AMEDISYS, INC.
The following discussion and analysis provides information we believe is
relevant to an assessment and understanding of our results of operations and
financial condition for 2019, 2018 and 2017. This discussion should be read in
conjunction with our audited financial statements included in Item 8, "Financial
Statements and Supplementary Data" and Part I, Item 1, "Business" of this Annual
Report on Form 10-K. The following analysis contains forward-looking statements
about our future revenues, operating results and expectations. See "Special
Caution Concerning Forward-Looking Statements" for a discussion of the risks,
assumptions and uncertainties affecting these statements as well as Part I, Item
1A, "Risk Factors."
Overview
We are a provider of high-quality in-home healthcare and related services to the
chronic, co-morbid, aging American population, with approximately 74%, 73% and
76% of our revenue derived from Medicare for 2019, 2018 and 2017, respectively.
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Our operations involve servicing patients through our three reportable business
segments: home health, hospice and personal care. Our home health segment
delivers a wide range of services in the homes of individuals who may be
recovering from an illness, injury or surgery. Our hospice segment provides care
that is designed to provide comfort and support for those who are facing a
terminal illness. Our personal care segment provides patients assistance with
the essential activities of daily living. As of
Home Health Hospice Personal Care
At December 31, 2016 330 81 14
Acquisitions/Start-Ups/De Novos 3 2 7
Closed/Consolidated (10 ) - (6 )
At December 31, 2017 323 83 15
Acquisitions/Start-Ups/De Novos 1 1 1
Closed/Consolidated (1 ) - (4 )
At December 31, 2018 323 84 12
Acquisitions/Start-Ups/De Novos 3 59 -
Closed/Consolidated (5 ) (5 ) -
At December 31, 2019 321 138 12
When we refer to "same store business," we mean home health, hospice and
personal-care care centers that we have operated for at least the last twelve
months and start-ups that are an expansion of a same store care center; when we
refer to "acquisitions," we mean home health, hospice and personal-care care
centers that we acquired within the last twelve months; and when we refer to "de
novos," we mean home health, hospice and personal-care care centers opened by us
in the last twelve months which are not an expansion of a same store care
center. Once a care center has been in operation for a twelve month period, the
results for that particular care center are included as part of our same store
business from that date forward.
2019 Developments
• Continued to deliver on our goal of clinical distinction with 86% of our
care centers at 4+ Stars in the
release.
• Outperformed the industry on all Hospice Item Set ("HIS") measures.
• Performed over 12.3 million visits.
• Lowered company voluntary turnover rate to 16.9%.
• Acquired and successfully integratedCompassionate Care Hospice ("CCH") andRoseRock Healthcare ("RoseRock") and signed a definitive agreement to acquireAsana Hospice (subsequently closed onJanuary 1, 2020 ) makingAmedisys the third largest hospice company inthe United States , exceeding 11,000 in hospice average daily census. • Successfully piloted several tools and data analytics platforms of Medalogix, a predictive data and analytics company, helping to further optimize our current business and enabling us to work more closely with Medicare Advantage payors. • Implemented pay practice changes and staffing model efficiencies to further drive operational excellence. • Invested in the business to prepare ourselves for the Patient-Driven Groupings Model ("PDGM"). • Executed innovative personal care partnership withClearCare , givingAmedisys access to personal care services nationwide.
• Increased net service revenue 18% and operating income 14%.
• Expanded home health gross margin as a percentage of revenue by 150 basis
points.
• Delivered over
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2020 Strategy • Continue our commitment to clinical distinction with a goal of all care
centers achieving a minimum of 4.0 Quality Star Rating.
• Continue to focus on consistent organic growth (de novos) and inorganic
expansion in all three segments.
• Focus on recruitment and retention, applying more sophisticated analytics
to understand what drives turnover.
• Successfully implement PDGM.
• Invest in further expansion of Medalogix products.
• Deliver on CCH expectations through realization of synergies.
• Expand revenue in innovative payment relationships with Medicare Advantage
payors.
• Build infrastructure to provide care coordination to patients in need of
home health, hospice or personal care.
• Incubate new and innovative relationships focused on expanding our breadth
and depth inside the home.
Financial Performance
Results for the year ended December 31, 2019 reflect the results of our
continued focus on operational improvements and efficiencies and the successful
acquisition and integration of our hospice acquisitions.
Our home health care centers experienced growth in volumes and improvement in
utilization and clinician mix which, combined with the positive impact of the
2019 changes in reimbursement, led to the segment delivering a $27 million
increase in operating income.
Our hospice segment completed the acquisitions of CCH and RoseRock. These
acquisitions contributed approximately $22 million in operating income to the
hospice segment.
Our personal care segment contributed approximately $8 million in operating
income during 2019.
Economic and Industry Factors
Our home health, hospice and personal care segments operate in a highly
fragmented and highly competitive industry. The degree of competitiveness varies
based upon whether our care centers operate in states that require a certificate
of need (CON) or permit of approval (POA). In such states, expansion by existing
providers or entry into the market by new providers is permitted only where
determination is made by state health authorities that a given amount of unmet
healthcare need exists. Currently, 70% and 28% of our home health and hospice
care centers, respectively, operate in CON/POA states.
As the Federal government continues to debate a reduction in expenditures and a
reform of the Medicare system, our industry continues to face reimbursement
pressures. These reform efforts could result in major changes in the health care
delivery and reimbursement system on a national and state level, including
changes directly impacting the reimbursement systems for our home health and
hospice care centers.
Payment
In July 2019 , the Centers for Medicare and Medicaid Services ("CMS") issued a
final rule to update hospice payment rates and the wage index for fiscal year
2020. The rule includes a rebasing of continuous home care, inpatient respite
care and general inpatient care to better reflect the costs of care. This
rebasing resulted in a reduction in routine home care payments of 2.7% to
achieve budget neutrality. In addition, CMS eliminated the one-year "lag" in the
use of the hospital wage index in an effort to align with the Inpatient
Prospective Payment System ("IPPS") and other payment systems. CMS estimates
hospices serving Medicare beneficiaries would see an estimated 2.6% increase in
payments. This increase is the result of a 3.0% market basket adjustment less a
0.4% productivity adjustment. We have estimated the impact of the final rule on
us to be an increase in revenue of approximately 0.5%; however, we are expecting
the impact on gross margin percentage to be a reduction of approximately 0.5% as
the majority of the revenue increase will be passed through to the general
inpatient and respite facilities. These estimates are subject to change based on
our mix of patients.
The CMS Calendar Year 2019 Home Health Final Rule, released in November 2018 ,
provided for the first payment rate increase for home health providers since
2010. In the 2019 rule, CMS also issued proposed payment changes for Medicare
home health providers for 2020. These proposed changes included changes to the
Home Health Prospective Payment System ("HHPPS") case-mix adjustment methodology
through the use of a new PDGM for home health payments, a change in the unit of
payment from a 60-day payment period to a 30-day payment period and the
elimination of the use of therapy visits in the determination of payments.
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The CMS Calendar Year 2020 Home Health Final Rule, released in
Home Health Hospice
2020 (1) 2019 2018 (2) 2020 (3) 2019 2018
Market Basket Update 1.5 % 3.0 % 1.0 % 3.0 % 2.9 % 1.0 %
Rural Add-On
Adjustment (0.2 ) - - - - -
Nominal Case Mix
Adjustment - - (0.9 ) - - -
PPACA Adjustment - - - - (0.3 ) -
Productivity
Adjustment - (0.8 ) - (0.4 ) (0.8 ) -
Estimated Industry
Impact 1.3 % 2.2 % 0.1 % 2.6 % 1.8 % 1.0 %
Behavioral Assumptions (4.4 )%
Estimated Industry
Impact Including
Behavioral Assumptions (3.1 )%
Estimated
Company-Specific
Impact (4) (2.8 )% 1.2 % (0.7 )% 0.5 % 1.6 % 1.0 %
(1) The estimated industry impact of 1.3% only applies to episodes that started
on or before December 31, 2019 and are scheduled to complete on or after
January 1, 2020 . The estimated industry impact including behavioral
assumptions of (3.1)% only applies to episodes that started on or after
January 1, 2020 .
(2) Includes the targeted extension of the home health rural add-on payment
from the Bipartisan Budget Act of 2018.
(3) Effective for services provided from
(4) Our company-specific impact of the home health final rule differs depending
on differences in the wage index and the impact of coding and outlier
changes. Our company-specific impact of the hospice final rule differs
based on our mix of patients.
Payor Changes
Effective November 1, 2019 , one of our episodic payors phased out their episodic
plan offering, and the members were transferred to plans that pay per visit. We
expect the overall financial impact of the change to be minimal.
Partnerships
In July 2019 , we signed an agreement with ClearCare, Inc. ("ClearCare"), the
provider of the personal care industry's leading software platform, representing
4,000 personal care agencies in every zip code in the United States . Our
agreement with ClearCare creates an opportunity to establish a network
partnership between Amedisys and personal care agencies using ClearCare in order
to better coordinate patient care. Long term, we believe this allows us to build
a nation-wide network of personal care agencies and furthers our efforts to
provide patients with a true care continuum in the home. This relationship will
also help us as we continue to have innovative payment conversations with
Medicare Advantage plans who have begun to recognize the value that combined
home health, hospice and personal care services bring to their members and care
delivery infrastructure.
Governmental Inquiries and Investigations and Other Litigation
See Item 8, Note 10 - Commitments and Contingencies to our consolidated
financial statements for additional information regarding our corporate
integrity agreement ("CIA"), the CCH CIA, the subpoena and civil investigative
demands issued by the U.S. Department of Justice and the South Carolina and
Florida Zone Program Integrity Contractor audits. No assurances can be given as
to the timing or outcome of these items.
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Results of Operations
Consolidated
The following table summarizes our consolidated results of operations (amounts
in millions):
For the Years Ended December 31,
2019 2018 2017
Net service revenue $ 1,955.6 $ 1,662.6 $ 1,511.3
Gross margin, excluding depreciation and
amortization 805.3 669.7 607.9
% of revenue 41.2 % 40.3 % 40.2 %
Other operating expenses 607.9 501.3 482.3
% of revenue 31.1 % 30.1 % 31.9 %
Depreciation and amortization 18.4 13.3 17.1
Securities Class Action Lawsuit settlement,
net - - 28.7
Asset impairment charge 1.5 - 1.3
Operating income 177.5 155.1 78.5
Total other (expense) income, net (7.1 ) 3.8 2.3
Income tax expense (42.5 ) (38.8 ) (50.1 )
Effective income tax rate 24.9 % 24.4 % 62.0 %
Net income 127.9 120.1 30.7
Net income attributable to noncontrolling
interests (1.1 ) (0.8 ) (0.4 )
Net income attributable to
Year Ended
Total other (expense) income, net includes the following items (amounts in
millions):
For the Years Ended
December 31,
2019 2018
Interest income $ 0.1 $ 0.3
Interest expense (14.5 ) (7.4 )
Equity in earnings from equity method investments 5.3 7.7
Miscellaneous, net 2.0 3.2
$ (7.1 ) $ 3.8 Interest expense increased
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regarding our Amended Credit Agreement). Equity in earnings from equity method investments includes gains of$2 million and$5 million for 2019 and 2018, respectively. Year EndedDecember 31, 2018 Compared to the Year EndedDecember 31, 2017 Overall, our operating income increased$77 million on a revenue increase of$151 million . Our 2017 operating results were negatively impacted$40 million ; these impacts include a$30 million charge for the Securities Class Action Lawsuit settlement and related legal fees, a$7 million reduction in revenue as a result of the Florida ZPIC audit and charges of approximately$3 million related to our home health closures and restructuring plan. Excluding these 2017 impacts, operating income increased$37 million , driven by continued growth in our home health and hospice segments, increases in clinical productivity in our home health segment and a continued focus on maintaining cost discipline, as our other operating expenses increased only 3% on a 10% increase in net service revenue. In addition, our gross margin as a percentage of revenue was relatively flat despite a net reduction of$3 million in net service revenue and gross margin resulting from the 2018 changes in reimbursement and planned wage increases. Our 2018 operating results include the results of our acquisition ofChristian Care at Home, which provided home health services to the state ofKentucky , East Tennessee Personal Care Services, which owned and operated one personal-care care center servicing the state ofTennessee , and certain personal care operations from Bring Care Home inMassachusetts . These three acquisitions accounted for approximately$5 million of our$151 million increase in revenue and$1 million of our$15 million increase in other operating expenses. Total other income, net includes the impact of the following items (amounts in millions): For the Years Ended December 31, 2018 2017 Interest income$ 0.3 $ 0.1 Interest expense (7.4 ) (5.0 ) Equity in earnings from equity method investments 7.7 3.4 Miscellaneous, net 3.2 3.8$ 3.8 $ 2.3
Interest expense includes interest expense related to the Florida ZPIC audit of
Our 2017 income tax expense includes a
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Home Health Division
The following table summarizes our home health segment results of operations:
For the Years Ended December 31,
2019 2018 2017
Financial Information (in millions):
Medicare $ 859.2 $ 830.8 $ 793.3
Non-Medicare 397.2 343.7 290.6
Net service revenue 1,256.4 1,174.5 1,083.9
Cost of service 754.1 722.1 670.9
Gross margin 502.3 452.4 413.0
Asset impairment charge 1.5 - 1.3
Other operating expenses 301.4 279.8 281.9
Operating income $ 199.4 $ 172.6 $ 129.8
Same Store Growth (1):
Medicare revenue 4 % 6 % (4 %)
Non-Medicare revenue 16 % 18 % 17 %
Total admissions 7 % 5 % 2 %
Total volume (2) 5 % 7 % 4 %
Key Statistical Data - Total (3):
Medicare:
Admissions 195,513 190,748 190,132
Recertifications 110,460 112,773 106,774
Total volume 305,973 303,521 296,906
Completed episodes 300,551 296,223 290,227
Visits 5,207,563 5,261,315 5,067,436
Average revenue per completed episode (4)
17.3 17.6 17.3
Non-Medicare:
Admissions 133,180 118,577 107,665
Recertifications 62,108 55,736 46,364
Total volume 195,288 174,313 154,029
Visits 3,065,745 2,772,339 2,347,363
Total (3):
Visiting Clinician Cost per Visit
$ 8.04 $ 8.01 $ 8.44 Total Cost per Visit$ 91.15 $ 89.89 $ 90.48 Visits 8,273,308 8,033,654 7,414,799 (1) Same store information represents the percent change in our Medicare, Non-Medicare and Total revenue, admissions or volume for the period as a percent of the Medicare, Non-Medicare and Total revenue, admissions or volume of the prior period. EffectiveJuly 1, 2019 , same store is defined as care centers that we have operated for at least the last twelve months and startups that are an expansion of a same store care center.
(2) Total volume includes all admissions and recertifications.
(3) Total includes acquisitions and de novos.
(4) Average Medicare revenue per completed episode is the average Medicare
revenue earned for each Medicare completed episode of care.
(5) Medicare visits per completed episode are the home health Medicare visits
on completed episodes divided by the home health Medicare episodes
completed during the period.
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Year EndedDecember 31, 2019 Compared to the Year EndedDecember 31, 2018 Operating Results Overall, our operating income increased$27 million on an$82 million increase in net service revenue. Our gross margin as a percentage of revenue was positively impacted by the 2019 changes in reimbursement, growth in volumes, the acuity level of our patients, improved utilization and a focus on discipline mix. The impact of the 2019 change in reimbursement was an increase in net service revenue and gross margin of approximately$12 million . Net Service Revenue Our revenue increased$82 million (7%) on a 5% increase in total volume and a 2% increase in Medicare revenue per episode. The volume growth was driven by a 7% increase in admissions offset by lower recertification volume. The increase in Medicare revenue per episode is the result of a 1.2% increase in reimbursement with the remainder due to an increase in the acuity level of our patients. Additionally, our non-Medicare (per visit and episodic) rates increased approximately 3% which is a combination of rate increases and increases in the acuity level of our patients. Revenue was also positively impacted by a reduction in our revenue adjustments. Cost of Service, Excluding Depreciation and Amortization Our cost of service consists of costs associated with direct clinician care in the homes of our patients as well as the cost of clinical managers who monitor the overall delivery of care. Our cost of service increased 4% on a 3% increase in total visits. Our total cost per visit increased approximately 1% as improvements in clinician utilization and optimization of discipline mix partially offset planned wage increases. Additionally, changes in our home health care center staffing resulted in a shift of some office staff from cost of service to other operating expenses totaling approximately$4 million . Other Operating Expenses Other operating expenses increased approximately$22 million primarily due to an increase in salaries and benefits expense as a result of the addition of resources to support volume growth, planned wage increases and the home health staffing shifts referenced above. Year EndedDecember 31, 2018 Compared to the Year EndedDecember 31, 2017 Operating Results Overall, our operating income increased$43 million on a$91 million increase in net service revenue. The$43 million increase includes a$7 million reduction in revenue related to the Florida ZPIC audit in 2017. Our growth in volumes and increases in clinician productivity positively impacted our gross margin as a percentage of revenue, which increased despite the 2018 changes in reimbursement and planned wage increases. The impact of the 2018 changes in reimbursement was a reduction in net service revenue and gross margin of approximately$7 million . Net Service Revenue Our revenue increased$91 million on a 7% increase in total volume. The volume growth was driven by a 5% increase in admissions and a 130 basis point increase in our Medicare recertification rate. In addition to the increase in volume, our revenue per episode was up$31 per episode as a result of an increase in the acuity level of our patients which enabled us to overcome the 70 basis point reimbursement reduction effectiveJanuary 1, 2018 . Cost of Service, Excluding Depreciation and Amortization Our cost of service increased 8% on an 8% increase in total visits. Our increase in total visits was driven by growth in volumes as well as an increase in visits per completed episode which is the result of an increase in the acuity level of our patients. Our cost per visit decreased 1% as an increase in clinician productivity offset planned wage increases. 38
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Other Operating Expenses Other operating expenses decreased approximately$2 million on an 8% increase in net service revenue primarily due to a decrease in salaries and benefits expense as 2017 operating expenses included approximately$3 million in costs related to our home health restructuring plan. Additionally, we experienced decreases in rent expense, professional fees and telecommunications expense which were offset by increases in information technology expense and travel and training expense. Hospice Division The following table summarizes our hospice segment results of operations: For the Years Ended December 31, 2019 2018 2017 Financial Information (in millions): Medicare$ 586.6 $ 390.2 $ 350.7 Non-Medicare 30.6 20.7 17.1 Net service revenue 617.2 410.9 367.8 Cost of service 335.1 212.0 187.5 Gross margin 282.1 198.9 180.3 Other operating expenses 139.1 85.7 77.5 Operating income$ 143.0 $ 113.2 $ 102.8 Same Store Growth (1): Medicare revenue 7 % 11 % 17 % Hospice admissions 4 % 8 % 11 % Average daily census 7 % 11 % 15 % Key Statistical Data - Total (2): Hospice admissions 40,194 27,596 25,381 Average daily census 11,164 7,588 6,820 Revenue per day, net$ 151.47 $ 148.36 $ 147.75 Cost of service per day$ 82.24 $ 76.53 $ 75.31 Average discharge length of stay 98 100 93 (1) Same store information represents the percent change in our Medicare revenue, Hospice admissions or average daily census for the period as a percent of the Medicare revenue, Hospice admissions or average daily census of the prior period. EffectiveJuly 1, 2019 , same store is defined as care centers that we have operated for at least the last twelve months and startups that are an expansion of a same store care center.
(2) Total includes acquisitions and de novos.
Year Ended
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Net Service Revenue Our hospice revenue increased$206 million ; approximately$174 million of which is attributable to our acquisition activities. The remaining$32 million increase is the result of a 7% increase in our average daily census and increases in reimbursement totaling 1.6% and 0.5% effective for services provided fromOctober 1, 2018 andOctober 1, 2019 , respectively, partially offset by an increase in our revenue adjustments, which include a$7 million reduction to revenue and gross margin related to theU.S. Department of Justice matter noted above. Cost of Service, Excluding Depreciation and Amortization Our hospice cost of service increased$123 million , approximately$110 million of which is attributable to our acquisition activity. The remaining$13 million increase is primarily due to a 7% increase in average daily census, planned wage increases and an increase in our general inpatient and respite facility costs as the majority of the reimbursement increase, which became effectiveOctober 1, 2019 , will be passed through to these facilities. Our cost of service per day increased 7%, largely driven by our acquisitions as our same store cost of service per day remained relatively flat. We expect our acquisitions' cost of service per day to approximate our legacy metric as we fully integrate them during 2020. Other Operating Expenses Other operating expenses increased$53 million ; approximately$42 million of the increase is related to our acquisition activity. The remaining$11 million increase is due to increases in other care center related expenses, primarily salaries and benefits expense due to the addition of resources to support census growth and planned wage increases, professional fees and travel and training expense. Year EndedDecember 31, 2018 Compared to the Year EndedDecember 31, 2017 Operating Results Overall, our operating income increased$10 million on a$43 million increase in net service revenue. The 12% increase in net service revenue was partially offset by a lower gross margin as a percentage of revenue primarily related to planned wage increases, an increase in revenue adjustments and amounts due back to Medicare for hospice caps and an increase in other operating expenses. Net Service Revenue Our hospice revenue increased$43 million on an 11% increase in our average daily census and a 1.0% and 1.6% increase in reimbursement effective for services provided from eachOctober 1, 2017 andOctober 1, 2018 , respectively. We experienced a$2 million increase in our revenue adjustments and cap which partially offset the revenue increase for the year endedDecember 31, 2018 . Cost of Service, Excluding Depreciation and Amortization Our hospice cost of service increased$25 million (13%) as the result of an 11% increase in average daily census. Our cost of service per day increased 2% primarily due to an increase in salary cost per day as a result of planned wage increases. Other Operating Expenses Other operating expenses increased$8 million on a 12% increase in net service revenue. The increase was related to other care center related expenses, primarily salaries and benefits expense, advertising expense, information technology expense, professional fees and travel and training expense as a result of the addition of resources to support census growth. 40
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Personal Care Division
The following table summarizes our personal care segment results of operations:
For the Years Ended December 31,
2019 2018 2017
Financial Information (in millions):
Medicare $ - $ - $ -
Non-Medicare 82.0 77.2 59.6
Net service revenue 82.0 77.2 59.6
Cost of service 61.1 58.8 45.0
Gross margin 20.9 18.4 14.6
Other operating expenses 12.5 13.1 9.7
Operating income $ 8.4 $ 5.3 $ 4.9
Key Statistical Data:
Billable hours 3,308,338 3,248,304 2,604,794
Clients served 17,364 17,981 16,774
Shifts 1,488,175 1,468,541 1,195,511
Revenue per hour 24.80 23.75 22.86
Revenue per shift 55.13 52.54 49.80
Hours per shift 2.2 2.2 2.2
Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018
Operating income related to our personal care segment increased $3 million on a
$5 million increase in net service revenue. These results are inclusive of the
acquisitions of East Tennessee Personal Care Services (May 2018 ) and Bring Care
Home (October 2018 ). As a result, our personal care operating results for 2019
and 2018 are not fully comparable.
Gross margin as a percentage of revenue increased 170 basis points as the
segment benefited from rate increases combined with operating cost controls.
Additionally, other operating expenses decreased approximately $1 million
resulting in an increase in operating income.
Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017
Operating income related to our personal care segment remained flat on an $18
million increase in net service revenue. 2018 revenues were positively impacted
by the following acquisitions: Intercity Home Care (October 2017 ), East
Tennessee Personal Care Services (May 2018 ) and Bring Care Home (October 2018 ).
The segment experienced a decrease in gross margin as a percentage of revenue
related to additional costs associated with these acquisitions and the Employer
Medical Assistance Contribution program ("EMAC") that became effective in the
state of Massachusetts on January 1, 2018 . Other operating expenses increased $3
million on an $18 million increase in net service revenue. Acquisitions are
included in our consolidated financial statements from their respective
acquisition dates. As a result, our personal care operating results for 2018 and
2017 are not fully comparable.
Corporate
The following table summarizes our corporate results of operations:
For the Years Ended December 31,
2019 2018 2017
Financial Information (in millions):
Other operating expenses $ 160.9 $ 127.6 $ 117.8
Depreciation and amortization 12.4 8.4 12.5
Total operating expenses before Securities
Class Action Lawsuit settlement, net $ 173.3 $ 136.0 $ 130.3
Securities Class Action Lawsuit settlement,
net - - 28.7
Total operating expenses $ 173.3 $ 136.0 $ 159.0
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Corporate expenses consist of costs relating to our executive management and administrative support functions, primarily information services, accounting, finance, billing and collections, legal, compliance, risk management, procurement, marketing, clinical administration, training, human resources and administration. Year EndedDecember 31, 2019 Compared to the Year EndedDecember 31, 2018 During 2019, corporate operating expenses increased$37 million ; approximately$27 million of which is attributable to the CCH acquisition:$7 million relates to CCH corporate and administrative support functions,$6 million relates to CCH intangibles amortization and approximately$14 million relates to CCH acquisition and integration costs. Excluding the impact of the CCH acquisition, corporate operating expenses increased$10 million which represents 3% of our$293 million increase in revenue. This increase is primarily due to increases in salaries and benefits expense and information technology expense which were partially offset by decreases in professional fees and legal settlements as well as gains on the sale of fleet vehicles. Year EndedDecember 31, 2018 Compared to the Year EndedDecember 31, 2017 Excluding the Securities Class Action Lawsuit settlement during the year endedDecember 31, 2017 , corporate operating expenses increased 4% on a 10% increase in net service revenue. Approximately$2 million of the increase was related to a reduction in our indemnity receivable related to theFlorence, South Carolina third party audit (see Item 8, Note 10 - Commitments and Contingencies to our consolidated financial statements for additional information). The remaining increase was related to increases in salaries and benefits expense and travel and training expense which were offset by a decrease in depreciation and amortization. Liquidity and Capital Resources Cash Flows The following table summarizes our cash flows for the periods indicated (amounts in millions): For the Years Ended December 31, 2019 2018 2017
Cash provided by operating activities
(352.9 ) (22.2 ) (44.0 )
Cash provided by (used in) financing
activities 227.2 (267.4 ) (5.5 )
Net increase (decrease) in cash, cash
equivalents and restricted cash 76.3 (66.1 ) 56.2
Cash, cash equivalents and restricted cash
at beginning of period 20.2 86.4 30.2
Cash, cash equivalents and restricted cash
at end of period $ 96.5 $ 20.2 $ 86.4
Cash provided by operating activities totaled $202.0 million for 2019, $223.5
million for 2018 and $105.7 million for 2017. During each year, we maintained
sufficient liquidity to finance our capital expenditures, both routine and
non-routine, and acquisitions. Changes in our cash provided by operating
activities during the past three years were primarily the result of fluctuations
in our net income, the collections of our accounts receivable and the timing of
payments of accrued expenses. During 2017, operating cash flows were negatively
impacted by approximately $30 million related to the Securities Class Action
Lawsuit settlement (see Item 8, Note 10 - Commitments and Contingencies to our
consolidated financial statements).
Cash used in investing activities increased $330.7 million during 2019 compared
to 2018 primarily due to the acquisitions of CCH and RoseRock. Cash used in
investing activities decreased $21.8 million during 2018 compared to 2017
primarily due to decreases in cash paid for acquisitions ($24.5 million ) and
capital expenditures ($4.1 million ) offset by an increase in investments ($6.7
million ).
Cash provided by financing activities totaled $227.2 million during 2019 and is
primarily related to our borrowings under our Amended Credit Agreement to fund
acquisitions. Cash used in financing activities increased $261.9 million during
2018 compared to 2017 primarily due to our repurchase of company stock and the
repayments of borrowings under our Term Loan and Revolving Credit Facility
offset by borrowings under our new Credit Agreement.
Liquidity
Typically, our principal source of liquidity is the collection of our patient
accounts receivable, primarily through the Medicare program. In addition to our
collection of patient accounts receivable, from time to time, we can and do
obtain additional sources of liquidity by the incurrence of additional
indebtedness.
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During 2019, we spent$7.9 million in capital expenditures compared to$6.6 million and$10.7 million during 2018 and 2017, respectively. Our capital expenditures for 2020 are expected to be approximately$6.0 million to$8.0 million , excluding the impact of any future acquisitions. As ofDecember 31, 2019 , we had$30.3 million in cash and cash equivalents and$449.8 million in availability under our$550.0 million Revolving Credit Facility. During 2017, we settled the Securities Class Action Lawsuit for approximately$43.7 million , of which approximately$15.0 million was paid by the Company's insurance carriers; we used cash on hand to make the required remaining$28.7 million payment. Based on our operating forecasts and our new debt service requirements, we believe we will have sufficient liquidity to fund our operations, capital requirements and debt service requirements. Outstanding Patient Accounts Receivable Our patient accounts receivable increased$48.6 million fromDecember 31, 2018 toDecember 31, 2019 primarily due to our acquisition activity. Our cash collection as a percentage of revenue was 105% and 104% for the twelve-month periods endedDecember 31, 2019 and 2018, respectively. Our days revenue outstanding, net atDecember 31, 2019 was 40.9 days which is an increase of 2.9 days fromDecember 31, 2018 . Our acquisition activity has negatively impacted our days revenue outstanding by approximately 2.3 days. Our patient accounts receivable includes unbilled receivables and are aged based upon our initial service date. We monitor unbilled receivables on a care center by care center basis to ensure that all efforts are made to bill claims within timely filing deadlines. Our unbilled patient accounts receivable can be impacted by acquisition activity, probe edits or regulatory changes which result in additional information or procedures needed prior to billing. The timely filing deadline for Medicare is one year from the date the episode was completed, varies by state for Medicaid-reimbursable services and varies among insurance companies and other private payors. The following schedules detail our patient accounts receivable, by payor class, aged based upon initial date of service (amounts in millions, except days revenue outstanding): 0-90 91-180 181-365 Over 365 Total AtDecember 31, 2019 : Medicare patient accounts receivable$ 115.2 $ 13.8 $ 6.8 $ 1.0 $ 136.8 Other patient accounts receivable: Medicaid 22.6 5.7 4.0 - 32.3 Private 60.0 6.3 2.2 - 68.5 Total$ 82.6 $ 12.0 $ 6.2 $ -$ 100.8 Total patient accounts receivable$ 237.6 Days revenue outstanding (1) 40.9 0-90 91-180 181-365 Over 365 Total AtDecember 31, 2018 : Medicare patient accounts receivable$ 95.5 $ 8.1 $ 1.0 $ 1.8 $ 106.4 Other patient accounts receivable: Medicaid 13.1 2.7 1.1 - 16.9 Private 51.3 6.7 4.4 3.3 65.7 Total$ 64.4 $ 9.4 $ 5.5 $ 3.3 $ 82.6 Total patient accounts receivable$ 189.0 Days revenue outstanding (1) 38.0
(1) Our calculation of days revenue outstanding, net is derived by dividing our
ending net patient accounts receivable at December 31, 2019 and 2018 by our
average daily net patient revenue for the three-month periods ended
December 31, 2019 and 2018, respectively.
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Indebtedness
First Amendment to Amended and Restated Credit Agreement OnFebruary 4, 2019 , we entered into the First Amendment to the Credit Agreement (as amended by the First Amendment, the "Amended Credit Agreement"). The Amended Credit Agreement provides for a senior secured credit facility in an initial aggregate principal amount of up to$725.0 million , which includes the$550.0 million Revolving Credit Facility under the Credit Agreement, and a term loan facility in the principal amount of up to$175.0 million (the "Term Loan Facility" and collectively with the Revolving Credit Facility, the "Credit Facility"), which was added by the First Amendment. We borrowed the entire principal amount of the Term Loan Facility onFebruary 4, 2019 in order to fund a portion of the purchase price of the CCH acquisition, with the remainder of the purchase price and associated transactional fees and expenses funded by proceeds from the Revolving Credit Facility. Our weighted average interest rate for borrowings under our$550.0 million Revolving Credit Facility was 4.0% for the period endedDecember 31, 2019 . Our weighted average interest rate for borrowings under our$175.0 million Term Loan Facility was 3.8% for the periodFebruary 4, 2019 toDecember 31, 2019 . As ofDecember 31, 2019 , our consolidated leverage ratio was 1.0 and our consolidated interest coverage ratio was 17.2 and we are in compliance with our covenants under the Amended Credit Agreement. As ofDecember 31, 2019 , our availability under our$550.0 million Revolving Credit Facility was$449.8 million as we have$70.0 million outstanding in borrowings and$30.2 million outstanding in letters of credit. See Item 8, Note 7 - Long Term Obligations to our consolidated financial statements for additional details on our outstanding long-term obligations. Share Repurchase 2019 Stock Repurchase Program OnFebruary 25, 2019 , we announced that our Board of Directors authorized a stock repurchase program, under which we may repurchase up to$100 million of our outstanding common stock throughMarch 1, 2020 . Under the terms of the program, we are allowed to repurchase shares from time to time in open market transactions, block purchases or in private transactions in accordance with applicable federal securities laws and other legal requirements. We are allowed to enter into Rule 10b5-1 plans to effect some or all of the repurchases. The timing and the amount of the repurchases will be determined by management based on a number of factors, including but not limited to share price, trading volume and general market conditions, as well as on working capital requirements, general business conditions and other factors. We did not repurchase any shares pursuant to this stock purchase program during 2019. 2018 Share Repurchase OnJune 4, 2018 , we purchased 2,418,304 of our common shares from affiliates ofKKR Credit Advisors (US) LLC ("KKR"), representing one-half of KKR's then current holdings in the Company and 7.1% of the aggregate outstanding shares of the Company's common stock for a total purchase price of$181.4 million including related direct costs. The Company repurchased the shares at$73.96 which represents 96% of the closing stock price of the Company's common stock onJune 4, 2018 . The repurchased shares are classified as treasury shares. Contractual Obligations Our future contractual obligations atDecember 31, 2019 were as follows (amounts in millions): 44
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Payments Due by Period
Less than 1-3 4-5 After
Total 1 Year Years Years 5 Years
Long-term obligations $ 242.3 $ 8.2 $ 17.5 $ 216.6 $ -
Interest on long-term obligations (1) 22.3 6.9 10.3 5.1 -
Finance leases 3.6 1.9 1.7 - -
Operating leases 90.7 30.2 39.3 14.2 7.0
Capital commitments 0.3 0.3 - - -
Purchase obligations 11.1 4.2 6.6 0.3 -
Uncertain tax positions 2.7 - 2.7 - -
$ 373.0 $ 51.7 $ 78.1 $ 236.2 $ 7.0
(1) Interest on debt with variable rates was calculated using the current rate
for that particular debt instrument at December 31, 2019 .
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations
is based upon our consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenue and
expenses and related disclosures of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates, including those related to revenue
recognition, collectability of accounts receivable, reserves related to
insurance and litigation, goodwill, intangible assets, income taxes and
contingencies. We base these estimates on our historical experience and various
other assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results experienced may vary materially and adversely from our estimates.
To the extent there are material differences between our estimates and the
actual results, our future results of operations may be affected.
We believe the following critical accounting policies represent our most
significant judgments and estimates used in the preparation of our consolidated
financial statements.
Revenue Recognition
We account for revenue from contracts with customers in accordance with
Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with
Customers (Topic 606) and ASU 2015-14, Revenue from Contracts with Customers
(Topic 606): Deferral of the Effective Date (collectively, "ASC 606"), and as
such, we recognize revenue in the period in which we satisfy our performance
obligations under our contracts by transferring our promised services to our
customers in amounts that reflect the consideration to which we expect to be
entitled in exchange for providing patient care, which are the transaction
prices allocated to the distinct services. The Company's cost of obtaining
contracts is not material.
Revenues are recognized as performance obligations are satisfied, which varies
based on the nature of the services provided. Our performance obligation is the
delivery of patient care services in accordance with the nature and frequency of
services outlined in physicians' orders, which are determined by a physician
based on a patient's specific goals.
The Company's performance obligations relate to contracts with a duration of
less than one year; therefore, the Company has elected to apply the optional
exemption provided by ASC 606 and is not required to disclose the aggregate
amount of the transaction price allocated to performance obligations that are
unsatisfied or partially unsatisfied as of the end of the reporting period. The
unsatisfied or partially unsatisfied performance obligations are generally
completed when the patients are discharged, which generally occurs within days
or weeks of the end of the reporting period.
We determine the transaction price based on gross charges for services provided,
reduced by estimates for contractual and non-contractual revenue adjustments.
Contractual revenue adjustments include adjustments provided to patients and
third-party payors based on contracted rates. Non-contractual revenue
adjustments include discounts provided to self-pay, uninsured patients or other
payors, adjustments resulting from payment reviews and adjustments arising from
our inability to obtain appropriate billing documentation, authorizations or
face-to-face documentation. Subsequent changes to the estimate of the
transaction price are recorded as adjustments to net service revenue in the
period of change.
Contractual revenue adjustments 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. Non-contractual revenue
adjustments are recorded for self-pay, uninsured patients and other payors by
major payor class based on our historical collection experience, aged accounts
receivable
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by payor and current economic conditions. Non-contractual revenue adjustments
represent the difference between amounts billed and amounts we expect to collect
based on our collection history with similar payors. The Company assesses its
ability to collect for the healthcare services provided at the time of patient
admission based on the Company's verification of the patient's insurance
coverage under Medicare, Medicaid, and other commercial or managed care
insurance programs. Medicare represents approximately 74% of the Company's
consolidated net service revenue.
Amounts due from third-party payors, primarily commercial health insurers and
government programs (Medicare and Medicaid), include variable consideration for
retroactive revenue adjustments due to settlements of audits and payment
reviews. We determine our estimates for non-contractual revenue adjustments
related to payment reviews based on our historical experience and success rates
in the claim appeals and adjudication process.
We determine our estimates for non-contractual revenue adjustments related to
our inability to obtain appropriate billing documentation, authorizations, or
face-to-face documentation based on our historical experience, which primarily
includes a historical collection rate of over 99% on Medicare claims. Revenue is
recorded at amounts we estimate to be realizable for services provided.
Home Health Revenue Recognition
Medicare Revenue
Net service revenue is recorded under the Medicare prospective payment system
("PPS") based on an established Federal Medicare home health episode payment
rate, that is subject to adjustment based on certain variables including, but
not limited to: (a) an outlier payment if a patient's care was unusually costly
(capped at 10% of total reimbursement per provider number); (b) a LUPA if the
number of visits was four or fewer; (c) a partial payment if a patient
transferred to another provider or we admitted a patient transferring from
another provider before completing the episode; (d) a payment adjustment based
upon the level of therapy services required (with various incremental
adjustments made for additional visits, with larger payment increases associated
with the sixth, fourteenth and twentieth visit thresholds); (e) the number of
episodes of care provided to a patient, regardless of whether the same home
health provider provided care for the entire series of episodes; (f) changes in
the base episode payments established by the Medicare Program; and
(g) adjustments to the base episode payments for case mix and geographic wages.
Medicare rates are based on the severity of the patient's condition, service
needs and goals, and other factors relating to the cost of providing services
and supplies, bundled into an episode of care, not to exceed 60 days. An episode
starts the first day a billable visit is performed and ends 60 days later or
upon discharge, if earlier, with multiple continuous episodes allowed.
The Medicare home health benefit requires that beneficiaries be homebound
(meaning that the beneficiary is unable to leave their home without a
considerable and taxing effort), require intermittent skilled nursing, physical
therapy or speech therapy services, and receive treatment under a plan of care
established and periodically reviewed by a physician. All Medicare contracts are
required to have a signed plan of care which represents a single performance
obligation, comprising of the delivery of a series of distinct services that are
substantially similar and have a similar pattern of transfer to the customer.
Accordingly, the Company accounts for the series of services ("episode") as a
single performance obligation satisfied over time, as the customer
simultaneously receives and consumes the benefits of the goods and services
provided. Expected Medicare revenue per episode is recognized based on a
pro-rated service output method, utilizing our historical average length of
episode prior to discharge.
The base episode payment can be adjusted based on each patient's health
including clinical condition, functional abilities and service needs, as well as
for the applicable geographic wage index, low utilization, patient transfers and
other factors. The services covered by the episode payment include all
disciplines of care in addition to medical supplies. Medicare can also make
various adjustments to payments received if we are unable to produce appropriate
billing documentation or acceptable authorizations. We estimate the impact of
such adjustments based on our historical experience, which primarily includes a
historical collection rate of over 99% on Medicare claims, and record this
estimate during the period in which services are rendered as a reduction to
revenue and a corresponding reduction to patient accounts receivable.
A portion of reimbursement from each Medicare episode is billed near the start
of each episode, and cash is typically received before all services are
rendered. The amount of revenue recognized for episodes of care which are
incomplete at period end is based on the company's average percentage of days
complete on episodes as of the end of the year. As of December 31, 2019 , the
difference between the cash received from Medicare for a request for anticipated
payment ("RAP") on episodes in progress and the associated estimated revenue was
recorded to accrued expenses within our consolidated balance sheet.
Non-Medicare Revenue
Episodic-based Revenue. We recognize revenue in a similar manner as we recognize
Medicare revenue for episodic-based rates that are paid by other insurance
carriers, including Medicare Advantage programs; however, these rates can vary
based upon the negotiated terms which generally range from 90% to 100% of
Medicare rates.
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Non-episodic based Revenue. Gross revenue is recorded on an accrual basis based
upon the date of service at amounts equal to our established or estimated
per-visit rates. Contractual revenue adjustments are recorded for the difference
between our standard rates and the contracted rates to be realized from
patients, third parties and others for services provided and are deducted from
gross revenue to determine net service revenue. We also make non-contractual
revenue adjustments to non-episodic revenue based on historical experience, to
reflect the estimated transaction price.We receive a minimal amount of our net
service revenue from patients who are either self-insured or are obligated for
an insurance co-payment.
Hospice Revenue Recognition
Hospice Medicare Revenue
Gross revenue is recorded on an accrual basis based upon the date of service at
amounts equal to the estimated payment rates. The estimated payment rates are
predetermined daily or hourly rates for each of the four levels of care we
deliver. The four levels of care are routine care, general inpatient care,
continuous home care and respite care. Routine care accounted for 99%, 97% and
97% of our total net Medicare hospice service revenue for each of 2019, 2018 and
2017, respectively. There are two separate payment rates for routine care:
payments for the first 60 days of care and care beyond 60 days. In addition to
the two routine rates, we may also receive a service intensity add-on ("SIA").
The SIA is based on visits made in the last seven days of life by a registered
nurse ("RN") or medical social worker ("MSW") for patients in a routine level of
care.
The performance obligation is the delivery of hospice services to the patient,
as determined by a physician, each day the patient is on hospice care.
We make adjustments to Medicare revenue for non-contractual revenue adjustments,
which include our inability to obtain appropriate billing documentation or
acceptable authorizations and other reasons unrelated to credit risk. We
estimate the impact of these non-contractual revenue adjustments based on our
historical experience, which primarily includes a historical collection rate of
over 99% on Medicare claims, and record it during the period services are
rendered.
Additionally, our hospice service revenue is subject to certain limitations on
payments from Medicare which are considered variable consideration. We are
subject to an inpatient cap limit and an overall Medicare payment cap for each
provider number. We monitor these caps on a provider-by-provider basis and
estimate amounts due back to Medicare if we estimate a cap has been exceeded. We
record these adjustments as a reduction to revenue and an increase in accrued
expenses within our consolidated balance sheet. Beginning for the cap year
ending October 31, 2017 , providers are required to self-report and pay their
estimated cap liability by February 28th of the following year. As of
December 31, 2019 , we have settled our Medicare hospice reimbursements for all
fiscal years through October 31, 2012 . As of December 31, 2019 , we have recorded
$5.7 million in accrued expenses for estimated amounts due back to Medicare for
the Federal cap years ended October 31, 2013 through September 30, 2020 ;
approximately $1.9 million of this amount is related to the cap liability
acquired as part of the CCH acquisition. As of December 31, 2018 , we had
recorded $1.7 million for estimated amounts due back to Medicare in accrued
expenses for the Federal cap years ended October 31, 2013 through September 30,
2019 .
Hospice Non-Medicare Revenue
Gross revenue is recorded on an accrual basis based upon the date of service at
amounts equal to our established rates or estimated per day rates, as
applicable. Contractual revenue adjustments are recorded for the difference
between our standard rates and the contractual rates to be realized from
patients, third party payors and others for services provided and are deducted
from gross revenue to determine our net service revenue. We also make
non-contractual revenue adjustments to non-Medicare revenue based on historical
experience, to reflect the estimated transaction price.
Personal Care Revenue Recognition
Personal Care Revenue
We generate net service revenues by providing our services directly to patients
based on authorized hours, visits or units determined by the relevant agency, at
a rate that is either contractual or fixed by legislation. Net service revenue
is recognized at the time services are rendered based on gross charges for the
services provided, reduced by estimates for contractual and non-contractual
revenue adjustments. We receive payment for providing such services from payors,
including state and local governmental agencies, managed care organizations,
commercial insurers and private consumers. Payors include the following elder
service agencies: Aging Services Access Points (ASAPs), Senior Care Options
(SCOs), Program of All-Inclusive Care for the Elderly (PACE) and the Veterans
Administration (VA).
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Goodwill and Other Intangible AssetsGoodwill represents the amount of the purchase price in excess of the fair values assigned to the underlying identifiable net assets of acquired businesses.Goodwill is not amortized, but is subject to an annual impairment test. Tests are performed more frequently if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. These events or circumstances include, but are not limited to, a significant adverse change in the business environment, regulatory environment or legal factors, or a substantial decline in the market capitalization of our stock. Generally Accepted Accounting Principles ("GAAP") allows for impairment testing to be done on either a quantitative or qualitative basis. During 2019, we utilized a qualitative analysis for our annual impairment test and determined that there were no triggering events that would indicate that it is "more likely than not" that the carrying values of our reporting units are higher than their respective fair values. As a result, we did not record any goodwill impairment charges and none of the goodwill associated with our various reporting units was considered at risk of impairment as ofOctober 31, 2019 . Since the date of our last annual goodwill impairment test, there have been no material developments, events, changes in operating performance or other circumstances that would cause management to believe it is more likely than not that the fair value of any of our reporting units would be less than their carrying amounts. Intangible assets consist of certificates of need, licenses, acquired names and non-compete agreements. We amortize non-compete agreements and acquired names that we do not intend to use in the future on a straight-line basis over their estimated useful lives, which is generally two to three years for non-compete agreements and up to five years for acquired names. Our indefinite-lived intangible assets are reviewed for impairment annually or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of the intangible asset below its carrying amount. During 2019, we performed a qualitative assessment to determine if any of our indefinite-lived intangible assets were impaired; as a result of this analysis, we wrote off approximately$1.5 million of acquired names during the three-month period endedDecember 31, 2019 . There have been no material developments, events, changes in operating performance or other circumstances that would cause management to believe it is more likely than not that the fair value of any of our remaining intangible assets would be less than their carrying amounts.
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