Amedisys Inc (AMED) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Amedisys Fourth-Quarter 2011 Earnings Conference. Just a reminder that today's call is being recorded.

At this time, I would like to turn the call over to Mr. Kevin LeBlanc, Director of Investor Relations. Please go ahead, sir.

Thank you, Lisa. Good morning, and welcome to the Amedisys investor conference call to discuss the results of the fourth quarter and year-ended December 31, 2011. A copy of our press release is accessible on the Investor Relations page on our website. Speaking on today's call for Amedisys will be Bill Borne, Chairman and Chief Executive Officer, and Ronnie LaBorde, President and 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, estimation, projection, expectation, anticipation, intent, or similar expression, as well as those that are not limited to 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 or actual outcomes to differ materially from such statements. These risks and uncertainties include factors detailed in our SEC filings, including our forms 10-K, 10-Q and 8-K. The Company disclaims any obligation to update information provided during this call, other than as required under applicable security laws.

Our Company website address is www.amedisys.com. We use our website as a channel of distribution for important information, including press releases, analyst presentations, and financial information regarding the Company. We may 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.

In additions, 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 Investors Relations page, under the tab, Financial Reports Non-GAAP.

Thank you, and now I'll turn the call over to Mr. Bill Borne.

Thanks, Kevin. Good morning, and welcome to our fourth-quarter earnings call. We appreciate the opportunity to update you regarding the Company's performance. 2011 was a challenging year for the home health industry and the Company. To begin the year, our home health division received a 5.2% reimbursement cut on Medicare revenue. Starting in the second quarter, our volumes and costs were negatively impacted by new regulatory requirements, including face-to-face and functional assessments.

As a result, we experienced declining revenues and margins on a year-over-year basis. However, we believe our focus on enhancing operational efficiency, cost containment, and growth initiatives started to show positive results towards the end of the year. Our fourth-quarter results of $0.49 per share in earnings on an adjusted basis exceeded our expectations, with costs less than anticipated, and a small uptick in volume from what we expected, providing positive momentum as we move into the new year.

Looking ahead to 2012, our home health division will experience further Medicare reimbursement cuts. For the industry as a whole, reimbursement has been cut 2.4%. For Amedisys, given the therapy and acuity mix of our patients, we estimate the impact to us will be approximately a negative 4%. However, the initiatives we undertook in the third and fourth quarter of last year will help us address the 2012 reimbursement cuts.

By year-end, we completed the closures and consolidations of the under-performing care centers that we announced on our last conference call. We expect this to have a positive $10 million impact on profitability in 2012, as compared to the 2011 results. Additionally, during the fourth quarter we carefully reviewed our overhead cost. Based on this review, we implemented numerous cost-savings initiatives that we expect to have a further $10 million improvement to our 2012 results.

During 2011, we made a significant investment in our hospice operations with the acquisition of Beacon. This acquisition added approximately $80 million in annualized revenues to our hospice division, creating the fourth-largest hospice business in the nation. We are very pleased with this acquisition, our integration efforts, and its operation performance. We are sharing best practices between Beacon and our legacy agencies, benefiting both operations. Also, the geographic overlay with our existing home health care centers is allowing us to bring a more robust continuum of care to our patients in the northeast.

As we announced last year, growing our managed care business is a priority for the Company. I am pleased to report that we concluded 2011 with 240 plans under contract, an increase of 40% since the beginning of the year. Same-store, non-episodic admission growth grew 12% for the quarter on a year-over-year basis. Based on our fourth-quarter results, non-Medicare revenue now comprises about 17% of the total home health revenue.

We continue to make progress on managed care business in 2012, with two major contracts signed to-date. We are now an in-network provider with United Health Care in six southeastern states, covering an incremental 4.9 million commercial and Medicare Advantage plan participants. The second contract is with Blue Cross and Blue Shield of Georgia, covering more than 3.2 million commercial and Medicare advantage plan participants in the state of Georgia. This should benefit our relationships with referral sources, as we will be able to substantially expand the number of their patients we can service on an in-network basis.

We also continue to invest in our IT infrastructure. Over the last 18 months, we have made significant upgrades to our accounting, human resource, and patient information security systems. Our operations are supported by a proprietary operating system, which we refer to as AMS. This system is undergoing significant upgrades, including the roll-out of a medical supplies module that started in 2011, and adding hospice to our point-of-care technology in 2012, and to our Mercury Doc physician portal in 2013. As a reminder, we have over 9,000 physicians on our Mercury Doc system in our home health division.

Additionally, we've begun a process to upgrade our billing functionality and our Pinnacle management architecture for implementation in 2013. These investments are necessary to support our strategy, compliance, growth, operational improvements, and clinical excellence that will drive our business forward in the continuously evolving health care environment.

There are many favorable trends in the home care sector -- compelling demographics, patients' preference for home care when clinically appropriate, low cost of care delivery, increasing public acceptance of hospice, payer focus on cost-savings opportunities when they look across provider silos, and re-admission penalties driving more intense hospital interest in post-acute care services. With our scale, focus on clinical excellence, and IT infrastructure, we think Amedisys is well-positioned to benefit from these favorable home care trends.

I would now like to turn the call over to Ronnie, who will comment more specifically on our 2011 financial results. After his comments, I will conclude our formal remarks with an update on activities in Washington, and initiatives we are undertaking in 2012.

Thank you, Bill. During the fourth quarter and full year for both 2010 and 2011, we recorded a number of one-time items. These items, as detailed in our earnings release, include goodwill and other intangible impairment charges, costs associated with agency closures and consolidations, legal expenses associated with governmental inquiries, and certain other costs. Additionally, during 2010 and 2011, we closed 23 and 29 care centers, respectively. The results of operations for these care centers are presented in discontinued operations in our financial statements.

During 2010 and 2011, we also consolidated 62 and 32 care centers, respectively. By consolidated, we mean closing a care center and consolidating its operations into another care center that operates in the same market area. Consolidated care centers are included in continuous operations, but exit-related costs are considered one-time items. For my comments on this call, I will discuss our results on an adjusted basis, and excluding discontinued operations.

During the fourth quarter, we generated revenue of $371 million, compared to $389 million in the fourth quarter of 2010. And net income of $14 million or $0.49 per share, compared to net income of $29 million, or $1.03 per share, during the fourth quarter of 2010. Our home health division experienced a decline in revenue of $49 million, or 14% for the quarter versus the prior year. Most of the decline is attributed to a 9% reduction in revenue per episode. This reduction, in turn, is due to the combination of the 5% reimbursement cut we experienced in 2011, and 4% due to the revenue impact associated with the functional assessment requirement. A reduction in volume drove most of the remainder, with same-store episodic admissions down 5% for the quarter. Our recertification rate remained fairly constant for the quarter, at 44%.

Our hospice division experienced an increase in revenue of $31 million, or 81% for the quarter versus 2010. Most of this growth came from the Beacon acquisition. Additionally, we saw an 18% same-store revenue growth, which resulted from a 15% growth in same-store average daily census, and a 2% increase in revenue per day, reflecting the hospice Medicare reimbursement increase. Same-store admissions were relatively flat.

Our gross margin was 45.5% for the quarter, a 410-basis point decrease from the fourth quarter of 2010. Our hospice gross margin was relatively flat at 46.8%, while our home health gross margin declined by 460 basis points to 45.2%, mainly due to the reimbursement cut. Negative revenue impacts from face-to-face and functional assessment, and general cost inflation, also contributed to the decline in the gross margin. Our home health same-store cost per visit in the quarter was 1.4% higher than in the fourth quarter of 2010.

General and administrative expenses for the quarter were relatively flat at $143 million compared to the fourth quarter of 2010, with cost reductions in our home health division offset by increases in our hospice division, mainly associated with the Beacon acquisition. As a percentage of revenue, our expenses increased 190 basis points to 38.5%. EBITDA for the quarter totaled $36 million, or 9.6% of revenue, compared to $58 million, or 15% for the same period last year.

Turning to our fourth-quarter results on a sequential basis, our earnings per share of $0.49 compared favorably to the $0.41 we earned from continuous operations during the third quarter. We also had a net loss during the third quarter of $0.05 on discontinued operations. Our revenue on a sequential basis was essentially flat at $371 million. Hospice revenue increased $4 million to $68 million, due to the Medicare reimbursement increase effective October 1, and an increase in average daily census of 3%.

The home health division saw a decrease in revenue associated with lower volume and the impact of the 2012 reimbursement cut on episodes in progress at year-end. This was partially offset by an improvement in the revenue impact from functional assessments. During the fourth quarter, the negative impact of revenue from functional assessments was $1.5 million, versus $5 million in the third quarter. Our gross margin on a sequential basis was essentially flat at 45.5%, as our normally higher fourth quarter costs were offset by the reduced negative impact of functional assessments. With the essentially flat revenue and gross margins on a sequential basis, lower G&A costs of almost $4 million drove the quarter improvement and bottom-line results.

For the year, we generated revenue of $1.47 billion, compared to $1.6 billion in 2010, and net income of $66 million from continuing operations, or $2.27 per share, compared to net income of $131 million, or $4.61 per share during 2010. Our home health division experienced a decline in revenue of $210 million for the year, or roughly 14%, for largely the same reasons as discussed in my fourth-quarter year-over-year comments, which included the 5% reimbursement cut, impacts from face-to-face, the functional assessment requirement, and the reduction in same-store admissions.

Our hospice division experienced an increase in revenue of $79 million for the year, or 57% growth. Most of this growth came from the Beacon Hospice acquisition. Additionally, we saw 20% same-store revenue growth, with same-store admissions up 12% for the year. Our gross margin was 46.6% for the year, a decline of 350 basis points from 2010. Our hospice gross margin was relatively flat at 46.4%, while our home health gross margin declined 380 basis points to 46.9%, from a combination of reimbursement cuts, the revenue impact of face-to-face, and functional assessment.

Our same-store cost-per-visit was relatively flat compared to 2010. General and administrative expenses for the year fell by almost $12 million, as we adjusted our cost structure to the lower revenue level. EBITDA for the year totaled $156 million, or 10.7% of revenue, compared to $256 million, or 16% for 2010.

Turning to our balance sheet, we ended the year with $48 million in cash, $145 million in debt, a leverage ratio of 1, and $231 million in availability under our revolving credit facility. We generated $142 million in cash flow from operations during the year. Capital expenditures were $44 million, debt principle payments were $37 million, and we also funded $132 million in acquisitions during the year with cash on hand.

This morning we are issuing revenue and earnings guidance for 2012. We anticipate revenue to be in the range of $1.475 billion to $1.525 billion, and earnings to be in the range of $0.95 to $1.10 per share from continuing operations. This is on an estimated 30.2 million fully diluted shares outstanding. In this guidance we are assuming low single-digit episodic admission growth for the year, and for income taxes we are assuming a rate of 41.5%. Our guidance in 2012 includes an estimate of expenses associated with ongoing regulatory inquiries. Of note, these expenses were approximately $7 million in 2011, and we are expecting a similar level of expense in 2012. In prior years, these costs were not included in our guidance.

Now, I'll turn the call back to Bill.

Thanks, Ronnie. I will start with a brief regulatory update. We are continuing to be very active in Washington. The 2013 budget process is under way with the release of the President's proposal earlier in the month. Sequestration will result in an incremental 2% cut to both our home health and hospice Medicare reimbursement in 2013 unless Congress acts to change this law. We are hopeful that CMS will focus and provide some clarity on rebasing, given its scheduled roll-out beginning in 2014.

We believe the appropriate approach for home health and deliver savings to the Medicare system is to target fraud and abuse within the sector. There are a number of ways to do this selectively without negatively impacting the patients we serve, or the providers that are operating appropriately. Amedisys and other leaders in this space are engaging with policy makers to discuss reforms that will continue to ensure patient access, and provide better operating environment for the industry. We will continue to have this dialogue with CMS, MedPAC, and our elected officials.

Internally, we are focused on being the best home health and hospice Company in the industry. I am pleased with the regional and management realignment we implemented in the third quarter of last year. Our leaders are working together collectively to improve the overall performance of the Company. First and foremost, that means delivering excellent clinical care. In the latest CMS outcome scores, we again achieved very good results, meeting or exceeding the average outcomes of our competitors in our footprint in each of the eight categories currently being reported.

We are particularly focused on re-admissions to hospitals, and believe telemonitoring can play a significant role in improving this metric. In 2011, we increased the number of telemonitors deployed by almost 50% to 2,800 units, and expect this growth to continue. We made additional investments in our clinical leadership, adding a Chief Medical Director for the Company, a Chief Clinical Officer for Home Health, and a Chief Clinical Officer for Hospice.

Our second business fundamental is growth. We struggled with internal growth in 2011, and we are very focused on regaining a positive internal growth. The main focus for us is -- growth in managed care, as discussed in my opening comments; expand value-added relationships with hospitals and health systems; enhanced sales trainings and cross training between home health and hospice; and implementation of market-specific sales plans that utilize the new CRM tool we rolled out to our sales staff in 2011. As mentioned, compared to our expectations, we saw slightly better volume results in the fourth quarter, and we are pleased with our admission performance for January and February.

Our third focus is operational efficiencies. While we closed or consolidated 61 under-performing care centers in 2011, we continue to add care centers with negative contribution. The reimbursement cuts we have experienced in 2011 and 2012 have raised the break-even point at which agencies can operate profitably. We are focused on improving the performance of these care centers. We will continue to reduce operating costs which are not detrimental to our growth and/or quality. We have seen an improving trend over the last few months in lost revenue associated with therapy functional assessments. We anticipate further improvement in this metric throughout 2012.

In closing, our fourth-quarter results were better than expected. We're optimistic as it relates to organic growth based on recent trends. I believe our three-part focus will well-position the Company to capitalize on the long-term favorable trends in our sector. I look forward to the opportunities that 2012 will bring. We have great dedicated employees who understand their first job is to provide outstanding care to the patients we serve. I want to thank them for their commitment to the Company, and their hard work. With their efforts, we can make this year a successful one.

Now we will open the call up for questions.

(Operator Instructions)

Kevin Ellich, Piper Jaffray.

Bill, maybe we could start out with the managed-care contracts that you guys recently announced. I guess, what's changed in the environment? Has this always been a big focus for the Company? Maybe you can provide a little color behind what drove these contracts with Blue Cross Blue Shield of Georgia and United Health Care now. And then how does that -- the managed-care pipeline -- look? Do you have contracts in place with the other big commercial payers like Aetna and Cigna?

Thanks, Kevin. One thing that's changed is that Managed Care Advantage now has what historically was 25% now of the Medicare population, and we're finding that our clients right now, our referral sources from hospitals, discharge planners, as well as physicians, don't want to separate managed care from Medicare population. We really feel that by accepting more managed care, it will offer us opportunities, obviously increase our referral sources for Medicare, as well.

We're also finding favorable pricing, and it's able to offset some of our incremental costs, and we're looking at cost structures and how we actually service managed care. Some of the commercial plans, the patients are younger, less complex. The assessments that we use for these patients are less costly, so it has less overhead. Our overall focus there is to reduce our portion on a continual basis, because we think we'll continue to find pressure from Medicare, and we'll have to drive our costs there as well. When you look at the products that we signed just recently, cumulatively between United and Blue Cross, it's around 8 million patients, and probably a little over 1.2 million Medicare Advantage, and the reimbursement changes and the program changes.

What we're doing is becoming very efficient on being able to bill and collect for those services. As I indicated, we had a 40% increase in managed-care contracts last year. We expect to continue to see that trend. All large national managed-care players, we believe, are targets. We are starting with basically either episodic or pay-per-visit type of relationships, but ultimately we like to move up to a higher value, and actually manage these complex patients and look at unique ways to get reimbursed for those services. We're excited about that.

Understood. Are the commercial rates on those contracts, are they similar to what Medicare pays?

They are not equal, but they're better than they were years ago, Kevin. We're pleased with the ability. We have Bob Younk and Tom Roscoe who have a extensive managed-care background. They know the industry right now, we're working with Milliman and Robertson and really looking at adding value. We're starting in many instances with a pay-per-visit, or episodic in some instances if it's Medicare Advantage, but we expect to move up the value chain with managed care. We're just beginning, we see some huge opportunities there. As a reminder, it's not far from bundling when you collectively roll value together. We see this just as a first step to where the whole industry is going, not just our segment, but health care in hospitals and managed care are going to all have to move in that direction.

Got it. Then just switching over to hospice really quick. Obviously very good growth there with the acquisitions. Do you think the same-store revenue growth of about 18%, is that sustainable? What's driving that strength? Then on hospice as well, average length of stay ticked up about eight days on a same-store basis year over year. What's driving the increase in length of stay? Is it lower acuity patients?

Well, the Beacon hospice acquisition had a higher percentage of patients that were in nursing homes. They have a longer length of stay. We had very few in our legacy agencies, a lot lower percentage, so when you blend them together, that trend tends to increase the length of stay. Again, the length of stay is just over the acceptable benefit of 180. I think we're running in the 95-98 length-of-stay range. That's kind of what's driving that. Hospice is -- we see a lot of opportunities there. The pricing is on the high end right now of hospice, so we're being very selective in reference to acquisitions, so we see opportunities there.

What we really see by rolling our home care and hospice divisions together, market-by-market, we see a lot of synergies with our sales force and local marketing activities. We're actually enjoying a lot of growth and success from our home health footprint. As I mentioned earlier, even years ago, due to a Amedisys' footprint and distribution in home care, I think we're very well positioned to grow hospice on the organic perspective. We think that the growth is sustainable, and depending on what acquisition opportunities come available, we might see some excitement in that area throughout this year, as well.

Got it, thank you. I'll hop back in queue.

Just a reminder to everyone on the phone, please limit yourself to one question and one follow-up. Once again, please limit yourself to two questions. Up next is Darren Lehrich, Deutsche bank.

Thanks, good morning. This is Brian Zimmerman in for Darren. Can you dig in a little bit more into your cost reductions you made in the quarter? Maybe provide some specific examples of what you were able to do to drive down the G&A costs?

This is Ronnie. The main issue there is we just, in G&A and overhead, we've driven down the cost there. We did, for the quarter, see a little bit -- we weren't quite probably as high in cost on an operating basis as we had anticipated, so that was a little bit improvement there, with the little bit better volume than expected. But the costs we've taken out are overhead targeted.

Okay. Then what sort of opportunities do you see for Beacon in 2012 to continue the integration, both from an operational and organizational standpoint?

You know, most of the integration with Beacon is complete. One of the things we talked about earlier is a point-of-care that we will be rolling out in all of our hospice divisions -- that includes Beacon. Right now they actually have a point-of-care system. We have provided some synergies, but we see some opportunities again to work and not only create savings but also grow.

Most importantly, it's the clinical strategy in the Northeast of our home care which existed up there, and as I mentioned in my opening comments, it provides more of a continuum. It allows us to care for a patient from the home care to the hospice should they fit in that category of patient. It just allows us a better and more robust offering, and more visibility. We see that as a result -- going to result in better market awareness and better internal growth. Then we see some of the unique programs that Beacon has, helping us with our legacy agencies, as well.

Okay. Thanks a lot, guys.

Brian Tanquilut, Jefferies.

Good morning, guys, congratulations. Bill, just going back to the managed-care questions that Kevin asked earlier. Several years back, five to eight years ago, managed care was not really a big utilizer of home health. What has changed, or what are you -- what do you have to do as a provider to increase adoption among the managed-care plans and their beneficiaries?

Well, Brian, that's a good question. If you look at Medicare reimbursement, to start with on Medicare Advantage, about five years ago the government put in an incentive for managed-care companies to accept more higher acuity and more complex patients, and they've paid them a higher reimbursement. While the reimbursement increased to managed care, there wasn't a lot of activities to help drive the cost of that care down.

What managed care is realizing now with now reimbursement pressure is they have to find different ways to approach the care of these very complex patients. I think they recognized home care is not only an extension to help reduce acute care hospitalization, reduce L tax or sniff stay, but in some instances it may actually be an alternative. I think it's just a complexity of the patients that managed care is currently taking care of, and I think over a period of time they're recognizing, with technology and advancements in care protocol, that home care can do a lot more.

It's all converging. Again, as I mentioned, the Affordable Care Act, and all of the activities that are going around bundling in HCOs, are pushing everybody to look dynamically at how to approach care different. It's undisputed that the home care venue is the least of cost of all of the venues that are out there, so all those together are emerging.

But, Bill, what do you need to do as a Company to really take advantage of that opportunity and capture that flow?

Right. Brian, we've been doing it. Our proprietary technology, having all of the information electronically available. As a reminder, last year we went and went wireless for all of our systems. Our new AMS3 system will allow us to have realtime access, to communicate not only with the physicians, but also the managed-care companies. Collectively, we're creating information systems that will allow us to communicate with all the providers and share information with managed care. So that's a big part of it.

The second part of it is that at some point in time, in specific markets, identifying these complex patients that are challenging for this managed-care companies to manage, and provide more than just care management, which is kind of what they do. But in-home care, quick access, and ready access to these patients are early recognitions if they de-compensate, and to be able to provide some intervention to the patient in the home before they show up in the emergency room, which will ultimately result in a re-admission. It's just taking what we've been building over the years and collectively offering a better product that moves up the value continuum from the managed-care perspective.

Got it, then my follow-up question for Ronnie. SG&A -- is this a good run rate to start thinking about the Q4 run rate? Also I just want to clarify that the litigation expenses, or the regulatory expenses that you had been excluding is now included in the guidance?

I will answer the latter first, yes. Those expenses are now included in the guidance and we won't consider them one-time items. On the G&A, we're getting to a good run rate, I think that's a good spot to pivot from, on the fourth quarter there.

Okay. Got it, thank you.

Kevin Campbell, Avondale Partners.

Good morning, thanks for taking my questions. I wanted to start with sort of your general thoughts on M&A on the home health side, and what you think needs to happen before you would feel more comfortable getting very acquisitive there?

Well, Kevin, we still have some uncertainty. One of the issues we're dealing with is the seller's expectations having come down, again, with 2011 adjustments in my opinion, much less 2012. There is some reality gap that needs to happen. The other issue is we've still got some uncertainty, uncertainty of 2012, '13, what's going to happen with sequestration. We also need some clarity on re-basing. I think as a result, some of the case mix adjustments that we've seen in '11 and '12, and then a sequestration, maybe most of that re-basing is done. However, we don't have enough color on that. So a little more color, and then we need to have some certainty with reimbursement, as well as the expectations need to be reset.

I will tell you that, as we look forward on M&A activity, we're looking to go very deep in the markets. We're looking for agencies that have critical mass in markets that we want to have a strong presence in. We're probably not going to look at an agency that has distribution in small area, maybe a lot of rural sites. We're looking really to increase our concentration in those markets. We're starting to see some activity, and we have an interest, but not quite there yet with the uncertainty that we see in the home care side.

Great. Then, Ronnie, on the G&A, the stock option expense in the quarter was $28,000, it looks like. A, why was it so low, and maybe what should we assume for that number going forward?

Yes, that's -- from the face of the statements, you can't really see what's going on. We -- completely. You picked up part of it, obviously, and we beat our guidance on the top side by $0.14, and I would -- there are a lot of moving parts, but it basically distills down into a couple of issues, compensation being one of them. That one line item, you see the non-cash comp is part of it that were lower incentive compensation accruals also in the quarter, and that was a big piece of the improvement from guidance.

The other part, on a kind of a go-forward basis, we did experience much better results on functional assessment in the fourth quarter. Our run rate was lower. That's probably from what we anticipated, that was probably about $0.03 better than we expected, but we also benefited in the fourth quarter from an over-accrual that existed third quarter. We fairly conservatively applied the close-to requirements, and we found many episodes that we could go back and build based on clarification of that interpretation, so there was a benefit of that in the fourth quarter. Going forward, we think we have a much lower run rate on functional assessment going into next year.

That non-cash comp number, should that go back up to a $2.5 million number or so per quarter, going forward?

Yes.

Okay. Then if I could, just one quick question. The Medicare Advantage sort of contracts, are the rates there tied to your Medicare rate in general, or are they independent of that?

Some are, and some are independent. It's really a mix. In any plan, you can have as many as six to eight variables, but some are tied and some are not, independent.

Can you give us an approximate break down?

We're not going to get into that color, but ultimately I think you'll see it reflected in the volume. Again, we feel good about the rates. We've negotiated them, and we feel very successful, and it's a win-win for both us and the managed-care companies.

Great, thank you very much.

(Operator Instructions)

Whit Mayo, Robert W Baird.

Hi, good morning. I guess first I'm just trying to figure out how you guys are coming up with an estimate for a 4% rate cut in 2012. The average for-profit provider in your geography is going to see at least a 4% cut, and then your therapy mix is higher than the average, and within the therapy you clearly, from analyzing your claims data, have a lot more of the 20-plus visit level, and those are just facts. I can't see your budget, obviously. How do we make sense of how you get to a 4% rate cut? What am I missing?

Whit, just off hand it's hard for me to comment on other organizations and how they calculate. What we've done is taken the new reimbursement rates, we've taken our mix, we've looked at it historically, and those are where the numbers are. We feel pretty comfortable with that number, and we spent a lot of time. We've had this question, obviously, for six months now. We've spent a lot of time evaluating that, and that's the number that we're comfortable with, and we think that's a pretty good number.

Okay. Ronnie, how much out-of-period EBITDA did you book in the fourth quarter from re-billing those un-billable visits?

We had -- let's see, that was $1 million.

Is there an opportunity to pick up more from those un-billable visits as you go through 2012, or have you captured the majority of what you can re-bill?

I wouldn't want to say we have more there. We continue to work on the issue and work through those episodes. I wouldn't bank on anything yet, but certainly that's an area that gets close scrutiny, and an area of intense focus.

Okay. I guess I was just curious, it seems that the racks are now beginning to submit sort of test claims to -- or submitting requests to test claims from the providers, and clearly they're going to roll out a much larger elevated claims review over the next year. Then on the other hand, you've got Palmetto GBA doing their pre-payment reviews. Any impact there? How should we think about the challenges or whatever -- however you want to comment on that?

Whit, we've seen a couple of issues on the [Z picks], and I think we've disclosed those. We're challenging both of those. With the racks, we've had one inquiry that involved one patient. That was a [lupa], and that's all we've seen to this extent. We've been preparing, if you can remember back in 2012, heavy education with our staff, down to the care center in the clinical level. We are, I believe that we're in good shape to be able to manage through issues, but they're designed to come out and review these issues.

If you take a look at something, for instance, as our functional assessments, we are very conservative on how we approach that. For instance, if they come in and look at us there, we feel very comfortable. Even with our technology, we're struggling to get functional assessment exactly right. I don't know how other companies are approaching that without the use of technology, but I guess we will see when the racks come out.

Okay. I guess one of the questions I'm asking is just with maybe the max, I guess specifically Palmetto and the pre-payment reviews. Is that driving any increase in denial rates, and/or has your ability to overturn those in sort of review period? Does that change at all, either?

Right. I think we're seeing a little more activity on some focused incentives, but it hadn't changed anything dynamically, Whit. I mean, we still have probably about 18 companies that are out there at any given time that are under some kind of focused review. We see a little more activity, but nothing that substantial, and really it's all pretty insignificant stuff. It's just checks and balances that they are looking for, which I actually think is good. It keeps us on our toes, and keeps it in small sound bites.

Maybe one last one here is just maybe looking at guidance. Philosophically, how should we sort of look at the conservatism, or is this realistic? Is this more aggressive? I guess we'd like to get a sense for how you construct a guidance, Ronnie is new in the CFO role. I just want to know if anything changed there, and I'll hop off, thanks.

Well, there is built in, as we've said for the year, we have low single-digit admission growth. We can certainly try to be efficient with cost and we'll be focused on that. Coming out of the blocks for the year, we're pleased with admissions. That will be, while we'll see that for the year, we'll see the year-over-year growth kind of present itself in the latter part of the year, so we think we're on a good platform. We think we can get there with low single-digit growth. There's market growth out there that we feel strong about participating in, and we're off to a reasonable start.

Kevin Campbell, Avondale Partners.

Great, just had a couple of quick, sort of, modeling questions. I was hoping you guys could first tell us what your CapEx was in the quarter, maybe what we think it should be in 2012, as well as your cash flow from ops in 2012?

Kevin, I don't have cash flow from ops right here. Let me see if I can -- see if I have that here in my notes. CapEx for the quarter was $5.8 million, and projected for -- let me see, bear with me one second and I will look through my notes.

No problem.

Cap Ex for next year is $42 million projected.

Okay, and maybe while you're looking for the cash flow from ops, any thoughts on the break down of home health versus hospice revenues in 2012 from your guidance, either a percentage-wise, or dollar-wise?

Right now, Kevin, I think our hospice is running about 17% of our revenue, is in hospice. I think we will continue to see hospice grow. I think that number will continue to increase, although we are expecting and hopeful that our home health revenue will grow as well.

Then in the exit activities and the certain costs, could you tell us which line items we should back those out of on the income statement, if we're trying to get to your $0.49 number? Is that all G&A?

It's not all in G&A. There are some -- let me see if there's anything that, where it would otherwise fall. I think it is all G&A, so I would take it out of that line. Go back, cash flow from ops for the fourth quarter was $37.4 million.

Do you have a projection for 2012?

Our guidance would imply roughly $105 million.

Great. On the G&A, if we're looking at sort of a run rate, we should back those exit activities and certain costs out -- actually, and then add the $7 million, because now your guidance going forward includes that, and then add the non-cash comp number, and that will get us to a more normalized number? Is there anything else I'm missing?

The $7 million, just to make sure I understand your question, go back through that for me again, please?

If we're looking at the fourth quarter G&A, we should sort of take that number and we can back out these exit activities and the certain costs, and then that would be a run rate. We can add the $2.5 million from the non-cash comp, and then add whatever portion of the $7 million that is related to the SEC Senate Finance Committee investigation, et cetera?

Oh, okay. Yes.

Okay, great Thank you.

You bet.

Ladies and gentlemen, that does conclude today's question-and-answer session. I would like to turn the conference back to Mr. Bill Borne for closing remarks.

Thank you, Lisa. We appreciate everyone calling in to listen to our fourth-quarter and year-end conference call. We feel that we're in a great position to capitalize on the long-term favorable trends in our sector. Again, we want to thank our employees for the efforts that they provide to deliver outstanding care to our patients that we serve every day. We look forward to our first-quarter 2012 conference call and hope that you will be on the call again. Again, thanks everybody for calling in, and you all have a great day.

Again, ladies and gentlemen that does conclude today's conference. Thank you all for your participation.