Amedisys Inc (AMED) 2018 Q3 法說會逐字稿

Greetings, and welcome to the Amedisys' Third Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Nick Muscato, Vice President of Strategic Finance. Thank you, sir. You may begin.

Thank you, operator, and welcome to the Amedisys' investor conference call to discuss the results of our third quarter ended September 30, 2018. A copy of our press release, supplemental slides and related Form 8-K filing with the SEC are available on the Investor Relations page of 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.

Before we get started with our call, I'd 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 invoke a number of risk 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 Amedisys CEO, Paul Kusserow.

Thanks, Nick, and welcome to the Amedisys' Third Quarter 2018 Earnings Call. This has been another extremely strong quarter for Amedisys, and we are very pleased with our results. As always, I want to thank all my colleagues at Amedisys over 18,000 strong who are responsible for such a great performance. Your unwavering dedication to caring for our patients wherever they call home has once again translated into results you should all be very proud of. Thank you for, once again, proving delivering great care can drive great economics.

Now let's look at the third quarter results. For the third quarter, traditionally, our most challenging, we generated $417 million in adjusted revenue, up 10% year-over-year. We generated EBITDA of $45 million, up 23% year-over-year, and adjusted earnings per share of $0.95, up 70% year-over-year. These great results have led us to, again, increase our full year guidance ranges to better reflect how we see the rest of the year shaping up. Scott will elaborate on this in his comments.

Now let's quickly review how we are doing in our 4 strategic areas of focus. Let's start with why we get up in the morning, patient care or driving clinical excellence and distinction.

Once again, we have posted industry-leading quality scores with the January 19 preview, putting us at an average of 4.4 STARS. We have also 69 care centers rated at 5 STARS, with 94% of our overall portfolio rated at 4 STARS or better.

I would like to acknowledge and applaud all our clinicians who are consistently providing outstanding care and always striving to best our already impressive results.

As I said, great care equals great business. Our focus on clinical quality continues to generate financial returns as our financial performance in the home health value-based purchasing, VBP, pilot program indicates. For the third quarter, we received approximately $275,000 in bonus payments from CMS, up from approximately $0.25 million in the second quarter.

We also continue to believe and advocate that this demo should be expanded nationwide and institutionalized as a better way for CMS to generate significant taxpayer savings and to drive quality patient outcomes.

Indiscriminate straight-line rebasing doesn't reward for quality and is a bad practice if you want to move toward value-based care as CMS says it wants to.

For our hospice business, the hospice compare November 2018 release of quality metrics shows Amedisys outperforming the national average in all 7 measurement categories. We are very pleased with these results and expect our clinical quality to continue to improve in hospice.

Taking great care of our patients is what we do, and we will never stop trying to best ourselves here.

Moving on to employer of choice. As we discussed last quarter, we surpassed our full year 2018 goal of 800 home health business development professionals, and we have maintained and increased this headcount throughout the third quarter.

We are now going back and adding business development FTEs in select and strategic locations where we have clinical capacity and the ability to take on even more business. To that point, the other side of the equation is having enough clinical staff to take on all the business our over 800 BD FTEs are bringing in. The way we track our progress with clinical staffing is through voluntary turnover. We maintained our impressive full-time voluntary turnover metric ending the third quarter at 18%.

I'm very pleased with our efforts here but believe still we have room for further improvement, especially with our key nursing workforce.

Now let's discuss operational efficiency. Our focus on maximizing the efficiency of our operations is reflected in the operating leverage we are achieving throughout our organization.

For the quarter, our total adjusted EBITDA margin was 10.8%, up 110 basis points year-over-year from 9.7%. This was another great quarter of EBITDA performance, and I'm particularly happy with this margin given that the third quarter is always the most challenging quarter for our company.

Finally, driving growth. In our home health division, we had another strong volume quarter, ending the quarter at 6% same-store total volume growth, which is admissions plus recertifications. This is the number we focus on as it reflects all sources of growth. Our total episodic volume growth was 5%, and our total same-store admission growth was 4%.

Though we are pleased with our growth results, we still think there is ample opportunity to increase all of these metrics. Fighting for fee-for-service growth remains a priority and challenge. With our quality scores, increased business development staff and analytical tools, we expect and will improve.

We have also talked at length about our desire to move into more innovative payment arrangements and eventually risk models with Medicare Advantage plans. I'm pleased to report that during the third quarter, we have started several pilots, operationalizing 4 different payment innovation models with 3 different payers across 15 different states. Two of these models are upside only in which our payment rate will be increased for driving STARS improvements, ACH rate reduction and medication reconciliation.

Though these relationships are in early stages, results have been very positive, and we are receiving increased rates from all our payer partners. The other 2 payment innovations we are involved with are limited risk, gain share models in which we have minimal downside risk and then opportunities to earn a bonus based on several different quality indicators. We see these models as the future of our Medicare Advantage business and are continuing to work to grow the number of risk taking payment innovations we are involved in.

In hospice, we continue to build ADC at an impressive pace, growing at 11% to 7,768 for the quarter. Admissions were up 8%, both impressive numbers given the strong year-over-year comps our hospice business faces every quarter.

In personal care, total hours per quarter grew approximately 32%. We are very pleased with the progress our personal care team has made, integrating the 4 assets we have acquired since 2016, and we plan to continue to scale, grow and expand the business both organically and inorganically across our footprint.

To that point, I'm also pleased to announce that on October 1, we closed on our acquisition of Bring Care Home, a personal care provider in northeastern Massachusetts. Bring Care Home adds even more density to our Massachusetts personal care presence, and we are excited to have this new addition to our personal care family.

On the M&A front, on October 9, we signed a definitive agreement to acquire Compassionate Care Hospice, the eighth largest hospice organization in the country for a net purchase price of $290 million or about 10.7x multiple. Post integration and synergies, we expect this multiple to decline to 7.8x. Once the deal closes, which we expect it will in February of next year, Amedisys will be the third largest hospice organization in the U.S., allowing us to bring our best-in-class clinical distinction to hospice patients in 34 states. Upon close, we will be immediately implementing HomeCare HomeBase and making investments into the business to aid in accelerating growth and increasing margin. We expect 2019 to be a year of investment into Compassionate Care locations, which may result in minor planned disruption, but we will see significant margin bounce back and expansion throughout 2020 and beyond.

We will update everyone on our quarterly calls as we bring Compassionate Care into our family throughout 2019.

For over a year, we have remained very disciplined in our M&A function and refused to engage in many overpriced auction processes or pay private equity multiples. Our delivered sole sourcing strategy paid off with Compassionate Care, and we expect it to in other proprietary deals we are currently sourcing. I want to take this opportunity to welcome over 2,300 Compassionate Care professionals to the Amedisys team. We are very excited to have you in the family, and we cannot wait to experience the wonderful work we're all going to do together.

Given our substantial cash flow generation and continued desire to acquire high-quality assets, we will still be looking to add more reasonably priced tuck-ins to all our lines of business. Our proprietary tuck-in pipeline remains full, and as always, we will continue to remain disciplined on valuation and quality.

Addressing the always active regulatory front, on July 2, CMS released the 2019 proposed rule for home health that included a plus 2.1% payment update for 2019. Notably, this is the first positive payment for home health in nearly a decade and represents an estimated 400 million rate improvement for the industry. We are excited about not having to overcome another rate cut by CMS.

I also want to remind everyone that the Bipartisan Budget Act of 2018 mandated a plus 1.5% market basket update in 2020, which should result in 2 consecutive years of positive updates for the industry. This plus 1.5% market basket update in 2020 could also help offset the possible reduction in home health reimbursement associated with behavioral assumptions if it is not prohibited by legislation or negotiations with CMS before then.

The 2019 proposed rule also included a revised case mix adjustment methodology for 2020 known as the Patient-Driven Groupings Model or simply PDGM. PDGM as proposed is a redesign of the home health payment system, primarily based on moving to a 30-day unit of payment, payment driven by patient characteristics and elimination of therapy thresholds as a basis for reimbursement. I want to stress that this year's proposal provides ample time to transition to the new payment model in 2020 if the model remains unchanged.

We do have concerns, however, about the use, scope and impact of behavioral assumptions in the transition to the new payment model. We as well as our industry colleagues have shared our concerns with members of Congress, House and Senate, Republican and Democrat, and secured introduction in September and October of 3 bills, 2 in the Senate and 1 in the House. These bills would all prohibit CMS from making rate adjustments based on behavioral assumptions and require that the phase-in of any necessary rate adjustments be no greater than 2% per year to limit the risk of disruption as we transition to a new payment model.

Our government affairs team is working daily with members of Congress, their staff and committee staff to have Congress adopt the behavioral assumptions prohibition in these 3 bills. As evidenced by introduction of these bills by Democrat and Republican members, Congress is receptive to industry concerns about the use of behavioral assumptions, preventing a truly budget-neutral transition to a new payment model. Importantly, this is a precedent for not utilizing behavioral assumptions in the transition to a new payment model, most recently in the skilled nursing SNF rule.

We will continue to work with the bills' authors and other members of Congress over the remainder of 2018 and into 2019, if necessary, to pass legislation mandating that any behavioral adjustments be made after the transition to the new payment model.

The CMS 2019 final rule will not be the final opportunity to impact PDGM. Some people have badly misunderstood this as game over. It's far from that. Congress can act on the use of behavioral assumptions until the rule is implemented in January 2020, 14 months from now, and after 2020, if compelled by issues with the transition to the new payment model.

In closing on regulatory issues, I want to emphasize, as I have in previous earnings calls, that when confronted with regulatory changes, we will prepare and adopt as we have successfully done in the past. We have time, 14 months, clinical and operational expertise, available resources, industry experience and seasoned leadership to implement and operationalize PDGM in an efficient and effective manner. We're just getting started. There's lots more to be done before the dust settles.

As you all can see, we had another great quarter during what is typically a more difficult back half of the year. Next year looks good. 2020 will be good, too. We've got this.

And once again, thank you to all the Amedisys' employees for all they did to drive this success. Focusing on our patients and employees continues to drive outstanding results.

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. Beam us up, Scotty.

Thanks, Paul. I'm very pleased to report another excellent quarter of financial results, driven by strong volumes and margin expansion. For the third quarter of 2018 on a GAAP basis, we delivered net income of $0.96 per diluted share, an increase of $0.54 or $417 million in revenue, an increase of $44 million or 12% compared to 2017.

For the quarter, our results are minimally impacted by income or expense items adjusting our GAAP results that we have characterized as noncore, temporary or onetime in nature.

Slide 15 of our supplemental slides provides details regarding these items and the income statement line items each adjustment impacts.

For the quarter, on an adjusted basis, our results were as follows: revenue grew $37 million or 10% to $417 million; EBITDA increased over $8 million or 23% to $45 million; EBITDA as a percentage of revenue increased 110 basis points; and EPS increased $0.39 or 70% to $0.95 per share.

Before I turn to segment performance, I want to remind you of a few items that impacted our performance in Q3 compared to Q2. Planned wage increases, which were effective in August, added approximately $3 million in cost. Seasonality of health claims added an additional $2 million in cost, and Q3 had an additional holiday, which added approximately $2 million in cost. The majority of these sequential increases were in cost of revenue.

Now turning to our third quarter adjusted segment performance. In home health, revenue was $295 million, up $24.3 million or 9% compared to prior year, driven by a 6% increase in same-store total volumes.

On a same-store basis, total admissions were up 4%, episodic admissions were up 3%, and episodic volumes were up 5%. Our Medicare recertification rate was 39%, a 120 basis point improvement from prior year.

Segment EBITDA was $44.3 million, up $11.1 million with an adjusted EBITDA margin of 15%, representing a 270 basis point improvement. This marks the second straight quarter of significant year-over-year improvement in EBITDA margin. As a reminder, the home health segment delivered a 300 basis point improvement in the second quarter. We're very encouraged that the focus on growth and operational efficiency has resulted in significant margin expansion in the face of negative reimbursement and planned wage increases.

Visiting clinician cost per visit increased only $0.25 compared to prior year in spite of the $0.77 impact of annual raises. Overall cost per visit was up just $0.13 or approximately 0.1%.

Other items impacting the third quarter results of our home health segment include Hurricane Florence, which impacted approximately 100 admissions and added approximately $300,000 related to inclement weather pay and other costs associated with employee support during the storm. Revenue per episode increased $35 despite the 70 basis point rate cut. This was driven by the acuity level of our patients, which was offset by a 1.1% increase in visits per episode.

G&A was down $500,000 or 230 basis points compared to 2017 and was a 23.3% of home health revenue for the quarter, which matches last quarter as the lowest it has been over 2 years. The continued growth in volume and the reorganization and closures and consolidations we announced in the latter half of 2017 helped to offset the cost of additional BD resources. The segment was able to report a $24 million increase in revenue while reducing overall G&A spend.

I cannot overemphasize how pleased I am with the segment's financial performance over the past 2 quarters.

Now turning to our hospice segment. For the third quarter, revenue was $103 million, up $7.5 million, an increase of 8%. Same-store average daily census was up 11%, and same-store admissions were up 8%.

Segment EBITDA was $29 million, flat versus prior year. Net revenue per day was down 2.5% to $144.71, and cost of service per day was down $0.24. Segment EBITDA margin was down 200 basis points, mainly due to an increase of approximately $3 million related to revenue price concessions and cap, which impacted revenue per day of about $4.42. Additionally, investments in our business development staff and administrative employees to drive and support continued growth resulted in an increase in G&A expenses. We anticipate the segment's return to year-over-year growth in EBITDA during the fourth quarter.

Our personal care segment generated approximately $19 million in revenue in the third quarter, representing growth of 39% with over 810,000 billable hours. Our results are not comparable to prior year as they include the results of 2 acquisitions completed since the third quarter of 2017.

We continue to be pleased with the integration process and look for similar success as we integrate Bring Care Home during the fourth quarter.

Turning to our total general and administrative expenses. On an adjusted basis, total G&A was $123 million or 29.6% of total revenue. Total G&A was down 120 basis points as a percentage of revenue compared to prior year. The sequential increase is driven by planned wage increases and higher health claims. We remain focused on driving operational efficiency across the entire company.

From a cash flow perspective, we generated $68.5 million in cash flows from operations for the quarter and paid down $70 million on our revolving credit facility, bringing our net leverage ratio to 0.3x. Year-to-date, we have generated $159 million in cash flows from operations and $152 million in free cash flow.

Finally, as you can see on Page 17 of our supplemental slide deck, we are updating our guidance ranges for the year. Our new ranges are: revenue of $1.65 billion to $1.67 billion; adjusted EBITDA of $177 million to $180 million; and adjusted EPS of $3.54 to $3.60.

The following items specific to Q4 have been considered in our guidance. Sequential increases in health plans and worker's compensation expense ranging between $4 million and $5 million and an additional month of planned wage increases of approximately $1.5 million.

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

(Operator Instructions) Our first question comes from the line of Brian Tanquilut with Jefferies.

Paul, thank you for all the color that you've given on reimbursement and your views on where that stands and what the company could do. But if you don't mind just walking us through how you're thinking about the different moving parts on market basket, the behavioral changes that CMS is expecting that you would implement, and how you're thinking about your ability to hit those things to match CMS' assumptions as they think about budget neutrality.

Yes. Thanks, Brian. I think the -- in general, we think that there is a bit of an overreach on the initial cut, particularly in 2020, particularly when we're changing our payment systems. That's -- it's not a precedent that's been out there, and CMS is clearly hearing a lot about this from everybody out there in the business. The tradition has been more or less in the 1% to 2% range. So we're clearly having a lot of conversations with them about this. We feel comfortable they're listening, particularly there's some new people in there who we feel very comfortable with who seem to want to make sure that the home health benefit is strong and there's enough people out there to -- who will be able to take home health. So we feel good about that. In terms of how we're prepping for this, we're well ahead of this. Actually, after the rule came out in July, we've been working on this on a daily basis. So we feel good if it's a worst-case scenario. One thing I think, though, that I did want to bring up was that we are getting 2 increases, and I think that's very important from a cumulative perspective. As we said, there's a 2.1% increase, and there's a 1.5% market basket update. So when you look at that and you net that out versus what CMS potentially in a worst-case scenario would take, it's not -- it's something that we could live with, particularly as we're going through and doing some care protocols redesign, which is going to be mandated. And so we feel very comfortable about this. We're a little confused in terms of why people are getting all alarmed at a rule, which is coming out on 19, and we still have 14 months to go. The industry has done a fantastic job, and we've -- and our team has done a fantastic job introducing legislation, 2 in the Senate and 1 in the House, and we feel good about that, either this year or next year that they'll be able to -- that we'll be able to get some things done. At least CMS is very aware of this, so we hope they understand that Congress seems to be listening very well here. So it's just the beginning of a long dialogue, a long back and forth. And, I'd say, people ought to get concerned if things haven't changed in a year from now, but there's still a long way to go. I don't know, Dave, do you have anything to add?

Well, I just want to clarify, maybe reiterate a couple of points you made. First, to start off, Brian, with your question on the, I think, the behavioral assumptions. So CMS and the proposal will reach budget neutrality through the use of the behavioral assumptions, which was mandated by the Bipartisan Budget Act passed in provisions, which was passed in February of this year. And we think that 6.4% is probably overstated if you look at historical transitions and new payment models. And as Paul said, it usually runs around to 2% or something like that. So we think the 6.4% is overstated. Our other issue is that it's a behavioral assumption before any observed evidence, before any actual change in behavior. And so what our legislation does, simply say, look, we're asking Congress to prohibit the use of behavioral assumptions to reach budget neutrality. Do behavioral adjustment after the fact, and we'll true-up at that point. So we think it's overstated, and we think there's an audience for our arguments here. And we've got a lot of support. We've got 3 pieces of legislation to introduce, 2 on the Senate side, 1 in the House, Bipartisan support for those that we'll try to make a move on those in the lame-duck session. If that's not successful, we'll work throughout this 2019 session of Congress, so it gives us 14 months to seek legislative relief. If not, on a parallel path, we're going to continue to talk to CMS, and CMS will have this final rule, which is not final, final, I think, on PDGM. I think it's very informative and it'll have the bulk of it there, but there'll be another proposed rule, another final rule next year. So we'll continue to work on the regulatory side, work on the legislative side. And obviously, as you asked about, I think, Chris and Scott can speak to this, we're working daily to operationalize PDGM based on what we've seen so far. So I think that's where we are. I don't know if that answers your question but I tried to get to it fairly succinctly, Brian.

I'm going to stress this. We're going to -- I want people to hear about our versions of PDGM, so we're going to take some time on this question, so I want to make sure Chris responds. And Dave if you want to add anything?

One other thing. I think that has been overlooked and it's significant, and I think Paul mentioned it. On Bipartisan budget that Congress mandated a 1.5% update in 2020, so we also had that nice piece of the puzzle in 2020 as we transition to a new payment system. And as Paul said, also have the tailwind of the bulk in our base rate of 2.1% industry increase in 2019. So those are 2 nice factors that you referenced, Brian.

Brian, it's Chris. Yes, just real quick, from an operations perspective. We're looking heads down on this as if this is going to be enacted the way it is. So we have a task force worked around this. We're diving into and understanding where our patients are coming from, what their diagnosis, what their acuity levels are. Working on protocols that can get the best possible outcomes with the right number of visits over the right period of time, and we'll continue to do that. And we'll course correct if there's any changes in the actual 2019 final rule or the 2020 proposed rule that comes out next July. So we're going to internally be looking as if this is going to happen the way it is and look to mitigate the negative impacts as quickly as we can and as good as we can, and then also look into 2020 as this is an opportunity for us to maybe even go out and expand our home health business because it could become a good opportunity for us.

I appreciate all those answers. Paul, shifting gears to the Medicare Advantage discussion. If you don't mind just giving us some more color on how you see that playing out in terms of the expansion of the current agreement that you have with the payers. How you're getting paid? Where do you think payment levels could go, I mean, because they match Medicare fee-for-service rates over time once they include the value-based component of that?

Yes. Well, I have Christy Vitulli here who will talk a bit about the methodologies that we're employing. There's 4 different methodologies, so she'll give you a summary of that. She runs this, and she's been great in terms of pushing these innovations. We have a lot more in the pipe that we're having conversations around. What we did here was we landed some -- we got a toehold here, frankly. And we were able to engage some very good payer partners and tried different set of payment methodologies. The idea is, what we want to do is as the world knows, fee-for-service pays us very well at $160 average per visit, and it's around $123, $124 that we're basically getting from managed care, MA largely at this point. So obviously, what we're trying to do is do more, take more risk, drive the most important things that the payers want at this point, which is fundamentally ACH rate, so we are taking risk on a lot of these in ACH rate. The other thing we're doing is we're maintaining quality, so their STARS scores can improve and that we can deliver high-quality results. And then we're looking in some areas of med reconciliation. So we feel very good about this. We're having obviously a lot of conversations. I think the payers are particularly starting to really think about bringing in home health and the ability to keep people and allow them to age in place and allow them to stay at home as the more optimal thing, particularly with chronics, as chronics live with these diseases for 10 to 20 years. It's important that if they're going to be on the roles of MA that they really limit the amount of institutionalization that occur with a lot of these chronics, and particularly, frequent fliers in and out of the hospital. And I'll let Christy just describe briefly the payment models that we have -- or the managed care models so that I think people can understand the types of things we're doing out there.

Thanks, Paul. And hi, Brian, nice to meet you. So yes, the 4 models that Paul's describing really fall, I think, into kind of 2 buckets. The first is kind of the easy one and the one that most of our industry is familiar with that we would describe as pay-for-performance or upside only. And a lot of those models are, as Paul described, focused really on quality and process improvements. They're easy to administer, they're easy to scale, and they're allowing us to demonstrate a proof of concept around what we can do in the home. The second model that we've deployed and it's the one that we recently launched is really what we would categorize as risk management. So we have not only the opportunity to earn an upside, but also we're exposed to some downside if we miss the mark. And the goals around those types of programs are also quality-orientated that really do have that ACH rate and readmission rate as an area of focus. So we do believe that we'll be able to demonstrate the value of home care services, and that will help us define, I think, future reimbursement structures that get us closer to what will be today in Medicare. I don't know that they'll get us there but it'll be better than where we are today.

Yes, and these are all better than where we started from. So we -- Christy and her crew are doing a really fantastic job of getting out there, having conversations, bringing some of these deals in. And we're working hard to make sure that we -- and we'll keep, obviously, everybody apprised. But -- and the results thus far are very good, but it's early days and we want to be able to show a lot of success there because the more we can change the game with Medicare Advantage, clearly, which is growing faster than fee-for-service and get better rates and take risk, that's clearly important for us in the future as Medicare Advantage gets increased penetration.

Our next question comes from the line of Matt Larew with William Blair.

Paul, it sounds like you don't feel restrained in any way despite the recent CCH deal, with respect to either additional tuck-in acquisitions or really accelerating some of the organic investments that you've made. So could you just maybe talk about in light of the rather large capital commitment you're going to make with CCH, how you plan to continue both investing in the business and potentially sourcing other deals?

Yes, Matt. Yes, we're -- post this we're only going to be leveraged, as you saw, 1.5x at this and we're -- the talk where we believe we need to, say, take another look is about 3.5x. As you also saw, we're generating a huge amount of cash. And with this sort of cash flow, we believe we can pay things down very quickly. I think our idea here is -- and our initial strategy here, which I think is a good strategy, is we -- first of all, we believe in proprietary sourcing. And Scott, again has done a fantastic job with the M&A team here, of really going out and finding deals that we believe are very reasonable. We aren't participating in the crazy auctions that we've seen people participate, where they're overpaying and economically it just can't make itself work. So we have -- we believe there's a -- and we do have other very good deals in the pipeline. We believe we should be going after them particularly in hospice. Our grand plan here was during this time pre-PDGM was to bulk up as much as we can in hospice and -- because it's a very favorable reimbursement environment. And once we get CCH up and running towards the end of next year and into '20. We should be over 50% EBITDA on hospice, and we believe this positions us very well if there is any bumps on PDGM. Again, we don't it -- the more we're digging in the more we think we've got this in terms of PDGM. And we feel very optimistic about it. But we want to make sure that we have a very nice balanced portfolio of a very strong business going into 2020. So we've really looked at portfolio balance stabilization through investing in hospice, which, as you know, we're extraordinarily good at. So that's kind of the grand plan, and we're continuing to execute on it. We still have hospice deals in the pipeline. We feel very good about our pipeline and our sourcing. And we're going to continue to execute on it and continue to pay down our debt very rapidly, particularly with our strong cash flow. I don't know, Scott, you have anything to add?

That's -- you hit it pretty well there, Paul. I think, as -- from more of a cash generation and strong -- Matt, we did $160 million year-to-date in cash flow from ops, free cash flow right around $151 million. We're going to probably end up around the $200 million range in cash flow from ops for full year. So real strong there. I think the only thing that would -- it's about pace more than ability to buy for us. Certainly, we want to get kicked off strong on the acquisition that we just announced and get moving really well from integration perspective. But you'll see us continue to be as aggressive as we can be on getting other deals done. So -- yes, so we'll also continue, and we've kind of rebooted that from a -- we actually have 1 de novo out there right now is our Stark case, and went really well from a timing perspective. So we'll -- as we give guidance into next year, we'll continue to talk about rolling out more de novos. So we're going to continue to do as much as we can to help grow that segment inorganically as we can.

Paul, I'll add one thing. We still feel very confident and very good about the regulatory outlook for hospice for the next few years. So we -- so...

And then maybe just back to Christy. Just curious these early at-risk or upside only deals, are these focused on specific patient subgroups, like a COPD population? Or are they more focused on specific geographic markets? Just curious, that way we would get your perspective on how they might scale over time.

Actually, no. They're all inclusive to the Medicare Advantage population that we're serving and the targeted markets that we're doing these pilots in. So it is -- and it is focused on readmission rates and some of the leading indicators to readmission rates, like timely initiation of care, reducing fall risk, et cetera.

Because the key, though -- you asked a really good question, Matt. The key is, are there -- is there going to be SNF possibilities out there? Are we having conversations with people that do SNFs? Yes, because we develop very specific protocols around disease types. And we believe that these protocols can deliver good savings for payers. And in a lot of the SNF strategies, as you know, some of us came from Humana. A lot of the SNF strategies that we did have at Humana were home-based. And so we believe that you can very much drive good outcomes in SNFs through a very specific home care -- SNF home care process.

And then maybe just sneak one more in. You're obviously the -- EBITDA margin performance on the home health side has been very impressive. And maybe this one's for Chris. A big focus there this year was improving some of the underperforming care centers, and that's maybe something that we haven't touched on in the last quarter or 2. Could you just maybe give us an update on the progress you've made there? And maybe what the next step here is? And if you've made your way through a lot of that work.

Yes, Matt. We have made some nice progress that we've seen throughout the year with a focus on these care centers. What we did see in Q3, which is typically our toughest quarter for the industry altogether, is the ebb and flow that basically those subset of care centers kind of flowed with the rest of the care centers, but net-net, when we put the opportunity out there at the end of last year going into this year, we've taken advantage of about $3 million to $4 million of opportunity that was on the table. Again, to remind you, what we do is we recalibrate the list every quarter to see who's fallen off and who is added to the list. So this is something that we'll continue to always do as best practice. And we'll see that we're focusing on the areas where we're not performing well and make the corrective -- take the corrective actions.

But I think the idea, though, Matt, is all boats float to a rising tide. And I think Chris and his team have done a very nice job of making sure the tide is rising. So it's -- the base level is getting constantly pulled up. And no one wants to be on that list, by the way, as you can imagine.

Our next question comes from the line of Frank Morgan with RBC.

I wanted to go back to some comments you made about the integration of the Compassionate Care acquisition. Just want to make sure I understood, got clarification there. Some integration headwinds for margins, but how do you balance that? I think you had called out maybe something like $10 million of synergies over time. So how does that -- as we get into 2019, how do those 2 dynamics work? And just give me a little more color there.

Brian, this is Scott. Thanks for the question. So what we're seeing, and we think we're close to [1] and we're going to -- we'll disrupt that margin in first and second quarter, rolling out HomeCare HomeBase. Our goal is going to be to protect ADC as much as possible, but we will have cost added into that. We really kind of think more about how we exit that Q4. We expect to start realizing some of those synergies into Q4 2019 and we're really not getting the full rate into the back half of 2020 is when we expect to see the synergies come out.

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

So actually, I want to ask a couple of these small questions on the quarter itself because I'm not sure I understood. Did you talk about the Medicare admissions, the same-store number, what was the growth this quarter? Because I guess you were talking about expectations for mid-single digits, and I guess it was up, I guess, 2% in Q2. So I just want to see how things were trending this quarter for same-store Medicare admissions.

Joanna, it's Chris. I'll take that one. Yes, last quarter we talked about, we broke out the Medicare admissions and it was 2.2%. I just wanted to kind of -- as we've been kind of couching this, the episodic business is what pays our bills. And we get paid Medicare fee-for-service, but we have a number of nice contracts out there that pay us episodically as well. We treat those equally to Medicare in terms of how we incent our BD staff to go out and obtain these admissions as well as we focus on our recert rate because we feel like recerts is an opportunity for us to provide the right level of care for our patients. And we had some compressed recert rates in 2017 really coming out of HomeCare HomeBase rollout. So the 2 key factors we look at are total admissions on the episodic basis, which, for the quarter, came out at 3% for Q3. And then our total volume, which is the admissions and the recerts on episodic, which is Medicare plus the PPS payers that came out at 5%. We're focused keenly on driving that Medicare fee-for-service admission growth. It pays a little bit better than the PPS, we're 90% to 100% on the PPS side. This is where we're spending a lot of our energy. We haven't won that game yet by any means, but we feel like there's still opportunity for us to go out and take additional market share.

So what was the quote in the quarter for Medicare admissions, I'm sorry?

Yes, the Medicare admissions for the quarter was 0.2% growth.

Okay. Somebody is saying that there's also growth in the episodic admissions on the MA business. So on that front, can you talk about the average pricing for these contracts? I know that you spent some time on the call talking about these at-risk models you are initiating, and you plan to initiate more of those. But just talking about other case or any way you can frame it for us in terms of any improvement you're seeing on these MA rates.

On the MA rates that we're taking today, they are under our new game?

I guess the nonrisk. I guess, because it's fairly early on in terms of this new problem. So I still...

So the nonrisk -- basically, our contracted rate is 90% to 100% of the Medicare fee-for-service pays episodically. But we have a good deal of volume to come through, special needs plans SNFs, which are higher acuity, higher revenue per episode patients. So -- but also higher resource required patients as well. So our revenue per episode on our PPS business that we grew at about 17% in Q3 is very close to being on par with our Medicare fee-for-service even after you take the 10% discount based on our contracted rates.

Okay. So that's very interesting commentary there. But actually, on the other side of the equation here, in terms of anything to mention or discuss here around labor cost pressures? I mean, we hear some pressure for health care services in some markets. So anything that's changing for you in your markets? Or anything in terms of how you think about future, next year or after that in terms of your labor costs?

We don't see it, Joanna. We -- again, we -- we've been very lucky, but I think as what you saw when we talked about our -- we put a lot back into our -- in terms of quality and our employees. So we find that our employees, all things being equal, want to come and work with us because we're focused on quality and taking care of our employees and taking care of our patients. So we feel we're -- there are some pockets of the country that are more difficult just because there's a shortage of clinicians, but we haven't seen that sneak in overall. Also, remember, every year we give raises. So -- and we have been doing this consistently. We believe it's the right thing to do. And it allows people to feel that we're going to -- if there's money to be shared, we will do it with our employees. And we've been doing -- Scott's been very, very adamant about making sure every August we give our employees a pay raise.

Yes, Joanna, if you look at the leverage we're getting off of that. So we -- the raise that Paul is alluding to roughly will cost us $0.77 per visit for the quarter. We end up being only up $0.13, so we are able to overcome that right now. I think the one area that you see where, in certain markets specific we struggle to hire people, and you can see that in our contractor cost per visit is up $0.54 year-over-year. So that's the one area we'll work on and continue to try to hire people and make adjustments in markets as need be. But as Paul said, it's kind of specific to markets in general, what we've done on the raise approach has been effective for us.

(Operator Instructions) Your next question comes from the line of Matthew Gillmor with Robert W. Baird.

Maybe following up on one of Joanna's questions on the volume trend within the Home Health business. I guess it makes a certain amount of sense that with a bunch of new BD hires, the episodic admits will certainly be below trend. You said you're spending a lot of time on that. I was curious if you could tell us sort of the playbook that gets deployed to move that in the right direction with higher fee-for-service volumes, and how long does that take to play out? Will we see improvement next year or does it take longer?

Matt, it's Chris. I think the playbook is still been consistent around where we're adding the BD heads, we talked about what we did in 2016 to really kind of replenish the BD team. A lot of focus went around that. The headline is, is that where we did add BD heads around 2017 and 2018, we've seen Medicare fee-for-service growth, a nice trend of Medicare fee-for-service growth. To date, at over 808 reps that we have on our team today, 20% of them were hired in 2018 and 22% were hired in 2017, so 42% of our 808 reps have been hired in the last year and a half. What we've been tracking there is real clearly how are they ramping, how are we assigning accounts and are they generating the value we expect. And the answer to those questions are yes. What we are seeing now though is that we have markets where we have chosen not to -- incidentally have chosen not to really add reps, and that's where we're getting more focused on, where do we have clinical capacity. And we have also opportunity to take market share, and we're getting more strategic about adding the reps into those markets. I feel like we're still early stages. We're getting the results that obviously don't come as quickly as we always want. But the signs are is we have the individuals out there doing the right activities, they're generating the referrals, our convergence rates are holding tight, our retention is better. So this is going to lead us too as we continue to strategically add these reps in very specific markets, we'll see that show growth throughout 2019 and beyond. So it's not rocket science, but it's a very, very simple playbook, but we're staying very consistent with it.

Yes. What we've seeing, Matt, is where we hire incrementally, we have outsized growth -- fee-for-service growth considerably between 3.5% and 5%. Where we don't, we see kind of -- and so we're obviously spending time going back to the places where we need to hire incrementally and making sure that we drive that because it's a pretty simple formula. You see where you hire, you drive growth. Where you aren't hiring, you're not doing as well. So I think our focus in the Home Health business are hopefully seeing this. We are making sure they do, and that's what we're doing.

Got it. That's helpful. As a follow up, I wanted to ask about the Medalogix investment. I know it's something that's probably small in the grand scheme of things, but just curious how that connected with some of the payer partnerships. And maybe more broadly, where do you stand with respect to building out some of these risk capabilities.

So we love Medalogix, but I'm going to let Chris and Christy -- Christy why don't you talk about it in terms of what we're able to do increasingly with payers as a result of it.

Yes. Thanks, Matt, and thanks, Paul. This is really an exciting investment opportunity for us, and it's really garnished the attention a lot of the payers that we've just started talking to about a couple of things. One, it's ability to use data science and technology to help us get out ahead of risk management, risk within the episodes that we're currently seeing the patient and also helping us identify readmission risks beyond what is a traditional home health episode. So now we're able to look at that continuum of care beyond just that traditional 60 days and think about taking risk across a broader spectrum of services as well as time. It's also giving us the ability to look at identification of patients that are approaching end-of-life care and how we can get more proactive about leveraging all of our assets across that continuum. Chris, anything that you would add?

Yes. I would say that this is something we're really excited about. It's something that -- the products that Elliott and his team have put together up to now, they have 3 products and they're fully functional out there that we as Amedisys we can benefit from day 1, so we're being very purposeful about getting those rolled out. We get more excited about how this is really a value play when we're talking to payers out there, and how we can rethink about how we're taking care of patients in their homes. And then also there's a PDGM play in it as well, where we can really use their ability to analyze the data and help us in developing the care protocols that achieve the right patient outcomes with the right number of visits over the right amount of time. So we say this is a super win for us to be involved in this. And we're really excited about being able to leverage that into the future.

It's going to be very helpful from a utilization perspective as we resolve the new protocols for PDGM.

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

I guess, first for Scott, maybe Chris. Margin expansion has been great. Can you maybe talk about where you think margins can go with the rate increases that you'll see in 2019 and 2020? And then Paul, thanks again for calling those rate increases, though not sure if people realize you were mandated to get the 1.5% rate increase in 2020. And then also on the hospice side, we have seen some increases in costs. And I know you guys are building that to be a much bigger part of the business. Just wondering how much more we'll need to bake into the models on the cost side for hospice.

Yes. So just from a margin expansion, maybe we kind of just -- we step off from where we're now, certainly move in the fourth quarter, they'll stay where I talked about guidance. Sequentially, we're going to have some additional cost related to health, but if you think just long term around margins, it's a lot of leverage we're getting the platforms in great shape, it's just around continuing to grow that top line. So I think we'll have great ability to do that, getting the rate increase next year is certainly going to help move that up. A lot of the productivity gains we've had, that's something that the pace of that will moderate, we think there's certain levels we don't want to push to clinicians from a vision perspective just too much outside what they can do to provide the best care possible. So that's -- we're mindful of that as we push that. There's other opportunities around health (inaudible) utilization. We're not where we need to be around that. To get to that, we knew there's some building blocks. First had to be HomeCare HomeBase, we had to get to. As we've talked to in previous calls there's some stuff we need to do internally around how we pay our clinicians to help move that utilization number, so there's things we'll be working on. So we have some building to expand that. And if you think forward into the hospice acquisition, when we get to 2020, we expect EBITDA to be 50% hospice. So you're going to get some more margin expansion just out of that alone. So there's things there. We've done a lot of great work. 300 followed by 270 basis point improvement in the Home Health segment is pretty strong. I don't think I can commit, Chris, to that all through next year. But it's certainly exciting where we're pinning that on and have some opportunities to continue to grow that. And we'll be able to give some more color on that as we give guidance next year. And think about how we'll be able to use those rate increases that we're going to get for the first time in several years as we get to the final rule.

Got it. That's helpful. And then just going back to the Medicare Advantage comments, and a lot of discussion there. I'm wondering, what's the bigger opportunity in the 2 buckets that Christy laid out, the pay-for-performance or at-risk? And then, I guess, how are you -- how should we think about how you're managing the risk, and when we could actually see some of those benefits?

Well, these are relatively small pilots at this point. So we're trying, and that's just very purposeful. We're having larger discussions for larger regions with larger -- well, some of these payers are quite large, so with large payers. So I think the idea is we're putting our toe in the water and fairly aggressively on a number of variety of different payment methodologies and risk methodologies. We're clearly putting the tools in place so that we can see how much we can actually change things like ACH, drive quality. So we're going to do this. We're going to report out on how we're doing. So I guess the -- we think that the advantage of this is going to be that we're going to get to or hopefully to or above fee-for-service rates because we're taking more risk and we're putting more, and we're developing much better economics on the payer side. So we want to share in that and -- but will we ever be a full risk company? No, we will not take risk based. We will not be doing risk-based capital, adding actuaries on -- adding underwriters on at least at this stage. So -- and over to Christy.

That was great commentary, Paul. Thank you. I think the opportunity for us with these payers is to demonstrate our value, demonstrates our results and then start scaling it so that we can drive bigger impacts with our strategic key payer partners in this space.

We have no further questions at this time. I would now like to turn the floor back over to management for closing comments.

Thanks, Christy. I want to thank everyone who joined us on our call today. We hope it was enlightening, clarifying and it inspires confidence. We appreciate your interest in Amedisys. I'd also, again, like to thank all our employees who delivered these phenomenal results. Keep doing what you're doing. We hope everyone has a wonderful day, and we look forward to updating you on our ever-evolving progress and purposeful work on our next quarterly earnings call in February. Have a good day.

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