Option Care Health Inc (OPCH) 2011 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the first-quarter 2011 BioScrip earnings conference call. During the presentation all participants will be in a listen-only mode. Afterwards, we'll conduct a question-and-answer session. (Operator instructions.) As a reminder, this conference is being recorded Tuesday, May 3, 2011.

I would now like to turn the conference over to Lisa Wilson, Investor Relations, BioScrip. Please go ahead, ma'am.

Good morning and thank you for joining us today. By now you should have received a copy of our press release, issued this morning. If you have not received it, you may access it through the Investor Relations section at our website. Rick Smith, President and Chief Executive Officer and MJ Graves, Interim Chief Financial Officer, will host this morning's call.

The call may be accessed through our website at bioscrip.com. A replay will available shortly after the call. Interested parties can access the replay by dialing 800-633-8284 in the US and 402-977-9140 internationally, and entering access code 21521052. An audio webcast will also be available under the Investor Relations section of the BioScrip website at www.bioscrip.com.

Before we get started, I would like to remind everyone that any statements made on the call today, or in our press release, that express a belief, expectation, or intent, as well as those that are historical facts, are considered forward-looking statements and are protected under the safe harbor of the Private Securities Litigation and Reform Act. These forward-looking statements are based on information available to BioScrip today, and the Company assumes no obligation to update statements as circumstances change.

These forward-looking statements may involve a number of risks and uncertainties which may cause the Company's results to differ materially from such statements. Forward-looking statements are subject to inherent risks and uncertainties surrounding future expectations generally, and may differ materially from actual future experience. Risks and uncertainties that could affect forward-looking statements include the failure to realize annualized cost savings associated with any restructuring or cost reduction efforts; the impact of members of management in executing these efforts; our ability to leverage core competencies or maximize margins and operating cash flow; and the risks described from time to time in the Company's reports filed with the SEC, including the Company's Annual Report on Form 10-K for the year ended December 31, 2010.

In addition, as required by Regulation G, a reconciliation of non-GAAP financial measures mentioned during our call today to the most comparable GAAP financial measures can be found in Schedule 4 of today's press release. That schedule is available, as well, on our website under the link to News found in the About Us section of our home page at bioscrip.com.

And now I would like to turn the call over to Rick Smith. Rick?

Thank you, Lisa. Good morning everyone. Thank you for joining today's call.

Overall, we are starting to realize the results of the restructuring efforts put in place in the fourth quarter of last year to lower our corporate overhead and improve our cost structure and competitive position. For the first quarter sequential gross margin increased to 17.6% and adjusted EBITDA increased to $16.6 million. This was a result of positive shifts in our revenue mix and cost reduction initiatives resulting from our strategic assessment.

Additionally, we generated strong operating cash flow through improved inventory management, as well as other working capital activities. We believe we will see further improvements over the next several quarters. While the first quarter is a positive step in the right direction, we do not want to get ahead of ourselves. We are in a period of transition and there is still more work to do.

MJ will provide more detail on the financial results; however, I will highlight some key items. As we expected, sequential revenue was down compared to the fourth quarter. A large component of this decrease is the result of our decision to exit $15.6 million of certain low-margin Pharmacy Services revenue in this quarter. This was offset by revenue growth in other areas.

Our Pharmacy Services segment continues to be a solid contributor and we are leveraging its strong clinical reputation to achieve positive results. As a result, the segment experienced revenue growth of 13.8% year over year. This is primarily driven by the new managed care contract we started in the fourth quarter of last year, the Drugstore.com revenue, and oncology revenue growth compared to the fourth quarter and year over year.

March 25th marked the one-year anniversary of our introduction of CHS into the BioScrip family, which continues to positively impact the Infusion/Home Health segment. We are leveraging our national reach and local approach to patient service and continue to build managed care relationships which are important to the growth of our business. We are also seeing benefits from our Centers of Excellence model, which is aimed at improving patient adherence, compliance, and retention.

Consistent with our more disciplined approach to our business, we discontinued $3 million of chronic legacy BioScrip infusion business which was reported in the first quarter of 2010. On a comparative basis, BioScrip legacy infusion revenue grew 11% year over year. Excluding the impact of the seasonal drug Synagis, CHS revenue grew 9% year over year. In regards to Synagis, this is another specific area where we are discontinuing or decreasing the level of business due to its low profitability.

Our primary focus is to drive profitable organic revenue growth across the Company and increase operating cash flow generation. This comes from the excellent efforts of our sales, clinical services, reimbursements, operations and corporate teams. We are also focused on deepening and expanding our referrer relationships to provide an opportunity to demonstrate our full offering of capabilities. We believe we have excellent prospects to continue to build organic revenue in the areas where we have decided to concentrate our resources.

Regarding the operational improvements and cost savings identified in the strategic assessment, we have already implemented substantially all of the $15 million in annualized savings. The results of these initiatives are expected to be full realized in future periods. Additionally, based on incremental analysis completed in the first quarter, we are now starting to pursue the next $5 million in savings we believe could be attained. We expect a portion of this to be realized in the second quarter, with the remainder to be realized in the second half of the year, and fully in 2012.

Overall, we are focused on keeping our expenses in check with tighter management of our vendors and discretionary spending, in an effort to keep costs down and create future savings. We believe we have a clear path forward to right-size our cost structure and improve our revenue mix. We recognize that meeting the needs of our patients and delivering a high-touch, quality service is vital to our success. We are committed to leveraging our leadership position in providing comprehensive cost-effective infusion, home health, and pharmacy solutions.

And wrapping up, we will not be providing guidance today. We believe it is premature to do so at this time as we are still implementing the work of our strategic assessment.

With that, I will turn it over to MJ, who will take you through additional details on the financials for the quarter.

Thank you, Rick and good morning.

For the first quarter of 2011, we reported revenues of $439.3 million compared to $335.1 million for the same period a year ago, an increase of $104.2 million, or 31.1%, primarily as a result to the CHS acquisition. Infusion/Home Health Services revenue for the first quarter of 2011 was $110.5 million, compared to $46.1 million in the prior year, an increase of $64.4 million, or 139.6%. CHS revenue contributed $68.3 million (sic - see press release) during the first quarter of 2011. Pharmacy Services revenue for the first quarter of 2011 was $328.8 million compared to $289.0 million for the prior-year period, an increase of $39.9 million, or 13.8%, driven primarily by organic growth.

For the first quarter, gross profit increased to $77.3 million, or 17.6% of revenue compared to $38.9 million, or 11.6% of revenue in the prior-year period. This was the result to the CHS acquisition and other revenue enhancement initiatives already discussed.

SG&A for the quarter was $59.1 million, up from $36.4 million in the prior-year period, primarily due to the inclusion of CHS expenses. The Infusion/Home Health Services segment operates at a higher level of operating expense than the Pharmacy Services segment due to higher labor costs associated with the management of patient care.

The Company's income from operations was $10.4 million for the quarter compared to a loss of $6.3 million in the prior-year period. For the first quarter, interest expense was $7.3 million compared to $3.2 million in the prior year as a result of the CHS acquisition. Net income for the first quarter was $2.9 million, or $0.05 per diluted share compared to a net loss of $7.2 million, or $0.18 per share in the prior year.

During the first quarter of 2011, BioScrip generated $25.1 million of segment-adjusted EBITDA, or 5.7% of total revenue, compared to $10.8 million, or 3.2% of total revenue in the prior year. Infusion/Home Health generated $11.5 million of segment-adjusted EBITDA, or 10.4% of associated revenue, and Pharmacy Services generated $13.7 million of segment-adjusted EBITDA, or 4.2% of associated revenue. On a consolidated basis BioScrip reported adjusted EBITDA of $16.6 million, or 3.8% of total revenue compared to $2.7 million or 0.8% of total revenue in the prior year.

Turning now to our cash flows, in the first quarter net cash generated from operating activities totaled $31.7 million, compared to $21.3 million of cash used in operating activities in the prior-year period.

From a balance sheet perspective, we continue to have the financial flexibility to support our future cash flow priorities and are in compliance with all of our debt covenants. Our total borrowings under the revolving credit facility have decreased from $81.2 million at year end to $52.4 million as of March 31st, 2011.

To give you an update on the progress of our strategic restructuring, I'm going to highlight a few key items. On a sequential basis our gross profit margin increased from 16.1% in Q4 to 17.6% in Q1. The margin improvement was primarily the result of a profitable shift in the product mix, with growth in our cash card business as well as the termination of the low-margin business as noted by Rick.

Operating expenses decreased from $76.2 million to $66.8 million, a $9.4 million decrease of which $7.8 million relates to decreases in certain EBITDA adjusting items. These include bad debt related to contract terminations, acquisition and integration expenses, restructuring expense, and legal settlement expense. The remaining decrease of $1.6 million is due to cost savings in the quarter of $3.5 million offset by a revenue-driven increase in cash card broker fees of $1.9 million.

Adjusted EBITDA increased from $10.0 in Q4 to $16.6 million in Q1, an increase of $6.6 million. Earnings per diluted share for the quarter was $0.05 per share compared to a loss of $1.25 per share in Q4.

I will now turn the call back over to Rick.

Thanks, MJ.

As we continue to make incremental progress implementing and executing our strategic plan, we believe that through all of our focused and consistent work we have created a solid foundation from which to grow.

I also want to commend our employees and express my appreciation to the entire BioScrip team for their efforts during this transition period. We feel good about our start to 2011 with the strategy we have in place and look forward to building on our progress.

Now, with that, Operator, I'll open up the line to questions.

(Operator instructions.) Brooks O'Neil; Dougherty & Company.

Good morning, and congratulations on a terrific start to the year. As you might imagine, I have a few questions. I'll probably just ask a couple, and then hop back into the queue. But I guess I'd start with a question about whether you think that 17.6% gross margin level is sustainable? Is that a base line or was that due to seasonal factors this quarter?

Well, Brooks, the tough part, we've told you we're not going to provide guidance.

Right.

However, we are pleased with the margins, but we don't expect it to necessarily be linear while we're implementing the strategic assessment.

Sure. Okay, I think I understand that. So secondly, you mentioned, MJ, in your prepared comments a couple times the cash card business. Maybe you could just give us a little bit of background on that business. What exactly is it? Why were the expenses up? How do you view that business strategically going forward?

The cash card business has been a solid area of growth for us. As far as from a pure business perspective, what it represents is it is a mechanism that provides patients who do not have insurance coverage to buy this card and be able to get a discounted insurance-equivalent rate in obtain -- getting their prescriptions filled.

We work with a number of brokers with the cash card business. And that brokerage fee is really the key driver of what goes into the SG&A cost, is that revenue growth. We have a large number of participating providers within the network that are part of this. And as far as the growth we see there, we see it as a combination of things. One is we have very good broker relationships. And number two, in spite of all of the healthcare reform, there still is significant need of patients to have some type of pharmaceutical coverage. They just don't have that today.

As far as how that affects the financials, Brooks, what you're going to see in the financials is growth in the revenue, but you will also have a corresponding increase in the brokerage fees. It's a variable cost that's associated with that revenue growth. So as we have that growth in the revenue you're also going to see some increase in the SG&A. But you're not going to see an impact to gross margin.

Okay. I think I understand that. I'll just one more for now and then I'll hop back into the queue. I'm just curious, as you look at your home infusion business, I think if we strip out the legacy BioScrip infusion and the CHS contribution, revenue growth was relatively modest this quarter. And it's always struck me that you have tremendous long-term growth opportunities in that business. Is that how you would assess it today and do you think we could see a more sort of organic revenue growth in that business going forward?

Yes, I do. I mean, one of the things that we've been doing on the infusion side of the house, as Rick talked about in his comments, is the same thing we've been doing with other aspects of the business, and that's really trying to weed out some of the less profitable drugs and contracts. So even though that has put a little bit of pressure on the revenue lines, from a margin perspective we think we've uplifted the margins and we're in a good position going forward. Based on the relationships we have today and the specific clinical programs that we have, we still see this as a strong area of growth, especially as -- with all the pressures with healthcare reform, what everyone continues to look for is the low-cost provider.

Yes. Brooks, this is Rick. We had, as I mentioned in my comments, we had about $3 million in the BioScrip legacy in 2010, some revenue relationships we moved away from later in the year. And essentially, if you eliminate those, on an apples-to-apples year over year, the legacy side was up about 11%. And then on the CHS side, they had a huge concentration in Synagis, which, again, is a seasonal drug. But on an organic basis year-over-year comparative they were up 9% on the infusion side. So I think we still have a lot of work to do in terms of our managed care pull-through. And so I think we believe we're in the beginnings of just those initiatives. And so our expectations is with a lot of hard work we're -- our goal is to continue to organically grow that business in a very strong way.

That's great. And did I understand you to say that you were going to deemphasize the Synagis business going forward?

We look at our business, and that business, every year. And essentially, margins have come down in a lot of areas, especially this past season, as well as other restrictions on use. So we essentially saw a decrease from what CHS had done in the prior year. And I think every season we'll continue to assess whether or not it makes sense for us in a particular market.

Yes. You really have to look at it, Brooks, on a state-by-state basis.

And so you see some states where you have good opportunity and other states where maybe not so much?

Yes. And it's not necessarily directly tied with the recession, even though what we're all expecting is for the states to be putting more downward pressure on the margins. However, the states go through cycles. They'll see sometimes they push it too low and they'll come back. So it's not an automatic assumption. That's why every year you just have to reassess. At a certain point if a state presses too low and pushes too low, we may opt out that year -- and with the confidence that over time they're going to have to increase their rates again.

Yes. That's great. Okay, I'll hop back in the queue. Thanks a lot and, again, congratulations on a terrific start to the year.

Mike Petusky; Noble Financial Capital Markets.

Let me take another -- and I know you guys aren't providing specific guidance, but I want to take maybe a little different tact. In terms of the gross margin improvement, which was pretty remarkable for the quarter, I guess I, and I suspect some other investors, were probably were modeling 16% to 16.5%, or 16% to 17% throughout the year. Is it at least fair to say in general terms that maybe a new baseline is somewhere in the 17% or higher range? Can we at least say that based on the shedding of the contracts and some of these other factors?

Let me see if it would help you for me to respond in this way. As far as how we achieved it, I think the most important thing for you to hear is that it was not a one-off. It was not a result of a nonrecurring item. It is the result of specific supply chain initiatives. The restructuring efforts, which did impact cost of sales as well from the standpoint -- we have direct labor that goes into cost of sales, such a (inaudible) that we restructured employee benefits. That had an impact. Additionally, as we've talked about on the call, we've shed some of the low-margin business. That had an impact on revenues, in some cases revenues appearing a little bit flat. But you're seeing such an uplift in the gross margins. That's permanent as well.

Okay. It sound you're like you're not particularly walking me back from what I just said. Is that fair?

Yes.

That's fair.

Okay.

Yes. And I think that we've said before, Mike, that depends on the growth in the particular areas will impact what the overall margins end up being. So -- and we've seen specialty grow at a faster clip in some regards just based on net revenue per patient on the Pharmacy Services side versus the Infusion side as well. So I think it's -- the ultimate goal, as we've talked about, is to continue to look for improvements in everything we do. And so I think that we're happy with what was produced, but we still have more work to do as well.

Sure. Let's talk a little bit, because obviously you did a fantastic job on gross margin -- SG&A I was actually expecting a little improvement in terms of percentage of revenue. You didn't really get it. It was flat, actually slightly up. And I understand the cash card business probably impacted that. But I guess, looking at the fact that you guys said the $15 million of cost savings is implemented or has basically been implemented and will start to be recognized the next few quarters, and the other $5 million you're starting on, is it a fair assumption to -- I guess for me to suggest that we should start to see that number come down as a percentage over the next couple of quarters?

Well, actually, the way I look at it is if we're doing a good job growing our organic business, if we have organic growth and the business is growing strong, the tough part is you guys will not see it on one line. Because the growth we're having in the business overall is causing some increases to SG&A that are masking where the cost reduction is occurring. So we see that as good news, but it does make it more challenging for you. My recommendation would be let's focus on the bottom-line results. Let's take a look at what EBITDA is doing and follow the EPS.

But as far as where the impact of the cost reduction initiatives are occurring, we're seeing those both at the margin line as well as SG&A. As we discussed, with the SG&A we did have some increases in the broker fees, some increases in the other sides of the business as we're having some overall growth that drove that up a bit, that offset some of the reductions we had. Rather than trying to show a lot of bridges to show X, Y and Z increased these incremental amounts and then it was offset by this other, we're really trying just to rely on the bottom-line results and let that show for itself.

Okay. So if we're looking going forward I, I un- --

I think --

I think from our perspective, as we said when the initiatives began we said [they're] implemented in Q1, on our last call and again today. And so we expect to see the full realization of those. But I think what -- our focus is we identified $15 million of costs that could be taken out or reduced out of our existing infrastructure. There's going to be a level of increase based on staffing level that will be tied to revenue growth. That will be reflected in both the cost of sales as well as on the SG&A line, as well as in other areas. And so our focus is to take a look, as we talked about, in areas that don't touch a patient, don't generate revenue, don't collect cash or close our books. And so -- and everything continues to be looked at in terms of process improvement, efficiency, and streamlining. And so we feel good as we continue to monitor that $15 million block, that we're essentially there. And we'll see that continue to layer in in subsequent quarters. And then also take a look at the additional $5 million that we think we can attain in future quarters as well.

And Mike, to your point -- and I didn't mean to dodge that -- but to your point, we will see more of an impact in Q2 and Q3. Approximately 45% to 50% of that $15 million of savings went into effect at the beginning of the quarter for Q1. But there was also about 50% that went into effect mid-quarter or so, towards the middle part or even towards the end of the quarter. So we'll see more of a full impact on that basis.

And then, as far as our next stretch, a lot of those initiatives we've already checked off, but we may be seeing the savings of those more like in Q3 and Q4. We've got those implemented, but it's going to take a little bit of time for those costs to [fall] off.

Right. And of the -- and I'll get off this topic right after this question -- but of the --

That's okay.

Of the 50% of the $15 million and then the other $5 million that you guys are looking at, I mean, most of that -- or let me not even characterize it. How much of that is kind of on -- would hit the SG&A line versus the cost-of-goods line?

The majority. The majority's going to be SG&A.

Okay, all right, great. And one more, I guess, P&L question -- bad debt levels, is that a level that we kind of see, the level just reported, 1.15, I believe. Is that a percentage that is reasonable going forward, do you think?

The bad debt levels, if you pull out -- [you had] the prior-period's anomalies, as far as that contract termination, they've been fairly consistent. And the DSO, we've been pleased with it. It's been consistent as well. So I would agree that it's a good starting point for you. Obviously, a lot of effort's going on the back end as well as the front end of our processes. And we are always pressing for improvement. But as far as that as a baseline, I think that's fine.

Okay. And I guess another question -- Rick, I think you had said on the last call that the fourth quarter results were negatively impacted by the delay of the onset of flu season and then potentially you might benefit. Did that have much of a positive impact in Q1? Can you just talk about that?

Yes. We actually saw a continuation -- I think the industry did -- based kind of where the hospitals followed through in terms of census. But I think first couple of months that we saw on the acute side were a little bit softer than we anticipated. March came back very strong. And so we were essentially a little bit softer than our expectations in the (inaudible).

Does that mean anything in terms of the second quarter, or not really?

Right, I think we're seeing just -- our census growth was consistently strong each month in the first quarter and we're seeing some -- that strength continue. And so it's really about our call points and widening our call points as well. But I think a lot of the industry saw in February some softness, weather, in different markets as well.

And last question -- I've been getting a number of questions from investors about CFO, if there's a search on, if any offers have been made, where you guys are in that process. Any comment on that?

Well, MJ's committed to stay through -- for the duration through the year, which is, based on what we have going on, the work that we're doing, the project, she's fully committed to the success of our organization and what we need to do with our plan and execution of the plan. She's building -- essentially bringing the teams together in the finance organization. The morale has been significantly improved. The level of energy has significantly been upgraded as well. And so, she's working wonders in terms of that leadership and just bringing the organization together. So she's -- I'm happy to say she's staying. So we essentially have suspended indefinitely that search.

Okay, so she's still -- Interim is still on the business card, but effectively, at least through the end of this year, she's in the seat?

Yes.

Yes. I would say I have a year ahead of me. But I have told Rick that I am fully committed to this part of the project.

Okay. All right, great. Well, listen guys, great strides this quarter. Thank you.

Kyle Smith; Jefferies & Company.

Good morning, and I'll echo everyone else's sentiments that it's a great start to 2011. The strategic review, as long as obviously it's driving these sorts of sequential improvements, happy to see it continue. But do you have a sense as to how long you're going to be continuing a formal strategic review and when you might be in a position to issue guidance?

We said that we anticipated our work on the assessment would go to the first half of this year, Kyle. And so we'll essentially report with an update on our next call. But that's pretty much where we're at today and as we originally envisioned, all the work that was necessary and continuing to assess, refine, implement the different parts of our strategic plan.

Okay, great, so still looking to finish up the middle of the year. And then, with the contracts that you shed during the first quarter, is that something where we should continue to expect a material number of bits of less profitable Specialty Pharmacy to come off, so the top line might be impacted a bit by that? Or have you gotten rid of the bulk of that at this point?

Yes. We originally said on the last call we expect about $10 million to $15 million would go away on a quarterly basis; $15.6 million was reported. We had about $5 million in Q1 that will not show up in Q2. And so I think that's then, I think, the bulk of it.

Okay, great. And you briefly mentioned winter weather. Do you have any quantification of what the winter weather effect might have been? I know you've got a fair amount of exposure to the areas that were really hard hit this first quarter.

I think just the volume we anticipate is about $1.3 million in terms of impact to the quarter.

Okay, so not too much. And then, MJ, I just want to make sure I followed you correctly on the timing of the $15 million of savings. It sounds like half was in effect at the beginning of the quarter. The other half, call it mid-quarter, so we see 75% of that reflected in the first quarter, so another 25% of the $15 million should be showing up on a run rate basis. Correct?

Right.

Great. And then my last question has to do with the seasonality in the home infusion business. You talked a little bit about Synagis, which is mostly a winter revenue line. But as I look at the four quarters of EBITDA contribution from the segment I see stronger results in the second and third quarters of 2010, a little bit weaker EBITDA contribution in the fourth quarter and first quarter. Help me understand a little bit better how the seasonality plays out in that segment.

Well, I think the Synagis is typically from -- has been, depending on the state, October through about March, maybe early April. And sometimes it's year around in some states. But we also typically --- you should see a stronger build sequentially each quarter to the infusion business, with the first quarter typically being your lightest quarter, with a lot of discharges to homes in the holidays in the fourth quarter. And so we were impacted I think by a little bit of weather and other impacts in Q1. But the overall -- you know, that's really no excuse -- I think our overall objective is to build each quarter sequentially and essentially continue to build a strong foundation of both chronic and acute infusion business to insure that we're always stepping up in terms of revenue levels. And so we're -- I think that our Q1 was okay. I don't think it was great, and we still have a lot of work to do in terms of competitive market share pull-through on the infusion business as well.

Okay. So we probably shouldn't expect to see this level of differential between the winter half of the year and the summer half of the year in EBITDA performance by that segment going forward?

No. We've got some opportunities for continuing to improve operating performance in all areas of the business, including infusion.

Okay. Is the Synagis business, is that a negative contributor to EBITDA? I'm very surprised to see -- it's a $2 million or $3 million differential in the quarterly EBITDA in the past two quarters versus what you had last summer. And I'm trying to figure out how I should be shaping my expectations for this summer.

It's not a negative to EBITDA. Otherwise, we would question ourselves on why we were doing it to begin with. Even though, I will tell you, there are times that you may do a negative contributor because of a relationship, a referral on a payor relationship. But that's not the situation here. If you do Synagis well it will contribute a small amount, but it's not much. It's a very low-margin, low-profitability business. The objective, really, is to get the dispense out, make sure you adjudicate the claim before it goes out the door so you know you have no bad debt risk, and try not to touch it more than one time as far as the claim. You've got to make sure you process it efficiently.

Okay. I guess what I'm getting at is, as I think about the next couple of quarters, should I be keying off of the performance of the first quarter? Or should I be keying off the performance of the second quarter of last year as an indicator for the second quarter of 2011?

I would key it off of the first quarter because it's really a very low overhead factor.

Okay. Okay, great, thank you. That's very helpful and, again, congratulations on the nice rebound here in the first quarter.

(Operator instructions.) Brooks O'Neil.

I just had a couple more questions. First, I noticed in the 8-K you published yesterday that you have a new distribution agreement with Amerisource. Would you expect that to be a benefit to you all and, if so, could you help us to think about how much of a benefit?

It's part of a -- it's not immaterial -- but I think it's just a continuation of our supply chain initiatives. It's just simply an amendment to the agreement. I think we have a very strong supply chain organization and they're always identifying opportunities to continue to support the business and anticipate the direction we're heading. So I think it just was an opportunity for them to sit down with our partner, Amerisource, to go over some things that could be improved.

Great. And then, could you give us -- I think somebody mentioned one of your national managed care agreements. I think you have at least three potentially sort of newer ones, with United, Aetna and Humana. Can you just give us an update on how those are going and if you see additional opportunity, either with them or with other payors?

I think they're fine. I think we -- they're licenses to hunt. And we mentioned one investment we're making this year is in additional managed care sales force on a regional basis, as well as national. And so we've got a couple of new additions that have joined us, or within the last six months. And they're hard at work in terms of looking to identify areas for improving our pull-through and creating awareness within these plans as well. So we, as I said earlier, I think we can continue to do better and improve our positioning in all of our markets and relationships.

Great. And then, in the quarter, Rick or MJ, did you notice any particular strength or weakness in any of your key therapeutic areas or particular drugs? One I'm thinking about I'd just love an update on is your IVIG situation. But I'm just curious what you saw in some of the bigger therapeutic or clinical areas that you're focused on.

Yes, I think we -- as I said, little bit of impact on the antibiotic side. We saw a slight decrease from Q4 to Q1 in IVIG. Typically beginning of the year you have changes in insurance as well as delays in getting prior authorizations to get patients started. So that impacted us a little bit.

And then on the Pharmacy Services side we had strong growth in oncology, MS, and psoriasis on a year-over-year basis that continues to do well for us.

Great. And then the last question I have, I'm just curious -- I think MJ mentioned a little bit about payors and the situation with, for example, state Medicaid payors. But do you have any comments or insights with regard to what you're seeing from the payor environment? Is there a lot of pricing pressure out there or is it a kind of steady-state, business-as-usual kind of environment right now?

Actually, the biggest impact we probably had from a payor, Brooks, was Medicare on the nursing side. Medicare implemented a 5% cut to the nursing rate effective January 1. And it's had about $0.5 million impact on revenue for the quarter. It's about $2 million [a] year. So that was the biggest impact we had. The good news for us, we don't have huge exposure to Medicaid and it's a diversified risk. The diversified patient base that we have across 50 states, the concentration of where the patient base is, it doesn't put us in a vulnerable position with one state's budget. So at the present time we're not seeing any significant pressure that we're overly concerned about as far as what it would do to the revenue or to the margins, or our ability to serve the patients. It's obviously something we continue to monitor very carefully.

That's great. And then just -- I actually lied. I thought of one more question while you were talking about the nursing. It may be obvious to you or investors that I historically haven't focused unduly on the Home Health segment. Obviously it appears that that's an important component of what came in with CHS. Can you just give us a quick overview of that business and how you're doing there, whether you see significant opportunities or if that's going to just be a sort of steady business going forward?

Well, we've been pleased with home nursing. It's been almost like a utility stock, if you will. It's very steady. The cash is very reliable. The team that is based down in Mississippi -- that's where the nursing headquarters is located -- they do a magnificent job. The primary states -- not all the states, but the primary states that we're in are really Tennessee and Mississippi, even though we also do some nursing in Illinois and Kentucky. But I think one of the reasons that nursing has been so successful for us has been we have good geographic concentration in the markets where we are. We have good coverage of the states down in Mississippi and Tennessee and there's a nice complement with the infusion side of the business as well.

We find that the staff that we have on the nursing side tend to be innovators. They're very active in national nursing organizations. They do a lot of peer-to-peer networking to get a sense of what other large nursing agencies are doing to reduce their operating costs and deliver excellent patient care in a more efficient manner. I know that when I was with CHS I found from discussions with other large national nursing organizations that our group actually is more technology-proficient and has more of a constant drive towards operating improvements than what a lot of the larger corporate companies have experienced.

For example, our nurses out in the field, they've been using their note tablets or pads or notebooks for years to enter the patient information while you're in the field. And that may sound like a minor difference. Where a lot of the nationals are still doing paper and the nurses take it back to the office to fit it in at the office. You may think, okay, why would you want to pay a nurse at a higher rate per hour to do that paper input or do the patient input as opposed to a clerk. Well, the reason you do it is because you get the feedback right there while you're in the field in front of the patient if you have any issue with OASIS evaluation. So that's why we get better results

And we've got a great crew. We're very pleased with their results. We may -- to answer the second part of your question, we may look at some good tuck-in acquisitions or opportunities to expand. We're not opposed to that. But we obviously want to make sure that we do it in a logical way.

Sure. Well, that's great. Thank you for all of that information.

Mike Petusky.

Yes, this is just a real quick one. In terms of the gross margin improvement, you guys cited the increase in the cash card business, as well as the shedding of low-margin contracts. Is there any way to quantify, I guess, the relative impact of both of those, and maybe if there were any other factors that drove gross margin?

Well, supply chain initiatives were another factor.

And some of the cost in our $15 million was up in our cost of goods as it related to employee activities and other cost of goods related to those employees on the clinical side. So the Infusion/Home Health segment cost of goods includes those clinical services for patient care.

But is there any way to essentially say, "Okay, we had 150 basis points of incremental improvement sequentially. X amount was attributable to cash card growth. X amount was attributable to low margin." Is there any way to quantify that or just kind of give me a rough ballpark as to the relative impact of these different items?

Well, if you look in the improvement, probably the two biggest factors, the cash card growth represented about 60 basis points. The reduction in the wholesale was another 60 basis points. The supply initiatives were about 30.

Okay. All right. Great. Thank you.

And, Rick, we have no further questions at this time. I will now turn the call over to you.

Rick Smith. Okay. Well, thank you for your time this morning, and we'll talk to you, if not sooner, but on our next call. And I know a lot of BioScrip employees are on this call. So, again, thank you for all your efforts in contributing to our success this quarter. And you've got more to do this quarter. Thanks.

All right. Bye, everyone.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.