SPECIAL CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
When included in this Annual Report on Form 10-K, or in other documents that we file with the Securities and Exchange Commission (“SEC”) or in statements made by or on behalf of the Company, words like “believes,” “belief,” “expects,” “strategy,” “plans,” “anticipates,” “intends,” “projects,” “estimates,” “may,” “might,” "could," “would,” “should” and similar expressions are intended to identify forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a variety of risks and uncertainties that could cause actual results to differ materially from those described therein. These risks and uncertainties include, but are not limited to the following: changes in Medicarethe impact of the novel coronavirus pandemic ("COVID-19"), including the measures that have been and other medical payment levels,may be taken by governmental authorities to mitigate it, on our ability to open care centers, acquire additional care centersbusiness, financial condition and integrate and operate these care centers effectively,results of operations, changes in or our failure to comply with existing federal and state laws or regulations or the inability to comply with new government regulations on a timely basis, changes in Medicare and other medical payment levels, our ability to open care centers, acquire additional care centers and integrate and operate these care centers effectively, competition in the healthcare industry, our ability to integrate our personal care segment into our business efficiently, changes in the case mix of patients and payment methodologies, changes in estimates and judgments associated with critical accounting policies, our ability to maintain or establish new patient referral sources, our ability to consistently provide high-quality care, our ability to attract and retain qualified personnel, our ability to keep our patients and employees safe, changes in payments and covered services due to an economic downturn and deficit spending by federal and state governments, future cost containment initiatives undertaken by third-party payors, our access to financing, our ability to meet debt service requirements and comply with covenants in debt agreements, business disruptions due to natural disasters or acts of terrorism, widespread protests or civil unrest, our ability to integrate, manage and keep our information systems secure, our ability to comply with requirements stipulated in our corporate integrity agreement andrealize the anticipated benefits of acquisitions, changes in law or developments with respect to any litigation relating to the Company, including various other matters, many of which are beyond our control.control, and such other factors as discussed throughout Part I, Item 1A. "Risk Factors" of this Annual Report on Form 10-K.
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on any forward-looking statement as a prediction of future events. We expressly disclaim any obligation or undertaking and we do not intend to release publicly any updates or changes in our expectations concerning the forward-looking statements or any changes in events, conditions or circumstances upon which any forward-looking statement may be based, except as required by law. For a discussion of some of the factors discussed above as well as additional factors, see Part I, Item 1A, “Risk Factors” and Part II, Item 7, “Critical Accounting Estimates” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Unless otherwise provided, “Amedisys,” “we,” “us,” “our,” and the “Company” refer to Amedisys, Inc. and our consolidated subsidiaries and when we refer to 2017, 20162020, 2019 and 2015,2018, we mean the twelve month period then ended December 31, unless otherwise provided.
A copy of this Annual Report on Form 10-K for the year ended December 31, 20172020 as filed with the SEC, including all exhibits, is available on our internet website at http://www.amedisys.com on the “Investors” page under the “SEC Filings” link.
PART I
ITEM 1. BUSINESS
Overview
Amedisys, Inc. is a leading healthcare services company focused oncommitted to helping our patients age in place by providing clinically excellent care and support in the home. Our operations involve servicingserving patients across the United States through our three operating divisions: home health, hospice and personal care. We deliver clinically distinct care that best suits our patients' needs, whether that is home-based recovery and rehabilitation after an operation or injury, care that empowers patients to manage a chronic disease, hospice care at the end of life or providing assistance with daily activities through our personal care division.
We are among the largest pure play providers of home health and hospice care in the United States, with 421approximately 21,000 employees in 514 care centers in 3439 states within the United States and the District of Columbia. Our 17,900 employees deliver the highest quality care makingperforming more than nine11.5 million patient visits to approximately 369,000for more than 418,000 patients annually. Over 3,0002,900 hospitals and 59,00078,000 physicians nationwide have chosen us as a partner in post-acute care.
OurDue to the age demographics of our patient base, our services are primarily paid for by Medicare due to the age demographics of our patient base. Medicarewhich has represented approximately 75%73% to 80%75% of our net service revenue over the last three years. We also remain focused on maintaining a profitable and strategically important managed care contract portfolio. We continuously work with our payors to structure innovative contracts which reward us for providing quality care to our patients.
Amedisys is headquartered in Baton Rouge, Louisiana, with an executive office in Nashville, Tennessee. Our common stock is currently traded on the NASDAQ Global Select Market under the trading symbol “AMED”.“AMED.” Founded and incorporated in Louisiana in 1982, Amedisys was reincorporated as a Delaware corporation prior to becoming a publicly traded company in August 1994.
Our strategy is to becomebe the best choice for care wherever our patients call homehome. We accomplish this by excelling in clinical distinction,providing clinically distinct care, being the employer of choice and delivering operational excellence and efficiency, and drivingwhich when combined, drive growth. Our mission is to provide compassionatebest-in-class home health, hospice and personal care services that apply the most advanced clinical practices toward allowing our patients to maintain a sense of independence, quality of life and dignity while delivering best in-classindustry leading outcomes. We believe that focusingour unwavering dedication to clinical quality and constant focus on providing excellent careboth our patients and becoming an employer of choice across the United Statesour employees differentiates us from our competitors.
Our Home Health Segment:
Amedisys Home Health provides experienced, compassionate healthcare to help our patients recover from surgery or illness, live with chronic diseases and prevent avoidable hospital readmissions. We have grown ourOur home health footprint to 323includes 320 care centers located in 3433 states within the United States and the District of Columbia. Within these care centers, we deploy our care teams which include skilled nurses who are trained, licensed and certified to administer medications, care for wounds, monitor vital signs and provide a wide range of other nursing services; rehabilitation therapists specialized in physical, speech and occupational therapy; and social workers and aides who assist our patients with completing important personal tasks.
We take an empowering approach to helping our patients and their families understand their condition,medical conditions, how to manage itthem and how to live life tomaximize the fullestquality of their lives while living with a chronic disease or other health condition. Our professional and compassionate clinicians are trained to understand the whole patient – not just their medical diagnosis.
This commitment to clinical distinction is most evident in our clinical performancequality measures such as Star Ratings. In the Center for Medicare and Medicaid Services (“CMS”) reports for the January 2018October 2020 release, the Quality of Patient Care star average across all Amedisys providers is 4.224.33 with 88%92% of our providers at 4+ stars and 44 care centers rated at 5 stars. Our Patient Satisfaction average as offor the last knownOctober 2020 release was 3.56,4.28, outperforming the industry average of 3.36.by 7%. CMS plans to hold the reported October 2020 release data constant until January 2022. Our goal is to have all of our care centers achieve a 4.0 Quality Star Rating, and we are implementing targeted action plans to continue to improve the quality of care we deliver for our patients.patients and further our culture of quality.
Our Hospice Segment:
Hospice care is designed to provide comfort and support for those who are dealing with a terminal illness. It is a compassionatebenevolent form of care that promotes dignity and affirms quality of life for the patient, family members and other loved ones. Individuals
with a terminal illness such as cancer, heart disease, pulmonary disease Alzheimer’s, HIV/AIDS or cancerAlzheimer’s may be eligible for hospice care if they have a life expectancy of six months or less.
We operate 83Since 2019, we have acquired Compassionate Care Hospice ("CCH"), RoseRock Healthcare ("RoseRock"), Asana Hospice ("Asana") and AseraCare Hospice ("AseraCare"). With these acquisitions, Amedisys now owns and operates 180 hospice care centers in 2235 states, withinproviding care to more than 13,000 patients daily as the third largest hospice provider in the United States. Within these care centers, we deploy our care teams which include nurse practitioners and other skilled nurses, social workers, aides, bereavement counselors and chaplains.
At Amedisys Hospice, ourOur focus is on building and retaining an exceptional team, delivering the highest quality care and service to our patients and their families and establishing Amedisys as the preferred and preeminent hospice provider in each community
we serve. In order to realize these goals, we invest in tailored training, development and recognition programs for our employees, including medical record training, employee skills training and leadership development. This has led to our team’s consistent achievement at or above the national average in family satisfaction results and quality scores, as well as the trust of the healthcare community.
Another element of our approach is our outreach strategy to more fully engage the entire community of eligible patients. These outreach efforts have built our hospice patient population to more accurately represent the causes of death in the communities we serve, with a specific focus on heart disease, lung disease and dementia in order to address the historical underrepresentation of non-cancer diagnoses.
By working to accept every eligible patient who seeks compassionate end-of-life care, we fulfill our hospice mission and strengthen our standing in the community.
Our Personal Care Segment:
On March 1, 2016, Amedisys acquired its first personal care company – an important step in executing our strategy of improving the continuity of care our patients receive as their clinical needs change. We continued our strategy to expand our personal care segment in 2017 as we completed two additional acquisitions and currently operate 14 personal-care care centers in Massachusetts and one personal-care care center in Florida. We are continually looking to expand our personal care footprint to states where we have a strong home health and hospice presence.
Personal care provides assistance with the essential activities of daily living. We believe that personal care services are highly synergistic with our core skilled home health and hospice businesses, and that by acquiringexpanding these capabilities, we will be able to provide our patients and payor partners with a true continuum of care.
Amedisys acquired its first personal care company in 2016, an important step in executing our strategy of improving the continuity of care our patients receive as their clinical needs change. We continued our strategy to expand our personal care segment with four additional acquisitions. We currently operate 12 personal-care care centers in Massachusetts and one personal-care care center in each of Florida and Tennessee.
In July 2019, we signed an agreement with ClearCare, Inc. ("ClearCare"), the provider of the personal care industry’s leading software platform, representing 4,000 personal care agencies in every zip code in the United States. Our agreement with ClearCare creates an opportunity to establish a network partnership between Amedisys and the personal care agencies using ClearCare in order to better coordinate patient care. In August 2020, we signed a Care Coordination Agreement with BrightStar Care to add its agencies to the Amedisys personal care network, which helps facilitate the coordination of care between our home health and hospice care centers and a network of personal care partners. Long term, we believe these agreements will allow us to build a nation-wide network of personal care agencies and further our efforts to provide patients with a true care continuum in the home. These relationships will also help us as we continue to have innovative payment conversations with Medicare Advantage plans who have begun to recognize the value that combined home health, hospice and personal care services bring to their members and care delivery infrastructure.
Responding to the Changing Regulatory and Reimbursement Environment:
As the government continues to seek opportunities to refine payment models, we believe that our strategy of becoming a leader in providing a range of serviceservices across the at-home continuum positions us well for the future. Our ability to provide quality home health, hospice and personal care allows us to partner with health systems and managed care organizations to improve care coordination, reduce hospitalizations and lower costs.
Innovations:
As we continue to build our aging-in-place services, we intend to innovate around our core businesses to deliver new home based care models such as skilled nursing facilities in the home ("SNF@Home"). Additional innovation initiatives include the expansion of palliative care and telehealth which will also allow us to expand our primary businesses and accelerate our differentiated care delivery model.
Acquisitions:
On FebruaryJanuary 1, 2017,2020, we acquired Asana Hospice, a hospice provider with eight locations in Pennsylvania, Ohio, Texas, Missouri and Kansas.
On March 1, 2020, we acquired the regulatory assets of Home Staff, L.L.C. for a total purchase price of $4.0 million. Home Staff, L.L.C. owned and operated three personal-care care centers servicing the state of Massachusetts.home health provider in Washington.
On May 1, 2017 we acquired three home health centers (one each in Illinois, Massachusetts and Texas) and two hospice care centers (one each in Arizona and Massachusetts) from Tenet Healthcare for a total purchase price of $20.5 million.
On October 1, 2017,April 18, 2020, we acquired the regulatory assets of Intercity Home Care for a total purchase price of $9.6 million. Intercity Home Care owned and operated four personal-carehome health provider in Kentucky.
On June 1, 2020, we acquired Homecare Preferred Choice, Inc., doing business as AseraCare Hospice ("AseraCare"), a national hospice care centers servicing the state of Massachusetts.provider with 44 locations.
Financial Information:
Financial information for our home health, hospice and personal care segments can be found in our consolidated financial statements included in this Annual Report on Form 10-K.
Human Capital
Our Employeesemployees are critical to our vision to be the leading aging-in-place company. Taking care of our people is our top priority. Our success is directly correlated with our ability to continue to attract, develop and retain the most qualified and passionate employees. Our work is not just a job but a calling. Our workforce strategy emanates from our core values of SPIRIT - Service, Passion, Integrity, Respect, Innovation and Talent. We know that by taking care of our people, they can continue to provide industry leading patient care. Our mission has never been more important than has been demonstrated during this public health emergency.
As of February 23, 2018,19, 2021, we employed approximately 17,90021,000 people throughout the United States. We also utilize contract employees consistingin the normal course of approximately 10,900 home health careour business.
Diversity and Inclusion:
Diversity and inclusion is a business imperative. We endeavor to create a culture of caregiving where our employees 3,200 hospice carefeel as cared for every day as our patients do. Success means all team members feel a sense of belonging, support and empowerment to be their best selves personally and professionally. We have committed to giving our employees 3,100 personal carea voice and have instituted numerous formal listening programs - quarterly pulse surveys, focus groups and town halls - to routinely gather feedback from our employees and 700address any concerns. Our commitment to diversity and inclusion is also broadly reflected across our policies and people practices. During 2020, we established an employee-led Diversity and Inclusion Council to address company policies and procedures that will facilitate a supportive, positive and inclusive work environment for all employees at Amedisys, and we invested in inclusion training for all leaders in the company.
We are also committed to having a diverse Board of Directors. Women currently comprise over half of the directors on our Board, and in December 2020, we expanded the Board to add a woman of color.
Talent Acquisition, Retention and Development:
We strive to hire, develop and retain top talent. The core of our care delivery model is dependent upon attracting high demand clinicians, predominately nurses. We compete for talent by offering a great culture, an opportunity to provide the highest quality clinical care and competitive market-based compensation. Our compensation plans are designed to deliver a competitive base pay as well as attractive incentive opportunities, primarily for leadership positions, but also to reward quality care. We provide significant opportunities for development and continuing education as we know that career development is a key component of attracting and retaining top talent. We continually monitor and assess employee metrics on hiring, retention and terminations to gain a deep understanding of our workforce and drive continuous improvement.
Health and Safety:
The health and well-being of our employees is of utmost importance to us. We offer a comprehensive benefit package that provides employees and their families with access to a variety of innovative, flexible and convenient health and wellness programs that support their physical and mental health by providing tools and resources to help them improve or maintain their health status.
Our focus on the health and safety of our employees became even more critical during the novel coronavirus pandemic (“COVID-19”), and Amedisys took action to help protect, educate and care for our employees. Measures taken to provide support during this pandemic include:
•Developed clinical protocols for COVID-19 testing, proper usage of personal protective equipment ("PPE"), caring for COVID-positive patients and maintaining safety measures in our care centers;
•Created a COVID-19 Resource Center available 24 hours a day, seven days a week for employees to access educational materials, safety documents, policies, clinical protocols and operational metrics. Our focus is now on resources to help our clinicians get vaccinated as quickly and easily as possible in each of the states we serve;
•Implemented up to 14 days of paid leave during any required quarantine periods;
•Awarded SPIRIT bonuses to our clinicians and caregivers who have seen patients during the pandemic;
•Completed an early cash pay-out of employee paid-time off;
•Instituted work-from-home arrangements for our corporate and divisionaladministrative support employees.employees;
•Allowed employees to temporarily suspend any 401(k) plan loan deductions and offered employees the option of making a withdrawal from their 401(k) plan for coronavirus-related distributions without incurring the additional 10% early withdrawal penalty;
•Granted access to Teladoc services to all employees;
•Provided access to COVID-19 self-test kits to all employees;
•Procured millions in PPE and created a centralized distribution center for all critical PPE, allowing us to flex our inventory on a care center by care center basis, based on need and demand as further described in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations: Overview - Novel Coronavirus Pandemic ("COVID-19")."
Payment for Our Services
Our revenues are derived in large part from governmental third-party payors. Governmental payment programs are subject to statutory and regulatory changes, retroactive rate adjustments, administrative or executive orders and government funding restrictions, all of which may materially increase or decrease the rate of program payments to us for our services. It is possible that future budget cuts in Medicare and Medicaid may be enacted by Congress and implemented by CMS. Therefore, we cannot assure you that payments from governmental or private payors will remain at levels comparable to present levels or will, in the future, be sufficient to cover the costs allocable to patients eligible for reimbursement pursuant to such programs. See Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations: Overview - Payment" for additional information on the most recent regulations from CMS.
Home Health Medicare
The Medicare home health benefit is available both for patients who need home care following discharge from a hospital and patients who suffer from chronic conditions that require ongoing, but intermittent, care.
As a condition of participation under Medicare, beneficiaries must be homebound (meaning that the beneficiary is unable to leave his/her home without a considerable and taxing effort), require intermittent skilled nursing, physical therapy or speech therapy services, and receive treatment under a plan of care established and periodically reviewed by a physician. In order to provide greater flexibility during COVID-19, CMS has relaxed the definition of homebound status through the duration of the public health emergency. During the pandemic, a beneficiary is considered homebound if they have been instructed by a physician not to leave their house because of a confirmed or suspected COVID-19 diagnosis or if the patient has a condition that makes them more susceptible to contracting COVID-19. Therefore, if a beneficiary is homebound due to COVID-19 and requires skilled services, the services will be covered under the Medicare home health benefit.
Prior to January 1, 2020, Medicare payment rates arewere based on the severity of the patient’s condition, his or her service needs and other factors relating to the cost of providing services and supplies, bundled into 60-day episodes of care. An episode starts with the first day a billable visit is performed and ends 60 days later or upon discharge, if earlier. If a patient is still in treatment on the 60th day, a recertification assessment is undertaken to determine whether the patient needs additional care. If the patient’s physician determines that further care is necessary, another episode begins on the 61st day (regardless of whether a billable visit is rendered on that day) and ends 60 days later. The first daytable below includes the 60-day base episode payment rates.
| | | | | |
| Period | Base Episode
Payment |
| January 1, 2018 through December 31, 2018 | $ | 3,040 | |
| January 1, 2019 through December 31, 2019 | $ | 3,154 | |
| January 1, 2020 through December 31, 2020 (only applies to episodes beginning on December 31, 2019 or prior) | $ | 3,221 | |
Effective January 1, 2020, CMS implemented a revised case-mix adjustment methodology, the Patient-Driven Groupings Model ("PDGM"), to better align payment with patient care needs and ensure that clinically complex and ill beneficiaries have
adequate access to home health care. PDGM uses a 30-day period of care rather than 60-day episodes of care as the unit of payment, eliminates the use of the number of therapy visits provided in determining payment and relies more heavily on clinical characteristics and other patient information. The table below includes the base 30-day payment rates.
| | | | | |
| Period | Base 30-Day Payment |
| January 1, 2020 through December 31, 2020 (only applies to episodes beginning on January 1, 2020 and thereafter) | $ | 1,864 | |
| January 1, 2021 through December 31, 2021 | $ | 1,901 | |
PDGM uses timing, admission source, functional impairment levels and principal and other diagnoses to case-mix adjust payments. The case mix adjusted payment for a consecutive episode, therefore, is not necessarily the new episode’s first billable visit.
Annually, the Medicare program base episodic rates are set through federal legislation, as follows:
|
| | | |
| Period | Base Episode Payment |
| January 1, 2015 through December 31, 2015 | $ | 2,961 |
|
| January 1, 2016 through December 31, 2016 | $ | 2,965 |
|
| January 1, 2017 through December 31, 2017 | $ | 2,990 |
|
| January 1, 2018 through December 31, 2018 | $ | 3,040 |
|
Payments can30-day period of care may be adjusted for:up or down as a result of one or more of the following: (a) an outlier payment if our patient’s care was unusually costly (capped at 10% of total reimbursement per provider number); (b) a low utilization payment adjustment (“LUPA”) if the number of visits duringprovided was less than the episode was fewer than five;established threshold, which ranges from two to six visits and varies for every case-mix group under PDGM; (c) a partial payment if oura patient transferred to another provider or we received a patient from another provider before an episode was complete;completing the 30-day period of care; and (d) the applicable geographic wage index. Payments for routine and non-routine supplies, with limited exceptions, are now included in the 30-day payment rate.
As a payment adjustment based upon the level of therapy services required (with various incremental adjustments made for additional visits, with larger payment increases associated with the sixth, fourteenth and twentieth visit thresholds); (e) a payment adjustment ifMedicare provider, we are subject to periodic audits by the Medicare program, and that program has various rights and remedies against us if they assert that we have overcharged the program or failed to comply with program requirements. Home health providers are subject to pre- and post-payment reviews for compliance with Medicare coverage guidelines and medical necessity. Adjustments on this basis may include individual claims adjustments or overpayment determinations based on an extrapolated sample of claims. Medical necessity reviews evaluate whether services are clinically appropriate in terms of frequency, type, extent, site and duration. Technical billing and documentation reviews focus on documentation of services. Medicare and other payors may reject or deny claims for payment if the underlying paperwork does not support the medical necessity of services or fails to establish satisfaction of a coverage rule; such as if a provider is unable to perform periodic therapy assessments; (f) the number of episodes of care provided to a patient, regardless of whether the same home health provider provided care for the entire series of episodes; (g) changes in the base episode payments establishedassessments required by the Medicare program; (h) adjustments to the base episode payments for case mix and geographic wages; and (i) recoveries of overpayments. Medicare can also make various adjustments to payments received if we are unable to producecoverage criteria or cannot provide appropriate billing documentation, acceptable physician authorizations or acceptable authorizations.face-to-face meeting documentation.
Medicare can reopen previously filed and reviewed claims and deny coverage of the services and require us to repay any overcharges, as well as make deductions from future amounts due to us. In addition,the ordinary course of business, we make adjustments toappeal the Medicare revenue if we findand Medicaid program's denial of claims that we believe are unableinappropriate in an effort to obtain appropriate billing documentation, authorizations or face to face documentation.recover the denied claims.
Home Health Non-Medicare
Payments from Medicaid and private insurance carriers are episodic-basedeither a percentage of Medicare rates (60-day episode of care) or per-visit rates depending upon the terms and conditions established with such payors. Episodic-based rates paid byReimbursements from our non-Medicare payors that are based on Medicare rates are paid in a similar manner and subject to the same adjustments as discussed above for Medicare; however, these rates can vary based upon negotiated terms which generally range from 90% to 100% of Medicare rates. Approximately 30% of our managed care contract volume affords us the opportunity to receive additional payment if we achieve certain quality or process metrics as defined in each contract.
Hospice Medicare
The Medicare hospice benefit is also available to Medicare-eligible patients with terminal illnesses, certified bywhen a physician and specific clinical findings support a diagnosis of a terminal condition where life expectancy isthe patient has a terminal diagnosis of six months or less. Medicare rates are based on standard prospective rates for deliveringHospice care over a baseis evaluated in benefit periods; two 90-day orbenefit periods followed by an unlimited number of 60-day period (90-day episodes of care for the first two episodes and 60-day episodes of care for any subsequent episodes).benefit periods. Payments are based on daily rates for each day a beneficiary is enrolled in the hospice benefit. RatesThe daily payment rates are setintended to cover costs that hospices incur in furnishing services identified in patients' care plans, based on specific levels of care,care. Payments are adjusted by a wage index to reflect health care labor costs across the country and are established annually through federal legislation. We make adjustmentsPayments are made according to Medicare revenue when we find we are unable to obtain appropriate billing documentation, authorizations or face to face documentation and other reasons unrelated to credit risk. Thea fee schedule that has four different levels of care arecare: routine care, general inpatienthome care, continuous home care, inpatient respite care and respitegeneral inpatient care. Beginning January 1, 2016, CMS has
Medicare payment is provided for two separate payment rates for routine care: payments for the first 60 days of care and care beyond 60 days. In addition to the two routine rates, on January 1, 2016, Medicare also began reimbursingreimburses for a service intensity add-on (“SIA”). The SIA is based on visits made in the last seven days of life by a registered nurse (“RN”) or medical social worker (“MSW”) for patients in a routine level of care.
Adjustments for medical necessity and technical billing requirements may be made to Medicare revenue based on the same claims processing or medical necessity reviews described above for home health services when we find we are unable to obtain appropriate billing documentation, authorizations or face-to-face documentation and other reasons unrelated to credit risk.
We bill Medicare forTwo caps limit the amount of payment that any individual hospice services on a monthly basis and our payments are subject to two fixed annual caps, which are assessed on a provider number basis.can receive in a single year. Generally, each hospice care center has its own provider number. However,number; however, where we have created branch care centers to help our parent care centers serve a geographic location, the parent and branch may have the same provider number. In the 2017 final rule, CMS finalized a provision to align the cap accounting year for both the
•Inpatient Cap: The inpatient cap and the hospice aggregate cap for the years 2017 and beyond. As a result of this alignment, the annual caps per patient, known as hospice caps, which are calculated and published by the Medicare fiscal intermediary on an annual basis now cover the twelve month period from October 1 through September 30. The caps can be subject to annual and retroactive adjustments, which can cause providers to be required to reimburse the Medicare program if such caps are exceeded.
The two caps are detailed below:
Inpatient Cap. When we provide hospice care on an inpatient basis, the payments that we are entitled to receive at the higher inpatient reimbursement rate are subject to a cap. This cap limits the number of days that are paid at theof inpatient care rate (both respite and general) under a provider numberan agency may provide to 20%not more than 20 percent of theits total number of days of hospicepatient care (both inpatient and in-home) that is furnished to all Medicare patients served by the provider.days. The daily Medicare payment rate for any inpatient days of service that exceed the cap is set at the routine home care rate, and the provider is required to reimburse Medicare for any amounts it receives in excess of the cap; and
cap.•Overall Payment Cap.Cap: The overall payment cap is an absolute dollar limit on the average annual payment per beneficiary a hospice agency can receive. This cap is calculated by the Medicare fiscal intermediaryadministrative contractor at the end of each hospice cap period to determine the maximum allowable payments per provider number.
We estimate our potential cap exposure using information available for both inpatient day limits as well as per beneficiary cap amounts. The total cap amount for each provider is calculated by multiplying the number of beneficiaries electing hospice care during the period by a statutory amount that is indexed for inflation.
Payment rates for hospice care, the hospice cap amount and the hospice wage index are updated annually according to Section 1814(i)(1)(C)(ii)(VII) of the Social Security Act, which requires CMS to use the inpatient hospital market basket, adjusted for multifactor productivity and other adjustments as specified in the Social Security Act, to determine the hospice payment update percentage. The caps are subject to annual and retroactive adjustments, which can cause providers to be required to reimburse the Medicare program if such caps are exceeded. Our ability to stay within these limitationscaps depends on a number of factors, each determined on a provider number basis, including the average length of stay and mix in level of care.
Hospice Non-Medicare
Non-Medicare payors pay at rates differentthat differ from established Medicare rates for hospice services, whichand are based on separate, negotiated agreements. We bill and are paid by these non-Medicare payors based on such negotiated agreements.
Personal Care Non-Medicare
Personal care payments are received from payor clients, including state and local governmental agencies, managed care organizations, commercial insurers and private consumers, based on rates that are either contractual or fixed by legislation.
Controls overOver Our Business System Infrastructure
We establish and maintain processes and controls over coding, clinical operations, billing, patient recertifications and compliance to help monitor and promote adherence with Medicare requirements.
•Coding – Specified ICDinternational classification of disease ("ICD") diagnosis codes are assigned to each of our patients based on their particular health conditions (such as diabetes, coronary artery disease or congestive heart failure). Because coding regulations are complex and are subject to frequent change, we maintain controls surrounding our coding process. In order toTo reduce the associated risk of coding failures, we provide coding training and annual update training to clinical managers; providemanagers, as needed training to care center directors and clinical managers and training during orientation for new employees to ensure accurate information is gathered and provided to our coding team;team. In addition, our electronic medical records system (Homecare Homebase) includes automated edits for home health and hospice based on pre-defined compliance metrics. For home health, we also provide monthly specialized coding education;education, obtain outside expert coding instruction;instruction and have certified clinician coders review all patient outcome and assessment information sets (“OASIS”) and assign the appropriate ICD code. Our electronic medical records system (Homecare Homebase) includes automated coding edits based on pre-defined compliance metrics.
Additional training for our home health coders, clinicians, office staff and business development teams occurred throughout 2019 and 2020 in connection with the implementation of PDGM.•Clinical Operations – We provide education on coverage criteria and conditions of participation and utilize outside expert regulatory services if necessary. Regulatory requirements allow patients to be admitted toeligible for home health care benefits if through a face-to-face visit with a physician, they are considered homebound and requireit is determined that skilled nursing, physical therapy or speech therapy services.services are required. These clinical services may include: educating the patient about their disease;disease, assessment and observation of disease status;status, delivery of clinical skills such
as wound care;care, administration of injections or intravenous fluids;fluids, management and evaluation of a patient’s plan of care;care, physical therapy services to assist patients with functional limitations and speech therapy services for speech or swallowing disorders. In orderPatients eligible for hospice care are terminally ill (with a life expectancy of six months or less if the illness runs its normal course). Our hospice program provides care and support to help monitorour terminally ill patients with a 6-month prognosis and promote compliance with regulatory requirements, we provide education on Medicare Guidelinestheir families through services including medical care, counseling, spiritual care, pre-bereavement and Conditions of participation; hold recurrent homecare regulatory education; utilize outside expert regulatory services;bereavement support, medication management and have a toll-free hotline to offer additional assistance.
needed equipment and supplies for the terminal illness and all related conditions.•Billing – We maintain controls over our billing processes to help promote accurate and complete billing. In order to promote the accuracy and completeness of our billing, we haveWe conduct annual billing compliance testing;testing, use formalized billing
attestations; attestations, limit access to billing systems;systems, use automated daily billing operational indicators;indicators, and take prompt corrective action with employees who knowingly fail to follow our billing policies and procedures in accordance with a well-publicized “Zero Tolerance Policy”."zero tolerance" policy.
•Patient Recertification – In order to be recertified for an additional home health episode of care, a patient must continue to meet qualifying criteria and have a continuing medical need. This could be caused by changesChanges in the patient’s condition requiringmay require changes to the patient’s medical regimen or modified care protocols within the episode of care. The patient’s progress towards established goals is evaluated prior to recertification. As with the initial episode of care, a recertification requires orders from the patient’s physician. Before any employee recommends recertification to a physician, we conduct a care center level, multidisciplinary care team conference. Specific tools (e.g., recert/discharge decision tree) are used to ensure that the patient continues to meet coverage criteria prior to recertifying.
Hospice recertification for additional benefit periods of care require continued demonstration of a terminal prognosis as determined by the hospice physician in collaboration with the attending physician and the interdisciplinary care team.•Compliance – We develop, implement and maintain ethics and compliance programs as a component of the centralized corporate services provided to our home health, hospice and personal-care care centers. Our ethics and compliance program includes a Code of Conduct for our employees, officers, directors, contractors and affiliates and a disclosure program for reporting regulatory or ethical concerns to our compliance team through a confidential hotline, which is augmented by exit interviewssurveys of departing employees. We promote a culture of compliance within our company through educational presentations, regular newsletters and persistent messaging from our senior leadership to our employees stressing the importance of strict compliance with legal requirements and company policies and procedures. Additionally, we have mandatory compliance training and testing for all new employees upon hire and annually for all staff thereafter. We also maintain a robust compliance audit program focusing on key risk areas.
Our Regulatory Environment
We are highly regulated by federal, state and local authorities. The healthcare industry is subject to numerous laws, regulations and rules including, among others, those related to government healthcare participation requirements, various licensure and accreditations, reimbursement for patient services, health information privacy and security rules, and Medicare and Medicaid fraud and abuse prohibitions (including, but not limited to, federal statutes and regulations prohibiting kickbacks and other illegal inducements to potential referral sources, self-referrals by physicians and false claims submitted to federal health care programs). Regulations and policies frequently change, and we monitor changes through our internal government affairs department, as well as multiple trade and governmental publications and associations.
Our home health and hospice subsidiaries are certified by CMS and therefore are eligiblesubject to receive payment for services throughthe rules and regulations of the Medicare system.
We Additionally, all of our business lines are alsolikewise subject to federal, state and local laws and regulations dealing with issues such as occupational safety, employment, medical leave, insurance, civil rights, discrimination, building codes, environmental issues and adverse event reportingprivacy and recordkeeping. Federal, state and local governments are expanding the number of regulatory requirements on businesses.
We have set forth below a discussion of the regulations that we believe most significantly affect our home health and hospice businesses.
Licensure, Certificates of Need (CON)("CON") and Permits of Approval (POA)("POA")
Home health and hospice care centers operate under licenses granted by the health authorities of their respective states. Additionally, certainSome states require health care providers (including hospice and home health agencies) to obtain prior state approval for the purchase, construction or expansion of health care locations, capital expenditures exceeding a prescribed amount, or changes in services. For those states that require a CON or POA, the provider must also complete a separate application process establishing a location and must receive required approvals.
Certain states, including a number in which we operate, carefully restrict new entrants into the market based on demographic and/or demonstrative usage of additional providers. In such states, expansion by existing providers or entry into the market by new providers is permitted only where a given amount of unmet need exists, resulting either from population increases or a reduction in competing providers. These states rationlimit the entry of new providers or services and the expansion
of existing providers or services in their markets through a CON process, which is periodically evaluated and updated as required by applicable state law.
To the extent that we require a CON or other similar approvals to expand our operations, our expansion could be adversely affected by the inability to obtain the necessary approvals, changes in the standards applicable to those approvals and possible delays and expenses associated with obtaining those approvals.
In every state where required, our care centers possess a license and/or CON or POA issued by the state health authority that determines the local service area for the home health or hospice care centers. Currently, state health authorities in 1718 states and the District of Columbia require a CON or, in the State of Arkansas, a POA, in order to establish and operate a home health care center, and state health authorities in 129 states and the District of Columbia require a CON to operate a hospice care center.
We operate 228 home health care centers and 48 hospice care centers in the following CON states: Alabama, Arkansas (POA), Georgia, Kentucky, Maryland, Mississippi, New Jersey, New York, North Carolina, South Carolina, Tennessee, Washington and West Virginia,CON/POA states as well as the District of Columbia. We provide hospice related services in the following CON states: Alabama, Maryland, North Carolina, Tennessee and West Virginia.listed below.
In every state where required, our care centers possess a license and/or CON or POA issued by the state health authority that determines the local service areas for the home health or hospice care center. In general, the process for opening a home health or hospice care center begins by a provider submitting an application for licensure and certification to the state and federal regulatory bodies, which is followed by a testing period of transmitting data from the applicant to CMS. Once this process is complete, the care center receives a provider agreement and corresponding number and can begin billing for services that it provides unless a CON or POA is required. For those states that require a CON or POA, the provider must also complete a separate application process before billing can commence and receive required approvals for capital expenditures exceeding amounts above prescribed thresholds.
State CON and POA laws generally provide that, prior to the addition of new capacity, the construction of new facilities or the introduction of new services, a designated state health planning agency must determine that a need exists for those beds, facilities or services. The process is intended to promote comprehensive health care planning, assist in providing high-quality health care at the lowest possible cost and avoid unnecessary duplication by ensuring that only those health care facilities and operations that are needed will be built and opened. | | | | | | | | | | | | | | |
| State | | Home Health | | Hospice |
| Alabama | | 30 | | 11 |
| Arkansas (POA) | | 5 | | — | |
| Florida | | — | | | 6 |
| Georgia | | 60 | | — | |
| Kentucky | | 17 | | — | |
| Maine | | 2 | | — | |
| Maryland | | 9 | | 3 |
| Mississippi | | 9 | | — | |
| New Jersey | | 2 | | — | |
| New York | | 4 | | — | |
| North Carolina | | 8 | | 7 |
| Rhode Island | | 1 | | — | |
| South Carolina | | 22 | | — | |
| Tennessee | | 45 | | 15 |
| Washington | | 2 | | — | |
| West Virginia | | 11 | | 6 |
| Washington, DC | | 1 | | — | |
| Total Care Centers in CON States | | 228 | | 48 |
Medicare ParticipationParticipation: Licensing, Certification and Accreditation
Our care centers must comply with regulations promulgated by the United States Department of Health and Human Services and CMS in order to participate in the Medicare program and receive Medicare payments. Sections 1861(o) and 1891 of the SSA, 42 CFR 484.1 et seq., establish the conditions that a home health agency ("HHA") must meet in order to participate in the Medicare program. Section 1861(dd) of the SSA, 42 CFR 418.1, et seq., establishes the conditions that a hospice provider must meet in order to participate in the Medicare program. Among other things, these regulations, applicable to HHAs and hospices, respectively, known as “conditionsconditions of participation (“COPs”),” relate to the type of facility, its personnel and its standards of medical care, as well as its compliance with federal, state and local laws and regulations. CMS has adopted alternative sanction enforcement options which allow CMS (i)Additional COPs applicable to impose temporary management, direct plans of correction, or direct training, and (ii) to impose payment suspensions and civil monetary penalties in each case on providers out of compliance with the conditions of participation. On January 12, 2017, CMS finalized new COPs for home health agencies and published them in the Federal Register. These new COPs,HHAs, which went into effect on January 13, 2018, focus on the safe delivery of quality care provided to patients and the impact of that care on patient outcomes through the protection and promotion of patients' rights, care planning, delivery and coordination of services and streamlining of regulatory requirements.
CMS has adopted alternative sanction enforcement options which allow CMS (i) to impose temporary management, direct plans of correction or direct training and (ii) to impose payment suspensions and civil monetary penalties in each case on providers out of compliance with the COPs. CMS engages or has engaged a number of third party firms,contractors, including Recovery Audit Contractors (“RACs”), Program Safeguard Contractors (“PSCs”), Zone Program Integrity Contractors (“ZPICs”) and, Uniform Program Integrity Contractors ("UPICs"), Medicaid Integrity ContributorsContractors (“MICs”) and Supplemental
Medical Review Contractors (“SMRCs”), to conduct extensive reviews of claims data and state and Federal Governmentfederal government health care program laws and regulations applicable to healthcare providers. These audits evaluate the appropriateness of billings submitted for payment. In addition to identifying overpayments, audit contractors can refer suspected violations of law to government enforcement authorities.
All providers are subject to compliance with various federal, state and local statutes and regulations in the U.S. and receive periodic inspection by state licensing agencies to review standards of medical care, equipment and safety. We have dedicated internal resources and utilize external parties when necessary to monitor and ensure compliance with the various applicable federal, state and local laws, rules and regulations.
If we fail to comply with applicable laws and regulations, we could be subjected to liabilities, including criminal penalties, civil penalties (including the loss of our licenses to operate one or more of our businesses) and exclusion of a facility from participation in the Medicare, Medicaid and other federal and state health care programs. If any of our facilities were to lose its accreditation or otherwise lose its certification under the Medicare and Medicaid programs, the facility may be unable to receive reimbursement from the Medicare and Medicaid programs and other payors. We believe our facilities are in substantial compliance with current applicable federal, state, local and independent review body regulations and standards. The requirements for licensure, certification and accreditation are subject to change and, in order to remain qualified, it may become necessary for us to make changes in our facilities, equipment, personnel and services in the future, which could have a material adverse impact on our operations.
Federal and State Anti-Fraud and Anti-Kickback Laws
As a provider under the Medicare and Medicaid systems, we are subject to various anti-fraud and abuse laws, including the Federalfederal health care programs’ anti-kickback statute and, where applicable, its state law counterparts. Affected government health care programs include any health care plans or programs that are funded by the United States government (other than certain federal employee health insurance benefits/programs), including certain state health care programs that receive federal funds, such as Medicaid.
Subject to certain exceptions, these laws prohibit any offer, payment, solicitation or receipt of any form of remuneration to induce or reward the referral of business payable under a government health care program or in return for the purchase, lease, order, arranging for, or recommendation of items or services covered under a government health care program. Affected government health care programs include any health care plans or programs that are funded by the United States government (other than certain federal employee health insurance benefits/programs), including certain state health care programs that receive federal funds, such as Medicaid. A related law forbids the offer or transfer of anything of value, including certain waivers of co-payment obligations and deductible amounts, to a beneficiary of Medicare or Medicaid that is likely to influence the beneficiary’s selection of health care providers, again, subject to certain exceptions. Violations of the anti-fraud and abuse lawsfederal anti-kickback statute can result in imprisonment, the imposition of substantial civil and criminal penalties topping $100,000, plus three times the amount of the improper remuneration and potentially, exclusion from furnishing services under any government health care program. In addition, the states in which we operate generally have laws that prohibit certain direct or indirect payments or fee-splitting arrangements between health care providers where they are designed to obtain the referral of patients from a particular provider.
Stark LawsLaw
Congress adopted legislation in 1989,The Social Security Act includes a provision commonly known as the “Stark Law,Law.” that generally prohibited a physicianThis law prohibits physicians from ordering clinical laboratoryreferring Medicare and Medicaid patients to entities for the provision of designated health services for a Medicare beneficiary where the entity providing that service haswith which they or any of their immediate family members have a financial relationship, (including direct or indirect ownership or compensation relationships) withunless an exception to the physician (or a memberlaw's prohibition is met. These types of his/her immediate family), and further prohibits such entity from billing for or receiving payment for such services, unless a specified exception is available. The Stark Law was amended through additional legislation,referrals are known as “Stark II,“self-referrals.” which became effective January 1, 1993. That legislation extendedSanctions for violating the Stark Law prohibitions beyond clinical laboratory servicesinclude civil penalties up to $25,820 for each violation, up to $172,137 for schemes to circumvent the Stark restrictions and up to $10,000 for each day an entity fails to report required information and exclusion from the federal health care programs. There are a more extensive listnumber of statutorily defined “designated health services,” which includes, among other things, home health services, durable medical equipmentexceptions to the self-referral prohibition, including employment contracts, leases, and outpatient prescription drugs. recruitment agreements that adhere to certain enumerated requirements.
Violations of the Stark Law result in payment denials and may also trigger civil monetary penalties and federal program exclusion. Several of the states in which we conduct business have also enacted statutes similar in scope and purpose to the federal fraudanti-fraud and abuse laws and the Stark Laws.Law. These state laws may mirror the Federalfederal Stark LawsLaw or may be different in scope. The available guidance and enforcement activity associated with such state laws variesvary considerably.
We monitor all aspects of our business and have developed a comprehensive ethics and compliance program that is designed to ensure that Amedisys meets all applicable federal guidelines and industry standards. Nonetheless, because the law in this area is complex and constantly evolving, there can be no assurance that federal regulatory authorities will not determine that any of our arrangements with physicians violate the Stark Law.
Federal and State Privacy and Security Laws
The Administrative Simplification provisions of the Health Insurance Portability and Accountability Act of 1996, or HIPAA, requires us to comply with standards for the exchange of health information within our company and with third parties, such as amended (“HIPAA”), directed that the Secretary of the U.S. Department of Healthpayors, business associates and Human Services (“HHS”) promulgate regulations
prescribing standard requirementspatients. These include standards for electroniccommon health care transactions, such as claims information, plan eligibility, payment information and establishing protectionsthe use of electronic signatures; unique identifiers for the privacyproviders, employers, health plans and individuals; and security, of individually identifiable health information, known as “protected health information.” privacy, breach notification and enforcement.
The HIPAA transactionstransaction regulations establish form, format and data content requirements for most electronic health care transactions, such as health care claims that are submitted electronically. The HIPAA privacy regulations establish comprehensive requirements relating to the use and disclosure of protected health information. The HIPAA security regulations establish minimum standards for the protection of protected health information that is stored or transmitted electronically. The HIPAA breach notification regulations establish the applicable requirements for notifying individuals, the U.S. Department of Health and Human Services (HHS), and the media in the event of a data breach affecting protected health information. Violations of the privacy, security and securitybreach notification regulations are punishable by civil and criminal penalties.
The American Recovery and Economic Reinvestment Act of 2009 (“ARRA”), signed into law by President Obama on February 17, 2009, contained significant changes to the privacy and security provisions of HIPAA, including major changes to the enforcement provisions. Among other things, ARRA significantly increased the amount of civil monetary penalties that can be imposed for violations of HIPAA.HIPAA, and the amounts are updated annually for inflation. For 2020, penalties for HIPAA violations can range from $119 to $1.785 million per violation with a maximum fine of $1.785 million for identical violations during a calendar year. In 2018, a nation-wide health benefit company paid $16 million to HHS following a data breach. Prior to this record payment, the largest HIPAA fine was $5.55 million. ARRA also authorized state attorneys general to bring civil enforcement actions under HIPAA.HIPAA, and attorneys general are actively engaged in enforcement. These enhanced penalties and enforcement provisions went into effect immediately upon enactment of ARRA. ARRA also required that HHS promulgate regulations requiring that certain notificationscould be madein addition to individuals, to HHS and potentially toother penalties assessed by a state for a breach which would be considered reportable under the media in the event of breaches of the privacy of protected health information. Thesestate’s data breach notification regulations went into effect on September 23, 2009, and HHS began to enforce violations on February 22, 2010. Violations of the breach notification provisions of HIPAA can trigger the increased civil monetary penalties described above.laws.
ARRA’s numerous other changes to HIPAA delayed effective dates and required the issuance of implementing regulations by HHS. The Health Information Technology for Economic and Clinical Health (“HITECH”) Act was enacted in conjunction with ARRA. On January 25, 2013, HHS issued final modifications to the HIPAA Privacy, Security, and Enforcement Rules mandated byAmong other things, the HITECH Act which had been previously issued as a proposed rule on July 14, 2010. Among other things, these modifications makemakes business associates of covered entities directly liable for compliance with certain HIPAA requirements, strengthenstrengthens the limitations on the use and disclosure of protected health information without individual authorizations, and adoptadopts the additional HITECH Act enhancements, including enforcement of noncompliance with HIPAA due to willful neglect. The changes to HIPAA enacted as part of ARRA reflect a Congressional intent that HIPAA’s privacy and security provisions be more strictly enforced. These changes have stimulated increased enforcement activity and enhanced the potential that health care providers will be subject to financial penalties for violations of HIPAA. In addition, the Secretary of HHS is required to perform periodic audits to ensure covered entities (and their business associates, as that term is defined under HIPAA) comply with the applicable HIPAA requirements, increasing the likelihood that a HIPAA violation will result in an enforcement action.
In addition to the federal HIPAA regulations, most states also have laws that protect the confidentiality of health information. Also, in responseinformation and other personal data. Certain of these laws grant individuals rights with respect to concerns about identity theft, manytheir information, and we may be required to expend significant resources to comply with these laws. Further, all 50 states and the District of Columbia have adopted so-called “security breach”data breach notification laws that impose, in varying degrees, an obligation to notify affected persons and/or state regulators in the event of a data breach or compromise, including when their personal information has or may have been accessed by an unauthorized person. Some state breach notification laws may also impose physical and electronic security requirements regarding the safeguarding of personal information, such as social security numbers and bank and credit card account numbers, and that impose an obligation to notify persons when their personal information has or may have been accessed by an unauthorized person. Some state security breach notification laws may also impose physical and electronic security requirements.numbers. Violation of state privacy, security, and breach notification laws can trigger significant monetary penalties. In addition, certain states’ privacy, security and data breach laws, including, for example, the California Consumer Privacy Act, include a private right of action that may expose us to private litigation regarding our privacy practices and significant damages awards or settlements in civil litigation.
The False Claims Act
The Federal False Claims Act gives the Federal Government an additional way to police("FCA") prohibits false billsclaims or requests for payment for health care services. Under the False Claims Act,FCA, the government may finepenalize any person who knowingly submits, or participates in submitting, claims for payment to the Federal Government which are false or fraudulent, or which contain false or misleading information. Any person who knowingly makes or uses a false record or statement to avoid paying the Federal Government, or knowingly conceals or avoids an obligation to pay money to the Federal Government, may also be subject to fines under the False Claims Act.FCA. Under the False Claims Act,FCA, the term “person” means an individual, company or corporation.
The Federal Government has widely used the False Claims ActFCA to prosecute Medicare and other governmental program fraud in areas such as violations of the Federal anti-kickback statute or the Stark Laws, coding errors, billing for services not provided and submitting false cost reports. The False Claims ActFCA has also been used to prosecute people or entities that bill services at a higher reimbursement rate
than is allowed and that bill for care that is not medically necessary. In addition to government enforcement, the False Claims ActFCA authorizes private citizens to bring qui tam or “whistleblower” lawsuits, greatly extending the practical reach of the False Claims Act.FCA. In 2018, the Department of Justice ("DOJ") announced that the FCA penalties would once again be increasing. The per-claim penalty for violation of the False Claims Actrange is a minimum of $5,500 for each fraudulent claim plus three times the amount of damages caused to the government as a result of each fraudulent claim.between $11,665 and $23,331 (last updated 2020).
The Fraud Enforcement and Recovery Act of 2009 (“FERA”) amended the False Claims ActFCA with the intent of enhancing the powers of government enforcement authorities and whistleblowers to bring False Claims ActFCA cases. In particular, FERA attempts to clarify that liability may be established not only for false claims submitted directly to the government, but also for claims submitted to government contractors and grantees. FERA also seeks to clarify that liability exists for attempts to avoid repayment of overpayments, including improper retention of federal funds. FERA also included amendments to False Claims ActFCA procedures, expanding the government’s ability to use the Civil Investigative Demand process to investigate defendants, and permitting
government complaints inand intervention to relate back to the filing of the whistleblower’s original complaint. FERA is likely to increase both the volume and liability exposure of False Claims ActFCA cases brought against health care providers.
In March of 2010, as part of the Patient Protection and Affordable Care Act, (discussed in more detail below), Congress enacted new requirements related to identifying and returning overpayments made under Medicare and Medicaid. On February 12, 2016, CMS finalized regulations regarding this so-called “60-day rule,” which requires providers to report and return Medicare and Medicaid overpayments within 60 days of identifying the same.overpayment. A provider who retains identified overpayments beyond 60 days may be liable under the False Claims Act.FCA. “Identification” occurs when a person “has, or should have through the exercise of reasonable diligence,” identified and quantified the amount of an overpayment. The final rule also established a six yearsix-year lookback period, meaning overpayments must be reported and returned if a person identifies the overpayment within six years of the date the overpayment was received. Providers must report and return overpayments even if they did not cause the overpayment.
In November of 2015, the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 made the amounts of civil monetary penalties subject to adjustment for inflation and authorized a one-time catch-up adjustment for all penalties not previously subject to an inflation adjustment. In June of 2016, the Department of Justice issued a rule that more than doubled civil monetary penalties under the False Claims Act. These increases took effect on August 1, 2016 and apply to False Claims Act violations after November 2, 2015. Subsequent inflation adjustments have occurred by rule in February of 2017 and January of 2018. Each annual adjustment is applicable to penalties assessed after the date of the rule but applies only to conduct occurring after November 2, 2015.
In addition to the False Claims Act,FCA, the Federal Government may use several criminal statutes to prosecute the submission of false or fraudulent claims for payment to the Federal Government. Many states have similar false claims statutes that impose liability for the types of acts prohibited by the False Claims Act. As part of the Deficit Reduction Act of 2005 (the “DRA”), Congress provided states an incentive to adopt state false claims acts consistent with the Federal False Claims Act.federal FCA. Additionally, the DRA required providers who receive $5 million or more annually from Medicaid to include information on Federalfederal and state false claims acts, whistleblower protections and the providers’ own policies on detecting and preventing fraud in their written employee policies.
Civil Monetary Penalties
The United States Department of Health and Human Services may impose civil monetary penalties for a variety of civil offenses related to federal health care programs. They may be imposed upon any person or entity who presents, or causes to be presented, certain ineligible claims for medical items or services, for providing improper inducements to beneficiaries to obtain services, for payments to limit services to patients, and for offenses related to relationships with excluded individuals, among other things. The amount of penalties varies depending on the offense. Pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, the range of potential penalties significantly increased and, subject to annual inflation adjustments, range from over $4,000 to over $70,000, depending on the offense.
FDA Regulation
The U.S. Food and Drug Administration (“FDA”) regulates medical device user facilities, which include home health care providers. FDA regulations require user facilities to report patient deaths and serious injuries to the FDA and/or the manufacturer of a device used by the facility if the device may have caused or contributed to the death or serious injury of any patient. FDA regulations also require user facilities to maintain files related to adverse events and to establish and implement appropriate procedures to ensure compliance with the above reporting and recordkeeping requirements. User facilities are subject to FDA inspection, and noncompliance with applicable requirements may result in warning letters or sanctions including civil monetary penalties, injunction, product seizure, criminal fines and/or imprisonment.
Patient Protection and Affordable Care Act
In March 2010, comprehensive health care reform legislation was signed into law in the United States through the passage of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (collectively, “PPACA”). Since the 2016 election, it has been widely discussed that the PPACA will be “repealed and replaced.” The effect of any major modification or repeal of the PPACA on our business, operations, or financial condition cannot be predicted at this time.
It is difficult to predict the full impact of PPACA due to the law’s complexity and phased in effective dates, as well as our inability to foresee how CMS and other participants in the health care industry will respond to the choices available to them under the law. PPACA calls for a number of changes to be made over time that will likely have a significant impact upon the health care delivery system. For example, PPACA mandates decreases in home health reimbursement rates, including a four-year phased rebasing of the home health payment system that began in 2014 and continued through 2017. These reimbursement changes are described in
detail in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations: Overview – Economic and Industry Factors.” PPACA has established a number of new requirements impacting our business operations, and promises to give rise to other changes that could significantly impact our businesses in the future. For example, PPACA also mandates the creation of a home health value-based purchasing program, the development of quality measures, and the testing of alternative payment and delivery models, including Accountable Care Organizations ("ACOs") and the Bundled Payments for Care Improvement initiative. See Part I, Item 1A, “Risk Factors: Risks Related to Laws and Government Regulations” for a more complete discussion of PPACA and the risks it presents to our businesses.
The Improving Medicare Post-Acute Care Transformation Act
In October 2014, the Improving Medicare Post-Acute Care Transformation Act (“IMPACT Act”) was signed into law requiring the reporting of standardized patient assessment data for quality improvement, payment and discharge planning purposes across the spectrum of post-acute care providers (“PACs”), including skilled nursing facilities and home health agencies. The IMPACT Act requires PACs to begin reporting:report: (1) standardized patient assessment data at admission and discharge by October 1, 2018 for post-acute care providers, including skilled nursing facilities and by January 1, 2019 for home health agencies;discharge; (2) new quality measures, including functional status, skin integrity, medication reconciliation, incidence of major falls and patient preference regarding treatment and discharge at various intervals between October 1, 2016 and January 1, 2019;discharge; and (3) resource use measures, including Medicare spending per beneficiary, discharge to community and hospitalization rates of potentially preventable readmissions by October 1, 2016 for post-acute care providers, including skilled nursing facilities and by October 1, 2017 for home health agencies.readmissions. Failure to report such data when required would subject a facility to a two percent reduction in market basket prices then in effect.
The IMPACT Act further requires HHS and the Medicare Payment Advisory Commission (“MedPAC”), a commission chartered by Congress to advise it on Medicare payment issues, to study alternative PAC payment models, including payment based upon individual patient characteristics and not care setting, with corresponding Congressional reports required based on such analysis. The IMPACT Act also included provisions impacting Medicare-certified hospices, including: (1) increasing survey frequency for Medicare-certified hospices to once every 36 months; (2) imposing a medical review process for facilities with a high percentage of stays in excess of 180 days; and (3) updating the annual aggregate Medicare payment cap.
Pre-Claim Review Demonstration for Home Health Services
On June 8, 2016, CMS announced the implementation of a three yearthree-year Medicare pre-claim review ("PCR") demonstration for home health services provided to beneficiaries in the states of Illinois, Florida, Texas, Michigan and Massachusetts. The demonstration began in Illinois in August 2016 and was to expand to Florida for home health services that began on or after April 1, 2017; however, CMS suspended the program indefinitely but the agency can restart the demonstration in the announced states after providing 30 days' notice. The pre-claim review is a process through which a request for provisional affirmation of coverage is submitted for review before a final claim is submitted for payment. TheOn April 1, 2017, CMS paused the PCR Demonstration for Home Health Services while CMS considered a number of changes. CMS revised the demonstration to incorporate more flexibility and choices for providers, as well as risk-based changes to reward providers who show compliance with Medicare home health policies.
On May 31, 2018, CMS issued a notice indicating its intention to re-launch an HHA pre-claim review demonstration may resultproject. The original program had drawn criticism that it created significant administrative burdens and reduced access to care. Now called the Review Choice Demonstration for Home Health Services ("RCD"), the revised demonstration will give HHAs in the demonstration states three options: pre-claim review of all claims, post-payment review of all claims, or minimal post-payment review with a 25% payment reduction for all home health services. Under the pre-claim review and post-payment review options, provider claims are reviewed for every episode of care until the appropriate claim approval rate (90% based on a minimum of ten pre-claim requests or claims submitted) is reached. Further, once the appropriate claim approval rate is reached, a provider can elect to opt-out of claim reviews except for a spot check of 5% of its claims to ensure continued compliance. The demonstration initially applies to HHA providers in Florida, Illinois, North Carolina, Ohio and Texas, with the option to expand after five years to other states in the Medicare Administrative Contractor Jurisdiction M (Palmetto). In April 2019, CMS announced a June 1, 2019 start date for RCD in Illinois. In July 2019, CMS announced a September 30, 2019 start date for RCD in Ohio. Thereafter, in an increaseOctober 21, 2019 release, CMS announced that it will reschedule the next phase of its RCD to allow agencies in administrative costs or reimbursement delays relatedTexas, North Carolina and Florida time to hometransition to PDGM. Throughout the first few months of 2020, CMS made various announcements about new start dates for the remaining three states, including a March 2, 2020 start date in Texas and projected start date of May 4, 2020 for North Carolina and Florida. The Texas portion began as scheduled; however, due to the ongoing public health servicesemergency, on March 31, 2020, CMS announced a voluntary pause of RCD for Illinois, Ohio and Texas and delay for beginning the demonstration in such states, which could have an adverse effectNorth Carolina and Florida. In July 2020, CMS announced its intention to resume the demonstration on our results of operationsAugust 30, 2020 for Illinois, Ohio and cash flow.Texas and a voluntary phase-in for North Carolina and Florida. The voluntary phase-in was extended by CMS in October until January 1, 2021 and then again in December until March 31, 2021.
Home Health Value-Based Purchasing
On January 1, 2016, CMS implemented Home Health Value-Based Purchasing ("HHVBP"). The HHVBP model was designed to give Medicare-certified home health agencies incentives or penalties, through payment bonuses, to giveprovide higher quality and more efficient care. HHVBP was rolled out to nine pilot states: Arizona, Florida, Iowa, Maryland, Massachusetts, Nebraska, North Carolina, Tennessee and Washington, seven of which Amedisys currently has home health operations. Bonuses and penalties beginbegan in 2018 with the maximum of plus or minus 3% growing to plus or minus 8% by 2022. Payment adjustments are calculated based on performance in 20a variety of measures which include current Quality of Patient Care and Patient Satisfaction star measures, as well as measures based on submission of data to a CMS web portal. BasedThe measures used may be subject to modification or change by CMS.
Under the demonstration, agencies with higher performance receive bonuses, while those with lower scores receive lower payments relative to current levels. Agency performance is evaluated against separate improvement and attainment scores, with payment tied to the higher of these two scores. CMS used 2015 as the baseline year for performance, with 2016 as the first year for performance measurement. The first payment adjustment began January 1, 2018, based on 2016 performance data. Between 2018 and 2022, the payment adjustment varies (upward or downward) from 3 percent to 8 percent.
In January 2021, CMS published Total Performance Score results, we anticipate we will receive a net positive adjustment in 2018.and the Center for Medicare and Medicaid Innovation announced its intention, through rulemaking, to expand HHVBP with an implementation date no earlier than January 2022.
Home Health Payment Reform
In the Calendar Year 2018 Home Health Proposed Rule, released in July 2017, CMS proposed changes to the Home Health Prospective Payment System (“HHPPS”), known as the Home Health Groupings Model (“HHGM”). Among a number of major differences from the current payment system, the HHGM would have distinguished between referrals from institutions and those from the community, with community referrals receiving lower payments. In addition, a 60-day episode would consist of two 30-day periods, each paid separately, with the initial 30-day period paid higher than any other period. However, HHGM was not included in the final rule released in November 2017.
On February 9, 2018, Congress passed the Bipartisan Budget Act of 2018 ("BBA of 2018"), which funded government operations, set two-year government spending limits and enacted a variety of healthcare related policies. Specific to home health, the BBA of 2018 provides for a targeted extension of the home health rural add-on payment, a reduction of the 2020 market basket update, modification of eligibility documentation requirements and reform to the HHPPS.Home Health Prospective Payment System ("HHPPS"). The HHPPS reform includesincluded the following parameters:
For for home health units of service beginning on January 1, 2020, a 30-day payment system will apply.
Theis to be applied; the transition to the 30-day payment system mustwas to be budget neutral.
neutral; and CMS mustwas to conduct at least one Technical Expert Panel during 2018, prior to any notice and comment rulemaking process, related to the design of any new case-mix adjustment model.
We are closely monitoring additional
The final HHA regulations introduced by CMS (CMS-1689-FC) updated the Medicare HHPPS and finalized the implementation of an alternative case-mix adjustment methodology, PDGM, that became effective on January 1, 2020. PDGM adjusts payments to home health agencies based on patient characteristics for 30-day periods of care and also eliminates the use of therapy visits in the determination of payments. While the changes that may occur and will continuewere to work with industry stakeholdersbe implemented in directly engaging CMS and Congress on changesa budget neutral manner to the case-mixindustry, the ultimate impact will vary by provider based on factors including patient mix and admission source. Additionally, CMS made assumptions about behavioral changes which were finalized in the Calendar Year 2020 Home Health Final Rule released on October 31, 2019 and resulted in a 4.36% reduction to reimbursement. The behavioral changes were related to coding practices, low utilization payment adjustment model.("LUPA") management and co-morbidities. CMS is required by law to analyze data for calendar years 2020-2026, retrospectively, to determine the impact of the difference between assumed and actual behavior changes and to make any such payment changes as are necessary to offset or supplement the adjustments based on anticipated behavior. Additionally, in an effort to eliminate fraud risks, CMS reduced the upfront payment associated with requests for anticipated payment ("RAPs") to 20% in 2020 with the full elimination of RAPs in 2021.
Phase-Out of the Rural Add-On
The BBA of 2018 also mandated the implementation of a new methodology for applying rural add-on payments for home health services (“rural add-on”). Unlike previous rural add-ons, which were applied to all rural areas uniformly, the extension provided varying add-on amounts depending on the rural county (or equivalent area) classification by classifying each rural county (or equivalent area) into one of three distinct categories: (1) rural counties and equivalent areas in the highest quartile of all counties and equivalent areas based on the number of Medicare home health episodes furnished per 100 individuals who are entitled to, or enrolled for, benefits under Part A of Medicare or enrolled for benefits under Part B of Medicare only, but not enrolled in a Medicare Advantage plan under Part C of Medicare (the "high utilization" category); (2) rural counties and equivalent areas with a population density of 6 individuals or fewer per square mile of land area and are not included in the "high utilization" category (the "low population density" category); and (3) rural counties and equivalent areas not in either the "high utilization" or "low population density" categories (the "all other" category).
In the Calendar Year ("CY") 2019 Home Health Final Rule, CMS finalized policies for the rural add-on payments for CY 2019 through CY 2022, in accordance with section 50208 of the BBA of 2018. The CY 2019 proposed rule (83 FR 32373) described the provisions of the rural add-on payments and the methodology for applying the new payments and outlined how to categorize rural counties (or equivalent areas) based on claims data, the Medicare beneficiary summary file and census data.
The CY 2019 through CY 2022 rural add-on percentages outlined in the rule are shown in the table below.
| | | | | | | | | | | | | | |
| Rural Add-On Percentages, CYs 2019-2022 |
| Category | CY 2019 | CY 2020 | CY 2021 | CY 2022 |
| High utilization | 1.5% | 0.5% | None | None |
| Low population density | 4.0% | 3.0% | 2.0% | 1.0% |
| All other | 3.0% | 2.0% | 1.0% | None |
Civil Monetary Penalties
The United States Department of Health and Human Services may impose civil monetary penalties ("CMP") for a variety of civil offenses related to federal health care programs. They may be imposed upon any person or entity who presents, or causes to be presented, certain ineligible claims for medical items or services, for providing improper inducements to beneficiaries to obtain services, for payments to limit services to patients, and for offenses related to relationships with excluded individuals, among other things.
Maximum CMP amounts have been increased significantly as a result of the Bipartisan Budget Act of 2018, which was signed into law on February 9, 2018. The maximum CMP has increased to $104,330 for knowingly making or causing to be made a false statement, omission or misrepresentation of a material fact in any application, bid or contract to participate or enroll as a provider or supplier and to $58,832 for making or using a false record or statement that is material to a false or fraudulent claim.
Our Competitors
There are few barriers to entry in the home health and hospice jurisdictions that do not require certificates of need or permits of approval. Our primary competition in these jurisdictions comes from local privately and publicly-owned and hospital-owned health care providers. We compete based on the quality of services, the availability of personnel, the quality of services, expertise of visiting staff, and, in certain instances, on the price of our services. In addition, we compete with a number of non-profit organizations that finance acquisitions and capital expenditures on a tax-exempt basis or receive charitable contributions that are unavailable to us.
Available Information
Our company website address is www.amedisys.com. We use our website as a channel of distribution for important company information. Important information, including press releases, investoranalyst presentations and financial information regarding our company, is routinely posted on and accessible on the Investor Relations subpage of our website, which is accessible by clicking on the tab labeled “Investors” on our website home page. Visitors to our website can also register to receive automatic e-mail and other notifications alerting them when new information is made available on the “Investors”Investor Relations subpage of our website. In addition, we make available on the InvestorsInvestor Relations subpage of our website (under the link “SEC Filings”), free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, ownership reports on Forms 3, 4 and 5 and any amendments to those reports as soon as reasonably practicable after we electronically file or furnish such reports with the SEC. Further, copies of our Certificate of Incorporation and Bylaws, our Code of Ethical Business Conduct, our Corporate Governance Guidelines and the charters for the Audit, Compensation, Quality of Care, Compliance and Ethics and Nominating and Corporate Governance and Quality of Care Committees of our Board are also available on the InvestorsInvestor Relations subpage of our website (under the link “Corporate Governance”“Governance”). Reference to our website does not constitute incorporation by reference of the information contained on the website and should not be considered part of this document.
Additionally, the public may read and copy any of the materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at (800) SEC-0330. Our electronically filed reports can also be obtained on the SEC’s internet site at http://www.sec.gov.
ITEM 1A. RISK FACTORS
The risks described below, and risks described elsewhere in this Form 10-K, could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows and the actual outcome of matters as to which forward-looking statements are made in this Form 10-K. The risk factors described below and elsewhere in this Form 10-K are not the only risks faced by Amedisys. Our business and consolidated financial condition, results of operations and cash flows may also be materially adversely affected by factors that are not currently known to us, by factors that we currently consider immaterial or by factors that are not specific to us, such as general economic conditions.
If any of the following risks are actually realized, our business and consolidated financial condition, results of operations and cash flows could be materially adversely affected. In that case, the trading price of our common stock could decline.
You should refer to the explanation of the qualifications and limitations on forward-looking statements under “Special Caution Concerning Forward-Looking Statements.” All forward-looking statements made by us are qualified by the risk factors described below.
Risks Related to Reimbursement
Federal and state changes to reimbursement and other aspects of Medicare and Medicaid could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
Our net service revenue is primarily derived from Medicare, which accounted for 75%, 78%74% and 80%73% of our revenue during 2017, 20162020, 2019 and 2015,2018, respectively. Payments received from Medicare are subject to changes made through federal legislation. When such changes are implemented, we must also modify our internal billing processes and procedures accordingly, which can require significant time and expense. These changes, as further detailed in Part I, Item 1, “Business: Payment for Our Services,” can include changes to base episode payments and adjustments for home health services, changes to cap limits and per diem rates for hospice services and changes to Medicare eligibility and documentation requirements or changes designed to restrict utilization. Any such changes, including retroactive adjustments, adopted in the future by the Center for Medicare and Medicaid Services (“CMS”) could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
In AprilSection 6407 of 2015, Congress passed and President Obama signed the so-called “doc fix”Affordable Care Act, as implemented by 42 CFR § 424.22, added new Medicare requirements for face-to-face encounters to support claims for home health services. The requirements for face-to-face encounters continue to be one of the most complex issues in the formindustry and can be the source of the Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”). This law replaces a long-standing physician reimbursement formula with statutorily prescribed physician payment updates and provisions. MACRA provides for an increase of 3%claims denials if not fulfilled. Section 6407(d) of the payment amount otherwise made
Affordable Care Act also provided that the requirements for face-to-face encounters in the provisions described above shall apply in the case of physicians making certifications for home health services furnished in rural areas, and sets Medicare reimbursements for post-acute care providers to increase by 1.0% in fiscal year 2018.
On August 1, 2017, CMS published annual changes in Medicare hospice payment rates. As finalized, CMS estimates hospices will see a 1.0% increase in Medicare payments for fiscal year 2018, consistent with the required market basket set in fiscal year 2018 by MACRA. Absent the statutory cap on payment increases included in MACRA, CMS notes that the rate increase would have been a 2.2% net increase. CMS also increased the aggregate cap amount by 1.0% to $28,689.04. As of December 31, 2017, we expect the impactunder title XIX of the 2018 final rule on us to beAct (Medicaid) in line with that of the hospice industry.
On November 1, 2017, CMS issued a final rule to updatesame manner and revise Medicare home health reimbursement rates for calendar year 2018. CMS estimates that the net impact of the payment provisions of the final rule will result in a decrease of 0.4% in reimbursement to home health providers. This decrease is the result of a 1.0% home health payment update, a 0.9% adjustment to the national, standardized 60-day episode payment rate to account for nominal case-mix growth and the sunset of the rural add-on provision.
On February 9, 2018, Congress passed the Bipartisan Budget Act of 2018 ("BBA of 2018"), which funded government operations, set two-year government spending limits and enacted a variety of healthcare related policies. Specific to home health, the BBA of 2018 provides for a targeted extension of the home health rural add-on payment, a reduction of the 2020 market basket update, modification of eligibility documentationsame extent as such requirements and reform to the Home Health Prospective Payment System ("HHPPS")apply under title XVIII (Medicare). As of February 9, 2018, we estimate the impact of the 2017 final rule and the BBA of 2018 on us to be a decrease in reimbursement of approximately 0.7%.
On February 2, 2016, CMS published a final rule adding new requirements for Medicaid home health services. Among other things, the final rule requires that for the initial ordering of home health services, the physician must document that a face-to-face encounter that is related to the primary reason the beneficiary requires home health services occurred no more than 90 days before or 30 days after the start of services. The final rule requires that for the initial ordering of certain medical equipment, the physician or authorized non-physician practitioner must document that a face-to-face encounter that is related to the primary reason the beneficiary requires medical equipment occurred no more than six months prior to the start of services. Although the final rule’s stated effective date is July 1, 2016, CMS created an exception for state legislation by giving state agencies that require state legislation to until July 1, 2017 or July 1, 2018 to publish requirements imposed by the rule.
There are continuing efforts to reform governmental health care programs that could result in major changes in the health care delivery and reimbursement system on a national and state level, including changes directly impacting the reimbursement systems for our home health and hospice care centers, including but not limited to, the sunset of the rural add-on and other extenders.centers. Though we cannot predict what, if any, reform proposals will be adopted, health care reform and legislation may have a material adverse effect on our business and our financial condition, results of operations and cash flows through decreasing payments made for our services.
We could also be affected adversely by the continuing efforts of governmental payors to contain health care costs. We cannot assure you that reimbursement payments under governmental payor programs, including Medicare supplemental insurance policies, will remain at levels comparable to present levels or will be sufficient to cover the costs allocable to patients eligible for reimbursement pursuant to these programs. Any such changes could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
Quality reporting requirements may negatively impact Medicare reimbursement.
Hospice quality reporting was mandated by PPACA,the Patient Protection and Affordable Health Care Act and the Health Care and Education Reconciliation Act ("PPACA"), which directs the Secretary to establish quality reporting requirements for hospice programs. For fiscal year 2014, and each subsequent year, failureFailure to submit required quality data will result in a 2 percentage point2% reduction to the market basket percentage increase for that fiscal year. This quality reporting program is currently “pay-for-reporting,” meaning it is the act of submitting data that determines compliance with program requirements.
Similarly, in the Calendar Year 2015 Home Health Final Rule, CMS proposed to establish a new “Pay-for-Reporting Performance Requirement” with which provider compliance with quality reporting program requirements can be measured. Home health agencies that do not submit quality measure data to CMS are subject to a 2.0%2% reduction in their annual home health payment update percentage. HomeCurrently, home health agencies are required to report prescribed quality assessment data for a minimum of 70.0%90% of all patients with episodes of care that occur on or after July 1, 2015. This compliance threshold increases by 10.0% in each of two subsequent periods--i.e., for episodes beginning on or after July 1, 2016 and before June 30, 2017, home health agencies must score at least 80%, and for episodes beginning on or after July 1, 2017 and thereafter, the required performance level is at least 90%.patients.
The Improving Medicare Post-Acute Care Transformation Act of 2014 (the “IMPACT Act”) requires the submission of standardized data by home health agencies and other providers. Specifically, the IMPACT Act requires, among other significant activities, the reporting of standardized patient assessment data with regard to quality measures, resource use, and other measures. Failure to report data as required will subject providers to a 2% reduction in market basket prices then in effect. Additionally, reporting activities associated with the IMPACT Act are anticipated to be quite burdensome.
There can be no assurance that all of our agencies will continue to meet quality reporting requirements in the future which may result in one or more of our agencies seeing a reduction in its Medicare reimbursements. Regardless, we, like other healthcare providers, are likely to incur additional expenses in an effort to comply with additional and changing quality reporting requirements.
Value-based purchasing may negatively impact Medicare reimbursement.
Both government and private payors are increasingly looking to value-based purchasing to contain costs. Value-based purchasing focuses on quality of outcomes and efficiency of care, rather than quantity of care. CMS currently has a pilot program for home health agencies in several states, which it may expand to other states. CMS may also create a similar plan for hospices in the future. Government and private payors’ implementation of value-based purchasing requirements could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
Any economic downturn, deepening of an economic downturn, continued deficit spending by the Federal Government or state budget pressures may result in a reduction in payments and covered services.
Adverse developments in the United States could lead to a reduction in Federal Government expenditures, including governmentally funded programs in which we participate, such as Medicare and Medicaid. In addition, if at any time the Federal Government is not able to meet its debt payments unless the federal debt ceiling is raised, and legislation increasing the debt ceiling is not enacted, the Federal Government may stop or delay making payments on its obligations, including funding for government programs in which we participate, such as Medicare and Medicaid. Failure of the government to make payments under these programs could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows. Further, any failure by the United States Congress to complete the federal budget process and fund government operations may result in a Federal Government shutdown, potentially causing us to incur substantial costs without reimbursement under the Medicare program, which could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows. As an example, the failure of the 2011 Joint Select Committee to meet its Deficit Reduction goal resulted in an automatic reduction in Medicare home health and hospice payments of 2% beginning April 1, 2013.
Historically, state budget pressures have resulted in reductions in state spending. Given that Medicaid outlays are a significant component of state budgets, we can expect continuing cost containment pressures on Medicaid outlays for our services.
In addition, sustained unfavorable economic conditions may affect the number of patients enrolled in managed care programs and the profitability of managed care companies, which could result in reduced payment rates and could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
Future cost containment initiatives undertaken by private third party payors may limit our future revenue and profitability.
Our non-Medicare revenue and profitability are affected by continuing efforts of third party payors to maintain or reduce costs of health care by lowering payment rates, narrowing the scope of covered services, increasing case management review of services and negotiating pricing. There can be no assurance that third party payors will make timely payments for our services, and there is no assurance that we will continue to maintain our current payor or revenue mix. We are continuing our efforts to develop our non-Medicare sources of revenue and any changes in payment levels from current or future third party payors could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
Risks Related to Lawsour Operations
Our business may be materially adversely affected by the ongoing COVID-19 pandemic.
The outbreak of the COVID-19 pandemic has resulted in a general economic downturn and Government Regulationsvolatility in the stock market and has also caused and may continue to cause a decrease in our patient volumes and revenues, an increase in costs and an inability to access our patients and referral sources and could lead to staffing and medical supply shortages, any of which, or a combination of which, could have a material adverse effect on our business and financial results. The ultimate impact of COVID-19, including the impact on our liquidity, financial condition and results of operations, is uncertain and will depend on many factors and future developments, which are highly uncertain and cannot be predicted at this time, including the severity, scope and length of time that the pandemic continues, including regional surges in COVID-19 cases at various times, the impact of new variants of the virus, uncertainty regarding vaccine distribution timing and efficacy in slowing the spread of the virus, its impact on the national and global economy, its effect on the demand for our services, our ability to ensure the safety of our patients and employees and the actions taken by federal, state and local authorities to contain or treat the COVID-19 pandemic.
A shortage of qualified registered nursing staff and other clinicians, such as therapists and nurse practitioners, could materially impact our ability to attract, train and retain qualified personnel and could increase operating costs.
We compete for qualified personnel with other healthcare providers. Our ability to attract and retain clinicians depends on several factors, including our ability to provide these personnel with attractive assignments and competitive salaries and benefits. We cannot be assured we will succeed in any of these areas. In addition, there are operating under a Corporate Integrity Agreement. Violationsshortages of this agreement could resultqualified health care personnel in substantial penalties or exclusion from participation in the Medicare program.
On April 23, 2014, with no admissions of liability on our part, we entered into a settlement agreement with the U.S. Department of Justice relating to certainsome of our clinicalmarkets. As a result, we may face higher costs of attracting clinicians and business operations. Concurrentlyproviding them with our entry into this agreement,attractive benefit packages than we entered into a Corporate Integrity Agreement (“CIA”) with the Office of Inspector General-HHS (“OIG”). The CIA,originally anticipated which has a term of five years, formalizes various aspects of our already existing ethics and compliance programs and contains other requirements designed to help ensure our ongoing compliance with federal health care program requirements. Among other things, the CIA requires us to maintain our existing compliance program, executive compliance committee and compliance committee of the Board of Directors; provide certain compliance training; continue screening new and current employees to ensure they are eligible to participate in federal health care programs; engage an independent review organization (“IRO”) to perform certain auditing and reviews and prepare certain reports regarding our compliance with federal health care programs, our billing submissions to federal health care programs and our compliance and risk mitigation programs; and provide certain reports and management certifications to the OIG. Additionally, the CIA specifically requires that we report substantial overpayments that we discover we have received from the federal health care programs, as well as probable violations of federal health care laws. Upon breach of the CIA, we could become liable for payment of certain stipulated penalties, or could be excluded from participation in federal health care programs. Although we believe that we are currently in compliance with the CIA, any violations of the agreement could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
We are subject to extensive government regulation. Any changes to the laws and regulations governing In addition, if we expand our business, or to the interpretation and enforcement of those laws or regulations, could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
Our industry is subject to extensive federal and state laws and regulations. See Part I, Item 1, “Our Regulatory Environment” for additional information on such laws and regulations. Federal and state laws and regulations impact how we conduct our business, the services we offer and our interactions with patients, our employees and the public and impose certain requirements on us such as:
licensure and certification;
adequacy and quality ofinto geographic areas where health care services;
qualifications of health care and support personnel;
quality and safety of medical equipment;
confidentiality, maintenance and security issues associated with medical records and claims processing;
relationships with physicians and other referral sources;
operating policies and procedures;
emergency preparedness risk assessments and policies and procedures;
policies and procedures regarding employee relations;
addition of facilities and services;
billing for services;
requirements for utilization of services;
documentation required for billing and patient care; and
reporting and maintaining records regarding adverse events.
These laws and regulations, and their interpretations, are subject to change. Changes in existing laws and regulations, or their interpretations, or the enactment of new laws or regulations couldproviders historically have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows by:
increasing our administrative and other costs;
increasing or decreasing mandated services;
causing us to abandon business opportunities we might have otherwise pursued;
decreasing utilization of services;
forcing us to restructure our relationships with referral sources and providers; or
requiring us to implement additional or different programs and systems.
Additionally, we are subject to various routine and non-routine reviews, audits and investigations by the Medicare and Medicaid programs and other federal and state governmental agencies, which have various rights and remedies against us if they establish that we have overcharged the programs or failed to comply with program requirements. Violation of the laws governing our operations, or changes in interpretations of those laws, could result in the imposition of fines, civil or criminal penalties, and the termination of our rights to participate in federal and state-sponsored programs and/or the suspension or revocation of our licenses. If we become subject to material fines,been unionized, or if other sanctions or other corrective actions are imposed on us, our business and consolidated financial condition, results of operations and cash flows could be materially adversely affected.
We face periodic and routine reviews, audits and investigations under our contracts with federal and state government agencies and private payors, and these audits could have adverse findings that may negatively impact our business.
As a result of our participation in the Medicare and Medicaid programs, we are subject to various governmental reviews, audits and investigations to verify our compliance with these programs and applicable laws and regulations. We also are subject to audits under various government programs, including the RAC, ZPIC, PSC and MIC programs as well as in accordance with the requirements of our CIA, in which third party firms engaged by CMS or by the Company conduct extensive reviews of claims data and medical and other records to identify potential improper payments under the Medicare program. Private pay sources also reserve the right to conduct audits. If billing errors are identified in the sample of reviewed claims, the billing error can be extrapolated to all claims filed which could result in a larger overpayment than originally identified in the sample of reviewed claims. Our costs to respond to and defend reviews, audits and investigations may be significant and could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows. Moreover, an adverse review, audit or investigation could result in:
required refunding or retroactive adjustment of amounts we have been paid pursuant to the federal or state programs or from private payors;
state or federal agencies imposing fines, penalties and other sanctions on us;
loss of our right to participate in the Medicare program, state programs, or one or more private payor networks; or
damage to our business and reputation in various markets.
These results could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
If a care center fails to comply with the conditions of participation in the Medicare program, that care center could be subjected to sanctions or terminated from the Medicare program.
Eachany of our care centers must comply with required conditions of participation incenter employees become unionized, being subject to a collective bargaining agreement may have a negative impact on our ability to timely and successfully recruit qualified personnel and may increase our operating costs. Generally, if we are unable to attract and retain clinicians, the Medicare program. If we fail to meet the conditions of participation at a care center, we may receive a notice of deficiency from the applicable state surveyor. If that care center then fails to institute an acceptable plan of correction to remediate the deficiency within the correction period provided by the state surveyor, that care center could be terminated from the Medicare program or subjected to alternative sanctions. CMS outlined its alternative sanction enforcement options for home health care centers through a regulation published in 2012; under the regulation, CMS may impose temporary management, direct a plan of correction, direct training or impose payment suspensions and civil monetary penalties, in each case, upon providers who fail to comply with the conditions of participation. Termination of one or morequality of our care centers from the Medicare program for failure to satisfy the program’s conditions of participation, or the imposition of alternative sanctions,services may decline and we could disrupt operations, require significant attention by management, or have a material adverse effect on our businesslose patients and reputation and consolidated financial condition, results of operations and cash flows.
We are subject to federal and state laws that govern our financial relationships with physicians and other health care providers, including potential or current referral sources.
We are required to comply with federal and state laws, generally referred to as “anti-kickback laws,” that prohibit certain direct and indirect payments or other financial arrangements between health care providers that are designed to encourage the referral of patients to a particular provider for medical services. In addition to these anti-kickback laws, the Federal Government has enacted specific legislation, commonly known as the “Stark Law,” that prohibits certain financial relationships, specifically including ownership interests and compensation arrangements, between physicians (and the immediate family members of
physicians) and providers of designated health services, such as home health care centers, to whom the physicians refer patients. Some of these same financial relationships are also subject to additional regulation by states. Although we believe we have structured our relationships with physicians and other potential referral sources, to comply with these laws where applicable, we cannot assure you that courts or regulatory agencies will not interpret state and federal anti-kickback laws and/or the Stark Law and similar state laws regulating relationships between health care providers and physicians in ways that will adversely implicate our practices or that isolated instances of noncompliance will not occur. Violations of federal or state Stark or anti-kickback laws could lead to criminal or civil fines or other sanctions, including denials of government program reimbursement or even exclusion from participation in governmental health care programs, which could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
We may face significant uncertainty in the industry due to government health care reform.
The health care industry in the United States is subject to fundamental changes due to ongoing health care reform efforts and related political, economic and regulatory influences. In March 2010, comprehensive health care reform legislation was signed into law in the United States through the passage of the Patient Protection and Affordable Health Care Act and the Health Care and Education Reconciliation Act (collectively, “PPACA”). However, it is difficult to predict the full impact of PPACA due to the law’s complexity and phased-in effective dates, as well as our inability to foresee how CMS and other participants in the health care industry will respond to the choices available to them under the law.
PPACA makes a number of changes to Medicare payment rates and also calls for a rebasing of the home health payment system that began in 2014 and continued through 2017. These reimbursement changes are described in detail in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations: Overview – Economic and Industry Factors.”
Regulations implementing the provisions of the PPACA and related initiatives may similarly increase our costs, decrease our revenues, expose us to expanded liability or require us to revise the ways in which we conduct our business.
PPACA also calls for a number of other changes to be made over time that will likely have a significant impact upon the health care delivery system. For example, PPACA mandates creation of a home health value-based purchasing program, the development of quality measures, and decreases in home health reimbursement rates, including rebasing, as further described in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations: Overview – Economic and Industry Factors.”
In addition, various health care reform proposals similar to the federal reforms described above have also emerged at the state level, including in several states in which we operate. We cannot predict with certainty what health care initiatives, if any, will be implemented at the state level, or what the ultimate effect of federal health care reform or any future legislation or regulation may have on us or on our business and consolidated financial condition, results of operations and cash flows.
In addition to impacting our Medicare businesses, PPACA may also significantly affect our non-Medicare businesses. PPACA makes many changes to the underwriting and marketing practices of private payors. The resulting economic pressures could prompt these payors to seek to lower their rates of reimbursement for the services we provide. At this time, it is not possible to estimate what impact PPACA may have on our non-Medicare businesses.
Finally, efforts to repeal or substantially modify provisions of the PPACA continue in Congress. The ultimate outcomes of legislative efforts to repeal, substantially amend, eliminate or reduce funding for the PPACA is unknown. While these attempts have not been successful to date, the results of the Presidential and Congressional elections in 2016 could have a significant impact on future efforts to amend or repeal PPACA. In addition to the prospect for legislative repeal or revision, the President and members of his administration hostile to the PPACA could seek to impose substantial changes upon the PPACA through administrative action, including revised regulation and other Executive Branch action. The effect of any major modification or repeal of the PPACA on our business, operations, or financial condition cannot be predicted, but could be materially adverse.
Risks Related to our Growth Strategies
Our growth strategy depends on our ability to acquire additional care centers and integrate and operate these care centers effectively. If our growth strategy is unsuccessful or we are not able to successfully integrate newly acquired care centers into our existing operations, our business and consolidated financial condition, results of operations and cash flows could be materially adversely affected.
We may not be able to fully integrate the operations of our acquired businesses with our current business structure in an efficient and cost-effective manner. Acquisitions involve significant risks and uncertainties, including difficulties in recouping partial episode payments and other types of misdirected payments for services from the previous owners; difficulties integrating acquired personnel and business practices into our business; the potential loss of key employees, referral sources or patients of acquired care centers; the delay in payments associated with change in ownership, control and the internal process of the Medicare fiscal intermediary; and the assumption of liabilities and exposure to unforeseen liabilities of acquired care centers. Further, the financial benefits we expect to realize from many of our acquisitions are largely dependent upon our ability to improve clinical performance, overcome regulatory deficiencies, improve the reputation of the acquired business in the community and control costs. The failure to accomplish any of these objectives or to effectively integrate any of these businesses could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
State efforts to regulate the establishment or expansion of health care providers could impair our ability to expand our operations.
Some states require health care providers (including skilled nursing facilities, hospice care centers, home health care centers and assisted living facilities) to obtain prior approval, known as a CON or POA, in order to commence operations. See Part I, Item 1, “Our Regulatory Environment” for additional information on CONs and POAs. If we are not able to obtain such approvals, our ability to expand our operations could be impaired, which could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
Federal regulation may impair our ability to consummate acquisitions or open new care centers.
Changes in federal laws or regulations may materially adversely impact our ability to acquire care centers or open new start-up care centers. For example, PPACA authorized CMS to impose temporary moratoria on the enrollment of new Medicare providers, if deemed necessary to combat fraud, waste or abuse under government programs. The moratoria on new enrollments may be applied to categories of providers or to specific geographic regions. In 2012, the OIG released a report that concluded Medicare had overpaid home health agencies due to inappropriate and questionable billing practices. Citing this report, in 2014, CMS adopted a temporary moratorium on new home health agencies and home health agency branches in certain regions of Texas, Michigan, Florida and Illinois. On July 29, 2016, CMS announced it was extending such moratorium for an additional six months, and that the moratorium would be expanded statewide in each targeted state. On January 28, 2018, CMS announced that it was extending the enrollment moratoria for an additional six months. If a moratorium is imposed on the enrollment of new home health or hospice providers in a geographic area we desire to service, it could have a material impact on our ability to open new care centers. Additionally, in 2010, CMS implemented and amended a regulation known as the “36 Month Rule” that is applicable to home health care center acquisitions. Subject to certain exceptions, the 36 Month Rule prohibits buyers of certain home health care centers – those that either enrolled in Medicare or underwent a change in majority ownership fewer than 36 months prior to the acquisition – from assuming the Medicare billing privileges of the acquired care center. These changes in federal laws and regulations, and similar future changes, may further increase competition for acquisition targets and could have a material detrimental impact on our acquisition strategy.
We could face a variety of risks by expanding into our personal care line of business.
We established a personal care segment of our business with the acquisition of Associated Home Care, which closed on March 1, 2016. In 2017, we expanded our personal care line of business with the acquisition of the assets of Home Staff L.L.C. and Intercity Home Care. Risks of our entry into the new personal care segment include, without limitation: (i) potential diversion of management’s time and other resources from our existing home health and hospice businesses; (ii) unanticipated liabilities or contingencies; (iii) the need for additional capital and other resources to expand into this new line of business; and (iv) inefficient integration of operational and management systems and controls. Entry into a new line of business may also subject us to new laws and regulations with which we are not familiar, and may lead to increased litigation and regulatory risk. If we are unable to successfully implement our growth strategies, our revenue and profitability may not grow as we expect, our competitiveness may be materially and adversely affected, and our reputation and business may be harmed.
Risks Related to our Operations
Because we are limited in our ability to control rates received for our services, our business and consolidated financial condition, results of operations and cash flows could be materially adversely affected if we are not able to maintain or reduce our costs to provide such services.
As Medicare is our primary payor and rates are established through federal legislation, we have to manage our costs of providing care to achieve a desired level of profitability. Additionally, non-Medicare rates are difficult for us to negotiate as such payors are under pressure to reduce their own costs. As a result, we manage our costs in order to achieve a desired level of profitability
including, but not limited to, centralization of various processes, the use of technology and management of the number of employees utilized. If we are not able to continue to streamline our processes and reduce our costs, our business and consolidated financial condition, results of operations and cash flows could be materially adversely affected.
If we are unable to provide consistently high quality of care, our business will be adversely impacted.
Providing quality patient care is the cornerstone of our business. We believe that hospitals, physicians and other referral sources refer patients to us in large part because of our reputation for delivering quality care. Clinical quality is becoming increasingly important within our industry. Effective October 2012, Medicare began to impose a financial penalty upon hospitals that have excessive rates of patient readmissions within 30 days from hospital discharge. We believe this regulation provides a competitive advantage to home health providers who can differentiate themselves based upon quality, particularly by achieving low patient acute care hospitalization readmission rates and by implementing disease management programs designed to be responsive to the needs of patients served by referring hospitals. We are focused intently upon improving our patient outcomes, particularly our patient acute care hospitalization readmission rates. If we should fail to attain our goals regarding acute care hospitalization readmission rates and other quality metrics, we expect our ability to generate referrals would be adversely impacted, which could have a material adverse effect upon our business and consolidated financial condition, results of operations and cash flows.
Additionally, Medicare has established consumer-facing websites, Home Health Compare and Hospice Compare, that present data regarding our performance on certain quality measures compared to state and national averages. Failure to achieve or exceed these averages may affect our ability to generate referrals, which could have a material adverse effect upon our business and consolidated financial condition, results of operations and cash flows.
If we are unable to maintain relationships with existing patient referral sources, our business and consolidated financial condition, results of operations and cash flows could be materially adversely affected.
Our success depends on referrals from physicians, hospitals and other sources in the communities we serve and on our ability to maintain good relationships with existing referral sources. Our referral sources are not contractually obligated to refer patients to us and may refer their patients to other providers. Our growth and profitability depend, in part, on our ability to establish and maintain close working relationships with these patient referral sources and to increase awareness and acceptance of the benefits of home health and hospice care by our referral sources and their patients. Our loss of, or failure to maintain, existing relationships or our failure to develop new referral relationships could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
Possible changes in the case mix of patients, as well as payor mix and payment methodologies, could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
Our revenue is determined by a number of factors, including our mix of patients and the rates of payment among payors. Changes in the case mix of our patients, payment methodologies or the payor mix among Medicare, Medicaid and private payors could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
Our failure to negotiate favorable managed care contracts, or our loss of existing favorable managed care contracts, could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
One of our strategies is to diversify our payor sources by increasing the business we do with managed care companies, and we strive to put in place favorable contracts with managed care payors. However, we may not be successful in these efforts. Additionally, there is a risk that the favorable managed care contracts that we put in place may be terminated. Managed care contracts typically permit the payor to terminate the contract without cause, on very short notice, typically 60 days, which can provide payors leverage to reduce volume or obtain favorable pricing. Our failure to negotiate and put in place favorable managed care contracts, or our failure to maintain in place favorable managed care contracts, could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
Our industry is highly competitive, with few barriers to entry in certain states.
There are few barriers to entry in home health markets that do not require a CON or POA. Our primary competition comes from local privately-owned and hospital-owned health care providers. We compete based on the availability of personnel;personnel, the quality of services, expertise of visiting staff;staff, and in certain instances, on the price of our services. Increased competition in the future may limit our ability to maintain or increase our market share.
Further, the introduction of new and enhanced service offerings by others, in combination with industry consolidation and the development of strategic relationships by our competitors (including mergers of competitors with each other and with insurers), could cause a decline in revenue or loss of market acceptance of our services or make our services less attractive. Additionally, we compete with a number of non-profit organizations that can finance acquisitions and capital expenditures on a tax-exempt basis or receive charitable contributions that are unavailable to us.
Managed care organizations and other third party payors continue to consolidate, which enhances their ability to influence the delivery of health care services. Consequently, the health care needs of patients in the United States are increasingly served by a smaller number of managed care organizations. These organizations generally enter into service agreements with a limited number of providers. Our business and consolidated financial condition, results of operations and cash flows could be materially adversely affected if these organizations terminate us as a provider and/or engage our competitors as a preferred or exclusive provider. In addition, should private payors, including managed care payors, seek to negotiate additional discounted fee structures or the assumption by health care providers of all or a portion of the financial risk through prepaid capitation arrangements, our business and consolidated financial condition, results of operations and cash flows could be materially adversely affected.
If we are unable to react competitively to new developments, our operating results may suffer. State CON or POA laws often limit the ability of competitors to enter into a given market, are not uniform throughout the United States and are frequently the subject of efforts to limit or repeal such laws. If states remove existing CONs or POAs, we could face increased competition in these states. For example, New Hampshire repealed its CON laws in 2015, and legislation was recently introduced in South Carolina that would have limited the application of its CON program. There can be no assurances that other states will not seek to eliminate or limit their existing CON or POA programs, which could lead to increased competition in these states. Further, we cannot assure you that we will be able to compete successfully against current or future competitors, which could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
If we are unable to maintain relationships with existing patient referral sources, our business and consolidated financial condition, results of operations and cash flows could be materially adversely affected.
Our success depends on referrals from physicians, hospitals and other sources in the communities we serve and on our ability to maintain good relationships with existing referral sources. Our referral sources are not contractually obligated to refer patients to us and may refer their patients to other providers. Our growth and profitability depends, in part, on our ability to establish and maintain close working relationships with these patient referral sources and to increase awareness and acceptance of the benefits of home health and hospice care by our referral sources and their patients. Our loss of, or failure to maintain, existing relationships or our failure to develop new referral relationships could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
If we are unable to provide consistently high quality of care, our business will be adversely impacted.
Providing quality patient care is the cornerstone of our business. We believe that hospitals, physicians and other referral sources refer patients to us in large part because of our reputation for delivering quality care. Clinical quality is becoming increasingly important within our industry. Effective October 2012, Medicare began to impose a financial penalty upon hospitals that have excessive rates of patient readmissions within 30 days from hospital discharge. We believe this new regulation provides a competitive advantage to home health providers who can differentiate themselves based upon quality, particularly by achieving low patient acute care hospitalization readmission rates and by implementing disease management programs designed to be responsive to the needs of patients served by referring hospitals. We are focused intently upon improving our patient outcomes, particularly our patient acute care hospitalization readmission rates. If we should fail to attain our goals regarding acute care hospitalization readmission rates and other quality metrics, we expect our ability to generate referrals would be adversely impacted, which could have a material adverse effect upon our business and consolidated financial condition, results of operations and cash flows.
Additionally, Medicare has established consumer-facing websites, Home Health Compare and Hospice Compare, that present data regarding our performance on certain quality measures compared to state and national averages. If we should fail to achieve or exceed these averages, it may affect our ability to generate referrals, which could have a material adverse effect upon our business and consolidated financial condition, results of operations and cash flows.
Our business depends on our information systems. OurA cyber-attack, security breach or our inability to effectively integrate, manage and keep our information systems secure and operational could disrupt our operations.
Our business depends on effective, secureMost healthcare providers, including all who accept commercial insurance Medicare and operational information systems which include systems provided by external contractors and other service providers. Problems with, or the failure of, our technology and systems or any system upgrades or programming changes associated with such technology and systems, including any problems we may experienceMedicaid, must comply with the implementationHIPAA regulations regarding the privacy and security of protected health information. All 50 states also maintain laws focused on the new clinical software system, could have a material adverse effectprivacy, security and notification requirements with regard to personally identifiable information, including health information. The HIPAA regulations impose significant requirements on data capture, medical documentation, billing, collections, assessmentproviders and our third party vendor business associates with regard to how such protected health information may be used and disclosed. Further, the regulations include extensive and complex regulations which require providers to establish reasonable and appropriate administrative, technical and physical safeguards to ensure the confidentiality, integrity and availability of internal controlsprotected health information. Providers are obligated under HIPAA and management and reporting capabilities. Any such problems or failuresstate law to notify individuals and the costs incurred in correcting any such problems or failures, couldgovernment if personal information is compromised as defined by the respective law. In addition to federal regulators, state attorneys general are also enforcing information security breaches. All 50 states have a material adverse effectbreach notification laws. In addition to state laws regarding confidentiality of medical information, several states are now focused on ourexpanding state privacy laws regarding personal information. HIPAA directs the Secretary of HHS to provide for periodic audits to ensure covered entities (and their business and consolidated financial condition, results of operations and cash flows. Further, toassociates, as that term is defined under HIPAA) comply with the extent our external information technology contractors or other service providers become insolvent or fail to support the software or systems we have licensed from them, our operations could be materially adversely affected.applicable HIPAA requirements.
Our care centers also depend upon our information systems for accounting, billing, collections, risk management, quality assurance, human resources, payroll and other information. If we experience a reduction in the performance, reliability, or availability of our information systems, our operations and ability to produce timely and accurate reports could be materially adversely affected.
Our informationnetworks, systems and applications require continual maintenance, upgrading and enhancement to meet our operational needs. Our acquisition activity requires transitions and integration of variousdevices store sensitive information, systems. We regularly upgrade and expand ourincluding intellectual property, proprietary business information systems’ capabilities. If we experience difficulties with the transition and integration of information systems or are unable to implement, maintain, or expand our systems properly, we could suffer from, among other things, operational disruptions, regulatory problems and increases in administrative expenses.
We may be required to expend significant capital and other resources to protect against the threat of security breaches or to alleviate problems caused by breaches, including unauthorized access to patient data and personally identifiable information stored inof our information systems,patients, partners, and the introduction of computer viruses or other malicious software programs to our systems. Our security measures may be inadequate to prevent security breaches and our business operations could be materially adversely affected by federal and state fines and penalties, legal claims or proceedings, cancellation of contracts and loss of patients if security breaches are not prevented.
employees. We have installed privacy protection systems and devices on our network, systems and POCpoint of care tablets in an attempt to prevent unauthorized access to information in our database.created, received, transmitted and maintained by us. However, our technology may fail to adequately secure the confidentialprotected health information and personally identifiable information we create, receive, transmit and maintain in our databases. In such circumstances, we may be held liable to our patients and regulators, which could result in fines, litigation or adverse publicity that could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows. Even if we are not held liable, any resulting negative publicity could harm our business and distract the attention of management.
Further,Our business depends on effective, secure and operational information systems which include systems provided by or hosted by external contractors, partners and other service providers. For example, our care centers depend upon our information systems
and software for patient care, accounting, billing, collections, risk management, quality assurance, human resources, payroll and other information considered to be confidential. We believe that our subcontractors and vendors take precautionary measures to prevent problems that could affect our business operations as a result of failure or disruption to their information systems or networks. However, there is no guarantee such efforts will be successful in preventing a disruption, and it is possible that we may be impacted by information system failures. The occurrence of any information system failures could result in interruptions, delays, breaches of protected health information and personally identifiable information, loss or corruption of data and cessations or interruptions in the availability of these systems and the information they create, receive, transmit or maintain. All of these events or circumstances, among others, could have an adverse effect on our business and consolidated financial position, results of operations and cash flows, and they could harm our business reputation.
In general, all information systems including those we host or have hosted by third parties are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, human acts, break-ins and similarother intentional or unintentional events. Our business is at risk from and may be impacted by information security incidents, including ransomware, malware, viruses, phishing, social engineering, and other security events. Such incidents can range from individual attempts to gain unauthorized access to information technology systems to more sophisticated security threats. These events can also result from internal compromises, such as human error or malicious acts. These events can occur on our systems or on the systems of our partners and subcontractors.
Problems with, or the failure of, our technology and systems or any system upgrades or programming changes associated with such technology and systems could have a material adverse effect on our operations, patient care, data capture and integrity, medical documentation, billing, collections, assessment of internal controls and management and reporting capabilities. If we experience a reduction in the performance, reliability, or availability of our information systems, our operations and ability to produce timely and accurate reports could be materially adversely affected.
Our information systems and applications also require continual maintenance, upgrading and enhancement to meet our operational and security needs. Our acquisition activity requires transitions and integration of various information systems. We regularly upgrade and expand our information systems’ capabilities. If we experience difficulties with the transition and integration of information systems or are unable to implement, maintain, or expand our systems properly, we could suffer from, among other things, operational disruptions, regulatory investigations or audits and increases in administrative expenses.
As cyber threats continue to evolve, we may be required to expend significant capital and other resources to protect against the threat of security breaches or to mitigate and alleviate problems caused by breaches, including unauthorized access to protected health information and personally identifiable information stored in our information systems, and the introduction of computer viruses or other malicious software programs to our systems. Our security measures may be inadequate to prevent security breaches and our business operations could be materially adversely affected by federal and state fines and penalties, legal claims or proceedings, cancellation of contracts and loss of patients if security breaches are not prevented. The healthcare industry is currently a target for cyber criminals and therefore experiencing increased attention on compliance with regulations designed to safeguard protected health information and mitigate cyber-attacks on entities. There are significant costs associated with a breach, including investigation costs, remediation and mitigation costs, notification costs, attorney fees, litigation and the potential for reputational harm and lost revenues due to a loss in confidence in the provider. We cannot predict the costs to comply with these laws or the costs associated with a potential breach of protected health information, which could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows, and our business reputation.
If we are subject to cyber-attacks or security breaches in the future, this could result in harm to patients; business interruptions and delays; the loss, misappropriation, corruption or unauthorized access of data; litigation and potential liability under privacy, security and consumer protection laws or other applicable laws; reputational damage and federal and state governmental inquiries. Any such problems or failures and the costs incurred in correcting any such problems or failures, could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows. Further, to the extent our external information technology contractors or other service providers have their own cyber-attack, security event or information technology failure, become insolvent or fail to support the software or systems we have licensed from them, our operations could be materially adversely affected. A failure to restore our information systems after the occurrence of any of these events could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows. Because of the confidentialprotected health information we store and transmit, loss of electronically stored information for any reason could expose us to a risk of regulatory action and litigation and possible liability and loss.
We believe we have all the necessary licenses from third parties to use technology and software that we do not own. A third party could, however, allege that we are infringing its rights, which may deter our ability to obtain licenses on commercially
reasonable terms from the third party, if at all, or cause the third party to commence litigation against us. In addition, we may find it necessary to initiate litigation to protect our trade secrets, to enforce our intellectual property rights and to determine the scope and validity of any proprietary rights of others. Any such litigation, or the failure to obtain any necessary licenses or other rights, could materially and adversely affect our business.
Possible changes in the case mix of patients, as well as payor mix and payment methodologies, could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
Our revenue is determined by a number of factors, including our mix of patients and the rates of payment among payors. Changes in the case mix of our patients, payment methodologies or the payor mix among Medicare, Medicaid and private payors could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
Our failure to negotiate favorable managed care contracts, or our loss of existing favorable managed care contracts, could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
One of our strategies is to diversify our payor sources by increasing the business we do with managed care companies, and we strive to put in place favorable contracts with managed care payors. However, we may not be successful in these efforts. Additionally, there is a risk that the favorable managed care contracts that we put in place may be terminated, and managed care contracts typically permit the payor to terminate the contract without cause, on very short notice, typically 60 days, which can provide payors leverage to reduce volume or obtain favorable pricing. Our failure to negotiate and put in place favorable managed care contracts, or our failure to maintain in place favorable managed care contracts, could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
A write off of a significant amount of intangible assets or long-lived assets could have a material adverse effect on our consolidated financial condition and results of operations.
A significant and sustained decline in our stock price and market capitalization, a significant decline in our expected future cash flows, a significant adverse change in the business climate, or slower growth rates could result in the need to perform an impairment analysis under Accounting Standard Codification (“ASC”) Topic 350 “Intangibles – Goodwill and Other” in future periods in addition to our annual impairment test. If we were to conclude that a write down of goodwill is necessary, then we would record the appropriate charge, which could result in material charges that are adverse to our consolidated financial condition and results of operations. See Part II, Item 8, Note 4 – Goodwill and Other Intangible Assets, Net to our consolidated financial statements for additional information.
Because we have grown in part through acquisitions, goodwill and other acquired intangible assets represent a substantial portion of our assets. Goodwill was approximately $319.9 million as of December 31, 2017 and if we make additional acquisitions, it is likely that we will record additional intangible assets in our consolidated financial statements. We also have long-lived assets consisting of property and equipment and other identifiable intangible assets of $77.2 million as of December 31, 2017, which we review both on a periodic basis for indefinite lived intangible assets as well as when events or circumstances indicate that the carrying amount of an asset may not be recoverable. If a determination that a significant impairment in value of our unamortized intangible assets or long-lived assets occurs, such determination could require us to write off a substantial portion of our assets. A write off of these assets could have a material adverse effect on our consolidated financial condition and results of operations.
A shortage of qualified registered nursing staff and other clinicians, such as therapists and nurse practitioners, could materially impact our ability to attract, train and retain qualified personnel and could increase operating costs.
We compete for qualified personnel with other healthcare providers. Our ability to attract and retain clinicians depends on several factors, including our ability to provide these personnel with attractive assignments and competitive salaries and benefits. We cannot be assured we will succeed in any of these areas. In addition, there are shortages of qualified health care personnel in some of our markets. As a result, we may face higher costs of attracting clinicians and providing them with attractive benefit packages than we originally anticipated which could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows. In addition, if we expand our operations into geographic areas where health care providers historically have been unionized, or if any of our care center employees become unionized, being subject to a collective bargaining agreement may have a negative impact on our ability to timely and successfully recruit qualified personnel and may increase our operating costs. Generally, if we are unable to attract and retain clinicians, the quality of our services may decline and we could lose patients and referral sources, which could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
Our insurance liability coverage may not be sufficient for our business needs.
As a result of operating in the home health industry, our business entails an inherent risk of claims, losses and potential lawsuits alleging incidents involving our employees that are likely to occur in a patient’s home. We maintain professional liability insurance to provide coverage to us and our subsidiaries against these risks. However, we cannot assure you claims will not be made in the future in excess of the limits of our insurance, nor can we assure you that any such claims, if successful and in excess of such
limits, will not have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows. Our insurance coverage also includes fire, property damage and general liability with varying limits. We cannot assure you that the insurance we maintain will satisfy claims made against us or that insurance coverage will continue to be available to us at commercially reasonable rates, in adequate amounts or on satisfactory terms. Any claims made against us, regardless of their merit or eventual outcome, could damage our reputation and business.
We may be subject to substantial malpractice or other similar claims.
The services we offer involve an inherent risk of professional liability and related substantial damage awards. As of February 23, 2018,19, 2021, we hadhave approximately 17,90021,000 employees (10,900(10,800 home health, 3,2006,500 hospice, 3,1002,700 personal care and 7001,000 corporate employees). In addition, we employ direct care workers on a contractual basis to support our existing workforce. Due to the nature of our business, we, through our employees and caregivers who provide services on our behalf, may be the subject of medical malpractice claims. A court could find these individuals should be considered our agents, and, as a result, we could be held liable for their acts or omissions. We cannot predict the effect that any claims of this nature, regardless of their ultimate outcome, could have on our business or reputation or on our ability to attract and retain patients and employees. While we maintain malpractice liability coverage that we believe is appropriate given the nature and breadth of our operations, any claims against us in excess of insurance limits, or multiple claims requiring us to pay deductibles, could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
If we are unable to maintain our corporate reputation, our business may suffer.
Our success depends on our ability to maintain our corporate reputation, including our reputation for providing quality patient care and for compliance with Medicare requirements and the other laws to which we are subject. Adverse publicity surrounding any aspect of our business, including the death or disability of any of our patients due to our failure to provide proper care, or due to any failure on our part to comply with Medicare requirements or other laws to which we are subject, could negatively affect our Company’s overall reputation and the willingness of referral sources to refer patients to us.
We depend on the servicesA write off of our executive officers and other key employees.
We depend greatly on the effortsa significant amount of our executive officers and other key employees to manage our operations. The lossintangible assets or departure of any one of these executives or other key employeeslong-lived assets could have a material adverse effect on our business and consolidated financial condition and results of operationsoperations.
A significant and sustained decline in our stock price and market capitalization, a significant decline in our expected future cash flows.flows, a significant adverse change in the business climate or slower growth rates could result in the need to perform an impairment analysis under Accounting Standards Codification (“ASC”) Topic 350 “Intangibles – Goodwill and Other” in future periods in addition to our annual impairment test. If we were to conclude that a write down of goodwill is necessary, then we would record the appropriate charge, which could result in material charges that are adverse to our consolidated financial condition and results of operations. See Part II, Item 8, Note 5 – Goodwill and Other Intangible Assets, Net to our consolidated financial statements for additional information.
Because we have grown in part through acquisitions, goodwill and other acquired intangible assets represent a substantial portion of our assets. Goodwill was $932.7 million as of December 31, 2020 and if we make additional acquisitions, it is likely that we will record additional goodwill and intangible assets in our consolidated financial statements. We also have long-lived assets consisting of property and equipment and other identifiable intangible assets of $97.9 million as of December 31, 2020, which we review on a periodic basis as well as when events or circumstances indicate that the carrying amount of an asset may not be recoverable. If a determination that a significant impairment in value of our unamortized intangible assets or long-lived assets occurs, such determination could require us to write off a substantial portion of our assets. A write off of these assets could have a material adverse effect on our consolidated financial condition and results of operations.
Our operations could be impacted by natural disasters.
The occurrence of natural disasters in the markets in which we operate could not only impact the day-to-day operations of our care centers, but could also disrupt our relationships with patients, employees and referral sources located in the affected areas and, in the case of our corporate office, our ability to provide administrative support services, including billing and collection services. In addition, any episode of care that is not completed due to the impact of a natural disaster will generally result in lower revenue for the episode. For example, our corporate office and a number of our care centers are located in the southeastern United States and the Gulf Coast Region, increasing our exposure to hurricanes and flooding. Future hurricanes or other natural disasters may have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
Risks Related to our Growth Strategies
Our growth strategy depends on our ability to acquire additional care centers and integrate and operate these care centers effectively. If our growth strategy is unsuccessful or we are not able to successfully integrate newly acquired care centers into our existing operations, our business and consolidated financial condition, results of operations and cash flows could be materially adversely affected.
We may not be able to fully integrate the operations of our acquired businesses with our current business structure in an efficient and cost-effective manner. Acquisitions involve significant risks and uncertainties, including difficulties in recouping partial episode payments and other types of misdirected payments for services from the previous owners; difficulties integrating acquired personnel and business practices into our business; the potential loss of key employees, referral sources or patients of acquired care centers; the delay in payments associated with change in ownership, control and the internal processes of the Medicare administrative contractors; and the assumption of liabilities and exposure to unforeseen liabilities of acquired care centers. Further, the financial benefits we expect to realize from many of our acquisitions are largely dependent upon our ability to improve clinical performance, overcome regulatory deficiencies, improve the reputation of the acquired business in the community and control costs. The failure to accomplish any of these objectives or to effectively integrate any of these businesses could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
The indemnification provisions of acquisition agreements by which we have acquired companies may not fully protect us and as a result we may face unexpected liabilities.
Certain of the acquisition agreements by which we have acquired companies require the former owners to indemnify us against certain liabilities related to the operation of the acquired company before we acquired it. In most of these agreements, however, the liability of the former owners is limited, and certain former owners may be unable to meet their indemnification responsibilities. We cannot assure you that these indemnification provisions will protect us fully or at all, and as a result, we may face unexpected liabilities that could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
State efforts to regulate the establishment or expansion of health care providers could impair our ability to expand our operations.
Some states require health care providers (including skilled nursing facilities, hospice care centers, home health care centers and assisted living facilities) to obtain prior approval, known as a CON or POA, in order to commence operations. See Part I, Item 1, “Our Regulatory Environment” for additional information on CONs and POAs. If we are not able to obtain such approvals, our ability to expand our operations could be impaired, which could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
Federal regulation may impair our ability to consummate acquisitions or open new care centers.
Changes in federal laws or regulations may materially adversely impact our ability to acquire care centers or open new start-up care centers. For example, the Social Security Act provides the Secretary with the authority to impose temporary moratoria on the enrollment of new Medicare providers, if deemed necessary to combat fraud, waste or abuse under government programs. While there are no active Medicare moratoria, there can be no assurance that CMS will not adopt a moratorium on new providers in the future. Additionally, in 2010, CMS implemented and amended a regulation known as the “36 Month Rule” that is applicable to home health care center acquisitions. Subject to certain exceptions, the 36 Month Rule prohibits buyers of certain home health care centers - those that either enrolled in Medicare or underwent a change in majority ownership fewer than 36 months prior to the acquisition - from assuming the Medicare billing privileges of the acquired care center. The 36 Month Rule may restrict bona fide transactions and potentially block new investments in home health agencies. These changes in federal laws and regulations, and similar future changes, may further increase competition for acquisition targets and could have a material detrimental impact on our acquisition strategy.
Risks Related to Laws and Government Regulations
We are subject to extensive government regulation. Any changes to the laws and regulations governing our business, or to the interpretation and enforcement of those laws or regulations, could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
Our industry is subject to extensive federal and state laws and regulations. See Part I, Item 1, “Our Regulatory Environment” for additional information on such laws and regulations. Federal and state laws and regulations impact how we conduct our business, the services we offer and our interactions with patients, our employees and the public and impose certain requirements on us such as:
•licensure and certification;
•adequacy and quality of health care services;
•qualifications of health care and support personnel;
•quality and safety of medical equipment;
•confidentiality, maintenance and security associated with medical records and claims processing;
•relationships with physicians and other referral sources;
•operating policies and procedures;
•emergency preparedness risk assessments and policies and procedures;
•policies and procedures regarding employee relations;
•addition of facilities and services;
•billing for services;
•requirements for utilization of services;
•documentation required for billing and patient care; and
•reporting and maintaining records regarding adverse events.
These laws and regulations, and their interpretations, are subject to change. Changes in existing laws and regulations, or their interpretations, or the enactment of new laws or regulations could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows by:
•increasing our administrative and other costs;
•increasing or decreasing mandated services;
•causing us to abandon business opportunities we might have otherwise pursued;
•decreasing utilization of services;
•forcing us to restructure our relationships with referral sources and providers; or
•requiring us to implement additional or different programs and systems.
Additionally, we are subject to various routine and non-routine reviews, audits and investigations by the Medicare and Medicaid programs and other federal and state governmental agencies, which have various rights and remedies against us if they establish that we have overcharged the programs or failed to comply with program requirements. We are also subject to potential lawsuits under the federal False Claims Act and other federal and state whistleblower statutes designed to combat fraud and abuse in our industry. Violation of the laws governing our operations, or changes in interpretations of those laws, could result in the imposition of fines, civil or criminal penalties, and the termination of our rights to participate in federal and state-sponsored programs and/or the suspension or revocation of our licenses. If we become subject to material fines, or if other sanctions or other corrective actions are imposed on us, our business and consolidated financial condition, results of operations and cash flows could be materially adversely affected.
We face periodic and routine reviews, audits and investigations under our contracts with federal and state government agencies and private payors, and these audits could have adverse findings that may negatively impact our business.
As a result of our participation in the Medicare and Medicaid programs, we are subject to various governmental reviews, audits and investigations to verify our compliance with these programs and applicable laws and regulations. We also are subject to audits under various federal and state government programs in which third party firms engaged by CMS, including the Recovery Audit Contractors (“RACs”), Zone Program Integrity Contractors (“ZPICs”), Uniform Program Integrity Contractors ("UPICs"), Program Safeguard Contractors (“PSCs”), Medicaid Integrity Contractors (“MICs”) and Supplemental Medical Review Contractors (“SMRCs”), conduct extensive reviews of claims data and medical and other records to identify potential improper payments under the Medicare program. The Office of Inspector General-HHS ("OIG") also conducts audits and has included various home home health agency and hospice payment and quality issues in its current workplan. Additionally, private pay sources reserve the right to conduct audits. If billing errors are identified in the sample of reviewed claims, the billing error can be extrapolated to all claims filed which could result in a larger overpayment than originally identified in the sample of reviewed claims. Our costs to respond to and defend reviews, audits and investigations may be significant and could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows. Moreover, an adverse review, audit or investigation could result in:
•required refunding or retroactive adjustment of amounts we have been paid pursuant to the federal or state programs or from private payors;
•state or federal agencies imposing fines, penalties and other sanctions on us;
•loss of our right to participate in the Medicare program, state programs, or one or more private payor networks; or
•damage to our business and reputation in various markets.
These results could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
If a care center fails to comply with the conditions of participation in the Medicare program, that care center could be subjected to sanctions or terminated from the Medicare program.
Each of our care centers must comply with required conditions of participation in the Medicare program. If we fail to meet the conditions of participation at a care center, we may receive a notice of deficiency from the applicable state surveyor. If that care center then fails to institute an acceptable plan of correction to remediate the deficiency within the correction period provided by the state surveyor, that care center could be terminated from the Medicare program or subjected to alternative sanctions. CMS outlined its alternative sanction enforcement options for home health care centers through a regulation published in 2012; under the regulation, CMS may impose temporary management, direct a plan of correction, direct training or impose payment suspensions and civil monetary penalties, in each case, upon providers who fail to comply with the conditions of participation. Termination of one or more of our care centers from the Medicare program for failure to satisfy the program’s conditions of participation, or the imposition of alternative sanctions, could disrupt operations, require significant attention by management, or have a material adverse effect on our business and reputation and consolidated financial condition, results of operations and cash flows.
We are subject to federal and state laws that govern our financial relationships with physicians and other health care providers, including potential or current referral sources.
We are required to comply with federal and state laws, generally referred to as “anti-kickback laws,” that prohibit certain direct and indirect payments or other financial arrangements between health care providers that are designed to encourage the referral of patients to a particular provider for medical services. In addition to these anti-kickback laws, the Federal Government has enacted specific legislation, the physician self-referral prohibition, commonly known as the “Stark Law,” that prohibits certain financial relationships, specifically including ownership interests and compensation arrangements, between physicians (and the immediate family members of physicians) and providers of designated health services, such as home health care centers, to whom the physicians refer patients. Some of these same financial relationships are also subject to additional regulation by states. Although we believe we have structured our relationships with physicians and other actual or potential referral sources to comply with these laws where applicable, the laws are complex. It is possible that courts or regulatory agencies may interpret state and federal anti-kickback laws and/or the Stark Law and similar state laws regulating relationships between health care providers and physicians in ways that will adversely implicate our practices or that isolated instances of noncompliance may occur. Violations of federal or state Stark or anti-kickback laws could lead to criminal or civil fines or other sanctions, including repayment of federal health care program payments related to these arrangements, denials of government program reimbursement or even exclusion from participation in governmental health care programs, which could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows. It is possible that a claim that results from a kickback or is made in violation of the Stark Law also may render it false or fraudulent, creating further potential liability under the federal False Claims Act, discussed above.
We may face significant uncertainty in the industry due to government health care reform.
The health care industry in the United States is subject to fundamental changes due to ongoing health care reform efforts and related political, economic and regulatory influences. In March 2010, comprehensive health care reform legislation was signed into law in the United States through the passage of PPACA, which calls for a number of changes to Medicare payment rates and the rebasing of the home health payment system to be made over time. PPACA has had and will likely continue to have a significant impact upon the health care delivery system. Implementation of the regulations and related initiatives as required by PPACA may increase our costs, decrease our revenues, expose us to expanded liability or require us to revise the ways in which we conduct our business.
Various health care reform proposals similar to the federal reforms have also emerged at the state level, including in several states in which we operate. We cannot predict with certainty what health care initiatives, if any, will be implemented at the state level, or what the ultimate effect of federal health care reform or any future legislation or regulation may have on us or on our business and consolidated financial condition, results of operations and cash flows.
In addition to impacting our Medicare businesses, PPACA may also significantly affect our non-Medicare businesses. PPACA makes many changes to the underwriting and marketing practices of private payors. The resulting economic pressures could prompt these payors to seek to lower their rates of reimbursement for the services we provide. PPACA may continue to have residual effects on our non-Medicare business.
Finally, efforts to repeal or substantially modify provisions of the PPACA continue in Congress and in the courts. The ultimate outcomes of legislative efforts to repeal, substantially amend, eliminate or reduce funding for the PPACA is unknown. In addition to the prospect for legislative repeal or revision, administrative action, including revised regulation and other Executive Branch action, could impose changes on how the law is applied. The effect of any major modification or repeal of the PPACA on our business, operations or financial condition cannot be predicted, but could be materially adverse.
Risks Related to Liquidity
Delays in payment may cause liquidity problems.
Our business is characterized by delays from the time we provide services to the time we receive payment for these services. If we have difficulty in obtaining documentation, such as physician orders, experience information system problems or experience other issues that arise with Medicare or other payors, we may encounter additional delays in our payment cycle.
In addition, timing delays in billings and collections may cause working capital shortages. Working capital management, including prompt and diligent billing and collection, is an important factor in achieving our financial results and maintaining liquidity. It is possible that documentation support, system problems, Medicare or other providerpayor issues or industry trends may extend our collection period, which may materially adversely affect our working capital, and our working capital management procedures may not successfully mitigate this risk.
On May 29, 2018, CMS began implementingissued a three year Medicarenotice indicating its intention to re-launch a home health agency pre-claim review demonstration project. Now called the Review Choice Demonstration for Home Health Services, the revised demonstration will give home health agencies in the demonstration states three initial options: pre-claim review of all claims, post-payment review of all claims, or minimal post-payment review with a 25% payment reduction for all home health services. Reduced review options are available for home health services provided to beneficiaries in the state of Illinois.agencies that demonstrate compliance. The demonstration wasinitially applies to expand to the states ofhome health providers in Florida, Michigan, Massachusetts,Illinois, North Carolina, Ohio, and Texas; however, CMS suspended the program indefinitely but can restart the demonstrationTexas, with staggered start dates beginning in the announced states after providing
30 days' notice. If the program were to restart,2019 and extending into 2021. Compliance with this process could result in increased administrative costs or delays in reimbursement for home health services in states subject to the demonstration.
Additionally, our hospice operations may experience payment delays. We have experienced payment delays when attempting to collect funds from state Medicaid programs in certain instances. Delays in receiving payments from these programs may also materially adversely affect our working capital.
Changes in units of payment for home health agencies could reduce our Medicare home health reimbursement levels.
Pursuant to the Bipartisan Budget Act of 2018 and final rules issued in October of 2019, PDGM changed the unit of payment for home health agencies from a 60-day episode of care to 30-day periods of care, effective January 1, 2020. Although this change was to be implemented in an overall budget neutral manner, the ultimate impact will vary by provider based on factors including patient mix and admission source. Additionally, CMS made assumptions about behavioral changes which resulted in a 4.36% reduction to reimbursement. Accordingly, the adoption of PDGM had a negative impact on our Medicare revenue per episode in 2020 and could negatively impact our rates of reimbursement in future years and have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows. See Part I, Item 1, “Our Regulatory Environment - Home Health Payment Reform” for additional information on PDGM.
The volatility and disruption of the capital and credit markets and adverse changes in the United States and global economies could impact our ability to access both available and affordable financing, and without such financing, we may be unable to achieve our objectives for strategic acquisitions and internal growth.
While we intend to finance strategic acquisitions and internal growth with cash flows from operations and borrowings under our revolving credit facility, we may require sources of capital in addition to those presently available to us. Uncertainty in the capital and credit markets may impact our ability to access capital on terms acceptable to us (i.e. at attractive/affordable rates) or at all, and this may result in our inability to achieve present objectives for strategic acquisitions and internal growth. Further, in the event we need additional funds, and we are unable to raise the necessary funds on acceptable terms, our business and consolidated financial condition, results of operations and cash flows could be materially adversely affected.
Our indebtedness could impact our financial condition and impair our ability to fulfill other obligations.
As of December 31, 2017,2020, we had total outstanding indebtedness of approximately $90.7 million, comprised mainly of indebtedness incurred in connection with our April 23, 2014 settlement agreement with the U.S. Department of Justice relating to certain of our clinical and business operations.$215.1 million. Our level of indebtedness could have a material adverse effect on our business and consolidated financial position, results of operations and cash flows and could impair our ability to fulfill other obligations in several ways, including:
•it could require us to dedicate a portion of our cash flow from operations to payments on our indebtedness, which could reduce the availability of cash flow to fund acquisitions, start-ups, working capital, capital expenditures and other general corporate purposes;
•it could limit our ability to borrow money or sell stock for working capital, capital expenditures, debt service requirements and other purposes;
•it could limit our flexibility in planning for, and reacting to, changes in our industry or business;
•it could make us more vulnerable to unfavorable economic or business conditions; and
•it could limit our ability to make acquisitions or take advantage of other business opportunities.
In the event we incur additional indebtedness, the risks described above could increase.
The agreements governing our indebtedness contain various covenants that limit our discretion in the operation of our business and our failure to satisfy requirements in these agreements could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
The agreements governing our indebtedness (the “Debt Agreements”) contain certain obligations, including restrictive covenants that require us to comply with or maintain certain financial covenants and ratios and restrict our ability to:
•incur additional debt;
•redeem or repurchase stock, pay dividends or make other distributions;
•make certain investments;
•create liens;
•enter into transactions with affiliates;
•make acquisitions;
•enter into joint ventures;
•merge or consolidate;
•invest in foreign subsidiaries;
•amend acquisition documents;
•enter into certain swap agreements;
•make certain restricted payments;
•transfer, sell or leaseback assets; and
•make fundamental changes in our corporate existence and principal business.
Our Debt Agreements also limit our ability to reinvest the net cash proceeds from asset sales or subordinated debt issuances in certain circumstances. For example, in the event we or any of our subsidiaries receive more than $5 million in net cash proceeds from an asset sale, disposition or involuntary disposition, our Debt Agreements require us to prepay our term loan facility and revolving credit facility with all of such net cash proceeds, unless we elect to reinvest the net cash proceeds in fixed or capital assets related to our business.
In addition, events beyond our control could affect our ability to comply with the Debt Agreements. Any failure by us to comply with or maintain all applicable financial covenants and ratios and to comply with all other applicable covenants could result in an event of default with respect to the Debt Agreements. If we are unable to obtain a waiver from our lenders in the event of any non-compliance, our lenders could accelerate the maturity of any outstanding indebtedness and terminate the commitments to make further extensions of credit (including our ability to borrow under our revolving credit facility). Any failure to comply with these covenants could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
The potential cessation or modification of LIBOR may increase our interest expense or otherwise adversely affect us.
Our credit facility carries a floating interest rate which is tied to the Eurodollar rate (i.e., LIBOR) and the prime rate. On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit LIBOR quotations after 2021 (the “FCA Announcement”). The FCA Announcement indicates that the continuation of LIBOR on the current basis cannot and will not be assured after 2021, and LIBOR may cease to exist or otherwise be unsuitable for use as a benchmark. Recent proposals for LIBOR reforms may result in the establishment of new methods of calculating LIBOR or the establishment of one or more alternative benchmark rates. Although our credit facility provides for alternative base rates, some of those alternative base rates are related to LIBOR, and the consequences of any potential cessation, modification or other reform of LIBOR cannot be predicted at this time. If LIBOR ceases to exist, we most likely will need to amend the credit facility, and we cannot predict what alternative interest rate(s) will be negotiated with our counterparties. As a result, our interest expense may increase, our ability to refinance some or all of our existing indebtedness may be impacted and our available cash flow may be adversely affected.
Risks Related to Ownership of Our Common Stock
The price of our common stock may be volatile.
The price at which our common stock trades may be volatile. The stock market from time to time experiences significant price and volume fluctuations that impact the market prices of securities, particularly those of health care companies. The market price of our common stock may be influenced by many factors, including:
•our operating and financial performance;
•variances in our quarterly financial results compared to research analyst expectations;
•the depth and liquidity of the market for our common stock;
•future purchases or sales of common stock by the Company or large stockholders or the perception that such purchases or sales could occur;
•investor, analyst and media perception of our business and our prospects;
•developments relating to litigation or governmental investigations;
•changes or proposed changes in health care laws or regulations or enforcement of these laws and regulations, or announcements relating to these matters;
•departure of key personnel;
•changes in the Medicare, Medicaid and private insurance payment rates for home health and hospice;
•the operating and stock price performance of other comparable companies;
•announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; or
•market and business conditions related to COVID-19;
•general economic and stock market conditions.conditions; or
•other factors described in this "Risk Factors" section and elsewhere in this Annual Report on Form 10-K.
In addition, the stock market in general, and the NASDAQ Global Select Market (“NASDAQ”) in particular, has experienced price and volume fluctuations that we believe have often been unrelated or disproportionate to the operating performance of health care provider companies. These broad market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance. Securities class-action cases have often been brought against companies following periods of volatility in the market price of their securities. Such litigation, if instituted against us, could result in substantial costs and a diversion of management's attention and resources.
The activities of short sellers could reduce the price or prevent increases in the price of our common stock. “Short sale” is defined as the sale of stock by an investor that the investor does not own. Typically, investors who sell short believe the price of the stock will fall, and anticipate selling shares at a higher price than the purchase price at which they will buy the stock. As of December 31, 2017,2020, investors held a short position of approximately 3.30.6 million shares of our common stock which represented 9.9%2% of our outstanding common stock. The anticipated downward pressure on our stock price due to actual or anticipated sales of our stock by some institutions or individuals who engage in short sales of our common stock could cause our stock price to decline.
Sales of substantial amounts of our common stock or the availability of those shares for future sale, could materially impact our stock price and limit our ability to raise capital.
The following table presents information about our outstanding common and preferred stock and our outstanding securities exercisable for or convertible into shares of common stock:
|
| | |
| As of December 31, 2017 |
Common stock outstanding | 33,964,767 |
|
Preferred stock outstanding | — |
|
Common stock available under 2008 Omnibus Incentive Compensation Plan | 1,248,149 |
|
Stock options outstanding | 909,730 |
|
Stock options exercisable | 381,932 |
|
Non-vested stock outstanding | 46,998 |
|
Non-vested stock units outstanding | 487,790 |
|
If we were to sell substantial amounts of our common stock in the public market or if there was a public perception that substantial sales could occur, the market price of our common stock could decline. These sales or the perception of substantial future sales may also make it difficult for us to sell common stock in the future to raise capital.
Our Board of Directors may use anti-takeover provisions or issue stock to discourage a change of control.
Our certificate of incorporation currently authorizes us to issue up to 60,000,000 shares of common stock and 5,000,000 shares of undesignated preferred stock. Our Board of Directors may cause us to issue additional stock to discourage an attempt to obtain control of our company. For example, shares of stock could be sold to purchasers who might support our Board of Directors in a control contest or to dilute the voting or other rights of a person seeking to obtain control. In addition, our Board of Directors could cause us to issue preferred stock entitling holders to vote separately on any proposed transaction, convert preferred stock into common stock, demand redemption at a specified price in connection with a change in control, or exercise other rights designed to impede a takeover.
The issuance of additional shares may, among other things, dilute the earnings and equity per share of our common stock and the voting rights of common stockholders.
We have implemented other anti-takeover provisions or provisions that could have an anti-takeover effect, including advance notice requirements for director nominations and stockholder proposals, no cumulative voting for directors, requirement that director vacancies are filled by remaining directors (including vacancies resulting from removal), and the number of directors is fixed by the Board of Directors, and the Board of Directors can increase or decrease the size of the Board of Directors without stockholder approval (within the range set forth in our Certificate of Incorporation and Bylaws). These provisions, and others that our Board of Directors may adopt hereafter, may discourage offers to acquire us and may permit our Board of Directors to choose not to entertain offers to purchase us, even if such offers include a substantial premium to the market price of our stock. Therefore, our stockholders may be deprived of opportunities to profit from a salechange of control.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our executive office is located in Nashville, Tennessee in a leased property consisting of 15,82525,097 square feet; our corporate headquarters is located in Baton Rouge, Louisiana in a leased property consisting of 75,24385,955 square feet. We believe we have adequate space to accommodate our corporate staff located in these locations for the foreseeable future.
In addition to our executive office and corporate headquarters, we also lease facilities for our home health, hospice and personal-care care centers. Generally, theseour leases have an initial term of five years, with a three year early termination option, but range from one to seventen years. Most of theseour leases also contain an option to extend the lease period.early termination options and renewal options. The following table shows the location of our 323320 Medicare-certified home health care centers, 83180 Medicare-certified hospice care centers and 1514 personal-care care centers at December 31, 2017:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| State | | Home Health | | Hospice | | Personal Care | | State | | Home Health | | Hospice | | Personal Care |
| Alabama | | 30 | | | 11 | | | — | | | New Jersey | | 2 | | | 7 | | | — | |
| Arkansas | | 5 | | | — | | | — | | | Nebraska | | — | | | 7 | | | — | |
| Arizona | | 3 | | | 1 | | | — | | | New York | | 4 | | | — | | | — | |
| California | | 4 | | | 4 | | | — | | | New Hampshire | | 3 | | | 4 | | | — | |
| Connecticut | | 1 | | | 1 | | | — | | | North Carolina | | 8 | | | 7 | | | — | |
| Delaware | | 2 | | | 2 | | | — | | | Ohio | | 1 | | | 5 | | | — | |
| Florida | | 18 | | | 6 | | | 1 | | | Oklahoma | | 6 | | | 1 | | | — | |
| Georgia | | 60 | | | 10 | | | — | | | Oregon | | 3 | | | 1 | | | — | |
| Illinois | | 3 | | | 1 | | | — | | | Pennsylvania | | 7 | | | 22 | | | — | |
| Indiana | | 5 | | | 6 | | | — | | | Rhode Island | | 1 | | | 2 | | | — | |
| Iowa | | — | | | 1 | | | — | | | South Carolina | | 22 | | | 8 | | | — | |
| Kansas | | — | | | 1 | | | — | | | South Dakota | | — | | | 2 | | | — | |
| Kentucky | | 17 | | | — | | | — | | | Tennessee | | 45 | | | 15 | | | 1 | |
| Louisiana | | 9 | | | 5 | | | — | | | Texas | | 2 | | | 13 | | | — | |
| Massachusetts | | 5 | | | 10 | | | 12 | | | Virginia | | 13 | | | 6 | | | — | |
| Maine | | 2 | | | 4 | | | — | | | Washington | | 2 | | | — | | | — | |
| Maryland | | 9 | | | 3 | | | — | | | West Virginia | | 11 | | | 6 | | | — | |
| Michigan | | — | | | 1 | | | — | | | Wisconsin | | 1 | | | 3 | | | — | |
| Minnesota | | — | | | 1 | | | — | | | Washington, D.C. | | 1 | | | — | | | — | |
| Mississippi | | 9 | | | 1 | | | — | | | Total | | 320 | | | 180 | | | 14 | |
| Missouri | | 6 | | | 2 | | | — | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| State | | Home Health | | Hospice | | Personal Care | | State | | Home Health | | Hospice | | Personal Care |
| Alabama | | 30 |
| | 7 |
| | — |
| | New Jersey | | 2 |
| | 1 |
| | — |
|
| Arkansas | | 5 |
| | — |
| | — |
| | New York | | 5 |
| | — |
| | — |
|
| Arizona | | 3 |
| | 1 |
| | — |
| | New Hampshire | | 3 |
| | 3 |
| | — |
|
| California | | 4 |
| | — |
| | — |
| | North Carolina | | 8 |
| | 6 |
| | — |
|
| Connecticut | | 4 |
| | 1 |
| | — |
| | Ohio | | 1 |
| | 2 |
| | — |
|
| Delaware | | 2 |
| | — |
| | — |
| | Oklahoma | | 6 |
| | — |
| | — |
|
| Florida | | 20 |
| | — |
| | 1 |
| | Oregon | | 3 |
| | 1 |
| | — |
|
| Georgia | | 62 |
| | 6 |
| | — |
| | Pennsylvania | | 7 |
| | 6 |
| | — |
|
| Illinois | | 3 |
| | — |
| | — |
| | Rhode Island | | 1 |
| | 2 |
| | — |
|
| Indiana | | 5 |
| | 1 |
| | — |
| | South Carolina | | 19 |
| | 7 |
| | — |
|
| Kansas | | 1 |
| | 1 |
| | — |
| | Tennessee | | 43 |
| | 11 |
| | — |
|
| Kentucky | | 17 |
| | — |
| | — |
| | Texas | | 1 |
| | 1 |
| | — |
|
| Louisiana | | 10 |
| | 4 |
| | — |
| | Virginia | | 13 |
| | 1 |
| | — |
|
| Massachusetts | | 6 |
| | 9 |
| | 14 |
| | Washington | | 1 |
| | — |
| | — |
|
| Maine | | 2 |
| | 4 |
| | — |
| | West Virginia | | 11 |
| | 6 |
| | — |
|
| Maryland | | 8 |
| | 2 |
| | — |
| | Wisconsin | | 1 |
| | — |
| | — |
|
| Mississippi | | 9 |
| | — |
| | — |
| | Washington, D.C. | | 1 |
| | — |
| | — |
|
| Missouri | | 6 |
| | — |
| | — |
| | Total | | 323 |
| | 83 |
| | 15 |
|
ITEM 3. LEGAL PROCEEDINGS
See Part II, Item 8, Note 911 – Commitments and Contingencies for information concerning our legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information and Holders
Our common stock trades on the NASDAQ Global Select Market under the trading symbol “AMED”. The following table presents the range of high and low sales prices for our common stock for the periods indicated as reported on NASDAQ:
|
| | | | | | | |
| | Price Range of Common Stock |
| | High | | Low |
| Year Ended December 31, 2017 | | | |
| First Quarter | $ | 54.27 |
| | $ | 42.05 |
|
| Second Quarter | 65.91 |
| | 50.42 |
|
| Third Quarter | 63.13 |
| | 45.67 |
|
| Fourth Quarter | 61.78 |
| | 45.60 |
|
| Year Ended December 31, 2016 | | | |
| First Quarter | $ | 48.48 |
| | $ | 31.16 |
|
| Second Quarter | 54.42 |
| | 46.12 |
|
| Third Quarter | 55.16 |
| | 45.48 |
|
| Fourth Quarter | 48.13 |
| | 34.58 |
|
“AMED.” As of February 23, 2018,19, 2021, there were approximately 522483 holders of record of our common stock. This number of holders of record does not represent the actual number of beneficial owners of our common stock because shares are frequently held in “street name” by securities dealers and others for the benefit of individual owners who have the right to vote their shares.
Dividend Policy
We have not declared or paid any cash dividends on our common stock or any other of our securities and do not expect to pay cash dividends for the foreseeable future. We currently intend to retain our future earnings, if any, to fund the development and growth of our business. Future decisions concerning the payment of dividends will depend upon our results of operations, financial condition, capital expenditure plans and debt service requirements, as well as such other factors as our Board of Directors, in its sole discretion, may consider relevant. In addition, our outstanding indebtedness restricts, and we anticipate any additional future indebtedness may restrict, our ability to pay cash dividends; provided, however, that we may pay dividends (i) dividends payable solely in our equity securities and (ii) dividends if (1) no default or event of default under the Amended Credit Agreement shall have occurred and be continuing at the time of such dividend or would result therefrom, (2) we demonstrate that, upon giving pro forma effect to such dividend, our consolidated leverage ratio (as defined in the Amended Credit Agreement) is less than 2.002.0 to 1.0 and (3) we demonstrate a minimum liquidity of $50 million upon giving effect to such dividend.
Purchases of Equity Securities
The following table provides the information with respect to purchases made by us of shares of our common stock during each of the months during the three-month period ended December 31, 2017:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | (a)
Total Number
of Shares (or Units)
Purchased | | | (b)
Average Price
Paid per Share (or Unit) | | (c)
Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs | | (d)
Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) That May Yet Be
Purchased Under the
Plans or Programs (2) |
| October 1, 2020 to October 31, 2020 | 1,275 | | | | $ | 251.64 | | | — | | | $ | — | |
| November 1, 2020 to November 30, 2020 | — | | | | — | | | — | | | — | |
| December 1, 2020 to December 31, 2020 | — | | | | — | | | — | | | — | |
| | 1,275 | | (1) | | $ | 251.64 | | | — | | | $ | — | |
|
| | | | | | | | | | | | | | | |
| Period | | (a) Total Number of Shares (or Units) Purchased | | | (b) Average Price Paid per Share (or Unit) | | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs |
| October 1, 2017 to October 31, 2017 | 991 |
| | | $ | 50.27 |
| | — |
| | $ | — |
|
| November 1, 2017 to November 30, 2017 | — |
| | | — |
| | — |
| | — |
|
| December 1, 2017 to December 31, 2017 | 7,866 |
| | | 55.31 |
| | — |
| | — |
|
| | | 8,857 |
| (1) | | $ | 54.75 |
| | — |
| | $ | — |
|
| |
(1) | Includes shares of common stock surrendered to us by certain employees to satisfy tax withholding obligations in connection with the vesting of stock previously awarded to such employees under our 2008 Omnibus Incentive Compensation Plan. |
(1)Includes shares of common stock surrendered to us by certain employees to satisfy tax withholding obligations in connection with the vesting of non-vested stock previously awarded to such employees under our 2008 and 2018 Omnibus Incentive Compensation Plans.
(2)On December 23, 2020, we announced that our board of directors authorized a stock repurchase program, under which we may repurchase up to $100 million of our outstanding common stock through December 31, 2021. We did not repurchase any shares pursuant to this stock repurchase program.
Stock Performance Graph
The Performance Graph below compares the cumulative total stockholder return on our common stock, $0.001 par value per share, for the five-year period ended December 31, 2017,2020, with the cumulative total return on the NASDAQ composite index and an industry peer group over the same period (assuming the investment of $100 in our common stock, the NASDAQ composite index and the industry peer group)group on December 31, 20122015 and the reinvestment of dividends.dividends). The peer group we selected is comprised of: Addus Homecare Corporation ("ADUS"), Chemed Corporation ("CHE"), Encompass Health Corporation ("EHC"), LHC Group, Inc. (“LHCG”) and Almost Family, Inc.National Healthcare Corporation (“AFAM”NHC”). The cumulative total stockholder return on the following graph is historical and is not necessarily indicative of future stock price performance. No cash dividends have been paid on our common stock.
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| | | | | | | | | | | | | | | | | | | | | | | |
| | 12/31/2012 | | 12/31/2013 | | 12/31/2014 | | 12/31/2015 | | 12/31/2016 | | 12/31/2017 |
| Amedisys, Inc. | $ | 100.00 |
| | $ | 129.39 |
| | $ | 259.58 |
| | $ | 347.76 |
| | $ | 377.03 |
| | $ | 466.18 |
|
| NASDAQ Composite | $ | 100.00 |
| | $ | 141.63 |
| | $ | 162.09 |
| | $ | 173.33 |
| | $ | 187.19 |
| | $ | 242.29 |
|
| Peer Group | $ | 100.00 |
| | $ | 128.93 |
| | $ | 145.45 |
| | $ | 204.88 |
| | $ | 216.08 |
| | $ | 283.07 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12/31/2015 | | 12/31/2016 | | 12/31/2017 | | 12/31/2018 | | 12/31/2019 | | 12/31/2020 |
| Amedisys, Inc. | $ | 100.00 | | | $ | 108.42 | | | $ | 134.05 | | | $ | 297.84 | | | $ | 424.52 | | | $ | 746.01 | |
| NASDAQ Composite | $ | 100.00 | | | $ | 108.87 | | | $ | 141.13 | | | $ | 137.12 | | | $ | 187.44 | | | $ | 271.64 | |
| Peer Group | $ | 100.00 | | | $ | 116.30 | | | $ | 146.71 | | | $ | 189.28 | | | $ | 253.37 | | | $ | 318.07 | |
This stock performance information is “furnished” and shall not be deemed to be “soliciting material” or subject to Regulation 14A under the Securities Exchange Act of 1934 (the “Exchange Act”), shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, and shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date of this report and irrespective of any general incorporation by reference language in any such filing, except to the extent we specifically incorporate the information by reference.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below is derived from our audited consolidated financial statements for the five-year period ended December 31, 2017, based on our continuing operations.2020. The financial data for the years ended December 31, 2017, 20162020, 2019 and 20152018 should be read together with our consolidated financial statements and related notes included in Item 8, “Financial Statements and Supplementary Data” and the information included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 (1) | | 2019 | | 2018 | | 2017 (2) | | 2016 (3) |
| (Amounts in thousands, except per share data) |
| Income Statement Data: | | | | | | | | | |
| Net service revenue | $ | 2,071,519 | | | $ | 1,955,633 | | | $ | 1,662,578 | | | $ | 1,511,272 | | | $ | 1,419,261 | |
| Operating income | $ | 219,268 | | | $ | 177,472 | | | $ | 155,148 | | | $ | 78,524 | | | $ | 57,340 | |
| Net income attributable to Amedisys, Inc. | $ | 183,608 | | | $ | 126,833 | | | $ | 119,346 | | | $ | 30,301 | | | $ | 37,261 | |
| Net income attributable to Amedisys, Inc. per basic share | $ | 5.64 | | | $ | 3.95 | | | $ | 3.64 | | | $ | 0.90 | | | $ | 1.12 | |
| Net income attributable to Amedisys, Inc. per diluted share | $ | 5.52 | | | $ | 3.84 | | | $ | 3.55 | | | $ | 0.88 | | | $ | 1.10 | |
(1)During 2020, we recorded a $24.0 million income tax benefit in connection with the stock option exercise by Paul B. Kusserow, President, Chief Executive Officer and Chairman of the Board of Amedisys.
(2)During 2017, we recorded charges related to the Securities Class Action Lawsuit settlement and related legal fees in the amount of $29.8 million ($18.1 million, net of tax). Additionally, we recorded a charge in the amount of $21.4 million as the result of H.R. 1 (Tax Cuts and Jobs Act) enacted on December 22, 2017.
(3)During 2016, we recorded Homecare Homebase (“HCHB”) implementation costs in the amount of $8.4 million ($5.1 million, net of tax) and recognized a non-cash charge to write off assets as a result of our conversion to the HCHB platform in the amount of $4.4 million ($2.7 million, net of tax).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| | (Amounts in thousands) |
| Balance Sheet Data: | | | | | | | | | | |
| Total assets | | $ | 1,567,198 | | | $ | 1,262,745 | | | $ | 717,118 | | | $ | 813,482 | | | $ | 734,029 | |
| Total debt, including current portion | | $ | 215,007 | | | $ | 242,183 | | | $ | 7,387 | | | $ | 88,841 | | | $ | 93,029 | |
| Total Amedisys, Inc. stockholders’ equity | | $ | 809,224 | | | $ | 640,450 | | | $ | 481,582 | | | $ | 515,321 | | | $ | 460,203 | |
| Cash dividends declared per common share | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
|
| | | | | | | | | | | | | | | | | | | |
| | 2017 (1) | | 2016 (2) | | 2015 (3) | | 2014 (4) | | 2013 (5) |
| | (Amounts in thousands, except per share data) |
| Income Statement Data: | | | | | | | | | |
| Net service revenue | $ | 1,533,680 |
| | $ | 1,437,454 |
| | $ | 1,280,541 |
| | $ | 1,204,554 |
| | $ | 1,249,344 |
|
| Operating income (loss) from continuing operations | 78,524 |
| | 57,340 |
| | (9,166 | ) | | $ | 24,047 |
| | $ | (154,971 | ) |
| Net income (loss) from continuing operations attributable to Amedisys, Inc. | $ | 30,301 |
| | $ | 37,261 |
| | $ | (3,021 | ) | | $ | 12,992 |
| | $ | (93,105 | ) |
| Net income (loss) from continuing operations attributable to Amedisys, Inc. per basic share | $ | 0.90 |
| | $ | 1.12 |
| | $ | (0.09 | ) | | $ | 0.40 |
| | $ | (2.98 | ) |
| Net income (loss) from continuing operations attributable to Amedisys, Inc. per diluted share | $ | 0.88 |
| | $ | 1.10 |
| | $ | (0.09 | ) | | $ | 0.40 |
| | $ | (2.98 | ) |
| |
(1) | During 2017, we recorded charges related to the Securities Class Action Lawsuit settlement, net in the amount of $29.8 million ($18.1 million, net of tax). Additionally, we recorded a charge in the amount of $21.4 million as the result of H.R. 1 (Tax Cuts and Jobs Act) enacted on December 22, 2017. |
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(2) | During 2016, we recorded charges related to Homecare Homebase (“HCHB”) implementation costs in the amount of $8.4 million ($5.1 million, net of tax) and recognized a non-cash charge to write off assets as a result of our conversion to the HCHB platform in the amount of $4.4 million ($2.7 million, net of tax). |
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(3) | During 2015, we recorded non-cash charges to write off the software costs incurred related to the development of AMS3 Home Health and Hospice in the amount of $75.2 million ($45.5 million, net of tax) and to reduce the carrying value of our corporate headquarters in the amount of $2.1 million ($1.2 million, net of tax). |
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(4) | During 2014, we recorded charges for relators’ fees and exit and restructuring activity in the amount of $13.9 million ($8.5 million, net of tax) and recognized non-cash other intangibles impairment charges of $3.1 million ($2.0 million, net of tax). |
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(5) | During 2013, we recorded a charge for the accrual for the U.S. Department of Justice settlement, which amounted to $150.0 million ($93.9 million, net of tax) and recognized non-cash goodwill and other intangibles impairment charges of $9.5 million ($5.8 million, net of tax). |
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| | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | (Amounts in thousands) |
| Balance Sheet Data: | | | | | | | | | |
| Total assets (1) | $ | 813,482 |
| | $ | 734,029 |
| | $ | 681,715 |
| | $ | 666,956 |
| | $ | 724,237 |
|
| Total debt, including current portion (1) | $ | 88,841 |
| | $ | 93,029 |
| | $ | 96,630 |
| | $ | 113,586 |
| | $ | 44,735 |
|
| Total Amedisys, Inc. stockholders’ equity | 515,321 |
| | 460,203 |
| | $ | 409,568 |
| | $ | 397,167 |
| | $ | 372,201 |
|
| Cash dividends declared per common share | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| |
(1) | Total assets and Total debt, including current portion have been recast to present our retrospective adoption of Accounting Standards Update 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information we believe is relevant to an assessment and understanding of our results of operations and financial condition for 2017, 20162020, 2019 and 2015.2018. This discussion should be read in conjunction with our audited financial statements included in Item 8, “Financial Statements and Supplementary Data” and Part I, Item 1, “Business” of this Annual Report on Form 10-K. The following analysis contains forward-looking statements about our future revenues,
operating results and expectations. See “Special Caution Concerning Forward-Looking Statements” for a discussion of the risks, assumptions and uncertainties affecting these statements as well as Part I, Item 1A, “Risk Factors.”
Overview
We are a provider of high-quality in-home healthcare and related services to the chronic, co-morbid, aging American population, with approximately 75%, 78%74% and 80%73% of our revenue derived from Medicare for 2017, 20162020, 2019 and 20152018, respectively.
Our operations involve servicing patients through our three reportable business segments: home health, hospice and personal care. Our home health segment delivers a wide range of services in the homes of individuals who may be recovering from an illness, injury or surgery. Our hospice segment provides care that is designed to provide comfort and support for those who are facing a terminal illness. Our personal care segment provides patients assistance with the essential activities of daily living. As of December 31, 2017,2020, we owned and operated 323320 Medicare-certified home health care centers, 83180 Medicare-certified hospice care centers and 1514 personal-care care centers, including unconsolidated joint ventures, in 3439 states within the United States and the District of Columbia.
Care Centers Summary (Includes Unconsolidated Joint Ventures)
|
| | | | | | | | |
| | Home Health | | Hospice | | Personal Care |
| At December 31, 2014 | 316 |
| | 80 |
| | — |
|
| Acquisitions | 15 |
| | 1 |
| | — |
|
| Closed/Consolidated/Sold | (2 | ) | | (2 | ) | | — |
|
| At December 31, 2015 | 329 |
| | 79 |
| | — |
|
| Acquisitions/Start-Ups | 1 |
| | — |
| | 14 |
|
| Closed/Consolidated | (3 | ) | | — |
| | — |
|
| At December 31, 2016 | 327 |
| | 79 |
| | 14 |
|
| Acquisitions/Start-Ups | 3 |
| | 2 |
| | 7 |
|
| Closed/Consolidated | (10 | ) | | — |
| | (6 | ) |
| At December 31, 2017 | 320 |
| | 81 |
| | 15 |
|
| Unconsolidated Joint Ventures | 3 |
| | 2 |
| | — |
|
| Total Including Unconsolidated Joint Ventures at December 31, 2017 | 323 |
| | 83 |
| | 15 |
|
| | | | | | | | | | | | | | | | | |
| Home Health | | Hospice | | Personal Care |
| At December 31, 2017 | 323 | | | 83 | | | 15 | |
| Acquisitions/Start-Ups/Denovos | 1 | | | 1 | | | 1 | |
| Closed/Consolidated | (1) | | | — | | | (4) | |
| At December 31, 2018 | 323 | | | 84 | | | 12 | |
| Acquisitions/Start-Ups/Denovos | 3 | | | 59 | | | — | |
| Closed/Consolidated | (5) | | | (5) | | | — | |
| At December 31, 2019 | 321 | | | 138 | | | 12 | |
| Acquisitions/Start-Ups/Denovos | 4 | | | 54 | | | 2 | |
| Closed/Consolidated | (5) | | | (12) | | | — | |
| At December 31, 2020 | 320 | | | 180 | | | 14 | |
When we refer to “same store business,” we mean home health, hospice and personal-care care centers that we have operated for at least the last twelve months;months and start-ups that are an expansion of a same store care center; when we refer to “acquisitions,” we mean home health, hospice and personal-care care centers that we acquired within the last twelve months; and when we refer to “start-ups,“denovos,” we mean home health, hospice and personal-care care centers opened by us in the last twelve months.months which are not an expansion of a same store care center. Once a care center has been in operation for a twelve month period, the results for that particular care center are included as part of our same store business from that date forward. Non-Medicare revenue, admissions, recertifications or completed episodes includes home health revenue, admissions, recertifications or completed episodes
2020 Developments
•Achieved the highest Quality of care for those payors that pay on an episodic or per visit basis, which includes Medicare Advantage programs and private payors.
2017 Developments
AcquiredPatient Care Star Score in the assetsHome Health industry in the October 2020 Home Health Compare ("HHC") release of Home Staff, L.L.C and Intercity Home Care, solidifying our position as the largest personal care provider in Massachusetts.
Made significant strides in delivering on our goal of clinical distinction4.33 stars with 88%95% of our care centers at 4+ StarsStars.
•Outperformed the industry on all Hospice Item Set ("HIS") measures.
•Performed over 11.5 million visits.
•Acquired and successfully integrated Asana Hospice ("Asana") and AseraCare Hospice ("AseraCare") making Amedisys the third largest hospice company in the January 2018 Home Health Compare ("HHC") release.
Increased total revenue 7% and operating income 37%.
Realized planned reductions in operating expenses post-completion of our Homecare Homebase ("HCHB") rollout.
Exceeded 7,000United States, exceeding 13,000 in hospice average daily census.
Lowered•Successfully procured personal protective equipment ("PPE") and implemented protocols to ensure the safety of our business development staff vacancy rate to 1%.employees and patients during the novel coronavirus pandemic as discussed in further detail under Novel Coronavirus Pandemic ("COVID-19") below.
Lowered company•Ended the year with overall voluntary turnover of 18.3% and reduced our early exit rate by 6% over 2019, ending 2020 at 11.9%.
•Successfully piloted several tools and data analytics platforms of Medalogix, a predictive data and analytics company, helping to 22%.further optimize our current business and positioning us to work more closely with Medicare Advantage payors.
Completed•Implemented pay practice changes and staffing model efficiencies to further drive operational excellence.
•Successfully navigated the transition to the Patient-Driven Groupings Model ("PDGM") while continuing to deliver operational efficiencies through margin expansion.
•Executed a Care Coordination Agreement with BrightStar Care to facilitate the coordination of care between home health division restructure plan which is expected to generate between $7 million and $9hospice care centers and a network of personal care partners.
•Increased operating income 24%.
•Expanded home health gross margin as a percentage of revenue by 320 basis points.
•Delivered $289 million in annualized savings.cash flow from operations.
20182021 Strategy
•Further advance our industry leading Quality of Patient Care Star scores in home health.
•Drive best-in-class hospice quality while continuing to integrate acquired hospice assets.
•Advance our culture and sense of belonging through diversity and inclusion initiatives.
•Build a learning culture through world class leadership development.
•Reduce turnover in critical clinician roles.
•Continue to build on our industry-leading hospice platform by exploring varioussuccess in operating under PDGM.
•Expand our analytics capabilities internally and through our Medalogix investment.
•Deliver above industry average growth opportunities including small and large acquisitions and denovos.
Continue to focus on organic growth and inorganic expansionrates in all three segments.lines of business.
Continue our commitment to clinical distinction with a goal of all care centers achieving a 4.0 Quality Star Rating.
Focus on recruitment and retention of world class employees while fostering a culture of engagement to become the employer of choice•Pursue consolidations in the industry.home health industry via a regional-based acquisition strategy.
Improve productivity through increased proficiency in HCHB, productivity staffing tools and standardized scheduling processes.
Optimize portfolio by focusing on margin improvement in underperforming•Incrementally innovate around our core business to deliver new home based care centers.models such as Skilled Nursing Facility ("SNF") at Home.
Financial Performance
Results for the year ended December 31, 20172020 were impacted by acquisitions, COVID-19, the culminationsuspension of our focused effortssequestration and the transition to PDGM. On a consolidated basis, we increased operating income $42 million on operational improvements that began during 2014.a $116 million increase in net service revenue.
Our home health care centers experienced same store episodic volume growth in 2017. The home health segment saw an increasevolumes and improvement in non-Medicare revenueutilization and clinician mix which, combined with our variable cost controls were ablestructure and sequestration relief, mitigated a significant portion of our estimated COVID-19 impact and led to partially mitigate the impact of the 2017 CMS rate cut (see "Results of Operations”).segment delivering a $26 million increase in operating income.
Our hospice segment achieved significant growthcompleted the acquisitions of Asana and AseraCare in admissions and average daily census combined with strong cost controls2020. These acquisitions contributed approximately $13 million in 2017, all of which helped deliver a $27 million improvement in our operating income overto the year ended December 31, 2016 (see “Results of Operations”).hospice segment.
Our personal care segment completed two acquisitions in 2017. These acquisitions contributed approximately $1$6 million in personal care operating income as a result of associated integration costs.during 2020.
Economic and Industry Factors
HomeOur home health, hospice and personal care services aresegments operate in a highly fragmented and highly competitive industry. The degree of competitiveness varies based upon whether our care centers operate in states that require a certificate of need (CON)("CON") or permit of approval (POA)("POA"). In such states, expansion by existing providers or entry into the market by new providers is permitted only where determination is made by state health authorities that a given amount of unmet healthcare need exists. Currently, 68%71% and 39%27% of our home health and hospice care centers, respectively, operate in CON/POA states.
As the Federal government continues to debate a reduction in expenditures and a reform of the Medicare system, our industry continues to face reimbursement pressures. These reform efforts could result in major changes in the health care delivery and reimbursement system on a national and state level, including changes directly impacting the reimbursement systems for our home health and hospice care centers.
InPayment
Hospice
On July 31, 2020, the Centers for Medicare and Medicaid Services ("CMS") issued a final rule to update hospice payment rates and the wage index for fiscal year 2021 effective for services provided beginning October 1, 2020. CMS estimates hospices serving Medicare beneficiaries would see an estimated 2.4% increase in payments. This increase is the result of a 2.4% market basket adjustment as required under the Patient Protection and Affordable Health Care Act and the Health Care and Education Reconciliation Act (collectively, "PPACA"). The rule also changed the hospice wage index by adopting the most recent Office
of Management and Budget statistical area delineations with a five percent cap on wage index decreases. Finally, CMS increased the aggregate cap amount by 2.4% to $30,684. Based on our analysis of the final rule, we expect our impact to be in line with the 2.4% increase.
Home Health
On October 31, 2019, CMS issued the Calendar Year 20182020 Home Health ProposedFinal Rule, releasedwhich confirmed the implementation of PDGM effective January 1, 2020 as well as a change in July 2017, CMS proposed changes to the Home Health Prospective Payment System (“HHPPS”), known as the Home Health Groupings Model (“HHGM”). Among a numberunit of major differences from the current payment system, the HHGM would have distinguished between referrals from institutions and those from the community, with community referrals receiving lower payments. In addition, a 60-day episode would consist of twocare to a 30-day periods, each paid separately,period of care. Additionally, in an effort to reduce fraud risks, CMS reduced requests for anticipated payment ("RAPs") for 2020 to 20% with the initial 30-day period paid higher than any other period. However, HHGM was not includedfull elimination in 2021. CMS estimated that the final rule releasedwould result in November 2017.
On February 9, 2018, Congress passeda 1.3% increase in payments to home health providers. The increase is the result of a statutorily mandated 1.5% market basket increase pursuant to the Bipartisan Budget Act of 2018, reduced by 0.2% for the rural add-on. In calculating the impact, CMS also assumed that the industry would make certain behavioral changes related to coding practices, low utilization payment adjustment ("BBALUPA") management and co-morbidities. As a result, CMS reduced reimbursement by 4.36%. The impact of 2018"), which funded government operations, set two-year government spending limits and enactedthe final rule on us was a variety of healthcare related policies. Specific2.8% reduction in revenue for 2020.
On October 29, 2020, CMS issued the Home Health Final Rule for Medicare home health providers for calendar year 2021. CMS estimates that the final rule will result in a 1.9% increase in payments to home health providers. The increase is the BBAresult of 2018 providesa 2.0% market basket adjustment reduced by 0.1% for a targeted extensionthe rural add-on. Based on our analysis of the final rule, we expect our impact to be in line with the 1.9% increase. Additionally, CMS made permanent the telehealth flexibilities that were announced in the Interim Final Rule (Emergency Rule) for COVID-19 in March 2020. These flexibilities allow home health rural add-on payment, a reductionagencies to provide certain care via telehealth if it is clinically appropriate and included in the plan of the 2020 market basket update, modificationcare. Telehealth visits still do not count as visits for purposes of patient eligibility documentation requirements and reform to the HHPPS. The HHPPS reform includes the following parameters:
For home health units of service beginning on January 1, 2020, a 30-day payment system will apply.
The transition to the 30-day payment system must be budget neutral.
CMS must conduct at least one Technical Expert Panel during 2018, prior to any notice and comment rulemaking process, related to the design of any new case-mix adjustment model.
or payment.
The following payment adjustments are effective for each of the years indicated based on CMS’s final rules relativerules:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Home Health | | Hospice |
| 2021 | | 2020 | | 2019 | | 2021 (1) | | 2020 | | 2019 |
| Market Basket Update | 2.0 | % | | 1.5 | % | | 3.0 | % | | 2.4 | % | | 3.0 | % | | 2.9 | % |
| Rural Add-On Adjustment | (0.1) | | | (0.2) | | | — | | | — | | | — | | | — | |
| PPACA Adjustment | — | | | — | | | — | | | — | | | — | | | (0.3) | |
| Productivity Adjustment | — | | | — | | | (0.8) | | | — | | | (0.4) | | | (0.8) | |
| Behavioral Assumptions | — | | | (4.4) | | | — | | | — | | | — | | | — | |
| Estimated Industry Impact Including Behavioral Assumptions | 1.9 | % | | (3.1 | %) | | 2.2 | % | | 2.4 | % | | 2.6 | % | | 1.8 | % |
Estimated Company-Specific Impact (2) | 1.9 | % | | (2.8 | %) | | 1.2 | % | | 2.4 | % | | 0.5 | % | | 1.6 | % |
(1)Effective for services provided from October 1, 2020 to Medicare reimbursement and the passageSeptember 30, 2021.
(2)Our company-specific impact of the BBAhome health final rule could differ depending on differences in the wage index, our patient case mix and other factors, such as LUPAs or outliers, which are described in more detail under Critical Accounting Estimates below. Our company-specific impact of 2018:the hospice final rule could differ based on our mix of patients and differences in the wage index.
Novel Coronavirus Pandemic ("COVID-19")
Our operations and financial performance for the year ended December 31, 2020 have been impacted by COVID-19. The impacts on our operations began during the second week of March 2020, as we experienced declines in referral volumes and an increase in missed visits. Our home health segment experienced a referral low-point the week of April 5th. Since that time, we have seen a steady recovery in referral volumes and a corresponding drop in missed visits. In our hospice segment, our referrals hit their low-point the week of March 22nd. While hospice admission volumes have improved significantly, the slowdown in March has impacted our average daily census and has been most significant in our facility-based census. Additionally, we have seen a decline in our hospice average daily census as a result of a significant increase in deaths, an increase in the discharge rate of same-month admissions and a delay in the timing of patients coming onto service resulting in a shorter length of stay. The financial impacts of COVID-19 during the year ended December 31, 2020 are discussed in further detail under "Results of Operations" below.
While we currently believe that we have a reasonable view of operations, the uncertainty created by COVID-19 could alter our outlook of the pandemic's impact on our consolidated financial condition, results of operations or cash flows. The following factors could potentially impact our performance: the continued increase or decrease in the number of COVID-19 cases nationwide, the severity and impacts of new variants of the virus, uncertainty regarding vaccine distribution timing and
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| | | | | | | | | | | | | | | | | |
| | Home Health | | Hospice |
| | 2018 (1) | | 2017 | | 2016 | | 2018 (2) | | 2017 | | 2016 |
| Market Basket Update | 1.0 | % | | 2.8 | % | | 2.3 | % | | 1.0 | % | | 2.7 | % | | 2.4 | % |
| Rebasing | — |
| | (2.3 | ) | | (2.4 | ) | | — |
| | — |
| | — |
|
| 50/50 Blend of Wage Index | — |
| | — |
| | — |
| | — |
| | — |
| | 0.2 |
|
| Nominal Case Mix Adjustment | (0.9 | ) | | (0.9 | ) | | (0.9 | ) | | — |
| | — |
| | — |
|
| PPACA Adjustment | — |
| | — |
| | — |
| | — |
| | (0.3 | ) | | (0.3 | ) |
| Budget Neutrality Adjustment Factor | — |
| | — |
| | — |
| | — |
| | — |
| | (0.7 | ) |
| Productivity Adjustment | — |
| | (0.3 | ) | | (0.4 | ) | | — |
| | (0.3 | ) | | (0.5 | ) |
| Estimated Industry Impact | 0.1 | % | | (0.7 | )% | | (1.4 | )% | | 1.0 | % | | 2.1 | % | | 1.1 | % |
Estimated Company-Specific Impact (3) | (0.7 | )% | | (2.0 | )% | | (1.7 | )% | | 1.0 | % | | 2.0 | % | | — | % |
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(1) | Effective for episodes scheduled to be completed on or after January 1, 2018. |
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(2) | Effective for services provided from October 1, 2017 to September 30, 2018. |
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(3) | Our company-specific impact of the final rules differs depending on differences in the wage index and the impact of coding and outlier changes. |
As•lower volumes due to interruption of the operations of our referral sources, patients' unwillingness to accept services and restrictions on access to facilities for hospice services;
•lower reimbursement due to missed visits resulting in an increase in LUPAs and lost billing periods; and
•lower hospice average daily census due to a decline in average length of stay and an increase in deaths.
On March 27, 2020, the bipartisan Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into legislation. The CARES Act provides for the following:
•$175 billion to healthcare providers, including hospitals on the front lines of the COVID-19 pandemic. Of this total allocated amount, $30 billion was distributed immediately to providers based on their proportionate share of Medicare fee-for-service reimbursements in 2019. Healthcare providers were required to sign an attestation confirming receipt of the Provider Relief Fund ("PRF") funds and agree to the terms and conditions of payment. Our home health and hospice segments received approximately $100 million from the first $30 billion of funds distributed to healthcare providers in April 2020, which is inclusive of $2 million related to our joint venture care centers (equity method investments). We also acquired approximately $6 million of PRF funds in connection with the acquisition of AseraCare. Consistent with the terms and conditions for receipt of the payment, we are allowed to use the funds to cover lost revenues and health care costs related to COVID-19, and we are required to properly and fully document the use of these funds in reports to the U.S. Department of Health and Human Services ("HHS").
For our wholly-owned subsidiaries, we have decided to only utilize PRF funds to the extent we have qualifying COVID-19 expenses, which totaled $33 million for our home health and hospice segments during the year ended December 31, 2020. Accordingly, for our wholly-owned subsidiaries, we will not be using the funds to cover lost revenues resulting from COVID-19. In September 2020, HHS issued new guidance noting that PRF funds can be used through June 30, 2021. We do not believe that we will fully utilize the funds received; therefore, we have recorded a liability related to the funds that we do not expect to utilize totaling $60 million which is reflected in the Provider Relief Fund Advance account in current liabilities within our consolidated balance sheet. Funds that we intend to use in the future to cover COVID-19 expenses, which we have estimated to be approximately $12 million, have been recorded to a deferred liability account within accrued expenses in our consolidated balance sheet. These estimates may change as our ability to utilize and retain the funds will depend on the magnitude, timing and nature of the impact of the pandemic.
•The temporary suspension of the automatic 2% reduction of Medicare claim reimbursements ("sequestration") for the period May 1 through December 31, 2020. The impact was an increase to our 2020 net service revenue of approximately $23 million. In December 2020, Congress passed additional COVID-19 relief legislation as part of the 2016 final rule issuedConsolidated Appropriations Act, 2021. This legislation extended the suspension of sequestration through March 31, 2021.
•The deferral of the employer share of social security tax (6.2%), effective for payments due after the enactment date. Fifty percent is due on December 31, 2021 with the remaining amounts due on December 31, 2022. As of December 31, 2020, we have deferred approximately $55 million of social security tax which has increased our cash flow from operations by the same amount; approximately $28 million is reflected in October 2015, CMS finalizedeach of payroll and employee benefits and other long-term obligations within our consolidated balance sheet.
•The temporary suspension of Medicare patient coverage criteria and documentation and care requirements and the expansion of providing home health and hospice care to patients via telehealth.
•The ability for non-physician practitioners to certify for home health, order home health services, establish and review plans of care and certify and recertify eligibility.
The well-being of our employees has been one of our top priorities during this pandemic. We have taken the following steps to support our employees: implemented up to 14 days of paid leave during any required quarantine periods; awarded SPIRIT bonuses to our clinicians and caregivers who have seen patients during the pandemic; completed an early cash pay-out of employee paid-time-off; instituted work-from-home arrangements for our corporate and administrative support employees; allowed employees to temporarily suspend any 401(k) plan loan deductions and offered employees the option of making a
withdrawal from their proposal401(k) plan for coronavirus-related distributions without incurring the additional 10% early withdrawal penalty; granted access to implementTeladoc services to all employees; provided access to COVID-19 self-test kits to all employees and created a Home Health Value-Based PurchasingCOVID-19 Resource Center, available 24 hours a day, seven days a week for employees to access educational materials, safety documents, policies, clinical protocols and operational metrics.
The safety of our clinicians and patients has also been a focus, and as a result, we have made the following business changes: developed clinical protocols for COVID-19 testing, proper usage of PPE, caring for COVID-positive patients and maintaining safety measures in our care centers; researched each state's vaccination plan to develop a state by state protocol to work with local health departments and other health systems to obtain vaccine appointments for our clinical staff; implemented software enabling us to track staff that have been vaccinated; procured millions in PPE and created a centralized distribution center for all critical PPE, allowing us to flex our inventory on a care center by care center basis, based on need and demand. We have had success in utilizing both traditional and non-traditional suppliers for our PPE needs. While we were very fortunate to secure the supplies needed, we faced significantly higher per unit costs for the purchase of PPE.
Network Developments
In August 2020, we signed a Care Coordination Agreement with BrightStar Care to add its agencies to the Amedisys personal care network, which helps facilitate the coordination of care between our home health and hospice care centers and a network of personal care partners.
In July 2019, we signed an agreement with ClearCare, Inc. ("HHVBP"ClearCare") model, the provider of the personal care industry’s leading software platform, representing 4,000 personal care agencies in nine states that seeks to test whether incentives for better care can improve outcomesevery zip code in the deliveryUnited States. Our agreement with ClearCare creates an opportunity to establish a network partnership between Amedisys and personal care agencies using ClearCare in order to better coordinate patient care.
Long term, we believe these agreements will allow us to build a nation-wide network of personal care agencies and further our efforts to provide patients with a true care continuum in the home. These relationships will also help us as we continue to have innovative payment conversations with Medicare Advantage plans who have begun to recognize the value that combined home health, services. Financial impacts from this change, either positive or negative, would begin January 1, 2018, appliedhospice and personal care services bring to that calendar year based on 2016 performance datatheir members and for future years as detailed below.
|
| | |
| Performance Year | Year Reward/ Penalty Imposed | Maximum Reward/ Penalty |
| 2016 | 2018 | 3% |
| 2017 | 2019 | 5% |
| 2018 | 2020 | 6% |
| 2019 | 2021 | 7% |
| 2020 | 2022 | 8% |
Care centers operating in the states included in the proposed model account for approximately 30% of our 2017 home health Medicare revenue. Based on our performance to date, we anticipate that we will receive approximately $1 million in 2018 related to HHVBP.care delivery infrastructure.
Governmental Inquiries and Investigations and Other Litigation
Corporate Integrity Agreement
In connection with a settlement agreement with the U.S. Department of Justice, on April 23, 2014, we entered into a corporate integrity agreement (“CIA”) with the Office of Inspector General-HHS (“OIG”). The CIA formalizes various aspects of our already existing ethics and compliance programs and contains other requirements designed to help ensure our ongoing compliance with federal health care program requirements. Among other things, the CIA requires us to maintain our existing compliance program, executive compliance committee and compliance committee of the Board of Directors; provide certain compliance training; continue screening new and current employees to ensure they are eligible to participate in federal health care programs; engage an independent review organization to perform certain auditing and reviews and prepare certain reports regarding our compliance with federal health care programs, our billing submissions to federal health care programs and our compliance and risk mitigation programs; and provide certain reports and management certifications to the OIG. Additionally, the CIA specifically requires that we report substantial overpayments that we discover we have received from federal health care programs, as well as probable violations of federal health care laws. Upon breach of the CIA, we could become liable for payment of certain stipulated penalties, or could be excluded from participation in federal health care programs. The CIA has a term of five years. We expect the CIA to impact operating expenses by approximately $1 million to $2 million annually.
Subpoena Duces Tecum Issued by the U.S. Department of Justice
On May 21, 2015, we received a Subpoena Duces Tecum (“Subpoena”) issued by the U.S. Department of Justice. The Subpoena requests the delivery of information regarding 53 identified hospice patients to the United States Attorney’s Office for the District of Massachusetts. It also requests the delivery of documents relating to our hospice clinical and business operations and related compliance activities.
Civil Investigative Demands Issued by the U.S. Department of Justice
On November 3, 2015, we received a civil investigative demand ("CID") issued by the U.S. Department of Justice pursuant to the federal False Claims Act relating to claims submitted to Medicare and/or Medicaid for hospice services provided through designated facilities in the Morgantown, West Virginia area.
On June 27, 2016, we received a CID issued by the U.S. Department of Justice pursuant to the federal False Claims Act relating to claims submitted to Medicare and/or Medicaid for hospice services provided through designated facilities in the Parkersburg, West Virginia area.
Florida Zone Program Integrity Contractor Audit
During the three-month period ended September 30, 2017, we received a request for medical records from SafeGuard Services, L.L.C. ("SafeGuard"), a Zone Program Integrity Contractor ("ZPIC") related to services provided by some of the care centers that the Company acquired from Infinity Home Care, L.L.C. The review period covers time periods both before and after our ownership of the care centers which were acquired on December 31, 2015. Subsequent to the request for medical records, we received Requests for Repayment from Palmetto GBA, L.L.C. ("Palmetto") regarding two of these care centers. As a result we recorded a reduction in revenue in our consolidated statement of operations of approximately $7 million during the three-month period ended September 30, 2017.
See Item 8, Note 911 – Commitments and Contingencies to our consolidated financial statements for additional information regarding our CIA, the Subpoena issued by the U.S. Department of Justice, the CIDssubpoena and civil investigative demands issued by the U.S. Department of Justice and the South Carolina and Florida ZPIC audit.Zone Program Integrity Contractor audits. No assurances can be given as to the timing or outcome of these items.
Results of Operations
Consolidated
The following table summarizes our consolidated results of operations (amounts in millions):
| | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Net service revenue | $ | 2,071.5 | | | $ | 1,955.6 | | | $ | 1,662.6 | |
| Other operating income | 34.4 | | | — | | | — | |
| Cost of service, excluding depreciation and amortization | 1,185.4 | | | 1,150.3 | | | 992.9 | |
| Gross margin, excluding depreciation and amortization | 920.5 | | | 805.3 | | | 669.7 | |
| % of revenue | 44.4 | % | | 41.2 | % | | 40.3 | % |
| Other operating expenses | 668.2 | | | 607.9 | | | 501.3 | |
| % of revenue | 32.3 | % | | 31.1 | % | | 30.1 | % |
| Depreciation and amortization | 28.8 | | | 18.4 | | | 13.3 | |
| Asset impairment charge | 4.2 | | | 1.5 | | | — | |
| Operating income | 219.3 | | | 177.5 | | | 155.1 | |
| Total other (expense) income, net | (8.4) | | | (7.1) | | | 3.8 | |
| Income tax expense | (25.6) | | | (42.5) | | | (38.8) | |
| Effective income tax rate | 12.2 | % | | 24.9 | % | | 24.4 | % |
| Net income | 185.2 | | | 127.9 | | | 120.1 | |
| | | | | |
| Net income attributable to noncontrolling interests | (1.6) | | | (1.1) | | | (0.8) | |
| Net income attributable to Amedisys, Inc. | $ | 183.6 | | | $ | 126.8 | | | $ | 119.3 | |
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Net service revenue | $ | 1,533.7 |
| | $ | 1,437.4 |
| | $ | 1,280.5 |
|
| Gross margin, excluding depreciation and amortization | 633.0 |
| | 604.4 |
| | 554.6 |
|
| % of revenue | 41.3 | % | | 42.0 | % | | 43.3 | % |
| Other operating expenses | 499.4 |
| | 523.2 |
| | 472.4 |
|
| % of revenue | 32.6 | % | | 36.4 | % | | 36.9 | % |
| Provision for doubtful accounts | 25.1 |
| | 19.5 |
| | 14.1 |
|
| Securities Class Action Lawsuit settlement, net | 28.7 |
| | — |
| | — |
|
| Asset impairment charge | 1.3 |
| | 4.4 |
| | 77.3 |
|
| Operating income (loss) | 78.5 |
| | 57.3 |
| | (9.2 | ) |
| Total other income, net | 2.3 |
| | 4.2 |
| | 8.9 |
|
| Income tax expense | (50.1 | ) | | (23.9 | ) | | (2.0 | ) |
| Effective income tax rate | 62.0 | % | | 38.9 | % | | 650.6 | % |
| Net income (loss) | 30.7 |
| | 37.6 |
| | (2.3 | ) |
| Net income attributable to noncontrolling interests | (0.4 | ) | | (0.4 | ) | | (0.7 | ) |
| Net income (loss) attributable to Amedisys, Inc. | $ | 30.3 |
| | $ | 37.3 |
| | $ | (3.0 | ) |
Year Ended December 31, 20172020 Compared to the Year Ended December 31, 20162019
Overall,On a consolidated basis, our operating income increased $21approximately $42 million on a revenue increase of $96$116 million. Our declineCOVID-19 resulted in significant impacts to all of our segments; however, we experienced a significant increase in our gross margin as a percentage of revenue which drove our improvement over 2019. Our results were also impacted by acquisitions, the suspension of sequestration, the transition to PDGM, a reduction in revenue adjustments, severance associated with reductions in staffing levels, primarily within our home health segment and an asset impairment charge related to our acquired names intangibles.
Our 2020 results include the acquisitions of Asana and AseraCare, which contributed revenue of $88 million and an operating loss of $12 million, which is inclusive of acquisition and integration costs totaling $10 million and intangibles amortization totaling $9 million. Our results also reflect one additional month of revenue and operating income from Compassionate Care Hospice ("CCH"), which was acquired on February 1, 2019, and three additional months of revenue and operating income from RoseRock Healthcare ("RoseRock"), which was acquired on April 1, 2019.
COVID-19 disrupted both net service revenue and costs during 2020. The most significant impact occurred in the second quarter during which we experienced a $30 million decline in net service revenue over prior year due to COVID-19. Our variable cost structure helped us mitigate a significant portion of the revenue impact. Our home health segment, which was the resultmost heavily impacted by COVID-19, recovered quickly and returned to year over year growth in volumes during the third and fourth quarters. Our hospice segment experienced declines in admissions during the second quarter but saw an overall slower decline in average daily census, which is the main driver of hospice revenue. While we have experienced strong admission growth during the 2017third and 2018 changesfourth quarters, a significant increase in deaths, an increase in the discharge rate of same-month admissions and a delay in the timing of patients coming onto service has driven down our length of stay resulting in average daily census growth of only 1% year over year. Based on our current projections, we are anticipating a decline in average daily census early in 2021 despite strong growth in admissions. We expect that our length of stay will return to normal levels during 2021.
Our 2020 operating results were positively impacted by the suspension of sequestration effective May 1, 2020, which resulted in an increase to net service revenue of approximately $23 million ($13 million home health, $10 million hospice) but negatively impacted by the change in reimbursement under PDGM, which resulted in a $23 million reduction in net service revenue. We were able to significantly mitigate the PDGM rate cut and expand margin in our home health segment by
delivering improvements in clinician utilization and discipline mix and by reducing our revenue adjustments. Additionally, we experienced an expansion in our hospice gross margin resulting from lower costs associated with a decline in visit volumes due to access restrictions imposed by facilities as well as a reduction in revenue adjustments; prior year results included a $7 million reduction to revenue related to settlement discussions with the U.S. Department of Justice (See Item 8, Note 11 – Commitments and Contingencies to our consolidated financial statements for additional information).
Each of our segments incurred incremental costs related to COVID-19. As noted above, for our wholly-owned subsidiaries, we have elected to use the CARES Act Provider Relief Funds to cover COVID-19 expenses incurred by our home health and hospice reimbursementsegments which reduced revenue and gross margin by approximately $14totaled $33 million net.during 2020. Our 2017 results are inclusive of a $30 million charge for the Securities Class Action Lawsuit settlement and related legal fees, a $7 million reduction in revenue as a result of the Florida ZPIC audit and charges of approximately $3 million related to our home health closures and restructuring plan. Our 37% increase in operating income despite the cumulative impact of $40 millionpersonal care segment received funds from the items noted above was driven by the continued growthMass Home Care ASAP COVID-19 Provider Sustainability Program totaling $1 million. We have used these funds to cover COVID-19 expenses as well. We have recorded income associated with both of our hospice division and continued reductions in operating expenses across the organization.
Our 2017 operating results include the results of our acquisition of three home health and two hospice care centers on May 1, 2017 and our personal care acquisitions of Home Staff, L.L.C and Intercity Home Care. These three acquisitions accounted for approximately $22 million of our $96 million increase in revenue and $5 million of our $525these programs totaling $34 million in other operating expenses.income within our consolidated statement of operations.
Our operating results reflect a 1.2% increase in our other operating expenses as a percentage of revenue compared to prior year; this increase is due to the addition of resources to support growth (primarily business development employees), investments related to PDGM and planned wage increases, partially offset by overall reductions in spend during the pandemic and lower acquisition and integration costs.
Last, we recorded a $4 million asset impairment charge related to acquired names which are no longer in use (see Item 8, Note 5 – Goodwill and Other Intangible Assets, Net to our consolidated financial statements for additional information).
Total other (expense) income, net includes the impact of the following items (amounts in millions):
| | | | | | | | | | | |
| For the Years Ended
December 31, |
| 2020 | | 2019 |
| Interest income | $ | 0.3 | | | $ | 0.1 | |
| Interest expense | (11.0) | | | (14.5) | |
| Equity in earnings from equity method investments | 4.0 | | | 5.3 | |
| Miscellaneous, net | (1.7) | | | 2.0 | |
| $ | (8.4) | | | $ | (7.1) | |
|
| | | | | | | |
| | For the Years Ended December 31, |
| | 2017 | | 2016 |
| Legal settlements | $ | 2.0 |
| | $ | 2.3 |
|
| Equity in earnings from equity method investment | 0.8 |
| | 3.5 |
|
| Interest expense related to tax audit reserve | — |
| | (0.6 | ) |
| Interest expense related to Florida ZPIC audit | (0.3 | ) | | — |
|
Interest expense related to long-term obligations
| (4.7 | ) | | (4.5 | ) |
| | $ | (2.2 | ) | | $ | 0.7 |
|
Excluding these items, total other income, net increased $1Interest expense decreased $4 million in 20172020 from 2016.
Our 2017 income tax expense includes2019 as a $21 million charge related to the remeasurementresult of a decrease in borrowings under our deferred tax assets and liabilities to the enacted corporate income tax rate of 21% as required by the enactment of H.R. 1 (Tax Cuts and Jobs Act), on December 22, 2017Amended Credit Agreement (see Item 8, Note 7 - Income Taxes8 – Long-Term Obligations to our consolidated financial statements)statements for additional information regarding our Amended Credit Agreement). Miscellaneous, net includes a $3 million loss from the sale of our investment in the Heritage Healthcare Innovation Fund, LP during 2020 (see Item 8, Note 1 - Nature of Operations, Consolidation and Presentation of Financial Statements to our consolidated financial statements for additional information).
Year Ended December 31, 20162019 Compared to the Year Ended December 31, 20152018
Overall, our operating income increased $22 million on a revenue increase of $293 million. Our 20162019 operating results include the resultsacquisitions of Infinity HomeCare (“Infinity”), Associated Home CareCCH and Professional Profiles beginning on the date of their acquisition. These three acquisitions accounted for $85RoseRock which contributed approximately $174 million of our $157 million increase in revenue and $35an operating loss of approximately $5 million, which is inclusive of $14 million in acquisition and integration costs and $6 million in intangibles amortization.
Additionally, our operating income was negatively impacted by a $7 million accrual related to settlement discussions with the U.S. Department of Justice (see Item 8, Note 11 - Commitments and Contingencies to our consolidated financial statements for additional information) and a $2 million asset impairment charge related to our acquired names (see Item 8, Note 5 - Goodwill and Other Intangible Assets, Net to our consolidated financial statements for additional information).
Our year-to-date performance reflects growth and operating improvement in all three segments of our $56 million increaselegacy operations. We expanded gross margin as a percentage of revenue in our home health and personal care segments. Both segments benefited from rate increases with home health also delivering improvements in clinician utilization and discipline mix. Our hospice segment's gross margin as a percentage of revenue decreased due to our acquisition activity. Additionally, our other operating expenses. Our operating results were also impacted by anexpenses as a percentage of revenue increased only 1% compared to 2018; this increase is inclusive of approximately $21$16 million in acquisition and integration costs. Excluding the acquisition and integration costs, associated with our moveother operating expenses as a percentage of revenue remained relatively flat compared to HCHB. Approximately $8 million relates to implementation services provided by a third party while $4 million is2018 despite planned wage increases and the resultaddition of a non-cash charge to write off assets (primarily laptops) not compatible with our new platform. The remaining $9 million is related to disruption in care center operations as well as additional corporate resources to support multiple systems. In addition to the $21 million related to HCHB, we experienced an increase of $5 million in bad debt and contractual reserves due to increased write-offs and accounts receivable aging due to the HCHB disruption. While we anticipated these costs to continue as we completed the roll-out, our care centers generally returned to normal operating results approximately 60 to 90 days after implementation; we completed the HCHB roll-out during the three-month period ended December 31, 2016. Additionally, our results were impacted by approximately $12 million as a result of the 2016 CMS rate cut.growth.
Total other (expense) income, net includes the impact of the following items (amounts in millions):
| | | | | | | | | | | |
| For the Years Ended
December 31, |
| 2019 | | 2018 |
| Interest income | $ | 0.1 | | | $ | 0.3 | |
| Interest expense | (14.5) | | | (7.4) | |
| Equity in earnings from equity method investments | 5.3 | | | 7.7 | |
| Miscellaneous, net | 2.0 | | | 3.2 | |
| $ | (7.1) | | | $ | 3.8 | |
|
| | | | | | | |
| | For the Years Ended December 31, |
| | 2016 | | 2015 |
| Legal settlements | $ | 2.3 |
| | $ | 7.4 |
|
| Equity in earnings from equity method investment | 3.5 |
| | 6.7 |
|
| Interest expense related to tax audit reserve | (0.6 | ) | | — |
|
| Life insurance proceeds | — |
| | 1.0 |
|
| Debt refinance costs | — |
| | (3.2 | ) |
| Interest expense related to long-term obligations | (4.5 | ) | | (7.6 | ) |
| Gain (loss) on disposal of property and equipment or sale of care centers | — |
| | 0.2 |
|
| | $ | 0.7 |
| | $ | 4.5 |
|
Excluding these items, total other income, net decreased $1Interest expense increased $7 million in 20162019 from 2015.2018 as a result of an increase in borrowings under our Amended Credit Agreement (see Item 8, Note 8 – Long-Term Obligations to our consolidated financial statements for additional information regarding our Amended Credit Agreement). Equity in earnings from equity method investments includes gains of $2 million and $5 million for 2019 and 2018, respectively.
Home Health Division
The following table summarizes our home health segment results of operations:
| | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| 2020 | | 2019 | | 2018 |
Financial Information (in millions): | | | | | |
| Medicare | $ | 847.3 | | | $ | 859.2 | | | $ | 830.8 | |
| Non-Medicare | 401.9 | | | 397.2 | | | 343.7 | |
| Net service revenue | 1,249.2 | | | 1,256.4 | | | 1,174.5 | |
| Other operating income | 20.2 | | | — | | | — | |
| Cost of service | 729.9 | | | 754.1 | | | 722.1 | |
| Gross margin | 539.5 | | | 502.3 | | | 452.4 | |
| Asset impairment charge | 3.4 | | | 1.5 | | | — | |
| Other operating expenses | 311.1 | | | 301.4 | | | 279.8 | |
| Operating income | $ | 225.0 | | | $ | 199.4 | | | $ | 172.6 | |
| Same Store Growth (1): | | | | | |
| Medicare revenue | (1 | %) | | 4 | % | | 6 | % |
| Non-Medicare revenue | 1 | % | | 16 | % | | 18 | % |
| Total admissions | 1 | % | | 7 | % | | 5 | % |
| Total volume (2) | 2 | % | | 5 | % | | 7 | % |
| Key Statistical Data - Total (3): | | | | | |
| Admissions | 331,354 | | | 328,693 | | | 309,325 | |
| Recertifications | 181,195 | | | 172,568 | | | 168,509 | |
| Total volume | 512,549 | | | 501,261 | | | 477,834 | |
| | | | | |
| Medicare completed episodes (6) | 301,856 | | | 306,520 | | | 301,701 | |
| Average Medicare revenue per completed episode (4) (6) | $ | 2,836 | | | $ | 2,853 | | | $ | 2,799 | |
| Medicare visits per completed episode (5) (6) | 14.9 | | | 17.0 | | | 17.4 | |
| | | | | |
| Visiting Clinician Cost per Visit | $ | 89.62 | | | $ | 83.11 | | | $ | 81.88 | |
| Clinical Manager Cost per Visit | $ | 9.17 | | | $ | 8.04 | | | $ | 8.01 | |
| Total Cost per Visit | $ | 98.79 | | | $ | 91.15 | | | $ | 89.89 | |
| Visits | 7,388,549 | | | 8,273,308 | | | 8,033,654 | |
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Financial Information (in millions): | | | | | |
| Medicare | $ | 793.3 |
| | $ | 822.4 |
| | $ | 761.4 |
|
| Non-Medicare | 308.5 |
| | 263.1 |
| | 243.7 |
|
| Net service revenue | 1,101.8 |
| | 1,085.5 |
| | 1,005.1 |
|
| Cost of service | 670.9 |
| | 643.7 |
| | 584.2 |
|
| Gross margin | 430.9 |
| | 441.8 |
| | 420.9 |
|
| Provision for doubtful accounts | 17.9 |
| | 13.8 |
| | 12.2 |
|
| Asset impairment charge | 1.3 |
| | — |
| | — |
|
| Other operating expenses | 281.9 |
| | 289.4 |
| | 268.4 |
|
| Operating income | $ | 129.8 |
| | $ | 138.6 |
| | $ | 140.3 |
|
| Same Store Growth (1): | | | | | |
| Medicare revenue | (4 | )% | | 2 | % | | 3 | % |
| Non-Medicare revenue | 17 | % | | 8 | % | | 21 | % |
| Medicare admissions | (2 | )% | | 3 | % | | 3 | % |
| Total Episodic admissions | 1 | % | | 4 | % | | 3 | % |
| Total Episodic volume | 3 | % | | 3 | % | | 1 | % |
| Total admissions | 2 | % | | 2 | % | | 7 | % |
| Key Statistical Data - Total (2): | | | | | |
| Medicare: | | | | | |
| Admissions | 190,132 |
| | 194,662 |
| | 178,226 |
|
| Recertifications | 106,774 |
| | 103,193 |
| | 99,762 |
|
| Total volume | 296,906 |
| | 297,855 |
| | 277,988 |
|
| | | | | | |
| Completed episodes | 290,227 |
| | 289,862 |
| | 269,227 |
|
| Visits | 5,067,436 |
| | 5,124,002 |
| | 4,797,734 |
|
| Average revenue per completed episode (3) | $ | 2,823 |
| | $ | 2,839 |
| | $ | 2,825 |
|
| Visits per completed episode (4) | 17.3 |
| | 17.5 |
| | 17.5 |
|
| Non-Medicare: | | | | | |
| Admissions | 107,665 |
| | 98,448 |
| | 96,934 |
|
| Recertifications | 46,364 |
| | 38,618 |
| | 35,870 |
|
| Visits | 2,347,363 |
| | 2,050,975 |
| | 1,954,543 |
|
| Total (2): | | | | | |
| Visiting Clinician Cost per Visit | $ | 82.04 |
| | $ | 81.18 |
| | $ | 78.23 |
|
| Clinical Manager Cost per Visit | $ | 8.44 |
| | $ | 8.53 |
| | $ | 8.29 |
|
| Total Cost per Visit | $ | 90.48 |
| | $ | 89.71 |
| | $ | 86.52 |
|
| Visits | 7,414,799 |
| | 7,174,977 |
| | 6,752,277 |
|
| |
(1) | Same store information represents the percent increase (decrease) in our Medicare and Non-Medicare revenue, admissions or volume for the period as a percent of the Medicare and Non-Medicare revenue, admissions or volume of the prior period. |
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(2) | Total includes acquisitions. |
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(3) | Average Medicare revenue per completed episode is the average Medicare revenue earned for each Medicare completed episode of care. |
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(4) | Medicare visits per completed episode are the home health Medicare visits on completed episodes divided by the home health Medicare episodes completed during the period. |
(2)Total volume includes all admissions and recertifications.
(3)Total includes acquisitions and denovos.
(4)Average Medicare revenue per completed episode is the average Medicare revenue earned for each Medicare completed episode of care. Average Medicare revenue per completed episode for the year ended December 31, 2020 reflects the transition to PDGM effective January 1, 2020 and the suspension of sequestration effective May 1, 2020.
(5)Medicare visits per completed episode are the home health Medicare visits on completed episodes divided by the home health Medicare episodes completed during the period.
(6)Prior year amounts have been recast to conform to the current year calculation.
Year Ended December 31, 20172020 Compared to the Year Ended December 31, 20162019
Operating Results
Overall, our operating income decreased $9increased $26 million on a $16$7 million increasedecrease in net service revenue. Our decreaseresults for the year ended December 31, 2020 were impacted by COVID-19, the suspension of sequestration, the transition to PDGM, severance associated with reductions in gross margin asstaffing levels and a percentage of revenue was the result of the 2017 and 2018 changes in reimbursement which reduced revenue and gross margin by $17 million. Additionally, our results include a $7 million reduction in revenue adjustments. Despite the decrease in net service revenue, we saw significant improvement in our operating performance driven by improvements in our clinician utilization and discipline mix, both of which have contributed to year over year gross margin expansion.
COVID-19 resulted in disruption to our home health volumes beginning at the end of the first quarter through most of the second quarter and amplified the negative impact of the PDGM rate cut on our Medicare revenue per episode. Volumes significantly improved during the third and fourth quarters and our efforts to operationalize PDGM reduced the impact of the PDGM rate cut in the second half of the year. While we are very encouraged by the improvement in volumes and Medicare revenue per episode that we have experienced, we will continue to closely monitor COVID-19 cases and the potential impacts on our operating results.
Our operating results were also impacted by incremental costs totaling $20 million related to a reserve recorded
asCOVID-19, which were offset by the resultrecognition of a ZPIC audit in four care centers in Florida. Growth in episodic volumesincome totaling $20 million associated with the CARES Act Provider Relief Fund, and severance totaling $5 million related to reductions in operating expenses helped to mitigate the impacts of the items noted above.staffing levels.
Net Service Revenue
Our net service revenue decreased $7 million primarily due to the impacts of COVID-19 and the 2020 change in reimbursement under PDGM. The combination of these resulted in lower volumes than anticipated and lower Medicare revenue decreased approximately $29 millionper episode for the year ended December 31, 2020. COVID-19 significantly increased the number of missed visits which includesincreased the number of LUPA episodes and the number of episodes with lost billing periods (i.e. episodes with no visits during one of the 30-day billing periods), leading to a $7decline in our Medicare revenue per episode. Additionally, the implementation of PDGM resulted in a $23 million reduction in net service revenue related toduring the Florida ZPIC audit. Our totalyear ended December 31, 2020. This reduction was partially offset by $13 million resulting from the suspension of sequestration effective May 1, 2020.
We have seen significant increases in both volumes and Medicare volumes (admissions plus recertifications) decreased by approximately 1,000 from 2016, and our revenue per episode decreased by 60 basis pointsin the second half of the year as the impacts of COVID-19 have moderated and as we have been able to refocus our efforts on operationalizing PDGM. We have provided additional training, increased our focus on OASIS accuracy and coding and also completed the rollout of Medalogix Care to all of our home health care centers, all of which have resulted in higher case mix and functional impairment scores for our patients. Additionally, we have seen a reduction in revenue of approximately $5 million. Additionally, our provision for revenue adjustments increased approximately $7 million primarilyyear over year.
Other Operating Income
Other operating income consists of the recognition of funds received from the CARES Act Provider Relief Fund. In accordance with the terms and conditions, these funds can be used to cover lost revenues as well as costs directly attributable to COVID-19. For our wholly-owned subsidiaries, we have elected to utilize the funds to cover COVID-19 related costs only, and therefore, have recognized income equal to the agingamount of Medicare receivables for our Florida care centers included inCOVID-19 costs incurred to date totaling $20 million. These costs are associated with the ZPIC audit and the related billing hold. The decrease in revenue per episode is the resultpurchase of the combined impact of the 2017 and 2018 CMS rate cuts on our episodes in progress which reduced our revenue by approximately $17 million; this reduction was offset by a $12 million increase related to the acuity level of our patients.
Our non-Medicare revenue increased approximately $45 million. Admissions from episodic payors increased 27% while our per visit payors increased 2%. We continue to focus on contract payors with significant concentrations in our markets and those that add incremental marginpersonal protective equipment, bonuses paid to our operations as we continueclinicians, clinician training, quarantine pay and COVID-19 testing. Of the $20 million of COVID-19 costs incurred to evaluate our portfoliodate, $19 million has been recorded to cost of managed care contracts.service and $1 million has been recorded to other operating expenses.
Cost of Service, Excluding Depreciation and Amortization
Our cost of service consists of costs associated with direct clinician care in the homes of our patients as well as the cost of clinical managers who monitor the overall delivery of care. Overall, our total cost of service decreased 3% on an 11% decrease in total visits. Lower costs associated with a decline in volumes driven by COVID-19, improvements in clinician utilization as evidenced by a decline of 2.1 visits per completed episode year over year and optimization of discipline mix were partially offset by an 8% increase in our total cost per visit, which was driven by planned wage increases, an increase in the utilization of contractors to supplement clinician visits in certain areas, new hire pay, a change in the mix of our visits, costs directly attributable to COVID-19 totaling approximately $19 million and severance totaling $5 million related to a reduction in staffing levels. While we compensate our clinicians on a per visit basis, there is a fixed cost component of our cost structure which resulted in an increase in our cost per visit as we had a significant decline in visits.
Other Operating Expenses
Other operating expenses increased approximately $10 million primarily due to planned wage increases, the addition of resources to support volume growth, investments related to PDGM and approximately $1 million of costs directly attributable to COVID-19. These increases were partially offset by a reduction in travel and training expense and an overall reduction in spend during the pandemic.
Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018
Operating Results
Overall, our operating income increased $27 million on an $82 million increase in net service revenue. Our gross margin as a percentage of revenue was positively impacted by the 2019 changes in reimbursement, growth in volumes, the acuity level of our patients, improved utilization and a focus on discipline mix. The impact of the 2019 change in reimbursement was an increase in net service revenue and gross margin of approximately $12 million.
Net Service Revenue
Our revenue increased $82 million (7%) on a 5% increase in total volume and a 2% increase in Medicare revenue per episode. The volume growth was driven by a 7% increase in admissions offset by lower recertification volume. The increase in Medicare revenue per episode is the result of a 1.2% increase in reimbursement with the remainder due to an increase in the acuity level of our patients. Additionally, our non-Medicare (per visit and episodic) rates increased approximately 3% which is a combination of rate increases and increases in the acuity level of our patients. Revenue was also positively impacted by a reduction in our revenue adjustments.
Cost of Service, Excluding Depreciation and Amortization
Our cost of service increased 4% on a 3% increase in total visits. Our total cost per visit increased approximately 1% as the result of annual wage increases and increases in health insurance costs. These increases were partially mitigated by improvements in clinician productivity.
Other Operating Expenses
Other operating expenses decreased $8 million despite incurring approximately $4 millionutilization and optimization of discipline mix partially offset planned wage increases. Additionally, changes in costs related to our home health restructuring plan. These charges were offset by decreases in other care center related expenses, primarily salaries and benefits as the resultstaffing resulted in a shift of planned decreases post our HCHB rollout. Other operating expenses include approximately $3 million related to acquisitions during 2017.
Our provision for doubtful accounts increased $4 million on a $45 million increase in revenue.
Year Ended December 31, 2016 Compared to the Year Ended December 31, 2015
Overall, our operating income decreased $2 million on a $21 million increase in gross margin offset by a $23 million increase in other operating expenses. These results are inclusive of Infinity which accounted for $49 million of our total revenue increase and $18 million of other operating expenses. Our results were negatively impacted by approximately $12 million related to the CMS rate cut which became effective January 1, 2016 and approximately $6 million as the result of disruptions associated with the roll-out of HCHB.
Net Service Revenue
Our Medicare revenue increased $61 million which is inclusive of $48 millionsome office staff from acquired care centers. The increase in same store revenue is due to higher admission volumes. Our revenue per episode was relatively flat despite the impact of the CMS rate cut in 2016; the increase was due to an increase in patient acuity.
Our non-Medicare revenue increased approximately $19 million, with revenues from episodic payors increasing 16% while our revenue from per visit payors grew 5%.
Cost of Service, Excluding Depreciation and Amortization
Our cost of service increased $59 million primarily as a result of a 6% increase in visits and a 4% increase in cost per visit. The increase in cost per visit is primarily due to higher health insurance expense, planned wage increases and additional costs related to our HCHB roll-out.other operating expenses totaling approximately $4 million.
Other Operating Expenses
Other operating expenses increased $21approximately $22 million primarily due to increasesan increase in other care center related expenses, primarily salaries and benefits travel and training expense and HCHB maintenance and hosting fees. Other operating expense relatedas a result of the addition of resources to care centers acquired from Infinity was approximately $18 million. We completed the consolidation of our legacy Florida operations with Infinitysupport volume growth, planned wage increases and the conversion of Infinity to our back office platform during 2016.
Our provision for doubtful accounts increased $2 million on a $19 million increase in revenue.
home health staffing shifts referenced above.
Hospice Division
The following table summarizes our hospice segment results of operations:
| | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| 2020 | | 2019 | | 2018 |
Financial Information (in millions): | | | | | |
| Medicare | $ | 710.0 | | | $ | 586.6 | | | $ | 390.2 | |
| Non-Medicare | 40.1 | | | 30.6 | | | 20.7 | |
| Net service revenue | 750.1 | | | 617.2 | | | 410.9 | |
| Other operating income | 13.1 | | | — | | | — | |
| Cost of service | 400.6 | | | 335.1 | | | 212.0 | |
| Gross margin | 362.6 | | | 282.1 | | | 198.9 | |
| Asset impairment | 0.8 | | | — | | | — | |
| Other operating expenses | 177.6 | | | 139.1 | | | 85.7 | |
| Operating income | $ | 184.2 | | | $ | 143.0 | | | $ | 113.2 | |
| Same Store Growth (1): | | | | | |
| Medicare revenue | 4 | % | | 7 | % | | 11 | % |
| | | | | |
| Hospice admissions | 6 | % | | 4 | % | | 8 | % |
| Average daily census | 1 | % | | 7 | % | | 11 | % |
| Key Statistical Data - Total (2): | | | | | |
| Hospice admissions | 49,694 | | | 40,194 | | | 27,596 | |
| Average daily census | 13,081 | | | 11,164 | | | 7,588 | |
| Revenue per day, net | $ | 156.69 | | | $ | 151.47 | | | $ | 148.36 | |
| Cost of service per day | $ | 83.67 | | | $ | 82.24 | | | $ | 76.53 | |
| Average discharge length of stay | 99 | | | 98 | | | 100 | |
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Financial Information (in millions): | | | | | |
| Medicare | $ | 350.7 |
| | $ | 297.7 |
| | $ | 258.5 |
|
| Non-Medicare | 20.3 |
| | 18.3 |
| | 16.9 |
|
| Net service revenue | 371.0 |
| | 316.0 |
| | 275.4 |
|
| Cost of service | 184.8 |
| | 163.1 |
| | 141.7 |
|
| Gross margin | 186.2 |
| | 152.9 |
| | 133.7 |
|
| Provision for doubtful accounts | 5.9 |
| | 5.5 |
| | 1.9 |
|
| Other operating expenses | 77.5 |
| | 71.5 |
| | 64.1 |
|
| Operating income | $ | 102.8 |
| | $ | 75.9 |
| | $ | 67.7 |
|
| Same Store Growth (1): | | | | | |
| Medicare revenue | 17 | % | | 15 | % | | 13 | % |
| Non-Medicare revenue | 10 | % | | 9 | % | | 18 | % |
| Hospice admissions | 11 | % | | 17 | % | | 16 | % |
| Average daily census | 15 | % | | 16 | % | | 12 | % |
| Key Statistical Data - Total (2): | | | | | |
| Hospice admissions | 25,381 |
| | 22,526 |
| | 19,205 |
|
| Average daily census | 6,820 |
| | 5,912 |
| | 5,105 |
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| Revenue per day, net | $ | 149.04 |
| | $ | 146.05 |
| | $ | 147.78 |
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| Cost of service per day | $ | 74.25 |
| | $ | 75.36 |
| | $ | 76.06 |
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| Average discharge length of stay | 93 |
| | 96 |
| | 92 |
|
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(1) | Same store information represents the percent increase (decrease) in our Medicare and Non-Medicare revenue, Hospice admissions or average daily census for the period as a percent of the Medicare and Non-Medicare revenue, Hospice admissions or average daily census of the prior period. |
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(2) | Total includes acquisitions. |
(2)Total includes acquisitions and denovos.
Year Ended December 31, 20172020 Compared to the Year Ended December 31, 20162019
Operating Results
Our operating results for 2020 include the results of the acquisition of Asana on January 1, 2020 (8 hospice care centers) and AseraCare on June 1, 2020 (44 hospice care centers). Acquisitions are included in our consolidated financial statements from their respective acquisition dates. As a result of our acquisitions, our hospice segment operating results for 2020 and 2019 are not fully comparable.
Overall, our operating income increased $27$41 million on a $33$133 million increase in net service revenue. Our 2020 results include the acquisitions of Asana and AseraCare, which contributed revenue of $88 million and operating income of $13 million. Our results also reflect one additional month of revenue and operating income from CCH and three additional months of revenue and operating income from RoseRock. Additionally, our operating results were favorably impacted by the following: 1% growth in average daily census, changes in reimbursement, which resulted in an increase in net service revenue and gross margin offset by aof approximately $6 million increase in other operating expenses. Our significant growth inand $3 million, respectively, lower revenue adjustments, the suspension of sequestration effective May 1, 2020 and lower visit volumes and decrease in cost of service per day have resulted in a 22% increase in gross margin.due to facility access restrictions.
Net Service Revenue
Our net service revenue increased $133 million, approximately $88 million of which is attributable to our Asana and AseraCare acquisitions during 2020. The remaining increase in net service revenue is the result of one additional month of revenue from our 2019 acquisition of CCH (approximately $15 million), three additional months of revenue from our 2019 acquisition of RoseRock (approximately $2 million), growth in our average daily census, the suspension of sequestration effective May 1, 2020 ($9 million excluding acquisitions), a 0.5% increase in reimbursement effective October 1, 2019 ($3 million), a 2.4% increase in reimbursement effective October 1, 2020 ($3 million, excluding acquisitions) and lower revenue adjustments as prior year results included a $7 million reduction to revenue related to settlement discussions with the U.S. Department of Justice (see Note 11 – Commitments and Contingencies to our consolidated financial statements for additional information).
While COVID-19 significantly impacted our admission volumes during the second quarter, our hospice admissions rebounded quickly, resulting in strong year over year growth in admissions during the third and fourth quarters. Our same store admissions growth was up 6% year over year; however, our average daily census, which is the main driver of hospice revenue, increased approximately $55 million due towas up only 1%. Generally, changes in average daily census lag changes in admission volumes; however, we have not seen an increase in our average daily census asgrowth due to a result of an 11%significant increase in hospice admissions andthe number of deaths, an increase in reimbursement effective for services providedthe discharge rate of same-month admissions and a delay in the timing of patients coming onto service resulting in a lower length of stay. This lower length of stay resulted in a declining census as we exited 2020. Based on our current projections, we expect this trend to continue into 2021.
Other Operating Income
Other operating income consists of the recognition of funds received from each October 1, 2016the CARES Act Provider Relief Fund. In accordance with the terms and 2017.
conditions, these funds are intended to cover lost revenues as well as costs directly attributable to COVID-19. For our wholly-owned subsidiaries, we have elected to utilize the funds to cover COVID-19 related costs only, and therefore, have recognized income equal to the amount of COVID-19 costs incurred to date totaling $13 million. These costs are associated with the purchase of personal protective equipment, bonuses paid to our clinicians, clinician training, quarantine pay and COVID-19 testing. Of the $13 million of COVID-19 costs incurred to date, $12 million has been recorded to cost of service and $1 million has been recorded to other operating expenses.
Cost of Service, Excluding Depreciation and Amortization
Our hospice cost of service increased $22$66 million, as the resultapproximately $52 million of which is attributable to our Asana and AseraCare acquisitions during 2020. The remaining increase is primarily due to one additional month of costs from our 2019 acquisition of CCH, three additional months of costs from our 2019 acquistion of RoseRock, a 15%1% increase in average daily census. Our costcensus, planned wage increases, COVID-19 costs totaling $12 million and an increase in our general inpatient and respite facility costs as the majority of service per day decreased $1.11 primarilythe reimbursement increase, which became effective October 1, 2019, was passed through to these facilities. These increases were offset by a decline in visits performed by our hourly licensed practical nurses and hospice aides due to significant improvements in salary and pharmacy cost per day driven by cost controls and census growth.facility access restrictions as well as lower transportation costs.
Other Operating Expenses
Other operating expenses increased $6$39 million, approximately $25 million of which is related to our Asana and AseraCare acquisitions during 2020. The remaining increase is due to the addition of resources to support census growth and planned wage increases, partially offset by a decrease in other care center related expenses, primarily salariestravel and benefits, medical director fees and HCHB-related IT fees, driven by our census growth.training expense.
Year Ended December 31, 20162019 Compared to the Year Ended December 31, 20152018
Overall, our operating income increased $8 million on a $19 million increase in gross margin offset by an $11 million increase in other operating expenses.
Net Service Revenue
Our hospice revenue increased approximately $41 million during 2016 due to an increase in our average daily census as a result of a 17% increase in hospice admissions. We benefited from a 1.1% hospice rate increase effective October 1, 2015. Beginning January 1, 2016, CMS provided for two separate payment rates for routine care: payments for the first 60 days of care and care beyond 60 days. In addition to the two rates, beginning January 1, 2016, Medicare is also reimbursing for a service intensity add-on (“SIA”). The SIA is based on visits made in the last seven days of life by a registered nurse (“RN”) or medical social worker (“MSW”) for patients in a routine level of care.
Our revenue per day was impacted by an increase in contractual reserves and write-offs which occurred during the HCHB roll-out.
Cost of Service, Excluding Depreciation and Amortization
Our hospice cost of service increased $21 million as the result of a 16% increase in average daily census.
Other Operating Expenses
Other operating expenses increased $11 million due to increases in other care center related expenses, primarily salaries and benefits and HCHB maintenance and hosting fees.
We experienced an increase in days revenue outstanding, net as we transitioned to the HCHB platform. As such, our provision for doubtful accounts increased approximately $4 million, which is reflective of an increase in our accounts receivable aging.
Personal Care Division
The following table summarizes our personal care segment results of operations:
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| | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Financial Information (in millions): | | | | | |
| Medicare | $ | — |
| | $ | — |
| | $ | — |
|
| Non-Medicare | 60.9 |
| | 35.9 |
| | — |
|
| Net service revenue | 60.9 |
| | 35.9 |
| | — |
|
| Cost of service | 45.0 |
| | 26.3 |
| | — |
|
| Gross margin | 15.9 |
| | 9.6 |
| | — |
|
| Provision for doubtful accounts | 1.3 |
| | 0.2 |
| | — |
|
| Other operating expenses | 13.8 |
| | 7.9 |
| | — |
|
| Operating income | $ | 0.8 |
| | $ | 1.5 |
| | $ | — |
|
| Key Statistical Data: | | | | | |
| Billable hours | 2,604,794 |
| | 1,539,093 |
| | — |
|
| Clients served | 16,826 |
| | 10,219 |
| | — |
|
| Shifts | 1,195,511 |
| | 696,956 |
| | — |
|
| Revenue per hour | 23.37 |
| | 23.32 |
| | — |
|
| Revenue per shift | 50.92 |
| | 51.49 |
| | — |
|
| Hours per shift | 2.2 |
| | 2.2 |
| | — |
|
Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016Results
On February 1, 2017,2019, we acquired the assets of Home Staff LLC,CCH, which owned and operated three personal-care care centers, one of which was subsequently consolidated with one of our existing personal-care53 hospice care centers. On OctoberApril 1, 2017,2019, we acquired the assets of Intercity Home Care,RoseRock, which owned and operated four personal-careone hospice care centers, three of which were subsequently consolidated with our existing personal-care care centers.center. Acquisitions are included in our consolidated financial statements from their respective acquisition dates. As a result, our personal carehospice segment operating results for 20172019 and 20162018 are not fully comparable.
Overall, our operating income increased $30 million on a $206 million increase in net service revenue. Our operating income was negatively impacted by a $7 million reduction to revenue and gross margin related to settlement discussions with the U.S. Department of Justice (see Item 8, Note 11 - Commitments and Contingencies to our consolidated financial statements for
additional information). Our operating results were positively impacted by changes in reimbursement, which resulted in an increase in net service revenue and gross margin of approximately $7 million and $6 million, respectively. The majority of the revenue increase associated with the 2020 change in reimbursement, which became effective October 1, 2019, was passed through to our general inpatient and respite facilities. Our operating results were also positively impacted by continued growth and by our acquisitions which contributed approximately $174 million in net service revenue and $22 million in operating income to our hospice segment's results for the year ended December 31, 2019.
Net Service Revenue
Our hospice revenue increased $206 million; approximately $174 million of which is attributable to our acquisition activities. The remaining $32 million increase is the result of a 7% increase in our average daily census and increases in reimbursement totaling 1.6% and 0.5% effective for services provided from October 1, 2018 and October 1, 2019, respectively, partially offset by an increase in our revenue adjustments, which include a $7 million reduction to revenue and gross margin related to the U.S. Department of Justice matter noted above.
Cost of Service, Excluding Depreciation and Amortization
Our hospice cost of service increased $123 million, approximately $110 million of which is attributable to our acquisition activity. The remaining $13 million increase is primarily due to a 7% increase in average daily census, planned wage increases and an increase in our general inpatient and respite facility costs as the majority of the reimbursement increase, which became effective October 1, 2019, was passed through to these facilities. Our cost of service per day increased 7%, largely driven by our acquisitions as our same store cost of service per day remained relatively flat.
Other Operating Expenses
Other operating expenses increased $53 million; approximately $42 million of the increase is related to our acquisition activity. The remaining $11 million increase is due to increases in other care center related expenses, primarily salaries and benefits expense due to the addition of resources to support census growth and planned wage increases, professional fees and travel and training expense.
Personal Care Division
The following table summarizes our personal care segment results of operations:
| | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| 2020 | | 2019 | | 2018 |
Financial Information (in millions): | | | | | |
| Medicare | $ | — | | | $ | — | | | $ | — | |
| Non-Medicare | 72.2 | | | 82.0 | | | 77.2 | |
| Net service revenue | 72.2 | | | 82.0 | | | 77.2 | |
| Other operating income | 1.1 | | | — | | | — | |
| Cost of service | 54.9 | | | 61.1 | | | 58.8 | |
| Gross margin | 18.4 | | | 20.9 | | | 18.4 | |
| Other operating expenses | 12.6 | | | 12.5 | | | 13.1 | |
| Operating income | $ | 5.8 | | | $ | 8.4 | | | $ | 5.3 | |
| Key Statistical Data - Total (1): | | | | | |
| Billable hours | 2,730,121 | | | 3,308,338 | | | 3,248,304 | |
| Clients served | 15,019 | | | 17,364 | | | 17,981 | |
| Shifts | 1,177,586 | | | 1,488,175 | | | 1,468,541 | |
| Revenue per hour | $ | 26.45 | | | $ | 24.80 | | | $ | 23.75 | |
| Revenue per shift | $ | 61.31 | | | $ | 55.13 | | | $ | 52.54 | |
| Hours per shift | 2.3 | | | 2.2 | | | 2.2 | |
(1)Total includes acquisitions.
Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019
Operating income related to our personal care divisionsegment decreased by approximately $1$3 million on a $6$10 million increasedecrease in gross marginnet service revenue. The decrease in net service revenue is due to the impact of COVID-19 partially offset by rate increases. The impact of COVID-19 was mitigated by a reduction in costs as most of our personal care employees are paid on an hourly basis and rate increases which were intended to address market pressures and incremental costs related to the pandemic. Our personal care segment incurred approximately $2 million of COVID-19 costs related to the purchase of PPE, bonuses paid to our employees and quarantine pay. Additionally, our personal care segment received funds totaling $1 million increase in provision for doubtful accountsunder the Mass Home Care ASAP COVID-19 Provider Sustainability Program. These funds were used to cover COVID-19 related costs and a $6 million increase inare recorded to other operating expenses. The increase in other operating expenses is driven byincome within our acquisition activity.consolidated statement of operations.
Year Ended December 31, 20162019 Compared to the Year Ended December 31, 2018
On March 1, 2016, we acquired Associated Home Care, a personal care home health care company with nine care centers. On September 1, 2016, we acquired the assets of Professional Profiles, Inc. which owned and operated four personal-care care centers. In addition, during the three-month period ended September 30, 2016 we opened a start-up personal-care care center. Operating income related to our new personal care division for 2016 was approximately $2segment increased $3 million on a $5 million increase in net service revenue. These results are inclusive of the acquisitions of East Tennessee Personal Care Services (May 2018) and Bring Care Home (October 2018). As a result, our personal care operating results for 2019 and 2018 are not fully comparable.
Gross margin as a percentage of revenue of $36 million andincreased 170 basis points as the segment benefited from rate increases combined with operating cost of service of $26 million;controls. Additionally, other operating expenses weredecreased approximately $8 million.$1 million resulting in an increase in operating income.
Corporate
The following table summarizes our corporate results of operations:
| | | | For the Years Ended December 31, | | For the Years Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2020 | | 2019 | | 2018 |
Financial Information (in millions): | | | | | | Financial Information (in millions): | | | | | |
| Other operating expenses | $ | 113.7 |
| | $ | 141.9 |
| | $ | 126.5 |
| Other operating expenses | $ | 173.2 | | | $ | 160.9 | | | $ | 127.6 | |
| Depreciation and amortization | 12.5 |
| | 12.4 |
| | 13.4 |
| Depreciation and amortization | 22.5 | | | 12.4 | | | 8.4 | |
| Total operating expenses before asset impairment charge and Securities Class Action Lawsuit settlement, net | $ | 126.2 |
| | $ | 154.3 |
| | $ | 139.9 |
| |
| Asset impairment charge | — |
| | 4.4 |
| | 77.3 |
| |
| Securities Class Action Lawsuit settlement, net | $ | 28.7 |
| | $ | — |
| | $ | — |
| |
| Total operating expenses | $ | 154.9 |
| | $ | 158.7 |
| | $ | 217.2 |
| Total operating expenses | $ | 195.7 | | | $ | 173.3 | | | $ | 136.0 | |
Corporate expenses consist of costs relating to our executive management and administrative support functions, primarily information services, accounting, finance, billing and collections, legal, compliance, risk management, procurement, marketing, clinical administration, training, human resources and administration.
The following table summarizes our cash flows for the periods indicated (amounts in millions):
Changes in our cash provided by operating activities during the past three years were primarily the result of fluctuations in our net income, the collections of our accounts receivable and the timing of the payments of accrued expenses. During 2017,Additionally, our cash provided by operating activities for 2020 also includes the deferral of payroll taxes as provided for in the CARES Act totaling $55.4 million and the receipt of Provider Relief Funds, which we expect to retain, totaling $38.5 million, partially offset by the payment of COVID-19 related expenses.
Typically, our principal source of liquidity is the collection of our patient accounts receivable, primarily through the Medicare program. In addition to our collection of patient accounts receivable, from time to time, we can and do obtain additional sources of liquidity by the incurrence of additional indebtedness.
Our patient accounts receivable includes unbilled receivables and are aged based upon ourthe initial service date. We monitor unbilled receivables on a care center by care center basis to ensure that all efforts are made to bill claims within timely filing deadlines. Our unbilled patient accounts receivable can be impacted by acquisition activity, probe edits or regulatory changes which result in additional information or procedures needed prior to billing. The timely filing deadline for Medicare is one year from the date the episode was completed, varies by state for Medicaid-reimbursable services and varies among insurance companies and other private payors.
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, collectability of accounts receivable, reserves related to insurance and litigation, business combinations, goodwill, intangible assets, income taxes and contingencies. We base these estimates on our historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results experienced may vary materially and adversely from our estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations may be affected.
We believe the following critical accounting policies represent our most significant judgments and estimates used in the preparation of our consolidated financial statements.
Gross revenue is recorded on an accrual basis based upon the date of service at amounts equal to the estimated payment rates. The estimated payment rates are predetermined daily or hourly rates for each of the four levels of care we deliver. The four levels of care are routine care, general inpatient care, continuous home care and respite care. Routine care accounted for 97% of our total Medicare hospice service revenue for each of 2020, 2019 and 2018, respectively. There are two separate payment rates for routine care: payments for the first 60 days of care and care beyond 60 days. In addition to the two routine rates, we may also receive a service intensity add-on (“SIA”). The SIA is based on visits made in the last seven days of life by a registered nurse or medical social worker for patients in a routine level of care.
Goodwill represents the amount of the purchase price in excess of the fair values assigned to the underlying identifiable net assets of acquired businesses. Goodwill is not amortized, but is subject to an annual impairment test. Tests are performed more frequently if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. These events or circumstances include, but are not limited to, a significant adverse change in the business environment;environment, regulatory environment or legal factors;factors, or a substantial decline in the market capitalization of our stock.
changes in operating performance or other circumstances that would cause management to believe it is more likely than not that the fair value of any of our remaining intangible assets would be less than itstheir carrying amount.amounts.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
We have audited the accompanying consolidated balance sheets of Amedisys, Inc. and subsidiaries ("the Company")(the Company) as of December 31, 20172020 and 2016,2019, the related consolidated statements of operations, comprehensive income, (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017,2020, and the related notes (collectively, "thethe consolidated financial statements")statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172020 and 2016,2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017,2020, in conformity with U.S. generally accepted accounting principles.
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company's auditor since 2002.
AMEDISYS, INC. AND SUBSIDIARIES
