Greetings and welcome to the Amedisys Incorporated Second Quarter 2019 Earnings 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]. Please note this conference is being recorded.

I will now turn the conference over to your host, Nick Muscato, Vice President of Strategic Finance. Mr. Muscato, you may begin..

Thank you, operator, and welcome to the Amedisys Investor Conference Call to discuss the results of the second quarter ended June 30, 2019. A copy of our press release, supplemental slides, and related Form 8-K filing with the SEC are available on the Investor Relations page of 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 is Chris Gerard, Chief Operating Officer; and Dave Kemmerly; General Counsel and Senior Vice President of Government Affairs.

Before we get started with our call today, 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 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 Form 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 Form 8-K. Thank you.

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

Thanks, Nick, and welcome to the Amedisys 2019 second quarter earnings call. I'm very proud of our performance this quarter, as we have once again generated very strong financial results, while continuing to deliver on our four strategic pillars.

Our performance has allowed us to increase our EBITDA guidance range which will increase from $205 million to $210 million to $213 million to $216 million, the details of which Scott will cover in his remarks.

None of these results would be possible without our over 21,000 employees, unwavering commitment to providing outstanding care to our patients in their homes. I want to thank every one of you for helping to deliver such strong clinical, operational, and financial results. Again it all begins with our patients.

With that, let’s dive right into progress we have made within our four strategic areas of focus beginning with clinical distinction. For the October 2019 preview, our Quality of Care Star QPC score was 4.25 and we had 47 care centers at five stars, while 92% of our care centers were over four stars.

As you will recall, CMS has introduced a new measure to the calculation of the QPC and removed a measure previously used to calculate star scores. The new calculation includes improvement in management of oral meds and no longer includes drug education, a measure in which we performed extremely well.

We continue to work hard at improving our performance in this new measure and expect that we will return to our quality scores prior to the calculation change. Providing quality care to our patients is what we are here for. It's why we do what we do and we will improve our already impressive results.

For our Hospice business, the Hospice compare August 2019 preview of quality metrics shows Amedisys once again has outperformed the national average in all measurement categories. We are very pleased with these results and expect our clinical quality to continue to improve in Hospice.

These quality metrics are extremely important to us especially as we continue to invest in and grow our Hospice footprint. Moving onto employer of choice. Turnover has been a key metric and a major focus area for us as retention of our people drives quality, operational efficiency, and growth.

As of the end of the second quarter, our total voluntary turnover was approximately 17%. We continue working diligently on turnover to better understand why people leave, so that we can counterbalance turnover with more and more reasons to stay.

Much like our quality scores, we are proud of the work we have done here, but will not be satisfied until we lower this number even more. Now let's discuss operational efficiency. In order to maximize our operational efficiency, we must deploy clinicians with the appropriate training and skills to provide the care needed by our patients.

Therefore one of our priority 2019 operational initiatives is improving our RN to LPN utilization ratio.

One factor that has a significant impact on our ability to move this number is having pay practices that encourage clinicians to conduct visits in which they provide care commensurate with their qualifications or as we say it allows them to practice at the top of their licenses.

As such, we have undertaken a redesign of our clinical pay practices that should be fully implemented in Q4. We value all our clinicians as they are our most important asset and are the drivers of our incredible patient care and outcomes.

This shift to utilization of more LPNs and PTAs for routine visits where appropriate for the patient will not be disruptive to our operations or affect our quality. This initiative presents us with a great efficiency opportunity in the coming quarters to drive great care at less cost. Finally, driving growth.

In our home health division we had another strong quarter in all our key metrics, total volume was 6%, total admissions were 7%, and Medicare fee-for-service growth was 4% which is our strongest quarter of fee-for-service growth since the second quarter of 2016.

In Hospice, same-store admissions were up 7% and ADC was up 5% both impressive numbers given the very strong year-over-year comps our Hospice business faces every quarter. Compassionate Care is integrating nicely and should kick in during Q4 to drive our growth rates higher.

In Personal Care, total hours per quarter grew approximately 6% impressive in a tough labor market. Last week we announced an innovative partnership with ClearCare, the personal care industry's leading software platform representing 4,000 personal care agencies in every zip code in the United States.

Our agreement with ClearCare creates an opportunity to establish a network partnership between Amedisys and personal care agencies using ClearCare in order to better coordinate patient care.

Long-term, this allows us to build a nationwide network of Personal Care agencies and furthers our efforts to provide patients with a true care continuum in the home.

This relationship will also help us as we continue to have innovative payment conversations with Medicare Advantage plans whom have begun to recognize the value that combined Home Health, Hospice, and Personal Care services brings to their members and care delivery infrastructure. We will continue to update you all as our relationship develops.

There is lots of work to do but we're very excited about the numerous opportunities this presents us with. Thus far, early results are extraordinary, with 268 Personal Care agencies representing 29,000 caregivers in 38 states having already signed up to participate in the partnership with Amedisys. Turning to M&A.

Tuesday, we announced we have signed a definitive agreement to acquire regulatory assets that will allow us to conduct Home Health operations in more counties in New York specifically, West Chester, Bronx, and New York counties.

This deal expands our footprint from King and Queens Counties and allows us to build additional de novo locations expanding our footprint to even more patients in desirable locations in New York. Lastly, we have a very active pipeline and anticipate more activity in the second half of 2019 and 2020.

Now moving to our favorite topic, the constantly evolving regulatory and legislative scene. On Wednesday, July 11, CMS released the 2020 Home Health Perspective Payment System rate update. First, as expected the proposed rule included as mandated by Congress in the Bipartisan Budget Act of 2018 a plus 1.5% Market Basket update.

Second, CMS chose to increase the behavioral adjustments from 6.42% to 8.01%. As we expected, the remainder of the PDGM portion of the proposed rule was largely unchanged from the previous PDGM proposal released by CMS in late 2018. As such, we are rigorously continuing to prepare our business for continued success under PDGM.

Lastly, CMS chose to phase out the RAP, Request for Anticipated Payments during 2020. Behavioral assumptions, along with the phase out of RAP payments, could pose significant financial and operational hurdles for many small to mid-sized Home Health agencies.

In fact, one very reputable third-party consultant has modeled, that if PDGM is implemented in full as proposed potentially over 30% of our Home Health industry competitors will have negative margins presenting us with ample opportunity to expand our market share.

Let me be clear, the message here is either way should PDGM be implemented as is or if a bill prohibiting behavioral assumptions passes we will be successful under the new payment model.

On the legislative front, our main focus continues to be on Congress and securing additional bipartisan support for both of the industry supported Senate and House bills.

As you will recall this legislation would prohibit CMS from making rate adjustments based on behavioral assumptions and allow only for adjustments based on observed evidence of a change in provider behavior.

We have made impressive progress and I'm pleased to announce that now we have 16 bipartisan co-sponsors for the Senate Bill and 29 bipartisan co-sponsors for the House Bill. We think increased behavioral assumptions could enhance our bipartisan support for both bills.

In closing, on the regulatory and legislative issues, specifically PDGM, I want to emphasize that our preparation, scale, financial resources, and clinical and operational expertise position us to successfully transition to the new payment. To summarize, whether a bill passes or PDGM is implemented as is, Amedisys will not only survive but thrive.

To quote Yogi Berra, when you come to a fork in the road, take it. As you see, we had another great quarter and have continued our roaring start in 2019. Again thank you to all the Amedisys employees for all you've done to drive this success.

You continue to prove that no matter what the circumstances focusing on our patients drives outstanding results. With that, I'll turn it over to Scott who will take us through a more detailed review of our financial performance for the quarter.

Scott?.

continued improvement in Medicare admit and volume growth trends, Hospice ABC growth, and minimizing CCH disruption. This will conclude our prepared remarks. Operator, please open the line for questions..

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

Hey good morning guys. Congratulations on a good quarter. Scott, you hit on the guidance stuff. Let me just ask the question. You had two very good quarters, Q1, Q2 you're raising guidance by a much smaller amount than the beat and I don’t know your internal numbers you're obviously different from the Street.

But as I look at last year's progression on weighing first half versus back half earnings it was a little bit more front-end loaded -- first half loaded but close to 50:50.

So is there anything this year that will be different or are you seeing anything that we should think about in terms of deceleration in the back half? Or is this really just conservatism and a little more CCH disruption in your expectations?.

Yes, thanks Brian. I'll give a little bit more color. I think as you heard in my prepared comments I alluded to a couple of things and I'll walk back through them. I think just to start with, I think from a normal progression Q2 is generally our strongest quarter. Going back, I think we've averaged Q1 to Q2 sequential change of about $6 million.

Going back the last three years, and if you look at last year, we were up $8 million. I think the Street numbers; I think there's a little struggle in there. And as we went from Q4 to Q1, Q1 to Q2 we did $55 million in Q1. The consensus had it at -- had us at $51 million in Q2 we we're up $6.5 million.

So I think that that kind of pulling us down from Q1 to Q2 really went against our normal seasonality and our strong performance in Q2. So I think that started off some of the problems and created some of this gap in first half and second half looks a little different. Looking at what else is going on. I mean we alluded to last year, you're right.

We dropped about $2.2 million first half versus second half last year. And some more specifics about the items, I'm calling out in our first half we had fleet and Workers' Comp. We turned over our fleet vehicles. That was a good opportunity for us to kind of get some new units in and get some gains off of that. And we had some Workers' Comp pickups.

Those combined were about $4 million. We also look for the investments we called out during our guidance when we talked about that guidance earlier in the year; we talked about $7 million of investments. We've got another $4 million we'll spend over what we spent in the first half.

And then as I talked to -- talked about in our call, we have raised pool about $2 million increase and increase the percentages from there. We typically see about a 20% increase in costs related to the seasonality in first half, second half.

And if you take these other items I'm calling out that's about $10 million which kind of gives you a little bit closer to what we're talking about plus I think the consensus numbers were really too conservative going from Q1 to Q2..

Got it. And then, Paul, as it relates to PDGM was the rule out now or the proposed rule. How is that different from the final rule at least from your interpretation? From the final rule that was issued back in November. I know there's something like RAP and a few other things.

If you don't mind just give me some thoughts on the rule itself?.

Yes, I think the rule -- I think what a lot of people are paying attention to Brian is the increase from 6.42% to 8.01% and so that was an increase on the behavioural assumptions piece.

Again we're doing -- we're feeling very confident that that's something that we can work through or overcome through a variety of things utilization coding and labor costs.

So we think that and we've been practicing on this for quite a while and have been testing it out bunch of our care centers have been getting good results back, so we're feeling very confident there.

I think the interesting thing though is the fact that they are eliminating a RAP payments which fundamentally was the way that CMS basically pre-funded people who needed to make payroll and so up to between 12 and 15 days you could get between 50% and 60% of the payment for the episode paid and that this year is going to be reduced down to 20%, so the 50%, 20% of 50% is 10%.

When you look at the folks that don't have the resources to -- the borrowing resources to sustain this which is a lot of the industry I think there's going to be a tremendous amount of shake out.

I think particularly in some of the rural states we're looking at some of the statistics and we see that the prediction of those people that are going to go below zero percent is up in the 60s, 70s, 80s and certain cases in one case 90% of these agencies will be under -- and this is according to MedPAC data which we know is not particularly accurate so it could be worse.

So we think this is going to -- there will obviously be some backlash that it will come to this, it won't affect us. So we anticipate our other big competitors but it is going to affect a lot of this industry. This will give us an opportunity to consolidate and we're preparing for that. And it'll give us an opportunity to grow share.

We also think this is going to cause more urgency on the legislative front that the folks who are going to be threatened here will be pushing harder to Congress as of today -- as of actually just now we got a note in and we're actually the numbers are actually better in terms of the Congress folks who've signed up.

We now have 40 representatives in Congress and 20 Senators. So those are fresh off the press. Those are the latest that we have signing on for the legislation. We anticipate it'll be much easier to sign people up.

So we're sad for what this is doing for the industry but we think it puts the larger players like us in much better situation should this thing pass-through in full. But we also think it's going to increase the intensity with which people in the overall industry are going to push Congress to get something passed..

So Paul just kind of I guess follow-up to that as I think about the growth rate right. I mean we've already seen some improvement in your admissions growth, inorganic admissions, and the volumes firming up.

So where do you see that going with PDGM kicking in, I mean what do you think the potential is or the upper limit is for organic growth? And then, I guess sort of the same question for Hospice where there's a little bit of a disconnect I say between ADC and admissions this past quarter?.

Yes, I’m going to turn that over to Chris because he's been tracking it but I think obviously the growth rate on the top-line will be considerable if this -- if PDGM goes through in full because I do think we will be very active. We're already working on cleaning up our balance sheet to -- in anticipation of this.

So I think we will grow considerably in Home Health. And then on Hospice what we're doing is -- we're -- our pipeline is very full.

So if you combine organic growth which we feel very good about and then add the inorganic pieces and what we have in the pipe plus in de novos we think we're going to continue to push that on the high-single, low-double-digits.

So Chris?.

Hey, Brian. With regards to the Home Health side even prior to PDGM, I have to say that we're really pleased with our growth trajectory on the Medicare fee-for-service put a lot of effort in it. I'm starting to see the results pull-through and we expect to see the trajectory continue throughout the year.

And then when we get into PDGM and we're starting to look at 2020 and a lot of that is going to really depend on kind of the shakeout in the industry and the results from if the PDGM is implemented as written today.

And kind of if history repeats itself like it did when we went into PPS in 2000, there will be some attrition in the market that can create some nice opportunity for growth.

We haven't really kind of put a number to it but we do know that it will create some opportunities and now we're trying to figure out exactly where we think that that's going to open up into 2020.

So regardless of PDGM, we already see that we're on track of a nice consistent Medicare growth rate, the trajectory increasing from where it is today and into 2020 just from our fundamentals. And on the Hospice side.

So you mentioned kind of the disconnect between admits and ADC on the legacy business and we had a little bit of a dip in our average length of stay. And historically we've seen our ADC increase at a faster pace than our year-over-year admits. The inverse kind of happened in Q2 which was really a function of decline in our average length of stay.

We think that a level out where our admits and average length of stay will kind of -- in ADC will actually grow at the same pace. And as a reminder we've gone really deep in our legacy markets, the same AD markets for the last several years that we've almost doubled in census.

So we think that now that we -- that the industry is expanding about 4% per year, we think we still have our opportunity to take market share in those markets. But I would say that the mid to high mid-single-digits is really realistic for our legacy locations.

But we have some really good opportunity around our CCH and our acquisition in de novo locations really have double-digit growth for the next couple of years. So blended we still see a nice growth trajectory for our Hospice business as well..

Our next question is from Matt Larew, William Blair. Please proceed with your question..

Hi Matt..

Hi good morning. Thanks for taking the question. First wanted to ask about ClearCare and just how it fits into the broader strategy of long-term partnering with payers and some of the other predictive analytics capabilities are working through with Medalogix so there is kind of across the continuum of care.

And then also whether there is opportunity given how quickly some of the agencies have come onboard for any sort of near-term contribution?.

Yes, actually nice question. So we appreciate it. We just got some results in again just hot off the press. So we're now up to 308 agencies representing 32,000 caregivers in 39 states. So if people want to correct that. The key is now we've been doing this for five days.

And we've got incredible sign up with Access, with the geographic access, we didn't think it would be successful but we're delighted it is, it shows that there's demand it shows that the partnership is working. We're still going to be working in the next couple of months building those numbers.

The strategy behind this really occurred it goes back to when we -- some of us were at Humana. We saw that personal care combined with clinical care combined with palliative and hospice is the care continuum you need to allow people to age in place.

As we got into the business and started to do four acquisitions and then looked at the amount of acquisitions we'd have to do to cover our footprint in both Home Health and Hospice, we thought it would take too long and we thought these assets were very difficult to rollup and very difficult to hold together if the turnover rates on some of these companies can be up between 60 and 100 plus percent.

So we believe that these companies are -- that there is good players out there producing very good quality. So we looked for something that would unify all these players. And in our process -- and also we're comfortable if you can't buy it you should partner and network.

And so our belief is that by building networks and integrating those networks in through technology which we're in the process of doing now that we can actually make these offers so we can combine Personal Care, Home Health, Hospice all together which is what the managed care players have told us and what our experience has been at Humana.

That if you have all these assets together, you can have a wonderful continuum of care to take care of things like activities of daily living plus clinical needs and you can drive extraordinary results. And so this is very exciting to us.

It's obviously a very different approach but we believe it's going to be optimized and we couldn't be happier with how this is launched.

But that's our plan is to continue to build the network, to build these relationships to make sure they're beneficial to those folks out there to ClearCare and then integrate them into an overall care continuum that we think it will be very hard for anybody else to duplicate..

Hey Matt. This is Chris. I will just add to that on your question regarding near-term opportunities. As Paul mentioned 308 agencies, 32,000 caregivers that all have patients that they're assigned to today in overlap markets with our Home Health.

Average ages is 82, many of them multiple comorbidities or multiple conditions in these patients will be needing to access the Home Health benefit in the future as well as we're discharging 400,000 patients a year from our Home Health that have ongoing personal care needs.

So with this preferred provider relationship and that's starting to utilize that continuum across the care settings, we see real near-term opportunity.

And then the data that we're going to be able to share between the two in utilize functions like Medalogix to get really deep and more predictive on what's going on with these individuals in the home, so that we can get more precise in predicting potential hospitalizations and things like that so that the patient is actually going to have a better outcome as well.

So we see near-term opportunity and we see a tremendous response from the ClearCare franchisee organizations reaching out to us with the 308 sign-ups. And then we see really kind of the end game being able to meet the real demand for the Medicare Advantage plans to be able to have a full continuum of care in the home..

Okay, great. Thanks for all that detail. And then Scott I wanted to ask on CCH, I think Kim came into the fold with a little more ADC than you expected, the degradation maybe held up a little more than you expected.

So just wanted to get a sense with your Homecare, HomeBase to find a way of moving over starting today whether you still feel comfortable with the 2020 and 2021 targets you had laid out in terms of the EBITDA contribution from CCH?.

Thanks Matt. Yes I feel very comfortable. We are very excited about what's going on within that from an -- our integration teams as well as the CCH employees that came aboard. Everybody has done a tremendous job. As you mentioned we would love with the way we fought today.

So as of right now that entire company is on our HomeCare HomeBase platform which is tremendous considering we close that on February 1st, so we're excited about that and we think the opportunity is really strong and we'll stand by our ability to get in that $50 million range when we get into 2021. So I think pleasantly surprised with where we are.

A lot of planning and work went into to get us here but very, very happy and as optimistic as we were when we talked about that in Q1..

I think Matt it shows what happens when you buy a quality organization with quality people. They've just been wonderful all along the way and then you -- and then clearly we're adding resources to them.

So we think with the careful addition of resources, clinical resources but mostly business development resources that we think that we'll get to these numbers pretty comfortably..

Okay thanks. And just real quickly just an accounting question to Scott in terms of the D&A that stepped up, sequentially and year-over-year.

Is that just related to some of the intangible assets acquired with CCH and should we expect D&A to continue kind of in line with the level of Q2 or how should we think about modeling that moving forward?.

Yes, you're right; it's exactly to do with CCH. We'll be in that price slightly below that range probably in the $4.5 million to $5 million is what would you be looking out for the remainder of the -- well for each of the following Q3 and Q4..

Our next question comes from Matthew Gillmor, Robert Baird. Please proceed with your question..

Hey thanks for the question. Hey guys. I wanted to ask about some of the Home Health volume metrics and I think, Chris, you mentioned the acceleration to 4% growth in the fee-for-service side.

So maybe just give us a sense for what's driving that is that the BD hires and their relationships maturing and then if you can hit on the research thing a little bit softer kind of what drove that and what's the outlook there?.

Yes, hey, thanks, Matt. Yes, so on the acceleration of the growth, it's a function of yes we've been doing a better job of maintaining our BD feet on the street.

We got up over 800 as you remember couple of years ago, we were down in the low 700s and really kind of equipping them and they are getting kind of into that tenured stage where they start to gain some momentum and that's starting to pull-through at our location level. We still see some opportunity there to continue to accelerate it.

We haven't really changed our strategy much. And it seems to be -- it's working out pretty well. There's just pockets now for us to go deeper and we also still have new reps coming on all the time that are starting to ramp up.

So this is a machine that we're going to keep working for now and we see that it'll continue to pay dividends, a lot of stabilization there. And on the research side, we have been looking at that as well.

We had a softening in the last quarter, two quarters on research and when we started looking into it, it really wasn't anything that we could put our finger on, it didn't seem like there was any change in acuity of patients, could be somewhat associated with some of the actual admission growth and utilization of our nurses in that respect.

We expect to see that kind of normalize and return to kind of the normal pattern, we're not far off. But it did soften a little bit but we just don't see that there's really anything underlying this that's driving that..

Got it, that's helpful. And then Paul if I could there's been some sort of indifferent commentary from different companies about sort of the approach to PDGM. And some of the strategies that you employ to help to offset some of the rate pressure especially on the behavioral side.

Can you just sort of remind us how Amedisys is looking at this and what are some of the opportunities you see under the -- under PDGM for 2020 in terms of your ability to offset some of the pressure?.

Sure. I think there is three bundles basically three buckets what we call. And I think there is appropriate coating on the behavioral assumptions. And we have been -- we have centralized coding and 250 folks that have been working on this. But we've been working on the -- on this set to make sure that we're doing it properly.

But we believe there will be some opportunities there in the various areas that CMS has highlighted. So we believe there's going to be some there. We also have been working largely with Medalogix but also on our own in terms of what's the appropriate level of utilization so that we can do utilization management on an episodic basis.

So we believe there's some opportunities there particularly as we're able to take individuals and then really optimize what things individually versus by category, so rather than having Paul as a congested -- having Paul as just congestive heart let's put him on what we do for congestive heart patients everywhere, we'll say specifically Paul has this level, he needs this specific care, we found as we parse that out, there are opportunities so that we can maximize the utilization still get the same results.

The other thing from a labor perspective, we believe that this is kind of the last thing we had on our list as we all came in and started here four-and-a-half years ago that we needed to work on our labor mix particularly with nursing and particularly with physical therapy.

So we're moving that dial pretty aggressively so that we can optimize and have everybody practice at the top of our license. We believe that there's going to be a lot of opportunities on the routine visits utilizing LPNs. And we also believe that there's other places where we can use PTAs instead of PTs.

So I'd say those are the levers when we put it all together, we believe that it gets us easily to where we need to. I think the question that everybody should be asking is how soon can you get there. I think from a coding perspective we can get there quickly.

I think from the utilization we're going to work through that relatively quickly but we've already been doing it now and the longest little piece of this will be the labor force optimization. I don't know Chris, Scott if you have anything to add on that..

Oh, it's okay..

No, you covered it well. I think -- as we -- you can talk about a lot about this, I mean the leverage that Paul just talked about, we've been working hard on this making sure we're ready to go. Nothing new in the rule has changed that for us and we're very confident that we'll do a great job on this..

So we've been -- we've been practicing, the good thing that CMS did on this. The one good thing is they talked about this early. So we've been practicing on this for over nine months. So we feel very good and we've got a very large team on this who's devoted to this. So we take this very seriously.

So we believe worst case scenario will still come out fine..

Our next question is from John Ransom, Raymond James. Please proceed with your question..

Hey, sorry for this noisy airport. Just to drill down a little bit more into that last question. Yes you guys have talked I think about taking one full visit out per episode with your pilot project.

So do the math on that that's about $89, if we think about cost per episode in 2020 versus 2019 you're considering inflation and timing and whatnot what is a good guardrail to think about, how much you can get that -- how much you can get done next year from a -- just straight up cost per episode basis?.

Well I think we certainly what you've talked about and we'll go back through I think from that visit perspective, I think you can see a combination of between one and two probably what you'd be looking at there. So you're talking from an episode basis anywhere using your $90 from that $92 roughly $135.

And then if you look from a -- looking it from a mix of clinicians that number is about $20 differential. So if that shift in dollars is probably another 40 bucks so between those two you're looking at roughly -- probably $175..

Okay, that's lot more than what we modeled. And then, as you guys know, April that ENCOMPASS talked about -- gave some granularity in terms of the three buckets of behavioral and two of the pieces are easier the pure coding piece. Maybe we can get to 50 and maybe we can get to make up the number 75% on the other two.

So if you look at an 8% maybe you're mitigating 5 or something like that.

How should we think about that for Amedisys in terms of just a pure -- as we're modeling revenue per episode what's the walking around number for just pure mitigation of behavioral through those three buckets?.

Yes, John. That's a little tougher one that we're walking through that right now. I mean I think historically where we think and I've talked conservatively 2%, 3% I mean I'm not uncomfortable using that from modeling perspective, we're still working through patient by patient. But historically behavioral change have been around two.

I think you can think through that. But we will work towards probably close to the end of the year having a better view around that but we're going through each patient, spend a lot of energy around making sure from a diagnosis perspective, we've got it right..

Our next question comes from Kevin Ellich, Craig-Hallum. Please proceed with your question..

Hey, Kevin..

Hi guys. Lot's been talked about with PDGM but Paul wanted to go back to your comment about the RAP payment, you gave some great color especially to Brian's question but when you think about the impact on the industry what's that going to do to your pipeline and market share if indeed this does go through as is..

I think I'm going to have Chris after I talk to generalities. I will have Chris talk specifically what this is going to mean because I think it's important for the world to really understand what this impact is going to be. So he's going to give you some real world examples.

I think in certain states, we've got -- we have some information that the partnership in NOK has come out with on it and we've extrapolated on a state-by-state basis. So we think we know on a state-by-state basis what percentage of Home Health agencies are going to be below zero margin.

And maybe some of these folks will be able to work their way through it. But there's some really severe states that get up to the 40%, 50%, 60% zero margin world.

Now the question is if these are mom-and-pops are small agencies what are they going to do if they miss payroll, they're going to have to handoff their patients and find a place for their employees. So that for us would be an ideal situation because we wouldn't have to do an acquisition.

Other folks potentially we might have to do acquisitions, our thought is based on and Chris has been through this before. Our thought is that the first scenario is much, much better for us from a market growth. And we're one of the larger players out there but I think we're 3.5% of the industry. So for us long-term, I think people should be.

If this does go through I think people should look at it as the glass half full versus the glass half empty because we will use this opportunity and I think we should be judged on this opportunity. How we do this is to really push to gain market share.

And I think also that's something that CMS seems to always be -- one of the underlying themes here that's out there seems to be CMS wants more consolidation in the industry. So we think we should really grow market share at that point. We also think there\s a --- it's a pendulum effect. So we think that there will be enough noise out there.

So we believe that if this goes through in fall that there will probably be a period where they will stop cutting away at this industry which they've been doing for the last 10 years.

I don't know, Chris, if you want to?.

Yes, just real quickly I will walk through the mechanics a little bit. If you just step back first and think about the typical size of the Home Health agency the vast majority of them are small to medium size agencies. They have very limited cash reserves and they have limited to no kind of borrowing capacity.

So really funding payroll becomes an exercise that you have to turn revenue into cash as quickly as possible. So under today's environment, if you admit a typical patient that's going to be $3,000 episode Medicare essentially loaned you $1,500 to $1,800 on that patient by around day 15.

So 15 days into care you've got $1,500 to $1,800 to really kind of cover your payroll expense. Under PDGM if you took that same patient, you're really going to take the 20% RAP. That's really only going to be about $300 on day 15 versus $1,500 to $1,800.

And that's because you're only getting 20% of half of the third, half of the 60-day episode and then you're not even seeing another payment until close to day 45 which is another $300. So you're at day 45 and you've only collected $600 versus under today's environment $1,500 to $1,800 in the first 15 days.

So as you can imagine, this is going to be something that's very difficult for these agencies to be able to navigate through.

It's unfortunate we really don't like to see it that way but in the event that does happen, what happened in the early 2000s it wasn't uncommon for the bigger providers to get a phone call from somebody saying, I've got these patients, I've got these clinicians, I can't really make payroll can you hire quickly and can you help us transition these patients and that's a very likely scenario under PDGM..

Scott, do you want to talk briefly about what the potential impact of this if the RAP goes through one-time perspective?.

Yes. So for us of course it was we are positioned well 1.3X levered, plenty of capacity but it would be a disruption you're probably in the 20-ish days maybe a little higher.

We're looking at how we would exactly what we can do to be more efficient but it's a significant one-time number for us if you think about revenue kind of on a per day basis, you're looking at maybe $3 million for every day for Medicare. So it's something we're paying attention to.

It won't be really overly disruptive to our plans long-term but as Chris and Paul talked about the smaller players certainly will have to deal with some issues around that..

Just wanted to go back to Chris's example so in the event that the smart guys have to hand off patients and you guys maybe take on more clinicians, do your clinicians now have the existing capacity to take on more patients or do you think you would just have to add additional to add to the workforce?.

So that's a great question. And for us I think that when we talked about our pay practice change that we're implementing in Q4, when we get through that that will significantly open up clinician or incapacity for the admissions for us.

So we already have some internally built-in capacity that we're not optimizing today pay practice will open that up but also there could be a wave, significant enough wave of patients and potential employers that could create an opportunity for us to incrementally add additional good clinicians which will be ideal.

But we're already building our capacity from things we're doing internally right now..

Thanks, Paul. And then just wanted to go back to the other acquisition you guys announced the -- I guess expansion into your Premier Home Health care services. There wasn't a lot of detail in the press release.

Just wanted to see if you could give any detail behind in terms of how big it is and is there any numbers you can put around it to help us out?.

Yes, it’s actually -- it's actually we just got the CONs in those three counties. We did not purchase the provider number, so we don't have any kind of exposure to legacy liability on the provider number. So what this is doing is giving us an opportunity to do de novos in those three counties and that's part of our expansion plan.

So came with no assets other than the CON no business but it will be a good opportunity for us to go expand our New York operations..

Kevin just as we talked about our inorganic growth strategy, this is kind of a part of what we said we do from a de novo perspective if there is opportunities in CONs, we'd certainly buy into those markets. What you have to do to get started anyway but we would look for those opportunities if we like the territory so..

And we like this way, Kevin. We don't like the tail that we get when we buy provider numbers in certain areas. So this for us was an optimal purchase because we can get in to an area with high demand which we’re relatively familiar with. But we don't have the liability issues that we would get if we bought the provider numbers..

Got it, that makes sense. And then lastly you guys you talked previously about the voluntary turnover.

And I guess what you tend to do to combat that I guess what are you -- can you talk about some of the things you're doing and what are the main reasons why people leave?.

Sure. I think we're close to the lowest in the industry, if not the lowest when you look at it. But we're very -- we believe we're a human capital asset management company, we're very similar to staffing companies in a way we have to the more the longer people stay, the more productive they are.

The better they know our methodologies, the better they -- the better care they deliver to our patients. So for us it's important to keep people around -- good people around and make sure that they're being as productive as possible delivering great care. So when somebody leaves, we look at this every week.

So when somebody leaves we want to understand why, we think some of it is kind of the natural particularly in the area of clinicians, particularly nurses, a lot of it is nurses move around a lot. And what we're trying to do is we're spending our time we're actually doing a lot of very interesting work now.

So we can start to predict when somebody is potentially going to leave and then what we can do proactively to make sure they don't. So we're working with IBM on that and we're doing some really interesting work to be able to build predictive models. We think that'll be good. We also think that it's very, very important.

We've seen this over and over and we're fixing it. Is that when someone joins you particularly someone who is not a Home Health clinician, they need to be oriented very carefully. And we've seen that we have an opportunity to improve there. But our goal is to get below 15%.

It's the Holy Grail for us and we're spending a lot of time and effort on it and we think we can do it..

Our next question is from Joanna Gajuk, Bank of America. Please proceed with your question..

Hi Joanna..

Thank you. Hi, thanks for squeezing me in here. So couple of I guess follow-up, so first on the commentary on the guidance. Just to clarify how are you thinking about it? So I guess what you were trying to say is that Q2 was actually in line with your internal expectations and the Street models were off.

So you're essentially raising it for I guess better performance versus your model in the first half right is that the way to think about it?.

I would say that we're certainly happy with Q2 and it did outperform our internal models to some extent. So we still had some good performance there. My comments been more relative to first half, second half.

Some of those elements I've talked to around those $4 million related to Workers Comp and fleet vehicles were in those you did have a little bit more in Q1. So that certainly helps Q1 but yes, that's kind of how I've talked about it..

All right. And then in terms of the commentary on PDGM and I guess I understand you don't want to put a hard number in terms of how much of the 8% behavioral assumption you are able to offset. But did I hear it right.

You're kind of saying that especially on the bigger piece of the 8% which is related to coding or provider choosing the higher pain code essentially that will be something that you can adjust quickly.

Is that the way to think about it because then you start talking about labor and other kind of cost offsets but in terms of the behavior assumption like based on the call, my understanding is that the big portion of that 8% is something that's relatively straightforward in terms of what CMS is thinking providers will be doing?.

Yes, I think so I wouldn't say just quickly because we've been working on this for a long time. And that's the good news about CMS coming out as early as they did on this new rule. So we've been working on it long time, our commentary around that is relative. I think when you kick over to 1:1.

I think we'll be more prepared and ready to rollout that piece of it. The cost piece of it as we kind of look to move to clinicians getting the utilization or probably that's the elements we're talking about that we're going to have to make sure that may be a little bit more harder we will hit the mark right on 1:1.

But I think we'll move pretty quickly to get there. So that's kind of what our commentary has been around that. Chris I don't know if you have any thoughts..

I think maybe this will help. I mean I think in terms of the behavioral adjustments which are coding, comorbidities and kind of loop [ph] management that CMS has laid it out. I think we will have all that work done by 1:1. We've been working on it for some time.

I think the big question out there that's happening is, is that how much of that coding opportunity that CMS has put out is real and we don't believe a 100% of it is real. I think a lot of other providers feel the same way. But there is opportunity there but we've already either have done the work or well down the path.

And I think when 1:1 comes, the behavioral adjustments or work around the three areas, the three buckets that CMS have laid out, we will be essentially done on 1:1. I think the episode management, labor management will phase in over the course of 2020. But relatively early on the next one will be actually kind of the business preps.

So in optimizing Medalogix, we feel like we'll be ready to go at the beginning of the year for that. And then the labor mix from RNs to LPNs and PTAs that will happen over the course of 2020..

So I guess just to wrap that up. So when you think organically just outside of what you've been discussing on this call throughout in terms of gaining market share and then the potential inorganic opportunities that might come with PDGM.

How would you think about Home Health EBITDA year-over-year 2020 versus 2019 in terms of the impact of PDGM, should we think that it's enough.

In terms of are you talking about these offsets and actions that you think you could grow organically Home Health EBITDA?.

Excellent. We'll be working over that over the next few months to put a number on that certainly we think we'll grow organically as well that'll help offset any of that. I think we probably get to the fourth quarter back half the year, we think we were basically flattish to positive with growth. So we think we can overcome any impact of this.

But we'll talk to that as we formulate our thoughts on 2020. But we feel good that will be an offset the impact to this and we'll still have some opportunity if we continue to grow the business like we headed to Q2..

Yes. We think there are ranges, Joanna, based on what our practice results have been with our centralized covers. The good thing is we have centralized coding it's very sophisticated operation and we've been looking at various scenarios in doing and then looking at how those scenarios sort out. But there are opportunities there on the coding side.

So and we're just trying to. We don't think that as Chris said, it's 100%. So I think for CMS to say this truly budget neutral from the coding side, I think is not correct. It is not budget neutral. Anybody I think who assumes it is and codes 100% on 8%, I wish them luck. But that won't be us. But there will be some good opportunities out there..

Our next question is from Bill Sutherland, The Benchmark Company. Please proceed with your question..

Hey Bill..

Hey sorry to keep everyone from lunch but real quick. Exciting here this ClearCare relationship, Paul and I know you have got experience with setting up and running a network like this.

How did you think about the management on the terms of the quality of care delivery? You're not going to be able to directly control; I mean how do you kind of maintain the quality levels that you demand when you're basically so contracting out to care? Thanks..

I’m going to let Chris do that. But it's largely through the ClearCare software where we can monitor the quality delivery. And that's and then we have some navigator but I will let Chris..

Yes, hey Bill. Like when Paul talked about the 308 agencies that have signed up already we've already created some service level requirements that these operators have to commit to when they join up with this, we'll be able to measure against it.

It'll be timely initiation of care, timeliness of communicate with the patient, it’s going to be patient satisfaction, we have got some other factors in there as well.

So it's not a function of you can just say I want to be in part of this network and start receiving patients, you actually have to deliver on certain quality metrics and in the event that they fail to do that. The good news is that many of these agencies overlap with each other.

So it gives us opportunities to have kind of a tiered relationship in some of these markets if those that provide the better care, the higher quality are going to be the ones that are going to be at personal list when we're starting to kind of transition patients back and forth..

So I assume you're signing up agencies where you guys get the footprint..

Yes. Also frankly as we look to this a potential future opportunity where we don't have footprint if we can do that. But obviously we want to do it initially where there is a footprint but if we can get into the business and partnership with ClearCare of building a nationwide Personal Care Network my sense is no one else has done it.

So it would be valuable particularly to large players who want to have large contracts and large reach. Again, but this will be a sorting process initially, we just want to stay away from any warm body scenario where we've seen out there and that will take some sorting and Chris is right.

He put in some very rigorous contracts which fundamentally make sure that what we know about personal care business and what we determine is important from quality delivery we incorporated in those contracts therefore we will hold them to those contracts..

And so you're in the process of obviously setting this all up probably that runs through the remainder of the year and we begin to see some impact on numbers next year.

Is that the way to think about it?.

Yes. Yes, we are in a sign-up mode now where I'm spending a lot of time on the road meeting with people, taking calls, doing all that particularly with some of the franchisees who some of the larger franchisees who we -- are bringing on and hope to bring on which have other controls in place which we do like. So we're -- we're doing that.

And then we're going to be doing some test pilots in the end of September in three markets where we're going to be moving in and doing combined work and then we also have a lot of technology work to do so that we can combine the data that we have from HomeCare HomeBase in with the data that we're getting from ClearCare so that we can ultimately have coordinated care with all those lines of business.

So that's going to be a big -- big to do on our list for this fall..

Hey Bill this is Chris. Only thing I'd add to that is that with these agencies signing up again this does create an opportunity for us to incrementally grab some Medicare Home Health growth from these providers as we start to perform these relationships to materialize these relationships with each other.

So we hope to see and we expect to see that that's going to generate some additional flow of patients..

That makes sense too.

And just one last one unrelated real quick, Paul, as you get your intelligence from watching these states any sense of the timing as far as any legislative push?.

Yes, I’m going to let Dave our Head of Government, he is here to talk to you a bit about it but we're feeling better about it as things got worse on the PDGM side, so..

Yes, first let me expand on something Paul talked about earlier. We've now got 40 co-sponsors in the House and 20 in the Senate. That's up from 29 in the House to 40 in the House and that's largely we added those 10 or 11 since the proposed rule came out. Same thing in the Senate we're up from 16 to 20.

Those three to four were added since the proposed rule came out. So we feel some momentum there. So the rule didn't hurt us. In fact it probably helped us jumpstart our momentum. And also it's important to note is we're almost evenly split between on between Republicans and Democrats.

We also have six Senate Finance Committee members and 12 House Ways and Means members that are co-sponsors. So we got the right co-sponsors. We want everyone but those are key people to have. So timing is going to be sometime in the fall.

It's hard to predict that Bill but we'll be looking for vehicles -- big vehicles like Surprise billing, drug pricing, Medicare Extenders package. But realistically I think sometime in September/October/November that window certainly they're on recess and all you're looking at the fall but we will be working this till December 31.

But we feel good about where we are. So it's a parallel strategy. Nothing's changed since rule came out of our strategy. We've just gotten a little more momentum and more in Congress valuable assumptions have got to go on the wrong way. So we had a compelling argument before and equally as compelling if not greater now.

So we'll keep moving, we'll keep working. You heard today what Scott and Chris and Paul and the team were doing on preparing to operationalize all this. We continue on the legislative path to try to get some relief from behavioral assumptions. So thus we are, I don’t know if that really helps you, it won't surprise you.

We've got five months left in the latter part of the year..

Yes but we're in good shape today so but we're going to. The urgency is now being increased.

So that's good, yes and it gives us whopping big numbers on the table about Susan Collins for example signed a letter saying to SIMA, we think you should really rethink this and then some of the data that we've been generating says there's a fair portion of Home Health agencies that are going to be in negative margins over 50% in the State of Maine.

So we'd love to go see Susan Collins and say wow you should be really worked up about this..

Yes, bottom line what Paul saying is that behavioral assumption is not surprisingly create potential access to issues especially in rural and urban areas. So that's probably calling card but create problems for everyone.

But certainly Congress is interested in maintaining access in those areas and I’m interested in expanding access to high quality care everywhere. So this would impede that if the rule goes is implemented as written today..

Yes. So this adds a little fuel to the fire, so it's good. Thanks for the question..

We have reached the end of the question-and-answer session. And I will now turn the call back over to Paul Kusserow for closing remarks..

Thanks so much. Appreciate it. I want to thank everyone who joined us on the call today. I'd also like to again thank all of our people who delivered these fantastic results. Keep doing what you're doing. Taking care of people who need us the most, we hope everyone has a wonderful day.

And appreciates the results and we look forward to updating you on our ever evolving progress and purposeful work on the road or during our next quarterly earnings call in October. Have a good day everyone. Thanks..

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