David Castille - Managing Director, Finance Paul Kusserow - President and CEO Scott Ginn - CFO Chris Gerard - COO Steve Seim - Chief Strategy Officer Larry Pernosky - Chief People Officer Dave Kemmerly - General Counsel and SVP, Government Affairs.

Kevin Ellich - Craig-Hallum Brian Tanquilut - Jefferies Sheryl Skolnick - Mizuho Securities Joanna Gajuk - Bank of America Merrill Lynch Whit Mayo - Robert W. Baird.

Greetings and welcome to the Amedisys Third Quarter 2017 Earnings call. At this time all participants are in a listen only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. David Castille. Thank you. You may begin..

Thank you. Welcome to the Amedisys Investor Conference Call to discuss the results of the third quarter ended September 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 Scott Ginn, Chief Financial Officer.

Also joining us are Chris Gerard, Chief Operating Officer; Steve Seim, Chief Strategy Officer; Larry Pernosky, Chief People Officer; and Dave Kemmerly, General Counsel and Senior Vice President of Government Affairs.

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..

first, home health organic growth; and second, the 2018 Home Health FINAL Rule. For our Home Health segment, consolidated same-store episodic admission growth was 3% in the quarter, excluding the seven Florida care centers we closed as part of our restructuring plan and the volume impact of Hurricanes Irma and Harvey.

In fact, during the quarter, over 60% of our episodic admissions took place in regions where the combined same-store growth was over 5%. These trends have continued in October as volumes grew as expected.

As you recall, we began the year with a significant deficit in our home health business development staff, impacting our ability to grow organically. We responded by launching an aggressive plan to increase hiring and reduce turnover.

I’m excited to report that we ended the quarter with 770 business development FTEs, up 29 FTEs from the second quarter and 59 FTEs from the first quarter. Additionally, our home health business development vacancy rate has dropped from almost 9% in April of this year to 1% in September.

Thanks to our entire talent acquisition team for their tremendous efforts throughout the year. We are very proud of the progress we have made in home health growth and are reiterating the target of 4% to 6% growth in episodic admissions in the fourth quarter, excluding Florida closures.

Transitioning to the 2018 Home Health FINAL Rule and specifically, HHGM, I want to thank all of the supporters of home health, our employees, patients and their families who delivered a strong message to Congress that HHGM is not the right payment system to drive home health access and quality patient care.

I’m especially proud of our 1,300 employees who took the time to send email messages to their members of Congress about HHGM. We had a number of concerns with HHGM as proposed. However, one of our primary concerns is the potential impact on patient access to home health services.

We appreciate CMS, OMB and Congress for allowing us to present our concerns about HHGM and for listening to those concerns, especially over the last several months.

We look forward to fulfilling our commitment to CMS, OMB and Congress to collaborate with them on the redesign of the home health payment system centered on access and quality patient care, something that will be good and fair for everyone. Turning to our hospice segment.

I want to commend, again, our hospice team for putting together another great quarter. The dedication and passion of this team for their mission and their patient is second to none. Over the last few years, the growth of this segment has been remarkable, and nearly all of it is organic.

To put this growth in perspective, our average daily census for the quarter was just over 7,000 patients. Since the third quarter of 2014, our ADC has grown over 50%, and we are caring for over 2,400 more patients. Personal care continues to grow organically and inorganically with the acquisition of Intercity. Billable hours are up 37%.

I’d like to take a moment to update you on the other core strategic focuses of our company. First, clinical distinction. We continue to improve our clinical quality outcomes readmission rates and patient satisfaction metrics across the board.

In the January 2018 preview, our quality of patient care star ratings was 4.21, 30% higher than the industry average with 88% of our home health agencies rated 4 stars or better compared to just 36% in the July 2016 release. Also in the same January 2018 preview, we had 29 care centers that achieved a 5 star rating.

We have consistently demonstrated sequential improvement in our quality of patient care star ratings and are among the industry leaders. On the value-based purchasing front, we expect to see a 0.4% payment increase across the VVP pilot states where we have a presence. These 7 states represent almost $250 million in Medicare home health revenue.

We are also very pleased with the publicly released hospice quality metrics and our initial performance where we expect to be industry leaders, similar to home health.

In 2018, we will be focusing heavily on two areas from a clinical perspective, readmissions and clinician turnover, which we feel will be the most impactful areas that can drive true clinical distinction.

The biggest factor that payers and referral sources look for from a home health provider is their ability to unnecessary readmissions, and we can only do that by employing and retaining the highest quality clinicians across all of our segments. Moving on to Employer of Choice.

For the past 9 months, we have been acutely focused on ramping up our home health business development hiring and retention strategy, but we recognize that we also must remain focused on adding capacity where it is needed to support our growth goals.

On this front, we filled over 1,300 clinical roles across our segments in the third quarter, which is a new quarterly high for us. We have also seen a 5% increase in visits per week compared to January.

The productivity gains from our existing employees, combined with the new hires in the field, have given us the clinical capacity needed to support our volume growth. Now let’s discuss operational efficiency.

Starting in early 2016, we identified a plan to deliver annual cost savings of $46 million associated with our operating system transition and other initiatives, originally targeting 12% adjusted EBITDA margin by the end of 2018.

Obviously, there were larger than anticipated cumulative home health reimbursement cuts that have impacted margins negatively versus the 12% target, a cumulative 3.1%. However, as depicted on Slide 10 of our supplemental slides, if these additional rate cuts are excluded, we would have achieved the adjusted EBITDA margins in the 12% range.

We have delivered on our promises to shareholders and we’ll continue to work to identify incremental margin efficiencies as our business continues to scale up. On the M&A front, we are focused primarily on larger hospice assets and personal care tuck-ins, along with home health deals in select geographies.

With HHGM out of the picture for now, the home health outlook is still unclear, but definitely has a better prognosis. We are very pleased with the quality of our pipeline of targets and are poised for successful inorganic expansion in 2018.

Additionally, I would personally like to welcome the 752 employees from our Intercity acquisition to the Amedisys family. Finally, the Florida ZPIC. While we are working through the appeals process, we want to again emphasize that we disagree with the ZPIC auditors’ conclusions, particularly the alleged error rate and their extrapolation methodology.

We are very happy with our fact set and we’ll walk through the appeals process to challenge their assumptions and demand for repayment. In summary, we remain encouraged by the performance and prospects for our company across all business segments, and things are setting a very well for 2018.

Home health volume growth has turned a corner, and hospice and personal care continue to increase their financial contribution. We are pleased that CMS has decided against finalizing HHGM as proposed and will continue to be a good partner in developing solutions that will achieve a good common solution for all.

Thanks to all of our 17,000-plus employees for the results that you have delivered and your continued dedication to the patients we serve. Before turning the call over to Scott, I’d like to express how delighted I am personally to have him in the CFO role and thank Scott for all that he has done for us and this company over the last 10 years.

Scott has been a driving force in guiding us to achieve significant performance improvement, and we are all very glad to have him in this seat. With that, I’ll turn it over to our CFO, Scott Ginn..

Revenue was $97 million, up 15 million over 2016, an increase of 18%. Same-store admissions were up 7% and same-store average daily census was up 14%. Segment EBITDA of 29 million, an increase of 7 million over 30% versus 2016.

Net revenue per day was up approximately 2% to $149.25 and cost of service per day was down 1% to $73.99, which was driven by census growth and discipline in controlling spend, particularly pharmacy cost. Our personal care segment generated approximately $14 million in revenue in the third quarter of 2017 with approximately 616,000 billable hours.

We continue to see signs of stabilization in this segment as they integrate smaller tuck-in acquisitions. With our recently announced Intercity acquisition, we have closed a total of three personal care acquisitions since September of last year and are awaiting regulatory approval to close on our acquisition of East Tennessee Personal Care Services.

Turning to our general and administrative expenses, we continue to exhibit strong cost discipline. On an adjusted basis, total G&A was 117 million or 30.3% of total revenue. Total G&A was down 270 basis points as a percentage of revenue compared to the third quarter of 2016.

This represents a 2 million decline in G&A, both on a year-over-year and sequential basis. From a cash flow perspective, we generated $39 million in cash flow from operations for the quarter, excluding the payment of our $29 million shareholder litigation settlement in September. After this payment, cash flow from operations was 10 million.

Total capital expenditures were just under 2 million. Our balance sheet continues to be in great shape with outstanding debt, net of cash of 26 million or 0.2 times last 12 months adjusted EBITDA. As we’ve mentioned on previous calls, we are focused on reducing our days sales outstanding.

While our net DSO was up a half day since December and June, we are encouraged with our progress in several month fronts. First of all, we have significantly reduced the percentage of un-billable accounts receivable during the third quarter.

Secondly, our gross account receivable balance was down approximately $15 million from December excluding our Tenet acquisition and the care centers currently on payment suspension resulting from our Florida ZPIC. Excluding the impact of these two items, our DSO was at 38 days, down slightly more than two days from December.

We cannot predict the timing of the Florida ZPIC resolution, however, we believe that the delay of billing due to the change of ownership process for the Tenet care centers should be resolved by year-end.

At September 30, 2017, we had a cash balance of $66 million and $167 million available on our revolving credit line, providing total available liquidity of approximately $233 million under existing credit facilities. Turning to home health and hospice reimbursement. As you are aware, the 2018 Home Health Rule was finalized last week.

We anticipate the impact on our episodes in progress at 12/31 will result in the reduction in revenue of approximately $1 million for the fourth quarter. This impact is inclusive of the expiration of the rural add-on. We believe that there is a strong possibility that the rural add on will be extended, which will result in reducing the impact by half.

Additionally, the final hospice rule became effective October 1 and resulted in additional $1 million revenue for the fourth quarter. In summary, I’m very pleased with our results for the third quarter and even more excited about the prospects of our future. At this time, we are prepared to take your questions.

Operator, please open the call for questions..

[Operator Instructions] And your first question comes from Kevin Ellich from Craig-Hallum..

Paul, could you maybe start off talking about the regulatory environment? And now that groupings has been pushed out, what are your plans in terms of capital deployment and acquisitions?.

What -- the regulatory environment, obviously, is a lot better than this week and most of last week than it was prior.

So we feel very good about what we were able to do, particularly as an industry to coalesce, come together and work against the role that we thought was very difficult and ultimately very damaging to the industry, and particularly to the patients who depend on home health.

So we were very encouraged when somebody listened at either OMB, Congress and CMS and fundamentally didn’t finalize the rule. I still think, though, there is an interest in payment reform.

And so what we anticipate will happen is that someone -- is that we’ll probably get called back to CMS, sit down and go over some of the items that we proposed, particularly when we went to Congress or the Ways and Means Committee and to go over some of those ideas that we had, see if those can work within the CMS context.

But I think the whole industry is well prepared, fairly aligned and together.

And I think what will happen is we’ll go back to CMS probably in the next month or two, spend that time to understand what they’re looking for, what they hope to achieve, what’s doable in our industry and then hopefully to lock in some sort of -- something that will be beneficial to all of us. So we’re pretty encouraged by it.

What that does to M&A is, I think, the second part of your question is clarifies things, at least in terms of home health. But while we still will be going back to the table, I don’t think it provides full clarity in terms of home health marketplace.

We do -- we are more encouraged that we will be participating in the solution versus being dictated one. And so I think where we saw things completely stop, we’re now seeing the floodgates open a little more in terms of people who are interested in talking.

The interesting thing though was we didn’t see a decrease in valuation expectations in home health even while HHGM was a threat, and that’s something that worrisome to us. So I think we’re going to -- our focus on the M&A, frankly, is we still like hospice, we’re still out looking very hard to do work in hospice.

We’re also going to be doing de novos in hospice, we like that. We’re going to be spending some capital doing that. We’re looking for fundamentally, in home health, probably start looking for licenses. That sort of thing where we can fundamentally de novo-like things in CON states, and we still like personal care quite a bit.

We find the combination of personal care when they’re close to home health and the hospice to be very good.

Does that answer your question, Kevin?.

It does. And then I have a follow-up in terms of the FINAL rates for 2018. I believe industry-wide is looking at a 40-basis-point cut. You guys provided a little bit more details and the news that came out this morning, and it says I think you’re looking at about a 1.4% impact.

Could you maybe provide a little bit of color on that?.

I would have to turn that over that Scott and he can go through the details..

Sure, Kevin. It’s pretty close to what we thought of the primary rule coming up at 1.4% impact. The main driver of that for us is certainly half of that is rural add-on. So if we get that back, that will cut to about a 70-basis-point hit. The rest of it is adjustments to case mix, weights that were put into the rule.

And similar to this year, as it came out, we’ve got about a 1.6% cut heading into 2017. What we’re seeing in reality is probably about half of that as well because we have seen a rise in the Q2 [ph] level out of patients, so would expect to see some change in that. But on the base of the rule, it’s roughly, is that 1.4% change that we will see.

As I mentioned in my prepared comments, that’s about $1 million impact on the quarter. Good news is that will be an offset to some extent by the hospice rate increase effective October 1, which will add $1 million to Q4 and $1 million each quarter next year. So that’s where we stand..

Our next question is from Brian Tanquilut of Jefferies..

Paul, first question for you. I noticed that your MA business, MA episodic, I guess, is the way to think about it, was pretty strong during the quarter.

So how should we think about your strategy or your thinking on MA considering that several quarters back, I think we were refocusing the sales force as fee-for-service business? And now we’re seeing very good growth in that. And then, I guess, the follow-up to that would be rates and margins related to that business..

Sure. Episodic MA is a good -- is business we like, we’ve been growing it. We’ve been actually successful. We’ve got a great contracting group led by Christy Vitulli who comes out of the payer industry. I know her in the payer industry when I was at Humana.

She’s done a very nice job of starting to work through our portfolio, if you will, or our group of MA -- people who are buying MA services from us. And she started to, I think, push rates up and do a very nice job that way.

Fundamentally, this is, I wouldn’t say this is universal -- that we are having people joyfully jump on the train to have their rates increased.

But we are starting to have some really good conversations, largely thanks to her efforts where we’re taking risks on things, where we’re starting to insist that we get paid more for quality, where we’re starting to have better conversations in terms of outcomes. We believe that readmissions is going to be a key to this.

So we believe if we can start to take some risk on readmissions, if we can start to be a couple of points below the industry or below our competitors in readmissions, we believe that we can start to actually push the rates up.

And when we have high quality, good readmission rates, we can -- we believe this can be moved towards a more something closer to fee-for-service. So we’ve always talked about the fact that a lot of people from Humana are on this management team, and we do understand the payer world.

And we’re trying to go back to our payer colleagues and basically say home health is really important. We can do more, but we need to be paid more and we can start to -- really start to take some risk on this. So those are the types of conversations we’re starting to have, and we’re starting with successful with them on -- incrementally.

So we feel good about that..

And then a follow-up question for Chris and Scott. The expense line was really good this quarter.

Anything you would call out there? And how should we be thinking about what you’re doing to hold the expense line steady into Q4 and all the way to next year?.

Thanks, Brian. If you look at that and certainly, we’ve been focused all year long on driving down G&A. And if you look at Page 6 of our deck, you can certainly see we did a great job in this quarter. We decreased that sequentially $2 million. What I’ll say is that certainly, we had some good things going for us.

Health and workers’ comp is something that’s available, especially health. And we see higher health cost in Q3 and Q4. Things did fall our way in Q3 on the health side, and workers’ comp, we expect that not to continue to Q4. So we do expect some increase there. We also see a full quarter impact of raises, which went in effect in August.

We had that to deal with. So from a G&A and total perspective, what I’ll tell you is I’m comfortable with the 30% that we’re showing as a percentage of revenue.

I’ll probably see some move up in the total cost, but I can, we believe through continued growth, we’ll be able to scale that 30% and probably have some possibilities in 2018 to pull down that number some more.

But just as we think forward into Q4, we’ll have a little bit of cost pressure around that, which we know that we’ll have some growth coming back to help offset some of that..

Our next question is from Sheryl Skolnick from Mizuho Securities. Please go ahead..

So needless to say, it’s an unusual and distinct pleasure to look into a management team that achieved so many of its objectives that’s not on time than early during especially this earnings season because it hasn’t been the case. So thank you for the release from the ongoing saga and drama. I want to focus, however.

We get the positives here, but I do need to probe you on something that’s maybe still a burr in the sides of some. So let’s go to the Medicare admission growth and let’s parse out, if you would and that’s Slide 5. So the same-store Medicare admission, down 3%.

Clearly, I get Florida closures, but can we parse that out a little bit? And can you educate me on a, what the BD team is doing in terms of spending their time on either Medicare or perhaps what may be an easier growth story these days, the MA patient? And as well as what plans you have for that? In other words, why should we be less worried about whether the biggest part of your business doesn’t grow or doesn’t grow as fast? Or is it actually growing and we just can’t see it?.

Sheryl, it’s Chris. Thanks for the question. To kind of get a little more granular on the Medicare side for Q3, if we account for pulling out the Florida closures and ex-hurricane impact, which was a little bit impactful for us in a few states, we’re roughly flat year-over-year, negative 0.1% to be exact.

We started to gain momentum throughout the quarter. Sequentially, July, August, September got better and better and better. We finished the quarter with some growth year-over-year on the Medicare side as well.

How we look at the PPS or the episodic, non-Medicare episodic business, as Paul mentioned, we have success in contracting with new payers out there in this type of business. It typically pays us on average about 95% of traditional Medicare of fee-for-service rates.

So it is good business that generates considerably equal gross margins and margins for the business as the Medicare business. In fact, how we have our BD team focused right now is we incentivize our BD staff on all episodic business. It doesn’t distinguish between Medicare and the non-Medicare episodic.

We feel like it’s an opportunity for us to continue to move forward. In the event that, that shifts and we slow the growth in the non-Medicare episodic, obviously, we will need to pick up our pace on the Medicare side.

But as we look at our progress and our projections even for a discussions around Q4 and how we think we’re going to do, you’re going to see overall growth from the organization, year-over-year on a pure Medicare fee-for-service basis is the way we’re looking at it for the near future..

Can I just clarify? So what you just said is that for the fourth quarter, we should start to see the Medicare same-store admissions episodic admissions begin to grow again?.

We’re going into the fourth quarter and expect a 4% to 6% total episodic growth. And a component of that is the Medicare admission growth, which we anticipate that should have a positive impact as well..

Okay. So the answer to that is yes. That’s very helpful..

And Sheryl, I’m sorry, this is Scott. Just to clarify a little bit. So as we look at our total book of business, that private episodic business is roughly 10% to 11% of our revenues. So just to ground on everyone around that number..

Okay.

And that’s growing?.

Yes. Very much..

Yes, right. Okay. So recognizing that it’s still a small piece, that’s why I’m so focused on the Medicare piece because it’s your larger piece. And I get it that you want growth and you want to take advantage of the Medicare Advantage contracts when they are available at the right terms with the right level of risk and opportunity. I got that.

But still your core business is traditional Medicare. And, by far, there’s still more enrolling in traditional Medicare than there is in MA.

So I just want to make sure that we’re all understanding what your thought process is and what we should expect because you would hate for all those hard work to go poof in terms of your stock price value because we’re expecting Medicare to go up and it doesn’t..

We’re expecting it too….

That’s kind of where I’m coming from. You’re expecting it too? Right..

I’ll confirm that..

Okay. And then moving on, so as you step back and you take a look at the business now, you’ve come through what was clearly a deep in the weeds assessment of the business. When you first came in, you’ve looked at the business from top to bottom. You identified certain key and crucial initiatives like the IT system conversion. You’ve gone through that.

Now have the opportunity sort of at a turning point here where all of those sort of turnaround things, I think, from my perspective, have been accomplished, those basic things.

Can you discuss little bit the opportunity to kind of go back and refine whether that creates additional upside and then as part and parcel of that, that’s a nice way of saying when are you going to talk about 2018 guidance and how we get there?.

Sure. So we still think there’s a long way to go. We think, particularly, in terms of we think we’re about halfway a little less than halfway there on the productivity we can get out of HomeCare HomeBase. So we’ve seen a 5% increase fundamentally that works out to 2 points extra visits per week for our clinicians. We think there’s more in there.

We also think that there’s some underperforming care centers that since we can now go focus on fixing some very specific places, we believe there’s tremendous opportunity with high revenue, low performing -- low NIFO performing care centers in home health. We believe that there’s still a long way to go in terms of hospice.

We’re running that pretty well right now, but we `believe that there’s some de novos to be done. We do need to get a deal done there and we’re focused very heavily on that because hospices is what we do very, very well. And on the home health side, I agree with you.

I think what we need to do is continue to hire, continue to push our BD function so that we are -- there’s no question about our ability to drive fee-for-service revenues. So that’s the same game. The new game is fundamentally where are we going to go from here. We’re going to start to -- we believe that MA is growing very quickly.

We believe in our conversations with payers that there’s an opportunity to align with payers in certain marketplaces to get paid over fee-for-service. And in order to do so, we need to start to take risk. We need to stick to readmissions targets.

We need to start to build some other things that we’ve -- start to employ some of the things that we’ve been building such as our database and start to say, okay, we now can calculate what aging in place is going to cost. So we’re going to take some risks on it.

We now know what admissions are going to look like by individual, so we’ll start to take some risk on it. So that’s the place we’re going to see us start to experiment. On the ‘18 guidance, I’m going to turn it over to my new CFO..

Aren’t you lucky, Scott?.

I appreciate it. I am. So we’re in process right now formulating our plans around 2018. Certainly, something we would like to do in really working or get ourselves that way. Certainly with the confidence and feeling better about the growth numbers coming through and being more predictable.

We’ll be looking to talk you guys about that when we come out with our fourth quarter results and talk some more about that and where we feel that move. But you’re asking the right questions around now that we got this car heading in the right direction, how do we accelerate.

If you backed up and think about what we’ve done, our first big item we tackled was technology. We had to get off our old platform, move to HomeCare HomeBase. We did that, very successful. We kind of looked for this year to really be a Phase 2 around maximizing our utilization of HomeCare HomeBase.

We got a little derailed because we have issues around the BD staffing. You saw us really react in turn to that. And I think the third phase is really portfolio management, which you can see what Chris has done in announcement of our Florida restructure.

We really looked at the portfolio, made some changes there that we think position us better to move forward. And we’ll spend a lot of this year really focused on the care centers that have nice size we can get more margin out.

So as we go through our numbers there and get -- tying that back into the guidance, that will help us feel much more comfortable about what we can deliver into 2018..

I’m glad to hear that you’re considering giving guidance. That’s an important step forward..

Our next question is from the Joanna Gajuk from Bank of America Merrill Lynch..

Actually, on the topic that Sheryl started, in terms of the Medicare admissions and, I guess, declines there. So can you also help us to understand sort of how you think about -- I appreciate the comment that you expect the growth in Q4.

But at the core, how would you describe the declines that’s been happening so far? And also, obviously, MA is very small piece growing much faster.

And so also, I’m trying to make sure we know -- when you provide these stats for also the non-Medicare growth, was that business impacted by hurricanes at all? Or, I guess, in the grand scheme of things, that doesn’t really impact because the numbers are so small..

Right. Thank you, Joanna. When we talk about the episodic number that we’re giving you guys, we’re adjusting that for the hurricane impact on non-Medicare, just a per visit-type stuff. You’re right, it’s small. We have not really adjusted for that.

It would have been pretty minimal, especially in the areas that were hit because it’s very small book of our business. So that’s kind of the issue there..

And then also on the reasons why the Medicare fee-for-service admissions have been declining.

How would you describe their reasons for what’s been happening so far? I understand that you expected growth, but I just want to clarify what do you think the major drivers were in there?.

Joanne, it’s Chris. Again, as we’ve been mentioning most of the year, we really had to retool our business development staff and our team. As we’ve done that, we’ve ramped them into productivity and we’ve grown the actual base of reps that are out in the field selling.

And I’d want to reiterate that as our incentive plans are set up, there’s no distinction between the Medicare and the non-Medicare episodic business that they bring in.

We’ve got a little bit of a lift from some of the new contracts that we’re able to bring on as well as we had some non-Medicare episodic business payers that -- where referrals grew pretty rapidly.

Our strategy around that is that we’re going continue to focus on taking both types of business and grow in both types of business, but we’re going to pivot a little bit with our internal focus of our BD staff to more Medicare business. We anticipate that will bring the results we’re looking at.

Just right now, we tend to be seeing a faster growth in the non-Medicare episodic than the Medicare episodic. Going back to our original plan, it’s a feet-on-the-street model. We’ve gotten to the level that we wanted to get to. The ramps is starting to happen.

And as we continue to move onto Q4, we anticipate to see that result in growth on the Medicare side as well as on the non-Medicare episodic side..

Yes. Joanna, let me add a little bit to that. The only thing we’ve really been focused on, and you can see a chart around that growth in total episodes, which is important to look at in our same-store volumes, which when I talk about that, I talk around both admins and recertifications, we’re up 5%. So we’re seeing some nice production there.

Our re-cert rate is up. Medicare re-cert rate is up 300 basis points over the prior year. So as we’ve added clinicians, as we got more productive, you’ve seen us increase capacity in order to make sure we’re assessing the patients correctly during care conference and getting the re-certifications that our patients need.

So all of that is telling the full story of our increases in volume as we move forward..

If I may have a follow-up on the topic of volumes. And also, I appreciate it when you said that you exclude the hurricane and also the Florida centers.

Would you be able to I guess parse out the -- each element impact on the metric? Because I understand that the Florida closure, those centers -- that will continue to impact the reported, I guess, numbers for several quarters..

So thinking about that, you’re talking to -- I think I understand what you’re asking about. But from a same-store Medicare admissions perspective, like we reported, we were a negative three adjusted. That’s down about a negative 0.1%. When you look at total episodic volumes, we go to 3% to 5%. In episodic admissions, we go from 1% to 3% adjusted.

If I were looking at the impact specifically, what was hurricane, what was Florida, is that maybe more what you’re getting at?.

Yes, exactly right..

I would say that it kinds of gets -- let me see if I can give you put more color on that. I would say it’s probably about half and half of the impact, Sheryl -- I mean, Joanna. If you look at the impact around that. So half of the admits that we’re kind of adjusting for are coming from the closures and the other half is hurricane impacted..

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

Just a couple of things to run through.

Scott, can you tell us what the dollar impact from the 1.4% rate cut will be in your plan for 2018?.

We think about that on a base revenue of Medicare about 900. We’re looking at about 12 to 13 before anything else it changes from a case mix perspective. You get rural add-on back that cuts that down to half, so you’re looking at roughly $6 million. And then hospice, we’re expecting at least a $4 million of good guide.

So at the end of the day, if things fall our place with the rural add-on, we’re looking at somewhere around a net 2ish..

Including hospice?.

Yes..

Yes. On the case weight changes, I’ve struggled to reconcile that since the proposed rule came out. What did you learn? I guess I thought it was probably 1% cut sort of embedded in that number. I’m just kind of curious on your observations on the changes in the case weights..

We’ve struggled with it as well. Actually, we use your work that you did in one of our letters that we sent back over because we could not figure out as well. We had asked our provider around that as well. They saw some things that didn’t makes sense.

We went back and forth with CMS several times on it and really didn’t get a satisfying conclusion on it. So there’s some uncertainty there. We’re looking again now. We’ve got the FINAL rule to go back to that with and figure out exactly what’s happening in there, but we were surprised by it.

We were basically fine without the rural and the case weight recalibration, we’re probably up. So it was a little surprising for us..

Okay. So no good answer there. And back on the re-cert rate changes, I guess, if I’m hearing you sounds like additional clinical capacity has had a favorable impact on your ability to improve the re-certifications, but I wouldn’t think that capacity would really have any impact there. I would think it’s more medical necessity.

Maybe can just sort of flesh out what you’re trying to say on the re-cert rate?.

It’s Chris. That’s been an area of focus from us this year. Capacity did have some impact when we looked at the HomeCare HomeBase transition and the struggles that the nurses and clinicians will go through to get them to be fully counterproductive in the system and what I say proficient with the system.

So what we’ve noticed was that there was earlier discharges of patients. So we came in from a clinical perspective and started to focus in on post discharge audits with our clinical team and identify, in many instances where patients were discharged without their goals being met and having ongoing skill needs.

So as we put a spotlight on that combined with us building out capacity, we saw that we were able to actually move that number clinically, appropriately and be able to take care of our patients in a better fashion..

That makes sense.

So it’s safe to say that, I guess, you’ve got some visibility over the next two or three quarters that the re-cert should remain consistent with the current levels, if not improved?.

As long as the clinical composition of the patients stay the same, I think that we should have consistency..

Yes. Got it. And maybe just one last one. I guess I wanted to go back and revisit that Tenet transaction and the calculator I have may be broken, but it just seems like the revenues coming in is falling short of what the original expectations were.

And I know it’s early and I guess I’m just looking for some reasons to be critical here, but looking at Tenet and Infinity, the deals haven’t really met up with our expectations, and certainly, your expectations. And you’re focused heavily on hospice for your acquisitions right now. I don’t know.

Just can you make me feel good about the M&A team, the ability to execute on deals as we move forward?.

Yes. I mean, I think we have the M&A guy here.

So Steve, you want to talk about the two acquisitions?.

Yes. I mean, I think with regard to Tenet, we’ve got a couple of issues with non-Medicare contracts that are driving revenue shortfalls there. I know our contracting team is working hard to get some additional Medicaid and managed care contracts in line that we need to get the revenue to the level that it was.

But, obviously, the Medicare business is a big deal and where you make a much better result. But what we’re really looking at going forward is looking at the places where we’re working well, where the business is clicking and the hospice space is attractive to us in that regard. We are very comfortable with our team there.

We’re comfortable with the work we’re doing currently in diligence on opportunities there, and we believe we’re going to be well positioned to integrate it..

Yes. The markets are good. We feel good about San Antonio, Chicago, the Boston suburbs and Tucson. So, we feel good that there’s good opportunities there. We’ve had very good dialogues. As you know, there’s a lot of changes going on at Tenet, so we’ve been dealing with different people. But we’ve gotten very good commitment from the top there.

Eric Evans, who’s been a very good partner and they’re committed to working with us to make sure that these work out well. And then the other thing that they’re very interested in is taking it to the next level.

So we’ve been very happy about that, utilizing trying to go to some of their markets and where their hospitals are overloaded and bring people out, put them into the home, that sort of thing, so. As well as go in and start to work with USPI. So we feel good about the partnership and feel good about that acquisition.

And we think it will kind of -- there’s always bumps in the first year and we’re working through those, so we expect, as Scott said, to be on track. On Infinity, it was -- there was some overlap and clearly the ZPIC caused some issues there, but I think we’re going to end up with a really strong Florida footprint.

And we think the business is going to bounce back very, very well. Does that give you....

Yes, yes it is. I’m seeing you later today so we can talk then..

Our next question is from Sheryl Skolnick from Mizuho Securities..

That was very helpful about the Tenet contract -- or Tenet assets that you purchased.

I also wonder to what extent that volume difficulties in the upstream acute care area, which seemingly are a big part of that as they move to observation rather than a lack of patients, but more continuing move to observation, whether that might actually even present or challenge, but I think it’s probably too early to say on that score.

But just what I really wanted to ask you about was you mentioned about the DSOs sitting at 38 ex Florida? Is that correct?.

Yes, Sheryl. That’s ex Florida. And on the Tenet deal, we’re in a change-of-ownership process so that cost me a little days too. But if you take the delay and selection there, I’m at 38.

And really, if you cut -- and we don’t really disclose the separate hospice and home health numbers, but it kind of the tell the story in what we’ve been really able to do. If you take hospice by itself, which doesn’t have disruption around the Tenet really is pretty minor.

And then the issue around the ZPIC, we’ve taken that down four days since year-end. So we’re getting our unbilled numbers down.

So we’re starting to get to a more comfortable normalized levels, but I’m just not sure when we’ll wrap up ZPIC issues so I’ll have some receivables out there for a little bit, but I think we can wrap up that channel issue by the end of the year..

Wrap up the provider number issue for?.

Yes, change of ownership for Tenet..

Yes, change of ownership. Yes. Because that -- I was -- I just wanted to get that clarification. That’s really important because that suggests that the hospice agencies where HomeCare HomeBase went in first where you did those first.

And, I guess, some of them, are they running it now for the full year?.

Yes.

Right? Just about a full year or maybe a little bit longer that you are seeing that getting traction on that DSO? So it’s likely, that we’ll also see it home care when you move off from some of these other issues. Okay. That’s just what I wanted to just double check because we’re seeing a lot of DSO increased throughout Healthcare Services.

And again, on an ex specific things that you can call out that are discrete events that have a time line attached to them, you’re making progress and that is unusual. So I appreciate that..

I’d say, Sheryl. Luckily Scott is physically far away from me, but I think our target is to get down to 35. And we think we can continue to do -- we’ve got a really good team there, and so we’re confident we’re going to keep pushing this.

And also, one of the other things I’d like to talk to you about Tenet is they were -- we bought 5 -- basically 5 clusters, if you will, there. And there, we have 5 different software systems. We had in-house folks, so we’ve just been putting them on HomeCare HomeBase.

We saw some turnover because hospital people, some of the people wanted to stay within a hospital environment, hospital benefits, that sort of thing. So we’re happy with where things are with Tenet, but there’s been some substantial change there that we had to go in and fix.

But we’re delighted with the marketplaces, and we feel we have a good partner there..

Okay. Just one final follow-up, if I may, on the DSOs.

So as you begin to do more, I would say, innovative and forward-looking, value-based contracting with managed care finally, how does that -- does that change the way in which you get paid? And do you still get a wrap payment on a non-Medicare episodic managed-care contract?.

They don’t pay us wraps around that. They’re very bad at paying -- they are slow at paying. Their systems just aren’t as sophisticated so it takes a little extra work for us. So you’ll see some aging on that a little further. Certainly, our DSOs around that part of the business is not as good.

They pay us, it’s just, you got to work a little harder to get it..

That’s what I would have thought..

Our next question is from Brian Tanquilut of Jefferies..

Just a quick follow-up, Scott. If you don’t mind going back on the comment on value based and how you’re thinking about the benefit from VVP next year.

I know we’re not going to guidance, but just for modeling purposes, if you don’t mind, just walk us through how to model that?.

We think when we look at our -- it’s 7 states for us, which from a revenue perspective is, I think, $250 million, I think we’re looking somewhere around slightly under $1 million benefit for next year, so nothing significant. We’re very excited about what we’ve done this year, but it’s the beginning of the process.

It’s a lower amount you can -- but it starts out with from a percentage basis, but we’re looking at somewhere below $1 million..

Yes. And our score there, Brian, are fantastic. So we’re -- they’re above what our quality scores are in the 7 states where we’re doing the business. So we’re up to 4.2. We’re at about 4.3 in the places where we’re doing VVP.

So we feel very good about -- we just love -- what we’d love to do is to have the government put more into the winners and take more away from the losers, but the curve is brutal there..

Yes. That’s what I was thinking, Paul. I mean given the scores you’re putting up, 40 basis points was probably in the low end of what most people were expecting.

So how should we be thinking about your views on the ability to grow the bonus payments into 2019, especially given where your scores are shaking out?.

So I guess -- this is Steve, Brian. One of the things to remember here is that the results that you’re getting paid on in 2018 are from previous year time, 2016 efforts. As you think about the slope of our star score and our quality performance, it’s been steadily improving over time.

So you just got to make sure that you’re thinking about matching the right period with the right cash flow in terms of thinking about where you’re getting benefit moving forward..

This concludes the question-and-answer session. I would like to turn the floor back over to Mr. Kusserow for any closing comments..

Great. Thank you, Matt. I appreciate it. 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 progress on our next quarterly earnings call. Have a great day..

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