this point is that we have.
We have a broad pretty broad range of payment arrangements on a per visit Medicare advantage and we're actively going through portfolio managing that those those contracts and we're going to be exiting <unk>.
Contracts that really just don't make economic sense for the organization. So we expect to see that result in some margin expansion on that per visit business and we will call out some of the some of these older.
Older contracts that are just not covering our cost of doing business.
Okay. Thanks, that's helpful and then Chris.
You said I think telehealth.
Headwind to utilization I was curious.
First time members.
Give us a sense for how thats.
Hey.
Appearing.
I think at times, when we bought it potentially could be complementary or even extending some of your capabilities could you maybe flush that out a little bit then I think you have a sense for how youre thinking about.
Hello.
The broader context of home health long term.
Yes, so during the during the Phe, it's actually working to our advantage in terms of facilitating patients getting on to service and having face to face is being done by telehealth. So thats not what were referencing were really referencing kind of the fact that our.
Our demographic ARPA age population that we serve they are not going in to see their physician face to face oftentimes. They are being this is being done in video and telehealth wise and there's just we feel like theres missed opportunities to identify the need for home health <unk> hospice care.
They are not havent head to toe assessments that are not listened into loans, we're not looking at a range of motion.
And just as not as thorough of an assessment when it's happening in telehealth and in this day and age also if they are symptomatic at all they are definitely doing about telehealth and we so we feel like thats driving down utilization a little bit of home health.
Notice with physicians that we have strong relationships with that have not had a change in their actual patient mix are seeing different behaviors in terms of their utilization and it's not a loss of market share. It's actually just less utilization of home health that we're seeing right now.
Something that we think we need to solve for and we will but that's kind of one of the I think unintended downsides.
The proliferation of <unk> today.
Okay interesting.
I'll defer to others.
Yes, thanks, Rob.
Thank you. Our next question is from the line of suggestion <unk> with Deutsche Bank.
Pardon me that's coming from the last question comes from the line of Brian <unk> with Jefferies. Please proceed with your question.
Hey, Thanks for letting me back in the queue Chris.
Sorry about that what I was asking earlier.
Past few conferences that you attended you've talked about Medicare advantage.
Part of the strategy that the new growth.
Maybe there's a little bit of a pivot there.
Good to hear your thoughts.
You articulate that here the strategy David Thank you and thank you all.
Thank you.
The update on the contracts that you've alluded to.
We are losing some of the reimbursement rate basis. Thank you.
Thanks, Brian .
Okay.
Number one you look at the Medicare fee for service population is declining topped out around $39 million now starting.
Decline in Medicare advantage penetration at 53% and accelerating.
This is where we knew the puck was going this is a lot of the rationale behind us acquiring contessa and now on the home health side, it's really kind of driving a little bit of a pivot in strategy for us is how do we lean into.
Medicare advantage in a way that it is not a vendor payor relationship it's more of a partner relationships. So that we can.
Have kind of the economics as well as the dynamics that make us want to take more of that business and drive.
Drive more volume.
And utilize our capacity more towards that business at the same time drive up quality.
And drive value proposition for the plans and so what we what we have China has started to really settle in on US a case rate model, where it really removes the need for convenient or to control utilization management of the business that we do day in day out it allows us to use the tools that we've been using and PDGF to optimize our.
<unk>.
To use those tools for this for these Medicare advantage patients, we feel like that will actually unlock additional capacity with our existing clinical staff and if we have a fixed rate on the per admission basis than that will actually create a little bit of margin opportunity for us at the same time in.
And that will that will create kind of the motive motivation for us to take that new capacity and actually take more of the members from the Medicare advantage plan, we have a case rate arrangement with so.
In the discussions and where we've gotten to today. It really is something that will lay out.
And create value for the planned economics from the plan very similar to what the <unk> are generating today, but also unlock additional capacity for us to take more of their members and it will also remove some barriers from us.
Unnecessary and just hindrances today in terms of the utilization management, which we can do ourselves and allow us to actually see better better margin expansion on that and lean into that growth.
Thank you.
Our next question comes from the line of Justin Bowers with Deutsche Bank. Please proceed with your question.
Hey, good morning, everyone.
Just trying to get a better hey, guys.
Can you help us understand some of the.
The utilization dynamics, you're seeing across both segments and then.
The change in the revenue outlook is it was it concentrated in one area or another.
Or is it split between both segments.
Yes, so starting with hospice. If you think about we saw elevated discharge rates in the first quarter that put us behind on census, and our called out that if we had 2019 discharge rates, we'd be sitting on about 875% or 874 more patients.
Today, which we completely changed the outlook for the top line outlook for hospice.
And the profile of <unk>. So as we started the year in the hole and start to climb out of that from an ADC perspective.
That builds in terms of pressure on the top line for the back half of the year.
We moved into growth in hospice in the second quarter slight growth and we expect to continue to accelerate that growth through Q3, and Q4, but we just can't make up the ground that we lost in the first quarter. So.
That was driving down.
Driving down the topline on the hospice side on the home health side.
Similar dynamics as well, we're seeing softness in utilization on Medicare fee for service for.
For home health, but we're also seeing record demand for our Medicare advantage, which actually drives lower topline opportunity, but growth opportunity, but it's going to be impacting the top line. So we had to adjust for that in the <unk>.
Second half of the year as well.
We have data that shows that even in that Medicare fee for service population utilization of home health has declined from eight 8% of members using home health in the course of the year in 2019 to eight 1% in 2021 and still looks like it's declining further today. So.
Is this shift that's happening it's going to Medicare advantage, where we're seeing record demand for our services.
But it's also coming at a hit to the topline. So all that being said, it's equal parts, it's just pretty much equal parts adjustment down.
In hospice and home health.
Really related to how we how we've worked through the first half of the year, we feel good about what we have out there in the updated guide and the last is we didn't adjust down any on the contessa on the contest the topline.
Okay got it.
Fee for service dynamic is partially what you.
Related to what you were referring to in Matt's question around telehealth.
Yes.
Exactly.
Okay, Okay, and then for the full year outlook, you guys had a b.
Yeah.
And there was some confusion around it.
Around the accrual there but is the way.
In terms of the back half outlook, you had to beat in the first half.
You are having somewhat increased pressure lower demand.
On the topline, but better cost control.
So those are those kind of make up the gap and enable you to keep the full year guide.
So that's part one and then part two.
With the.
Does he pick audit is there any remaining potential.
Outstanding.
I guess liability.
Or is this is this kind of like maybe the last rule.
Or is this issue been resolved at this point.
Yes, I'll take that.
Starting with a contingency accrual so that goes back and we've got a full disclosure in our 10-Q been around for a while so based on the 2015 acquisition of <unk> in 2017, we initially booked on accrual versus in our assessment I think it's in the.
Gross numbers around $26 million, we get an indemnity in somewhere around 11% against that so that's all been recorded for a while we thought this all the way through the ALJ, We got ALG J findings on two different provider numbers impact that we got those couple of weeks ago.
So we ended up having to adjust the accrual based on one I did not break the extrapolation, which is what we're fighting for and two we did not win as many claims that we thought were to reassess as the amount we have not gotten the final letters around this so that's our estimate of where that is it could be a minimal movement. There. So thats kind of whats in that large number.
Also there is an interest component to that you noticed in our adjustment is about $4 million. We were forced to go back and accrue interest back to that 2017 days. So thats why its such a sizable amount. So I think we pretty much have made a pretty good a termination of it we have to make some decisions are still one more layer we can.
Go ahead and pushed.
Pushed against US if we could win some more of these but we've got to make those decisions I think we're pretty close as far as the first half the second half.
We did 140 in totality here certainly pulling down.
Volumes going into the second half does put pressure we've done a great job on cost I think what I'm. Most excited about it if you look at both both sides of the business.
From a from a margin perspective, they are performing very well at the gross margin line home health is only down 50 bps. Despite the 80 bps impact on lives and sequestration and still some pressure on the softer episodic volumes. So really good performance. There. So that's really helping us lean into the rest of the year similar in hospice, it's actually up 20.
Bps on a 70 bps impact from.
Sequestration last so those dynamics are helping feed into the actual what we think we can drop from EBITDA.
So we think we get to everything to the midpoint with another 140 I do think there is a step down as we move from Q2 to Q3 relative to normal normally we see about a $5 million decline from Q2 to Q3, when you take out some of the Covid years that were abnormal and that's driven by we give raises in Q3.
We have higher health costs in Q3, and there is an extra holidays, you've got those normal trends and this year we're introducing.
About another 4 million relate to convene I'm, sorry related to the sequestration gone back and play another.
Another $2 million, because convenience, which doesn't really better than that 14, we'd called out to date, but there is still incremental to launch from Q2 to Q3.
There's another million related to kind of additional raises above what our normal trend has been so combine that with about that.
Normal five plus seven I, just called out it's about a $12 million directional number into Q3, and we expect to build that as our hospice since.
<unk> continues to grow and then now the good news around the hospital the hospice rate Finalization of about 110 bps better than we thought that's going to be a $78 million. Good guy in Q4, and we've got some other cost initiatives that really help stamp that up in Q4 as well. So that's a strong exit rate Q3 has been traditionally.
More difficult quarter for us.
Understood I appreciate all the detail on the cadence and the <unk>.
Questions I'll hop back in queue.
Thanks Joseph.
The next question comes from the line of John Ransom with Raymond James. Please proceed with your question.
Hey, good morning.
Okay. So let's.
Let's just talk about Contessa.
You put out some projections when we bought the asset.
$2 50 for it.
<unk>.
Currently about those projections.
Where are your market valuation.
Yes, we still feel good about the acquisition and the acquisition price. We do have some learnings that we've talked about in previous quarters, Thats still persist, but we're actually seeing them improve part of it is really kind of within our control and that's our ability to staff. These these admissions as they come in.
As a reminder, in Q1, we were only able to staff about half of the admissions we had about a 50% conversion rate.
And the other 50% was what we call ancillary misses and that was due to our stable of acute care rins that dropped through Q2 to about 30%, So a 70% conversion rate.
And we exited the quarter, even better so we had our best month in June in terms of our ability to staff the volume that's coming in so that's with our existing.
<unk> is the volume and demand is still there and it's still strong.
And it's in line with what we were expecting what we've modeled out now what also we're learning is getting deals online has taken a little bit longer and I think part of that is the complexity of the deals that we're talking about today versus what <unk> had in the pipeline at the time, we acquired them.
If you think about.
Contested doing just a hospital at home joint venture with a small system more regional system.
And utilizing contract home health and hospice business to be able to staff the care in the home.
The deals were pretty simplistic.
Types of deals we're talking about now because of our experience operating as operators of home health and hospice are getting more comprehensive to include actually putting the.
The hospital owned home health and hospice business is in the JV as well as ours. So it's taken a little bit longer to get deals done.
As well as we had some regulatory delays.
Particularly on the New York deal that we lost a quarter on in the first of the year. So if you normalize for all that were in line with what we had.
Laid out for this year as well as our growth trajectory now to put rocket fuel and all of it is if you think about.
The risk based.
Programs that were we're really close to being able to announce.
And having a statewide.
Fully attributed at full risk model out there.
It's going to drive significant upside on the topline and we still think we will have enough of that show up in 2022 to keep us in line with kind of what our topline projection of our guide was for this year. So.
The end of long and short of it is is we think we're still going to hit that number is going to be a little bit different mix between the palliative versus the jv's, but also we have additional JV is coming online this quarter.
It's scheduled to come on in the fourth quarter as well that we think we're going to have a really nice exit trajectory.
Okay.
Just a follow up on the Medicare advantage question.
Is it reasonable to expect that Youll Hall.
Thanks rate deals done by the end of the year with.
At least two or three players.
I know the timing is slipping.
We had originally hoped but what's what's a realistic expectation.
Between now and the end of the year.
What percent of your kind of comp.
Your card visit based.
Revenue what percent of revenue will cover by the end of year with some of these contracts.
Yes, I would be John honestly, I'll be shocked and surprised if we don't have it announced by the time, we announce Q3.
So the end of the year I feel very very good about.
Think that we'll have one we're talking about in the coming weeks.
And two two of these contracts, we're talking about three different unique contracts, we're working on today and I am confident in all three of them by the end of the year, but even if we get two of them two of them comprise about 60% of our per visit business that we do today and that's about 10% of our total home health revenue.
<unk> that.
We're looking at today would be under these unique new new payment arrangements.
And so I guess just.
Thinking about logic, we would just think about the big M&A Theres three big players. So I would think you'd tried to go she does as far as possible.
Regional Blue Cross plan or something so that and then do you think the Domino's will fall if you can knock down the big three do you think.
Some of the Domino's will follow some of the other plants.
Yes, because I think we're going to execute towards the plans are going to be very happy and we're going to see.
Then we're going to want to take more of that business. So.
Our execution is going to.
In my opinion determined whether or not other plants are going to fall in line.
Alright, thank you.
Yes.
As a reminder to allow as many as possible. We ask you. Please limit yourself to one question.
The next question comes from the line of Matthew Borsch with BMO capital. Please proceed with your question.
Okay.
Hi, Thanks for taking my question.
Rossi here filling in for Matt.
Just quickly following up on the sizing that you just mentioned you talked about the 60% of your total business could you convert that into maybe your EMEA volumes as well.
So.
Can you repeat the question I want to make sure I get it right.
Youre talking about 60% of the business.
Impacted by these new contract negotiations, including 10% of revenue in home health could you just maybe translate that.
I may volumes across that segment.
Yes, so I think I'm going to get to get to the answer Youre looking for and just ask further but basically right now.
In our home health business.
Business, 20% of our revenue is in a per visit arrangement.
We have.
We have contract on the table that we're trying to get executed with plans that comprise 60% of that 20%.
That will be paid in a more of a per case by case rate basis.
As a per visit basis, where we will see opportunity for market expansion.
And margin expansion as well as organic growth because as we unlock additional clinical capacity, we're turning away a lot of business in that in that space today.
We do about 200 in that 20% of our home health business, we do about 200000 visits per month.
600000 per quarter, and we expect that we're going to be able to see that size of our business grow pretty significantly as we come out I hope I hope I got I got to what Youre asking.
Thank you.
Our next question is from the line of Sarah James with Barclays. Please proceed with your question.
Thank you.
If you go back to the comments on <unk>.
Hello Madison.
Impacting demand so should we think about that.
Impacting visits per episode, so people are mixing telehealth with in person or.
There are certain.
Hi.
Patients that can fully shift over to telemedicine and if it's the latter how much of your business.
<unk>.
Matt.
Type of situation that could alternatively, please standby telemedicine.
No. So what we're talking about here is just under utilization of the home health benefit patients that are not getting referred to home health today that would have been referred to home health pre.
The pandemic and the utilization of telehealth. The reason we feel that is is that.
Before 2020 of the pandemic the population that we serve was in a routine of seeing their practitioner face to face two to three times a year and every time that they had some sort of element. They would go in and see their doctor and the Doctor had really had to have the opportunity to be face to face with them do head to toe assessments to also do.
Do other types of testing and diagnostics to determine if possibly home health or hospice could be or should be.
Delivery that they're getting in the home what we see happening now is the patients are not getting face to face with their doctor and we feel like Theres missed opportunities for home health to be ordered by the physician.
And the most.
Most basic ones.
Kind of lay out is that you know.
There is value in listening to somebody's lungs, when they come in for foreign exam, and if that's not happening because youre just doing a through video conference there's opportunities for things to be missed and I actually conditions.
Conditions to actually worsen over time.
Somebody actually getting up and moving around and seeing their gate in the range of motion and things like that from a therapy therapy perspective, doctors use that to be able to determine whether or not they feel like that patients should be receiving home health care. So we just think that this is a new diamond dynamic that's kind of been spun up during the pandemic there is going to not go.
Old way and we just got to find ways to identify physicians that may be utilizing in ordering for home health less today than they were pre pandemic and make sure that we.
We capture those opportunities.
Okay.
Thank you.
The next question comes from the line of a J Rice with credit Suisse. Please proceed with your question.
Hi, everybody a couple of quick questions here.
First of all around.
Contract labor utilization rate I think you are at three 5%.
This quarter, that's down from being over 4%.
Where do you think black can be and are you seeing any easing on the rate itself that youre, having to pay per contract labor.
And any thoughts on how that trends in the rest of the year as well.
Yes, pretty close to where we thought we would exit I mean, so we're kind of in that you said you got that right at three 5% for the quarter.
We'd be happy kind of hitting that three 2% type of range.
As we look across our portfolio. There are some areas of opportunity from a growth perspective that we're really trying to hammer on staffing to help.
In particular, so we may may move that is a little bit in order to take some more business and so we'll see there but.
We stay in that kind of range at three to three five but we'd certainly be happy and keeps us in our modeling for the full year.
Rates are kind of hit and Miss based on some geographies, they softened a bit but really haven't gotten to where we'd like to see them, but I think it's you're not seeing the pressure that you saw before on the rates.
Okay, and then maybe just on the issue of the PDGF I appreciate the prepared remarks around that PD jama potential adjustment.
I guess I would ask.
When do you think.
We'll get the final rule in November we will see if CMS nights an adjustment at the beginning of November and see if CMS makes it adjustment, but congressional action I guess can happen at any time or are you getting a sense of when this all might.
Tom go ahead, if its going to happen and then also on this issue.
I know what the original PD GM rollout.
You guys were able to mitigate a lot of that.
Offset it.
Any early thoughts on if it did get implemented whether you'd be able to mitigate some of it.
Doug.
Cut like that being implement implemented give you more.
Flexibility to go to your workforce or other let's.
And then say hey, we need some help here because of this cut.
Yeah, Hey, a J I'll take the second part and then I'll, let Dave talk a little bit about the activity on the hill kind of our optimism around getting something done with Congress is going to help offset.
Or alleviate ourselves from from the major cut that's on the table today, but.
We already had on our roadmap some some transformation activities in our organization that we feel are really long overdue and it's a lot of opportunity around it and it's around kind of more centralized functions that are being 100% decentralized in the organization today and more automation around some functions that were.
Requiring people to do today, so we've identified.
I spend around decentralized functions in the tune of about $175 million a year that.
Creates a lot of a lot of dependency on accuracy in the field.
Also puts revenue protection at risk if you have inconsistency, there and actually these are duties and functions that can be done in a more streamlined manner.
And so we have been working through some of this in identifying some opportunities over the last year and a half or two years and given the threat of the rate cut we're kind of pulling that forward a little bit there'll be some that will impact actually the back half of this year and a couple of functions that we've already identified and we're able to kind of.
Moving on.
We think long term theres about a probably a 15 to 30 million dollar opportunity just around.
Round automation and centralization of functions that are being done.
Italy today.
Decentralized fashion. So we want we will give more color on that but just know that we've we've been identifying this we're already have some things in play that will be able to talk about later this year and it's going to be an offset.
Either wage inflation that we're dealing with today or potential rate cuts, it's something that we have to do.
Hey, Jason Thanks for the question on legislation, we along with the industry. We're really excited about the developments on the hill, especially the introduction of the Bill in the Senate and I think youll see it in the coming days you will see.
Opinion Bill in the house and I think we've already shared that publicly so.
To answer your question based on our conversations with members of Congress.
Rules not what they contemplated when they voted for budget neutrality in the ballpark and budget for 2018. So we're seeing a lot of support for a three year. Paul is in the application to the budget neutrality mechanism. So really to get exactly to your question I think one of the most likely vehicles.
Our legislation Medicare extenders package, which as you know would be at the end of the year and likely beyond the final rule. So sometime between power. All usually comes out late October November 1st So the extenders package could be after that but that's a very viable and likely vehicles for our legislation.
Sure.
Our next question comes from the line of Ben <unk> with RBC capital markets. Please proceed with your question.
Okay.
Hi, This is Mike <unk> on for Ben just to follow up on the <unk> strategy. How do you think the rates will initially compare with fee for service rates and do you see them converging over time.
Yes, they will it will start to close the gap it will still be less than Medicare fee for service on PD GM are episodic basis.
But what will happen is we will see our actual revenue per visit.
Kind of migrate from around 126 to $128 visit today to get into that 175 to 185 over time.
And also as we're removing some of these administrative hurdles that we have to do on that type of business, we will see our actual margin.
Expand as well from <unk>.
Low 20% to the high <unk> to low 40 so.
And then the last piece on top of that is as we unlock this additional capacity.
We see an additional two to three percentage points of organic growth that will come with that would that expansion as well.
Our next question comes from the line of Andrew Mok with UBS. Please proceed with your question.
Hi, just wanted to better understand how a higher fuel costs are impacting your business you add back of fuel supplement to your adjusted results, but I think you have a mileage headwind.
In your guide for the back half of the year. So what exactly is the fuel supplement and whats the earnings sensitivity to every penny of mileage reimbursement.
Okay.
From a as we change the mileage reimbursement in itself a penny is about $1 million.
So we certainly felt that in our base business through our fleet costs.
With price offers another 800000 in the first half.
<unk>.
Flexing up and now down based on literally.
Tablets were base fuel prices were and where we thought they would be at the beginning of year, So youre seeing that number.
Peak in June and then come back down now gas prices are settling so that number that's not a permanent number that we expect that to go away as things get to some normalcy hopefully sooner rather than later, but we do plan on increasing our normal reimbursement of <unk> in the back half of the year.
So you get a half year that kind of $8 million to $800 million type of impact in the back half.
Our next question is from the line of Tao <unk> with Stifel. Please proceed with your question.
Good morning, and thank you for squeezing me.
In your prepared remark you highlight the quality metrics continued to improve in home health, even though visit per Medicare. So continue to stay at the low level of $15. Two do you think there's still more room to optimize visits.
It will stabilize once labor and Colby disruption side with some more and this is the first part is India.
We can get a visit per case or visits per month, and the new managed care payment model you talk about how does this stack up against the cylinder if people service. Thanks.
Yes, so in terms of I'll take the latter part first is on the visits per episode as we get into the new case rates.
We expect to see.
Visits per admission very much in line with what visits per admission looks like on the Medicare PDGF side. So.
Now, it's a little bit higher.
The linked stay seems to be a little bit longer in that was one of our key learnings out of utilizing metalogic and PD. GM is is that there are visits that we have historically performed that bring no real incremental value to the patient and that's that's the science behind <unk> is getting your utilization rights. So that you are matching this.
As to the actual the care needs of the patient and it's worked well there and we plan on using the same tool in the exact same way as we work through our case rate patients. So we expect that youll see a lot of similarities in the length of stay and the number of visits that a patient is in the case, where it gets versus <unk>.
GM patient.
In terms of business per episode and where we are we said last quarter. We think this year is going to settle out around $13 2 million to $13 three visits per episode.
We're real pleased with kind of where we are right. Now. We're also very pleased with our quality outcomes and now that we have actually 100% of our care centers are legacy care centers at four stars or greater were at an all time low and hospitalization rates 30 day and 60 day.
We're having we're having great improvements on our patient satisfaction scores as well. So we're real happy with where we are we're not going to try to drive. It further I will say, though that the metalogic data suggests there is probably about a half to three quarters of our visit more that could be reduced but we're not aggressively trying to do that our clinicians or are doing it.
Great job of providing excellent quality for our patients and the outcomes are exactly where we want them to be.
Thank you.
Question is from the line of Scott Fidel with Stephens. Please proceed with your question.
Alright, Thanks, Scott Good morning, I, just had two quick numbers questions.
First just just around the adjusted EBITDA add backs have been creeping up the last couple of quarters to around $19 million in the second quarter just interested in terms of how you see those sort of flushing out as we got the back half of the year I know you did sort of quite a few different.
Items related to that.
And then the second one would be just just an updated estimate.
Estimate on the Convenor impact I think Scott had mentioned that you guys can maybe doing a little bit better than that $14 million that you were expecting just interested in where you see that shaking out now for this year.
Yes, it's when they add back yet has to take that we had some kind of unusual items. There in Q3, if you look at that as a Q4 I mean.
Q2, I'm, sorry, if you kind of I think around 15 of the kind of the EBITDA type numbers relate either acquisitions or this.
Tinsley accrual we closed on two deals.
Building somewhere around seven.
$780 million in the quarter. So those are always going to be heightened.
At that point, we had a real opportunity around some back office savings that we took advantage of quickly. So there is some severance numbers.
Not a medicine.
Wiring companies that are funded through that so that's why you're seeing those elevated I expect all of those that tick back down as we move into the back half of the year.
Leslie qualification as we did a large acquisition and you have a lot of integration and acquisition costs, which are very hard to predict and why they they stuck in those lines.
And then I think the other question was.
The containers Scott you had.
Great.
About $14 million, yes, we had signaled a $14 million hitting just reminding people and when we look at that there's two components of that.
Had someone that is moving from an episodic payment to a convenient or even if it was a better per visit rate, which most of them have been and what our traditional 125 ish type of range. We're talking about if youre stepping down from episodic reimbursement Theres a theres a rate hit and then there's a utilization hit that we put in now we've done better on some of the right pieces.
And some of the utilization has not been where we thought they'd be so that's actually I really haven't given a number on that but I would tell you.
Below significantly below that $14 million, we signaled.
There is an incremental $2 million as we go into Q2 to Q3, both rate and utilization driven.
Our next question comes from the line of Whit Mayo with SBB Securities. Please proceed with your question.
Hey, Thanks for sneaking me in I really just have one one question I still struggle a bit with the face to face with the reinstatement of the face to face and.
Can you just maybe share some of the field level strategies that youre, putting around this to prepare I just have really bad acid flashbacks when I think about the implementation of this the first time and I know you guys arent as worried as others, but it just might be helpful to hear what youre doing in terms of reeducation in the field and is there any way you could share what percent of your stock.
<unk> of care, if that's what you want to call it or initiated with an actual physical face to face assessment today.
Yes, so starting with the latter part it's about maybe 10% of our starts of care today are initiated with a virtual face to face versus a physical face to face so I mean.
I think that Thats still significant.
It's a risk for us.
Our strategy is leveraging our <unk> thousand 500 sales reps basically spend time in the physician's offices.
Referral sources offices.
Multiple times a day every day two kind of number one remind them that this is only during the phe is allowed to be virtual and that is going to have to be done.
And the physical format and then.
And then also education educating our referrals and really starting to encourage.
Physical face to face is today versus virtual so that we're moving into it a little bit to the extent that we can so we're already seeing less of a dependency on that.
In a virtual format today, just because we've been encouraging.
US getting back into the routine to go.
Go into senior practitioner in order to be able to comply with face to face.
Requirement.
Thank you. Our final question is from the line of Joanna <unk> with Bank of America. Please proceed with your question.
Hi, This is maybe a gutierrez filling in for Joanna. Thanks for taking the question just a quick one so half the census improve sequentially. What are you assuming for the rest of the year.
We assume for it to continue to grow from where it is.
So we should be in year over year and sequential growth as we as we balance out this year.
We're seeing good stabilization and the discharge rates our medium length of stay has been consistent around 24 25 days for several months now and we've been kind of shifting a little bit of focus away from hospital referrals to two more physician community referrals, which is helping to stabilize that.
To the to the growth so we expect to see sequential growth as well as year over year growth for the balance of the year.
Thank you.
At this time when it comes to the end of our question and answer session I'll turn the call over to Mr. Christopher Martin for closing remarks.
Yes, Thank you, Rob and thanks, everyone, who joined us on our call today.
And once again, thank you to all of our medicines employees, who have helped to deliver another strong quarter of performance.
If everyone stays well and I look forward to seeing you all on the road in the coming weeks. Thank you.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.