David Castille - Managing Director of Finance Paul Kusserow - President and Chief Executive Officer Gary Willis - Chief Financial Officer Chris Gerard - Chief Operating Officer David Kemmerly - General Counsel and Senior Vice President of Government Affairs Stephen Seim - Chief Strategy Officer Scott Ginn - Chief Accounting Officer.

Brian Tanquilut - Jefferies John Ransom - Raymond James Sheryl Skolnick - Mizuho Whit Mayo - Robert W. Baird Kevin Ellich - Craig Hallum.

Greetings, and welcome to the Amedisys second 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 recorded. I would now turn the conference over to you host, Mr.

David Castille, Managing Director of Finance. Thank you, Mr. Castille. You may now begin..

Thank you. Welcome to the Amedisys investor conference call to discuss the results of the second quarter ended June 30, 2017. 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.

Also joining us are Chris Gerard, Chief Operating Officer; and Scott Ginn, Chief Accounting Officer; Steve Seim, Chief Strategy Officer, Dave Kemmerly, General Counsel and Senior Vice President of Government Affairs; and David Pearce, Chief Compliance Officer.

Before we get started with our call, I would 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 also be available in our Forms 10-K, 10-Q and 8-K. Thank you.

And now I'll turn the call over to Paul Kusserow..

Thank you, David, and welcome to the Amedisys second quarter 2017 earnings conference call. Before we begin, let me first address the two questions that I believe are on everyone's mind, one of them external to our Company and one of them internal.

The external question is the home health groupings model or HHGM that was proposed in the CMS 2018 home health rule. Let me begin by saying that we like you just received the 388 proposed rule late Tuesday afternoon and are not in a position yet to comment on the specific impact to Amedisys and our patients.

HHGM as proposed is a complete redesign of the home health payment system. We need information and data from CMS in order to properly and accurately model the impact of HHGM in all the 34 states in which we deliver home health care services.

Having said that, our team is working on modeling the impact if HHGM were to be implemented as presented in the proposed rule. This is challenging as there are still big gaps in information within the rule. It is obviously very early and we and the industry still have a lot of work to do but here is what we know.

HHGM is a total payment redesign for home health with the stated intent of better aligning resources and outcomes with reimbursement. HHGM has an effective date of January 1, 2019 less than 18 months from now.

HHGM shifts payment from a 60-day episode to two 30-day periods and eliminates therapy visit thresholds, currently used to adjust reimbursement. This potentially discourages home health providers from taking care of higher acuity patients requiring therapy as part of their treatment and it sends them to higher cost settings.

HHGM is a product of the Affordable Care Act and the previous administration it is an extension of Obamacare. We were told HHGM was created to be budget neutral, but the proposed rule seems to indicate otherwise. HHGM was crafted and proposed by CMS without meaningful input from home health providers.

Providing the industry only 60 days to comment on a total payment redesign after no prior collaboration with the industry seems to run counter to the current administration's goal of transparency and reducing the regulatory burden for clinicians' providers and patients in a way that increases quality of care and decreases costs.

First, I want to assure you that we will adjust and adapt to any changes in policy made by the government as we have successfully done in the past. We have the clinical and operational expertise, resources, experience and leadership to do so in an effective and efficient manner.

As a recent example of how we have reacted to regulatory changes coming from CMS you can look to last year's rollout of the Pre-Claim Review demonstration. It was conceived by CMS staff without industry input. Amedisys and the industry advocated against the implementation of PCRD as proposed and offered alternative approaches.

At the same time, our care centers in the impacted areas trained and ramped up for the demonstration project. We saw our affirmation rates under PCRD in Illinois surpass our industry peers and we ultimately experienced a 96% affirmation rate on all claims prior to CMS suspending PCRD in Illinois.

We anticipate our experience in preparing for HHGM will be similar. Every time there is a change in this industry those with scale, resources, and grit went out, we have plenty of each.

Second, while we believe in and support payment reform that seeks to better align resource use and outcomes with reimbursement, we strongly urge CMS to leverage the experience and expertise in the industry to craft a new and viable payment model.

It appears that this proposed payment model contains many uncertainties and carries with it the tradition of increased regulation and complexity of the Affordable Care Act. We need to be at the table to play the implications through with the policy makers otherwise unintended consequences will invariably gum this up.

Third, we are concerned that this payment system overhaul could restrict access to care for Medicare's most vulnerable home health patients. In the worst case, we believe that this this could lead to increased utilization of higher cost institutional settings and ultimately lead to higher healthcare cost overall.

Home health is a significant and growing part of the long-term healthcare cost solution. We believe that current healthcare policy and patient preference support that view.

We will be aggressively working with our industry allies and state and national trade associations to share our views and solutions with CMS, Members of Congress and their staff over the next 60 days and over the following sixteen months if necessary.

As such Amedisys remains fully committed to working closely with the administration and CMS leadership to develop viable solutions that fulfill the goal of aligning reimbursement with resource use without compromising access to high quality care. Please also remember it ain't over till it's over.

The second internal question is our home health volume growth. As we mentioned last quarter, we expected a tough environment for home health volume growth in the first half of the year because of the loss of productive business development employees.

Through the first half of the year while we have been aggressively back filling this gap in our business development staff, we have delivered good financial results through strong cost control and continued hospice and personal care outperformance.

Our message this quarter is similar to last, we are hitting on all cylinders except for home health volume growth. We believe we have fixed the issues and delivered financial results in line with our expectations for the quarter.

Our business development hiring and retention initiatives are taking hold and we are now targeting 2% to 3% episodic admission growth in the third quarter and 4% to 6% episodic admission growth in the fourth quarter.

However, our continued cost management initiatives will help us reach our EBITDA targets for the year in the event that our growth ramp is slower than expected. Just to be clear, we do expect growth for us growth is not a question of if but when.

Now turning to our financial performance for the quarter, we performed well despite lower than anticipated home health volumes. We generated $379 million in revenue, adjusted EBITDA of $36 million and adjusted earnings per share of $0.62. Our home health segment revenue was $274 million for the quarter, down $2 million compared to prior year.

This was primarily due to continued softness in Medicare volumes. On a same store basis, Medicare admissions were down 4% in the quarter and total episodic admissions were down 1%. On a consolidated basis, same store home health admissions were flat. EBITDA was $37 million.

In our hospice segment, revenue increased $14 million or 18% as compared to the second quarter of 2016. Same store admissions grew a 11%, representing the ninth straight quarter of double-digit same store admission increases. Segment EBITDA was $26 million, an increase of 34% from the prior year. Hospice continues to outperform our expectations.

Our personal care segment is continuing to grow significantly. With billable hours up 53% compared to prior year including the impact of acquisitions. The team has performed well as they have proven to be excellent integrators.

When adjusting for acquisition and integration cost personal care is ahead of our targeted pace for them to achieve segment EBITDA margins of 8% to 10%, which would be industry leading. Having all already discussed growth across our segments, I'd like to update you on the other strategic focuses of our Company.

First, clinical distinction, our primary goal is to deliver high quality care to our patients in the home. They will distinguish us from our competitors. We continue to improve our clinical quality, outcomes and patient satisfaction metrics across the board.

In the July 2017 release of the quality of patient care star ratings, our average star rating was 4.13 and 82% of our health care agencies were rated four stars or better compared to just 36% in the July 2016 release.

I am extremely proud of these results as our average scores have increased incrementally each quarter and are among the leaders in the industry. Additionally, our patient satisfaction star rating results also increased in the July release with an average score of 4.08, about 8% above the industry average.

On the value based purchasing front, we fully expect to be the net recipients of funds and we'll know more about our performance later this year when CMS releases the additional data. Second, employer of choice, we continue to see a voluntary turnover rate of 22%.

The main focus in recent months has been to drive down turnover, increase retention and ramp up hiring efforts with our home health business development staff. The end of July will be the first time this year that we have seen more people in business development roles compared to the corresponding month last year.

In the last three months, we have reduced our vacancy rate for business development hires from almost 9% to below 5%. As we continue to look for new talent, we have three key objectives. First, we must on board and train our new hires and ensure they are fully supported as they ramp up to full productivity.

Second, we must continue to retain quality business development team members. And finally, as these efforts bear fruit we must coordinate at the care center level to ensure we have the appropriate clinical staffing levels to support growth across our Company. Our last area of strategic focus is operational efficiency.

We remain on target to achieve our full run rate of $46 million in operating efficiencies by the end of the year. To date, we have achieved almost 90% of the targeted cost efficiencies we identified in the beginning of 2016.

These efficiencies are driven substantial growth in adjusted EBITDA and EBITDA margins from 8.2% in the second quarter of last year to 9.5% this quarter. On the M&A front, we continue to actively source deals and remain focused primarily on larger hospice assets and personal care tuck-ins.

Although home health is still a key piece of inorganic growth, we need to find out more about the ultimate impact of HHGM and Amedisys and the industry before deploying any capital in this space. We are hopeful it will create buying opportunities.

Though we have seen a number of actionable prospects in the first half of this year and our pipeline remains full, value expectations are high. Our main focus is to be good and thoughtful stewards of the Company's capital. And as such we have taken a very disciplined approach to valuation.

Acquisitions remain a key piece of our strategy and we will continue to actively seek out high quality assets at valuations that provide our shareholders with optimal returns. Before turning the call over to Gary, I have a few updates I'd like to share on Amedisys and the industry overall.

Aside from HHGM, the CMS proposed rule included a net 0.4% reduction in payments to the industry for next year. As is usually the case, it will take some time for us to analyze the specific impact to Amedisys. Generally speaking, this was in line with our expectations. Additionally the proposed hospice rule for 2018 should be finalized soon.

And it will result in a 1% reimbursement increase to us. We are also disclosing further developments associated with our Zone Program Integrity Contractor or ZPIC audit in Florida in our 10-Q. We originally received a request for medical records from the ZPIC in July of last year and we have been co-operating fully.

This matter relates to services provided by four of the care centers acquired in our Infinity acquisition and the review period covers a time period both before and after these care centers were acquired by Amedisys. Gary will outline the financial impact in his remarks.

Overall, we remain encouraged by the performance and prospects for our Company across all business segments. And our primary goal is to return to organic volume growth in home health. We are confident in our plan to address the issues driving these trends.

In closing, thanks to our team for another solid quarter and remaining dedicated to our mission of helping those we care for to age in place. With that I'll turn it over to our CFO, Gary Willis..

Thanks, Paul. During the second quarter of 2017, we generated $379 million in revenue, an increase of $18 million or 5% as compared to 2016. On a GAAP basis, diluted earnings per share were $0.13 in the second quarter compared to $0.32 per diluted share in the second quarter of 2016.

Our diluted earnings per share were impacted by a number of items this quarter. In addition to the certain items, we have adjusted our diluted EPS to reflect we had an impact this quarter to diluted earnings per share for an accounting standard change as it relates to stock compensation that was effective at the beginning of this year.

This accounting change requires the realized tax benefits associated with stock compensation to now be included in our income tax provision on the income statement instead of the historical presentation in the equity section of the balance sheet.

For the second quarter of 2017, the benefit from stock compensation recognized in our income tax provision as required by this accounting change was $3 million, which increased our diluted earnings per share by $0.08 in the second quarter.

Slide 15 of our supplemental slides provides 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 that each adjustment impacts.

As it relates to these non-GAAP adjustments in the second quarter of 2017, we incurred net pretax adjustments of $28 million as detailed in our slides and our 8-K filing. These adjustments were mainly driven by a previously disclosed securities class action lawsuit settlement reached in the second quarter.

The settlement amount was $44 million, of which $15 million will be funded by our insurance coverage. We will fund the remaining portion of this settlement of $29 million and expect this to occur in the third quarter. Adjusted EBITDA for the second quarter of 2017 was $36 million, an increase of $6 million from the second quarter of 2016.

Adjusted EBITDA margin was 9.5% in the second quarter as compared to 8.2% in 2016. Adjusted diluted earnings per share were $0.62 per share in the second quarter of 2017, an increase of $0.20 from the prior year, inclusive of the $0.08 income tax benefit resulting from the accounting change for stock compensation.

During the second quarter, we continue to show solid cost control in all of our operating segments and corporate overhead spending as reflected in our increased adjusted EBITDA margins. As a result of solid home health volumes, our overall home health financial results were impacted.

On an adjusted basis in our home health segment during the second quarter of 2017, revenue was $274 million, down $2 million compared to the prior year. Revenue was impacted by the lower volume trends and the 2% Medicare rate reduction in 2017. This was partially offset by increased case mix of our patient base.

Medicare same-store admissions were down 4% as compared to the second quarter of 2016 with total same store episodic admissions down 1% over the same period. Our Medicare recertification rate in the quarter was 36%, up 1% over the prior year.

Same store per visit admissions were up 2% and segment EBITDA was $37 million in the second quarter of 2017, down approximately $4 million from 2016. Cost per visit increased to$1.49 compared to the second quarter of 2016 driven by increased health insurance cost.

Our hospice segment continues to perform exceptionally well and again exceeded our internal expectations. On an adjusted basis for the second quarter of 2017, revenue was $91 million, up $14 million over 2016, an increase of 18%. Same store admissions were up 11% and same store average daily census was up 16% over prior year to 6,717.

Hospice segment EBITDA was $26 million, an increase of $7 million over the 2016, with net revenue per day up approximately 2% to $148.39 and cost of service per day was down 3% to $73.08 primarily driven by lower staffing and supply cost.

Our personal care segment generated approximately $14 million in revenue in the second quarter of 2017 with approximately 618,000 billable hours. This segment generated operating income of $1 million in the quarter.

We are beginning to see this segment stabilize as they integrate recent tuck-in acquisitions and are performing consistent with our expectations. Turning to our general and administrative expenses, please refer to slide six in our supplemental slides.

This quarter we performed well at controlling G&A spending and driving our operational efficiencies and related cost savings. On an adjusted basis, total G&A was $119 million or 31.5% of total revenue. Total G&A was down 230 basis points as a percentage of revenue compared to the second quarter of 2016.

Home health G&A was down $2 million from the second quarter of 2016 to $69 million or 25.2% of home health revenue, which is down 70 basis points year-over-year. Our hospice G&A was up $2 million to $19 million or 20.9% of hospice revenue. This was a 170 basis point decrease compared to last year.

Our personal care G&A increased slightly less than $1 million to $3 million or 20.8% of personal care revenue. This is a 370 basis point decrease compared to last year. Our corporate G&A was $28 million, down $3 million over the prior year. As a percentage of total revenue, our total corporate expense was down 110 basis points from prior year.

We will continue to stay focused on proactively controlling our G&A expenses as we progress through the remainder of this year. From a cash flow perspective, we generated $36 million in cash flows from operations for the quarter, an increase of $22 million from the prior year.

Total capital expenditures were $3 million, which is flat compared to the prior year and in line with our expectations. Our balance sheet is in great shape with outstanding debt net of cash of $34 million or 0.3 times last 12 months adjusted EBITDA.

Our provision for doubtful accounts was $4.7 million in the second quarter of 2017, which was an increase of $400,000 as compared to 2016. Our day sales outstanding remained flat at 40 days from the first quarter of this year. As Paul mentioned, we have an update to provide on our ZPIC audit in Florida.

We've received letters from safeguard services or ZPIC placing four legacy infinity care centers under prepayment review or payment suspension. We have also received requests for repayment from Palmetto based on safeguards audit activities.

At this time, we've repaid some of those requests for repayment and are appealing many of their claims identified but we are unable to predict the outcome of this audit. We're hoping for resolution of this matter soon.

Approximately $8 million of net receivables are delayed with our payment suspensions in Florida related to the ZPIC review adding 1.5 days to our DSO at the end of this quarter.

Excluding the impact of these payment suspensions, our net DSO would have been approximately 38.7 days, which reflects that we are making some progress in collecting our accounts receivable backlog.

At June 30, 2017, we had a cash balance of $59 million and $170 million available on our revolving credit line providing total available liquidity of approximately $230 million under existing credit facilities.

We expect that approximately $29 million of our cash balance will be utilized in the third quarter of this year in connection with our securities litigation settlement. At this time, we're prepared to take your questions. Operator, please open the call for questions..

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] The first question is from Brian Tanquilut of Jefferies. Please go ahead..

Hey, good morning guys. Congrats on the quarter.

Paul, just a quick question first on the growth side for the back half of the year, it sounds like you've given your goals for organic admissions growth for Q3 and Q4, but just trying to figure out where do you get that confidence or visibility in terms of being able to drive Medicare growth? And then kind of like in addition to that how should we be thinking about the strength in non-Medicare admissions in the quarter? I mean is that a shift in strategy or a shift in the sales focus maybe what drove that 12% admissions growth?.

Sure, well, what I'm going to do Brian is give you an overview and then I'll have Chris Gerard jump in, but it's basically a mathematical exercise the way we figured it. The - we lost 50 folks while we were doing Project Redwood and we didn't rehire them in the way that we should have.

And so each of these folks brings in a specific amount of - we met - we track their productivity very carefully. So what we saw when we lost these folks, we actually saw what we'd hoped for was increased productivity of the existing folks but we needed another 50 folks to bring in to start to drive more of this volume.

And what we've seen thus far which has been good is the folks we've brought in so the BD hires that we've brought in particularly we've been tracking those since April, May and June, they've been well ahead of what we've been projecting.

So we have the underlying 700 group is more productive and the people coming on board are now ramping up at a good rate and are producing more than we initially had thought. I think what we did see a slight slowness in getting to the 750 number when we had initially predicted it. And therefore that we're playing a little bit of catch up.

By the end of this week though we will have 750 reps out there, again head of production and then people out in the field producing much better results. I'll turn it over to Chris if you have anything to add..

Sure. Yeah. Thanks, Paul. Hi, Brian. As Paul mentioned we've got a pretty, a pretty dolled in model that's measuring our new work ramp - productivity ramp, our existing tenured BD staff productivity turnover was one that caught us a little bit and slowed us down a little bit in Q2, which we were able to curb later in Q2.

And if you look at the graph on slide nine of the supplemental deck, you'll see that when we started in June is when we started to see the significant ramp in our RFTEs.

So what we do is we monitor all of these indicators, the new hard productivity, BD FTE growth, our turnover in our tenured staff productivity and all of those support our goal of the 2% to 3% episodic growth in Q3 and as well as our 4% to 6% in Q4 because we will continue to take the FTE ramp up to about 775 FTE throughout Q4..

Got you. My next question I figured everyone has been asking about HHG [ph] or so a group of models. So I'll just ask a more fundamental question for Gary and Paul.

So as we think about your cost side, you're starting to realize all the Homecare Homebase benefits, you're BD numbers on G&A it seems like, is there more to squeeze from an operating expense perspective and efficiency, number one.

And number two, as we see volumes to ramp up, should we expect that to pretty much flow through to the margin and earnings lines as we enter the back half into next year?.

Good morning, Brian, it's Gary. Great question and you know we are very pleased with our cost performance this quarter and this point in the year. But and we do believe that there's other cost efficiencies that we can continue to take out of the business.

So we've identified things that are not - are going to change our long-term strategy for the Company where we can reduce some spending and continue to get more efficient in how we provide care to our patients. So we think that will continue to see some continuations of the trends around strong cost control and cost management.

So as we think about this returning of growth in the 2% to 3% in episodic growth in Q3 and then 4% to 6% in Q4 coupled with the continued cost control measures we have in place and that we're defining and implementing we do think that that will help us deliver on our promises for this year and continue to see us maintain our margins..

One of the things, Brian, that we saw that we're very happy with is the productivity numbers of our clinicians have increased, which is what we all were betting on for Homecare Homebase.

We think it's around a 5% number, but we've been able to see that those existing clinicians that we have are being able to do more visits and therefore we're hoping to continue to do to push those productivity numbers. So we feel good about that on the productivity side.

On the cost side, I agree with Gary, we've identified more costs we're going to go after and then when the growth comes and we anticipate we'll be able to push that through in a meaningful way without incurring incremental costs..

Got you. Thanks guys..

Thanks, Brian. Appreciate it..

Thanks, Brian..

Thank you. The next question is from John Ransom of Raymond James. Please go ahead..

Hi. Look this is probably an unfair question and I think I know the answer I'm going to get but I thought I'll get anyway but as we look back over time whenever CMS estimates the effect on the industry of X we look at the for profits and usually the effect is greater than X.

Do you know enough even at this point to say that 4.3 poor Amedisys might be a little worse than 4.3 or is it too soon?.

I'd say - Hi, John, it's Paul.

I'd say it's too soon, we're still as you know one of the things that we've seen with this is and as I mentioned in my remarks, we didn't think this was going to be in the initially in the rule and then about 2 months ago we kind of were up at CMS and got a good idea that this was looking like it was going to be in the rule.

As we've been working through it and we've been modeling it and the partnership which were a member of which is a lot of the other big companies for profit not for profit they did some modeling on it and there's still a lot of holes in it and they're still lot to be resolved in terms of the accuracy, in terms of what we can do.

One of the things we have seen is there's by states some pretty strong swings in what I would call equitableness or in-equability. The sense that we - there are some states that really seem to get hammered in basically our calculation.

So we need to go back and confirm this and make sure that because the implications in places like Utah, Michigan, Florida would be pretty severe and so we're trying to understand what that means but yeah we're building models on this and as soon as we know something we'll be out and predicting that impact.

The good thing for us is, is diversity, geographic diversity seems to be a modulating factor here and it seems like certain states are just getting pounded and other states aren't. I know - I have Dave Kemmerly here who can maybe pine a little further on that..

I wouldn't disagree with that. As Paul mentioned the partnership engaged firm to do some modeling on the information and data that they had at that time but I think they didn't have access to all the information that CMS had as they developed the rules.

So there are still some holes so I think it's as you said John too early to say how the for profit versus the nonprofit is going to play out, but we did all reiterate what Paul said our early look is there are some geographic disparities.

Of course over the next 60 days we'll be talking to CMS through formal comments and also and in reaching out to them individually and as part of two national traits we belong to knock and the partnership and we'll be working with some of our other industry colleagues in trying to understand the model - do some modeling, understand the rule and work with CMS and Congress over the next 60 days and of course but we'll work with them all the way up for the next 18 months until implementation which is as you know in the rules on or after January 1, 2019.

But as Paul said in his remarks we'll also simultaneously be working very diligently to prepare for implementation as it is going to be implemented as proposed. We certainly hope is not implemented as proposed what we know today.

So we'll be working hard on that but doesn't on when to weigh the Senate don't know the answer that disparity that specific question yours at this point for profit and not for profit but you're right historically there's been a divide there..

Okay. And neither of those kind of captain obvious question, and I'm sorry if I missed this, but I would assume that you would put Medicare home health acquisitions on the back burner until this is clarified.

Wouldn't it be impossible to model these things or is that not accurate?.

I think that if you look at our priority is pretty much in our Hospice and Personal Care, we do like we are having some good conversations with - what I would call super regional's that are out there, but obviously the problem now pricing as valuation on these to understand what the proper valuation is and obviously the issue we go and we will take a worst case scenario when go and then will still up the table under a worst case area.

We are looking thing. Once this starts to settle up, I think the interesting thing is that present probably some very interesting buying opportunities..

And what do you I mean just first Scott what percent of your either agencies or visits or in states that you think are particularly problematic that you went through quickly before? Do you have even that information?.

Yeah, we see based on what we have seen, there is Tennessee and Florida but once again these - my sense they are going to have to flatten this out a bit particularly - otherwise they are going to get congress - folks from these states and congress that are probably going to be fairly aggressive about saying why us..

Well, I congratulate you on keeping your balance sheet clean. So that's, that's -.

Always good in these times, always good. Thanks John..

Yeah, thank you..

Appreciate it..

The next question is from Sheryl Skolnick of Mizuho. Please go ahead..

Thanks so much. First of all, what you had to do is report the quarter, I think obviously the tone of my questions would be pretty much different. But, you know - let me just try to engage you a little bit. I know it's difficult on this CMS stuff.

So, first of all - I think it is pretty obvious if you actually read what they said that, they look for - the data that they use, the level, where they started from in terms of levels of payments versus where they want to get to which is eliminating the overpayments not related to actual patient need.

And it seems pretty clear that geographically you've got big error rates to use the dreaded phrase and you've got big overpayment issues in areas with high degree of fraud and we know South Florida has got a high degree of fraud, this is not record science. Okay, so right - so what sort of levels that data little bit.

Also as part of all of this I guess what I am coming down to is in the context of mistakes, errors whatever happens in billing that get you into the ZPIC situation through the acquired agencies.

The overarching perception on the part of congress that the industry is still - fought with gamers, it's not fraudsters and not helped by headlines of all these people who are trained up for billing for patients who don't exist as supposed to legitimate agencies.

Are you starting from a position of weakness here? Can we kind of explore where - just how tough or easy you think it's going to be to gain momentum among your supporters in congress for payment levels to remain the same? I know substituting [ph] the value of the benefit went on right, but payment levels to be made the same.

So, we got to have little dialogue about that? That would be really helpful..

Sure. I will start up and it will be in kind of a hundred thousand foot mile probably little banal, but I think the - I think there is pretty strong - I think there is a bit of a dichotomy out there between what hear in congress and what we hear from our congress folks and what we hear at CMS.

And then also I there is also a bit of a dichotomy and a bit of a difference between what CMS under Trump is saying and what CMS under Obama said. So my sense is that's where we are trying to figure out and therefore we have the terror of babble.

I think the idea is - what we are trying to do in our process is just to find a working model and then to understand that model and then to see what - to see where the impact is and to see what they are trying to get at. If, they are trying to get - and your right Sheryl, most of these things have the underlying piece of trying to rude out fraud.

And I guess our feeling is - as we have been to CMS before, we said, listen you want fraud, we will show you how to - we build a calculator. They know how to calculate for fraud.

This I think what it's going to do is, if they are really after over therapy utilization by people who do that - I think what's going to happen is there are going to push it into more institutional settings and I think the cost is going to go up.

And then what they potentially could do here is try to limit us in terms of the types of patients we take care of. And what we are trying to do is move up the equity scale, not go back down the equity scale.

So, again where we are seeing the desire to push us up the equity scale is prices in managed care, the issue as you know, in manage care they don't pay us enough. So we are kind of in that sort pickle and we are having very good dialogue in manage care with that.

So I think that might be a possibility in terms of driving more - getting paid better manage care for taking more risk for higher equity patients. It seems like the government is going backwards on this one. So, I don't know if Dave, you've read this thing. I don't know with your opinion different comments of course..

Yeah. First off I'll agree with Sheryl. We certainly do face a challenge and we continually face that challenge because the limbs that CMS and congress tend to look through is higher rate. And I think it's around 42% now and we've had the challenge of trying to delineate what is that error rate.

And the error rate, the overwhelming majority of it in our view is documentation errors versus the type of fraud that Sheryl referenced earlier. So that's been a challenge to get to that, to get beyond that 42% error rate and again slain out the policy makers.

So the next step is again if you identify how can you go about detecting fraud and kind of routing out the fraud in the industry and routing out bad players, while not harming the compliance and the quality providers.

And the danger just going to payment overhaul to get there seems to be kind of a very broad based approach where there are more of a rifle shot of trying to - we believe that otherwise we could present to detect and deal with fraud.

I didn't know this - I believe yesterday Sheryl, CMS extended more thorium [ph] to your point in Florida and Illinois and Texas and a few others on new home health agencies. So, yes it's a knowledge of I feel about that we as in industry have to overcome.

I think the rule has done something interesting in the last week or in last few days I suppose to as we anticipate to coming up. Perhaps and you have heard - a galvanizing effect in kind of uniting the industry where it's not been that way before. I believe it's been fairly fragmented on the advocacy fraud.

So every crisis come on some sort of line perhaps the industry is rule align around there some have to come out with some solutions for fraud that CMS and congress could adopt rather than this method, but, it's just - Sheryl, you are right. It is something we have to overcome.

So with that Chris, if you have anything to had or follow up or any follow up Sheryl..

I don't really have any follow up. I think that we kind of talk this thing. The only thing I would say is this is kind of a movie that we have seen in this industry before.

With the BVA of '97 and even though that was a congress enacted bill, once it got into CMS's hands, it all became about routing out fraud and abuse and minimizing or eliminating the number of agencies - minimizing the number of agencies that were within the system.

It's kind of ironic here, we are almost 20 years later and we are still talking about the same thing. It didn't meet the intend of routing out the fraud and abuse because frankly, fraud people that are out there committing fraud and abuse, find ways to commit fraud and abuse and that's what they are focused on.

I think the challenge for us as an industry is that we've got to make sure that as David mentioned, we don't equate 42% error rate with fraud. An error rate in the technical area is not fraud. It is an un-payable, a non-reimbursable service and we have to as an industry get better out there.

But really a laser focus on routing out fraud I think is what's best for our industry and what's best for CMS. And then the last thesis is that unlike to BBA managed I don't think that this gruel creates experimenting vendors at all.

So we have a good opportunity as in the industry to be galvanized and really kind of all arm and arm to go out and really support each other in our fight to get this thing either killed either killed or get it modified toward, does make sense..

Yeah, that's very, very helpful that insight of the galvanizing the industry because I will confess, I was a little bit worried that you might have AMED or one or two other leaders and not a unified voice. So that typically has been effective, but I did have [indiscernible] fighting the since –[the agencies, since they started implementing BBA '97.

I am laughing because that's right and they haven't gotten it right yet. But in the absence of that just slash of billion dollars out of your payments and you feel better about it. So, clearly there are things to push on here and I am sure you all will do the work on this.

But if we can just sort of move off that for a second, I know investors were very curious about, if the worst case scenario happened, if this thing were to be implemented. And I know you said you would see some cases go to in patient and I am not sure that is true or that is not true.

But what could you do to mitigate? What would you have to do to reorganize the business and what could you do to mitigate sort of right of the back because anyhow it's important of us to understand whether or not there are mitigation strategies, I am pretty sure they are.

But whether or not there are mitigation strategies and what impact that might have not only on the way you look at your business but, goes into [ph] if you don't have something like your Homecare or Homebase or don't have access to resources and the ability to recruit and then retain and train on the way you do..

Sure. Hey Sheryl, it's Chris again. I would say from experience as well on the medication front, we really need to understand all of the new arms of the proposed [indiscernible] [00:00:51] and where that is actually - focusing the reimbursement on.

So, knowing the characteristics of the patients, we do have some flexibility in terms of who we are marketing to and who we are trying to generate our referrals from. And there may be some nuances there within that.

I think the biggest concern and the biggest challenge for a big change like is going to be more internal with your process is finding our ways that you can effectively and efficiently deal with these major changes within your organization so that it's not a cost additional and in turn a cost to the organization but, you actually become efficient.

So, I think it's going to be primarily kind of a makeup of your referral resources and a makeup of the characteristics of the patient that you should bring it on. But, so early for us to really even understand where this is leaning.

We will really almost put some black belts in this rule before, between now and in the implementation so that we understand how this is going to impact us..

It is what I think your point Sheryl, that companies - the companies with scale and with data analytical capabilities are going to be in much, much better positioned to work through this than Mom and Pops.

Certainly through the Homecare, Homebase implementation and other work we have done, we have the ability to get very granular around the utilization of our resources and around how we look to position our capacity moving forward and the ability to do that I think is going to differentiate the larger public entities from the Mom and Pops, so that we are probably going to be better positioned as they are trying to squeeze a little..

And I will look Sheryl, this briefly I will cut it this way, which is - we are going to look at things by service line and certain service lines is what they as they come out of the solution and they come out of hospitals and they physicians.

If some of them require, we are trying to move up and obviously steal from sniffs and herbs and L tax, so the point is we have to use the high therapy utilization for this, as we try to move up on this. Also there is high therapy utilization in certain service lines.

So the key is if that's going to be limited that to what it is going to mean is we will have restructure ourselves around - if they are going to discourage us from doing that. And I think that's going to be part of the big debate.

Do you want to push more acute types of care into the home and create these environments we are fundamentally we are the lowest cost setting. And do you want to limit our ability to do that? And that's what fundamentally it's trying to do and or - because invariably what is going to happen as these patients are going to end up in sniffs and herbs.

And therefore its and that's double or triple the price.

So, I think they need to think that through and again I think one of the things we have seen with CMS is - because they don't have the industry at the table, what they don't do is - they don't - in the business, they can't think these through - two or three times we are moved from what that actual move means.

So, I think when we start to show them the service lines, the types of people we take care and the types of care that required and then where these people are to go and then start to put some of that maps to work. I think it will be actually quiet convincing..

This has been enormously helpful. I have no doubt what is the way that you all - when you think you're into an issue and a problem you to become masters at it and clearly the execution and the cost savings shows that you are really good at doing - really hard things. And so, thank you for that.

Even just as first high level of 48 hours later explanation is very useful. I appreciate it very much. I wish you a lot of luck..

You have been great. Thanks Sheryl. We appreciate it..

Thank you. Bye..

Thank you. The next question is from Whit Mayo of Robert W. Baird. Please, go ahead..

All right. Hey Whit..

Hey guys. May be just quickly if you could talk a little bit about the Tenet deal just the integration. How that's progressing with your expectations. I think hospital based agency business is maybe a little bit different then a normal deal, so any insight would be helpful..

It's Steve. So what we are doing is far as you said you typically have some different staffing and some different just a historical model. And we have contemplated that in the way that we are looking at the inauguration efforts.

So we have got an understanding of where we expect there to be opportunities on both cost side and then there has been a fair amount of work done by our business development people to put some sales folks around the Tenet facilities because we believe what are the other opportunities there as to diversify the business away from just those particular facilities.

So, as we are working through that when we think about our internal expectations over the first - full year or the second year, we are not seeing anything that's really scaring us in that shaking out..

Yeah. And I think the idea what is - as we talked about is on Tenet, you are going from an in-house hospital agency that fundamentally was there to serve one place and so we had some interesting benefits. We have now added business development functions to bring in the other types of business.

I think in general, Tenet has been a very good partner though we have had some very good conversations moving forward about how we can be of use in an ambulatory environment, so with the USPI asset.

And then we - using our hospital at home model, we are going to start to look at some places where they have capacity issues where they don't have enough capacity. So that we can alleviate some of that and start to make some of our hospital at home models work and free up the bed capacity for better business for them.

So those are the areas we are focused on..

That's helpful.

Do you have sense for what percent of surgery centre, Medicare surgery center patients end up discharge to Homehelp after a procedure?.

Yeah. I mean - I think a lot of it depends on the type of - I mean a lot of these folks if they are doing work over things like that, there is clearly a lot of those folks are - go to quickly and then go home. Some of the other types of surgeries - we are going to expose what are the protocols afterwards. So we are just in the beginning of that.

So we think it's a real opportunity, because once again they are doing the same thing. I mean what's interesting about Tenet is they actually are investing in a company that's fundamentally could take business away from their hospitals. And therefore, there are going to be more acute and therefore that presents a real opportunity for us.

So that's what we need to do is say what are the protocols, where can the home come instead of a rehab or snap or something like that. And what can we, - where can we participate in this..

In the first conversation depend around town choice?.

Yeah, exactly..

Garry, when do you fund the DOJ settlements.

I see that the liability on the balance sheet, or I just wasn't sure, - actually when that gets paid and are you using cash on hand or revolver draw?.

Great question ,Whit. We plan on paying that in the third quarter of this year. It requires that the settlement agreement be presented at the courts for approval. And we think that that will occur in the third quarter..

Got it. One last one just the - the 2.4 million of equity earnings in the quarter.

Is that a good run rate, I know that balances around and can have some, some gains in number or so?.

You know I don't know that I will consider that run rate .We had some strong activity there this quarter. That's a little non-occurring and that's why you have seen us adjust some of that back out through the - that the gain section. But - I would take number a lower and that will be a typical run rate..

I should know there [indiscernible] what is running through that number - what on consolidated business you have?.

Yeah. We have an investment in the heritage fund..

Ah, that's right..

Right. So it sums up there..

Perfect. Thanks guys..

Thanks Whit..

Thank you. And our final question comes from Kevin Ellich of Craig Hallum. Please go ahead..

Thanks, guys. Hey, hey Paul. Lots been talked already. So I will try to keep it very limited. But you know - I guess the first dumb question I have is with HSGM. What is in the proposed drill? It is not budget neutral.

Can that even be implemented or past nothing budget neutral?.

That is a great question.

Dave?.

Yeah. I think certainly we are looking at that. There is some questions to whether we are seeing CMS has the unilateral authority to make such as the proposed change with our congressional authorization or action. So yeah, that's right and a lot of quarter. So we will be exploring that. We certainly don't want to get to that.

I want to follow up on some, Paul said earlier, he said he was up at CMS along some other industry leaders a couple of months ago and obviously CMS can't tell you what's going to be in the rule but they've perhaps got a sense HHGM may be under consideration.

And so I'm encouraged now that not that the rule is out in Senate but I'm encouraged now we'll have an opportunity to enter into some hopefully some very meaningful dialog with CMS around HHGM and how you might modify that and implement that or maybe there's an alternative payment model.

So I'm encouraged as I said to Sheryl that I believe the industry is galvanized and united here and we'll be presenting some really using our expertise and our experience and all of our knowledge around the industry to bring the CMS and hopefully that will be a very fruitful and open and constructive dialog over the next 60 days if not beyond certainly beyond all way until implementation.

So, yeah, there's always the opportunity of worst case scenario people resort to litigation and things of that nature but you may not have to litigate it and certainly hope not to but I think that some you might presume, Congress may exert that that's our purview and you can't act without our authorization. So, good, good observation and good catch.

Hopefully doesn't have to be part of this..

Got it that's helpful. And then yeah absolutely and then just one following up on that it seems like they kind of threw this out there, there's more work that even Medicare needs to do. In your mind what else do they need to do? I've heard you know there need to be a coding catalog for ICD X.

How long do you think something like that would take?.

Scott?.

It's a lot of - it's a huge effort be left me that trouble just getting payment updates before doing in a timely manner from them so. It's big effort, a lot of details in this that has to be worked through and how payments flow.

So it's going to be a big lift, not ensure that their timelines, we'll have to learn more about that that will impact how we put our systems in the place..

And if we take our lessons from PCRD, which it was - they weren't ready for us. There were a lot of problems in the beginning and it really was a very bumpy road initially.

So, eventually, we got it figured out but I think we - I think for them to do something like this, I guess one of the things that I'm very interested in and this is kind of - I'm very interested to understand the political will behind this the motivation and the desire behind this one, this push out from what was an Obama rule because it will require a lot of lifting on their behalf certainly for the industry but the amount of work they're going to have to do to drive this is going to be extraordinary and have to be and they have to be starting this very, very quickly and I think a lot of these efforts will be first of all they certainly have to fill in the blanks.

And so I think it can be difficult. So that will be very interesting to see what the political will is because once they get if they're the dog that catches the car and then they actually see how much work there is to be done, we faced it and it's going to be a lot..

Sure.

And then can you just remind us what percent of your home health agencies are partnered or JVed with hospitals or health care systems? And are they considered facility base then?.

Yeah, we probably have about seven JVs out there..

Yeah..

Small group..

Yeah, small group for us. So, it's not certainly a big issue..

Yeah. So it will be a very small portion..

Got it, got it. Thanks guys..

Okay. Thank you..

Okay. Thank you..

Thank you. I would now like to turn the conference back over to Mr. Kusserow for closing remarks..

Great. Thank you very much. Appreciate it. I want to thank everyone who joined us today on our call. We really appreciate your interest in Amedisys and we look forward to updating you on our progress on our next quarterly earnings call and when we see you all out on the road. Thanks again. Have a great day..

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at the time and thank you for your participation..