Q4 2022 Amedisys Inc Earnings Call
Yes.
Right right.
[music].
Yeah.
Yeah.
Greetings and welcome to the <unk> fourth quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Mr. Nick Muscato Chief strategy Officer. Thank you. Please go ahead.
Thank you operator, and welcome to <unk> Investor Conference call to discuss the results of the fourth quarter and year ended December 31 2022.
A copy of our press release supplemental slides and related form 8-K filing with the SEC are available on the Investor Relations page of our website.
Speaking on today's call from <unk> will be Paul Kusserow, Chairman, and CEO , and Scott Ginn CFO and acting CFO .
Before we get started with our call I would like to remind everyone that statements made on this conference call. Today may constitute forward looking statements and are protected under the safe Harbor of the private Securities Litigation Reform Act.
These forward looking statements are based on information available to our medicines today. The company assumes no obligation to update information provided on this call to reflect subsequent events other than as required under applicable securities laws.
These forward looking statements may involve a number of risks and uncertainties, which may cause the company's results or actual outcomes to differ materially from such statements. These risks and uncertainties include factors detailed in our SEC filings, including our forms 10-K, 10-Q and 8-K.
In addition, as required by SEC regulation G. A reconciliation of any non-GAAP measure mentioned during our call today to the most comparable GAAP measure will also be available in our forms 10-K, 10-Q and 8-K, Thank you and I'll turn the call over to <unk>, Chairman and CEO Paul Kusserow.
Thanks, Nick Hello, everyone and welcome to the <unk> fourth quarter and year end 2022 earnings call. It is a privilege to be back and talking to you all again.
In the few short months Ive been back as CEO I've had the distinct pleasure of spending time in the field with our clinicians who provide the highest quality care to their patients wherever they call home.
What you do on a daily basis is truly inspiring and reaffirmed to me more than ever that the future of <unk> is extraordinary and unique.
Despite a choppy 2022 or 20000, plus associates have successfully steered us to deliver results that we can really be proud of.
As I returned as CEO . The two questions I get are one what's changed and two what are you going to focus on.
Our World has definitely changed there is no question about it as a philosopher Heraclitus said you can never step into the same river twice and Thats certainly the case in our industry. Our world is rapidly evolving, but mercifully the trends are moving towards <unk> and <unk>.
Industries not away from us.
There's a new paradigm driven by consumerism demographics advances in care delivery and cost of driving care into the home.
Various elements of our world are evolving at different speeds regulators some of our Medicare advantage partners are moving more slowly than we would like others are seeing where this is going and are actively innovating with us to meet us where the world is evolving towards change creates opportunity.
Accelerated change creates dynamic opportunity we're in a time of rapid change, hence my excitement and enthusiasm for how we have positioned ourselves and the opportunities that will come.
So what's different first there is a significant clinical labor shortage, especially in nursing co.
Covid did a number on field based clinicians demand is outstripping supply more dramatically than ever. This is likely to continue the winners in our world will be those companies that have the capacity to fulfill the demand.
Our mix of payers is changing.
Medicare advantage is growing faster than fee for service some of our Medicare advantage partners, our enlightened and are working with us to secure the labor capacity. They will need others are trying to play the old game of LOE per visit rates and expecting in an inflationary environment to keep their rates artificially low.
The industry just can't do it neither can wait.
When scarcity increases demand goes up and we are now in a new world, where we must pick which visits we take our won't take we're working through this now giving all our partners an opportunity to understand whats going on in this emerging environment.
Helping drive this change is consolidation in our industry scarcity of supply and increasingly long lengths of stays in hospitals, which are driving an already stretched business into further losses.
Many of our payer partners are talking about increased post acute spend.
Much due to lack of availability in at home care.
We are the most efficient alternative all the post acute options and will increase our share of post acute spend as we move up the acuity spectrum.
Home health and <unk> in particular are the most cost efficient alternative of the post acute options and we will increase our share of post acute spend as we move our way up the acuity spectrum.
Increasingly payers will be coming to home health and we believe disproportionately to <unk> as we are arguably the only company taking true post acute risks so changing times exciting times now.
Now.
How are we going to go out and get what's ours. The answer is for strategic initiatives, which we think will best drive our caregiving and business results. They are one people as I said Luckily the world has changed it's all about recruiting developing and retaining our clinicians which drives our ability.
<unk> to grow and continue to provide the best in class clinical quality of medicine has become known for we are rapidly emerging into a capacity constrained industry. Those that have the workers will wind, where the best but that isn't good enough in this environment, we're going to be better we will continue to be the best place where.
Clinicians want to come and deliver the highest quality care in the home. We're seeing strong results early on especially in recruiting as we double down on our focus here as January was our highest single months of starts in <unk> history.
<unk> growth as capacity becomes a foundational issue we will have to choose our partners carefully. This is a new world for us and we will not be Commoditized, we will drive predictable results and outpaced the industry's growth in both home health and hospice, while managing our precious clinical capacity.
<unk> to make sure that we can take all of the patients that are coming to us as Medicare advantage continues to outpace fee for service growth, we need to align with partners, who can pay us enough to deliver the quality care that's needed for their members next clinical optimization and automation.
<unk>.
We must remove as much of the administrative burden from our care center staff and allow them to build a focused care center culture, where clinicians want to be so that they can provide.
The highest quality care to our patients. These are self initiated efficiency moves it's totally in our hands to drive this initiation successfully which we will do.
And last Contessa are high acuity segment truly differentiates us from our competition, while opening up wholly new markets and growth opportunities in places few if any others can go.
It is up to us to go show you all what this highly innovative asset can be by continuing to grow it and making it profitable high acuity risk based care in the home is the future.
We see the tremendous demand.
Our partners are asking for more and we are committed to giving them more it's a good situation when demand for your product is so strong.
These are the big four that's what we will measure ourselves on we'll report out to you on these measures and their impacts as we progressed through the year now, let's dive a little deeper into each and what you should expect in 2023.
Growth and people are joined at the hip as I mentioned demand for our services is at an all time high while access to clinicians to fulfill this increase in demand has been challenged in order to service. The increased number of referrals, we must have the clinical capacity to do so.
As we continue to dig in our employees into our employees data. We have found that 66% of clinical turnover happens in year. One dynamic we are aggressively changing as mentioned our enhanced talent acquisition team has done a great job.
Bringing more qualified clinicians onboard, but we must keep them. Once they are here in fact from August 2022 through January 2023, we had 26% more nursing starts than January through July of 'twenty, two and January of 2023 was our best.
<unk> ever for overall offers.
So what else are we doing about staffing we are going further in creating an unrivaled people experience here at <unk> by simplifying our administrative processes, enabling our caregivers with tools to make their jobs easier.
Proving our leadership development for our 550 dos streamlining onboarding, our onboarding processes investing in our employees and rolling out an enhanced benefit package, specifically focused on aligning with what is important to our clinicians. The combination of these activities will truly enable <unk> to hold.
Its position as the health care employer of choice. It will decrease our turnover increase our clinical capacity and in turn continue to supercharge our growth we've done it before we'll do it again and we will update you on how we're doing.
Growth has been and always will be a key initiative for our medicines.
Although the way in which we think about growth has been challenging as our markets look different today than they have in the past the demand for our services in home health is at an all time high as patients and payers continue to recognize and demand that more and more care can be delivered in the home.
That is where patients want to be and the costs are less than any other site of care, while we deliver outcomes that are equal and in many times better than institutional care hospice has the same high demand to die with dignity at home.
No that the industry over the medium term should be growing at a mid single digit pace. What has been different for us has been where the growth is coming from historically fee for service has been our main driver of revenue growth. However, as Medicare advantage penetration continues to significantly outpace fee for.
Service growth, we must think differently about how and where we grow <unk> has been at the forefront of working with Medicare advantage plans for the past number of years, we have executed innovative case rate contract with our partners at Cvs and Aetna and figured out ways to work strategically with our Convenor partners and at the.
Same time have taken market share in fee for service we.
We have developed great relationships with some plants, who recognize how our quality and scale differentiates us from our peers that said not all plans are created equal and for those plans that continue to view as simply as a cheap per visit provider and won't recognize that labor inflation is real and try to simply cram lower rates and.
Lower yield utilization on us we will no longer be working with them. We just can't afford to we have a finite amount of clinical capacity and we must be paid in a manner that allows us to provide quality of care with the excellent outcomes of medicine is known for.
Plans do not want to partner with us on reasonable terms, we will have to cancel contracts and defer our capacity to our strategic partners who value our results.
In order to allow our clinicians to focus on what matters most patient care.
Our care center leadership, focusing on building culture that recruits and retains the best people. We will continue with the clinical optimization activities, we rolled out in the second half of 2022.
We want to remove as much of the administrative burden as is possible in our care centers. This will not only drive improved and focused culture, but it will allow us to scale, our infrastructure and a more cost effective manner, while building in yet another layer of efficiency and accuracy across our processes.
To date.
We have centralized our volunteer and bereavement services across our hospice locations.
Our intake functions across home health and we have a number of other pilot set to rollout in 2023 as Scott will discuss the impact of these initiatives will drive nearly $20 million in cost savings in 2023, and we should see another step up in savings as we enter 2024.
Finally contessa.
Our innovative high acuity care acquisition that closed in August of 2021 has not been immune to the impacts of hospital performance and the labor environment that has had.
Effect on health care services.
Though we recognize we are behind our original plan, we are growing nicely and plant fully we have tremendous conviction for what Contessa does where it will take us and the growth potential for its lines of business.
In fact in Q4 total admissions from hospital and sniff at home.
We're 482, representing a 69% growth rate year over year for.
For full year 2022, we treated 607 patients in our hospital and CEP programs, representing a 100 plus percent growth year over year.
<unk> is focused on mining and growing our core partnerships, while executing two to three new partnerships a year.
The patients we admitted to these high acuity models continue to generate positive clinical and financial outcomes, our patient satisfaction remains in excess of 85% and these programs continue to deliver on quality by driving down repeat hospitalizations when compared to traditional <unk>.
Our pathways.
Our ability to reduce patients total cost of care through high touch clinical management continues to track with our expectations for MLR performance. We are also excited with the recent regulatory development in this space as part of the omnibus spending Bill became law on December 29, two.
<unk> thousand and 22 CMS extended the acute hospital care at home initiative until December 31, 2024.
While contest as work began much before the public health emergency the CMS initiative began during the pandemic as a way to address the safe expansion of hospital capacity with this recognition and extended acceptance of hospital at home programs by CMS Our view.
Is that we are likely to see acceleration of the proliferation of high acuity and home programs in years to come.
Lastly, and most importantly.
<unk> been out visiting our JV partners.
The biggest issue they have with US is they want more faster a good situation to be in when your customers main issue is they can't get enough of what you have.
We are focused on scaling our operations up the potential of each of our partners is enormous.
Scott will lay out in our 2023 guidance revenue at Contessa will be nearly $50 million driven by increased volume from our current JV partners New volume from Jbs, We have recently signed but not implemented and may be most excitingly, our new risk partnership with Blue Cross Blue Shield of Tennessee.
To provide palliative care services at home.
This new innovative partnership really showcases the power of our combined.
<unk> and Contessa clinical asset and we are thankful for our partners at Blue Cross Blue Shield of Tennessee, and their desire to disrupt how health care is provided to their high acuity Medicare advantage members.
And our palliative care at home model Blue Cross Blue Shield of Tennessee's members can receive palliative care in person or via telehealth from <unk> as clinicians, including doctors nurses practitioners and nurses at no additional cost we started with a middle Tennessee rollout in <unk>.
<unk> and have plans to expand to the entire state as we prove out performance in the model I am incredibly excited by this opportunity and you all should be expecting more innovative partnerships like this to come in the future.
Much like our core lines of business, our pipeline of future growth opportunities remains strong and exciting we continue to make significant progress in our pursuit of direct relationships with health systems looking for the leading comprehensive care at home partner as well as health plans interested in innovative.
<unk> based arrangements for in home services, including palliative care.
In other news, we announced yesterday that we will be divesting the operational portion of our personal care line of business to House works, a Massachusetts based operator of personal care assets and turning and in turn adding house works to our personal care network.
We continue to believe in the need for and the importance of personal care services as a key piece of whole person care and as such we are committed to continuing to push to grow the utilization of our personal care network as we continue to work on contract innovation with managed care.
Having access to personal care services across our nationwide footprint will be a key value driver our commitment is to contract and build networks with personal care at this point not to own it.
With that I'll turn it over to Scott, who will take us through our Q4 performance and a more detailed review of our operational and financial performance for the quarter and our projections for 2023 Scott.
Thanks, Paul for the fourth quarter of 2022 on a GAAP basis, we delivered net income of $31 7 million or <unk> 97 cents per diluted share on $562 million in revenue rather than increase of 3 million compared to 2021 for the full year of 2022 on a GAAP basis, our net income.
<unk> was $119 million or $3 63 per diluted share of $2 to 2 billion in revenue.
For the quarter, our results were impacted by income or expense items adjusting our GAAP results that we've characterized as noncore temporary or onetime in nature.
Slide 14 of our supplemental slides provides detail regarding these items in the income statement line items each adjustment impacts for.
For the full year of 2022 on adjusted basis revenue grew $25 million or 1% to $2 2 billion.
<unk> decreased $38 million or 12, 5% to $262 million.
EBITDA as a percentage of revenue decreased to 190 basis points to 11, 7% and EPS decreased 94.
To $5 <unk> the.
The key drivers of our decrease in EBITDA with the reinstatement of sequestration during 2022 and losses from the acquisitions, which negatively impacted EBITDA by $47 million for 2022.
Adjusting for these items, our legacy operations improved $9 million over prior year.
In a year with a significant shift in business mix and continued wage pressures.
The fourth quarter on adjusted basis, our results were as follows.
Revenue grew 3 million to $562 million EBITDA decreased $5 million or seven 6% to $60 million, the reinstatement of sequestration and acquisitions reduced EBITDA by $13 million over prior year performing similar normalization I did for full year results and $8 million year over year improvement in legacy performed.
<unk>.
EBITDA as a percentage of revenue decreased 90 basis points to 10, 7%.
<unk> decreased two cents to $1 16 per diluted per share.
Now turning to our fourth quarter adjusted segment performance.
Keep in mind segment level EBITDA as pre corporate allocation.
In home health revenue was $343 million up.
$5 million or 2% compared to prior year.
Revenue per episode was 30 was up $38, a one 3% the increase in revenue per episode. The result of a three 2% increase in reimbursement, partially offset by the reinstatement of sequestration at 2%.
Total same store admissions were up 5%.
Given by growth in our per visit payers.
Visiting clinician cost per visit increased $6 64.
The increase in cost per visit was driven by planned wage increases and.
An increase in salary employees and the impact of lower visits.
G&A increased approximately 4 million, mainly driven by acquisitions.
Segment, EBITDA decreased 4 million to $60 million, which is inclusive of a $7 million impact from the reinstatement of sequestration and acquisitions.
EBITDA margin declined 140 basis points to seven 4% as our increase in revenue per episode and a decrease in visits per episode were not enough to overcome labor pressures and the changing mix of business.
Now turning to our hospice segment results for the fourth quarter revenue was $198 million down $7 million over prior year net.
Net revenue per day was down $1 42 to three 8% rate increase was offset by the reinstatement of sequestration and revenue adjustments.
Hospice cost per day decreased $3 24.
Primarily due to clinical optimization and reorganization initiatives lower staffing levels and lower contracted utilization EBIT.
EBITDA was $44 million up approximately $3 million, which includes which is inclusive of the negative impact of $4 million from the reinstatement of sequestration.
G&A decreased $3 million due to clinical optimization and reorganization initiatives and lower staffing levels.
Our business development strategy of shifting our referral patterns has resulted in lower admit volume what has allowed us to offset some of the typical Q4 seasonality around discharge rates.
We're very pleased with our 220 basis point improvement in EBITDA margin Despite census pressure.
The combination of a fair rate update in our clinical optimization initiatives positions us for strong performance as our census recovers.
Turning to our total general and administrative expenses on an adjusted basis total G&A was 189 million or 33, 6% of total revenue up 80 basis points.
Excluding acquisitions G&A was flat.
Sequentially G&A is up $7 million, driven by higher incentive compensation costs lower gains on the sale of fleet vehicles.
And the seasonality driven increase in health insurance.
For the quarter, we generated $41 million in class so from operations, which includes $27 million repayment to deferred payroll taxes.
For the year, we generated $133 million in cash from operations, which includes both the payment of deferred payroll taxes in the current quarter.
And the $34 million paid in Q3 for the <unk> settlement, our net leverage ratio at the end of the quarter was one five times.
As you can see on page 16 of our supplemental slide deck, we're initiating our guidance ranges for 2023.
Our guidance ranges are adjusted revenue of $2 to four 4% to $2 $2 $74 billion.
Adjusted EBITDA of $230 million to $240 million.
And adjusted EPS of $4 13.
To $4, 36% on an estimated $32 9 million shares outstanding.
Before I go into more details around our 2023 guidance I think it is helpful to remind everyone of changes in our current 2023 outlook compared to our thoughts as we began 2022.
First our expectations for 2023 included a home health Medicare rate update of 2% to 3%, which would've added $20 million to $30 million in EBITDA.
Secondly, we anticipated being further along in our high acuity segment and expect a reduction in EBITDA losses.
Additionally, 2023 will be the first year since 2019 that we will not benefit from the suspension of sequestration or the add back of Covid related costs.
Normalizing for the 13 maintenance sequestration and six meeting Kelly costs resulted in a 2022 starting point of $200.
$43 million as we bridge to 2023.
The sequestration in Covid costs. There are several key factors impacting our 2023 guidance, which are outlined on slide 17, and 18 of our supplemental slides.
These items consist of the following.
Higher than normal labor costs, and enhanced benefit plans, resulting in approximately 45 million headwind keep in mind. Our first half of 2020 through results are impacted by raises given in August of 2022.
And incentive compensation headwind of $23 million continue to mix shift away from episodic payers to per visit resulted in a $14 million headwind.
Other items totaling approximately $10 million such as an increase in the mileage reimbursement rate for our commissions and higher supply and freight costs.
And last to divest divestiture of our PCL line of business was contributed $6 million segment level EBITDA. In 2022. It was budgeted contributed 4 million of EBITDA between May and December of 2023.
We expect revenue growth margin improvement clinical optimization reorganization initiatives at our hospice rate increase of three 8%.
Our key drivers and overcoming the majority of the headwinds.
Keep in mind that while the industry is home health rate update is expected to be at 7%.
Our modeling suggests a flat update for our operations in 2023 <unk>.
As such the net pricing update for the home health and hospice segments for 2023 is $14 million and net of sequestration reinstatement.
Some additional items, which are typical as we move from Q4 to Q1 are the impact of two less calendar days estimates impact hospice EBITDA by approximately $2 million and in encase increase in payroll taxes of approximately $2 million.
So FX, new for 2023, or an increase of $30 million due to 2023 incentive compensation keep in mind 2022 was impacted by performance coming in below plan metrics.
This increase is approximately $2 million higher than prior year.
And an increase of 2 million related to COVID-19 costs, which will be no longer added back.
Additionally in prior year, a sequential change from Q4 to Q1 included a $7 million benefit from the 2022 home health rate update.
Despite the significant headwinds for 2023, the advance for our services remains strong and I am confident that the plans we have in place for 2023 will position us for future success.
This ends our prepared remarks, operator, please open up the line for questions.
Thank you the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time.
Formation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
In the interest of time, we are asking you to please limit yourself to one question again that is star one if you have a question at this time.
Today's first question is coming from Brian <unk> of Jefferies. Please go ahead.
Hey, good morning.
Good morning, welcome back Paul.
Just my question on the guidance Scott I really appreciate all the color that you've given but maybe as I think about the bridge driving.
Any detail that you can give us that would highlight your confidence in that achieve ability of this given kind of like the guidance track record last year and then maybe for Paul how are you thinking about guidance setting this year and what you need to do to deliver and execute on these targets that you've set for for earnings this year.
Yes, I can let me just start off in terms of what our expectations are and Scott has been.
We've been working on this for a long time and really thinking it through its conservative.
We do after his remarks for sure in this environment, but I think what we've done and Nick has been really good helping us with is we're pulling on the right levers. So if we if we do the right thing in terms, particularly in terms of turnover.
Which has a big flow through.
Are able to go back to some of the payers and renegotiate some of these contracts maybe move some to case rate.
Drive down I'm confident we can drive down the contestant losses as we dig in deeper to the clients. So I feel very but im always this way I'm always very optimistic about this I think I think we have a lot to say grace over and I feel very good about it but we do have this is a year of tremendous execution and I.
I feel good about Scott and the.
So I think he is going to drive the results well, so I'll turn it over to him after I set them up for this.
I appreciate it.
Brian It's certainly a lot of thought and a lot of learnings over the last couple of years from a guidance perspective, I think if you look back at and kind of think about how to view. This I would say that I think there is more predictability in some of the outcomes I think there's still a lot of moving parts around mix, we talk about labor, we will still be a challenge.
We are seeing some a little bit more consistency and hospital discharge rates.
The volume is strong from a home health perspective, it would be how do we manage that capacity. So I think there is enough levers and opportunities in the air for US perform I think if you go step back historically and you can get a look at how we've done some things is that we probably were a little bit more aggressive on the topline in the past and left more room on the cost side.
We took a different approach for that we always pull down on costs were significantly under what we thought last year, but not enough to overcome the misses around.
Around the top line. So I think we were.
More thoughtful and gave ourselves more run rate moving into 2023, so I feel good about what we put together, but we're one month in and so far so good.
We'll talk again after another quarter, yes, it's been a good start.
Thank you. The next question is coming from Matt Larew with William Blair. Please go ahead.
Hey, Matt.
Hey, good morning, maybe I'll just pile a couple here on the MH side, one would be just in terms of the Aetna deal. If you could just give us an update on how that has been progressing after the positive update you gave last quarter Atlanta within.
DNA book, I think you'd referenced its about half of that revenue base was in the process of being moved over.
Just either what's contemplated guidance or more what youre expectations are in terms of when asked that piece in Brazil over and Paul is there sort of.
Cut off at some point here.
Are you going to add negotiation button.
Kind of move on to the other business just trying to think about how you are pressuring.
Got the payers to shrink.
Program.
Yes, we've been sitting down with quite extensive maps and again as I talked about in the prepared remarks, we believe that the paradigm is changing and.
I think with the absorption as we talked about last night, there's three traditionally three big players two of them are going.
And so we're up.
Where the big independent one and I think a lot of people are coming to us and trying to figure out how to get that capacity that potentially could be absorbed into the two large MMA players that are going to be taking out the two competitors. So I feel that it's going to be a very very different paradigm with with capacity constraints. So we're at the <unk>.
Table with with all the big payers.
As I talked about we've gotten a lot of anecdotal.
Evidenced that post acute costs are growing up.
Definitely hurt and with some large hospital systems that I've gone to visit that length of stay is a significant problem because of the inability to discharge into the home.
So again thats pushing demand so as the as we are able to secure all the the <unk>.
Big thing for us is securing that labor supply and making sure. We have it and then I think at that than we.
And then we want to go back and start to do our own utilization with case rate like we've been doing with Aetna and then give that back to them in terms of capacity, so and that's going well it.
It's early days, but it's going well.
And we're clearly engaging with the.
The rest of the industry to bring some some.
There is over the line.
So that we can have case more case rate deals versus per visit deals.
I am assuming now.
You covered it.
We see that as an opportunity as we manage it I think one thing as you look at our we've called out some clinical optimization initiatives out there.
Elevation of intake is one item, we did and I think that gives us will give us a better visibility into the appropriate management of our capacity, which will speak a lot into how we.
We deal with the managed care issues going forward. So we think theres a lot of opportunities there.
We expect to be aggressive around the table and get the right rates that we deserve in places I guess, let me just answer your question directly also Matt.
If we can't get better contracts and we have other places to take our business will start to either cancel those contracts and start to move our business. So we've clearly been looking at the maps and studying if we have to get to that level, we'll do it.
Thank you. The next question is coming from Justin Bowers of Deutsche Bank. Please go ahead.
Hey, Justin.
Hey, Paul and team.
So to partner for me one just on hospice it sounds like discharge rates are stabilizing and we know thats been sort of an industrywide.
Issue during the pandemic, but as you look forward to 2023.
How do you parse out sort of your ability to execute versus what may or may not be some lingering structural challenges and the issue.
The Hospice guide and then Scott if you could just help US bridge for Q2 <unk> to 2023 with all the moving parts that would be helpful.
Yes.
Sure, Jeff so from a discharge rate absolutely right. We've seen stabilization around those I think we're seeing it more predictable patterns match up to what they have been historically there just still at a higher rate so that it hasnt exactly return, but I feel like we've got a good line of sight there.
What it has pushed us from an admin perspective.
Is really watching our referral sources.
We ran through some periods, where we had a high high churn in patients, which took a poll toll on our clinicians and we looked at data.
More than six tenths of a month the propensity of turnover is much higher so that became a concern for us. So I think we've gotten more directed and how we really look at our referral sources and as we manage it.
Guidance of roughly a 3% ADC growth that will be a slow and steady style slowed throughout the year, but I think it's achievable and I feel good about what our teams are in place going forward. If we think about this.
Just going to the Q4 to Q1.
Q1 is going to be interesting.
We've always had a talk about year over year and sequestration issues remember, we will still have sequestration and the comps in prior year. So the Q1 margins are going to be the toughest ones because they had a full sequestration benefit in Q1 of last year.
As we think about the walk forward.
It out some items that certainly were impactful and some of them are normal seasonality one around the two days differential in days on hospice was roughly $4 million payroll tax reset is roughly two.
And we do re.
Put back our STI and LTI plans.
That's probably another three so you've got roughly at $9 million noise going from Q4 to Q1. This year is even.
The bigger issue because we have the COVID-19 cost issues coming in that's another million and a half to $2 million, because we will not be adding that back.
And then last year, we had a $7 million good guy.
The rate increase on home health, so that's not going to be here. This year. So last year, we were plus one and a half. So I would say that number is going to be closer to a 50 type of a number and this year when you kind of put all those pieces together.
Thank you. The next question is coming from a J rice of credit Suisse. Please go ahead.
Hey, Joe.
Everybody I might just ask.
As a little bit more on the labor Paul Youre talking about.
We ensure you differentiate yourself and I know one thing you guys have talked about is making sure theres some fuel subsidies and so forth I wonder if you'd talk more in a tight market how.
Our medicines is going to differentiate itself among the labor pool in it.
Get that incremental nurse I don't think its paying more.
And then specifically to understand how tight it is are you turning away.
Volume at this point or are you able to get cover the the volume that you want to get that's coming your way.
Yes, and in certain cases, I'll answer that but we have our fantastic new head of human resources here I'm going to punt to him because he's got all the details which thus far.
Done a great job, but are there are we turning away business in certain markets.
Where we're having a hard time hiring yes, we are we call them tuck in we do have <unk>. So I think the question that I'm always looking within Texas.
There is some I don't mind and there is others I do mind so.
But in general, we're we're pretty accommodating and we make it work because we have a good PRN pool and we can bring that to work, we don't like bringing in contractors to do it but in certain cases, we've done that.
That's what we're trying to do is bring that pool or PRN pools. So that we can take care of it that way, but in general our <unk> are quite under control and only in a couple places I'll turn it over to Adam to talk about how we're doing competitively and why we're going to produce some of the fantastic results. We say, we're going to be yes sure. Thanks, Paul on AJ Great question.
And I'll just highlight a few things obviously on the people labor side.
There's two parts of the equation thats, bringing talent in the door and then it is keeping them here are high.
Delight on the talent side, Paul alluded to January was our best month of offers.
On the clinical side I would just say it was 15% better than we've ever done before and this comes on the heels of a very very strong Q4, as we looked at sort of offers and starts. So this is we're feeling really good about the trend in that sort of highlights to your specific question around how we're differentiating.
There's a few things I'd point to I think in the second half of last year, our talent acquisition team and our operators did a really nice job of operationalized and how we looked at care centers in need so we target where our biggest issues are and really got focused on that and then I would say on the second part is we are <unk>.
Turning up the aperture as we look at pools of talent. The good news for US is there are so many nurses in the U S.
And I think that we've seen that as we've gone through the pandemic that need to look at not just sort of the core.
Home health nurses, but theres lots of incredibly talented nurses in the hospital setting those who have just recently graduated and we've put the support mechanisms in place to have them do really well the last thing I'll highlight on the acquisition side is.
We've made some.
Investments recently from a technology standpoint, it really is putting us at a different level and our ability to find attract.
And simplify the process of bringing in talent. The other side of that equation certainly is the retention side.
Thats always the harder piece I think.
We have continued to be better than our peers as it relates to retention, but we're targeting pretty big numbers in terms of bringing our retention up even higher on the clinical side and there's a few key things I would sort of highlight.
Around sort of really looking at from a focus standpoint operational lies in how we look at our turnover in one of the things I've been really impressed amongst other things joining the <unk> team is when our leaders focus on something and with the rigor that we've always had around things.
<unk> move and the outcomes are there and then again Paul alluded to earlier we.
Did a pretty significant investment around our benefit platform to make sure that we are leading the pack as it relates to supporting our people and the unrivaled caregiver experience and then a lot of work and investment has been put into how we are developing our leaders.
To make sure that that Theyre, taking care of the people in the way that that is deserved it and needed. So those were a few of the things I would sort of highlight as we look at the things that are on our plan.
So you asked Adrian Adam Adam delivered so thanks.
Thank you. The next question is coming from Ben Hendrix of RBC capital markets. Please go ahead.
Hey, Thank you guys How're you doing.
What are your plans for the proceeds from the personal care divestiture, specifically are you earmarking any of that for reinvestment into the PC network strategy.
The other development and then related to that you noted really strong reception among regional PC providers. When you announced that network strategy. Some years ago. I was wondering if you can update us on how that's grown and how impactful that could be as a topline contribution over the long term. Thank you.
Let me I'll start with just the proceed question then let Paul talk a little bit more about the networks from a proceeds perspective, we have a robust M&A pipeline and we're excited to have that we've got some good opportunities ahead of US right now we're sitting on at the end of 12 31, nothing drawn on our revolver. So.
Certainly a lot of dry powder and this would add to it I think the buyback is always something we can.
Think about we have $100 million authorized under from our board of directors. So we can do that but I think our immediate desire would see where we go on this M&A pipeline first I mean interest rates have creeped up where we're sitting at a 5% rate on that.
The revolver at this point, so that's somewhat meaningful so right now, we'll kind of hold it a bit and see if we can get some deals over the finish line or if not when.
We certainly can buy back some stock at an opportune time.
Yes, and Ben good question on the.
On the personal care, we have a network. So we've put that together, we've just added house works who.
The CEO of housework used to run our personal care business. So we sold it back to them. So we're very in a lot of the needs are based in the northeast. So we feel good about that our primary partners are.
Bright star and well Sky.
And so we cover almost all the ZIP codes in the U S. So when we need them, we have been integrating them in it's largely been a we've basically been mainly focused on running the business in the three states we're in.
But we're going to move that and the reason why we think this is the right time to start to move the network.
Particularly with Contessa scaling up.
There's a lot of need for personal care in there, particularly with a higher acuity patient to make sure that they are their activities of daily living are taking care of their social determinants that sort of thing which is what this group is good at so I think we're going to be employing that network pretty heavily through Contessa also as we move into the palliative care business, we do.
Personal care.
I was out visiting some care centers last week up in new England and.
And was just looking at how they were staffing and again I think theres going to be more need for personal care. So we anticipate in coordination with the clinical care that we're delivering both on the home health and hospice side. So I feel very good about how that's going to grow but we built it now.
It's a field of dreams, we built it.
We're going to make sure they come in.
I don't know what were going to be expecting from a top line growth, but this business will grow because we've put together rather unique asset, particularly for our benefit.
Thank you. The next question is coming from John Ransom of Raymond James. Please go ahead.
Hey, John Hey, good morning, good morning team.
Paul when you got back under the Hood.
And look it can test.
Do you think.
The core issue is in terms of it being slower to ramp do you think it's just your hospital partners being more bureaucratic than you thought or is it payers resisting doctors resisting what do you think the real issue is there.
I think everybody loves the idea and I think everybody is addicted to the idea I think once we actually look at the complication of implementing the idea again I went to some big systems and.
Really dug in to see what's going on it's making sure the hospitalists.
The folks running the ours are all bought in reselling reselling reselling.
That said I also think that some of the hospitals are plugged up.
And particularly I think.
Some big benefits for us, though as their length of stay continues to go up theyre going to have to find ways to decant a lot of these patients and push them elsewhere and Thats. What can test is very good at and then we've been talking with them about saying.
If you're really having length of stay issues. These drg's are the ones you don't want to get locked up in the hospital system. So I think a lot of it's working through convincing them that the 111 DRG that we do that we do target that generally are not moneymakers for these hospitals or what.
<unk>.
It's appropriate so I feel good about that particularly with the length of stay pressures on the financials for the hospitals on the payer side.
Well, yes.
On the payer side, they take a while to do risk based programs. They want to look at the corridor is they want to look at our algorithms.
I feel and the Tennessee deal that we just closed and announced that took a year.
And what we ended up with a really good deal.
With the folks, but it was a very fair.
But I think that going through that exercise was good we're going through the exercise with other payers.
Again, the value proposition of contested so good from the perspective of the providers the payers of the patients.
You got a tri factor with that and I think that ultimately is what's pushing contessa through.
But our.
Very clear we've heard I've heard in all 14 partners I've gone to see they want more and so that's what we're figuring out now is how to scale get there faster.
Because I think we've been slow out of the gate.
Thank you. The next question is coming from Scott Fidel of Stephens, Inc. Please go ahead.
Hi, Scott.
Hi, guys. Thanks.
Two quick questions.
First just on can test would be helpful.
You can walk us through the full year loss expectation and then how you expect that maybe sort of trend.
Over the course of the year in terms of the quarters.
And then second just if you've got a view on operating cash flow expectations for 2023.
Yes, sure I'll tell you just from a loss perspective were pretty much flat to where we are this year I think we came in around $30 million EBITDA drag I think that will kind of be in that range again next year.
From a.
Think about the timing of that I would say probably at 54% of that losses will be in the first half.
About 40 to the rest of it the 46% in the back half Youre going to have some early quarter loading around some of this risk from the accounting for it from a risk based perspective, so youll have a little bit heavier cost potentially early on there. So that's what we see that from a review perspective, I think we feel good about how that develops throughout the year from a cash flow from ops, we're looking somewhere around that.
210 to $2 15 type of million dollars number which is pretty strong for us at a decent year this year, even without with.
The payback of the deferred and we had the <unk> payback that I mentioned in my prepared comments.
So we expect another strong year cash flow from ops as we bridge into a year with about to have another 50 million in cash coming onto the sale of PCL was only one five times levered. So.
We would.
Be very excited about getting some of these deals that we have in this pipeline closed yes, we like you want to talk a little bit about the pipeline.
What you are looking at sure I think I think the one thing that really kind of update from our dialogues probably in the past as we've talked a lot heavy heavy on home health. We wanted to do smart home health deals I think one I would say that.
A lot of JV conversations in the pipeline now which is the new and I think intesa is really whats driven that more hospice coming in lately, which has been interesting and I think we're ready to.
That we can get through diligence and has the best States geographic fit geographically will be the one that we get done so.
A lot of great deals a lot of things that have.
That come into play recently, and we still feel very.
Very good to have such a full pipeline, yes, low leverage full pipeline and lower prices. So it's time to go out and buy so we're focusing on that.
Yeah.
Thank you. The next question is coming from <unk> of Stifel. Please go ahead.
Thank you and good morning.
<unk> like to ask about the home health visit per episode that number dip further to $12 five in the fourth quarter I think last quarter you guys mentioned the metrics would stabilize at 13 two to $13. Four is there any structural reason that could keep visitation lower than the stabilized stabilized level.
For longer and what's the what's a good number to use in our assumption for the year.
Yes, I think.
I think the pressure some of the pressure around that is you do see some softer visits and higher loop is coming out of the holiday months into the winter months, So thats coming down a bit step downs, probably not unusual I think capacity issues certainly play into that Unfortunately, we don't like to see that impact care of our patients, but it's the reality of where we are today.
I would expect and if you look at last year I think we were in the 13 ish type of range. I think you would see is probably hover around there I think youll still from a cost perspective will be lower probably in Q1, and it will probably even out but I think can that 13 $13. Two is probably a range that makes sense, but you won't get back there immediately just for the dynamics.
Coming off of holiday months, and so forth in Q1 will probably stay pretty light.
Thank you. The next question is coming from Whit Mayo of SBB Securities. Please go ahead.
Okay. Thanks.
I think Paul one of the reasons that you and the industry have taken Medicare advantage in the past is that your referral sources apps for it. They frankly require you to take it and historically just feels like they've been intertwined to a degree and so how do you rank since the risk that if you go down the path of going out of <unk>.
Work or cutting off MAA referrals that you could inadvertently impact your fee for service to it just feels going down. This path there is risk that the strategy could disrupt.
Overall operations.
How do you think about that.
That dynamic.
No that's a great question.
Thanks, Yes.
Yes, so I've been out obviously I don't want to start to say that.
I am going to start to redirect business unless I go out and figure out what's the people that are directing the business. So I've been out talking to discharge planners case managers talking with our Ctc's, who are in the hospitals talking with the folks who are out there in.
Our account executives are talking to doctors and.
The issue is it used to be as you as you alluded to.
It used to be I'm going to give you a bundle and theres good stuff in the bundle and there is not so good stuff from a business perspective, and you take the whole bundle or you go to the back of the line.
And Thats, how when there was <unk>.
Ample capacity, we took that.
Now you go to the discharge planners and there is just take it whatever you can take take and since our quality is so good we're always at the first to the line in terms of because we've been producing on stars. So I think we can have more serious negotiations with these folks.
And I've talked to them about this.
And I think.
And since managed care is absorbing a fair amount of the capacity.
Sure.
Of our competitors I think that I think that capacity will get steered towards our competitors, which is lower paying business. So I think in general it's going to I think it is again, a new paradigm I think it's a new conversation, we got 850 salespeople, who got to go out and have.
These conversations, but I am comfortable because the length of stay is such an intensive pressure right now I think they just want to get people out of the hospital beds. So I think it's going to move to our benefit again.
It's like in a capacity constrained environment.
Thank you. The next question is coming from Gary Taylor of Cowen. Please go ahead.
Hey, Gary.
Hey, good morning, I had two questions.
First on <unk> I know the.
The last couple of quarters, you've given.
EPS.
Dilution.
It seems like that's running maybe eight or $9 million.
EBITDA loss quarter, and so maybe thats.
Somewhere between 30 and $40 million EBITDA loss in 'twenty, two I just want to make sure I heard that right and then from the third quarter I thought.
I might not remember, but I thought there was a thinking maybe that would improve $20 million or so so I guess I just wanted to.
Get to kind of is that about where you were running and how much improvement is embedded in the 'twenty three guidance for Contessa.
Yes.
Right on top of that we did for the full year to test the lost about $30 million I would say, we're going to continue on with that kind of 30 million type of loss, we think which is embedded in our guidance right. Now do we get ahead of that and outperformed potentially but right now we're considering after the loss perspective flat year over year I think if you go back in my prepared.
Comments, we would've thought I think we would've brought down contessa, probably roughly 10 ish million dollars at the beginning but I think some developments and developments in palliative care as we stand up that program as well as some slowness in hitting some of the where we thought we would be with some other.
JV relationships I think we are behind I think we've acknowledged that but I think we feel very good about where this is headed over the long term perspective, and I think what we've also done is we've brought over some really good new clients that we are.
Our ramping up on some.
Prestigious ones.
Memorial Hermann Baylor, Scott and White University of Arkansas, all doing really interesting stuff. So.
We're going to we're going to jump in on those because we think that one there is a tremendous depth of business that we can go in and have really good contributions.
We've made that choice and I think it was a good choice.
Thank you. The next question is coming from Joanna <unk>.
<unk> of Bank of America. Please go ahead.
Yes, hi, thanks for taking the question.
Sure. So when it comes to your guidance you talk about the 5% volume growth target for home health.
Inside of target what do you assume the Medicare fee for service.
Volume growth to be versus the non Medicare.
Because clearly the Medicare.
The way you disclosed that the Medicare fee for service revenue has been declining.
High single digits.
<unk> very much faster. So that's the first part of the question and I guess, it's tie to my second question on staffing. So do you need to grow your clinical staff. This 5% in home health and 3% in hospice on a net basis to drive volumes and I guess how.
How did you do.
Net staffing.
Last year.
Yes, so first on the growth that we've guided to 5% growth that totally admit growth really didn't give color. We haven't really given a lot of color on Medicare, but I would say that.
And moving that I would say, we'd had some slight growth in Medicare business going forward I think we're being pretty.
Conservative around that number based on what we've seen with enrollment numbers as well as utilization utilization of the Medicare bid.
That said for Medicare enrollees actually came down that back half of the year, which has probably surprised the industry a bit we've seen it as we look at data from our competitors.
Across the board. So we still believe we're taking share even in a market. That's depressed. So we'll continue to do that but that will certainly.
As it develops throughout the year will be something we'll watch closely from a staffing and we're going to have to continue to grow staffing I think.
There are certain markets, where we do have better opportunity on Medicare.
We were probably lighter staffed our northeast region is an area that we have some opportunity. So we're focus and Adam alluded to really haven't sort of focused care center calls, where we really need to get staffing and so we'll continue to do that and we're going to want to one add staff slowdown the turnover and make sure and all these clinical optimization initiatives that.
Our commissions can be as efficient as possible, where we maximize productivity.
That's really our goal for 2023.
Thank you. The next question is coming from Andrew Mok of UBS. Please go ahead.
Hi, Good morning, just wanted to follow up on contest I was hoping you could give us a bit more detail on the financial outlook and timeline. There you mentioned stable operating results I think for 'twenty three from a operating loss perspective, but it sounds like Theres a lot of activity with respect to JV partnerships partnerships. So I'm just curious when the revenue from those JV partner.
Ships will materialize in results and what's the new timeline to breakeven from all of this.
Andrew. This is this is Nick I can tell you that one.
This is one of those questions, we're going to answer with it depends right and I think a lot of that is dependent upon.
Which line of business within Contessa is growing and where the payer interest has been right. So we have our core group of joint venture partners today, where were doing your hospital at home sniff at home.
And we will look to grow that number into the future youre.
Youre going to see some additional volume opportunity within kind of that core business that is JV that we executed but were not implemented in 2020 to come online in 2023.
So that will be partial driver of the topline and then as you can see in kind of the bridge that we laid out in the guide.
The palliative business has the opportunity to grow topline pretty significantly as we get better experience and more experience with that business. There should be some earnings that come along with that so.
You could see some significant step ups in revenue in the coming years specialty land more palliative deals and that's not going to directly result in.
A moderation of those losses, so it really depends on which line of business is growing the fastest.
We continue to work.
Everyday like Paul said with our joint venture partners to increase volume to service their needs.
That that is obviously a cost effective way to help to help impact that loss number I'm not ready to come out and give specific guidance around when we get to breakeven because we need to see how some of these these new contract developments play out over the course of this year.
But as soon as we have better line of sight around that obviously, we will we will let you guys know we do think that as we stated last year, we're at kind of the Nexus from a loss perspective, so things will only improve from here.
But again, it's just going to depend on what those payer relationships look like and what those hospital relationship look like as we as we move throughout 2023 and I think just to add to what Nick said Andrew is.
We palliative.
If we do palliative right. We can we can solve a lot of the.
The loss issues with two or three more palliative deal. So we're out pushing those very hard and having a lot of conversation. So we're hopeful we can do that and again, we've got 12 extremely good partners <unk> 14, all in but 12 really good places to go very deep and continue will continue.
To focus on.
Growing those five to 10 times what they currently are today. So again, we just have to play where we already are and dig deeper.
We view the the opportunity is fairly close at hand, and the other thing is.
These prestigious systems come to us and want to partner with US we believe that we're going to continue to take some.
And then hopefully as we do that we'll get more efficient at getting them up to scale faster than what we're doing now.
Okay.
Thank you. The last question today is coming from John Ransom of Raymond James. Please go ahead.
Hey, Jonathan Thanks for the thanks for the follow up.
Sure.
The connect or an investment I know the hope was to try that.
Integrated gig staffing model inside your home health business.
Where is that going relative to your initial expectations and what are the plans for that in 2023.
Hey, John Thanks for the question.
Yes, I would say when we talked about the connect arent investment we talked about a kind of a two part phase in of how we would utilize their services one kind of using the platform as is to help us find contracted staff in areas of acute need.
Which we did its kind of in the northeast than last year and had a couple of pilots running for specifically at kind of that phase one implementation phase II has always been what I think is the more interesting opportunity, especially as we talk about capacity constraints.
This dynamic of people coming on to serve coming onto too.
<unk>.
<unk> and then transitioning to part time and then the PRN. So we we have a large untapped capacity opportunity within our PRN staff and we are now piloting in two of our home health regions and we'll be rolling this out likely to the remainder of the organization throughout the year.
Utilizing that platform to offer our PRN workflow shifts base labor with the hopes that we get an additional couple of visits out of those those folks are weak.
Like Scott said I think on this call. Those are people that are already credentialed already provisioned they know our system.
No we haven't.
World, where capacity is key if we are able to drive additional productivity out of that group that that's a big offset to potential contractor costs that we see in our cost per visit so that that pilot is rolling out as we speak today I think.
We probably got to this point a little bit faster than we thought we would.
Just kind of given the need and so the connect connect RN team has been.
Credibly receptive and helpful to helping us think through what is what is a very differentiated kind of staffing strategy within home health and we will look to kind of maximize that opportunity throughout the year and just a follow up on Nick John I was out in Wakefield, Massachusetts.
Where we were.
Piloting connect are and <unk> got some direct feedback about how in a very constrained labor environment. It was enabling them to take care of more patients so as well as helping them build out a PRN pool.
So bringing in outside folks as well as taking and making our existing pool more efficient so we.
We feel good about it and thats, the future, particularly as the gig economy kicks into health care workers.
Who want to who want that level of independence is going to be a key thing.
Thank you at this time I would like to turn the floor back over to Mr. Chris <unk> for closing comments.
Well, thank you very much I appreciate it.
I want to thank everyone, who joined us on our call today I would also like again to thank all of our caregivers who delivered yet another great quarter of results. Thank you for all you do thanks for taking care of the patients that really need us. So it's much appreciated.
Like to thank all of you on the phone as well and on the webcast for your interest in <unk> and care in the home and I'm looking forward to seeing you all out there on the road in the coming weeks until then take care. Thanks for listening.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines will back off the webcast at this time and enjoy the rest of your day.
Okay.
[music].
Okay.
Okay.
Okay.
Sure.
Yes.
Got it.
Yes.
[music].
Sure.
One of the.
Okay.
Okay.
It's going to be.
Right.
Okay.
Okay.
Okay.
Okay.
Yes.
Yes.