Greetings, and welcome to the First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief questing-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Nick Muscato. Thank you, 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, 2020. A copy of our press release supplemental slides and related Form 8-K filing with the SEC are available on our 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 is Chris Gerard, Chief Operating Officer; and Dave Kemmerly, Chief Legal and Government Affairs Officer.

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

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

These risks and uncertainties include factors detailed in our SEC filings including our forms 10-K, 10-Q and 8-K. In addition as required by SEC Regulation G, a reconciliation of any non-GAAP measure mentioned during our call today to the most comparable GAAP measure 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 Amedisys', CEO Paul Kusserow..

Thanks, Nick and welcome to the Amedisys second quarter 2020 earnings call. Before we get started, I once again want to give a heartfelt thank you to our frontline caregivers who without hesitation and throughout this pandemic have cared for the most frail and vulnerable patients in the country, including and especially those with COVID-19.

The dedication and courage of all our incredible people highlights our unwavering commitment to our mission of caring for all patients in their homes and delivering the highest-quality care to our patients. I am truly proud and amazed by each and every one of you. And once again, thank you everyone for all you're doing.

This quarter, our call will once again be structured differently, so that we can spend time making sure you thoroughly understand our underlying business performance and COVID-19's impact on second quarter results as well as our outlook for the remainder of 2020 and beyond. During this call, Scott Ginn and I will cover the following.

Our performance in Q2 which bested our internal modeling and street expectations and highlights just how important, essential and resilient home health hospice and personal care are to the health care delivery system; COVID-19 and how it has impacted our business how we are successfully managing through it and what we've learned and gained from this challenging experience.

Post COVID what are we doing to position ourselves for a strong 2021 and why the future value proposition of all our business segments looks even more promising than it did pre COVID; the reimbursement outlook for both home health and hospice which will set up 2021 to be our best reimbursement year in recent history.

Finally, AseraCare and our other hospice acquisitions, our prodigiously strong cash flows have us paying down our debt to one times by year-end how we are actually back in the market, looking at new deals and de novos for late 2020 and 2021 as well as how we are progressing on and integrating on our four hospice deals.

Now, I'm going to turn it over to Scott, who will run us through our second quarter performance and full year 2020 guidance.

Scott?.

revenue of $2.04 billion to $2.07 billion adjusted EBITDA of $245 million to $255 million and adjusted EPS of $4.84 to $5.06. Now I'll turn the call back over to Paul for a discussion around COVID-19's impact to our business, what we are doing for our patients and employees and our recovery plans.

Paul?.

the effect of COVID-19 on our business during the quarter and our recovery plans, which we are executing upon; the regulatory outlook including the proposed home health and hospice rules; the AseraCare acquisition and our integration efforts on our four hospice deals, we have closed in the last 18 months; and the tremendous opportunity in front of us that will propel us for outsized future growth and innovations for 2021 and beyond.

Now turning to COVID-19's impact on our second quarter and the trends we continue to see. As we discussed during our last call, home health admissions and referrals hit a low point the week of April 5. Since that time, I am happy to report that we have seen a steady V-shaped recovery a sharp bounce back instead of a prolonged trough.

In fact, total volume at the end of the second quarter was approximately 98% of our pre-COVID baseline, and is holding strong at those levels excluding the July 4th holiday. Keep in mind that, total volume includes both admission and recertifications. Total admissions at the end of Q2 were at 91% of our pre-COVID baseline.

Also some interesting data points, we have not seen a material recovery in elective procedures, yet we have seen a significant recovery in our admissions, which means we are winning market share and new referral sources.

Our admissions would also suggest that, we are starting to realize the trend of patients wanting to avoid admission into SNFs and other facility-based settings. It is without a doubt that the home is the safest place to care for patients.

And as we continue to innovate as an aging-in-place company, we believe there is compelling post-acute market share capture proposition from offering a SNF-at-home product, and finding other ways to capture patients that, historically, would have received care in facilities.

Our efforts are underway on this front, and we fully expect to be caring for more acutely ill patients in the home over the coming months. In fact, we're already seeing it now. In hospice, referrals hit their low point, the week of March 22. But comparatively, it was a minor drop.

As we discussed last quarter, hospice admit volumes have significantly improved. However, the slowdown in March impacted both legacy and CCH, ADC early in the second quarter, particularly with short-stay COVID patients. That said, we have shown very solid performance and are projecting nearly 6% admit growth in July.

As you can see, the rapid response BD plans we implemented in Q1 are paying off. As a reminder, we are rolling out focus area action plans created by specific BD role, VPs, AVPs account executives and care transition coordinators to take advantage of the tumults in the market and show we're better and different.

We've been tailoring call routing based on sophisticated referral source segmentation for physician’s, hospital, long-term care, ambulatory surgery centers and other settings. We're continuing to hire and onboard BD FTEs during this slowdown. They're trained and hitting the streets. We've developed patient and family-facing talking points.

We're working through objections to home health and hospice out of fear of exposure. And we've been leveraging the fact that, we've been good citizens and we have been open to taking COVID-19 patients since day one, resulting in building up new referral sources and partners. This is paying off particularly well. Let's talk about patients and employees.

Employees are always, our most important asset and patients and their families our most important commitment. These have been at the forefront of our decision-making during this pandemic.

As such, I am proud to say that, during the quarter, we gave out over $9 million of bonuses to home health, hospice, personal care, and all frontline caregivers that have seen patients during the pandemic. Our caregivers are the heartbeat of our company. And this monetary token of our gratitude and appreciation is most definitely well deserved.

When we take good care of our employees that care is passed along, we will continue to aggressively invest to make sure we have the best employees, with the best tools, delivering the best care to our patients. It's our strategy and mission in a nutshell. On the legislative and regulatory relief front, there's very good news here.

In early April, CMS released the full year 2021 proposed hospice rule, which was comprised of a 3% market basket update offset by a 40 basis point productivity adjustment for a net proposed rate update of 2.6%. CMS also proposed increasing the cap amount by 2.6%. We expect our impact to be in line with the 2.6% rate update.

So this is a proposed rule and not yet finalized. Positive rate updates in hospice are increasingly impactful to our business, as we continue to grow hospice both organically and inorganically. We expect the final rule to come out any day now.

Similarly in late June, we saw CMS issue the calendar year 2021 Home Health Prospective Payment System rate update wherein CMS proposed to increase payments by 2.6% beginning in January 2021.

In addition to this positive payment update, CMS also proposed to make permanent the telehealth flexibilities it has previously granted to home health agencies during the current public health emergency. We applaud CMS for its proposal to extend telehealth flexibilities and we look forward to working with them on this important policy.

We think this modality could be a highly additive tool in care provision. These two payment updates will be significant tailwinds for our company as we enter 2021, producing approximately incremental $40 million in 2021. Now let's discuss why we continue to be very excited about our future, 2021 and beyond.

To begin with demographic macro trends are very much in our favor. As the baby boomers age, they're now between 56 and 76, more people are turning 65 years old than ever before over 10,000 a day.

The aging population coupled with ever-increasing health care costs put us in a very advantageous position as an aging-in-place company, delivering the highest quality care at the lowest cost to seniors wherever they call home. Nine out of 10 boomers want to age and die at home.

Many of the themes we witnessed at the end of the first and this quarter have continued and will continue beyond the time period of this public health crisis. Prior to COVID-19 over 90% of seniors prefer to receive care in their home.

Given the devastatingly sad impact, COVID-19 has had on seniors in facility settings, it is safe to assume the percentage of seniors preferring to receive care in their homes has only increased.

Finally, given our scale, M&A jobs, cash flow and integration capabilities when the true impact of PDGM is finally felt within our industry, we will be ready to continue our organic and inorganic expansion in home health and are well positioned to capture more and more market share.

Finally, I'd like to highlight the closing of the AseraCare acquisition on June 1. AseraCare is an extremely high-quality hospice asset with 44 care centers across 14 states, a census of approximately 2,100 patients and approximately $117 million in revenue. This asset is a great addition to our portfolio and integration is well underway.

Once again none of the money we received as part of the CARES Act was used to fund this transaction. We have grown our hospice assets significantly over the past few years. And now with AseraCare, we operate 190 hospice care centers in 35 states, while caring for an ADC of approximately 14,000 patients.

Hospice is an important benefit in the care continuum and I am proud of the work our hospice team has done to bring their incredible care and compassion to more and more patients and families. We have four great hospice assets under varying parts of integration and all are going well.

We're also active on de novos and we're innovating on new ideas SNF-at-home, dialysis in the home, telehealth, quality care and our national personal care network. It is truly an exciting time to be a part of Amedisys and I'm thrilled at all of the future potential for our company, our associates and our patients.

This will conclude our prepared remarks. Operator, please open the line for questions. .

Thank you. Ladies and gentlemen, we will now have our question-and-answer session. [Operator Instructions] Our first question comes from Brian Tanquilut with Jefferies. Please proceed with your question..

Hey, Brian..

Hey, good morning guys. And congrats, I mean, I know it was a tough quarter. So, doing -- yes, doing well. So Paul, I guess, I just would hit on the recovery right away, right? I mean, you talked about the V-shaped recovery.

And as I looked at the slide deck eyeballing it, it looks like in July you're trending kind of in 5% same-store admissions range for Medicare.

So how should we be thinking about your perspective or your view on where you think organic or kind of like same-store admission trends or volume trend should be as we see some recovery? And then factoring in the fact that you're not in Texas, you're not in Florida, but you're in Georgia and Tennessee where, here in Nashville obviously there has been a big bounce in COVID or big pickup in COVID cases.

So, just wanted to see your thoughts on the acceleration of volume especially post-COVID?.

Yes, I'm going to have Chris answer most of this because I think he's more equipped to.

I think that what we're seeing though is we've one of the things we've done that has been very purposeful over the first half of this year is to continue to invest in business development resources to continue to expand in BD to continue to bring expertise in BD to put out additional incentives to bring additional tools.

So, the growth piece of this is something we're very, very focused on. We're starting to see it. I think one of the issues that we're starting to see is making sure that our staffing keeps up with our growth. So, that's where we've been focused lately. We've been seeing very nice growth.

And even in the tough markets we've been offsetting that by markets that are clearing up. For example the Northeast is recovering very nicely while we're having more difficult times in Florida and Georgia.

But Chris anything you want to add on that?.

Yes. Thanks Paul. Hey Brian. The wildcard really is kind of the resurgence in certain markets. So, as you mentioned some of the Southern states where we have some density Florida, Georgia, Tennessee, South Carolina, we're seeing some impact there.

But as Paul mentioned, it's being fully offset by some good growth in some of the less-impacted markets or the ones that are still on a rebound like the Northeast. So, the challenge is around kind of when these flare-ups happen, it's not so much the referral flow that slows down. I think the patients were over the anxiety of not going on to home care.

And I think we've gotten good protocols in place with facilities to be able to access them. It's more around as exposures happen you have employees going on quarantine while waiting on testing and things like that. So, it challenges your capacity a little bit.

All that said I think what we're thinking about the balance of the year is just factor those kind of nuances in and think about mid-single-digit growth. Whereas we know that hospitals are not back to near full occupancy and we know that one of our strongest referral streams about 18% of our Home Health business comes downstream from SNFs.

And many SNFs are really still struggling to keep kind of their occupancy up. So, we think that there's still some demand that has not been released. And we don't know that it will happen by the end of the year based on just kind of the penetration of COVID-19.

But we do feel like growth is in the cards for us in the balance of the year and we're just kind of thinking mid-single-digits. But we're obviously very pleased with where we are now and we very well can be higher than that at the end of the year if we continue to execute..

Yes, I give a shout out to our Central and Western divisions who in the past have really struggled. They -- they've come around incredibly well and we're seeing strong results out there. Northeast is coming back very strong. So, it's whack-a-mole in a good way. This is where geographic diversity has been actually very beneficial to us in certain areas.

As this thing moves around we have very strong performance when it dissipates. And even when we're in the midst of it as Chris said, it's mainly an issue of making sure we have enough staff because there is an increase in staff work quarantining as these -- as COVID increases in markets like Florida and Georgia. .

No, that makes sense. So, I guess, without going to guidance as I think about 2021 right just looking at the growth algorithms. So, you've got AseraCare it adds about 6% to your revenue already. Rate growth proposals are in the 2% to 3% range. You're growing organically 5% to 7%.

And then with some cost cuts that you've put in in Q2 and I think maybe Scott can give us a little more color on that if possible. I mean I put all that together and I'm getting an EBITDA growth trajectory of 15% or higher for next year that -- from where we sit today.

Is that the right way to think about that?.

Your lips to God's ears. We'd love to do that. But I'll let Scott tap that down a little.

Scott?.

Yes. Well, no I think that it's hard to run from that number Brian thanks for the question. I mean when you think about along from the rate good guys at somewhat around $40 million when you look across both segments that's certainly a great opportunity for us. You mentioned AseraCare we have CCH which we still -- we're happy with what's going on there.

Well certainly COVID has impacted that. We've added a lot of BD heads there. So, we're -- in April, we passed kind of where we wanted to be on CCH headcounts. So, we think there's a lot of energy. And as we exit and hit our exit rates here yes, I think we feel wonderful about 2020.

We certainly -- you're seeing the benefits of what we've done in monitoring utilization under PDGM the shift in staffing. So, all those things we ended up taking a hard look at our staffing. In the quarter as we look at -- our visits are coming down.

When you take down two visits an episode if you think we're averaging 75,000 episodes a quarter that's a lot of visits. That's almost 600,000 visits. So, to take that into account and get our mix shifts correctly we made some adjustments there in staffing that we think really hasn't been reflected in these numbers.

So, we feel great about where we are and where we're headed..

Yes. We feel very good about what you threw out Brian. I mean Chris you want to just -- Chris did a lot of good work in the team, in home, health, pulling cost out that we had -- we were heavy on some PT populations. We turned some folks from salaried into per visit. So a really good job there. So our cost structure is very, very strong.

And obviously we're pushing very hard on the growth piece. So we feel very good about next year in particular. .

Thanks. Appreciate it..

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

Hi, good morning. Before I get to 2021 and maybe I just wanted to ask about the back half of 2020. And so, Scott you alluded to, I think $30 million of increased costs in the back half.

But could you maybe help us understand a little bit better just how some of these dynamics flow through whether it's the group medical, some of the staffing adjustments you made? And at the end of 2Q that we really won't get the benefit of to the back half of the year in terms of -- in PTA mix? Just if you could just help us a little bit on the model in there because I think -- even layering that $30 million and I'm still kind of getting towards the higher end of the guidance range at first blush?.

Yes. I mean if you think about that and what we did from a cost per visit the only thing I'd caution Matt and I think that what -- why these numbers get really large and I really point to our Hospice segment at that high gross margin.

We did benefit from -- if you think about how we get paid for hospice, the patient is still in service we get paid per day I'm sorry. And some of the visits especially from the hourly-type folks or aides they weren't able to get out there. Now that's swinging back around. They're coming back. So I think that margin is probably a little inflated.

So I would tap that down a little bit as we move into the second half of the margin we're feeling right now on a gross margin perspective. So that's one thing to keep in mind. We'll see how this -- I mean it's typical you'll see the health cost higher in Q4. We've still got a pretty big gap up there.

I think the raise impact is roughly 8, which will be effective August 1. And then you've got the health flowing through which we're expecting from a training perspective while the dollars are down it should look similar. We'll watch that one closely as this bleeds through. So it's been interesting.

I mean it's got earlier back to some typical patterns we see. One thing is a little different. Typically our EIP rate we're exiting this quarter out is extremely high compared to where we normally are at this point because we saw build. And as you saw those June numbers late, we saw a strong recovery there.

So we kind of have lumped a lot into that second half of the year. But I think the takeaway when you're looking at your modeling is I would think that gross margin is closer to around a 43% on a go-forward basis. .

Okay. Thank you. And then maybe Paul and Chris wanted to follow-up on some of the share taking and SNF diversion.

Is there any way you can help us maybe put some numbers around what the various referral source components were pre-COVID and then what you've seen as volumes have come back? And then maybe on the longer-term SNF diversion opportunity, how do you kind of bucket maybe patients you're taking today that were an easy land grab and just needed some convincing versus the longer-term opportunity that might involve capability expansion in terms of what you offer?.

Yes. I think -- just to start this off I think from a SNF perspective -- and I'll use Chris' terms about 10% of the SNF business, we estimate between 8% and 10% is what we call jump ball. So we think a lot of the jump ball business that maybe went 50-50 is probably coming to us.

There's another maybe 10% out of the SNF business that if we can utilize custodial care or personal care, so we're probably going to have to work that through with MA if they want to do more work there. Clearly when you -- it's been a highly publicized area where -- but we also do a lot of business in SNFs, 30% of hospice at this point.

And we've got about 18% of home health, we do work in SNFs. So we want to make sure we're the ones going into these SNFs. But at the same point we compete with them. They went through their own version of PDGM which ultimately makes it more profitable and better for them to move up the acuity scale.

So what we're seeing is, as the SNFs are moving up and taking care of sicker patients they're kind of leaving more acute -- what we would consider more acute patients. So we're seeing our level of acuity go up as some of those patients they are less interested in taken care of in the SNF.

I don't know Chris did I grab most of it? Or any comments?.

Yes. Yes just -- you got it Paul. Just to kind of give a little more detail behind the numbers and what we're looking at now. Our physician referrals rebounded quicker through COVID-19.

Both our physician and hospital or institutional referrals dropped to the same level, but physicians came back quicker which really kind of helped with our recovery and our rebound. And in fact we actually added 1490 new physician referrals sources in Q2 from Q1 sequentially which was -- which added quite a bit.

But hospital and institutional referrals got back close to 100% at the end -- as we exited Q2, but our elective procedures only got back to about 75% of pre-COVID level. So that would suggest, we're getting a little bit of a different type of referral from the hospital and the institutional referrals.

We are also seeing case mix weight come up on our patients as well that would suggest a little bit different-type patient. And we feel like that's really going to be a diversion from these patients landing into a skilled nursing facility first than coming to us directly.

So we're going to get tighter about around quantifying that, but we think that's a sign of some opportunities still to come that we can take advantage of. And then longer term the bigger play on really "SNF-at-home" business we really see that model as being a realistic future for us and for home care in general.

It's going to require some new thinking around payment models. That really kind of will also support unskilled care just presence in the home technology, meals, transportation some of the other things that are kind of going to needed to be bolted on and paid for to be able to do this.

But if it can be done in the right way you can see a complete shift of the type of patients that normally will spend weeks in the SNF before they go home can actually go home and get that same care in the home. But I'd say that this is really starting to put focus on that.

So early stages but now it's up to the industry to kind of try to take that forward. .

Matt, one other thing real quick on that second half. Just wanted to -- in our Q you'll see that acquisition revenue for the quarter, which includes AseraCare and Asana roughly did about $6 million in revenue. We talked about some adjustments in there. So those combined drove about $1 million of EBITDA for the quarter.

Thinking about AseraCare going into the rest of the year within that guidance, which wasn't in our original guidance because we hadn't closed until June 1, that's probably an additional $5 million coming out of AseraCare. .

Okay. Thanks, Scott. Appreciate the detail..

Thanks, Matt..

Thank you. Our next question comes from A.J. Rice with Crédit Suisse. Please proceed with your question..

Hi, everybody. Maybe first on the turnover rate. You're highlighting about 16.8% I guess, below that. I'd be just curious as to what you're seeing in terms of staff availability how people are responding? I know you've mentioned some bonus pay et cetera that you -- COVID related that you've given.

But just availability of workers the turnover rate where do things stand in light of the crisis? And has that presented challenges or opportunities in any way?.

Yes. We think we'll bring that down. But Chris --why don't you comment on why it's at the rate it is. We think it's a little high at this rate due to all the tumult. But Chris you can take people through what's -- how you're thinking about it. .

Yes. So turnover has been a focus of ours for several years. We've continuously driven that down. I think we did a good job during kind of really the height of the pandemic to make sure that we were keeping turnover at a good level.

We even saw some areas where we had to make some staffing adjustments that we actually alluded to in our prepared comments. What we find now is that the biggest challenge around staffing and capacity just comes with wherever you have a flare-up.

And you have a number of employees to go on any kind of quarantines leave for up to two weeks or those that may unfortunately get impacted by the virus. What we have found is that we did slowdown a little bit on our requisition during the trough of volumes and we've ramped that back up in new hires.

We have good pipeline and we have good hiring kind of pipeline in place right now that we're bringing on board. So I feel like we're in good shape. We do have as always it's no different in this environment than a non-job environment. You do have certain areas where it gets really tied on labor.

But in those areas we also find other ways like utilize the contract labor where possible to make sure that we can effectively and safely treat our patients. So we don't feel like staff and staffing level to be kind of constrained for us.

And again we put turnover at the top of the list of things that are high up on our priorities as a management team and we continue to focus on that. .

We expect that -- the other thing A.J. that I think is really important is considering all that's gone on in facilities and institutions recruiting is getting better and better. So we have an opportunity to go after some very good people who want to start to work in the home. So we're starting to see that pretty intensively.

And remember when we first started this effort we were in the -- five years ago we were at 40% turnover rate. So we feel very good. But I think our goal is to get as close to kind of below 15% as we can get and we anticipate we'll get there. .

Okay. That's great. The second -- the other thing I wanted to just ask about was you talked about the COVID impact on the hospice, I mean, short-stay hospice at. I wondered how many -- can you flesh that out a little bit? Obviously, to the extent you take COVID patients that would boost your admissions in hospice.

But what kind of effect is that having on the business? Do most COVID patients -- they'd ultimately end up in death? Do they -- do a lot of them go on hospice? And how else is it rippling through the business and impact to the business?.

Chris, do you want to take that?.

Yes, I'll take that one. So we've admitted almost 1,000 COVID patients on our hospice. The average length of stay is eight days on service. Typically, the discharge is if they pass away. So in a normal world, when we've been averaging about, let's say, 97, 98 average length of stay for a patient and have kind of a more normalized environment.

As you have growth in admissions, you're going to see your census ADC grow over time as well. So, during Q2 there was a shift in terms of the types of patients that we were getting these very, very low length of stays. So it did not really support any kind of ADC growth in Q2.

Now, in Q3, our admissions in hospice for COVID-related patients declined sequentially throughout the quarter; April, May and June and continues to do so in July. So from that, we see that we're back to more of a normalized admission, I guess, mix, if you will, that should start to support kind of ADC growth as we go through Q3..

Yes. And, I'd say, there's one other thing that we want -- I think we're starting to see A.J. which is the good citizen piece which we mentioned in our remarks, which is, there's a lot of hospice who wouldn't take COVID. We have since day one.

So we're going back and talking to these people about other referrals other than COVID and having a lot of good success..

All right. Great. Thanks a lot..

Thank you. Our next question comes from Justin Bowers with Deutsche Bank. Please proceed with your question..

Hey, Justin..

Hey, good morning, everyone, and thanks for the question. So just sticking with hospice, what's kind of -- how are you thinking about that, the trajectory of that through the rest of the year? And I'll pause for the next one..

Well, we'll certainly -- as our numbers are on, as we've talked, even when we did some conferences post Q1, we're expecting to get to -- certainly where we originally thought our exit rates will be for hospice. So we expect a continued increase in that ADC through the year.

I talked a little bit earlier and Chris has given some numbers, but certainly around CCH we've added a lot of staffing. So we expect that to continue to see. From a margin perspective, I do see that we'll certainly get some expansion.

But you'll have some cost return, as we get more of those hourly-type employees back out there, really transportation around -- for those folks as well with hourly pay will come back. But we're expecting to see increases in ADC across the board in our hospice segment. I mentioned that AseraCare will add another $5 million roughly to the back half.

So we continue to see that up and to the right, as we approach that year-end and really are certainly pushing to hit our targets as we exit and really get a nice run rate heading into 2021..

Hey, Justin, this is Chris. I'll give you one quick -- data point really quickly is, sequentially we added 25 hospice bd FTEs in Q2 over Q1 and year-over-year Q2 to Q2 was 93. So we have 432 bd FTEs as we entered into Q3. And that's where we feel pretty bullish. It takes a little while to get those reps up and productive.

But once they get there and we retain them, then we see that that's going to help support the growth. .

Yes. And just to add to that, I mean, which is, if you look at our cost structure, I mean, we're carrying all that extra cost year-over-year, which is -- and you see our G&A number is really holding fairly well and actually coming down.

One thing that I would say too, I mean, we saw a big fall off, of course, is what everyone expects in travel and training. That's another number that will probably creep up a bit for us. Depending on opening and stages, we need to get our operators -- our AVPs and so forth, back out there, get some training going on some of these new heads.

So that's just one item to keep in mind..

Yes. I appreciate that. And then, on home health, Chris, I just wanted to understand some of the referral dynamics a little more, because, I think, as you guys said, like, admissions are trending nicely into the third quarter, up in the mid-single digits. And you're seeing Medicare come back nicely.

And then based on your earlier comments, it sounds like acuity is going up a little bit too. So is that a fair deduction and then the shifts from institution are coming back a little stronger? And then, I think, kind of -- maybe -- okay, I'll pause there..

Yes. I think, you're looking at that right. So, what we're watching is, kind of, our clinical coding, our case mix way for our patients, functional levels and seeing how that is trending over the course of the year. And we're seeing a very consistent ticking up. You're also seeing our research rate came up a bit. It came up quite a bit in Q2.

We think some of that is driven by a higher-acuity patient that may have typically landed again in the SNF and for maybe -- so, let's say, two weeks, landed straight at home and then we're taking care of them. It's taken us a little bit longer to really get them fully recovered back to independent living.

So we feel like we're getting a different type of patient. We're going to put some more quantification around that and give some more color, as we dive into the data, but we certainly feel that that's an accurate statement..

Okay..

That's correct. Just to add little bit more. I mean just got to keep in mind too, and you're not seeing it in our rate yet, but we certainly, as Chris has said, are seeing that from a patient base. But it's been somewhat masked by -- we did see higher.

If you look at our numbers research versus admits kind of climbed up where we're having our completed numbers, a higher percentage of research than we normally run.

We think as you see our admit growth return that's going to flip back -- a research episode is going to average about 80% of what an admit episode will be from a reimbursement perspective. So you'll start -- as we move through and that normalizes you'll see our rate start to come up around that..

Yeah. Okay. And just -- and then just a couple of quick follow-ups on that, Chris.

I missed the -- what was the percentage of referrals that from SNFs you mentioned earlier?.

North -- yeah. Go ahead..

And then the other kind of -- the other one was just on the electives.

Is there kind of a category that's not coming back? Or is it pretty spread out?.

Yeah. On the second one it is spread out. So, I mean we're looking at it. And it's kind of -- it's evenly distributed across all of the types of admissions that we have gotten. Again, we're back about 75% of the pre-COVID level. So, that's -- what we do see is geographically there are some areas that are back on 100% or even greater than 100%.

And that really has something to do with states opening up in kind of the current environment around COVID-19 and we have some states that are still well below 50%. So, we think that there's still some time to go before that gets back to a normal level. Also pre-COVID about 18% of our home health referrals came from SNFs.

And that -- those would be kind of downstream from acute to a SNF and then SNF-to-the-home and then the referrals come from there. That is still significantly below pre-COVID level.

So, that would suggest that even though we're at the -- because we're at the volume levels we're at today and that's an area that's down plus the elective procedures that are down that just suggests that we're getting share of these patients that would normally spend time in a SNF bed..

Got it. .

Yeah. And we also think that there's some potential for diversion, for example, in certain types of surgical procedures that people are going to ASCs and other places, so that we're keeping our eyes on that RPD.

Folks are seeing if they're going from the hospital into an ASC, we're going to obviously -- we're talking to quite a bit of ASCs pretty intensely now. So again, we're following this volume. If it's leaving the hospitals and going elsewhere we're tracking it..

Okay. Thanks very much. I’ll hop back in queue..

Great..

Thank you. Our next question comes from Kevin Fischbeck with Bank of America. Please proceed with your question..

Hi, Kevin..

Hey. So I guess, maybe just kind of following back up on this kind of share commentary around nursing homes. When you said I think earlier that maybe 8% to 10% of the business was kind of a jump ball.

Do you mean volumes coming out of the hospital that 8% to 10% of the time is a jump ball whether they want to go to you or that goes for nursing home? I'm just trying to kind of size some of these numbers.

If you got back to that 10% to you, or is that a different percentage we see to your volume if you're able to get that 10%?.

Yeah, the jump ball business is basically on a clinical basis where could people be taken care of. And the idea of the current -- our current ability to take care of patients would allow for a physician to choose between us or a SNF.

And so we now think obviously that, these physicians or these caregivers when they're doing discharges are probably increasingly sending people to the home, because they could send them either place. We also think that there's probably another 10% business -- of the business where if we could add custodial care i.e.

unskilled care through our personal care network. We believe that a lot of this is just eyes on work. It's dealing with activities of daily living that fundamentally we could take care of these patients more in the home.

And also from a higher acuity perspective, we've developed a SNF-at-home business, that we will go and give people that option to do it. So, we really have three plays here that we believe will attract more of this business, higher acuity, more complexity in activities of daily living as well as the jump ball business.

So we think we have some more opportunities there.

I don't know Chris you -- anything I missed?.

No. You got it..

But I guess, I'm just trying to think if you get 10% more of the hospital volume, that's -- what is that -- 5% to your volume, because after volumes coming from other sources? Or how do we think about what that opportunity is to your growth?.

I don't know. Yes. Scott, Chris, I don't know what that would -- I mean we haven't actually sat through and cut it through the numbers.

But we believe out of this -- out of -- some percentage of that SNF business, we will start to migrate to SNF businesses approximately according to the way we looked at it last about a $30 billion business, it's about twice what home health is in terms of spend. We're about equal -- SNFs do a little more in terms of post acute. We're at about 16%.

SNFs are about 18% of post-acute discharges. So, we think, we'll start to nib into that and we think the referrals will start to shift on that..

Okay. That's helpful. And then I guess these numbers that you're talking about as far as taking share makes sense.

I guess, do you have any color as to whether the fact that your hospital volumes are back to normal even though the electives aren't? Is that because the industry is seeing that? Or is that because you were disproportionately able to accompany those patients who are trying to figure out how much is fundamental shift of where care is being provided versus market share within location of care?.

Yeah. I think you're going to see a dynamic which one is – and I give us – I can't emphasize how much I've been hearing about our good citizenry. And the idea is that we've been out there aggressively out there taking patients during this and being very flexible and that's a testament to our people.

So, we are starting to see good payback from that, more conversations. As you mentioned that there were 1,500 new referral sources or something. It's just extraordinary what we've been seeing from new business. So we anticipate we're going to grow market share.

We also anticipate once PDGM kicks in, in full and this kind of shifts part of the conversation. But there will be a significant shakeout in this industry. And again we will – we anticipate we're going to keep growing share one through just doing better than everyone else; but two once PDGM kicks in.

Because you'll remember as of 1/1/21 the RAP payments will completely disappear and a lot of the subsidies that are out there are going to go away. .

Okay. And if I could just sneak in one last one. The – you mentioned at the beginning that 90% of people for COVID want to take a preferred care at home.

I guess, how durable do you think this switch will be? If people were already predominantly looking for home and we had a basically 50-50 split as far as post-acute discharges out of the hospital than between you and nursing homes.

Why wouldn't it go back to that same split once COVID volumes half way –?.

I'll give you an anecdotal answer to that. And the anecdotal answer is, when I go talk to physicians which I used to do a lot of pre-COVID, and I'd say why are you referring this to SNF, when you can refer them to the home. They say it's safer. They would say it's – I cover all my bases. They need continuous care.

I think what they're going to start to do now hopefully reimbursement will follow this, I'd look for it more in MA than CMS at this point.

But I think what people are going to say is physicians and those referral sources are going to try to keep people out of these institutions because there's been – the second surge of this has met this thing keeps popping up. So, they're having to go through a whole new round of saying, we want to avoid sending people into institutions.

We think at some point, it will settle into some of their long-term memory. And they'll get more used to referring, and hopefully, having successful referrals into the home. So we think that this pattern of COVID coming back although dreadful frankly is helping us.

And the second wave is helping us, because it's generally younger people, but it's still changing the habits of a lot of our referral sources..

Perfect. Thank you..

Sure. Thanks, Kevin..

Thank you. Our next question comes from John Ransom with Raymond James. Please proceed with your question..

Hey, good afternoon.

If we look at the 2H guidance, what's the implied volume kind of year-over-year volume assumptions in both home health and hospice?.

Scott, do you want to?.

So, I would tell you that's kind of – as we move forward you're looking mainly at a kind of low single-digit type of number, especially on the home health side. I think hospice ADC as it recovers is kind of in a similar kind of that lower number. I don't think there's some overly aggressive numbers there.

We'll expect to see that ramp-up really on ADC and hospice in the back half of fourth quarter. So on average, it's not an overused top line number..

And you talked about the $30 million of costs. How do we think about the gross margin or however, you want to talk about the segment level EBITDA versus G&A.

How do we allocate that extra cost between the two businesses in G&A?.

Yeah. I would say that $30 million, John I'd put about 80% of that that'll hit the gross margin lines. So, we're going cost of revenue because that's mostly the clinicians or a higher population, which will hit both health claims as well as the rates piece of it. So 80% is probably a safe number to use. .

Just proportionately distributed between hospice and home health?.

I would say, it's probably 60% home health, if you kind of break that number back down. So starting with that $30 million 60% be home health; and then second 80% to get you to roughly what should roll through gross margin..

Okay.

And maybe, I missed this but what is your projection for COVID costs and other type acquisition spend? What kind of adjustment should we think about in the EBITDA line such the – like you had in the second quarter?.

Yeah. So if we think about it starting to look at from a COVID perspective, I think and that's going to be somewhere around $11 million in the second half, which we'll treat that and take the income against it. I think you'll see probably a continued level of that acquisition integration.

We really have kind of pushed off some of the acquisition because of integration because of COVID-19. So it will probably be at a similar level I would say to the rest of the year..

Okay. And then just a last one for me. And this is – I don't know this is a little bit of a out of left field, but if we think about some of the rapid tests that are going to be more and more available in the market that give you a point-of-care answer in less than a half hour.

Is that something that Amedisys would look at as a must-have to avoid this kind of two-week quarantining? Or is it – are you going to stick with the kind of traditional LabCorp Quest, where we're just hearing increasing stories about backlogs and seven-day turnarounds and that sort of thing?.

Yes. I think one of the key things that we're looking at in the future John is testing. So that's a really good question. I think the idea is that more and more of the institutions that we do call in call on one are setting up these kind of variable roles for us.

What we're trying to do is rest them down to one continue with one rule that we can abide by which is – which we think is going to affect testing. So we've been out there looking at a variety of different methodologies for testing so that we can be – obviously, what we want to say is we're all our folks are COVID-free going into these institutions.

So that's a huge advantage for somebody out there. So good question and we're pushing on this pretty hard.

I don't know Chris you're gleaning at any other thoughts?.

Well I think your instinct is right, John. The rapid is the way we'd like to go quicker turnaround. What we're running into is reliability and inaccuracy issues with that. So it's going to be – really depend on that improving.

We are running into some spots with our big vendor that we're using for the traditional testing with some backlogs and it just prolongs kind of this lack of access to caregivers while we're waiting for answers.

So we're hopeful that there's some good progress made in the rapid testing side and also availability and that's an area that we would love to transition to..

Yes.

And I'll add what was the LUPA? How many episodes were subject to LUPA adjustments in 2Q versus 1Q? And what do you – how are you thinking about that for the back half of the year?.

Yes. So I'll give you kind of the sequence of LUPAs by month through Q2. We hit an all-time high of 11.2% in – of all episodes in April 8.7%, in May 8.4%, in June. We're trending down a little bit from there so far in Q3. Our normal rate is around 8%. That's where we'd like to get to. That's our PDGM pre-COVID level.

So that's what we're moving back towards. We feel like we got a pretty good handle on it. The things that will continue to impact it are just really kind of the flare-ups and if we run into any kind of issues getting business done in some of those markets. But the trend is very good. I think we got our arms around it really quickly.

And I think if you think about it, I'd model us up out and around the 8% range..

Okay. Thanks so much. Appreciate it..

Thanks, John..

Thank you. There are no further questions at this time. I'd like to turn the floor back over to Paul Kusserow for closing remarks..

Great. Thank you Victor and I want to thank everyone who joined us on our call today. I'd also like to again thank all of our frontline employees who are out there in the field battling the coronavirus, as well as all of our back-office and corporate staff who help to enable our folks on the front lines.

It is because of your daily actions that we are going to get through this together. Keep doing what you're doing, taking care of the people who need us the most. We hope that everyone has a wonderful day and we look forward to updating you on our ever-evolving progress and purposeful work on our next quarterly earnings call. Have a great day.

Thank you very much..

Ladies and gentlemen, this concludes today's conference. You may now disconnect your lines at this time. Thank you for your participation and have a great day..