Q1 2023 Enhabit Inc Earnings Call
Good morning, everyone and welcome to inhabit home health and Hospice is first quarter 'twenty 'twenty earnings conference call.
At this time I would like to inform all participants that their lines will be in a listen only mode.
After the Speakers' remarks, there will be a question and answer period.
If you would like to ask a question. During this time. Please press star one on your telephone keypad.
You'll be limited to one question and one follow up.
Today's conference call is being recorded if you have any objections you may disconnect at this time.
I'll now turn the call over to Mark Brewer and habit home health Hospice, Chief Investor Relations Officer.
Okay.
Thank you Julianne and good morning, everyone. Thank you for joining and have at home health and hospice for our first quarter 2023 earnings Conference call with me on the call today, Barb Jacobs Marr, President and Chief Executive Officer, and Crissy Carlisle, Our Chief Financial Officer before we begin if you already have a copy the first quarter.
Earnings release supplemental information and related form 8-K filed with the SEC are available on our website at investors Dot <unk> dot.
Dot com.
On page two of the supplemental information you will find the safe Harbor statements, which are also set forth on the last page of the earnings release.
During the call we will make forward looking statements, which are subject to risks and uncertainties many of which are beyond our control certain risks and uncertainties that could cause actual results to differ materially from our projections estimates and expectations are discussed in the company's SEC filings, including the Form 10-K and subsequent.
Early reports on Form 10-Q, each of which is available on the company's website. Once filed we encourage you to read them.
Cautioned not to place undue reliance on the estimates projections guidance and other forward looking information presented which are based on current estimates of future events and speak only as of today, we do not undertake a duty to update these forward looking statements.
Our supplemental information and discussion on this call will include certain non-GAAP financial measures.
For such measures reconciliations to the most directly comparable GAAP measure is available at the end of the supplemental information and the earnings release.
I'd like to remind everyone that we will adhere to the one question and one follow up question rule to allow everyone to ask a question. We have an additional question. Please feel free to rejoin the queue.
With that I'll turn the call over to Barb.
Thank you Mark good morning, everyone. Thanks for joining us.
I'd like to take a quick moment during this nurse's week to acknowledge all our nursing professionals, who provide a better way to care each and every day for our patients families and referral sources and payors.
It is our nurses alongside our other clinicians caregivers and support staff, who deserve the credit for our consistently strong quality outcomes.
Firmly believe care will continue to move to the home and the long range growth potential is significant particularly for the providers that can deliver the high quality care required to help patients remain wherever they call home in a cost effective manner.
Let's talk now about our quarter one results as we continued to make progress in two of our critical success factors for 2023.
Innovation and the recruitment and retention of clinical staff.
We are pleased with the progress we've made in both areas.
The start of the year has been a busy and productive time for our payer innovation team.
Most significant update is our executed agreement with a national payer that became effective may one our branches are excited and ready to accept these patients. They historically had to decline.
In addition to this national payer, we executed agreements with two convenor, so that have national reach.
Of which went effective may one.
We look forward to working alongside these convenor to solve challenges and deliver accessibility for patients for home based care.
The primary role of a convener is to create high quality networks of post acute providers, who can lower the overall total cost of care.
They understand the need to pay competitively for timely access to high quality care.
Our data analytics and strategic finance teams have collaborated to produce information for the field to direct our local teams where to go to drive change and referral and admission patterns towards these new agreements.
I have been traveling with members of our executive team visiting our local leaders to date, we have visited branch operations and sales teams covering 159 branches.
We believe it's important to take time to sit down and be transparent as we present not only how well why we must deselect certain payors and replace them with the new regional and national agreements.
We spend time walking our operations and sales leaders through the impact of not making these tough decisions and how this affects our ability to reinvest in our people and our technologies.
We sincerely acknowledge there is a patient on the other side of these tough decisions, but we remind them we did not create the need for this difficult decision the payers have.
We thank our employees for remaining focused on the quality of care, they provide and remind them to rely on us at the home office to negotiate these better contracts.
We're confident the strong quality outcomes, our clinicians drive, particularly our low readmission rates, which are 360 basis points below the national average, we will continue to reinforce our value to the payers and the convenor.
To put the financial impact of driving this change in perspective for you.
Every 5% move of non episodic admissions under our current average rate per visit to one of our new national or regional agreements improved adjusted EBITDA by approximately $2 million annually.
This is outside any additional volume growth.
In addition to our success with payer innovation, we have continued success with our recruitment and retention of clinical staff.
A continued increase in our full time nursing candidate pool drove 101 net new full time nurses in the first quarter.
<unk> 91 in home health and 10 in hospice.
Our full time vacancy rate improved 50 basis points sequentially decreasing from 24, 3% to 23, 8%.
We are beginning to see the impact of our staff completing orientation and ramping up their patient caseload.
We ended the quarter with only four hospice locations at capacity constraints and 71 in home health.
17 of these home health capacity constraint locations occurred as a result of growth to new census levels.
New positions have been posted in these locations to increase core staffing.
With improved staffing and increasing volumes the teams efforts around productivity and optimization resulted in a two 3% year over year increase in home health cost per visit and.
A 4% sequential decline in cost per visit from quarter four 2022.
For hospice the implementation of the case management model has created an increase in our cost per day year over year. They.
The use of contract labor, while less in quarter, four and additional triage and dedicated on coal resources drove a 1000 basis points of the 13, 2% increase year over year.
Sequentially cost per day increased 4%, primarily due to the impact of the case management models fixed costs that were added in quarter four with lower patient days in quarter one.
We continue to believe these are critical resources needed to drive our recruitment and retention and our ability to accept patients from a more diverse referral source.
I'm also excited to share with you a little about our first in habit employee engagement survey that was recently completed.
76% of our full time and part time staff completed the survey and their response to the question how likely is it you would recommend and habit home health and hospice as a place to work was above national healthcare benchmarks and places us in the top quartile of health care.
Two top drivers of engagement, where the meaningful work that we do and the organizational fit our employees feel specifically when it comes to diversity and inclusion.
We scored in the top 5% of health care on each of these drivers.
With the continued progress in staffing payer innovation and our hospice case management model, we are making additional strides towards our growth strategy.
In March we acquired a home health agency in Evansville, Indiana, and we continue to have success with our de Novo strategy.
In quarter, one we opened two hospice de novo's and have increased survey activity at other sites in quarter, two which is a prerequisite to obtaining our provider number.
We believe we are on track to open 10 de Novo locations this year.
With that I'll turn it over to Christie to discuss our quarter, one results and guidance.
Thanks, Barb consolidated net revenue was $265 1 million for the first quarter down $9 2 million or three 4% year over year. We estimate the continued shift to more non episodic payers in home health and the resumption of sequestration decreased revenue of approximately.
Only $10 million year over year.
While both of these items fall directly to the bottom line adjusted EBITDA, which decreased $21 $7 million year over year also included increased general and administrative expenses, primarily due to increased employee group medical claims and incremental costs associated with being a standalone company.
In our home Health segment total admissions increased one 2% year over year as continued strong growth in non episodic admissions offset a reduction in episodic admissions.
While episodic admissions decreased year over year, they increased one 3% sequentially from the fourth quarter of 2022, driven by our new Medicare advantage contracts that pay episodically.
This represents the first episodic growth we have experienced since the first quarter of 2022.
In the first quarter of 2023, our non episodic visits grew to approximately 29% of our total home health visits.
This represents an approximate 700 basis point increase year over year, and an approximate 300 basis points sequential increase over the fourth quarter of 2022.
We estimate the impact of this payer mix shift with approximately $5 million on revenue and adjusted EBITDA during the first quarter.
As Bob discussed, we are making significant progress demonstrating our value proposition to payers as we negotiate new agreements with improved rates.
Our cost per visit increased two 3% year over year as improved clinical productivity and optimization offset the impact of merit and market increases contract labor and a rise in employee group medical claims the year over year increase in employee group medical claims impacted cost per visit.
But by approximately 120 basis points.
In our hospice segment, we achieved a seven 1% sequential increase in admissions, while our average daily census decreased one 8% sequentially.
This decline in average daily census was the result of an increase in the number of admissions with shorter lengths of stay we had 137 more deaths in the 1% to 30 days in length of stay range than in the fourth quarter of 2022.
This is due in part to our intentional diversification of referral sources and the expansion of the number of our admissions coming from facilities as patients coming directly from our facility tend to be admitted to hospice care later in their journey.
As Bob mentioned the implementation of the case management model is the primary driver of the year over year increase in cost per day.
Similar to the third and fourth quarters of 2020 to our nurse recruitment success resulted in full time nurses, who were not at full productivity throughout the first quarter and increased use of contract labor to keep referral sources strong during that Onboarding period.
We now believe we have full time nursing capacity that will allow us to reduce our use of contract labor and improve clinical productivity going forward.
Our home office general and administrative expenses increased approximately $4 million year over year, primarily due to incremental costs incurred as a standalone company and increased employee group medical claims for the first quarter of 2022, the net overhead allocation from encompass health was $3 1 million.
As shown on page 26 of the supplemental slides that accompanied our earnings release.
For the first quarter of 2023, we recorded Standalone company costs of $5 1 million. These costs include expenses associated with the transition services agreement, we have an encompass health as well as costs, we are incurring to ramp up our team and their resources.
In regards to free cash flow, we generated over $28 million during the first quarter.
Adjusted free cash flow during the quarter benefited from the timing of payroll and a $6 million income tax refund related to overpayments in 2022.
We continue to expect to generate between $49 million and $88 million of adjusted free cash flow in 2023.
Let's transition now to the balance sheet.
Information on our debt and liquidity metrics is included on page 15 of the supplemental slides.
We exited the quarter with net leverage of four two times, our credit agreement requires that our ratio not exceed 475 times.
Our leverage ratio is more sensitive to changes in adjusted EBITDA than it is to reductions in debt.
As we've noted previously the ramp from quarter to quarter in 2023 is expected to be steep.
The strongest quarters of 2022 were in the first half of the year and will be replaced in the trailing 12 month calculation of adjusted EBITDA, but what we expect to be the lowest quarters of 2023.
While net debt decreased approximately $25 million from December 31 to March 31, our trailing 12 month adjusted EBITDA decrease approximately $22 million. This is putting pressure on our leverage.
This pressure on our leverage also constrains our liquidity by effectively limiting the amount we can draw on our revolving credit facility.
As of March 31, we had $107 6 million of available liquidity, including $37 6 million of cash on hand, which we believe is sufficient to support our operations and financial obligations. As a reminder, post our spinoff from encompass health we've drawn on.
Our revolver only one for $20 million during the fourth quarter of 2022, when we funded three acquisitions and made a 15 million dollar deferred payroll tax payment related to cares Act funds.
Through today, we have repaid $10 million of that revolver borrowing and made $15 million and required payments on our term loan.
Our current forecast indicates we will continue to be in compliance with our financial covenants.
Given the leverage pressure as mentioned earlier, we are continually and closely evaluating our expected compliance with the covenants under our credit agreement and we will take all appropriate steps to proactively renegotiate such covenants if needed and when appropriate.
Let's turn now to guidance.
As we stated previously we knew the headwinds in 2023, we're going to be stronger in the first half of the year and we noted the ramp from quarter to quarter. This year would be steep.
Given the increase in employee group medical claims our quarter. One results were just shy of our internal expectations.
With our expansion of Medicare advantage contracts and improved rates combined with reduced staffing capacity constraints, we expect to see improvements in our bottom line throughout 2023.
We maintain our 2023 guidance that includes adjusted EBITDA of 125 million to $140 million give.
Given the slightly weaker than expected first quarter results. The higher end of the range assumes sequential trends in episodic admissions in home health accelerate.
The quick and smooth transition of non episodic admissions to our new national and regional Payor contracts.
And improved clinical productivity and hospice.
With that we will open the lines for questions.
Thank you if you would like to ask a question. Please press star followed by the number one on your telephone keypad.
As a reminder, in the interest of time, we ask that you. Please limit yourself to one question and one follow up question. Thank you. Our first question comes from Brian <unk> from Jefferies. Please go ahead. Your line is open.
Hey, good morning.
I guess, Chris Thank you for the comment on the cadence for the year.
Prove it from Q1, but maybe if you can share with us kind of like where the confidence comes from and your visibility into sequential gains versus Q1, and I know there is seasonality in your business, but what can you tell investors to make us feel.
Third get the same level of confidence that you have to get to the numbers for the year.
Yeah.
So I think it kind of gets back to the closing remarks of my script.
New national contracts that Barb mentioned earlier and that was part of our earnings release as well as the two new Convenor contracts. They all became effective may one.
So we are 10 days into looking at the performance of those contracts and working with our teams to shift.
Those those con.
Contract into <unk>.
Replacing former contractor historic contracts. So it's a little too early to know how quickly and smoothly. We can make that transition as barb mentioned for every 5%.
Current non episodic visits under one of our historic contracts that we can move to one of these new national or regional contracts, that's $2 million of adjusted EBITDA annually now again. It went into effect may one. So you have the timeline adjust that but it's a big it's a significant impact.
And that's before we even focus on growing as a result of those contracts. So that's one of the bigger <unk>.
Drivers of the rest of the year in addition.
Episodic admissions recall that historically, when we had a national contract.
One of the other benefits of side benefits to a national contract is that our referral sources, we become more of a one stop shop for them and so when you go in and say that we can now take these patients. They also tend to provide more episodic patients to you again, because you're meeting more of their direct need so.
That's one of the things that we're focused on in regards to how can we accelerate and continue some of the episodic growth that we've seen thus far.
And then the last factor is the clinical productivity in hospice.
And again as we as we noted.
Hospice has reached a point of staffing capacity that we're comfortable with and believe that we have the full time nurses in place that we need and so we can begin.
Trading out trending down the contract labor as we go through the rest of the year and that's why you see that guidance consideration. We did take that got into consideration up from four to 5% to 4% to 6% for hospice costs per day, but again, we stay comfortable with that knowing that the first quarter included included contract labor usage.
But what we're seeing now is reduction in that and improved clinical productivity given the full time nursing capacity we have.
No that makes a lot of sense and then maybe barb I know in the past you guys have talked about how there is some.
Maybe part of the headwinds.
Volume or admissions as Kelly the decoupling from from encompass right. So as I think about.
A lot of folks are focused on the admissions number.
Maybe if you can walk us through how you're thinking about the trend or how we should be thinking about.
How does that whole situation will evolve over the course of the year and where that bottoms out.
Sure well I think we've racing stability in the the volume that we're getting from the encompass served but it kind of goes to what Christian was just mentioning one of the things that we had our sales team focus on at the end of last year and early this year was going out to all of our key referral sources, which included the encompass are saying what are the other payers that would be helpful for you.
For us to focus on so that we can be a better provider for you a more wholesome provider and so because there are some markets that have a pretty significant local or regional payor that will make a big difference and so the focus on getting onto these regionals as well as the new National I think it's going to help us again be able to go in.
Say, okay now, let us earn more of that fee for service, whether it's an encompass earth earth or another or for other facility that really gives us the ability to go in and be more of a.
Good provider that can take a long list of patients.
All right got it thank you guys.
Thanks.
Our next question comes from a J Rice from Credit Suisse. Please go ahead. Your line is open.
Hi, everybody maybe first too.
Ask about DMA trends I know your revenue per visit was up eight 8% in the.
Current quarter that does not seem like it had much impact from the re contracting you are talking about today.
What do you think the trend looks like for the rest of the year there given the re contracting how quick do you sort of get to a normalized rate with this new national contract.
Also it's not clear to me, where you've not in contract with this.
Payer before and therefore any volume you get from them is incremental or where you're getting just less profitable volume for them previously.
So this is a new national contract I will say that it is one of the top five players and we actually they have lives and all of our markets, but one so there were some out of network or very little that we were seeing in some of our markets. But this is a new national contract for us.
Okay any thoughts on the 888% revenue per visit and how that might trend over the rest of the year.
Again this contract has been in place for all of 10 10 total calendar days not even business days at this point, it's something that we are monitoring we have put the tools the appropriate tools in the hands of our branch leaders.
And regional presidents in the field so that they can find these referral sources on these patients and start transitioning his.
Historic referrals into these new contracts. So we're doing everything we can to make that adjustment as quickly and efficiently as possible, but it's just too early in the timeline until anything at this point there are some branches that will move there are some branches that will move faster. We certainly have some that historically were.
This volume away on a consistent basis that will be quicker for those because they already have referral sources that have needed us to take these patients and then in other markets. We are working with the teams to find the facilities and the physicians that take care of these patients. So that they can go after the business.
No I understand I guess I was just trying to see if there was anything else going on thats, helping on the revenue per visit.
The hospice costs, John John per day, 13%.
And I know you've revised slightly your calls per day assumption for the rest of the year. It sounds like a lot of it is this move to the case management model, but I wonder is there any way to parse out how much is that and when does that start to roll off. So we can get some comfort on reversion to a more of a modest increase number or how.
Much as sort of just the natural trend in the business increasing at this point.
So a J the I'll try to put some color around that the nurse productivity suggests the onboarding think of it impacts of all of this we're nurses are not operating at their full clinical capacity level that was a little over 500 basis points in the quarter. You also had a contract labor that was around 200.
40 basis points impact of that during the quarter.
And then group medical was another 130 basis points of that.
Everything else.
Is that those are kind of the biggest driving factors, but dedicated on call and triage nurses that as a permanent part of the cost structure. Because it is part of being able to have a case management model and to attract and retain nurses and our hospice sector. So that part will stay.
And it will conclude the matter of now that we have as we increased clinical productivity of these nurses and we increased our volume then that fixed cost structure, we will start to come down just like the.
Other areas that you've seen.
Okay, alright, thanks, a lot.
Our next question comes from Jamie <unk> from Goldman Sachs. Please go ahead. Your line is open.
Hey, Thank you good.
Good morning.
Just focusing on the national contract again can you give any details just in terms of how the rate came in versus your expectations to the structure of that contract.
Anything to call out there.
And then secondly on a related note how.
Does this help you in terms of negotiating incremental contracts either with your existing partner in the region.
Negotiation process, there or just accelerating the process around.
Incremental.
Payors.
Sure.
I think first we can't give specifics on a contract, but what I will say is kind of what we've been consistently saying on are either new or renegotiated we are.
Not willing to enter a new contract.
Unless we can get a discount at 25% to 30% or lower on a per visit and on an episodic contract. We're seeing them come in zero to 10% of a discount on the episodic. So that's been pretty consistent on any of the new regional as well as the national and the convener contracts and so then the goal.
As you mentioned is going to be for us to move away from these.
Lower paying historic.
Payers, both national and regionals that have paid us.
With a much higher discount than what I just quoted.
And use that to say we continue to serve those patients. While we are only going to be able to serve those patients. If we can come back and renegotiate the fair rates.
Okay. Thank you.
Just the home health cost per visit trends.
Client from 92 in the second half of last year to 88 can you just help us bridge.
What.
Relief there was an issue.
At a sustainable rate.
For the rest of the year, just any any color on what youre seeing in terms of.
Cost trend there would be really helpful. Thank you.
Yes.
So much of what drove the Q1 costs was an improvement in productivity. So again it is about clinical staff recruitment retention and making them productivity through volumes in the field.
Productivity improved 200 basis points year over year. So that's that's able to offset that.
I think I said in my script that the group medical increased 120 basis points that was impacting the cost per visit as well. So if you take that out and you're talking about a well controlled cost per visit in home health.
Our next question comes from our next question comes from Jason Cazorla from Citigroup. Please go ahead. Your line is open.
Great. Thanks, maybe just a follow up on that question I guess.
Context of the 4% to 5%.
<unk>.
Cost per visit growth I guess are you assuming that accelerates in the back half of the year are you being kind of prudent around your expectations given the backdrop just.
Just given where you are at 1% in the quarter ex those medical claims versus the 4% to 5% just any more color around that.
Yes helpful.
Shortly we are definitely closely watching our group medical costs, because recall that we also noted that in our fourth quarter earnings results as well as the Q1 results.
The other thing that we've also talked about and that is included in that guidance consideration per cost per visit is we recognize that there will be markets, where we have to make market adjustments in order to recruit and retain staff. In fact, we're in the process of doing some of that now.
Again, just in high growth areas, where we believe that we need to make those adjustments. So that's that's one thing that's yet to come and why they got as consideration is where it is.
Okay. Thanks, and then just a follow up going back to the commentary around the new national and regional them. I know you threw out that another 5% moves a 2% benefit to EBITDA, but maybe just can you give us an idea of what a realistic move rigs that could be over time.
How easily could be.
5% of that volume over.
Maybe help size or frame it for us So you have an idea.
Really trying to generate on that front. Thanks sure I will say I think we will have a lot more color on that at the end of the second quarter again with us only being.
10 days into it it is difficult what I would say is that when we provided the tools to the field one of the tools that we did provide was a very quick calculator. If I move X of this two acts of this this is what it does for me at my local branch level. Because there are branches that are going to be able to do this relatively quickly because they've been turning this other payer away.
So I think it is.
It's hard to say from a national level. It is definitely a branch by branch management and again some of these theres more lives available in some markets than others.
So I think we're going to have a much better feel for this company wide by the end of the second quarter, but we have provided those tools to the field for them to realize or if I can move $25, 30% to 40% of my business from X to these new ones.
That makes a significant difference for me at a local branch level.
Okay. Thanks.
Our next question comes from Joanna <unk> from Bank of America. Please go ahead. Your line is open.
Good morning. Thank you for taking the question. So I guess first just a follow up.
On the.
On the M&A book of business and is 5% you're talking about so can you just.
Remind us when we look at your AR and MA.
Book of business.
What percent of that.
Is episodic versus non episodic.
So I would say on a revenue basis. When you look at our payer mix Joanna right now are <unk>.
Of our total Medicare advantage revenue anywhere from 25% to 30, 30% in a given quarter would be episodic and the remainder would be non episodic.
Okay. Thank you.
My other question in terms of.
Your expectations for the upcoming home health proposal Medicare rate proposal. So would you expect to see in that proposal when it comes to behavior adjustment and also recruitment.
Sure I don't think that we would be surprised to see the other half in the proposed rule. So the other half of that behavioral adjustment to come through.
I think we will be surprised if they propose to implement any of that temporary cuts and 24 on top of the other half of the permanent.
It's possible they would lay out some sort of schedule for how it would be applied but I think the industry would be surprised if they were part of.
2024.
There has been a forecast error correction has been requested of CMS. When we look at the market basket rate that was given over the last few years. So that is something that was sent to CMS.
<unk> to the proposed rule go into OMB. So.
You know again anticipate we'd get the other half I think what's going to be critical of what sort of market basket that we get with that.
Thank you.
As a reminder to ask a question. Please press star followed by the number one on your telephone keypad. Our next question comes from Andrew Mok from UBS Financial. Please go ahead. Your line is open.
Hi, Good morning couple of questions on hospice same store hospice admissions were down 11% in the quarter, which I think is the seventh straight quarter of double digit negative organic volume growth. When you take a step back and evaluate that business. What do you attribute the sustained admissions weakness too and when do you think that will start to stabilize.
Especially with respect to the new case management system that you're implementing.
Sure. So I think there is a.
Combination of things obviously some of it has been the staffing.
That really had us not going to as many referral sources as the staffing began to really getting better place in the first quarter. We did increase the sales head count in the field because that was something that we did not.
Actively replace when we had attrition in the past just because it was hard to hire a salesperson to go out there and sell something you didnt have but we do have good sales coverage now in each of our local markets and and again on top of that with the diversification of our referral sources. The case management model was critical to that because if we're going to.
Increase the referrals coming from facilities, we need to be able to take those admissions within 24 hours of getting that referral and the case management model is going to allow for a greater ability to accept those referrals timely.
Got it and then on the patient days in hospice that was down 4% sequentially from the fourth quarter, even though admissions was up 7% and discharge length of stay was up four days can you help us understand what's going on here that would result in patient days down sequentially when the underlying components seem to indicate up.
Thanks, sure and so not only so your points are sequentially I admissions were up and discharges were only up about half of what admission. So one would anticipate that our ADC would grow that really came on the heels of having 137 more deaths in that 1% to 30 length of stay range. So you are right even though.
Our discharge length of stay was up that was more on the heels of long length of stay patients that had had died on service, but when you have this many that that die within that 1% to 30 day Youre not able then to actually see that bump in ADC that you would expect with that admission and discharge a sequential movement.
Got it okay, and I'm, just going to make the assumption that on last year and use that as an opportunity to squeeze in one more.
Your corporate G&A increased $5 million quarter over quarter, and $10 million year over year with all the pressure in the business you are investing in G&A at a time when most of your peers are pulling back can you help us understand why increasing G&A and back office staff is the right investment decisions here when there is additional reimbursement cuts on the horizon.
Thanks.
Sure. So I think that we need to clarify on the back office staffing increase year over year, Andrew that's not us adding head count.
It's us having.
The ability to feel branch director and other administrative members of our back office and the field, meaning we have more people in place and less open positions at this point in time year over year. So I think that's what we're talking about when we talk about the improved back office staffing portion of that.
<unk> medical is playing a significant role in the increase in those costs.
And then of course, the stand up the incremental standalone cost of being a stand alone company are also a factor.
Okay.
Great. Thanks for all the color.
And we have a question from a J rice from credit Suisse. Please go ahead. Your line is open.
With Andrew Sandy might be the last one I figured.
I'm here.
Let me ask.
Actually I'll ask two here too on the Convenor contract.
Can you just walk us through what you think that will do versus the <unk>.
<unk> of having the discharge planner move volume to you what incrementally the discharge planners rely on the <unk>.
So when you think that will provide incremental volume how should we think about that part of your renegotiated contracts and how significant and how quickly it will impact your results.
Sure. So it is different working with the Convenor, So Tom referred to them as benefit administrators, others <unk> just remember their independent companies that do provide post acute services on behalf of the health plan and there are times that theyre the risk bearing providers. So their goal is really to guide care to high quality proven providers, who can load.
The overall cost of care. So they do work directly with those particularly the facilities to help make sure that the patients from that payer get to the right providers. If you think about it historically the PE. The payors have only been focus on kind of creating that network.
Necessarily a high quality network and as fragmented as home health is these convenience have played a role in really going and narrowing down who the patients should go to and so it's really us working alongside the Convenor is to get the patients to our services and then I would just add that it's important to remember.
These are new contracts these are not renegotiated.
We've spent a lot of time talking about the importance of more contracts and improved rates and these convenor contracts as well as the new national payer contract. They are all both of those they are new and better rates.
Okay, and maybe my other follow up would be that.
And I don't know what there is to say about it but I'll ask it.
If you look at the landscape competitively, obviously, you've got it.
And having bought LHC and it looks like Theyre going to continue to buy in the market <unk> got kindred.
Under Humana be enacted now you've got option garen of medicines announcing they're joining up as you guys sort of in the last one of the last people standing that's independent and public.
You mentioned crissy about having to watch your.
Where youre at vis vis <unk>.
Covenants et cetera et cetera.
Okay.
What's the thinking about whether you need to have at some point in the future a big more deep pocketed partner that you are aligned with is there room to go forward and accomplish everything we were trying to do independently.
Have you seen any changes in the market because of some of these deals and willingness to work with you or or availability of deals or whatever.
Well, a J I think it's difficult to speculate on various announcements in transactions in the industry.
We are focused on operating this company and executing on our payer innovation strategy as well as our recruitment and retention of staff strategy.
That's really all we can say about that though is we just don't speculate on those types of items.
More competition for deals or not really about the same as it was six months ago in your mind, well remember that even the investment community.
A lot of information recently on the fact that M&A deal was down significantly in the first quarter of this year the trends have been down.
A lot of that having to do with home health reimbursement uncertainty.
Reports recently that stated that the first quarter of 2023 with the lowest transaction quarter since 2018, and so I think that's important to also remember that the bid ask spread between buyer and sellers are just too high right now.
Okay, alright, thanks, a lot.
Thank you.
We have no further questions I would like to turn the call back over to Mark Brewer for closing remarks.
Thank you so much operator, and we appreciate everybody joining our call today as a reminder, there will be a replay of the call available on our website and we look forward to talking to you in a couple of months when we recap our second quarter 2023 earnings have a great day.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
Second quarter 2020.