Amedisys Inc (AMED) 2017 Q4 法說會逐字稿

Greetings, and thank you for calling in for the Amedisys Fourth Quarter 2017 Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to David Castille, Managing Director of Finance. Thank you. You may begin.

Thank you, operator. And welcome to the Amedisys investor conference call to discuss the results of the fourth quarter and year ended December 31, 2017. 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 Chief Executive Officer; and Scott Ginn, Chief Financial Officer. Also joining us are Chris Gerard, Chief Operating Officer; and Dave Kemmerly, General Counsel and Senior Vice President of Government Affairs; and David Pearce, Chief Compliance 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 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 also be available in our Forms 10-K, 10-Q and 8-K.

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

Thanks, David, and welcome to the Amedisys fourth quarter 2017 earnings call. 2017 was a tremendous year for Amedisys. We treated more than 369,000 patients, making more than 9.4 million visits across our 3 segments.

We continue to focus on, execute and make excellent progress on our strategic pillars: clinical distinction, employer of choice, operational efficiency and growth. That has translated into results we are all very proud of. A special thanks to our 18,000 employees whose unwavering commitment to providing outstanding care to our patients in their homes has made this a great quarter and year.

For the fourth quarter on an adjusted basis, we grew revenue 11% to $404.2 million, EBITDA by 22% to $37.1 million, and earnings per share by 27% to $0.56 per share compared to prior year.

For the year in the face of $14 million of rate cuts, we grew revenue by 7% to $1.54 billion. We grew EBITDA over 29% to $142.2 million, and we grew EPS by 43% to $2.21 per share. Scott will provide more details on our financial performance in his comments. But these are outstanding results that we're really pleased with.

I'm also pleased that we have issued 2018 revenue guidance of $1.6 billion to $1.64 billion, EBITDA guidance of $158 million to $163 million, and EPS guidance of $2.97 and $3.08 per share. Scott will elaborate, but our ability to provide guidance goes to show the stability that our management team has brought to our business and the conviction that we have in our ability to deliver in 2018.

Now let's review the progress we've made within our 4 strategic areas of focus. First, clinical distinction. We continue working to improve our star scores, clinical outcomes and readmission rates. In the April 2018 stars preview, our Quality of Patient Care Star Rating was 4.3, with 89% of our home health agencies rated 4 stars or better. Of particular note, we now have 54 care centers rated at 5 stars. Our relentless and uncompromising focus on quality has resulted in 9 straight quarters of sequential improvement in stars and has truly differentiated us as an industry leader in quality.

On the value-based purchasing front, we expect to see a payment bonus of approximately $1 million in 2018 across the 7 VBP pilot states where we operate. This bonus provides additional evidence that our focus on clinical distinction is driving better patient outcomes. We remain strong supporters of further expansion of the VBP program. Differential payments for quality providers sends the right message to the home health community, that quality care is important. We encourage CMS to roll this program out across the country and increase the level of risk and reward, so that truly differentiated providers benefit.

For our hospice business, the hospice compare December 2017 release of quality metrics shows Amedisys outperforming the national average in 6 of the 7 measurement categories. As of February, we're 7 out of 7. We are very pleased with these results and fully expect our hospice quality performance to continue leading the industry as scoring and reporting becomes more formalized. Again, in hospice, we hope CMS will provide financial incentives that differentiate providers based on quality.

Moving on to Employer of Choice. For all of 2017, we have discussed our efforts to hire and retain home health business development staff. I am extremely happy to announce that we have hit our fourth quarter staffing targets. Adjusted for the closure of care centers in our Florida reorganization, we ended 2017 with 759 business development employees. As a result, we are now seeing growth in the right places, which our fourth quarter attests to.

I am also proud to report that we achieved our company-wide voluntary turnover goal for the year of 22%. Turnover will continue to be a key area of focus for us in 2018. Anticipating a tighter clinical labor market, we will specifically focus on clinical retention. We believe that retaining our clinical staff has a direct impact on our ability to drive down readmission rates, increase productivity and provide better care to our patients.

Now let's discuss operational efficiency. In 2017, we rolled out our productivity and staffing tool, which helps our care centers to optimize clinical scheduling. It helps us utilize the most appropriate clinician for each visit and proactively predict future staffing needs based on growth trends. Since its rollout, we have seen impressive improvements in clinician productivity. In fact, productivity for all disciplines has improved, with the most significant and impactful change seen in our RN and LPN staff, both improving 2 weighted visits per week or approximately 7%.

Finally, driving growth. I am happy once again to report that our hospice team delivered another fantastic quarter, growing same-store ADC by 12% and 15% for the year, and growing admits by 8% for the quarter and 11% for the year. Keep in mind, all of this growth is same store, which truly speaks to our mission-driven and high-performing hospice team.

For our home health division, the investment we made in our business development team translated into same-store episodic admission growth of 3% in the quarter and same-store episodic volume growth of 6%, both excluding Florida care center closures. We will continue to hire, develop and retain top BD and clinical talent in 2018 and are very well positioned and confident we will continue our growth trajectory this year.

In personal care, total hours per quarter grew approximately 43%. Approximately 17,000 personal care clients received service in 2017 compared to only 10,000 in 2016. A total of nearly 3,000 home care aides provided over 2.6 million hours of care in 2017, with 782,000 hours coming in the fourth quarter.

In 2017, our personal care team closed and integrated 2 acquisitions, with a third deal in Eastern Tennessee signed and pending regulatory approval. This team has proven themselves quite adept at integrations, and we are looking to expand our personal care platform beyond Massachusetts.

Looking at our business mix, it currently includes approximately 25% dual eligibles, with 45% of our patient population being eligible for nursing facilities. Dual eligibles are an important population for us, as caring for these patients aligns us tighter to managed care organizations. These patients are typically more chronically ill and require population health services. As we move further into risk arrangements, the learnings from this population will be key to our future success.

On the M&A front, our strategy remains consistent. Hospice assets are very pricey, but we have developed a three-pronged hospice strategy, which allows us to invest accordingly and at respectable blended valuations. Overall, we continue to like hospice fundamentals. And as our results show, we are excellent operators in hospice. As such, we want to do more.

Our hospice M&A strategy includes: large hospice acquisitions; small hospice carveouts and tuck-ins; and selective hospice de novos. Our emphasis on expanding our hospice footprint is further driven by: our desire to leverage our hospice team who have continued to deliver outstanding growth and strong financial performance; the significant growth in the number of people electing the hospice benefit; the relative stability of the hospice reimbursement environment; and the potential of coordinated care between home health, personal care and hospice; and the fragmentation of the space. The top 10 players have approximately 18% of market share.

In personal care, we will continue to focus on good value tuck-ins where we have a strong home health and hospice presence. In home health, we are focused on strategic assets in priority geographies. Assets of quality remains scarce in home health, but we're initiating conversations in key locations. The pipeline for all 3 lines of business remains very strong and active. However, valuations remain high entering 2018, particularly where financial sponsors are involved.

Finally, I'd like to update you on the recent regulatory changes in home health. On February 9, Congress passed and the President signed the Bipartisan Budget Act of 2018, which included the following: the extension of the home health rural add-on payment for 4 years; home health payment reform parameters, most notably including budget neutrality; a statutory setting of the 2020 market basket payment update.

A 4-year extension of the rural add-on is great news for Amedisys and the patients we serve in rural markets. Maintaining the 3% add-on for 2018 and 2019 is a big positive and reduces our 2018 reimbursement impact from approximately 1.4% to approximately 0.7%.

On the payment reform provisions, we feel these changes are a positive, especially considering what the industry was facing last summer with the HHGM proposal from CMS. Congress' desire to shift to a 30-day payment period is one that we can and will manage. HHGM has also called for a shift to a 30-day payment period, but was not budget-neutral. Congress mandated reform in the payment system in 2020, but also mandated that the move to a new payment system in 2020 be truly budget-neutral, without relying upon unidentified behavioral adjustments. Congress mandating that payment reform must not be implemented until 2020 and that it be budget-neutral has given the industry time to prepare and provided some needed parameters around payment reform. In addition, the delay until 2020 has provided time for the industry to continue our dialogue with Congress and CMS on the final design of payment reform.

We also believe the statutory setting of the 2020 market basket update at 1.5%, although a reduction from the projected market basket update of 2.9%, is a substantial improvement over cuts that would have come from HHGM or cuts previously considered by Congress. In fact, the 1.5% update in 2020 is greater than home health agencies have received since 2013.

Finally, after almost a year of uncertainty around reimbursement, we now have much more clarity into future home health payment redesign and rates. There is still work to be done, and we will spend all of 2018 diligently continuing our dialogue with CMS and Congress around home health payment reform.

With that, I'll turn it over to Scott, who will take us through a more detailed review of our financial performance for the quarter and the year. Scott?

Thanks, Paul. I'm pleased to result on our financial results for the quarter and year-end. During the quarter on a GAAP basis, we generated $404 million in revenue, an increase of $38 million or 10% compared to 2016. We had a net loss of $0.11 per diluted share for the quarter. For the year, we generated $1.53 billion in revenue and earned $0.88 per diluted share.

Our EPS was impacted by a few items during the quarter. In aggregate, these items reduced earnings per share by $0.67. Of these reductions, $0.62 related to a onetime noncash charge of $21 million to revalue our deferred tax asset as a result of tax reform legislation signed into law in December. Additionally, our results were impacted by $0.04 or approximately $2 million in charges for the closures and consolidations in Florida that we previously disclosed. These amounts, along with other adjusting items and their impacts, can be found on Page 21 of our supplemental presentation for both the quarter and for the full year.

For the year, on an adjusted basis, we delivered strong growth in all 4 of our key financial metrics: revenue growth of 7%, EBITDA growth of 29%, EPS growth of 43% and free cash flow growth of 88%. We produced these results as well as expanded our EBITDA margin 160 basis points in the face of a $14 million net reimbursement headwind. For the quarter on an adjusted basis, our results compared to the fourth quarter of 2016 were as follows: revenue grew $39 million or 11%, which is inclusive of a personal care segment acquisition that closed on October 1. EBITDA increased $7 million or 22%. And EPS increased $0.12 or 27%.

Before turning to our segment performance, I'd like to add some additional color on our adjusted consolidated results for the quarter. There were 3 items that were impactful to our quarter results in comparison to prior year. First, the net impact to reimbursement was approximately $4 million, which is inclusive of the rate changes for 2017 and 2018. Second, health insurance and workers' compensation expenses increased approximately $6 million. The increase in health was driven by high cost claimants. The increase in workers' compensation Was driven more by the severity of claims versus frequency. Lastly, planned wage increases were effective in August, impacting the year-over-year comparison.

Two of these factors also impacted our sequential performance. Health and workers' compensation expenses increased almost $6 million, and we had one additional month of planned wage increases in the fourth quarter versus the third. As we are self-insured, it is typical to see higher claims in the second half of the year, particularly in Q4. However, we experienced a more pronounced shift from third to fourth quarter in 2017.

Now turning to our fourth quarter adjusted segment performance. In home health, revenue was $287 million, up $20 million compared to prior year. Revenue growth was driven by a 6% increase in same-store episodic volumes, which includes both admissions and recertifications and excludes our Florida closures. This was our highest volume growth for the year and marks the third consecutive quarter of improvement in this metric. Same-store total admissions were up 4%, same-store episodic admissions were up 3% and same-store non-episodic admissions were up 7%. Our Medicare recertification rate was 38%, a 250 basis point improvement from prior year.

Segment EBITDA was $37 million, up slightly less than $1 million over prior year. Cost per visit decreased $0.10 compared to prior year. Increases in clinician productivity helped offset the impact of planned wage increases and rising health and workers' compensation costs in the quarter.

Of the items impacting the fourth quarter that I've previously mentioned, the home health segment saw a reduction in reimbursement of approximately $5 million and a $4 million increase in health and workers' compensation expense over prior year. These increases impacted gross margin and G&A expenses. Our planned investment in additional business development employees has also added to our G&A costs compared to prior year. Sequentially, reimbursement changes reduced revenue and gross margin by $1 million, while health and workers' compensation increased approximately $4 million. Our G&A as a percentage of home health revenue was 24.4% for the quarter, which is the lowest for the trailing 5 quarters.

Now turning to our hospice segment. This segment has continued to generate strong growth and margin expansion. For the fourth quarter, revenue was $98 million, up $13 million over prior year, an increase of 15%. Same-store average daily census was up 12%, and same-store admissions were up 8%. Segment EBITDA was $27 million, an increase of $5 million or 25% versus prior year. Net revenue per day was up approximately 2% to $149.12. And cost of service per day was up 2% to $75.74.

The hospice segment benefited from an increase in reimbursement of $1 million, offset by increases in health and workers' compensation expenses. The segment expanded EBITDA margin by 210 basis points, despite additional G&A investments in our business development staff and administrative employees to drive and support continued growth. Sequentially, the segment's growth in revenue was offset by increases in health and workers' compensation expenses and the addition of clinicians and BD staff to support our growth.

Our personal care segment generated approximately $19 million in revenue in the fourth quarter, representing growth of 47% with over 782,000 billable hours. Included in these results are approximately $6 million in revenue contributed from our Home Staff and Intercity acquisitions that were not in prior year numbers. Additionally, these acquisitions added slightly over $1 million in G&A costs during the period. As we've indicated previously, because of the rapid pace of acquisition in the personal care segment, we're spending the first half of the year investing into platforms infrastructure to allow future growth; and we're pleased with the progress we have made thus far.

Turning to our general and administrative expenses. On an adjusted basis, total G&A was $123 million or 30.3% of total revenue. As we alluded to in the third quarter call, we anticipated that G&A expenses would increase sequentially but remain relatively flat as a percentage of revenue. Total G&A was down 180 basis points as a percentage of revenue compared to prior year. Sequentially, G&A increased $5 million. Significant drivers of this increase were $2 million related to health and workers' compensation, approximately $1 million related to our Intercity acquisition, with the remainder of the increase related to full quarter planned wage increases and the addition of BD resources in both the home health and hospice segments.

From a cash flow perspective, we generated $32 million in cash flows from operations for the quarter and $106 million for the year. Total capital expenditures were $2 million for the quarter and $11 million for the year. Our balance sheet continues to be in great shape, with outstanding debt net of cash of $4 million with a net leverage ratio of 0.

Days sales outstanding were 44 days at December 31, 2017, which is an increase of 3.8 days compared to prior year and 3.3 days sequentially. The Florida ZPIC payment [hold] is at 1.6 days. And the regulatory delays related to the change of ownership process for our Tenet acquisition in May added another 1.5 days. Adjusting for these 2 items, DSO increased 2.9 days sequentially and was up slightly compared to prior year.

At December 31, 2017, we had a cash balance of $86 million and $160 million available on our revolving credit line, providing total available liquidity of approximately $253 million under existing credit facilities. Our priority for deploying capital is for acquisitions, with a preference towards hospice and personal care tuck-ins.

Turning now to our annual guidance. For fiscal year 2018, net revenues are expected to be in the range of $1.6 billion and $1.64 billion, while 2018 guidance for EBITDA is between $158 million and $163 million. Finally, 2018 earnings per share is expected to be in the range of $2.97 to $3.08. There are several key factors impacting 2018 guidance, outlined on Slides 23 through 27 of our supplemental slide. First as a result of the congressional reinstitution of the rural add-on payment, we now estimate the home health reimbursement cut to be approximately 70 basis points compared to our previous estimate of 140. In hospice, reimbursement is up 1%, which was effective for services provided beginning on October 1, 2017. There is no pricing assumption change for our personal care segment.

Also included in our guidance is planned wage increases of 2% to 3% that will be effective in the second half of the year. Additionally, we're anticipating a 5% to 6% increase in our benefit expenses for 2018.

Our effective tax rate assumption for 2018 is between 26% and 27% as a result of tax reform passed late last year. We estimate our cash tax rate will be approximately 5% as we fully utilize our net operating loss carryforwards in 2018.

We will retrospectively adopt the new accounting standard relating to revenue from contracts with customers effective January 1, 2018. Amounts previously recognized as provision for doubtful accounts will now be included in net service revenue, resulting in decreases in net service revenue, gross margin and provision for doubtful accounts. These changes will offset each other with no impact on EBITDA or earnings. This retrospective change is detailed on Slide 26 of our supplemental slides. And our revenue guidance for 2018 is inclusive of this change resulting from the new accounting standard.

Finally, this guidance assumes a fully diluted share count of approximately 34.85 million shares.

This will conclude our prepared remarks. Operator, please open the line for questions.

(Operator Instructions) Our first question comes from the line of Matt Larew with William Blair.

First wanted to ask about something in the slide deck, which is a focus again in '18 on underperforming care centers on the home health side. So I was wondering if you can help us understand in the fourth quarter, what kind of drag those underperforming care centers provided? And what that size, that bucket is of care centers today versus maybe 12 months ago and how you plan to attack that in '18?

Sure. I'm going to turn it over to -- this is Paul. Matt, I'm going to turn it over to Chris, so he can talk to you about what our efforts are going on there.

Sure. Matt, it's Chris. As we looked at setting our priorities for 2018 throughout Q4 of last year, we did notice that we had a subset of care centers out there that were not meeting our expectations with regards to performance. And we set some internal benchmarks that we measured them against. We have roughly about 13% of our care centers that are coming in below kind of our expectations in those benchmarks. So what we've done is we've put a heightened focus on those care centers, developed a weekly scorecard, having monthly discussions around these, and just really kind of getting in and diagnosing the issues and looking to move those back into where they should be. So it's just something that we have the bandwidth to do this year. We really didn't have the bandwidth to do it last year, but it's an opportunity for us to really capture some opportunity. As far as quantifying the opportunity, these care centers underperform to the tune of about $2.7 million in Q4 in terms of EBITDA. So we're seeing that as an opportunity for us to go out and get some low-hanging fruit.

Okay, Chris, that's helpful. And then just as a follow-up. On the third quarter call, you talked about a 5% increase in visits per week in terms of clinicians from HomeCare HomeBase. I'm just wondering how you expect that to trend throughout 2018, and how that might've factored into guidance that you're now providing for the first time here?

Yes. Sure. So we had a good experience last year increasing our clinician productivity, up 7% actually is what we were able to capture those 2 weighted visits per week. I still see that we have some opportunity to move that a little bit further throughout 2018. A couple of ways: one, getting a little more aggressive with our paraprofessional; our LPN and PTA utilization can bring up our clinician productivity; as well as it really is a factor of -- a function of being more familiar and proficient in using HomeCare HomeBase. The longer you're on the system, typically, the more productive you're able to be utilizing your time in an efficient manner.

Or what you're asking, Matt, is are we -- how confident are we in that growth number for 2018? Is that...

Right. That's a piece of it, is sort of based on the momentum you're seeing with the business versus incremental gains from productivity gains.

Yes. Well, clearly, we're doing well on the productivity front. I think from the incremental gains that we're starting to see in the market, particularly as we've -- as some of the BD folks that we've hired, which are reflected in the $9 million cost, is -- we have over 100 people and we're hiring to drive sales beyond clearly what we delivered this quarter. So we're confident in our ability to hit the 5%. That's part of what our projection is. Chris and his team have been doing a nice job going out there. And so we're feeling good about our trajectory in terms of our ability to average in on that growth rate. I don't know, Chris, any...

No, I mean, I think the foundation's been set in 2017. We carried a good number of reps into 2018 that are ramping nicely. We have historical data that shows what we expect ramps to be, and they're in line with that. So hitting the 5%, we have the foundation in place. We have the clinician capacity. And so that's -- the confidence is good that we're moving in the right direction.

Our next question comes from the line of Kevin Ellich with Craig-Hallum.

This is Per Ostlund on for Kevin today. Paul, I wanted to come back to the M&A priority discussion. I think you clearly articulated your priorities there being hospice, personal care, and then home health sort of being third among them. How much of that is I guess, call it, profile of hospice specifically versus other factors that might be related on the home health side, whether it's regulatory, whether it is pricing or scarcity of assets or potentially operational from the same standpoint of wanting to see some more of your HomeCare HomeBase efficiencies take foot before you pursue that more aggressively?

Yes, so that's a great question, so appreciate it. I think from an M&A perspective, we've had our hospice team now running really well, really clean, just growing the business, hitting the fundamentals. And the results you see there are quite incredible. They've fundamentally done this on a same-store basis since I've arrived so -- over 3 years ago. So I believe that this team is humming, cooking with gas, doing a great job. I believe they can take on more. Chris believes they can take on more. We also like -- so one, we believe -- and we're the fourth or fifth largest hospice out there. So we think we can continue to add on and drive business that way. The other thing is it's important for us to -- and part of the reasons why we're in 3 businesses is we want to have a balanced portfolio. And our belief is now is a good time to look at the portfolio and to drive more growth in hospice. They're ready for it. We've got a good team. Demographics are really good. The regulatory environment, based on what we know, seems quite good. Our ability to deliver from the quality side is very good. So we -- we're feeling very good about this. Home health, we've created a lot of change. We've reorganized. We've brought on HomeCare HomeBase, really starting to see some nice things from a revenue perspective. But I think to throw in an integration early on is something that would be difficult. We want to let them get their groove for a while. They're doing a great job doing that. And the personal care, we need to grow further in that particularly in overlap markets. So our strategy is that the issue is that we're seeing out in these markets is the pricing is pretty difficult in terms of the multiples these folks are trading at, particularly when you've got private equity involved. So we want to be -- we understand the realities of the marketplace. We also have, as you know, a tremendously available balance sheet to take on some new acquisitions. So we're excited about that. But we're trying to be sensitive to pricing and make sure that we can generate strong fundamentals in terms of return on invested capital. So I -- so we're out looking and we've got -- we like our three-pronged approach in hospice. We've activated some really good folks we know in the market to find us smaller assets, particularly in overlapping geographies where we have home health. We also are starting to do de novos now, which is a good way to start. And then we're constantly out there looking at some of the other assets that are -- larger assets that are out there that most people know about.

That makes sense. You kind of answered one of my potential follow-ups there, so I'll actually ask a different one then. On the HomeCare HomeBase side, you delivered on your efficiency target, your operational improvement target for fiscal 2017 with the $46 million. I think you've characterized there being a lot more juice in the lemon, I think is the turn of phrase I've heard you use. Without putting you to a number, as you're thinking about that additional level of productivity that you can work toward with the subsequent versions of HomeCare HomeBase, is there a set of goalposts that we can put around a next layer of efficiencies, if you will, beyond the $46 million?

Yes, I'm going to let Chris answer that. One, we're really happy, to be honest with you, that we've been able to get 2 extra visits per week in terms of productivity. The one thing though that we're also very, very sensitive about is making sure that our clinicians, in what's becoming an increasingly tighter labor market, don't feel that we're running the engine too hot or running their engines too hot. So we want to make sure that the benefits -- that there's an equilibrium there that we can move forward judiciously. And we believe there's an opportunity. And Chris is a real expert at HomeCare HomeBase, and [Tijane] as well who runs home health. So we feel very comfortable that they're going to start to pull some of these levers. I mean, we've just started. 2.0 is occurring in HomeCare HomeBase. We're very happy with what we're seeing there. We think we can -- I expect to see more productivity. But I also want to do it in a meaningful way that doesn't drive people out the door. I don't know, Chris?

Yes, I think you said it well. What we're looking at now, as I've said, we're looking at our clinician mix where we see opportunity to utilize, again as I mentioned, paraprofessionals in some of the markets where it makes sense, frees up our registered nurses' capacity for admissions, and recertifications and discharges and OASIS visits. When we first got here -- when I first got here, I thought that we were underutilizing that level of service, so we see opportunity to do that. Again, HomeCare HomeBase is meant to make the care centers very efficient. I think that we're getting better at it every day. We've got it about a year in our rear-view mirror in terms of the final care centers that implemented. I still think that we're using only a portion of it that I think we'll be able to unlock throughout this year. So we anticipate better clinician activity to continue to move throughout this year as well as some other inefficiencies that we should be able to get out of the system.

Our next question comes from the line of Whit Mayo with Robert W. Baird.

Is there any way you could share the EBITDA by segment within your guidance?

We really haven't -- we've been kind of just looking at that holistically. We haven't really focused down on a by segment perspective. I mean, I think if you kind of look at it by -- and think through it, we've given kind of admission top line growth pieces of that, and kind of broken down the BD add perspectives as well as the rates impact. If you think about rate, home health is going to be about $7 million negative. Hospice, about a $4 million positive. So that's about a net $3 million, but $7 million and $4 million in those segments. Those are 2 items that we've talked about that I can be specific around. We're targeting that improvement around Florida in the home health segment. We're talking about full year pickup of around $7 million to $9 million. If we think about how that runs for full year of '18, it's probably only about half of that, probably around $4 million to $5 million, primarily just because it was we saw deteriorating performance in that market across 2017 kind of as we move forward. But eventually, it'll be that full $7 million to $9 million run rate. Those are the bigger pieces, but we really haven't stuck to specific by-segment guidance.

Baby steps. We'll get you there.

That was -- this is big steps. But (inaudible) since 2013, so we're happy to be where we are right now.

We haven't done this since 2013, so we're getting those muscles back in shape.

I totally understand. And Paul, just the improvement in turnover at the clinician level is pretty noteworthy and in the BD level. Just stepping back and thinking about just the dramatic changes in the organization that you've seen in the past few years, are you at a point where you're tracking employee satisfaction? And if so, is there anything that you can share with us?

Sure. We're -- we track employee engagement. So we believe -- and we're nothing -- as a company, I always say this, we're nothing but people. And so we take very seriously -- and we're -- we deal with -- and we have as our -- on our 18,000 employees, we have people who are very, very sought after. And so for us, we review this on a weekly basis, understanding who's coming in the door, who's left. We track all the reasons why people leave. We are building -- we know why people leave. We've just done a bunch of primary research on it. So we -- we're actually taking steps to correct some of the things that are driving people away. One of them is orientation. The other one is onboarding. We need to bring people in better. The other one, which frankly is balance, work balance, making sure that we don't overload people, particularly when they're just getting used to it. So we kind of know all the things, now what we're trying to do is put this in place. We believe that if we can get the turnover number into the teens, the low teens -- obviously, it's a huge ambition of mine; I don't know if we'll do it. They're gagging over here. But I think we -- I think we can do it by really focusing on making sure that our folks are engaged and that we remove any obstacles we're putting in people's way that are unnecessary.

That's helpful. And maybe can you help me understand some of the dynamics at the field level that are impacting the recert rate now. And the whole sector's just-- the trend's all over the board, I'm just sort of curious on your perspective. And I'm going to have to slide one more in there for Scott. Just -- I know you don't guide to the first quarter, but the last 2 years, you've reported roughly 22% of your full year EBITDA. In Q1, any reason with payroll taxes or any other factors that would be considerably different?

Sure, we've -- do you want to take them to the last...

Let's do that. Let me talk to that first, and I'll let Chris come back and tag along with his piece of it. But Whit, if you kind of look at we concluded on Page 27 of our deck, our EBITDA seasonality view of what we'd look like for 2016 and 2017. So to answer that, I don't see anything in particular that would change in that trend perspective. That's kind of what we're seeing and as we forecast into 2018. You can see major -- we did have a weather event in Q1, which we had one in prior years as well. But yes, you see higher payroll taxes, a shorter February month and a little lower revenue perhaps coming out of the gate. And then we rebuild hospice centers. So I think that's fair to look at it that way, and you can see that from the trends we've put out.

So Chris, research?

Yes, so on the research, Whit, I think it's just a combination really of 2 things. One, we had the HomeCare HomeBase kind of [chop] further behind us. And our clinicians were getting better at using the system. And therefore, we're also seeing increased capacity by way of the increased productivity from the clinicians. We also noticed, in going through the transition of HomeCare HomeBase, we saw our recert rate dip significantly. So when we started looking into that, we saw that we were discharging patients a little prematurely without all goals being met, and we were missing some opportunities. So really, I think as we put a little bit of a spotlight on it, we had enhanced case conferences, started having discussions about what's appropriate for our patients. We saw that come back. And we're really just now getting to kind of our pre-HomeCare HomeBase implementation levels. We don't anticipate to see it grow much further from where it is now. I think it's in an appropriate range. But I think it's just -- now that we've got -- we're able to get back to kind of where we were before we rolled out HomeCare HomeBase.

Yes, and especially, Whit, is we focus rehospitalization rates which we think are going to be increasingly important and which are -- we're putting -- we're taking a lot of time to focus on that. We believe that'll enable us to move into some risk arrangements. So when we are focused on that, what we see is we really want to make sure the patient is completely stable. And so increasingly, we strive to make sure that's the case. So I think that's also -- as we continually focus on ACH rates, I think you'll see the research probably remain stable or maybe even move up a little.

Our next question comes from the line of Brian Tanquilut with Jefferies.

Jason Plagman on for Brian. So I think there's some confusion in the market a little bit about HHGM and some of the changes in 2020. A lot of -- I think people are under the impression that there still could be a change in the episode length from 60-day to 30-day. But I think you referred to it as episode or a change in length of service. So can you clarify, are you expecting a change in episode length in 2020 from 60 to 30 days? Or is that no longer on the table?

I'm going to -- Dave Kemmerly is here, who runs our government area as well as being our GC. So anyway, I'll turn it over to Dave.

Yes, Jason, I mean, it all goes to the bottom line. Based on our conversations with CMS staff and congressional staff, we're very confident that the intent of Congress in the continuing resolution was for CMS to implement a 30-day payment period and not a 30-day episode. So I think the confusion out there was the language used in seeing resolutions with a 30-day unit of service. But we've had those conversations and done a lot of homework on it. So we were still very confident it's a payment period. Now I can let Scott talk to you about what a payment period is versus an episode, if you want to get into further detail. But we're still confident, very confident in that.

So that change would conceivably speed up your cash collection period, but it wouldn't change the episode?

In theory, that's what would happen. Yes we got to -- the devil is in the details, as always. But in theory, that could be an added benefit around there. Some of the complexities were around the billing processes, but we're more concerned about the patients. So we're staying with a 60-day episode and being less impactful to our clinicians would be a win for us. And we'll deal with the -- any other issues around -- from a process perspective around billing.

Okay. And then a couple on the embedded assumptions in guidance. So the assumption of the 5% to 6% increase in benefits, does that assume any improvement in the workers' comp and health insurance trends you saw in the second half of '17? Or what's kind of baked in from -- any changes in kind of what you saw or experienced in Q4 that's in your guidance for '18?

Well, certainly what happened in Q4 is influencing our guidance in '18. We had a late break on that. Overall, it was still up for the year. We're not as aggressive on -- as '18 -- '17 was into '18, that 5% to 6%. But that's something we pay a lot of attention to. We -- and our costs is people. Over $800 million of our spend is people related, so we're always focused on health and workers' comp, and then we'll continue to try to drive that down. But there's no meaningful takedown in what we would expect to happen. So we're kind of building off where we exited, but we hope to see how we can drive that number down.

Yes, to be clear, this is a -- going to be a big initiative of our folks who run this. we can't have these things pop up and surprise us like they did, and we worked too hard to do that. So we've -- and they're digging in. We've got a lot of really interesting solutions we're going to look for. But our expectation is this won't happen again next year.

Okay. That's -- and then the outlook for corporate G&A in 2018, I don't know if you've commented on that, but should we expect something similar to the recent run rate that's been kind of pretty consistent in the $27 million, $28 million per quarter for corporate overhead?

Yes, I think that's fair. I think that -- trying to think through what we're giving on that. We expect, kind of from where we're exiting, to remain. We'll put those investments back in, but don't expect anything other than what we've given around the rate increases and so forth to impact that number. So we think we're at a good -- pretty good level right now and look to expand our capacity as we grow. We think we have capacity to grow in our numbers that we reported right now.

Our next question comes from the line of Joanna Gajuk from Bank of America.

So in terms of the quarter, and I guess as it relates to the guidance, I want to ask about the volume performance. So the same-store episodic admission was up 3%. So that was below, I guess, the 5% sort of guidance you had for Q4. And I guess looking at that, it seems like the Medicare admission was still down excluding the closures and also your expected growth. So can you flesh out what were the drivers for the shortfall? And what gives you confidence that you can get the 5% in 2018 in terms of the -- I guess, I assume that's the comparable number in terms of organic episodic admission growth in '18?

So yes. This is Chris. I'll give you some color on that. So we -- although we did come in a little bit shy of our -- the low end of our expectation for Q4 of the 3% episodic growth, the encouraging signs were that we were continuing to add the additional reps throughout the quarter to where we ended the quarter at our target number of reps to carry into 2018. The Medicare, although did not grow in Q4, but if I look at it sequentially quarter-over-quarter, we've started to -- the needle is moving in the right direction. So we've got the right -- directionally, we've got the right momentum carrying into Q1 of this year. We have the reps in place out there and we have the history on how they typically ramp, and they're holding the line in terms of what they're doing. So getting to the 5% that's in our guidance for 2018, I have a good level of confidence that we're -- we've done all the right things to get there. Now we just got to go out and execute.

Yes. And Joanna, just to make sure, I think there is -- and our reporting with same store was explored in our earnings call deck. I'm just going to run through the numbers real quick to make sure everybody's on the same page around this. So for Q4 excluding the Florida closures, our same-store Medicare admissions were basically flat, really about negative 0.5%. So basically flat. Our episodic admission same-store were 2.9%, roughly 3%. And we saw total admissions right around 4% for Q4. With that total episodic volume, which includes admits and recerts, it arrived at a little bit over 6%. So just to make sure we're -- everyone's on the same page around that number.

Great. So just to follow up, so in terms of the outlook for '18 for Medicare, you expect that those admissions will grow rate essentially?

That's correct, yes.

To get to the 5%? Because also within that number, what do you assume for the non-Medicare episodic growth?

The 5% is total admission growth. So that includes episodic Medicare business as well as the non-Medicare episodic business.

But overall, if you think about we're exiting Q4 at about 3.8%, and we're flattish at Medicare, we're looking to move that number, which will move -- that's our biggest base within the total admit volume. So certainly moving that number will have an impact -- greater impact in the total growth for the year to get to that 5%. So we certainly are needing and signaling that we're going to grow that number.

Right, that's what I was trying to get at, because that's still the biggest piece of the business. And if I may, on the -- as it relates to volumes and I guess how it flows through to the margins for the home health segment. So I guess somebody was trying to ask a question of what's your outlook or what's embedded in the guidance. So maybe asked another way, given the Medicare rates, right, it's still down in '18, right, so I guess that kind of is a major headwind for margins. But then when we look at, I guess, without you giving guidance for '19, but as the way it stands now for '19, those rates seem like they could be pretty nice, assuming there is no (inaudible) adjustment or any other adjustments added to it. So if there are no surprises (inaudible) and rates are up 2%, call it, how -- what the margin for the home health segment would look like if that will be the case?

We really haven't started looking into 2019. We'll wait and see what happens around that. But if you think around what we've done, as we ended 2017, I mean, we performed in the face of probably almost -- if you look at how we exited from our book of business, we were probably close to a 2% rate cut. We're able to grow margin, keep cost per visit under control. And then you come back around looking at 2018, we're looking at a 70 basis point reduction, which is about $7 million for the segment, which in terms of what we've seen in the past, we certainly like to be getting increases. But that's certainly a number that we think we can manage through from a margin perspective, and still have some opportunity from the things we talked about earlier around clinician mix, productivity to expand margins.

Our next question comes from the line of Dana Hambly from Stephens.

Chris, you mentioned early in the call about I think it was 13% of care centers being below benchmarks. I'm just curious, are the issues fairly common across those care centers? And what's the degree of difficulty in rectifying those issues?

Yes. Dana, so it's -- the degree of difficulty is really not that much. It just really takes more time and resources and just kind of focus. When we get in and kind of start diagnosing these, it really comes down to a handful of issues. Sometimes it's volume. Sometimes it's contract labor or a tight labor market. Sometimes it's episode management. And then so what we do is we have the key metrics reports that we work off of and really kind of identify on a care center by care center basis what's driving the underperformance. And then we just kind of hit it with some laser focus. So it's not that difficult. It's just something that we did not necessarily have the bandwidth as a management team to really deal with last year or look at, at the level that we will this year. But I anticipate we're setting today that we'll see some rebounds in these care centers.

Okay. That's helpful. And then Paul, bigger picture, Humana is in the process of acquiring a home health platform. I assume that you don't really view that as a threat to your business, but correct me if I'm wrong. But I guess my other question would be on, yes, I think within that asset, there's a sizable hospice and a sizable personal care segment. Does it make sense for you that managed care would be in those lines of businesses? Or would it make more sense for folks like you to be doing that?

Well, obviously, we'd love it if it made more sense for folks like us to be doing it. But I think I don't know what the philosophy of -- I've been out of Humana now for over 4 years. So the philosophy then was hospice wasn't something that managed care particularly did, although United did it. Maybe I've heard that, that attitude is changing. I mean, I think the bigger thing that we're seeing is the industry overnight in the fourth quarter has changed. And so you now have 3 of the big 5 companies in some sort of dating function, if you will. I mean, you've got Kindred being acquired. You have LHC and AFAM getting together. So we view this opportunistically. Frankly, we view this as an opportunity while they're working on those things to go out and get some share and to go out and really fight for share. And so we view this as a very good thing. We also think the Kindred thing is great. I wish them all the best. I think it shows that managed care does value home health, does value the ability to keep people in their homes and values that ability to do it for chronics and some of their difficult folks. That's what I worked on when I was there. So I'm glad that they put their money to work in this space. I think it adds value to everybody in this business.

Okay. And just the last one for me, Paul, you recently announced an agreement with -- or a partnership with Availity. It sounds like it's small, but I think you're quoted in the release as saying that this type of innovation changes the game for everyone. So I feel like I should know a little bit more about it.

All right, sure. Well, we -- so I used to be involved in Availity when I was at Humana. Availity, fundamentally, is a pipe and what it allows us to do with the talks, that allows payers and providers to talk to each other and very quickly and easily have the payers build in rules so that they can adjudicate claims without getting people involved. And so we've looked at how, for us, part of taking managed care business, part of the problem has been that's a manual process. And so right now, we are looking forward to automating this process. The more we can automate the process, the better that does in terms of cutting our back-office costs. And we believe that automation is going to be really important. So we're -- and it's also -- again, it's working with payers again to try to automate things, to try to make sure that we can cut some of those costs down. Because right now, they pay us -- payers pay us less. They hold up -- they hurt our AR. So they hurt our bad debt. So at this point, this is what we're trying to clear up. And that's why we're very excited about our partnership with Availity.

Our next question comes from the line of Bill Sutherland with The Benchmark Company.

Just curious, if you are seeing some benefit in the markets where you're colocated with hospice and home health, I guess I imagine it'd be primarily for hospice. And if that's the case, is that informing kind of how you're looking at your asset acquisition?

Yes, we see benefits, and we started working on this before we saw those -- before we started to really work on this, we had about 15% of -- 15% to 20% of the eligible people that were on our home health were going to our hospice that -- and we started to focus on saying we think that it provides better continuity of care for that number to change. We're now up around 60%, in the mid-60s. And so we -- we're very happy with the progress we've made there. People on home health do go into hospice, and we believe that it's important that if we do a great job on the home health side, that people will move into hospice with us. And so we believe there are captures there that we can do that. We also believe in when personal care is involved, that there is an ability, particularly with some of the folks that we talked about in our script, dual eligibles, some very chronically ill folks that come in and out of home health, that we can use personal care to provide some of that in-between time while they're going back and forth into home health. So we believe all 3, you can really capture the patient and make sure that they're getting good care through the continuum.

And then I was thinking about, you talked about clinical excellence, obviously, mostly focused on just quality measures. But are you all kind of focused on programs to emphasize those kinds of clinical programs that could really increase the kinds of volumes that you can get into the home? I'm just thinking of some of the breakthroughs that are happening with remote monitoring and with -- well, you know better than I do. I'm just kind of curious of what you're looking at.

Yes, so I mean, in terms of the new innovations and technologies that we're looking at, one is we believe -- and we've done this with congestive heart failure, we have a congestive heart program that's out there that we're seeing some nice results from. The idea is from our perspective, the more -- the better our clinicians are in terms of the tools and the training that we can provide, the better the quality ratings are going to be. And also we think ultimately importantly because again, this is important to managed care, it's also important in terms of quality ratings, is readmission rates. So we believe that the more we can do to drive down readmissions, the better. So yes, we keep an eye on remote monitoring tools, the sensors that are out there. We participated in that. We also are tracking what's going on in telemedicine to provide more continual care. At this point, there's a lot of noise in the system, so there's a lot of false alerts that are going on out there. So we're having to -- part of the algorithms have to get cleaner to make it really worth our while. Otherwise, we have people showing up unnecessarily, which is very costly.

Oh, yes. Do you have anything in beta that -- on sort of the telecare side?

Yes, I mean, we've been doing some work in that space. We actually withdrew from that space in congestive heart failure where we were using scales because there were too many -- too much noise in the system that was turning our costs -- driving our costs very high when we were using it. But we still believe in it, and so we're going to be continually testing it, particularly again if we're going to take risk. And we do have a couple of risk programs that were very small with small plans, and we're looking at that. And we're having a lot of conversations with big plans, too, about what we can do in the space; it is important. And -- but I -- if you drive down hospitalization rates in this business, you're golden. And so that's what we're really focused on, what can we do to drive down ACH.

There are no further questions in the queue. I'd like to hand the call back over to Paul Kusserow for closing comments.

Great. Thank you very much, Doug. I appreciate it.

Thanks to everyone who joined us on our call today. We appreciate your interest in Amedisys. We also again like to thank our employees who delivered these great results. We hope that everyone has a great day, and look forward to updating you on our progress on our next quarterly earnings call in early May. Have a good day, everybody.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.