LHC Group Inc (LHCG) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to LHC Group fourth quarter 2014 earnings conference call.

(Operator Instructions)

As a reminder, this conference call may be recorded.

I would now like to hand the conference over to Mr. Eric Elliott. Sir, you may begin.

Thank you, Said, and welcome, everyone, to LHC Group's earnings conference call for the fourth quarter and year ended December 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.

In a moment, we'll hear from Keith Myers, Chief Executive Officer; Don Stelly, President and Chief Operating Officer; and Dionne Viator, 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 such events.

Now I am pleased to introduce the CEO of LHC Group, Keith Myers.

Thank you, Eric, and good morning, everyone.

We are pleased with our operating results and the overall performance of our company and our team in 2014. Our focus on reducing overhead costs, combined with the investments we've made in point-of-care technology and other foundational improvements over the past several years, is allowing us to improve operational efficiencies while at the same time improving quality and patient outcomes.

As mentioned on our last earnings call, we have now completed our organization-wide conversion to point of care and thus have eliminated certain general and administrative expenses and consolidated a number of locations in service area overlap markets as planned during the fourth quarter of 2014. These initiatives are expected to yield annual cost savings of approximately $8 million beginning in 2015.

Our organization-wide conversion to point of care has enhanced our competitive advantage in the marketplace by significantly elevating our capabilities in areas of disease management, clinical decision support, medication management, transitions in care, quality measurements, compliance, clinical care improvement, and expanded our capability to electronically exchange key clinical information with hospitals, physicians and other providers of care and commercial payers.

We now have the foundation and capacity to leverage our electronic health record dataset along with data we receive from partner health organizations and have the ability to integrate with ACOs in meaningful ways through bidirectional data exchange. In addition, we also have real-time access to all data, which gives us the ability to quickly identify gaps in care, identify emergent risk and apply evidence-based best practices to mitigate risk.

As we celebrate our first 20 years and look forward to the next chapter in our company's story, our proven healthcare delivery model and our proven track record of creating high returns on acquisitions, combined with our hospital joint venture strategy, positions us well to take advantage of the unprecedented growth opportunities ahead and to be the forefront of change as our country moves toward a more integrated healthcare delivery system.

From a growth standpoint, 2014 was a solid year for us in respect to being our single largest acquisitive year in the history of the Company. We acquired $105 million in aggregate trailing 12-month revenues and successfully integrated 57 new locations across 15 states. Given our organizational readiness and the level of consolidation expected to occur over the next several years, we anticipate exceeding our 2014 acquisition activity in 2015 and in the years ahead.

Another area of growth we are focused on are ACOs and bundled payment arrangements. We are currently involved in four ACOs and are participating in two separate Model 2 bundled payments for care improvement CMS projects. With regard to the four ACOs we are currently participating in, we have obtained preferred provider status, while in three instances we are receiving reimbursement at Medicare rates and in the fourth we have the ability to receive reimbursement in excess of Medicare rates if we achieve certain quality measures.

Managed care also continues to be an area of focus for us in terms of growth opportunity. Over the past year we've made significant strides with managed care payers by demonstrating our ability to lower their overall per-member, per-month cost, while at the same time improving quality and patient outcomes and lowering unnecessary and costly inpatient admissions.

As a result, we've been able to negotiate a share of savings and improve our rates by over 10% on average. We are encouraged by the strides we've made with managed care payers over the past two years and look forward to strengthening existing partnerships and continuing to strategically grow this area of our business.

I'll now turn the call over to Don and Dionne, but before doing so I'd like to congratulate and thank our entire team for their unwavering commitment to excellence. Your ability to consistently deliver high-quality care to the growing number of patients, families and communities we serve is a testament to the collective talent, work ethic and experience of the growing number of healthcare professionals who make up our LHC Group family.

Dionne?

Thank you, Keith, and good morning, everyone.

For the fourth quarter of 2014 our consolidated net service revenue was $193.4 million. Our adjusted net income was $7.7 million, and our adjusted fully diluted earnings per share was $0.45 per share.

For the year of 2014 our consolidated net service revenue was $733.6 million. Our adjusted net income was $24 million, and our adjusted fully diluted earnings per share was $1.39 per share.

Pretax adjustments for the fourth quarter and the year include $1.6 million of disposal costs on closures of three underperforming locations, $2 million for an impairment related to an acquired trade name, and $1.1 million in severance and lease termination fees related to closing and consolidating locations in the fourth quarter. This reduction in staff and termination of leases coincides with the completion of our conversion to point of care.

We also experienced a reduction in tax expense of $657,000 in the fourth quarter from the identification of additional deductions to be taking in 2014 as well as the retroactive reinstatement of the Work Opportunity Tax Credit Program.

On a business segment basis, home health revenue was $147.6 million in the fourth quarter of 2014 and $565 million for the 2014 year, as compared to $131.5 million and $523.5 million, respectively, in the same periods of 2013. Home health same-store revenue growth in the fourth quarter of 2014 was 2%, and 1.4% for the 2014 year, as compared to the same periods last year.

Hospice revenue was $18.3 million in the fourth quarter of 2014 and $67.6 million for the 2014 year as compared to $15.2 million and $56.2 million, respectively, in the same periods of 2013. Hospice same-store revenue growth in the fourth quarter of 2014 was 10% and 13.1% for the 2014 year as compared to the same periods last year.

Community-based services revenue was $9.4 million in the fourth quarter of 2014 and $27.7 million for the 2014 year, as compared to $832,000 and $3.2 million, respectively, in the same periods of 2013.

LTAC revenue was $17.4 million in the fourth quarter of 2014 and $70.4 million for the year 2014, as compared to $17.1 million and $71.9 million, respectively, in the same periods of 2013.

On a consolidated basis, our gross margin was 41.7% of revenue in the fourth quarter and 40.7% for the 2014 year, as compared to 42.4% and 41.7% of revenue in the same periods of the prior year. The decrease in year-over-year gross margin was principally driven by the revenue reductions associated with the 2014 home health reimbursement rule.

On a sequential quarter basis, our consolidated gross margin of 41.7%, compared to 39.7% of revenue in the third quarter of 2014, is an increase of 200 basis points. The sequential increase in gross margin is primarily due to the improvement in margins from recently acquired locations.

Our general and administrative costs in the fourth quarter of 2014 was 31.7% of revenue and 31.9% for the year, as compared to 33.5% and 32.5% of revenue in the same periods of 2013.

Our bad debt cost in the fourth quarter of 2014 represented 2.1% of revenue and 2.2% of revenue for the 2014 year, as compared to 2.5% and 2.1% of revenue for the same periods in 2013. The slight year-over-year increase in bad debt cost as a percent of revenue resulted from an increase in our commercial revenue as a percentage of our total revenue.

Our effective tax rate in the fourth quarter of 2014 was 37.5% and was 39.9% for the 2014 year. As I mentioned earlier, there was a $657,000 reduction to tax expense, which lowered the effective tax rate.

Regarding 2015 full year guidance, net service revenue is expected to be in the range of $755 million to $775 million, and fully diluted earnings per share expected to be in the range of $1.50 to $1.70. This guidance does not take into account the impact of future reimbursement changes, if any; future acquisitions; any future stock buyback or share repurchases, if made; any new de novo locations, if opened; or any future legal expenses outside the ordinary course of business, if necessary.

For the full year of 2015, we expect gross margin to be in the range of 40.5% to 41.5%, G&A as a percent of revenue to be in the range of 31% to 32%, bad debt as a percent of revenue to be in the range of 2% to 2.5%, and our effective tax rate in 2015 to be in the range of 40.5% to 41.5%. However, specifically, as we look at the first quarter of 2015, it should be noted when compared to the fourth quarter of 2014 that we will see a seasonal increase in payroll taxes of approximately $2 million.

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

Thank you, Dionne, and good morning, everyone, and thanks for listening in.

I'd like to start by recognizing and thanking our team as well. The manner in which you continually balance priorities is what allows us to produce and report these results as well as lay the foundation for the years ahead.

2014 had us celebrate our 20-year anniversary, brought to an end a 4-year conversion to electronic health technology and prepared us now to turn our full attention toward clinical innovation, service diversification and acquisition integration.

On the clinical front we have developed and are instituting care paths for mobility restoration, diabetes, congestive heart failure, COPD and hypertension. Inside of these major diagnostic categories our service models have been designed to increase patient encounters, decrease episodic cost and improve outcomes, especially emergent care avoidance. Early on, we are extremely pleased with the results, and as we go I will more clearly score the effect on key metrics such as cost per episode and ACH rates, and that will be for both commercial and Medicare populations.

Next is a quick update on market development. We now have 38 markets in which we have two or more in-home service lines. We have mapped out a total of 10 additional markets that we intend to develop in this year, 2015. This strategy, as well as our repurposed sales efforts, will build upon the organic admit growth produced by home care and hospice in 2014, rates of 1.6% and 6.8%, respectively.

We've experienced solid same-store growth in the past three-month period. Because of that fact our company census today is at a present all-time high, our average daily census up 623 patients, or 1.5%, since our last earnings call held on November 6.

Unfortunately, like so many others, we've had our fair share of weather-related issues around the country. More specifically, we have seen 149 of our agencies experience either partial or total closure inside of the quarter thus far, an interruption of 5,684 business hours. While we do not yet know the full effect on earnings, I can tell you that the weather has bumped February's daily admit run rate down by 56 Medicare admits per business day as compared to January.

Even so, we still believe our organic growth rate will fall somewhere between 2% to 2.5% for the full year and believe that our guidance recently issued factors all that we presently know into consideration. If we get through the next weeks and have a different perspective, we will, of course, let you all know through disclosure.

Lastly, and just touching on the subject of acquisitions, Keith stated that we integrated 57 locations and $105 million in trailing revenue last year. Our operations team is poised, ready and excited to top that record-breaking year again in 2015.

With that, I again thank you for listening to our prepared remarks, and now I'll turn it over to the operator to open the line for questions.

(Operator Instructions)

Ralph Giacobbe, Credit Suisse.

Thanks. Good morning. Do you embed any expectation from the relaxing of the face-to-face rules into your projections at this point?

Ralph, this is Don. Yes, as a matter of fact, a little more specifically I didn't -- I listed census in my prepared remarks about where we were in first quarter. If you remember, unfortunately we had weather problems last year, as well. But before we started on this weather run in the last two weeks we were running about a 12% organic growth rate.

And, while I can't really say that face to face has attributed to that substantially, I do know it does affect it in a positive light, because, remember, the change relieved the burden of the physician from creating that narrative. Now, internally, we're asking our teams, our nursing teams, to do that, but it absolutely has positively gained momentum and is attributory to that run rate. It's just unfortunate we kind of had a bump-down.

So it does affect us positively. And, honestly, you know that we're always conservative. I really believe that we could exceed that 2.5%. I'm just not ready to state this right now because I don't know kind of the headwinds ahead.

Okay, that's fair. And then just to be clear on the guidance, I think you mentioned the guidance does consider the last kind of couple weeks where you've seen a little bit of a blip down in terms of the census numbers.

Yes, it does. And, honestly, as we sit today, I think we feel good where we are anticipating the first quarter. What I don't know, and the reason I'm just a little hesitant, is that with the admit slowdown it's going to probably affect us in between another 60 and 100 days when the discharges come through. So if there'd be any hiccup it'd probably be in Q2.

But we're still very confident in our growth trajectory and the way we're turning around Life Care and Deaconess that we think we'll pick that up on the back end. So it does include where we sit today, yes.

Okay, all right, that's helpful. And then the revenue guidance maybe was a little bit light. Is that just from consolidating and maybe even shutting a couple of the locations? And maybe it'd be helpful if you gave us a sense -- I may have missed it if you gave it already -- of what the drag of those -- of that would've been to the top line and maybe the impact and how we should think about it to the EBITDA line.

Yes, if I remember, and Eric can tell me, I think we had about $10 million on the top line that was attributed to those closures. So although we see that decay, that helped us accrete on margin.

As we sit today, and it's mostly from Life Care and still a few from Deaconess, we're still running at about 21 agencies that have total drag. So the top line right now is mainly attributed to what we closed, but the accretion going forward is going to be the improvement on those two that I just mentioned.

Okay. That's helpful. And then maybe one more. When I do look at the margins, you ended kind of the fourth quarter looks like just under 10%. And I know there's seasonality, but based on sort of our math the midpoint of the guidance would put margins somewhere in the kind of 8.5% to 9% range. So just wondering how to think about the drivers on what would pull that margin down, considering all your kind of efficiency efforts, particularly around point of care.

Well, and that's true, and I guess common sense would take that fourth quarter and just map it through. But then again we've got things that we've tried to bridge, such as merit raises. We've got about $4.5 million to $5 million that is going to flow through. We've got things like ICD-10 that we're mapping through.

So those are the two main drivers. And if you want, offline, Eric has a whole spreadsheet that he can kind of walk you through. But in a nutshell those are the two biggest ones.

Okay. All right. Thank you very much.

Kevin Ellich, Piper Jaffray.

Thanks. Good morning. Keith, I was wondering if you could maybe give us some more color on your participation in the ACO model, and also I think you said you're in two of the BPCI initiative Model 2 plans. Is that right?

Yes, that's correct. So Don and I'll tag team that a little bit. First, with the ACOs what we're experiencing in most markets, to be honest, is people sticking a toe in the water in these ACO models. Right now we're not taking a lot of -- we're not taking any risk, really, in ACO models. It's just really a volume play. By becoming the preferred provider we increase our volume at Medicare or higher rates.

In the future we think there'll be potential for even more upside as we're allowed to participate in upside with -- in those programs. So I guess what I'm saying is it's accretive to us in terms of growing our volume, and at the same time it's a learning experience for us.

And the same applies to the two bundled payment arrangements. I mean, those we have a defined stake in the upside, and the same thing on the volume play. So all of the volume comes to us because we're in the bundle. Our interim reimbursement is at Medicare levels. And the savings we generate are from the patients moving downstream to home care out of more costly inpatient settings in those bundled arrangements, and then we're -- we have the opportunity to share on the backside in those savings we generate.

And, again, we're learning a tremendous -- we're learning tremendously in those experiments, and it's really helping us, more than anything, to fashion our arrangements with managed care payers and to develop innovative models where we can reduce their cost and then share in apportioning of the savings we generate with them to get our rates up to levels where we can afford to take that business and generate a margin.

Kevin, this is Don. I think I'll tag on. We are learning a lot, and what we're learning is that we like it.

A couple of maybe soft things is it's really creating alignment with us and the physician constituency. The Pioneer Medicare ACO that we're in is the one that Keith was alluding to had the upside.

But with what we learned and now that we're able to share data because of our point-of-care conversion we truly see it as an opportunity. But, again, I want to say what Keith said. We're really seeing that people are kind of dipping their toe in it, and we're excited to do it alongside, because the other four are really just volume plays. And we're really excited about it, and I don't think be surprised if we continue to do that and really add a lot to our market development in the coming months.

Great. And on the bundled plans, have you -- do you have to partner with another provider, and can you say which convener you guys have selected to work with?

Yes, sure. So in this round we're partnered with two hospitals -- talk about the hospitals? Yes, so it's Ochsner and West Tennessee Health System. And the analytics part and the convener is NaviHealth. NaviHealth is providing all of the analytics. And so the share and the savings is among those three partners, being LHC, NaviHealth and the partner hospital.

And then, is the -- you said you have defined upside. I guess what percent of the savings would you see? Is it an equal split between the three of you?

Yes, I don't think we can disclose that.

Yes, we can't. We can't disclose those terms.

Okay. No problem. Okay. Great. And then I guess just switching over to the acquisitions, very strong activity, got to see some upside this year. Keith, are we still looking and thinking about traditional home care home health, or is there something outside of the scope that we should be thinking about, as well?

Yes, that's a great question. So the answer is yes to the are we still thinking traditional. So, to remind you, we have a corporate development team that manages a pipeline of the let's call it traditional acquisitions that we've built the Company with -- hospital joint ventures and smaller-type regional freestanding opportunities.

And, I mean, we generally process somewhere north of 100 opportunities a year. And we'll pull the trigger on some percentage of that based on pricing and how much pressure's in the market. That continues to take place today just as it always has, and we're actually seeing our volume increase there.

But separate and aside from that, we've started managing a separate pipeline that we actually manage from the executive level, and it's larger opportunities like the Deaconess-type opportunities that are coming to market because of the -- all of the changes and the consolidation we see taking place.

So we wanted to seize on those opportunities, so we created these two separate initiatives. And so the combination of those two is what gives us a high degree of confidence that we're just going to see an acceleration in our acquisition growth.

And the timing is about as good as it could be for us, too. We have -- our balance sheet, as you know, is very strong, and so we're capable from that standpoint. We've talked about all the fundamentals being in place from compliance to completion of point-of-care conversion.

And we're able to project and perform in synergizing acquisitions like we've never been able to in the history of the Company. And then the opportunities are coming to market. So it's -- we just feel like now is the time to do it.

But, you know, Kevin, this is Don, I'll chime in. I don't want Keith's comment to mislead you. By traditional we're also -- don't be surprised if we do lead in markets with hospice or community-based services now, because we have some really good opportunities in the pipeline.

As you can tell from what Dionne talked about in her prepared comments, the addition of Elk Valley in Tennessee, which came through our Deaconess, is extremely accretive to us right now. We've learned a lot. And it's a synergistic service line in these tri and bilevel markets.

So, while I don't want to put fault on what Keith said, because he's absolutely right, I just wouldn't want you to be shocked if we were to announce something in a new market that is home health, hospice or community-based services.

Well said.

Great. Great. And then just one last one for Dionne. And I missed this, so you said that I think you guys will have a $2 million increase in payroll expense or tax, and I was just wondering when is that going to hit?

That'll be in the first quarter. That's just due to the timing of the new year. It's seasonal, happens at the first quarter of every year if you want to look back at the trending there.

That's helpful. Appreciate it. Thanks, guys.

Darren Lehrich, Deutsche Bank.

Thanks. Good morning, everybody. So I just want to pick up on the question around the acquisition piece, and, Keith, you're obviously dual tracking or managing two tracks, I should say, in terms of some larger deals that maybe are out there. I guess the question is the balance sheet's obviously in great shape to do more deals, but to the extent that you see larger deals out there, would you ever consider equity? I mean, just given the trading liquidity of your stock, it's certainly an obstacle, so is equity a factor in your thinking when you consider some of the larger deals, just given the balance sheet?

Yes, so the short answer is yes, if we have the need to. Right now we have -- our credit facility is at $225 million, and we're outstanding at about $60 million. So we -- right now we don't see that need short term. But of course if the opportunities come to market and we're able to integrate them, which I believe we've never been better prepared to do that, so we'd go to the market if we needed to do that to take advantage of those opportunities, absolutely.

Okay. That's helpful. And then two other things. Just first, I know you've identified the cost savings having an impact in 2015. I guess I'm curious to know was there any of that that spilled into the fourth quarter, or should we be thinking about the full annualization of this really effective in 2015?

Yes, this is Don, it did affect the fourth quarter. As a matter of fact, it even affected January so far, because part of our startup teams we were finalizing, as Keith alluded to, the conversion to point of care. So it affected both. But, again, I think I'd say that our guidance takes that into consideration. And if -- I don't want to get too far ahead of my skis -- if anything you'll see us ramp that EPS per quarter up, reflecting what I just said, as we go into the year.

Okay, but just so I'm clear, the impact of it, is it all $8 million that you expect to be for the year, or you expect to be at $8 million exiting 2015? I just want to make sure I'm hearing you correctly.

If you look at 2015 as compared to 2014, the delta of everything we've done would be the $8 million.

Got it. Okay. And then the last thing, I know you've mentioned the 2% to 2.5% organic growth assumption for 2015. Can you just maybe frame that a little bit differently? I'm assuming you're talking about volume, so to the extent that we put the other pieces of the puzzle together, rate from the Medicare side, I know there's obviously still some headwinds in home health, but between the various segments what your view is on Medicare rate. And then, Keith, I thought you mentioned some pretty impressive managed care-type rate increases. So how does that sort of fit into the pricing?

So I'll take maybe the first part on Medicare rate. The effect of the rule, essentially it was zero effect on us going from 2015 as compared to 2014. So if you're mapping those volumes out I'd keep pricing to where it's been consistent.

You'll notice in the filings that we've seen historically the admit growth rate not necessarily proportionalized to census. That's really because the length of stay on the newer patients that we've gotten with the Deaconess, with the Life Care and some other, have a shorter length of stay. I do think that you'd probably map that more congruent, so 2% to 2.5% on the volumes, both on census and on admits, and then I'd keep pricing solid. And then, Keith, on the managed care side, or Dionne, maybe you'd want to take a little bit of that.

So, on the growth side, I don't know if we're ready to start ramping -- telling you to ramp up growth on the managed care side. Because while the rates have improved by 10%, I don't want to -- I want to make sure you understand they're not at Medicare rates across the board. And so we do have to be careful about our payer mix in that regard.

But the good news is that the -- we have the right trajectory. Our rates are continuing to increase with payers. And I think the reason is that we're seeking to partner with them, not asking them to give us a handout or a better rate in exchange for nothing. We're proving to them our ability to lower their overall cost and then negotiating a share of the savings we generate.

Dionne, do you want to --?

Right. I think that overall these new payment methodologies with managed care payers are still a small portion of the overall payer mix, so minimal, if any, built into the projections and the guidance that we're giving. These are opportunities that we want to continue to work with payers in creating quality measures in a self-funded way to increase rates for ourselves, but to this point minimal impact on projections.

Okay. Great. Very helpful. Thanks.

Brian Hoffman, Avondale Partners.

Great. Thank you for taking the questions, and congrats on a very strong quarter. Another question on acquisitions. You stated that you're expecting some larger opportunities that are coming to market. That seems a bit different than what you've said in the past. Over the past few quarters you've been targeting more smaller operations. So can you just give a bit more color what in the environment has changed to allow some of these larger opportunities to come to market?

So, yes, so that's a good question. So we're not taking our focus in any way off of the highly accretive smaller acquisitions that we've always done. I want to make sure everyone gets that. Those are very core.

But with -- but on the larger acquisition front, it's not so much the acquisitions that are coming to market are processes being run. There are some of those. But we're reaching out proactively to people that we've talked to over the years that just weren't ready, and it was for a number of things. Just people thought there was still maybe upside, or in many cases we couldn't come to terms on what we thought the -- what we thought future reimbursement would look like, and now we have some clarity, so we're able to come to terms.

And then there've also been acquisitions that have occurred in the market that we all know about that have kind of gotten some of these potential sellers off the fence somewhat and thinking if not now, then when. And I think that's driving all of that. But, so does that help at all?

I mean, I think a big part of it, though, is just the efforts on our part. Like we've made a deliberate decision to manage a separate pipeline and activity. So we're not just waiting for an inbound call. We're actually, in a sense, budgeting for it and going out and pursuing those.

Okay. Great. Yes, that's very helpful. Thank you. And then on the revenue per patient day in the hospice segment, it looks like that ticked up both sequentially and year over year. Can you discuss what's driving that, and is that run rate from the fourth quarter sustainable?

Yes, that's a good question and good pickup. Actually what happened there is the third quarter was actually a little low, and the fourth quarter a little bit high. So I'd take the two of them and blend them together.

Got it. Okay. And then last question for me, maybe a bit bigger picture question, with hospitals starting to feel some impact from the readmission penalties, are you seeing any changes in your discussions with hospitals with respect to how they view home health or potentially what types of home health agencies patients are choosing to get discharge to? Thanks.

Yes, another good question. So we're seeing that, and we're seeing it in a big way. I can't remember the last time I've met with a hospital that didn't say that home health -- in the last year -- that didn't say that home health was a core strategy going forward. And contrast that to five years ago, we would go in and try to get on the radar screen. It was hard to get an audience.

So one of the conferences that we're very active in every year is the JPMorgan Healthcare Conference out in California. That was a good measure for me. Over the years we've had to really be aggressive in trying to get people to take meetings with us. And this year we had to bring two teams of people from the Company and work two tracks just to be able to facilitate all the meetings that were requested with us. So we're seeing a lot of activity. That's the good news.

The reality, though, is when you're dealing with health systems, especially nonprofit health systems, these conversations don't happen overnight. It can take many months and up to a year for one of those to consummate and turn into a contract and a joint venture. So the pipeline is greatly expanded, but it's just hard to judge all the timing.

Brian, this is Don. I think the add that I would put in there is that that need is there and is one reason we're so bullish on this bilevel and trilevel of care strategy, because the hospitals have a need to eliminate that patient going back, even if they're not homebound. And so our community-based service model kind of nestled up against traditional home health gives a solution to our partners, and we're seeing that what we think is tremendously effective in markets like UT right now, where we're full force into the trilevel of care market.

Great. That's very helpful. Thank you very much.

(Operator Instructions)

Toby Wann, Obsidian Research.

Hey. Good morning, guys. Thanks for taking the question, and congrats on the quarter. Just a quick question about deal pricing, if you'd kind of update us on kind of what you're seeing in multiples, people who are wanting those sorts of things and if it varies by home health versus hospice, if they're disparate and single silo.

Yes, sure. So I'll start on that. On hospice, generally speaking we're seeing around one times revenue being a pretty good baseline the way the market is now. On the home health side we see a lot of variation there. I mean, it's -- and that's because we see opportunities coming to us that are unprofitable and not very well managed from a cost standpoint. And so in those cases we're seeing multiples at -- from let's just say 0.3 to 0.6 times revenue, in that range, depending on how upside down they are. And we have to go and turn those around, so we factor all that in. On really well-run home health agencies, probably 0.8 to 1 times revenue.

And we tend to look at it from a revenue perspective, because if we go in and looked at a home health agency that has margins that are too high, in our opinion, we don't know if they're sustainable, so we try to really -- they may be wanting an EBITDA multiples, especially if they've run the margins up some in prepping for a sale. And so we tend to default then to that revenue number to make sure we don't overpay.

That's helpful. Thank you.

I'm showing no further questions at this time. I'd like to hand the conference back over to Mr. Keith Myers for closing remarks.

Okay. Thank you, operator.

On behalf of all of us here at LHC, thank you once again for taking 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 quarterly calls.

Have a great day, and thank you again for supporting and believing in the mission of LHC Group.

Ladies and gentlemen, thank you for participating in today's conference. That concludes our program. You may all disconnect, and have a wonderful day.