Amedisys Inc (AMED) 2009 Q4 法說會逐字稿

Good day, and welcome to the Amedisys fourth-quarter 2009 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Kevin LeBlanc. Please go ahead, sir.

Thank you, Jennifer. Good morning and welcome to the Amedisys investor conference call to discuss the fourth quarter and year ended December 31, 2009, earnings announcement and related matters.

If you have not saved a copy of our press release, you may access it on the investor relations page on our website at www.Amedisys.com. Speaking on today's call from Amedisys will be Bill Borne, Chairman and Chief Executive Officer; Mike Snow, Chief Operating Officer; Tim Barfield, Chief Development Officer; and Dale Redman, our Chief Financial Officer.

Before we get started with our call, I would like to remind everyone that any statements made on this conference call today or in our press releases that express a belief, expectation, or intent, as well is those that are not historical facts, are considered forward-looking statements and are protected under the Safe Harbor of the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to Amedisys today, and the Company assumes no obligation to update these statements as circumstances change.

These forward-looking statements may involve a number of risks, and uncertainties which may cause the Company's results to differ materially from such statements. These risks and uncertainties include factors detailed in our SEC filings included on our Forms 10-K and 10-Q. Also, the Company urges caution in considering any current trends or guidance that may be discussed on this conference call.

The home health and hospice industry is highly competitive, and trends and guidance are subject to numerous factors, risks, and influences which are described in the Company's reports and registration statements filed with the SEC. The Company disclaims any obligations to update information on trends or targets, other than in periodic filings with the SEC.

Our Company website address is www.Amedisys.com. We use our website as a channel of distribution for important Company information. Important information including press releases, analyst presentations, and financial information regarding the Company is routinely posted on and accessible on the investor relations subpage of our website, which is accessible by clicking on the tab labeled Investors on our website home page.

We also use our website to expedite public access to time-critical information regarding the Company in advance of or in lieu of distributing a press release or a filing with the Securities and Exchange Commission disclosing the same information. Therefore, investors should look to the investor relations subpage on our website for important and time-critical information. Visitors to our website can also register to receive automatic e-mail and other notifications alerting them when new information made available on the investor relations page of our website.

In addition, as required by SEC Regulation G, a reconciliation of any non-GAAP measures mentioned during our call today to the most comparable GAAP measures will be available on our website on the investor relations page.

Thank you, and now I'll turn this call over to Bill Borne. Bill?

Thank you, Kevin, and good morning. I would like to welcome everyone who has joined us on the call this morning. We appreciate the opportunity to update you regarding the Company's performance and share our vision for Amedisys.

We had outstanding results for the fourth quarter, recording net revenue of $405 million and earnings per share of $1.35. This represents growth of 19% and 39%, respectively, over the fourth quarter of 2008.

In early January, we announced that Michael Snow and Tim Barfield joined the Company. Mike recently assumed his role as the Company's new chief operations officer. He comes to Amedisys after serving as the CEO of Wellmont Health Systems, an eight-hospital health system in Tennessee and Virginia. He brings significant operational experience to our leadership team.

With his experience managing hospitals, health systems, and large post-acute care providers, he brings an in-depth knowledge of the opportunities that lie ahead for Amedisys.

Tim Barfield is the Company's Chief Development Officer. He previously was the executive counsel to Louisiana Governor Bobby Jindal, and before that was the president and CEO of The Shaw Group, a multibillion-dollar publicly-traded company that provides engineering, technology, construction, nuclear, environmental, and industrial services. Tim's experience in acquisitions, integration, and growth will provide tremendous value to Amedisys as we move forward.

Additionally, Patrick Thompson joined the Company to fill our vacant Chief Information Officer position. He has also taken on the newly created position of Executive Vice President of Administration. Patrick was formerly the chief information officer and the chief administrative officer for The Shaw group. His experience in IT and administration aligns completely with Amedisys's commitment to quality by improving efficiencies companywide through technology and innovation.

As you know, our Company's success is based on three simple business tenets -- provide high-quality clinical services to the patients entrusted to our care, focus on growth, and increase operational efficiency.

Our commitment to the first of these tenets, quality care, has resulted in our Company comparing very favorably to the industry scores. In the most recent clinical outcome data published by CMS, we met or exceeded the industry average in nine of 12 outcomes, and within our regional footprint we met or exceeded regional averages in all 12 clinical outcomes.

However, we are not satisfied with merely comparing favorably. Our goal is to clearly exceed our competitors in all clinical outcomes nationally, specifically the categories of discharge to home, reduction of ER visits, and hospital admissions. Shortly, we will begin to implement our nationwide care transition campaign and roll out our locally-based Telehealth program to an additional 100 agencies over the next six months. We believe this will help us to meet these objectives.

January 1st, we successfully implemented OASIS C, a federally mandated revision to the prior required OASIS documentation that tracks patient outcomes and acuity. A significant difference in OASIS C includes the addition of process measures, 13 of which will be publicly reported by year end. These process measures include proactive care planning based on evidence-based practices for prevention and intervention.

With that goal in mind, we are further strengthening our clinical field resources by investing in more than 100 agency-level clinical managers. Our goal is to increase our clinical manager oversight by over 100 registered nurses, with the majority of those additions having already been made.

We are continuing to strengthen our corporate clinical resources and [auditing] capabilities with the addition of 55 clinical specialists. This initiative will allow was to physically visit every agency every quarter to provide clinical oversight, chart reviews, and ongoing education. While initially these investments will add cost to our infrastructure, we ultimately believe this investment will have a positive impact on internal growth by providing more resources in the field and enhancing overall quality of care.

Continuing to improve our clinical outcomes as benchmarked against the industry should be positive with both payors and referral sources. These investments will also benefit our day-to-day agency operations by providing greater availability of corporate resources to better and more quickly meet growth demands and reduce nurse turnover within our agencies.

In addition to these human resource additions, we continue to invest in technology to improve patient care, gain efficiencies, and enhance controls. We are focusing on improving our care coordination abilities aimed at servicing the more chronic population, including a continuous development of evidence-based protocol; predictive modeling capabilities; advanced patient registry functions; and expanded capabilities to interface with multiple care providers via a scalable, secure communications system.

Examples of ongoing technology investments include our chronic-care portals; intra-episode utilization of our on core call system; Mercury Doc, our physician web-based interface; and the further development of Telehealth monitors, all discussed by Dr. Fleming in more detail on our last earnings call.

As you are aware, major healthcare reform, which seemed so likely a short time ago, is much less certain at this time. We continue to follow the legislative process closely and are supporting our industry trade groups in their efforts to help shape healthcare reform.

From a strategic perspective, we are encouraged by some of the new legislation being discussed in Washington that focuses on keeping the elderly in their home longer and providing better care management and care transition services. We support the general concept of these proposals, as we know there are significant opportunities to more efficiently and cost-effectively manage our nation's elderly population with chronic conditions. The home health industry is clearly positioned to become a driver in many of these opportunities.

There are several programs related to chronic care that we are following that could become opportunities for us in the future, which include community-based care transition programs, hospital readmission reduction programs, home health chronic care management demonstration, programs for grants or contracts to implement medication management services in the treatment of chronic diseases, independence at home, medical home, community health teams to support medical home, as well as other programs that may be tested in the CMS Innovation Center.

We intend to be active in many of these programs, and when they are enacted by the federal government, we expect to look at the opportunities they may afford us. No matter what happens in Washington, the investments we are making in quality care will serve us well.

Medicare currently spends 69% of its fiscal resources on 12% of beneficiaries with chronic co-morbid conditions. At Amedisys, our focus is on providing care for these complex patients in their home, when a home-based setting is most appropriate. This focus has resulted in Amedisys becoming one of the national -- nation's leading home health and hospice companies. We will continue to look for opportunities in home health and hospice to extend our leadership position.

We will also position ourselves to take advantage of new opportunities in care management of elderly patients with chronic conditions as those opportunities materialize.

Turning to growth, during the quarter we opened 13 new home health agencies, which totaled 41 for the year. We currently have approximately 155 home health start-ups in various stages, of which 60 are incurring expenses but have not yet opened. Our target is to open 50 new home health locations in 2010.

In addition, we opened four hospice agencies during the quarter and a total of seven for the year. We currently have approximately 90 potential home health start-ups in various stages, of which 12 are incurring expenses but have not yet opened. We are targeting at least five new hospice locations in 2010.

Moving to acquisitions, we acquired one home health agency, located in New Jersey, in December. We have a healthy pipeline of both home health and hospice acquisition candidates, and we continue to analyze potential opportunities as they become available.

As a result of de novo growth in acquisitions in previous quarters, we ended the year with 521 home health locations, 41 more agencies than in prior-year. We own 65 hospice agencies, 17 more hospice agencies than the prior-year.

For the quarter, our internal based revenue growth was 15%, with 5% related to volume and 10% related to rate. The volume increase during the quarter was comprised of growth and internal episodic-based admissions of 7% and re-certifications of 2%. We are pleased with the improvement in our episodic-based admissions growth from the 4% recorded in the previous two quarters.

Modifications were made to our sales territories and strategies in the second half of the year, and it had a continuing positive impact on our internal growth rate. We also saw some improvements in internal growth at the former TLC agencies acquired.

For the year-to-date period, our internal episodic-based revenue growth was 18%, with 7% related to volume and 11% related to rate. The volume increase during the year was comprised of growth in internal episodic-based admissions of 6% and re-certifications of 8%.

The increase in our rate, both the quarter and the year to date, is driven by our focus on higher acuity patients, many of whom are benefiting from our state-of-the-art disease management programs, such as our Balance For Life program. At quarter end, we have launched our BFL program in 332 locations, representing 64% of our total home health locations. We intend to continue rolling out our Balance for Life for select agencies in 2010.

We also are working towards enhancing and standardizing our other disease management programs with an initial focus on our behavior health and advanced wound care programs.

Commenting on internal growth expectations going forward, we anticipate that some improvement in our admission growth rate based on the realignment of our territories, the aforementioned investments in additional clinical infrastructure, and the maturing of our TLC agencies, and we expect our focus on higher acuity patients will continue to have a positive impact on revenue per episode in 2010. Combined, we believe that a 12% to 15% internal revenue growth rate is an appropriate range for 2010.

To summarize, for the year we achieved record revenue and earnings per-share growth, and experienced year-over-year increases of 28% and 52%, respectively. We began a significant investment to lead the industry in quality care, continued our start-up strategy, entered the CON state of New Jersey with an attractive acquisition, and continued to ramp up our Balance For Life program. We also made significant additions to our leadership with the additions of Mike Snow, Tim Barfield, and Patrick Thompson.

In conclusion, I want to extend a warm welcome to all of the employees of the Hackensack home health agency and De Queen Home Health, our recently completed acquisitions in Arkansas. We are very excited that you are part of the Amedisys family. Joining employees who bring a passion for serving our patients, our commitment to clinical excellence, and a culture of hard work is at the heart of what Amedisys that separates us from our competitors.

Mike Snow will now provide with some perspective on his new appointment as our chief operations officer. Thank you.

Thank you, Bill. Good morning. I'd like to start by saying how excited I am to be joining the Amedisys team.

While I only started full-time yesterday, I feel like I've been here since I was hired in early January. I've used the ensuing transition time meeting with employees at various agencies and have participated in a number of corporate meetings. This gave me the opportunity to jumpstart my learning process and get a good sense of the Company's culture.

I also used the transition time to speak with and meet a number of our investors. During those conversations, I was asked repeatedly my rationale for accepting this position and what due diligence I performed on the Company. Although my initial familiarity with Amedisys was limited, the home care and hospice space are well known to me and the positive roles both play in the continuum of healthcare.

Coming from an acute-care setting, I know firsthand the opportunities to better coordinate health care of our patients.

But, frankly, a significant consideration for me was the Company's focus on quality healthcare and compliance. As some of you are aware, one of my previous positions was the chief operating officer at HealthSouth in the post-Scrushy era. In that role, I spent considerable time working with the OIG to resolve compliance issues associated with the previous management and building a strong culture of quality and compliance.

What struck me immediately about Amedisys was the focus on innovative research and clinical effectiveness led by Dr. Michael Fleming. These efforts get to the heart of my belief that home care is uniquely positioned to improve care and lower costs in the health care continuum going forward.

But even with a focused quality commitment, a culture of compliance is a fundamental element of any healthcare company. We all know that strong compliance always begins with the tone at the top. I've spent a lot of time with Bill, senior leadership, and others in the organization, particularly Jeffrey Jeter, the Company's chief compliance officer. I also spoke with industry leaders, investors, and acute-care partners of the Company. I became convinced that there was indeed a culture of compliance and, more to the point, a desire to do things the right way.

So, with the belief and the strategic positioning of the business model, and commitment to quality care, and the right tone at the top, the only remaining issue for me with the financial strength to execute the strategy. This was probably the easiest of my issues since Amedisys has had such an impressive track record. The Company has tremendous resources, both operationally and financially, to continue to grow our core business.

So at the end of the day, the opportunity to build on the Company's success and help realize the Company's vision of improving the lives of patients with chronic-care needs was just too exciting to pass up. I'm excited to be here and eager to get to work achieving the great potential of this Company.

I would now like to turn your attention to our business unit performance for the fourth quarter.

Our quarterly revenue and contribution margin are broken down as follows; contribution margin is pretax and pre-corporate overhead. We had $356 million in home health revenue related to agencies we have owned longer than 12 months, with a contribution margin of 30%. We had $10 million in home health and hospice start-up revenue related to start-ups open less than 12 months with a corresponding negative 8% contribution margin.

Also in the quarter, we incurred approximately $5 million in costs associated with home health and hospice agencies we plan to open in the future.

We had $27 million in hospice revenue related to agencies we have owned longer than 12 months, with a contribution margin of 30%.

And finally, we had $13 million in home health and hospice acquisition revenues associated with the acquisitions completed during the last 12 months, with a contribution margin of 9%.

We continue to be excited about what the future holds for Amedisys as we are well positioned to take advantage of the emerging demographic and economic trends. While the potential for negative reimbursement changes remain a concern, such cuts will lead to considerable consolidation opportunities.

We also believe we are very well positioned, given our size, capital position, efficiency, technological infrastructure, and care capabilities, to manage through any legislative changes and to take advantage of opportunities the changes may provide. From the perspective of clinical design and scale, we view our capabilities of providing home-based post-acute-care services unmatched in the market today.

In conclusion, I would like to tell all of the employees listening to this call today that I look forward to meeting you and that I believe with your help the future for Amedisys looks very promising.

I will now turn the call over to our Chief Development Officer, Tim Barfield.

Thank you, Mike. I would like to echo Mike's sentiments in that I'm excited to be here as well, and for many of the same reasons.

As Chief Development Officer, my primary duties are related to growing the top line. Amedisys already has a proven ability to do this in the form of start-ups and acquisitions in the home health and hospice spaces. I will look to spur this process along and work to smooth our integration efforts so we can better achieve the margin expansion we have seen historically in our acquired agencies, as well as retain and then grow the top line more quickly.

Equally exciting is the opportunity to expand the business model beyond the traditional home health and hospice operations. Comprehensive continuous chronic-care management of the population we serve is in its infancy. We will tread very carefully as we work to develop the business model that works, but we believe the long-term demographic trends and the opportunities to make a cost-efficient impact with better quality outcomes are tremendous.

Having worked in Baton Rouge for more than 10 years, I've been very aware of the growth of Amedisys from a small, regional healthcare provider to being a leader in America's home health industry. The general positive view of Amedisys in the community here was confirmed as I became more acquainted with Bill and the leadership team. Bill's vision and passion for quality, combined with Amedisys's business platform, financial strength, and track record, provide a great foundation for growth going forward.

In closing, I'd just like to reiterate my excitement of being a part of this organization, and I'm looking forward to the challenges and opportunities that await. I look forward to working with Bill, Mike, Dale, and the rest of the Amedisys team to continue to bring outstanding results for our patients and our investors.

I will now turn the call over to Dale.

Thank you, Tim, and good morning. 2009 was highlighted by record revenue and earnings, a double-digit reduction in days revenue outstanding, and $247 million in cash flow from operations.

We remain focused on providing quality care to our patients we serve while maximizing our operational efficiencies, pursuing our start-up strategy, and continuing the process of improving the operating and financial efficiencies of our acquisitions.

I'll begin by making a comparison of our fourth quarter to the -- 2008 to the fourth quarter of 2009. Total revenue grew 19% over the fourth quarter of 2008 to $405 million. Our net income for the fourth quarter increased 43% over the same period in 2008 to $38 million, or $1.35 per share, compared to $26 million, or $0.97 per share, in the fourth quarter of 2008.

This growth was generated by $52 million from our base and start-up agencies and $13 million from our acquisition agencies.

Gross margin decreased from 52.4% to 51.3%, which was offset by a decrease in G&A expense from 38.6% to 35.6%. EBITDA was $71 million, or 18% of revenue, for the fourth quarter of 2009, compared to $51 million, or 15% of revenue, for the fourth quarter of 2008.

As Bill mentioned, we began adding to our field and corporate clinical resources during the fourth quarter, and we'll be filling the remaining positions during the first and second quarter of 2010. We anticipate these clinical resources will increase our operating costs by approximately $14 million in 2010. While this will impact our earnings in the short term, we believe these additional resources will benefit our long-term performance.

For the year ended 2009, our revenue grew 27% to $1.5 billion. Net income for the year increased 57% to -- over 2008 to $136 million, or $4.89 per share, compared to $86.7 million, or $3.22 per share. This growth was generated from $120 million in acquisition revenue and $206 million from our base and start-up agencies, with gross margins decreasing slightly from 52.6% in 2008 to 52.1% in 2009, while G&A expenses decreased 36.9% in 2009 from 39.4% in 2008.

Improvement in our G&A expenses is primarily related to leveraging of our operating structure and the integration of the TLC acquisition.

EBITDA was $262 million, or 17% of revenue, in 2009, compared to $177 million, or 15% of revenue, in 2008.

We ended 2009 with days revenue outstanding at 34 days, which is down 13 days from the 47 days at the end of 2008. Our estimated revenue adjustment and our provision for doubtful accounts totaled $29 million, or 1.9% of revenue for the year, compared with $30 million, or 2.6% of revenue, in 2008.

During 2009, our accounts receivable decreased $25 million on a $326 million increase in revenue, and our cash collections increased by approximately $390 million, resulting in the improvement in days revenue outstanding and the improvement in the aging of our receivables.

During 2009, we reduced our outstanding debt by $113 million to $215 million as of the end of the year, compared to $328 million last year. As you may recall, we borrowed $395 million in March of 2008 for our acquisition of TLC. We have reduced our leverage ratio from 1.6 times at the end of 2008 to 0.8 times at the end of 2009.

At year end, our weighted average interest rate on our debt was 3.7%.

From a liquidity standpoint, we ended the year with $34 million in cash on our balance sheet and $239 million available under our revolving credit facility. Our cash at year end was up from $3 million at the end of 2008, primarily because of $248 million generated from cash flow from operations, $36 million in capital expenditures, $54 million in acquisitions, and net debt payments of $125 million.

During 2009, we generated cash flow from operations of $167 million after CapEx and required debt payments, and we anticipate such cash flow to be in the same range for 2010.

Today, we are issuing our revenue and earnings guidance for 2010. Revenue is anticipated to be in the range of $1.7 billion to $1.75 billion, excluding the effects of any future acquisitions that are made. Diluted earnings per share, I expect to be in a range of $5.40 to $5.60, based on an estimated 28.8 million shares outstanding, which also excludes the effects of any future acquisitions if they are made. This guidance is based on the current reimbursement rates and assumes that they are unchanged for the year.

At this time, we will open the call to your questions. Please limit yourself to two questions so that we may allow question time for everyone. Operator, please go ahead.

(Operator Instructions) Art Henderson, Jeffries & Company.

Very nice quarter. A couple of questions. First, Dale, on the gross margin side for the quarter, I assume that that was a bit lower because of the new clinicians you've hired. Should we think about that same level of gross margin for the first couple of quarters of this year? Is that what I kind of heard you say?

There is a couple of things, Art, there. One is because some of it is the clinicians we've hired, the majority of that will occur in 2010.

Secondly, as you know with our Balance For Life program, we've increased the number of therapists that we have on our staff. That does have an impact on our gross margin. It's positive from a revenue-per-episode standpoint, but it's also a more expensive form of therapy, and the number of visits per episode, as you've also seen, has gone up.

I think our thought process is that our gross margin should stay in the roughly 52% range on a go-forward basis.

That's very helpful. Second question, this is a two-part question. Your commercial payor strategy, you signed a nice contract with Humana I believe in the last quarter, and I was kind of wondering how -- what your strategy is there going forward and how the pricing of the commercial payor contracts stack up against Medicare?

And then, on the second part of the question is, as you think about acquisitions, are you going to wait for more visibility on reform before you really start moving the needle on doing a lot more acquisitions? And that's all I had. Thanks.

On the Humana issue, the rates that we're paid on that are based on Medicare. Bill, you may want to comment on the strategic aspect of it, and then I'll be glad to take the second question.

Right. Art, as you are aware, the Company is focused on episodic reimbursements, so any private payor that's willing to reimburse us in that form with a reasonable rate compared to Medicare, we are happy to take.

We're looking at many such opportunities, and that's one of the new focuses that Mike Snow will bring with his expertise in working with managed-care providers. We're excited about the Humana because it's a national contract. It really is a milestone for the Company.

We see other potential opportunities emerging from that, but we don't want to get too specific into the contract just because of confidentiality. But it certainly is, again, a milestone that is evidence of us moving towards a non-Medicare reimbursement that's in the same form and similar pricing, and we're excited about that.

As far as the acquisitions, I would probably say that mid-sized acquisitions, we're still going to move fast forward, larger acquisitions. It depends on what Washington does, and the clarity, but it's not just what they do in this legislative session, it's what 2011 and 2012 look like in making sure we can have appropriate pricing.

We're fortunate enough to have volumes of acquisition opportunities. We don't want to stick our neck out too far and be overly aggressive. So we feel that time is on our side.

We also have the benefit of looking at hospice opportunities. As Mike indicated, our mature hospice agencies are now giving the same contribution margin as our mature home health agencies, so we're excited about developing that piece. We will take it slow, but it does give us some additional acquisition opportunities.

Newton Juhng, BB&T Capital Markets.

Thank you very much. Morning, gentlemen. Did want to ask you about the 12% to 15% internal growth rate that you're projecting for 2010. Is it possible to give us a breakdown of what you're expecting on the volume versus the rate side?

I think what we project -- this is Dale -- what we project is a general increase in revenue. We don't break that down into pieces when we look at a forecast.

Okay, so you'll just hold it at that. And then with regard to your guidance here, I was wondering if you could give us kind of what the net impact was that -- of the reimbursement changes that you saw at the beginning of the year and how -- where your pricing number is going? Is it up 1% or -- if you can give us a little more detail on that, it would be helpful.

As you know, CMS put in a final rule as the end of October last year, and that's what we're operating under at this point. Our guidance assumes that that remains intact for home healthcare.

Obviously, the rule for fiscal 2010 on hospice is also in effect. So the number is roughly 1.8% positive for 2010 on home health and about 1.4% on hospice.

Got you, Dale. One last quick one for Bill here. I was just thinking about your M&A strategy and wondering if you could give us a little more detail on what you're doing differently with the integration of the Hackensack, New Jersey, acquisition than you've done with some of the previous transactions?

That's a good question. Typically, we would move in and roll out technology quite quickly, and then shortly after we would make a reduction in FTEs. Even when we did our pro forma analysis, we always looked and calculated a degradation of revenue, just because of the turnover and the challenges.

And what we did in Hackensack, since we saw -- it was probably the largest single-site acquisition we did, was we sent in a lot more resources in reference to the transition. We left them on-site a lot longer, and once we made the conversion to our technology and our systems and infrastructure, we didn't reduce staff. We actually focused on developing the market and we saw quite an exciting type of phenomena that happened.

We actually started adding FTEs and we became efficient through growing volume. So Hackensack was one that we didn't see the degradation of the revenue; we actually saw growth in admissions, growth in revenue. It was a great positive public image. We have a great relationship with the hospital.

So we think going forward, especially one of Tim's primary objectives, is to move forward, to still put in our technology quickly, put a little more resources upfront, but maybe through attrition allow for efficiencies to happen if we don't get an immediate revenue growth, revenue pop, but we think it's a friendlier and better way to approach the new acquisitions. That has been very positive not only from growth, but from employee relations as well as public relations, and that's kind of the MO and the model we want to use going forward.

Thanks very much.

Kevin Ellich, RBC Capital Markets.

Good morning, guys. Thanks for taking the questions. First off, Bill, I was hoping you could talk about the hospice business. You gave us a little commentary about your view on the acquisition market, but I'm just wondering what your appetite is, as I think you recently made some comments about one day becoming the largest hospice provider?

Thanks for the question, Kevin. The bottom line is that we have 550 home health locations, and in many instances a hospice patient is one or two episodes away from the last home health visit. So we see hospice as a natural extension of home health.

And there's no Company that is better positioned to grow hospice, especially generically, than Amedisys is because of our distribution. If you go to the same exact population we're caring for, again, maybe one or two episodes away from becoming a hospice patient. Same referral sources, same payor source, although we look at it as diversification, and we have an opportunity with our distribution to grow our hospice indigenally we think quite well, but also look at some good acquisition opportunities.

Hospice is less consolidated than home care, and you can see as evidence what we've done by infusing technology and structure and professional management and efficiencies in home care. We think we can do the same for hospice that is ripe for consolidating.

So we certainly are respectful of a couple of the larger hospice companies that are out there, but we think we are well positioned to manage that population. We literally get 0.5 million patients into our home health system on an annual basis, and many of those are eligible in a short period of time for the hospice.

It also fits with our comprehensive continuous care management strategy where, when we take a patient into home care that becomes a high utilizer, we care for them for the rest of their life, up until the end of life, and we think some of the redefining of the payors and the interest of the payors will help make that an opportunity that we can enjoy.

Okay, that's helpful. I like the color, Bill. Thanks. And then, just a quick couple for Dale. One, DSOs come down dramatically. How do you think that will trend in 2010?

And then, your cash flow guidance is flat. I'm just wondering what's going on on that front and if you could provide any color what's behind that.

And then, also, given the weather in the South, I was wondering if that has any impact on your operations and the nurses and therapists getting out to see patients, as I don't know if you guys are equipped to handle it like we are up in the upper Midwest?

I think that was three questions, and I think I got them all. After two, I usually lose focus.

DSO in 2010 probably has the potential for some minor additional positive. But probably not very much, and that is with the caveat that we don't do another major acquisition, which, as we saw in the last two major acquisitions we went through, we see a significant increase in accounts receivable on a temporary basis.

From a cash flow standpoint, we're providing guidance that it will be roughly equivalent to what 2009 was. 2009 benefited significantly from the decrease in accounts receivable that occurred during the year, based on the improvement in DSO over that period of time. And what was the third question? (multiple speakers)

The weather in the South hasn't affected our ability. Actually, the large amount of snowfall we've had in the Northeast has been more of a compromise to being able to access the patients for several days until they can get the highways cleared up. But in the southern United States, we have not had a problem with that.

Okay. Thanks, guys.

Donald Hooker, UBS.

Thanks for taking my question. So the -- with regards to the -- just one of the -- can you go through some of the incremental costs again in 2010? Is there an incremental CapEx in there? I can't remember if you said that related to the Telehealth investments and things like that?

If you're referring to the clinical additions that we made, those are our human resource additions.

That just runs into your operating cost structure?

That's correct.

With regards to some of the Telehealth technologies? I'm just thinking, is that too small to break out or is that something?

At this point, it's probably too small to break out. We still anticipate that our CapEx in general will be around 2% of revenue. That's a growing number in terms of dollars, but as our revenue grows we have more CapEx requirements.

Great. I'll jump off, but just in terms of the episodic-based admissions, you had a nice pick up there, but what is -- do you have a longer-term trend that you focus on?

I think we always focus on the longer-term trend. As we mentioned, we did some realignment of sales and focused on relationships, and we've seen a very positive benefit over the fourth quarter. As I indicated in my opening that we see that trend continuing. Everything we do is on a long-term basis.

Kevin Campbell, Avondale Partners.

Wanted to ask real quick on the cash flow from operations in the quarter, it looks like it was down year over year and sequentially, it was -- I didn't hear if you had given an explanation for that. Was that related to cash taxes or something like that?

It is basically changes in net working capital that vary from quarter to quarter, depending on timing of payroll, etc. Those things tend to wash out over time, so we look at it on a longer-term basis. But there's nothing extraordinary in there.

Okay. And then, was hoping you could comment a little bit more on what the opportunity is with the commercial payors. Obviously you announced the Humana deal earlier in January. So, obviously -- where do you feel like you are in that process and how can you -- where -- how big do you see that becoming as part of your business over the course of, say, the next three to five years?

Fortunately, we have Mike onboard now, and he'll be able to comment on that in quarters to come.

But we think that any commercial payor that is taking care of Medicare Advantage or an elderly complex population will look at home-based alternatives to a more expensive facility-based care. We actually think it is a significant growing part of our strategy, and that's why we've put so much money, time, and resources into building connectivity and technology, and looking at things like care management and predictive modeling and call centers and information systems.

So we expect that is going to be a big piece, but not just for the commercial side, for the government side as well because there's going to be a huge demand.

As a reminder, our average patient is 83 years of age. They are on 15 medications. They visit 12, 15 physicians on an annual basis, and nobody is coordinating that care. The home industry, outfitted with the right technology, is in a perfect place to be able to be that care coordinator, whether their partner is a large physician group practice or hospitals or MSOs. And we're excited about the opportunity. Mike, do you have any comments you want to add to that?

No, I just think that's the exciting part of what you can do with this platform of care, and actually -- really the skill set of managing a population applies to whether it's post-acute or pre-acute. So it's that same skill set that you apply to different populations.

Where do you feel like you are in terms of the penetration there? Are we still in the low single digits of the Medicare Advantage plans where you have these type of relationships, and so there's a lot of upside? How would you describe that?

I would describe it we are in the first inning. (multiple speakers)

First pitch, probably.

Not the first pitch, but maybe the first inning, end of it.

Tony Perkins, First Analysis Securities.

I was wondering if you could quickly review your new-hire strategy. I'm curious if this decision came about because you felt there was a lack of clinical resources or is it to help augment your foundation for future growth expectations?

That's a great question. Let me give you a couple of for-instances. OASIS C, first of all, took us probably -- almost nine months to re-program with probably 50 full-time programmers. And at the end of the year, we're going to have to report on a lot more information that is evidence-based, things like [pressure alysis], fall risk, pain management, depression, CHF, diabetic foot care, medication management, timely of care immunizations.

In order to be able to prepare and look at that process and the process management, it's going to require a greater volume of oversight and not just technology. It's going to be people on the street looking at charts, reviewing charts, and educating our clinicians to make sure that they are complying and understand the new criteria.

So, OASIS C was just one part of it. Actually, we started working very closely with CMS over the last three or four months, and there is a program called HHQI, which is home health quality improvement, and Amedisys actually was defined as a premier status, meaning that 100% of our agencies are incorporated in what is called a care transition and hospital prevention campaign.

That started where we got the first amount of specifics from them. They call it best practices. We got those in January. We'll get those on a quarterly basis and we want to implement those best practices for care transitions to reduce hospital re-admissions.

As a reminder, we're focusing on the three quality indicators that seem to cause us the biggest challenges, which is re-admissions to hospitals, as well as the visits to ER and discharge to home. So we're looking at an opportunity to take CMS's initiative and instead of stretching it out over two years, three years, we're going to roll this thing out very quickly.

In addition, we see a lot of COPD and CHF readmits over a period of time. We've piloted our Telehealth programs and found that regionally-based and -monitored Telehealth is much more valuable in reducing rehospitalizations than centrally monitored.

So in many of our agencies that are small, the resources are good. Many agencies that are large, the resources are good because they have multiple managers. It's the ones that are kind of in between that are in a tight spot, especially if you have things like vacation or holidays, so we thought we'd embellish that specific segment and roll out care transitions over the next year with Telehealth, with a focus on OASIS C, and all of the things that we think we can improve the outcomes of our patients.

So it's all about doing the right thing and spending the resources in the right place that we're excited about.

And we should expect some of those extra costs here in the first half of 2010, is that correct?

Yes. Well, again, as a reminder, they are fully vetted into our guidance. Okay, and we've already started implementing and rolling out this program in -- clearly in the middle, towards the beginning of the fourth quarter.

So you feel some of it. It's all included in our guidance, and we think that -- we're very excited about the new opportunities and we're happy to put the resources forward to meet the patients' needs.

Eric Gommel, Stifel Nicolaus.

What is the tax rate assumption you embedded in the guidance?

About 39%.

And then, based on the comments you just made regarding these additions to staff and stuff, when you look at your competitors, I would assume there's a very small percentage of your competitors that have been able to make these investments and make this adjustment to some of the changes in OASIS C. I'm just curious, when you look at the other home health providers out there, how many other of these providers really are quick to kind of match your investments at this point?

As far as OASIS C, again, most of our competitors are still manual or they use technology that is basically gotten from a third-party vendor. Ours is proprietary.

So as far as changes to the format, I think they all have to move in that direction. Ours is a little more specific to our operating model, but putting the additional resources in for the reporting of the measures that we're looking for and being very robust on care transitions and the opportunities in medication management and frontloading the visits and getting better results, I'm not quite sure that any of our competitors are putting those type of resources in place. But I certainly can't speak for them.

The follow-up to that is, then, when you're looking at marketing to your managed-care players, they're very focused on outcomes and some of those different metrics as well, correct?

That's all they're focused on, on outcomes and costs.

Darren Lehrich, Deutsche Bank.

It's actually Sundeep sitting in for Darren. Dale, sorry if I missed this, but did you ever say how much was spent in the fourth quarter on the clinical additions?

No, we did not. We have not disclosed that number, but the material spend is going to be in 2010.

Okay. You did mention that gross margins for 2010 would be roughly 52%. I was just wondering on the EBITDA side, should we be thinking about margins to be roughly flat year over year as well?

What I said was in terms of gross margins is that we anticipated going forward that that gross margin would be in the range of 52%. So, it may move around on a quarter-to-quarter basis, on EBITDA, we expect to over time that those margins may come down to some extent. But generally in the same range, based on the existing reimbursement environment.

Okay, great. And then, Bill, maybe a higher level question. Just with coming out of CMS and MedPAC, there seems to be a lot more language and intent on encouraging more physician engagement and recertifications and episodes. Kind of what is your thinking on that? Is that -- from your perspective, is that just more of the same, status quo, or how would you frame that kind of language?

First of all, I think that's good. A physician drives the care plan.

As a reminder, a physician makes a recommendation for home care services. After we do an extensive evaluation, he approves our care plan. Physicians should be very active in the oversight of these patients. They are very frail and they require oversight, and that's part of the value of what we can bring.

We can bring that oversight in a non-facility-based setting, which is a lot less expensive. So [endures] more regulatory oversight, endures better compliance, endures working closely with physicians in having to run those traps to make sure that the patients get the proper quality of care and oversight that they need.

The environment is one that is changing, that is creating opportunities for the providers that want to step out and run the extra mile and provide the integration, or what we call the collaboration services. I think it ultimately will benefit the patients that we care for.

So I think all of those initiatives are good, and the way we're positioned from the perspective of technology and automation, a lot of these changes we manage pretty quickly and pretty efficiently.

[Matthew Gilmore], Robert W. Baird & Company, Inc..

I'm going to direct this towards Mike. I just wanted to see -- I think we touched on this on the managed-care comments, but what his initial focus areas will be and where you see the opportunities to improve operations at Amedisys?

My first focus is going to be to try to learn the business a little bit. I've obviously been -- had some involvement with home care in my past, but not to this level, certainly to the level of sophistication that I'm seeing in this Company.

So right out of the gate, it'll be try to learn. As I've told folks around here, I don't know what I don't know just yet.

But I think the opportunities here, particularly around contracting with commercial payors, is particularly very exciting. I think being able to establish a platform where we can assume risk for populations. That will be very appealing to commercial payors.

So we have to make sure we have the internal capabilities to manage risk because they don't call it risk for nothing. That will be high on my priority list.

I think to make sure I'm understanding our sales system and how we're -- what's working, what's not working. That will also be an important element of my focus early on.

Okay, thanks a lot. Dale, I had one for you. It looks like the -- I'm sorry if you addressed this during the prepared remarks, but it looks like the G&A expense as a percentage of revenue was down maybe about 100 bps versus the third quarter of 2009. Was there something taken out of the cost structure or is that mostly a reflection of the seasonality to the revenues?

No. I think there's three things going on with that. One, and all of it relates to, essentially, operating leverage. As we move forward, our objective is to become as efficient as we possibly can and the way that we do that is to provide technology and to continue to look for opportunities for efficiency.

The other thing that differentiates 2009 versus 2008 is there was some operating expenses related to TLC that were in 2008 that were not recurring once we shut down some of their overhead operations.

And lastly, interest expense has continued to decline, not only because we paid off debt, but because we had grid pricing on our debt. As we deleveraged, the cost of that debt declined. So it's a combination of all of those factors that are continuing to improve our G&A percentage of revenue.

Great, thank you.

With no further questions in queue, I would like to turn it back over to Bill Borne for additional or closing remarks.

Thank you, Jennifer. We certainly appreciate everybody calling in for our fourth-quarter and year-end comments. We had an extraordinary year, both revenue and growth in earnings. We're very excited about what the market and opportunities will provide us in this upcoming year, and we look forward to getting everyone back on the phone to report our first-quarter operational results, and we hope everyone has a great day.

That does conclude today's conference. Thank you for your participation.