Amedisys Inc (AMED) 2022 Q1 法說會逐字稿

Greetings, and welcome to Amedisys' Q1 '22 Earnings Conference Call. (Operator Instructions)

I would now like to turn the conference over to your host, Nick Muscato, Chief Strategy Officer. Please go ahead, sir.

Thank you, operator, and welcome to the Amedisys investor conference call to discuss the results of the first quarter ended March 31, 2022. 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 President and Chief Executive Officer, Chris Gerard; and Executive Vice President and Chief Financial Officer, Scott Ginn. Also joining us is Dave Kemmerly, Chief Legal and Government Affairs 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 measure mentioned during our call today to the most comparable GAAP measure will be available in our Forms 10-K, 10-Q and 8-K.

Thank you. And now I'll turn the call over to President and CEO, Chris Gerard.

Thanks, Nick, and thanks to everyone for joining us. Today, Amedisys announced our first quarter 2022 results, which reflect the resilience of our core business driven by our strategy that continues to differentiate us in our markets.

Before we get into the performance update, I want to give a heartfelt thank you to all of our Amedisys employees. These calls focus on important financial measures of our business, but I do not want to lose sight of what our people do daily. Our clinicians deliver the highest quality of care in the homes of the nation's most frail populations. These clinicians are aided by a fantastic support staff who enabled them to focus on their efforts on delivering outstanding care to our patients. It is truly inspiring what you all do, and I am sincerely thankful.

The start of this year has been a hectic and exciting one. We saw Omicron disrupt our business as over 7% of our clinicians were on quarantine in January. We signed 2 home health acquisitions and are well on our way to additional inorganic growth. We saw discharge rates in our hospice business reached new highs. We continue to fill a tremendous amount of interest for hospital at home and other high-acuity products. The competitive landscape continues to evolve as another large payer acquired assets in our space, and we recently saw the hospice proposed payment rule released. 2022 is off to a roaring start indeed.

On the regulatory front, on March 30, 2022, CMS issued the fiscal year '23 hospice payment rate update with the proposed 2.7% update to the hospice payments, and corresponding increase to the hospice aggregate cap. This represents the fourth consecutive year where Medicare has increased hospice payments by at least 2%.

In addition to the annual payment update, CMS is also proposing to place a 5% permanent cap on wage index decreases to smooth year-over-year changes in providers' wage indexes. We appreciate CMS' approach to hospice providers in this year's proposed rule, and we look forward to submitting our formal comments at the end of May.

With that, let's jump into our segment performance, starting with home health. For the quarter, home health grew total admissions by 2%. As we mentioned during our last call, the Omicron wave that hit the U.S. in early January caused a record number of clinicians to be out on quarantine, which resulted in a lost volume of over 2,300 patients. Had we captured this volume, total volume growth for the quarter would have been 2%.

Elective procedures as a percent of our total episodes has been volatile over the course of the first quarter. As the Omicron variants set in, we saw electives decline to 6.5% of total episodes as compared to 8.5% pre-pandemic. We have seen continued improvement in this number post-Omicron surge. And today, electives make up about 7.4% of total episodes.

For the quarter, we performed 13.0 visits per episode, down 0.7 visits sequentially and down 0.9 visits year-over-year. Our implementation and utilization of Medalogix continues to pay dividends as we continue to make progress optimizing the care we deliver to our patients, while constantly focusing on improving our quality scores.

On clinical mix, in Q1, we achieved 48% LPN utilization and 53% PTA utilization. We've made tremendous progress on our clinical mix and will continue to increase our utilization of both LPNs and PTAs throughout the year.

Now moving on to hospice. For the quarter, hospice same-store admits grew 2% and ADC was down 3%. We ended the quarter with a hospice BD FTE count of 514, which is down sequentially and we have budgeted to grow to 550 by year-end. As we have discussed, we made great progress in 2021, ramping up our BD headcount after the anticipated turnover during the second quarter of last year. We are now going back and being more targeted in who we add and where we add them, making sure that our reps are producing and increasing their production as they grow their tenure.

Hospice ADC remained pressured in Q1 as we continue to see a trend of patients coming on to service much later in the dying process and not realizing the full value of the benefit. In our 2022 guidance, we modeled a discharges as a percent of ADC rate that was higher than 2021, a year in which we saw new highs and discharges. In Q1, we saw higher than modeled discharge rates. But over the course of the last few weeks, we have seen this number moderate to levels that we had modeled. This trend is something we're constantly monitoring. And if the experience of the last month continues, you will see that translate into a better-than-expected ADC growth.

To quantify the discharge rate. In January of 2020, discharges as a percent of ADC were 32.3% versus 39.1% in January of 2022. We have seen positive movement in this number. And as of this call, April discharges as a percent of ADC is around 32%, which is below our internal expectations.

The ADC impact from elevated discharge rate is approximately 170 ADC were $2.5 million for the quarter. Though we are behind on ADC, we continue to hold excess clinical capacity for when ADC returns. Our hospice discharge average length of stay fell to 89 days in Q1 from 90 days in Q4 and medium length of stay dropped to 21 days from 23 days. These decreases were driven by an increased percentage of deaths on census.

Now I'd like to discuss Contessa's performance during the quarter. Contessa, our high-acuity care segment, which specializes in home-based clinical programs for high-acuity patients continued its momentum from 2021 with a strong Q1 performance. While Contessa had 2 primary lines of business for the first quarter with this hospital and SNF-at-home care models, it also launched a home-based palliative care model in the first quarter with Mount Sinai in New York, creating additional opportunity for the segment going forward. As a reminder, the hospital and SNF-at-home models have admissions that fall into 2 reimbursement categories: full risk and limited risk, with full risk being more favorable from a top line revenue perspective.

Total admissions in Q1 were 333, which was slightly behind expectations as we continue to integrate the business into our core operations. This integration is essential as it creates the infrastructure needed to recruit and retain nursing staff to accept patients referred to Contessa programs. While meaningful progress has been made on the integration efforts related to nurse staffing, we continue to see a positive shift in reimbursement mix. As an increasing number of patients admitted into Contessa's programs are full risk versus limited risk.

I am also pleased to announce that we have deepened our partnership relationship with Mount Sinai Health System and reached a significant milestone as Mount Sinai contributed its home health agency in South Nassau to our existing joint venture for high-acuity services. In addition to expanding the Mount Sinai partnership to include home health, Contessa also launched its first risk-based palliative care at home contract in New York with a Medicare Advantage Plan in late January. We are seeing early positive patient engagement trends in this program, which will be important beyond this partnership as we expand this business line to new geographies and contract structures that have increasing levels of financial risk.

Through this transaction, in new service offering, our Mount Sinai partnership now offers a full continuum of home-based care that includes home health, hospital-at-home, SNF-at-home and palliative care at home. This strategy is truly one of a kind in the industry, and a major reason for why we see tremendous opportunity to capitalize on partnerships going forward as the only operator to provide an integrated home care offering.

Moving on to operational performance. Contessa continues to demonstrate success in the clinical management of patients admitted into these programs. We again saw favorable MLR performance relative to expectations while keeping quality and satisfaction metrics at the forefront.

Lastly, with respect to growth, we announced in February that Contessa closed another deal with yet another industry-leading health system in Virginia Mason Franciscan Health. This collaboration is an expansion of the existing common spirit joint venture partnership and will bring hospital-level care into patients' homes in the Seattle, Tacoma, Washington market. Implementation is currently underway, and the program go-live is expected later this year. We also expect a Penn State Hershey partnership that we announced late in Q4 to launch toward the end of Q2, and remain confident in our ability to meet the goal of 5 new partnerships for 2022.

In summary, I'm proud of the results we produced during the first quarter of this year. Each of our lines of business face their own challenges, which force us to think differently and innovatively about how we operate our business and deliver care. We remain acutely focused on doing all we can to enable our clinicians to be able to deliver the highest quality care and know that so long as we do that, financial results will follow as they did this quarter.

Through the continued volatility in the marketplace, we delivered EBITDA ahead of our internal modeling and street consensus. We know we have work to do, are excited about what is in front of us and look forward to vesting our expectations.

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.

Thanks, Chris. For the first quarter of 2022, on a GAAP basis, we delivered net income of $0.97 per diluted share on $545 million in revenue, a revenue increase of $8 million or 2% compared to the first quarter of 2021. For the quarter, our results were impacted by income or expense items adjusting our GAAP results that we have characterized as noncore, temporary or onetime in nature.

Slide 14 of our supplemental slides provides detail regarding these items and income statement line items each adjusted impacts. For the first quarter, on an adjusted basis, our results were as follows: revenue grew $8 million or 2% to $545 million. EBITDA decreased $12 million or 16% to $66 million.

Excluding the acquisition of Contessa, the EBITDA decline was $6 million, which was driven by the surge of Omicron cases in January, which impacted volumes, hospice discharge rates and continue to drive labor pressures.

EBITDA as a percentage of revenue decreased 240 basis points to 12.2%. Excluding Contessa, EBITDA as a percentage of revenue was 13.4%. EPS decreased $0.31 or 20% to $1.23 per share. Contessa drove $0.16 of the decline. Sequentially, revenue was below our internal expectations due to a higher discharge rate in hospice, lower revenue per episode due to a shift in mix resulting in higher LUPAs and lost billing periods, in-home health and a delay in the closing of an acquisition in our high-acuity segment. Our sequential EBITDA performance was better than expected despite the top line pressure.

Now turning to our first quarter adjusted segment performance. Keep in mind, segment-level EBITDA is pre-corporate allocation. In home health, revenue was $336 million, up $7 million or 2% compared to prior year. Revenue per episode was up $82 or 3% as a result of a 3.2% increase in reimbursement, partially offset by higher LUPAs and lost billing periods. Visiting clinician cost per visit is up 9% year-over-year and down a little less than 1% sequentially. Visits per episode declined 6%, which offset much of the cost per visit impact, resulting in a Medicare cost per episode increase of 2.4% and a gross margin decrease of only 10 basis points. The increase in cost per visit was driven by planned wage increases, sign-on bonuses, wage inflation, new higher pay and the impact of lower visits on this metric.

G&A increased approximately $3 million, mainly driven by planned wage increases, additional business development resources, higher travel and training and the full rollout of an additional Medalogix product that began in 2021.

Segment EBITDA was $70 million with an EBITDA margin of 21%. Our 2.8% increase in revenue per episode and the decrease in visits per episode were not enough to overcome the impact of Omicron on volumes and labor pressures resulting in a slight increase in EBITDA and 60 basis point decline in EBITDA margin. Sequentially, segment EBITDA was up $7 million, mainly driven by the CMS rate increase and the seasonality related to health insurance expense.

Now turning to our hospice segment results. For the first quarter, revenue was $193 million, up $2 million over prior year. Net revenue per day was up 4%, driven by a 2% hospice rate increase that went into effect October 1, 2021, and lower revenue adjustments. Hospice costs today increased $8.58, primarily due to fixed costs associated with salary employees on lower census. Contract utilization, planned wage increases, wage inflation, sign-on bonuses and higher visits performed by our employees as prior year was impacted by excess restrictions due to COVID-19. EBITDA was $37 million, down approximately $11 million.

G&A increased $5 million due to planned wage increases, additional business development resources, higher travel costs and the rollout of Medalogix-Muse. Sequential admissions were flat with ADC declining 2% due to higher discharge rates driven by patients coming on to hospice centers later in the dying process and delay in care due to COVID-19. As Chris mentioned, the discharge rate exceeded our 2020 rates. Segment EBITDA decreased $4 million and decline in ADC driven by an elevated discharge rate, higher CapEx expense as Q4 benefited from a positive cap adjustment, offset by lower G&A spend and health costs.

Turning to our total general and administrative expenses. On an adjusted basis, total G&A was $179 million or 32.9% of total revenue, up 110 basis points mainly due to the Contessa acquisition, which added $7 million in additional G&A. Excluding Contessa, our G&A as a percentage of revenue was flat over the prior year and down sequentially $4 million.

For the quarter, we generated $49 million of cash flow from operations. Our net leverage ratio at the end of the quarter was unchanged from Q4 at 1.3x. We did see a sequential increase in DSOs driven by CMS processing delays. We expect this issue to be corrected and cash collections to recover in Q2.

Turning to M&A, as stated in our last earnings call, we have signed and closed as of April 1, the acquisition of Evolution Health, which will add 15 care centers to our Texas, Oklahoma and Ohio footprint. Though Evolution is very much of a turnaround, we are excited by the opportunity to increase our density and believe the longer-term growth and profitability outlook for the asset is compelling.

We also sought and closed the AssistedCare home health deal, adding 2 locations in the (inaudible) state of North Carolina. I'm very pleased with our M&A efforts to kick off 2022 and remain confident that we will sign additional deals as we move on throughout the year.

We are reaffirming our previously stated revenue, EBITDA and EPS guidance ranges, which can be found on Page 16 of our supplemental slide deck. We'll evaluate whether we need to update our guidance ranges for revenue, EBITDA and EPS as we monitor performance throughout the quarter. If updates are warranted, we will do so during our Q2 2022 call.

Normal seasonality of our business would suggest a step-up in both revenue and EBITDA from Q1 to Q2. While we do expect a meaningful increase in revenue, we have a number of new headwinds in Q2 this year that will impact EBITDA progression. These items are: the return of sequestration at 1%, which will be a $5 million impact; the sequential increase in losses at Contessa of $1 million and a sequential increase in long-term incentive compensation of $2 million.

In addition to these new headwinds, we have a normal seasonality increase in health insurance costs of approximately $7 million to $8 million. We expect our increase in revenue and other operational improvements will offset nearly all of these headwinds, leaving Q2 EBITDA slightly below Q1.

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

(Operator Instructions) Our first question is from Brian Tanquilut with Jefferies.

Congrats on the quarter and congrats also to Nick for the promotion. Chris, I guess my first question for you. One of your key peers or competitors, obviously, is in the middle of getting sold. So just curious what your thoughts are in terms of what you're seeing with your business? Is there anything that kind of like maybe scares you or anything you're seeing that maybe -- you'd say, okay, maybe that's part of the reason that they sold? And maybe you can give me more specific on that. We've had a lot of questions from people about Medicare Advantage and how that could be potentially [pressure point] on home health. Is that something that you are concerned about at this point?

Brian, talking about kind of the announced transaction is absolutely. Didn't come as a surprise to any of us. I mean we saw what Kindred did with -- I mean what Humana did with Kindred. And we also knew that. Other plans were very vocal about wanting to actually get into the provider space in the home.

So -- and when you step back and look at it, the plan, it does make sense. I mean in terms of having that capability and it's one of the last probably levers that plans can actually pull in order to really kind of drive down their total cost of care for their patients and also shows their appreciation for care in the home.

So given the announcement that was really not such a surprise to us. But -- and we've also been very vocal over the last several years about, number one, we know what the penetration of Medicare Advantage is to the senior population, and that's accelerating. We've also stated many times that we've got to be able to change the relationship between providers and Medicare Advantage in order to really extract the good value out of the care that we drive and get paid fairly for it. And as you know, there is a significant discount that we're taking for the per-visit Medicare Advantage business today.

So that's why we've been focused on just kind of new relationships. And we've talked about this in the last probably a couple of earnings calls around striking a relationship with plans that really actually satisfies both sides. And I do believe that leverage is moving kind of more into our place with regards to the fact that we're not able to convert all of the referrals that come over for Medicare Advantage based on our clinical capacity constraints. And so -- and that's not going to lighten up anytime soon.

So plans are wanting more access to care-in-the-home. There's still really not fair payment for that. So we're looking at models out there, and we hope to have something to announce hopefully pretty soon on a new kind of model that really actually drives us more into Medicare Advantage, wanting to take more of that allows us to expand our margins on that business and also frees up capacity with our existing clinical staff.

So we're really close to having something done with a couple of plants today, and we hope to have at least 1 of them announce here relatively soon. But long game is that that's who we're going to be doing business with. And we've got to find ways to basically hold our ground in terms of what we're willing to accept in rates. At the same time, really leverage the fact that quality does matter, and care-in-the-home can actually drive down the total cost of care.

Understand. Chris, a follow-up question maybe for you and Scott. Just on the staffing side, everyone obviously is pretty focused on that. And it looks like you guys have done a good job bringing the voluntary turnover down, cost per visit down sequentially. Anything you can call out in terms of what you're seeing and where you think you can bring some of your staffing KPIs down too? And any color you can share on the connectRN minority acquisition? How you think that helps the staffing picture for Amedisys?

Yes. Yes, I'll take that, and I'll see if Scott wants to add anything to it. But I would say that one of the key drivers in just kind of your cost of labor is utilization of contract staff. And utilizing contract staff is not necessarily a bad thing when you're trying to flex in a difficult market or you're trying to accommodate some unique circumstance in that market. And we've historically had around maybe 2% to 2.5% of our visits have been performed by contract staff.

What we saw happen during the pandemic as a result of either turnover or labor shortage or really, quarantines is the heavier dependence on that contract staffing, and it's adding to the tune of about $5.5 of visit to our total visit cost today. We see that the best thing we can do is really kind of lower our dependency on that, drive up retention, which we're seeing good results so far this year on our home health and hospice retention side for our clinical staff. We're seeing some pretty good hiring kind of metrics as well around clinicians as well.

So hiring up and retaining our staff, should allow us to soften our dependency on the contract staffing. And then we're looking at new models and the connectRN kind of investment for us is really one that you can actually turn on clinical capacity as needed, just in time versus signing into these multi-month contracts with the staffing companies.

I think that it is starting to get a little bit better out there. That's allowing us to see some softening in the kind of the wage inflation that we saw happened in Q4 and Q1. A lot of the sign-on bonuses are having -- are coming back down to kind of a more realistic level. And we've absolutely got some discipline around it.

So we think that we're going to be able to manage through the labor side and do so by retention as well as utilizing some new ways of unlocking staffing on demand. And then one thing Scott can walk through is a little bit of the episodic math that we have on home health because we've seen like a 9% increase in our cost per visit, but it hasn't translated in a 9% increase in our cost per episode.

So Scott, just kind of walk through that quickly.

Yes. You'll recall on our last call, what we talked about as we saw these pressures on inflation that it is -- we look at it in our total cost of our episode, so to speak, so cost per episode versus a cost per visit metric and how those align together. I think as I said, about a 0.25 reduction in our VPE would help offset about 2% of that cost per visit increase.

And in our math today, if you look at just kind of our numbers and I'm using -- if you want to recheck my math, I'm using clinician cost per visit as Chris said, that's up about 9% with a 0.9% decline in the VPE that really brings that total cost per episode down about a 2% level, which, certainly, that's a manageable number, and certainly, with a 3.2% base rate increase in that business coming out the gate here. So I think people love -- were a little surprised we weren't as -- we're a little more (inaudible) on our ability to manage it. I think that kind of shows why we felt that way. We'll continue to work hard on that, and Chris called out the key points around contract utilization and other factors that we can help mitigate the cost. But we feel good out of the gate here and the number would be in line with where we thought it would be for the most part.

Our next question is from Matt Larew with William Blair.

I just want to follow up on Brian's line of question a little bit on the staffing side. Chris, you gave us some good metrics around utilization of contract labor and the cost per visit additions. Could you give us use maybe to what you're running at today? And then to the extent, obviously, you're still signing some of these contracts with staffing agencies as you're trying to ramp connectRN. Are you finding that you can negotiate much more favorable rates? Or perhaps less onerous contract links as you're doing that?.

Yes. Yes. Good question. So a couple of things to think about what happened in Q1. Obviously, when Omicron came on strong, we ended up with about 7% of our clinicians on quarantine. So we had to depend heavily on contract labor, but the entire health care ecosystem was also having to do the same. Hospitals were strained, other agencies were strained. So there's a lot of competition, and it gave the contract agencies a lot of the leverage to really kind of drive up their price points on that. So we saw that spike in Q1 at a very high level.

Another thing that kind of started to emerge in Q1 was this concept of guaranteed 40-hour contracts. So regardless of our utilization of the contractor, on some occasions, we had to guarantee a 40-hour payment for those services. So 2 things that we've seen since Omicron has started, as society did, is that pricing has come down pretty reasonably. I'd say around 10% to 15% today and still continues to come down, which is a good sign. And then also the demand for these 40-hour kind of guarantees is starting to be off the table for us. And we're not accepting that. And we're also -- in the 2 markets that we have launched with connectRN looking absolutely first to go to utilization of that kind of option versus a contractor.

And then the last piece, and I'll give you the statistics on our utilization. But the last piece also to think about is, is that we talked a lot in previous earnings calls about our PRN staff, our as-needed staff. And so we've had a lot of internal initiatives around increasing utilization of our PRN staff. And we've seen that go from about 6% of our skilled business to about 10% of our skilled business. So that's obviously kind of a winner for us to be able to utilize our own W-2 staff on these visits when we need them.

Okay. That's all helpful. And then just on Contessa, obviously, Mount Sinai sounds encouraging, particularly with the sign of maybe future deals. But obviously, the revenue contribution tracking, I think, a bit behind where you'd expected. It was always going to be back half loaded, but maybe you could just update us on maybe what appropriate expectations are for full year revenue and maybe how to think about a glide path into 2023?

Yes. So we -- Matt, this is Scott. We feel pretty good still around our -- how we get there and nothing has really changed dramatically. I think we've said before that first half revenue would come in around 20% in the first half and 80% of that number in the second half. That's kind of where we think today. Originally, we said 75% in the second half and 25% in the first. So it's only moved a little bit.

As we said before, I think a lot of the delay that you saw in that revenue line here in the first quarter was around an acquisition that they had signed that when we signed the deal, they did not get it closed because of regulatory delays, which kind of cost us about 2 months. So that will start coming through. That's probably somewhere around $850,000 to $900,000 a month in revenue. So that could be -- it's going to be a good number for them. And we continue to see a build-out into the revenues into the second half of the year.

We talked about the EBITDA drag, and most of that still will remain at 60% in the first half and about 40% in the second. So our -- even there's a little hold up there with the transaction, we really haven't moved off our belief in where this number ends up for a full year perspective.

Our next question is from Justin Bowers with Deutsche Bank.

I want to piggyback on Contessa and just to ask the question a little differently, but how is the -- now that it's been under your belt for a couple of quarters, earlier, you talked about some new initiatives you're working on with MA plans. And I'm curious how Contessa has kind of shaped the dialogue with MA and some of the initiatives there and maybe your ability to kind of package some innovative products and bring those to market.

Yes. So, Justin. I would say the one thing that we saw kind of emerge quickly with MA plans was utilizing some of Contessa's internal capabilities to launch a kind of a risk-based palliative model out there. So we announced the one in New York that it's going to be contributing to the top line and starting in Q2. And then we have another sizable one, we think we're going to be able to get announced sometime this quarter that will actually be a strong top line driver for us.

So from the plan's perspective, it's still staying more around the high-acuity type care of identifying patients that could -- that would normally land in a hospital and having them care for in the home or in SNF and having them care for in a home, but now it's starting to evolve more into also being able to work plans to identify patients who can receive levels of care in the home that can help prevent those hospitalizations.

So we see this as a step in the direction. All of the dots are not still connected between home health, hospice, palliative care, hospital-at-home, SNF-at-home. But we do see that, that's the end game. And so when that actually does kind of materialize, we see that plans are going to be able to really kind of trust companies like us to take a high-risk population and kind of manage their care in the home setting versus letting them bounce into the hospital. So I would say it's still early stages, but the emergence of the risk-based palliative care so soon after our acquisition I would say is a very encouraging sign.

And then just one quick follow-up. I mean it is about as challenging as an operating environment as we've seen in a long time, if ever. And you guys executed very well, but I can imagine that some of smaller operators out there are struggling a little more. And I'm just curious how that's impacting kind of the M&A environment and multiples.

Yes. Yes. First, I'd quote an analyst we spoke to you recently that said it's tough out there. And I think that's actually a very, very kind of spot-on comment. What we're seeing out there is the operating environment is challenging. But the good solid operators and the companies out there that have kind of are focusing on the right things, I think will still be able to navigate through some of this chop and actually take advantage of some of the less kind of sophisticated or operationally sound businesses out there and market share is there for the taking right now. And it starts with having clinical capacity again to be able to take the patients.

So we're focused on the right things. We haven't started to see kind of some of the fallout within the smaller agencies yet, but some of that may be happening without us actually having insight -- could be happening quietly out there.

Smaller companies, a lot of times, it's not even an option for them to sell because the companies like us and our competitors out there have a pretty high bar when it comes to clinical clients and due diligence. And so a lot of times, there's just really not an avenue for them to actually transact and all of a sudden, you end up and you just start to see kind of an attrition of the provider numbers out there.

I suspect some of that is happening right now. I'd still feel like by the end of this year or early next year, you're going to start to see the cumulative effect of sequestration going away, labor pressures in wage inflation, Medicare Advantage penetration, and substandard payments on the per visit side. It's making the model tougher to kind of be successful in. But again, I think that this is a time where the bigger kind of more established companies that can leverage their size and scale are going to be opportunistic, and we will as well and start to see kind of some additional roll-up of the business, which I think is ultimately what we want to get to.

Our next question is from John Ransom with Raymond James.

You've been talking for a while about getting a payer deal done. Could you please help us with what that would look like kind of at a high level? Is it still a fee for visit with a kicker? And if so, is it one of the things you'll be measured on? Is it upside-downside or just upside? Or is it [anatomic]? Is it discount? Maybe just help us understand what you're trying to drive at. And also just if you put yourself in their shoes, it seems like such an obvious thing, and yet it's been pretty contentious 3 or 4 years with MA and home health. And just what do you think in your mind has changed that they're now more willing to come to that?

Yes. So I would say kind of the concept that we're kicking around is more of a case rate model. So it's going to be a per admission model that allows us to utilize tools such as telehealth, Medalogix products and other things, the [UM], the right level of visits for that patient, treat those patients the same way we treat a PPS patient or PDGM patient, but really kind of drive that right utilization for those patients.

And what they should do over time because we've seen this in working with some conveners over the past couple of years is there is a way to really drive down length of stay and drive down visits per admission and maintain good quality for the patients, good outcomes for the patients, but the economics are not fair on us in doing it in that way.

So if we can lock in a case rate basis that actually starts with a day 1 discount for the plan, allows us to basically manage those patients with strong clinical management and oversight. What will happen is we will drive down business for episode and length of stay a bit, but we'll also guarantee the quality outcomes. So there will be hospitalization rate guarantees, there will be timely initiation of care guarantees. And really what's getting attracted to the plans is we'll guarantee that we'll take more of their business. And as we take more of their business, then that gives them the ability to lock into a sizable provider out there that's going to be there when they call.

And what we will see there is also by managing kind of the utilization a little bit tighter around that type of business, we're going to be able to see margin expansion as well. So it's not going to get to Medicare fee-for-service margins. We don't expect it to do that, but we're in the low 20% range right now on most of our per-visit Medicare Advantage business today. And we think we can get it into that high 30s to low 40s, which is fair for all.

So if the plan gets more access to care, and a day 1 discount off of what they've historically paid, and we actually deliver on that, and they got guarantees around quality outcomes and hospitalization rate in our acceptance rate. And we see margin expansion, then we will want to lean more into that type of business, and that creates more of a value proposition for all of the constituents, the plans, the providers like us as well as the patients.

Our next question is from Andrew Mok with UBS.

Wanted to ask about visits per episode, finished the quarter at 13.0. It sounds like that's tracking slightly ahead of plan. What were the drivers of lower VPE in the quarter? And do you think VPE is sustainable at these levels?

Yes. Yes, Andrew. So yes, we do think it's sustainable, number one. We did see some mix shift in our episodes in Q1 that there were some puts and takes. On the positive side, we did see some shorter length of stay patients, and we saw a bump in our rehab business that did not require skilled visits, skilled nursing visits. And so we saw that drive down business per episode a little bit. So our therapy was down a little bit -- nursing was down a little bit, I'm sorry, in Q1.

And -- but also what we saw that come from that was higher LUPA rates a little bit in lower -- in higher lost billing periods, which actually drove down our revenue per episode, and we missed kind of our internal target by about $42 an episode, which actually cost us about $3 million top line.

But back to the business per episode. So we've seen kind of everything normalized back into the normal mix rate, Medalogix data suggests we still have some opportunity there in some business that we are providing that don't provide any incremental kind of value to the patients. Medalogix is launching a new product later this summer, which we're actually piloting it right now that's going to give us intra-episode recommendations that's going to give us calibrated recommendations based off of the most recent visit for the patient. So this could be a very much a game changer. And they can appropriately identify patients that need more visits.

But what it also will do is identify those patients that are on the road to recovery faster and help us calibrate our business per episode real-time during the episode. So we think that it's going to settle in the -- for 2022, maybe in the 13 to 13.25 visit per episode rate. But over time, as the new product comes out, we get really precise, you could see it drop down a little bit below where it is today.

Got it. And then on corporate expenses, they were down about $6 million year-over-year. I thought that number might reset higher with the incentive comp accruals. Can you help us understand the drivers of that cost reduction? And is the $36 million number a good run rate to think about from here?

Yes. We did have some favorable things break for us. We had some lower LTI. I think that will build back up. I kind of have that in my commentary. So that number kind of builds here into next quarter. You have some additional G&A spend on Contessa that kind of held back with some delays.

So I think that number creeps up a bit on us as we go forward. But certainly, we're -- internally, we managing well below our budgeted numbers, which we use to set all this. So I feel good that we'll keep the G&A down from where we originally set or thought it was going to be in building our numbers. But I do think there's going to be a step-up here from Q1 to Q2.

Our next question is from Matt Borsch with BMO Capital Markets.

Yes, first question -- can you hear me?

Yes.

Okay. Great. Regarding your home health patients, can you -- do you track the ages in any way that allowed to do some analysis. I was just curious if you've seen any noticeable pickup from the demographic wave of baby boomers reaching and passing age 75.

Yes. So our typical -- our average age is about 78, services -- patients that we serve. It's not changed over the years. It's still -- it stayed pretty consistent there. But when you think about the baby boomers that are aging into that demographic, I think the oldest baby boomers today are 76, 77 years old. So we think that the wave is starting to kind of hit our demographic -- typical demographic for our patients. And we expect to see volumes come from that in terms of utilization of our services.

So -- and then you think about the tail on the baby boomers, how long that's going to last. It will be a bit. That's why we're so optimistic about kind of the tailwinds in this industry because it's cost-effective care in the right setting and the demand is right there at our doorstep, and we've just got to focus on building out the clinical capacity to take that business on.

Right. And the other factor, although maybe this is more anecdotal than really established is the -- evidently the increased preference for the home as a care setting amongst that generation as compared to the one that went before. And I'm just curious if you track any data on that.

Yes. We don't have a lot of specific data, but what we did learn even with the non-baby boomers that got care in the home, during the pandemic that would normally have landed in a SNF or stayed in a hospital a little bit longer. We are absolutely seeing that those -- that's opening up the eyes to the availability of care in the home versus another setting, an institutional setting.

And then with Contessa, absolutely, we see a very high adoption rate when somebody is identified as being a hospital-at-home potential patient versus an in-facility patient. And it's -- we have an over 90% acceptance rate whenever that's offered to them. So we feel like there's more and more focus on the home and there's a lot of emerging companies out there that are increasing capabilities in the home as well. So I think that over time, you're going to see kind of this baby boom generation just really start to understand what's available to them and to actually take advantage of that.

Our next question is from Sarah James with Barclays.

I wanted to go back to that talking point about: it's tough out there. So one area that I think about is referral patterns and market share shifts. With the staffing challenges that may be hitting the mom-and-pops harder, you guys are probably able to provide more consistent availability of help? And are you seeing that had any impact in your local market share or in referral patterns?

Yes, it's a great question. What we do watch a lot is kind of -- and we track pretty closely is the number of accounts that refer to us and the volume that we get out of those accounts and also how many we gain per quarter and how many we lose per quarter. And what we've noticed over the last couple of years is significant upside in terms of us having access into new accounts and actually getting a patient or 2 from that referral source and then we leverage our quality and our customer service, and typically, we're able to hook them in and actually get more penetration into that account.

And sometimes, it is really a function of they've had their favorite little agency they've worked with in the past. And d that agency just does not have staff anymore, very inconsistent in their ability to take on their patients and their referrals, and it creates a little bit of a window of opportunity for us.

Our goal now is to really utilize claims data the best we can to identify those opportunities out there and be very, very purposeful in targeting some accounts where we may feel like they've been loyal to more vulnerable, smaller mom-and-pop agency in the past in utilizing kind of our knowledge to be able to get more targeted in how we approach that. So I'm hopeful we're going to be able to kind of really show some of those results over time. But generally, right now, when we look at the actual total volumes out there, and some of the information that we have, it's clear that we are taking market share in many of the markets, if not most of the markets that we're in today. And where we're not taking market share, a lot of times, it really is because we also are having troubles with staffing and clinical capacity or some of the competitive environment. But I feel really good about our penetration today and expect to see that continue to grow.

Great. And then just the other aspect of that market share shifting. When you talk about setting up the value-based care contracts with the payers, are you seeing any early examples of where you've established that and you see a change in your market share in a particular county?

Yes. So I mean, kind of the case rate model hasn't really materialized into Nashville deal yet. But we do think that when that does happen, there's going to be significant shift in market share on that because it's going to be our commitment to take more of that business. And we plan on upholding that commitment and deepening that relationship.

What we do see now in some of our other kind of relationships out there is that we have agreements in place, about 25% of our per visit Medicare Advantage business out there today is -- has some sort of upside opportunity based on hospitalization rates and outcomes for the patients. Wherever we have struck those deals, we have seen more referral flow into our business. So we see that as a good sign, both sides wanting to have a kind of a partnership, but we still got -- we've got to change the game to really make the economic model work because it's a significant discount on the per visit side, and is just not going to create an environment to where we -- when we have limited clinical capacity that we're going to aggressively want to go out and take more of that business. And frankly, what you're going to have to see happen and you likely will see happen is that there's going to be some contract cancellations over time if there's just not a willingness to work with the providers.

Our next question is with Whit Mayo from SVB Securities.

Scott, you kind of snuck in a comment in your prepared remarks about the second quarter being lower than the first quarter. I think you cited a number of headwinds. I think I get most of those. Are there any specific tailwinds that you can point us to for the second half, just looking at the ramp in the second half and you're kind of implying ballpark, I don't know, 55% of the full year earnings in the second half. So is there anything you can point us to that gives us increased confidence on the bridge from point A to point B?

Yes. I think the biggest thing out there, I think -- and as I called out the pieces, I won't go back to them again, but certainly having to deal with sequestration. You've got to deal with that bridge in the Q1 to Q2 and Q2 to Q3. So that's certainly a little bit of noise for us. But from the positive point, really hospice ADC, we've seen the discharge rates really improve on us, and that's really going to be a big catalyst going forward as we build out the rest of the year. I mean, I would say I think when we talked about this year, that was going to be the big barometer for our performance. And I would say we're exiting and feel good about how that's performing.

So I mean that's certainly going to be a big one that's important to us. I do think that as we continue to deliver on some of the reductions on the cost side, I think that will be helpful. We do have right now a positive hospice rule in the back half of the year that will be helpful. I mean so there's certainly a good thing. I mean Contessa losses are going to be meaningfully different in the second half of the year. So that's -- I think there's enough things out there clearly in our modeling around that, that makes us so good that we can deliver that number and have it -- things always look different once you kick off the year from where you think and from a revenue -- from a cost perspective, and we'll have to continue to pull every lever we can, but we feel there's a path forward.

Well, also I mentioned that $42 delta in revenue per episode in Q1. That's coming down. So revenue per episode is coming up a bit so far in Q2. Contractor utilization is coming down for both home health and hospice. So those are good cost levers that we're pulling as well. So there's some momentum in some of the material areas that we think is going to contribute to kind of us continue to build for the year. Yes.

And just thinking of that from a top line perspective, too, just to get this out there and we closed 2 deals. They aren't contemplating any numbers right now, but those from an annualized basis are somewhere around $50 million in revenue, the combination of those 2. So you'll see that start to come through in the next quarter. .

That's a good point. And back to the -- whatever you said $7 million, $8 million on the self-insured accrual, is this a onetime? Or is this a recurring expense? And maybe if you could just -- yes.

Yes. That's -- I would say I just called it out, just to remind people, as you look at the numbers and where the -- if you're thinking through just kind of some of our cost of visit moves, that's a typical move from Q1 to Q2. That's really not new. And I kind of separate that from the other kind of 3 items I called out as new items. That's a typical build. We're self-insured. People hit deductibles and that's just generally the build in the spin. So that's -- I would say that's kind of a normal progression.

Okay. No, that's helpful. And one last one. I'm just trying to think about like the dollar amount that you're spending on contract labor right now. Can you share what's in your plan for like a dollar amount and maybe what it was last year? And I ask it because I'm just looking at the sort of like what could potentially be a stranded cost that could go away in an environment where COVID isn't so much of an issue.

Yes. So if you kind of think about what our spend is. So at around $5-ish, $6 on 1.7 million visits, you're talking about spending a type of -- a fair amount of money there, almost $10 million type of number on contractor to date. That continues to go down for us. I would say, the raw number contractor visits is down 14% from Q1 last year to Q1 of this year. So that continues to come down.

We expect that utilization number to continue to drop. We were at 4.6% last year, was somewhere at 4.3% right now, and that includes the elevated January with the Omicron. So we see that continue to tail off in both rate and the raw number of visits. So I think that will continue to trend. But we're using that $5 and $5.61 on about 1.7 million visits is how that math will work to get the exact number.

I'm not quick enough to do all this math. Is there just like a simple way to think about like our plan has this much for contract labor this year. This is what we spent last year and maybe what a normal year is. I'm sorry, maybe we can just take this offline, I can talk.

Yes. I would say that we would -- if you think about that using our visit numbers at roughly about 1.7 million visits a quarter, we're going to -- our utilization is 4.3% of that right now. We'd like to pull that down into the 3.8%, 3.5% type of number as we exit the year. So I would just think of it that way.

Our next question is from Joanna Gajuk with Bank of America.

I have 2 questions. The first is a follow-up. So in terms of the -- some of the hiring trends you were talking about, is there a metric you can give us in terms of like the net new hires this quarter? I guess, January, probably was very slow, I guess, typically, it's slow, but kind of how, I guess, things are tracking, say, in April or the exit rate for the quarter?

Yes. So thanks, Joanna, this is Chris. So we set our targets on hiring for -- by month and by quarter. And for the first quarter, we actually did well. We were about 98% of our internal target with our historical turnover rate, but our turnover came down in Q1, which actually helped us build capacity, which we were excited about that.

So far in April, it's not materially different. So we're excited about that. There are some very specific markets that we still have kind of -- we have to double down our efforts to be able to get clinicians in the door. And then also, we have to fight with competitors also with very high sign-on bonuses, and we're trying to maintain as much discipline around that as we possibly can.

But we know that we need to hire about 175 full-time and part-time nurses on the home health side and about 110 on the hospice side every month in order to meet our demands with today's turnover rates. But again, we focus hard on driving down that turnover that actually builds that capacity as well. So feeling pretty good about that.

And on the turnover, I guess, it's been moving in the right direction as improving you said.

Yes. So last year, nursing turnover was down 9% from '20. And then this year, it's ticked down in Q1 as well and right on top of our targets, but we still -- we want to go lower than where it is today.

And my question in terms of medical reimbursement. So you mentioned that the hospice proposal, I guess, it sounds like potentially could be better in the final reg when CMS has more data on the wage index and whatnot. But what are your expectations for the home health deal, which you mentioned in terms of the rate update, but what about any changes to behavioral adjustment, especially given the proposed regulation for the skilled nursing facilities that include this behavior adjustment? I mean, obviously, these are way too different industries and whatnot, but kind of -- I just would like high-level thoughts on what are you expecting to see in the proposal.

Yes, I'll start with that and kind of talk about the rate piece. I'll let Dave Kemmerly answer the piece around what we believe and how the SNF rule impacts use as it relates to our rules. So on the surface, we are -- feel good about the ability for those rates to go up. I mean, hospice came in at 2.7%. If you look at what's in the Federal Register around the market basket and the market payment update, it suggests that number continues to move up into the 3s. We would expect a similar type of number, kind of in that 3% to 4% range on home health based on the pure data on the market basket update absent any other noise, but that would be our expectation. So I feel good about that on the surface that will be good news for us. Certainly, doesn't cover all the increases that the industry is seeing, but it certainly is in a step in right direction, and I'll let Dave talk about the other piece.

Yes, Joanna. We don't have any indication from CMS regarding inclusion of additional behavioral assumptions because to achieve budget neutrality, as you know, they're statutorily prohibited from sharing with us what's going to be in a proposed rule. Having said that, there are a couple of distinctions or distinction factors between SNF and home health budget neutrality that you should take note of. And first is the SNF, when the SNFs moved to the PDPM payment model in late '19, early '20, they didn't have any behavioral assumption cuts on the front end. Unlike when home health moved to PDGM, January 1, 2020, we had behavioral assumption cuts on the front end, as you'll recall. So it's not surprising that CMS came back and did what they call parity adjustment on the SNF.

Second, there's 2 independent studies -- independent of CMS. It indicates there was actually a decrease in home health spend in 2020 versus 2019. And one came -- was in MedPAC's March report to Congress and it found I think around a 4.7% decline in home health spending in 2020, which equated to around $700 million or $800 million. And on the contrary, MedPAC found an increase in SNF spending somewhere around, I think, about 5%. So a big difference there.

Secondarily, Dobson DaVanzo did a study commissioned by the industry, and they also found a decrease in spending in 2020 of about $768 million, somewhere around that, which was consistent with the MedPAC finding. So you've got 2 studies out there that say spending actually decreased in '20 versus '19.

On a positive note, I'd say, too, taking a look at the SNF rule, you'll see that CMS did make some changes in their budget neutrality methodology in the proposal versus what they kind of put out there in the SNF 2022 proposed rules. So they did show a willingness to move on their methodology. So we expect CMS to similarly consider industry comments that we gave last year on budget neutrality and ones we'll give this year if they go down that path again.

And finally, I'd say that we in the industry are fully unified, prepared and engaged already with the regulatory and legislative strategy in the event that there are some behavioral assumptions included in the proposed rule. And that would include conversations with CMS, OMB, obviously, with Congress, congressional members and staff.

So bottom line is we don't know what's going to be in there, but we think the SNF rule is interesting to read through and see what that might mean for us or not mean for us. But we don't know and CMS can't indicate -- can't share that with us, but we feel like there's a lot of reasons that we can handle and deal with any behavioral assumption cuts that are proposed.

And as you know, typically, historically, between proposed rule and final rules, especially around rates, things change. And so we feel comfortable with the data, and we feel comfortable with our position to kind of [blunt] or avoiding those cuts, if they're proposed. Scott, anything, Chris?

No, I think that's fair.

Our next question is from A.J. Rice with Credit Suisse.

A couple of questions, I guess. Your LPN ratio looks like it declined. In Q4, you were about 49%. You're about 47.8% in Q1. Was that just noise in the Omicron situation? Or is there something about the labor dynamics is making it harder to pick up those LPNs? And do you still think you can get to slightly above 50% for this year?

Yes. We don't think that there is anything kind of that to be concerned about. Some of it is calibrating your visits when you had in Q1 at 1.7% of your clinicians on quarantine. So sometimes you had to utilize our ends when LPNs were on quarantine. So we felt good about that. But also -- when you think about drop in visits per episode and about half of our visits are nursing visits that we provide for our patients and the way an episode works, the first visit, the admission and the reserve or discharge or resumption of care visit have to be OASIS visits that are done by RNs. The lower you go in visits per episode, the tougher it is to actually optimize your LPN utilization. But with that said, at 13 visits per episode right now, we feel like we can get north of 50% on our LPN utilization, barring kind of any other kind of surge that puts a bunch of our clinicians on quarantine.

Okay. And then the other follow-up question was around nursing homes. I know on the one hand, some of their issues through the pandemic have sort of helped you on the home health side because you've gotten referrals that would have maybe stayed in the nursing home for a little while and they've just come directly out of hospital to you. And then alternatively, though, on the hospice side, I know that's a good referral source for you that has been tougher. What's happening with respect to that? Are there referrals from the hospital to home? Are any of those getting diverted back to the nursing home? And are you able to get in and capture the hospice opportunities again? Or is that still sort of in progress?

Well, I'd say that still the data suggests that nursing home occupancies are still well below where they were pre-pandemic, which means the opportunity has shrunk for us, but it also can suggest that still patients are being diverted past the nursing home to the home, and we're getting them on the home health side. And we can see that we're absolutely taking market share on the business that's getting to the home going on to home health.

What we do in our nursing homes is we've been able to maintain pretty nicely our relationships with facilities and have kind of build a census, if you will, within facilities on the hospice side where we have good strong relationships. And in the event that nursing home occupancy goes from where it is right now, I think in the mid-70s to maybe the mid-80s over time, then we just see that as incremental opportunity for us to deepen that relationship. So I would say that we see nursing home recovery more -- when it does actually occur more of an opportunity and upside for us than we do see it as threat for us losing the business from the hospitals.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Chris Gerard for closing remarks.

Yes. Thank you, Peter, and thanks to everyone who joined us on our call today. And once again, thank you to all the Amedisys employees who have helped to deliver another strong quarter of performance. I hope everyone stays well, and I look forward to seeing you on the road in the coming weeks. Thank you.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.