LHC Group Inc (LHCG) 2014 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the LHC Group's first-quarter 2014 earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded.

I'd now like to turn the call over to your host for today, Mr. Eric Elliott, Vice President of Investor Relations. Sir, you may begin.

Thank you, Ben, and welcome, everyone, to LHC Group's earnings conference call for the first quarter ended March 31, 2014. Hopefully, everyone has received a copy of our earnings release. If not, you may obtain a copy, along with other key information about LHC Group and the industry, on our website at LHCgroup.com. In a moment, we will hear from Keith Myers, Chief Executive Officer; Don Stelly, President and Chief Operating Officer; and Jeff Kreger, Chief Financial Officer of LHC Group.

Before that, I would like to remind everyone that statements included in this conference call and in our press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements include, but are not limited to, comments regarding our financial results for 2014 and beyond. Actual results could differ materially from those projected in forward-looking statements because of a number of risk factors and uncertainties, which are discussed in our annual and quarterly SEC filings.

LHC Group shall have no obligation to update the information provided on this call to reflect subsequent events. Now, I am pleased to introduce the CEO of LHC Group, Keith Myers.

Thank you, Eric, and good morning, everyone. Since our last earnings call was just two months ago, we'll keep our prepared remarks short so we can allow more time for Q&A this morning.

Let me begin by saying that we had a challenging start to 2014, as severe winter weather impacted over 48% of our agencies and accounted for a decline in same-store volume for the first quarter. However, our operators in the field once again did a phenomenal job under the circumstances and we ended the first quarter with strong momentum, which has continued into the second quarter.

We are pleased to report that the integration of our previously announced acquisition of Deaconess HomeCare and Elk Valley is on schedule and performing ahead of pro forma expectations.

We're also excited about the number of opportunities in our growth pipeline. The level of interest and the volume of conversations we're having with regard to potential acquisitions and hospital joint ventures at this time is unprecedented in the 20-year history of our company. Valuations are also favorable as home health multiples are at their lowest point in more than a decade. In order to position our company to take advantage of these opportunities, we are currently working with our bank group to significantly increase our credit facility and take advantage of lower interest rates.

We're also excited about the growth opportunities in hospice and home- and community-based services. Our future plans include strategies to more aggressively leverage our reputation and goodwill in markets we currently serve as home health provider, to add new service locations and accelerate growth in both our hospice and community-based service lines.

Before I turn the call over to Don and Jeff, I'd like to welcome the healthcare professionals from Deaconess and Elk Valley, and additionally those from St. Joseph Hospital Home Health and Hospice in West Virginia, and Professional Nursing Services in North Carolina into our LHC Group family.

In the last month, we have acquired the assets of a home health and hospice provider in the CON state of West Virginia and acquired the assets of a home health and community service provider in the CON state of North Carolina. The transactions consisted of seven counties for home health and six counties for hospice in West Virginia, and nine counties for home health and four counties for community based services in North Carolina. Annual combined revenue for the two transactions is approximately $2 million.

I'll now turn the call over to Don and Jeff, but before doing so I want to once again commend and thank our dedicated, hardworking employees for their commitment to those we are privileged to serve in communities across the country.

Jeff?

Thank you, Keith, and good morning everyone.

For the first quarter of 2014, our consolidated net service revenue was $163.7 million and our net income was $4.1 million. And our fully diluted EPS was $0.24 per share. Included in net income were pretax acquisition costs of $350,000 associated with the Deaconess transaction and a pretax charge of $650,000 associated with certain outlier workers' compensation insurance claims, which together reduced EPS by approximately $0.03.

Our first-quarter results were also negatively impacted by over $1.5 million, equating to $0.05 of fully diluted EPS, due to weather-related closures, which Don will further explain later in this call.

On a year-over-year comparative basis for the first quarter, sequestration, which experienced its one-year anniversary on April 1, effectively reduced revenue by $4.9 million in the quarter compared to the first quarter of last year, equating to $0.16 of EPS. Additionally negatively impacting the year-over-year results was the effect of the 2014 home health reimbursement rule, which reduced revenue and pretax income by approximately $1.1 million, or $0.04 of fully diluted earnings per share, as compared to the first quarter of2013.

Now, I would like to review our operating results on a business segment basis. Beginning in the first quarter of 2014, you will notice that we now have three reportable business segments, up from the two reportable business segments we operated in the past. Beginning in this quarter, we have separated out our hospice division into its own distinct segment as it has reached the 10% threshold of profit guideline set forth by GAAP. Our home-based segment now consists only of home health and community-based services.

Revenue in the quarter for the home-based services segment was $128.7 million, compared to $129.1 million for the same period last year. Revenue in the new hospice segment was $15.2 million in the quarter, compared to $12.9 million for the same period last year. Our facility-based segment revenue in the quarter was $19.8 million, compared to $20.0 million in the same period prior year.

On an overall consolidated income statement basis, our consolidated gross margin was 40.5% of revenue in the first quarter, down 190 basis points from the 42.4% gross margin experienced in the 2013 first quarter. This decrease in year-over-year gross margin resulted from the revenue reductions associated with sequestration and the 2014 home health reimbursement rule.

Switching to a sequential quarter basis, our consolidated gross margin decreased 190 basis points in the first quarter from the 42.4% gross margin reported in the fourth quarter of 2013. This sequential decrease in gross margin was due to the revenue reduction associated with the 2014 home health reimbursement rule and an increase in payroll taxes in the first quarter of 2014, as compared to the fourth quarter of 2013, combined with an increase in employee benefits expenses, due to the higher workers' compensation claims, which I mentioned earlier. We expect our gross margin to continue to be between 40% and 41% of revenue in 2014.

Our general and administrative costs as a percent of revenue were 33.4% in the quarter, up 150 basis points year over year and down sequentially 10 basis points from the fourth quarter of 2013. Similar to the explanations for gross margin, the year-over-year increases in G&A costs as a percent of revenue were also partially attributable to the revenue reductions associated with sequestration and the 2014 home health reimbursement changes, as well as the additional G&A expense from agencies which were acquired during 2013.

Also increasing G&A costs in 2014 were the Deaconess acquisition-related costs, which I mentioned earlier, and the new incremental point-of-care device costs, which were partially offset by reductions of staff, resulting from the benefits derived from our point-of-care initiatives implemented over the last year. We continue to expect consolidated G&A to fall between 32% and 33% of revenue in 2014.

Our bad debt costs represented 2.1% of revenue in the first quarter of 2014, compared to 2.4% a year ago. We continue to expect our bad debt costs to be around the 2.1% figure in 2014. Our effective tax rate in the first quarter was 41.8% compared to the 41.9% in the first quarter of 2013. We expect our all-in effective tax rate to continue to be between 41.5% and 42% in 2014.

Finally, we are reaffirming our full-year 2014 guidance, which was initially issued back on March 5, 2014, for the net service revenue in the range of $700 million to $720 million and fully diluted earnings per share in the range of $1.15 to $1.35 diluted EPS. This guidance includes the negative impact from the Medicare home health prospective payment system for 2014, estimated to be an approximate $0.17 reduction in fully diluted earnings per share for 2014. It also includes the positive impact of the recently closed acquisition of the home health, hospice, and community-based service operations of Deaconess Home Care and Elk Valley Health System, estimated to be accretive to fully diluted earnings per share for 2014 of between $0.05 and $0.10.

This guidance, however, does not take into account the impact of other future reimbursement changes, if any, future acquisitions or share purchases, if made, de novo locations, if opened, or future legal expenses, if necessary.

That concludes my prepared remarks. I am now pleased to turn the call over to Don Stelly.

Thank you, Jeff, and good morning to everyone.

As mentioned earlier, the first quarter of 2014 had its share of challenges. We had unprecedented weather during the period, forcing us to close service locations 268 times when otherwise they would have been open for normal operations. I can go into details regarding any of this later, but in summary, these closures negatively impacted volumes, associated net revenues, and, as already mentioned, EPS by $0.05.

Since the end of March, however, we have reversed our negative organic growth trend and are producing positive [admit] growth as expected. And as a side note, we have also produced month-over-month census growth since the beginning of the year, a trend that we expect to continue into 2014.

From improving clinical quality to integrating six acquisitions, representing 39 service locations, to the elimination of same-store drags, our operations team has been focused and we feel very effective so far this 2014. Additionally, we continue conversion of all in-home services to point of care and expect to be completed with all by year's end. Again, as a side note, as we sit today, this completion we anticipate including both Deaconess and Elk Valley, our newly acquired assets that Jeff spoke of.

As you all know, it is and has been very difficult to attain these type operating results while at the same time converting a company of 345 locations to electronic health technology, to point of care. But our execution of this strategy has been solid from start. With the finish line now in sight, we are in the midst of redefining our operating models, integrating care navigation, and streamlining processes clinically and administratively. As we go into 2015 and beyond, these changes will create efficiencies not possible inside of today's framework and thus allow accelerated organic and acquisitive growth.

As we go along in this year, I'll provide more detail, but for today, my point is this. Our anticipated end to point-of-care deployment across home care, hospice, and community-based services can earmark a new approach to in-home service delivery, something that we see as imperative to continual long-term value creation for our shareholders.

My last prepared remarks will center upon our tri-level of care strategy, kind of what Keith alluded to earlier. Five short years ago, we as a company didn't have a community-based services division and now we have one with annualized net revenues of $30 million. Those same five years ago in hospice, we had $20 million of net revenue and truly only acquired those providers as they came along with home health. Now, today, we've annualized revenues $68.2 million and we feel are operationally predictable and consistent. So with demonstrable value and fundamentals soundly in place, hospice, and community-based services will be strategically placed to wholly meet the in-home service needs of patients, physicians, and partners in the befitting markets.

In closing, thanks to all of our team members for truly making a difference every day. And to you who have listened on our call this morning, thanks to you as well.

Ben, we're now ready to take questions from the group.

(Operator Instructions) Our first question comes from the line Kevin Ellich of Piper Jaffray. Your line is open. Please go ahead.

Thanks. Good morning. Keith, just wondering, aside from weather, could you talk about what else affected the organic growth across the board for the home-based services, and kind of what are the current trends looking like, and what's embedded in your outlook for the year?

Yes, I'll let Don take the majority of that, but really the weather was the most significant factor by far. I mean we have a -- all home healthcare providers are experiencing a little headwind on organic growth around face-to-face issues and different regulations that are out, but that playing field is level for all home health providers. Don, would you agree?

Yes, Kevin, Keith is absolutely right. I mean I don't want to get too detail oriented, but when you look at the salesforce that we have, they missed over 4,000 sales calls in the quarter. And when you start turning that into that admit, it's very substantial.

Now, I will say, we all know that we've got revised PECOS legislation coming up effective July. We have the normal what I would call course of regulatory hurdles that we have to meet. But I think the outlook that we have baked into the guidance that Jeff reaffirmed earlier is still that 2% to 3% organic growth per quarter. Obviously, back in March, I think it was the 5th, you said, Jeff, we had the call, I talked about an annual number being in that 2% to 3% range. Well, just factor in what we just turned in. Even if we do that going out, it may drag it a little bit.

But I would also say that regardless of weather, we're right into the year mark of Cathy Newhouse taking over our sales division for us. And she's done some very creative things and also some very fundamental things. For example, in the quarter alone, planned, regardless of weather, we turned over 40 of our lowest PCRs, our patient care reps, which are our sales folks, and since that same time on-boarded 37. So weather was absolutely the primary driving force behind it, but in order to generate this we're still doing the same things that we kind of talked about at year's end with our salesforce.

Got it. That's helpful. What about the competitive landscape? We just heard an hour ago that a large competitor is planning to exit Idaho and Wyoming. I think you guys actually moved into Idaho back in 2010. So wondering how that is going for you and wondering if you're seeing some opportunities from some disruption in the marketplace.

Yes, we're seeing that in every market we serve. I've said to a number of people recently, I -- having been at this for 20 years, this, for me, is most like what I experienced in -- or the Company experienced in the years of 1997 through let's call it 2000, certainly through 2000, maybe even on into 2001. But in those late 1990s where there was tremendous opportunity to pick up volume from providers that were struggling to maintain a level of service necessary to meet the needs of patients and referral sources. And we were able to capitalize on that by being more efficient and being just quicker on our feet to evolve into a new model to fit the new reimbursement challenges. And I just see us reliving that again. So I'll agree with that. I think it's just limited to Idaho. I mean, again, we're seeing it everywhere.

Are you interested in buying any of those assets that are out there, Keith? Have you had any discussions with people selling? I mean, we know that you always do pick up some new locations, like West Virginia and North Carolina. But what about specifically in Idaho and Wyoming?

Yes, Idaho and Wyoming are not -- wouldn't be on our primary list unless they were hospital joint ventures, honestly. I mean we're very aggressive and you said are we talking to sellers. Well, that answer is definitely yes, but I assume you're talking about a specific seller.

Right, exactly.

I don't know of anything we have in the pipeline right now in Idaho. I don't [see it.]

Fair enough. And then just wondering if you can give us an update on Addus. Obviously, we heard about Deaconess and Elk Creek. It looks like the integration process is working well. Wondering how Addus is performing.

Yes. When I talked last time about Addus, I kind of (inaudible) and said that the Company made the decision -- I ultimately made the decision to convert to point of care, and took a little pain while we did it. But, now, we're very happy. Honestly, it's only about 170 basis points below the margin of where I thought it would be when we set forth and the trajectory now is steeper. So we really like where it's at.

But again, one of the things that we like to do is be utterly transparent. It is not where we want it in organic growth, but it's not because we're not doing a great job of adding new admissions. It's because when it was a conjoined asset with Addus, we preferred not to go into the same integrated care route that was existing and we actually lost volume because of that.

So what I'm trying to say is the hurdle rate is pretty high, but we like the way we've diversified the revenue. So that is another reason I want to very clear as to why I'm not really stepping out above that 3% organic rate because the trail of the same-store in April, believe it or not, is dragging it. So but I also don't want to give you the clue that we're worrisome about volume. We think it's a very healthy volume, sustainable growth trajectory off of that, and honestly, it's a good volume that we've been able to marginalize.

Got it. That's helpful, Don. And then just wanted to go back to Jeff. I think I missed some of the comments on what you expect for the full year. I got gross margin 40% to 41%. Did you give any other elements, maybe SG&A or anything else?

Yes, we said -- let me look back at my notes here, make sure I don't misspeak here. We expect that our G&A costs for the year to be between 32% and 33% and we expect that our bad debt figure to run about 2.1% for the year.

Got it. Thank you. Helpful. That's all I got, guys. Thanks.

Thank you.

Thank you. Our next question comes from the line of David MacDonald of SunTrust. Your line is open. Please go ahead.

A couple of questions. One, with these additional services that you're going to look to kind of layer in, can you give us a sense in the markets where you're offering all three services currently, are you seeing higher organic growth rates? And then, can you talk about the plans to kind of layer in these services? Will some of it be driven organically? Obviously, acquisitions I would assume would play a role, but just curious on a little more detail there.

Yes, a very good question, David. It absolutely is the case that when we have a collocated market, organic growth is much better. And what we want to be able to do is, if we're going to acquire to put this into these select markets, we're definitely going to acquire very small providers versus going out into the large market. But I will tell you, there's a lot of opportunity to do this, especially -- we've always talked about how we're rural but the recent acquisitions have gotten us into some bigger markets and there are providers available.

And the other part of this that is going to help our organic growth too is, remember, many times we have an opportunity to take a patient from a hospital partner, but the patient isn't homebound or demonstrate a skilled service need. So when we have now a community-based location, we can service that and honestly, we've done -- Carla and the team have done such a good job of marginalizing that, it is right below the home health margins right now. So we think organic growth as well as just that organic margin enhancement is going to be beneficial. And right now, we're strategically trying to do this so we don't overload what we can ingest. We have 20 strategic markets that we plan on doing this going forward into this year.

Great. And then guys, can you provide any color in terms of just the margin profile you're seeing in your agencies, where the point-of-care technology has been implemented and has been running for a while and the locations that are left where it hasn't been implemented? And as of the end of first quarter, or as of today, what percentage of your facilities now have -- and I know you're going to be done by the year end, but what percentage of facilities are now currently installed?

Yes, David, I can get you the exact numbers, but we're about 75% of the way through because remember, I said we'd probably put in Deaconess and Elk Valley. And it's been so predictable to have a 200 basis point improvement in that margin. But we've kind of been -- and that's what I was trying to allude to. As we see them mature and attain that 200 basis point improvement, we do see a slight decay as we're converting because you've got parallel and you've got PRN staff to come through.

But it really is going well and so well that Chris Stagg, who is our divisional leader that is taking responsibility for Deaconess, they want to move that up in the schedule. And so I'm excited about doing that, but that would also be inside of the third quarter and I'm a little concerned about it. So that's why I put in my prepared comments that I wanted to be cautious. And I said, to date, we plan on doing that, but if we ascertain that volumes are a little bit decayed or something, we may pull back.

But in summary, we're seeing the finish line with about a quarter of our total portfolio left in all service lines. And I think that 200 basis point improvement is what we're going to see going into 2015 for the portfolio that's going to be less than 12 months old.

Okay. And then just last question. Keith, I don't know if you want to get into this level of detail, but you mentioned multiples on acquisitions. Can you give us a sense of where those are kind of shaking out right now and how much you've seen them come in as the world has adapted to kind of the new reality of what's going on?

Yes. So I guess there's always -- well, there are two ways we've looked at it. I mean, one is as a revenue multiple. And I would say the high point was probably in 2007 or 2008 at like 1.5 times revenue. And now, we're seeing the fairway being somewhere close to 0.5 times revenue. And then, on EBITDA multiples, kind of depends where EBITDA is. But as, I guess, just rule of thumb, I would think we're around five to six. But of course, EBITDA is pretty down. I mean a lot of the acquisitions that we make we're just really buying geography. So we're buying something with a really low revenue base that's usually breaking even or maybe even losing money. We're just trying to get a beachhead in a certificate of need area.

And on properties where there was legitimate EBITDA in the late 2000s, that was running around 7 times, 8 times for a good property, is that correct?

At least, at least. And you also have another challenge now if you -- there are home health agencies that could come to market that we see that have margins ginned up. If you see a home health operation today that's got 15% or greater EBITDA margins on significant volume, some kind of -- some red flags go up for us because that's really not sustainable. So you don't want to buy that on an EBITDA multiple.

Okay. Thanks you.

Thank you. Our next question comes from the line of Matthew Gilmore of Robert Baird. Your line is open. Please go ahead.

Good morning, everyone. Just a follow up on the point-of-care question, and Jeff, I may have missed this number, but can you give a sense for what the cost has been as you roll this out? And then I presume, similar to the margin commentary that that, whatever costs you're bearing would then go away in 2015. Is that a good way to think about it?

Yes, I think it is. Kind of going forward, our experience has been once we've implemented our point-of-care systems that the operating margins of those agencies, those locations, have improved by 150 to 200 basis points of margin improvement. Part of that investment is CapEx but another part of it is our operating costs, training costs around the implementation. But then we've got offsets with the staff. We have staff reductions over the automation. So all that's sort of blended together, I don't have the full inception-to-date costs in front of me, but it's been a substantial CapEx investment. I can speak to that.

But I guess the 200 basis points you're talking about, that would be inclusive of sort of the cost that you're bearing as you roll that out?

That's exactly right, it is.

Okay. And then I guess this is probably for Keith. You mentioned you're discussing with banks your credit facility. But I just wanted to get a sense for the capacity you thought you might need as you look at your M&A opportunity. Or maybe a good way to approach it would just be to remind us where you're comfortable taking the leverage, given the opportunities .

Okay. So we've always said that we're really comfortable at two times pro forma EBITDA. The reason that we've never been there is because we didn't see the volume of opportunities at a price point that we'd want to step out with that type of financing. Now, we're seeing that. So that continues to be a checkpoint for us.

Now, we're comfortable going north of that if we can see ourselves paying back down to that two times leverage in a reasonable period of time. So you can kind of do the math around that.

But with regard to the credit facility, I'll let Jeff chime in a little bit more. I mean ideally, for what we see ahead of us right now, we'd like to take the credit facility up to $200 million probably and then again, as I said, take advantage of some lower interest rates that would be offered at that level.

Jeff, do you want to add anything to that?

No, I think you covered most of it, Keith. As Keith mentioned, we're interested in expanding both the amount of the credit facility. There's been interest to expand it over and above what we have currently. The rates in the market right now would in fact be slightly better than what we enjoy currently. So we're also looking at that. But again, all this is in kind of a middle stage with our bank group and we don't have any exact terms to cover at this point.

Okay. That's helpful in framing it up though. And then the last question just on the LTAC business. I know we've had a couple more months to sort of understand what the changes are. But can you just sort of remind us what you're thinking is there and if anything has really changed since we discussed this, I guess, last quarter?

No, nothing has changed. We're working with outside groups to help us analyze what our LTACs will look like and they'll be making a decision on that later this year, which direction we go. There are several options and we have also been comparing those with other LTAC operators that are doing the same thing that we're doing. There's some interesting diversification strategies about how providers are looking to use the beds differently. And we're uniquely positioned for that, because with the hospital joint ventures we have, where these LTACs are located.

So we have quite a few options. And I think what I'd say is -- I think this reiterating what we said in the last call. We're just evaluating all those options and then will come to a decision around that. And you should look to hear something more firm from us maybe toward the end of the summer or something.

Okay. Thanks very much.

(Operator Instructions) Our next question comes from the line of Toby Wann of Obsidian Research Group. Your line is open. Please go ahead.

Quickly, as we talk about multiple in the home health space kind of being at 10-year lows. can you kind of provide some commentary or some color about multiples in your other lines of business in terms of pipeline opportunities? It seems like everybody is going after community care now. So what kind of -- how have multiples trended in those disparate lines?

So hospice is off somewhat from its high. There's no question. But I guess it doesn't affect us as much because our strategy is a little different in home -- well, quite a bit different in hospice and home- and community-based services. In almost every case in those lines, we're looking to buy really small as a starting point in a market where we're already established as a leader in the home health business. So it's less likely that we would go out and buy a large multistate hospice platform, or multistate home- and community-based service platform.

Okay, no, that's helpful. Thanks. And then one other question in terms of kind of along those same lines. As you now have kind of rolled into getting some community care through the Deaconess acquisition, kind of how you think about your opportunities in terms of the hierarchy. Is it still home health first with -- in the markets that you've already kind of got a beachhead and you add in the ancillary services? Or has any of that thinking changed now that you've kind of had Deaconess on board just for a little bit?

No, it hasn't changed. It hasn't changed. I mean if we were to -- well, remember, when we acquired Deaconess, Deaconess came with the home- and community-based service in the state of Tennessee, but we were already very strong in the state of Tennessee in home health. So we didn't actually go in with home- and community-based services into a market we didn't have home health.

But if I could add to that, just the North Carolina deal that we just did, actually CBS is more substantive than home health. But over time, our plans are just the opposite, moving up because of that CON environment. So I think maybe differently stated, I don't think you'd see us go out in any of those others without home health still being the anchor.

Yes, I think that's -- thank you, Don. That's actually better. Because if there was an opportunity to acquire home- and community-based services as a first step, but a soon to follow second step would be to come in with home health, I mean, you could see us do that. So I don't want to [box myself] in.

But the overarching strategy here is to have home health and home- and community-based services in every market, to position us more favorably to participate in at-risk arrangements and population management strategies with hospital partners. That's where we're really headed.

Yes.

Okay, thanks. And then quickly, one follow-up on that as it relates to bundle payment initiatives, accountable care organizations, kind of your all's experience on any of that so far and kind of how you think about that on go-forward basis.

Yes. So we're -- I want to say we're excited about it. I mean, I'll say we're excited about it. We're excited about it because we only have a toe in the water. If we were in waist deep, I'd probably say we were a little bit scared.

But, no, the opportunities are significant for us because we've demonstrated through pilots going all the way back to 2010 with hospital partners, our ability to reduce re-hospitalization rates substantially. And by substantially, I mean cutting them in half in many cases through pilot programs. But we had no opportunity to benefit from that as a company. So we would run the pilot and test it, and prove we could do it, but then there was no funding for that program.

Now, with some of these at-risk arrangements that we're participating in, we have that opportunity. And we are participating in a round of [bundled 2s] coming up with hospital partners. And so we're excited about that. I guess I would say we're learning that business and we certainly like what we see at this point.

Okay. Thanks for that color. Appreciate it. Congratulations on the quarter.

Thank you. Our next question is a follow-up from the line of Kevin Ellich of Piper Jaffray. Your line is open. Please go ahead.

I think I might have just missed this, but noticed that the number of LTACs went down by one in the quarter. Is that correct? I guess --

Kevin, this is Don. It absolutely is correct. It was a satellite campus in a small town in Mamou, Louisiana that about a year ago at this time we had an exit strategy as the lease came up. So we actually added some beds to the host provider and closed it down. So the number went down, but the bed count stayed the same.

Okay. That's what I thought. Are there any other opportunities or anything you're looking at where we could see more consolidation like that, Don?

I don't think so, not right now. There is only one other campus of our Lafayette LTAC. It's in a smaller community of units. But because the other town, which was called Mamou, Louisiana, was very close to it, it was part of our approach to increase beds in Opelousas, but also make sure that that Eunice LTAC saw an increase in occupancy from the Mamou community. So I don't think any of the other ones we have in queue to do that right now.

Okay. Sounds good. Thanks.

Thank you.

Thank you. Our next question comes from the line of Ralph Giacobbe of Credit Suisse. Your line is open. Please go ahead.

Thanks. Good morning. You guys mentioned that April turned positive. I was hoping you could give us sort of the inter-quarter volume trends as well. Did it just sequentially improve in each quarter -- or, I'm sorry, each month?

Census did and April was just a little above the highest point at the end of March, when we started sweeping up. But it was really because of the extra day that we had. And again, the reason I'm saying that very cautiously is I was trying to be as clear -- Addus fell into same-store. So if I took Addus out, we'd extremely be smiling. But it's the hurdle rate of Addus. It's sequentially up but organically down, and so that's why I want to stick with that 2% to 3% modeling number for the quarter.

I will say this, we're seeing week-to-week improvement sequentially, not drastically but we're really starting to get our sea legs back under us from all the turmoil. And actually, it wasn't just the first quarter. We had a couple of issues in the first couple of weeks of April, too. But we are sequentially up, to answer your questions specifically.

All right. That's helpful. And then the non-Medicare visits showed both a year-over-year and sequential jump. Is that one of the deals that sort of drove that in terms of the weighted to non-Medicare?

It is. Yes. It's not a big move, but we are -- one of the reasons we're excited about participating in risk arrangements -- and it doesn't have to be full risk. It could be risk for re-hospitalizations or anything. It helps to do two things, to differentiate us from commodity rate home health competitors, people that are just providing home health at a per-visit rate below cost and not being very concerned about readmissions and the like. It gives us the ability to differentiate ourselves from them, of course. But more importantly, to benefit from the incentive and get rates to a margin that are closer to Medicare margins. And that's really important for us because of our hospital joint venture strategy.

We of course would like to be, in today's world, at 100% Medicare, but when you're joint ventures with many hospitals, as we are, we have to move those other patients out of the hospital. So that means we have to get better at negotiating more favorable rates with non-Medicare payers and we're moving the needle in that regard. We're feeling good about that.

Okay. I just want to flesh it out a little bit because if I look at just the -- on a per-visit basis the discount on the non-Medicare looks like it's about 15% sort of level. One, I guess is that the right way to think about it? And then, to your comment on the margin profile, is there a difference in the margin profile? Because it sounds like you're excited sort of about that opportunity to sort of manage more risk. So I'm just trying to sort of reconcile, one, the revenue disconnect and then, two, if there's a difference in the margin profile between Medicare and non-Medicare at this point.

There is a difference in the margin profile between Medicare and non-Medicare, no question about it. Non-Medicare is lower than Medicare and we're trying to get those rates up.

Is it just a rate argument?

It's just a rate argument.

Okay, and then last one from me. I think last quarter you talked about higher costs associated with ICD-10. With the delays, do those costs get shifted out or are you still taking those on?

No, they're going to get shifted and pushed out to probably the beginning of next year. The good news is we have incurred very little so far and we're about to start ramping up. So they will get pushed out and not incurred, as we said they would.

Remind us, did you guys say how much that was?

(Multiple speakers) - the guys are telling me it was about $1 million to $1.5 million through the period of 2014.

Okay. Thank you.

Don't hold me -- I think we had only incurred about $150,000 so far so you can back that out.

Okay. All right. Thank you.

Thank you. And that does conclude our question and answer period. I'd like to turn the conference back over to Mr. Keith Myers for any closing remarks.

Okay. Thank you everyone and on behalf of LHC Group, thank you for taking the time to listen in and participate in our call this morning. As always, we're available to answer any questions that may come up between our quarterly calls. Have a good day and thank you for your confidence and support.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect. Have a great rest of your day.