Paul Kusserow - CEO Gary Willis - CFO Chris Gerard - COO Steve Seim - CSO David Kemmerly - General Counsel David Castille - MD, Treasury/Finance Ronnie Laborde - Vice Chairman & Strategic Executive.

Brian Tanquilut - Jefferies Inc. Bill Bonello - Craig-Hallum Sheryl Skolnick - Mizuho Securities USA Ryan Halsted - Wells Fargo Bill Sutherland - The Benchmark Company Whit Mayo - Robert W. Baird Jason Plagman - Jefferies Inc..

Greetings and welcome to the Amedisys Fourth Quarter Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being record. 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 fourth quarter and fiscal year ended December 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 Chief Executive Officer; and Gary Willis, Chief Financial Officer.

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 statements.

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’ll turn the call over to Paul Kusserow..

Thank you, David and welcome to the Amedisys fourth quarter 2016 earnings conference call. On a GAAP basis, we generated $366 million in revenue and earnings per share of $0.26 the quarter. For the year, we generated $1.44 billion in revenue and earnings per share of $1.10.

On an adjusted basis, we reported revenue of $365 million, EBITDA of $31 million and EPS of $0.44 for the quarter, with EBITDA and EPS well ahead of consensus for the quarter. In 2016 we reported revenue of $1.44 billion, EBITDA of $110 million and EPS of $1.55.

We are pleased with these results, particularly considering the self-imposed disruption caused by our rapid HomeCare HomeBase implementation, which was completed during the fourth quarter of 2016.

As we transition into 2017, we are moving past the many changes of last year, with our primary focus on delivering improved results by improving our already excellent clinical numbers, growing our company organically and inorganically and controlling costs. I'd like to recap some of the great work delivered by our team last year.

In Home Health, our clinicians completed over seven million patient visits, all while undergoing significant workflow and IT conversion changes. Our patient census was over 55,000 at year end and our quality of patient care star ratings continued to rise.

Congratulations to our Home Health team for their perseverance and continued improvement in delivering quality care. In Hospice, we finished a tremendous year in which we grew average daily census by 16%. We completed over one million patient visits and ended the year with approximately 6,400 patients on census.

I'd like to congratulate our entire Hospice team for their outstanding performance and a job well done again in 2016. In our new Personal Care segment, we have been aggressively building our platform in Massachusetts and are now the largest provider in the state, caring for over 15,000 patients annually.

In the past 12 months, we have completed three acquisitions, Associated HomeCare in March 2016, followed by Professional Profiles late in the year, and finally closing Home Staff last month. Closing the Home Staff acquisition with Fallon Health, made us the largest provider of PACE, or Program for All Inclusive Care for the elderly in Massachusetts.

In addition, many of our patients are enrolled in SNIPs or special needs programs and are dual eligibles with multiple chronic conditions. Our Personal Care segment will have a patient on service for an average of three years. During this time, if they need skilled home health care or hospice services, Amedisys can provide the full continuum.

In Massachusetts, we have purposeful overlap between all three of our business segments. We are working towards building a more integrated care model that enables our patients to age in place, while removing as many barriers as possible between different funding models.

Our goal is to have all three segments working together daily to ensure that all patients have access to the right care at the right time.

We believe our ability to serve the needs of this population gives us a unique opportunity to begin working on at risk-models with innovative payers like Fallon Health, as well ACOs and other health plans and providers.

Transitioning to 2017, please remember, our strategic plan consists of four basic pillars, clinical distinction, being the employer of choice, operational excellence and driving organic and inorganic growth across our three business segments.

In clinical distinction, we are very pleased with our progress in CMS’s quality of patient care star ratings, improving our average each quarter in 2016. We are driving further improvement in 2017.

Our April preview scores yielded an average of 4.03, a 15% increase over last year, making us one of two publicly traded companies with an average of four stars or above. We are working hard to have all the care centers at or above four stars by the end of the year.

CMS also signaled their intent to create similar ratings for hospice providers and we expect to be at or near the top of the hospice rankings once these measures are finalized.

Beyond the basic fact that providing great care is fundamental for us and the right thing to do for our patients, we believe this is the most important area that distinguishes us from our competition and is a major driver of future growth. Our goal is to be the clinical partner of choice by providing the highest quality of care.

Our strategies for becoming an employer of choice and operational excellence are very closely tied together. We have made significant progress in 2016 in lowering voluntary turnover and retaining our most valuable resources, our people.

Our software conversion is complete and is being supplemented by development, testing and implementation of our new internally developed productivity tool. We now have the ability to deploy our resources more effectively and have created additional capacity among our existing staff.

At our core, we are a clinical staffing company and we need to efficiently put the right people in the right places to deliver the appropriate high quality care. We will continue to innovate and push the envelope here.

However, creating additional capacity on its own will not drive improved financial results, which is why organic revenue growth is a central part of our 2017 plan. In Hospice and in Personal Care, we have seen strong and consistent organic growth and our teams are performing well. In Home Health, growth was disrupted in the second half of 2016.

While we expect to see a positive year over year growth in the first half of the year, our plan is to return to mid-single digit organic volume growth in the second half of the year. On the inorganic side, this morning we announced that we just signed a definitive agreement to acquire the Home Health and Hospice assets of Tenet Healthcare.

We think that this transaction further demonstrates providers’ growing interest in aligning with skilled Home Health, Hospice and Personal Care providers.

The growing interest in our sector represents validation of the value we can bring to ACOs, bundled payment initiatives or other arrangements, where providers are reimbursed based on the quality of care and the outcomes we deliver.

Through its subsidiaries and joint ventures, including United Surgical Partners International, Tenet operates 79 acute care hospitals, 20 short stay hospitals and approximately 470 outpatient centers.

We looked at the Home Health and Hospice assets of other large hospital systems, but we like Tenet as they have a great presence in both the acute care hospital and fast growing ambulatory surgery center market, where we believe there’s lots of opportunities. We are very excited about the potential of this relationship moving forward.

We remain focused on acquisition growth opportunities and we have seen lots of activity this past year, with our pipeline of opportunities collectively representing well over $100 million in EBITDA. Completing the right strategic deals at appropriate valuations, requires a lot of hard work, restraint and prioritization.

The good news is that we have ample liquidity and the capital markets are healthy and accessible. We also expect to generate significant free cash flow in 2017. We have the flexibility to act on strategic transactions across each of our business segments.

With our operating team and infrastructure now in place and scalable, we are well positioned as an industry consolidator in a highly fragmented market. As I'm sure you noticed, we have not issued formal 2017 guidance in our earnings release.

For those who have followed our company for some time, you recall that we have not issued guidance in recent years. Our plan projects we will produce results within the range of current analyst estimates.

That being said, several members new to our leadership team, including our Chief Operating Officer, Chief Development Officer, and Chief Financial Officer and President of Home Health, are weighing in on the initiatives in our operating plan. Their feedback first blush has been optimistic.

After assessing the decision internally and discussing options with the investment community, we felt it was prudent to refrain from issuing earnings guidance at this time. The change in administration has probably sparked the most questions from investors in the past few months.

At this stage, we are working closely with our peers in the industry to communicate our view with the Trump administration that the current regulatory environment is overly burdensome for our clinicians, other providers and ultimately our patients.

Given the administration's initial executive actions, we believe we have a real opportunity to work with regulators on lessening that burden.

One of the initial areas we are targeting is the CMS Pre-Claim Review or PCR demonstration, which we believe is the wrong way to address potential fraud in the industry and doesn't benefit patients or taxpayers.

We are looking forward to working alongside the new administration in recommending more effective ways to fight fraud and abuse in our industry. That being said, we are still preparing for the PCR rollout in Florida on April 1.

Our experience in Illinois, although initially painful, ended up working relatively well once we understood the information that the MAC, Palmetto needed. We started with affirmation rates in the mid 50% range and ended the last few weeks above 90%. We did incur some incremental cost that was handled largely with our existing staff.

As it turns out, Palmetto is also the MAC that we will be working with in Florida. So we are hopeful the process will run smoother initially than in Illinois. We have plans in place that will utilize approximately three FTEs already on staff to handle the incremental workflow in Florida.

Before I turn the call over to Gary, I want to thank our team of 16,000 employees that made 2016 a great year, in spite of all the changes and have positioned us well for continued future success.

Regardless of the regulatory changes or other unforeseen impacts, there is no doubt that the combination of consumer preferences, aging demographics and the cost advantages of home based care, will continue to drive growth in our industry.

Our singular focus remains simple, to drive the highest quality healthcare in the home and become the aging in place solution for our patients and their families. With that, I'll turn it over to our CFO, Gary Willis..

Thank you, Paul. During my first two months at Amedisys, I spent much of my time learning our business, our history and our initiatives. I learned that this company has been evolving over the last couple of years and now has a solid platform to build an increasingly successful business.

We have a committed group of professionals focused on providing top quality care to our patients wherever they call home. Now let's review our financial results. During the fourth quarter of 2016, on a GAAP basis, we generated $366 million in revenue, an increase of $28 million or 8% as compared to 2015.

Diluted earnings per share were $0.26 in the fourth quarter, compared to $0.38 per diluted share in the prior year. For the year, we generated $1.4 billion in revenue and diluted earnings per share of $1.10.

Slide 18 of our supplemental slides, provide detail regarding income or expense items, adjusting our GAAP results that we have characterized as non-core, temporary or one time in nature. This schedule also details the income statement line items, each adjustment impacts.

As it relates to these adjustments in the fourth quarter of 2016, we incurred an asset impairment charge of $4.4 million related to mobile technology used previously with our old operating system, a settlement charge of $2.5 million related to previously divested care centers, and $2 million of restructuring activity expenses.

Adjusted EBITDA for the fourth quarter of 2016 was $30.5 million, an increase of $2.9 million from the fourth quarter of 2015. Adjusted diluted earnings per share were 40.44 in the fourth quarter of 2016, an increase of $0.04 from the prior year.

For the year ended December 31, 2016, adjusted EBITDA was $109.9 million and adjusted diluted earnings per share were $1.55. Our consolidated financial results in the fourth quarter were impacted by $2 million of disruption cost from our implementation of HomeCare HomeBase.

We also experienced an increase in bad debt expense of $1.2 million in the fourth quarter of 2016 as compared to 2015 as we saw a deterioration in our accounts receivable aging during the system implementation. Now turning to our Home Health segment performance for the fourth quarter of 2016.

Revenue was $269 million, up $6 million over the prior year. Our Medicare same store admissions were up 2% as compared to the fourth quarter of 2015, with total episodic admissions up 4% over the same period. Our Medicare recertification rate was 37%, excluding our Infinity acquisition and the effect of the HomeCare HomeBase disruption.

Non-Medicare per visit admissions were down 9% versus the fourth quarter of 2015 as we enhanced our focus on Medicare fee for service volumes. Despite the Medicare reimbursement cuts that we faced in 2016, our Medicare revenue per completed episode only decreased $4 due to patient mix.

Segment EBITDA in our Home Health segment was $37 million, down approximately $2 million. Our cost per visit increased $4.76 over the fourth quarter of 2015. This increase was driven by salaries and wages, our health insurance cost and disruption cost associated with the HomeCare HomeBase implementation.

These amounts were slightly offset by decreased contractor utilization in the quarter. Now turning to our Hospice segment’s performance for the quarter. Revenue was $85 million, up $9 million over the prior year. Our same store admissions were up 16% and same store average daily census was up 13%.

Our Hospice segment EBITDA was $22 million, an increase of $3 million. Revenue per day was down slightly and cost of service per day was down 3%, resulting primarily from decrease salary and pharmacy cost per Hospice day. Our Personal Care segment generated $36 million in revenue for 2016, with over $1.5 million billable hour.

In the year, we served over 50,000 clients and grew billable hours by 43% in the fourth quarter as compared to the first quarter of 2016. This includes the impact of our acquisitions. Turning now to our general and administrative costs for the quarter. I'd like to refer you to Slide 5 in our supplemental slides.

On an adjusted basis, total G&A was $117 million in the quarter. This total includes approximately $8 million related to acquisitions not reflected in our 2015 financials. Total G&A was down 150 basis point as a percentage of revenue in the fourth quarter of 2016 as compared to 2015.

Our Home Health G&A was up $1 million to $67 million or 25.2% of Home Health revenue, up 10 basis points year over year. Hospice G&A was up $1 million to $18 million or 21.1% of Hospice revenue. This was a 130 basis point decrease compared to last year. Our corporate G&A was $29 million in the quarter, down almost $2 million over the prior year.

As a percentage of revenue, total corporate G&A expense was down 120 basis points from the prior year. This decrease is the result of planned corporate cost reductions in the year. Our cash flow from operations in the fourth quarter of 2016 was $29 million, with free cash flow of $27 million.

While day sales outstanding and accounts receivable stabilized at 40 days during the fourth quarter of 2016, we have a significant amount of working capital that is tied up in accounts receivable, driven by our system convergence. We have reallocated internal resources to address the backlog of our billing and collection processes.

We expect to see the level of accounts receivable reduced to more appropriate levels in the next few quarters. Despite these changes in working capital in 2016, we generated $51 million in free cash flow for the year and deployed $48 million towards acquisitions and share repurchases.

Our balance sheet remains in great shape, with net debt of $66 million or 0.6 times our last 12 months adjusted EBITDA. Capital expenditures for the quarter were $2 million and $16 million for the year, $7 million of which were routine in nature. We are estimating our capital expenditures of between $10 million and $12 million for 2017.

At December 31, 2016, we had a cash balance of $30 million and $173 million available on our revolving credit line providing total liquidity of $203 million. In terms of deployment, we will continue to prioritize accretive acquisitions over other capital allocation options.

On the reimbursement side, our analysis of the Home Health rule resulted in a reduction of approximately 2% or a $17 million headwind in 2017. This was offset by a reimbursement increase of $5 million in Hospice for a net negative impact of $12 million in 2017 due to these reimbursement changes.

On the regulatory front, we wanted to address the disclosure in our 10-K that will be filed today. We have received requests for records associated with the ZPIC audit in Florida for four care centers acquired in our Infinity transaction that closed on December 31, 2015. The review covers stock periods before and after the transaction closed.

As we state in our filing, at this time we cannot predict or quantify our potential repayment obligations and we will update our disclosure of this matter as necessary during this audit process.

As Paul discussed earlier, we are not issuing formal guidance at this time, given that much of our operational leadership is new that are still weighing in on our 2017 initiatives. We are confident our plan will deliver results within the range of analyst estimates for the year. We will update our view on guidance in subsequent earnings calls.

And now, at this time we are prepared to take your questions. Operator, could you please open the call for questions. .

At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Brian Tanquilut of Jefferies. Please proceed with your question..

Good morning guys. Hey, congrats. Paul, just wanted to ask first on the Tenet acquisition that you announced this morning trial.

Any color or any details you can give us in terms of Tenet’s size of revenue or the amount paid for the deal?.

Well, we're very excited about the deal first of all. We think it's a wonderful opportunity for us. They have - obviously they have some assets that we've acquired. And the issue with Tenet is they didn't want to disclose the price on this nor some of the revenues.

But I think I’ll have Gary weigh in in terms of how you can kind of come to at least some range on this..

Certainly. Good morning, Brian and thanks for the question. So we are excited about the opportunity we have here with the Tenet transaction. This is a step in the right direction for us, but as you’re thinking about this, this is six care centers for us in key markets that opens the door for us for future discussions.

So as you think about the size of the purchase price on this, just keep in mind that we're talking about six care centers in these geographies..

Yes, equally divided between Home Health and Hospice. So I think the key thing for - that's important is yes, we did this acquisition. Yes, I think we - it's a good deal.

Most importantly though, when you look at the composition of Tenet and the ambulatory space as well the hospital space, when you look at the overlap that we have with Tenet facilities and our facilities, I think what we're most encouraged by when we've had discussions with their management has been places to partner with them so that their patients are well taken care of and that we can coordinate and deliver really outstanding outcomes for them.

So I think we're really excited by this. I know there was other deals done before, but we've been holding out for this and we're glad we were able to bring it to a close actually yesterday..

And one thing I would add, Brian, as you think about that, we think we can fund this acquisition purchase price with cash on our balance sheet and really would not need to tap into our revolver want to do that..

Got you. All right, very helpful. Paul or Chris, as I think about the success you had so far with HomeCare HomeBase, the savings flowed through pretty well during the quarter.

Is there any kind of color that you can give in terms of - I know you have the ramp already in the slide deck, but just anecdotally, or Chris from your experience at Kindred, how should we think about the ramp, especially in the volume side at the local agency level as we (indiscernible) for your models for 2017?.

Sure. Yes, thanks Brian. Good question. I think the most important thing to take away from the fact that we have HomeCare HomeBase transition kind of in our rear view mirror is the fact that it really does create some additional capacity with your existing staff that you have at you care centers.

So as we are able to really be very proficient with the system, we have the ability to take on more business as our field team, our sales team in the field are having more and more success out there.

So capacity is oftentimes a limiter in this business and it makes it difficult for you to grow your centers based on either disruption or the system that you’re using. But HomeCare HomeBase really unlocks that capacity.

So as we have more and more of these care centers that have been on the system for some time, we expect to see a corresponding ramp in volume and our ability to take that volume as we move into 2017..

Yes, and let me just add, Brian on this. So we’re hoping to banish the words post implementation chop, disruption and all this from our vocabulary hopefully in the next couple of months. So we're excited by that.

The other thing I think that we did mention and we talk about is we have developed a proprietary tool that we've been using that fundamentally is a capacity estimator. And we've been working - it's been - we've been rolling it out. We're almost complete in our rollout and it's been incredibly successful, along and concurrently with HomeCare HomeBase.

What it's basically able to do is we can go out and figure out levels of productivity in care centers with the various clinicians that are out there and then we're able to - it's really cut down on our - on what we thought were some of our staffing needs.

Also when you have reduced turnover, you reduce turnover at the level we reduced turnover, we find that we're in very good shape. We’ve been getting some questions on labor, on if we've seen issues there.

We haven't, but largely we've been pushing turnover down and we've been really working on the productivity of our people and making sure that we can maximize the capacity in a way that's good for everybody. So we've been very encouraged by this. .

And Paul, just to piggyback back on that comment that you just made in terms of the capacity of your people. As I think about your business development group, your integration groups, I noticed that you threw in $100 million (with) pipeline in your Slides for M&A.

So how should I be thinking about the pace of deals this year considering the (payload) balance sheet, but we haven't - we’ve seen you deploy about $100 million or so of capital over the last year. But you clearly have a lot of capacity.

So how should I be thinking about that?.

I think that the way we're looking at it is there’s tremendous capacity. We obviously have tremendous capacity. We've got some big deals that we're looking at. We found that we, over the past two years we've done nine deals, spent a little over $100 million for about $150 million of revenue. We're thinking at this point we'd like to do something bigger.

We think in Personal Care we're still going to play by the ones and play - move very judiciously to build up presence where we think we can combine all three businesses. We like the hospice business a lot and we find we're really good at it. So we're - I think we'll be aggressive in that space. We like the bigger deals that are out in hospice.

We're seeing a lot of hospice deals come out. We're seeing less in Home Health that we haven't seen before and the pricing is still - we're getting more competition from sponsors. And we haven't seen much strategic competition, but the sponsors are now looking to try to do this.

And so we're seeing less sophistication in the marketplace in terms of Home Health. But we want to do bigger deals and we've been focused on bigger deals. The deal we announced today is a little bigger deal than obviously what we normally do. And so we're going to try to move up that food chain.

I'd love to deploy a lot more capital because we clearly have the capacity and with the free cash that we anticipate will start to build up. Once we get our AR issues under control in the next couple of quarters, we're going to be generating a lot of free cash and so we need to start to employ that..

Last question if I may for Gary. Just on that last point you (made 12). Anything you would call out in the AR, like where do you think that you bring DSOs down and what do you need to do to get there? Thanks. .

Great question, Brian. So part of the AR issue was at the care center level. So we have - just making sure that the documentation is all in place, that we're working with our referral sources to ensure that documentation is complete and accurate and timely.

So we deployed extra internal resources that are really a focus SWAT team to help us attack that and catch up on any documentation that we need in order to get bills processed appropriately.

And then the other side of that is with our revenue cycle team, just making sure that we're working through the edits and being able to drop clean claims and then the opportunity to really have the lack of distraction of the new system and the ability to focus in on working with our payers to make sure that we're moving those forward.

So we have a very concerted effort now on our AR days and we would hope it will be in the low to mid 30s on DSO over the next couple of quarters. It's not a layup. It takes some heavy lifting but we're focused on getting that done..

All right. Thanks guys..

Our next question comes from the line of Bill Bonello of Craig-Hallum. Please proceed with your question..

Good morning. Thanks guys. Just a couple of follow up questions. Just trying to understand on Tenet, given what you said, is the goal here that this becomes more of a strategic relationship with Tenet across a broad number of markets? I know more than a decade ago you acquired some centers from them and now you’ve added some more.

But is that ultimately what you're trying to move to here, because you talk about prefer them to some of the other hospital systems. So just trying to get some sense of the opportunity. .

So the opportunity, this was an acquisition of their - of, as you know, Tenet had announced last year that they were going to get out of the health plan business and they were going to divest their home health and hospice assets. So we've been in conversations with them for a while.

So what we saw there and what we see and what we've been having conversations around is yes, they have some assets and these are good assets and we are going to take these assets and the people with them. We're very excited. These are well run assets. They're producing good results. The star ratings are good.

We need to get them on a common technology platform, which we need to do. But they have good basics. They're profitable. And so we want to do a very good job where there's facilities associated with them and we think there's lots of opportunity there. There's a lot of Medicare folks within the realm, within the geographic footprint of these hospitals.

So we're excited by that, but obviously what we're most excited by is working with Tenet in the acute side and the ambulatory side. We believe that as ambulatory becomes more important and more sicker folks go into ambulatory, that there's a real opportunity for us in the home health business to partner with some of these folks.

And then also, we like the focus in terms of hospitals with 79 hospitals, there's a large overlap with where we are. So we're - we want to go in and we get a seat at the table and we want to figure out what we can do to help these folks and help ourselves in the process as well. So we're quite excited by this. But we believe this is a toehold.

This gets in there, just gives us an opportunity to show what we can do and then we move forward and we build a bigger partnership..

Excellent. That’s very helpful. And then just a second question. Can you just talk a little bit more beyond obviously getting through the operating transition and the fact that the quality scores continue to go up. Just from an initiative standpoint, what other actions you're taking to drive accelerating organic growth on the home health side. .

Yes. Let me talk to it a little and then I'll turn it over to Chris Gerard who's really focusing on this. I guess the way I look at our performance is I think we got all A's and I think we got a B minus on growth. And I think the idea is we understand that what we need to do is to reinvigorate growth.

We've brought in a very good experienced team that understands how to do that. We have taken initiatives as we've talked about before Project Redwood, which is restructured our business development group so that we can more efficiently deliver and incentivize our folks to bring business in. We've changed our mix.

We've been very focused on growing Medicare because as you all know, that's where the profits are and that's where we can deliver the best care. So I think we have the right strategy in place.

I think we have - I think what we've done is we're going to start to recover from our - as I said, I don't want to use the word chop and self-induced pain and all that sort of thing, but I think you'll see decent growth in the next two quarters on a year over year basis.

And then we expect to really start to outperform the industry and expectations in the second half of the year. So I'll turn it over to Chris and he can tell me I'm full of it or continue this process..

You’re not full of it, Paul. Thanks Bill. In my two months being here, I was spending a good deal of my time really evaluating our sales efforts and our strategy around sales. The good news is we're doing a lot of things very, very well.

I think we have a very nice presence in the hospital facilities and the ability to really actually generate a very consistent flow of home health volume out of the hospital facilities. We see some opportunities to diversify a little bit in terms of some focus with our strategic team in the field.

And the one thing that I’ve kind of noticed that we’ve been spending some good time around is it seems like we’ve had some pretty broad - a broad range of initiatives and we're trying to narrow our focus and really go after what we know the business is using data and really directing our sales force in the right direction.

We're already starting to see some early wins from that and I anticipate as this year goes along, we're going to have a very, very kind of focused and narrow strategy to diversify a little bit our referral stream, but at the same time to take advantage of the capacity that we have in our care centers..

Great. Thank you guys very much..

Our next question comes from the line of Sheryl Skolnick of Mizuho Securities. Please proceed with your question..

As if you didn't know it was Sheryl Skolnick, but thank you. It’s a hard name to pronounce. Good morning everybody. Okay, so let's get a couple of things taken care of here on this acquisition.

I am perplexed and somewhat dismayed that what could be a material acquisition to Amedisys, because out of deference to the seller, you're not giving us terms and you're giving us the best you can in terms of guidance, but it's not a whole lot to go on.

So walk me through how is it not material to your business and if it is material, then how and when are we going to figure out how material it is?.

Sheryl, I'm going to pitch to Gary on that one..

Sorry Gary..

I’ll come back in it..

Good morning, Sheryl. This is Gary. As we mentioned in the previous response, we're talking about six care centers that we're starting this transaction with Tenet. We believe that we’ll be able to easily fund this transaction when it closes in a few months with cash on our balance sheet.

As a reminder, we had $30 million of cash on our balance sheet at the end of the year. We don't extract this would require us to tap into our revolver. So we really speak of transformative type transactions that we're talking about doing as the year progresses. But this is a step in the right direction.

This is the beginning point for us as it shows that we're being able to execute on some of our inorganic growth strategies. And we'd love to be able to continue to partner with Tenet in the future as they look to do different things with Home Health and Hospice assets. But this is simply a starting point. .

Okay..

And I think the - I think one of the things I recall when we were out seeing you Sheryl in New York is we talked a lot about the potential for the ambulatory world.

And we think that as the world, as more and more seems to be fitting into that, we like the opportunities we saw when you combine the hospital world with the ambulatory world in overlap areas.

So we saw that as a real potential to start to build up our skillset in not only the hospital world and gain from what Tenet has there and there's very good overlap there, but also in the ambulatory world where we believe we can partner with folks because a lot of the things that used to go to hospitals, the procedures are now going into ambulatory and we believe we can start to work with them on protocols to really start to drive some volume into the ambulatory world.

So we're optimistic about that and we're also excited about - our conversations with Tenet have been very good about where they need some help, particularly where their facilities are full.

We're very excited to possibly bring in some of our (clinically) home ideas, the hospital at home ideas and start to help alleviate some of their pressure on their capacity. .

Okay. That’s interesting. .

Yes. So we're optimistic about that..

Could I just ask a follow up? Good..

Please..

As you should be because if you're not optimistic when you buy the thing, it’s kind of disappointing..

Very good point. That's where I was going, yes..

Yes. So the second thing that I would say is on the - as you think through how when you receive a patient from ambulatory, and this I think is very important, as you point out correctly, a lot of things that used to be done in hospital are now being done in ambulatory. It may be a different set of protocols to appropriately treat that patient.

But have you thought through the length of stay issue, because I wonder and maybe we can do this offline, but it just seems to me you might be running the risk of you can add a lot of value over a very short period of time and that's a looper. .

Yes. We have thought of that and we’re obviously - as we're starting to understand these issues, the last thing we want to do is generate a lot of loopers. But there's places to play that for us are particularly interesting.

One is at the front door of the hospital, to divert people from coming in as we have these protocols for taking sicker patients that we developed through clinically home.

So our belief is that if we can start to drive some folks, particularly in facilities that are full, into Home Health and partner with a large hospital system like Tenet to do that, that's one thing.

And then the other piece is when people are going for more severe type and more acute type procedures in an ambulatory setting, Home Health makes a lot of sense because if you look at some of the discharge patterns that come out of ambulatory, most of those in my opinion should be going to the home (roles) and some of them are going into SNIPs and HARPS and some of these other places.

And so we - that's where we hope to really sit down and understand that. The last thing we're going to do that was getting into looper situations, that’s just - we won't go there..

Yes. No, I didn't think you would because you’ve successfully avoided it to your credit. Okay. So I think we've beaten that one pretty well. And then on the other side, the thing I think perhaps we've not talked about is $45 million run rate in cost saving. Your slides there are very helpful. Thank you.

So as we think about that, that number has been pretty solid since you first announced the transition from old system to HomeCare HomeBase and you've not, to your credit, backed off on that number. And now we're on the doorsill of that number being realized. You're starting to see that impact.

So and the slides are good because I think that's the one piece of guidance you're giving us is kind of laying that out. And I hate to be Debbie downer here, but I have to just ask this question.

What would prevent you from realizing the full positive impact of the run rate of $45 million, the potential for absolutely $41 million in 2017?.

Based on what we're doing now frankly, this has been a real area of focus. So we meet - the management team meets and does a round pound every Thursday on two things, the $46 million and we are have our trackers here, the guys who are teeing this up, Scott Ginn and Steve Seim are here so they can answer this as well.

But we focus on the $46 million and obviously generating growth. And so thus far we track it every single week. We go over it. We watch the numbers. The only place that I think we always have to be watching is on contract labor utilization.

You always have to make sure that that's staying down and mix and making sure that we're always aware that skill mix is something that is a big driver.

Steve, do you have any additions?.

Yes. I guess I would just say that as part of those conversations, we’re pretty specific in what we look at and if you think about the way that staffing flows through the system post HomeCare HomeBase implementation, we've got many of the care centers that have been walking through that.

We’re very comfortable that we've been pulling those out of each of the individual care centers and there's no reason to believe we won't continue to succeed in doing that.

And then as Paul indicated, we've got some utilization metrics, contracts, staffing, things like that, that we monitor very closely every week and have prescriptive targets for that again we're comfortable we're on the glide path towards. So things could change I guess, but I really I'm struggling seeing how that's going to happen. .

All the trends, Sheryl, they’re going really well and we watch them every single week and we have a little line and when things go above the line, we pull out the outliers and then Chris gets on the outliers and the outliers come back into the fold. So that's the way we've been working.

The key now obviously is that we're also spending weekly round pounds on is the growth and we're starting to see some decent results there.

We're cautiously optimistic about what we're seeing there, but it's clearly - the field clearly understands where our emphasis is and now that we're using data to really drive down to a very specific level, we're finding it’s very effective..

Okay. And then finally this issue with Infinity and the review that you're under.

Can you just - what are they looking at? Anything, a specific issue or a general inquiry or how targeted is this? What’s targeted?.

Certainly Sheryl. This is Gary. We have received notification from ZPIC as we talked about it in our 10-K disclosure. Around four care centers in Florida that were acquired by Amedisys as part of the Infinity transaction at the end of 2015. We continue to have those conversations.

The inquiries have escalated somewhat in the last couple of months and that's why we felt it appropriate that at any point that we have a regulatory development, that we share that in a very transparent way with our investors. And that's why we chose to talk about it on today’s call.

But those four care centers, to just give that some frame of reference, represents only about 20% of our Florida market, which is 7% of our home health revenues.

So while it's concerning and we're going to continue to aggressively work with the ZPIC auditor because we believe that there are some errors in the way they're approaching some of this, we don't know the outcome of that. They have found some things that we've developed an internal team to focus on.

We're reviewing all their claims in those four care centers and we take these things very seriously. So we are focused on this. We’ll continue to move this forward and expect that we’ll continue to discuss it with our investors as we progress. .

Okay, that is great. Thank you so much. .

Our next question comes from the line of Ryan Halsted of Wells Fargo. Please proceed with your question..

Thanks. Good morning. Maybe to touch on the non-Medicare book of business. You continue to shift away your mix from the commercial payer.

I’m just curious, do you expect this trend to continue for much longer before it starts to improve, before you start to maybe shift back to commercial payers or do you think you're currently making some meaningful progress with your discussions with payers that could potentially trend more favorable mix shift towards commercial in the near future?.

No, that's a great question, Ryan I think that' our methodology is pretty simple here. We’ve taken our managed care business, about a quarter of a billion of it, we put it into a separate business unit and what we're doing is we're doing two things. On the same game - we call it same game, new game.

On same game, what we're doing is we're cleaning up our contracts to make sure that we have good contracts that we are being paid appropriately, that the contract terms are good. We're developing a lot of initiatives that we believe will drive out the cost, particularly the back office costs.

We should be talking about that in the next couple of months. We have some very specific initiatives that we're looking to really drive those costs out and get clean, good contracts, drive more better adjudications, better authorizations, better reauthorizations so that we can drive cleaner business.

We're looking at utilization management, trying to make sure that we can generate good profits on what we're getting paid. In some of these situations we aren't. So we're doing a cleanup job there and we believe that's important.

The next thing we're trying to do is as you saw in our slide deck on the state of Massachusetts, is we want to start to take risk. We want to - we believe that managed care is going to only increase.

Managed care penetration will increase and for us to get out of the commoditization game with the large payers that we have to start to one, start to cut into other elements of the post continuum which we're doing, which is to basically take business out of SNIPs and HARPS and health (PACs). And so we believe we can do that.

The other thing is how do we start to take more risk and get paid more for taking risk, particularly on re-hospitalizations and then how do we get paid for quality and what is - why is it worth it for the plans to pay us for quality? So we've been having very good conversations with all the large players out there and starting to say, let's find a place where we can understand what you're looking for, cut some elements out of what are the normal protocols and then have just home health do the majority of it.

Start to take some risk on aging in place, start to take some risk on re-hospitalization rates and then we can do that. The other thing we've been doing, which we're very excited about, is we have a project here called ACE. ACE is our database.

As you know, a lot of people here are from the payer world and one of the things we learned is you need two things to take risk. You need to provide great care and then you need to have data.

And so we've been building our own proprietary database and are starting to experiment now building algorithms so that we can judge based on certain elements of the oasis, which is the start of care plan, starting to basically say, what's the risk of hospitalization of this person? How do we minimize that? What’s the risk of re-hospitalization? What is it going to cost to age in place? So we're starting to build these databases and starting to try to use these so that when we do take risk, we can bring data into this and some comparative data so that we actually have - can say with a straight face, we think we can keep this person out of the hospital or whatever else sort of metrics the payers would want to deal with.

So we're very aggressive in this space. We understand the payer world. We understand that it's going to continue to grow and - but right now same game is not really of interested or it's not really of interest to us. And we will play it because we have to do it in a lot of places, but what we want to do is transform the dialogue with the payers.

Long answer..

That’s very helpful. I'm sorry, I cut you off..

No, you got me worked up on it so I'm just taking a breath. .

No, very helpful. Appreciate all the color. Then my other question, just on the pre-claim review, seems like the industry is somewhat confident that maybe an alternative proposal could be received by the new administration.

Just curious if anything has actually been presented so far in terms of alternative solutions and if there's any sort of indication of that receptivity towards other proposals. .

Yes. So we've been spending a lot of time and I’ll let Dave Kemmerly address this as well, but we've been spending a lot of time in Washington. We've been fairly forthright in believing that pre-claims review doesn’t accomplish what it's supposed to. We believe it's incredibly burdensome from an administrative perspective.

It doesn't add to - it basically assumes you're guilty right at the start versus innocent until proven guilty, which was the prior methodology. So it means that we have to go through a lot of administrative work to move past this. We figured out how to do it. We get it, but it's not helping anybody.

And so what we've offered to CMS, we've gone in with our friends at the partnership level, at the Partnership for Quality Home Health with other big players. And we've gone in and said if you want a fraud detection tool, we’ll build one for you. This is ridiculous.

And thus far CMS hasn't taken us up on it because we believe we could do it very efficiently. We don't like fraud. We don't want it. We know where it occurs. We know where the hot spots are and we think it's relatively easy to detect.

So you don't need these nuclear weapons in there just destroying everything to look out for fraud when it's easily recognizable and can be detected in a much more effective way. So that’s the conversation we're trying to have on PCR.

So the other thing is we're optimistic because Secretary Price was one of the folks who introduced the bill to put PCR off for a year. And also what we've also seen is the two senators from Florida, Nelson and Rubio have sent a letter in to Secretary Price asking him to reconsider PCR as well as the layer to kill it.

So we’re hopeful that given Price’s orientation and dislike of this initially, that we can move forward and get this thing either sidelined or killed. But thus far we're preparing for it. We believe we're adequately prepared for it.

We believe it's - since we've been through it before, we can get through it Okay, not happily but that we believe it will be very difficult for particularly people that don't have the systems in place to do this. Dave, I don't know if you have anything..

Well, not much to add on that. Very well done, Paul. I guess I would just recap and say that we are working closely through the Partnership for Quality Home Health, our trade association and really I’d call it more of a coalition than trade association.

We’re working very closely with LHC and with Kindred and in Compass as we go to CMS and do two things, propose alternatives to this to really root out fraud and abuse rather than PCR. And also we're continuing to push for a delay at the bare minimum as Paul talked about.

We think there's a much more hospitable environment now for potentially delaying this and a more hospitable environment or open environment to listen to our other ideas. So with the change in administration, we could just potentially smell opportunities there.

So again we’re pushing for a delay as our senators Nelson and Rubio are from Florida, which we think is key. We’ll continue to push for a delay, but we also are going to continue to push for an alternative method to root out fraud and abuse that we think we can propose as and industry.

And lastly, but most importantly, we are continuing for payer to be ready on April 1 or pre-claim review in Florida and we think we are well positioned to do that. We had experience in Illinois. We learned there, albeit we only had a couple of care centers there, but throughout the process, we were able to perform well by the end of it.

So we feel like we're in position to perform well in Florida as well if need be..

That's great. Thanks for taking my questions..

Our next question comes from the line of Bill Sutherland of The Benchmark Company. Please proceed with your question..

Thanks and good morning everybody. Most of mine have been asked. I'm curious.

Paul, as you look at hospice and how well it's doing, I'm just curious about how you're looking at the sustainability of this level of growth and kind what are the key things that are differentiating you the most do you think in the market as you get these volumes?.

I think that the key thing, what we did once - I have to thank Ronnie Laborde who's here with us and I'll let Ronnie talk a bit about it, but I think I think that what we did initially is we just separated out hospice and home health.

We have a really fantastic team with a - that’s built a great culture that just doesn't say no to anything and they just move forward. They've done this thing organically and it's been really inspiring to watch this group come together and then move forward in the way that they have. I think the benefit is also something that's incredibly valuable.

I think it's a nice business. It's a clean business. We understand the rules. They're pretty upfront. There's a demographic interest in this.

So we see a natural, very strong wind at our back and as well the government seems to very much like it if you look - obviously we got some gains in terms of we've offset $17 million of headwinds in home health and what we've got is we were able to bring it down to $12 million because we got a positive on hospice. So we see that opportunity there.

Obviously to grow it at the levels we have, at some point we're predicting it will come into the low double digits, the high single digits, but thus far folks keep outperforming. So more power to them. We’ll take it all day..

Yes. And then from what you guys hear from (crosstalk)..

I'm just going to say, Ronnie, do you have any questions? Sorry Bill..

Oh, that’s fine..

No. Thank you, Paul..

Comment. Sorry..

I would just - I think you teed that up well. Basically I would say the team has just performed just magnificently. I think we're very bullish about the continued growth. Obviously the rate of growth we will more likely over time moderate. And but just generally I'd say we feel very good about sustaining growth and what the opportunities are.

So the team has done everything that Paul described and a very, very positive. .

And Ronnie, while I've got your ear, from what you're hearing from CMS, is it directly or indirectly - do you think the star application for hospices is near term or out further?.

Maybe medium term. It’s coming, but I think we’ll be well poised to participate there and perform very well. So I think it's coming. We anxiously await it actually and it helps bring a quality conversation that we like. So I think it's a good development for the hospice segment..

Oh yes. That's it for me. Thanks guys. .

Our next question comes from the line of Whit Mayo of Robert W. Baird. Please proceed with your question..

Thanks. We’re over the hour mark so I’ll try to keep it really quick. I’m just going to ask the Tenet question one other way.

Any reason that the size of these agencies would be any different than your corporate average?.

Now it's about - yes. I'm looking at Gary..

Whit, this is Gary. I think - they’re a decent sized agency. We're not talking about small agencies, but I don't think they would be much larger than our average. .

Oka0y, that's helpful.

And the conditions of participation rule, are there any costs associated with complying for that program this year?.

Whit, it’s Gary. We know those roles have been in development for some time. They’ve been discussed at length. We’re in the process of working through those. We believe that the timetable that we were provided was pretty short. So there are some things we have to cover relatively quickly in order to be prepared. So we don't see that as a heavy lift.

We think our team is on target there and that we don’t encounter seeing any disruption from there..

Okay, and maybe just one last one here. The slide deck shows the corporate overhead down a couple of million dollars year over year, but when I look at the reported results from 2015, it looks like the corporate overhead is actually up $2 million. I didn't know if I'm missing something or ….

Sure, Whit. I’d be happy to walk you through that and take those offline with you. .

Okay..

But basically it’s non-recurring charges. So the items that we detailed as the add backs to EBITDA, we’ve tried to detail which line item those impacts for you and many of those will show up in that corporate segment. So when you bridge those two together, then I think you'll see where the differences are. .

Awesome. Thanks man. .

Our next question comes from the line of Brian Tanquilut of Jefferies Inc. Please proceed with your question..

Hey guys. Jason Plagman on for Brian. Just one quick follow up. I think you gave some details actually on the Tenet deal in your press release. Based on the previous deals you’ve announced and the cumulative numbers in that press release, my math would say about $35 million of annual revenue for today’s deal.

Is that in the right ballpark? And then lastly, just any estimate on timing of the close?.

Great question and your calculator works like ours does. So we would not say that you're off base there. As it relates to timing, we're going to be focused on getting these deals over the finish line. We would think in a couple of months we'll have these done and part of our portfolio..

Great. Thanks guys..

There are no further questions over the audio portion of the conference. I would like to turn the conference back over to Mr. Paul Kusserow for closing remarks..

Thank you, Jim. I appreciate it. Before we close, I'd like to thank, congratulate and wish the very best to our Vice Chairman, former CFO, COO, interim CEO, board member, Ronnie Laborde. This is his last Amedisys earnings call. On April 2nd he's slated to retire. We wouldn't be here today and be where we are today without him.

His sage counsel and calm presence have made a huge difference to me and our teams as we partnered together to turn Amedisys around. Ronnie will be sorely missed. So on behalf of our 16,000 member Amedisys family, I want to thank Ronnie for his incredible service to our company.

And so thank you very much, Ronnie and thanks to everyone who joined us on our call today. We sincerely appreciate your interest in Amedisys and we look forward to updating you on our next quarterly earnings call. Take care everybody..

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time. Have a wonderful rest of your day..