AMEDISYS, INC.
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When included in this Quarterly Report on Form 10-Q, 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,” “plans,“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: the impact of the novel coronavirus pandemic ("COVID-19"), including the measures that have been and may be taken by governmental authorities to mitigate it, on our business, financial condition and 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, 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 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 disastersdisaster or acts of terrorism, our ability to integrate, manage and keep our information systems secure, our ability to comply with requirements stipulated in our corporate integrity agreement, our ability to realize the anticipated benefits of the acquisition of Compassionate Care Hospice,acquisitions, and 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.
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 our Annual Report on Form 10-K for the year ended December 31, 2018,2019, filed with the SEC on February 28, 2019,19, 2020, particularly, Part I, Item 1A - Risk Factors therein, which are incorporated herein by reference and Part II, Item 1A. Risk Factors of this Quarterly Report on Form 10-Q. Additional risk factors may also be described in reports that we file from time to time with the SEC.
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, analyst 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 Investor Relations subpage of our website. In addition, we make available on the Investor 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 Committees of our Board are also available on the Investor Relations subpage of our website (under the link “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.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMEDISYS, INC. AND SUBSIDIARIES
The accompanying notes are an integral part of these condensed consolidated financial statements.
AMEDISYS, INC. AND SUBSIDIARIES
The accompanying notes are an integral part of these condensed consolidated financial statements.
AMEDISYS, INC. AND SUBSIDIARIES
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. NATURE OF OPERATIONS, CONSOLIDATION AND PRESENTATION OF FINANCIAL STATEMENTS
Amedisys, Inc., a Delaware corporation, (together with its consolidated subsidiaries, referred to herein as “Amedisys,” “we,” “us,” or “our”) is a multi-state provider of home health, hospice and personal care services with approximately 74% of our revenue derived from Medicare for the three-month periods ended March 31, 20192020 and 2018.2019. As of March 31, 2019,2020, we owned and operated 321322 Medicare-certified home health care centers, 138146 Medicare-certified hospice care centers and 12 personal-care care centers in 38 states within the United States and the District of Columbia.
Basis of Presentation
In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly our financial position, our results of operations, and our cash flows in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial reporting. Our results of operations for the interim periods presented are not necessarily indicative of the results of our operations for the entire year and have not been audited by our independent auditors.
This report should be read in conjunction with our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2018,2019, as filed with the Securities and Exchange Commission (“SEC”) on February 28, 201919, 2020 (the “Form 10-K”), which includes information and disclosures not included herein. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from the interim financial information presented, as allowed by such SEC rules and regulations.
Recently AdoptedIssued Accounting Pronouncements
On January 1,In December 2019, the Company adoptedFinancial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases2019-12, Income Taxes (Topic 842);740) - Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and improves consistent application by clarifying and amending existing guidance. The ASU 2018-01, Land Easement Practical Expedientis effective for Transition to Topic 842;annual and interim periods beginning after December 15, 2020. Early adoption is permitted. While the Company does not expect a material impact upon adoption of ASU 2018-10, Codification Improvements to Topic 842, Leases; and ASU 2018-11, Targeted Improvements (collectively, "Topic 842") using a modified retrospective transition approach, which requires2019-12, we are still evaluating the new standards to be applied to all leases existing ateffect the date of initial application. Under Topic 842, lessees are required to recognize a lease liability and right-of-use asset ("ROU asset") for all leases with a term greater than twelve months and to disclose key information about leasing arrangements. Additionally, leasesstandard will be classified as either financing or operating; the classification will determine the pattern of expense recognition and classification within the statement of operations.
We are using the standards' effective date as our date of initial application. Consequently, our financial information was not updated and the disclosures required under the new standard are not provided for dates and periods prior to January 1, 2019.
The new standard provides several optional practical expedients that can be adopted at transition. We have elected the "package of practical expedients," which allows us to not reassess our prior conclusions regarding lease identification, lease classification and initial direct costs. We did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us.
The most significant effects related to this adoption relate to (1) the recognition of new ROU assets and lease liabilities on our balance sheet for our real estateconsolidated financial statements and fleet operating leases;related disclosures and (2) significant new disclosures about our leasing activities. Upon adoption, we recognized approximately $80 million in additional operating liabilities with corresponding ROU assets of approximately the same amount.
The new standard also provides practical expedients for an entity's ongoing accounting. We have elected the practical expedient that allows us to not separate lease and non-lease components for all of our leases. We are applying the short-term lease recognition exemption to certain information technology leases; therefore, we did not recognize ROU assets and lease liabilities for these leases.financial reporting.
Use of Estimates
Our accounting and reporting policies conform with U.S. GAAP. In preparing the unaudited condensed consolidated financial statements, we are required to make estimates and assumptions that impact the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Principles of Consolidation
These unaudited condensed consolidated financial statements include the accounts of Amedisys, Inc., and our wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in our accompanying unaudited condensed consolidated financial statements, and business combinations accounted for as purchases have been included in our unaudited condensed consolidated financial statements from their respective dates of acquisition. In addition to our wholly owned subsidiaries, we also have certain equity investments that are accounted for as set forth below.
Investments
We consolidate investments when the entity is a variable interest entity and we are the primary beneficiary or if we have controlling interests in the entity, which is generally ownership in excess of 50%. Third party equity interests in our consolidated joint ventures are reflected as noncontrolling interests in our condensed consolidated financial statements.
We account for investments in entities in which we have the ability to exercise significant influence under the equity method if we hold 50% or less of the voting stock and the entity is not a variable interest entity in which we are the primary beneficiary.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The book value of investments that we account for under the equity method of accounting was $35.7$33.8 million and $35.1$35.7 million as of March 31, 20192020 and December 31, 2018,2019, respectively, and is reflected in other assets within our condensed consolidated balance sheets.
We account for investments in entities in which we have less than a 20% ownership interest under the cost method of accounting if we do not have the ability to exercise significant influence over the investee.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
We account for revenue from contracts with customers in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (collectively, "ASC 606"), and as such, we recognize revenue in the period in which we satisfy our performance obligations under our contracts by transferring our promised services to our customers in amounts that reflect the consideration to which we expect to be entitled in exchange for providing patient care, which are the transaction prices allocated to the distinct services. The Company's cost of obtaining contracts is not material.
Revenues are recognized as performance obligations are satisfied, which varies based on the nature of the services provided. Our performance obligation is the delivery of patient care services in accordance with the nature and frequency of services outlined in physicians' orders, which are determined by a physician based on a patient's specific goals.
The Company's performance obligations relate to contracts with a duration of less than one year; therefore, the Company has elected to apply the optional exemption provided by ASC 606 and is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting period. The unsatisfied or partially unsatisfied performance obligations are generally completed when the patients are discharged, which generally occurs within days or weeks of the end of the reporting period.
We determine the transaction price based on gross charges for services provided, reduced by estimates for explicitcontractual and implicit price concessions. Explicit price concessionsnon-contractual revenue adjustments. Contractual revenue adjustments include contractual adjustments provided to patients and third-party payors. Implicit price concessionsNon-contractual revenue adjustments include discounts provided to self-pay, uninsured patients or other payors, adjustments resulting from payment reviews and adjustments arising from our inability to obtain appropriate billing documentation, authorizations or face-to-face documentation. Subsequent changes to the estimate of the transaction price are recorded as adjustments to net service revenue in the period of change. Subsequent changes that are determined to be the result of an adverse change in the patient's ability to pay (i.e. change in credit risk) are recorded as a provision for doubtful accounts.
Explicit price concessionsContractual revenue adjustments are recorded for the difference between our standard rates and the contractualcontracted rates to be realized from patients, third party payors and others for services provided.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Implicit price concessionsNon-contractual revenue adjustments are recorded for self-pay, uninsured patients and other payors by major payor class based on our historical collection experience, aged accounts receivable by payor and current economic conditions. The implicit price concession representsnon-contractual revenue adjustments represent the difference between amounts billed and amounts we expect to collect based on our collection history with similar payors. The Company assesses its ability to collect for the healthcare services provided at the time of patient admission based on the Company's verification of the patient's insurance coverage under Medicare, Medicaid, and other commercial or managed care insurance programs. Medicare represents approximately 74% of the Company's consolidated net service revenue for the three-month periods ended March 31, 20192020 and 2018.2019.
Amounts due from third-party payors, primarily commercial health insurers and government programs (Medicare and Medicaid), include variable consideration for retroactive revenue adjustments due to settlements of audits and payment reviews. We determine our estimates for price concessionsnon-contractual revenue adjustments related to payment reviews based on our historical experience and success rates in the claim appeals and adjudication process. Revenue is recorded at amounts we estimate to be realizable for services provided.
We determine our estimates for price concessionsnon-contractual revenue adjustments related to our inability to obtain appropriate billing documentation, authorizations, or face-to-face documentation based on our historical experience, which primarily includes a historical collection rate of over 99% on Medicare claims. Revenue is recorded at amounts we estimate to be realizable for services provided.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Revenue by payor class as a percentage of total net service revenue is as follows:
| | | | | | | | | | | |
| For the Three-Month Periods Ended March 31, | | |
| 2020 | | 2019 |
| Home Health: | | | |
| Medicare | 41 | % | | 46 | % |
| Non-Medicare - Episodic-based | 6 | % | | 9 | % |
| Non-Medicare - Non-episodic based | 14 | % | | 12 | % |
| Hospice (1): | | | |
| Medicare | 33 | % | | 28 | % |
| Non-Medicare | 2 | % | | 1 | % |
| Personal Care | 4 | % | | 4 | % |
| 100 | % | | 100 | % |
| (1) Acquired Compassionate Care Hospice on February 1, 2019, RoseRock Healthcare on April 1, 2019 and Asana Hospice on January 1, 2020. | | | | |
|
| | | | | |
| | For the Three- Month Periods Ended March 31 |
| | 2019 | | 2018 |
| Home Health: | | | |
| Medicare | 46 | % | | 51 | % |
| Non-Medicare - Episodic-based | 9 | % | | 8 | % |
| Non-Medicare - Non-episodic based | 12 | % | | 12 | % |
| Hospice: | | | |
| Medicare | 28 | % | | 23 | % |
| Non-Medicare | 1 | % | | 1 | % |
| Personal Care | 4 | % | | 5 | % |
| | 100 | % | | 100 | % |
Home Health Revenue Recognition
Medicare Revenue
Effective January 1, 2020, the Centers for Medicare and Medicaid Services ("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 30-day periods 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.
Net service revenue is recorded under the Medicare prospective payment system (“PPS”) based on anthe established Federal Medicare home health episode payment rate thatfor a 30-day period of care ("billing period"). 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 30-day period of care is subject to adjustmentadditional adjustments based on certain variables, including, but not limited to (a) an outlier payment if our patient’spatient'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 provided was four or fewer;less than the established threshold, which ranges from 2 to 6 visits and varies for every case-mix group under PDGM; (c) a partial payment if a patient transferred to another provider or we admitted a patient transferring from another provider before completing the episode;30-day period of care; and (d) a payment adjustment based upon the level of therapy services required (with various incremental adjustments madeapplicable geographic wage index. Payment for additional visits, with larger payment increases associated with the sixth, fourteenth and twentieth visit thresholds); (e) 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; (f) changesnon-routine supplies are now included in the base episode payments established by the 30-day payment rate.
Medicare Program; and (g)can also make various adjustments to payments received if we are unable to produce appropriate billing documentation or acceptable authorizations. We estimate the base episode payments for case mix and geographic wages. Medicare rates areimpact of such adjustments based on our historical experience, which primarily includes a historical collection rate of over 99% on Medicare claims, and record this estimate during the severityperiod in which services are rendered as a reduction to revenue and a corresponding reduction to patient accounts receivable.
Amounts due from Medicare include variable consideration for retroactive revenue adjustments due to settlements of audits and payment reviews. We determine our estimates for non-contractual revenue adjustments related to payment reviews based on our historical experience and success rates in the patient's condition, service needsclaim appeals and goals, and other factors relating to the cost of providing services and supplies, bundled into an episode of care, not to exceed 60 days. An episode starts the first day a billable visit is performed and ends 60 days later or upon discharge, if earlier, with multiple continuous episodes allowed.adjudication process.
The Medicare home health benefit requires that beneficiaries be homebound (meaning that the beneficiary is unable to leave their 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. AllIn order to provide greater flexibility during the novel coronavirus pandemic ("COVID-19"), CMS has relaxed the definition of homebound status. During the pandemic, a beneficiary is considered homebound if they have been instructed by a physician not to leave their home 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 contracts are requiredhome health benefit.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
All Medicare contracts are required to have a signed plan of care which represents a single performance obligation, comprising of the delivery of a series of distinct services that are substantially similar and have a similar pattern of transfer to the customer. Accordingly, the Company accounts for the series of services ("episode") as a single performance obligation satisfied over time, as the customer simultaneously receives and consumes the benefits of the goods and services provided. Expected MedicareAn episode starts the first day a billable visit is performed and ends 60 days later or upon discharge, if earlier, with multiple continuous episodes allowed.
As noted above, under PDGM, we are now reimbursed for 30-day periods of care rather than 60-day episodes of care. ASC 606 notes that if an entity has a right to consideration from a customer in an amount that corresponds directly with the value of the entity’s performance completed to date, the entity may recognize revenue per episode is recognized based onin the amount to which the entity has a pro-rated service output method,right to invoice. We have elected to apply the "right to invoice” practical expedient utilizing our historical average length of episode prior to discharge.
The base episodestay for each 30-day payment can be adjusted based on each patient's health including clinical condition, functional abilities, and service needs,period as well as for the applicable geographic wage index, low utilization, patient transfers and other factors. The services covered bymeasure of progress towards the episode payment include all disciplinessatisfaction of care in addition to medical supplies. Medicare can also make various adjustments to payments received if we are unable to produce appropriate billing documentation or acceptable authorizations. In addition, we make adjustments to Medicare revenue if we find we are unable to obtain appropriate billing documentation, authorizations or face-to-face documentation. We estimate the impact of such adjustments based on our historical experience, which primarily includes a historical collection rate of over 99% on Medicare claims, and record this estimate during the period in which services are rendered as an estimated price concession and a corresponding reduction to patient accounts receivable.performance obligation.
A portion of reimbursement from each Medicare episode is billed near the start of each episode,30-day period of care, and cash is typically received before all services are rendered. The amount of revenue recognized for episodesperiods of care which are incomplete at period end is based on the company's historical average percentage of days complete on episodes aseach 30-day period of the end of the year. As of March 31, 2019 and 2018, the difference between thecare. Any cash received from Medicare for a request for anticipated payment (“RAP”) on episodes in progress andfor a 30-day period of care that exceeds the associated estimated revenue was immaterial and, therefore, the resulting credits wereearned is recorded as a reduction to our outstanding patient accounts receivable inaccrued expenses within our condensed consolidated balance sheets for such periods.sheets.
Non-Medicare Revenue
Episodic-based Revenue. We recognize revenue in a similar manner as we recognize Medicare revenue for episodic-based ratesamounts that are paid by other insurance carriers, including Medicare Advantage programs; however, these ratesamounts can vary based upon the negotiated terms which generally range from 90% to 100% of Medicare rates.
Non-episodic based Revenue. Gross revenue is recorded on an accrual basis based upon the date of service at amounts equal to our established or estimated per-visit rates. Explicit price concessionsContractual revenue adjustments are recorded for the difference between our standard rates and the contracted rates to be realized from patients, third parties and others for services provided and are deducted from gross revenue to determine net service revenue. We also make non-contractual revenue adjustments to non-episodic revenue for any implicit price concessions, based on historical experience, to reflect the estimated transaction price. We receive a minimal amount of our net service revenue from patients who are either self-insured or are obligated for an insurance co-payment.
Hospice Revenue Recognition
Hospice Medicare Revenue
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 98%97% and 97%98% of our total net Medicare hospice service revenue for each of the three-month periods ended March 31, 20192020 and 2018,March 31, 2019, 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 (“RN”) or medical social worker (“MSW”) for patients in a routine level of care.
The performance obligation is the delivery of hospice services to the patient, as determined by a physician, each day the patient is on hospice care.
We make adjustments to Medicare revenue for implicit price concessions,non-contractual revenue adjustments, which include our inability to obtain appropriate billing documentation or acceptable authorizations and other reasons unrelated to credit risk. We estimate the impact of these non-contractual revenue adjustments based on our historical experience, which primarily includes a historical collection rate of over 99% on Medicare claims, and record it during the period services are rendered.
Additionally, our hospice service revenue is subject to certain limitations on payments from Medicare which are considered variable consideration. We are subject to an inpatient cap limit and an overall Medicare payment cap for each provider number. We monitor these caps on a provider-by-provider basis and estimate amounts due back to Medicare if we estimate a cap has been exceeded. We
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
record these adjustments as a reduction to revenue and an increase in accrued expenses within our condensed consolidated balance sheet. Beginning for the cap year ending October 31, 2017, providers are required to self-report
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
and pay their estimated cap liability by February 28th of the following year. As of March 31, 2019, we have settled our Medicare hospice reimbursements for all fiscal years through October 31, 2012. As of March 31, 2019,2020, we have recorded $3.6 million in accrued expenses for estimated amounts due back to Medicare for the Federal cap years ended October 31, 2013 through September 30, 2019; approximately $1.8 million of this amount is related to the cap liability acquired as part of the Compassionate Care Hospice ("CCH") acquisition. As of December 31, 2018, we had recorded $1.7$5.5 million for estimated amounts due back to Medicare in accrued expenses for the Federal cap years ended October 31, 2013 through September 30, 2019.2020. As of December 31, 2019, we had recorded $5.7 million for estimated amounts due back to Medicare in accrued expenses for the Federal cap years ended October 31, 2013 through September 30, 2020.
Hospice Non-Medicare Revenue
Gross revenue is recorded on an accrual basis based upon the date of service at amounts equal to our established rates or estimated per day rates, as applicable. Explicit price concessionsContractual revenue adjustments are recorded for the difference between our establishedstandard rates and the amounts estimatedcontractual rates to be realizablerealized from patients, third partiesparty payors and others for services provided and are deducted from gross revenue to determine our net service revenue. We also make non-contractual adjustments to non-Medicare revenue for any implicit price concessions, based on historical experience, to reflect the estimated transaction price.
Personal Care Revenue Recognition
Personal Care Revenue
We generate net service revenues by providing our services directly to patients based on authorized hours, visits or units determined by the relevant agency, at a rate that is either contractual or fixed by legislation. Net service revenue is recognized at the time services are rendered based on gross charges for the services provided, reduced by estimates for price concessions.contractual and non-contractual revenue adjustments. We receive payment for providing such services from payors, including state and local governmental agencies, managed care organizations, commercial insurers and private consumers. Payors include the following elder service agencies: Aging Services Access Points (ASAPs), Senior Care Options (SCOs), Program of All-Inclusive Care for the Elderly (PACE) and the Veterans Administration (VA).
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include certificates of deposit and all highly liquid debt instruments with maturities of three months or less when purchased. Restricted cash includes cash that is not available for ordinary business use. As of March 31, 2020, we had $3.1 million of restricted cash that was placed into escrow accounts related to the potential indemnity and working capital adjustment provisions within the Asana Hospice purchase agreement ($2.3 million) and to secure the purchase of personal protective equipment from new suppliers in response to COVID-19 ($0.8 million).
Patient Accounts Receivable
We report accounts receivable from services rendered at their estimated transaction price, which includes price concessionscontractual and non-contractual revenue adjustments based on the amounts expected to be due from payors. Our patient accounts receivable are uncollateralized and consist of amounts due from Medicare, Medicaid, other third-party payors and patients. As of March 31, 2019,2020, there is no single payor, other than Medicare, that accounts for more than 10% of our total outstanding patient receivables. Thus, we believe there are no other significant concentrations of receivables that would subject us to any significant credit risk in the collection of our patient accounts receivable. We write off accounts on a monthly basis once we have exhausted our collection efforts and deem an account to be uncollectible. We believe the collectibility risk associated with our Medicare accounts, which represent 57% and 56%58% of our patient accounts receivable at March 31, 20192020 and December 31, 2018, respectively,2019 is limited due to our historical collection rate of over 99% from Medicare and the fact that Medicare is a U.S. government payor.
We do not believe there are any significant concentrations of revenues from any payor that would subject us to any significant credit risk in the collection of our accounts receivable.
Medicare Home Health
For our home health patients, our pre-billing process includes verifying that we are eligible for payment from Medicare for the services that we provide to our patients. Our Medicare billing begins with a process to ensure that our billings are accurate through the utilization of an electronic Medicare claim review. We submit a RAP for 60%20% of our estimated payment for the initial episode at the starteach 30-day period of care or 50% of the estimated payment for any subsequent episodes of care contiguous with the first episode for a particular patient.care. The full amount of the episodepayment for each 30-day period of care is billed after the episodeperiod of care has been completed (“final billed”). The RAP received for that particular episodebilling period is then deducted from our final payment. If a final bill is not submitted within the greater of 12090 days from the start of the episode,30-day period of care, or 60 days from the date the RAP was paid,
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
any RAPs received for that episodebilling period will be recouped by Medicare from any other claims in process for that particular provider number. The RAP and final claim must then be resubmitted.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
CMS has mandated the full elimination of RAPs in 2021.
Medicare Hospice
For our hospice patients, our pre-billing process includes verifying that we are eligible for payment from Medicare for the services that we provide to our patients. Our Medicare billing begins with a process to ensure that our billings are accurate through the utilization of an electronic Medicare claim review. We bill Medicare on a monthly basis for the services provided to the patient.
Non-Medicare Home Health, Hospice and Personal Care
For our non-Medicare patients, our pre-billing process primarily begins with verifying a patient’s eligibility for services with the applicable payor. Once the patient has been confirmed for eligibility, we will provide services to the patient and bill the applicable payor. Our review and evaluation of non-Medicare accounts receivable includes a detailed review of outstanding balances and special consideration to concentrations of receivables from particular payors or groups of payors with similar characteristics that would subject us to any significant credit risk.
Debt Issuance Costs
During the three-months ended March 31, 2019, we recorded an additional $0.8 million in deferred debt issuance costs as a reduction to long-term obligations, less current portion in our condensed consolidated balance sheet in connection with our entry into the Amended Credit Agreement (See Note 5 - Long-Term Obligations). As of March 31, 2019 and December 31, 2018, we had unamortized debt issuance costs of $4.2 million and $3.5 million, respectively, recorded as long-term obligations, less current portion in our condensed consolidated balance sheet. We amortize deferred debt issuance costs related to our long-term obligations over the term of the obligation through interest expense, unless the debt is extinguished, in which case unamortized balances are immediately expensed. We amortized $0.2 million in deferred debt issuance during the three-month period ended March 31, 2019. The unamortized debt issuance costs of $4.2 million will be amortized over a weighted-average amortization period of 4.8 years.
Fair Value of Financial Instruments
The following details our financial instruments where the carrying value and the fair value differ (amounts in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value at Reporting Date Using | | | | | | |
| Financial Instrument | Carrying Value as of March 31, 2020 | | Quoted Prices in Active
Markets for Identical
Items
(Level 1) | | Significant Other
Observable Inputs
(Level 2) | | Significant
Unobservable Inputs
(Level 3) |
| Long-term obligations | $ | 391.2 | | | $ | — | | | $ | 383.6 | | | $ | — | |
|
| | | | | | | | | | | | | | | |
| | Fair Value at Reporting Date Using |
| Financial Instrument | Carrying Value as of
March 31, 2019 | | Quoted Prices in Active Markets for Identical Items (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| Long-term obligations | $ | 311.2 |
| | $ | — |
| | $ | 310.0 |
| | $ | — |
|
The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. The three levels of inputs are as follows:
•Level 1 – Quoted prices in active markets for identical assets and liabilities.
•Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3 – Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities.
Our deferred compensation plan assets are recorded at fair value and are considered a level 2 measurement. For our other financial instruments, including our cash and cash equivalents, patient accounts receivable, accounts payable, payroll and employee benefits and accrued expenses, we estimate the carrying amounts approximate fair value.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Weighted-Average Shares Outstanding
Net income per share attributable to Amedisys, Inc. common stockholders, calculated on the treasury stock method, is based on the weighted average number of shares outstanding during the period. The following table sets forth, for the periods indicated, shares used in our computation of the weighted-average shares outstanding, which are used to calculate our basic and diluted net income attributable to Amedisys, Inc. common stockholders (amounts in thousands):
| | | | | | | | | | | |
| | For the Three-
Month Periods
Ended March 31, | | |
| | 2020 | | 2019 |
| Weighted average number of shares outstanding - basic | 32,331 | | | 32,001 | |
| Effect of dilutive securities: | | | |
| Stock options | 594 | | | 559 | |
| Non-vested stock and stock units | 309 | | | 333 | |
| Weighted average number of shares outstanding - diluted | 33,234 | | | 32,893 | |
| Anti-dilutive securities | 57 | | | 148 | |
|
| | | | | |
| | For the Three- Month Periods Ended March 31, |
| | 2019 | | 2018 |
| Weighted average number of shares outstanding - basic | 32,001 |
| | 33,971 |
|
| Effect of dilutive securities: | | | |
| Stock options | 559 |
| | 334 |
|
| Non-vested stock and stock units | 333 |
| | 287 |
|
| Weighted average number of shares outstanding - diluted | 32,893 |
| | 34,592 |
|
| Anti-dilutive securities | 148 |
| | 182 |
|
We account for acquisitions using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations. Acquisitions are accounted for as purchases and are included in our condensed consolidated financial statements from their respective acquisition dates. Assets acquired and liabilities assumed, if any, are measured at fair value on the acquisition date using the appropriate valuation method. Goodwill generated from acquisitions is recognized for the excess of the purchase price over tangible and identifiable intangible assets.
3. ACQUISITIONS
We complete acquisitions from time to time in order to pursue our strategy of increasing our market presence by expanding our service base and enhancing our position in certain geographic areas as a leading provider of home health, hospice and personal care services. The purchase price paid for acquisitions is negotiated through arm’s length transactions, with consideration based on our analysis of, among other things, comparable acquisitions and expected cash flows. Acquisitions are accounted for as purchases and are included in our condensed consolidated financial statements from their respective acquisition dates. Goodwill generated from acquisitions is recognized for the excess of the purchase price over tangible and identifiable intangible assets because of the expected contributions of the acquisitions to our overall corporate strategy. We typically engage outside appraisal firms to assist in the fair value determination of identifiable intangible assets for significant acquisitions. The preliminary purchase price allocation is adjusted, as necessary, up to one year after the acquisition closing date if management obtains more information regarding asset valuations and liabilities assumed.
Home Health Division
On FebruaryMarch 1, 2019,2020, we acquired Compassionate Care Hospice ("CCH"),the regulatory assets of a national hospice carehome health provider headquartered in New Jersey,Washington for a purchase price of $327.9$3.0 million. The purchase price was paid with cash on hand on the date of the transaction. Based on the Company's preliminary valuation, we recorded goodwill of $2.8 million and other intangibles (certificate of need) of $0.2 million in connection with the acquisition.
Hospice Division
On January 1, 2020, we acquired Asana Hospice ("Asana"), a hospice provider with locations in Pennsylvania, Ohio, Texas, Missouri and Kansas for a purchase price of $66.3 million, net of cash acquired of $6.7 million, which is inclusive of approximately $50 million in payments related to a tax asset and working capital.$0.7 million.
The Company is in the process of finalizing its valuation of the assets acquired and liabilities assumed. Based on the Company's preliminary valuation, the total estimated consideration of $327.9$66.3 million has been allocated to assets acquired and liabilities assumed as of the acquisition date as follows (amounts in millions):
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| | | | | |
| Amount |
| Patient accounts receivable | $ | 5.5 | |
| Property and equipment | 0.2 | |
| Operating lease right of use assets | 0.9 | |
| Intangible assets | 5.6 | |
| Total assets acquired | 12.2 | |
| Accounts payable | (3.0) | |
| Payroll and employee benefits | (1.5) | |
| Accrued expenses | (0.2) | |
| Operating lease liabilities | (0.9) | |
| Total liabilities assumed | (5.6) | |
| Net identifiable assets acquired | 6.6 | |
| Goodwill | 59.7 | |
| Total estimated consideration | $ | 66.3 | |
|
| | | |
| | Amount |
| Patient accounts receivable | $ | 25.1 |
|
| Prepaid expenses | 1.2 |
|
| Other current assets | 0.2 |
|
| Property and equipment | 0.2 |
|
| Intangible assets | 18.8 |
|
| Total assets acquired | 45.5 |
|
| Accounts payable | (15.0 | ) |
| Payroll and employee benefits | (12.2 | ) |
| Accrued expenses | (10.1 | ) |
| Current portion of long-term obligations | (0.3 | ) |
| Total liabilities acquired | (37.6 | ) |
| Net identifiable assets acquired | 7.9 |
|
| Goodwill | 320.0 |
|
| Total estimated consideration | $ | 327.9 |
|
Intangible assets acquired include Medicare licenses certificates of need, trade($2.0 million), acquired names ($1.3 million) and non-compete agreements.agreements ($2.3 million). The tradeacquired names and non-compete agreements will be amortized over a weighted-average period of 2.0 and 2.3 years, respectively.years.
CCHAsana contributed approximately $32.0$7.4 million in net service revenue and $3.8an operating loss of $1.3 million in operating income (excluding(inclusive of acquisition and integration costs)costs totaling $1.1 million and intangibles amortization totaling $0.5 million) during the three-month period ended March 31, 2019. The following table contains unaudited proforma condensed consolidated statement of operations information for the three-month periods ended March 31, 2019 and 2018 assuming that the CCH acquisition closed on January 1, 2018 (amounts in millions, except per share data):2020.
|
| | | | | | | |
| | For the Three- Month Periods Ended March 31, |
| | 2019 | | 2018 |
| Net service revenue | $ | 483.4 |
| | $ | 446.7 |
|
| Operating income (loss) | 50.6 |
| | 41.8 |
|
| Net income | 35.4 |
| | 29.1 |
|
| Basic earnings (loss) per share | 1.10 |
| | 0.85 |
|
| Diluted earnings (loss) per share | $ | 1.07 |
| | $ | 0.84 |
|
The pro forma information presented above includes adjustments for (i) amortization of identifiable intangible assets, (ii) interest on additional debt required to fund the acquisition, (iii) non-recurring transaction costs and (iv) income taxes based on the Company’s statutory tax rate. This pro forma information is presented for illustrative purposes only and may not be indicative of the results of operations that would have actually occurred. In addition, future results may vary significantly from the results reflected in the pro forma information.
4. LEASES
We determine whether an arrangement is a lease at inception. We have operating leases, primarily for offices and fleet, that expire at various dates over the next ten years. We also have finance leases covering certain office equipment that expire at various dates over the next three years. Our leases do not contain any restrictive covenants.
Our office leases generally contain renewal options for periods ranging from one to five years. Because we are not reasonably certain to exercise these renewal options, the options are not considered in determining the lease term, and payments associated with the option years are excluded from lease payments. Our office leases also generally include termination options, which allow for early termination of the lease after the first one to three years. Because we are not reasonably certain to exercise these termination options, the options are not considered in determining the lease term; payments for the full lease term are included in lease payments. Our office leases do not contain any material residual value guarantees.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Our fleet leases include a term of 367 days with monthly renewal options thereafter. Our fleet leases also include terminal rental adjustment clauses (“TRAC”), which provide for a final rental payment adjustment at the end of the lease, typically based on the amount realized from the sale of the vehicle. The TRAC is structured such that it will almost always result in a significant payment by us to the lessor if the renewal option is not exercised. Based on the significance of the TRAC adjustment at the initial lease expiration and our historical practice, we believe that it is reasonably certain that we will exercise the monthly renewal options; therefore, the renewal options are considered in determining the lease term, and payments associated with the renewal options are included in lease payments.
For our fleet and office equipment leases, we use the implicit rate in the lease as the discount rate. For our office leases, the implicit rate is typically not available, so we use our incremental borrowing rate at the commencement date as the discount rate. Our lease agreements include both lease and non-lease components. We have elected the practical expedient that allows us to not separate lease and non-lease components for all of our leases.
Payments due under our operating and finance leases include fixed payments as well as variable payments. For our office leases, variable payments include amounts for the Company’s proportionate share of operating expenses, utilities, property taxes, insurance, common area maintenance and other facility-related expenses. For our vehicle and equipment leases, variable payments consist of sales tax.
The components of lease cost for the three-month period ended March 31, 2019 are as follows (amounts in millions):
|
| | | |
| | Three-Month Period Ended March 31, 2019 |
| Operating lease cost | $ | 8.2 |
|
| Impairment of operating lease ROU assets | 0.1 |
|
| | |
| Finance lease cost | |
| Amortization of ROU assets | 0.4 |
|
| Interest on lease liabilities | 0.1 |
|
| Total finance lease cost | 0.5 |
|
| | |
| Variable lease cost | 0.5 |
|
| Short-term lease cost | 0.1 |
|
| | |
| Total lease cost | $ | 9.4 |
|
Amounts reported in the condensed consolidated balance sheet as of March 31, 2019 for our operating leases are as follows (amounts in millions):
|
| | | |
| | March 31, 2019 |
| Operating lease ROU assets | $ | 83.1 |
|
| | |
| Current portion of operating lease liabilities | 25.5 |
|
| Operating lease liabilities, less current portion | 55.8 |
|
| Total operating lease liabilities | $ | 81.3 |
|
Amounts reported in the condensed consolidated balance sheet as of March 31, 2019 for finance leases are included in the table below. The finance lease ROU assets are recorded within property and equipment, net of accumulated depreciation within our condensed consolidated balance sheet. The finance lease liabilities are recorded within current portion of long-term obligations and long-term obligations, less current portion within our condensed consolidated balance sheet.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
| | | |
| | March 31, 2019 |
| Finance lease ROU assets | $ | 3.7 |
|
| Accumulated amortization | (0.9 | ) |
| Finance lease ROU assets, net | 2.8 |
|
| | |
| Current installments of obligations under finance leases | 1.2 |
|
| Long-term portion of obligations under finance leases | 1.5 |
|
| Total finance lease liabilities | $ | 2.7 |
|
Supplemental cash flow information and non-cash activity related to our leases are as follows (amounts in millions):
|
| | | |
| | Three-Month Period Ended March 31, 2019 |
| Cash paid for amounts included in the measurement of lease liabilities and ROU assets: | |
| Operating cash flow from operating leases | $ | (9.0 | ) |
| Financing cash flow from finance leases | (0.4 | ) |
| | |
| ROU assets obtained in exchange for lease obligations: | |
| Operating leases | 91.7 |
|
| Finance leases | 0.8 |
|
| | |
| Reductions to ROU assets resulting from reductions to lease obligations: | |
| Operating leases | (0.6 | ) |
| Finance leases | — |
|
Amounts disclosed for ROU assets obtained in exchange for lease obligations include amounts added to the carrying amount of ROU assets resulting from lease modifications and reassessments.
Weighted average remaining lease terms and discount rates for our leases as of March 31, 2019 are as follows:
|
| | |
| Years |
Weighted average remaining lease term: | |
Operating leases | 4.2 |
|
Finance leases | 2.3 |
|
| Rate |
Weighted average discount rate: | |
Operating leases | 4.1 | % |
Finance leases | 5.3 | % |
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Maturities of lease liabilities as of March 31, 2019 are as follows (amounts in millions):
|
| | | | | | | |
| | Operating Leases | | Finance Leases |
| 2019 (a) | $ | 21.2 |
| | $ | 1.0 |
|
| 2020 | 24.9 |
| | 1.2 |
|
| 2021 | 17.4 |
| | 0.7 |
|
| 2022 | 9.5 |
| | — |
|
| 2023 | 5.9 |
| | — |
|
| Thereafter | 9.9 |
| | — |
|
| Total undiscounted lease payments | 88.8 |
| | 2.9 |
|
| Less: Imputed interest | (7.5 | ) | | (0.2 | ) |
| Total lease liabilities | $ | 81.3 |
| | $ | 2.7 |
|
(a) Excludes the three-month period ended March 31, 2019.
5. LONG-TERM OBLIGATIONS
Long-term debt consisted of the following for the periods indicated (amounts in millions):
| | | | | | | | | | | |
| March 31, 2020 | | December 31, 2019 |
| $175.0 million Term Loan; interest rate at Base Rate plus Applicable Rate or Eurodollar Rate plus Applicable Rate (2.5% at March 31, 2020); due February 4, 2024 | $ | 170.6 | | | $ | 171.7 | |
| $550.0 million Revolving Credit Facility; interest only payments; interest rate at Base Rate plus Applicable Rate or Eurodollar Rate plus Applicable Rate (2.4% at March 31, 2020); due February 4, 2024 | 220.0 | | | 70.0 | |
| Promissory notes | 0.6 | | | 0.6 | |
| Finance leases | 3.1 | | | 3.4 | |
| Principal amount of long-term obligations | 394.3 | | | 245.7 | |
| Deferred debt issuance costs | (3.3) | | | (3.5) | |
| 391.0 | | | 242.2 | |
| Current portion of long-term obligations | (11.1) | | | (9.9) | |
| Total | $ | 379.9 | | | $ | 232.3 | |
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
| | | | | | | |
| | March 31, 2019 | | December 31, 2018 |
| $175.0 million Term Loan; interest rate at Base Rate plus Applicable Rate or Eurodollar Rate plus Applicable Rate (4.0% at March 31, 2019); due February 4, 2024 | $ | 175.0 |
| | $ | — |
|
| $550.0 million Revolving Credit Facility; interest only payments; interest rate at Base Rate plus Applicable Rate or Eurodollar Rate plus Applicable Rate (4.0% at March 31, 2019); due February 4, 2024 | 135.0 |
| | 7.5 |
|
| Promissory notes | 1.2 |
| | 1.1 |
|
| Finance leases | 2.7 |
| | 2.3 |
|
| Principal amount of long-term obligations | 313.9 |
| | 10.9 |
|
| Deferred debt issuance costs | (4.2 | ) | | (3.5 | ) |
| | 309.7 |
| | 7.4 |
|
| Current portion of long-term obligations | (6.0 | ) | | (1.6 | ) |
| Total | $ | 303.7 |
| | $ | 5.8 |
|
First Amendment to Amended and Restated Credit Agreement
On February 4, 2019, we entered into the First Amendment to theour Credit Agreement (as amended by the First Amendment, the "Amended Credit Agreement"). The Amended Credit Agreement provides for a senior secured credit facility in an initial aggregate principal amount of up to $725.0 million, which includes thea $550.0 million Revolving Credit Facility under the Credit Agreement and a term loan facility with a principal amount of up to $175.0 million (the "Term Loan Facility" and collectively with the Revolving Credit Facility, the "Credit Facility"), which was added by the First Amendment.
We borrowed the entire principal amount of the Term Loan Facility on February 4, 2019 in order to fund a portion of the purchase price of the CCHCompassionate Care Hospice ("CCH") acquisition, with the remainder of the purchase price and associated transactional fees and expenses funded by proceeds from the Revolving Credit Facility.
The loans issued under the Credit Facility bear interest on a per annum basis, at our election, at either: (i) the Base Rate plus the Applicable Rate or (ii) the Eurodollar Rate plus the Applicable Rate. The “Base Rate” means a fluctuating rate per annum equal to the highest of (a) the federal funds rate plus 0.50% per annum, (b) the prime rate of interest established by the Administrative Agent, and (c) the Eurodollar Rate plus 1% per annum. The “Eurodollar Rate” means the quoted rate per annum equal to the
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
London Interbank Offered Rate (“LIBOR”) or a comparable successor rate approved by the Administrative Agent for an interest period of one, two, three or six months (as selected by us). The “Applicable Rate” is based on the consolidated leverage ratio and is presented in the table below. As of March 31, 2019,2020, the Applicable Rate is 0.50% per annum for Base Rate loans and 1.50% per annum for Eurodollar Rate loans. We are also subject to a commitment fee and letter of credit fee under the terms of the Amended Credit Agreement, as presented in the table below.
| | | | | | | | | | | | | | | | | |
| Pricing Tier | Consolidated Leverage Ratio | Commitment Fee | Letter of Credit Fee | Eurodollar Rate Loans | Base Rate Loans |
| I | ≥ 3.00 to 1.0 | 0.35% | 1.75% | 2.00% | 1.00% |
| II | < 3.00 to 1.0 but ≥ 2.00 to 1.0 | 0.30% | 1.50% | 1.75% | 0.75% |
| III | < 2.00 to 1.0 but ≥ 0.75 to 1.0 | 0.25% | 1.25% | 1.50% | 0.50% |
| IV | < 0.75 to 1.0 | 0.20% | 1.00% | 1.25% | 0.25% |
The final maturity date of the Credit Facility is February 4, 2024. The Revolving Credit Facility will terminate and be due and payable as of the final maturity date. The Term Loan Facility, however, is subject to quarterly amortization of principal in the amount of (i) 0.625% for the period commencing on February 4, 2019 and ending on March 31, 2020, (ii) 1.250% for the period commencing on April 1, 2020 and ending on March 31, 2023, and (iii) 1.875% for the period commencing on April 1, 2023 and ending on February 4, 2024. The remaining balance of the Term Loan Facility must be paid upon the final maturity date. In addition to the scheduled amortization of the Term Loan Facility, and subject to customary exceptions and reinvestment rights, we are required to prepay the Term Loan Facility, first, and the Revolving Credit Facility, second, with 100% of all net cash proceeds received by any loan party or any subsidiary thereof in connection with (a) any asset sale or disposition where such loan party receives net cash proceeds in excess of $5 million or (b) any debt issuance that is not permitted under the Amended Credit Agreement.
The Amended Credit Agreement requires maintenance of two financial covenants: (i) a consolidated leverage ratio of funded indebtedness to EBITDA,Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), as defined in the Amended Credit Agreement, and (ii) a consolidated interest coverage ratio of EBITDA to cash interest charges, as defined in the Amended Credit Agreement. Each of these covenants is calculated over rolling four-quarter periods and also is subject to certain exceptions and baskets. The Amended Credit Agreement also contains customary covenants, including, but not limited to, restrictions on: incurrence of liens, incurrence of additional debt, sales of assets and other fundamental corporate changes, investments, and declarations of dividends. These covenants contain customary exclusions and baskets as detailed in the Amended Credit Agreement. In connection with our entry into the Amended Credit Agreement, we recorded $0.8 million in deferred debt issuance costs as long-term obligations, less current portion within our condensed consolidated balance sheet during the three-month periodyear ended MarchDecember 31, 2019.
The Revolving Credit Facility is guaranteed by substantially all of our wholly-owned direct and indirect subsidiaries. The Amended Credit Agreement requires at all times that we (i) provide guarantees from wholly-owned subsidiaries that in the
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
aggregate represent not less than 95% of our consolidated net revenues and adjusted EBITDA from all wholly-owned subsidiaries and (ii) provide guarantees from subsidiaries that in the aggregate represent not less than 70% of consolidated adjusted EBITDA, subject to certain exceptions.
Our weighted average interest rate for borrowings under our $550.0 million Revolving Credit Facility was 4.1%3.2% and 4.2% for the three-month periodperiods ended March 31, 2019.2020 and March 31, 2019, respectively. Our weighted average interest rate for our borrowings under our $175.0 million Term Loan Facility was 4.1%3.2% for the three-month period ended March 31, 2020 and 4.2% for the period February 4, 2019 to March 31, 2019.
As of March 31, 2019,2020, our consolidated leverage ratio was 1.4,1.5, our consolidated interest coverage ratio was 16.6 and we are in compliance with our covenants under the Amended Credit Agreement. In the event we are not in compliance with our debt covenants in the future, we would pursue various alternatives in an attempt to successfully resolve the non-compliance, which might include, among other things, seeking debt covenant waivers or amendments.
As of March 31, 2019,2020, our availability under our $550.0 million Revolving Credit Facility was $380.9$299.8 million as we have $135.0$220.0 million outstanding in borrowings and $34.1$30.2 million outstanding in letters of credit.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Joinder Agreement
In connection with the CCH acquisition, we entered into a Joinder Agreement, dated as of February 4, 2019, pursuant to which CCH and its subsidiaries were made parties to, and became subject to the terms and conditions of, the Amended Credit Agreement, the Amended and Restated Security Agreement, dated as of June 29, 2018, and the Amended and Restated Pledge Agreement, dated as of June 29, 2018. Pursuant to the Joinder, the Amended and Restated Security Agreement and the Amended and Restated Pledge Agreement, CCH and its subsidiaries granted in favor of the Administrative Agent a first lien security interest in substantially all of their personal property assets and pledged to the Administrative Agent each of their respective subsidiaries' issued and outstanding equity interests. CCH and its subsidiaries also guaranteed our obligations, whether now existing or arising after the effective date of the Joinder, under the Amended Credit Agreement pursuant to the terms of the Joinder and the Amended Credit Agreement.
6.5. COMMITMENTS AND CONTINGENCIES
Legal Proceedings - Ongoing
We are involved in the following legal actions:
Subpoena Duces Tecum and Civil Investigative Demands 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. The Subpoena generally covers the period from January 1, 2011 through May 21, 2015. We are fully cooperating with the U.S. Department of Justice with respect to this investigation.
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. The CID requests the delivery of information to the United States Attorney’s Office for the Northern District of West Virginia regarding 66 identified hospice patients, as well as documents relating to our hospice clinical and business operations in the Morgantown area. The CID generally covers the period from January 1, 2009 through August 31, 2015. We are fully cooperating with the U.S. Department of Justice with respect to this investigation.
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. The CID requests the delivery of information to the United States Attorney’s Office for the Southern District of West Virginia regarding 68 identified hospice patients, as well as documents relating to our hospice clinical and business operations in the Parkersburg area. The CID generally covers the period from January 1, 2011 through June 20, 2016. We are fully cooperating with the U.S. Department of Justice with respect to this investigation.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Based on our analysis of sample claims data in connection with preliminary settlement discussions with the U.S. Department of Justice regarding the above matters, we have recorded $1.0a total of $6.5 million to accrued expenses in our condensed consolidated balance sheet as March 31, 2019. However, duerelated to this matter. Due to the ongoing nature of the investigations and preliminarycurrent stage of the settlement discussions, we are unable to estimate a range of potential loss at this time, and we cannot predict the timing or outcome of these investigations.
In addition to the matters referenced in this note, we are involved in legal actions in the normal course of business, some of which seek monetary damages, including claims for punitive damages. We do not believe that these normal course actions, when finally concluded and determined, will have a material impact on our consolidated financial condition, results of operations or cash flows.
Legal fees related to all legal matters are expensed as incurred.
Other Investigative Matters - Ongoing
Compassionate Care Hospice Corporate Integrity Agreement
On January 30, 2015, CCH entered into a corporate integrity agreement ("CIA") with the Office of Inspector General-HHS (“OIG”). The CIA required that CCH provide annual on-site compliance training; develop and implement policies to ensure compliance with federal health care program requirements; screen new and current employees to ensure that they are eligible to participate in federal health care programs; establish a compliance committee that contains both a Compliance Officer and a Chief Quality Officer; retain a Governing Authority expert who will periodically complete a compliance program review; and retain an independent review organization ("IRO") to complete claims reviews for hospice services rendered in New York. The OIG waived the claims review for the final year of the CCH CIA based on the closure of the New York operations. Additionally, the CIA required that CCH report substantial overpayments that CCH discovered it had received from federal health care programs, as well as probable violations of federal criminal, civil or administrative health care laws. Upon breach of the CIA, CCH could have become liable for payment of certain stipulated penalties, or could have been excluded from participation in federal health care programs. The CIA had a term of five years that ended on January 30, 2020. We filed our final annual report on March 25, 2020.
Other Investigative Matters - Completed
Corporate Integrity Agreement
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 certain of our clinical and business operations. Concurrently with our entry into this agreement, we entered into a corporate integrity agreement (“CIA”)CIA with the Office of Inspector General-HHS (“OIG”).OIG. The CIA formalizesformalized various aspects of our already existing ethics and compliance programs and containscontained other requirements designed to help ensure our ongoing compliance with federal health care program requirements. Among other things, the CIA requiresrequired us to maintain our
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 organizationIRO 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 requiresrequired that we report substantial overpayments that we discoverdiscovered we havehad 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 corporate integrity agreement hashad a term of five years.
Idaho and Wyoming Self-Report
During 2016,years that ended on April 21, 2019. We filed our final annual report on July 19, 2019. On May 5, 2020, the Company engaged an independent auditing firm to perform a clinical audit ofreceived notice from the hospice care centers acquired by Frontier Home Health and Hospice in April 2014. As of December 31, 2018, we recorded $1.3 million to accrued expenses in our consolidated balance sheet related to this matter; this amount was paid duringOIG that the three-month period ended March 31, 2019.Company's five-year CIA with the OIG has been completed.
Third Party Audits - Ongoing
From time to time, in the ordinary course of business, we are subject to audits under various governmental programs including Recovery Audit Contractors (“RACs”), Zone Program Integrity Contractors (“ZPICs”), Uniform Program Integrity Contractors ("UPICs"), Program Safeguard Contractors (“PSCs”) and Medicaid Integrity Contributors (“MICs”) in which third party firms engaged by the Centers for Medicare and Medicaid Services (“CMS”)CMS conduct extensive reviewreviews of claims data to identify potential improper payments. We cannot predict the ultimate outcome of any regulatory reviews or other governmental audits and investigations.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In July 2010, our subsidiary that provides hospice services in Florence, South Carolina received from a Zone Program Integrity Contractor (“ZPIC”)ZPIC a request for records regarding a sample of 30 beneficiaries who received services from the subsidiary during the period of January 1, 2008 through March 31, 2010 (the “Review Period”) to determine whether the underlying services met pertinent Medicare payment requirements. We acquired the hospice operations subject to this review on August 1, 2009; the Review Period covers time periods both before and after our ownership of these hospice operations. Based on the ZPIC’s findings for 16 beneficiaries, which were extrapolated to all claims for hospice services provided by the Florence subsidiary billed during the Review Period, on June 6, 2011, the Medicare Administrative Contractor (“MAC”) for the subsidiary issued a notice of overpayment seeking recovery from our subsidiary of an alleged overpayment. We dispute these findings, and our Florence subsidiary has filed appeals through the Original Medicare Standard Appeals Process, in which we are seeking to have those findings overturned. An administrative law judge ("ALJ") hearing was held in early January 2015. On January 18, 2016, we received a letter dated January 6, 2016 referencing the ALJ hearing decision for the overpayment issued on June 6, 2011. The decision was partially favorable with a new overpayment amount of $3.7 million with a balance owed of $5.6 million, including interest, based on 9 disputed claims (originally 16). We filed an appeal to the Medicare Appeals Council on the remaining 9 disputed claims and also argued that the statistical method used to select the sample was not valid. No assurances can be given as to the timing or outcome of the Medicare Appeals Council decision. As of March 31, 2019,2020, Medicare has withheld payments of $5.7 million (including additional interest) as part of their standard procedures once this level of the appeal process has been reached. In the event we are not able to recoup this alleged overpayment, we are entitled to be indemnified by the prior owners of the hospice operations for amounts relating to the period prior to August 1, 2009. On January 10, 2019, an arbitration panel from the American Health Lawyers Association determined that the prior owners' liability for their indemnification obligation was $2.8 million. Accordingly, the Company reduced its indemnity receivable from $4.9 million to $2.8 million. The $2.1 million impact was recorded to general and administrative expenses, other within our consolidated statements of operations during the three-month period ended December 31, 2018. As of March 31, 2019, we have an indemnity receivable of approximately $2.8 million for the amount withheld related to the period prior to August 1, 2009.
In July 2016, the Company received a request for medical records from SafeGuard Services, L.L.C (“SafeGuard”), a 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. In August 2017, the Company received Requests for Repayment from Palmetto GBA, LLC ("Palmetto") regarding Infinity Home Care of Lakeland, LLC ("Lakeland Care Centers") and Infinity Home Care of Pinellas, LLC ("Clearwater Care Center"). The Palmetto letters are based on a statistical extrapolation performed by SafeGuard which alleged an overpayment of $34.0 million for the Lakeland Care Centers on a universe of 72 Medicare claims totaling $0.2 million in actual claims payments using a 100% error rate and an overpayment of $4.8 million for the Clearwater Care Center on a universe of 70 Medicare claims totaling $0.2 million in actual claims payments using a 100% error rate.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Lakeland Request for Repayment covers claims between January 2, 2014 and September 13, 2016. The Clearwater Request for Repayment covers claims between January 2, 2015 and December 9, 2016. As a result of partially successful Level I and Level II Administrative Appeals, the alleged overpayment for the Lakeland Care Centers has been reduced to $26.0 million and the alleged overpayment for the Clearwater Care Center has been reduced to $3.3 million. The Company has now filed Level III Administrative Appeals, and will continue to vigorously pursue its appeal rights, which include contesting the methodology used by the ZPIC contractor to perform statistical extrapolation. The Company is contractually entitled to indemnification by the prior owners for all claims prior to December 31, 2015, for up to $12.6 million.
At this stage of the review, based on the information currently available to the Company, the Company cannot predict the timing or outcome of this review. The Company estimates a low-end potential range of loss related to this review of $6.5 million (assuming the Company is successful in seeking indemnity from the prior owners and unsuccessful in demonstrating that the extrapolation method used by SafeGuard was erroneous). The Company has reduced its high-end potential range of loss from $38.8 million (the maximum amount Palmetto claims has been overpaid for both the Lakeland Care Centers and the Clearwater Care Center, of which amount $12.6 million is subject to indemnification by the prior owners) to $29.3 million based on the partial success achieved by the Company in prosecuting its Level I and II Administrative Appeals.
As of March 31, 2019,2020, we have an accrued liability of approximately $17.4 million related to this matter. We expect to be indemnified by the prior owners for approximately $10.9 million of the total $12.6 million available indemnification related to this matter and have recorded this amount within other assets in our condensed consolidated balance sheet as of March 31, 2019.2020. The net of these two amounts, $6.5 million, was recorded as a reduction in revenue in our condensed consolidated statements of operations during the three-month period ended September 30, 2017. As of March 31, 2019,2020, $1.5 million of receivables have been impacted by this payment suspension.
From time to time, the Company performs internal reviews of claims data to identify potential improper payments under the Medicare program. Any overpayments are recorded as a reduction in revenue in our condensed consolidated statements of operations. As of March 31, 2019, we have recorded $7.1 million to accrued expenses in our condensed consolidated balance sheet as a result of these reviews.AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Insurance
We are obligated for certain costs associated with our insurance programs, including employee health, workers’ compensation and professional liability. While we maintain various insurance programs to cover these risks, we are self-insured for a substantial portion of our potential claims. We recognize our obligations associated with these costs, up to specified deductible limits in the period in which a claim is incurred, including with respect to both reported claims and claims incurred but not reported. These costs have generally been estimated based on historical data of our claims experience. Such estimates, and the resulting reserves, are reviewed and updated by us on a quarterly basis.
Our health insurance has an exposure limit of $1.3 million for any individual covered life. Our workers’ compensation insurance has a retention limit of $1.0 million per incident and our professional liability insurance has a retention limit of $0.3 million per incident.
7.6. SEGMENT INFORMATION
Our operations involve servicing patients through our three3 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 surgery, have a chronic disability or terminal illness or need assistance with completing important personal tasks. Our hospice segment provides palliative care and comfort to terminally ill patients and their families. Our personal care segment provides patients with assistance with the essential activities of daily living. The “other” column in the following tables consists of costs relating to 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.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Management evaluates performance and allocates resources based on the operating income of the reportable segments, which includes an allocation of corporate expenses directly attributable to the specific segment and includes revenues and all other costs directly attributable to the specific segment. Segment assets are not reviewed by the company’s chief operating decision maker and therefore are not disclosed below (amounts in millions).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three-Month Period Ended March 31, 2020 | | | | | | | | |
| | Home
Health | | Hospice | | Personal
Care | | Other | | Total |
| Net service revenue | $ | 303.6 | | | $ | 169.4 | | | $ | 18.7 | | | $ | — | | | $ | 491.7 | |
| Cost of service, excluding depreciation and amortization | 179.8 | | | 91.8 | | | 14.1 | | | — | | | 285.7 | |
| General and administrative expenses | 75.7 | | | 38.7 | | | 3.4 | | | 39.0 | | | 156.8 | |
| Depreciation and amortization | 1.0 | | | 0.6 | | | — | | | 3.7 | | | 5.3 | |
| Operating expenses | 256.5 | | | 131.1 | | | 17.5 | | | 42.7 | | | 447.8 | |
| Operating income (loss) | $ | 47.1 | | | $ | 38.3 | | | $ | 1.2 | | | $ | (42.7) | | | $ | 43.9 | |
| | | | | | | | | |
| | For the Three-Month Period Ended March 31, 2019 | | | | | | | | |
| | Home
Health | | Hospice | | Personal
Care | | Other | | Total |
| Net service revenue | $ | 310.1 | | | $ | 137.0 | | | $ | 20.2 | | | $ | — | | | $ | 467.3 | |
| Cost of service, excluding depreciation and amortization | 185.7 | | | 74.1 | | | 15.5 | | | — | | | 275.3 | |
| General and administrative expenses | 71.4 | | | 29.0 | | | 3.1 | | | 41.3 | | | 144.8 | |
| Depreciation and amortization | 1.0 | | | 0.4 | | | 0.1 | | | 1.4 | | | 2.9 | |
| Operating expenses | 258.1 | | | 103.5 | | | 18.7 | | | 42.7 | | | 423.0 | |
| Operating income (loss) | $ | 52.0 | | | $ | 33.5 | | | $ | 1.5 | | | $ | (42.7) | | | $ | 44.3 | |
|
| | | | | | | | | | | | | | | | | | | |
| | For the Three-Month Period Ended March 31, 2019 |
| | Home Health | | Hospice | | Personal Care | | Other | | Total |
| Net service revenue | $ | 310.1 |
| | $ | 137.0 |
| | $ | 20.2 |
| | $ | — |
| | $ | 467.3 |
|
| Cost of service, excluding depreciation and amortization | 185.7 |
| | 74.1 |
| | 15.5 |
| | — |
| | 275.3 |
|
| General and administrative expenses | 71.4 |
| | 29.0 |
| | 3.1 |
| | 41.3 |
| | 144.8 |
|
| Depreciation and amortization | 1.0 |
| | 0.4 |
| | 0.1 |
| | 1.4 |
| | 2.9 |
|
| Operating expenses | 258.1 |
| | 103.5 |
| | 18.7 |
| | 42.7 |
| | 423.0 |
|
| Operating income (loss) | $ | 52.0 |
| | $ | 33.5 |
| | $ | 1.5 |
| | $ | (42.7 | ) | | $ | 44.3 |
|
| | | | | | | | | | |
| | For the Three-Month Period Ended March 31, 2018 |
| | Home Health | | Hospice | | Personal Care | | Other | | Total |
| Net service revenue | $ | 284.1 |
| | $ | 97.3 |
| | $ | 17.9 |
| | $ | — |
| | $ | 399.3 |
|
| Cost of service, excluding depreciation and amortization | 174.4 |
| | 50.1 |
| | 13.8 |
| | — |
| | 238.3 |
|
| General and administrative expenses | 68.0 |
| | 20.0 |
| | 3.2 |
| | 30.2 |
| | 121.4 |
|
| Depreciation and amortization | 0.8 |
| | 0.2 |
| | 0.1 |
| | 2.5 |
| | 3.6 |
|
| Operating expenses | 243.2 |
| | 70.3 |
| | 17.1 |
| | 32.7 |
| | 363.3 |
|
| Operating income (loss) | $ | 40.9 |
| | $ | 27.0 |
| | $ | 0.8 |
| | $ | (32.7 | ) | | $ | 36.0 |
|
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8.7. SHARE REPURCHASE
2019 Stock Repurchase Program
On February 25, 2019, 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 March 1, 2020.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Under the terms of the program, we arewere allowed to repurchase shares from time to time in open market transactions, block purchases or in private transactions in accordance with applicable federal securities laws and other legal requirements. We arewere allowed to enter into Rule 10b5-1 plans to effect some or all of the repurchases. The timing and the amount of the repurchases willwould be determined by management based on a number of factors, including but not limited to share price, trading volume and general market conditions, as well as on working capital requirements, general business conditions and other factors.
We did not repurchase any shares pursuant to this stock repurchase program during the three-month periods ended March 31, 2020 or March 31, 2019. The stock repurchase program expired on March 1, 2020.
8. RELATED PARTY TRANSACTIONS
During 2018, we made a $7.0 million investment in Medalogix, a healthcare predictive data and analytics company; this investment is accounted for under the equity method. During the three-month period ended March 31, 2019.2020, we incurred costs of approximately $0.6 million in connection with the usage of Medalogix's analytics platforms. We believe that the terms of these transactions are consistent with those negotiated at arm's length.
9. SUBSEQUENT EVENTS
Novel Coronavirus Pandemic ("COVID-19")
In March 2020, the World Health Organization declared COVID-19 a pandemic. As a healthcare at home company, we have been and will continue to be impacted by the effects of COVID-19; however, we remain committed to carrying out our mission of caring for our patients. We will continue to closely monitor the impact of COVID-19 on all aspects of our business, including the impacts to our employees, patients and suppliers; however, at this time, we are unable to estimate the ultimate impact the pandemic will have on our consolidated financial condition, results of operations or cash flows.
On March 27, 2020, the bipartisan Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into legislation. The CARES Act provides for $100 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 must sign an attestation confirming receipt of the funds and agree to the terms and conditions of payment. We received approximately $100 million from the first $30 billion of funds distributed to healthcare providers in April 2020. Consistent with the terms and conditions for receipt of the payment, we will utilize the funds to cover lost revenue and health care costs related to COVID-19, and we will properly and fully document the use of these funds in required quarterly reports to the U.S. Department of Health and Human Services ("HHS").
In order to properly attest to receipt of our payment, we are seeking clarity from HHS regarding the formula utilized to determine our receipt of funds and the total amount of funds available to us to be used towards lost revenue and health care expenses related to COVID-19. At this time, we have fully separated these funds into their own account and will not be utilizing any of them until additional clarity is received from HHS.
On April 1, 2019,24, 2020, HHS distributed an additional $20 billion in funds to healthcare providers. We did not receive, nor apply, for any additional funds from this second distribution.
Acquisitions
On April 23, 2020, we acquired RoseRock Healthcare, an Oklahoma basedsigned a definitive agreement to acquire Homecare Preferred Choice, Inc., doing business as AseraCare Hospice ("AseraCare Hospice"), a national hospice care provider with 44 locations, for a purchase price of $17.5 million.
$235 million in cash, inclusive of $32 million in payments related to the present value of the tax benefits created through the transaction (subject to customary adjustments at closing for working capital, cash indebtedness and transaction expenses). We will not use any of the funds we received from the CARES Act to fund the acquisition.
ITEM 2. 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 the three-month period ended March 31, 2019.2020. This discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included herein, and the consolidated financial statements and notes and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 20182019 filed with the Securities and Exchange Commission (“SEC”) on February 28, 201919, 2020 (the “Form 10-K”), which are incorporated herein by this reference. Historical results that appear in the condensed consolidated financial statements should not be interpreted as being indicative of future operations.
Unless otherwise provided, “Amedisys,” “we,” “our,” and the “Company” refer to Amedisys, Inc. and our consolidated subsidiaries.
Overview
We are a provider of high-quality in-home healthcare and related services to the chronic, co-morbid, aging American population, with approximately 74% of our revenue derived from Medicare for the three-month periods ended March 31, 20192020 and 2018.2019.
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 with assistance with the essential activities of daily living. As of March 31, 2019,2020, we owned and operated 321322 Medicare-certified home health care centers, 138146 Medicare-certified hospice care centers and 12 personal-care care centers in 38 states within the United States and the District of Columbia.
Care Centers Summary (Includes Unconsolidated Joint Ventures)
| | | | | | | | | Home
Health | | Hospice | | Personal
Care |
| | Home Health | | Hospice | | Personal Care | |
| As of December 31, 2018 | 323 |
| | 84 |
| | 12 |
| |
| As of December 31, 2019 | | As of December 31, 2019 | 321 | | | 138 | | | 12 | |
| Acquisitions/Startups | — |
| | 54 |
| | — |
| Acquisitions/Startups | 1 | | | 9 | | | — | |
| Closed/Consolidated | (2 | ) | | — |
| | — |
| Closed/Consolidated | — | | | (1) | | | — | |
| As of March 31, 2019 | 321 |
| | 138 |
| | 12 |
| |
| As of March 31, 2020 | | As of March 31, 2020 | 322 | | | 146 | | | 12 | |
Recent Developments
Governmental Inquiries and Investigations and Other Litigation
See Note 65 – Commitments and Contingencies to our condensed consolidated financial statements for additional information regarding our corporate integrity agreementagreements and for a discussion of and updates regarding other legal proceedings and investigations we are involved in. No assurances can be given as to the timing or outcome of these items.
Payment
In April 2019,2020, the Centers for Medicare and Medicaid Services ("CMS") issued a proposed rule to update hospice payment rates and the wage index for fiscal year 2020. The proposed rule includes a rebasing of continuous home care, inpatient respite care and general inpatient care to better reflect the costs of care. This rebasing would be offset by a reduction in routine home care payments of 2.7% to achieve budget neutrality. In addition, CMS is proposing to eliminate the one-year “lag” in use of the hospital wage index in an effort to align with the Inpatient Prospective Payment System ("IPPS") and other payment systems.2021. CMS estimates hospices serving Medicare beneficiaries would see an estimated 2.7%2.6% increase in payments. This increase is the result of a 3.2%3.0% market basket adjustment less a 0.5%0.4% productivity adjustment. We are still evaluatingadjustment as required under the Patient Protection and Affordable Health Care Act and the Health Care and Education Reconciliation Act (collectively, "PPACA"). The rule also proposes changes to 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 proposed an increase in the aggregate cap amount by 2.6% to $30,743.86. Based on our analysis of the proposed rule, we expect our impact ofto be in line with the 2020 proposed rule.2.6% increase.
The CMS Calendar Year 20192020 Home Health Final Rule releasedconfirmed the implementation of the Patient-Driven Groupings Model ("PDGM") effective January 1, 2020 as well as the change in November 2018, providedthe unit of payment from a 60-day payment period to a 30-day payment period. Additionally, in an effort to eliminate fraud risks, CMS reduced requests for anticipated payment ("RAPs") for 2020 to 20% with the first payment rate increase for home health providers since 2010.full elimination of RAPs in 2021. CMS estimated that the net impact of the payment provisions of the final rule willwould result in ana 1.3% increase of 2.2% in reimbursementpayments to home health providers. The increase is the result of a 3.0%statutorily mandated 1.5% market basket increase lesspursuant 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 will make certain behavioral changes related to coding practices, low utilization payment adjustment ("LUPA") management and co-morbidities. As a 0.8% productivity adjustment.result, CMS reduced reimbursement by 4.36%. We expecthave estimated the impact of the final rule on us to be a reduction in revenue of 2.8%. Our current view is that we can offset the impact via a mix of appropriate behavioral changes and cost levers which include clinician mix and utilization. The timing of our ability to fully achieve these offsets may be impacted by the novel coronavirus pandemic.
Novel Coronavirus Pandemic ("COVID-19")
Our first quarter operations and financial performance were impacted by COVID-19. We began to experience the impacts on our operations during the second week of March, as we had declines in referral volumes and an increase in missed visits. Each of 1.2%. Additionally, CMS proposed changesour business lines was impacted; however, the disruption was greatest in our home health segment, which 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 will impact our average daily census during the second quarter of 2020. The financial impact of COVID-19 during the three-month period ended March 31, 2020 is discussed in further detail under "Results of Operations" below.
Due to the Home Health Prospective Payment Systemuncertainty created by COVID-19, we are unable to predict the pace of recovery, and therefore, are unable to estimate the ultimate impact the pandemic will have on our consolidated financial condition, results of operations or cash flows. The following factors could potentially impact the timing of recovery: the continued increase or decrease in the number of COVID-19 cases nationwide, the pace at which elective procedures begin and the utilization of these procedures, the return of patient confidence to enter a hospital or a doctor's office, the ability to access to our patients in their homes and in facilities, cost normalization around personal protective equipment ("HHPPS"PPE") case-mix adjustment methodologyand any future or prolonged shelter-in-place orders. Potential impacts of COVID-19 on our results include lower revenue, higher salary and wage expense related to quarantine pay and increased supply costs related to PPE. The impacts to revenue may consist of the following:
•lower volumes due to interruption of the operations of our referral sources and patients' unwillingness to accept services and
•lower reimbursement due to missed visits resulting in an increase in LUPAs and lost billing periods.
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:
•$100 billion to healthcare providers, including hospitals on the front lines of the COVID-19 pandemic, with the intent to help defray the significant healthcare-related expenses and lost revenue attributable to the 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. We received approximately $100 million from the CARES Act in April 2020; our ability to utilize and retain this amount will depend on the magnitude, timing and nature of the impact of the pandemic, as well as on the rules and requirements of the program.
•The temporary suspension of the automatic 2% reduction of Medicare claim reimbursements for the period of May 1 through December 31, 2020. We estimate the useimpact will increase our 2020 net service revenue by approximately $21 million.
•The deferral of a new Patient-Driven Groupings Model ("PDGM"the employer share of social security tax (6.2%), effective for payments due after the enactment date. Fifty percent of the deferred payroll taxes are due on December 31, 2021 with the remaining amounts due on December 31, 2022. We estimate the impact will increase our 2020 cash flow from operations by approximately $50 million.
•The temporary suspension of Medicare patient coverage criteria and documentation and care requirements and the expansion of telehealth in providing home health and hospice care to patients.
•The ability for non-physician practitioners to certify for home health, payments. This changeorder 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; instituted work-from-home arrangements for our corporate and administrative support employees; allowed employees to temporarily suspend any 401(k) plan loan deductions; allowed employees to make a withdrawal from the 401(k) plan for coronavirus-related distributions without incurring the additional 10% early withdrawal penalty; granted access to Teladoc services to all employees and launched a COVID-19 Resource Center, which is proposedupdated daily with employee, clinical and operational resources.
The safety of our clinicians and patients has also been a focus, and as a result, we have made the following business changes: implemented a new clinical protocol requiring all clinicians to wear a surgical ear loop mask, at a minimum, on all visits
performed; developed a COVID-19 positive patient treatment protocol and PPE policy for clinicians treating COVID-19 symptomatic and positive patients, which includes utilizing N-95 masks, gloves, gowns and face shields and also requires surgical masks to be implementedworn by the patient; 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; sourced enough PPE to have four months of surgical masks, six months of N-95 masks, and one month of gowns with another two months of gowns on order. For all other critical PPE, we have an average of three months of inventory on hand and will be continuing to source more. 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 cost for the purchase of PPE.
Acquisitions
On January 1, 2020, and also includes a change in the unit of payment from a 60-day payment period to a 30-day payment period and eliminates the use of therapy visits in the determination of payments. While the proposed changes are to be implemented in a budget neutral
manner to the industry, the ultimate impact will vary by provider based on factors including patient mix and admission source. Additionally, in arriving at the calculation of a rate that is budget neutral, CMS has made assumptions about behavioral changes which have not been finalized.
Acquisitions
On February 1, 2019, we acquired Compassionate CareAsana Hospice ("CCH"Asana"), a national hospice care provider headquarteredwith locations in New Jersey,Pennsylvania, Ohio, Texas, Missouri and Kansas for a purchase price of $327.9$66.3 million, net of cash acquired, which is inclusive of approximately $50 million in payments related to a tax asset and working capital.acquired.
On AprilMarch 1, 2019,2020, we acquired the regulatory assets of RoseRock Healthcare, an Oklahoma based hospicea home health provider in Washington for a purchase price of $17.5$3.0 million.
As we continue to focus on inorganic expansion in all three segments, we anticipate incurring acquisition and integration costs throughout 2019.2020. During the three-month period ended March 31, 2019,2020, we incurred approximately $6$2 million in costs related to various acquisitions and the integration of CCH. Our total costs for 2019 are expected to be approximately $16 million to $18 million.Compassionate Care Hospice ("CCH") and Asana.
Results of Operations
Three-Month Period Ended March 31, 20192020 Compared to the Three-Month Period Ended March 31, 20182019
Consolidated
The following table summarizes our consolidated results of operations (amounts in millions):
| | | | For the Three- Month Periods Ended March 31, | | For the Three-Month Periods
Ended March 31, | |
| | 2019 | | 2018 | | 2020 | | 2019 |
| Net service revenue | $ | 467.3 |
| | $ | 399.3 |
| Net service revenue | $ | 491.7 | | | $ | 467.3 | |
| Gross margin, excluding depreciation and amortization | 192.0 |
| | 161.0 |
| Gross margin, excluding depreciation and amortization | 206.0 | | | 192.0 | |
| % of revenue | 41.1 | % | | 40.3 | % | % of revenue | 41.9 | % | | 41.1 | % |
| Other operating expenses | 147.7 |
| | 125.0 |
| Other operating expenses | 156.8 | | | 144.8 | |
| % of revenue | 31.6 | % | | 31.3 | % | % of revenue | 31.9 | % | | 31.0 | % |
| Depreciation and amortization | | Depreciation and amortization | 5.3 | | | 2.9 | |
| Operating income | 44.3 |
| | 36.0 |
| Operating income | 43.9 | | | 44.3 | |
| Total other (expense) income, net | (1.8 | ) | | 0.9 |
| |
| Total other expense | | Total other expense | (2.5) | | | (1.8) | |
| Income tax expense | (10.9 | ) | | (9.6 | ) | Income tax expense | (9.4) | | | (10.9) | |
| Effective income tax rate | 25.6 | % | | 25.9 | % | Effective income tax rate | 22.6 | % | | 25.6 | % |
| Net income | 31.6 |
| | 27.3 |
| Net income | 32.0 | | | 31.6 | |
| Net income attributable to noncontrolling interests | (0.3 | ) | | (0.2 | ) | Net income attributable to noncontrolling interests | (0.2) | | | (0.3) | |
| Net income attributable to Amedisys, Inc. | $ | 31.3 |
| | $ | 27.2 |
| Net income attributable to Amedisys, Inc. | $ | 31.8 | | | $ | 31.3 | |
Overall, our operating income increased $8 millionwas relatively flat on a revenue increase of $68 million driven by growth within all three of our segments and$24 million. Our results for the acquisitionthree-month period ended March 31, 2020 include the acquisitions of CCH on February 1, 2019. 2019, RoseRock Healthcare ("RoseRock") on April 1, 2019 and Asana on January 1, 2020. For the quarter, these acquisitions contributed approximately $53 million in revenue and an operating loss of approximately $2 million, which is inclusive of $2 million in acquisition and integration costs and $2 million in intangibles amortization. For the first quarter of 2019, our acquisitions contributed approximately $32 million in revenue and an operating loss of $2 million, which is inclusive of $6 million in acquisition and integration costs.
Our 2019 operating results were positivelyperformance for the three-month period ended March 31, 2020 was impacted $5 million dueby disruption associated with COVID-19 and the transition to the impact of the 2019 changes in reimbursement. In addition, ourPDGM. Our home health segment continuesexperienced the largest revenue impact related to see improvementCOVID-19, which reduced both volumes and reimbursement. Our home health segment was also impacted by the 2020 changes in clinician productivityreimbursement under PDGM; however, we were able to overcome a portion of the PDGM rate cut via changes in discipline mix and increasesclinician
utilization, which are described in more detail below. Our operating results also reflect a 0.9% increase in our other operating expenses as a percentage of revenue compared to prior year; this increase is inclusive of approximately $2 million and $6 million in acquisition and integration costs in 2020 and 2019, respectively. Excluding the acuity level of our patients which positively impacted our gross margin. We also continue to remain focused onacquisition and integration costs asin 2020 and 2019, our other operating expenses as a percentage of revenue increased only slightly1.8% compared to prior year despite incurring approximately $6 million in acquisition costs and integration costs primarilydue to the addition of resources to support growth (primarily business development employees), investments related to the CCH acquisition as well asPDGM and planned wage increases that became effective during the three-month period ended September 30, 2018. CCH contributed approximately $32 million in revenue and $4 million in operating income to our results for the three-month period ended March 31, 2019. The CCH acquisition impacted our hospice segment as well as our corporate expenses.
increases.
Home Health Segment
The following table summarizes our home health segment results of operations:
| | | | | | | | | | | |
| | For the Three-Month Periods
Ended March 31, | | |
| | 2020 | | 2019 |
Financial Information (in millions): | | | |
| Medicare | $ | 203.9 | | | $ | 213.4 | |
| Non-Medicare | 99.7 | | | 96.7 | |
| Net service revenue | 303.6 | | | 310.1 | |
| Cost of service | 179.8 | | | 185.7 | |
| Gross margin | 123.8 | | | 124.4 | |
| Other operating expenses | 76.7 | | | 72.4 | |
| Operating income | $ | 47.1 | | | $ | 52.0 | |
| Same Store Growth (1): | | | |
| Medicare revenue | (4 | %) | | 4 | % |
| Non-Medicare revenue | 3 | % | | 22 | % |
| Total admissions | 3 | % | | 6 | % |
| Total volume (2) | 1 | % | | 6 | % |
| | | |
| | | |
| Key Statistical Data - Total (3): | | | |
| Admissions | 85,975 | | | 83,969 | |
| Recertifications | 40,541 | | | 41,795 | |
| Total volume | 126,516 | | | 125,764 | |
| | | |
| Medicare completed episodes (6) | 75,636 | | | 75,483 | |
| Average Medicare revenue per completed episode (4) (6) | $ | 2,734 | | | $ | 2,838 | |
| Medicare visits per completed episode (5) (6) | 15.8 | | | 17.2 | |
| | | |
| Visiting Clinician Cost per Visit | $ | 84.01 | | | $ | 81.05 | |
| Clinical Manager Cost per Visit | $ | 8.97 | | | $ | 8.01 | |
| Total Cost per Visit | $ | 92.98 | | | $ | 89.06 | |
| Visits | 1,933,445 | | | 2,085,088 | |
(1) Same store information represents the percent change in our Medicare, Non-Medicare and Total revenue, admissions or volume for the period as a percent of the Medicare, Non-Medicare and Total revenue, admissions or volume of the prior period. Effective July 1, 2019, same store is defined as care centers that we have operated for at least the last twelve months and startups that are an expansion of a same store care center.
(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 three-month period ended March 31, 2020 reflects the transition to PDGM during the quarter and therefore includes reimbursement under both the 60-day episode of care (pre-PDGM) payment rate and the 30-day period of care (PDGM) payment rate.
(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.
|
| | | | | | | |
| | For the Three-
Month Periods
Ended March 31, |
| | 2019 | | 2018 |
Financial Information (in millions): | | | |
| Medicare | $ | 213.4 |
| | $ | 205.0 |
|
| Non-Medicare | 96.7 |
| | 79.1 |
|
| Net service revenue | 310.1 |
| | 284.1 |
|
| Cost of service | 185.7 |
| | 174.4 |
|
| Gross margin | 124.4 |
| | 109.7 |
|
| Other operating expenses | 72.4 |
| | 68.8 |
|
| Operating income | $ | 52.0 |
| | $ | 40.9 |
|
| | | | |
| Same Store Growth (1): | | | |
| Medicare revenue | 4 | % | | 5 | % |
| Non-Medicare revenue | 22 | % | | 14 | % |
| Total admissions | 6 | % | | 4 | % |
| Total volume (2) | 6 | % | | 7 | % |
| Total Episodic admissions (3) | 4 | % | | 3 | % |
| Total Episodic volume (4) | 3 | % | | 6 | % |
| Key Statistical Data - Total (5): | | | |
| Medicare: | | | |
| Admissions | 50,320 |
| | 49,455 |
|
| Recertifications | 27,112 |
| | 27,236 |
|
| Total volume | 77,432 |
| | 76,691 |
|
| Completed episodes | 73,978 |
| | 72,836 |
|
| Visits | 1,331,409 |
| | 1,314,126 |
|
| Average revenue per completed episode (6) | $ | 2,902 |
| | $ | 2,792 |
|
| Visits per completed episode (7) | 17.4 |
| | 17.2 |
|
| Non-Medicare: | | | |
| Admissions | 33,649 |
| | 29,889 |
|
| Recertifications | 14,683 |
| | 12,432 |
|
| Total volume | 48,332 |
| | 42,321 |
|
| Visits | 753,679 |
| | 660,933 |
|
| Total (5): | | | |
| Visiting Clinician Cost per Visit | $ | 81.05 |
| | $ | 80.34 |
|
| Clinical Manager Cost per Visit | 8.01 |
| | 7.99 |
|
| Total Cost per Visit | $ | 89.06 |
| | $ | 88.33 |
|
| Visits | 2,085,088 |
| | 1,975,059 |
|
| |
(1) | Same store information represents the percent change in our Medicare, Non-Medicare, Total and Episodic revenue, admissions or volume for the period as a percent of the Medicare, Non-Medicare, Total and Episodic revenue, admissions or volume of the prior period. |
| |
(2) | Total volume includes all admissions and recertifications. |
| |
(3) | Total Episodic admissions includes admissions for Medicare and Non-Medicare payors that bill on a 60-day episode of care basis. |
| |
(4) | Total Episodic volume includes admissions and recertifications for Medicare and Non-Medicare payors that bill on a 60-day episode of care basis. |
| |
(5) | Total includes acquisitions and denovos. |
| |
(6) | Average Medicare revenue per completed episode is the average Medicare revenue earned for each Medicare completed episode of care. |
| |
(7) | 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. |
Operating Results
Overall, our operating income increased $11decreased $5 million on a $26$7 million increasedecrease in net service revenue.revenue and a $1 million decrease in gross margin. Our growth inrevenue and gross margin were impacted by both COVID-19 and the transition to PDGM. The COVID-19 pandemic impacted both volumes and increasesreimbursement resulting in a decrease in net service revenue of $6 million and gross margin of $4 million; the gross margin impact is inclusive of additional costs related to clinician productivitytraining, quarantine pay and the acuity levelpurchase of personal protective equipment. As expected, our patients positively impacted ourrevenue and gross margin as a percentage of revenue. The impact ofwere also impacted by the 2019 change2020 changes in reimbursement was an increaseunder PDGM, which resulted in a decrease in net service revenue and gross margin of approximately $3$6 million. We were able to overcome the majority of this rate cut via changes related to clinician utilization and discipline mix, which are described in more detail below. Lastly, our operating expenses increased as a result of the addition of resources to support volume growth, planned wage increases and investments related to PDGM.
Net Service Revenue
Our revenue increased $26decreased $7 million onprimarily due to the impact of the 2020 change in reimbursement under PDGM and COVID-19, partially offset by a 6%1% increase in total volume and a $110reduction in price concessions. We have estimated the impact of COVID-19 to be a reduction to revenue of approximately $6 million based on the decline in volume near the end of the quarter as well as an increase in LUPAs and lost billing periods resulting from missed visits related to COVID-19. We have estimated the impact of the 2020 change in reimbursement to be a reduction to revenue of $6 million. The 2020 change in reimbursement and the disruption related to COVID-19 are evident in our Medicare revenue per episode. The volume growth was driven by a 6% increase in admissions. The increase in Medicare revenue percompleted 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. The increase in revenue for the three-month period ended March 31, 2019 was also positively impacted by a $2 million reduction in our revenue price concessions.decreased 4%.
Cost of Service, Excluding Depreciation and Amortization
Our cost per visitof 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. OurOverall, our total cost of service increased 6%decreased 3% on a 6% increase in total visits. Our increase7% decrease in total visits was driven by growthCOVID-19 disruption, improvements in volumesclinician utilization as well as an increase inevidenced by a decline of 1.4 visits per completed episode which is the resultyear over year, and optimization of andiscipline mix. These items were partially offset by a 4% increase in the acuity level of our patients. Our total cost per visit, increased less than 1% as an increase in clinician productivity offsetwhich was driven by planned wage increases.increases, changes in our staffing model and approximately $1 million in costs associated with COVID-19 related to clinician training, quarantine pay and the purchase of personal protective equipment. In addition, a portion of our costs are fixed, so our cost per visit metric will increase as visits decline.
Other Operating Expenses
Other operating expenses increased approximately $4 million primarily due to an increase in salaries and benefits expense as a result of the addition of resources to support volume growth, and planned wage increases that became effective during the three-month period ended September 30, 2018.and investments related to PDGM. Additionally, changes in our home health care center staffing resulted in a shift of some office staff from cost of service to other operating expenses totaling approximately $1 million.
Hospice Segment
The following table summarizes our hospice segment results of operations:
| | | | | | | | | | | |
| | For the Three-Month Periods
Ended March 31, | | |
| | 2020 | | 2019 |
Financial Information (in millions): | | | |
| Medicare | $ | 160.5 | | | $ | 130.7 | |
| Non-Medicare | 8.9 | | | 6.3 | |
| Net service revenue | 169.4 | | | 137.0 | |
| Cost of service | 91.8 | | | 74.1 | |
| Gross margin | 77.6 | | | 62.9 | |
| Other operating expenses | 39.3 | | | 29.4 | |
| Operating income | $ | 38.3 | | | $ | 33.5 | |
| Same Store Growth (1): | | | |
| Medicare revenue | 5 | % | | 9 | % |
| Hospice admissions | 1 | % | | 5 | % |
| Average daily census | 4 | % | | 8 | % |
| Key Statistical Data - Total (2): | | | |
| Hospice admissions | 11,318 | | | 9,711 | |
| Average daily census | 12,046 | | | 9,982 | |
| Revenue per day, net | $ | 154.55 | | | $ | 152.56 | |
| Cost of service per day | $ | 83.78 | | | $ | 82.43 | |
| Average discharge length of stay | 98 | | | 98 | |
|
| | | | | | | |
| | For the Three-
Month Periods
Ended March 31, |
| | 2019 | | 2018 |
Financial Information (in millions): | | | |
| Medicare | $ | 130.7 |
| | $ | 91.8 |
|
| Non-Medicare | 6.3 |
| | 5.5 |
|
| Net service revenue | 137.0 |
| | 97.3 |
|
| Cost of service | 74.1 |
| | 50.1 |
|
| Gross margin | 62.9 |
| | 47.2 |
|
| Other operating expenses | 29.4 |
| | 20.2 |
|
| Operating income | $ | 33.5 |
| | $ | 27.0 |
|
| Same Store Growth (1): | | | |
| Medicare revenue | 9 | % | | 12 | % |
| Hospice admissions | 5 | % | | 5 | % |
| Average daily census | 8 | % | | 12 | % |
| Key Statistical Data - Total (2): | | | |
| Hospice admissions | 9,711 |
| | 6,933 |
|
| Average daily census | 9,982 |
| | 7,214 |
|
| Revenue per day, net | $ | 152.56 |
| | $ | 149.80 |
|
| Cost of service per day | $ | 82.43 |
| | $ | 77.17 |
|
| Average discharge length of stay | 98 |
| | 97 |
|
(2) Total includes acquisitions and denovos.
| |
(1) | Same store information represents the percent change in our Medicare revenue, Hospice admissions or average daily census for the period as a percent of the Medicare revenue, Hospice admissions or average daily census of the prior period. |
| |
(2) | Total includes acquisitions and denovos. |
Operating Results
On February 1, 2019, we acquired CCH, which owned and operated 53 hospice care centers. On April 1, 2019, we acquired RoseRock, which owned and operated one hospice care center. On January 1, 2020, we acquired Asana, which owned and operated eight hospice care centers. Acquisitions are included in our consolidated financial statements from their respective acquisition dates. As a result, our hospice segment operating results for 20192020 and 20182019 are not fully comparable.
Overall, our operating income increased $7$5 million on a $40$32 million increase in net service revenue. CCHOur operating results for the quarter were positively impacted by continued growth and by our acquisitions. Our acquisitions contributed approximately $32$53 million in revenue and $5 million in operating income to our hospice segment's results for the three-month period ended March 31, 2019. The impact of the 2019 change2020 and approximately $32 million in reimbursement was an increase in net service revenue and gross margin of approximately $2 million. We experienced a decrease$5 million in gross margin as a percentage of revenue primarily due to planned wage increases that became effective duringoperating income for the three-month period ended September 30, 2018 and an increase in our estimated price concessions.March 31, 2019. Our operating results were negatively impacted by both COVID-19, as described in more detail below, and the 2020 change in reimbursement, which resulted in an increase in revenue of $1 million but a reduction in gross margin of less than $1 million relatedfor the quarter, as the majority of the revenue increase was passed through to CCH's in-patient units; we are currently in the process of winding down these operations.our general inpatient and respite facilities.
Net Service Revenue
Our hospice revenue increased $40$32 million, approximately $32$21 million of which is attributable to CCH.our acquisition activity. The remaining $8$11 million increase is the result of an 8%a 4% increase in our average daily census, and a 1.6%0.5% increase in reimbursement effective for services provided from October 1, 2018. We experienced2019 and a $2 million increasereduction in our revenue price concessions which negatively impactedconcessions. The impact of COVID-19 on our revenue forhospice segment was less than $1 million. We experienced a slight decline in admissions near the three-month period ended March 31, 2019.end of the quarter, but average daily census remained strong. A continued decline in admissions could have a negative impact on our future average daily census.
Cost of Service, Excluding Depreciation and Amortization
Our hospice cost of service increased $24$18 million, approximately $20$14 million of which is attributable to CCH.our acquisition activity. The remaining $4 million increase is primarily due to an 8%a 4% increase in average daily census, planned wage increases and an increase in our costgeneral inpatient and respite facility costs as the majority of service per day as a result of planned wage increases thatthe reimbursement increase, which became effective during the three-month period ended September 30, 2018.October 1, 2019, will be passed through to these facilities.
Other Operating Expenses
Other operating expenses increased $9 million;$10 million, approximately $7$8 million of the increasewhich is related to CCH.our acquisition activity. The remaining $2 million increase is due to increases in other care center related expenses, primarily salaries and benefits due to the addition of resources to support census growth and planned wage increases that became effective during the three-month period ended September 30, 2018.increases.
Personal Care Segment
The following table summarizes our personal care segment results of operations:
| | | | | | | | | | | |
| | For the Three-Month Periods
Ended March 31, | | |
| | 2020 | | 2019 |
Financial Information (in millions): | | | |
| Medicare | $ | — | | | $ | — | |
| Non-Medicare | 18.7 | | | 20.2 | |
| Net service revenue | 18.7 | | | 20.2 | |
| Cost of service | 14.1 | | | 15.5 | |
| Gross margin | 4.6 | | | 4.7 | |
| Other operating expenses | 3.4 | | | 3.2 | |
| Operating income | $ | 1.2 | | | $ | 1.5 | |
| Key Statistical Data - Total (1): | | | |
| Billable hours | 752,077 | | | 833,617 | |
| Clients served | 11,770 | | | 12,801 | |
| Shifts | 333,464 | | | 376,182 | |
| Revenue per hour | $ | 24.87 | | | $ | 24.19 | |
| Revenue per shift | $ | 56.09 | | | $ | 53.60 | |
| Hours per shift | 2.3 | | | 2.2 | |
|
| | | | | | | |
| | For the Three-
Month Periods
Ended March 31, |
| | 2019 | | 2018 |
Financial Information (in millions): | | | |
| Medicare | $ | — |
| | $ | — |
|
| Non-Medicare | 20.2 |
| | 17.9 |
|
| Net service revenue | 20.2 |
| | 17.9 |
|
| Cost of service | 15.5 |
| | 13.8 |
|
| Gross margin | 4.7 |
| | 4.1 |
|
| Other operating expenses | 3.2 |
| | 3.3 |
|
| Operating income | $ | 1.5 |
| | $ | 0.8 |
|
| Key Statistical Data (1): | | | |
| Billable hours | 833,617 |
| | 749,953 |
|
| Clients served | 12,801 |
| | 12,536 |
|
| Shifts | 376,182 |
| | 348,166 |
|
| Revenue per hour | $ | 24.19 |
| | $ | 23.85 |
|
| Revenue per shift | $ | 53.60 |
| | $ | 51.36 |
|
| Hours per shift | 2.2 |
| | 2.2 |
|
| |
(1) | Total includes acquisitions |
Operating Results
On May 1, 2018, we acquired the assets of East Tennessee Personal Care Services, which owned and operated one personal-care care center. On October 1, 2018, we acquired the assets of Bring Care Home which serviced the state of Massachusetts. Acquisitions are included in our consolidated financial statements from their respective acquisition dates. As a result, our personal care operating results for 2019 and 2018 are not fully comparable.
Operating income related to our personal care segment increased less than $1 million on a $2 million increase inremained relatively flat as net service revenue. Otherrevenue and cost of service both decreased $1 million; other operating expenses also remained relatively flat. Throughout 2019, we made efforts to reduce lower margin shifts; while these efforts have resulted in lower volumes, they have led to a 130 basis point improvement in gross margin as a percentage of revenue. The net impact of COVID-19 on our personal care segment was minimal as the reduction in revenue was largely offset by a reduction in costs as most of our personal care employees are paid on an hourly basis.
Corporate
The following table summarizes our corporate results of operations:
| | | | For the Three-
Month Periods
Ended March 31, | | For the Three-Month Periods
Ended March 31, | |
| | 2019 | | 2018 | | 2020 | | 2019 |
Financial Information (in millions): | | | | Financial Information (in millions): | | | |
| Other operating expenses | $ | 41.3 |
| | $ | 30.2 |
| Other operating expenses | $ | 39.0 | | | $ | 41.3 | |
| Depreciation and amortization | 1.4 |
| | 2.5 |
| Depreciation and amortization | 3.7 | | | 1.4 | |
| Total operating expenses | $ | 42.7 |
| | $ | 32.7 |
| Total operating expenses | $ | 42.7 | | | $ | 42.7 | |
Corporate expenses consist of costs relatingrelated to our executive management and corporate 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.
DuringCorporate total operating expenses remained flat during the three-month period ended March 31, 2020 compared to 2019. Excluding the impact of our 2020 and 2019 corporate operating expenses increased $10 million. Approximately $7 million of the increase is the result of the CCH acquisition ofacquisitions which approximately $1 million relates toincludes corporate and administrative support functions, intangibles amortization and approximately $6 million relates to acquisition and integration costs. Excluding the impact of the acquisition and integration costs, othertotal operating expenses increased $5approximately $1 million which represents 8%3% of our $68$24 million increase in revenue. The remaining increase is due to increased functional support, planned wage increases, in salariesfees related to our ClearCare partnership and benefits expense, information technology expense and travel and training expense which were offset by a decrease in depreciation and amortization and a gainlower gains on the sale of fleet vehicles.vehicles in 2020 as compared to 2019; these items were partially offset by decreases in travel and training expense and IT-related expenses.
Liquidity and Capital Resources
Cash Flows
The following table summarizes our cash flows for the periods indicated (amounts in millions):
|
| | | | | | | |
| | For the Three- Month Periods Ended March 31, |
| | 2019 | | 2018 |
| Cash provided by operating activities | $ | 20.1 |
| | $ | 40.3 |
|
| Cash used in investing activities | (328.9 | ) | | (3.3 | ) |
| Cash provided by (used in) financing activities | 299.2 |
| | (3.4 | ) |
| Net (decrease) increase in cash and cash equivalents | (9.6 | ) | | 33.6 |
|
| Cash and cash equivalents at beginning of period | 20.2 |
| | 86.4 |
|
| Cash and cash equivalents at end of period | $ | 10.6 |
| | $ | 120.0 |
|
| | | | | | | | | | | |
| | For the Three-Month Periods
Ended March 31, | | |
| | 2020 | | 2019 |
| Cash provided by operating activities | $ | 6.0 | | | $ | 20.1 | |
| Cash used in investing activities | (70.7) | | | (328.9) | |
| Cash provided by financing activities | 146.0 | | | 299.2 | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | 81.3 | | | (9.6) | |
| Cash, cash equivalents and restricted cash at beginning of period | 96.5 | | | 20.2 | |
| Cash, cash equivalents and restricted cash at end of period | $ | 177.8 | | | $ | 10.6 | |
Cash provided by operating activities decreased $20.2$14.1 million during the three-month period ended March 31, 20192020 compared to the three-month period ended March 31, 20182019 primarily due to a decrease in our cash collections as comparedresult of our transition to 2018.PDGM.
Cash used in investing activities increased $325.6decreased $258.2 million during the three-month period ended March 31, 20192020 compared to the three-month period ended March 31, 2018 related to2019 as a result of our acquisition of CCH.CCH in 2019.
Cash provided by financing activities increased $302.6decreased $153.2 million during the three-month period ended March 31, 20192020 compared to the three-month period ended March 31, 20182019 primarily due to our borrowings under our Amended Credit Agreement to fund the CCH acquisition.acquisition in 2019.
Liquidity
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.
In order to mitigate the risk of any cash availability issues related to COVID-19, we borrowed $150 million under our Amended Credit Agreement in March 2020. While we have experienced disruption in our business volume, we have not seen a change in our collection trends and remain confident in our ability to fund our operations.
During the three-month period ended March 31, 2019,2020, we spent $1.2$1.4 million in capital expenditures as compared to $1.5$1.2 million during the three-month period ended March 31, 2018.2019. Our capital expenditures for 20192020 are expected to be approximately $8.0$6.0 million to $10.0$8.0 million, excluding the impact of any future acquisitions.
As of March 31, 2019,2020, we had $10.6$174.8 million in cash and cash equivalents and $380.9$299.8 million in availability under our $550.0 million Revolving Credit Facility.
Based on our operating forecasts and our debt service requirements, we believe we will have sufficient liquidity to fund our operations, capital requirements and debt service requirements.
Outstanding Patient Accounts Receivable
Our patient accounts receivable increased $47.4$31.0 million from December 31, 20182019 to March 31, 2019; $31.22020; $8.9 million of the increase is related to CCH.acquisition activity. We also experienced an increase related to the reduction in RAPs under PDGM. Our cash collection as a percentage of revenue was 101%102% and 104%101% for the three-month periods ended March 31, 20192020 and 2018,2019, respectively. Our days revenue outstanding at March 31, 20192020 was 41.246.6 days which is an increase of 3.25.7 days from December 31, 20182019 and a decreasean increase of 0.25.4 days from March 31, 2018.2019. As anticipated, the transition to PDGM has negatively impacted our days revenue outstanding; the estimated impact is 5.9 days.
Our patient accounts receivable includes unbilled receivables and are aged based upon our 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 and varies by state for Medicaid-reimbursable services and among insurance companies and other private payors.
The following schedules detail our patient accounts receivable, by payor class, aged based upon initial date of service (amounts in millions, except days revenue outstanding,net)outstanding):
| | | | | | | | | | | | | | 0-90 | | 91-180 | | 181-365 | | Over 365 | | Total |
| | 0-90 | | 91-180 | | 181-365 | | Over 365 | | Total | |
| At March 31, 2019: | | | | | | | | | | |
| At March 31, 2020: | | At March 31, 2020: | | | | | | | | | |
| Medicare patient accounts receivable | $ | 122.8 |
| | $ | 8.6 |
| | $ | 1.2 |
| | $ | 1.0 |
| | $ | 133.6 |
| Medicare patient accounts receivable | $ | 143.3 | | | $ | 12.6 | | | $ | 5.9 | | | $ | 1.2 | | | $ | 163.0 | |
| Other patient accounts receivable: |
| |
| |
| |
| |
| Other patient accounts receivable: | | | | | | | | | |
| Medicaid | 20.3 |
| | 3.8 |
| | 2.6 |
| | 1.5 |
| | 28.2 |
| Medicaid | 18.9 | | | 6.1 | | | 4.0 | | | — | | | 29.0 | |
| Private | 63.6 |
| | 6.7 |
| | 3.4 |
| | 0.9 |
| | 74.6 |
| Private | 69.6 | | | 5.2 | | | 1.8 | | | — | | | 76.6 | |
| Total | $ | 83.9 |
| | $ | 10.5 |
| | $ | 6.0 |
| | $ | 2.4 |
| | $ | 102.8 |
| Total | $ | 88.5 | | | $ | 11.3 | | | $ | 5.8 | | | $ | — | | | $ | 105.6 | |
| Total patient accounts receivable | | | | | | | | | $ | 236.4 |
| Total patient accounts receivable | | | | | | | | | $ | 268.6 | |
| Days revenue outstanding (1) | | | | | | | | | 41.2 |
| Days revenue outstanding (1) | | 46.6 | |
| | 0-90 | | 91-180 | | 181-365 | | Over 365 | | Total | | 0-90 | | 91-180 | | 181-365 | | Over 365 | | Total |
| At December 31, 2018: | | | | | | | | | | |
| At December 31, 2019: | | At December 31, 2019: | | | | | | | | | |
| Medicare patient accounts receivable | $ | 95.5 |
| | $ | 8.1 |
| | $ | 1.0 |
| | $ | 1.8 |
| | $ | 106.4 |
| Medicare patient accounts receivable | $ | 115.2 | | | $ | 13.8 | | | $ | 6.8 | | | $ | 1.0 | | | $ | 136.8 | |
| Other patient accounts receivable: |
| |
| |
| |
| |
| Other patient accounts receivable: | | | | | | | | | |
| Medicaid | 13.1 |
| | 2.7 |
| | 1.1 |
| | — |
| | 16.9 |
| Medicaid | 22.6 | | | 5.7 | | | 4.0 | | | — | | | 32.3 | |
| Private | 51.3 |
| | 6.7 |
| | 4.4 |
| | 3.3 |
| | 65.7 |
| Private | 60.0 | | | 6.3 | | | 2.2 | | | — | | | 68.5 | |
| Total | $ | 64.4 |
| | $ | 9.4 |
| | $ | 5.5 |
| | $ | 3.3 |
| | $ | 82.6 |
| Total | $ | 82.6 | | | $ | 12.0 | | | $ | 6.2 | | | $ | — | | | $ | 100.8 | |
| Total patient accounts receivable | | | | | | | | | $ | 189.0 |
| Total patient accounts receivable | | | | | | | $ | 237.6 | |
| Days revenue outstanding (1) | | | | | | | | | 38.0 |
| Days revenue outstanding (1) | | 40.9 | |
| |
(1) | Our calculation of days revenue outstanding is derived by dividing our ending patient accounts receivable at March 31, 2019 and December 31, 2018 by our average daily patient revenue for the three-month periods ended March 31, 2019 and December 31, 2018, respectively. |
(1)Our calculation of days revenue outstanding is derived by dividing our ending patient accounts receivable at March 31, 2020 and December 31, 2019 by our average daily patient revenue for the three-month periods ended March 31, 2020 and December 31, 2019, respectively.
Indebtedness
First Amendment to Amended and Restated Credit Agreement
On February 4, 2019, we entered into the First Amendment to theour Credit Agreement (as amended by the First Amendment, the "Amended Credit Agreement"). The Amended Credit Agreement provides for a senior secured credit facility in an initial aggregate principal amount of up to $725.0 million, which includes thea $550.0 million Revolving Credit Facility under the Credit Agreement and a term loan facility with a principal amount of up to $175.0 million (the "Term Loan Facility" and collectively with the Revolving Credit Facility, the "Credit Facility"), which was added by the First Amendment.
We borrowed the entire principal amount of the Term Loan Facility on February 4, 2019 in order to fund a portion of the purchase price of the CCH acquisition, with the remainder of the purchase price and associated transactional fees and expenses funded by proceeds from the Revolving Credit Facility.
Our weighted average interest rate for borrowings under our $550.0 million Revolving Credit Facility was 4.1%3.2% and 4.2% for the three-month periodperiods ended March 31, 2019.2020 and March 31, 2019, respectively. Our weighted average interest rate for our borrowings under our $175.0 million Term Loan Facility was 4.1%3.2% for the three-month period ended March 31, 2020 and 4.2% for the period February 4, 2019 to March 31, 2019.
As of March 31, 2019,2020, our consolidated leverage ratio was 1.4,1.5, our consolidated interest coverage ratio was 16.6 and we are in compliance with our covenants under the Amended Credit Agreement.
As of March 31, 2019,2020, our availability under our $550.0 million Revolving Credit Facility was $380.9$299.8 million as we have $135.0$220.0 million outstanding in borrowings and $34.1$30.2 million outstanding in letters of credit.
See Note 54 - Long Term Obligations to our condensed consolidated financial statements for additional details on our outstanding long-term obligations.
Share Repurchase
2019 Stock Repurchase Program
On February 25, 2019, 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 March 1, 2020.
Under the terms of the program, we arewere allowed to repurchase shares from time to time in open market transactions, block purchases or in private transactions in accordance with applicable federal securities laws and other legal requirements. We arewere allowed to enter into Rule 10b5-1 plans to effect some or all of the repurchases. The timing and the amount of the repurchases willwould be determined by management based on a number of factors, including but not limited to share price, trading volume and general market conditions, as well as on working capital requirements, general business conditions and other factors.
We did not repurchase any shares pursuant to this stock repurchase program during the three-month periodperiods ended March 31, 2020 or March 31, 2019. The stock repurchase program expired on March 1, 2020.
Inflation
We do not believe inflation has significantly impacted our results of operations.
Critical Accounting Estimates
See Part II, Item 7 – Critical Accounting Estimates and our consolidated financial statements and related notes in Part II, Item 8 of our 20182019 Annual Report on Form 10-K, for accounting policies and related estimates we believe are the most critical to understanding our condensed consolidated financial statements, financial condition and results of operations and which require complex management judgment and assumptions, or involve uncertainties. These critical accounting estimates include revenue recognition and goodwill and other intangible assets. There have not been any changes to our significant accounting policies or their application since we filed our 20182019 Annual Report on Form 10-K except for the changes related to the adoption of Accounting Standards Updates 2016-02, 2018-01, 2018-10 and 2018-11 as disclosed in Note 1 to our condensed consolidated financial statements.10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from fluctuations in interest rates. Our Revolving Credit Facility carries a floating interest rate which is tied to the Eurodollar rate (i.e. LIBOR) and the Prime Rate and therefore, our condensed consolidated statements of
operations and our condensed consolidated statements of cash flows are exposed to changes in interest rates. As of March 31, 2019,2020, the total amount of outstanding debt subject to interest rate fluctuations was $310.0$390.6 million. A 1.0% interest rate change would cause interest expense to change by approximately $3.1$3.9 million annually, assuming the Company makes no principal repayments.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures which are designed to provide reasonable assurance of achieving their objectives and to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, disclosed and reported within the time periods specified in the SEC’s rules and forms. This information is also accumulated and communicated to our management and Board of Directors to allow timely decisions regarding required disclosure.
In connection with the preparation of this Quarterly Report on Form 10-Q, as of March 31, 2019,2020, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act.
Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2019,2020, the end of the period covered by this Quarterly Report.
Changes in Internal Controls
There have been no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) that have occurred during the quarter ended March 31, 2019,2020, that have materially impacted, or are reasonably likely to materially impact, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls or our internal controls over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls’ effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and, based on an evaluation of our controls and procedures, our principal executive officer and our principal financial officer concluded our disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2019,2020, the end of the period covered by this Quarterly Report.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 65 - Commitments and Contingencies to the condensed consolidated financial statements for information concerning our legal proceedings.
ITEM 1A. RISK FACTORS
In addition to other information set forthThere have been no material changes in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors includeddescribed in Part I, Item 1A. – Risk Factors of our Annual Report on Form 10-K. These10-K for the year ended December 31, 2019, except for the risk factorsfactor below.
Our business may be materially adversely affected by the ongoing novel coronavirus ("COVID-19") pandemic.
The recent outbreak of the COVID-19 pandemic has resulted in a general economic downturn and volatility 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 materially impactlead 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/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, 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 operating results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely impact our business, financial condition and/or operating results.treat the COVID-19 pandemic.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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 March 31, 2019:2020:
|
| | | | | | | | | | | | | | |
| 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 |
| January 1, 2019 to January 31, 2019 | 4,638 |
| | | $ | 127.12 |
| | — |
| | $ | — |
|
| February 1, 2019 to February 28, 2019 | 11,610 |
| | | 127.35 |
| | — |
| | — |
|
| March 1, 2019 to March 31, 2019 | 5,053 |
| | | 122.60 |
| | — |
| | — |
|
| | 21,301 |
| (1) | | $ | 126.17 |
| | — |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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) |
| January 1, 2020 to January 31, 2020 | 10,542 | | | | $ | 173.73 | | | — | | | $ | 100,000,000 | |
| February 1, 2020 to February 29, 2020 | 6,651 | | | | 196.79 | | | — | | | 100,000,000 | |
| March 1, 2020 to March 31, 2020 | 5,046 | | | | 180.24 | | | — | | | — | |
| 22,239 | | (1) | | | $ | 182.10 | | | — | | | $ | — | |
| |
(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 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 February 25, 2019, our Board of Directors authorized a share repurchase program, pursuant to which we could repurchase up to $100 million of our outstanding shares of common stock through March 1, 2020, when the share repurchase program expired.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The exhibits marked with the cross symbol (†) are filed and the exhibits marked with a double cross (††) are furnished with this Form 10-Q. Any exhibits marked with the asterisk symbol (*) are management contracts or compensatory plans or arrangements filed pursuant to Item 601(b)(10)(iii) of Regulation S-K.
| | | | | | | | | | | | | | | | | | | | | | | |
Exhibit
Number | Document Description | | Report or Registration Statement | | SEC File or
Registration
Number | | Exhibit
or Other
Reference |
| | | | | | | |
| 3.1 | | | The Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 | | 0-24260 | | 3.1 | |
| | | | | | | |
| 3.2 | | | The Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 | | 0-24260 | | 3.2 | |
| | | | | | | |
| †31.1 | | | | | | | |
| | | | | | | |
| †31.2 | | | | | | | |
| | | | | | | |
| ††32.1 | | | | | | | |
| | | | | | | |
| ††32.2 | | | | | | | |
| | | | | | | |
| †101.INS | Inline XBRL Instance - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | | | | |
| | | | | | | |
| †101.SCH | Inline XBRL Taxonomy Extension Schema Document | | | | | | |
| | | | | | | |
| †101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | |
| | | | | | | |
| †101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | | | | | | |
| | | | | | | |
| †101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document | | | | | | |
| | | | | | | |
| †101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | |
| | | | | | | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | | | | | |
|
| | | | | | | | |
Exhibit Number | Document Description | | Report or Registration Statement | | SEC File or Registration Number | | Exhibit or Other Reference |
| | | | | | | | |
| 3.1 | | | The Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 | | 0-24260 | | 3.1 |
|
| | | | | | | | |
| 3.2 | | | The Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 | | 0-24260 | | 3.2 |
|
| | | | | | | | |
| 10.1 | First Amendment to Amended and Restated Credit Agreement, dated as of February 4, 2019, by and among the Amedisys, Inc. and Amedisys Holding, L.L.C., as the borrowers, certain subsidiaries of the Company party thereto as guarantors, Bank of America, N.A., as the administrative agent, swingline lender and letter of credit issuer, JPMorgan Chase Bank, N.A., as syndication agent, Capital One Bank, National Association, Citizens Bank, N.A., Compass Bank, Fifth Third Bank, Hancock Whitney Bank, Regions Bank, and Wells Fargo Bank, National Association, as co-documentation agents, the lenders party thereto, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citizens Bank, N.A., Fifth Third Bank and JPMorgan Chase Bank, N.A., as joint lead arrangers, and Merrill Lynch, Pierce, Fenner & Smith Incorporated and JPMorgan Chase Bank, N.A., as joint bookrunners (The schedules to the First Amendment have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish copies of the omitted schedules to the Securities and Exchange Commission upon request.) | | The Company's Current Report on Form 8-K filed on February 4, 2019 | | 0-24260 | | 10.1 |
|
| | | | | | | | |
| 10.2 | Joinder Agreement, dated as of February 4, 2019, by and among Amedisys, Inc. and Amedisys Holding, L.L.C., as the borrowers, each of the new subsidiary guarantors party thereto, and Bank of America, N.A., as the administrative agent (The schedules to the Joinder have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish copies of the omitted schedules to the Securities and Exchange Commission upon request.)
| | The Company's Current Report on Form 8-K filed on February 4, 2019 | | 0-24260 | | 10.2 |
|
| | | | | | | | |
| *10.3 |
| | The Company's Current Report on Form 8-K filed on February 19, 2019 | | 0-24260 | | 10.1 |
|
| | | | | | | | |
| †31.1 | | | | | | | |
| | | | | | | | |
| †31.2 | | | | | | | |
| | | | | | | | |
| ††32.1 | | | | | | | |
| | | | | | | | |
| ††32.2 | | | | | | | |
| | | | | | | | |
| †101.INS | XBRL Instance | | | | | | |
| | | | | | | | |
| †101.SCH | XBRL Taxonomy Extension Schema Document | | | | | | |
| | | | | | | | |
| †101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | |
| | | | | | | | |
| †101.DEF | XBRL Taxonomy Extension Definition Linkbase | | | | | | |
| | | | | | | | |
| †101.LAB | XBRL Taxonomy Extension Labels Linkbase Document | | | | | | |
| | | | | | | | |
| †101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| | |
| | |
AMEDISYS, INC. (Registrant) |
| |
By: | | |
| By: | | /s/ SCOTT G. GINN |
| | Scott G. Ginn, |
| | Principal Financial Officer and |
| | Duly Authorized Officer |
Date: May 1, 20197, 2020
