Amedisys Inc (AMED) 2010 Q1 法說會逐字稿

Good day, everyone, and welcome to Amedisys's first quarter 2010 earnings call. This conference is being recorded. Now 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 first quarter ended March 31, 2010 earnings announcement and related matters. If you have not received a copy of our press release, you may access it on the Investor Relations sub page of our website at www.Amedisys.com.

With me this morning on today's call from Amedisys will be Bill Borne, Chairman and Chief Executive Officer; Mike Snow, Chief Operating Officer; Dale Redman, Chief Financial Officer; and Tim Barfield, Chief Development 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 as those that are not historical fact, 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, including our Forms 10K and 10-Q.

Also the Company urges caution in considering any current trends or guidance that may be discussed on the 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 obligation to update information on trends or targets other than its periodic filings with the SEC.

Our Company website address is www.Amedisys.com. We use our website as a channel 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 sub page 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 press release or filing with the Securities and Exchange Commission, disclosing the same information. Therefore investors should look to the Investor Relations update of 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 is made available on the Investor Relations sub page. In addition, it is 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 the call over to Bill Borne.

Thank you, Kevin, and good morning. I would like to welcome everyone who has joined us on this call this morning. On behalf of our leadership team at here at Amedisys, we appreciate the opportunity to share our vision and update you regarding the Company's performance.

I want to mention that this morning's article in the Wall Street Journal, the Journal fully recognizes the growing value and professional role of home health care as part of the comprehensive solution to chronic health care delivery. The article clearly states that treating sick patients in their homes rather than paying for costly hospitalizations can help save billions of dollars. In the era of a growing elderly population, this is exactly the role Amedisys serves in the healthcare industry.

Amedisys is a leader in the home health care. And our mission is to transform the way chronic care is delivered by caring for patients where they most want to be cared for -- in their home.

[TMS] has designed Medicare reimbursement to incentivize the transformation of healthcare from expensive facility-based care to more innovative, less expensive and more effective homecare. And Amedisys is accomplishing this transformation.

If anyone has questions about this, I'll be happy to address them later during the call.

Central and [quartile] business is our pursuit of quality for all of our patients and their families. This is what drives our success. The issue of increasing and ensuring quality care should not be lost in the greater context of healthcare reform.

Our nation is at a transformative point in the evolution of healthcare. Sweeping reform legislation was passed by Congress and signed into law by the President last month. Considered by experts to be the most significant legislation since the inception of Medicare and Medicaid, this reform paves the way for major changes in our healthcare system in coming years.

While the new legislation impacts us, we believe we are well-positioned to take advantage of opportunities included in these reforms. One of our core beliefs is to enhance and accept change. If you have followed Amedisys since our formative years, especially through the transition from cost base to episodic reimbursement, you know why this core belief is so important.

On the legislative front, we have been anticipating these changes for quite some time, building a long-term strategy that positions us to play a leading role in the future of healthcare. Building a strategy upon our long-term vision, we have experienced our own transformation over the last few quarters.

Adding significant resources to the Company at the top of the organization with new executive leadership as well as field and corporate resources, we have strategically positioned ourselves to take advantage of new opportunities resulting from the healthcare reform. We are investing in programs and processes to extend our quality leadership in home health and hospice.

Turning to the impact of reform on reimbursement, the legislation has had an initial impact on the home health industry that is positive. Effective April 1, reimbursement for patients in rural location increases by 3% and about 25% of Amedisys patients are in rural locations.

Longer term, reimbursement mandates in the legislation will be negative for the home health industry. For 2011, we are expecting a reduction of between 3 and 4% of reimbursement, depending on the market basket update to be determined by CMS. In terms of hospice, [reimbursement's] cuts appear to be relatively benign.

Here out at Amedisys, we believe reimbursement pressure will ultimately create acquisition opportunities for us, as home health agencies began to feel the bottom-line impact of reimbursement cuts. There are other opportunities within the legislation we are exploring. The legislation calls for over $160 billion in cuts for hospitals over the next 10 years.

One program to design to reduce these costs in new legislation is the hospital readmission reduction program. It penalizes hospitals for excessive readmits within 30 days of discharge focusing on heart attack, heart failure and pneumonia patients. While this impacts hospitals, we see this as an opportunity for Amedisys to partner with hospital systems who are seeking innovative ways to reduce excessive readmissions.

The Independence At Home program is also an opportunity embedded in the legislation. This is a new unique chronic care coordination benefit under Medicare for high-cost beneficiaries with multiple chronic conditions using a shared savings model. It will allow Amedisys to use our clinical engine, leveraging clinical and technology infrastructure to partner with physicians, nurse practitioners, and others to deliver care to the sickest and most costly Medicare beneficiaries.

The new legislation also introduces accountable care organizations into the Medicare program. In the ACO model, regional groups of providers partnered together and are held accountable for quality care coordination and [overall costs] for the Medicare beneficiaries within a given region. Our clinical, technological and operational infrastructure positions us to be an integral partner in an ACO by delivering high-quality and cost-effective care to the patients in their homes.

Recognizing the impact of chronically ill patients on the overall health care system, the legislation also calls for a new center to evaluate innovations and coordinate care. Called the Center for Medicare and Medicaid innovations, the new center is designed to test new health care delivery and payment models. Part of our strategy here at Amedisys is to actively work with peers, including Medicare, to test new models for care coordination particularly for the elderly, chronically ill patients. For example, the Medicare Medical Home Pilot will be part of the innovation center.

The legislation also provides significant opportunities for medication management, care transition and chronic care management. As you can see health care reform legislation strongly encourages chronic care management and programs that generate high quality of care that is cost-effective.

This is exactly what we are positioned to do here at Amedisys -- caring for sick, elderly patients in the comfort of their home, making their transition from the hospital to the community as effective as possible is at the heart of what we do.

Our care team cares for over 30,000 patients each and every day in their home, where they want to be cared for, what has to be the safest and most cost effective setting. We do this through our integrated clinical and technology platform. We believe that, collectively, nursing therapy services and allied health is core to community care services as it relates to our ever-growing aging and [costly] population.

We have built our platform to leverage the opportunities afforded us through the new legislation.

To close, as we respond to the changes going on in health care today, we will stay focused on the three simple operating principles of our Company's success -- providing high-quality care, focusing on growth, and increasing operational efficiency.

I will now turn the call over to Mike Snow to talk more about these three areas and to go over our operational results for the quarter. Thank you.

Thank you, Bill. Good morning and thank you for listing in this morning.

As Bill said, we had a great quarter. In the midst of leadership changes, the rollout of significant political initiatives, strategic infrastructure investment and even some challenging weather issues during the quarter, we were still able to achieve strong results.

For the quarter, we reported net revenue of $413 million and net income of $37 million, which represents growth of 21% and 36%, respectively, over the first quarter of 2009.

You heard Bill discuss some of the opportunities that lie ahead for the Company. We believe we are well positioned to respond to these opportunities. And we will stay focused on our Company's operating principles providing high-quality care, focusing on growth, and increasing operational efficiencies.

I would like to highlight some examples of the Company's operating principles and the tangible impact they will have on our results going forward.

Our primary operating principle, of course, is the focus on quality care. In a recent CMS publication of clinical outcome data and home health, Amedisys met or exceeded the industry average in nine of 12 outcomes. And within our operating footprint, we met or exceeded regional averages in 11 of 12 clinical outcomes.

Our goal is to exceed our competitors' results in all clinical outcomes both nationally and regionally, but with a special emphasis on the categories of discharge to home, reduction of ER visits and hospital admissions. We believe these are the right categories upon which to focus because a recent national survey found that one in five Medicare beneficiaries are re-hospitalized within 30 days of hospital discharge.

Many of these readmissions are preventable. As a former health system executive, I can tell you that this issue is top of mind in the hospital industry.

Amedisys has a plan to better manage patients who are at risk for an ER visit or a readmission to the hospital. Over the last year, collaboration with the Georgia Quality Improvement organization, Amedisys piloted our care transitions program.

This unique program accelerates patient interaction upon referrals from the hospital, identifies the appropriate clinical track for the patient and then utilizes proprietary clinical intervention models to assist hospitals in reducing readmissions. Statewide training and launch occurred last week in Georgia and will continue nationally through the third quarter of this year.

We believe that once implemented across our Home Health portfolio, our agencies will be well-positioned to provide a differentiating level of service compared to our competitors that will be well-received by health systems, managed care plans and our referring physicians.

Also in Home Health, we are working towards enhancing and standardizing other care management programs with initial focus on behavioral health. This segment -- Behavioral Health Program, which addresses patients with Alzheimer's, senile dementia and other behavioral disorders -- is being enhanced and expanded to better meet the needs of patients. Over the next few months, several of our agencies will pilot new evidence-based initiatives in clinical tracks to broaden the reach of this program.

Another clinical initiative in Home Health, Balance for Life, continued its rollout in select markets, adding another 23 locations in the quarter for a total of 355 at quarter-end. The expansion of this program will continue through the year at a similar pace as experienced in the first quarter, with an expectation that approximately 400 of our agencies will offer BFL by the end of 2010.

Let's now turn our attention to another operating principle of growth. Starting with Home Health for the quarter, our internal episodic-based revenue growth was 17% based on 8% growth in volume [in] growth attributable to rate [of 8%]. The volume increase was led by internal admissions growth of 13% and a recertification growth of 1% over first quarter of '09.

We believe this impressive admission growth in the quarter was a result of the strategic realignment of our sales territory in the second half of '09, the resources invested in our field operations over the last two quarters and the rapid employment of therapists across the Home Health portfolio.

We have hired more than 400 therapists in the third quarter of '09 in order to have staff available for therapy referrals. Many of these new therapists were initially placed into a salaried position instead of a paper visit position, which had a negative short-term cost impact. But the Company has seen increased therapy business and expects this investment will bear fruit in future periods.

Finally, we saw an increase in non-Medicare episodic admissions, primarily driven by the Humana contracts signed earlier in the quarter. This arrangement has exceeded the Company's expectations.

Also in Home Health, the 9% growth in rate was driven primarily from the expansion of our Balance for Life specialty program over the course of 2009. Also contributing was the Medicare reimbursement increase we received in 2010 of approximately 1.8%, which is very close to the sequential quarter revenue per episode increase of 1.9%.

Of note with a 3% role add-on instituted April 1 in connection with the health-care reform bills, we should see some pickup in the second quarter and beyond as about 25% of our patients are in rural areas. For 2010, we continued to project that our episodic-based internal revenue growth will be in the 12 to 15% range.

Turning to hospice, total internal revenue growth in the quarter was 37%, based on a 32% growth in average daily census and a 5% increase in the patient revenue per day. With the growing importance of hospice service to the Company, we anticipate increasing the types of hospice information we will provide to the investment community.

As an indication of that importance, we recently named Jim Robinson as our Executive Vice President of our hospice operations. Jim has over 20 years' experience in the healthcare industry including almost three years as executive vice president and chief marketing officer of VistaCare Inc., where he helped lead the turnaround and eventual sale of the $200 plus million nationwide hospice company to Odyssey Healthcare.

Jim has a breadth of knowledge in building and growing healthcare companies and strong hospice experience. With our increasing focus on hospice, we think it is a great time to bring in someone like Jim to strengthen the team.

Moving start-ups, we opened 14 new Home Health locations. The Home Health start-ups included agencies in Wisconsin and South Dakota, bringing to 42 the number of states in which we provide care. We currently have approximately 150 Home Health start-up locations identified with 62 incurring expenses, but not yet opened. Our 2010 target seems to be 50 new Home Health locations.

For hospice, we opened three new locations during the quarter. We have 90 additional hospice start-up locations identified with 14 incurring expenses, but not yet opened. Our 2010 target continues to be five new locations.

Shifting to external growth, we acquired one Home Health agency located [between] Arkansas in February and on April 1 we acquired a hospice agency located near Florence, Alabama. We have a healthy pipeline of both Home Health and hospice acquisition candidates. And we continue to analyze potential opportunities as they become available.

I would now like to turn your attention to our business unit performance for the first quarter. Our quarterly revenue and contribution margin are broken down as follows, keeping in mind that contribution is pretax and precorporate (inaudible).

We had $362 million in Home Health revenue related to agencies we have owned longer than 12 months with a contribution margin of 29%. We had $11 million in Home Health and the hospice start-up revenue related to start-ups open less than 12 months with a corresponding negative 11% 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 revenues related to agencies we have owned longer than 12 months, with a contribution margin of 28%. And we had $13 million in Home Health and hospice acquisition revenue, associated with acquisitions completed during the last 12 months with a contribution margin of 10%.

Finally, from an operational efficiency perspective, the Company is undergoing substantial conversion of its IT infrastructure to enhance business operations. As an example, the Company expects to replace its human resources system by the end of this year and significantly upgrade our security and connectivity for field personnel.

And even though our clinical system is already the market leader in Home Health, the Company is aggressively developing our next-generation operating systems, AMS3. [Other] technology infrastructure investments in process improvements are expected to solidify our position as the most efficient provider of quality services in Home Health and hospice.

In conclusion, I have been on the job now for a little over two months and, frankly, I am more excited now than the day I started. Those employees listening to this call today, I look forward to meeting you and learning from you. I have now visited about 10 markets and have learned something on every trip. With your help the future for Amedisys looks very promising.

At this time, I'll turn the call over to Dale Redman to discuss our financials.

Thank you, Mike, and good morning.

Amedisys has again posted another great quarter. While providing quality care remains our primary focus, continuing to grow our business and improving operational efficiency are also central to our business plan. Comparing our performance to the first quarter of 2009 and the first quarter of 2010, total revenue grew 21% to $413 million. Our net income for the first quarter increased 36% to $37 million or $1.29 per share compared to $27 million or $0.99 per share. This growth in revenue was generated $59 million from our base and start-up agencies and $12 million from our acquisition agencies.

Gross margin decreased from 52 to 51% which was offset by a decrease in G&A expenses from 38 to 36%. Our gross margin has been impacted by the addition of clinical manager resources that cost $2.5 million in the quarter.

In our Q4 earnings call, we forecasted these additions as well as additional corporate clinical resources would increase 2010 expense by about $14 million. Also, as Mike mentioned, we continue to increase our therapy staff primarily for our Balance for Life specialty program.

EBITDA with $71 million or 17% of revenue compared to $54 million or 16% of revenue. We (technical difficulty) the first quarter of 2010 with days revenue outstanding at 33 days which is down eight days from the first quarter of 2009 and down one day from year-end.

Our estimated revenue adjustment and our provision for [down from accounts] decreased to $4.5 million or 1.1% of revenue for the quarter compared to $8.2 million or 2.4% of revenue for the same period in 2009. This was due to a significant improvement in our cash collection since the first quarter of 2009.

Our accounts receivable decreased $4 million on a $71 million increase in revenue and our cash collection has increased by approximately $55 million, resulting in the improvement in days revenue outstanding and the improvement in the aging of our receivables. Additionally, our accounts receivable aged greater than 90 days decreased $21 million and $9 million since the first and fourth quarters of 2009, respectively.

The first quarter of 2010 benefited from strong collections on Medicare aged balances, of which we had significant reserves. We reduced our outstanding debt by $108 million to $203 million as of the end of the quarter compared to $311 million for the same period in 2009. Our leverage ratio at the end of the quarter was 0.7 times compared to 1.4 times for the same period in 2009 and the weighted average interest rate on our debt was 3.7%.

From a liquidity standpoint, we ended the quarter with $82 million in cash and have $235 million available under our revolving credit facility. Our cash at the end of the quarter was up from $34 million at the end of 2009, which primarily consisted of $71 million generated from cash flow from operations, $10 million in capital expenditures, $2 million in acquisitions and net debt payments of $12 million.

During the first quarter of 2010, we generated cash flow from operations of $49 million after CapEx and required debt payments. And we anticipate approximately $160 million in such cash flow for the full year 2010.

As Mike mentioned, we are making additional investments in systems and infrastructure. These investments will increase our CapEx closer to 3% of revenue in 2010.

This morning, we are confirming our revenue guidance and increasing our earnings guidance for 2010. Revenue is expected to be in the range of $1.7 billion to $1.750 billion, excluding the effects of any future acquisitions, if they are made.

Diluted earnings per share is expected to be in the range of $5.50 to $5.70, based on an estimated 28.8 million shares outstanding, which also excludes the effects of any future acquisitions, if they are made.

At this time we'll open the call to your questions. Please limit yourself to one question and one follow-up so we may allow question time for everyone. Operator, please open the lines.

(Operator Instructions). Whit Mayo of Robert Baird.

Good morning. Appreciate all the details. Maybe, first, just talk about the volume trends in the quarter, the internal admin growth number, 13, that was one of the highest numbers we have seen in some time. Can you just give us some more color around the sales and marketing initiatives and may be curious about your confidence level around sustaining that growth? And then maybe, secondarily, comment about the research trends. It was one of the lower numbers we have seen in some time. If you could maybe help flesh out the drivers, it would be helpful.

Yes, Whit, we have got -- this is Mike. You know, first off, I am particularly pleased with the admission growth. To me, that is the best indicator of our long-term sustainability, you know, obviously patients coming in the door for the first time, that is the most important contact we could have.

We have said that we believe that it related to primarily a couple of things. We've got -- they kind of redid the sales staff in the middle of last year. We have gone through some strategic juggling of that sales team. It wasn't working, we change that up in the middle of the year. It seemed to open up the gates. It seemed to be validated by kind of this climbing over the last three quarters, kind of climbing admission growth that we are experiencing.

As to whether 13 is sustainable, I am not going to go there right now. We said kind of where we think our raw revenue growth is going to be, but we will have to stay tuned on that one.

As for the research issue, I will just remind you that [property] research issues, that's a clinical issue and we also think there is a -- probably some lag effect we are experiencing from the lower volumes in the -- at the second half of last year. These research trails on the back of admissions.

So I would expect as we've seen the admission growth in this quarter, we would see some future uptick in research. But you know the jury is out. We will just have to continue to monitor that issue and take it a day at a time.

I think you mentioned margins. I think, going forward, what we would expect is a mild increase in gross margin, primarily driven by the rural add-on. As you recall, Bill mentioned that 25% of our revenue comes from a rural location and is 3% add-on for, I think, the next five years.

That is tempered -- that is added to as we convert some of the therapists that we have put on staff as salaried therapists as we convert them to paper visit over time and tempered a little bit by the additional resources we are deploying in clinical managers and performance improvement, and some of the infrastructure spending that we plan to do this year. We believe that both of those expenditures are, in fact. investments that will pay dividends down the road. But in the short run it will probably have an effect, negative effect on gross margin.

Conclusion, probably a mild increase in gross margin as we go forward.

Okay, that is helpful. And just maybe just one question that's maybe a little difficult, but just thinking out loud about the topics raised by the Journal this morning. Which is, hoping for a little bit more color and Bill, obviously, a lot is changing over the next few years with reform and rebasing rates.

Is it your sense that rebasing rates to cost addresses a lot of the criticisms that have been applied to the industry, or do you think that perhaps there's some longer term work on another round of HHRG or a refinement? Just -- I know it's not a small topic by any means, but just any broader comments you have in light of today's article would be -- (multiple speakers).

Well, you know, Whit, I think the industry through the development of the alliance, our work with CMS and our communications with MedPAC have been very effective. As a reminder, I think the initial inquiry came in from the Wall Street Journal around the time the GAO report was looking at outliers.

And we found that some states, Florida and Texas and I think Arizona, in particular, had outliers as high as 54, 55, 58%. The industry as a whole were in the 4, 6, to 8% range depending on what you looked at and Amedisys was under 2% in total outlier utilization.

The industry was very effective in working with Congress and with [CMS] and specifically targeting the high utilizers in outliers in driving some changes in reimbursement to disincentivize the abusive players and not penalize the players that were doing the right thing.

You know, I have been working with the Journal reporter for over a year -- probably a year and couple or three months -- about the same time as the G80 initiative. I've met with her several times in person and we visited patients together. She is an excellent investigative reporter.

I know over the years we have been very transparent with her. We have given her frequent information that she has requested and everything that she has requested. And we have been as transparent with her as we have been as we publish our information on our website.

Basically in reference to the article, there was not a whole lot of new news that we haven't discussed in volumes in different reports. If I had to pick anything out of the loop troubling one of -- we had over 17,000 employees in Amedisys, who are active and very engaged. One of our [ex-employers] who happened to be an LPN that wasn't in a clinical role was actually in a scheduling role made a comment about calling therapists to make sure they got a [tent] visit.

Well, you know the reality is when a therapist or a nurse goes out and assesses the patient, we look at what is called frequency which is the level and the amount of business that we will provide each week and the frequency of that. That is embedded in the care plan and the care protocol that the physician has to review and sign off on.

If there is indeed a change, even a one visit change in their protocol we have to go back to the physician and address the reason why we make that change. So it is probably not unusual for some of those schedulers from time to time to call and chat with the therapists or nurses and making sure that they are online with the care curriculum that we set for the patient at the initiation of calls.

When we did discover, you know, that sound bite during our communications with the Wall Street Journal reporter, again as I mentioned, it was a good reporter. You know, we reached out to that agency. Our compliance did an audit. We talked to the active PT, physical therapist, as well as the physical therapy assistant. Asked them if they've ever done a visit that they felt that they were inappropriate or that they were ever pressured to do a visit that was unnecessary. And there was a resounding no. They were very comfortable with the care they were providing to the patient.

So I think that balanced side of it maybe could have been mentioned. But besides that, as far as the trends and changes in trends and the information that came out, and I did like the piece that the reporter did recognize -- that home care is really the solution for a complex situation. And some of the trends that you've seen is really a trend as a result of reimbursement change to the hospitals and DRGs, the 75% rule with inpatient rehab facilities. Those patients had to naturally migrate somewhere.

And our belief is that CMS prepared and positioned for it and created an environment to let the Home Health industry care for those patients. So, overall, I was pretty pleased with the results of the article.

thanks a lot.

Art Henderson of Jefferies & Company.

Hello. Thanks for taking the question. Dale, just a quick question.

On the guidance, I know you were mentioning to Whit and in your prepared remarks about the rural add-on. Just curious why there wasn't a revenue increase in your guidance? Is there something that might be missing that might be offsetting the benefit that you are getting from the rollout on for the remainder of the year?

No, Art. The increase in revenue based on the rural add-on is going to be fairly small. And we have a range of $1.7 billion to $1.750 billion so we didn't think it materially altered that range.

Okay so it's included with -- okay. Got it.

And then on your cash balance and your cash flow, I know a couple of years ago when you had made the TLC acquisition, you had mentioned that you go through a period of time where you are integrating it, you do smaller acquisitions and then a couple years down the road you make another big one.

Are we getting to that point now where you have enough visibility on the reimbursement side that we would expect at some point, sooner rather than later, that there would be a bigger acquisition that you might pursue as opposed to smaller kind of things? What is your mindset right now as far as acquisitions are concerned?

Well, we are clearly as well-positioned as we can be from the acquisition front. That was a strategic and a very considered decision the Company made in 2009, to not be inordinately aggressive in doing large acquisitions in 2009 while we were waiting on clarity and reimbursement.

I do think we are in a position now with $82 million in cash and $235 million in available lines of credit -- which I will remind you don't run out for another three years -- and cash flow that we anticipate generating this year, we are in a good position. I think Mike also mention that we have a robust pipeline of acquisitions and things that we're looking at.

So I think the real issue here is we are positioned us well as we can be.

One last thing. Bill, in the health care reform bill, is there anything on the disease management prevention wellness side that looked like home nursing might have an opportunity in a pilot project or something in there that you can talk about?

Yes. I mean off the -- it was riddled with opportunities for companies such as Amedisys. I'm not saying that all home health companies can take advantage, but in the instance of medication management, care transition, hospital readmissions -- you heard Mike mentioned that we are getting ready to roll out a nationwide program where our account managers are going to be converted to care transition coordinators, who are going to actually start the process of transition prior to discharge. We see that as huge.

The innovation center that's created is going to have a plethora of opportunities for care management and care coordination. You know, I mentioned the Independence At Home legislation that we supported from day one. I have been mentioning that for over a year. And that legislation got passed and we were very active in that legislation.

If you just think for a second that, if we add a nurse practitioner to our market, we can become a medical home overnight. We have a good working relationship with the Academy of Home Care Physicians that really sponsored that legislation. And we feel that we can go on and on. Not only with Medicare but with Medicaid.

But I am not saying we are going to dive into Medicaid right now. But the states are going to have a lot of challenges and I think there will be some opportunities there.

But I literally have a 15-page summary of all the opportunities that are available in the new legislation for a company such as Amedisys that is positioned with our integration and care capabilities. You know, the accountable care organization that I mentioned is another huge opportunity. We are having dialogues with various hospitals where of they dive into that, you know, we could be a very viable partner.

So we're very excited. This opens up the door to many opportunities for Amedisys. And we've been talking about this for years.

Newton Juhng of BB&T Capital Markets.

Thank you very much. Good morning, everyone. I did want to ask a question of Bill. Just regarding a case mix adjustment and as we are moving [closely] towards the end of that period, how do you see that going, once the official period ends? You think there is going to be some sort of continuation on that front? Or when it expires, do you think it is really going to go away?

No, I think -- and thanks for the question -- I think case mix is an ongoing issue. I think the patients that we are caring for today are different than the patients we cared for 10 years ago in our industry.

And I think that it would be prudent for our CMS to always review case mix on needs of patients. I think they will continue to transfer more sick and complex patients out of hospitals and that they are going to have to design a system that will allow alternative care and modalities to provide services for this population.

I see it as never ending and I really see it as opportunity because I think stagnation in that is what really will cripple our industry. And by the way, I think the fact is that the healthcare industry itself has not evolved quick enough in tandem with the evolution of the population. You know, as I reminded the investors in many of my meetings is that 69% of all of the Medicare resources are consumed by 12% of the Medicare population.

And I think a lot of this new legislation and power and demonstration programs, and case mix will be right in the middle of that, is how we provide services in a collaborative to these patients and stop treating them as body parts and let them basically fall into the cracks. So I think you will see ongoing case mix adjustments, I think you will see ongoing tweaks and reimbursements, ongoing opportunities for pilots and demonstrations that will favor very effective and technologically advanced home health or healthcare organizations.

One more follow-up on M&A and just wondering, considering a 36-month rule and all of the stuff that is out there, has there been any more emphasis put on maybe growing your hospice business through acquisition here, considering that it is not bound by that? One, and then two, this is probably for Dale, leverage ratio being at 0.7 times. You know, what leverage are you comfortable with in terms of the multiples there?

What I'm going to do, Newton, I'm going to --. Tim Barfield, who is over our M&A and acquisitions and new product development and also transitions of acquisitions is sitting here. And I am going to ask him if he would mind commenting on that. Tim?

Yes, sure. I think on -- as Dale alluded to earlier on the acquisition front, I think everybody was waiting for healthcare [reform], particularly in the home health areas. There was certainly some more overhang there on rates and everything else and that is certainly what we have seen. So I think the certainty there helps out on the rate issue looking out.

But there is some concern with the 36-month rule. It has had an impact. There is no doubt about it. Specifically, I think there has been some discussions recently, directly with CMS, to look at the interpretations and I think there's some progress at least verbally.

We have to see if we get some tangible progress there. I think the worst case scenario is maybe some addressing the issues through a formal rulemaking process. I think that would help significantly.

I think certainly any acquisition we look at, we have to look at that, the impact, on a case-by-case basis. I think at times we have an advantage with our footprint. Where there is overlap, we can do some things with our agencies.

Depending on the target, there is certainly -- there may or may not be a 36-month rule impact or it may be minimal or it may be significant. So that has really changed the game on the Home Health side in terms of how we look at it and how we analyze it. I think it's fair to say, though, as we look out -- whether it is Home Health or hospice -- we are looking at every acquisition on its own merits. We are looking at it from where, how it moves our Company forward strategically; how it moves our Company forward in terms of our geographic footprint and how it fits in with where we want to go with our Company operationally.

So I won't say at this point it has swung the pendulum either way. It has just -- it certainly has changed the dynamics of how we analyze our opportunities.

And then, Dale, in terms of that leverage ratio comfort, 2 times, 2.5 times. Can you give me some clarity on that?

Sure. As you know, Amedisys has always had -- used the leverage capabilities that we have appropriately and conservatively in our capital structure. I think our goal in leverage on when we did the TLC acquisition two years ago was about [2.4, 2.5]. I think we would probably be comfortable at a slightly higher rate than that.

And our operating modality has always been we use that leverage appropriately to make acquisitions and then we delever that, usually through the cash flow and, occasionally, as we did in 2006 through a stock offering. But I think in that range, 2.5% to 3% is probably where we are comfortable.

Kevin Ellich of RBC Capital Markets.

Thanks for taking my questions. I guess just following up on Newton's question about the 36-month [chart rail]. Tim, I was wondering if you could talk about what the impact that you guys have seen. Is it limiting the opportunities? Is it changing the margin profile of the deals you are looking at?

I think there's a couple of things. It is hard to say in an isolation what impact the 36-month rule just had. I think on the Home Health side, there are a number of companies out there that are still trying to understand the full impact of what it's going to do to their business. I think some of the impacts are going to have to be felt before people are really motivated to do something. And that means probably not until maybe the second half of next year, we see the activity at its peak on the Home Health side.

There have been some agencies, some companies out there that we have seen some big questions surrounding the 36-month rule. So it has had an impact, but it is hard to say exactly what's the full extent of that impact is, with all the other issues and uncertainties.

And I think it's fair to say that on the Home Health side, when we look at companies, there has to be the right strategic fit, the cultural fit. It has got to fit in with our footprint, where we need to grow.

So all in all, it's had an impact. But it's really hard to quantify that with certainty.

Kevin, let me make another comment on top of that. Just as a reminder, if you look at the history of Amedisys, we are the most acquisitive company of hospital and hospital system-owned home health agencies. And with the addition of Mike Snow on board, I will tell you we have had frequent conversations with many hospitals and hospital systems. And our target in partnering with these systems and acquiring these home health agencies or partnering with home health agencies of hospital systems, not only works with our ACO concept, but also really kind of steers around this 36-month rule.

So just as a reminder, we are the largest acquirer of hospital-owned home health agencies in the nation. And that activity and strategy will not be changed. You know, also, our start up strategy will not be changed.

So we think there is going to be a lot of sweet opportunities even despite the 36-month rule and I will step out there further and say although I have great hopes that this is going to change, realistically it is not going to happen until we get the next federal register out midyear. And then hopefully by the end of the year, we will get clarity. The overall impact, I think, will be marginal if we lose one piece of some deal that is out there.

So I'm not going to let it slow us down unless it absolutely makes no sense. But I agree with Tim that it all needs to be strategic and it all needs to be evaluated from strategic, operational, geographical approach and that all makes sense.

Okay. Thanks for that additional color, Bill. I guess the other question I had was thinking about the changes coming in from healthcare reform and what it is going to do to the industry. You guys indicate that the internal growth assumption for this year is 12 to 15%.

I was just wondering long term. where you think you can grow your volume, where the admissions grow? And also in light of the rebasing coming down in 2014, how quickly have you been able to adjust your initiatives or sales [report efforts] in finding the right patients to adjust to the new payment systems?

Well, that was a lot of questions there, Kevin, if I can get them all covered here. First, I said earlier I am not ready to represent to you that we can expect that kind of continued admission growth in the out quarters. I am optimistic that the news that were made by putting the resources into the agencies and the realignment of the sales team, I think we are seeing those kind of tangible results how sustainable they are over time, I think, will remain to be seen.

And, again, the recertification issue I talked about before, I think there's a general guidance around that revenue approach. You know I think it's (technical difficulty).

I want to make sure I'm responding to the second part of your question though and I kind of missed what -- where you're going at the end.

Yes. Basically, you know, okay, so the payment system changed in 2008 and there was some uncertainty about what would happen and that now the payment system is going to be changed again or rebased in 2014. We don't know what that impact will be.

I guess I am just trying to figure out how quickly you'll be able to adjust to model to maintain the profitability.

Okay. Got you. Yes I think on several fronts I think we are going to be doing -- exploring a lot of different alternatives, whether it is through the Innovation Center CMF has, around the medical home. You know, we'd expect bundled payments coming down the line. We expect other initiatives, the [accountable] peer organizations. We are throwing nets out into the water here around a lot of different initiatives.

And frankly, as I said, our relationship with Humana has exceeded our expectations. Whether we can parlay that into a different MA relationship remains to be seen.

But I think we will cast a lot of nets and it won't be one strategy, it will be several, to see what works and our ability to reposition the company because rebasing, we know it is coming. And so it is about how do we position ourselves to be that low-cost, efficient, quality operator that is responsive to patients and our partners?

And so that is where I'm trying to go.

And Kevin, let me close as we move onto the next question, but the bottom line is that rebasing, if it hits the industry hard it's going to help us to consolidate and be bigger. So just critical mass by itself will give us leverage to offset some of the impact. If it's soft, the consolidation opportunity isn't going to be as big.

So whatever happens in our opinion because of our technology because it will roll out of AMS which will be clearly rolled out and in place before that happens, we will be strategically advantage more than anybody else in the industry. So we thank you for your questions.

Thank you.

Avondale Partners, Kevin Campbell.

Good morning. Thanks for taking my question. I was curious if you guys had any comments, thoughts about use of capital beyond acquisitions? If you thought about a particular share repurchase program and why or why not that wouldn't make sense here?

We obviously look, as a corporate finance -- at all the corporate financial alternatives that are available to the Company. So we don't rule anything out.

At this point, we believe that growing our business and continuing to improve our infrastructure is the right place for us to be spending our money. But we don't take anything off the table.

What do you think would have to happen in order for that to become more attractive either some change that would make acquisitions more difficult or a big pullback in the stock price? What would cause you to maybe change your tone there?

I don't know that we can speculate on what might change the circumstances. I can tell you where we are today. And I think you can think about it as well as we can in terms of the things that might change our mind, and in terms of what would be appropriate to do. But at this point we are focused on growing our business and being as efficient as we possibly can.

Great and then one more question. I think, Mike, you mentioned a modest negative impact from weather in the quarter. I'm curious if you could provide us with a little more color around that? How much you really feel like it affected results?

You know what? I feel like might be -- it was an intra-quarter issue. I am not so sure that I am going to lay down on any deterioration of volume in the quarter due to weather. I think it primarily was an intra-quarter issue.

[Cheryl Goldich] of [PRT] Capital Group.

Thank you so much and I appreciate the opportunity to ask a question and welcome the new regime. I have a couple of questions. The first one is on the receivables.

Dale, you mentioned old Medicare receivables. Can you give me a little bit more color on why you would have old Medicare receivables? And going along with that, have you improved the time it takes you to actually send the bills because I prorate and wait the number of days outstanding for each of your payers, it seems with increased managed care with Medicare payment rates, that 32 days is probably as low as it is going to go.

But if you could give me a sense of what this was --? What was the old Medicare receivables and how much of an impact it had on the quarter in your DSOs?

As you know, we reserve everything on Medicare on all of our receivables today is more than 365 days. We also saw an improvement in the aging inside of that. And so the impact on the quarter in particular was simply that we collected some of those older receivables that were heavily reserved, that was focused largely on Medicare receivables.

As far as your question about 32 days, is that -- or 33 days, is that as low as it can go? I think there is some opportunity without us doing a large acquisition which, as we talked about ad nauseam last year is has an impact on our receivables and if they go up during that transition period, and then they come back down. I think there is some marginal opportunity to improve on the DSO days that we have outstanding at the end of the first quarter.

I'm just -- I'm curious as to why there would be Medicare receivables that are outstanding so long. Typically we think of Medicare as being one of your quicker payers once you get a clean claim to them.

I think the last part of your issue is probably the most appropriate and that is, sometimes we have documentation issues that we need to get cleaned up. Sometimes we have those kinds of issues that are involved in that.

You can also look at the aging on our accounts receivable and we have very few Medicare receivables that are aged in the 360 category, even more than 180 days, in relation to the volume of revenue that we are putting through that process. But there are some there. And as they get more aged, our reserves against them get larger as though, if we are successful in collecting those aged heavily reserved receivables, it has a positive impact on the reserving basis for the quarter.

Okay. I guess I would -- I have to go back to the Wall Street Journal article. Because -- and I recognize that many others have had the opportunity to question you about the Company's processes and procedures and compliance program and part of the issue to put it on the table is that, in previous calls, I have attempted to ask questions and have clearly been excluded.

I don't want to overstay my welcome, so it is a bit of an uncomfortable way to start a new relationship, but I am going to do it anyway.

Just because an issue is old, it doesn't -- and you have addressed it, doesn't mean that the data doesn't suggest that industrywide and companies, specifically, there's a question mark here at to just how Amedisys can be so efficient at picking patients at billing so correctly so many times at generating such high degree of consistency about optimizing Medicare reimbursements under a specific rule.

And then I guess what is new news here in the article that I found a bit disquieting is that the data showing that once the rules change, you were able to do that again with the new system.

So those are the questions that I have and how does a company -- and I'm sure it's the IT system you have. I am sure your compliant systems around it are important to this, but I think that that is the issue that is troubling people and making it not go away. That the data shows this very significant pattern for LHC, for yourselves, for [Genteva] to perhaps -- and maybe [ASAM], to perhaps a greater extent than it does for others in the industry.

So that is why it is not going away and I guess what my question here is, first, to make that point; second to say, just how are you doing it so well and, third, to ask a question what happens when physicians who I believe may even be medical directors in some of your units are quoted in the Wall Street Journal as saying "Well, I let the therapists do their thing."

How are you ensuring that the doctors actually, being the gatekeeper especially under the new reimbursement rule that will require face-to-face visits with doctors and patients?

Welcome to the call. And I want you to know I have never blocked your calls from coming in. We appreciate it.

I need to try to think of where to start and I think when we talk about therapy, you have to realize that therapy is the evolution of a lot of changes in hospitals and in patient rehab. I think when -- and I can't speak for them, but there is information that is out there in the federal register that talks about therapy and therapy utilization and what's effective therapy.

And I think when we looked at setting the prescription for therapy care, outpatient services was a big driver and seeing that looked at historical trends of what they call meaningful use in therapy and the therapy care coordination and care delivery fell in the range of 10 to 12 visits. And now this is an opinion of mine is why the 10 visit threshold is set. As a matter of fact in the federal registry CMS states -- and I will quote it because I have the sound bite.

It says, "The therapy threshold of 10 visits is based on clinical judgment about the level of therapy that reflects a clear need for rehabilitation services that would reasonably be expected to result in meaningful treatment over the course of 60 days. Currently our best available data requires to rely in part on the therapy measure. Without it, we cannot achieve required levels of payment accuracy."

And I think what happens is that when you go in and you see a hip or knee or a patient that needs rehab, the historical treatment of care is 10 to 12 visits. And then depending on how the patient progresses, they fall off of their 10 visits or they go beyond that. And that is kind of the corridor that you see and how that is managed.

I think the industry, I know Amedisys specifically, thought that that concept was kind of flawed, but it was based on pretty reasonable historical information. So you see some shifts and that way you see patients who don't get 10. They fall off to nine, eight, seven and six. You see patients who go beyond 12, 13, 15 and 20. That is kind of the variation you see.

In reference to how we focus on that, we are very specific with care algorithms and I'll use clinical tracks as a better term and the evidence base, and we have a prescription of care for specific patient conditions. They are about 70 of those clinical tracks that we have. And although the benefits always and the nurses always have discretion in what to do, we help to prescribe what we feel in a defined protocol, the care that is delivered to achieve the best results that are out there.

And that is -- those are called frequency to visits. So with the fact that we have technology and we can track and monitor. And we can use our point of care system to help direct what we feel is a more comprehensive assessment. Because with any assessment too which is an (inaudible) assessment. It is about 40 pages. We actually have particular systems inside that were pop-ups that if a nurse answers some particular questions in the [oasis] that we feel more explanation is needed, it helps the nurses, the therapists, whomever is doing the assessment to be more comprehensive and consistent.

So what we are trying to do as an organization is to be consistent in the assessment and the delivery of care through care tracks and the outcomes that we achieve. And that is why we are so effective and consistent asset because that is where our strategy is.

You know, if healthcare as a whole can be consistent, if we could take the Mayo or the Cleveland clinic or Geisinger or Kaiser Permanente and we can replicate their model and distributor on a nationwide basis, we would be much better as a health care delivery system. The other problem is that we have huge fragmentation. The [portions] aren't talking to one another and we treat people in body parts.

So what Amedisys has done is put a care management system that goes way beyond the point of care. We have very sophisticated patient stratification and modeling. We recognize risk corridors, high-risk patients now get kicked up into what we call an intensive care management center, where we have advanced level nurses looking at this population to manage these patients with more oversight.

In addition to that our on-floor, call center calls these patients in the middle of episodes to help compliance. That gives us more consistency. These are all things that we have put into the organization over the years that provide a more comprehensive standard and structured care.

And I think as I mentioned earlier, I think that the government as this population's needs changes, they are going to have a need to take a look at things like complexities of care. Because care for a diabetic and a cardiac patient is a lot different than caring for a diabetic and a cardiac patient who just had a stroke and now went into end-stage renal disease.

So it's very complex. And we even struggle and use the best outside experts to even identify what quality of care means to these very complex patients. Because we know what quality of care means for a diabetic. It's a human hemoglobin A1c that's within normal range.

So I think that answers some of your questions (multiple speakers) redirect.

In your comment about the recommendation, that patient's fee, has a face-to-face visit within the six months. And we applaud that. That is now embedded as part of the health care reform. We actually supported that.

And we believe that that kind of face-to-face interaction is an important improvement in the whole process. So we would remind, these are homebound patients. And the difficulty of getting a patient to a physician's office and so we are also trying to support some reimbursement for house calls and the ability to get physicians and nurse practitioner PA and extenders, if you will, into the homes for those in person valuations. We applaud that. We think that's a good improvement.

Yes I would agree with you on the quality of care issues especially on the oversight and it just makes perfect sense that if a doctor is writing a script you ought to lay eyes on a patient. I would suggest, though, that your point about there's some increased costs. Somebody is going to have to pay the doctor's time. Or an ambulance ride that's unreimbursed for the patient and I get all that.

I appreciate the time you have taken, Bill and Mike, to respond to this and I also appreciate the complexity of the patients, the complexity of your systems despite the fact that not been among those invited to see it. But having said that and going forward, one hopes that that can change.

You know the bottom line here as I look across providers of healthcare. As I look across payers of health care, you reported a nearly 9%, 8.86% I guess, 8.8% net margin this quarter. The rest of the industry is not nearly so profitable. That by itself into my mind makes Home Health vulnerable to the kind of changes that have been proposed and passed in the health reform law. And potentially in more changes from [Med Pac].

So that is where I am coming from and then to add to it the complexity of the patients, the necessity to have very clear clinical protocols that really target and make consistent to patient leads sort of a lot of area for there to be open-ended questions about just how you are achieving such excellent consistency and such excellent results. And I think that this kind of discussion can only help to address those issues and I thank you.

Let me as I'm remembering you asked [professional] questions. I want to answer just a couple for you, if you don't mind and then we will move to the next caller.

Sure. Thank you.

But you know as a reminder, the typical home health agency does between $1 million and $3 million in revenue and then, a lot of them are owned by hospitals and hospital systems. Nobody that we have come across has the type of approach and structure and there is really something called leverage and critical mass. And that is how we can be a little more effective.

We do see agencies out there from time to time doing better than us and we just wonder how that is happening because with our technology and our systems and our critical mass and the leverage that we have as far as the centralization as well, we are pretty efficient.

You asked a question in reference to predictions and oversight. I want to remind you that you know that the government through legislation has put a pretty robust stimulus package out there in reference to technology. We implemented a point of care system that has a mercury doc portal which is so web-based portal for us to be able to communicate on line with our physicians. Not only can we get orders back and forth and communicate positions but we can send information like grafted trends of vitals and communicate and get new updates and orders.

So we have a very robust way of communicating with physicians. We have been criticized in the past that "don't you think you have an advantage because you have physicians using your mercury doc?" I think a little over 20 to 25% of our referrals come in through that portal.

But as a reminder, President Obama in the stimulus package with technology is really pushing for that interoperability. Mike mentioned AMS3. We spent a voluminous amount of time looking at connecting this new system to all of the providers, including hospitals in large clinics, to make sure that we can share and flow information back and forth to get -- that's part of the problem.

And we are going to continue to dump resources. And as far as that invite, you know we are positioning at some point in the future, hopefully this year to actually bring the investors in and show them our systems and how they work and interfaces. And we would like to go beyond that and actually bring in the regulators and political parties as well.

So we will hold you to that offer and we will make good on that.

Jerry [Dactra] of Stifel Nicolaus.

Thanks. A lot has been covered. I just want to shift gears actually and talk about sort of the hospice side of the business.

I think, Bill, you had indicated and even on the call I guess via that you are interested in building out the hospice platform. One of the things that has tripped up companies in the past there has been the Medicare caps.

I was just curious to see maybe get a little more color on hospice acquisitions. Particularly, understand how you are talking -- you are sort of thinking about dealing with Medicare caps and kind of avoiding that problem which we've seen in other acquisitions in the past.

Let me talk a little bit about hospice and maybe Dale can talk a little bit on the cash. And I'm happy to as well, but you know the bottom line is the Company has put out to the market a new strategy called [C4M] and its Comprehensive Continuous Care Management where we believe that we should care for patients from the point that they become high utilizers in care to the end of life.

The independents have home and the Medicare medical home demonstrations of perfect examples of that. And if you look at the Geisinger report, you would find that there's a huge disparity in the cost of care to patients, especially in the last three to six months of their lives. And we think that hospice is an important part of the continuum.

The other thing is we think that Amedisys has a very strategic advantage in reference to growing hospice, simply because of our homecare footprint. And we think that some of the resistance that we have seen to hospice utilization is that, although patients qualify medically for it, emotionally and mentally they are not quite ready for that.

So we are working right now on a bridge program between home care and hospice, where we think hospice will be a very vital part of our continuum of care as we move forward.

Part of the problems I think that we have seen in the past is the type of patients that the hospice industry started to accept as the benefit expanded years ago, where they moved from pure play cancer patients, they tended to have very, very short length of stays because of the aggressive treatment to the end. So when they moved into other type of patient conditions such as cardiac or dementia, Alzheimer's patients, that tended to stay on service much longer.

So the bottom line is the way you manage cap is that you have a lot of volume. You have a good mix of patients. And you have a good way to tie into community-based efforts to make sure that you have a good turn of patients in that you mix those patients with a good blend of short-term care patients. And that if you have a system to monitor that very closely and as you manage specifically to those trends.

Dale, you have something?

Yes, just a quick comment. We have $120 million run rate in the hospice revenue. That probably puts us somewhere in the top 10 of the hospice companies in the country and we have almost no cap issue. We have a very small reserve in a couple hundred thousand dollar range and only a few agents.

And that is based on some agencies that we think may have a cap issue at the end of this fiscal year for hospice. So we are one of the larger agencies in the country. And we have almost no cap exposure at this point.

And I assume it is something you look carefully at when you make acquisitions.

Say that again.

I assume it is something you look closely at what you are making acquisitions.

Yes. Certainly when you look -- as Bill said, when you look at the cap issues, it really has to do with your volume and your mix of patients and much like in the Home Health side, you are looking at disease-specific programs that help you go out and recruit the right mix of patients. You have got to be able to monitor that and manage that well. And that's really the key.

And as we look at acquisitions we are looking in depth at all of those programs and how they market their services and their relationships. It is certainly the same way we do with our own hospice business.

Ralph Giacobbe with Credit Suisse.

Thanks. Good morning. I just want to go back. Maybe you can help us understand where sort of that sales focus is that you talked about. Are you targeting physician offices or hospitals and discharge planners? And maybe just remind us what percentage of your admissions come from physician offices versus an acute or post acute setting?

Yes, I think it is probably varied. I would have to go back over what year at a time, but there was a re-organization sales team in the first half, maybe even first quarter or so of last year. It was intended to be more targeted in nature, dividing up the sales team, and what it did was kind of break historical relationships some of those sales folks had with longtime relationships they had in referral sources or facilities, and it wasn't working frankly.

And so rather than being just a tool, it became the tool and it wasn't working. So basically what we did was realign that and basically say, "Okay, that targeted sales program is a tool but not the only tool." Try to reestablish those relationships that our folks had. You know, out in the field with those historical or referral physicians or facilities and it has worked.

And so basically it is kind of getting back to what used to work and the other part is, frankly, getting some of those additional resources, medical resources. We played it a little tight on our staffing models, you know, out of facility. By putting a few more resources in the field, we allowed them to focus on growing the business and we seem to be paying dividends from that.

As far as from the percentage of where they come from, we are about 40%.

A little over.

Little over from physicians and a little more than that from hospitals. So in that general zone. Does that answer your question?

Yes. All set. Thank you.

(Operator Instructions). Chris Sassouni with Eagle Asset Management.

Yes. I wanted to just ask you in your conversations with CMS and Medicare, how they are thinking about these issues that were raised by MedPac reports, given that it is hard to deny that healthcare is still the cheapest venue of care. And are they understanding how the surveys that were done by MedPac were skewed by the lack of inclusion of the hospital-based home healthcare agencies?

I think they have a good understanding of how they move forward and evaluate. I think MedPac is a very professional organization. I think they understand that there is probably some variance in information as it relates to it not being all inclusive first of all, of all of the providers. Because I think, certainly, if you put hospital providers in there, it would change the numbers.

The second piece of that, they pull information to base those reports on cost report information. And cost report information only allows you to put certain expenses like, for instance, it doesn't have any availability to put the cost of [tele-health] monitoring. We mentioned, I think in a previous call, that we are rolling out to 150 markets after three years of beta on tele-health monitoring to our population.

Now, the cost of this has got a significant price tag all included in our budget numbers, but it doesn't have a cost line item. So our margins would be reduced by that much and won't be reflected in anything with MedPac's reports.

We actually had a couple of good conversations with MedPac from the perspective of the alliance and they have asked some good questions and questions oriented around what's an ideal Home Health patient? And I think they were surprised to hear that we don't think all patients are ideal Home Health patients. That some of them really belong in skilled nursing facilities. Some of them along in (inaudible).

But patients we have the ability to recuperate relatively quickly, be taught and trained and be supported by their family, are the patients that are kind of ideal to be in-home care.

They also went a step further and asked what barriers are there to allow us or prevent us from caring for more patients. And actually I think there is a demonstration in the new legislation that looks at eliminating the barriers. As well as a demonstration, I might add, that provides a demonstration for hospice that provides curative benefits during hospice benefits, which helps to steer them away from the pushback.

As far as CMS, I think our relationship has been very robust. Through the alliance, working along with the association, we have frequent communication with significant members in CMS. We responded on a plethora of questions and information including the new scope, there's a new care transition as well as hospital reduction program care transition.

As we mentioned earlier, this was with the QIOs and CMS is driving the hospital read -- reduction. We provide a good dialogue in working with the [NQA] to work on quality measures that help with the new [OASIS C documents]. So what has happened is that home care really has a seat at the table and in part there was that seat and that was the communication, more effective relationships would not have helped us sort of scribe moving forward with the outlier issues.

And what we said is that hey, guess what, no industries are bad players. Let's create a system that penalizes those guys and puts them in the penalty box and doesn't hurt the smaller players that are doing the right thing that we just literally put them out of business.

So I think you will see the environment moving forward through our relationships with CMS, MedPac and as well as our legislative relationship put home care in a more positive light to be reflective of the real value proposition that we can provide caring for the cutest problem that we have in Medicare today, which is that 12% that consumes [69]% or the 25% of the population that actually consume 85%.

The Independence At Home legislation is targeting 5% of the population that consumes 44% of Medicare dollars and we feel that is in our sweet spot. So I think once we can prove that value which we call a value added proposition of home care, and it is not the traditional home care benefits, but how home care can evolve to take a major and leading role in many of these new initiatives that are open in this legislation, I think they will identify the basic benefit and value as well. So I think you are going to see positive things with home care as we move forward.

My only last comment is that in terms of capital diploma and given the multiple on your stock, but the cash that you are generated in your balance sheet and your underleveraged capital structure, I really sincerely hope that you will at least strongly consider that a share buyback is not mutually exclusive of building acquisitions. The two can work in tandem and you can easily execute on both.

Okay. Thank you. We appreciate the comment and as I mentioned to you earlier, we are going to take any of the corporate finance alternatives off the table.

I would sincerely like to thank everyone for taking the time today to join in our first quarter results. We are excited and passionate about our Company and the prospects for the future. We look forward to speaking with everyone again over the next few months and, certainly, as we report our second quarter results and we are excited about with the opportunity the new healthcare reform offers a company like Amedisys. And everybody have a great day. Thanks for calling in.

Ladies and gentlemen, that does conclude today's conference. Once again, we thank you for your participation.