Q2 2023 Enhabit Inc Earnings Call
Good morning, everyone and welcome to the inhabit home health and Hospice is second quarter 'twenty twenty-three earnings conference call.
At this time I'd 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'd 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 todays conference call is being recorded.
If you have any objections you may disconnect at this time I will now turn the call over to Jordan, Lloyd and habits of home health and hospice director of Investor Relations.
Thank you operator, and good morning, everyone. Thank you for joining and have at home health and Hospice second quarter 2023 earnings Conference call with me on the call today are Bob Jacobs Fire, President and Chief Executive Officer, and Crissy, Carlisle <unk>, Chief Financial Officer before because again, if you do not already have a copy the second quarter earnings release.
Supplemental information and related form 8-K filed with the SEC are available on our website at investors got E <unk> Dot com.
On page two of the supplemental information you'll find our safe Harbor statement, which are also set forth on the last page of the earnings release.
During the call, we'll make forward looking statements, which are subject to risks and.
Uncertainty 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 FCC company filings.
The Form 10-K, and subsequent quarterly reports on Form 10-Q, each of which will be available on the company's website on file we encourage you to read them.
You are 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 reconciliation to the most directly comparable GAAP measure is available at the end of the supplemental information in 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 Coffee question. If you have additional questions. Please feel free to rejoin the queue.
With that I'll turn the call over to Barb <unk>.
Jordan Good morning, and thanks for joining us.
While we continue to make progress with our strategic initiatives. The pace of the progress has not been fast enough in 2023 to meet our initial guidance.
As we have consistently noted the greatest sensitivity to our guidance is episodic volume.
The market is shifting rapidly to Medicare advantage.
Last summer CMS data pointed to 50% of Medicare eligible enrolling in a Medicare advantage plan by 2030.
We reached the 50% Mark in January 2023.
CMS data now points to 70% of Medicare eligible enrolling in a Medicare advantage plan by 2030.
While our payer innovation progress has been strong it has not been enough to overcome the negative impact of the continued erosion of Medicare episodic fee for service volume.
To put this in perspective, as we mentioned on our quarter one call.
Every 5% move up non episodic visits to one of our new national or regional pair innovation agreement improved adjusted EBITDA by approximately $2 million annually.
Meanwhile, every 50 basis point decrease in Medicare fee for service volume negatively impacts adjusted EBITDA by the same amount approximately $2 million annually.
We are working diligently to combat the erosion of Medicare fee for service admissions, we know referral sources want providers, who can serve all of their patients regardless of payer source. So.
So while we can't slow the transition of Medicare eligible to Medicare advantage, we can strategically target referral sources, who have strong Medicare fee for service market share and those we know send both Medicare fee for service and Medicare advantage patients to us.
We can also collaborate with our primary referral sources to identify other payors are pair innovation team should focus on to strengthen our preferred provider status with them.
Our payer innovation team has demonstrated their ability to successfully prove our value proposition to Medicare advantage payers. Both in terms of the number of contracts, we've negotiated and the improved rates within these contracts.
Since the inception of the payer innovation team last summer they have successfully negotiated 37 new agreements.
Let's talk more about our strategic initiatives, especially around payer innovation and recruitment of clinical staff and the success, we're having with them.
Our teams continue to provide high quality care as proven in our outcomes are.
Our 30 day hospital readmission rate is 370 basis points better than the national average and continues to be our primary value proposition and driver of conversations with payers.
During the second quarter, we continued our progress with Medicare advantage payers and successfully negotiated 10, new regional agreements.
We are also pleased with the results our local home health teams produced and moving volume to our payer innovation agreements.
During the second quarter, we admitted over 3400 patients within these non episodic new contracts.
That's 150% sequential growth under these agreements and we achieved this with our new National agreement effective for only two months of the quarter.
We are confident in our ability to make continued improvement in Medicare advantage pricing and then the shift of our Medicare advantage admissions to these improved payors.
In addition to our success with our payer innovation contracting we had continued success with our recruitment and retention of clinical staff with the highest net nursing hires since we started tracking this metric in 2021.
We had 203 net new full time nursing hires in quarter, two and we continue to hire for additional growth.
With this success, we plan to eliminate substantially all contract labor by the end of the third quarter.
For hospice the implementation of the case management model has added critical resources driving our positive recruitment and retention.
At the end of the quarter, we had only four locations with staffing constraints.
The new staffing model has also improved our ability to accept patients for more diverse referral sources with admissions from facilities, increasing six 1% year over year.
With the rapid shift of Medicare eligible into Medicare advantage and the headwinds associated with Medicare reimbursement, we are working to find better ways to use our resources and control cost.
For example, the new case management staffing model in hospice has increased our fixed costs due to the addition of triage nurses and dedicated on call resources.
With the case management model now fully staffed in all branches. We developed an updated back office staffing matrix that will allow us to eliminate positions or reduce the hours of certain roles and create annual savings of approximately $1 million to help offset the increased clinical cost.
We have also identified opportunities for improved alignment within our home office departments that will reduce annual cost of an additional $3.2 million.
Now, let's touch on the home health proposed rule.
As proposed the overall impact to 2020 for Medicare home health spending, including the additional P. D. G M permanent adjustment would be a negative two 2%.
P. D. G M temporary adjustments are now calculated at a total of $3 $4 billion for the industry.
CMS has not indicated when or how they would collect these clawbacks.
It's important to remember this is the proposed rule with a final rule expected late October or early November .
CMS may adjust or update payment components between now and then including an updated market basket percentage just as they did in other recent Medicare final rule.
Nevertheless, legal and advocacy actions are underway to mitigate the impact of the proposals.
The National Association of Homecare, and hospice of which we are a member filed a lawsuit against CMS in the U S District Court for the district of Columbia on Wednesday July 5th challenging the implementation of the PDGF pricing cuts.
The knack litigation argues that Medicare is required to implement the P. D. G M payment model changes in a budget neutral manner, rather than in a way that inflicts rate cuts on providers.
And that along with the partnership for quality home Health care has already filed a joint preliminary comment letter, calling on CMS to not finalized the proposed cuts.
In addition on the Legislative front on June 22nd Senators, Debbie Stabenow of Michigan, and Susan Collins from Maine introduced legislation titled the preserving access to home Health Act of 2023 that aimed to prevent P. D. G M payment cuts to home health providers.
And last week companion legislation was introduced in the house Rytary swell of Alabama, and Adrian Smith of Nebraska.
We remain active with the industry and our advocacy efforts.
With that I'll turn it over to Christie to discuss more details on our quarter two results and our updated guidance.
Thanks Barb.
Consolidated net revenue was $262 3 million for the second quarter down $5 7 million or two 1% year over year.
Adjusted EBITDA was $23 9 million down $16 4 million or 47% year over year.
We estimate the continued shift to more non episodic payers in home health and the resumption of sequestration decreased revenue and adjusted EBITDA, approximately $10 5 million year over year.
Adjusted EBITDA was also impacted by $3 4 million of incremental costs associated with being a standalone company.
In our home Health segment total admissions increased 3.2% year over year as continued strong growth in non episodic admissions offset a reduction in episodic admissions.
In the second quarter of 2023, our non episodic visits grew to approximately 31% of our total home health visits.
This represents an approximate 800 basis points increase year over year.
And an approximate 200 basis points sequential increase over the first quarter of 2023.
While we are making significant progress demonstrating our value proposition to payers as we negotiate new agreements with improved rates and have success shifting volumes into our payer innovation agreements. It has not been enough to overcome the erosion of Medicare fee for service volumes.
We estimate the impact of this payer mix shift was approximately $8 million net of the impact from improved pricing and payer innovation contracts on both revenue and adjusted EBITDA during the second quarter.
Our home health team is managing cost to a level lower than originally expected for 2023.
Our cost per visit increased three 4% year over year as improved clinical productivity and optimization offset the impact of contract labor Merit and market increases for clinical staff and increased costs associated with employee group medical claims.
We now expect cost per visit increased 1% to 3% year over year, rather than the 4% to 5% in our initial projections.
In our hospice segment admissions increased 0.1% year over year, while average daily census decreased 0.7% year over year.
Similar to Q1 this year, our average daily census was impacted by an increase in the number of admissions with shorter lengths of stay this.
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.
This diversification of referral sources and increase in short length of stay patients is lowering our hospice cap exposure.
In 2022 we had seven locations with cap exposure in 2023, we have three.
The implementation of the case management model, which includes additional fixed costs for triage in dedicated on call resources was the primary driver of the 11, 6% year over year increase in cost per day.
While cost per day increase year over year. It was flat sequentially from Q1, we now have full time nursing capacity and are reducing our use of contract labor.
The cost per day story for the remainder of the year is dependent upon our ability to increase our average daily census over which to spread our fixed costs.
Our home office general and administrative expenses increased $3 8 million year over year, primarily due to incremental costs incurred as a standalone company.
Standalone company costs totaled $6 9 million in the second quarter and include expenses associated with the transition services agreement, we have with encompass health as well as the costs, we're incurring to ramp up our team and their resources. We continue to expect our stand alone cost to be 26 to 28 million per year going forward.
Today, we have transitioned all services from encompass health, except for certain technology services, and we expect to complete the transition of those services by the end of Q1 'twenty 'twenty four.
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 4.75 times in June and with the full support of our Bank group, we proactively renegotiated the leverage covenant under our credit agreement through June 2024.
Our leverage covenant for the remainder of 2023 is 5.25 times.
As of June 30th we had approximately $90 million of available liquidity, including approximately $34 million of cash on hand, which we believe is sufficient to support our operations and financial obligations as well as continuing to grow the company through our de Novo strategy.
In the second quarter, we opened one hospice into home health de Novo locations, bringing our year to date number of de Novo to five and putting us on track to open our goal of 10 new locations. This year.
Let's turn now to guidance as.
As noted during our Q1 earnings call our guidance is most sensitive to three factors.
Episodic admissions.
The transition of non episodic admissions to our new national and regional Payor contracts.
And improved clinical productivity and hospice.
With the shift of Medicare eligible into Medicare advantage happening faster than anyone anticipated, we are trying to forecast a rapidly moving target.
In the first quarter of 2023 episodic admissions increased one 3% sequentially from the fourth quarter of 2022.
We noted the sequential trends in episodic admissions in home health needed to accelerate throughout 2023.
And that has not happened.
While our progress with our payer innovation agreements has been strong it has not been enough to overcome the negative impact of the continued erosion of Medicare fee for service volumes.
And while our cost per day in hospice was flat sequentially, we have not yet achieved consistent volume levels that will allow us to offset the fixed cost associated with the case management model as a result, we revised our full year 2023, adjusted EBITDA guidance to a range of 100 to 107.
Yeah.
Before I turn it back to Bob I want to comment on our continued strong free cash flow, we generated approximately $39 million during the first six months of 2023.
Free cash flow generated in the back half of the year is dependent on the timing of working capital needs specifically around accounts receivable.
Based on our revised guidance, we expect to generate between 49 million and 69 million of adjusted free cash flow in 2023, now I'll turn it back to Bob.
Thanks, Christy before we open the line for Q&A I'd like to take a moment to discuss the announcement, we made yesterday regarding a potential strategic alternatives process, Our board and management team continue to take actions to enhance stockholder value.
We believe the value of our company is supported by long term secular trends the aging population.
The need to shift more health care into the lowest cost setting and patient preference for care in their home.
Importantly, we believe that the outcomes, we generate for our patients will enable us to succeed as the market continues to evolve.
With this backdrop the board is undertaking steps to satisfy the conditions in our tax matters agreement with encompass health corporation relating to certain transactions involving inhabit.
The conditions in the tax matter agreement includes securing a tax opinion, our legal counsel.
Satisfactory to encompass health and its sole and absolute discretion that the actions taken by inhabit would not jeopardize the tax free treatment of the spin off of inhabit.
If these conditions are satisfied the board with the assistance of independent advisors intends to launch a strategic alternatives process.
The board expects that any potential review, we consider a wide range of options for the company, including among other things a potential sale merger or other strategic transactions.
That being said there are no assurances that the conditions and the tax matter agreement will be satisfied that inhabit will initiate such a process or has launched a process would result in an habit pursuing a particular transaction or other strategic outcome.
Our management team remains focused on our mission delivering exceptional care to our patients and the lowest cost setting and the place they want to be their home.
Our team's relentless focus on that mission to drive high quality care to more patients who need our services will continue to enhance our value.
With that said I would like to remind you that the purpose of today's call is to discuss our financial and operational results and outlook and we ask you to limit your questions to these results I will not be commenting further on the potential strategic review process.
Operator, let's open the call for questions.
Thank you at this time I'd like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, you'll be limited to one question and one follow up we'll take our first question from.
Brian at 10 cooler with Jefferies. Your line is now open.
Hey, good morning, Bob.
I guess my first question.
I think about understanding the payor mix shift that's ongoing in the market, but I was just thinking about the ramp of the contracts that you had signed earlier in the year than last year.
What what does it need to do to get that accelerated to the level of admission.
Yes, initially projected and then maybe on the cost side of that as well.
Just had success recruiting nurses, but how do we think about your ability to start driving leverage with the cost structure and looking at it on a cost per visit basis as well. Thanks.
Sure. So first on the Medicare advantage side. So you know as you noted I mean, we have had success in negotiating the 37 new agreements. We were pleased with that 150% sequential improvement because you know the greatest number out there available is the the new National agreement and so it's continuing to have the teams focus on prioritize.
Those payer innovation agreements I think the most critical pieces to get this episodic component stabilized and so for US what we've done is look back at if you think back to 2022, our total Medicare as a percent of our home health revenues was 74%, whereas our largest peers were out of 60% to 65%.
When you look now June year to date, our Medicare percent of revenues of 66%. So we're certainly getting back Oh, we're getting closer to where our peers are on that because stabilizing that component is going to be critical. So that we can really feel the financial value of moving the past non episodic into these new agreements.
Raymond.
And then on the cost front you know it really the success in hiring is going to help us to eliminate all the contract labor as well as when we are able to have increased staffing. It helps you really be able to leverage that optimization and productivity that we have we've done a good job with the optimization and the productivity as it relates to therapy.
We do have some potential to continue to improve the optimization for nursing and that's about getting you know L. Ends added now where we have our ends that are fully productive.
Got you, Okay, and then maybe shifting gears to the hospice side.
Obviously admissions are still on the soft side too.
What do you think it's just more of a market issue still in hospice or is there something more specific good habits. So we need to be thinking about that.
What catalysts that you need to work on in order to inflect.
Trends in hospice. Thanks.
Sure I do think that there is an element of this that is market that is that it is just the softness out there in general I would say the things that are that we're focused on that we think could help you know really hate US is this case management allows us to say, yes faster to our referral sources. It's why we have seen an uptick in those admissions coming from <unk>.
<unk> settings, so being able to say that quick yes is the critical part to be able to pull the market share component as well as now that we are fully staffed we need to get back increasing our sales head count we're down about 5% on our head count first direct sales year over year and so it's about getting staffed up so that now that we have the ability to say yes.
We have the sales teams out there promoting and habits.
Yeah.
Awesome. Thank you.
Next we will go to a J rice with credit Suisse. Your line is now open.
Hi, everybody.
First just to make sure I understand the dynamic of what's going on in the mix between non episodic disorder.
It is.
Any of this being driven by the fact that you signed all these new.
E Comm drugs and therefore, there you are.
Getting more volume pushed to you that way from those contracts and that's the dynamic here or would you say.
And Rob would you accelerate it seems like this quarter.
Amazon is just the market dynamics seems more pronounced than what we're seeing although we don't have full visibility on the rest of the industry is much more.
More pronounced than what we've seen elsewhere.
So it's a great question and I would say what I would start with is that our peers have certainly been at this a lot longer when you look at their payer mix shift has happened pretty gradually over about a six to eight year period. Our is kind of has been more of a cliff. If you will I do think that are actually we are holding on to.
Number of episodic that we have because of the ability to offer more a longer list of payers that we're able to take I think absent the success of our payer innovation thing I, frankly think we would've seen actually even more erosion from our fee for service Medicare. So I think going out there and being able to be more of a full service provider is.
Actually aiding us we just have unfortunately done in about 18 to 24 months time, what our peers are experienced over about a six to eight year time frame.
Okay, and then I guess on the hospice calls per day, I'm bloodwood, six I understand the move to the.
Case management model should we think that you are running excess cost right now and as you implement that.
Or is the way youre going to get is is just growing the revenues faster over time.
Yeah, a J. So it is a fixed cost of these dedicated on call resources, one way to look at it as our hospice costs are running about $8 million per month and that seems to be kind of leveling off. So it is about eliminating the use of contract labor and then the real difference maker being the volume.
So we've got to get those volumes to offset the fixed cost associated with and spread that out over the number of days.
Okay. Thanks, a lot.
Next we will go to Whit Mayo with Leerink partners. Your line is now open.
Hey, Thanks, Good morning, Christy I'm kind of curious what the.
The fee for service admissions look like when you decompose referrals from institutional versus the community setting are you seeing more pressure on the NIM.
Assisted living hospitals physician referrals, where maybe where do you see the pain points.
In other places.
Sure. So this is Barbara I'll mention it first so you know obviously one of the big pain points that had been the Earth.
Certainly we've seen an impact I would say about half of our fee for service impact has been from the Earth. The others had been more from these assisted living facilities. What we found is historically there were many assisted living facilities, where we provided what we called our community care program and those assisted living facilities had.
Fee for service Medicare patients in there.
One really strong Medicare advantage salesperson goes in and literally in a matter of a few months. The next thing you have is everyone in that building is or the majority of people in that building our Medicare advantage. So it is about really knowing where that volume isn't a shifting volume. So that we can do similar ships.
Could you elaborate maybe a little bit more Barbara on the comments around the Earth I presume that's from encompassing the concentration that you have there.
Just any additional color would be helpful.
Sure. So when you look at our on the RF side, you know we don't have their detailed like we used to have so I think it's probably a combination of some payer mix shifting on their side you know it used to be we would know the discharges coming out of there in that mix. We don't know that at this point. So what we do know is that we have about half of our.
Settings, where we have overlap where we have seen a pretty significant decline in the fee for service referrals. We do have some settings, where we actually have seen a growth. What we're focused on now is making sure that that we are reminding them our quality, particularly our claims based quality metrics because they are.
Using a new system now to electronic system to do their referrals and in that there's a star rating component of it and we are asking them to take into consideration not only the star rating component, but our low re hospitalization readmission rates as they are presenting their choice to their patients.
Okay.
Last one maybe a little sensitive, but just thinking about <unk>.
Proactive cost reduction opportunities in light of some of the pressure on earnings over the next year.
So sort of what are you guys evaluating.
Thanks.
Sure. So we continue to evaluate opportunities for the on the cost side I will tell you, though one of our greatest opportunities. We've mentioned in the past that we've been piloting the metallurgical pulse and 17 of our branches are.
Our team is very data driven and so I know it seems like a long time to have a pilot that goes over nine months, but we needed to do that where we could start getting claims based outcomes data and we are pleased now that the data from this pulse pilot shows that using the tool and managing to a patient specific care plan some patients need more summit.
Les has allowed us to maintain our high quality in these branches and reduce our visits per episode by about 5%. So a big focus for US is getting this rolled out to all of our branches by the end of the third quarter. So that we can see the benefits of that visits per episode and that that's going to be a big lever for us.
Yeah.
Okay. Thanks, a lot guys.
Next we'll go to Jason Cazorla with Citigroup. Your line is now open.
Yeah, great. Thanks for taking my questions just wanted to ask about leverage just following your amended credit facility Covenant was brought up 525 should give you about five to 10 million of wiggle room on the EBITDA is seen in the free cash flow you're expecting to generate in the back half of the year.
You know if you could help frame any levers you might either help on.
Its working capital.
So that just gives you confidence in that tripping covenants in light of your guidance.
<unk> leverage ratio falls in each of the first few quarters of next year anything on that would be helpful.
Yeah sure. So you know.
We've been monitoring the covenants and we knew it would be tight and that's why we took that proactive approach with our bank group in June .
Few things to remember the term loan does naturally deleverage right at 4 million $5 million per quarter, we do generate a significant amount of free cash flow and were able to fund our operations through that as well as potentially make some additional debt debt paydowns in and on top of those required pay downs.
But it does come down to execution you know this business was built on Medicare fee for service and the market shifted rapidly and we've had to make a lot of changes and adapt in the past 12 months, while the peers made those over the last several years and we did all of that during a time with Medicare Ria.
First one uncertainty the resumption of sequestration staffing challenges rising interest rates and then just an increased debt load from the span of.
The long term value remains and our bank group understands that and that's why it was it was an easy approach to to them to ask for the covenant relief.
And again, it's an execution story going forward in regards to our ability to meet that covenant.
Okay got it.
Or maybe just.
Oh from a cost per gigabyte, you're off a little north of 3% in a quarter. It brings you to about 2% to 3% range. So far year to date, you've lowered the outlook there not only 1% to 3% in the last quarter, you had talked about potential market adjustments. This year, just curious if that's being offset with just better productivity, what's driving the better cost per visit outwork and maybe just your confidence in the visibility that you have.
All of that that trend kind of sustaining for the rest of the year would be helpful.
Yes, so when I look at the home health cost per visit in the quarter a lot of that that increase by about half or so of the three 4% that was contract labor and as Barb mentioned in her comments, we do expect to eliminate that in the back half of the year. So that's one driver and yes. The the biggest driver of how we're able to offset.
The merit in markets that we've given so far in 2023 is based off of improved productivity and optimization of our staff.
Okay. Thank you.
Next well go to Joanna <unk> with Bank of America. Your line is open.
Hi, good morning. Thanks, so much for taking our question here. So if I might just falling up on the comments about the home health proposal right. So so you're talking about potentially you know oh, maybe a little bit better out the market basket, you know improvement, but I guess you know if it's still call. It you know negative 2% I guess you indicated you know though.
It will be some additional optimization so it will be pursuing.
Preparation or you know in response to that but I guess, if it's finalized at that level, you know call. It negative 2% rate update can you grow home health EBITDA if rates are down year over year.
Okay.
Well Joanne it's a it's a little early to start talking about 2020 for them that is the proposed rule not the final rule. If the proposed rule were to go into effect today based on kind of our current volumes and with that negative 2.2.
That would be about a $12 million to $15 million headwind just off again that that rate alone now the hospice final rule with the positive reimbursement rate adjustment that would offset that and be a positive to us for about $4 million to $5 million.
But you are again talking about a negative proposed rule and if we want to give a let's call it 3% Merit and market adjustment in 2024, then yes, we would be starting in the hole.
And I guess also in the proposal you mentioned right. The CMS is talking about a low coupon forswearing, one 4 billion and over payments and that was up from prior estimate, but it seems like it could even increase when they included a fair estimate obviously you also have a bench line three.
So just based on that I was like a 20% rate gods right. There right. So I know you know.
Yeah, My kind of left it open but kind of what what is your expectation what's realistic there I guess for how the stroke of mine will be finalized finalized in terms of the size and also the timing of the spend you mentioned there.
You know the industry is pursuing all of our available options you know Congress and of course, but I guess, let's say you know those things take time or do you know I'm not sure you realized before you know next year proposal like what would you expect.
Say you know are in the proposal of 'twenty 'twenty four proposals for 25 when it comes to that particular overpayment recruitment. Thank you.
Yeah, I think I, you know I don't know what to say for that the 'twenty 'twenty four proposal for 25, I would say that because there was no comment about you know how or when they would collect those in 'twenty. Four we're confident that that would not be included in the final 24. I think also it's important to know that CMS does have the authority to reduce the impact of the <unk>.
What's even for our final rule. This year for example, like they did last year last year. They cut it in half. So that there was an element of positive left for the industry. They do have the authority to reduce the impact of the proposed cuts again for 2024. So I think that's important to remember and then again as you already noted we'd do.
We anticipate a little bit of an uptick on the market basket.
But then in terms of the recruitment is going forward like how would you think they will try to go about it I mean, given the size you know I would think that they were trying to spread it out right.
For sure there's no way they can do that all at once they would definitely look to spread it out but I think there's still a lot of comments coming in and as you noted there's a legislation and the legal action that's being taken as it relates to all of it including those cuts.
And if I might I guess related on the hospice side of things. So yeah. The rate out there is positive, but I guess there's more.
Which you know in the Rex both home health and hospice on the hospice scrutiny and audits and things like that so how do you think the company's position in light of all of those actions. Thank you.
So yeah. So there is certainly always a team focused on a lot of that comes down to documentation and making sure that we feel confident that we have strong documentation as it relates to patients' eligibility.
Particularly your longer length of stay patients and so you know we have a team that is always focused on that on education auditing and getting back directly to with clinicians on you know how to make sure that they're focused on are accurate and good documentation.
Thank you.
Okay.
Yeah.
Next we'll go to Jamie Pierce with Goldman Sachs. Your line is open.
Okay.
Hey, Thank you good.
Good morning.
I guess I'm still struggling a little bit to understand what's going on with the episodic volume trends.
I know the market is shifting.
Thank you down high single digit range.
The range you guys have been in the last couple of quarters.
I know you've been behind that to make contracting and are catching up or is it just as simple as youre, losing market share too.
To providers more lives covered in their respective markets.
What threshold.
Lives covered in incremental contracts can you kind of start to stabilize the episodic referral volume.
Well I think it is it is a big market shift right in our markets alone. There was a 9% increase in M. A enrollees and an actual 4% decrease in fee for service enrollees. So we are actually seeing shifts directly happening in our markets as it relates to what's available to pull from a market perspective, it's why they're so.
Such a focus for us on our primary referral sources, saying, what other contracts do you need and want us to try to negotiate to be on so that we can come to you as a full service provider I do think that we kind of came out of the gate slow on this because our our peers had a longer list. So they could say I can be your full service provider, which means send me your.
Fee for service and all of these other payers you know with the success that our repay our innovation team has had we do now have a longer list to bring into the providers. So that we can get more of their fee for service. In addition to the other payers that are on our list, but you know there's been a lot of work in a nine to 12 months time to have that longer.
Who we can take as we go in and talk to every referral source.
Okay.
And then Jay.
I imagine you'll be a little tight lipped on this topic, but.
Can you remind us just what percent of your your your.
All units now with the United contract and I think that renews at the start of next year can you just help frame.
Range of potential outcomes, and how you feel about the renegotiation process and in light of your competitive positioning at this point. Thank you.
Yeah, so the the volumes under the United contract have.
On their way down we have certainly made a concerted effort to balance.
Use of that contract with our referral sources, and noting which referral sources provide both an attractive types of patients in regards to reimbursement along with the United and having to balance that that's a very unfortunate position to be in because we recognize that a patient at.
The background of every decision we have to make in regards to that but unfortunately that payer has put us in that position.
So it is certainly trending downward again as we continue to get more contracts and improved contracts at better rates.
Oh.
And just just on.
Framing expectations for the rate negotiation process with that payer.
I mean, we continue to be at the table and we continue to talk about the quality metrics that we bring them. You know we do we have extended an offer to move away from a national to more regional if there's markets that theyre struggling to have more member access and if we need to move in that direction, we would be happy to do that so there are discussions that are ongoing.
Okay. Appreciate it thank you.
Okay.
Okay.
And as a reminder, ladies and gentlemen press Star one if you have a question next we'll go to Andrew Mok with UBS financial your line is open.
Hi, Thanks for the question, maybe just a follow up on that last topic and hate to belabor. This but I still don't fully understand the magnitude of the guidance revision relative to what's going on in the market I understand that your fee for service mix is structurally higher but that's always been the case and when you take a step back and look at it on a fee for service industry.
It seems relatively in line with industry expectations.
I think you said was down 9% or up 9% fee for service down 4%.
You've always meaningfully outperformed.
Penetration in your market. So it does seem like there was something more unique to you is the competition for fee for service members intensifying.
Anything else to point to I think you also said episodic admissions were expected to accelerate just wondering why that was the assumption in the first place.
I don't believe we said that the assumption was that it accelerated I think it was we needed it to accelerate in order to be within that initial guidance range I think that the payer mix shift and that whole payer innovation strategy is at the one of the key assumptions.
And if you recall back when we provided the initial guidance and we talked about the $40 million of headwinds.
One of those headwinds we provided for 2023 was a 14 million dollar expected payor mix shift impact for the year.
That $14 million was spent in the first six months of 2023, we now expect that to be at least double that so that is one of the largest driving factor of the initial guidance range. It.
It has been challenging again as we balance.
The historic contracts that we have and continuing to service those patients in order to maintain.
The relationships with those referral sources that provide both it's a you have to take all of my patience you can't just come here and pick and choose and so that is a struggle and then we continue to again work with our payer innovation team and with.
Other referral sources, including Earth and as well as his primary care physicians to determine what contracts do we need in each market and it does vary by market in order to maintain those relationships and to continue to get the Medicare fee for service. In addition to the Medicare advantage.
Yeah.
Got it okay and most of the color on the guidance revision is focused on the home health side and the mix shift there, but I'm also curious to hear what's going on in the hospice side, we haven't seen a lot of meaningful progress there and you mentioned diversifying your mix into shorter length of stay patients does that also have a negative profit mix component to it.
It it does Andrew.
Uh huh.
Hospice is pace of revenue per day, whether you make a visit or not and as we diversify those referral sources and we have those shorter lengths of stay patience. It means in those markets that if you thought and I'm going to I'm going to make up the numbers here. If you needed five admissions based off your clinical capacity as yours.
And to stay goes down and you had those shorter length of stay patients you know may need eight or nine or 10, and so making all of those shifts and working with your business development team to say hey, historically when he did five now we need again to higher number all of that is in process and working strongly together with both.
Operations and business development to ensure that happens.
Great. Thank you.
Okay.
There are no further questions at this time, Jordan Lloyd I'll turn the call back over to you for any additional or closing remarks.
Thank you David if anyone has additional questions. Please feel free to call me at 469606061, and thank you again for joining this morning's call.
This concludes today's conference call you may now disconnect.
Yeah.
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Yeah.