Amedisys Inc (AMED) 2016 Q3 法說會逐字稿

Greetings and welcome back to the Amedisys third quarter 2016 earnings conference call. At this time all participants are in a listen-only mode. (Operator Instructions) As reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Scott Ginn, Senior Vice President of Finance and Accounting. Thank you. You may begin.

Thank you, Matt.

Welcome to the Amedisys' investor conference call to discuss the results of the third quarter ended September 30, 2016. A copy of our press release, supplement slides and related form 8-K filing with the SEC are available on the Investor Relations page on our web site.

Speaking on today's call for Amedisys would be Paul Kusserow, President and Chief Executive Officer and Ronnie LaBorde, Vice Chairman and Chief Financial Officer.

Before we get started with our call, I would like to remind everyone that statements made on this conference call today may constitute forward-looking statements and are protected under the Safe Harbor of the Private Security Litigation Reform Act. These forward-looking statements are based on information available to Amedisys today. The Company assumes no obligation and updated information provided on this call subsequent event 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 outcome 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 8K. 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, Scott. Hello, everyone and welcome to the Amedisys third quarter conference call.

All in all, this was a mixed quarter for Amedisys. One which threw lots of challenges at us and whereas a whole we responded well. Many of the issues we dealt with were self induced transformative changes like the Homecare Homebase implementation.

Some were environmental. The heavy flooding that impacted a number of our employees at our Baton Rouge headquarters and care centers in the area. The key to a good company, though, is how well it responds and gets on top of change. And I'm satisfied with our responses and reactions.

And I continue to be very optimistic about our future. With that backdrop, let's turn to our operational performance.

During the quarter, Amedisys reported revenue of $362 million, up 11% year-over-year. Adjusted EBITDA was $26 million and adjusted EPS was $0.36. Home health generated $269 million of revenue and segment level EBITDA of $32 million. Hospice generated $82 million of revenue on continued strong growth and segment level EBITDA of $21 million.

Finally, our personal care business segment recorded impressive same store growth of 8% in billable hours for the quarter. As discussed in our earnings pre-announcement last week, we faced some challenges in the quarter with respect to home health growth, particularly in August. We also saw higher than anticipated health insurance costs and increased bad debt expenses, largely due to the platform transfer from AMS2 to Homecare Homebase.

Hospice and personal care exceeded growth targets for the quarter and continue their strong performance. Home health growth was challenging. Home health was in the depths of the Homecare Homebase implementation and disruption was at its peak during August.

The disaster flooding in baton rouge only exacerbated these issues and with over 30% of our employees homes flooded in the area. Adjusting for closures caused by hurricane Matthew and some Homecare Homebase disruption, October growth looks to be recovering to the levels we have seen in the first and second quarters. On Monday, our last group of care centers went live on Homecare Homebase.

The completion of an accelerated implementation timeline where we trained over 11,000 employees on the new system over a period of 15 months. This was an exhaustive but necessary effort, and I'm extremely proud of the team for managing through this change. Our implementation teams led by Mike North, Diane Graham and Christie Covington have performed tremendously.

Based on past experience, we should be clear of operational disruption as our last group of care centers finished close to implementation midway through the first quarter of 2017. While we are managing through this disruption, we are seeing encouraging signs in several areas of our businesses.

As I mentioned, hospice is performing well. Delivering double-digit same store admissions growth for the sixth straight quarter. Revenue is up 12% year over year and average daily census topped 6,000 for the quarter. The regulatory environment is favorable as well so we are encouraged by our prospects here.

Our new personal care business unit is thriving in Massachusetts and we integrated our professional profiles acquisition in a matter of weeks. We are pursuing additional opportunities for personal care tuck-in acquisitions in the Massachusetts and southern New England markets and will look to expand this platform in other states, particularly Florida, Tennessee, and Pennsylvania where we have strong home health and hospice presence. I'm also happy to report that we achieved our planned operational efficiency goals during the quarter.

The G&A expense leverage that we have been discussing is starting to materialize. We remain on track to deliver the $46 million annualized run rate savings we have discussed in prior quarters by the fourth quarter of 2017. I want to take a moment to discuss the four pillars of our strategy and provide an update on each, beginning with clinical distinction.

In home health, we are making outstanding progress with our quality of patient care star ratings. In the most recent October release, our average rating was 3.74. Our average in the January preview is expected to be 3.91, 50% of our care centers are at four stars and above in the October release with that number rising to 65% in the January preview.

Our patient satisfaction star rating is at 3.76, 5% above the industry average. Additionally, based on the recently released value-based purchasing progress report, we are confident we will be a net recipient of funds when the first value-based payments are distributed in 2018.

For our final point in home health clinical distinction, the emphasis on quality is paying dividends in other areas. Care centers with four plus stars have demonstrated year-over-year growth of 6% year-to-date. The chart on page eight of our slide shows a correlation between star ratings and turnover as well.

This confirms we're focusing on the right things. In hospice we are above industry average in the hospice information set and cap scores. CMS also intends to begin public reporting on hospice quality measures in 2017.

Second, on the people side. Voluntary turnover remains stable at 23%. In addition we're in the pilot stages of rolling out a promising proprietary productivity tool that will help us to more effectively optimize our labor force. As I mentioned previously, good people practices draw growth.

Third, our operational efficiency metrics are trending well with the Homecare Homebase rollout winding down, we are making significant progress towards our $46 million run rate savings achieving almost $5 million of that savings to date versus our target of $3.5 million in Q3 that was previously disclosed.

Finally, all of these efforts should lead to growth. Driving growth across our business is a primary focus. For the quarter of home health, Medicare admissions grew 1% and total episodic admissions grew 3%. These are not satisfactory results.

We need to continue to improve. This is obviously short of our growth targets. Our emphasis on home health business mix continues to progress as we saw same store admissions for none episodic business declined 7%.

We are seeing encouraging results on our business development optimization pilot. In those areas where implementation is completed, we have seen substantial productivity gains from our business development reps and promising signs of incremental volume growth in the early stages of this pilot. On the inorganic front, we closed on our acquisition of the Visiting Nurse Association of Long Island, representing a market extension into Kings and Queens counties in New York, the eighth and ninth largest medical eligible populations in the nation.

As previously mentioned, we are experiencing continuing strong organic growth in hospice and personal care and we are actively engaged in screening M&A prospects in both segments. Our M&A pipeline remains robust but we are continuing to exercise discipline with regard to valuations. We have seen several sellers come to market with lofty price expectations and many of those deals are not getting done.

As expected, we're seeing some recent signs of moderating expectations. With our Homecare Homebase implementation close to the finish line and a few acquisitions under our belt this past year, we are confident in our ability to complete and integrate acquisitions successfully. On the regulatory front, pre-claim review continues to be a controversial topic for home health providers.

As many of you have seen, CMF delayed the implementation of PCR and has acknowledged issues with this program in Illinois, a state where we have very little exposure. Legislation in congress has been introduced to delay the implementation and the National Association of Homecare and Hospice or NAHC, has indicated that they will file suit over PCR.

Although there is much activity on this front, we continue to prepare as if PCR will continue its rollout in the other four states at some point in the near future. Our position is that any policy action aimed at fraud in the industry should target certain activities that indicate potential fraud rather than penalize all providers with a broad brush. I would like to provide a quick update on a few leadership changes.

As you saw in our press release and 8-K this morning, Chris Gerard has agreed to join the executive team as Chief Operating Officer. Chris brings over 20 years of home health and hospice experience to the company and will be responsible for operations in all three business segments. He joins us from Kindred Healthcare where he served as Vice President of the South Central Region for the Kindred at Home division.

He also served as COO at Kindred at Home prior to the Gentiva acquisition. He was the Founder, President and COO of IntegraCare Home Health, a strong company that he started and grew into 54 branches and successfully sold to Kindred. Chris brings a deep and intuitive knowledge of the industry and tremendous operational expertise.

We're very excited for him to join the team. Mike North will become our permanent CIO. His work in implementing Homecare Homebased in over 400 care centers, building implementation and integration teams, solving complex problems as they arise and his prior IT experience at Humana and Kindred makes him a great choice.

I worked with Mike five years prior to him coming to Amedisys so know his capabilities well. He's a great executive with a strong IT background. With respect to our CFO search, it is progressing well but obviously not completed.

The good news is that Ronnie LaBorde has agreed to stay on for the first quarter of 2017 as needed. This will help the transition of our executive team on several fronts. Finally, I would remiss if I didn't mention the impact on our employees from the recent flooding in Baton Rouge and surrounding areas.

We had over 120 employees whose homes were flooded in August between our corporate office employees and our care centers in the area. Many of those affected are still not back if their homes and are waiting on some kind of help whether it be from insurance or FEMA. For those who are home, many are living in gutted houses with many of their belongings ruined.

I'm really will proud of way our organization responded. Our employees banned together to volunteer time too help those in need. We also provide the financial assistance to those impacted.

Despite the incredible devastation, our clinicians kept track of their patients and continued to provide care despite the fact that many of their houses were flooded. We came together, we did the right things and we continue to do the right things. We will be a better organization for it.

We also received a tragic news of the death of our Founder Bill Borne. Bill was a unique visionary who had a large impact not only on our company but on the entire home health industry. We will continue to honor Bill's legacy and vision by committing to build upon the wonderful foundation that he left.

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

Thank you, Paul.

On a GAAP basis we generated $362 million in revenue and earnings per share of $0.34 in the quarter. Slide 18 of our supplemental slides provides detail regarding income or expense items adjusting our GAAP results that we have characterized as non-core, temporary and/or one time in nature.

The schedule also details the income statement line item that each adjustment will impact. Now let's begin by discussing our quarterly adjusted results and our year-over-year comparisons. On a consolidated basis, revenue was $362 million up $35 million or 11%.

EBITDA was $26 million, down less than $1 million. Our comparative results were impacted by, first, a $3 million Medicare rate cut in home health, a $2 million increase in bad debt expense and $2.7 million in temporary expenses related to Homecare Homebase disruption as outlined on slide ten of our slide deck.

Our earnings per share was $0.36, up $0.02 over the prior year. Now looking at segment results. In the home health segment, revenue was $269 million, up $15 million over the prior year.

Medicare same store admissions were up 1%. Our Medicare recertification rate was 37%, excluding our infinity acquisition and the affect of the Homecare Homebase disruption. Our non-Medicare per visit admissions were down 7%. Successfully or continuing to reduce that level of base relative to our Medicare fee-for-service business.

Segment EBITDA was $32 million, down just under $3 million from last year. Our cost per visit was up $4.00 over last years and this increase resulted primarily from approximately $2.00 of increased salaries and wages, $1.00 of increased health insurance costs and approximately $0.65 of Homecare Homebase disruption costs.

Turning to the hospice segment. Revenue was $82 million, up $9 million over the prior year. Same store admissions were up 16%. And our same store ADC was up 14%. Segment EBITDA was $21 million, an increase of $2 million from last year and our cost of service per day was flat.

Turning to G&A, I would like to refer you to slide four of our supplemental slide deck. On an adjusted basis, our total G&A was $119 million. This includes $8 million related to acquisitions. Before this acquisition G&A costs were up slightly year-over-year.

Looking to home health, our G&A was up $5 million to $71 million or 26.3% of home health revenue, a 40 bases point increase year-over-year. Our hospice G&A was up $1 million to $17 million or 21.2% of hospice revenue. This was a 80 bases point decrease from last year.

And finally, our corporate G&A was $29 million, up slightly less than $1 million from the prior year and down sequentially reflecting planned reductions. As a percentage of total revenue, our total corporate G&A was down 70 basis points from the prior year. Our cash flow from operations for the quarter, before changes in working capital, was $35 million.

Working capital increased $28 million during the quarter reflecting an increase in accounts receivable and the reduction of accrued expenses, essentially a quarter end timing issue. Our net accounts receivable balance has again increased and this increase was $10 million during the third quarter. The increase resulted primarily from the Homecare Homebase implementation process.

Bad debt expenses also increased $1 million in the period, again mainly due to the aging of our receivable balances. Now that all of our care centers are live on Homecare Homebase, we are developing a plan to return accounts receivable balances to more normalized levels. We are confident in our ability to collect this cash and will keep you apprized of our expected pace of recovery.

CapEx for the quarter was $4 million and $14 million year-to-date. We now estimate that CapEx will come in-between $15 million and $20 million for the year, down from our initial estimate of $20 million to $25 million. At quarter end we had a cash balance of $9 million and $173 million available on our revolving credit line, providing total available liquidity of $182 million at quarter end.

At September 30, we had $97 million borrowed under our credit facility and our total leverage ratio was 0.9 times adjusted EBITDA for the last 12 months. I would like to make a comment and update you on the final rule for 2017 because as you know, CMS recently published a final rule for home health.

The overall update of negative 70 basis points is slightly better than the proposed cut of 100 basis points. Changes to the outlier payment method were finalized as proposed. Case mix weights were updated from the proposed rule by using more recent claims data.

This resulted in changes to the case mix weight and we are currently in the process of reviewing how the impact of these changes may differ from our original assessment of the proposed rules. Our work continues and we'll know this in the next few weeks, hopefully, as we work through that. Looking to the fourth quarter, we expect strong volume growth in our hospice and personal care segments.

We will be winding down our Homecare Homebase implementation project with it concluding in early 2017. In home health, I would like to mention the following items which will impact fourth quarter results. As Paul mentioned earlier, we expect to see fourth quarter growth rates improve over the third quarter.

The 2017 Medicare rate cut will impact episodes beginning in 2016 and completing in 2017. The following items now will impact our overall results for the quarter. We'll see lower but continued disruption costs for the Homecare Homebase implementation.

Our continued achievement of our efficiencies with a target of $5.5 million for the quarter will occur in the fourth quarter. Bad debt expenses will likely be consistent with third quarter levels and lastly, consistent with seasonal claims expectations, our fourth quarter healthcare costs will be substantially equal to the third quarter expense. Despite the impact outlined, we remain confident in our 2017 plan.

This conclude our prepared remarks. And operator, I would ask you now to please open up the call for questions.

(Operator Instructions). Our first question is from Brian Tanquilut from Jefferies. Please go ahead

Hi, good morning, guys. Paul, if you don't mind talking us through the Homecare Homebase rollout and the disruption. So obviously last quarter, you raised the chop impact and then it was slightly worse than that for the quarter, obviously, and now we see it flowing all the way through to Q1.

So, you know, as you look back, what did we miss or what did you guys miss in Q3, and how can you give us more comfort in your visibility that this ends after Q1 of 2017 and that it ends at $800,000 of extra, you know, chop in 2017?

Thanks, Brian. I'm going to give you some comments and then I'm going to turn it over to Mike North who's been in charge of the implementation, and at the has been out to all the care centers as we've been rolling this out. I think some of the things that surprised us on this were our research, first thing.

What we saw was when we initiated the transfer from one system to the other, that the time of implementation and the research went down and then it's taken them 60 days, about, to get back to normal level. And then there's been some other things. Transportation, certainly has affected our AR in a way that it's harder -- with new systems, it's more difficult for folks to get the bills out immediately as they're learning this new system.

They do catch up and we do return to normal levels. We say between 60 and 90 days. It's closer to 60 days.

So based on the way the implementation is working at this point, we'll fundamentally finish everything in terms of Homecare Homebase from the implementation perspective at the end of December. What we're doing is what we're talking about is there's going to be about I think about 60 care centers that are going to drag into the next year in January and then 30 in February. So it's really the tail end in this 60-day post implementation phase.

So the majority of the company is going to be through it. They should be operating back according to, you know, improving. The other thing that we're doing is I've been out in the field pretty considerably and we now see that there's a lot more potential to drive better efficiencies out there.

So we're actually going to go out there and to it again and make sure that everybody's learning, make sure that we distribute the best practices. follow up after three, four, five, six months and say how are you doing? What don't you know? Let's work on the efficiencies that can be generated here. So we feel good about it. I believe this is exactly on track.

I guess my -- if there was any edits we would have to make to our statement, it might have been that while we finish on the dot at the end of December, there is a 60-day post implementation piece which does affect performance but it will be in a small group of care centers. In terms of the depth, I don't know, Ronnie or Mike, if you want to comment any more specifically

One thing I would comment on, Brian, great question, very insightful because the nuance here is around AR. What happens is, you know, we train everybody up front but the speed of this integration and this transformation, they don't have anything to bill for the first 60 days.

As a result, you know, it's a challenge for them when the billing time comes. So it's really being like Paul said it really didn't surprise us at all when we started getting into this. We were and very confident about their ability to come out.

We've seen it in every region. They come out of it at most 60 days afterwards. It really isn't something we're concerned about based on, you know, what we had seen with all the different regions that have gone online already.

And then follow up to that either Paul or Mike, obviously it had an impact or organic growth. So if you don't mind just walking us through how exactly organic growth is impacted by the rollout and how do you gain confidence in the reacceleration of that growth other than the some of the disruptions that you have already talked about we think about Q4 and then into 2017.

I think there's, just in general, it's quite clear. Initially when we started to measure disruption levels because we started in the AMS3 areas in Louisiana and Mississippi and we saw almost an immediate count. So we took a lot of the calculations that we had here and said, this is a lesser impact than what actually ended up happening when we went to AMS2, which was really built deep into the organization and was harder to migrate from.

So I guess, you know, so I think the initial estimates we made, when we came to AMS2, getting that out of the system and getting people to start to change their methodologies was quite significant. On the growth piece, largely I think we've had some issues in terms of just creating the capacity hasn't really appeared yet. We still had some staffing issues.

People are focused more in terms of the internal operations. So we've missed some -- we've seen definitely some impact of growth, particularly when we come in regions where they're very oriented towards AMS2. We've seen growth slow down and people spend more time in the facilities and then we see harder time getting bills, harder time on the back end which has affected somewhat the front end.

That's right. And then last question -- sorry, guys.

Sure.

Last question, Ronnie. Free cash flows and working capital, I mean how should we think about, obviously it was a little weaker, higher DSOs but is there anything else you want to walk us through on the cash flow side?

Sure, Brian, thank you. Good morning, thanks for the question. Yes, look, I would say this and you can -- we kind of framed this kind of the way I'm thinking about it and we're thinking about it on page 17 in the deck.

And you can see that cash flow just prior to working capital changes has been pretty consistent and they look pretty good over the last five quarters certainly into this year. What we faced in total this year, again, is this build-up in AR. And so this has turned into about a $45 million build of AR since year end that we need to get back out of the balance sheet and we think we will.

What you saw in the third quarter, I'm saying that's year-to-date. In the third quarter it was $28 million of working capital, a piece of that was AR. Another piece was just kind of the timing of some accrued expenses.

Over the year, of course of the year, the timing of those expenses, are net positive to working capital, not in use. So fundamentally, it's AR and we're focused on it. We're going to get it back down.

We don't have, you know, with the uptick in the third quarter, Homecare Homebase activity kind of contributed to that. We're getting much -- trying to get much more granular and have a much firmer view on pace of recovery and the effort that will require to kind of catch up and then of course keep up.

And let me just add something to that, Brian. We recently went out and created a group that fundamentally just manages our managed care business. So roughly $250 million, we have somebody that we brought in with very good contracting, her name is Christie [Batooley] from (inaudible) Tennessee Blue.

And her job, fundamentally, is to going through the whole contracting system, go through the work flow, go through work with our folks in AR in this piece of business which does gum up our AR. And so hopefully in the next quarter we've made some very interesting or are testing out some very interesting technology which we think will drive costs and drive our AR days down in managed care but also we need to go back and look at our contracts, clean up our contracts so that this becomes less onerous, less difficult. That's our most difficult area.

So in general, we anticipate that this area is going to get a lot better because, you know, after this -- after Homecare Homebase, the fee-for-service business should go back to where it is. The manage care business, as we've indicated, is extraordinarily difficult and expensive and we're trying to do it the same time clean that up and make that more streamlined.

All right. Thanks, guys.

Thanks, Brian.

Our next question, comes from Frank Morgan from RBC Capital Markets. Please go ahead.

Just going back to the issue around volumes. I may have missed part of this when I hopped in late. I'm just curious if you could parse out how much is weather related. And I know at one point there was discussion around a sales force and contract optimization strategy. Just curious, if that in some way might be disruptive to volume in the quarter. Thanks

Sure. Let me talk about the optimization project that we have. We call it project redwood.

We've implemented it now in about four regions. And what we have seen is a lot much better productivity. And this has come from what we basically are trying to do here, Frank, is we're trying to have better targets so we actually know where all the fish are here so we know where fee-for-service Medicare is.

We know what our level of penetration is there. And what we're trying to do is to focus our sales folks specifically on, you know, fishing where the fish are. We want to do it with -- we want to do it with the best people.

We want to make sure that we eliminate a lot of the unnecessary calls. We've actually found in certain cases we've been able to eliminate up to 30% of the calls that we're making because we've determined it's not very good business for us or the level, or we're over penetrated in that business. So we've started to give the sales force some really strong tools here, and they have a very good ability to target go in and sell.

What we've also done now is we've seen as you saw in the deck, I think it's page eight, where we see a strong correlation between quality and growth where we've actually been able to quantify that, you know, in a very statistically relevant way. So we're able -- so now what we're doing is we're taking solve our protocols and quality protocols and putting those together and turning those into sales materials so that fundamentally we can drive that business based on quality and we've seen that when people buying quality, it drives our growth and our margins up.

So you want to take part two of that, Ronnie?

Brian, I think that with respect to --

Frank.

I'm sorry. Thank you. Frank, good morning. With respect to the weather, I think as we move through -- say how we're thinking about it and what we saw. As we moved through the quarter, we really wanted to get more out of August as far as production.

And so a lot of factors, like Paul said, the depth and probably the most intense period with respect to census involved in Homecare Homebase implementation. So we had that going on. We had the weather and the rain and the floods in Baton Rouge.

A lot of factors impacted that and we just didn't hit our peak that we wanted in August. So now as we turn back looking into this quarter, of course early October we had the effect of Matthew in some markets but when we take that out and think about Homecare Homebase disruption, it may be challenges in the fourth quarter but we still feel confident and confident of getting back to our aspirational goals of mid single digits. We have that going on.

Kind of our BD trends more facing where we're trying to apply our better science to market. Getting more efficient. Better production. All of that's underway and we're confident that will bear some fruit as we move forward. So that's how we're focused on kind of rebuilding and getting more consistent growth in our home health segment.

Yes, Frank, anecdotally on this, Baton Rouge, the corporate headquarters were basically shut for a week. I got in there as quickly as I could a couple days after the roads cleared. And, you know, just in terms of the activity that we were all focused on, then Bill was missing and everybody was holding their breath on that and that didn't turn out well.

I think the idea is there was a week of real physical problems and then definitely a week of sorting things out and dealing with a lot of the psychology of that which was very difficult. So I say at least two weeks -- and I don't know how to quantify this and Ronnie and Scott have push back about trying to really quantify it but it was a really impactful event, particularly with losing someone who, you know, run the company for 30 plus years and the people who worked with him for that amount of years and then the amount of devastation and people that were involved in either unfortunately as victims or also stepping in and taking on family members and all that. It really -- the place shut down for about two weeks.

Got you. And back then to the Homecare Homebase implementation, I guess I'm trying to understand, like, will that affect either your marketing staff or your referral sources, I mean, the weather seems reasonable but help me understand how that really translates into impacting resources or the people on the marketing side and then I'll hop off, thanks

Sure. It hurts the -- in general, when the office is going through a transformation and when there's training and when the care coordinators are going through training and when people bring back orders, fundamental from referral sources and care coordinators and nurse managers are then trying to turn this around are also in the midst of training, what we've seen is that the loop of -- and remember our business is you go out, you get the business. You bring it back to the care centers.

And the care center you sort it out, you put together a plan, you bring it back to the physician or the hospital. They okay it and then you bring it back to the care center and they put together a schedule and care plan and you go out and send the nurses out. The fact that it touches the offices twice and when the offices are in relative disruption, it slows things down.

Frank, this is Mike North Great question. So ultimately yes, they don't have at lot of training in Homecare Homebase.

So Paul's exactly right and that's what I saw spending the last 23 months out in the centers. They work so tightly with the sales organization that the fact that it does have to come back and hit the center twice and they're all under the stress of working through two systems for 60 days, you just can't help but impact the BD side as well. So I think as they get through it, you see that's one of the quickest things that recovers is, from a sales perspective, that disruption goes away and then you start talking about the AR piece of it.

So the point is, the way we've set our centers up and how closely that they work together, both on the back office and the sales side, it was natural that it had an impact there but it goes away very quickly

Yes, I think the other point that we've seen, the last point I'll leave you with is when you're toggling back and forth between two platforms and the two scheduling functions between the two platforms, what we saw is some confusion on capacity. And the confusion was that we were questioned, did we actually have the capacity to do some visits, and I think in certain cases, we were wrong. We did have capacity but due to the toggling, we missed out on it.

And so that gets cheered relatively quickly, but it was something that came out but we see that clear up very quickly. But it does occur.

Okay, thank you.

Okay.

Newer next question is from Sheryl Skolnick from Mizuho. Please go ahead

Good morning, gentlemen. Let me start here. There's two, sort of ,broad issues that I are a little bit concerning and maybe confusing folks and maybe we can get you to help us to understand what's going on. First of all, there's been an awful lot of management change. I understand Ronnie's decision, believe me, I understand it because it's one of those days when I would like to do the same, i.e., retire. So I understand those kinds of personal life event decisions. But, you know, you're promoting Mike North, great job, Mike, terrific, congratulations.

Thank you, Sheryl

It's been amazing feat that you've done everything you is and done it as well as you have because even though the stock it down, if could have been a whole lot worse and we've seen it. And now we're getting a change in COO. So what's going on there? Because the way the stock is reacting, it's react as if that's signaling a problem.

You've got a CFO, CIO and COO change all within six months. So can we get that elephant out of the room and with you just give us some disclosure on that. And then the second issue is we really need to understand a little bit more detail, if it's possible, about the fourth quarter because it's hard to measure your puts and take, the qualitative things that you've given us.

So I think I understand it but I'm not sure and I think we would all like to get over the fourth quarter and get focused on 2017. So getting those two issues off the table I think would be really helpful if you can help us.

No, I think you're right. I think those are two central issues. So let's talk about the management changes.

On INP, where we're going as a company necessitated a different type of leadership in terms of integration and implementation. And we have a very good IT team. Mike -- and a lot of this revolves around Homecare Homebase making it working with making it sing, making sure it's implemented.

So Mike, I think is a good choice there. On the CFO piece, as I mentioned, we're in the middle of a search now of, you know, Ronnie's been fantastic and has agreed to provide a bridge as long as we need it and to provide some overlap with a new CFO coming in. We have some very good candidates in the pipe and we're happy with what we have.

We have some good internal folks and we've got some good external folks but we're going to make the right decision. If Ronnie is willing to be the bridge, we're going to make the right decision, we're going to have a really good transfer. On the COO, I think let me just give you my opinion here.

I think we need more folks on this management team who really know the nits and gnats of the business. If you look at our two previous hires, I think we have an really good generalists who are doing a great job with the business. I think we need to balance that with some specific people who have been in this business, have it in their DNA and when you put the mix together, I think it's going to be a wonderful combination.

If you look at our last two hires, we brought in David Pierce, who has tremendous capabilities coming from Kindred, tremendous capabilities in compliance. And then Susan Sender has come in as our Chief Clinical Officer and she's a fantastic operator as well as a great clinician. And with Chris Gerard, we believe we're getting somebody who actually built the business from the ground up who knows the metrics incredibly well.

We've got great regional leadership out there. And we want to make sure that we're providing some additive expertise that goes out there. So I think what we're doing is providing good balance.

Dan McCoy who will be -- he is the COO through January, has done a fantastic job but doesn't come from the industry.

Just before we move onto the next question about the guidance in the fourth quarter or the commentary on the fourth quarter. So you do understand that when you miss a quarter and you have implementation and AR and unexpected expenses, and you, on top of that, change management, how nervous that makes us.

So is this a signal that you're looking at 1%, specifically a 1% growth race in Medicare admissions, should we not look at that as part of the reason why you're making these changes that is purely coincidental and you would have made these changes anyway?

Yes, we are -- I guess what I'm seeing is in the process is what we're doing is as the business evolves, we're bringing in folks that can respond best to the changes that are occurring in the business and what's emerging. And so I guess to be -- and maybe I be should have communicated this better to you all, is we brought in some really good generalists about a year-and-a-half ago, really -- and we've done a nice job for folks who don't come from this business. There always has been an intent when, I've made this quite clear hopefully with our board and everyone else, is that we do need to bring in expertise to balance this out.

And so that's what we're in the process of doing. We have good -- and the people that we're bringing in, it's providing a very good balance. And so I'm quite comfortable with it. And if people perceive that there's chaos in the "C" suite, that's not the case at all.

Great. Okay. And then just -- that's great to hear, thank you. And then moving on to being a little bit more specific with the puts and takes for the quarter, can we kind of use this third quarter as a baseline and quantify it a little bit more perhaps?

Sure.

Sure. Sheryl, good morning. The thing, you know, we tried to give a bit of a list of some things to think about and I would say that our view for both hospice and personal care, that would be substantially undisturbed and look into have good fourth quarter operating results.

And I think that overall as we wind up Homecare Homebase implementation and kind of get to that at the end of the quarter, just some things to think about. I think we updated our disruption expectation and so you see we thought it would be a $1.2 million in the fourth quarter and we updated that to $1.8, just based on our experience and not to be too optimistic about what we'll do in the fourth quarter. So we updated that.

The initiatives we, in fact, achieved beyond playing in the third and so we feel real good about achieving the $5.5 million in the fourth. So as a backdrop how we can think sequentially about that. Overall it's an improvement in the realization of efficiencies and a little bit more probably all said, a little bit more disruption.

The big issue when we do that, the other two is, we talked about bad debt and hospitalization expenses and it turns out in the third quarter we talked about the kind of surprise or unexpected level of hospital claims but thinking about overall results, that level of claim is going to really, we think be realized and it won't be a surprise as we said, it won't be a surprise as expected in the fourth quarter. So no sequential benefit as the surprise comes back out. We saw the uptick in bad debt to 6.8% of the non-Medicare revenue.

I think giving the weights receivables age as we begin to bring that down that I wouldn't expect that to start trending out too quickly.

Right.

So sequentially, it's going to end up with, you know, be driven a large part of what growth we realize, we feel good about it improving but that's going to drive kind of the change in home health results.

Right. So that's basically what you said before and I got the dollars -- dollar amounts on the net differences because you have these very helpful tables in here. But the healthcare costs, so essentially what you're saying is whatever that expense was because of seasonality it's going to be the same expense in the fourth quarter and we'll have the same negative impact.

So is it right, with everything that you've just said and with hospice growing and with some replenishment to volume in the admissions in the agencies that are maturing on Homecare Homebase, you do a little bit better sequentially in the fourth quarter than you did in the third, is that the right way to interpret this?

Yes.

A little bit better. So a couple, just three pennies maybe but not outrageous.

Exactly. Well to bring it back, we just trying to signal I think we consensus for the fourth quarter will be -- we don't think we have a real high probability of reaching that as we sit. So that's what we're trying to also say that we think we can see some improvement but not enough as we sit here, we don't have a line of sight to get to where fourth quarter consensus is at this moment

Right. Which I'm looking at is $0.48 and some of the numbers have come down a little bit but no the much

A little bit. Yes. That's right

Yes. I would tend to agree coming off the quarter you just had but that shouldn't surprise anybody. Okay. That's helpful. And then if you can just indulge me on one more question. I really appreciate this.

Absolutely. Of course.

Thank you. You made comments about implementing a sales strategy here.

Yes.

Is that the project Redwood you were talking about, or is this something different? Is this something new?

No, it's exactly that, Sheryl. So we've gotten the results back from four of the regions where we've actually implemented and what we've seen is very strong productivity by rep increases as we've consolidated accounts -- remember we've eliminated over 30%, maybe even more of the accounts that we were calling on. So we have a sorted through. We're basically just becoming more efficient and effective

Right.

So we've increased the productivity quite considerably in the double digits. We've started to see, in all cases, incremental growth over the base level of growth, small, kind of a percentage to 2%. And so it's very encouraging for us.

We expect that to get better and -- I would've liked to this out of the gate like a lion but it didn't. It's big change in this area and the other thing is what we're finding frankly and this is why we're delighted we have Susan here, we need quality wins in this market. As you saw, if you have quality which we're doing really well on, there's a correlation between quality and growth.

And then we have to communicate that quality which we don't particularly do well now and say here's what we're doing in these areas that make us better than everybody else.

Got it. That's important.

And that's the key here. So we have protocols. We need to get those protocols not only for our clinicians but we need to have our sales folks out there showing those protocols out to all of our referral sources that we want to get business from so that they think of us first from highly differentiated.

Okay. All right. And just one final thing. So your hospice business were the agencies that were implemented first on Homecare Homebase. And they're continuing -- right? So they're all.

Connect.

Basically your mature group of agencies and they're generating double-digit growth.

Correct.

And so the ones that were implemented first have now had it in place to close to a year or a little over a year?

Close to a year.

Close to.

So with those agencies, and I realize that hospice and home health are not the same, but the patterns of restoring the admissions. One of the things that would make you confident about 2017 would be the experience that you got out of those agencies and here's the period of disruption, we've now learned from that. It's different in home health than hospice sounds like it's more intensive in home health than hospice.

But still as we've matured it through the first hospice and then the first home health agencies, here's the pattern we see and this is why we're confident in 2017. So how long is that period before everything comes back to normal? The 60-day implement period, or is there a period after that?

Sheryl, this is Mike. Great question. And very similar to what we've talked about in the past.

It is that there's a period after the 60 days so during the 60 days they're managing two systems. I think what really encourages us, Sheryl, is that we go back and we run kind of a retrospective and I look back at all the different regions that have gone live and it's a very, very consistent pattern. We've got graphics I can show you, they do come out of it.

It's not the same for everyone region but usually from, you know, 30 to 60 days after they're fully live so in other words takes them 60 days to get off both systems. Another 30 to 60 days before they're, I'll say, back to normal and we're very encouraged because it's a very consistent pattern that we see. And that's what gives us a lot of confidence about 2017.

Got it. Got it. Thank you so much.

Great. Thanks, Sheryl.

Our next question comes from Ryan Halsted from Wells Fargo. Please go ahead.

Thanks, good morning.

Hi, Ryan.

So switching gears to M&A, have you given any guidance around the Visiting Nurses Association of New York sort of what you expect from that transaction?

This is, (inaudible), Ryan. No, we haven't yet. Essentially what we've bought there is we bought the CNO access and the work's going on to get it staffed and to push -- to get census in there as quickly as we can but we haven't provided specific targets at this point.

Okay.

It's a good fishing license, Ryan, that's why we bought it and it's adjacent to some other areas so we're able to go into some of the larger systems there and offer more coverage. So we're optimistic about it but it's fundamentally starting up, this was a place that was very dormant so we're building it from there, so initially we'll see some, you know, we have to rehire a fair amount of folks, build it up and then we anticipate with the amount of Medicare eligibles there in that population, that we'll have some -- that this will be a very good site for us.

I do think you make a good point. One of the things that was attractive to us in addition to how much Medicare population there was there is how strong the care centers are that are going to be the ones driving our operations there. So that was one of the reasons that this was very attractive.

Yes, we've got a good team in place there.

Okay. And then as far as the I guess the broader M&A environment, you know, when you look around, you see some large health systems, you know, becoming a lot more active or getting a lot more active in home health and you seem to be mostly concentrated on hospice and on the private duty business. I know you want to be disciplined but is there anything else you can do to really try to, you know, get things more active on the consolidation front in home health whether it be partnerships or other types of ideas?

Yes, no, I would say we are. We're interested in, you know -- just to be clear, home health is obviously the majority of our business. We know how to do it.

We would like this -- we are looking at deals. But we're also seeing that the pricing in particular on pure home health deals without real geographic concentration particularly if it's in a CON, we're interested in those types of deals. So we're looking for the -- and we're also finding, we've done a really nice job of building, you know, referrals back and forth between hospice and home health.

And also we're starting to see that we can do that in personal care. So we want to make sure, it hits our footprint. We want to make sure that we can migrate things over to personal care or to hospice.

We want to make sure we land in the right place and we want to make sure we get some concentration. So yes, we still have an extremely good pipe. I think the issue is I think that a lot of people are, you know, hinting at is when are we going to pull the trigger on something sizable versus some of the smaller stuff that we've done.

And we're doing pretty well on some deals. We've got a lot of things close. But we're going to maintain our discipline particularly in terms of pricing and then in terms of what we really believe the synergies to be because we're stating to see prices come down a little and we want to make sure that we take advantage of that.

So we're actively out there looking. But I would say, you know, I more than anyone would like -- everybody here around the table can attest, I more than anybody would like to do a nice big deal. But we're going to hold our discipline particularly in this environment with PCR out there, with new -- the new rate cuts that are coming out.

The value-based purchasing, all that needs to get factored in and in some of the deals I've seen out there particularly in home health, that has not been factored in and I think it will be a nasty surprise to some folks. I guess from a JV perspective, which I think is what you're referring to, I think there are opportunities and we're pushing that harder. You know, that's not our classic mode of operation.

But we are seeing people who are interested in divestitures. We are in talks with people who are interested in divestitures, large hospital systems in particular. We are interested in buying portions of their businesses and operating them and doing joint deals. So we are having those conversations as well.

Okay. That's very helpful. As far as the final Medicare home health role and your review of it, I guess are you looking to determine if the changes to the case mix, you know, had a sort of lessening effect of the benefit, you know, from proposed to final?

Or, you know, sort of how should we think about, you know, the impact of the proposed rule I think you outlined, 2.5% impact which was greater than what, you know, the aggregate rule was expected to have. You know, could we think about sort of again this benefit -- or this change to the final rule maybe having a disproportionately, you know, better impact to you from proposed to final?

Ryan, as we sit, we're not sitting here thinking there might be a benefit to us. We need to quantify so we don't want to get ahead and begin to suggest that change from our view on the proposed rule. But early indications are it's not a positive impact to us but again not quantifying what that change will be.

Yes, the case mix piece was changed more than we had thought. So while think gave us something we have to determine what they're taking back in terms of the case mix waiting and then the therapy piece. So that's clearly for us what we're running through.

We have to run it through our models and since we just got it, we've been testing it and that's what we're testing right now.

Okay. I know it's early and maybe I didn't ask the question that clearly. I meant, you know, the final rule I guess was 30 basis points better than the proposed rule. Is it possible that, you know, that incremental benefit could be, you know, you know, sort of fully appreciated by you guys or could it be more or less which direction do you think you're kind of leaning towards?

I would say, no, I think you answered it -- you asked it very clearly. Our answer probably wasn't succinct and it's because we don't quite know. Again from our overall view from the proposed rule, I would say we don't sit at this moment saying that's going to be a bit more positive with the final rule.

All in, we've got to do the math and can't quantify it yet but I don't think it's a positive direction overall, even though the base rate was slightly positive to the proposed rule. So all in I think we'll assess that but not thinking today that it's going to be a positive effect for us.

That's clear. Last one. Hurricane Matthew, it looked like it impacted a fair number of you were locations. I realize it didn't have, you know, quite the impact as the flooding but any initial thoughts on the impact from hurricane Matthew?

Scott, do you want to talk about that?

We certainly saw an impact in our care centers, especially in that week when our Carolina market and within our Georgia market. So we saw that hit. Pretty pleased with the way the other regions performed within that month but they recovered quickly.

We certainly did feel a little bit of a softness in those markets impacted by the storms.

Okay.

Flooding there that caused the that came out of what turned out as the hurricane didn't turn out to be as brutal as we thought. What turned out to be again with the subsequent flooding. Block a lot of our access in north and South Carolina. Our ability to get out particularly around the coastal areas and Georgia as well, east Georgia.

Okay, was it is disruptive enough that you care to call out any potential impact to volume growth?

I think once we get to the final end of the quarter we'll kind of assess exactly where we are if it impacted research, what we close -- process the closing October now and getting final numbers. We'll have some view on that when we get to the end of this quarter.

Okay. Thanks for taking my questions.

Thanks, Ryan, appreciate it.

That does conclude the question and answer portion. I would now like to turn the floor back over to Mr. Kusserow for any final comments.

Great. You thank you very much, Matt. Thanks to our everyone who joined us on our call. Thanks to our employees on the call, great job despite lots of obstacles out there. We appreciate everyone's interest in Amedisys' and we look forward to updating you on our visits and next quarter earnings call. Thanks. Have a good day.

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