David Castille - Managing Director, Treasury and Finance Paul Kusserow - President and CEO Ronnie LaBorde - Vice Chairman and CFO Scott Ginn - SVP of Accounting and Controller Steve Seim - Head of Strategy Dave Kemmerly - General Counsel and Head of Government Affairs.

Frank Morgan - RBC Capital Markets Brian Tanquilut - Jefferies Sheryl Skolnick - Mizuho Ryan Halsted - Wells Fargo Whit Mayo - Robert W. Baird Toby Wann - Obsidian Research Group John Ransom - Raymond James.

Greetings and welcome to the Amedisys First Quarter 2016 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. David Castille. Thank you. You may begin..

Thank you, Operator. Welcome to the Amedisys investor conference call to discuss the results of the first quarter, ended March 31, 2016. A copy of our press release, supplemental slides and related Form 8-K filing with the SEC are available on the Investor Relations page on our website.

Speaking on today's call from Amedisys will be Paul Kusserow, President and CEO; and Ronnie LaBorde, Vice Chairman and CFO.

Before we get started with our call, I'd like to remind everyone that statements made on this conference call today may constitute forward-looking statements and are protected under the Safe Harbor of the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to Amedisys today.

The Company assumes no obligation to update information provided on this call to reflect subsequent events, other than as required under applicable securities laws. These forward-looking statements may involve a number of risks and uncertainties which may cause the Company's results or actual outcomes to differ materially from such events.

These risks and uncertainties include factors detailed in our SEC filings including our Forms 10-K, 10-Q and 8-K.

In addition, as required by SEC Regulation G, a reconciliation of any non-GAAP measures mentioned during our call today to the most comparable GAAP measures will be available on our website on the Investor Relations page under the tab Financial Reports, Non-GAAP. Thank you and now I will turn the call over to Paul Kusserow..

Thank you, David, and welcome to the Amedisys first quarter conference call. During the quarter, Amedisys reported revenue of $349 million, up 16% year-over-year on strong volume growth in both segments. Adjusted EBITDA was $24 million. Adjusted EPS was $0.33, consistent with analysts' consensus and up $0.03 over last year.

I am very proud of our organization and how well our employees have performed during the Companywide transformation we are presently going through. As we discussed previously, we did believe the year would be choppy, particularly in the first half.

Yet we still delivered strong organic growth, improved our business mix in Home Health and saw improving results in clinical quality metrics and productivity. So I am extremely pleased with the results that we delivered this quarter.

Volume growth has been strong across our business segments with same-store Medicare admission growth in Home Health of 4% and same-store admission growth of 19% in Hospice. We are seeing an improving payer mix in Home Health. Inside of our overall growth goals, mix has been a particular focus. And we are pleased to see the curve bending.

We continue to improve our quality of patient care starred ratings with 32% of our agencies at four stars or above. Our accelerated Homecare Homebase implementation is also on schedule. With all of this activity, there are a few critical areas to monitor in order to deliver on our cost savings targets.

In our last quarterly update we provided savings targets for the next eight quarters, with the first significant savings targeted for the second quarter.

In particular, we expect that our run rate of corporate G&A will begin to fall starting next quarter as we start to reduce IT expenditures and capitalize on the migration to one software platform from the three we are presently operating on.

Another area we are monitoring is a temporary working capital disruption, driven by buildup in accounts receivable. Our revenue recovery team is continuing to work through this IT transition in three different operating systems, and it has seen cash collections slow across both home health and hospice care centers where implementation has occurred.

Ronnie will provide a bit more detail in his comments, but this issue is being resolved. Our strategy remains simple, clear and constant with four main focuses; clinical distinction, driving organic and inorganic growth, realizing operational efficiencies and becoming an employer of choice.

Being clinically distinctive remains our top priority as the healthcare world moves toward value-based reimbursement. We are making great strides with our efforts in these areas. In Home Health our average star rating continues to increase with the April release of the quality of patient care star ratings.

Our average star rating is 3.5, ahead of the industry average of 3.25. In the value-based purchasing where we have a presence, our average star rating was even higher at 3.6. Our internal predictive modeling indicates continued improvement in future release. Our patient satisfaction scores also remain above the industry average at 3.9 stars.

While the absolute average measure for Amedisys dropped in April, this drop was largely due to changes in the benchmark measures, meaning the proportionate drop was felt industry wide. Our relative performance versus the rest of the industry remains strong with an industry average of 3.64.

We are continuing to invest in quality and it is beginning to pay dividends. Through some of the great work of our clinical analytics team we can now see close to real-time data, down to the clinician level on things that can impact patient care and quality metrics. Without access to our resources and scale, this effort would not have been possible.

And it reinforces our belief that the sophisticated players with scale in Home Health are best positioned to win at this game. We're making good progress toward becoming the industry's employer of choice. Last quarter we highlighted our Companywide voluntary turnover rate reduction.

In the past few months we have been digging deeper into our employee base, identifying key drivers, segmenting our employees by job function, employment type and clinician type. We found that we were employing a large number of unproductive and inactive PRNs, which has proven to be inefficient and costly.

During the quarter we terminated 221 interactive PRNs and saw a slight increase in our overall turnover. If you net this group out, turnover continues to decline. Our full-time clinicians perform 83% of our visits, so voluntary turnover amongst this subset is a focus for us, particularly as we look to improve productivity metrics.

Full-time employee turnover was 18.8% in the second quarter and remained flat compared to the end of 2015. Our goal is to reach 16% full-time employee turnover by the end of 2017. Operational efficiency driven by our home care home base conversion remains a key priority as we progress through the busiest part of our rollout schedule.

We are slightly more than halfway through with 225 care centers live on this system. The level of disruption in the care centers remains low and in line with our expectations for the first quarter. Through April, we are on track with our savings initiatives we outlined for you at the beginning of March.

During the second quarter we project cost reductions of approximately $1 million, offset by roughly $600,000 of home care home base implementation disruption. We continue the project acceleration of benefits from savings initiatives to begin in the latter half of this year.

On the growth front, we have also started to pilot a business development program aimed at standardization and better use of analytics to optimize the effort of over 700 business development employees in Home Health. This is very early. We are excited about what we are seeing and will update you in subsequent quarters.

We closed our acquisition of Associated Home Care on March and one month of those results are included in our Q1 financials under our new personal care business segment. As we stated before, expanding our capabilities to care for patients in the home, both up and down the acuity chain is a key part of our mission to become an aging in place company.

This acquisition was the first step in building outside of our core skilled Home Health and Hospice businesses and will be a growth platform for us going forward. Our acquisition pipeline remains robust and we are seeing signs of increased activity. We will continue to aggressively pursue these opportunities but will maintain our pricing discipline.

We have prospected over 200 opportunities and have 13 active processes underway. Collectively, these opportunities generate approximately 75 million in EBITDA. By leveraging our balance sheet and strong cash flow, we are well-positioned to capitalize on good deals.

On the regulatory front, the comment period ended on the proposed prior authorization rule in home health. Along with our peers in the industry, we continue to believe this proposed rule is not the proper mechanism to address perceived fraud and abuse issues.

We are continuing an active dialogue with CMS on this issue through several channels and are pleased with the industry's response on this issue, along with the strong and thoughtful response of hospital, payer and physician trade groups. CMS has also issued a proposed hospice rule for 2017 on April 21, and we are continuing to review this internally.

The rule provides a 2% payment update for routine hospice care, retaining also the redesign of the two-tiered reimbursement mechanism put into place in 2016. Thus far, it looks quite favorable. Additionally, CMS proposed a few changes to the way hospice services are evaluated comparatively moving forward.

Two measures were added to the seven existing measures in the hospice quality reporting program. In the latter half of 2017 CMS anticipates the launch of a hospice compare website that will report on these metrics for providers with the eventual shift to a star value-based purchasing-like rating program.

We are conducting an in-depth review of these proposals. We have historically been supportive of this kind of shift by CMS and we will monitor these developments closely and provide commentary and insight on these programs. Again, we believe quality is a game we must and will win.

In hospice we will duplicate many of the processes and procedures we have already successfully put in place for superior home health results. In closing, I would like to thank our tremendous team for their work this quarter.

We are implementing Homecare Homebase faster than anyone believed possible, continuing to deliver strong organic growth, improving clinical quality as measured by stars and improving engagement and turnover. With that, I'll turn it over to Ronnie LaBorde..

Thank you, Paul. To start, as we have discussed, transformation requires investments and expenditures which can result in self-induced disruption to operating results. That being said, let me call your attention to our earnings release in slide 14 of our supplemental slides.

This slide provides detail regarding income or expense items adjusting our GAAP results that we have characterized as non-core and temporary or one-time in nature. The schedule also details the income statement line items they impact.

We aspire for our adjusted results to be consistent with GAAP results, while in transition, cash flow keeps us focused. Now let's begin by discussing our quarterly adjusted results and year-over-year comparison. On a consolidated basis revenue was $349 million, up 47 million or 16%. Adjusted EBITDA was $24 million, down 2 million.

And adjusted EPS was $0.33, up $0.03. In the home health segment, revenue was 273 million, up 31 million over the prior year. Medicare same-store admissions were up 4%. Medicare recertification rate was down slightly to 36%. And our segment EBITDA was 38 million, up 1 million over the prior year.

Our cost per visit was up $1.12 over last year and down $0.30 sequentially. As we’ve discussed in recent quarters, contractor costs associated with continued growth is driving the majority of this increase. In the hospice segment, revenue was 73 million, up 13 million over the prior year.

Same-store admissions were up 19% and our segment EBITDA was 17 million, an increase of 3 million. Cost of service per day declined almost $2, mainly driven by reductions in pharmacy costs that we first saw in the second quarter of 2015. I would now like to share a few comments on G&A expenses and refer you to slide 4 of the supplemental slides.

On an adjusted basis total G&A was 120 million, an increase of 18 million over last year. G&A as a percentage of revenue increased 60 basis points to 34.3%. To understand the increase of 18 million, I think it is helpful to discuss G&A expenses in each segment and corporate.

So in home health our G&A expenses were up 8 million to 70 million or 25.8% of home health revenue, a 20 basis point decline from last year. 5 million of the G&A expenses were attributable to our Infinity acquisition. Hospice G&A was up 3 million to 17 million or 23.1% of hospice revenue. This was an 80 basis point decline compared to last year.

And corporate G&A was up 7 million to 32 million or 9.1% of total revenue. There were three main items impacting our quarterly corporate G&A. First, outsourced services related to IT and HR functions increased by 3.5 million. We expect these amounts to be substantially decreased as we progress through the year.

Second, Homecare Homebase maintenance and hosting fees account for 1.2 million of the increase. These costs were not present in the prior year and will be allocated to the segment operations as the rollout occurs. And finally, the Infinity and AHC acquisitions accounted for approximately 2.1 million of this increase.

Cash flow from operations for the quarter before changes in working capital was $22 million. Our working capital increased $10 million in the quarter. This increase was largely attributable to the increase in accounts receivable as evidenced by our DSO increasing seven days from year end to a total of 39 days at March 31.

Much of this increase results from our transition to Homecare Homebase and is temporary. We expect this to substantially clear by the end of the second quarter. CapEx for the quarter was 7 million. We still expect between 20 million and 25 million of capital expenditures in 2016.

Of the non-routine CapEx expected this year, 4.5 million will be for data center move and 8 million will be for tenant improvements to our new office buildings. We expect routine CapEx of approximately 10 million in 2017 and beyond.

At quarter end, we had a cash balance of $8 million and 160 million available on our revolving credit line or total available liquidity of 168 million. We had 114 million in total debt outstanding and our leverage ratio was 1.0 times adjusted EBITDA for the last 12 months. This concludes our prepared remarks.

Operator, please open up the call for questions..

Thank you. [Operator Instructions] Our first question comes from Frank Morgan from RBC Capital Markets. Please go ahead..

My questions will be on the hospice side. I'll start out there. And just curious, continue to see remarkable admission growth on the hospice side of the business.

Is there anything in particular that you can call out that's driving those strong numbers?.

Why don't you take it? Ronnie is running hospice, so let Ronnie take it..

Thank you, Paul. Frank good morning, thank you for the question. So I think what we are - we still have a very engaged team in hospice. I think it's a continuation of what we started last year, that that level of performance is probably continuing plus a little bit.

So I think we are just - what has been done there has really worked to optimize the team. We have added some BD staff, tried to do that smartly.

But it's just the continued growth from an engaged focus group and trying to call on accounts that are just bearing good volume right now, and I think it's a good relationship that we expect these kind of levels, not necessarily the growth level but certainly these admin levels to continue plus some..

Yes. And I think, just to add to Ronnie's comments, Frank, we have seen really - we've got an excellent team, and they are focused very strongly on hospice. We are seeing good wind at our backs in terms of more acceptance to hospice and palliative care. We are seeing the reimbursement of physicians having hospice conversations.

Quality is now starting to factor, and we address that. We deliver very good quality in our hospice operation. So we think our operators are doing a great job in that as we go out and fight for business, we are winning a lot more than we are losing..

Got you and then in terms of just the two-tiered system, the update, it sounds like things are going okay there.

But just from a housekeeping standpoint, do you have your mix of days of care that are less than 60 versus over 60 handy?.

I do, Frank. And I would say we went into the year looking for this change to be breakeven to slightly positive. And I would say we came out for the quarter just slightly negative but really right at breakeven. And the reason for that is really just as an anticipation of the days in each tier.

And so as we go through the quarter, in the first quarter our hospice days in the less than 60 tier were 29% of the total. So that was just slightly different than what we had planned, and I'm talking about less than a percent. But that was the real issue of just trying to appropriately anticipate that.

And just looking as I get to my quarter-end census - and of course, this doesn't always result into, as you know, the hospice days inside the quarter, but I had 34% of my census that's less than 60 days..

Got you and maybe one on the home healthcare side, just curious - I know it's very, very early, but just any initial read in your participation in any of these mandatory joint replacement programs. Is there any initial color on that or any of these other episodic-based bundled payment initiatives you could comment on? Thanks..

Sure. Yes, we are actually participating in the program with seven hospitals. And we are also participating in two others, starting to tee off to others, so nine in total. About two of them are in California, a couple in Alabama and then three in the Northeast. So we are looking - that's looking good.

The results we are seeing there are very strong in terms of our ability to work with folks, as long as we get over five visits. One of the things that I think we are starting to see as we have conversations with hospitals who want to do this is they need to understand what LUPA means.

And obviously, if we come under five visits it becomes something where we will lose a tremendous amount of any, and those are not attractive. And if we can do more than that, obviously those are attractive deals for us.

In terms of the other targets, we've got - throughout all our regions, we've got 50 other conversations in targets that we are starting to have in our various stages of conversation there.

It's still a relatively small part of our business, but we anticipate that as everybody starts to share information and people, the conveners start to understand what some of our drivers are, that this will start to settle out and be a positive for us..

Okay, I'll hop back in the queue. Thanks..

Thanks..

Our next question comes from Brian Tanquilut from Jefferies. Please go ahead..

like how sustainable is that aggressive hospice organic growth rate for you guys?.

Yeah, thanks Frank. I think that the - the growth we measured actually on Home Health, we think the organic growth is about 3.3%. So we are doing above that. Are we doing where we would like to do on this? No. Do we think we are going to get between the 4% and 5% range? Yes. Our goal is, as we sold a lot of investors and you all, is 5.5%.

I think we have the capacity for that. A key thing for us also is we are focused, obviously, a lot on the mix. I think what I was very happy about this year is we are increasing our Medicare growth. That's going up. It's slow, but it's hard work, but we are turning the ship.

And then our managed care growth, which is less profitable, has bigger issues on quality, bigger issues on the back-office - you have seen declines going from a high of 22% in the third quarter down to 10% this quarter.

So once again, we are trying to shift that mix and increase the capacity so that we can put more people and drive better Medicare growth. Our business, the thing that we mentioned also in terms of our business development efforts that I think are early days but I'm very encouraged by, I think, will take us to the next level of growth.

Because it's focusing our targets on where Medicare is very specifically, and it's eliminating, in many cases, up to 50% of the accounts where we were calling on. We are much more focused, much more focused on Medicare, and we are starting to see initial signs of stronger growth where we have implemented this program. So I am encouraged by that..

And then the sustainability, Paul, of the Hospice trajectory?.

Do you want to take that?.

Yes. I'll tell you, if you look at basically our 5,400 admits in the first quarter - and again, I think that without - for my Hospice leadership team, who is probably listening, I wouldn't want to understate their abilities.

But if you take that production level, that admit level, when we get to the third and fourth quarters of this year we are going to be balancing against in comparing against right at 5,000. So if we stay at this level, that will get us down to the high single-digit range just on a comp basis.

But the way I would think about it, and think you should think about it, is this 5,400 a quarter - we've gotten to that level. And I think that is in the zone of what is sustainable going forward. And, hopefully, we will demonstrate plus some..

Got it and then Paul just on Homecare Homebase, you already rolled out to 225. So what are the key learnings here? And I know you laid out some of the challenges in the slide deck. But how are the disruptions showing up? Is it essentially what you had thought it would be? I know you highlighted the AR issues.

So if you don't mind just giving us some color on that and your views on the achievability of the savings based on the original timelines that you looked at..

Yeah, we believe we're on track. We are still very confident on it. We have got an excellent implementation team, as we talked about before. We're putting everything we've got into this. We believe there's a lot more, once we get this implemented. Clearly, running on three software systems is insufficient when two of them are challenged.

And we are migrating as quickly as we can to one. So there's going to be - obviously, we have articulated there is going to be a lot of savings. And then we believe there's going to be a lot more productivity there, particularly in the area of scheduling and employee mix, targeting, that sort of thing.

So we are really excited about what we are starting to see. We see declines in turnover, increase in time. We are starting to see some increase in productivity as our human piece, as you see if you look at that chart, we are starting to see that increase in productivity, which we like.

I think one of the things that we have to always watch for as we are going - leaving from one software system to another and doing the transition is on the research side, is making sure that when researches are right for a certain patient that we are able to transfer that patient from, let's say, AMS over to Homecare Homebase.

And that has been something that we saw initially some drop-off in terms of that. And we have to be constantly aware and coaching through that. After we saw that problem, our team has been able to fix it. So we have been confident and that has been working. And then, the other thing is we have to make sure unbilled scale out.

Sometimes, once again, when people are focused on transferring in software, what we have seen is we have seen our AR go up. But we have also seeing that come down very quickly as they - once they get through the implementation. Then they start to pay these off.

And we anticipate this will be largely settled back to where our norm is by the end of this quarter. But that's what we're watching. That's where we're spending our time, and our folks are aware of that. In terms of any new gotcha’s [ph] that we are seeing, we haven't really seen that.

Another thing we always say is it's the quality of the management team that's out there. How well are they prepared for it? And we are taking those learning’s and employing them with each new site, so we are seeing less and less everywhere we go..

Got it and then last question for me, you talked about your deal pipelines, 13 deals. In terms of the stages of the - where they are, are they mostly in LOI phase or are they - do you expect some deals to come up really soon? And also, piggybacking off of that, you bought back stock during the quarter.

Just how do you make the decision to buy back stock today versus hold off and keep the cash for an upcoming acquisition?.

Well, I'll tell you about the pipeline. I'll let Ronnie answer on the stock buybacks. I'm happy with the pipe. I'm happy with - these are all things that generally we have an NDA or some sort of LOI in place. We got some big ones in there that are pretty interesting. That will take a while.

We've got some smaller things that we are teeing up that we're in the last phases of. So, I think you will see some of that. The market itself is - there's more interest then there was when I first started, so let's say a little over a year ago, in the market. So, we are still being very proactive.

We find, if the deals are - if there's not a book out and not a process in place, we can get to these things faster, do deals more proactively. So you'll see some - this quarter you will see some deals come through, knock on wood.

Because we are pretty close on some and we have got three or four big deals where we are gaveling down on and we will probably - on a lucky day, I think toward the end of this quarter. But you will see something this summer..

And Brian, on the share repurchase, we have that authority. We are sitting with $58 million left of approved authority. So that's set up just to step in, if there was some movement in the market that we thought provided an opportunity. So we will balance that as we go forward.

We may well wind up with $58 million of authority expiring if the situation doesn't warrant. So we will balance that against the capital we want to deploy here for - on acquisitions..

Got you, All right, thanks, guys..

Thanks, Brian..

Our next question comes from the line of Sheryl Skolnick from Mizuho. Please go ahead..

Good morning, gentlemen. Very nice job, and I really like the stop-and-go report card, because now we know exactly how you're thinking about holding yourself accountable, never mind how we think about it. Could we just go back to your pipeline for a second? And then I want to go back to the AR after that.

But just going back to the pipeline, so you suggest there's 13 deals that seem realistic and interesting to the Company, meet your criteria in a number of different ways, drive $75 million in EBITDA, potentially?.

Yeah..

You're not saying that you can afford to buy all 75 million, are you?.

No, we're saying that that's the potential we have in the pipe. You know how these things shake out, Sheryl..

Right..

But we have either an LOI or an NDA; that qualifies the 13. Some of them are in a process, and most of them aren't. But, you know, the bigger ones which are making the bulk of the 75 million are bigger deals, and that means we're competing. And probably, as we've seen, most of them are out there with books.

And so we're competing against private equity and our competitors on this. And once again, we're trying to maintain the discipline. If we don't see the ROIC on it, if we don't think we can get some synergies out to do this, we won't do them. But that's - we just wanted to basically say, here's what we've got; we're still processing.

I'd like to see more deals pass through faster, and that's why I gave it a yellow. But deals are harder to close in this business than in other businesses I've been in. We tee them up and then get them done as –dragging them across the last 5 yards is more difficult in this business..

That's interesting, very interesting. So, okay, now I feel better, because I was counting up $100 million in cash flow that you probably think you're going to have, and then - or I think you could generate over the next 12 months easily, and then you put $160 million on top of that.

And I was going to say, if you could buy $75 million of EBITDA for $260 million, I would say what are you standing here talking to us for? Go do it..

Great. No, I totally - yeah, you'd have to give us an IQ test, and if we were not doing that, we would fail it..

That's right, exactly. See why I like you guys? Okay, now, on the AR side, so this is a little bit troubling, because this is sort of classic implementation issue. You can't bill, you don't bill, it gets back backed up. So just walk us through this a little bit.

So, clearly, when you're doing a transition of the IT systems, and this particular system is crucially involved in not only managing the patient from episode to episode - which is a great point - but also making sure that the bill is, A, correct, so you don't get whacked on the back end for submitting something that was wrong, and B, actually gets submitted.

So how long does it take you, from the time you implement and build the AR to actually get it resolved and billed and to actually get it paid?.

So I think - Sheryl, this is Ronnie, I think in the quarter, let me first say that the build that we saw, some of it was seasonal, that we'd expect in the first quarter just as we start a year that clears, but to a large degree, it's really following on the heels of home health, I mean, Homecare Homebase. So part of that is in hospice segment.

So, early on, we had an issue with sequential billing that we got through here. That's all cleared. We had to touch all the claims a second time. So it's a little heavy administration. But we expect that to clear. That's all been done, and so that's - you know, Medicare or CMS is a prompt payer, the actual prompt payer. So that will go away.

And then the residual piece is we roll through that we're now really clear on is the billing that –we end up with kind of this buildup that we need to go back and behind the implementation and help them and focus on that and get that back out and billed, so they can be paid and not have this build up to working capital.

So I think we've seen the buildup; we think a lot of this can now clear and not be as exacerbated on these future rollouts. So that would be our goal to do that. And then while we're doing this Homecare Homebase piece, the other part that shows up is on the private side. It's more intensive to begin with.

And so as we're going through this, that's been a little bit of a build there with the higher volumes. But we think as Homecare Homebase implementation wanes, when we get to the end, that we will be able to get this back out also and get it back to more traditional levels. So it's really - I think we have clear line of sight on it.

I think it's, to a large degree, where this is Medicare-related, it will be a prompt pay, and we'll be able to get that back out of the balance sheet..

Yes, we anticipate by - we really anticipate by the end of this quarter, we will be back on track. Our AR people are phenomenal. They've produced great results consistently. But we are seeing unbilled increases where we are implementing Homecare Homebase.

When that implementation is done, our AR people, though, have been all over it and have been resolving it fairly..

That's what I wanted to know, what the lag time is between the time you finish the implementation and the time you get around to sending in the SWAT team. Okay, now I understand. That relieves me a little bit.

Now - and then so turning to your sort of quasi-commentary about the second quarter, just, you know, I was relieved that we all got the signal that we should be below where you were last year for EBITDA.

But in the signaling for the second quarter, what I'm hearing is that this is the beginning of some of the better news, the controls on costs, the elimination of costs begin slowly, from all your charts and your detail.

But should we still consider second quarter perhaps as a quarter that's more likely to have a bump than a lift?.

We're pretty optimistic about the second quarter. We think we're going to - at least the feeling we're having around the table is, we're starting to deliver on some of the cost savings. We're starting to pull them out. Yes, I mean, is there still going to be chop in the second quarter? Yes, there's no question about it.

But I think our feeling is, some of the initiatives that we have that are starting to pull costs out, because of the implementation passing the 50% mark, we need to establish the discipline, frankly, of once people are through it, we need to - we're starting to push care centers now for those efficiencies and those productivity results that we all signed up for.

And so they are starting to deliver, which is a good thing. I don't know, Ronnie, if there's -.

No, Paul, I think that's fair. We do have a good feeling about progress we're going to make. There will still be some chop. We'll see some of these issues flowing through. But I think we, again, have good line of sight on them.

I don't think the disruption will be beyond what and the zone of what we anticipated as we went into this second half - second quarter, excuse me, - and first half of the year..

Right and then the one exception to that might be that we are anniversarying the reduction in the pharmacy costs in the second quarter in hospice?.

That's right, we are..

Okay, okay. And then one final question, if I may.

So, I understand from some of your filings that there is perhaps a change in Chief Compliance Officer coming up?.

Yeah..

Have you selected a replacement?.

No, we're coming down to a couple final candidates, and we should be announcing that in the next two weeks to four weeks. But yeah, Jeffrey Jeter, who has been here for 16 years is going to be moving on.

And we're going to be - and we thanked him for his great service and for looking after us, but we're going to be bringing somebody on probably in the next month..

Do you anticipate any changes in that role?.

In terms of what?.

Well, what I'm thinking is, after the ACA, it got a whole lot easier to file false claims suits. So the whole world has gotten a whole lot more litigious, and everybody's spying on everybody else. I'm sure your culture is wonderful, but it's the reality of the world.

So, I was just wondering if there was going to be sort of an expansion or an increase in prominence, or any integration of compliance, any additional integration of compliance of operations, or if you're satisfied with the way the role is fitting right now..

That's a really good question. Yes, I think Jeffrey has done a nice job, largely looking after the CIA, where we've been largely focused. But yes, is there an expansive piece of this as the world is changing for sure. But the Compliance Officer has always had a very high profile at this organization, and particularly they report directly to me.

They work very closely with Dave Kemmerly, our GC and Head of Government Affairs. So, yes, as new things come on, we're anticipating that the new person will start to take these things on, as well as share them with David.

I don't know David; do you have any comments on that?.

Yeah. We expect the incoming Chief Compliance Officer to continue the very strong relationship with me, to continue the strong relationship with the business, with the executive team. So I don't see a lot of change, really, in the expectations and the activities of the Chief Compliance Officer. They will continue to handle, of course, the CIA.

But I think they will want to put their own stamp on the office, and they may make some changes, but certainly feel like there won't be any fundamental changes, Sheryl..

Okay, that's great. I appreciate all the time you've given me, and great quarter. Thank you..

Thanks, Sheryl. Take care..

Our next question comes from Ryan Halsted from Wells Fargo. Please go ahead..

Thanks, good morning..

Good morning, Ryan..

Hi, Ryan..

I was hoping to go back to some of the details on the CJR.

Can you give a little more color about the nine hospital partners that you have? Are these existing relationships? Are they new relationships? And any sort of - any idea about some of the targets of what kind of penetration do you think you're going to be able to get into some of the actual joint episodes that you think will come your way, that maybe were going elsewhere prior to the bundle?.

Yes, I think, one, we're encouraged by this, because I think what it does, just from a strategic perspective, it gives us - it allows us to have a conversation about folks going directly from the operating room to the home. And it allows us to use things we're good at, which is our therapists and our nurses, in terms of our protocols.

And we've been out to - our clinical people are putting together and have put together some protocols that we think are impressive. We're also actually, in certain cases, working with some good hospitals, some named hospitals, which we don't have their permission yet, so we can't name them. But we're doing some work with their protocols.

For example, we're working with a partner in California and have seen zero readmissions.

But the good thing about this partnership is that they ask us on a case-by-case basis, what do we need to bring to the table that actually is going to drive those readmissions down to extremely low rates? And so we're seeing that in relations like that, we can, one, make money, and two, deliver spectacular quality.

And so we're starting to try to collect that data and bring those to our various hospital partners and saying, here's the type of thing that works and here's the type of thing that doesn't work. When we have conveners who basically try to put us in a box and try to give us LUPAs, that doesn't work too well. And we need to be at the table.

Like all good care, if it's coordinated and a care continuum, we need to be at the table and we need to participate in care delivery, whereas in a convener-type relationship, when we're fundamentally acting as a contractor, it doesn't work as well. So that's what we're finding there from just a strategic perspective.

But we are having lots of good conversations. We are finding what works well for us, what works best, as I've described. And we're also saying - we're also trying to make our partners aware, there is something out there called a LUPA, and that that's a territory we can't get into, and unless there's quality bonuses on top that make up for that.

I don't know, Scott, do you want to -.

No, I think that's right. I think that concern around the margin and just the lower volume, total revenue, and having to process those through the back office, that you have to be mindful of as well. So I think that would be the takeaway from that..

But I guess I'd also throw in that the quality impact there is significant, because when you have only a handful of visits post a procedure, and you are pushed into a LUPA bucket, that's not good for the patient. So it's not just a financial thing, it's also patient quality..

Yeah, from a quality perspective, so we've started to see, Ryan, when you're out - that was Steve Seim, our Head of Strategy and Scott Ginn, who you know - is what we're seeing is, when we do do less visits, and our visits are caught and the convener takes control of that, our quality scores are tending to go down.

And that's something, obviously, since we are betting so highly on quality, and quality is going to be key, we have to make sure that as part of that relationship, we maintain our ability to deliver high quality.

And we believe with our protocols and with other folks' protocols, once we go through them, if we can participate properly with them, we can do well..

That's very helpful.

I guess just as a follow-up, what is the status of conversations around gain-sharing? Is that something that's coming up, or is that still somewhat of a tough conversation?.

It's a hard - depending on the convener, it's an easier conversation when the ACO, for example is itself the convener. It's a harder conversation when they’re bringing in conveners who want a cut of the profits, who are actually doing the convening for them, who have different motivations, let's say, than an ACO, which is trying to organize this.

So on the payer side, I think the payers are much more willing to have conversations about gain-sharing, since they're used to it. With ACOs, we're finding they're interested in the conversation and have very little experience with it.

We're finding with the pro-conveners that are out there that have this little cottage industry that's started there, we're finding they are much less interested in having conversations about gain-share.

They are still interested in fundamentally using us on a fee-for-service - what is basically on a classic contracted basis, to go in and do our work and then take the profits out of it or split the profits with the hospital..

All right, that's very helpful. And then my other question - it looked like in the quarter there was some decent reimbursement growth in the home health segment. If I look at your Medicare revenue per episode, that increased, which I assume included the PPS update.

And so I was just curious, what kind of drove the reimbursement environment?.

Ryan, this is Ronnie. So no question, we had in total a $3.5 million, kind of a 1.6% rate cut that we experienced. But I think the shift that we've been able to overcome that is basically therapy utilization.

So there's been a focus, and as that's shifted amongst the different weightings, I think we've just been successful in caring for the patients with a shift, a slight shift but a meaningful shift, in therapy utilization..

And was there any of the potential missed visits, the disruption that you guys called out last quarter? Was that less of a headwind than you were initially concerned about?.

And you're talking about as we go into the first quarter, just what episodes that turned into LUPA episodes because of missed visits - I don't think we saw any exacerbation of that probably about as expected, maybe slightly less, so a slight improvement there..

Okay. I guess I was referring to the disruption from the integration of Homecare Homebase. I thought when you laid it out, the impact you talked about there being some potential headwind on the reimbursement front due to just lower productivity..

Okay, thanks for the follow-up and the clarity. No, again, with this overall result, I don't think we would point to this being an issue that's resulting from the Homecare Homebase implementation..

Okay, great..

I don't think we're seeing it there in a material way at all. Yes..

Okay, all right. Thanks for taking my questions..

Thank you, Ryan..

Thanks, Ryan..

Our next question comes from Whit Mayo from Robert W. Baird. Please go ahead..

Hey, thanks. Just wanted to follow up for a second on the revenue per episode, sorry, I've got earnings fatigue. But when I compare the number you reported to what you reported in the first quarter of last year, it looks like the revenue per episode is down 1.5%, and still down 1.5% versus sort of where revenue per episode was for all of last year.

So is there just, like, a reclassification? Is this just portfolio changes? I guess I'm trying to understand the difference in what you reported this year versus last year..

Whit, thanks for the question. I'm looking at 2,794 last year. I'm looking in my Q. And so one of my - in 2,812, so a slight increase. But you obviously are seeing a different number..

Yes, I know -.

Do you know what that is?.

I know what it is. Last year, we showed that, before sequestration, so now we're showing net of sequestration. So basically it should be about that 2% differential. I think we should have an asterisk around that. So that number last year would have been a gross number.

And now we're showing net for comparability, now that - we did that last year, because the year over year, the comparison wasn't there..

Okay, so the 2,800 number for all of last year was - excludes sequestration, all four quarters?.

I think that's correct..

Okay, all right. No, that's helpful..

Very good catch Whit, by the way..

Yeah..

Sorry about that..

No, that's all right..

Paul, can you talk a little bit more about the prior authorization situation some more, just where CMS's head is, what you're hearing, contingency plans you might have to put into place in the event that somehow this does move forward? Just any update would be really helpful..

Sure. Well, let me follow up. Let me have Dave address this because he's been on point on this, and then I will follow up with it. But in general, we think it's not the wisest thing that they've put out, and the industry has reacted relatively violently to it and what the implications are.

Particularly once again, if you're - it seems like it's contradictory to providing good care, when you always put filters in front of people that - particularly coming out of the hospital, that need to be taken care of, and you have a prior authorization in front of that for Medicare.

One of the things that Medicare does well is we can get in there, and where we've had problems with quality scores on managed care is that if we have to wait a day or so, the chances of readmissions go up, the chances of that patient not being addressed early is a real problem. And so this is what we see, I think as the whole industry sees it.

Hospitals clearly see it, and so they've been against this. Payers understand it because then they're going to have to pay for the readmissions; they get it. So I'd say that this is pretty universally disliked within the healthcare community, or very - large constituencies within the healthcare community.

So I guess our question is, is CMS ever going to listen to this? There's been a ton of letters, a lot of lobbying on the state level and on the federal level, the partnership which we belong to has lobbied against this. Everybody in this business or close to this business or associated with this business has pushed against it.

I don't know Dave, have I hit on all points?.

Yes, you've pretty much covered it. What I'd make - this is Dave Kemmerly, General Counsel. I will make probably three quick points covering the same ground as Paul, really. We continue to communicate our concerns to CMS about the impact of this proposed demo project and especially focusing on the quality of care and the access to care.

We are also working with members of Congress, as Paul mentioned, House and Senate, Republican and Democrat, and they're all expressing their concerns to CMS about this project. At this point, we don't know whether CMS will move forward with it, but - or if so, if they'll move forward with it as proposed.

We certainly feel like the collective voices of home health, hospitals and other stakeholders, the unified voice and the very strong voice that we've collectively had with CMS, will be heard and considered by CMS. I don't know if they're going to move forward with it as proposed; I would suspect not, or maybe I hope not..

Yeah..

I will certainly be disappointed. But I think CMS they want to get at fraud and abuse. This rule does not - this demo project does not get at fraud and abuse. It really impacts the quality of care and access to care. And more specifically, it really, really impedes the timely initiation of care. And that's all about part [ph].

If we can't get in to see these patients four or five days - until four or five days after they've exited the hospital, it's not going to be the kind of care that we can deliver. They're going to be end up being readmits and it's going to be more costly and obviously less beneficial to the patient and their family.

So, this is really a real strong, unified movement among the stakeholders here, speaking to Congress and speaking to CMS. So I'm hopeful that that voice will be heard..

So, we're fighting it tooth and nail with everything we've got, as is the rest of the industry, as is others out there who would be impacted by this, Whit..

Yes, sounds like I guess we'll just wait and see.

Maybe just one last one, Ronnie, I know you're not giving guidance, but is there anything that you can say to help us out as we think about the progression of earnings over the next three quarters? Or maybe another way, if you can just help us out with the headwinds and tailwinds for the home health/hospice and the corporate G&A savings, that would be great..

Sure. I would say that we would still say we have a good line of sight and feel comfortable with the year. It won't be perfect; we still expect some early chop, but still have a good feeling about meeting our plan, which is, in terms of consensus, we feel good about it.

I think that the corporate G&A and the G&A costs, we'll begin to see those come down in the year. So I think we'll see some progression; we certainly hope to - when we report second quarter results, to be able to actually demonstrate that. But we have clear line of sight on it and should see those costs begin to be relieved some..

All right, I appreciate the non-answer answer..

Well, it's not meant to be a non-answer. I would go back in part of - let me take you back to whatever my page in the deck that highlights the efficiencies. And at least as a starting point, you can see the IT reduction - this is page 9, I see - so the IT reduction, that is part - you can think of that as corporate G&A coming out, to a large degree.

So that progression that we see, I think we have - we'd like to see that come out of G&A, and that's part of the answer there. So at least that's some prescriptive path there that I'd point to..

Okay, thanks. Bye..

Okay, thanks Whit..

Our next question comes from Toby Wann from Obsidian Research Group. Please go ahead..

Hey, good morning guys. Thanks for taking the question.

On the M&A front, can you just kind of talk about pricing out there on the home health and/or hospice, as well as I guess now community care, just kind of what you guys are seeing out there in terms of people, are they rational behaviors, or are they - some people still delusional as to what their businesses are worth?.

I think they are rational, once again post - if they don't have VCs in them, they are rational. I would say once, if they have VCs' PE in them, they get more irrational on some of the exits that people are expecting, because obviously all those folks' office space in Palo Alto is kind of expensive, so they need to cover for that.

But the key I think in terms of what we're seeing is hospice. We're seeing kind of between, on a really good day, getting a hospice deal done for - under 8 is almost been impossibility. We're seeing kind of ranges out there in the 8 to 15 range; we've seen things even higher. We won't go that high.

We kind of cap out at 10, 11, something like that, and even that's uncomfortable. On the home health side, we're seeing things in the range of - out there in the market, kind of 9 to 13 or so. We don't do things really much below 10, again, on home health, and there would have to be a lot of synergies. We're comfortable in the 8 range.

And on home, on the personal care, we like things in the kind of 7 and below range. So that's what we've been seeing in the industry, and that's where we've been looking to do our deals. Tuck-ins, obviously, are coming in less expensive.

Bank deals are coming in at the high end of the range where they're competitive, and that's what we're trying to deliver. So, we like those ranges. We try to stick with those ranges. And we have enough deals in these ranges, so we're feeling pretty comfortable..

Okay, that's helpful and then just kind of talk a little bit about the home care business.

You've had Associated now for almost two months; how's that integration going, you all's early take on that experience with that business? And I know it's a new business opportunity for you guys, and your thoughts about expanding beyond just this initial foray into that area..

Yeah, well, I think we have two strategies there, Toby. One is, let's beef up in Massachusetts, so we're interested in that. They are the number one player in Massachusetts. We have great coverage in the Northeast. So we want to stick in that zone, particularly in hospice and in home health. So we believe there's a lot that can be done there.

In terms of initial places to play, we're getting a lot of inquiries now from large systems who want all three types of services. We're really delighted. I've got to tell you, with Associated team.

These folks are just wonderful, and they view this as a really interesting opportunity and have been guiding us to where we can play, particularly in hospice. And then, obviously, since they average - the average length of stay for one of their clients is three years.

So, there's some real abilities for them to see when they can go into home health, when they need to go into hospice. So our key is to make sure that they're calling in on as many people as possible, and then so those interplays work when the severity increases and somebody needs home health or somebody needs to go into hospice.

So we're encouraged by what we're seeing there, and they are also growing organically very well. The goal, I think after Massachusetts and New England is to go into other places where we have strong home health and hospice and to build to those capabilities around those, so that we can show that having those three elements works really well.

So we are looking in places like Pennsylvania and other places where we have good crossover, Tennessee, where we have good crossover in terms of all three businesses. We find that having three places, it's exponential once you have three places, three services involved..

Okay, thanks for the color. Congrats on the quarter..

Great, thanks Toby, appreciate it..

Our next question comes from John Ransom from Raymond James. Please go ahead..

Hi, good morning. I'm curious, in your early look at CJR, if you are treating different kinds of patients then you treat in your ordinary course and if you think that's something to keep an eye on..

Thanks, John. Yes, I think there are - I mean, joints tend to be a little different in terms of the types you get. But I think where we do best is the Medicare piece of that. But we are seeing different mix of patients, generally younger, in terms of our home health business.

The joint replacement area tends to hold, at least from what we've seen, tends to have a younger demographic than the classic home care demographic, which we see in the mid-70s and up. We are seeing people a little younger in that, which we view as an opportunity. So, that's a good catch..

Great and I was intrigued by your comments - you say that at this point the conveners just want to keep you on a fee-for-service basis and keep the savings for themselves.

Just what is the cautionary outlook you would have or we should think about, if we look at the ACOs where the promised savings never materialize for anybody? Could it almost be better just to be on fee-for-service if we get into another ACO type situation?.

Yeah, I mean, another good question. So I think the idea is, if we're going to take risk, we need to get paid for risk. And then if we are going to get - there's two things you can do in risk that I've learned at least from my managed-care days. And you need two things. One is you need great clinical delivery. We're very confident on that.

The next thing you need is data, which comes across the care continuum.

And if you get data across the care continuum, if you know when to intercede and when not, particularly if you're trying to coordinate across a length of care, you're trying to coordinate different elements, you need to share the data and you need to bring people in and out of certain services. And you need to coordinate that very well.

And when people put us in a box and they don't share the data, we can't deliver as well. And we have seen that from some of the professional conveners out there, that they use the data and then they try to activate us in terms - and we've seen this from payers as well that they want us to do something very specific for a very low price.

And our idea is, we believe the home is more expansive than that. We believe if we can all get together and coordinate well, then on a coordinated basis, we can be more proactive. And we can - and we'd also like to share in some of the savings. And we've seen less appetite for that..

Okay, interesting. Thank you..

Thanks, John. Appreciate it..

I'd like to turn the floor back over to management for any closing remarks..

Thank you very much, operator. I appreciate it, and I want to thank everybody who joined us on our call today. I'd also like to thank our employees, who continue to deliver incredible results. We appreciate everyone's interest in Amedisys, and we look forward to updating you on our visits when we're out there, and to our next quarterly earnings call.

Thanks very much, everybody..

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time..