Amedisys Inc (AMED) 2015 Q4 法說會逐字稿

Greetings and welcome to the Amedisys fourth-quarter 2015 earnings conference call.

(Operator Instructions)

I would now like to turn the conference over to your host, David Castille, Managing Director of Finance. Thank you. You may now begin.

Thank you, Operator. Welcome to the Amedisys investor conference call to discuss the results of the fourth quarter and year ended December 31, 2015. A copy of our press release, supplemental slides, and related form 8-K filing with the SEC are available on the Investor Relations page on our website. Speaking on today's call from Amedisys will be Paul Kusserow, President and CEO; and Ronnie LaBorde, Vice Chairman and CFO.

Before we get started with our call, I would like to remind everyone that statements made on this conference call today may constitute forward-looking statements and are protected under the Safe Harbor of the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to Amedisys today. The Company assumes no obligation to update information provided on this call to reflect subsequent events other than as required under applicable securities laws. These forward-looking statements may involve a number of risks and uncertainties which may cause the Company's results or actual outcomes to differ materially from such statements. These risks and uncertainties include factors detailed in our SEC filings, including our forms 10-K, 10-Q and 8-K.

In addition, as required by SEC regulation G, a reconciliation of any non-GAAP measures mentioned during our call today to the most comparable GAAP measures will be available on our website, on the Investor Relations page under the tab financial reports, non-GAAP.

Thank you and now I'll turn the call over to Paul Kusserow.

Thank you, David. And welcome to the Amedisys fourth-quarter conference call.

This morning I'm excited to give you details on our adjusted fourth-quarter and full-year performance. We reported revenue of $337 million, EBITDA of $28 million, earnings per share of $0.40. Compared to the results for the same period last year, revenue grew 12%, EBITDA grew by 21%, and EPS by 48%. Total same-store home health admissions were up 8%, and same-store hospice admissions were up 21%. We're seeing these positive trends continue into the first quarter. For the full year 2015, we generated revenue of $1.3 billion, EBITDA of $112 million, and EPS of $1.48. Compared to the results for the same period last year, revenue grew 6%, EBITDA grew by 51%, and EPS grew by 103%. We are extremely pleased with our 2015 results and, while we are facing great headwinds in 2016, we are very optimistic about our ability to continue to improve future performance.

Turning to our fourth-quarter adjusted segment performance, home health EBITDA increased $3 million year over year. We generated 3% same-store Medicare admissions growth, and 15% in non-Medicare admissions. On a combined basis, we generated 8% same-store admissions growth in the quarter, demonstrating our ability to grow organically at a significant rate as we are working to optimize our payer mix. As the year progresses, we hope to attain the same or better levels of total organic growth with more of our mix shifted towards traditional Medicare, where we are finding we can deliver better care and achieve higher-quality outcomes. Revenue for the quarter consisted of 74% traditional fee-for-service and 26% from non-Medicare payers compared to a 75% - 25% split in the third quarter.

Hospice continues to be a strong performer. We continued to build volumes and census with our fourth-quarter segment EBITDA up $5 million over prior year. During the quarter, same-store admissions grew 21%. The leadership structuring that we put in place for hospice in late 2014 has continued to pay dividends, both in the quality of hospice care we provide and financial results. For the year, revenue was up 11% and segment-adjusted EBITDA was up 20%. Not only did we experience growth, but we also expanded gross margins through tight cost control. Congratulations to our entire hospice team, led by Regarna Thompson, Dena Wilson, Bobby Holder, Mike Fleming, and Doctor Michael Nisco, our newly appointed Chief Medical Officer for hospice.

Recently the Wall Street Journal published an in-depth article on the hospice benefit and I was pleased to have the opportunity to discuss our strategy and our approach towards the hospice business. The article was focused on the increased Medicare spend for the hospice benefit and what is driving growth in longer lengths-of-stay patients. We believe hospice brings benefits well beyond those reported in the article. In our surveys we found that patients, families, caregivers, and payers alike prefer the alternative of hospice treatment at home rather than in a hospital or an institution. Research from peer-reviewed journals points out that hospice is more efficient, less expensive, and ultimately a more humane and dignified way for people to die.

As originally envisioned in 1983, hospice was designed as a simpler end-of-life benefit, primarily focused on cancer. It has emerged as a more complex benefit over time, as an increased number of patients indicate their preference is to receive hospice services at home. Increasingly, patients come to us with multiple diseases and complex comorbidities. In these cases, it is sometimes complicated and difficult to predict if a patient will reach the end of life within six months, but doesn't necessarily mean that the patient is ineligible for hospice care. We believe that the right thing for the patient is to focus on eligibility and providing the appropriate level of care. But also understand our payer is focused on long length of stay. Since I've been here, we have increased audits to reconfirm patient eligibility and review for appropriate documentation, with an emphasis on longer length-of-stay patients.

Our own analysis, in December 2015, shows that the percentage of hospice patients on census with a length of stay greater than one year has decreased 9.3% from the year before. We have doubled our audit efforts for this subset of patients and we will continue to work to ensure all of our patients are continuously eligible for the hospice benefit. In addition to the hospice cap that is designated to recapture payments from providers with abnormally long lengths of stay, CMS has recently shifted how it pays for hospice to better align payments with the treatments received during various lengths of stay. CMS has also signaled its support for hospice by beginning to reimburse physicians for end-of-life discussions and the Care Choices pilot program which combines hospice care with continued curative care. As the regulatory environment changes and settles out, we will continue to ensure we have best-in-class compliance practices, focused on eligibility, backed up with thorough review and documentation.

Shifting gears to 2016, we are facing home health rate headwinds that will result in a $14 million impact, approximately 1.6%. To offset the impact, we must continue to generate high-quality clinical outcomes, organically grow Medicare volumes, invest in strategic organic opportunities, continue to realize efficiencies in our operations initially enabled by Homecare Homebase, and generate a better return on our investment in human capital.

As you've heard me say before, we are betting on quality and are focused on being clinically distinctive. What is clinical distinction? It means employing the best clinicians and providing them with the tools and knowledge to deliver superior care. Right now, the most tangible definition of clinical distinction in our industry are star ratings and value-based purchasing. We are seeing promising early results in our initial star's reporting for the fourth quarter and first quarter of this year, which we believe will translate into improvements in future star rating releases starting in July. Our average star rating is 3.49, as compared to the industry average of 3.25. And 30% of our providers are over 4 stars. The average for the April preview represents the highest average Amedisys entities have seen to date, with the July preview projected to exceed April's results.

Also January 16 was the first star rating assigned to patient survey measures for the industry. We observed strong performance at 4.35 stars and are targeting steady improvement between future releases. Overall, Amedisys outperformed the industry average of 4.07 stars. With continued emphasis on these measures, combined with our scale and resources to employ on quality, we expect to outperform the industry. Our goal is to have all Amedisys entities at 4 stars or better in both star ratings by the end of 2017.

Value-based purchasing, or VBP, is also an important development in our industry and we welcome the concept of rewarding those that can demonstrate superior quality in outcomes. While some of the mechanics of VBP are still being worked out by CMS, most of the items tracked for star scores are included in the VBP measurement, so we are able to use them as a rough proxy for future VBP performance. In the seven pilot states where we have a presence, our quality of patient care star rating of 3.56 and our patient satisfaction star rating of 4.34 also exceed industry averages. Roughly 29% of our home health volume is in VBP pilot states.

While at the JPMorgan conference in January, we mentioned that on this call we would be providing more detail about any disruption we would see in 2016 from the Homecare Homebase implementation, as well as highlighting our operational and efficiency IT savings targets resulting from the conversion. We view the Homecare Homebase implementation as a gating issue in order to realize the stated $40 million to $50 million target for G&A efficiencies we initially promised to our shareholders late last spring. By the fourth quarter of 2017, we expect to realize these targeted savings, some in the form of efficiencies at the care-center level in our cost of revenue and segment G&A; and some in the form of IT savings, predominantly in corporate G&A and also capital expenditures.

In terms of the care-center efficiencies, we expect to generate savings through more productivity from our clinicians, variable staffing, and more efficient back-office operations. Based on our experience with our 142 installs thus far, we are delighted with a minimal disruption, amounting to approximately $8,600 per care center or de minimis overall Company-wide impact of $2.5 million spread throughout 2016. The projected annualized run rate upside from operational efficiencies and IT savings is $46 million, and we have targeted reaching that milestone by the end of 2017. This represents an obviously strong return on investment. Next, we must continue to generate robust organic growth in order to offset the continued rate pressures. We have seen strong organic growth to date in both of our segments, gaining some steam towards the end of the second half of the year; and are encouraged by our trends to date this year.

Switching gears to M&A, on March 1 we closed on our second significant acquisition in the last three months, Associated Home Care. The two acquired companies, Associated and Infinity, have combined annual revenue of approximately $90 million and roughly $10 million in EBITDA. While we have not seen much valuation discipline in the market, we will continue to be disciplined with regard to valuation and return metrics. We are optimistic that we can proactively buy companies with good strategic and geographical fit for reasonable prices. The Infinity Home Care acquisition in Florida closed on December 31 and is performing above plan.

Associated Home Care is our first acquisition in the personal care space. As I have mentioned before, our strategy is aimed at expanding our capabilities of care that can be delivered in the home. Associated will advance this strategy. We reviewed several opportunities in the personal-care community-care space and felt that Associated presented a differentiated business model and a strong management team that can grow this capability throughout the Company. In addition, AHC will complement our strong home health and hospice present in Massachusetts. We're anxious to see what synergies can be achieved in Massachusetts.

There are natural synergies between personal care and our core businesses. Many of the services provided by Associated are critical to keeping chronically ill patients stable and at home. Keeping people at home is more than pure clinical services. It is supporting activities of daily living, behavioral, social, DME services -- all in a coordinated package. We will now be better able to offer these activity-of-daily-living capabilities, along with skilled Home Care services that can be critical to avoiding unnecessary hospitalizations or decline into other institutional post-acute settings.

The ability to evaluate and treat patients with a wider array of capabilities will allow our clinicians and home health aides to identify and refer patients to the most appropriate level of care: home health, hospice, or personal care. These coordinated capabilities will provide great value as payment models shift to value- and quality-based reimbursement; and as risk and bundled payment models become more sophisticated and pervasive. I want to welcome our new colleagues from Infinity Home Care, and Associated Home Care; we're really excited about the strategic fit of both acquisitions as well as the depth of the respective management teams.

Our pipeline continues to be strong, with several actionable deals. But as I said, we will always remain disciplined with regards to valuation and return metrics. At the end of the quarter our leverage ratio on a net-debt basis was 0.6 times. While this number is likely to increase with more M&A activity, we are generating significant free cash flow with the ability to delever quickly. Available liquidity at the end of the quarter was $207 million after closing the Infinity acquisition, so we have plenty of dry powder to continue pursuing acquisitions. Additionally, our current facility has a $150 million accordion feature which will provide incremental liquidity in case we need it.

In September, the Board approved a $75 million share repurchase program and we have spent $17 million to date under this authority, buying just over 440,000 shares at a weighted average price of $38.29. As is evidenced by our recent repurchases, we are buyers at below $40 per share. Recent market volatility allowed us to be opportunistic with regard to share repurchases and, again, our current cash-flow levels allow us the flexibility to execute under this authority where needed

Finally, we will continue to invest in our people. We are seeing encouraging trends with voluntary turnover down 3% over 2014. We are targeting 25% involuntary turnover by the end of 2016. Our industry is plagued by fairly high turnover rates and the direct and indirect costs of turnover can be significant. Reducing turnover, particularly amongst clinicians and business development staff, will produce significant dividends.

With our planned migration to Homecare Homebase we are also targeting a 10% improvement in productivity from our clinicians in home health by the end of 2017. This productivity improvement is built into our projected efficiencies from Homecare Homebase implementation. What we are seeing in the sites where we are implementing Homecare Homebase is: our clinicians are spending less time on administrative- and documentation-related tasks, and this enables them to spend more time focusing on patients. Eventually, our goal is that this will translate to an increase in our overall average number of visits per week, from our current average of 28 to 31. Again, we want great people with great tools delivering great care and more of it.

In summary, we produced great results in 2015 and we'll build upon a solid base in 2016 and beyond despite rate headwinds. As always, it's all about our people, our dedicated workforce that is singularly focused on providing great care to our patients day after day, 7.5 million visits per year. Thank you for all the work that you do. I am humbled on a daily basis to lead an organization with such a devoted people on such an essential mission. 2016 is a very important transition year for Amedisys and we are very excited for what the future holds.

With that, I'll turn it over to Ronnie LaBorde. Ronnie?

Thank you, Paul.

To start my comments, let me call your attention to our earnings release in slide 15 of our supplemental slides that details our adjustments and the income statement line items that they impact. Let's begin by discussing our quarterly adjusted consolidated and segment results and year-over-year comparisons. On a consolidated basis, revenue was $337 million, up $37 million or 12%. EBITDA was $28 million, up $5 million or 21%; and earnings per share was $0.40, up $0.13 or 48%. In the home health segment, revenue was $262 million, up $22 million over the prior year; total same-store admissions growth was 8%.

Medicare same-store admissions were up 3% and our recertification rate remained constant at 37%. Segment EBITDA increased $3 million to $38 million or 14.6% of revenue. Our cost per visit was up $1.42 over last year. Similar to the third quarter, volume growth contributed to approximately $1.30 of this increase. ITB-10 costs of approximately $0.60 per visit were offset by a favorable comparison in health insurance costs of negative $0.60 per visit.

Turning to the hospice segment, our revenue was $76 million, up $15 million over the prior year. Same-store admissions were up 21%, and EBITDA was $19 million, an increase of $5 million. Cost of service per day declined $2, mainly driven by reductions in pharmacy costs. Our currency pharmacy-cost run rate should yield a favorable comparison for one more quarter. EBITDA increased $5 million to $19 million, or 25.1% of revenue.

Now for a few comments on G&A expenses. Again, please refer to the page 15 of our supplemental slides, which outlines our adjustments and line items of G&A. Our total G&A costs were $114 million on an adjusted basis, an increase of $10 million over the last year. G&A as a percent of revenue decreased 90 basis points to 33.8%. For the year-over-year increase of $10 million, home health G&A was up $4 million to $66 million, or 25.2% of home-health revenue, a 100 basis point decline compared to last year. Hospice G&A expenses were up $3 million to $17 million, or 22.4% of hospice revenue. This was a 60 basis-point decline compared to last year.

Our corporate G&A was up $3 million to $31 million, or 9.2% of total revenue. There were three main items impacting our quarterly corporate G&A. First, Homecare Homebase maintenance and hosting fees account for approximately $2 million of this increase. These quarterly costs of $2 million were initiated in the second quarter of 2015. As you may recall, our proprietary IT platform cost was previously reflected in depreciation and amortization. An additional comment I'd like to make on IT costs is that we expect them to be reduced substantially over the next eight quarters. This again is reflected on slide 10 of the supplemental slides. Second, our outsourced professional fees increased approximately $2 million; these costs we don't view as permanent. And finally, the costs mentioned above were offset by a $1 million decrease in compensation costs. Our corporate G&A, as a percent of total revenue, was flat compared to the prior year.

Cash flow from operations for the quarter, before changes in working capital, was $33 million and our DSO was 32 days. Our CapEx for the quarter was $3.5 million and $21 million for the year. In 2016, we anticipate approximately $22 million in capital expenditures, of which $9 million we would consider routine. The majority of our non-routine planned CapEx 2016 relates to leasehold improvements and data center migration related to the relocation of our Baton Rouge headquarters building.

At quarter end, we had a cash balance of $28 million and $179 million available on our revolving credit line; our total available liquidity of $207 million. As of December 31, we had $100 million in total debt outstanding and our total leverage ratio was 0.9 times adjusted EBITDA for the last 12 months. Since quarter end, we have closed on the AHC acquisition, which has reduced cash levels by $28 million.

Our deferred tax and asset balance stands at $125 million at year end. Slide 16 of our supplemental information presents an illustrative view of how our NOLs and intangible amortization will affect cash taxes. I'd ask you to keep in mind as you look at this schedule that these estimates are based on 2016 analyst consensus and should not be taken as our internal views on performance in future years. At these consensus earnings levels, we do not anticipate being cash tax payers in 2016.

As Paul mentioned, we have deployed approximately $90 million toward acquisitions in the past three months and another $17 million towards share repurchases. Given our current EBITDA run rate and the consistent cash flow we've been generating, we feel good about the ability to both execute on accretive acquisition opportunities and repurchase shares under our $75 million authorization.

As we have indicated in the past, we feel comfortable with analyst consensus numbers that have been published for 2016, but I'd like to mention the following items that will impact our run rate in the first quarter: the Medicare rate cut has an impact of approximately $4 million; the combined impact of one less hospice business day; the Homecare Homebase disruption; and inclement weather pay to date will be approximately $1.2 million. In all, this represents a $5.2 million headwind to EBITDA, or a $0.09 per share impact.

This concludes our prepared remarks. Operator, please open up the call for questions.

(Operator Instructions)

Brian Tanquilut, Jefferies.

Hey, good morning guys. Congratulations. Ronnie, I'll go with that last comment that you made. So basically you look at consensus, you feel comfortable with it in 2015, so how should we think about the build-up to that? Does that include any acquisition expectations? What sort of organic growth should we be thinking about? I know Paul made a little bit of a commentary on organic-growth expectations, but do you mind giving us some cover on the cadence and what is embedded in that view that you're okay with consensus.

Sure. Thanks, Brian and I appreciate the question. Let me say that we think when we look at consensus, I think, generally already built into that was an impact from our Infinity acquisition at year end. So generally, we view that as nothing else has been included into that consensus point of view. But I would say this. We know and we've kind of outlined for you and for everyone the impact of and the benefit of our efficiencies gained.

We have an early impact in disruption from Home Care Home Base that kind of flows through the first three quarters and then we begin to see the benefits, so that's all outlined and we tried to develop that and show you that benefit; that's a net benefit of about $7.5 million. And then I would say, while we have a lot of moving parts, as Paul has articulated, a lot of things we're working on.

But I think when we just backed off and looked at it at a high level, if we continue, I speak to two parts. Number one, our hospice volumes, if we continue at the current run rate, that we've been in the second half of the year, if we follow that through all the way through FY16, we'll see a first-half growth rate, just at that level, probably in the 4% to 5% range. And so that'll be a part; that's not what we intend to do, but that's just continuing the current run rate flowing into 2016.

And then, secondly, if you look at how do we get to consensus while, aspirationally and in our plan is to grow beyond this. If you get a 2.5% to 3% home health, Medicare growth rate, that will get us back to consensus. So we see some reasonable growth rates that are below what we are internally targeting with this benefit from Home Care Home Base installation and the resulting efficiency that a high level kind will get us to consensus.

Yes. And on the inorganic side, Brian, I think our pipeline is very good presently. We're currently working on some things that we hope will come to fruition in the next couple months. We are maintaining our discipline; we're seeing a lot of inflation there.

There was something interesting in the home healthcare news this morning about that, but we've been able to do very good deals at good prices; and, particularly, now that we are in the personal-care business, we're looking for opportunities to expand there and to be additive. So we're seeing a lot of good stuff so we're hopeful to get a couple more deals done early this year.

Thanks for the color, guys. And then, Ronnie just to follow up on hospice, obviously a very strong performance with the volume side, but are there moving parts are there things that we need to be aware of as we think about how your hospice business will flow from Q4 to Q1 and throughout the year?

Brian, that's a great question. So I would say this. That first, and as Paul has indicated, we really are seeing some great volume growth continue ito the first quarter, so we're still seeing that, very pleased with what we're seeing there.

From a reimbursement perspective, I probably should have added something to my comments. The first I did say was, look, in the fourth quarter, we had 92 days; in the first quarter, we're going to have 91 days. When we miss that one day to bill in hospice, that's about $800,000 or so, so that'll be an impact.

But probably what I should've added to that is one other point. The way the reimbursement is going to flow through, in the fourth quarter, we got a 1% bump, so, basically, a 1% bump in reimbursement. That 1% is going to kind of vanish as we move into the reimbursement model starting in 2016.

So, from a sequential basis, I think I would say that if we took that 1% of the $71 million of Medicare revenue, that's about $700,000, roughly, of impact that won't flow through. And we're speaking and kind of our point of view around hospice reimbursement for 2016 is going to be flattish to slightly positive to 2015 as a whole. So it's a little bit in the weeds here, but just a slight impact sequentially.

Okay. And then last question, Paul, as we think about organic growth, obviously very healthy in both sides of the business. If you don't mind just giving us your thoughts on what's driving that right now, is it something company specific or is it more industry driven? And then as you look out to the next, say, two years obviously your Home Care Home Base is a big earnings growth driver, but how should we think about the outlook and how sustainable a mid-single-digit organic growth level is. Thanks.

I still think there's lots of room, so I think, operationally, I think we've been doing a great job. I think what we understand is there's still lots of capacity in terms of one, our mix; we mentioned that we still think there's opportunity to optimize our mix. We still think on the cost per visit, there's lots of opportunity with variable staffing.

With the quality as we're obviously focused using our scale and size on quality, we're having a lot of conversations particularly with hospitals about how they're thinking about discharging according to people with higher quality scores so we think there's going to be increases in volume there. Obviously, we're going to focus extraordinarily hard on keeping our quality scores highest in the markets where we are serving.

So you have a cost side; there's lots of opportunity. There's lots of opportunity on the existing mix. Plus, we believe there's incremental opportunity on the stars. So altogether, we're just very satisfied on the pure organic side of things.

And also, as I said, our pipeline inorganically is very full. We'll maintain our discipline so that we can make sure that we get good returns ROICs on our deals.

I got it. Thanks, guys.

Thank you, Brian.

Sheryl Skolnick, Mizuho Securities.

Hi. Good morning, everyone. So, it's no wonder that man was smiling at JPMorgan. (laughter) Okay. But down to business, here if I may. So Ronnie, can we quantify a little bit more precisely your commentary about a $0.09 delta; $0.09 delta from what? From the $0.40 run rate or from the current consensus for first-quarter? It makes a big difference.

Sure. Thank you, Sheryl, thanks for the question. It's from the fourth quarter.

Thank you. That's what I thought you meant, but I didn't want anybody going off the deep end, because it wasn't 100% clear. Now, with that important thing out of the way, can you talk to me a little bit about this mix issue in Home Health? If I remember correctly, I heard an awful lot of discussion around, we really need to be focusing on where, given that you've got some scarce resources, namely your clinicians, let's put them in the place where we can get the best return on their services and that's Medicare fee-for-service. Yet, if I look at your numbers right, unless I can't do math anymore, that's not what happened this quarter.

Right.

So what's going on there? How quickly should we assume that's going to happen or are you having success with managed care in convincing them of the value that you bring?

I think, first of all, we have a lot of focus on quality and I think that's where we are starting. I think, when you look at how particularly in starts of care, which is really important on the quality ratings that we get and our ability to generate strong quality ratings, if we can't start care really early, that's a problem for us. And we're focused, Sheryl, very heavily on what type of business can we take that drives quality? Because we believe that's going to be a huge determinant in the future for the bonuses that we are looking to get.

And managed care, frankly, we have some issues and we have been going through our contracts recently. We've had some issues with start of care. And then, also, on reauthorizations in terms of when our patients need care, having to wait for these reauthorizations. Also, as you know, the reimbursement is, generally on managed care contracts, is lower.

So I think as we're continuing to focus on quality, as we're focusing on our ability to execute, we know we can do very well in terms of traditional fee-for-service Medicare. We do have contractual obligations with managed care companies; we honor those, but given the choice, at an average of $40 difference, per visit, and also delivering higher quality, we generally, given the choice, will pick fee-for-service Medicare.

Sure.

Yes. You are right; the math is not heading the right direction and thank you for bringing that up. I'm sure all the operators out there have been listening for the past three months on this issue and they'll reverse this. I'm sure we won't see those numbers again next quarter.

(laughter) Well, except though, it sometimes depends on where the patients are, doesn't it?

But it does.

Yes. And some of us actually understand that. Okay. So that's fair enough and that leads me to two other questions. And the more important question is, Medicare has made an interesting proposal. CMS made an interesting proposal of this preauthorization, which I think they tried once before, or sort of kind of tried it with face-to-face, which was pretty devastating for folks.

Right.

And then this fraud prevention review, which I'm not sure exactly why they called it that, well, I am sure, but obviously there's been some distinctions and some differences between the two, but the bottom line is you are going to have to ask mother-may-I of someone; someone's going to have to ask mother-may-I of the fiscal intermediary before the episode can start, can get preauthorization.

So have you looked at this proposal, do you think this is going to have as significant an impact as face-to-face did? Will the agencies be the ones who are able to request the preauthorization or does it have to come from the physicians? And anything, any color or thoughts you could give us would be greatly appreciated.

Sure. I'm going to give you the upfront piece and then I'll let Dave hammer away, our GC, who is with me, and our government relations person give you some more detail on this. Yes. This was proposed in early February this year. It's got five states; two of the states are quite significant for us, Florida and Massachusetts. There's still an open period for comments which will close in early April.

The industry clearly does not think this is a good idea, primarily because it impacts timely initiation of care, which what we've found is one of the highest indicators of quality and also it's a huge issue when you're trying to drive down hospital readmissions. So we think it'll have a large impact towards hospital readmissions which, obviously, is going to penalize them as well as, potentially, add a lot of administrative burden to us.

So needless to say, the industry is gathering as much steam as we can around this issue, the various coalitions are pushing back on this. We're gathering data on this and we think if CMS listens on this, that we might be able to ameliorate this some way and I'll turn it over to Dave.

Sure, Paul. Thanks for the question, Sheryl, and you've clearly read the notice in the Federal Register and I just want to point out a couple of things. Paul covered most of it, but the notice in the Federal Register was interesting because it was a notice of intent to collect information under the Paperwork Reduction Act. And thus the notice signals that CMS is interested in moving towards a preauthorization pilot for Home Health, but it's not really the vehicle that they would use to formally announce such a demonstration project.

So I think CMS probably acknowledges, by the way they went about this, they don't currently have the authority to implement this demonstration project, but it clearly is a signal they want to go in that direction; they'll have to go through a process. I want to be conservative here, but I would say it clearly, it's not imminent of this prior authorization demonstration project.

Having said that, they clearly are seeking information and comment and will take the next step. Having said that, we will comment by April 5. We will comment individually. We will be involved with various trade associations as we comment on this.

And I think there's this great concern across the industry primarily on the impact on the quality of care. Not being able to timely initiate that care; the same conversation Paul talked about earlier that is sometimes troubling and difficult with the managed-care entities.

So that's where we are; I think we'll know more after the comment period and we will see what next steps CMS takes. We will engage directly in conversations with CMS on this, as will be industry. Back to your question, Sheryl, I think the agencies would specifically request the authorization as opposed to the physician, but we haven't seen the details of the proposal other than what you read in the notice.

In the notice and that's exactly what I was kind of thinking about this. So I appreciate your indulging me on this point just for one second more. So that's important because in face-to-face, wasn't it true that part of the issue was you couldn't actually get the doctors, those of you who were there at the time, you couldn't actually get the doctor to sit down and do that affidavit. In this case, at least you have a mechanism, I would think, in place for requesting those preauthorizations for some of your managed-care patients, correct?

Correct, yes.

So, it's not like you have to build a new capability to do this. So, as bad as it is, it could be a lot worse.

Correct, right.

And I actually don't think it's going to end up being that bad unless the fiscal intermediaries aren't tough enough to do it. Okay, very good, thank you. I'll jump back in the queue for my other questions.

Thanks, Sheryl.

Ryan Halsted, Wells Fargo.

Thanks. Good morning.

Hey, Ryan.

I just wanted to go back to the hospice volume growth, especially on the non-Medicare side, the managed care side. You're seeing, obviously, some really great volume-growth there organically. I was hoping you could maybe provide more commentary around, is there some benefit or some result that you are enjoying from changing and payment models that's impacting the hospice or is this purely just optimizing your capacity and really optimizing the admissions per week?

I'll start off with a general comment and then Ronnie can dive into the details. I think what we're seeing, Ryan, is candidly, I think we were sub optimized in hospice and I think the changes that Ronnie made in 2014 before I got here were absolutely right. It separated the hospice business from Home Health.

They're managed separately. They, I think as I mentioned, we have some very good operators there who understand how to drive efficiency and try to utilize the capacities that we have. And the capacity, obviously, is our people and so we believe that we still have capacity and that's where we should see the organic growth, but we are working obviously with our Home Care Home Base will be fully implemented by the end of March in Hospice. So we believe we'll see capacity opportunities there, plus, we still believe there is some capacity to keep driving our folks to do more business in hospice, so we feel very good about it.

We do; there's not much to add; I think Paul said it well. The team is just performing magnificently. There's been a ramp; they've gotten up. We've gotten up to a level of business and utilizing this capacity to where it's been plus-20% growth in admits for the last couple of quarters.

Again, as Paul said, we're going to be finished with the Home Care Home Base implementation in March. They're getting through that with, to their credit, they're getting through that with very little to zero disruption noticed. It's not because it's easy; it's that they're really focused.

And so we're very pleased with the growth that we're seeing into the first quarter, again, even while they're continuing to implement Home Care Home Base and will be finished. So that's what's going on; they really just continue to perform very, very well.

All right. That's great and as a follow-up, you mentioned in the past the potential tailwinds for the hospice business. I'd be curious, how soon do you think some of that could be realized? And is it sort of expected first on the managed-care book and then eventually in Medicare? Or is it still too far out to even start talking about it?

First, Ryan, just to clarify, I would think about it, and the way we think about the managed-care side, it is really on the Home Health side. Not as much, certainly, on the hospice side. We have about $5 million and what we did in the fourth quarter was about $5 million of non-Medicare revenue in hospice, but we think of the managed care more on the Home Health side, to clarify that.

And I think that the headwinds and, I would say generally, there's some tailwinds, excuse me, are still there, that I think benefit generally growing acceptance, reimbursement of physicians, a pilot program to reimburse physicians for curative care as well as for end-of-life discussions, for the opportunity to be reimbursed for curative care as well as hospice care. So all of those things are kind of the tailwinds there for a growing acceptance and a good environment for the hospice benefit

Yes. I would add to that, Ryan, that if you have the translate the way the government and CMS seem to be thinking about hospice is they seem to want to widen the benefit. So having physicians have conversations, also testing the fact that you can use hospice and combine it with curative care means that they want to widen the benefit. Yet, at the same time, what they've done is, in terms of the reimbursement, is they want to shorten the length of stay or disincentivize long lengths of stay.

As I said, the other thing that we are seeing in hospice is it's becoming increasingly a better choice for people, and particularly with baby boomers, who want to be able to receive those services at home; and that's very important and it's somewhat contradictory in a lot of ways, because what we're seeing in certain types of hospice is, for example, in congestive heart failure, what we're seeing is when people go on hospice and they have CHF, they actually live longer. So it's a wonderful benefit, but there's still a little bit of confusion about where the government wants to go.

Our interpretation is it's going to get wider; there's going to be more people coming in, but that length of stay is going to be something that they're always watching and the way to play in this business is to do the right thing, focus on eligibility, and then if length of stay becomes an issue, to always make sure that people are always eligible. That's kind of our positioning that we've taken around our hospice business.

All right, that's great. And then switching over to the home health business, you mentioned, obviously in the past, about having conversations with more healthcare systems, hospitals, to demonstrate your quality and really establish yourselves within their networks. I'd be interested in your comments on how that is progressing. Do you find yourself being included in more of these networks? Are the networks that you're discussing, are they more narrow in scope, those that you are in and those that you're entering into?

Yes, I would say at this point, there's more openness. I'd say the large managed care MA-type companies are still looking to drive price as their primary goal with Home Health. Hospitals, particularly if they are starting to form ACOs, physician groups, people more new into this business are more willing to have, particularly when they're taking risks, are more willing to look at us taking larger pieces of the pie.

We're just starting to have conversations with some of the intermediaries that are out there that are popped up in terms of bundling. And so I'd say, I'd like the ACO, the physician world best. I think that's where we have more opportunities. The value proposition I believe is increasingly clear that if you stay at home, it's less expensive; that's where people want to be.

The key is we need to have a very high quality and hospitals are particularly getting interested in that, particularly because of the discharge planning rules that CMS is putting out there for hospitals. They are going to have to acknowledge quality and start to refer to higher-quality places. So we believe the game is going to be won on quality and we believe that there's going to be pricing differentials; it'll be based on quality. It has to move that way because the economics of quality, there's a direct correlation between quality, readmissions and outcomes.

Thanks. If I could just squeeze one last one. The two deals you just announced in Florida and Massachusetts, could you just size the market, your presence in those markets and now including the deal?

Specifically? In terms of--.

Sure. In Florida, the Infinity acquisition, that takes us, that revenue, that bulked up our book there. In Florida, we have a big presence that had declined over time, so they didn't quite double our presence, but it added to that revenue and that presence.

Pardon?

It's $80 million now. So we're about $50 million before and then, Florida now, we're up to, that'll take us to $80 million on the Florida side.

So on Florida with Infinity, we had 15, we acquired Infinity. It rounded out our geographic presence. It took us up to the number two or number three player in Florida.

And it's going to boost our quality scores although our quality scores in Florida were pretty good. We were heavy on the Panhandle. And this adds West Florida in a stronger way and above Miami; we're still staying out of Miami at this point.

So on Associated, it's a new market. What we're hoping to see at Associated is more synergies. We've seen in other companies we've looked at quite a bit of synergies in terms of referrals to home health and hospice.

We think that's going to be good, but also we've seen a very, very strong growth in Associated and a very interesting skill set for us. We like the management team there, so we anticipate we're going to be moving into other parts of Massachusetts and then we have a lot of requests from people who want this skill set to combine where we're strong in Home Health and hospice to move into other geographies. So we're looking pretty aggressively at other geographies right now. Largely this is because of demand from our referral sources.

And that's great. Thanks for taking my questions.

Thanks, Ryan.

Thank you, Ryan.

Kevin Ellich, Piper Jaffray.

Good morning. This is Austin on for Kevin. Congrats on the quarter.

Thank you.

No problem. To begin with, you provide some detail on your acquisition pipeline, but can you elaborate a little more on what type of deals you are looking for between home health and hospice and the potential size of these deals?

Well, as you see, we've got a lot of powder and we're pretty disciplined about the pricing of the deals as you see and you can do the math on the multiples that we're paying. So we're looking, at this point, in terms of tuck-in deals where we're looking to pay between 3, and on the high side maybe 7 times if they're really good and they bring something. Kind of an average, we're seeing tuck-ins in the 5-times EBITDA range.

Hospice is more expensive. We've seen some really, very inflated pricing on hospice, but there are less of hospice going around, but we try to maintain our discipline there in the 10 range. And for larger home health entities that are producing good margins that can, that are of size, we'll look between the 7 and 9 ranges, is kind of what our rule of thumb is, at this stage.

So we have plenty of deals once again in the pipeline. Our M&A team is very busy. Our operators are busy evaluating these. Where I'm most happy is we're seeing deals that are on bank and we're trying to get in front of the competitive processes because that's where we've seen people lose all their logic.

And we've lost a couple deals happily due to the prices, but we like to get in beforehand and bring these management teams in and incentivize them on the back end, in terms of their performance. So we have a methodology that we use where we pay them fairly upfront for their past performance and then we give them upside if they continue to perform in the future and contribute in the future. So we're pretty happy with what we got. We like our methodology. We're a bunch of deal people, so we love doing deals. So if there is good deals out there, we'll do them.

Yes. That's very helpful. And then for home health in 2016, how do you see the year playing out in greater focus on value-based management including the nine pilot states, I believe you said, had good exposure to seven of those. And what are your early thoughts on them and when do you expect to see some sort of results?

Yes. It's early days on value-based purchasing, although the standards are getting set, the numbers are starting to get set, but in a lot of cases, we see there's a direct correlation to stars. They're going to have to show us what our ratings are in some of the other pieces of the value-based purchasing.

So we think what we're seeing, though, is just, I spent a lot of time in the field and every hospital I go into wants to understand this. They want to understand stars or they want to understand value-based purchasing; they want to understand their obligations and commitments to it in terms of referring to people with high-quality stars. It's become less of it; it's become a much more quantitative process in terms of these rankings versus a qualitative process.

So we are very happy about that. We're happy with our results that we have. We're happy with our progress that we're making as I think we've said in our comments. We're very happy with our own projections and what we think this will average out to be in terms of star ratings and we're also committing on the home health side to, at the end of 2017, to make sure everybody is four stars, at all our care centers.

So we're betting huge on this and, as you see, the map there is quite considerable. I come from the managed-care industry at Humana and we saw huge payments when you delivered high quality. And if that's the way it's moving, which it seems like it is, this is the way you win referrals. This is the way you optimize your mix and this is also the way that you build strong relationships with the referring entities.

All right. Perfect, thanks and congrats again on the quarter.

Thank you. Appreciate it.

Toby Wann, Obsidian Research Group.

Hey, guys thanks for taking the questions. Could you guys kind of comment with regards to priority of deals? Is it still leading with Home Health or hospice and then tucking in Home Care or Community Care, whatever you guys want to call it?

Yes. We, I'd say, we love hospice. We have a great management team that we think has the capability and capacity to do more. We like the interplay between Home Care and hospice.

So we're always looking for deals, hospice deals, that can work within our Home Care footprint. Obviously, Home Care is an area, it's our core business, so we're looking strongly there, particularly for good management teams that can come in and bring us good referral sources, good geographies. We'll pay up for those.

On the tuck-in side, we are maintaining our discipline. We're seeing a lot of onesie-, twosie-type things there so we have high priority there.

On the personal care world, we think we've got the best that's out there. We want to let these folks settle in. They have very aggressive targets for next year. And we have a couple places where our clients, or our referral sources, are really wanting us to come in and either de novo or buy something small and start to build an integrated system with personal care, hospice, and home health, so some of the large payers out there and some of the large integrated systems are reflecting that.

So I don't know if that really answers it, Toby, for you but we love the economics of hospice. We love that it's a wonderful area to be and people who are in hospice are just very dedicated folks. We think we do a good job there. We think we're very differentiated in the space.

Home health is our core so we're always looking to expand there. Personal we'll be careful because we think we have a home run here with Associated and we want to make sure that we build up upon that success. So that's kind of our priority today. Did that answer your question or?

It does. Absolutely and so a follow on to that would be on the personal care side, bill versus buy and adding that in to existing markets, the preference on build versus buy. Do you have a preference?

At the prices in personal care, that we see when we're looking at tuck-ins in Massachusetts, buying for us is not a problem. And if it gives us a decent base, at the prices we're seeing, and pencils out properly, once again, we're pretty disciplined on the math; so if we can do that, we'll do it. I prefer to buy, frankly, in a newer sort of business where I can get some talent management team, but, once again, if a client is demanding something and gives us a base of business, a referral business, we can go and these folks are good at de novos too.

Okay. That's helpful. I think that's it for me. Thanks.

Thanks, Toby.

Sheryl Skolnick, Mizuho Securities.

I am sure I'm keeping everybody from lunch, but I have to ask this question. Not that you don't have enough other things to do with the transition of the business from where it was, to where it is, to where it's gotta go and all of the things involved with that, which is a lot. One of the things that seems to me to be the most interesting potential new developments in home health is the increasing acuity of the services that you can deliver in the home. So otherwise known as hospital care in the home and I think you've talked a little bit about this, but I'm now starting to hear that coming from folks like conveners and others who are beginning to take this very, very seriously.

So can you talk through a little bit about what your thoughts are. Do you have any pilots going on? Is there a reimbursement mechanism for that that makes sense yet? Do you have any partners that might be interested in doing that? I think it's a little early, but I do test that hypothesis and I figured you guys are the best ones to give us insight on that, because that could be the next huge growth opportunity to, in essence, dis-intermediate hospice.

Yes. So, first thanks for the question, Sheryl, because we love the question. So yes, we're all over this. We have a little Company, a nascent company called clinically home based in Nashville that fundamentally was developed to create types of services that we could do for more acute patients. Fundamentally, being able to take people out of the hospital and we have, I think, 32 types of diagnoses that we can fundamentally take people out of the hospital and take care of them in the home.

We have a lot of interest, particularly in the Northeast, in some of the integrated systems to partner with us on that. We have been talking with largely technology partners, big technology partners, because the tech piece on this, the assessment piece, the care-coordination piece, the real-time data, the monitoring, all that stuff is important to drive our clinicians to be able to take care of more acute patients.

So we really like this space. The key is, I think for us is, to make sure that we do the right assessments, make sure that we have the right skill sets in terms of applying this, make sure we have the right protocols and make sure we're coordinating that care.

So we're also starting to have conversations with managed care on this as well as the ACO world in terms of being able to move up the acuity line. And frankly, our plan is the more we can move up the acuity line, the more share we can take in the post-acute market and the better it is for home health. I think naturally we will take more share, but, obviously, when we expand our skill set and our capabilities, this'll be something we can do.

Very interesting. Thank you and then just one final question. Is there any update on any of the investigations? It looks like there's money in that area from that very helpful transparent breakout of all those charges. Thank you.

Yes. So, just to recap this, we received two requests from the government; one in Massachusetts and one in West Virginia to look at a subset of patients there. And so this was quite a while ago, we're waiting for their response. And, at this point, we really don't have any comment in terms of nothing has been decided yet. We've been having conversations with our lawyers on this.

I guess my very simple approach to this is let's continue to do everything right on our hospice side. Let's continue to improve on quality and that, hopefully, if there were any issues in the past, hopefully, a brilliant presence will take care of any issues that occurred in the past. Dave I don't know if you want to--.

Sheryl, Dave Kimberly again, General Counsel. We continue to work very cooperatively with the government on the DOJ request, subpoena, out of Boston that we received, I believe, in May of last year; it was May 22, to be precise, I believe. We are very hopeful and confident, if those don't contradict one another, that we will resolve this sooner rather than later and we just continue to work closely with the federal government on this with the Department of Justice. And we feel good about the information we're providing and we feel very good about where we are and we're just very hopeful to resolve it. I really can't say more than that about an ongoing investigation, but I think I can say this, I feel like the West Virginia and the Boston investigation will be resolved together. They're really one at this point.

That's helpful and it's a little less expensive to do it that way, as well, and that's a great information. Thank you so much. Great job, guys.

Thanks Sheryl, take care.

Thank you, Sheryl.

At this time, we have no further questions. I will turn it back over to Paul Kusserow for closing remarks.

Great. Thank you very much. I appreciate it. Thanks to everyone who joined us on our call today. We appreciate your interest in Amedisys.

I want to thank all of our employees and clinicians and for everything that they've done this year. I think it's been a very good year. You should all feel proud. You should feel proud of what you do every day in taking care of people who want to remain at home and we appreciate that.

We look forward to updating you on our visits out there in the markets and to our next quarterly earnings call. Thanks everybody and have a good day. Goodbye.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.