Greetings. Welcome to the Amedisys Q4 2021 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, SVP of Finance. Thank you.

You may begin..

Thank you, operator, and welcome to the Amedisys investor conference call to discuss the results of the fourth quarter and year ended December 31, 2021. 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, Chairman and Chief Executive Officer; Chris Gerard, President and Chief Operating Officer; and Scott Ginn, Executive Vice President and Chief Financial Officer. Also joining us is 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' Chairman and CEO, Paul Kusserow..

"You can't step into the same river twice." Amedisys enters 2022 as a new, expanded and complete organization well poised for continued growth and even further differentiation in our expanding solutions for the home. With that, I'll turn it over to President and COO and incoming CEO, Chris Gerard, to run us through the operational updates.

Chris?.

Thanks, Paul. Now let's dive into our Q4 and full year Home Health segment performance. For the quarter, Home Health grew a total admissions and total volume by 2%. For the year, Home Health grew same-store total admissions by 6% and total volume by 5%. Elective procedures as a percentage of our total episodes increased from 7% in Q3 to nearly 8% in Q4.

Much of the increase quarter-over-quarter was in the first half of Q4, where we actually saw electives reach pre-pandemic levels of greater than 8.5% to 9%. However, as the Omicron variant set in, we exited the year back in the 6.5% range. We are beginning to see improvements in this percentage, but we're not yet back to the pre-Omicron levels.

For the quarter, we performed 13.7 visits per episode, down 0.1 visits sequentially and down 0.3 visits year-over-year. On clinical mix, in Q4, we achieved 49% LPN utilization and 53% PTA utilization.

We have made tremendous progress in our clinical mix throughout 2021 and believe that there is still additional room for optimization of our LPN utilization percentage as well as some additional improvement in our PTA utilization.

Lastly, the final 2022 Home Health payment rule has been released, and I'm pleased to say that we will be receiving slightly over a 3% rate update. Now moving on to Hospice. For the quarter, Hospice same-store admits were down 1% over a 15% Q4 '20 comp, and ADC was down 4%. For the year, same-store admits grew 2% and ADC was down 4%.

We again made good progress on hiring hospice BD FTEs, ending the quarter with 533. We have previously stated a desire to exit 2021 with 550 hospice BD FTEs. However, we had some planned consolidations and closures during Q4 which impacted our hiring trajectory. Nonetheless, we ended 2021 with 48 additional BD FTEs versus our 2020 exit rate.

And we look for increased productivity from these new reps as well as our tenured staff to drive continued admit growth as we move forward. Hospice ADC remained pressured in Q4 as we continue to see a trend of patients coming on to service much later in the dying process and not realizing the full value of the benefit.

Our Hospice discharge average length of stay fell to 90.3 days in Q4 from 94.5 days in Q3. The median length of stay dropped to 22.7 days from 24.3 days. These decreases were driven by an increased percentage of deaths on census.

The increase of deaths on census is materially impactful to the Hospice segment performance as a 1% change in discharge rate is equivalent to approximately 130 ADC, which over the quarter would have added approximately $2 million to the bottom line.

As we look back at 2021 as a whole, our deaths as a percent of current month ADC are averaging approximately 4 percentage points higher than pre-COVID time frames, again, having a material impact on the ability to consistently grow ADC in the near term.

So predicting behavior is more art than science, we do think that the increased death rate is a short-term issue, and over time, will return to normal. Whenever behavior returns to pre-COVID normal and patients access health care like they did pre-pandemic, we will see an ADC increase.

And as we continue to hire and retain our BD staff and grow admissions, ADC growth will follow. In summary, 2021 was a year that saw both Home Health and Hospice continue to be impacted by COVID-19 issues and their subsequent shakeout.

Many of the challenges presented in our current operating environment are out of our control, but they have forced us to think differently, become more efficient, innovative and set us up to be even more successful organizations as those challenges dissipate.

I am tremendously proud of what we've accomplished and the care we have delivered during these very challenging and unpredictable times. Now I'd like to discuss Contessa's performance for the quarter.

Our high-acuity segment, Contessa, which offers home-based recovery solutions for patients in need of acute level care, continued positive momentum in Q4. Total admissions were 520 since the closing of the acquisition last August.

Clinical management of patients submitted on to Contessa's program continues to be a strength, evidenced by favorable MLR performance relative to expectations as well as strong quality and satisfaction metrics.

From the financial perspective, during Q4, 3 JVs reached profitability, which proves that this model continues to be efficient and scalable in different types of markets. We are also excited to announce that through Contessa, we closed another joint venture partnership with a multi-hospital health system in Penn State Health.

This Penn State Health joint venture, which is an extension of our existing partnership with Highmark Health, is another example of the demand and appeal that high-value health systems have for Contessa's home-based acute services. Program operations for this market are expected to go live in Q2 2022.

Additionally, Contessa continues to add payer sources for its high-acuity clinical models. And in the coming months, we expect a number of new health plan contracts for the hospital-at-home and SNF-at-home models, increasing total addressable patients.

We continue to remain encouraged by Contessa's robust pipeline of additional health system opportunities.

Furthermore, this year, we expect strong performance through scaling of existing markets, increased penetration of our newer clinical models, additional value-based contracts and an increasing number of partnerships that reach market-level profitability.

Amedisys continues to focus on integration efforts with Contessa related to nurse staffing strategies for the high-acuity programs. Contessa has historically relied on third-party home nursing providers in select markets where Contessa's hospital partners do not have capabilities to provide home nursing.

Nurse capacity constraints in those markets have resulted in Contessa not being able to admit all patients referred to the program. Amedisys and Contessa began implementation of a strategy to insource nursing requirements instead of continuing reliance on third-party providers in the majority of the markets in which Contessa operates.

While meaningful progress has been made in several markets to increase ADC capacity, i.e., Tennessee and Arizona, the integration efforts are taking longer in select existing markets, such as New York and pending markets in Hershey, Pennsylvania and Tacoma, Washington.

We are very pleased with the high-acuity segment's performance and are excited by the new opportunities and capabilities Contessa has brought to our organization. The combination of Amedisys and Contessa has created a truly differentiated in-home care platform, and I'm very excited by all the opportunities ahead of us in 2022.

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 and our projections for 2022.

Scott?.

rate uptakes of 3.2% in Home Health and 2% in Hospice, which are partially offset by the expiration of sequestration suspension. As a reminder, sequestration suspension remains at the full 2% for the first quarter and 1% for the second quarter. The net impact of reimbursement is expected to be approximately a positive $25 million.

Higher-than-normal wage increases as a result of increased labor cost pressures. Keep in mind, our first half of 2022 results are impacted by raises given in August of 2021. An incentive comp headwind of $16 million over 2021 as incentive compensation expense reflected our performing below plan targets.

Continued incremental investments in the business of approximately $8 million, which includes $5 million in additional de novo spend, $3 million in investments focused on workforce optimization, automation and the rollout of Medalogix-Muse products in our Hospice business.

Our investments in Contessa will reduce EBITDA of $17 million over prior year, which is $6 million higher than originally anticipated due to a significant ramp in business development opportunities and our desire to do the palliative-care-at-home business.

The impact of COVID-19 on our volumes in January and February of 2022 was approximately $7 million. Due to an increase of clinicians on quarantine during the first part of the year, we had volume misses of 2,300 admits in research and Home Health, and misses of 200 admits in Hospice.

Though the number of clinicians on quarantine spiked with the rapid spread of Omicron, we've seen a significant decline in the number of clinicians on quarantine at this point.

At our peak in mid-January, we had the highest percentage of clinicians on quarantine since the beginning of pandemic at approximately 7%, whereas today, the percentage is closer to 2%. Further, we continue to see some Medicare Advantage plans moving away from PDGM reimbursement to per-visit arrangements through utilization of benefit managers.

When this happens, there is a short-term reimbursement impact. That said, our M&A partners continue to recognize the value of Home Health for their members, and that is materializing itself and the openness to high quality to outcomes.

Though the 2022 impact will be between $10 million to $14 million, we will continue to mitigate this impact via our workforce optimization initiatives by delivering the best outcomes and utilizing the Medalogix suite of products.

The combination of these initiatives and improvements in permits at reimbursement rates will result in better margin in this business than in recent past. Our effective tax rate assumption for 2021 is approximately 27%, with an estimated cash tax rate of approximately 19%.

Though M&A is not contemplated in our 2022 guidance, we do expect to continue to acquire both Home Health and Hospice assets this year, and we expect cash flow from operations to be between $180 million to $200 million. Some additional items to keep in mind related to our performance in Q4 2021 compared to Q1 of 2022.

The first of these items are seasonality in nature. The impact of the ADC Hospice decline, combined with 2 lesser calendar days, is estimated to impact revenues by approximately $4 million; the benefit of lower health costs related to seasonality of claims of approximately $10 million; and an increase in payroll taxes of approximately $3 million.

Some new items for 2022 are a $2 million sequential decrease in EBITDA due to Contessa, an increase of $5 million due to 2022 incentive compensation. Keep in mind, 2021 was impacted by performance coming in below planned metrics. This ends our prepared remarks. Operator, please open the line for questions..

[Operator Instructions] Our first question comes from the line of Brian Tanquilut with Jefferies..

Scott, I really appreciate all the color you gave on the guidance.

But I just wanted to ask maybe for you and Chris, how should we be thinking about your confidence in that guidance range? And maybe, Chris, more directly to you as you take over the CEO spot coming up here, what's your thinking on guidance philosophy? And how are you thinking about your approach to the business being the new CEO, any strategic things that we need to be thinking about as you step into the role?.

Yes, I'll start and turn it over to Chris. But Brian, I'm very confident in what we laid out there. Certainly, we wouldn't have -- from a clarity perspective, not having January, which is our first full month view impacted by Omicron, that would have made our lives a little easier and everyone's lives a little easier.

But from a vision into the future, we feel good about it. We're so strong. We think we've left our rooms within our -- some room within our performance numbers that we laid out. The outperformance is what we always want to do. We've got the same pressures moving in.

I think the biggest thing to keep an eye on our Hospice length of stay, which is the one item that's somewhat out of our control and we'll be keeping an eye on. But we've got a lot of plans out there. We've proven that when we laid out plans before and we can get in front of some things, we'll get great results. So I feel very confident, Brian..

Brian, it's Chris. Yes, I appreciate the question and been part of doing -- giving guidance since we resumed guidance a few years back. And a lot of the same inputs are happening today that's happened over time.

I think that given what we've experienced over the last 2 years with the pandemic, particularly and just how you can't predict everything, we just spent a lot of time looking at all the inputs and handicapping those as we come up with kind of what we put out there as a number.

Obviously, I wouldn't put anything out that I don't feel confident that we were going to be able to achieve and hopefully overachieve. And I feel like that's what we're putting out for 2022. Again, handicapping some things like labor pressures, wage inflation, length of stay, as Scott mentioned, on the Hospice side.

And in terms of philosophies, I think one thing around innovation that you're going to see -- and it's actually more of the same. But what we've been doing quietly over time is investing and partnering alongside other companies out there around our space.

The Medalogix investment for us has been very, very good for us just operationally and helped us be a better organization, as well has been a good opportunity for us to help define and develop new tools that help the industry advance.

We recently invested in a staffing company, Connect RN, to be able to build an at-home staffing model out there that can be on-demand as well.

So look for us to continue to find opportunities to partner with some adjacencies out there that will actually help us function better, operate more efficiently as well as bring back good returns on our invested capital as well. So I think you'll see more of that in the coming years as well..

I appreciate it. And then I guess my follow-up question, just on the M&A front. Obviously, we've seen 2 deals here already.

So any color you can share in terms of your view on the pipeline, the M&A pace this year and what you're seeing in valuations in the space?.

Yes, very excited about the pipeline. Very excited to have 2 deals announced here as we are in February. I'm -- still feel good about that pipeline that I've had at any point in time for probably over a year. I think early 2019, we felt confident, and then -- I mean, early 2020 at pre-pandemic issues. So that kind of slowed some activity now.

I think, clearly, as these labor pressures have become an additional item for operators to phase, we think that'll open we'll free some things up here in the back half of the year as sequestration suspension goes to 0. So the opportunities are strong. The pipeline is strong. Our M&A team is excellent.

They've done a great job, and they'll continue to deliver. So I think those things open up from a valuation perspective. We're still kind of looking at and focusing on Home Health right now, kind of a 12 to 14x of evaluation, we think, through synergies and get them to our operations, but we're going to get those closer to a 10x at the year 3 marker.

So feel great about it. I felt -- beginning last year, I felt great, too, and things kind of slowed up a bit for us, but a lot of line of sight and inlets out there. It's a healthy pipeline. And I would think we're going to get some more incoming in the back half of the year..

Awesome. And Paul, congrats on the upcoming retirement..

Appreciate it, Brian. Thanks..

Our next question comes from the line of Matt Larew with William Blair..

Paul, congratulations on your successful tenure at -- as [indiscernible]. So I wanted to first ask about Contessa.

And I just wanted to sort of bridge the gap between, I think, just the revenue profile that's maybe a bit light of what you've been expecting versus some of the partnership activity and your commentary that is as bullish as you were anticipating. So maybe just help us understand that.

And you mentioned that staffing has been somewhat of a limiting issue. I'm curious sort of what the true demand has been in terms of volume relative to the actual number of admits..

Yes. Thanks. I'd say that demand has been higher than admits. Same staffing issues are out there. We got in front of it in certain markets that we think we've got some of those issues. I think it was probably over 300 admits that we probably missed opportunity. I think that's one issue.

The second issue on the revenue difference is that -- is completing hospital to home through the Medicare waiver program. We've gotten a lot of that business, and that's really the lower revenue kind of per episode, if you want to use that label on it, than a typical risk base. So that's some of the differential.

And yes, our commentary is certainly more bullish than the top line number. We see a lot of -- certainly have a lot of line of sight in what we think this thing can do and feel bullish about 2022. But I'd say most of that is what I described, is why revenue is a little off at this point..

And Matt, just as the team wanted to get me out of the office, they sent me on the road with Contessa and I've been out with Travis Messina, the CEO, calling on a bunch of clients. And just to reemphasize Scott's point, the appetite and the pipe there is quite extraordinary. And I think we're very excited.

And I think the other exciting thing is the types of discussions have changed from pure hospital-at-home to other types of risk-based palliative, SNF-at-home. So this is -- as well as potential partnerships, potential JVs. So I couldn't be more excited about the choice we made with Contessa..

Got it. And then a quick follow-up on that one.

Just Scott, you laid out sort of the EBIT impact for the year, but could you maybe give us a sense for what the exit EBITDA drag might be relative to early on in the year?.

Yes. I mean, that's what I can do for you. I think somewhat around probably from a revenue perspective, I'd say that drops at about 25% in the first half, about 75% in the second half. And we think the second half EBITDA is probably about 40% of the drag for the year.

And I think we're optimistic maybe we've got some things that could potentially change that. But right now, that's our view we want to go with..

Okay. Got it. And then just a question about Hospice guidance, 13% same-store. Clearly, last year had the issues in terms of BD turnover and clearly have a bigger sales force now.

But what is the level of confidence in terms of building up to that 13% number? And maybe what has the trend been like year-to-date, that's probably helped you start to build towards that. ..

Yes. Matt, so I feel very confident in the number that we put out. We brought 46 additional BD FTEs into this year versus last year. Turnover is trending in a good direction as well, which is suggesting that our reps are kind of growing into longer tenured buckets where productivity also increases as well.

The productivity of our reps today is as expected. So no surprises there. I will say, Q1 -- the one impact in Q1 was really around the quarantines and Omicron really peaking in mid-January. And we called out that we lost about maybe 200 hospice admissions in the quarter, which is kind of having an early impact.

Since the quarantines have come down and Omicron has subsided, we've seen volumes come back up very nicely. So I'm encouraged to buy kind of what we're going to be able to produce from a Hospice organic growth perspective this year.

The one caveat is that there's still a lot of unpredictability and inconsistency in the discharge, median length of stay as well as discharge rates. And so as that moves around, that's having a little bit of a drag on the ADC growth..

And Matt, just a quick follow-up on Contessa and that missing revenue, not to leave anything out. There was also an anticipated, in 2021, a signed deal that would get closed at the Home Health assets that was within that and it's kind of just looking to use that differential differently within the Contessa asset.

Was supposed to close, got held up in regulatory issues. So that was part of the delay as well. We expect to get that close this year..

Our next question comes from the line of Justin Bowers with Deutsche Bank. .

Very apt choice of music. And congrats on the transition. It's been quite a run. But just a quick follow-up on Matt's question with Contessa. Is there -- what's kind of the visibility in the revenue that you have, you kind of, I guess, in backlog or in the guidance for 2022? And then just on Hospice.

I know that a lot of the discharge rate is out of your control, but do you have any -- has there been any shift or the way that you guys are attacking different referral sources? And then have you seen any changes this quarter in terms of accessibility to some of the senior living and SNF referral sources?.

Yes. I'll grab Contessa. I mean we feel good about what's out there. I think there is some back-end loaded pieces. You can see we're on track, probably ahead of track, I would say, of on the signing of JV deals. So I feel great about that. You can see, as I mentioned, we're front-loading some G&A costs to do that.

I think the development that's changed, as always, when we looked at this asset, we wanted to and had the opportunity to build off of a palliative asset as well, palliative program. That's probably moving along faster than we thought. So I think there's potential upside in those numbers.

We're working on some deals and hope to get those across the finish line, which could certainly help that number as well. So that's something to look forward to on Contessa..

Justin, on the Hospice question. So I'd say, no, there's not really any notable shift in referral source or segment where patients are coming from, with the one exception is there is a direct correlation of a spike in the pandemic.

So even when we saw Delta last fall as well as we saw Omicron early this year and hospital beds were full, we also saw a 1 or 2 percentage point tick-up in our actual hospital referral volume or mix of our admissions. And then that would also drive down length of stay a little bit.

But we've seen even as Omicron has kind of settled out, it's not -- it's back down to normal. In terms of what we can do is we always are doing account optimization. We're looking to utilizing claims data to identify where we're getting business from, where we're not getting business from and where there's opportunities.

We assign that to our reps to be able to go out and establish relationships and build upon that. There's probably going to be more science around that related to just kind of the length of stay opportunities that are out there in terms of kind of our targeted accounts. And then the last question around facility access. It's pretty open for us now.

We do have -- again, I think that, that comes and goes with the pandemic kind of waves. Right now, we're seeing that we're not having access issues in our markets today..

Got it. Appreciate the questions, and congrats, Chris..

Thanks, Justin..

Our next question comes from the line of A.J. Rice with Credit Suisse..

Best wishes, Paul, in the future. Maybe just to ask on the labor and benefit assumptions around '22. I know in your slide deck, I think it's Page 18, you have a 2% to 3% assumption around salaries, and then it says 11% growth in benefits, and it looks like 8% of that is attributable to headcount.

Is that headcount -- is there any reason to think that, that's not also something we should think about on the wages? Even if the apples-to-apples increase is 2% to 3%, there's as much as an 8% increase in headcount that you're anticipating? And then also on that 2% to 3%, if you break that down, I'm assuming that's the consolidated number.

Is it materially different in Hospice versus Home Health?.

Yes. I'd say not really the way we built that, A.J. That's kind of what we said we're going to give for our normal raise pipeline. There's other inflation embedded in there just from an exit rate perspective, that's really not called out.

There's also probably another $14 million, $15 million that we've got in there, kind of bonus-type retention payments that you're not really seeing that's reflected in that number. So I'd say it's across both lines. I'd say the Hospice is a little different because you're seeing material increases in cost per day lines because of our lower ADC.

We're down roughly 560 ADC year-over-year. And that's -- we have only 37 less commissions. So as we said before, we've kept those staffing levels at a higher level. So you'll see that cost per day as that ADC expands kind of correct itself, but still be up because of other inflation pressures.

On the -- I think the easiest way to think about, and there's a couple of ways, of course, to look at it. But on the cost per visit line, as we've got it modeled in our cost to visit from '21 to 2022 being up almost about 5%. So that's going to be reflective of everything going on. So it's health insurance, what's happening around labor pressures.

Also has contractors within that number, which we expect them to pull that down. So the overall inflation number, as you could see, would be much bigger. But that's only half the story. The other half is our plans around what we're going to do with BP. We believe we can take those down.

We think for every kind of a shift in 0.25 point in visits, you're going to offset about 2% inflation. So as I've laid out those numbers and what's built in our expectations, is cost per episode increase of roughly 3%.

So you can see there's some offset planning to pull that back down, and that's on top of, we're getting roughly a 3% rate increase year-over-year. So that's kind of how I slice that up, A.J., if that's helpful..

Yes. That's great.

And then maybe just as a follow-up, ask about any latest thoughts on the discussions with CMS? And watching generally about PDGM about what you're expecting for the rate proposal that will come out in the summer for next year? Or any other initiatives that you're tracking closely?.

Yes. We've got Dave Kemmerly, our resident Washington expert here. So....

Yes, A.J., thanks for your question. As you know, last year, in the proposed and final rule, CMS shared the methodology that if employed would have resulted in additional cut for behavior changes under the new PDGM payment system.

However, credit to CMS, they realized that COVID and the continuation of the PHE had an impact on the data that continued claims analysis was needed. So I think since that time, we've seen multiple waves of COVID come and go.

We've seen the continuation of the PHE, significant workforce issues, continued growing demand and lack of capacity for Home Health, that one would think would necessitate further analysis without instituting additional cuts. CMS also stated it was open to receiving input on additional methodologies and approaches to determine budget neutrality.

So with that being said, our team and the industry are fully prepared and are preparing to respond to whatever CMS may put in the proposed rule this summer. But I would say this, I'd remind you that historically, proposed cuts are typically blunted to some appreciable degree in the final rules.

And also a reminder that as we sit here today, we expect about a 3.35% market basket update in that rule. And that could increase, because that market basket update is calculated on -- also has Q3 and Q4 project -- forecasted wage inflation in it. By the time the rule comes out, it should be some Q3, Q4 2021 actual wage inflation in there.

So we expect a nice market basket update. We expect CMS to be very reasonable and reasoned in their approach to any particular -- any additional behavior cuts, if at all. And lastly, I'd say this. I mean, we will, or CMS and our friends in Congress that any PHE or COVID-impacted year is not a good baseline year to determine anything.

So they should probably delay any changes until we have kind of a clean year. So I think we'll spend a lot of effort on this. The industry collectively will spend a lot on it. Our peers are spending a lot on it. So I think there'll be a lot of attention and a lot of very deep analysis.

So I feel confident on it, A.J., that there will be a good outcome here..

So you heard it right here, A.J. CMS is going to be reasonable. We're excited..

Our next question comes from the line of Sarah James with Barclays..

Hi, and congratulations, Paul, on your retirement. So churn went out to 21.5. The first 3 quarters of the year was 18.3. So I'm wondering if this level is sustained so far in '22. And then on the nurse churn, you guys break that out for the full year at 26.8%, but I would like to get a sense of how it looked exiting the year or early in '22..

So Sarah, this is Chris. For turnover for us, throughout the '21, we stated that we improved our nursing turnover 9%. We also discussed after our Q3 earnings call, kind of the impact Delta was having on staffing as well as this migration to travel nurses and the rates that were being paid. So we were a little bit of a victim of that as well.

We had -- our nursing turnover in Q4 was in line with our expectations, but picked up slightly in Q4 over Q3. Coming out of the gates this year is looking really strong for us with just a couple of pockets in very specific geographies that we still are having some challenges being able to stabilize around.

A lot of that also is correlated to kind of the way -- the Omicron and the stress associated with us getting up to almost 7% of our clinicians on quarantine at one point time in January, and there was a lot of volume coming into those same markets, and I think that created a little bit of churn.

But right now, I feel good that we will continue to drive down our nursing turnover. That's a big focus for us around clinical capacity and keeping our own is our best and most impactful lever for us to pull. And we're strong on culture and making sure that this is a good place to work.

So we have a lot of -- a lot of initiatives around that, a lot of focus around that. And I feel good that we'll drive down turnover even further this year..

Just a qualitative comment, Sarah, is that we find when there is high quality, which we are the highest quality out there, there -- it correlates to lower turnover. And so the more we become a really good place for people to work and deliver excellent care, the more people want to stay with us.

And it's also helped, as I mentioned in my comments, on recruitment. Our recruitment has been fantastic, and a lot of that is because we stand so strongly for quality..

And a follow-up question on this is, as you think about the staffing constraint that you guys have talked about and the growth for Contessa expansion into palliative and SNF alternatives, how do you think about the areas of shortage compared to each other? So is this more of a limiting factor from personal caregivers? Or is it still mainly the nurses and clinicians that are putting you in a position to turn away admits?.

Yes. It's nursing -- it's nurses and clinicians on both the Contessa side as well as on the Home Health and Hospice side.

Registered nurses are typically the ones that are initiating the care that we're providing, and that's the gating factor of whether or not we can admit the patient, is whether or not we have the clinical staff to be able to take care of them, but it starts with having the nurse to be able to do the admission.

So for us, that is why workforce optimization is critical. We need to also continue to focus on using lower licensed skilled caregivers where appropriate so that we can continue to expand the capacity of our nurses.

And on the Contessa side, we find that the nurses are out there and the shortage that we're looking at is not huge, but it's really kind of educating the local market about this type of a job. It is acute care in the home, which is not very well known out there.

And I think that as hospital-at-home continues to grow in recognition out there, then I think we will find more critical care nurses wanting to migrate from the hospital setting where they're burned out to something that's still high acute care services, but in the home. So I'm optimistic that we'll be able to catch up to the demand there..

Yes. Let me just emphasize what Chris said. I think it's exactly right, and that's what we've seen in the marketplace. We've actually are looking for people who are getting quite burned out in hospitals, who have hospital skills to transfer and do that in a less intensive, difficult place in the home.

So that -- once people hear that message, it's a very attractive message for the hospital type of nurses that we need to refer to do hospital-in-the-home and palliative-in-the-home and SNF-in-the-home..

Our next question comes from the line of Ben Hendrix with RBC Capital..

Congrats to Paul and Chris..

All right. Thank you, Ben..

Just turning back to Justin's question with regard to Hospice ADC.

Given that your admission volume, referral mix and diagnosis mix are essentially in line with normal patterns, can you help us understand what's driving these related admissions to hospice care and the medium length of stay headwinds? I guess I'm trying to get my head around how that volatility normalizes and how that might play out in terms of timing?.

Yes. Thanks, Ben, I'll take that. This is Chris. We think the key driver here is just basically disruption in the normal kind of accessing health care.

If you think about during the pandemic over the last 2.5 years, number one, lockdowns happening throughout the country at multiple stages, waves of the pandemic coming on, access to doctors' offices going to virtual environment versus in-office environment, and people also have a fear of even getting out and going to the doctor.

So what we feel like really is happening is people that are somewhat -- or potentially hospice appropriate are delaying getting just their typical checkups or diagnostic testing and diseases are being kind of identified later in the process, which means they've had more impact on the patients.

And if you think about just the journey to hospice, it starts with kind of a diagnosis that would suggest life expectancy of 6 months or less, but people, when they first get that news, will typically aggressively try to fight that whatever means they can.

And then at some point, when they accept end-of-life care as their treatment, then they move on to hospice. So we think that they're getting diagnosed later. We think that they're then trying to kind of fight whatever it is.

And then at the time that they're coming on to hospice, they're just closer to passing than they have been in a normal -- kind of a normal environment. Prior to 2020, when the pandemic first began, it was relatively predictable. Your discharge rate and your median length of stay is pretty consistent based on your segment mix.

And what we've seen is it's just been based -- it's been pretty erratic, consistently erratic if that's a phrase, since then, and it continues so far in '22..

[Operator Instructions] Our next question comes from the line of Joanna Gajuk with Bank of America..

Yes. So I guess one question on the front of the discussion on labor. So you mentioned the pretty good hiring momentum. You said 27% increase is a crude headcount.

Do you have -- I don't know, maybe what you said about a net hiring number? Just trying to assess how much you increased your clinical staff pool last year?.

Yes. We don't -- I don't have a net hiring account right in front of me. But Joanna, I'd be happy to kind of follow up with you and kind of get that out there. We do know, from our clinical capacity, we have expanded our clinical workforce throughout last year, and rolling into this year, have seen positive momentum as well.

But we don't have to quantify it to the number of actual clinicians, net new nurses -- new clinicians less turnover. But it's net positive, I just don't have the number..

Yes. I think in my comments, we talked about gross hiring of increase of 27%. But on the net side, we're clearly in the positive area. But we don't have that number.

And I think also remember that there's -- what we've seen in certain cases is some of those folks that we've hired moving into PRN, and we're working very hard to -- particularly with the Connect RN tools and these other things, to really start to increase our efficiencies with the PRN pool and utilizing new technologies and new techniques and new incentives.

So we keep it at that top line level and we keep driving our turnover down. Obviously, we're going to keep more and more people..

Our next question comes from the line of Matt Borsch with BMO Capital Markets..

I'll start off by thanking Joanna, too. Let me just ask this question. I know you've gotten a lot of versions to this.

But looking at the constraints on clinical labor, if you project forward to a year or 1.5 years from now, and let's assume we're really well past any variants -- further variants of COVID, how do you think that the labor force is going to compare in 1.5 years versus 1 year, 1.5 years to what you had in 2018, 2019? How many residual headwinds do you think you'll still be dealing with? And what things will you have done by then to offset them?.

Yes. I think that's a great way to state the question, Matt. So for us, I mean, this is all we're about, and this is what we're focused on day in and day out.

We do feel like if you think out a year or 2 away and assuming there's no really kind of new variants and things that are going to be driving different types of demand, we feel like this migration of the nurse to the traveling nurse role and the wages that they're able to get for doing that, I think that settles out.

I think it's new and it's a new theme for these nurses. And I think they kind of like it. They're getting paid very well. Obviously, that's related to the demand from the hospitals.

And if that settles out where there is less of that and less competition, and nurses want to get back to where they have a stable job and they know what they're going to be expected to do and know where they're going to be staying and living, I think that's going to create better kind of stability for us.

For us, increasing our clinical capacity is on several fronts. It's one, making sure we're using our clinicians at the right level of their license.

We have opportunities in hospice and still further opportunities in home health, where we're using registered nurses, and we could be appropriately using LPNs and LVNs that will create additional capacity for us. We're also seeing tools that are helping us get smarter with how we're using our clinicians.

Medalogix Care was a great one to point to and how it's helped us optimize our business per episode so that we're not providing unnecessary visits for the patients that are not any value add to the patients. We're now utilizing Muse for Medalogix on the hospice side to get smarter with our clinical capacity there.

So what I think you'll see is you're going to see better efficiencies in -- within how you're utilizing your existing staff. I still think that it will be challenging to hire enough and net enough new staff to fully meet the demand when you think about the demand that's still moving into the home and what was accelerated with the pandemic.

So I think technology will also be utilized more in terms of providing virtual visits and telehealth visits and things like that to offset the lack of kind of access to nurses, if that's appropriate.

But -- and then I think that there's going to be consolidation within the industry also that's going to allow those that are high-quality very stable solvent providers out there to really start to amass clinicians to be able to give and take more market share as well. So I think it will be a shakeout within the industry.

I think the ones that are really prepared for that and taking it serious. We've been working on this for 2 years. This is all we focus on right now in terms of when we think about our headwinds for the next 5 years. So those are solved for it. I think we'll be in good shape. I still think there will be more demand than supply.

But those that don't, I think, are going to be very, very challenged..

And a quick coda to Chris' very good response. We talked yesterday, Matt, about the McKinsey report, which again, if it's a quarter right, we'll take it where the -- 25% of health care can be shifted into the home. Meaning, it will turn into a $270 billion industry or something like that.

So I think we believe that the demand is definitely going to be there to drive care into the home that it's going to be increasing. And that the game is going to be do we -- how do we attract and retain and make us productive, the people that can do these types of things in the home. So we get it. We've seen it.

We've been prepping for it for 2, 3 years. And I'd say we're way ahead of everyone else in terms of how we think about it..

Our next question comes from the line of Andrew Mok with UBS..

Congrats again to Paul, best wishes you will be missed. I wanted to clarify a few comments in response to A.J.'s question on the salaries increasing only 2% to 3%.

For the $16 million of incentive comp in 2022, can you confirm that, that's related to clinician bonuses? And it was unclear to me whether that's included in the cost of service line or whether that's going to be included in SWB in the G&A line?.

Yes, the $16 million is not the clinician line. That's -- so that's just on the G&A line. So that's incentive comp plan reset for 2022. It's -- I think there's been some thoughts that maybe that's catch-up in 2021. It's not, it's just our new plans. We start accruing as if we're going to achieve plan, which is at 100%. So that's all G&A line.

I think -- and we could have laid this out better. As I look at it now, I understand some of the confusion. But we've laid out in our guidance thoughts are the 2, 3 percentages, general what we think in our -- as we would in our raise pool.

There's also numbers we've put in for additional bonus retention that's just locked into our numbers that we're using to guide to the year. So that's why I kind of went back to the example. If you look at our cost per visit, it's up roughly, in our modeling, about 5% over prior year, which is going to include all the noise and cost per visit.

And that certainly would include the health going up. It will include a contractor, which is going to be roughly a plus 10% type -- 10% to 14% type of additional spend we're estimating this year -- additional rate, I'm sorry. But that's being reduced by the fact we believe we're going to bring contract utilization down.

So a lot of things going on in there. But I guess clearly in that number, you can see we are reflecting a higher growth in that cost per visit. And I've talked and mentioned that as we bring that down from a cost per -- visits per episode, we can offset at least 2% of that for every 0.25 reduction in a visit..

Got it.

So the retention bonuses are flowing through the cost of service line?.

Yes, they are. Yes. They're just not in what we laid out on that....

Right. Got it. Okay. And then just a quick follow-up on the investment in Connect RN. It's only a $5 million investment so far.

Is that an area of focus that you'd like to invest further? And what kind of impact of return are you expecting from that investment?.

Yes, Andrew, this is Nick. Doubt we'll make any more equity investment into that asset. But where we are going to invest is kind of our time and attention to help partner with them to develop a home health-specific solution and hospice-specific solution. Historically, that company was born on servicing the staffing needs of the SNF industry.

As they look to expand verticals, I think it was a very timely and very nice partnership. They've been wonderful partners as far as I think as I think through how to gigafy our home health and hospice workforce. So we're spending a lot of time developing that asset for kind of home health and specific -- hospice-specific operations.

Probably won't be any further equity investment in there. But from a return perspective, if you think about our PRN workforce, that's relatively -- from a business perspective, relatively unproductive.

If we're able to incentivize them and engage with our clinicians in a different way to give them kind of shift-based work or gig-based work, that really takes off a lot of pressure from the hiring and retention side of the house. And these people are already trained on homecare, home-based, already onboarded, already credentialed.

And so it can really be a nice lever to pull from a productivity perspective. So on a $5 million investment, the ROI on getting an additional visits out of that PRM workforce is substantial..

And just one last point, I know we're over, but this is -- and Nick's been leading this, so I give lots of credit as well as the team.

The fact that we're making investments in people that are forging -- way out in front, forging new territory in areas that we know strategically are very important, is really important for us as an organization culturally to always look ahead and partner with those change people out there so that we don't get surprised by it.

So we're part of the change, not acting and reacting to the change. And I think that's something unique here. And my guess is you're going to see more of these..

Our next question comes from the line of Scott Fidel with Stephens..

And echo the congrats to Paul and Chris. My question, just I'll try to package it into one is, first, just any guidance or thoughts just on the EBITDA split when thinking about the first half versus the second half in 2022. And then the follow-up part would just be on Contessa.

And I know it's early here in 2022, but just given the importance of modeling this in the out years, any initial guidepost that you'd want to give us just on how you're thinking about that revenue trending out into 2023 from that $56 million outlook that you've provided for us in 2022..

Thanks, Scott. I'd say from a revenue perspective, I mean, you can certainly go back, look at our historical patterns. And unfortunately, they've been a little bit disrupted here in 2020 and 2021. But we're looking, I would say, somewhere in that 47% to 48% load in the first half of the year.

From an EBITDA perspective, I think you're going to see, as I had in my prepared comments, we got some pressure coming from Q4 to Q1, normal seasonality issues with -- that happened. I laid out the fact that you get health insurance kind of reset, which actually helps us with a positive 10 momentum from there going from Q4 to Q1.

Payroll taxes would appear to reset a drag of about 3. And then losing 2 days in Hospice because of the short February is about another 4. So that's combined, that's a plus 3 as we roll forward. And that's normal seasonality type issues. We have also talked about some Omicron-type pressures in January, the impact to it.

And then we got 2 new items coming through. One is Contessa. As we talked about the investments, that's going to be a Q4 to Q1 drag of roughly 2, and that's driven by us putting more G&A spend. It's not a deterioration of performance. And then the reset of the incentive comp plans of roughly 5. So that's a negative 7 for those 2 items.

So on the seasonality and the 2 new, negative 4, you got some noise on the Omicron, so it put -- it's coming down a bit from Q4 to Q1 when naturally, or historically, it's been kind of a flat to plus 1. So you got some pressures there. So usually, you'll start off there, and Q2 is generally a great quarter for us. And then we'll build off of that..

And then just thoughts on the Contessa.

Any early signposts you want to give us on 2022 top line?.

No, I think we -- I think we laid that out when we did the acquisition. I think we'll stand by those kind of numbers we've put out. I would just say that I think that -- there's some things that can develop here that can really kind of kickstart that earlier than anticipated. But we're just talking right now.

We think -- and that's really around that palliative asset, and that's -- we believe that's going to expand earlier than we thought. So more to come. It's February, hopefully, we'll have some more news on that as we get to our next -- our Q1 earnings call..

Our final question comes from the line of Whit Mayo with SVB Leerink..

All right. We're at the end..

We saved the best for last. There you go..

I'm flattered. I got to figure ahead. I got to get better at the star 1 thing. Can we just go back for a second to the comments that you were making about MA? And I think, Scott, you said that this year, we're going to see some of our plans transition from something that resembles PDGM to a per visit.

And then you referenced this maybe being a short-term headwind. And I'm just trying to understand really what's going on here. And then it sounded like you referenced something around maybe home health benefit manager.

So can you just sort of just unpack this a little bit and help us sort of understand it?.

Sure. So I mean I think there's a couple of things going on. One is we've seen this. If you go back a couple of years ago, we had a major player go from home -- CMS reimbursement down to a [indiscernible] method. I think just systematically, I don't think a lot of them are big fans of it.

We do still have some out there and some that are still going to stay on that. But I think as those historically move forward, you'll probably see a greater move to just paying us per visit. And that's my commentary around that.

The good news is the early indications of that if you go convert our PDGM-type revenue per visit to -- from a PDGM revenue purpose to a revenue per visit number, we feel like some of the contracts from negotiating are in a good ballpark going down to that, but they're still not going to be 100% of the Medicare rate.

So that's a little differential there. And then the comment just around benefit managers, we see that. We talk about the different players out there as they use that, that puts really just more pressure on the utilization side of our services.

So if you think about from the per visit, we're just selling per visit as we go out there and send a clinician in. We're -- that's not really anything new for us. We do that on the CMS side from a reimbursement perspective on our Medicare business.

So that's not necessarily a bad thing as long as we like the rate because that just means it frees up capacity to send somewhere else if we see that and can use that from a rate perspective to really manage that business a bit.

So just something we have that we know has been out in front of us, but feel good about where our Medicare -- our managed care team is from negotiating rates and they're continuing to push that. We think they see the quality aspects of our business. I think some of this labor tightness will help us from a leverage perspective.

We'll continue to use that. And I think that will bridge us up to a nice 2023 as we get through the haircut from moving to a PDGM reimbursement to a per visit..

Yes. And I'd like to comment. It's hard to drive utilization management when there's increasing scarcity of the asset you're trying to negotiate with.

So -- and again, when you have our quality and you have our ability to recruit and retain, we think that increasingly, that's going to move more into leverage to the providers versus the conveners and the [indiscernible]..

Got it.

And just one last follow-up on this is as you look at your MA book today, if that's what you want to call it, how much is still PDGM-like reimbursement? How much is per visit? Maybe where was it a year ago? And maybe you don't want to guess as to where it's going to go, but I guess I'm just trying to think about how that book is transitioned over time..

So today, our PDGM-like book is 12.7% of our Home Health revenue and per visit is 19.1%. I don't have a year ago, but I would say it was probably closer to -- maybe probably closer to half, split 50-50 between the 2 and just moving more to the per visit side.

I think that over time, actually, I think they're going to see new types of models come out of payment that may not fit squarely into either one of these buckets, things like case rate and things like that, that could be actually an opportunity for us to want to take more of that business and actually do it at a better margin than we're getting today.

So -- and again, I think the catalyst is going to be the labor pressure that the industry is facing, that's not going to go away anytime soon. It's going to make it more and more challenging for these plans to get their members access to care in the home, which is going to drive up their total cost of care.

So I think we're running into a spot here now where there's going to be some leverage and some genuine desire from both sides of the table to come to something that makes more sense..

And as a -- as we're thinking about this strategically, Whit, this is very interesting to us because we have Contessa, which takes risk. We are driving utilization management to a science with the Medalogix piece. We have high quality. So we know what sort of product we're delivering with incredible accuracy.

So we're clearly moving to a place where we can bet on ourselves. And by doing that, we can go to the plans and say, you don't need utilization management when we can do all that for you..

Yes. And one in -- just to be clear, so I don't confuse anybody because they use a different terminology, but -- if you look at Page 6 on our slide, we got our revenue source. As you can see what we're referring to that PDGM-like reimbursement, we refer to as private episodic.

So private payers that pay us episodic, and you can see the split on Page 6 for those who want to go back and take a look at it..

Ladies and gentlemen, we have reached the end of the question-and-answer session. I will now turn the call over to Chairman and CEO, Paul Kusserow, for closing remarks..

All right. Thank you very much, Alex, and thanks to everyone who joined us on our call today. I would also like to, again, thank all our caregivers who delivered yet another great quarter and year of results. I'd finally like to thank all of you on the phone and the webcast for your interest in Amedisys.

As this is my last earnings call as CEO, as I am moving to the role of Chairman, I'd just like to say how proud, honored and humbled I am to have served and led this organization for the past 7.5 years. It's been a life-changing journey to serve our patients and employees.

I believe the best time to transition leadership is when an organization has a clear idea of where it's going and a great strategy to get there when it's at its peak strength, hitting on all cylinders, looking at problems and executing hard to make them opportunities.

The team we have built is second to none and knows how to move our strategy to completion. I'm leaving you all in the very capable hands of Chris Gerard, who is one of the best operators I've ever seen. It is an exciting time to be at Amedisys. Care in the home is the right space.

We are the highest quality asset, and I truly believe that the company we have built will lead, innovate and change how health care is delivered in the future. As you can tell, I'm beyond excited to continue to watch this story play out. I'll be cheering on everyone from the stands. Please take care. Thanks for taking this journey with us.

And buckle up, the best is yet to come God speed, Amedisys..

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation, and have a wonderful day..