Amedisys Inc

Greetings, ladies and gentlemen, and welcome to the Emeticist Q1 2021 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Anyone using speaker equipment, excuse me, if you're in need of operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Nick Moscato. Thank you. You may begin.

Thank you, Operator, and welcome to the Emeticis Investor Conference Call to discuss the results of the first quarter ended March 31st, 2021. A copy of our press release, supplemental slides, and related Form 8-K filing with the SEC are available on the Investor Relations page of our website. Speaking on today's call from Emeticis will be Paul Cucero, Chairman and Chief Executive Officer, Chris Girard, President and Chief Operating Officer, Scott Ginn, Executive Vice President and Chief Financial Officer. And also joining us is Dave Kimmerle, Chief Legal and Government Affairs Officer. Before we get started with our call, I would like to remind everyone that statements made on this conference call today may constitute forward-looking statements and are protected under the safe harbors of the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to a Metasys today. The company assumes no obligation to update information provided on this call to reflect subsequent events other than as required under applicable securities laws. These forward-looking statements may involve a number of risks and uncertainties, which may cause the company's results or actual outcomes to differ materially from such statements. These risks and uncertainties include factors detailed in our SEC filings, including our forms 10-K, 10-Q, and 8-K. In addition, as required by SEC Regulation G, A reconciliation of any non-GAAP measure mentioned during our call to the most comparable GAAP measure will be available in our forms 10-K, 10-Q, and 8-K. Thank you, and now I will turn the call over to Emeticis Chairman and CEO, Paul Cucero.

Thanks, Nick, and welcome to the Emeticis 2021 First Quarter Earnings Call. 2021 is off to a good start for Emeticis. And none of our performance this quarter would be possible without our 21,000 plus employees whose unwavering commitment to providing the best care to our patients in their homes is nothing short of inspirational. I want to thank every one of you for helping to deliver such strong results. Before I turn the call over to Chris and Scott to walk us through our performance this quarter, I want to review a few developments that have recently occurred. The poet who you heard instead of our usual music, T.S. Eliot, was wrong when he said April is the cruelest month. April for a medicist has turned out to be a very fortuitous month. First, on April 8th, CMS issued its proposed rule to update hospice payment rates and the wage index for fiscal year 2022. Effective for services provided beginning October 1st, 2021. CMS estimates hospices serving Medicare beneficiaries will see a 2.3% increase in payments. Based on our analysis of the proposed rule, we expect the impact on a MedAssist to be in line with the 2.3 increase. We view the proposed rule very favorably, as positive rate updates in our hospice line of business have provided a meaningful impact given our substantial top-line growth and increase in size over the past few years. We don't and we will not count our chickens before they're hatched, but when the proposed rule is finalized this summer, it will represent an incremental $6 million. Next, On April 13th, Congress passed HR 1868, which, among other provisions, extends the temporary suspension of Medicare sequestration through December 31st, 2021. We are updating guidance by 27 million to reflect the further suspension of sequestration. Also, on April 14th, we announced that we signed a definitive agreement to acquire licenses that will allow us to conduct home health care operations in Randolph County, North Carolina. This certificate of need purchase allows us to provide home health services within a 50-mile radius surrounding Randolph County, including the populous Montgomery County. The service area provides access to 31,000 Medicare and Medicare Advantage enrollees. We expect the transaction to close on April 30th, 2021. As we have said in the past, M&A is an important tool for us to continue to expand our geographies and market share, and we are continuing to look for more significant ways to deploy capital to grow inorganically throughout 2021. While these are small deals, they increase our presence in strong markets, are geographically strategic, and represent We are active and successful in the M&A market and expect to do more and bigger deals as the year progresses. Finally, on Tuesday evening, we announced what we have previously referred to as an innovative SNF at-home pilot with our partners at Sound Physicians, a leading physician partner to hospitals, health plans, physician groups, and post-acute providers seeking to transform outcomes for acute and post-acute episodes of care. We are delighted to be working with such a high quality partner and industry leader on this initiative. Our pilot is set to launch in May. We will be focused on caring for higher acuity patients, allowing them the option of being cared for in the home, but with a more robust home-based care offering, including home health, telemedicine, personal care, and other services focused on ADLs, activities of daily living, and SDOHs, social determinants of health. We have two sites identified and ready, and are working to locate two more. We are excited to test, learn, iterate, and grow this important program, and we'll keep you updated on our progress in moving up the ACQUITY scale. That's the main news for April. So I'll turn the call over to our resident poet laureate, President and COO, Chris Gerard, for a run-through of our first quarter performance. Chris, could you do this in iamic pentameter, please?

Thanks, Paul.

It's amazing the things I have to put up with.

But now, moving on. Let's take a look at our first quarter results as they relate to our four strategic pillars, which are core to what we do. quality, people, operational excellence, and growth. Always first, quality. Even though CMS has frozen its home health compare data until its January 2022 release, delivering the highest quality care is always at the top of our priority list. If we deliver the best quality, all good things will follow. While this data is frozen, we have been using internal data sets from SHP to benchmark our performance. and I'm extremely proud of the progress we continue to make. In fact, as of our last internal benchmark, 316 of our 320 home health care centers are at or above four stars, which puts us at 99% of our care centers with four stars and above. For perspective, in 2015, we averaged 3.2 stars. This performance is nothing short of amazing. This is a great proxy for how our continued focus on quality is paying off. Congrats to the home health and clinical teams for such tremendous progress. Much like home health, CMS has frozen the hospice compare reporting metrics and will resume reporting in 2022. We have historically outperformed the industry average on all hospice item set measures and continually strive to improve our performance. Next spring, CMS will publicly report hospice star scores. They are currently collected data for the initial release. Seeing this coming, we have been replicating our home health structure, analytics, and reporting that has propelled our home health segment to best in class. Our focus and preparation should set us up to perform well, and we look forward to having true public benchmarks and being at the top as we are in home health. Next, you can't have a great quality without having great people. Keeping our people and helping them develop and grow is our next great challenge and one that I'm personally energized by and committed to driving. As Paul has stated time and time again, we are a company of people. It takes time and effort to recruit our clinical staff who are in a higher demand than ever. When we do bring in top talent, it is our job to keep them fulfilled and productive. Further, RNs initiate nearly 90% of our revenue. So turnover within the RN clinical staff has a significant trickle-down effect throughout the organization. I'm very proud of all the effort the entire organization has put behind this initiative and how quickly the results have come. I'm pleased to report that at the end of Q1, our total voluntary turnover was down to 15.9%, which is down from 19.5% in Q1 of 2020. Keep in mind, Q1 2020 was a pre-pandemic comp. Making this kind of turnover improvement during the pandemic is really an amazing story. We saw reductions in clinical turnover nearly across the board in both home health and hospice. We saw reductions in care center leadership turnover in both lines of business. This is a phenomenal performance for the quarter, and we look forward to continue to improve our turnover statistics throughout this year. It's all about our people. Next is operational excellence. For the quarter, we performed 13.9 visits per episode, down 0.1 visits sequentially and 1.9 visits year over year. We remained very comfortable with our VPE levels as we've seen strong increases in our quality scores. As a reminder, we consistently stated that we will never do anything to impact quality scores and given our continued improvement in home health quality, along with our decreased visits per episode, we're delivering on that promise. On clinical mix, in Q1, we achieved 47.6% LPN utilization and 52.5% PTA utilization. As visits per episode have come down, our ability to increase LPN utilization has become more challenging. However, there's still room for some improvement. We also saw year-over-year productivity improvements in our home health clinical staff as our visits per FTE increased nearly 4%. Increased productivity combined with decreased visits per episode will increase our capacity, which will be key to our future growth opportunities. And finally, growth. For the quarter in home health, we grew same-store total volume and admissions an impressive 6% and 5% respectively. Our home health line of business has done a tremendous job growing through the pandemic and continued that strong momentum in the first quarter. We did see significant weather disruption in our operations in February, which impacted our Medicare admit growth by about 1%. As a reminder, Q2 of 2020 was the most significantly impacted by COVID-19. So we're expecting a large year-over-year growth number in Q2-21 that will put us in line for our full-year guided home health growth target of 9% total admissions. Moving to hospice, we saw increasingly strong same-store admit growth throughout 2020, reaching 15% in Q4. So our growth rate in Q1-21 was 5%. Our admissions increased sequentially. with one less working day and a significant weather event in mid-February. The severe weather caused unprecedented office closures, resulting in a lost opportunity of approximately 1% of admissions growth. Additionally, COVID-19 impacted our admit volume in Q4-20 and Q1-21. Excluding the initial peak of the pandemic, we saw the highest volume of COVID admits in Q4-20. at nearly 400 on a same-store basis. This number declined to less than 300 in Q1 2021, with 70% of those COVID admits occurring during January. Keep in mind that these COVID admits, which were helping our admit growth in the back half of 2020, were also negatively impacting our ADC, with links that stay in single digits in many cases. As COVID-19 has declined, we continue to see improvements in median length of stay after reaching a low point in January of 2021, and in our discharge rates, especially in our shorter length of stay patients, which will be beneficial to reaching our ADC target throughout the remainder of the year. COVID-19 has also had an impact on our ability to hire and train hospice BD FTEs. However, as more and more of the population are vaccinated and COVID-19 restrictions are lifted, the pace at which we're able to increase our BD staff, roll out our training programs, and get our reps in front of people is increasing, and we're seeing more consistency and access to our referral sources. The increase in the headcount combined with the improvements in productivity and conversion rates should both be catalysts for increasing admittance in ADC as we move throughout the year. Page 18 of our supplemental slide deck shows graphically how we're performing versus the forecasted plan. We normally are skeptical of hockey stick forecasts, but the second half of 2021 should be just that. In personal care, our network drove approximately $1.2 million in revenue to our home health and hospice segments, which is up 170% year over year. Small, but we still have plans in place, and we're working to drive more volume through the network. We've also expanded our dialysis partnership in Massachusetts to include several aging services access point organizations, ASAPs for short. ASAPs are responsible for the reimbursing and overseeing of providers of Medicaid waiver services for Massachusetts Medicaid. This reimbursement is a three-way partnership between the ASAPs, Fresenius Medical Care and Amedisys, to coordinate and execute dialysis-focused personal care services in the home for dialysis patients. Through this partnership, we have further refined our dialysis programming and services requirements. The dialysis-focused personal care services will be performed by a supportive home health aide who has received specialized training to service the needs of a dialysis patient. This shows how we are progressing to prove that personal care is an essential element in care for the very sick patients in their homes. And finally, as Paul mentioned, we signed an innovative pilot with Sound Physicians to provide a bundle of home-based care focused on higher acuity patients that can be cared for in the home. A key piece of this program will be utilizing personal care services to support activities of daily living and for economically providing more routine and consistent patient interventions. We will be utilizing our own personal care assets for our initial pilot markets, and as we expand, our personal care network will be engaged. While these pilots are initially small, they're a great representation of the new and innovative ways we're trying to use personal care. We view our personal care line of business as a service delivery incubator and will continue to deploy personal care services in new and differentiating ways. As you can see, we carry much of our core business positive momentum from 2020 into the first quarter. Our focus on clinical distinction, employer of choice, operational efficiency, and growth continues to pay off financially, but more importantly, for our patients. And with that, I'll turn it over to Scott, who will take us through a more detailed review of our financial performance for the quarter. Scott?

Thanks, Chris. I'm very pleased with our first quarter financial results. For the first quarter of 2021, on a gap basis, we delivered net income of $1.50 per diluted share, or $537 million in revenue, a revenue increase of $45 million, or 9% compared to 2020. As a reminder, we have chosen to apply our CARES Act funds only to direct costs associated with COVID-19. The majority of these costs are included in cost of service. For the quarter, our results are impacted by income or expense items, adjusting our GAAP results that we have characterized as non-core, temporary, or one-time in nature. Slide 14 of our supplemental slides provides a detail regarding these items and income statement line items each adjustment impacts. You will note that our adjustments include the recognition of CARES Act funds and direct costs associated with COVID-19. For the first quarter on adjusted basis, our results were as follows. Revenue grew 45 million or 9% to 537 million. EBITDA increased 25 million or 47% to 79 million. EBITDA as a percentage of revenue increased 380 basis points and the EPS increased 49 cents or 47% to $1.54 per share. Significant audits impacting our Q1 2021 Consolidated results are as follows. The suspension of sequestration and rate increases added $18 million to revenue and gross margin. Improvement in home health revenue per episode and clinician utilization drove a substantial expansion of our gross margin, and the Sarah Care acquisition contributed $25 million in revenue. Now turning to our first quarter adjusted segment performance. Keep in mind segment level EBITDA is pre-corporate allocations. In home health, revenue was $329 million, up $25 million or 8% compared to prior year, driven by same-store total volume growth of 6% and total admissions growth of 5%. Revenue per episode was up $197 or 7%. Half of the increase was driven by the suspension of sequestration and the 2021 rate increase, and the other half was a result of fewer lost billing periods and improvements in our case mix and functional impairment scores. Our implementation of metallurgic care has led to a reduction of 1.9 visits per episode while we continue to improve on our quality scores. Visiting connection cost per visit increased 5% over prior year. The increase is driven by inclement weather pay, planned wage increases, a significant increase in the utilization and rates of contract clinicians driven by growth in COVID-19, higher health insurance costs, and the impact of lower visit volume on fixed costs. Our gross margin improved 470 basis points, despite the 5% increase in cost per visit. The improvement was driven by our significant progress on clinical staffing mix and utilization, 160 basis point impact from sequestration relief and rate increase, and the variable nature of our business model, which benefited from higher volumes and reimbursement. G&A increased approximately $4 million, mainly driven by raises, higher health insurance costs, increases in care center administration staff, and business development resources and investments related to PDGM, which were offset by lower travel and training spend. Segment EBITDA was $71 million, up $22 million, with an EBITDA margin of 21.5%, representing a 540 basis point improvement. Sequentially, segment EBITDA was up $5.4 million, driven by the 2021 rate increase and lower health costs. Our total admits increased 5% sequentially, However, lower revenue per episode, weather, and timing of the completion of episodes impacted revenue. Now turning to our hospice segment results. For the first quarter, revenue was $192 million, up $22 million over prior year, an increase of 13%, which includes the addition of the AceraCare acquisition, which closed on June 1, 2020. Net revenue per day was up 3% to $159.76, driven by sequestration suspension and a 2.4% hospice rate increase that went into effect October 1, 2020. As Chris discussed, hospice admissions grew 5%, and ADC declined 4% as our discharge rate and the delay in the timing of patients coming onto service resulted in shorter lengths of stay. Hospice costs per day decreased $1.79, primarily related to a decline in visits performed by hourly employees due to COVID-19-related access restrictions, lower respite utilization, and lower room and board price concessions, plus the offset by raises and health insurance costs. EBITDA was $47 million, up approximately $8 million, an increase of 21%. The StairCare acquisition added revenue of $25 million and EBITDA $4 million to segments performance for the quarter. G&A increased $7.6 million driven by the StairCare acquisition. Sequentially, segment EBITDA decreased $5.6 million driven by the anticipated decline in ADC. Turning to our general administrative expenses. On an adjusted basis, total G&A was $171 million, or 31.8% of total revenue, which is an increase of $16 million year-over-year and includes $8 million in additional costs related to the care acquisition, $7 million in our hospital segment, and $1 million in corporate. Additionally, health insurance costs, incentive comp accruals, raises, additional business development resources, and operational support account for approximately $8 million. We continue to generate impressive cash flow in the first quarter, producing $54 million in cash flow from operations. Cash flow from operations is ahead of the internal projections due to strong cash collections and an extension of federal tax payments due to the inclement weather in February. Our DSO increased 3.7 days from year-end versus our forecasted increase of five days. As a result of our continued strong cash flow, our net leverage ratio at the end of the quarter was 0.7 times. M&A remains our main capital deployment priority, and our pipeline of both home health and hostage deals is full and active. As Paul mentioned, we recently announced the signing of a definitive agreement to acquire the regulatory assets to expand our home health operations in Randolph County, North Carolina. We also plan to use the NOVOs as a tool in expanding our footprint with 15 planned in 2021. During the quarter, we opportunistically deployed approximately 73 million of our 100 million share repurchase authorization. Even with this repurchase, we have over 460 million in liquidity position as well for a continued inorganic growth. Finally, as you can see on page 16 of our supplemental slide deck, we're updating our guidance ranges for 2021 to reflect the extension of the sequestration suspension. Our new guidance ranges are revenue of $2.3 to $2.34 billion, adjusted EBITDA of $342 to $352 million, and adjusted EPS of $6.85 to $7.07. Some items to keep in mind as we move into Q2. We're still climbing out of our ADC decline from Q4. We're seeing an increase and access to patients in both facilities and their homes for our hospice aides and LPNs. The impact is approximately $3 million quarterly as we return to our pre-COVID visit levels. We anticipate a sequential increase in health insurance and workers' compensation of $7 to $8 million. I'll now turn the call back over to Paul to conclude. Paul?

Thanks, Scott. I love financial poetry in April. As you can see, we have delivered another strong quarter of performance in an ever-changing market. We bested our expectations and increased our guidance ranges. We remain in a very advantageous position as demographic, psychographic, regulatory, and operational tailwinds all point to a very exciting future. This ends our prepared remarks. Operator, please open the call for questions.

Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. If you'd like to remove your question, please press star 2. In the interest of time, we ask that you please limit yourself to one question and one follow-up. We will now begin questions. Our first question comes from the line of Brian Tanklet with Jeffries. Please proceed with your question.

Hey, Brian. Good morning, guys. Good morning, congrats, and thanks for the reminder of my English-led classes.

I knew you were going to break out in a sweat on that one.

And Chris, I sympathize. I guess my first question is for Scott. Scott, as I think about the guidance adjustment, right, so you're only, just to clarify, you're only adjusting for the sequester, but nothing has changed in terms of the assumptions in your Q2 to Q4 guidance despite the buyback or what seems to be an earlier than expected acceleration and kind of like the recovery pace at hospitals. Is that the right way to think about that?

That's right, Brian. So, yes, I'm only adjusting for the impact of sequestration, kind of sticking to our plan around, you know, waiting to get to Q2 to reassess guidance. So we're sticking with that. And I would say from the buyback, you're not seeing anything from an EPS impact perspective. I think a full year impact of that is somewhere around two cents. So it's minimal. Got it.

Okay. And then, Paul, I guess for you and Chris, so hospice turnaround, if you don't mind just walking us through what the action plan is. I know you have the guidance chart in your slide deck, but how are you thinking about operationalizing the turnaround there? And I guess I'll throw a second question from your Humana days, just thoughts on what they're doing there. How does it impact you now that they've brought Kindred at home in-house? Thanks.

Sure. Chris, why don't you take on the seesawing we're seeing in hospice? I think it's beneficial seesawing, but we've been, you know, where we're focused most, just to preview a little bit about what Chris is saying, we're focused on ADC. That's very important for us. And our length of stay, which bottomed out in January, this March is equal to last March pre-COVID. So we're feeling very good about that. But I'll let Chris describe the seesaw.

Yeah, yeah, hey, good morning, Brian. Yeah, you can only imagine what I go through every day. But on us, you know, what we saw is really kind of a big, you know, bolus that came through at the end of December into January related to the pandemic that, you know, we had the 15% admission growth and no ADC growth in Q4. We came out of the gates really strong with strong admission growth in January and saw some declines after that as we saw that most of that was either hospitals discharging or COVID-related patients as that moved off. So the metrics we're watching very closely are really our median length of stay and our percent of patients that are on service for 14 days or less. The good news is as you move through Q1, both of those numbers moved in a positive direction at a pace a little quicker than what we had in our internal model. So we hit the low point on median length of stay of 18 in January of this year, and that's compared to 27 in January of last year. So the signs there around kind of stabilization of length of stay are really positive and looking good. Unfortunately, we just had a really disappointing admission mark, you know, by our standards. And we have some work to do around that, mainly around making sure that we have the right number of feet on the streets. We saw a little bit of a tick up in turnover, each one from our sales team on hostage particularly, that we got our arms around. And now we have an aggressive kind of, you know, higher deploy plan that we're in the middle of right now that we should have done by the end of next month. That, you know, makes me feel good that we'll be on track to be able to generate our committed numbers for .

And, Brian, in terms of the Humana acquisition of Kindred, that's great. I mean, as an ex-Humana person, and I'm sitting with three Humana people in the room, ex-Humana folks, I think it's a validation of the idea that the payers, if they're going to be payviders, are going to move into the home. that managed care, particularly Medicare Advantage, which is growing at four times the rate of fee for service, is going to, you know, wants to be in the home. That's where the demographics are going for the baby boomers that are signing up for Medicare Advantage four to one. And so I think it's a very smart move for them. I think they're renaming it to Care Center or something like that anyway. But it's smart to be in home health. As we saw when we were all there, when we got involved and started Humana at Home, we found that using home health for your sickest of your sick members works very, very well in terms of cost savings. I think the interesting thing will be on that is whether it seems like they have good overlap with Kindred, whether all that Humana business We'll go to the Kindred folks, and then they'll think of cost savings versus generating revenues. If so, where we compete against Kindred, will that provide an opportunity for us if that capacity of Kindred is used up by Humana business, if that means more fee-for-service business for us? And I think one of the things we talked about is how high our quality scores are. So I think where we will compete... I think it's a good sign for us. And we're good partners with them. Where Kindred isn't, we work with them. It'll be interesting to see what happens if they, I guess they did announce they're spinning off hospice and personal care. So I think that commitment to home health is very good for a plan to do. And I think hospice should be not part of a payer. So it's all happy news for me. Thanks, guys. Appreciate it, Brian. Thanks. Get back to that old poetry anthology that you hid in the attic. You know it well.

Thank you. Our next question comes from the line of Matt LaRue with William Blair. Please proceed with your question.

Hey, Matt. Hey, how we doing? Good morning. You know, with lower visits per episode right now, in part because of metallurgics, and your record load turnover, you do have increased capacity. And with the record referral source ads you've had over the last 12 months, we think we'd have even more demand. So how do you make sure that that increased capacity that you have is really being fully utilized and capturing all these new referral source opportunities?

Well, first, Chris, you want to take Matt through the incremental referrals we have And then the natural growth rates, I think, that we described in our JPMorgan deck in January talks about the demographic growth. So, yeah, capacity is going to be a significant issue for the entire industry, and that's one we're trying to get in front of by making sure we have very low turnover. So, yeah, Chris, you want to walk them through that? Yeah, yeah, thanks, Matt.

So from a, you know, kind of growth and referral accounts, we added another 3,200 home health referring accounts in Q1. Those are accounts that did not refer business to us in the previous 12 months. We have, you know, strategy around that is we're growing our BD sales force pretty aggressively on the home health side to be able to maintain those accounts and go deeper into those accounts. We feel good about, you know, our strategy. It's been one that we've It's one that we've been with for a while now, and it's definitely paid off. I think another thing to look at is segmentation of our business on home health. And even with the growth that we're looking at right now, 5% in Q1, our senior living business, which I'm going to include skilled nursing and rehab in there as well, is still down 20% year over year. but it's up 4% sequentially from Q4. So we're starting to see that come back, and that's an opportunity for us that we should see as upside to utilize that capacity that you mentioned a while ago. So we still have room to grow there as those communities come back, that business comes back, as well as the electives. And we still have not seen those really get above 80% of pre-pandemic level, around 75% now. So we see those as two, you know, we see those as a couple of, you know, good signs of things to come as we continue on this strategy.

On the sound physician kind of interesting partnership there, is there anything you can give us in terms of, probably talk about kind of build, test, iterate, you know, what metrics are you tracking and what ultimately do you want to provide versus eventually convene? And then is there sort of a timeline in terms of, you know, an endpoint here for the pilot stage where you might make a call to expand more broadly and potentially with even other partners.

Yeah, I think the idea there is, one, first of all, we're very proud to be working with such a quality group as Sound Physicians. You know, I've known them since their inception, and they're just extraordinarily good. So you get phenomenal execution on that side. What we're basically looking for, and I think what they're looking for, is they're capitated. I mean, they go in and they – They work in a variety of areas, and what they want to do is optimize outcomes at the lowest cost. And there's a belief that there's, you know, 20 to 25 percent of business that goes into SNFs that potentially can go into the home if we're able to provide the other services that we mentioned, you know, personal care combined with home health, combined with telemedicine, you know, transportation, diet, all these other things that we can provide. So, I think the idea is as we move up the acuity scale, this is very important for us because it increases our addressable market tremendously. I mean, to start to work in higher acuity environments. So I think it's going to be more of the traditional things. What can we do in terms of making sure readmissions are taken care of, med adherence, which often drives admissions. So the traditional things, quality outcomes, customer satisfaction, And then, you know, the cost per patient compared to what they would normally do if they referred it into an institutional setting. So those are pretty much the benchmarks that we put in front of us. I don't know, Scott's running innovation. So, Scott, did I miss any of the benchmarks?

No, Paul, you've got them. I mean, Matt, it's going to be mostly around readmission. That's where all the cost is. So, you know, it's better for the patient. You know, how many days can we keep them in the home, keep that number of days up? and then patient satisfaction will be huge at the end of the day. So I think some of the normal items we talk about, and then we'll be able to measure that from a financial perspective.

Yeah, I mean, Matt, a lot of this is we're jumping in with Sound, great partner. We've set up some benchmarks. Again, our job is to deliver them the value that they need in the process of doing this, but then to iterate, iterate, iterate until we build a methodology that we're really successful with. We overlap in 30-plus areas with sound, obviously sounds associated with United. So there's some really good opportunities to expand beyond this, particularly with our friends at United.

Thank you. Our next question comes from the line of AJ Rice with Credit Police. Please proceed with your question.

Hi, AJ.

Hi, everybody. Just first... And I appreciate the comments about the elective business and where that stands. But if you think broadly about what the business looked like pre-pandemic and where you're at now, I know you've picked up COVID patients, and I know there's been some shifting in the referrals that may have come from SNFs that are coming – or may have come from hospitals to SNFs to you that are now coming directly to you. But do you have a sense of where – the rebound in your traditional business is, how much below baseline or par or whatever you want to call it, you're still running, so how much is there to still potentially catch up?

Yeah, Chris should address that, but it's a good question, AJ. I mean, we've stolen share where we've been, you know, clearly in the SNF area, we've stolen share because it's not equal to the decline. So, Chris, you want to talk about where we see things in terms of percentage of growth pre-pandemic versus post?

Yeah. Hey, AJ. I would say the physician business is back ahead of pre-pandemic levels and growing, partly because the market is back and partly because we're also growing our base of physician referrals pretty significantly. Hospitals are fully back as well. So What we do think will happen with hospitals is as electives are starting to move more to ambulatory surgery centers, you know, they're going to fill those beds with other, you know, kind of, you know, med-surg patients or other types of patients that could create some incremental upside opportunity where we have very strong hospital relationships. So excited about that. I want to talk about the skilled nursing and rehab and senior living community again. you know, that is down almost 20% year over year, 19.6 to be exact for Q1. And that business makes up about 18% of our admission mix. So, you know, where we see the opportunities is as a, and we don't feel like we've lost share in those. We actually feel like we've taken share in those. So getting back to pre-pandemic levels and beyond in those markets is where I would expect to see significant growth opportunity.

Okay, great. And maybe just quickly on the M&A front, I know that remains a priority for you. And I think coming into the year, you talked about potentially 300 to 350 million spent on acquisitions. So as a target, we've got sequestration that may stretch things out a little bit. We've seen a couple of deals, small regional deals done by other players that were north of two times revenue. Can you tell us what you're seeing in terms of pricing? And whether you think things like the sequestration move will delay a little bit the rebuilding of the acquisition activity?

Yeah, AJ, I think on the M&A front, and I'll have Scott talk about the pipeline because we're feeling very good about the pipeline. And I think a CON in North Carolina is not where we are going to end the year. So, we have pretty good pipeline, largely proactive. The pricing on the deals that we've seen out there from some of our competitors has been perplexing, particularly the assets that they're acquiring. So, we're going to continue along being highly proactive, going after high-quality assets at reasonable prices. Have we seen the prices move up in home health a little? but not crazy. Hospice, crazy in some of the last deals that have been done. But I think there's a move for a lot of people to try to get home health and hospice if they're going public or if they're doing a SPAC or something like that to get that on their books. And so we feel that, you know, we feel that that's causing some inflation out there particularly with some of the assets that we've seen a lot of these assets before. I know, Scott, you want to talk a bit about how we're doing on the pipe and using up some of the capital we're generating?

Yeah, Jay. So we feel good about the price of what's out there. As we've talked about, our focus has been home health, so we've got a lot of those out there. And Yeah, I think you're right on. I think the sequestration has made it, you know, you're not seeing the incoming, and I do think that delays that. But really, from our assessment, we'll still be active and pushing for those areas we identified from a geography perspective we wanted to be in and the targets that we've laid out. So we'll certainly go different routes. We'll wait for processes to start and try to head some of these off. So feel good about where we are, and we'll continue to push and, you know, looking to be successful as we move through the rest of the year from an M&A perspective.

Yeah, AJ, I don't think I answered your question specifically, but I do think the delay of sequestration will delay roll-up opportunities with mom-and-pop industries, not the mid-size to larger deals that are out there. So I do think the roll-up opportunities will be delayed until sequestration gets re-implemented. Okay, thanks a lot. Okay, I appreciate it. Thanks.

Thank you. Once again, ladies and gentlemen, as a reminder, we ask that you please limit yourself to one question. Our next question comes from the line of Joanna Gadzik with Bank of America. Please proceed with your question.

Sure, thank you. Hi, Joanna. Hi, how are you? Thanks for taking the question here. But can I still have a follow-up, a short one, first on the visitor episode? Okay. You talked about the reductions there. I want to say that, you know, previously you talked about reversing this reduction in visits per episode, and I guess, you know, when they expect this to happen and what is kind of the target foot for the year in terms of visits per episode.

Sure. Before Chris jumps in with the specific numbers, the one thing I'll say is while the visits per episode did go down, out of our home health, in-home health, 320 care center's 316, 99% of them were four stars and above. So, you know, what we always, the first thing we always looked is to make sure that our quality is sustained. Actually, our quality in concert with reducing some of these visits per episode were actually increased. So that to me is something that I'm really proud of what we've done as a company. I'll let Chris talk about the specifics.

Yeah. Hey, good morning, Joe Hendricks. So from 13.9 for Q1, a little bit less than what we had kind of modeled out. We modeled out that we'd be about 14 and a half for the full year. We did expect a ramp as the year went on to get to that 14 and a half. I do feel like Q1 was a little impacted by the pandemic, particularly around nurses on quarantine as well as access to facilities, both of which are much better shaped today than they were earlier in Q1. Where I think we'll land for the year will be around in the low 14s, around 14.25, could get up to 14 and a half. I think we'll exit the year closer to 14 and a half than where we are right now as we get into more of a normalized environment. Metallogic data suggests that's where we should be, so I wouldn't anticipate it going down any further. And I'd look at it as around the 14.25 range.

Okay, that's helpful. And my question was on a topic we didn't get to yet in terms of the Medicare Advantage plans and I guess the pricing or the rates in the home health business. Can you kind of talk about any updates there in terms of closing the gap on the rates, you know, the increasing the penetration, I guess, of these more at-risk or value-based type structures with MA plans. Thank you.

Chris, that's you. I'll let you do that.

Yeah, yeah. It's still more of the same story. Nothing kind of, you know, groundbreaking in the last quarter. We had a couple of contracts continue to renew, and we're able to typically get a reasonable, you know, kind of rate update, but still, you know, significant gap from a Medicare figure service basis. You know, the name of the game still remains, hey, you know, pay us a more fair per visit rate, but also give us some upside that we have to go earn based on quality metrics. You know, the appetite and the plans for doing that is very strong, so we're able to, you know, pretty much any renewal or new contract we're bringing in has that component, but Unfortunately, still significant gap from the actual blended net revenue per visit and what we would get in an episodic world. Particularly since we're seeing our business per episode come down, that's driving up the revenue per visit by pure math with our revenues per episode being up as well. So the gap is not getting any narrower, but we are getting more rates better rate from the plans, but nothing, it's nominal, it's not significant.

And I think that's going to change, Joanna, over the years as the higher quality folks, as the plans desire to work with the higher quality folks and some of the conveners are pressured, you know, that have been acquired, some of the conveners are pressured to contract with higher quality folks. to get better outcomes, there will be a capacity limitation. So with capacity limitations, there's going to be price increases. So I think we're in good shape. Again, if we just focus on the quality, on delivering what the plan's really like, which is high-quality readmissions, reductions, other metrics which show that we can deliver very good outcomes for them, we're going to continue to try to go at risk and continue to try to make sure that – that we get paid extra. You know, right now it's about $125 average rate on a Medicare Advantage versus about $165 on fee-for-service. But the risk portion is increasing. Yeah, we're looking at about 25% risk based on our MA book of business.

All right. Thank you so much. Thanks for the call.

Thanks, Joanna. Appreciate it.

Thank you. Our next question comes from the line of John Ransom with Raymond James. Please proceed with your question.

Hey, John. Hey, Paul. Remember, we have our Venerable B podcast we have to do in original Middle English at 2 o'clock.

You're right. You're right. We're going to invite Mr. Elliott's ghost on that one. Yeah, there we go. Good. Who am I?

Any of you guys know who the Venable Beat is? That's a good style of liberal arts education. So my question is just kind of on the market share gains, just trying to, if we think about the totality of volumes versus the, the disconnect with your volume growth. I mean, that's at least 10 points of share gain. But kind of maybe, Scott, you could sort of help me with that math. I mean, how do we triangulate between electives down 25, some offset other sources, but then your 5% organic growth? How should we think about market share gains in OneCube using that math?

Yeah, John, I mean, you know, I haven't really – I think, Chris, you've kind of backed through some of those in your thought process. But, I mean, I think, you know, as electives move, we're always going to follow behind that a little bit, I think, from a what's going to come to us perspective. But, Chris, I don't know if you have some specific perspective on the way you see that.

Yeah, I think, you know, I think with hospital volume being up year over year, I think that's pure market share takings. I think that could also be some still some SNF bypass as well. It's up, you know, year-over-year hospitals are up about 4% in volume, in admission volume. Physicians, I fully feel like, you know, the year-over-year growth there is about 1% right now on the year-over-year for Q1. is around kind of market share as well because not all physician volumes are back to full, you know, full pre-pandemic levels, even though our raw volume is back above that. We're adding those, you know, kind of those new referral sources. But, you know, where it all sets and the opportunity still sets is in that senior living community and, you know, nursing and rehab that's down, you know, the 20%. Now, some of that electives can be accounted for in that area as well. If those electives actually step down to a SNF and then come to the home, then that could be an additional upside for us. But, you know, we really haven't penciled it out. We've just kind of been nose to the ground on this, you know, pretty, you know, straightforward sales strategy and growth strategy, adding the reps, adding the referral sources, making sure that we're selling on quality, really haven't paid attention to what's happening around us with our competitors. But we think that there's going to be significant upside as we move through this year.

Yeah, and I think what you're trying to smoke us out on, John, which is smart, is the bounce is bigger than what we're saying. And, yeah, I think it is. I think we've stolen a lot more share than we really have tried to calculate. And also, I think we're following the business better than most. There's a lot going with ASCs, for example, a lot of these places. So that's getting involved with the bundlers. That's, you know, being as facile as we can to try to, you know, figure out where the business is. It's like whack-a-mole. COVID has been like whack-a-mole. And I think we've been fairly adept at moving around, figuring out where the business is. We still have some work to do in terms of our value proposition. on some of these places, but I think we're learning.

I mean, my editorial comment is I never really understood 28 days in a nursing home for a total joint rehab versus a couple of home health episodes, you know, one-third the cost or more. But I guess it took the pandemic to sort of make that more obvious to people. My second question is that we look at 22 – you know, there's some comparison difficulties with respect to the sequester perhaps going away and the fact you'll be lapping these big metallurgic staffing gains. So how are you guys thinking about, I mean, there's the obvious answer of M&A, but is there any other, how else is, you know, the team thinking about, you know, trying to not, you know, have a big air pocket as we look forward? Thanks. Scott, you want to take that one?

Yeah.

Yeah, I'll just kind of, you know, you're right about that sequestration right now, John, a full year, that's roughly $36 million. So you got to think as we walk into next year, we've got to deal with that issue. I mean, I think for us from a good, and then, you know, the PDGM gains, you saw us really, you know, first, we'll see good year over year comps in the first half of the year, but then we'll get to a normal pattern. So some of those levers will have run its course at that point in time. I think then you look for I think how we built this model, you'll see continue accelerated growth on our acquisitions. I think that's what will help give us juice into 2022. And then, you know, we'll continue to try to pour into some more M&A. I think that's kind of, you know, we'll follow rates closely. I think productivity around our clinicians as we get that right, I think that's certainly important. will be helpful for us. I think we have some few levers there as we get it more our staffing versus contractors. But yeah, I think that's some of the difficulties in moving into next year. Great. Thanks so much. Thanks, Sean.

Thank you. Our next question comes from the line of Frank Morgan with RBC Capital Markets. Please receive your question.

Hey, Frank. All right. Hey, Frank. How you doing?

Great. Good morning to all. Hey, When they go back, you had talked about business development turnover and not being able to reach your targets for growth there. I'm just curious, what side of the business is that more prevalent? Is it on the home health care side or the hospice side, or is it both? And then do you see a, you know, when I think about turnover, I always think more on the clinical side, but just maybe an update there. And then finally, just on the you know, some of the things that are slowing down the pace of the roll-up in home health care. I would have thought with the RAC kicking in this year, the elimination, that maybe that would be a bigger influence, but you think that's more than offset by the effect of this push out of the sequestration. That's it. Thanks.

Yeah, the no-pay RAP, I think, is quite severe. I think, again, Scott showed how we've come through that. We were anticipating it would be a $5 in DSOs, but it turned out to be, I think, 3.7. So I think we performed very well against that. I think the industry is working very... We're seeing mixed results out in the industry. I don't know. Scott, anything on that?

No, I think that's right. I mean, I think we've done well on it, but I still think that prop up and sequestration, depending on how funded, you still have some CARES Act dollars. You've got those funds in your pocket right now. So I feel... That makes it more challenging, and it gives them the ability to kind of withstand that rap hit early in this year. So we think it still shakes out, but I think it makes it a little bit more difficult.

Yeah, and I'd say on the BD side, I'll let Chris talk a bit about it, but on the BD side, it's hospice. We lost some people in hospice due to the transition situation. You know, in COVID, and we're going to make that up. I think Chris mentioned we'll make that up by May, end of May. And turnover with BD is generally pretty good. But we've reduced our turnover so much that we're going to take it to BD. So, Chris, any comments in terms of how fast the buildup and then what that's going to do for an admits and then ADC growth get us back on track?

Yeah. Yeah. So, so Frank, we got up to about a 10% vacancy rate on the hospice side. This is squarely a hospice issue. Home health is about 2.2%. So we're in good shape there. Um, you know, and it was combination of the turnover kind of spiked on us in Q1. And we had a couple of, you know, fairly sizable regions that had some leadership vacancies that have since been addressed and filled and onboarded. So I'm really comfortable there. So, you know, focused on driving down that turnover has been a little bit of a shift for us over the last couple of months. And we've increased, you know, our resources around hiring and bringing in new BDS. So I think we'll be getting this thing back on track relatively soon. Just got to get the hires and get them out in the field and deployed. Back to your clinical question, real proud of how this organization has responded to this. the clinical turnover, and we've driven that down significantly. Again, our nursing turnover was in the high 20% range, 29%, I believe, for last year. And we drove that down in Q1 to around 20%, which was, you know, a great feat for this organization, and we're continuing to drive it down even further. And as I mentioned in my prepared remarks, you know, our total turnover for Q1, 15.9%, which is a real good sign, you know, that we're focusing on the right things and we're retaining our good people.

Thank you.

Thank you. Our next question comes from the line of Justin Bowers. Please proceed with your question.

Hey, Justin.

Hey, good morning, everyone. So just quickly, Can you talk a little bit about your thoughts on the competitive landscape with some of the strategic activity going on? And then in terms of ability to grow in home health, it sounds like it's more of a demand issue than a supply issue, just in terms of the electives and the institutional stuff coming back versus being able to staff up. Is that kind of a fair characterization?

Yeah, I'd say on the latter part of your question, I'd say it's going to be a supply issue. It's getting to be a supply issue in certain of our regions. So, again, I think we saw what's well ahead on the road, which is if we don't have the excellent clinical staff and productive clinical staff, we are seeing we don't think we'll be able to keep up or certainly post the growth that we're anticipating to post this year and next year and actually for the next five years. So it's largely going to be a supply issue, and that's why we're so focused on turnover. From a competitive landscape perspective, my guess is you're referring to Probably HCA's acquisition of Brookdale and then Humana's buying out of the Kindred asset. Yeah, I think in a lot of ways it's a validation of the fact that things are moving into the home, that particularly with the demographics that are out there with the baby boomers, we're seeing very, very strong demand for, and the plans are telling us there's very, very strong demand to provide home-based care So I think you've got two of the most respected players out there basically validating what we all know that things are moving into the home. So I'm not particularly worried about any of the competitive issues there. As you know, it's a highly fragmented industry in both home health, hospice, personal care, palliative care, and I think quality is going to win there. and I think also being able to execute and have capacity to supply services is going to be the winner there. So I'm not particularly concerned about what these two folks might come up with, and I think integration and figuring out how these folks integrate with their core companies will be something that will probably take a little while to occur, and we'll keep doing what we do every day and getting better and better and better.

Okay, yeah, supply issue. And then just on kind of the labor dynamics, has that pressure eased at all more recently versus kind of what you saw earlier in quarter? And then lastly, just any notable kind of swing factors as we move from 1Q to 2Q?

I'd say from a labor perspective, we don't see it. We see it in small pockets, We don't see labor inflation except for contractor, which is, again, a capacity issue. That's where we've, when we had COVID, heavy COVID admissions going through that, we had to go to contractors. But in general, that's why we're focused so much on our fundamentally, we're a human capital management organization, and we have to make sure that we have enough people to supply the market with what the market's demanding, and we can't get caught. But we don't see the market being inflated like you're seeing in the hospital side of the business Again, when you have high quality, I'm sorry, I'm sounding like a broken record. You have high quality, 99%, four stars and above, people want to come and work for you. All things being equal, they want to go to an employer that delivers high quality, that will not compromise on quality, that will do the right things for the patient and do the right things for the employee. And therefore, we don't seem to have big problems with recruiting, as I said, except there's some urban pockets where it's just tough for everybody. I have actually my head of HR here who's in charge of it, so did I get that right?

Yes, you did.

Okay, good. Sharon gave me the thumbs up. Chris, I miss anything on labor? No. Okay, we're good.

Thank you. Our next question comes from the line of Steven Valiquette with Barclays. Please proceed with your question.

Hi, Steven. Yeah, thanks. Good morning, everybody. We're almost good afternoon now. So you touched on this a little bit, but maybe just tying a lot of talking points together. Yeah, when we do think about the 9% home health same-store emissions growth guidance for 21 that's unchanged, You mentioned last quarter around the seasonal trend that 1Q could be a little bit softer, 2Q the strongest with the easiest comp, and then 3Q and 4Q, I guess, relatively in line with that full-year guidance. Today's result coming in at 5% to 6% growth of 1Q seems to correlate with that, but I just want to confirm whether you're viewing it that same way. And are you feeling just better or slightly more cautious around that 9% in either direction based on everything we talked about on this call? Maybe the same sort of summary question just on hospice and personal care, too, just on that key metric. So for hospice, the 18% number there, are you feeling better or worse, or about the same? And the same thing on the 10% billable hours on personal care, just to summarize all that. Thanks.

Yeah, we balance hospice with ADC. ADC is our most important number. And since Chris is responsible for the numbers and runs the businesses, I'll let him answer. But we feel comfortable in general, unless Chris can say otherwise. Chris?

Yeah. So going in line with your questions on home health, I would say, you know, we feel slightly better than going into the year based on, you know, the first quarter, just kind of how things are shaping up. And, you know, a lot of this is going to be dependent upon some of the senior living coming back and us taking our share in that area as well and just continuing to actually plan. So I feel strong about the 9%. It could come in better than that, but I feel good about that. On the hospice side, I'll say I feel better about the 8% ADC growth than I do 18% emission growth, just given this off Q1 and a little bit of a ramp that we've got to build up here in Q2. But I think we will get it on track. The 8%, you know, we're getting the tailwinds of the length of stay coming back faster than we had modeled. but I feel like we're going to have a really strong exit, you know, second half of the year and go ahead and 2022, uh, and we should be able to deliver our kind of our financial commitments on the hospital side. I feel pretty good about that on the personal care side that we, you know, we, we really continue to struggle to grow that business. And it has been, you know, it has the most lingering effects of the pandemic, because even when the pandemic is gone, you still have labor issues at that wage level. So, you know, a good example is that stimulus checks went out last month. Our turnover spiked and our number of new applicants dropped significantly. So, you know, as you have a difficult labor market in most of our businesses in Massachusetts, which is also a little bit of a difficult labor state, you know, we've still got some headwinds we've got to work through to be able to get to where we're growing our caregivers. assuming we can grow our caregiver base, we will be on a growth trajectory for the business. So I'm still looking at second half, kind of momentum there. Still working through some challenges today with just kind of access to caregivers.

Yeah, and I guess I'll add a comment, Steve, to that on personal care. I'm so happy to be in personal care. We're in a tough state, Massachusetts. We do mainly Medicaid. But the fact that we're able to use personal care and show that we can drive home-based dialysis, the fact that we're using personal care, our personal care assets with our partnership with Sound Physicians and the SNF at Home project is something that's fantastic. The fact that we're building a network of personal care assets is something, again, that provides national coverage And that's growing nicely, although we want to grow it faster. That's something I'm real proud of. And we're learning every day in the business. And it's a very small business. As you know, it's about an $80 million business. But I think doing all that, we're learning just about the combination of all these services and how when you put them together, they can be really beneficial to patients and provide tremendous value along the care continuum. So I think that we're very committed to uh, to the personal care business, uh, particularly in an innovative way. So, um, that's what I'd say on that.

Okay. Perfect. Thanks.

Thanks Steve. Jen, do we have anyone else in queue? Should I start reading TS Eliot, Ken? Are we off? No. Operator, are you there? Hey everybody. I think we have two more questions in the queue.

So guys, in queue, we apologize for the technical difficulties.

Yeah, I think we'll call it. And we've got two folks. I think John had a circle around, and then Bill was in the queue. So we'll call you right up afterwards. We apologize for this. We shouldn't have this happen. But I want to thanks to everyone who joined us on this call today. I'd like to thank, again, our incredible employees who delivered all this great value and wonderful results. Please keep doing what you're doing. Take care of the great people, our patients who need us the most. We hope that everyone has a wonderful day, and we look forward to updating you on our ever-evolving progress and purposeful work on our next quarterly earnings call in July. Until then, have a wonderful day, and we look forward to talking to you as we progress. Take care. Bye.