UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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ý☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended SeptemberJune 30, 20172022
OR
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¨☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
Commission file number: 001-33989
LHC Group, Inc.
(Exact name of registrant as specified in its charter) |
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LHC GROUP, INC.
(Exact name of registrant as specified in its charter)
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Delaware | | 71-0918189 |
(State or other jurisdiction of incorporation or organization)
| | (I.R.S. Employer Identification No.)
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901 Hugh Wallis Road South
Lafayette, LA 70508
(Address of principal executive offices including zip code)
(337) 233-1307
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, par value of $0.01 | | LHCG | | NASDAQ Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | | ¨ý | | Accelerated filer | | ý☐ |
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Non-accelerated filer | | ¨ (Do not check if a smaller reporting company) ☐ | | Smaller reporting company | | ¨☐ |
| | | | Emerging growth company | | ¨ ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý
Number of shares of common stock, par value $0.01, outstanding as of NovemberAugust 1, 2017: 18,279,6582022: 31,028,822 shares.
LHC GROUP, INC.
INDEX
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Part I. Financial Information | | Page |
Item 1. | | | |
Condensed Consolidated Balance Sheets — SeptemberJune 30, 20172022 and December 31, 20162021 | | |
Condensed Consolidated Statements of Income — Three and ninesix months ended SeptemberJune 30, 20172022 and 20162021 | | |
Condensed Consolidated StatementStatements of Changes inStockholders' Equity — NineThree and six months ended SeptemberJune 30, 20172022 and 2021 | | |
Condensed Consolidated Statements of Cash Flows — NineSix months ended SeptemberJune 30, 20172022 and 20162021 | | |
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Item 2. | | | |
Item 3. | | | |
Item 4. | | | |
Part II. Other Information | | |
Item 1. | | | |
Item 1A. | | | |
Item 2. | | | |
Item 3. | | | |
Item 4. | | | |
Item 5. | | | |
Item 6. | | | |
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PART I — FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.STATEMENTS
LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data) (Unaudited)
| | | September 30, 2017 | | December 31, 2016 | | | | | | | | | | |
| (Unaudited) | | | | June 30, 2022 | | December 31, 2021 |
ASSETS | | | | ASSETS | | | |
Current assets: | | | | Current assets: | |
Cash | $ | 16,922 |
| | $ | 3,264 |
| Cash | $ | 27,400 | | | $ | 9,809 | |
Receivables: | | | | Receivables: | |
Patient accounts receivable, less allowance for uncollectible accounts of $26,089 and $29,036, respectively | 145,508 |
| | 124,803 |
| |
Patient accounts receivable | | Patient accounts receivable | 342,068 | | | 348,820 | |
Other receivables | 4,705 |
| | 5,115 |
| Other receivables | 13,304 | | | 13,780 | |
Amounts due from governmental entities | 830 |
| | 942 |
| Amounts due from governmental entities | 483 | | | — | |
Total receivables, net | 151,043 |
| | 130,860 |
| |
Total receivables | | Total receivables | 355,855 | | | 362,600 | |
| Prepaid income taxes | 4,879 |
| | — |
| Prepaid income taxes | 19,613 | | | 7,531 | |
Prepaid expenses | 11,437 |
| | 9,821 |
| Prepaid expenses | 20,556 | | | 28,401 | |
Other current assets | 7,331 |
| | 5,796 |
| Other current assets | 36,166 | | | 24,801 | |
Total current assets | 191,612 |
| | 149,741 |
| Total current assets | 459,590 | | | 433,142 | |
Property, building and equipment, net of accumulated depreciation of $41,876 and $35,226, respectively | 47,562 |
| | 43,251 |
| |
Property, building and equipment, net of accumulated depreciation of $106,541 and $98,394, respectively | | Property, building and equipment, net of accumulated depreciation of $106,541 and $98,394, respectively | 155,978 | | | 153,959 | |
Goodwill | 392,689 |
| | 307,317 |
| Goodwill | 1,751,430 | | | 1,748,426 | |
Intangible assets, net of accumulated amortization of $12,607 and $10,968, respectively | 130,779 |
| | 102,006 |
| |
Intangible assets, net of accumulated amortization of $21,902 and $19,152, respectively | | Intangible assets, net of accumulated amortization of $21,902 and $19,152, respectively | 397,121 | | | 400,002 | |
Operating lease right of use asset | | Operating lease right of use asset | 109,925 | | | 113,399 | |
Other assets | 2,411 |
| | 11,756 |
| Other assets | 63,830 | | | 46,693 | |
Total assets | $ | 765,053 |
| | $ | 614,071 |
| Total assets | $ | 2,937,874 | | | $ | 2,895,621 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | | Current liabilities: | |
Accounts payable and other accrued liabilities | $ | 40,355 |
| | $ | 26,805 |
| Accounts payable and other accrued liabilities | $ | 124,222 | | | $ | 98,118 | |
Salaries, wages, and benefits payable | 53,289 |
| | 34,265 |
| Salaries, wages, and benefits payable | 94,432 | | | 100,532 | |
Self-insurance reserve | 9,524 |
| | 10,691 |
| |
Current portion of long-term debt | 261 |
| | 252 |
| |
Self-insurance reserves | | Self-insurance reserves | 41,302 | | | 33,784 | |
| Contract liabilities - deferred revenue | | Contract liabilities - deferred revenue | 8,222 | | | 106,489 | |
Current operating lease payable | | Current operating lease payable | 36,929 | | | 37,630 | |
Amounts due to governmental entities | 4,564 |
| | 4,955 |
| Amounts due to governmental entities | 3,034 | | | 5,447 | |
Income tax payable | — |
| | 3,499 |
| |
Current liabilities - deferred employer payroll tax | | Current liabilities - deferred employer payroll tax | 26,790 | | | 26,790 | |
Total current liabilities | 107,993 |
| | 80,467 |
| Total current liabilities | 334,931 | | | 408,790 | |
Deferred income taxes | 38,186 |
| | 31,941 |
| Deferred income taxes | 80,691 | | | 70,026 | |
Income taxes payable | | Income taxes payable | 7,754 | | | 7,320 | |
Revolving credit facility | 119,000 |
| | 87,000 |
| Revolving credit facility | 759,000 | | | 661,197 | |
Long-term debt, less current portion | 93 |
| | 544 |
| |
Long-term operating lease liabilities | | Long-term operating lease liabilities | 75,971 | | | 78,688 | |
Total liabilities | 265,272 |
| | 199,952 |
| Total liabilities | 1,258,347 | | | 1,226,021 | |
Noncontrolling interest — redeemable | 13,206 |
| | 12,567 |
| Noncontrolling interest — redeemable | 17,210 | | | 17,501 | |
Commitments and contingencies | | Commitments and contingencies | 0 | | 0 |
Stockholders’ equity: | | | | Stockholders’ equity: | |
LHC Group, Inc. stockholders’ equity: | | | | LHC Group, Inc. stockholders’ equity: | |
Common stock — $0.01 par value; 40,000,000 shares authorized; 22,635,322 and 22,429,041 shares issued in 2017 and 2016, respectively | 226 |
| | 224 |
| |
Treasury stock — 4,890,181 and 4,828,679 shares at cost, respectively | (42,226 | ) | | (39,135 | ) | |
Preferred stock – $0.01 par value; 5,000,000 shares authorized; none issued or outstanding | | Preferred stock – $0.01 par value; 5,000,000 shares authorized; none issued or outstanding | — | | | — | |
Common stock — $0.01 par value; 60,000,000 shares authorized; 36,703,550 and 36,549,524 shares issued, and 30,567,333 and 30,634,414 shares outstanding, respectively | | Common stock — $0.01 par value; 60,000,000 shares authorized; 36,703,550 and 36,549,524 shares issued, and 30,567,333 and 30,634,414 shares outstanding, respectively | 367 | | | 365 | |
Treasury stock — 6,136,217 and 5,915,110 shares at cost, respectively | | Treasury stock — 6,136,217 and 5,915,110 shares at cost, respectively | (194,390) | | | (164,790) | |
Additional paid-in capital | 125,208 |
| | 119,748 |
| Additional paid-in capital | 990,247 | | | 979,642 | |
Retained earnings | 345,967 |
| | 314,289 |
| Retained earnings | 781,063 | | | 751,025 | |
Total LHC Group, Inc. stockholders’ equity | 429,175 |
| | 395,126 |
| Total LHC Group, Inc. stockholders’ equity | 1,577,287 | | | 1,566,242 | |
Noncontrolling interest — non-redeemable | 57,400 |
| | 6,426 |
| Noncontrolling interest — non-redeemable | 85,030 | | | 85,857 | |
Total equity | 486,575 |
| | 401,552 |
| |
Total liabilities and equity | $ | 765,053 |
| | $ | 614,071 |
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Total stockholders' equity | | Total stockholders' equity | 1,662,317 | | | 1,652,099 | |
Total liabilities and stockholders' equity | | Total liabilities and stockholders' equity | $ | 2,937,874 | | | $ | 2,895,621 | |
See accompanying notesNotes to condensed consolidated financial statements.Condensed Consolidated Financial Statements.
LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share and per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net service revenue | $ | 576,193 | | | $ | 545,907 | | | $ | 1,147,688 | | | $ | 1,070,742 | |
Cost of service revenue (excluding depreciation and amortization) | 353,933 | | | 317,872 | | | 704,321 | | | 628,144 | |
Gross margin | 222,260 | | | 228,035 | | | 443,367 | | | 442,598 | |
General and administrative expenses | 196,390 | | | 167,061 | | | 380,749 | | | 330,310 | |
Impairment of intangibles and other | 842 | | | 760 | | | 2,071 | | | 937 | |
Operating income | 25,028 | | | 60,214 | | | 60,547 | | | 111,351 | |
Interest expense | (6,407) | | | (143) | | | (10,578) | | | (406) | |
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Income before income taxes and noncontrolling interest | 18,621 | | | 60,071 | | | 49,969 | | | 110,945 | |
Income tax expense | 3,679 | | | 13,318 | | | 10,048 | | | 22,759 | |
Net income | 14,942 | | | 46,753 | | | 39,921 | | | 88,186 | |
Less net income attributable to noncontrolling interests | 4,358 | | | 9,110 | | | 9,883 | | | 15,884 | |
Net income attributable to LHC Group, Inc.’s common stockholders | $ | 10,584 | | | $ | 37,643 | | | $ | 30,038 | | | $ | 72,302 | |
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Earnings per share: | | | | | | | |
Basic | $ | 0.35 | | | $ | 1.21 | | | $ | 0.98 | | | $ | 2.32 | |
Diluted | $ | 0.35 | | | $ | 1.20 | | | $ | 0.98 | | | $ | 2.30 | |
Weighted average shares outstanding: | | | | | | | |
Basic | 30,543 | | | 31,225 | | | 30,508 | | | 31,188 | |
Diluted | 30,676 | | | 31,430 | | | 30,623 | | | 31,423 | |
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net service revenue | $ | 272,872 |
| | $ | 230,797 |
| | $ | 779,700 |
| | $ | 679,380 |
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Cost of service revenue | 172,856 |
| | 140,832 |
| | 488,384 |
| | 413,561 |
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Gross margin | 100,016 |
| | 89,965 |
| | 291,316 |
| | 265,819 |
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Provision for bad debts | 3,194 |
| | 3,275 |
| | 8,238 |
| | 11,658 |
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General and administrative expenses | 75,669 |
| | 66,999 |
| | 221,077 |
| | 201,296 |
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(Gain) loss on disposal of assets | (177 | ) | | 142 |
| | (23 | ) | | 1,389 |
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Operating income | 21,330 |
| | 19,549 |
| | 62,024 |
| | 51,476 |
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Interest expense | (995 | ) | | (816 | ) | | (2,615 | ) | | (2,167 | ) |
Income before income taxes and noncontrolling interest | 20,335 |
| | 18,733 |
| | 59,409 |
| | 49,309 |
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Income tax expense | 7,445 |
| | 6,562 |
| | 20,410 |
| | 15,500 |
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Net income | 12,890 |
| | 12,171 |
| | 38,999 |
| | 33,809 |
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Less net income attributable to noncontrolling interests | 1,984 |
| | 2,555 |
| | 7,321 |
| | 7,043 |
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Net income attributable to LHC Group, Inc.’s common stockholders | $ | 10,906 |
| | $ | 9,616 |
| | $ | 31,678 |
| | $ | 26,766 |
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Earnings per share attributable to LHC Group, Inc.'s common stockholders: | | | | | | | |
Basic | $ | 0.61 |
| | $ | 0.55 |
| | $ | 1.79 |
| | $ | 1.53 |
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Diluted | $ | 0.61 |
| | $ | 0.54 |
| | $ | 1.77 |
| | $ | 1.52 |
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Weighted average shares outstanding: | | | | | | | |
Basic | 17,740,818 |
| | 17,588,163 |
| | 17,704,561 |
| | 17,546,773 |
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Diluted | 18,010,522 |
| | 17,719,473 |
| | 17,931,700 |
| | 17,664,284 |
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See accompanying notesNotes to the condensed consolidated financial statements.Condensed Consolidated Financial Statements.
LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES INSTOCKHOLDERS' EQUITY
(Amounts in thousands, except share data)
(Unaudited)
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| Six months ended June 30, 2022 | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Noncontrolling Interest Non Redeemable | | Total Equity | |
Issued | | Treasury | | |
Amount | | Shares | | Amount | | Shares | | |
Balance as of December 31, 2021 | $ | 365 | | | 36,549,524 | | | $ | (164,790) | | | 5,915,110 | | | $ | 979,642 | | | $ | 751,025 | | | $ | 85,857 | | | $ | 1,652,099 | | |
Net income (1) | — | | | — | | | — | | | — | | | — | | | 19,454 | | | 2,760 | | | 22,214 | | |
Noncontrolling interest distributions | — | | | — | | | — | | | — | | | — | | | — | | | (2,970) | | | (2,970) | | |
Nonvested stock compensation | — | | | — | | | — | | | — | | | 4,376 | | | — | | | — | | | 4,376 | | |
Issuance of vested stock | 2 | | | 132,651 | | | — | | | — | | | — | | | — | | | — | | | 2 | | |
Treasury shares redeemed to pay income tax | — | | | — | | | (3,208) | | | 23,022 | | | 68 | | | — | | | — | | | (3,140) | | |
Repurchase of common stock | — | | | — | | | (25,472) | | | 190,622 | | | — | | | — | | | — | | | (25,472) | | |
Issuance of common stock under Employee Stock Purchase Plan | — | | | 5,353 | | | — | | | — | | | 698 | | | — | | | — | | | 698 | | |
Balance as of March 31, 2022 | $ | 367 | | | 36,687,528 | | | $ | (193,470) | | | 6,128,754 | | | $ | 984,784 | | | $ | 770,479 | | | $ | 85,647 | | | $ | 1,647,807 | | |
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Net income (1) | — | | | — | | | — | | | — | | | — | | | 10,584 | | | 2,124 | | | 12,708 | | |
Acquired noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | 707 | | | 707 | | |
Noncontrolling interest distributions | — | | | — | | | — | | | — | | | — | | | — | | | (3,281) | | | (3,281) | | |
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Purchase of additional controlling interest | — | | | — | | | — | | | — | | | (209) | | | — | | | (167) | | | (376) | | |
Nonvested stock compensation | — | | | — | | | — | | | — | | | 4,943 | | | — | | | — | | | 4,943 | | |
Issuance of vested stock | — | | | 7,556 | | | — | | | — | | | — | | | — | | | — | | | — | | |
Treasury shares redeemed to pay income tax | — | | | — | | | (852) | | | 5,144 | | | 344 | | | — | | | — | | | (508) | | |
Exercise of options | — | | | 5,124 | | | (68) | | | 2,319 | | | (150) | | | — | | | — | | | (218) | | |
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Issuance of common stock under Employee Stock Purchase Plan | — | | | 3,342 | | | — | | | — | | | 535 | | | — | | | — | | | 535 | | |
Balance as of June 30, 2022 | $ | 367 | | | 36,703,550 | | | $ | (194,390) | | | 6,136,217 | | | $ | 990,247 | | | $ | 781,063 | | | $ | 85,030 | | | $ | 1,662,317 | | |
(1) Net income excludes net income attributable to noncontrolling interest-redeemable of $2.2 million and $5.0 million during the three and six months ended June 30, 2022. Noncontrolling interest-redeemable is reflected outside of permanent equity on the condensed consolidated balance sheets. See Note 8 of the Notes to Condensed Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | | | | Six months ended June 30, 2021 |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Noncontrolling Interest Non Redeemable | | Total Equity | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Noncontrolling Interest Non Redeemable | | Total Equity |
Issued | | Treasury | | Issued | | Treasury | |
Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | |
Balance as of December 31, 2016 | $ | 224 |
| | 22,429,041 |
| | $ | (39,135 | ) | | (4,828,679 | ) | | $ | 119,748 |
| | $ | 314,289 |
| | $ | 6,426 |
| | $ | 401,552 |
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Balance as of December 31, 2020 | | Balance as of December 31, 2020 | $ | 364 | | | 36,355,497 | | | $ | (69,011) | | | 5,215,657 | | | $ | 962,120 | | | $ | 635,297 | | | $ | 84,584 | | | $ | 1,613,354 | |
Net income (1) | — |
| | — |
| | — |
| | — |
| | — |
| | 31,678 |
| | (328 | ) | | 31,350 |
| Net income (1) | — | | | — | | | — | | | — | | | — | | | 34,659 | | | 4,469 | | | 39,128 | |
Acquired noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 52,492 |
| | 52,492 |
| |
| Noncontrolling interest distributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,472 | ) | | (1,472 | ) | Noncontrolling interest distributions | — | | | — | | | — | | | — | | | — | | | — | | | (2,417) | | | (2,417) | |
Purchase of additional controlling interest | | Purchase of additional controlling interest | — | | | — | | | — | | | — | | | (81) | | | — | | | (61) | | | (142) | |
Sale of noncontrolling interest | — |
| | — |
| | — |
| | — |
| | 348 |
| | — |
| | 282 |
| | 630 |
| Sale of noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | 138 | | | 138 | |
Nonvested stock compensation | | Nonvested stock compensation | — | | | — | | | — | | | — | | | 3,513 | | | — | | | — | | | 3,513 | |
Issuance of vested stock | | Issuance of vested stock | 1 | | | 148,447 | | | — | | | — | | | — | | | — | | | — | | | 1 | |
Treasury shares redeemed to pay income tax | | Treasury shares redeemed to pay income tax | — | | | — | | | (9,541) | | | 51,221 | | | — | | | — | | | — | | | (9,541) | |
| Issuance of common stock under Employee Stock Purchase Plan | | Issuance of common stock under Employee Stock Purchase Plan | — | | | 3,204 | | | — | | | — | | | 649 | | | — | | | — | | | 649 | |
Balance as of March 31, 2021 | | Balance as of March 31, 2021 | $ | 365 | | | 36,507,148 | | | $ | (78,552) | | | 5,266,878 | | | $ | 966,201 | | | $ | 669,956 | | | $ | 86,713 | | | $ | 1,644,683 | |
Net income (1) | | Net income (1) | — | | | — | | | — | | | — | | | — | | | 37,643 | | | 5,232 | | | 42,875 | |
| Noncontrolling interest distributions | | Noncontrolling interest distributions | — | | | — | | | — | | | — | | | — | | | — | | | (4,660) | | | (4,660) | |
Purchase of additional controlling interest | — |
| | — |
| | — |
| | — |
| | (184 | ) | | — |
| | — |
| | (184 | ) | Purchase of additional controlling interest | — | | | — | | | — | | | — | | | (870) | | | — | | | (728) | | | (1,598) | |
Nonvested stock compensation | — |
| | — |
| | — |
| | — |
| | 4,522 |
| | — |
| | — |
| | 4,522 |
| Nonvested stock compensation | — | | | — | | | — | | | — | | | 3,993 | | | — | | | — | | | 3,993 | |
Issuance of vested stock | 2 |
| | 191,463 |
| | — |
| | — |
| | (2 | ) | | — |
| | — |
| | — |
| Issuance of vested stock | — | | | 15,531 | | | — | | | — | | | — | | | — | | | — | | | — | |
Treasury shares redeemed to pay income tax | — |
| | — |
| | (3,091 | ) | | (61,502 | ) | | — |
| | — |
| | — |
| | (3,091 | ) | Treasury shares redeemed to pay income tax | — | | | — | | | (1,213) | | | 6,024 | | | — | | | — | | | — | | | (1,213) | |
| Issuance of common stock under Employee Stock Purchase Plan | — |
| | 14,818 |
| | — |
| | — |
| | 776 |
| | — |
| | — |
| | 776 |
| Issuance of common stock under Employee Stock Purchase Plan | — | | | 3,152 | | | — | | | — | | | 573 | | | — | | | — | | | 573 | |
Balance as of September 30, 2017 | $ | 226 |
| | 22,635,322 |
| | $ | (42,226 | ) | | (4,890,181 | ) | | $ | 125,208 |
| | $ | 345,967 |
| | $ | 57,400 |
| | $ | 486,575 |
| |
Balance as of June 30, 2021 | | Balance as of June 30, 2021 | $ | 365 | | | 36,525,831 | | | $ | (79,765) | | | 5,272,902 | | | $ | 969,897 | | | $ | 707,599 | | | $ | 86,557 | | | $ | 1,684,653 | |
|
| |
(1) | Net income excludes net income attributable to noncontrolling interest-redeemable of $7.6 million during the nine months ending September 30, 2017.(1) Net income excludes net income attributable to noncontrolling interest-redeemable of $3.9 million and $6.2 million during the three and six months ended June 30, 2021. Noncontrolling interest-redeemable is reflected outside of permanent equity on the condensed consolidated balance sheets. See Note 8 of the Notes to Condensed Consolidated Financial Statements. |
See accompanying notesNotes to condensed consolidated financial statements.Condensed Consolidated Financial Statements.
LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
| | | | | | | | | | | | |
| Six months ended June 30, | |
| 2022 | | 2021 | |
Operating activities: | | | | |
Net income | $ | 39,921 | | | $ | 88,186 | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Depreciation and amortization expense | 11,723 | | | 9,541 | | |
Amortization of operating lease right of use asset | 20,412 | | | 17,995 | | |
Stock-based compensation expense | 9,319 | | | 7,506 | | |
Deferred income taxes | 10,665 | | | 19,489 | | |
Loss on disposal of assets | 221 | | | 19 | | |
Impairment of intangibles and other | 2,071 | | | 937 | | |
Changes in operating assets and liabilities, net of acquisitions: | | | | |
Receivables | 5,686 | | | (25,649) | | |
Prepaid expenses | 7,845 | | | (4,484) | | |
Other assets | (13,403) | | | 6,170 | | |
Prepaid income taxes | (12,083) | | | (13,739) | | |
| | | | |
Accounts payable and accrued expenses | 31,358 | | | (9,148) | | |
Salaries, wages, and benefits payable | 1,338 | | | (4,560) | | |
| | | | |
Contract liabilities - deferred revenue | (98,267) | | | (65,026) | | |
| | | | |
Operating lease liabilities | (20,286) | | | (17,962) | | |
Income taxes payable | 434 | | | (21,042) | | |
Net amounts due to/from governmental entities | 758 | | | (57) | | |
Net cash used in operating activities | (2,288) | | | (11,824) | | |
Investing activities: | | | | |
Purchases of property, building and equipment | (11,138) | | | (15,619) | | |
Proceeds from sale of property, building and equipment | — | | | 150 | | |
Cash paid for acquisitions, net of cash acquired | (2,570) | | | (649) | | |
Proceeds from sale of an entity | — | | | 1,531 | | |
Minority interest investments | (15,100) | | | (10,100) | | |
Net cash used in investing activities | (28,808) | | | (24,687) | | |
Financing activities: | | | | |
Proceeds from line of credit | 597,250 | | | — | | |
Payments on line of credit | (499,447) | | | (20,000) | | |
Government stimulus advance | — | | | (93,257) | | |
Proceeds from employee stock purchase plan | 1,233 | | | 1,222 | | |
| | | | |
Payments on repurchasing common stock | (34,565) | | | — | | |
| | | | |
Noncontrolling interest distributions | (11,541) | | | (13,332) | | |
Withholding taxes paid on stock-based compensation | (3,867) | | | (10,754) | | |
Purchase of additional controlling interest | (376) | | | (2,113) | | |
| | | | |
Sale of noncontrolling interest | — | | | 284 | | |
Net cash provided by (used in) financing activities | 48,687 | | | (137,950) | | |
Change in cash | 17,591 | | | (174,461) | | |
Cash at beginning of period | 9,809 | | | 286,569 | | |
Cash at end of period | $ | 27,400 | | | $ | 112,108 | | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Operating activities: | | | |
Net income | $ | 38,999 |
| | $ | 33,809 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization expense | 9,680 |
| | 9,024 |
|
Provision for bad debts | 8,238 |
| | 11,658 |
|
Stock-based compensation expense | 4,522 |
| | 3,518 |
|
Deferred income taxes | 6,245 |
| | 6,062 |
|
Gain (loss) on disposal of assets | (23 | ) | | 1,389 |
|
Impairment of intangibles and other | 81 |
| | — |
|
Changes in operating assets and liabilities, net of acquisitions: | | | |
Receivables | (19,569 | ) | | (21,175 | ) |
Prepaid expenses and other assets | (3,859 | ) | | 450 |
|
Prepaid income taxes | (4,879 | ) | | (2,482 | ) |
Accounts payable and accrued expenses | 26,038 |
| | 17,633 |
|
Income taxes payable | (3,499 | ) | | — |
|
Net amounts due to/from governmental entities | (279 | ) | | (2,043 | ) |
Net cash provided by operating activities | 61,695 |
| | 57,843 |
|
Investing activities: | | | |
Purchases of property, building and equipment | (7,944 | ) | | (14,576 | ) |
Cash paid for acquisitions, primarily goodwill and intangible assets | (61,247 | ) | | (20,332 | ) |
Other | — |
| | 273 |
|
Net cash used in investing activities | (69,191 | ) | | (34,635 | ) |
Financing activities: | | | |
Proceeds from line of credit | 63,000 |
| | 38,000 |
|
Payments on line of credit | (31,000 | ) | | (44,000 | ) |
Proceeds from employee stock purchase plan | 776 |
| | 663 |
|
Payments on debt | (192 | ) | | (156 | ) |
Noncontrolling interest distributions | (8,406 | ) | | (6,859 | ) |
Excess tax benefits from vesting of stock awards | — |
| | 1,293 |
|
Withholding taxes paid on stock-based compensation | (3,091 | ) | | (1,931 | ) |
Purchase of additional controlling interest | (184 | ) | | — |
|
Sale of noncontrolling interest | 251 |
| | 52 |
|
Proceeds from exercise of stock options | — |
| | 109 |
|
Net cash (used in) provided by financing activities | 21,154 |
| | (12,829 | ) |
Change in cash | 13,658 |
| | 10,379 |
|
Cash at beginning of period | 3,264 |
| | 6,139 |
|
Cash at end of period | $ | 16,922 |
| | $ | 16,518 |
|
Supplemental disclosures of cash flow information: | | | |
Interest paid | $ | 2,694 |
| | $ | 2,329 |
|
Income taxes paid | $ | 22,376 |
| | $ | 11,390 |
|
| | | | | | | | | | | |
| | | |
Non-Cash Financing Activity: | | | |
| | | |
Supplemental disclosures of cash flow information: | | | |
Interest paid | $ | 9,321 | | | $ | 1,322 | |
Income taxes paid | $ | 11,191 | | | $ | 38,103 | |
Non-Cash Operating Activity: | | | |
Operating right of use assets in exchange for lease obligations | $ | 18,633 | | | $ | 25,656 | |
Reduction to right of use assets and liabilities | $ | (1,695) | | | $ | — | |
Non-Cash Investing Activity: | | | |
Net working capital adjustment | $ | 1,440 | | | $ | — | |
Accrued capital expenditures | $ | 74 | | | $ | 1,108 | |
See accompanying notesNotes to condensed consolidated financial statements.Condensed Consolidated Financial Statements.
LHC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Significant Events
Organization
LHC Group, Inc. (the “Company”) is a health care provider specializing in the post-acute continuum of care. The Company provides services through 5 segments: home health, services, hospice, services,home and community-based services, and facility-based services, the latter primarily through long-term acute care hospitals (“LTACHs”), and healthcare innovations services ("HCI").
As of SeptemberJune 30, 2017,2022, the Company, through its wholly- and majority-owned subsidiaries, equity joint ventures, controlled affiliates, and management agreements operated 449953 service providerslocations in 2737 states within the continental United States.States and the District of Columbia.
LHC Group, Inc. and UnitedHealth Group Incorporated Merger
On March 28, 2022, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with UnitedHealth Group Incorporated ("Parent") and Lightning Merger Sub Inc., a wholly owned subsidiary of Parent ("Merger Sub"), pursuant to which Merger Sub will be merged with and into the Company (the "Merger"), with the Company surviving the Merger as a wholly owned subsidiary of Parent. The consummation of the Merger, which is subject to customary conditions set forth in the Merger Agreement, is expected to occur during the second half of 2022.
COVID-19 Update
SARS-CoV-2 ("COVID-19") continues to cause disruption in the economy, in terms of increased costs and disruptions in the labor market. The impact of COVID-19 is lessened as vaccines have become available in the United States; however, we continue to see periodic increases in the number of cases due to the spread of COVID-19 variants. The effects of COVID-19 continue to materially impact our business. As a result, operating results for the three and six months ended June 30, 2022 may not be indicative of the results that may be expected for the year ending December 31, 2022, and operating results for the three and six months ended June 30, 2022 may not be directly comparable to operating results for the three and six months ended June 30, 2021.
CARES Act
In response to COVID-19, the U.S. Government enacted the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") on March 27, 2020. The CARES Act also provided financial hardship relief to Medicare providers impacted by the COVID-19 pandemic in order to provide necessary funds when there is a disruption in Medicare claims submission and/or Medicare claims processing by distributing funds through the Accelerated and Advanced Payments Program ("CAAP").
In addition, the CARES Act suspended the 2% sequestration payment adjustments on Medicare patient claims with dates of service from May 1 through December 31, 2020, suspended the application of site-neutral payment for LTACH admissions that were admitted during the Public Health Emergency ("PHE"), and delayed payment of the employer portion of social security tax. On April 14, 2021, Congress passed legislation to continue the suspension of the 2% sequestration payment adjustments on Medicare patient claims with dates of service through December 31, 2021. On December 10, 2021, the Protecting Medicare and American Farmers from Sequester Cut Act legislation passed, which continued the suspension of the sequestration payment adjustments for Medicare patient claims with dates of service through March 31, 2022. Medicare patient claims with dates of service between April 1 through June 30, 2022 had a 1% sequestration adjustment and Medicare patient claims with dates of service beginning July 1, 2022 had a 2% sequestration adjustment. On July 15, 2022, the U.S. Department of Health and Human Services extended the PHE until October 13, 2022.
CAAP
As of December 31, 2021, the Company had $106.5 million of accelerated payments under the CAAP, which was recorded in contract liabilities - deferred revenue in our condensed consolidated balance sheets in accordance with Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers ("Topic 606"). On October 1, 2020, the repayment and recoupment terms for CAAP funds were amended by the Continuing Appropriations Act, 2021 and Other Extensions Act, which provides that recoupment will begin one year from the date the CAAP funds were received. Under these revised terms, recoupment of CAAP will occur under a tiered approach. The repayment terms begin one year starting from the date the CAAP funds were issued and continues 11 months, with CMS recouping the initial 25% of Medicare payments otherwise owed to the
Company. During the six months ended June 30, 2022, $98.3 million was recouped by CMS and $8.2 million of contract liabilities - deferred revenue remains on our condensed consolidated balance sheets as of June 30, 2022.
If any amount of CAAP funds that we received from CMS remain unpaid after the initial 11 month period, CMS recoups 50% of Medicare payments otherwise owed to the Company during the following six months. Interest will begin accruing on any amount of the CAAP funds that we received from CMS that remain unpaid following those recoupment periods. CMS will issue a repayment letter to the Company for any such outstanding amounts, which must be paid in full within 30 days from the date of the letter. The Company intends to repay the full amount before any interest accrues.
Other
The Company recognized the following amounts of net service revenue due to the suspension of the 2% sequestration payment adjustment and suspension of LTACH site-neutral payments (amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Suspension of 2% sequestration payment adjustment | | $ | 3,441 | | | $ | 6,414 | | | $ | 9,952 | | | $ | 12,854 | |
Suspension of LTACH site-neutral payment | | 5,607 | | | 6,890 | | | 12,154 | | | 12,481 | |
As of June 30, 2022, the Company deferred $26.8 million of employer social security taxes, which was recorded in current liabilities - deferred employer payroll tax on our condensed consolidated balance sheets.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated balance sheets as of SeptemberJune 30, 20172022 and December 31, 2016, and2021, the related unaudited condensed consolidated statements of income for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, the unaudited condensed consolidated statementstatements of changes instockholders' equity for the ninethree and six months ended SeptemberJune 30, 2017,2022 and 2021, the unaudited condensed consolidated statements of cash flows for the ninesix months ended SeptemberJune 30, 20172022 and 20162021, and related notes (collectively, these financial statements are referred to as the "interim financial statements" and together with the related notes are referred to herein as the “interim financial information”) have been prepared by the Company. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been included. Operating results for the three and ninesix months ended SeptemberJune 30, 20172022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2022.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from the interim financial information presented. This report should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The report2021 (the "2021 Form 10-K"), which was filed with the Securities and Exchange Commission (the “SEC”) on March 9, 2017,February 24, 2022, as amended by Amendment No. 1 filed on Form 10-K/A filed by the Company on April 27, 2022 (the "Form 10-K Amendment"). The 2021 Form 10-K and includesForm 10-K Amendment include information and disclosures not included herein.
2. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported revenue and expenses during the reporting period. Actual results could differ from those estimates.
Critical Accounting PoliciesNet Service Revenue
Net service revenue from contracts with customers is recognized in the period the performance obligations are satisfied under the Company's contracts by transferring the requested services to patients in amounts that reflect the consideration to which is expected to be received in exchange for providing patient care, which is the transaction price allocated to the services provided in accordance with Topic 606andASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (collectively, "ASC 606").
Net service revenue is recognized as performance obligations are satisfied, which can vary depending on the type of services provided. The performance obligation is the delivery of patient care in accordance with the requested services outlined in physicians' orders, which are based on specific goals for each patient.
The Company’s most critical accounting policies relateperformance obligations are associated with contracts in duration of less than one year; therefore, the optional exemption provided by ASC 606 was elected resulting in the Company not being required to disclose the aggregate amount of the transaction price allocated to the principlesperformance obligations that are unsatisfied or partially unsatisfied as of consolidation, revenue recognition,the end of the reporting period. The Company's unsatisfied or partially unsatisfied performance obligations are primarily completed when the patients are discharged and accounts receivable and allowances for uncollectible accounts.
Principlestypically occur within days or weeks of Consolidationthe end of the period.
The interim financial information includes all subsidiariesCompany determines the transaction price based on gross charges for services provided, reduced by estimates for explicit and entities controlled byimplicit price concessions. Explicit price concessions include contractual adjustments provided to patients and third-party payors. Implicit price concessions include discounts provided to self-pay, uninsured patients or other payors, adjustments resulting from regulatory reviews, audits, billing reviews and other matters. Subsequent changes to the Company through direct ownershipestimate of majority interest or controlling member ownership of such entities. Third party equity interests in the consolidated joint venturestransaction price are reflectedrecorded as noncontrolling interests in the Company’s interim financial information.
The following table summarizes the percentage ofadjustments to net service revenue earned by type of ownership or relationship the Company had with the operating entity:
|
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
Ownership type | | 2017 | | 2016 | | 2017 | | 2016 |
Wholly-owned subsidiaries | | 50.6 | % | | 57.6 | % | | 52.1 | % | | 57.3 | % |
Equity joint ventures | | 47.5 |
| | 40.7 |
| | 46.1 |
| | 41.0 |
|
Other | | 1.9 |
| | 1.7 |
| | 1.8 |
| | 1.7 |
|
| | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
All significant intercompany accounts and transactions have been eliminated in the Company’s accompanying interim financial information. Business combinations accounted for underperiod of change. Subsequent changes that are determined to be the acquisition method have been includedresult of an adverse change in the interim financial information from the respective dates of acquisition.
The Company consolidates equity joint venture entities as the Company has controlling interests in the entities, has voting control over these entities, or has ability to exercise significant influence in the entities. The members of the Company's equity joint ventures participate in profits and losses in proportion to their equity interests. The Company also consolidates entities which have license leasing arrangements as the Company owns 100% of the equity of these subsidiaries.
The Company has various management services agreements under which the Company manages certain operations of agencies. The Company does not consolidate these agencies because the Company does not have an ownership interest in, nor does it have an obligation to absorb losses of, or right to receive benefits from the entities that own the agencies.
Revenue Recognition
The Company reports net service revenue at the estimated net realizable amount due from Medicare, Medicaid, and others for services rendered. The Company assesses the patient's ability to pay (i.e., change in credit risk) are recorded as a provision for theirdoubtful accounts within general and administrative expenses.
Explicit price concessions are recorded for the difference between our standard rates and the contracted rates to be realized from patients, third-party payors and others for services provided.
Implicit price concessions are recorded for self-pay, uninsured patients and other payors by major payor class based on historical collection experience and current economic conditions, representing the difference between amounts billed and amounts expected to be collected. The Company assesses the 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 the Medicare, Medicaid, and other commercial or managed care insurance program. Medicare contributesprograms.
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 reviews. The Company has determined estimates for price concessions related to regulatory reviews based on historical experience and success rates in the net service revenue of the Company’s home healthclaim appeals and adjudication process. Revenue is recorded at amounts estimated to be realizable for services hospice services, and facility-based services. Medicaid and other payors contribute to the net service revenue of all Company's services.provided.
The following table sets forth the percentage of net service revenue earned by category of payor for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016:2021:
| | | | | | | | | | | | Three months ended June 30, | | Six months ended June 30, |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | 2022 | | 2021 | | 2022 | | 2021 |
Payor: | 2017 | | 2016 | | 2017 | | 2016 | |
Home health: | | Home health: | | | | | | | |
Medicare | 71.0 | % | | 74.3 | % | | 71.5 | % | | 74.7 | % | Medicare | 58.9 | % | | 62.2 | % | | 59.3 | % | | 63.1 | % |
Managed Care, Commercial, and Other | | Managed Care, Commercial, and Other | 41.1 | | | 37.8 | | | 40.7 | | | 36.9 | |
| | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Hospice: | | Hospice: | | | | | | | |
Medicare | | Medicare | 92.8 | % | | 93.8 | % | | 92.9 | % | | 94.0 | % |
Managed Care, Commercial, and Other | | Managed Care, Commercial, and Other | 7.2 | | | 6.2 | | | 7.1 | | | 6.0 | |
| | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Home and community-based services: | | Home and community-based services: | | | | | | | |
Medicaid | 1.8 |
| | 1.9 |
| | 1.8 |
| | 1.8 |
| Medicaid | 35.5 | % | | 32.1 | % | | 36.0 | % | | 30.7 | % |
Managed Care, Commercial, and Other | 27.2 |
| | 23.8 |
| | 26.7 |
| | 23.5 |
| Managed Care, Commercial, and Other | 64.5 | | | 67.9 | | | 64.0 | | | 69.3 | |
| 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Facility-based services: | | Facility-based services: | | | | | | | |
Medicare | | Medicare | 53.6 | % | | 50.1 | % | | 53.0 | % | | 51.4 | % |
Managed Care, Commercial, and Other | | Managed Care, Commercial, and Other | 46.4 | | | 49.9 | | | 47.0 | | | 48.6 | |
| | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
HCI: | | HCI: | | | | | | | |
Medicare | | Medicare | 11.1 | % | | 17.8 | % | | 10.4 | % | | 19.5 | % |
Managed Care, Commercial, and Other | | Managed Care, Commercial, and Other | 88.9 | | | 82.2 | | | 89.6 | | | 80.5 | |
| | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Medicare
The following describes the payment models in effect during the six months ended June 30, 2022. Such payment models were subject to temporary adjustments made by CMS in response to COVID-19 pandemic as described elsewhere in this Quarterly Report on Form 10-Q. The 2% sequestration reduction adjustment was suspended for patient claims with dates of service through March 31, 2022. Medicare patient claims with dates of service between April 1 through June 30, 2022 had a 1% sequestration payment adjustment. Medicare patient claims with dates of service beginning July 1, 2022 had the full 2% sequestration payment adjustment.
Home Health Services
The Company’s home nursing Medicare patientsCompany records revenue as services are provided under the Patient Driven Groupings Model ("PDGM"). For each 30-day period, the patient is classified into one of 153432 home health resource groups prior to receiving services. Based onEach 30-day period is placed into a subgroup falling under the patient’s home health resource group, the Company is entitled to receive a standard prospective Medicare payment for delivering care over a 60-day period referred to as an episode. The Company recognizes revenuefollowing categories: (i) timing being early or late, (ii) admission source being community or institutional, (iii) one of 12 clinical groupings based on the numberpatient's principal diagnosis, (iv) functional impairment level of days elapsed during an episodelow, medium, or high, and (v) a co-morbidity adjustment of care withinnone, low, or high based on the reporting period.patient's secondary diagnoses.
Final paymentsEach 30-day period payment from Medicare will reflectreflects base payment adjustments for case-mix and geographic wage differences and 2% sequestration reduction for episodes beginning after March 31, 2013.differences. In addition, final payments may reflect one of four3 retroactive adjustments to ensure the adequacy and effectiveness of the total reimbursement: (a) an outlier payment if the patient’s care was unusually costly; (b) a low utilization adjustment ifwhereby the number of visits was fewer than five;is dependent on the clinical grouping; and/or (c) a partial payment if the patient transferred to another provider or from another provider before completing the episode; or (d) a payment adjustment based upon the level of therapy services required. Adjustmentsepisode. The retroactive adjustments outlined above are automatically recognized in net service revenue when
changes occur the event causing the adjustment occurs and during the period in which the services are provided to the patient. The Company reviews these adjustments to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustments is subsequently resolved. Net service revenue and related patient accounts receivable are recorded at amounts estimated to be realized from Medicare for services rendered.
Hospice Services
Hospice services provided byThe Company records revenue based upon the Company are paid by Medicare under a per diemdate of service at amounts equal to the estimated payment system.rates. The Company receives one1 of four4 predetermined daily rates based upon the level of care provided by the Company, furnishes.which can be routine care, general inpatient care, continuous home care, and respite care. There are 2 separate payment rates for routine care: payment for the first 60 days of care and care beyond 60 days. In addition to the two routine rates, the Company may also
receive a service intensity add-on ("SIA"). The SIA is based on visits made in the last seven days of life by a registered nurse or medical social worker for patients in a routine level of care.
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.
Adjustments to Medicare revenue are made from regulatory reviews, audits, billing reviews and other matters. The Company records net service revenue from hospice servicesestimates the impact of these adjustments based on the daily or hourly rate and recognizes revenue as hospice services are provided.our historical experience.
Hospice payments are subject to variable consideration through an inpatient cap and an overall Medicare payment cap. The inpatient cap relates to individual programs receiving more than 20% of itstheir total Medicare reimbursement from inpatient care services, and the overall Medicare payment cap relates to individual providersprograms receiving reimbursements in excess of a “cap amount,” calculateddetermined by multiplyingMedicare to be payment equal to 12 months of hospice care for the numberaggregate base of beneficiaries during the period by a statutory amount that ishospice patients, indexed for inflation. The determination for each cap is made annually based on the 12-month period ending on October 31September 30 of each year. The Company monitors its limits on a provider-by-provider basis and records an estimate of its liability for reimbursements received in excess of the cap amount. Beginning withamount, if any, in the cap year October 1, 2014, Center for Medicare and Medicaid Services ("CMS") implemented a new process requiring hospice providers to self-report their cap liabilities and remit applicable payment by March 31 of the following year.reporting period.
Facility-Based Services
The CompanyGross revenue is reimbursed by Medicare forrecorded as services are provided under the LTACH prospective payment system. Each patient is assigned a long-term care diagnosis-related group. The Company is paid a predetermined fixed amount intended to reflect the average cost of treating a Medicare LTACH patient classified in that particular long-term care diagnosis-related group. For selected LTACH patients, the amount may be further adjusted based on length of staylength-of-stay and facility-specific costs, as well as in instances where a patient is discharged and subsequently re-admitted, among other factors. The Company calculates the adjustment based on a historical average of these types of adjustments for LTACH claims paid. Similar to other Medicare prospective payment systems, the rate is also adjusted for geographic wage differences. Revenue is recognizedNet service revenue adjustments resulting from reviews and audits of Medicare cost report settlements are considered implicit price concessions for the Company’s LTACHs as servicesand are provided.measured at expected value.
Non-Medicare Revenues
Other sources of net service revenue for all segments fall into Medicaid, managed care andor other payors
The Company’s of the Company's services. Medicaid reimbursement is based on a predetermined fee schedule applied to each service provided. Therefore, revenue is recognized for Medicaid services as services are provided based on this fee schedule. The Company’sCompany's managed care and other payors reimburse the Company based upon a predetermined fee schedule or an episodic basis, depending on the terms of the applicable contract. Accordingly, the Company recognizes revenue from managed care and other payors as services are provided, such costs are incurred, and estimates of expected payments are known for each different payor, thus the Company's revenue is recorded at the estimated transaction price.
Contingent Service Revenues
The HCI segment provides strategic health management services to Accountable Care Organizations ("ACOs") that have been approved to participate in the same manner asMedicare Shared Savings Program ("MSSP"). The HCI segment has service agreements with ACOs that provide for sharing of MSSP payments received by the Company recognizes revenue fromACO, if any. ACOs are legal entities that contract with CMS to provide services to the Medicare or Medicaid.fee-for-service population for a specified annual period with the goal of providing better care for the individual, improving health for populations and lowering costs. ACOs share savings with CMS to the extent that the actual costs of serving assigned beneficiaries are below certain trended benchmarks of such beneficiaries and certain quality performance measures are achieved. The generation of shared savings is the performance obligation of each ACO, which only become certain upon the final issuance of unembargoed calculations by CMS, generally in the third quarter of each year.
Patient Accounts Receivable and Allowances for Uncollectible Accounts
The Company reports patient accounts receivable net offrom services rendered at their estimated allowances for uncollectibletransaction price, which includes price concessions based on the amounts expected from payors. The Company's patient accounts and adjustments. Accounts receivable areis uncollateralized and primarily consist of amounts due from Medicare, Medicaid, other third-party payors, and patients. To provide for accounts receivable that could become uncollectible in the future, the Company establishes an allowance for uncollectible accounts to reduce the carrying amount of such receivables to their estimated net realizable value.a lesser degree patients. The credit risk forfrom other concentrations of receivablespayors is limited due to the significance of Medicare as the primary payor. The Company believes the credit risk associated with its Medicare accounts which have historically exceeded 50% of its patient accounts receivable, is limited due to (i) the historical collection rate from Medicare and (ii) the fact that Medicare is a U.S. government payor. The Company does not believe that there are any other significant concentrations of receivables from any particular payor that would subject it to any significant credit risk in the collection of patient accounts receivable.
The amount of the provision for bad debts is based upon the Company’s assessment of historical and expected net collections, business and economic conditions, and trends in government reimbursement. Uncollectible accounts are written off when the Company has determined the account will not be collected.
A portion of the estimated Medicare prospective payment system reimbursement from each submitted home nursing episode is received in the form of a request for anticipated payment (“RAP”). The Company submits a RAP for 60% of the
estimated reimbursement for the initial episode at the start of care. The full amount of the episode is billed after the episode has been completed. The RAP received for that particular episode is deducted from the final payment. If a final bill is not submitted within the greater of 120 days from the start of the episode, or 60 days from the date the RAP was paid, any RAP received for that episode will be recouped by Medicare from any other Medicare claims in process for that particular provider. The RAP and final claim must then be resubmitted. For subsequent episodes of care contiguous with the first episode for a particular patient, the Company submits a RAP for 50% instead of 60% of the estimated reimbursement.
The Company’s Medicare population is paid at prospectively set amounts that can be determined at the time services are rendered. The Company’s Medicaid reimbursement is based on a predetermined fee schedule applied to each individual service it provides. The Company’s managed care contracts are structured similar to either the Medicare or Medicaid payment methodologies. The Company is able to calculate its actual amount due at the patient level and adjust the gross charges down to the actual amount at the time of billing. This negates the need to record an estimated contractual allowance when reporting net service revenue for each reporting period.
Other Significant Accounting Policies
Earnings Per Share
Basic per share information is computed by dividing the relevant amounts from the condensed consolidated statements of income by the weighted-average number of shares outstanding during the period, under the treasury stock method. Diluted per share information is also computed using the treasury stock method, by dividing the relevant amounts from the condensed consolidated statements of income by the weighted-average number of shares outstanding plus potentially dilutive shares.
The following table sets forth shares used in the computation of basic and diluted per share information:information and, with respect to the data provided for the three and six months ended June 31, 2022 and 2021 (amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Weighted average number of shares outstanding for basic per share calculation | 30,543 | | | 31,225 | | | 30,508 | | | 31,188 | |
Effect of dilutive potential shares: | | | | | | | |
Nonvested stock | 133 | | | 205 | | | 115 | | | 235 | |
Adjusted weighted average shares for diluted per share calculation | 30,676 | | | 31,430 | | | 30,623 | | | 31,423 | |
Anti-dilutive shares | 91 | | | — | | | 281 | | | 119 | |
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Weighted average number of shares outstanding for basic per share calculation | 17,740,818 |
| | 17,588,163 |
| | 17,704,561 |
| | 17,546,773 |
|
Effect of dilutive potential shares: | | | | | | | |
Options | — |
| | — |
| | — |
| | 1,146 |
|
Nonvested stock | 269,704 |
| | 131,310 |
| | 227,139 |
| | 116,365 |
|
Adjusted weighted average shares for diluted per share calculation | 18,010,522 |
| | 17,719,473 |
| | 17,931,700 |
| | 17,664,284 |
|
Anti-dilutive shares | — |
| | 20,001 |
| | 137,400 |
| | 214,856 |
|
InvestmentsRecently Adopted Accounting Pronouncements
In March 2016, as part of its Simplification Initiative,During the FASB issued ASU No. 2016-09, Compensation - Stock Compensation ("ASU 2016-09"), which seeks to reduce complexitysix months ended June 30, 2022, the Company invested $15.0 million and became a minority owner in accounting standards. The areas for simplificationa post-acute management services company. During the six months ended June 30, 2021, the Company invested $10.0 million and became a minority owner in ASU 2016-09, involve several aspects of the accounting for share-based payment transaction, including (1) accounting for income taxes, (2) classification of excess tax benefits on the statement of cash flow, (3) forfeitures, (4) minimum statutory tax withholding requirements, (5) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax withholding purposes, (6) the practical expedient for estimating the expected term,a healthcare analytics company and (7) intrinsic value. The Company adopted the new standard on its effective date on January 1, 2017 and elected to apply this adoption prospectively.
All excess tax benefits and deficiencies in the current and future periods will be recognized as income tax expense in the Company's consolidated financial statements in the reporting period in which they occur. The Company recorded excess tax benefits of $1.0invested $0.1 million in income tax expenseJumpstart Nova Fund, LP. These investments are recorded in other assets in our condensed consolidated balance sheets. These investments were accounted for under the nine months ended September 30, 2017. Additionally, the Company elected to continue to apply an estimated ratecost method of forfeiture to its compensation expense for share-based awards.
Recently Issued Accounting Pronouncements
On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, ("ASU 2014-09") which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for reporting periods beginning after December 15, 2017. The standard permits the use of either the full retrospective or cumulative effect transition method. As the Company progresses with evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures,accounting as the Company does not expect a material impact onhave the ability to exercise significant influence in connection with its consolidated financial statements upon implementation on January 1, 2018. Currently, the Company anticipates adopting the new standard using the full retrospective method for all periods presented.minority ownership positions.
In February 2016, the FASB issued ASU No. 2016-02, Leases, ("ASU 2016-02") which requires lessees to recognize qualifying leases on the statement of financial position. Qualifying leases will be classified as right-of-use assets and lease liabilities. The new standard is effective on January 1, 2019. Early adoption is permitted. ASU 2016-02 mandates a modified retrospective transition method for all entities. The Company anticipates that the adoption of ASU 2016-02 will result in a material increase in total assets and total liabilities. The Company continues to evaluate the effect that ASU 2016-02 will have on its related disclosures.
3. Acquisitions and Joint Ventures
On January 1, 2017, the Company formed a joint venture with LifePoint Health, Inc. ("LifePoint"). LifePoint contributed 28 home health agencies, 12 hospice agencies, and one inpatient hospice unit to the joint venture during the nine months ended September 30, 2017. The Company acquired majority ownership of the membership interests of these agencies. These providers conduct home health operations in Arizona, Colorado, Louisiana, Michigan, North Carolina, Pennsylvania, Tennessee, Texas, and Virginia; and hospice operations in Michigan, North Carolina, Pennsylvania, Tennessee, and Virginia.
On June 1, 2017, the Company formed a joint venture with Baptist Memorial Health Care ("Baptist"). Baptist contributed three home health agencies and six hospice agencies to the joint venture during the nine months ended September 30, 2017. The Company acquired majority ownership of the membership interests of these agencies. These providers conduct home health and hospice operations in Mississippi and Tennessee.
On September 1, 2017,2021, the Company formedpurchased Heart of Hospice. During the six months ended June 30, 2022, the Company recorded a joint venture with Christus Continuing Care (“Christus”). Christus contributed seven home health agencies, five hospice agencies, one inpatient hospice unit, one community-based agency,decrease in patient accounts receivable of $1.5 million due to information obtained that related to facts and six LTACH agenciescircumstances that existed at the time of acquisition; therefore, it was an adjustment to the joint venture duringprovisional amounts previously recognized.
On November 1, 2021, the nine months ended September 30, 2017. The Company acquired majority ownership ofpurchased Brookdale Health Care Services' agencies from the membership interests of these agencies. These providers conductrecently formed home health, hospice, and community-based operationsoutpatient therapy venture between HCA Healthcare and Brookdale Senior Living. The Company's net working capital adjustment was finalized during the six months ended June 30, 2022 for $3.1 million and recorded in Louisiana and Texas; and LTACH operations in Arkansas, Louisiana, and Texas.accordance with ASC Topic 805, Business Combinations, as an increase to the consideration transferred. In addition, amounts due to government entities was reduced by $3.2 million to reflect payments made for prior years' hospice cap liability.
In separate transactions,On May 1, 2022, the Company acquired twopurchased the majority ownership of a home health agencies, two hospice agencies, one inpatient hospice unit, and one pharmacy duringagency from Archbold Medical Center, which included 2 locations in Georgia. Total consideration for the nine months ended September 30, 2017.
acquisition was $3.7 million. The total aggregate purchase price for these transactions was $76.7 million, of which $10.4 million was paid in December 2016 and $61.2 million was primarily paid in cash during the nine months ended September 30, 2017. The purchase prices were determined based on the Company’sCompany's analysis of comparable acquisitions and the target market’smarket's potential future cash flows.
Goodwill generated from the acquisitions was recognized based on the expected contributions of each acquisition to the overall corporate strategy. The Company expects its portion of goodwill to be fully tax deductible. The acquisitions were accounted for under the acquisition method of accounting. Accordingly, the accompanying interim financial information includes the results of operations of the acquired entities from the date of acquisition.
The following table summarizes the aggregate consideration paid for the acquisitions and thepreliminary amounts of the assets acquired and liabilities assumed at thetheir acquisition dates,date, as well as their fair value at the acquisition datesdate and the noncontrolling interest acquired during the ninesix months ended SeptemberJune 30, 20172022 (amounts in thousands):
|
| | | | |
Consideration | | |
Cash | | $ | 71,677 |
|
Fair value of total consideration transferred | | |
Recognized amounts of identifiable assets acquired and liabilities assumed: | | |
Patient accounts receivable | | 6,532 |
|
Trade name | | 13,953 |
|
Certificates of need/licenses | | 16,447 |
|
Other identifiable intangible assets | | 6 |
|
Other assets and (liabilities), net | | 2,121 |
|
Total identifiable assets | | 39,059 |
|
Noncontrolling interest | | 52,492 |
|
Goodwill, including noncontrolling interest of $34,313 | | $ | 85,110 |
|
| | | | | | | | |
Consideration | | |
Cash | | $ | 2,570 | |
Fair value of total consideration transferred | | |
Recognized amounts of identifiable assets acquired and liabilities assumed: | | |
Trade name | | $ | 453 | |
Certificates of need/licenses | | 357 |
Other liabilities | | (227) | |
Total identifiable assets and liabilities | | $ | 583 | |
| | |
Noncontrolling interest | | $ | 707 | |
Goodwill, including noncontrolling interest of $504 | | $ | 2,694 | |
Trade names and certificates of need/licenses are indefinite-lived assets and, therefore, not subject to amortization. Acquired trade names that are not being used actively are amortized over the estimated useful life on the straight line basis. Trade names are valued using the relief from royalty method, a form of the income approach. Certificates of need are valued using the replacement cost approach based on registration fees and opportunity costs. Licenses are valued based on the estimated direct costs associated with recreating the asset, including opportunity costs based on an income approach. In the case of states with a moratorium in place, the licenses are valued using the multi-period excess earnings method. Noncontrolling interest is recorded at fair value.
The Company conducted preliminary assessments and recognized provisional amounts in its initial accounting for the acquisitions of majority ownership of three joint venture partnerships for all identified assets in accordance with the requirements of ASC Topic 805. The Company is continuing its review of these matters during the measurement period. If new information about facts and circumstances that existed at the acquisition date is obtained and indicates adjustments are necessary, the acquisition accounting will be revised to adjust to the provisional amounts initially recognized.
4. Goodwill and Intangibles
The changes in recorded goodwill and intangible assets by reporting unit for the ninesix months ended SeptemberJune 30, 20172022 were as follows (amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Home health reporting unit | | Hospice reporting unit | | Home and community-based services reporting unit | | Facility-based reporting unit | | HCI reporting unit | | Total |
Goodwill: | | | | | | | | | | | |
Balance as of December 31, 2021 | $ | 968,435 | | | $ | 556,332 | | | $ | 167,027 | | | $ | 15,770 | | | $ | 40,862 | | | $ | 1,748,426 | |
Net working capital adjustments | — | | | 1,440 | | | — | | | — | | | — | | | 1,440 | |
Acquisitions | 2,190 | | | — | | | — | | | — | | | — | | | 2,190 | |
Noncontrolling interests | 504 | | | — | | | — | | | — | | | — | | | 504 | |
Disposals | (440) | | | (690) | | | — | | | — | | | — | | | (1,130) | |
Balance as of June 30, 2022 | $ | 970,689 | | | $ | 557,082 | | | $ | 167,027 | | | $ | 15,770 | | | $ | 40,862 | | | $ | 1,751,430 | |
Intangible assets: | | | | | | | | | | | |
Balance as of December 31, 2021 | $ | 237,979 | | | $ | 117,340 | | | $ | 24,245 | | | $ | 5,919 | | | $ | 14,519 | | | $ | 400,002 | |
Acquisitions | 810 | | | — | | | — | | | — | | | — | | | 810 | |
Amortization | (1,193) | | | (985) | | | (6) | | | (275) | | | (291) | | | (2,750) | |
Disposals | (490) | | | (397) | | | (54) | | | — | | | — | | | (941) | |
Balance as of June 30, 2022 | $ | 237,106 | | | $ | 115,958 | | | $ | 24,185 | | | $ | 5,644 | | | $ | 14,228 | | | $ | 397,121 | |
|
| | | | | | | | | | | | | | | | | | | |
| Home health reporting unit | | Hospice reporting unit | | Community - based reporting unit | | Facility-based reporting unit | | Total |
Balance as of December 31, 2016 | $ | 210,839 |
| | $ | 64,234 |
| | $ | 18,820 |
| | $ | 13,424 |
| | $ | 307,317 |
|
Goodwill from acquisitions | 29,448 |
| | 15,188 |
| | 4,285 |
| | 1,876 |
| | 50,797 |
|
Goodwill related to noncontrolling interests | 20,781 |
| | 9,674 |
| | 2,856 |
| | 1,002 |
| | 34,313 |
|
Goodwill related to disposals | (80 | ) | | — |
| | — |
| | — |
| | (80 | ) |
Goodwill related to prior period net working capital adjustments............................................ | (5 | ) | | — |
| | — |
| | 347 |
| | 342 |
|
Balance as of September 30, 2017 | $ | 260,983 |
| | $ | 89,096 |
| | $ | 25,961 |
| | $ | 16,649 |
| | $ | 392,689 |
|
IntangibleThe Company did record impairments of goodwill and intangible assets consistedrelated to the closure of underperforming locations. Goodwill impairment of $1.1 million and Medicare licenses impairment of $0.9 million was recorded during the six months ended June 30, 2022. Goodwill impairment of $0.02 million and Medicare licenses impairment of $0.9 million was recorded during the six months ended June 30, 2021. This was recorded in impairment of intangibles and other on the Company's condensed consolidated statements of income. The amount of disposal of goodwill was determined using prices of comparable businesses in the market. The amount of disposal of the Medicare licenses was its carrying value at the time of closure.
The following as of Septembertables summarize the changes in intangible assets during the six months ended June 30, 20172022 and December 31, 20162021 (amounts in thousands):
| | | | | | | | | | | |
| 2022 | | 2021 |
Indefinite-lived intangible assets: | | | |
Trade names | $ | 208,233 | | | $ | 207,780 | |
Certificates of need/licenses | 173,371 | | | 173,955 | |
Net total | $ | 381,604 | | | $ | 381,735 | |
| | | |
Definite-lived intangible assets: | | | |
Trade names | | | |
Gross carrying amount | $ | 11,073 | | | $ | 11,073 | |
Accumulated amortization | (10,410) | | | (9,606) | |
Net total | $ | 663 | | | $ | 1,467 | |
Non-compete agreements | | | |
Gross carrying amount | $ | 14,524 | | | $ | 14,524 | |
Accumulated amortization | (8,828) | | | (7,172) | |
Net total | $ | 5,696 | | | $ | 7,352 | |
Customer relationships | | | |
Gross carrying amount | $ | 11,822 | | | $ | 11,822 | |
Accumulated amortization | (2,664) | | | (2,374) | |
Net total | $ | 9,158 | | | $ | 9,448 | |
Total definite-lived intangible assets | | | |
Gross carrying amount | $ | 37,419 | | | $ | 37,419 | |
Accumulated amortization | (21,902) | | | (19,152) | |
Net total | $ | 15,517 | | | $ | 18,267 | |
| | | |
Total intangible assets: | | | |
Gross carrying amount | $ | 419,023 | | | $ | 419,154 | |
Accumulated amortization | (21,902) | | | (19,152) | |
Net total | $ | 397,121 | | | $ | 400,002 | |
|
| | | | | | | | | | | | | |
| September 30, 2017 |
| Remaining useful life | | Gross carrying amount | | Accumulated amortization | | Net carrying amount |
Indefinite-lived assets: | | | | | | | |
Trade names | Indefinite | | $ | 78,590 |
| | $ | — |
| | $ | 78,590 |
|
Certificates of need/licenses | Indefinite | | 49,773 |
| | — |
| | 49,773 |
|
Total | | | $ | 128,363 |
| | $ | — |
| | $ | 128,363 |
|
Definite-lived assets: | | | | | | | |
Trade names | 2 months — 9 years | | $ | 9,291 |
| | $ | (7,184 | ) | | $ | 2,107 |
|
Non-compete agreements | 2 month — 2 years | | 5,732 |
| | (5,423 | ) | | 309 |
|
Total | | | $ | 15,023 |
| | $ | (12,607 | ) | | $ | 2,416 |
|
Balance as of September 30, 2017 | | | $ | 143,386 |
| | $ | (12,607 | ) | | $ | 130,779 |
|
|
| | | | | | | | | | | | | |
| December 31, 2016 |
| Remaining useful life | | Gross carrying amount | | Accumulated amortization | | Net carrying amount |
Indefinite-lived assets: | | | | | | | |
Trade names | Indefinite | | $ | 64,672 |
| | $ | — |
| | $ | 64,672 |
|
Certificates of need/licenses | Indefinite | | 33,327 |
| | — |
| | $ | 33,327 |
|
Total | | | $ | 97,999 |
| | $ | — |
| | $ | 97,999 |
|
Definite-lived assets: | | | | | | | |
Trade names | 8 months — 9 years | | $ | 9,294 |
| | $ | (5,991 | ) | | $ | 3,303 |
|
Non-compete agreements | 2 months — 3 years | | 5,681 |
| | (4,977 | ) | | 704 |
|
Total | | | $ | 14,975 |
| | $ | (10,968 | ) | | $ | 4,007 |
|
Balance as of December 31, 2016 | | | $ | 112,974 |
| | $ | (10,968 | ) | | $ | 102,006 |
|
Intangible assets of $87.8 million, net of accumulated amortization,Remaining useful lives for trade names, customer relationships, and non-compete agreements were related to the home health services segment, $31.8 million7.3, 15.8, and 4.4 years, respectively, at June 30, 2022. Similar periods at December 31, 2021 were related to the hospice services segment, $9.0 million were related to the community-based services segment,7.8, 16.3, and $2.2 million were related to the facility-based services segment as of September 30, 2017. The Company recorded $1.64.9 years for trade names, customer relationships, and non-compete agreements, respectively. Amortization expense was $1.1 million and $1.8$0.3 million of amortization expense duringfor the ninethree months ended SeptemberJune 30, 20172022 and 2016, respectively. This2021 and $2.8 million and $0.6 million for the six months ended June 30, 2022 and 2021. Amortization expense was recorded in general and administrative expenses.
5. Debt
Credit Facility
On June 18, 2014,August 3, 2021, the Company entered into aan Amended and Restated Senior Credit AgreementFacility (the “Credit Agreement”"2021 Amended Credit Agreement") with Capital One, National Association,, which providesprovided a senior, secured revolving line of credit commitment with a maximum principal borrowing limit of $225.0$800.0 million, which included an additional $500.0 million accordion expansion, and a letter of credit sub-limit equal to $15.0$75.0 million. On December 31, 2021, the aggregate commitment was increased to a maximum borrowing limit of $1.0 billion, with an additional $300.0 million accordion expansion. The expiration date of the 2021 Amended Credit Agreement is June 18, 2019. August 3, 2026.
The Company’s obligations under the 2021 Amended Credit Agreement are secured by substantially all of the assets of the Company and its wholly-owned subsidiaries (subject to customary exclusions), which assets include the Company’s equity
ownership of its wholly-owned subsidiaries and its equity ownership in joint venture entities. The Company’s wholly-owned subsidiaries also guarantee the obligations of the Company under the 2021 Amended Credit Agreement.
Revolving loans under the 2021 Amended Credit Agreement bear interest, at, as selected by the Company, at either a (1) Base(i) the prevailing London Interbank Offered Rate which is defined as a fluctuating rate per annum equal to("LIBOR") (with interest periods of one, three or six months at the highest of (a) the Federal Funds Rate in effect on such day plus 0.5% (b) the Prime Rate in effect on such day and (c) the Eurodollar Rate for a one month interest period on such day plus 1.0%,Company's option) plus a margin ranging from 0.75%spread of 1.25% to 1.5% per annum2.0% based on the Company's quarterly consolidated Leverage Ratio or (2) Eurodollar(ii) the prevailing prime or base rate plus a margin ranging from 1.75%spread of 0.25% to 2.5% per annum.1.00% based on the Company's quarterly consolidated Leverage Ratio. Swing line loans bear interest at the Base Rate. The Company is limited to 15 Eurodollar borrowings outstanding at the sameany time. The Company is required to pay a commitment fee for the unused commitments at rates ranging from 0.225%0.15% to 0.375%0.30% per annum depending upon the Company’s quarterly consolidated Leverage Ratio,Ratio. The Base Rate as definedof June 30, 2022 was 5.75% and the LIBOR rate was 3.39%. As of June 30, 2022, the effective interest rate on outstanding borrowings under the 2021 Amended Credit Agreement was 3.24%.
On March 5, 2021, the ICE Benchmark Administration, the administrator of LIBOR, announced its intention to cease the publication of LIBOR settings for 1-month, 3-month, 6-month, and 12-month LIBOR borrowings immediately on June 30, 2023. JPMorgan Chase Bank, N.A will transition our 2021 Amended Credit Agreement to an alternate rate to CME Term SOFR Reference Rate ("SOFR"), which is administered by CME Group Benchmark Administration Ltd ("CME"). Due to the differences observed between LIBOR rates and SOFR published rates, JPMorgan Chase Bank, N.A. will use a credit spread adjustment ("CSA") in order to minimize value transfer and leave the existing margin applicable to our 2021 Amended Credit Agreement. The Base Rate at September 30, 2017 was 5.25%CSA used by JPMorgan Chase Bank, N.A. is based on the average of the differences between LIBOR and the Eurodollar rate was 3.24%.SOFR over a 12-month period and will be added to SOFR.
As of SeptemberJune 30, 2017 and December 31, 2016, respectively,2022, the Company had $119.0$759.0 million drawn, letters of credit issued in the amount of $24.3 million, and $87.0$216.7 million of remaining borrowing capacity available under the 2021 Amended Credit Agreement. At December 31, 2021, the Company had $661.2 million drawn and letters of credit totaling $11.0issued in the amount of $24.3 million outstanding under its credit facilities with Capital One, National Association.the 2021 Amended Credit Agreement.
AsUnder the terms of September 30, 2017,the 2021 Amended Credit Agreement, the Company had $95.0 million available for borrowingis required to maintain certain financial ratios and comply with certain financial covenants. The 2021 Amended Credit Agreement permits the Company to make certain restricted payments, such as purchasing shares of its stock, within certain parameters, provided the Company maintains compliance with those financial ratios and covenants after giving effect to such restricted payments. The Company was in compliance with its debt covenants under the 2021 Amended Credit Agreement with Capital One, National Association.at June 30, 2022.
6. Stockholder’s Equity
Equity Based Awards
The 2010 Long Term2018 Incentive Plan (the “2010 Incentive Plan”) is administered by the Compensation Committee of the Company’s Board of Directors. AThe total number of 1,500,000 shares of the Company’sCompany's common stock originally reserved were reserved2,210,544 shares and 391,414a total of 1,544,799 shares are currently available for issuance pursuant to awards granted under the 2010 Incentive Plan.issuance. A variety of discretionary awards for employees, officers, directors, and consultants are authorized under the 20102018 Incentive Plan, including incentive or non-qualified statutory stock options and nonvested stock.restricted stock, restricted stock units and performance-based awards. All awards must be evidenced by a written award certificate which will include the provisions specified by the Compensation Committee of the Board of Directors. The Compensation Committee determines the exercise price for non-statutory stock options. The exercise price for any optionoptions, which cannot be less than the fair market value of the Company’s common stock as of the date of grant.
Share Based Compensation
Nonvested Stock
During the nine months ended September 30, 2017, the Company’s independentIndependent directors wereare granted 11,700 nonvested shares of common stock under the Second Amended and Restated 2005 Non-Employee Directors Compensation Plan. The shares were drawn fromDuring the 1,500,000six months ended June 30, 2022, the Company granted 8,800 nonvested shares of common stock reserved for issuance under the 2010 Incentive Plan. Theto independent directors, which shares will vest 100% on the one year anniversary date.
During the ninesix months ended SeptemberJune 30, 2017,2022, employees and a consultant were granted 139,310182,245 and 10,935 shares, respectively, of nonvested shares of common stock pursuant to the 20102018 Incentive Plan. The shares vest over a period of five years, conditioned on continued employment.employment and in accordance with the consulting agreement. The fair value of nonvested shares of common stock is determined based on the closing trading price of the Company’s common stock on the grant date. The weighted average grant date fair value of nonvested shares of common stock granted during the nine months ended September 30, 2017 was $48.52.
The following table represents the nonvested stockshare grants activity for the ninesix months ended SeptemberJune 30, 2017:
2022:
|
| | | | | | |
| Number of shares | | Weighted average grant date fair value |
Nonvested shares outstanding as of December 31, 2016 | 574,711 |
| | $ | 31.61 |
|
Granted | 151,010 |
| | $ | 48.52 |
|
Vested | (191,463 | ) | | $ | 28.91 |
|
Forfeited | (3,793 | ) | | $ | 39.30 |
|
Nonvested shares outstanding as of September 30, 2017 | 530,465 |
| | $ | 37.35 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Restricted stock | | Options |
| Number of shares | | Weighted average grant date fair value | | Number of shares | | Weighted average grant date fair value |
Share grants outstanding as of December 31, 2021 | 415,816 | | | $ | 122.40 | | | 74,235 | | | $ | 42.07 | |
Granted | 201,980 | | | 139.64 | | | — | | | — | |
Vested or exercised | (140,207) | | | 104.63 | | | (5,124) | | | 28.77 | |
Share grants outstanding as of June 30, 2022 | 477,589 | | | $ | 134.50 | | | 69,111 | | | $ | 41.73 | |
As of SeptemberJune 30, 2017,2022, there was $14.9$55.6 million of total unrecognized compensation cost related to nonvested shares of common stock granted. That cost is expected to be recognized over the weighted average period of 3.133.41 years. The total fair value of shares of common stock vested during the nine months ended September 30, 2017 was $5.5 million. The Company records compensation expense related to nonvested stock awards at the grant date for shares of common stock that are awarded fully vested, and over the vesting term on a straight linestraight-line basis for shares of common stock that vest over time. The Company estimates forfeitures at the time of grant and revises the estimate in subsequent periods if actual forfeitures differ to ensure that total compensation expense recognized is at least equal to the value of vested awards. The Company recorded $4.5$9.3 million and $3.5$7.5 million of compensation expense related to nonvested stock grants infor the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively.
Employee Stock Purchase Plan
In 2006, the Company adopted the Employee Stock Purchase Plan whereby eligible employees may purchase the Company’s common stock at 95% of the market price on the last day of the calendar quarter. There were 250,000 shares of common stock initially reserved for the plan. In 2013, the Company adopted the Amended and Restated Employee Stock Purchase Plan, which reserved an additional 250,000 shares of common stock to the plan.
The table below details the shares of common stock issued during 2017:2022:
|
| | | | | | |
| Number of shares | | Per share price |
Shares available as of December 31, 2016 | 189,611 |
| | |
Shares issued during the three months ended March 31, 2017 | 5,891 |
| | $ | 43.42 |
|
Shares issued during the three months ended June 30, 2017 | 4,152 |
| | $ | 51.21 |
|
Shares issued during the three months ended September 30, 2017.......................................................... | 4,775 |
| | $ | 64.49 |
|
Shares available as of September 30, 2017 | 174,793 |
| | |
| | | | | | | | | | | |
| Number of shares | | Per share price |
Shares available as of December 31, 2021 | 104,344 | | | |
Shares issued during the three months ended March 31, 2022 | 5,353 | | | $ | 130.37 | |
Shares issued during the three months ended June 30, 2022 | 3,342 | | | $ | 160.17 | |
| | | |
| | | |
Shares available as of June 30, 2022 | 95,649 | | | |
Treasury Stock
In conjunction with the vesting of the nonvested shares of common stock or the exercise of stock options, recipients incur personal income tax obligations. The Company allows the recipients to turn in shares of common stock to satisfy minimum tax obligations. During the ninesix months ended SeptemberJune 30, 2017,2022, the Company redeemed 61,50225,555 shares of common stock valued at $3.1$4.1 million, related to theseshare vesting tax obligations. Such shares are held as treasury stock and are available for reissuance by the Company. Additionally, 2,611 shares were forfeited for terminated employees. Such shares are held in treasury stock and are available for reissuance by the Company.
In addition, the Company redeemed 2,319 shares of common stock valued at $0.1 million, related to the exercise of options.
Stock Repurchase
On December 6, 2021, the Company's Board of Directors approved a share repurchase program authorizing purchases up to $250.0 million of the Company's common stock. The Company may purchase common stock in open market transactions, block or privately negotiated transactions, and may from time to time purchase shares pursuant to a trading plan in accordance with Rule 10b5-1 and Rule 10b-18 under the Exchange Act or by any combination of such methods, in each case subject to compliance with all SEC rules and other legal requirements. The number of shares to be purchased and the timing of the purchases are based on a variety of factors, including, but not limited to, the level of cash balances, credit availability, debt covenant restrictions, general business conditions, the market price of our stock and the availability of alternative investment opportunities. No time limit was set for completion of repurchases under the new authorization, and the program may be suspended or discontinued at any time.
The Company uses the cost method to account for the repurchase of common stock. During the six months ended June 30, 2022, the Company repurchased 190,622 shares from the open market under its Stock Repurchase plan at an aggregate cost of $25.5 million.
7. Commitments and Contingencies
Contingencies
The Company provides services in a highly regulated industry and is a party to various proceedings and regulatory and other governmental and internal audits and investigations in the ordinary course of business (including audits by Zone Program Integrity Contractors ("ZPICs"), Unified Program Integrity Contractors ("UPICs"), and Recovery Audit Contractors ("RACs") and investigations resulting from the Company's obligation to self-report suspected violations of law). Management cannot predict the ultimate outcome of any regulatory and other governmental and internal audits and investigations. While such audits and investigations are the subject of administrative appeals, the appeals process, even if successful, may take several years to resolve. The Department of Justice, CMS, or other federal and state enforcement and regulatory agencies may conduct additional investigations related to the Company's businesses in the future.businesses. These audits and investigations have caused and could potentially continue to cause delays in collections, and recoupments from governmental payors. The Company recorded $12.0 million and $16.9 million in its condensed consolidated balance sheets in other assets as of June 30, 2022 and December 31, 2021, respectively, which are due from government payors andrelated to the disputed finding of pending appeals of ZPIC audits. Additionally, these audits may subject the Company to sanctions, damages, extrapolation of damage findings, additional recoupments, fines, and other penalties (some of which may not be covered by insurance), which may, either individually or in the aggregate, have a material adverse effect on the Company's business and financial condition.
The Company isWe are involved in various legal proceedings arising in the ordinary course of business. Although the results of litigation cannot be predicted with certainty, management believeswe believe the outcome of pending litigation will not have a material adverse effect, after considering the effect of the Company’sour insurance coverage, on the Company’s interimour consolidated financial information.
Legal fees related to all legal matters are expensed as incurred.
Joint Venture Buy/Sell Provisions
Most of the Company’s joint ventures include a buy/sell option that grants to the Company and its joint venture partners the right to require the other joint venture party to either purchase all of the exercising member’s membership interests or sell to the exercising member all of the non-exercising member’s membership interest, at the non-exercising member’s option, within 30 days of the receipt of notice of the exercise of the buy/sell option. In some instances, the purchase price is based on a multiple of the historical or future earnings before income taxes and depreciation and amortization of the equity joint venture at the time the buy/sell option is exercised. In other instances, the buy/sell purchase price will be negotiated by the partners and subject to a fair market valuation process. The Company has not received notice from any joint venture partners of their intent to exercise the terms of the buy/sell agreement nor has the Company notified any joint venture partners of its intent to exercise the terms of the buy/sell agreement.
Compliance
The laws and regulations governing the Company’s operations, along with the terms of participation in various government programs, regulate how the Company does business, the services offered and its interactions with patients and the public. These laws and regulations, and their interpretations, are subject to frequent change. Changes in existing laws or regulations, or their interpretations, or the enactment of new laws or regulations could materially and adversely affect the Company’s operations and financial condition.
The Company is subject to various routine and non-routine governmental reviews, audits and investigations. In recent years, federal and state civil and criminal enforcement agencies have heightened and coordinated their oversight efforts related to the health care industry, including referral practices, cost reporting, billing practices, joint ventures and other financial relationships among health care providers. Violation of the laws governing the Company’s operations, or changes in the interpretation of those laws, could result in the imposition of fines, civil or criminal penalties and/or termination of the Company’s rights to participate in federal and state-sponsored programs and suspension or revocation of the Company’s licenses. The Company believes that it is in material compliance with all applicable laws and regulations.
8. Noncontrolling interestinterests
Noncontrolling Interest-Redeemable
A majorityThe Company classifies noncontrolling interests of its joint venture parties based upon a review of the legal provisions governing the redemption of such interests. In each of the Company’s joint ventures, those provisions are embodied within the joint venture’s operating agreement. For joint ventures with operating agreement provisions that establish an obligation for the Company to purchase the third-party partners’ noncontrolling interests other than as a result of events that lead to a liquidation of the joint venture, such noncontrolling interests are classified as redeemable noncontrolling interests in temporary equity. For joint ventures with operating agreement provisions that establish an obligation that the Company purchase the third party
partners’ noncontrolling interests, but which obligation is triggered by events that lead to a liquidation of the joint venture, such noncontrolling interests are classified as nonredeemable noncontrolling interests in permanent equity. Additionally, for joint ventures with operating agreement provisions that do not establish an obligation for the Company to purchase the third-party partners’ noncontrolling interests (e.g., where the Company has the option, but not the obligation, to purchase the third-party partners’ noncontrolling interests), such noncontrolling interests are classified as nonredeemable noncontrolling interests in permanent equity.
The Company’s equity joint venture agreements include a provisionventures that requiresare classified as redeemable noncontrolling interests are subject to operating agreement provisions that require the Company to purchase the noncontrolling partner’s interest upon the occurrence of certain triggering events, suchwhich are defined as death orthe bankruptcy of the partner or the partner’s exclusion from the Medicare or Medicaid programs. These triggering events and the related repurchase provisions are specific to each individual equity joint venture; if the repurchase provision is triggered in any oneredeemable equity joint venture, since the remainingtriggering of a repurchase obligation for any one redeemable noncontrolling interest in an equity joint ventures wouldventure does not be impacted.necessarily impact any of the other redeemable noncontrolling interests in other equity joint ventures. Upon the occurrence of a triggering event requiring the purchase of a redeemable noncontrolling interest, the Company would be required to purchase the noncontrolling partner’s interest at either the fair value or the book value at the time of purchase, as statedbased upon a valuation methodology set forth in the applicable joint venture agreement. The
Redeemable noncontrolling interests and nonredeemable noncontrolling interests are initially recorded at their fair value as of the closing date of the transaction establishing the joint venture. Such fair values are determined using various accepted valuation methods, including the income approach, the market approach, the cost approach, and a combination of one or more of these approaches. A number of facts and circumstances concerning the operation of the joint venture are evaluated for each transaction, including (but not limited to) the ability to choose management, control over acquiring or liquidating assets, and controlling the joint venture’s strategy and direction, in order to determine the fair value of the noncontrolling interest.
Based upon the Company’s evaluation of the redemption provisions concerning redeemable noncontrolling interests as of June 30, 2022, the Company has never been requireddetermined in accordance with authoritative accounting guidance that it was not probable that an event otherwise requiring redemption of any redeemable noncontrolling interest would occur (i.e., the date for such event was not set or such event is not certain to purchaseoccur). Therefore, none of the redeemable noncontrolling interests were identified as mandatorily redeemable interests at such times, and the Company did not record any values in respect of any mandatorily redeemable interests.
Subsequent to the closing date of the transaction establishing the joint venture, the Company records adjustments to the carrying amounts of noncontrolling interests during each reporting period to reflect (a) comprehensive income (loss) attributed to each noncontrolling interest, which is calculated by multiplying the noncontrolling interest percentage by the comprehensive income (loss) of the joint venture’s operations, (b) dividends paid to the noncontrolling interest partner, and (c) any of its equityother transactions that increase or decrease the Company’s ownership interest in each joint venture, partners, andas a result of which the Company believesretains its controlling interest. If the likelihoodCompany determines that, based upon its analysis as of the end of each reporting period in accordance with authoritative accounting guidance, that it is not probable that an event would occur to otherwise require the redemption of a triggering event occurring is remote. According to authoritative guidance, redeemable noncontrolling interests must beinterest (i.e., the date for such event is not set or such event is not certain to occur), then the Company does not adjust the recorded amount of such redeemable noncontrolling interest.
The carrying amount of each redeemable equity instrument presented in temporary equity for the six months ended June 30, 2022 is not less than the initial amount reported outside of permanent equity on the consolidated balance sheet in instances where there is a repurchase provision with a triggering event that is outside the control of the Company.for each instrument.
The following table summarizes the activity of noncontrolling interest-redeemable for the ninesix months ended SeptemberJune 30, 20172022 (amounts in thousands):
| | | | | |
Balance as of December 31, 2021 | $ | 17,501 | |
Net income attributable to noncontrolling interest-redeemable | 4,999 | |
Noncontrolling interest-redeemable distributions | (5,290) | |
| |
| |
Balance as of June 30, 2022 | $ | 17,210 | |
|
| | | |
Balance as of December 31, 2016 | $ | 12,567 |
|
Net income attributable to noncontrolling interest-redeemable | 7,649 |
|
Noncontrolling interest-redeemable distributions | (6,933 | ) |
Sale of noncontrolling interest-redeemable | (77 | ) |
Balance as of September 30, 2017 | $ | 13,206 |
|
9. AllowanceLeases
The Company determines if a contract contains a lease at inception date. The Company's leases are operating leases, primarily for Uncollectible Accountsoffice and office equipment, that expire at various dates over the next five years. The facility-based leases have renewal options for periods ranging from one to nine years. As it is not reasonably certain these renewal options will be exercised, the options were not considered in the lease term, and payments associated with the option years are excluded from lease payments.
Payments due under operating leases include fixed and variable payments. These variable payments for the Company's office leases can include operating expenses, utilities, property taxes, insurance, common area maintenance, and other facility-related
expense. Additionally, any leases with terms less than one year were not recognized as operating lease right of use assets or payables for short term leases in accordance with the election of ‘package of practical expedient’ under ASU 2016-02.
The Company recognizes operating lease right of use assets and operating lease payable based on the present value of the future minimum lease payments at the lease commencement date. The Company's leases do not provide implicit rates. Therefore, the Company used an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments. As of June 30, 2022, the weighted-average remaining lease term was 3.74 years and weighted-average discount rate was 4.13%.
The following table summarizes the activityoperating lease right of use assets and related lease payables in the allowance for uncollectible accounts for the nine months ended Septemberour condensed consolidated balance sheets as of June 30, 20172022 and December 31, 2021 (amounts in thousands):
| | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
Operating lease right of use asset | | $ | 109,925 | | | $ | 113,399 | |
Current operating lease liabilities | | 36,929 | | | 37,630 | |
Long-term operating lease liabilities | | 75,971 | | | 78,688 | |
|
| | | |
Balance as of December 31, 2016 | $ | 29,036 |
|
Additions | 8,238 |
|
Deductions | (11,185 | ) |
Balance as of September 30, 2017 | $ | 26,089 |
|
The allowancecomponents of lease costs for uncollectible accounts declined to 15.2% from 18.9% of patient accounts receivable overoperating leases for the ninethree and six months ended SeptemberJune 30, 2017. This was due to a reduction2022 and 2021 were as follows (amounts in provisionthousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Operating lease cost | $ | 14,420 | | | $ | 12,091 | | | $ | 28,767 | | | $ | 24,281 | |
Short-term lease cost | 874 | | | 914 | | | 1,803 | | | 1,770 | |
Variable lease cost | 1,283 | | | 1,071 | | | 2,104 | | | 2,084 | |
Total lease costs | $ | 16,577 | | | $ | 14,076 | | | $ | 32,674 | | | $ | 28,135 | |
Maturities of bad debts due to more timely cash collections and an increaseoperating lease liabilities as of June 30, 2022 were as follows (amounts in amounts collected. Patient accounts receivable over 180 days decreased 17% during the nine months ended September 30, 2017 due to the Company's continued process improvements. The maturity of the Company's back office and field operations, the use of the point-of-care platform, and the use of other technology advancements in reporting and analytics were the drivers of improved collections.thousands):
| | | | | | | | |
Month ending June 30, | | |
2022 | | $ | 21,552 | |
2023 | | 35,912 | |
2024 | | 26,911 | |
2025 | | 18,879 | |
Thereafter | | 18,435 | |
Total future minimum lease payments | | 121,689 | |
Less: Imputed interest | | (8,789) | |
Total | | $ | 112,900 | |
10. Fair Value of Financial Instruments
The carrying amounts of the Company’s cash, receivables, accounts payable and accrued liabilities approximate their fair values because of their short maturity. The estimated fair value of intangible assets acquired was calculated using level 3 inputs
based on the present value of anticipated future benefits. For the nine months ended September 30, 2017, the carrying value of the Company’s long-term debt approximates fair value as the interest rates approximate current rates.
11. Segment Information
The Company’s reportableCompany's reporting segments consist ofinclude (1) home health services, (2) hospice services, (3) home and community-based services, (4) facility-based services, and facility-based services. The accounting policies(5) HCI.
Reportable segments have been identified based upon how management has organized the segments arebusiness by services provided to customers and how the same as those describedchief operating decision maker manages the business and allocates resources, consistent with the criteria in the summary of significant accounting policies, as described in Note 2 of the Notes to Condensed Consolidated Financial Statements.ASC 280, Segment Reporting.
The following tables summarize the Company’s segment information for the three and ninesix months ended SeptemberJune 30, 20172022 and 20162021 (amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, 2022 |
| Home health services | | Hospice services | | Home and community-based services | | Facility-based services | | HCI | | Total |
Net service revenue | $ | 392,782 | | | $ | 102,617 | | | $ | 44,718 | | | $ | 30,709 | | | $ | 5,367 | | | $ | 576,193 | |
Cost of service revenue (excluding depreciation and amortization) | 228,511 | | | 67,848 | | | 31,788 | | | 22,830 | | | 2,956 | | | 353,933 | |
General and administrative expenses | 134,623 | | | 33,423 | | | 12,444 | | | 12,211 | | | 3,689 | | | 196,390 | |
Impairment of intangibles and other | 481 | | | 361 | | | — | | | — | | | — | | | 842 | |
Operating income (loss) | 29,167 | | | 985 | | | 486 | | | (4,332) | | | (1,278) | | | 25,028 | |
Interest expense | (4,488) | | | (949) | | | (564) | | | (281) | | | (125) | | | (6,407) | |
Income (loss) before income taxes and noncontrolling interest | 24,679 | | | 36 | | | (78) | | | (4,613) | | | (1,403) | | | 18,621 | |
Income tax expense (benefit) | 6,565 | | | (160) | | | (1,413) | | | (960) | | | (353) | | | 3,679 | |
Net income (loss) | 18,114 | | | 196 | | | 1,335 | | | (3,653) | | | (1,050) | | | 14,942 | |
Less net income (loss) attributable to non controlling interests | 4,324 | | | 888 | | | (34) | | | (817) | | | (3) | | | 4,358 | |
Net income (loss) attributable to LHC Group, Inc.'s common stockholder | $ | 13,790 | | | $ | (692) | | | $ | 1,369 | | | $ | (2,836) | | | $ | (1,047) | | | $ | 10,584 | |
Total assets | $ | 1,746,161 | | | $ | 807,100 | | | $ | 240,481 | | | $ | 80,617 | | | $ | 63,515 | | | $ | 2,937,874 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, 2021 |
| Home health services | | Hospice services | | Home and community-based services | | Facility-based services | | HCI | | Total |
Net service revenue | $ | 396,534 | | | $ | 63,804 | | | $ | 48,407 | | | $ | 31,030 | | | $ | 6,132 | | | $ | 545,907 | |
Cost of service revenue (excluding depreciation and amortization) | 219,925 | | | 39,647 | | | 34,683 | | | 20,460 | | | 3,157 | | | 317,872 | |
General and administrative expenses | 123,245 | | | 18,114 | | | 11,923 | | | 10,906 | | | 2,873 | | | 167,061 | |
Impairment of intangibles and other | 760 | | | — | | | — | | | — | | | — | | | 760 | |
| | | | | | | | | | | |
Operating income (loss) | 52,604 | | | 6,043 | | | 1,801 | | | (336) | | | 102 | | | 60,214 | |
Interest expense | (106) | | | (20) | | | (10) | | | (5) | | | (2) | | | (143) | |
Income (loss) before income taxes and noncontrolling interest | 52,498 | | | 6,023 | | | 1,791 | | | (341) | | | 100 | | | 60,071 | |
Income tax expense (benefit) | 11,706 | | | 1,280 | | | 470 | | | (152) | | | 14 | | | 13,318 | |
Net income (loss) | 40,792 | | | 4,743 | | | 1,321 | | | (189) | | | 86 | | | 46,753 | |
Less net income (loss) attributable to noncontrolling interests | 7,500 | | | 1,208 | | | 85 | | | 322 | | | (5) | | | 9,110 | |
Net income (loss) attributable to LHC Group, Inc.'s common stockholders | $ | 33,292 | | | $ | 3,535 | | | $ | 1,236 | | | $ | (511) | | | $ | 91 | | | $ | 37,643 | |
Total assets | $ | 1,681,871 | | | $ | 288,985 | | | $ | 245,071 | | | $ | 85,520 | | | $ | 65,678 | | | $ | 2,367,125 | |
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2017 |
| Home health services | | Hospice services | | Community-based services | | Facility-based services | | Total |
Net service revenue | $ | 198,978 |
| | $ | 41,291 |
| | 12,146 |
| | $ | 20,457 |
| | $ | 272,872 |
|
Cost of service revenue | 123,204 |
| | 27,441 |
| | 8,971 |
| | 13,240 |
| | 172,856 |
|
Provision for bad debts | 2,661 |
| | 234 |
| | 30 |
| | 269 |
| | 3,194 |
|
General and administrative expenses | 55,980 |
| | 11,263 |
| | 2,387 |
| | 6,039 |
| | 75,669 |
|
(Gain) loss on disposal of assets | 20 |
| | 13 |
| | — |
| | (210 | ) | | (177 | ) |
Operating income | 17,113 |
| | 2,340 |
| | 758 |
| | 1,119 |
| | 21,330 |
|
Interest expense | (746 | ) | | (149 | ) | | (50 | ) | | (50 | ) | | (995 | ) |
Income before income taxes and noncontrolling interest | 16,367 |
| | 2,191 |
| | 708 |
| | 1,069 |
| | 20,335 |
|
Income tax expense | 5,703 |
| | 931 |
| | 338 |
| | 473 |
| | 7,445 |
|
Net income | 10,664 |
| | 1,260 |
| | 370 |
| | 596 |
| | 12,890 |
|
Less net income (loss) attributable to noncontrolling interests | 1,759 |
| | 273 |
| | (21 | ) | | (27 | ) | | 1,984 |
|
Net income attributable to LHC Group, Inc.’s common stockholders | $ | 8,905 |
| | $ | 987 |
| | $ | 391 |
| | $ | 623 |
| | $ | 10,906 |
|
Total assets | $ | 515,562 |
| | $ | 156,296 |
| | $ | 44,621 |
| | $ | 48,574 |
| | $ | 765,053 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Six months ended June 30, 2022 |
| Home health services | | Hospice services | | Home and community-based services | | Facility-based services | | HCI | | Total |
Net service revenue | $ | 780,674 | | | $ | 204,523 | | | $ | 89,058 | | | $ | 62,848 | | | $ | 10,585 | | | $ | 1,147,688 | |
Cost of service revenue (excluding depreciation and amortization) | 456,718 | | | 133,913 | | | 60,743 | | | 47,035 | | | 5,912 | | | 704,321 | |
General and administrative expenses | 261,430 | | | 64,768 | | | 23,862 | | | 23,639 | | | 7,050 | | | 380,749 | |
Impairment of intangibles and other | 930 | | | 1,087 | | | 54 | | | — | | | — | | | 2,071 | |
Operating income (loss) | 61,596 | | | 4,755 | | | 4,399 | | | (7,826) | | | (2,377) | | | 60,547 | |
Interest expense | (7,458) | | | (1,447) | | | (977) | | | (489) | | | (207) | | | (10,578) | |
Income (loss) before income taxes and noncontrolling interest | 54,138 | | | 3,308 | | | 3,422 | | | (8,315) | | | (2,584) | | | 49,969 | |
Income tax expense (benefit) | 11,334 | | | 436 | | | 845 | | | (1,922) | | | (645) | | | 10,048 | |
Net income (loss) | 42,804 | | | 2,872 | | | 2,577 | | | (6,393) | | | (1,939) | | | 39,921 | |
Less net income (loss) attributable to non controlling interests | 8,920 | | | 1,568 | | | 51 | | | (646) | | | (10) | | | 9,883 | |
Net income (loss) attributable to LHC Group, Inc.'s common stockholder | $ | 33,884 | | | $ | 1,304 | | | $ | 2,526 | | | $ | (5,747) | | | $ | (1,929) | | | $ | 30,038 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Six months ended June 30, 2021 |
| Home health services | | Hospice services | | Home and community-based services | | Facility-based services | | HCI | | Total |
Net service revenue | $ | 770,362 | | | $ | 126,538 | | | $ | 97,532 | | | $ | 64,399 | | | $ | 11,911 | | | $ | 1,070,742 | |
Cost of service revenue (excluding depreciation and amortization) | 432,298 | | | 78,217 | | | 69,555 | | | 41,635 | | | 6,439 | | | 628,144 | |
General and administrative expenses | 242,642 | | | 36,241 | | | 23,452 | | | 22,163 | | | 5,812 | | | 330,310 | |
Impairment of intangibles and other | 937 | | | — | | | — | | | — | | | — | | | 937 | |
Operating income (loss) | 94,485 | | | 12,080 | | | 4,525 | | | 601 | | | (340) | | | 111,351 | |
Interest expense | (288) | | | (56) | | | (34) | | | (19) | | | (9) | | | (406) | |
Income (loss) before income taxes and noncontrolling interest | 94,197 | | | 12,024 | | | 4,491 | | | 582 | | | (349) | | | 110,945 | |
Income tax expense (benefit) | 19,596 | | | 2,347 | | | 988 | | | (95) | | | (77) | | | 22,759 | |
Net income (loss) | 74,601 | | | 9,677 | | | 3,503 | | | 677 | | | (272) | | | 88,186 | |
Less net income (loss) attributable to non controlling interests | 12,349 | | | 2,223 | | | 364 | | | 979 | | | (31) | | | 15,884 | |
Net income (loss) attributable to LHC Group, Inc.'s common stockholder | $ | 62,252 | | | $ | 7,454 | | | $ | 3,139 | | | $ | (302) | | | $ | (241) | | | $ | 72,302 | |
12. Income Taxes
The effective tax rate for the six months ended June 30, 2022 and 2021 benefited from $0.5 million and $2.2 million, respectively, of excess tax benefits associated with stock-based compensation arrangements.
U.S. GAAP prescribes a recognition threshold and measurement attribute for the accounting and financial statement disclosure of tax positions taken or expected to be taken in a tax return. The evaluation of a tax position is a two-step process. The first step requires the Company to determine whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. The second step requires the Company to recognize in the financial statements
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2016 |
| Home health services | | Hospice services | | Community-based services | | Facility-based services | | Total |
Net service revenue | $ | 167,529 |
| | $ | 35,322 |
| | $ | 11,793 |
| | $ | 16,153 |
| | $ | 230,797 |
|
Cost of service revenue | 100,057 |
| | 21,243 |
| | 9,100 |
| | 10,432 |
| | 140,832 |
|
Provision for bad debts | 2,049 |
| | 797 |
| | 190 |
| | 239 |
| | 3,275 |
|
General and administrative expenses | 50,293 |
| | 9,491 |
| | 2,263 |
| | 4,952 |
| | 66,999 |
|
Loss on disposal of assets | 20 |
| | 5 |
| | — |
| | 117 |
| | 142 |
|
Operating income | 15,110 |
| | 3,786 |
| | 240 |
| | 413 |
| | 19,549 |
|
Interest expense | (612 | ) | | (90 | ) | | (41 | ) | | (73 | ) | | (816 | ) |
Income before income taxes and noncontrolling interest | 14,498 |
| | 3,696 |
| | 199 |
| | 340 |
| | 18,733 |
|
Income tax expense | 5,133 |
| | 1,275 |
| | 83 |
| | 71 |
| | 6,562 |
|
Net income | 9,365 |
| | 2,421 |
| | 116 |
| | 269 |
| | 12,171 |
|
Less net income attributable to noncontrolling interests | 1,853 |
| | 553 |
| | — |
| | 149 |
| | 2,555 |
|
Net income attributable to LHC Group, Inc.’s common stockholders | $ | 7,512 |
| | $ | 1,868 |
| | $ | 116 |
| | $ | 120 |
| | $ | 9,616 |
|
Total assets | $ | 425,923 |
| | $ | 119,906 |
| | $ | 33,549 |
| | $ | 34,075 |
| | $ | 613,453 |
|
each tax position that meets the more likely than not criteria, measured at the amount of benefit that has a greater than 50% likelihood of being realized. The Company’s unrecognized tax benefits would affect the tax rate, if recognized. The Company includes the full amount of unrecognized tax benefits in income taxes payable in noncurrent liabilities in the Company's condensed consolidated balance sheets. The Company anticipates it is reasonably possible an increase or decrease in the amount of unrecognized tax benefits could be made in the next twelve months. However, the Company does not presently anticipate that any increase or decrease in unrecognized tax benefits will be material to the consolidated financial statements. As of June 30, 2022 and December 31, 2021, the Company recognized $7.8 million and $7.3 million, respectively, in unrecognized tax benefits.
|
| | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2017 |
| Home health services | | Hospice services | | Community-based services | | Facility-based services | | Total |
Net service revenue | $ | 575,180 |
| | $ | 116,249 |
| | $ | 33,807 |
| | $ | 54,464 |
| | $ | 779,700 |
|
Cost of service revenue | 352,896 |
| | 75,187 |
| | 24,905 |
| | 35,396 |
| | 488,384 |
|
Provision for bad debts | 5,796 |
| | 1,393 |
| | 404 |
| | 645 |
| | 8,238 |
|
General and administrative expenses | 165,153 |
| | 32,404 |
| | 6,957 |
| | 16,563 |
| | 221,077 |
|
(Gain) loss on disposal of assets | 39 |
| | 21 |
| | — |
| | (83 | ) | | (23 | ) |
Operating income | 51,296 |
| | 7,244 |
| | 1,541 |
| | 1,943 |
| | 62,024 |
|
Interest expense | (1,961 | ) | | (393 | ) | | (130 | ) | | (131 | ) | | (2,615 | ) |
Income before income taxes and noncontrolling interest | 49,335 |
| | 6,851 |
| | 1,411 |
| | 1,812 |
| | 59,409 |
|
Income tax expense | 16,712 |
| | 2,439 |
| | 602 |
| | 657 |
| | 20,410 |
|
Net income | 32,623 |
| | 4,412 |
| | 809 |
| | 1,155 |
| | 38,999 |
|
Less net income (loss) attributable to noncontrolling interests | 6,053 |
| | 1,038 |
| | (7 | ) | | 237 |
| | 7,321 |
|
Net income attributable to LHC Group, Inc.’s common stockholders | $ | 26,570 |
| | $ | 3,374 |
| | $ | 816 |
| | $ | 918 |
| | $ | 31,678 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2016 |
| Home health services | | Hospice services | | Community-based services | | Facility-based services | | Total |
Net service revenue | $ | 492,090 |
| | $ | 100,051 |
| | $ | 32,823 |
| | $ | 54,416 |
| | $ | 679,380 |
|
Cost of service revenue | 294,359 |
| | 61,836 |
| | 24,656 |
| | 32,710 |
| | 413,561 |
|
Provision for bad debts | 8,122 |
| | 2,364 |
| | 488 |
| | 684 |
| | 11,658 |
|
General and administrative expenses | 150,948 |
| | 27,787 |
| | 6,557 |
| | 16,004 |
| | 201,296 |
|
Loss on disposal of assets | 811 |
| | 329 |
| | 46 |
| | 203 |
| | 1,389 |
|
Operating income | 37,850 |
| | 7,735 |
| | 1,076 |
| | 4,815 |
| | 51,476 |
|
Interest expense | (1,640 | ) | | (232 | ) | | (106 | ) | | (189 | ) | | (2,167 | ) |
Income before income taxes and noncontrolling interest | 36,210 |
| | 7,503 |
| | 970 |
| | 4,626 |
| | 49,309 |
|
Income tax expense | 11,026 |
| | 2,484 |
| | 413 |
| | 1,577 |
| | 15,500 |
|
Net income | 25,184 |
| | 5,019 |
| | 557 |
| | 3,049 |
| | 33,809 |
|
Less net income (loss) attributable to noncontrolling interests | 5,002 |
| | 1,368 |
| | (57 | ) | | 730 |
| | 7,043 |
|
Net income attributable to LHC Group, Inc.’s common stockholders | $ | 20,182 |
| | $ | 3,651 |
| | $ | 614 |
| | $ | 2,319 |
| | $ | 26,766 |
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains certain statements, including the potential future impact of COVID-19 on our results of operations and liquidity, the potential impact of actions we have taken to mitigate the impact of COVID-19, the potential impact on supply chain disruptions and increased costs associated with obtaining personal protective equipment, the expected benefit of the CARES Act on our liquidity, and information that may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements relate to future plans and strategies, anticipated events or trends, future financial performance, and expectations and beliefs concerning matters that are not historical facts or that necessarily depend upon future events. The words “may,” “should,” “could,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” and similar expressions are intended to identify forward-looking statements. Specifically, this report contains, among others, forward-looking statements about:
•our expectations regarding financial condition or results of operations for periods after SeptemberJune 30, 2017;2022;
•our critical accounting policies;
•our business strategies and our ability to grow our business;
•our participation in the Medicare and Medicaid programs;
•the reimbursement levels of Medicare and other third-party payors;payors, including changes in reimbursement resulting from regulatory changes;
•the prompt receipt of payments from Medicare and other third-party payors;
•our future sources of and needs for liquidity and capital resources;
•the effect of any regulatory changes under the new presidential administration;or anticipated regulatory changes;
•the effect of any changes in market rates on our operations and cash flows;
•our ability to obtain financing;
•our ability to make payments as they become due;
•the outcomes of various routine and non-routine governmental reviews, audits and investigations;
•our expansion strategy, the successful integration of recent acquisitions and, if necessary, the ability to relocate or restructure our current facilities;
•the value of our proprietary technology;
•the impact of legal proceedings;
•our insurance coverage;
•our competitors and our competitive advantages;
•our ability to attract and retain valuable employees;
•the price of our stock;
•our compliance with environmental, health and safety laws and regulations;
•our compliance with health care laws and regulations;
•our compliance with SECSecurities and Exchange Commission laws and regulations and Sarbanes-Oxley requirements;
•the impact of federal and state government regulation on our business; and
•the impact of changes in future interpretations of fraud, anti-kickback, or other laws.
The forward-looking statements included in this report reflect our current views about future events, are based on assumptions, and are subject to known and unknown risks and uncertainties. Many important factors could cause actual results or achievements to differ materially from any future results or achievements expressed in or implied by our forward-looking statements. Many of the factors that will determine future events or achievements are beyond our ability to control or predict. Important factors that could cause actual results or achievements to differ materially from the results or achievements reflected in our forward-looking statements include, among other things, the factors discussed in the Part II, Item 1A. “Risk Factors,” included in this report and in our other filings with the SEC, including our Annual Report on2021 Form 10-K, for the year ended December 31, 2016 (the “2016 Form 10-K”), as updated by our subsequent filings with the SEC. This report should be read in conjunction with the 20162021 Form 10-K and Form 10-K Amendment, and all of our other filings made with the SEC through the date of this report, including quarterly reports on Form 10-Q and current reports on Form 8-K.
You should read this report, the information incorporated by reference into this report, and the documents filed as exhibits to this report completely and with the understanding that our actual future results or achievements may differ materially from what we expect or anticipate.
The forward-looking statements contained in this report reflect our views and assumptions only as of the date this report is filed with the SEC. Except as required by law, we assume no responsibility for updating any forward-looking statements.
We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
You should read this report, the information incorporated by reference into this report, and the documents filed as exhibits to this report completely and with the understanding that our actual future results or achievements may differ materially from what we expect or anticipate.
Unless the context otherwise requires, “we,” “us,” “our,” and the “Company” refer to LHC Group, Inc. and its consolidated subsidiaries.
OVERVIEW
General
We provide quality, cost-effective post-acute health care services to our patients. As of SeptemberJune 30, 2017,2022, we have 449953 service providers in 27 states.37 states within the continental United States and the District of Columbia. Our services are classified into fourfive segments: (1) home health services, (2) hospice services, (3) home and community-based services, and (4) facility-based services primarily offered through our long-term acute care hospitals (“LTACHs”), and (5) healthcare innovations services ("HCI"). We intend to increase the number of service providers within each of our four segments that we operate through continued acquisitions, joint ventures, and organic development.
Through ourOur home health services segment, weservice locations offer a wide range of services, including skilled nursing, medically-oriented social services, and physical, occupational, and speech therapy. As of SeptemberJune 30, 2017,2022, we operated 324543 home health services locations, of which 166333 are wholly-owned, 152206 are majority-owned through equity joint ventures, threetwo are under license lease arrangements, and the operations of the remaining threetwo locations are only managed by us.
Through our hospice services segment, weOur hospices provide end-of-life care to patients with terminal illnesses through interdisciplinary teams of physicians, nurses, home health aides, counselors, and volunteers. We offer a wide range of services, including pain and symptom management, emotional and spiritual support, inpatient and respite care, homemaker services, and counseling. As of SeptemberJune 30, 2017,2022, we operated 92169 hospice locations, of which 46103 are wholly-owned, 4464 are majority-owned through equity joint ventures, and two are under license lease arrangements.
Through our home and community-based services segment, services are performed by skilled nursing and paraprofessional personnel, and include assistance with activities of daily living to the elderly, chronically ill, and disabled patients. As of SeptemberJune 30, 2017,2022, we operated 12135 home and community-based services locations: 10locations, of which 121 are wholly-owned and two14 are majority-owned through an equity joint venture.ventures.
We provide facility-based services principally through our LTACHs. As of SeptemberJune 30, 2017,2022, we operated 11 LTACHs with 1512 locations, of which all but onethree of which are located within host hospitals. We also operate two skilled nursing facilities, a family health center, two rural health clinics, and 75 therapy clinics. Of these 92 facility-based services locations, three81 are wholly-owned, and 11 are majority-owned through equity joint ventures,ventures.
Our HCI segment reports on our developmental activities outside its other business segments. The HCI segment includes (a) Imperium Health Management, LLC, an ACO enablement company, (b) Long Term Solutions, Inc., an in-home assessment company serving the long-term care insurance industry, and (c) certain assets operated by Advanced Care House Calls, which provides primary medical care for patients with chronic and acute illnesses who have difficulty traveling to a doctor’s office. These activities are intended ultimately, whether directly or indirectly, to benefit our patients and/or payors through the enhanced provision of services in our other segments. The activities all share a common goal of improving patient experiences and quality outcomes, while lowering costs. They include, but are not limited to, items such as: technology, information, population health management, risk-sharing, care-coordination and transitions, clinical advancements, enhanced patient engagement and informed clinical decision and technology enabled in-home clinical assessments. We have 14 HCI locations, of which 13 are wholly-owned and one location is managed by us. We also wholly-own and operate a family health center, two pharmacies, a rural health clinic, and two physical therapy clinics.majority-owned through an equity joint venture.
The Joint Commission is a nationwide commission that establishes standards relating to the physical plant, administration, quality of patient care, and operation of medical staffs of health care organizations. Currently, Joint Commission accreditation of home nursing and hospice agencies is voluntary. However, some managed care organizations use Joint Commission accreditation as a credentialing standard for regional and state contracts. As of SeptemberJune 30, 2017,2022, the Joint Commission had accredited 299523 of our 324our 543 home health services locations and 61111 of our 92 hospice169 hospice agencies. Those not yet accredited are working towards achieving this accreditation. As we acquire companies, we apply for accreditation 12 to 18 months after completing the acquisition.
The percentage of net service revenue contributed from each reporting segment for the three and ninesix months ended SeptemberJune 30, 20172022 and 20162021 was as follows:
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three months ended June 30, | | Six months ended June 30, |
Reporting segment | | 2017 | | 2016 | | 2017 | | 2016 | Reporting segment | | 2022 | | 2021 | | 2022 | | 2021 |
Home health services | | 72.9 | % | | 72.6 | % | | 73.8 | % | | 72.5 | % | Home health services | | 68.2 | % | | 72.6 | % | | 68.0 | % | | 72.0 | % |
Hospice services | | 15.1 |
| | 15.3 |
| | 14.9 |
| | 14.7 |
| Hospice services | | 17.8 | | | 11.7 | | | 17.8 | | | 11.8 | |
Community-based services | | 4.5 |
| | 5.1 |
| | 4.3 |
| | 4.8 |
| |
Home and community-based services | | Home and community-based services | | 7.8 | | | 8.9 | | | 7.8 | | | 9.1 | |
Facility-based services | | 7.5 |
| | 7.0 |
| | 7.0 |
| | 8.0 |
| Facility-based services | | 5.3 | | | 5.7 | | | 5.5 | | | 6.0 | |
HCI | | HCI | | 0.9 | | | 1.1 | | | 0.9 | | | 1.1 | |
| | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Recent Developments
The reader is encouraged to review our detailed discussion of health care legislation and Medicare regulations in the similarly titled section in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” along with the discussions in Part I, Item 1, “Business; Government Regulation” and in Part I, Item 1A, “Risk Factors” in our 2021 Form 10-K.
Coronavirus and Coronavirus Aid, Relief, and Economic Security Act
The following portions of the CARES Act impacted us during the six months ended June 30, 2022:
•CAAP: CMS recouped $98.3 million of CAAP. As of June 30, 2022, $8.2 million of contract liabilities - deferred revenue remains on our condensed consolidated balance sheets.
•Suspension of the 2% sequestration payment adjustment: During the three and six months ended June 30, 2022, we recognized $3.4 million and $10.0 million of net service revenue, respectively, due to the suspension of the 2% sequestration payment adjustment.We recognized $6.4 million and $12.9 million of net service revenue, respectively, during the three and six months ended June 30, 2021.
•Waiver of the application of site-neutral payment: Under Section 1886(m)(6)(A)(i) of the Act, the claims processing systems was updated to pay all LTACH cases admitted during the COVID-19 PHE period at the LTACH-PPS standard federal rate, effective for claims with an admission date occurring on or after January 27, 2020 through the end of the PHE period. During the three and six months ended June 30, 2022, we recognized $5.6 million and $12.2 million of net service revenue, respectively, due to the suspension of LTACH site-neutral payments. We recognized $6.9 million and $12.5 million of net service revenue, respectively, during the three and six months ended June 30, 2021.
During the three and six months ended June 30, 2022, we did experience higher costs related to higher contract labor utilization due to an increase in our clinicians being on quarantine from COVID-19 exposure or potential exposure. There is no guarantee that we won’t experience similar impacts in the future or experience a decrease in demand for our services as a result of COVID-19. The rapid development and fluidity of this situation makes it difficult to predict the ultimate impact of COVID-19 on our business and operations. Nevertheless, COVID-19 presents a material uncertainty which could materially impact our business and results of operations in the future.
Home Health Services
On April 14, 2015, legislation was passed which limits any increase in home health payments to 1%June 17, 2022, CMS released the proposed rule for fiscal year 2018 and extended2023. The proposed rule states the 3% ruralMedicare base payments would decrease by 4.2%. The decrease reflects the effects of a proposed 2.9% home health safeguard for two years through December 31, 2017.
On October 31, 2016, CMS releasedpayment update, a Final Rule (effective January 1, 2017) regarding payment rates for6.9% decrease from the effects of the proposed prospective, permanent behavioral assumption adjustment of 7.69%, and 0.2% decrease to the fixed-dollar loss ratio used in determining outlier payments. The proposed prospective, permanent behavior assumption adjustment to the home health services provided during calendar year 2017. The national, standardized 60-day episode30-day period payment rate increased to $2,989.97 for 2017. The rural rate is $3,079.67. The Final Rule implements the final year of the four year phase-in of the rebasing adjustments to the national, standardized 60-day episode payment rate and the decrease of 0.97% to account for nominal case-mix growthany increases or decreases in the aggregate expenditures as a result of the difference between assumed behavior changes and actual behavior changes due to the implementation of the PDGM and 30-day unit of payment. CMS is also proposing a permanent 5% cap on negative wage index changes regardless of the underlying reason for the decrease.
CMS is proposing to require home health agencies to submit all-payer OASIS data for purposes of the Home Health Quality Reporting Program, beginning with the calendar year 2012 and calendar year 2014, which was not accounted for in2025 program year. For the rebasing adjustments finalized in calendar year 2014. The Final Rule also contains minor adjustments to theExpanded Home Health Value-Based Purchasing ("HHVBP") programModel, CMS is proposing to change the Model and to the home health quality reporting program. CMS estimates the overall economic impact of the proposed rule's policy changes and payment rate update is an estimated aggregate decrease of 0.7% in payments to home health agencies which decrease will vary based on each agency's wage index and patient mix weight.baseline years.
In addition, CMS finalized its proposal to implement a HHVBP program that is intended to incentivize the deliveryHospice
to all home health agencies in Arizona, Florida, Iowa, Massachusetts, Maryland, Nebraska, North Carolina, Tennessee, and Washington, effective January 1, 2018.
On November 1, 2017,July 27, 2022, CMS released the Final Rule (effective January 1, 2018) regarding payment ratesfinal rule for home health services provided during calendarfiscal year 2018. The national, standardized 60-day episode payment rate will increase2023 to $3,039.64 in 2018. The Final Rule estimates an impact of 0.5% reduction in payments due to the expiration of the rural add-on provision, a 1% home health payment update percentage, and 0.97% adjustment for case mix (the third year of a three year adjustment). CMS also estimates a reduction in regulatory reporting due to the removal of a number of quality measures and OASIS items. CMS estimates the overall economic impact of the Final Rule's changes and payment rate update is an estimated decrease of 0.4% in payments to home health agencies. In addition, CMS decided not to finalize its rule on the Home Health Groupings Model ("HHGM") as was proposed, but instead will take additional time to further engage with stakeholders to move towards a system that shifts the focus from volume of services to a more patient-centered model.
Hospice Services
On July 29, 2016, CMS issued a Final Rule updating Medicare payment rates and the wage index for hospices for fiscal year 2017,index. The final rule states the following:
•A payment rate increase of 3.8%, which resulted inapplies a 2.1% increase in payment rates. The 2.1% increase is based on 2.7% inpatient hospital4.1% market basket update reduced by a 0.3% productivity adjustment, and a 0.3% adjustment set by the Patient Protection and Affordable Care Act ("PPACA"). The hospice cap amount0.3 percentage point reduction for the 2017 hospice cap year will be $28,404.99. The following table shows the hospice Medicare payment rates for fiscal year 2017, which began on October 1, 2016 and ended September 30, 2017:productivity.
|
| | | |
Description | Rate per patient day |
Routine Home Care days 1-60 | $ | 190.55 |
|
Routine Home Care days 60+ | $ | 149.82 |
|
Continuous Home Care | $ | 964.63 |
|
Full Rate = 24 hours of care | |
$40.19 = hourly rate | |
Inpatient Respite Care | $ | 170.97 |
|
General Inpatient Care | $ | 734.94 |
|
On August 1, 2017, CMS issued a Final Rule updating Medicare payment rates and the wage index for hospices for fiscal year 2018. The result will be in a 1.0% increase in payment rates due to the provisions of Section 411 (d) of the Medicare Access and CHIP Reauthorization Act of 2015 (Pub. L. 114-10) ("MACRA"). The hospice cap will be $28,689.04, which is a 1% increase. The Final Rule finalizes eight measures from Consumer Assessment of Healthcare Providers and Systems ("CAHPS") •Hospice Survey data already submitted by hospices. The rule also finalizes the extension of the exception for quality reporting purposes from 30 calendar days to 90 calendar days after the date that an extraordinary circumstance occurred. CMS will begin public reporting Hospice Quality Reporting Program ("HQRP") data via a Hospice Compare Site in August 2017 to help customers make informed choices. Hospicesagencies that fail to meet quality reporting requirements will receive a two percentage point reduction to their payments.the annual market basket update.
•An increase of the aggregate cap value of $32,486.92, as compared to $31,297.61 for fiscal year 2022.
•A permanent cap on negative wage index changes greater than a 5% decrease from the prior year, regardless of the underlying reason for the decrease.
The following table showsare the hospice Medicarefinal fiscal year 2023 base payment rates for various levels of care, which will begin on October 1, 2022 and will end September 30, 2023 and the final fiscal year 2018,2022 base payment rates for various levels of care, which began on October 1, 20172021 and will end September 30, 2018:2022 (payment rates for hospice providers not complying with the hospice quality reporting requirements will be 2% lower than the values referenced below):
| | | | | | | | | | | | | | |
Description | | Final Fiscal Year 2023 Rate per patient day | | Fiscal Year 2022 Rate per patient day |
Routine Home Care days 1-60 | | $ | 211.34 | | | $ | 203.40 | |
Routine Home Care days 60+ | | $ | 167.00 | | | $ | 160.74 | |
Continuous Home Care | | $ | 1,522.04 | | | $ | 1,462.52 | |
Full rate = 24 hours of care | | | | |
$60.94 = hourly rate for 2022 $63.42 = hourly rate for 2023 | | | | |
Inpatient Respite Care | | $ | 492.10 | | | $ | 473.75 | |
General Inpatient Care | | $ | 1,110.76 | | | $ | 1,068.28 | |
|
| | | |
Description | Rate per patient day |
Routine Home Care days 1-60 | $ | 192.78 |
|
Routine Home Care days 60+ | $ | 151.41 |
|
Continuous Home Care | $ | 976.42 |
|
Full Rate = 24 hours of care | |
$40.68 = hourly rate | |
Inpatient Respite Care | $ | 172.78 |
|
General Inpatient Care | $ | 743.55 |
|
Facility-based
Community-Based Services
Community-based services are in-home care services, which are primarily performed by skilled nursing and paraprofessional personnel, and include assistance with activities of daily living to the elderly, chronically ill, and disabled patients. Revenue is generated on an hourly basis and our current primary payors are TennCare Managed Care Organization and Medicaid. Approximately 70% of our net service revenue in this segment was generated in TennesseeOn April 18, 2022, CMS issued a proposed rule for the nine months ended September 30, 2017.
Facility-Based Services
On December 26, 2013, President Obama signed into law the Bipartisan Budget Act of 2013 (Public Law 113-67). This law prevents a scheduled payment reduction for physicians and other practitioners who treat Medicare patients from taking effect on January 1, 2014. Included in the legislation are the following changesfiscal year 2023 Long-Term Care Hospital Prospective Payment System. CMS proposed to LTACH reimbursement:
Medicare discharges from LTACHs will continue to be paid at full LTACH PPS rates if:
the patient spent at least three days in a short-term care hospital (“STCH”) intensive care unit (“ICU”) during a STCH stay that immediately preceded the LTACH stay, or
the patient was on a ventilator for more than 96 hours in the LTACH (based on the MS-LTACH DRG assigned) and had a STCH stay immediately preceding the LTACH stay.
Also, the LTACH discharge cannot have a principal diagnosis that is psychiatric or rehabilitation.
All other Medicare discharges from LTACHs will be paid at a new “site neutral” rate, which is the lesser of the ("IPPS") comparable per diem amount determined using the formula in the short-stay outlier regulation at 42 C.F.R. § 412.529(d)(4) plus applicable outlierupdate payments or 100% of the estimated cost of the services involved.
The above new payment policy will be effective for LTACH cost reporting periods beginning on or after October 1, 2015, and the site neutral payment rate will be phased-in over two years.
For cost reporting periods beginning on or after October 1, 2015, discharges paid at the site neutral payment rate or by a Medicare Advantage plan (Part C) will be excluded from the LTACH average length-of-stay (“ALOS”) calculation.
For cost reporting periods beginning in fiscal year 2016 and later, CMS will notify LTACHs of their “LTACH discharge payment percentage” (i.e.net 0.7%, the number of discharges not paid at the site neutral payment rate divided by the total number of discharges).
For cost reporting periods beginning in fiscal year 2020 and later, LTACHs with less than 50% of their discharges paid at the full LTACH PPS rates will be switched to payment under the IPPS for all discharges in subsequent cost reporting periods. However, CMS will set upwhich includes a process for LTACHs to seek reinstatement of LTACH PPS rates for applicable discharges.
MedPAC will study the impact of the above changes on quality of care, use of hospice and other post-acute care settings, different types of LTACHs and growth in Medicare spending on LTACHs. MedPAC is to submit a report to Congress with any recommendations by June 30, 2019. The report is to also include MedPAC’s assessment of whether the 25 Percent rule should continue to be applied.
On August 2, 2016, CMS released the final rule to update fiscal year 2017 LTACH reimbursement and policies under the LTACH PPS, which affects discharges occurring in cost reporting periods beginning on or after October 1, 2016. CMS projects that overall LTACH PPS spending would decrease by 7.1% compared to fiscal year 2016 payments. This estimated decrease is attributable to the statutory decrease in payment rates for site neutral LTACH PPS cases that do not meet the clinical criteria to qualify for higher LTACH rates in cost reporting years beginning on or after October 1, 2016. Cases that do qualify for higher LTACH PPS rates will see a payment rate increase of 0.7% (including a3.1% market basket update of 2.8% reducedthat would be offset by a multi-factorstatutorily mandated cut of 0.4% for productivity, adjustment of 0.3%, minus an additional adjustment of 0.75 percentage point in accordance with the PPACA,a 1.7% for a net market basket of 1.75%). The LTACH PPS standard federal payment rate for fiscal year 2017 is $42,476.41 (increased from $41,762.85 in fiscal year 2016). Site-neutral discharges will have a 23% reduction in payments. CMS also proposes to begin enforcement of the 25 Percent rule which will cap the number of patients treated at an LTACH who have been referred from all locations of a hospital. Grandfathered LTACH facilities are exempt from the 25 Percent rule, while rural LTACHs will have a threshold of 50% and MSA-dominant hospitals will have a threshold between 25% and 50%. The 25 Percent rule will apply to discharges occurring after October 1, 2016. CMS will have two separate outlier pools and thresholds
for LTACH-appropriate patients and for site-neutral patients. For 2017, CMS finalized an increase of its fixed-loss threshold to $21,943 from 2016’s $16,423, to limit outlier spending at no more than 8% of total LTACH spending (2016high-cost outlier payments may reach 9.0%). CMS is applying the proposed inpatient fixed-loss threshold of $23,570 for site neutral patients. CMS also finalized four new measures for the LTACH Quality Reporting Program to meet the requirements of the Improving Medicare Post-Acute Care Transformation (IMPACT) Act. For the fiscal year 2018 LTACH Quality Reporting Program, CMS added quality measures for Medicare spending per beneficiary, discharge to community and potentially-preventable 30-day post-discharge readmissions. For the fiscal year 2020 LTACH Quality Reporting Program, CMS adopted a new drug regimen review measure.
On December 7, 2016, Congress passed the 21st Century Cures Act ("Cures"), which boosts funding for medical research, eases the development and approval of experimental treatments and reforms federal policy on mental health care. Included in the bill was relief for LTACHs under a one year moratorium on the 25 Percent Rule, which would otherwise penalize LTACHs that admit more than 25% of their patients from a particular acute care hospital. As modified by Cures, implementation of the 25 Percent Rule will be suspended during federal fiscal year 2017 (October 1, 2016 through September 30, 2017).
On August 2, 2017, CMS posted a display copy of its final rule for the annual update to Medicare payment rates and policies for the Fiscal Year 2018 inpatient hospitals prospective payment system and the LTACH PPS. CMS estimates the impact of the proposed rule will result in a 2.4% overall reduction in LTACH spending. The LTACH standard federal rate is reduced to $41,430.56 from $42,476.41. CMS is also proposing a 12 month administrative moratorium on application of the 25 Percent Rule beginning with the expiration of the statutory moratorium after September 30, 2017. The 25 Percent Rule will not be applied to LTACHs for discharges occurring on or before September 30, 2018. CMS also adopted certain adjustments to high cost outlier and short stay outlier policies. CMS finalized its proposal for a new severe wound exception to be paid at standard Federal LTACH rates instead of site neutral payments for grandfathered LTACHs. CMS changed the separateness and control restrictions for certain co-located IPPS-exempt hospitals. The Final Rule also adds three new quality measures and discontinues two quality measures. CMS also finalized its proposal to implement collection of standardized patient assessment data under the IMPACT Act on functional status, cognitive function, cancer treatments, respiratory treatments, transfusions and other special services effective for admissions on/after April 1, 2019.adjustments.
RESULTS OF OPERATIONS
Three months ended SeptemberJune 30, 20172022 compared to three months ended SeptemberJune 30, 20162021
ConsolidatedSummary consolidated financial statementsinformation
The following table summarizes our consolidated results of operations for the three months ended SeptemberJune 30, 20172022 and 20162021 (amounts in thousands, except percentages, which are percentages of consolidated net service revenue, unless indicated otherwise):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | Increase (Decrease) |
Net service revenue | $ | 576,193 | | | | | $ | 545,907 | | | | | $ | 30,286 | |
Cost of service revenue (excluding depreciation and amortization) | 353,933 | | | 61.4 | % | | 317,872 | | | 58.2 | % | | 36,061 | |
General and administrative expenses | 196,390 | | | 34.1 | | | 167,061 | | | 30.6 | | | 29,329 | |
Impairment of intangibles and other | 842 | | | 0.1 | | | 760 | | | 0.1 | | | 82 | |
Interest expense | (6,407) | | | (1.1) | | | (143) | | | — | | | 6,264 | |
Income tax expense | 3,679 | | | 27.1 | | (1) | | 13,318 | | | 26.2 | | (1) | (9,639) | |
Net income attributable to noncontrolling interests | 4,358 | | | 0.8 | | | 9,110 | | | 1.7 | | | (4,752) | |
Net income attributable to LHC Group, Inc.’s common stockholders | $ | 10,584 | | | | | $ | 37,643 | | | | | $ | (27,059) | |
|
| | | | | | | | | | | | | | | | | | |
| 2017 | | 2016 | | Increase (Decrease) |
Net service revenue | $ | 272,872 |
| | | | $ | 230,797 |
| | | | $ | 42,075 |
|
Cost of service revenue | 172,856 |
| | 63.3 | % | | 140,832 |
| | 61.0 | % | | 32,024 |
|
Provision for bad debts | 3,194 |
| | 1.2 |
| | 3,275 |
| | 1.4 |
| | (81 | ) |
General and administrative expenses | 75,669 |
| | 27.7 |
| | 66,999 |
| | 29.0 |
| | 8,670 |
|
(Gain) loss on disposal of assets | (177 | ) | | (0.1 | ) | | 142 |
| | 0.1 |
| | 319 |
|
Interest expense | (995 | ) | | | | (816 | ) | | | | 179 |
|
Income tax expense | 7,445 |
| | 41.1 |
| (1 | ) | 6,562 |
| | 40.6 |
| (2) | 883 |
|
Noncontrolling interest | 1,984 |
| | | | 2,555 |
| | | | (571 | ) |
Net income attributable to LHC Group, Inc.’s common stockholders | $ | 10,906 |
| | | | $ | 9,616 |
| | | | $ | 1,290 |
|
(1) Effective tax rate as a percentage of income from continuing operations attributable to our common stockholders, excluding the excess tax benefits realized of $0.2 million and $0.4 million during the three months ended June 30, 2022 and 2021, respectively.
| |
(1) | Effective tax rate as a percentage of income from continuing operations attributable to LHC Group, Inc.’s common stockholders, excluding the excess tax benefits realized during the three months ended September 30, 2017 of $0.09 million. For a discussion on the excess tax benefits, see Note 2 of the Notes to Condensed Consolidated Financial Statements, which is incorporated herein by reference. |
| |
(2) | Effective tax rate as a percentage of income from continuing operations attributable to LHC Group, Inc.'s common stockholders. |
Net service revenueRevenue
The following table sets forth each of our segment’s revenue growth or loss, admissions, census, episodes, patient days, and billable hours for the three months ended SeptemberJune 30, 20172022 and the related change from the same period in 20162021 (amounts in thousands, except admissions, census, episode data, patient days and billable hours)hours, which are actual amounts; revenue excludes implicit price concessions):
| The below data for the three months ended June 30, 2022 was impacted by the COVID-19 pandemic. | | The below data for the three months ended June 30, 2022 was impacted by the COVID-19 pandemic. |
| | | | | | | | | | | | | | | | | | | Organic (1) | | Organic Growth (Loss) % | | Acquired (2) | | Total | | Total Growth (Loss) % |
| Same Store(1) | | De Novo(2) | | Organic(3) | | Organic Growth (Loss) % | | Acquired(4) | | Total | | Total Growth (Loss) % | |
Home health services | | | | | | | | | | | | | | |
Home health services: | | Home health services: | | | | | | | | | | | |
Revenue | $ | 184,467 |
| | $ | 327 |
| | $ | 184,794 |
| | 10.3 | % | | $ | 14,184 |
| | $ | 198,978 |
| | 18.8 | % | Revenue | | | $ | 382,704 | | | (3.4) | % | | $ | 15,309 | | | $ | 398,013 | | | (0.9) | % |
Revenue Medicare | $ | 133,597 |
| | $ | 283 |
| | $ | 133,880 |
| | 4.9 |
| | $ | 9,267 |
| | $ | 143,147 |
| | 12.1 |
| Revenue Medicare | | | $ | 222,588 | | | (9.2) | | | $ | 9,940 | | | $ | 232,528 | | | (6.4) | |
Admissions | 43,122 |
| | 73 |
| | 43,195 |
| | 6.2 |
| | 4,646 |
| | 47,841 |
| | 17.7 |
| Admissions | | | 103,025 | | | (4.3) | | | 4,243 | | | 107,268 | | | (1.7) | |
Medicare Admissions | 27,207 |
| | 61 |
| | 27,268 |
| | 1.7 |
| | 2,696 |
| | 29,964 |
| | 11.8 |
| Medicare Admissions | | | 48,561 | | | (10.5) | | | 2,172 | | | 50,733 | | | (7.7) | |
Average Census | 39,893 |
| | 50 |
| | 39,943 |
| | 3.7 |
| | 3,507 |
| | 43,450 |
| | 12.8 |
| Average Census | | | 81,506 | | | (3.5) | | | 2,814 | | | 84,320 | | | (1.4) | |
Average Medicare Census | 27,599 |
| | 40 |
| | 27,639 |
| | (1.2 | ) | | 2,052 |
| | 29,691 |
| | 6.1 |
| Average Medicare Census | | | 39,562 | | | (11.2) | | | 1,516 | | | 41,078 | | | (9.0) | |
Home Health Episodes | 50,123 |
| | 75 |
| | 50,198 |
| | 2.0 |
| | 3,805 |
| | 54,003 |
| | 9.7 |
| Home Health Episodes | | | 100,176 | | | (3.7) | | | 3,877 | | | 104,053 | | | (1.3) | |
Hospice services | | | | | | | | | | | | | | |
Hospice services: | | Hospice services: | | |
Revenue | $ | 33,581 |
| | $ | 517 |
| | $ | 34,098 |
| | (3.5 | ) | | $ | 7,193 |
| | $ | 41,291 |
| | 16.9 |
| Revenue | | | $ | 68,112 | | | 5.2 | | | $ | 36,233 | | | $ | 104,345 | | | 62.4 | |
Revenue Medicare | $ | 31,680 |
| | $ | 451 |
| | $ | 32,131 |
| | (2.9 | ) | | $ | 5,785 |
| | $ | 37,916 |
| | 14.6 |
| Revenue Medicare | | | $ | 62,389 | | | 3.4 | | | $ | 33,440 | | | $ | 95,829 | | | 59.8 | |
Admissions | 2,451 |
| | 47 |
| | 2,498 |
| | (2.2 | ) | | 940 |
| | 3,438 |
| | 34.6 |
| Admissions | | | 5,211 | | | 5.5 | | | 2,159 | | | 7,370 | | | 48.4 | |
Medicare Admissions | 2,140 |
| | 40 |
| | 2,180 |
| | (3.8 | ) | | 787 |
| | 2,967 |
| | 30.9 |
| Medicare Admissions | | | 4,655 | | | 4.4 | | | 1,858 | | | 6,513 | | | 45.5 | |
Average Census | 2,651 |
| | 37 |
| | 2,688 |
| | (1.8 | ) | | 420 |
| | 3,108 |
| | 13.6 |
| Average Census | | | 4,587 | | | 3.7 | | | 2,536 | | | 7,123 | | | 59.9 | |
Average Medicare Census | 2,466 |
| | 34 |
| | 2,500 |
| | (1.9 | ) | | 388 |
| | 2,888 |
| | 13.4 |
| Average Medicare Census | | | 4,255 | | | 2.4 | | | 2,309 | | | 6,564 | | | 57.3 | |
Patient days | 244,061 |
| | 3,307 |
| | 247,368 |
| | (1.7 | ) | | 38,603 |
| | 285,971 |
| | 13.6 |
| Patient days | | | 415,766 | | | 3.5 | | | 232,450 | | | 648,216 | | | 59.9 | |
Community-based services | | | | | | | | | | | | | | |
Home and community-based services: | | Home and community-based services: | | |
Revenue | $ | 11,338 |
| | $ | — |
| | $ | 11,338 |
| | (3.9 | ) | | $ | 808 |
| | $ | 12,146 |
| | 3.0 |
| Revenue | | | $ | 45,692 | | | (5.6) | | | $ | 451 | | | $ | 46,143 | | | (5.1) | |
Billable hours | 339,569 |
| | — |
| | 339,569 |
| | (1.4 | ) | | 30,131 |
| | 369,700 |
| | 7.3 |
| Billable hours | | | 1,689,187 | | | (9.7) | | | 5,807 | | | 1,694,994 | | | (9.8) | |
Facility-based services | | | | | | | | | | | | | | |
Facility-based services: | | Facility-based services: | | |
LTACHs | | | | | | | | | | | | | | LTACHs | | |
Revenue | $ | 15,712 |
| | $ | — |
| | $ | 15,712 |
| | 4.5 |
| | 2,561 |
| | $ | 18,273 |
| | 21.6 |
| Revenue | | | $ | 25,963 | | | (15.3) | | | $ | — | | | $ | 25,963 | | | (15.3) | |
Patient days | 12,506 |
| | — |
| | 12,506 |
| | (7.4 | ) | | 2,093 |
| | 14,599 |
| | 8.1 |
| Patient days | | | 17,550 | | | (13.1) | | | — | | | 17,550 | | | (13.1) | |
Other facility-based services | | Other facility-based services | | |
Revenue | | Revenue | | | $ | 1,261 | | | (20.9) | | | $ | 4,164 | | | $ | 5,425 | | | 240.1 | |
HCI: | | HCI: | | |
Revenue | | Revenue | | | $ | 5,459 | | | (13.1) | | | $ | — | | | $ | 5,459 | | | (13.1) | |
Consolidated: | | Consolidated: | | |
Revenue | | Revenue | | | $ | 529,191 | | | (2.3) | | | $ | 56,157 | | | $ | 585,348 | | | 5.9 | |
| |
(1) | Same store —(1) Organic - combination of same store, a location that has been in service with us for greater than 12 months, and de novo, an internally developed location that has been in service for 12 months or less. (2) Acquired - purchased location that has been in service with us 12 months or less.
During the three months ended June 30, 2022, our home health segment, hospice segment, and our LTACH locations were impacted by the 1% sequestration payment adjustment for Medicare patient claims with dates of services between April 1, 2022 through June 30, 2022. During the three months ended June 30, 2021, our home health segment, hospice segment, and our LTACH locations received the benefit of the suspension of the 2% sequestration payment adjustment for Medicare claims. Our LTACHs received the benefit of the waiver of site-neutral payments for LTACH Medicare claims in 2022 and 2021.
We continue to be impacted by the challenging labor dynamics of limited supply, higher than normal turnover, and elevated labor costs, which created capacity limitations in many of our agencies and led to a decline in service with us for greater than 12 months. |
| |
(2) | De Novo — internally developed location that has been in service with us for 12 months or less. |
| |
(3) | Organic — combination of same store and de novo. |
| |
(4) | Acquired — purchased location that has been in service with us for 12 months or less. |
Total organic revenue. More specifically, these challenges resulted in decreased home health census, decreased billable hours in our home and community-based locations, and decreased patient days in our LTACH locations. In addition, the return of the sequestration payment adjustment for Medicare patient claims resulted in a 1% Medicare revenue and patient metrics increasedreduction in our home health, services segment due to the successful executionhospice, and LTACH locations.
Organic growth is primarily generated by population growth in areas covered by mature agencies, agencies five years old or older, and by increased market share in acquired and developing agencies. Historically, acquired agencies have the highest
growth in admissions and average census in the first 24 months after acquisition, and have the highest contribution to organic growth, measured as a percentage of growth, in the second full year of operation after the acquisition.
Cost of service revenue
The following table summarizes cost of service revenue (amounts in thousands, except percentages, which are percentages of the segment’s respective net service revenue):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2022 | | 2021 |
Home health services: | | | | | | | |
Salaries, wages and benefits | $ | 207,587 | | | 52.9 | % | | $ | 199,789 | | | 50.4 | % |
Transportation | 10,258 | | | 2.6 | | | 9,230 | | | 2.3 | |
Supplies and services | 10,666 | | | 2.7 | | | 10,906 | | | 2.8 | |
Total | $ | 228,511 | | | 58.2 | % | | $ | 219,925 | | | 55.5 | % |
Hospice services: | | | | | | | |
Salaries, wages and benefits | $ | 50,055 | | | 48.8 | % | | $ | 28,453 | | | 44.6 | % |
Transportation | 3,291 | | | 3.2 | | | 1,967 | | | 3.1 | |
Supplies and services | 14,502 | | | 14.1 | | | 9,227 | | | 14.5 | |
Total | $ | 67,848 | | | 66.1 | % | | $ | 39,647 | | | 62.2 | % |
Home and community-based services: | | | | | | | |
Salaries, wages and benefits | $ | 31,058 | | | 69.5 | % | | $ | 33,925 | | | 70.1 | % |
Transportation | 456 | | | 1.0 | | | 414 | | | 0.9 | |
Supplies and services | 274 | | | 0.6 | | | 344 | | | 0.7 | |
Total | $ | 31,788 | | | 71.1 | % | | $ | 34,683 | | | 71.7 | % |
Facility-based services: | | | | | | | |
Salaries, wages and benefits | $ | 17,940 | | | 58.4 | % | | $ | 14,887 | | | 48.0 | % |
Transportation | 68 | | | 0.2 | | | 7 | | | — | |
Supplies and services | 4,822 | | | 15.7 | | | 5,566 | | | 17.9 | |
Total | $ | 22,830 | | | 74.3 | % | | $ | 20,460 | | | 65.9 | % |
HCI: | | | | | | | |
Salaries, wages and benefits | $ | 2,903 | | | 54.1 | % | | $ | 3,108 | | | 50.7 | % |
Transportation | 48 | | | 0.9 | | | 65 | | | 1.1 | |
Supplies and services | 5 | | | 0.1 | | | (16) | | | (0.3) | |
Total | $ | 2,956 | | | 55.1 | % | | $ | 3,157 | | | 51.5 | % |
Consolidated: | | | | | | | |
Salaries, wages and benefits | $ | 309,543 | | | 53.7 | % | | $ | 280,162 | | | 51.3 | % |
Transportation | 14,121 | | | 2.4 | | | 11,683 | | | 2.1 | |
Supplies and services | 30,269 | | | 5.3 | | | 26,027 | | | 4.8 | |
Total | $ | 353,933 | | | 61.4 | % | | $ | 317,872 | | | 58.2 | % |
|
| | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2017 | | 2016 |
Home health services | | | | | | | |
Salaries, wages and benefits | $ | 112,117 |
| | 56.3 | % | | $ | 90,393 |
| | 53.9 | % |
Transportation | 6,271 |
| | 3.2 |
| | 5,624 |
| | 3.4 |
|
Supplies and services | 4,816 |
| | 2.4 |
| | 4,040 |
| | 2.4 |
|
Total | $ | 123,204 |
| | 61.9 | % | | $ | 100,057 |
| | 59.7 | % |
Hospice services | | | | | | | |
Salaries, wages and benefits | $ | 19,523 |
| | 47.3 | % | | $ | 14,695 |
| | 41.5 | % |
Transportation | 1,588 |
| | 3.8 |
| | 1,329 |
| | 3.8 |
|
Supplies and services | 6,330 |
| | 15.3 |
| | 5,219 |
| | 14.8 |
|
Total | $ | 27,441 |
| | 66.5 | % | | $ | 21,243 |
| | 60.1 | % |
Community-based services | | | | | | | |
Salaries, wages and benefits | $ | 8,820 |
| | 72.6 | % | | $ | 8,967 |
| | 76.1 | % |
Transportation | 92 |
| | 0.8 |
| | 69 |
| | 0.6 |
|
Supplies and services | 59 |
| | 0.5 |
| | 64 |
| | 0.5 |
|
Total | $ | 8,971 |
| | 73.9 | % | | $ | 9,100 |
| | 77.2 | % |
Facility-based services | | | | | | | |
Salaries, wages and benefits | $ | 9,644 |
| | 47.1 | % | | $ | 6,987 |
| | 43.2 | % |
Transportation | 81 |
| | 0.4 |
| | 60 |
| | 0.4 |
|
Supplies and services | 3,515 |
| | 17.2 |
| | 3,385 |
| | 21.0 |
|
Total | $ | 13,240 |
| | 64.7 | % | | $ | 10,432 |
| | 64.6 | % |
ConsolidatedDuring 2022, cost of service revenue forin our home health, hospice, and facility-based segments were impacted by the three months ended September 30, 2017 was $172.9 million, or 63.3%continued labor market challenges. These challenges are, but not limited to, consistent utilization of net service revenue, compared to $140.8 million, or 61.0%nursing contract labor at a higher cost-per-visit rate, payments of net service revenue, forsign-on and retention bonuses, increased clinician wages, and labor costs associated with acquisitions purchased during the same period in 2016. Consolidated costlatter half of service revenue variances were as follows:2021.
•Home Health Segment -- Cost of service revenue increased as a percentage of net service revenue due in part to 2.0% Medicare reimbursement cuts recognized in 2017. Additionally, acquisitions accounted for $11.9 million of the $23.1 million increase, with the remaining difference caused by the growth in our same store agencies.
•Hospice Segment -- Acquisitions accounted for $5.6 million of the $6.2 million increase, with the remaining difference caused by the growth in our same store agencies. Cost of service increased as a percentage of net service revenuehome and community-based segment declined due to our lower patient volumes resulting in a decrease in billable hours and a decrease in total costs. In addition, we received the declinebenefit of $0.8 million from various state Medicaid programs in admissions associated with our same store agencies.response to COVID-19 relief funds to offset higher labor costs.
•Community-Based Services Segment: Cost of service revenue decreased as a percentage of net service revenue due to the utilization of contract labor in the prior year, which was used to service a higher level of care in our 2016 patient mix.
•Facility-Based Segment -- Acquisitions accounted for $2.7 million of the $2.8 million increase. Cost of service - salaries, wages, and benefits increased as a percentage of net service revenue due to lower revenue per patient day for the period caused by patient criteria changes that went into effect September 2016.
Provision for bad debts
Consolidated provision for bad debts for the three months ended September 30, 2017 was $3.2 million, or 1.2% of net service revenue, compared to $3.3 million, or 1.4% of net service revenue, for the same period in 2016. The Company continues to have more timely cash collections and an increase in amounts collected. The continued maturity of our back office and field operations, use of our point-of-care platform, and use of other technology advancements in reporting and analytics are drivers of collection improvements.
General and administrative expenses
The following table summarizes general and administrative expenses (amounts in thousands, except percentages, which are percentages of the segment’s respective net service revenue):
| | | | | | | | | | | | | | | | Three months ended June 30, |
| Three Months Ended September 30, | | 2022 | | 2021 |
| 2017 | | 2016 | |
Home health services | | | | | | | | |
Home health services: | | Home health services: | | | |
General and administrative | $ | 53,753 |
| | 27.0 | % | | $ | 48,282 |
| | 28.8 | % | General and administrative | $ | 131,278 | | | 33.4 | % | | $ | 120,610 | | | 30.4 | % |
Depreciation and amortization | 2,227 |
| | 1.1 |
| | 2,011 |
| | 1.2 |
| Depreciation and amortization | 3,345 | | | 0.9 | | | 2,635 | | | 0.7 | |
Total | $ | 55,980 |
| | 28.1 | % | | $ | 50,293 |
| | 30.0 | % | Total | $ | 134,623 | | | 34.3 | % | | $ | 123,245 | | | 31.1 | % |
Hospice services | | | | | | | | |
Hospice services: | | Hospice services: | | | | | | | |
General and administrative | $ | 10,697 |
| | 25.9 | % | | $ | 8,941 |
| | 25.3 | % | General and administrative | $ | 32,150 | | | 31.3 | % | | $ | 17,589 | | | 27.6 | % |
Depreciation and amortization | 566 |
| | 1.4 |
| | 550 |
| | 1.6 |
| Depreciation and amortization | 1,273 | | | 1.2 | | | 525 | | | 0.8 | |
Total | $ | 11,263 |
| | 27.3 | % | | $ | 9,491 |
| | 26.9 | % | Total | $ | 33,423 | | | 32.5 | % | | $ | 18,114 | | | 28.4 | % |
Community-based services | | | | | | | | |
Home and community-based services: | | Home and community-based services: | | | | | | | |
General and administrative | $ | 2,275 |
| | 18.7 | % | | $ | 2,158 |
| | 18.3 | % | General and administrative | $ | 12,104 | | | 27.1 | % | | $ | 11,548 | | | 23.9 | % |
Depreciation and amortization | 112 |
| | 0.9 |
| | 105 |
| | 0.9 |
| Depreciation and amortization | 340 | | | 0.8 | | | 375 | | | 0.8 | |
Total | $ | 2,387 |
| | 19.6 | % | | $ | 2,263 |
| | 19.2 | % | Total | $ | 12,444 | | | 27.9 | % | | $ | 11,923 | | | 24.7 | % |
Facility-based services | | | | | | | | |
Facility-based services: | | Facility-based services: | | | | | | | |
General and administrative | $ | 5,613 |
| | 27.4 | % | | $ | 4,506 |
| | 27.9 | % | General and administrative | $ | 11,307 | | | 36.8 | % | | $ | 10,119 | | | 32.6 | % |
Depreciation and amortization | 427 |
| | 2.1 |
| | 446 |
| | 2.8 |
| Depreciation and amortization | 904 | | 2.9 | | | 787 | | | 2.5 | |
Total | $ | 6,040 |
| | 29.5 | % | | $ | 4,952 |
| | 30.7 | % | Total | $ | 12,211 | | | 39.7 | % | | $ | 10,906 | | | 35.1 | % |
HCI: | | HCI: | | | | | | | |
General and administrative | | General and administrative | $ | 3,445 | | | 64.2 | % | | $ | 2,653 | | | 43.3 | % |
Depreciation and amortization | | Depreciation and amortization | 244 | | | 4.5 | | | 220 | | | 3.6 | |
Total | | Total | $ | 3,689 | | | 68.7 | % | | $ | 2,873 | | | 46.9 | % |
Consolidated: | | Consolidated: | | | | | | | |
General and administrative | | General and administrative | $ | 190,284 | | | 33.0 | % | | $ | 162,519 | | | 29.8 | % |
Depreciation and amortization | | Depreciation and amortization | 6,106 | | | 1.1 | | | 4,542 | | | 0.8 | |
Total | | Total | $ | 196,390 | | | 34.1 | % | | $ | 167,061 | | | 30.6 | % |
Consolidated general and administrative expenses for the three months ended September 30, 2017 were $75.7 million, or 27.7% of net service revenue, compared to $67.0 million, or 29.0% of net service revenue, for the same period in 2016. Although
During 2022, consolidated general and administrative expenses increased in total over the same period in 2016, they decreased as a percentage of net service revenue by 1.3%from 30.6% to 34.1%. We continueincurred $6.9 million related to leverage efficiencies found in our back office that allow us to maintain generalacquisition expenses and expenses associated with the Merger. In addition, we incurred higher administrative costs without increasing costs in proportionrelated to acquisitions purchased during the growthlatter half of our company.2021.
Nine
Six months ended SeptemberJune 30, 20172022 compared to ninesix months ended SeptemberJune 30, 20162021
ConsolidatedSummary consolidated financial statementsinformation
The following table summarizes our consolidated results of operations for the ninesix months ended SeptemberJune 30, 20172022 and 20162021 (amounts in thousands, except percentages, which are percentages of consolidated net service revenue, unless indicated otherwise):
| | | 2017 | | 2016 | | Increase (Decrease) | | 2022 | | 2021 | | Increase (Decrease) |
Net service revenue | $ | 779,700 |
| | | $ | 679,380 |
| | | | $ | 100,320 |
| Net service revenue | $ | 1,147,688 | | | | $ | 1,070,742 | | | | $ | 76,946 | |
Cost of service revenue | 488,384 |
| | 62.6 | % | | 413,561 |
| | 60.9 | % | | 74,823 |
| |
Provision for bad debts | 8,238 |
| | 1.1 |
| | 11,658 |
| | 1.7 |
| | (3,420 | ) | |
Cost of service revenue (excluding depreciation and amortization) | | Cost of service revenue (excluding depreciation and amortization) | 704,321 | | | 61.4 | % | | 628,144 | | | 58.7 | % | | 76,177 | |
General and administrative expenses | 221,077 |
| | 28.4 |
| | 201,296 |
| | 29.6 |
| | 19,781 |
| General and administrative expenses | 380,749 | | | 33.2 | | | 330,310 | | | 30.8 | | | 50,439 | |
(Gain) loss on disposal of assets | (23 | ) | | — |
| | 1,389 |
| | 0.2 |
| | 1,412 |
| |
Impairment of intangibles and other | | Impairment of intangibles and other | 2,071 | | | 0.2 | | | 937 | | | 0.1 | | | 1,134 | |
Interest expense | (2,615 | ) | | | (2,167 | ) | | | | 448 |
| Interest expense | (10,578) | | | (0.9) | | | (406) | | | — | | | 10,172 | |
Income tax expense | 20,410 |
| | 41.0 |
| (1 | ) | 15,500 |
| | 40.5 |
| (2) | 4,910 |
| Income tax expense | 10,048 | | | 26.4 | | (1) | | 22,759 | | | 26.2 | | (1) | (12,711) | |
Noncontrolling interest | 7,321 |
| | | 7,043 |
| | | | 278 |
| |
Net income attributable to noncontrolling interests | | Net income attributable to noncontrolling interests | 9,883 | | | 0.9 | | | 15,884 | | | 1.5 | | | (6,001) | |
Net income attributable to LHC Group, Inc.’s common stockholders | $ | 31,678 |
| | | $ | 26,766 |
| | | | $ | 4,912 |
| Net income attributable to LHC Group, Inc.’s common stockholders | $ | 30,038 | | | $ | 72,302 | | | $ | (42,264) | |
(1) Effective tax rate as a percentage of income from continuing operations attributable to our common stockholders, excluding the excess tax benefits realized of $0.5 million and $2.2 million during the six months ended June 30, 2022 and 2021, respectively.
| |
(1) | Effective tax rate as a percentage of income from continuing operations attributable to LHC Group, Inc.’s common stockholders, excluding the excess tax benefits realized during the nine months ended September 30, 2017 of $1.0 million. For a discussion on the excess tax benefits, see Note 2 of the Notes to Condensed Consolidated Financial Statements, which is incorporated herein by reference. |
| |
(2) | Effective tax rate as a percentage of income from continuing operations attributable to LHC Group, Inc.’s common stockholders, excluding the changes in measurement realized in 2016 of the unrecognized tax position of $1.6 million and related interest expense of $0.4 million. |
Net service revenueRevenue
The following table sets forth each of our segment’s revenue growth or loss, admissions, census, episodes, patient days, and billable hours for the ninesix months ended SeptemberJune 30, 20172022 and the related change from the same period in 20162021 (amounts in thousands, except admissions, census, episode data, patient days and billable hours)hours, which are actual amounts; revenue excludes implicit price concessions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The below data for the six months ended June 30, 2022 was impacted by the COVID-19 pandemic. |
| | | | | Organic (1) | | Organic Growth (Loss) % | | Acquired (2) | | Total | | Total Growth (Loss) % |
Home health services: | | | | | | | | | | | | | |
Revenue | | | | | $ | 761,626 | | | (1.5) | % | | $ | 31,665 | | | $ | 793,291 | | | 1.3 | % |
Revenue Medicare | | | | | $ | 445,783 | | | (7.9) | | | $ | 21,072 | | | $ | 466,855 | | | (4.8) | |
Admissions | | | | | 211,457 | | | (1.4) | | | 8,933 | | | 220,390 | | | 1.6 | |
Medicare Admissions | | | | | 98,658 | | | (8.8) | | | 4,669 | | | 103,327 | | | (5.6) | |
Average Census | | | | | 81,932 | | | (2.2) | | | 2,901 | | | 84,833 | | | 0.1 | |
Average Medicare Census | | | | | 726 | | | (29.9) | | | 3 | | | 729 | | | (31.1) | |
Home Health Episodes | | | | | 197,444 | | | (3.5) | | | 7,136 | | | 204,580 | | | (1.2) | |
Hospice services: | | | | | | | | | | | | | |
Revenue | | | | | $ | 133,310 | | | 2.8 | | | $ | 74,698 | | | $ | 208,008 | | | 61.8 | |
Revenue Medicare | | | | | $ | 122,527 | | | 1.9 | | | $ | 68,553 | | | $ | 191,080 | | | 60.1 | |
Admissions | | | | | 11,114 | | | 7.1 | | | 4,632 | | | 15,746 | | | 51.1 | |
Medicare Admissions | | | | | 9,847 | | | 5.6 | | | 4,045 | | | 13,892 | | | 48.6 | |
Average Census | | | | | 4,488 | | | 1.8 | | | 2,605 | | | 7,093 | | | 60.0 | |
Average Medicare Census | | | | | 4,163 | | | 0.7 | | | 2,374 | | | 6,537 | | | 57.5 | |
Patient days | | | | | — | | | — | | | — | | | — | | | — | |
Home and community-based services: | | | | | | | | | | | | | |
Revenue | | | | | $ | 90,371 | | | (7.4) | | | $ | 1,210 | | | $ | 91,581 | | | (6.6) | |
Billable hours | | | | | 3,337,242 | | | (11.2) | | | 31,444 | | | 3,368,686 | | | (10.9) | |
Facility-based services: | | | | | | | | | | | | | |
LTACHs | | | | | | | | | | | | | |
Revenue | | | | | $ | 54,896 | | | (12.5) | | | $ | — | | | $ | 54,896 | | | (12.5) | |
Patient days | | | | | 38,063 | | | (8.0) | | | — | | | 38,063 | | | (8.0) | |
Other facility-based services | | | | | | | | | | | | | |
Revenue | | | | | $ | 1,475 | | | (57.8) | | | $ | 8,231 | | | $ | 9,706 | | | 177.6 | |
HCI: | | | | | | | | | | | | | |
Revenue | | | | | $ | 10,817 | | | (11.5) | | | $ | — | | | $ | 10,817 | | | (11.5) | |
Consolidated: | | | | | | | | | | | | | |
Revenue | | | | | $ | 1,052,495 | | | (1.4) | | | $ | 115,804 | | | $ | 1,168,299 | | | 7.3 | |
(1) Organic - combination of same store, a location that has been in service with us for greater than 12 months, and de novo, an internally developed location that has been in service for 12 months or less.
(2) Acquired - purchased location that has been in service with us 12 months or less.
During the six months ended June 30, 2022, our home health segment, hospice segment, and LTACH locations were impacted by the suspension of the sequestration payment adjustment through March 31, 2022 and a 1% sequestration payment adjustment for Medicare patient claims with dates of services between April 1, 2022 through June 30, 2022. During the six months ended June 30, 2021, our home health segment, hospice segment, and LTACH locations received the benefit of the suspension of the 2% sequestration payment adjustment for Medicare claims. Our LTACHs received the benefit of the waiver of site-neutral payments for LTACH Medicare claims in 2022 and 2021.
We continue to be impacted by the challenging labor dynamics of limited supply, higher than normal turnover, and elevated labor costs, which created capacity limitations in many of our agencies and led to a decline in organic revenue. More specifically, these challenges resulted in decreased home health census, decreased billable hours in our home and community-based locations, and decreased patient days in our LTACH locations. In addition, the return of the sequestration payment
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Same Store(1) | | De Novo(2) | | Organic(3) | | Organic Growth (Loss) % | | Acquired(4) | | Total | | Total Growth (Loss) % |
Home health services | | | | | | | | | | | | | |
Revenue | $ | 541,918 |
| | $ | 990 |
| | $ | 542,908 |
| | 10.3 | % | | $ | 32,272 |
| | $ | 575,180 |
| | 16.9 | % |
Revenue Medicare | $ | 394,756 |
| | $ | 826 |
| | $ | 395,582 |
| | 5.6 |
| | $ | 19,973 |
| | $ | 415,555 |
| | 10.9 |
|
Admissions | 130,012 |
| | 219 |
| | 130,231 |
| | 9.7 |
| | 12,610 |
| | 142,841 |
| | 20.3 |
|
Medicare Admissions | 82,898 |
| | 176 |
| | 83,074 |
| | 5.5 |
| | 6,715 |
| | 89,789 |
| | 14.0 |
|
Average Census | 39,819 |
| | 47 |
| | 39,866 |
| | 4.0 |
| | 2,996 |
| | 42,862 |
| | 11.9 |
|
Average Medicare Census | 27,829 |
| | 38 |
| | 27,867 |
| | (0.7 | ) | | 1,660 |
| | 29,527 |
| | 5.2 |
|
Home Health Episodes | 149,670 |
| | 234 |
| | 149,904 |
| | 1.2 |
| | 9,241 |
| | 159,145 |
| | 7.4 |
|
Hospice services | | | | | | | | | | | | | |
Revenue | $ | 99,410 |
| | $ | 1,001 |
| | $ | 100,411 |
| | 0.4 |
| | $ | 15,838 |
| | $ | 116,249 |
| | 16.2 |
|
Revenue Medicare | $ | 93,073 |
| | $ | 892 |
| | $ | 93,965 |
| | 0.9 |
| | $ | 13,609 |
| | $ | 107,574 |
| | 15.6 |
|
Admissions | 7,729 |
| | 1 |
| | 7,730 |
| | 2.5 |
| | 1,987 |
| | 9,717 |
| | 28.9 |
|
Medicare Admissions | 6,663 |
| | 1 |
| | 6,664 |
| | — |
| | 1,696 |
| | 8,360 |
| | 25.4 |
|
Average Census | 2,533 |
| | 24 |
| | 2,557 |
| | (1.4 | ) | | 431 |
| | 2,988 |
| | 15.2 |
|
Average Medicare Census | 2,341 |
| | 22 |
| | 2,363 |
| | (1.9 | ) | | 406 |
| | 2,769 |
| | 14.9 |
|
Patient days | 716,644 |
| | 6,504 |
| | 723,148 |
| | 1.8 |
| | 92,607 |
| | 815,755 |
| | 14.8 |
|
Community-based services | | | | | | | | | | | | | |
Revenue | $ | 32,125 |
| | $ | — |
| | $ | 32,125 |
| | (2.1 | ) | | $ | 1,682 |
| | $ | 33,807 |
| | 3.0 |
|
Billable hours | 1,014,930 |
| | — |
| | 1,014,930 |
| | 3.6 |
| | 41,292 |
| | 1,056,222 |
| | 7.8 |
|
Facility-based services | | | | | | | | | | | | | |
LTACHs | | | | | | | | | | | | | |
Revenue | $ | 44,330 |
| | $ | — |
| | $ | 44,330 |
| | (13.2 | ) | | 2,561 |
| | $ | 46,891 |
| | (8.2 | ) |
Patient days | 39,313 |
| | — |
| | 39,313 |
| | (8.5 | ) | | 2,093 |
| | 41,406 |
| | (3.6 | ) |
| |
(1) | Same store — location that has been in service with us for greater than 12 months. |
| |
(2) | De Novo — internally developed location that has been in service with us for 12 months or less. |
| |
(3) | Organic — combination of same store and de novo. |
| |
(4) | Acquired — purchased location that has been in service with us for 12 months or less. |
Total organicadjustment for Medicare patient claims resulted in a 1% Medicare revenue and patient metrics increasedreduction in our home health, services segmenthospice, and hospice services segment due to the successful execution of same store growth strategies. Total organic revenue and patient days decreased in the facility-based services segment due to the negative impact from the reduction of LTACH beds and lower revenue per patient day caused by patient criteria changes that went into effect in June 2016 and September 2016.locations.
Organic growth is primarily generated by population growth in areas covered by mature agencies, agencies five years old or older, and by increased market share in acquired and developing agencies. Historically, acquired agencies have the highest growth in admissions and average census in the first 24 months after acquisition, and have the highest contribution to organic growth, measured as a percentage of growth, in the second full year of operation after the acquisition.
Cost of service revenue
The following table summarizes cost of service revenue (amounts in thousands, except percentages, which are percentages of the segment’s respective net service revenue):
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, |
| 2022 | | 2021 |
Home health services: | | | | | | | |
Salaries, wages and benefits | $ | 417,030 | | | 53.4 | % | | $ | 392,026 | | | 50.9 | % |
Transportation | 19,465 | | | 2.5 | | | 18,050 | | | 2.3 | |
Supplies and services | 20,223 | | | 2.6 | | | 22,222 | | | 2.9 | |
Total | $ | 456,718 | | | 58.5 | % | | $ | 432,298 | | | 56.1 | % |
Hospice services: | | | | | | | |
Salaries, wages and benefits | $ | 99,289 | | | 48.5 | % | | $ | 56,465 | | | 44.6 | % |
Transportation | 6,090 | | | 3.0 | | | 3,797 | | | 3.0 | |
Supplies and services | 28,534 | | | 14.0 | | | 17,955 | | | 14.2 | |
Total | $ | 133,913 | | | 65.5 | % | | $ | 78,217 | | | 61.8 | % |
Home and community-based services: | | | | | | | |
Salaries, wages and benefits | $ | 59,756 | | | 67.1 | % | | $ | 68,079 | | | 69.8 | % |
Transportation | 845 | | | 0.9 | | | 830 | | | 0.9 | |
Supplies and services | 142 | | | 0.2 | | | 646 | | | 0.7 | |
Total | $ | 60,743 | | | 68.2 | % | | $ | 69,555 | | | 71.4 | % |
Facility-based services: | | | | | | | |
Salaries, wages and benefits | $ | 36,644 | | | 58.3 | % | | $ | 30,921 | | | 48.0 | % |
Transportation | 114 | | | 0.2 | | | 17 | | | — | |
Supplies and services | 10,277 | | | 16.4 | | | 10,697 | | | 16.6 | |
Total | $ | 47,035 | | | 74.9 | % | | $ | 41,635 | | | 64.6 | % |
HCI: | | | | | | | |
Salaries, wages and benefits | $ | 5,808 | | | 54.9 | % | | $ | 6,313 | | | 53.0 | % |
Transportation | 91 | | | 0.9 | | | 116 | | | 1.0 | % |
Supplies and services | 13 | | | 0.1 | | | 10 | | | 0.1 | % |
Total | $ | 5,912 | | | 55.9 | % | | $ | 6,439 | | | 54.1 | % |
Consolidated: | | | | | | | |
Salaries, wages and benefits | $ | 618,527 | | | 53.9 | % | | 553,804 | | | 51.7 | % |
Transportation | 26,605 | | | 2.3 | | | 22,810 | | | 2.1 | |
Supplies and services | 59,189 | | | 5.2 | | | 51,530 | | | 4.9 | |
Total | $ | 704,321 | | | 61.4 | % | | $ | 628,144 | | | 58.7 | % |
|
| | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Home health services | | | | | | | |
Salaries, wages and benefits | $ | 320,933 |
| | 55.8 | % | | $ | 266,170 |
| | 54.1 | % |
Transportation | 18,064 |
| | 3.1 |
| | 16,648 |
| | 3.4 |
|
Supplies and services | 13,899 |
| | 2.4 |
| | 11,541 |
| | 2.3 |
|
Total | $ | 352,896 |
| | 61.3 | % | | $ | 294,359 |
| | 59.8 | % |
Hospice services | | | | | | | |
Salaries, wages and benefits | $ | 52,800 |
| | 45.4 | % | | $ | 43,319 |
| | 43.3 | % |
Transportation | 4,555 |
| | 3.9 |
| | 4,005 |
| | 4.0 |
|
Supplies and services | 17,832 |
| | 15.3 |
| | 14,512 |
| | 14.5 |
|
Total | $ | 75,187 |
| | 64.6 | % | | $ | 61,836 |
| | 61.8 | % |
Community-based services | | | | | | | |
Salaries, wages and benefits | $ | 24,514 |
| | 72.5 | % | | $ | 24,256 |
| | 73.9 | % |
Transportation | 231 |
| | 0.7 |
| | 197 |
| | 0.6 |
|
Supplies and services | 160 |
| | 0.5 |
| | 203 |
| | 0.6 |
|
Total | $ | 24,905 |
| | 73.7 | % | | $ | 24,656 |
| | 75.1 | % |
Facility-based services | | | | | | | |
Salaries, wages and benefits | $ | 24,959 |
| | 45.8 | % | | $ | 21,626 |
| | 39.7 | % |
Transportation | 199 |
| | 0.4 |
| | 190 |
| | 0.3 |
|
Supplies and services | 10,238 |
| | 18.8 |
| | 10,894 |
| | 20.0 |
|
Total | $ | 35,396 |
| | 65.0 | % | | $ | 32,710 |
| | 60.0 | % |
ConsolidatedDuring 2022, cost of service revenue forin our home health, hospice, and facility-based segments were impacted by the nine months ended September 30, 2017 was $488.4 million, or 62.6%continued labor market challenges. These challenges are, but not limited to, consistent utilization of net service revenue, compared to $413.6 million, or 60.9%nursing contract labor at a higher cost-per-visit rate, payments of net service revenue, forsign-on and retention bonuses, increased clinician wages, and labor costs associated with acquisitions purchased during the same period in 2016. Consolidated costlatter half of service revenue variances were as follows:2021.
•Home Health Segment -- Cost of service revenue increased as a percentage of net service revenue due in part to 2.0% Medicare reimbursement cuts recognized in 2017. Additionally, acquisitions accounted for $32.5 million of the $58.5 million increase, with the remaining difference caused by growth in our same store agencies.
•Hospice Segment -- Acquisitions accounted for $6.6 million of the $13.4 million increase in cost of service revenue, with the remaining difference caused by growth in our same store agencies. Cost of service increased as a percentage of net service revenuehome and community-based segment declined due to the declineour lower patient volumes resulting in same store admissions during the third quarter of 2017.
•Community-Based Services Segment: Cost of service revenue decreased as a percentage of net service revenue due to the utilization of contract labor in the prior year, which was used to service a higher level of care in our 2016 patient mix.
•Facility-Based Services Segment -- Acquisitions accounted for $3.0 million of the $2.7 million increase in cost of service revenue, which was offset by decrease in cost of service for one LTACH location that hadbillable hours and a reduction of beds during 2016. Cost of service revenue increased as a percentage of net service revenue due to lower revenue per patient day for the period caused by patient criteria changes that went into effect in June 2016 and September 2016.
Provision for bad debts
Consolidated provision for bad debts for the nine months ended September 30, 2017 was $8.2 million, or 1.1% of net service revenue, compared to $11.7 million, or 1.7% of net service revenue, for the same period in 2016. The decrease in provision for bad debts was primarily duetotal costs. In addition, we received the benefit of $3.7 million from various state Medicaid programs in response to continued process improvements implemented in our revenue cycle department. These improvements also contributedCOVID-19 relief funds to the significant decrease in patient accounts receivable that are over 180 days. The Company continues to have more timely cash collections and an increase in amounts collected. The continued maturity of ouroffset higher labor costs.
back office and field operations, use of our point-of-care platform, and use of other technology advancements in reporting and analytics are drivers of collection improvements.
General and administrative expenses
The following table summarizes general and administrative expenses (amounts in thousands, except percentages, which are percentages of the segment’s respective net service revenue):
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, |
| 2022 | | 2021 |
Home health services: | | | | | | | |
General and administrative | $ | 255,113 | | | 32.7 | % | | $ | 237,071 | | | 30.8 | % |
Depreciation and amortization | 6,317 | | | 0.8 | | | 5,571 | | | 0.7 | |
Total | $ | 261,430 | | | 33.5 | % | | $ | 242,642 | | | 31.5 | % |
Hospice services: | | | | | | | |
General and administrative | $ | 62,261 | | | 30.4 | % | | $ | 35,164 | | | 27.8 | % |
Depreciation and amortization | 2,507 | | | 1.2 | | | 1,077 | | | 0.9 | |
Total | $ | 64,768 | | | 31.8 | % | | $ | 36,241 | | | 28.7 | % |
Home and community-based services: | | | | | | | |
General and administrative | $ | 23,245 | | | 26.1 | % | | $ | 22,681 | | | 23.3 | % |
Depreciation and amortization | 617 | | | 0.7 | | | 771 | | | 0.8 | |
Total | $ | 23,862 | | | 26.8 | % | | $ | 23,452 | | | 24.1 | % |
Facility-based services: | | | | | | | |
General and administrative | $ | 21,825 | | | 34.7 | % | | $ | 20,535 | | | 31.9 | % |
Depreciation and amortization | 1,814 | | | 2.9 | | | 1,628 | | | 2.5 | |
Total | $ | 23,639 | | | 37.6 | % | | $ | 22,163 | | | 34.4 | % |
HCI: | | | | | | | |
General and administrative | $ | 6,582 | | | 62.2 | % | | $ | 5,318 | | | 44.6 | % |
Depreciation and amortization | 468 | | | 4.4 | | | 494 | | | 4.1 | |
Total | $ | 7,050 | | | 66.6 | % | | $ | 5,812 | | | 48.7 | % |
Consolidated: | | | | | | | |
General and administrative | $ | 369,026 | | | 32.2 | % | | $ | 320,769 | | | 30.0 | % |
Depreciation and amortization | 11,723 | | | 1.0 | | | 9,541 | | | 0.8 | |
Total | $ | 380,749 | | | 33.2 | % | | $ | 330,310 | | | 30.8 | % |
|
| | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Home health services | | | | | | | |
General and administrative | $ | 158,713 |
| | 27.6 | % | | $ | 145,166 |
| | 29.5 | % |
Depreciation and amortization | 6,440 |
| | 1.1 |
| | 5,782 |
| | 1.2 |
|
Total | $ | 165,153 |
| | 28.7 | % | | $ | 150,948 |
| | 30.7 | % |
Hospice services | | | | | | | |
General and administrative | $ | 30,675 |
| | 26.4 | % | | $ | 26,175 |
| | 26.2 | % |
Depreciation and amortization | 1,729 |
| | 1.5 |
| | 1,612 |
| | 1.6 |
|
Total | $ | 32,404 |
| | 27.9 | % | | $ | 27,787 |
| | 27.8 | % |
Community-based services | | | | | | | |
General and administrative | $ | 6,621 |
| | 19.6 | % | | $ | 6,260 |
| | 19.1 | % |
Depreciation and amortization | 336 |
| | 1.0 |
| | 297 |
| | 0.9 |
|
Total | $ | 6,957 |
| | 20.6 | % | | $ | 6,557 |
| | 20.0 | % |
Facility-based services | | | | | | | |
General and administrative | $ | 15,388 |
| | 28.3 | % | | $ | 14,672 |
| | 27.0 | % |
Depreciation and amortization | 1,175 |
| | 2.2 |
| | 1,332 |
| | 2.4 |
|
Total | $ | 16,563 |
| | 30.5 | % | | $ | 16,004 |
| | 29.4 | % |
Consolidated general and administrative expenses for the nine months ended September 30, 2017 were $221.1 million, or 28.4% of net service revenue, compared to $201.3 million, or 29.6% of net service revenue, for the same period in 2016. AlthoughDuring 2022, consolidated general and administrative expenses increased in total over the same period in 2016, they decreased as a percentage of net service revenue by 1.2%from 30.8% to 33.2%. We continueWe incurred $6.9 million related to leverage efficiencies found in our back office that allows us to maintain generalacquisition expenses and expenses associated with the Merger. In addition, we incurred higher administrative costs without increasing costs in proportionrelated to the growth of our company.
Loss on disposal of assets
The loss on disposal of assets increasedacquisitions purchased during the nine months ended September 30, 2016 primarily due to the salelatter half of an aircraft. The aircraft incurred damage and was subsequently sold at a price below the aircraft's net book value. The sale generated a loss of $0.9 million, which was realized during the nine months ended September 30, 2016.2021.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Our cash balance at June 30, 2022 was $27.4 million and we have $235.9 million of available liquidity from cash and our revolving credit facility, net of $8.2 million liabilities associated with the CAAP. We have additional capacity in our revolving credit facility of $300.0 million per our accordion expansion. Based on our current plan of operations, including acquisitions, we believe this amount, when combined with expected cash flows from operations, will be sufficient to fund our growth strategy and to meet our anticipated operating expenses, capital expenditures, and debt service obligations for at least the next 12 months.
Our principal source of liquidity for operating activities is the collection of patient accounts receivable, most of which are collected from governmental and third partythird-party commercial payors. We also have the ability to obtain additional liquidity, if necessary, through our credit facility, which provides for aggregate borrowings, including outstanding letters of credit, up to $225 million. As of September 30, 2017, we had $95.0 million available for borrowing under our credit facility.credit.
The following table summarizes changes in cash (amounts in thousands):
| | | Nine Months Ended September 30, | | Three months ended June 30, |
| 2017 | | 2016 | | 2022 | | 2021 |
Net cash provided by (used in): | | | | Net cash provided by (used in): | | | |
Operating activities | $ | 61,695 |
| | $ | 57,843 |
| Operating activities | $ | (2,288) | | | $ | (11,824) | |
Investing activities | (69,191 | ) | | (34,635 | ) | Investing activities | (28,808) | | | (24,687) | |
Financing activities | 21,154 |
| | (12,829 | ) | Financing activities | 48,687 | | | (137,950) | |
Change in cash | | Change in cash | $ | 17,591 | | | $ | (174,461) | |
Cash at beginning of period | | Cash at beginning of period | 9,809 | | | 286,569 | |
Cash at end of period | | Cash at end of period | $ | 27,400 | | | $ | 112,108 | |
Cash provided by operating activities changed primarily due
We experienced a decline in net income during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. The decline was related to decreased census, increased collections in patient accounts receivable, accretion oflabor costs, and increased general and administrative costs related to the Merger and acquisitions purchased during the latter part of 2021. This decrease was reflected in 2016,less cash disbursements for income taxes. In addition, our accounts payables and accretionaccrued expenses increased as we implemented a new enterprise system and utilized payment management strategies incorporated within the new system. During the six months ended June 30, 2022, CMS recouped $98.3 million of the CAAP, as compared to $65.0 million during the six months ended June 30, 2021.
In addition, we utilized our credit agreement for funding of the share repurchase plan and recoupments of the CAAP during the six months ended June 30, 2022. We returned $93.3 million of Provider Relief Funds back to the government during the six months ended June 30, 2021.
Indebtedness
On August 3, 2021, we entered into an Amended and Restated Senior Credit Facility (the "2021 Amended Credit Agreement"), which provided a senior, secured revolving line of credit commitment with a maximum principal borrowing limit of $800.0 million, which included an additional $500.0 million accordion expansion, and a letter of credit sub-limit equal to $75.0 million. On December 31, 2021, the aggregate commitment was increased to a maximum borrowing limit of $1.0 billion, with an additional $300.0 million accordion expansion. The expiration date of the 2021 Amended Credit Agreement is August 3, 2026.
Our obligations under the 2021 Amended Credit Agreement are secured by substantially all of our same store agencies.assets and our wholly-owned subsidiaries (subject to customary exclusions), which assets include our equity ownership of our wholly-owned subsidiaries and our equity ownership in joint venture entities. Our wholly-owned subsidiaries also guarantee the obligations of the Company under the 2021 Amended Credit Agreement.
Accounts Receivable
Revolving loans under the 2021 Amended Credit Agreement bear interest, as selected us, at either (i) the prevailing London Interbank Offered Rate ("LIBOR") (with interest periods of one, three or six months at our option) plus a spread of 1.25% to 2.0% based on our quarterly consolidated Leverage Ratio or (ii) the prevailing prime or base rate plus a spread of 0.25% to 1.00% based on our quarterly consolidated Leverage Ratio. Swing line loans bear interest at the Base Rate. We are limited to 15 Eurodollar borrowings outstanding at any time. We are required to pay a commitment fee for the unused commitments at rates ranging from 0.15% to 0.30% per annum depending upon our quarterly consolidated Leverage Ratio. The Base Rate as of June 30, 2022 was 5.75% and Allowancethe LIBOR rate was 3.39%. As of June 30, 2022, the effective interest rate on outstanding borrowings under the 2021 Amended Credit Agreement was 3.24%.
On March 5, 2021, the ICE Benchmark Administration, the administrator of LIBOR, announced its intention to cease the publication of LIBOR settings for Uncollectible Accounts
For home health services, hospice services,1-month, 3-month, 6-month, and community-based services, we calculate12-month LIBOR borrowings immediately on June 30, 2023. JPMorgan Chase Bank, N.A will transition our 2021 Amended Credit Agreement to an alternate rate to CME Term SOFR Reference Rate ("SOFR"), which is administered by CME Group Benchmark Administration Ltd ("CME"). Due to the allowance for uncollectible accounts asdifferences observed between LIBOR rates and SOFR published rates, JPMorgan Chase Bank, N.A. will use a percentage of total patient receivables.credit spread adjustment ("CSA") in order to minimize value transfer and leave the existing margin applicable to our 2021 Amended Credit Agreement. The percentage changes dependingCSA used by JPMorgan Chase Bank, N.A. is based on the payoraverage of the differences between LIBOR and increases as the patient receivables age. For facility-based services, we calculate the allowance for uncollectible accounts based onSOFR over a claim by claim review.12-month period and will be added to SOFR.
As of SeptemberJune 30, 2017, our allowance for uncollectible accounts, as a percentage of patient accounts receivable, was approximately 15.2%, or $26.1 million, compared to 18.9% or $29.0 million at December 31, 2016. Days sales outstanding was 49 days for September 30, 2017 and December 31, 2016.
The following table sets forth as of September 30, 2017, the aging of accounts receivable (amounts in thousands):
|
| | | | | | | | | | | | | | | | | | | |
Payor | 0-90 | | 91-180 | | 181-365 | | Over 365 | | Total |
Medicare | $ | 78,600 |
| | $ | 14,145 |
| | $ | 2,725 |
| | $ | 6,196 |
| | $ | 101,666 |
|
Medicaid | 5,507 |
| | 2,588 |
| | 614 |
| | 1,393 |
| | 10,102 |
|
Other | 38,804 |
| | 8,860 |
| | 6,557 |
| | 5,608 |
| | 59,829 |
|
Total | $ | 122,911 |
| | $ | 25,593 |
| | $ | 9,896 |
| | $ | 13,197 |
| | $ | 171,597 |
|
The following table sets forth as of December 31, 2016, the aging of accounts receivable (amounts in thousands):
|
| | | | | | | | | | | | | | | | | | | |
Payor | 0-90 | | 91-180 | | 181-365 | | Over 365 | | Total |
Medicare | $ | 71,386 |
| | $ | 9,590 |
| | $ | 5,547 |
| | $ | 5,720 |
| | $ | 92,243 |
|
Medicaid | 4,600 |
| | 1,470 |
| | 1,380 |
| | 268 |
| | 7,718 |
|
Other | 33,084 |
| | 5,943 |
| | 7,179 |
| | 7,672 |
| | 53,878 |
|
Total | $ | 109,070 |
| | $ | 17,003 |
| | $ | 14,106 |
| | $ | 13,660 |
| | $ | 153,839 |
|
Indebtedness
As of September 30, 2017,2022, we had $95.0$759.0 million available for borrowing under our credit facility with $119.0 million drawn, under our credit facility and $11.0 million of letters of credit outstanding.issued in the amount of $24.3 million, and $216.7 million of remaining borrowing capacity available under the 2021 Amended Credit Agreement. At December 31, 2016,2021, we had $87.0$661.2 million drawn and $11.0 million of letters of credit outstandingissued in the amount of $24.3 million under our credit facility.the 2021 Amended Credit Facility.
For a discussion on ourUnder the 2021 Amended Credit Agreement with Capital One National Association, see Note 5 of the Notes to Condensed Consolidated Financial Statements, which is incorporated herein by reference.
AJPMorgan Chase Bank, N.A., a letter of credit fee shall be equal to the applicable Eurodollar rate multiplied-byon the faceaverage daily amount of the letter of credit is charged upon the issuance and on each anniversary date while the letter of credit is outstanding.exposure. The agent’s standard up-front fee and other customary administrative charges will also be due upon issuance of the letter of credit along with a renewal fee on each anniversary date of such issuance while the letter of credit is outstanding. Borrowings accrue interest under the 2021 Amended Credit Agreement at either the Base Rate or the Eurodollar rate, and are subject to the applicable margins set forth below:
| | | | | | | | | | | | | | | | | | | | |
Leverage Ratio | | Eurodollar Margin | | Base Rate Margin | | Commitment Fee Rate |
≤1.00:1.00 | | 1.25 | % | | 0.25 | % | | 0.15 | % |
>1.00:1.00 ≤ 2.00:1.00 | | 1.50 | % | | 0.50 | % | | 0.20 | % |
>2.00:1.00 ≤ 3.00:1.00 | | 1.75 | % | | 0.75 | % | | 0.25 | % |
>3.00:1.00 | | 2.00 | % | | 1.00 | % | | 0.30 | % |
|
| | | | | | | | | |
Leverage Ratio | | Eurodollar Margin | | Base Rate Margin | | Commitment Fee Rate |
≤1.00:1.00 | | 1.75 | % | | 0.75 | % | | 0.225 | % |
>1.00:1.00 ≤ 1.50:1.00 | | 2.00 | % | | 1.00 | % | | 0.250 | % |
>1.50:1.00 ≤ 2.00:1.00 | | 2.25 | % | | 1.25 | % | | 0.300 | % |
>2.00:1.00 | | 2.50 | % | | 1.50 | % | | 0.375 | % |
Our 2021 Amended Credit Agreement contains customary affirmative, negative and financial covenants. For example, without prior approvalcovenants, which are subject to customary carve-outs, thresholds, and materiality qualifiers. The Credit Facility allows us to make certain restricted payments within certain parameters provided we maintain compliance with those financial ratios and covenants after giving effect to such restricted payments or, in the case of our bank group, werepurchasing shares of its stock, so long as such repurchases are materially restricted in incurring additional debt, disposing of assets, making investments, allowing fundamental changes to our business or organization, and makingwithin certain payments in respect of stock or other ownership interests, such as dividends and stock repurchases, up to $50 million. Under our Credit Agreement, we are also required to meet certain financial covenants with respect to minimum fixed charge coverage and leverage ratios.specified baskets.
Our 2021 Amended Credit Agreement also contains customary events of default.default, which are subject to customary carve-outs, thresholds, and materiality qualifiers. These include bankruptcy and other insolvency events, cross-defaults to other debt agreements, a change in control involving us or any subsidiary guarantor, and the failure to comply with certain covenants.
At SeptemberJune 30, 2017,2022, we were in compliance with all covenants contained in the Credit Agreement governing our credit facility.debt covenants.
Contingencies
For a discussion of contingencies, see Note 7 of the Notes to Condensed Consolidated Financial Statements, which is incorporated herein by reference.
Off-Balance Sheet Arrangements
We do not currently have any off-balance sheet arrangements with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market, or credit risk that could arise if we had engaged in these relationships.
Critical Accounting Policies
For a discussion of critical accounting policies, see Note 2 of the Notes to Condensed Consolidated Financial Statements, which is incorporated herein by reference.
Accounts Receivable and Allowances for Uncollectible Accounts
We report accounts receivable net of estimated allowances for uncollectible accounts and adjustments. Accounts receivable are uncollateralized and consist of amounts due from Medicare, Medicaid, other third-party payors, and patients. To provide for accounts receivable that could become uncollectible in the future, we establish an allowance for uncollectible accounts to reduce the carrying amount of such receivables to their estimated net realizable value.
The collection of outstanding receivables is our primary source of cash collections and is critical to our operating performance. Because Medicare is our primary payor, the credit risk associated with receivables from other payors is limited. We believe the credit risk associated with our Medicare accounts, which historically exceeds 50%Part II. Item 7 of our patient accounts receivable as of September 30, 2017 and December 31, 2016, respectively, is limited due to (i) the historical collections from Medicare and (ii) the fact that Medicare is a U.S. government payor. We do not believe that there are any other significant concentrations of receivables from any particular payor that would subject us to any significant credit risk in the collection of accounts receivable.2021 Form 10-K.
The amount of the provision for bad debts is based upon our assessment of historical and expected net collections, business and economic conditions and trends in government reimbursement. Quarterly, we perform a detailed review of historical writeoffs and recoveries as well as recent collection trends. Uncollectible accounts are written off when we have exhausted collection efforts and concluded the account will not be collected.
Although our estimated reserves for uncollectible accounts are based on historical experience and the most current collection trends, this process requires significant judgment and interpretation of the observed trends and the actual collections could differ from our estimates.
Insurance
We retain significant exposure for our employee health insurance, workers compensation, employment practices, and professional liability insurance programs. Our insurance programs require us to estimate potential payments on filed claims and/or claims incurred but not reported. Our estimates are based on information provided by the third-party plan administrators, historical claim experience, expected costs of claims incurred but not paid and expected costs associated with settling claims. Each month, we review the insurance-related recoveries and liabilities to determine if any adjustments are required.
Our employee health insurance program is self-funded, with stop-loss coverage on claims that exceed $0.2 million for any individually covered employee or employee family member. We are responsible for workers’ compensation claims up to $0.5 million per individual incident.
Malpractice, employment practices, and general liability claims for incidents which may give rise to litigation have been asserted against us by various claimants. The claims are in various stages of processing and some may ultimately be brought to trial. We are aware of incidents that have occurred through September 30, 2017 that may result in the assertion of additional claims. We currently carry professional, general liability and employment practices insurance coverage (on a claims made basis) for this exposure. We also carry D&O coverage (also on a claims made basis) for potential claims against our directors and officers, including securities actions, with a deductible of $1.0 million per security claim and $0.5 million on other claims.
We estimate our liabilities related to these programs using the most current information available. As claims develop, we may need to change the recorded liabilities and change our estimates. These changes and adjustments could be material to our financial statements, results of operations and financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.RISK
Our exposure to market risk relates to changes in interest rates for borrowings under our credit facility. Our letter of credit fees and interest accrued on our debt borrowings are subject to the applicable Eurodollar or Base Rate. A hypothetical basis point increase in interest rates on the average daily amounts outstanding under the credit facility would have increased our interest expense by $0.7$3.8 million for the ninesix months ended SeptemberJune 30, 2017.2022.
ITEM 4. CONTROLS AND PROCEDURES.PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintainestablished disclosure controls and procedures (as defined in Rule 13a-15(e)which are designed to provide reasonable assurance of the Exchange Act) that are designedachieving their objectives and to ensure that information that we are required to disclosebe disclosed in ourits reports filed or submitted 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 and that suchforms. This information is also accumulated and communicated to our management including our Chief Executive Officer and Chief Financial Officer, as appropriate,Board of Directors to allow timely decisions regarding required disclosure. Our management,
In connection with the preparation of this Quarterly Report on Form 10-Q, as of June 30, 2022, under the supervision and with the participation of our Chief Executive Officermanagement, including the principal executive officer and Chief Financial Officer, evaluatedprincipal financial officer, management conducted an evaluation of the effectiveness of the designdisclosure controls and operation ofprocedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act.
Based on this evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2022, the end of the period covered by this report.
Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) were effective as of September 30, 2017.Quarterly Report.
Changes in Internal Controls Over Financial Reporting
There haveWe, including the principal executive officer and principal financial officer, do not been any changes inexpect that our disclosure controls or our internal controlcontrols over financial reporting as such term is defined in Rule 13a-15(f)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 Exchange Act, duringinherent 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 quarterlyrealities 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 the controls and procedures, the principal executive officer and principal financial officer concluded the disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2022, the end of the period ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.covered by this Quarterly Report.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.PROCEEDINGS
For a discussion of legal proceedings, see Note 7 of the Notes to Condensed Consolidated Financial Statements, which is incorporated herein by reference.
ITEM 1A. RISK FACTORS.FACTORS
There have been no material changes in the Company’s risk factors from the information includedthose in Part I, Item 1A.1A, “Risk Factors” of the Company’s 2016our 2021 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.PROCEEDS
On December 6, 2021, our Board of Directors approved a share repurchase program authorizing management to repurchase
up to $250.0 million of our common stock. We may purchase common stock in open market transactions, block or privately
negotiated transactions, and may from time to time purchase shares pursuant to a trading plan in accordance with Rule 10b5-1
and Rule 10b-18 under the Exchange Act or by any combination of such methods, in each case subject to compliance with all
SEC rules and other legal requirements. The number of shares to be purchased and the timing of the purchases are based on a
variety of factors, including, but not limited to, the level of cash balances, credit availability, debt covenant restrictions,
general business conditions, the market price of our stock and the availability of alternative investment opportunities. No
time limit was set for completion of repurchases under the new authorization, and the program may be suspended or
discontinued at any time.
The following table provides information regarding shares of our common stock, $0.01 par value per share, purchased in accordance with the stock repurchase plan during the three months ended March 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | (a) Total number of shares repurchased | | (b) Average price paid per share | | (c) Total number of shares purchased as part of publicly announced plans or programs | | (d) Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs |
January 1, 2022 - January 31, 2022 | | 190,622 | | | $ | 133.63 | | | 190,622 | | | $ | 140,791,831 | |
February 1, 2022 - February 28, 2022 | | — | | | $ | — | | | — | | | $ | 140,791,831 | |
March 1, 2022 - March 31, 2022 | | — | | | $ | — | | | — | | | $ | 140,791,831 | |
Total | | 190,622 | | | $ | 133.63 | | | 190,622 | | | $ | 140,791,831 | |
We did not repurchase any shares during the three months ended June 30, 2022.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS.EXHIBITS
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32.1* | |
101.INS | 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.INS101.SCH | |
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101.PRE | |
101.PRE | |
Attached as Exhibit 101 to this report are documents formatted in XBRL (Extensible Business Reporting Language). Users of this data are advised pursuant to Rule 406T of Regulation S-T that the interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of section 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise not subject to liability under these sections. The financial information contained in the XBRL-related documents is “unaudited” or “unreviewed.”
*This exhibit is furnished to the SEC as an accompanying document and is not deemed to be ��filed”“filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, and the document will not be deemed incorporated by reference into any filing under the Securities Act of 1933.
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.
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| | | | | | | |
| | LHC GROUP, INC. |
| | (Registrant) |
Date: November 6, 2017 | | /s/ Joshua L. Proffitt |
Date: August 4, 2022 | | Joshua L. Proffitt/s/ Dale G. Mackel |
| | Executive Vice President and Dale G. Mackel
|
| | Chief Financial Officer (Principal financial officer)
|