Aveanna Healthcare Holdings Inc. Q1 2023 Earnings Call
Speaker 1: The this se.
Speaker 1: No.
Speaker 1: I.
Speaker 2: Today's call is being recorded and we have allocated one hour for prepared remarks and Q&A. At this time, I'd like to turn the call over to Shannon Drake, Aviana's Chief Legal Officer and Corporate Secretary. Thank you. Thanks for tuning in.
Speaker 3: Thank you, Maria. Good morning and welcome to Aviana's first quarter 2023 earnings call. I'm Shannon Drake, the company's chief legal officer and corporate secretary. With me today is Jeff Shainer, our chief executive officer, and Dave Aschar, our chief financial officer. During this call we will make forward-looking statements.
Speaker 3: Risk factors that may impact those statements and could cause actual future results to differ materially from currently projected results are described in this morning's press release and the reports we filed with the SEC. The company does not undertake any duty to update any such forward-looking statements. Additionally, during today's call, we will discuss certain non-GAAP measures.
Speaker 3: which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these measures can be found in this morning's press release, which is posted on our website, avianna.com.
Speaker 3: and in our most recent quarterly report on Form 10Q filed with the SEC. With that, I will turn the call over to Aviana's Chief Executive Officer, Jeff Shainer. Jeff? Thank you, Shannon. Good morning and thank you for joining us today.
Speaker 3: We appreciate each of you investing your time this morning to better understand our first quarter results and how we are progressing against our near and longer term objectives for 2023 and beyond.
Speaker 3: My initial comments will briefly highlight our first quarter results.
Gross margins was 144.5 million or 31%, which is essentially flat when compared to the comparable prior year period. And finally, adjusted EBITDA was $28.5 million, representing a 25% decrease when compared to the prior year period, primarily due to the cost associated with the current labor environment. As we have previously discussed, the labor environment represents the primary challenge that we are aggressively addressing in 2023, to see Avianna resume the growth trajectory that we believe our company can achieve.
As a reminder, we do not have a demand problem. The demand for home and community-based care has never been higher, with both state and federal governments and managed care organizations asking for solutions that can create more capacity.
As communicated in our previous quarter, our ability to recruit and retain the best talent is a function of rate.
Our business model offers a preferred work setting that is mission-driven, providing a deep sense of purpose for our teammates.
But our caregivers need to be able to provide for themselves and their families in this inflationary environment and we must offer a competitive wage.
year-end earnings call, I am pleased with the progress we have made on several of our rate improvement initiatives with both government and managed care payers. Specifically
As it relates to our private duty services business, our goal for 2023 was to execute a legislative strategy that would increase rates by double digit percentages in three important states, California, Texas, and Oklahoma, which represent approximately 25% of our total private duty services revenue. In the first quarter, we were able to demonstrate the value we create for medically fragile patients in Oklahoma and have successfully secured a double digit rate increase.
which was retroactive to January 1st of this year. Since the Oklahoma rate increase, we have doubled the number of caregivers hired per week in Oklahoma.
demonstrating the impact rate increases have on our ability to attract caregivers at the right wage profile.
We have also made significant strides with the Texas legislature that gives us increased optimism that we will achieve our targeted double-digit rate increase for our Texas private duty nursing business.
We have also made significant strides with the Texas Legislature that gives us increased optimism that we will achieve our targeted double-digit rate increase for our Texas private duty nursing business beginning September 1.
While this rate increase isn't guaranteed at this stage, early indicators reinforce our optimism that our efforts are gaining meaningful traction. Finally, we have spent considerable time with the California Legislature and the Governor's Office demonstrating the importance of the COVID-19 pandemic.
of these rate increases and how they support an overall lower health care cost, improved patient satisfaction, and quality outcomes. Based on our actions to date, we believe that we are taking the appropriate steps needed to support our requested increase in this upcoming California budget cycle that is effective July 1st.
While there is still much work to be done on the legislative front, we believe that we can accelerate our growth by increasing caregiver capacity and bringing more patients to the comfort of their home.
By passing meaningful wages through to our caregivers, we become a solution for overcrowded children's hospitals and distraught parents who want their children to be cared for in the comfort of their home.
We also discussed the need to double the number of preferred payers in 2023.
we define preferred payers as those payers that support value-based care by offering an above-market reimbursement rate and value-based payments in exchange for proven savings.
Our goal for 2023 was to double our volumes from Private Duty Services preferred payers from approximately 10% of volumes to 20% by year end 2023.
Our goal for 2023 was to double our volumes from private duty services preferred payers from approximately 10% of volumes to 20% by year end 2023. In the first quarter, our goal was to double our volumes from private duty services preferred
We've added two additional preferred payer agreements in key markets.
Our preferred payer volumes increased to approximately 13% of PDS volumes.
Also, we have a robust preferred payer pipeline and are very optimistic we will continue to execute on this strategic initiative throughout 2023. Finally, we discussed the need to shift our current labor capacity to those payers that value our services.
appropriately reimburse us for the care provided. We have begun several initiatives to shift caregiver capacity to our preferred payers to optimize staffing rates while minimizing days in an acute care facility.
In the first quarter, our preferred payer relationships benefited from accelerated nurse hires of two to three times more than our other payers, and we continued to experience staffing rates 15 to 20 percent greater with significantly higher patient admissions.
The value proposition is straightforward. Preferred payers reimburse us a fair rate. We pay market competitive nurse wage rates, while also earning value-based payments for achieving positive clinical outcomes and improve staff hours.
While we are encouraged by our early 2023 rate increases and subsequent recruiting results,
We believe our business can rebound quickly as we achieve our rate goals previously discussed.
Home and community-based care will continue to grow and Aviana is a comprehensive platform with a diverse payer base providing a cost-effective high-quality alternative to higher cost care settings.
And most importantly, we provide this care in the most desirable setting, the comfort of a patient's home.
Before I turn the call over to Dave, let me briefly comment on our liquidity and refreshed outlook for 2023.
On the liquidity front, we continue to make progress on improving our cash flow by focusing on attaining adequate reimbursement rates and growing our volumes.
We are also implementing initiatives to right-size our corporate cost structure while optimizing our cash collections.
As Dave will discuss further, we have ample liquidity to operate our business while we work with government and payers to improve the reimbursement rates to reflect the current inflationary environment. As it relates to our refreshed outlook for the year, while we exceeded our original revenue and EBITDA goals in the first quarter, we have a
We have several rate initiatives that still need to come to fruition over the next few months with particular emphasis on Texas and California.
That being said, on the strength of our first quarter results, we are comfortable reiterating our full year revenue and adjusted EBITDA guidance of greater than $1.84 billion in revenue and at least $130 million in adjusted EBITDA respectively.
We believe it is important to continue to set expectations that acknowledge our environment we are operating in and the time it will take to transform our company and return to sustainable growth.
We believe our outlook provides a prudent view considering the challenges we face with the current inflationary labor environment, and hopefully it proves to be conservative as we execute throughout the year. Finally, I am proud of our Avianna team.
as we execute on our 2023 strategic objectives. The power and efficiency of the home as a healthcare setting remains critical to our patients, families, payers, referral sources and government partners.
The value of our clinical workforce continues to be recognized through the various rate increases across the country and through our expanding preferred payer relationships.
I look forward to updating you on our results at the end of Q2. With that, let me turn the call over to Dave to provide further details on the quarter and our 2023 outlook. Dave? Thanks Jeff, and good morning.
We'll first talk about our first quarter financial results and liquidity before providing additional details on our refreshed outlook for 2023.
Starting with the top line, we saw revenues rise 3.5% over the prior year period to $466.4 million.
We experienced revenue growth in both our private duty services and medical solution segments which grew by 6.5 percent and 10.7 percent respectively while our home health and hospice segment declined by 15.8 percent as compared to the prior year quarter. Consolidated adjusted EBITDA was 28.5 million, a 25 percent decrease as compared to the prior year.
Now taking a deeper look into each of our segments, starting with private duty services, revenue for the quarter was approximately $373 million, a 6.5% increase. It was driven by approximately 9.8 million hours of care, a volume increase of 1.8% over the prior year. Now getting more into our convince show!
While volumes improved over the prior year, we continued to be constrained in our top-line growth due to the shortage of available caregivers, although we were beginning to see early signs of improvement in the labor markets. Q1 revenue per hour of 3812 was up $1.69 or 4.7% as compared to the prior year order and is a 46 cent increase in revenue.
or 1.2% sequential improvement as compared to Q4 of 2022. We expect to see continued improvement in 2023 as we execute on our rate increase initiatives and we continue to be encouraged with our ability to attract caregivers and address the market demand for our services when we obtain adequate reimbursement rates. Turning to our cost of labor and gross margin metrics, we achieved 104 point...
rate improved in the first quarter by 61 cents or 2.1% on a sequential basis.
Our Q1 spread per hour was 1065, representing a 4.2% year-over-year improvement and an 11.2% sequential improvement as compared to Q4 of 22. Moving on to our home health and hospice segment, revenue for the quarter was approximately $56.1 million, a 15.8% decrease over the prior year.
but a sequential improvement of 1.4 million over the previous quarter. We're pleased with the gross margin improvement from 41.9% in Q4 of 22 to 44.6% in the current quarter.
as we continue to focus on additional direct and indirect cost initiatives necessary to achieve our targeted gross margins in the 45 to 46 percent range.
We continue to see admission trends for the division return to a more normalized level. As a reminder, at our lowest point in midsummer, our weekly home health admissions were in the low 800s. In Q4 of 22, we averaged approximately 850 home health admissions per week with an episodic rate of 63%. These positive trends continued in Q1 of 23.
where we experienced approximately 900 home health admissions per week while improving our episodic mix. Our first quarter revenue was driven by 11,700 total admissions with approximately 68% being episodic and 11,900 total episodes of care.
Medicare revenue per episode for the quarter was $29.69, essentially flat with a prior year quarter and sequentially.
Although 22 was a difficult year for our home, health, and hospice segment, we firmly believe in this business and its long-term value proposition. We have an established home, health, and hospice platform poised for growth.
focused on delivering value through sound operational management and delivering excellence in patient care.
We expect to see some sequential improvement throughout 2023 as our direct and indirect cost initiatives take hold.
Now, to our medical solution segment results for Q1. During the quarter, we produced revenue of $37.3 million, a 10.7% increase over the prior year. Revenue was driven by approximately 85,000 unique patients served and revenue per UPS of $439.29.
Gross margins were 15.3 million, a 1.2 million or 8.5 percent improvement over the prior year quarter. Gross margins, which were 40.8 percent in the quarter, represented a 0.9 percent decline as compared to the prior year quarter, but a 1.1 percent sequential improvement as compared to the fourth quarter of 2022. We continue to evaluate ways to be more efficient and effective in our back office to leverage our overhead As ensures the level 3à posteriorly control over the area of a
capacity to those preferred payers who value our partnership is the path forward at Aviana. As Jeff stated, our primary challenge is reimbursement rates. With the positive momentum we saw in Q1, we're optimistic that such trends will continue into the second quarter with sequential improvement expected in all segments.
As we make progress in 2023 with the rate environment, we will pass through wage improvements and other benefits to our caregivers in the ongoing effort to better improve our volumes.
Now, moving on to a balance sheet and liquidity.
At the end of the first quarter, we had liquidity in excess of $215 million, representing cash on hand of approximately $34.4 million, $20 million of availability under our securitization facility, and approximately $162 million of availability on our revolver, which was undrawn at the end of the quarter. Lastly, we had $38 million of outstanding letters of credit at the end of the quarter.
As we look at the timing of earnings for 23 and the related cash flows, while we may draw on the revolver for short term, timing related items throughout the year.
Our goals are for the revolver to be undrawn as of year end and more importantly to drive positive operating cash flows in the second half of the year as we begin to realize the benefits of all the efforts that we're working so hard on.
On the debt service front, we had approximately 1.48 billion of variable rate debt at the end of Q4. Of this amount, 520 million is hedged with fixed rate swaps and 880 million is subject to an interest rate cap, which limits further exposure to increases in LIBOR above 3%. Accordingly, substantially all of our variable rate debt is hedged.
Our interest rate swaps extend through June of 2026, and our interest rate caps extend through February of 27.
One last item I will mention related to our debt is that we have no material term loan maturities until July 2028.
Looking at cash flow, cash provided by operating activities was $7.5 million for the quarter as a result of certain one-time working capital items and free cash flow was $2.9 million.
We also expect to see cash flow benefits throughout 23 as our top line and cost management initiatives come to fruition. Before I hand the call over to the operator for Q&A, let me take a moment to address our refreshed outlook for 23.
While we're pleased with our first quarter results, we believe it's prudent to maintain both our original revenue and adjusted EBITDA guidance of greater than $1.84 billion and at least $130 million respectively.
The trends we saw in the first quarter continue and we're successful in obtaining the requisite rate increases needed in California and Texas. We would plan to update our guidance in the back half of the year.
As we think about seasonality, we expect our revenue to grow as rate increases are implemented throughout the year and our volumes grow. We now expect approximately 45% of our full year guided adjusted EBITDA to be recognized in the first half of 23.
As most of our annual rate increases typically become effective in the second half of the year, we expect our adjusted EBITDA to ramp as we use the increases to attract and retain more caregivers in dry volumes.
Our EBITDA will also ramp as we realize the benefits of our cost savings initiatives.
And finally, as we wrap up National Nurses Week tomorrow, we would like to take a moment to recognize our incredible caregivers and the impact they make in the lives of our patients and their families every day.
And with that, I'll turn the call over to the operator.
At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.
A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. We ask that you limit your questions to one and a follow up so that others may have an opportunity to ask questions.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.
Our first question comes from Brian Tanklet with Jefferies. Please proceed with your question.
Hey, good morning guys. I guess my first question, I know there's that CMS proposal on personal care services. I just want to clarify, will that cover the services that you provide under your PDS segment? And just any thoughts on that real proposal from CMS? Thanks. Yeah Brian , good morning and thanks.
Yeah, obviously we're acutely aware of the proposed rule and you know, it's not material to Aviana in our business, but we stand firm with the industry, we stand firm with our peers, you know, the National Association for Home Care, PMHE, other trade organizations, and the fact that a lot of work is left to be done.
We think the precedent that the proposal creates is concerning, and certainly the open comment period that we're in right now is a very appropriate time for both us, you know, the trade associations, state governments, all to give feedback to CMS.
We applaud the intent of the rule, which is to open access to Medicaid beneficiaries, and certainly improve quality measures and transparency in rate setting.
But the idea that CMS would set an 80% threshold for direct care workers compensation is significantly concerning, and the precedent that that would create we just don't think is appropriate. We also think, Brian , that as our peers have talked already, that the proposed rule significantly underestimates the oversight training Of Hill between 2011 and 2016, shorter term coverage of the proposed rule, does not guarantee that it will increase it's Cr movements Happy with that
material to Aviana's results. We just want to make sure that we stand firm with our peers in the industry to make sure that we find a good landing place for this final rule with CMS.
All right, got it. That makes sense. And then I guess my follow-up, great to hear about Oklahoma, and you called out how you saw a very notable uptick in interest and applications for new employees. So how does that work? Like, when you get an increase, is it as simple as we offer higher rates and...
we have more people coming in to apply or is there like a you know an advertising strategy that has to come along with that as you try to drive recruitment and recruitment yields higher? That's a great question Brian . You know it I'll be honest it happens very quick. We've got a pipeline of inactive nurses caregivers in every location.
rate increase like Oklahoma, like what's proposed for Texas and California, we are able to immediately – we stay in touch with that nurse as she's moved on or he's moved on to their next jobs. The moment we can call them and say, hey, we got a rate increase effective yesterday, we can meet your needs of $3 more an hour, $2.50 more an hour, something meaningful.
that nurse is excited to come back to us and we see a strong movement of nurses back to us. But it's great to stay in touch with them, it's great to talk to them, but until we can meet their expectations, the conversation is a little bit mute. It's just a relationship. So I think Oklahoma, just like...
other examples in our preferred payers where the moment we're able to negotiate a higher rate, we focus on about a 50-ish percent pass-through directly to the caregiver of direct wages, not other benefits, but direct wages. And the ability to do that, Brian , we were not surprised in Oklahoma, nor will we be surprised in California and Texas as soon as we...
execute on those rate wins. California is effective July , would be effective July 1. Texas would be effective in September 1. We would expect meaningful past, meaningful improvement in hires. And Brian , one of the pieces that we don't normally touch on, we have current nurses that are working for us that are also working other jobs.
internally too of our organic already patients that are already in service with us. So it's really a win-win and I think Oklahoma recognized that opportunity and came through very strong with the rate increase. And I think that's really what's going on in our conversations in the Texas Legislature.
and the California legislature are very similar to that of Oklahoma. It's the same story. And it seems to be resonated very well. Thanks Brian . Our next question comes from Pito Chickering with Deutsche Bank. Please proceed with your question.
Hi there, you've got Kieran Ryan on for PETA. Thanks for taking the question. So looking at PDS this quarter, I think volumes came in about where you expected them, and then obviously some nice acceleration on rates. Looking at the gross margin there as the year progresses and you think about these other rate increases.
really kept focusing on is driving rate to then pass through wage, just like Brian's question. And so I think as you think about a 28% gross margin, okay, Q1, we'll be in that range as we push forward. We may get a temporary point where we get more rate than wage pass through, but that's a timing issue. Our goal is to get these rates to the caregivers and move volumes and overall revenue.
In the process, I think here in what you'll see is us be in or around that 28%. Getting back to 30 where we were a couple of years ago is probably not in the game. Could we touch 28.5? Absolutely. But I think it's more of a timing thing that, to your point, as the rate comes through, we may get a little bump, but we're aggressively pushing that rate through to the caregiver.
with the intent to really drive more volume, more shifts, and really more emissions.
Got it. That's helpful. Thank you. And then just a quick follow-up. Could you quantify or maybe just speak a little more to how much of the overall PDS rate performance in 1Q came from steering more of that business to the preferred payers?
Got it. That's helpful. Thank you. And then just a quick follow-up. Could you quantify or maybe just speak a little more to how much of the overall PDS rate performance in one queue came from steering more of that business to the preferred payers? Thank you.
Yeah, I think in our prepared remarks we talked about going into the year, 10% of our PDS volume was driven by preferred payers. We started the year with seven preferred payers. We signed two more preferred payers in the quarter, so we're at nine within our PDS segment. We moved 10% volume to 13% volume, so we had a nice bump.
We're excited to talk about Q2's performance. We've already signed more agreements already effective in Q2. So we have a strong pipeline for Q2. Some of the preferred payers are smaller, so some of them are not all the same amount of volume, the same amount of covered member lives. So some of the preferred payers that we'll sign won't be as big as some of the current preferred payers.
preferred payers we have on service. But as we think about the year playing out, 20% was an aggressive goal to be at by the end of the year. But I think you should think about 10 to 13 in line with 13 to maybe 15% Q2. In the back half of the year we would be driving that to the high teens and probably ending the year right at about 18, 19, 20%.
our business is now in the preferred payer.
you ask the rate question, yes, our preferred payers and our government wins are what's driving the rate, right? So that the reimbursement rate is being driven by this strategy. I'll also say as a follow up,
if you look at our wage rate, our wage rate is growing almost the same rate as our reimbursement rate is in PDS. So it's proof that we're pushing that rate through to the caregiver every day.
And that's our intention. Thanks so much. Thank you. Our next question comes from AJ Rice with Credit Suisse.
Please proceed with your question. Thanks, hi everybody. I appreciate the comments about Oklahoma, Texas, and California. I just want to make sure I understand. So your guidance that you have now, does that embed those rate increases from Texas and California? Is that part of the step up in the back half? And I know those are big states for you, but any comment on the other?
the rest of the market and what you're seeing in terms of rate updates. Thanks, AJ. Good morning. I'll start with kind of the other and then we'll back into guidance. Yeah, I think we're very pleased with where we sit at this point in the year. I'll say the next 60 days are probably the most important 60 days of the year as most state governments are in there.
We did not include our guidance, Oklahoma coming out at the place Oklahoma did. And so I think as you think about Texas and California, again, our second half of the year guidance assumes that we do get some rate lift in those two states. But not the aspect that we have on hand in both of the legislatures in Texas and California.
emphasize we need to finish Texas and California. So those are the two most important outcomes for us over the next you know really 30 to 40 days as they come to a conclusion finishing that exercise. We've been engaged with both you know legislatures and governor's office now for pushing almost a year. It's important for us to finish those two.
Not just for us, but the entire industry to ensure that both in Texas and California, you know, we We can meaningfully impact the families and get them out of children's hospitals. Dave, any comments about guidance? Yeah, I'd say that's a fair statement Jeff and you know AJ when you think about it I mean we do we are expecting rate increases in both states and it does our guidance does incorporate you know
high single digits for those states.
All right, maybe my follow up to ask you about the labor situation. I understand if you get the rate increases You can get incremental caregivers. I wondered sort of within the sort of steady-state environment Is it getting any easier to recruit? to caregivers
with the volatility around the economy in certain parts of the country? Are you seeing your turnover rate improve? Any updates on sort of steady state environment and what you're seeing?
AJ, I think as we said in March, we felt a little bit of a pop out of the holidays coming into 2023, both in Indeed and some of our large recruitment platforms. We saw more applicants, more people engaged. That's really settled. I think in our steady state we're still in a slog fest.
It's why we're so committed to this preferred payer strategy.
Because I think long-term we're going to continue to struggle with just inflation and you know eating up eating up any current rate we have or steady-state rate, so I'd love to sit here and tell you yes The nurses are coming back and they're just but but no I think I think we saw a little pop first part of the year our growth in our caregivers paid our growth in our in our volumes our growth in our hours is really around
preferred payers and the states in which rate has been passed through. And so that's our strategy. We're sticking to it. We're not just waiting around for nurses to show up. And we've got great social media ads, recruitment strategies, but the number one strategy is move rate, move volume, pass through wage. And so I think that's where you'll see us focused.
not only in 23, but in 24 as well. And I, AGI can tell you from talking to numerous of our larger Medicaid MCO partners, they feel the improvement. They feel faster discharges, you know, less hospitalizations, less hospitalized days, and that's almost a five to one.
savings to them. For every dollar they spend in PDN, they save between five and six dollars in total health care costs, specifically from the acute care center. So, we're hearing our payer partners telling us it's working, but I think you'll continue to see Aviana shift our caregiver capacity to those partners that want to partner with us long-term. Okay, thanks a lot.
As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from Joanna.
with Bank of America, please proceed with your question.
I think, excuse me, Inio, thank you. You talk about $6.6 million settlement money, I guess, you actually received in the quarter. So, did that benefit your cash flow and adjusted EBITDA? Joanne, can you clarify on the $6.6 million settlement? Yeah, it looks like it was a positive, like you received.
that money in the quarter, if I'm reading it correctly.
You know, overall what I could tell you, Joanna, is that we, you know, in the first quarter we talked about a legal matter where we had, you know, some cash that was garnished from accounts in connection with a legal matter and we posted an appellate bond and we were able to recover that cash of approximately $18 million before the end of the quarter and then we substituted cash for letters of credit for about $18 million. So we had a positive outcome there while we pursued the appeal on that.
where we sit right now. Yeah, and Jon, I thought it did have a positive impact to our cash flow in Q1. It had no impact on adjusted EBITDA.
It did help our C1 cash flow, but not our adjusted C1. Okay, because that was my follow-up. I was just trying to clarify, because cash flow was actually positive, right? And previously you talked about positive cash flow, I guess in the second half. So how should we think about the full year? Any kind of color you might give us how the cash flow will actually turn out for the full year?
Yeah, I mean, Joanna, we've disclosed we had positive cash flow in Q1 related to a couple one-time working capital items that were benefits to us. Our goals remain the same, which is to drive positive operating cash flows in the second half of the year, whether it's a
you know, whether it's Q3 or Q4, you know, that's our goal, is to drive the business, execute on all the initiatives that we've been talking about, and, you know, drive positive operating cash flow in the second half. And, Joanne, I think, you know, we would not be surprised if Q2 is slightly negative and even potentially Q3 is about slightly negative or break even.
Right, so some of those one-timers drove the Q1 positive cash flow Dave talked about, but again I think Dave said it well, our goal is to end this year as a positive cash flow company and start 24 on that on that reporting.
Our next question comes from Scott Fidele with Stevens Inc.
Please proceed with your question. Hi, thanks. Good morning. First question, actually just was hoping to get just a little more of a clarification just on the first question on the proposed rule and in the gross margin cap. I guess Jeff just to be specific here, is it more that you're concerned about a precedent that could potentially...
lead to private duty nursing also having a gross margin cap? Or is the gross margin cap actually attributable to PDN? Just trying to sort of understand whether you think that if this rule did go into effect whether that 28%
gross margin, you know, would be secure longer term or whether there would be risk to that. I think you're reading it the right way. As we read it and as our legal lawyers and lobbyists have read it, it does not pertain to private duty nursing, but it does create a precedent that would be unfounded in Medicaid today.
We've long been a supporter of driving minimum wage, encouraging minimum wage lifts. Many of our states have minimum wage movements in them already that we operate with. But it's really the first part of your answer Scott is the precedent that it...
would set for all of healthcare services and all of healthcare is just, we think it's just a dangerous precedent to be set. And again, I think our state legislatures and our partners in the industry all agree on that. Especially when you exclude so many of the things that we have to do that are mandated by law, like EBV and...
compliance and oversight. So yes, as it's written today, as we have viewed it and our lawyers have viewed it, it is not material to Avian and it's com-proposed, but we do think it's a dangerous precedent to set in the industry. Okay, got it. So more of the concern around the slippery slope as compared to direct impact.
Okay, and then on, appreciate that clarification, then on just the follow up, I don't know if you guys are comfortable doing it, but just to the extent, you know, that 25% that's from the three key states, would you be willing to break out what Texas and California are either independently or...
in aggregate just so we could ring fence that. So I guess that's sort of part one. And then part two would just be on the preferred providers as it relates to moving over to those partners. Do we think about the financial benefits being more that you drive better volume there and you sort of are able to achieve that 28%?
plus gross margin or do you actually see a higher gross margin potential with those preferred partners? Thanks. Great, great question Scott, and thank you. We'll start with the preferred payers and kind of work backwards. The intent of the preferred payer relationship is not to drive more margin percentage, although there are etc.
Temporarily, it does happen as we get incremental rate and are passing it through to the caregivers. We'll temporarily get a bump in the margin percentage. What we're really, really engaged in is more volume, both more patients, because we're getting more patients home from the hospitals, and we've seen that in our current nine preferred payers, but also just more hours staffed. And that's what the preferred payer wants. The payer wants us to staff all of the hours that are off.
cost as well as staffing more hours. And eventually we think some of our payers will move us to really a, in admitting more patients, more volume of new patients will be in that as well. So three quarters in, we're now comfortable and confident with what we can do to earn those bonuses. We're earning bonuses. Those are in our results both in Prince William Law Center v4 website.
Q4 and Q1, and it's to us it's getting more comfortable earning those bonuses and beginning to pass some of those through to the caregivers as well. So again, the long game here is being a partner, not a provider, but being a partner with the nation's largest Medicaid MCOs and truly helping them bend the cost curve and improve patient satisfaction.
to us long term that aligns us with the best payers in America and ultimately drives more volume for Aviana. Anything else on the preferred payer? Scott, before we switch back to your questions on California and Texas.
was long term that aligns us with the best payers in America and ultimately drives more volume for Aviana. Anything else on the preferred payer, Scott, before we switch back to your questions on California and Texas? No, that was great, Jeff.
appreciate that. So yeah, just back I guess on California, Texas. Thanks. So we don't disclose specifically the amount of volume or the amount of rate, but I think we've been clear. These are two of our three largest states that we operate in from a Medicaid standpoint. And so we are we Aviana are leading the charge in both states. We have I think we mentioned the last call. We had engaged a research group out of Washington, DC. We did studies in both California and Texas on the value of what private duty nursing means to the overall health care spend in California. It showed that we saved $6,000 a day. Every day we can get a child on a hospital. We saved $6,000 by getting them home. In Texas, it showed a similar outcome, but it was $5,000 a day just because of the difference in.
and write economics in those two states, but both studies were crystal clear, the more state invests in PDN, the more they save total net healthcare savings. In its materials, hundreds of millions of dollars, in some cases, in California, Texas, it's pushing a billion dollars a year in savings. So that has resonated really, really, really well. In both Austin and Sacramento, with both governor's offices, Medicaid directors, and...
And again, we're partnering with our peer group, we're partnering with the State Association, but it's so meaningful to Aviana that we've taken the leadership role in both states. And we believe we're a very good position today, as that relates to our guidance. And I think we've been appropriately vague to say that, we expect to get something in both states, but our back half of the year guidance does not include us getting
double digit or certainly I'll use 20% or greater rate increases in either of both states. And so we see that as a great opportunity and our next call is in August and we see it obviously will note both outcomes by then. We see that it's a great opportunity in August to really readdress the back after the year and also how we're trending going in 2024 at that point. Okay, thank you.
or certainly I'll use 20% or greater rate increases in either of both states. And so we see that as a great opportunity. And our next call is in August . And we see, obviously, we'll know both outcomes by then. We see it as a great opportunity in August to really readdress the back half of the year and also how we're trending going in 2024 at that point. Okay, thank you. Thanks, Scott.
We have reached the end of our question and answer session. I would now like to turn the floor back over to Jeff Sheena for closing comments. Thank you, Maria. And thank you everyone for joining our Q1 on this call today. And again, thank you for your interest in our obvious story. We look forward to updating you on our progress at the end of Q2 in August . Thanks and have a great day. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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