Good morning, everyone, and welcome to Enhabit Home Health & Hospice's First Quarter 2023 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. [Operator Instructions] I'll now turn the call over to Mark Brewer, Enhabit Home Health & Hospice Chief Investor Relations Officer. .

Thank you, Julianne, and good morning, everyone. Thank you for joining Enhabit Home Health & Hospice for our First Quarter 2023 Earnings Conference Call. With me on the call today are Barb Jacobsmeyer, our President and Chief Executive Officer; and Crissy Carlisle, our Chief Financial Officer. .

Before we begin, if you do not already have a copy, the first quarter earnings release, supplemental information and related Form 8-K are filed with the SEC are available on our website at investors.ehab.com. .

On Page 2 of the supplemental information, you will find the safe harbor statements, which are also set forth on the last page of the earnings release. .

During the call, we will make forward-looking statements, which are subject to risks and uncertainties, many of which are beyond our control.

Certain risks and uncertainties that could cause actual results to differ materially from our projections, estimates and expectations are discussed in the company's SEC filings, including the Form 10-K and subsequent quarterly reports on Form 10-Q, each of which is available on the company's website once filed. We encourage you to read them.

You are cautioned not to place undue reliance on the estimates, projections, guidance and other forward-looking information presented, which are based on current estimates of future events and speak only as of today. We do not undertake a duty to update these forward-looking statements.

Our supplemental information and discussion on this call will include certain non-GAAP financial measures. For such measures, Reconciliation to the most directly comparable GAAP measure is available at the end of the supplemental information in the earnings release..

I'd like to remind everyone that we will adhere to the 1 question and 1 follow-up question rule to allow everyone to ask a question. If you have an additional question, please feel to rejoin the queue..

With that, I'll turn the call over to Barb. .

Thank you, Mark. Good morning, everyone. Thanks for joining us. I'd like to take a quick moment during this Nurses Week to acknowledge all our nursing professionals who provide a better way to care each and every day for our patients, families, referral sources and payers.

It is our nurses alongside our other clinicians, caregivers and support staff who deserve the credit for our consistently strong quality outcomes. .

We firmly believe care will continue to move to the home, and the long-range growth potential is significant, particularly for the providers that can deliver the high-quality care required to help patients remain wherever they call home in a cost-effective manner..

Let's talk now about our quarter 1 results as we continue to make progress in 2 of our critical success factors for 2023, payer innovation and the recruitment and retention of clinical staff. We are pleased with the progress we've made in both areas. .

The start of the year has been a busy and productive time for our payer innovation team. The most significant update is our executed agreement with a national payer that became effective May 1. Our branches are excited and ready to accept these patients they historically had to decline. .

In addition to this national payer, we executed agreements with 2 conveners that have national reach, both of which went effective May 1. We look forward to working alongside these conveners to solve challenges and deliver accessibility for patients for home-based care. .

The primary role of a convener is to create high-quality networks of post-acute providers who can lower the overall total cost of care. They understand the need to pay competitively for timely access to high-quality care. .

Our data analytics and strategic finance teams have collaborated to produce information for the field to direct our local teams where to go to drive change in referral and admission patterns towards these new agreements. I have been traveling with members of our executive team visiting our local leaders.

To date, we have visited branch operations and sales teams covering 159 branches. We believe it's important to take time to sit down and be transparent as we present not only how but why we must deselect certain payers and replace them with the new regional and national agreements. .

We spend time walking our operations and sales leaders through the impact of not making these tough decisions and how this affects our ability to reinvest in our people and our technologies. .

We sincerely acknowledge there is a patient on the other side of these tough decisions, but we remind them we did not create the need for this difficult decision the payers have. We thank our employees for remaining focused on the quality of care they provide and remind them to rely on us at the home office to negotiate these better contracts. .

We are confident the strong quality outcomes our clinicians drive, particularly our low readmission rates, which are 360 basis points below the national average, will continue to reinforce our value to the payers and the conveners. .

To put the financial impact of driving this change in perspective for you, every 5% move of non-episodic admissions under our current average rate per visit to one of our new national or regional agreements improved adjusted EBITDA by approximately $2 million annually. This is outside any additional volume growth. .

In addition to our success with payer innovation, we have continued success with our recruitment and retention of clinical staff. A continued increase in our full-time nursing candidate pool drove 101 net new full-time nurses in the first quarter, 91 in home health and 10 in hospice. .

Our full-time vacancy rate improved 50 basis points sequentially, decreasing from 24.3% to 23.8%. We are beginning to see the impact of our staff completing orientation and ramping up their patient caseloads. .

We ended the quarter with only 4 hospice locations at capacity constraints and 71 in home health. 17 of these home health capacity constraint locations occurred as a result of growth to new census levels. New physicians have been posted in these locations to increase core staffing. .

With improved staffing and increasing volumes, the team's efforts around productivity and optimization resulted in a 2.3% year-over-year increase in home health cost per visit and a 4% sequential decline in cost per visit from quarter 4 2022. .

For hospice, the implementation of the case management model has created an increase in our cost per day year-over-year. The use of contract labor, while less than quarter 4, and additional triage and dedicated on-call resources, drove 1,000 basis points of the 13.2% increase year-over-year.

Sequentially, cost per day increased 4%, primarily due to the impact of the case management model fixed costs that were added in quarter 4 with lower patient days in quarter 1. We continue to believe these are critical resources needed to drive our recruitment and retention and our ability to accept patients from a more diverse referral source. .

I'm also excited to share with you a little about our first Enhabit employee engagement survey that was recently completed.

76% of our full-time and part-time staff completed the survey and their response to the question, how likely is it you would recommend Enhabit Home Health & Hospice as a place to work was above national health care benchmarks and places us in the top quartile of health care.

The 2 top drivers of engagement were the meaningful work that we do and the organizational fit our employees feel, specifically when it comes to diversity and inclusion. We scored in the top 5% of health care on each of these drivers. .

With the continued progress in staffing, payer innovation and our hospice case management model, we are making additional strides towards our growth strategy. In March, we acquired a home health agency in Evansville, Indiana, and we continue to have success with our de novo strategy. .

In quarter 1, we opened 2 hospice de novos and have increased survey activity at other sites in quarter 2, which is a prerequisite to obtaining our provider number. We believe we are on track to open 10 de novo locations this year. .

With that, I'll turn it over to Crissy to discuss our quarter 1 results and guidance. .

Thanks, Barb. Consolidated net revenue was $265.1 million for the first quarter, down $9.2 million or 3.4% year-over-year. We estimate the continued shift to more non-episodic payers in home health and the resumption of sequestration decreased revenue approximately $10 million year-over-year. .

While both of these items fall directly to the bottom line, adjusted EBITDA, which decreased $21.7 million year-over-year, also included increased general and administrative expenses, primarily due to increased employee group medical claims and incremental costs associated with being a stand-alone company. .

In our Home Health segment, total admissions increased 1.2% year-over-year as continued strong growth in non-episodic admissions offset a reduction in episodic admissions.

While episodic admissions decreased year-over-year, they increased 1.3% sequentially from the fourth quarter of 2022, driven by our new Medicare Advantage contracts that pay episodically. This represents the first episodic growth we have experienced since the first quarter of 2022. .

In the first quarter of 2023, our non-episodic visits grew to approximately 29% of our total home health visits. This represents an approximate 700 basis point increase year-over-year and an approximate 300 basis point sequential increase over the fourth quarter of 2022. .

We estimate the impact of this payer mix shift was approximately $5 million on revenue and adjusted EBITDA during the first quarter. As Barb discussed, we are making significant progress demonstrating our value proposition to payers as we negotiate new agreements with improved rates. .

Our cost per visit increased 2.3% year-over-year as improved clinical productivity and optimization offset the impact of merit market increases, contract labor and a rise in employee group medical claims. The year-over-year increase in employee group medical claims impacted cost per visit by approximately 120 basis points. .

In our Hospice segment, we achieved a 7.1% sequential increase in admissions, while our average daily census decreased 1.8% sequentially. This decline in average daily census was the result of an increase in the number of admissions with shorter lengths of stay.

We had 137 more deaths in the 1 to 30 days length of stay range than in the fourth quarter of 2022. This is due in part to our intentional diversification of referral sources and the expansion of the number of our admissions coming from facilities as patients coming directly from a facility tend to be admitted to hospice care later in their journey.

As Barb mentioned, the implementation of the case management model is the primary driver of the year-over-year increase in cost per day. .

Similar to the third and fourth quarters of 2022, our nurse recruitment success resulted in full-time nurses who were not at full productivity throughout the first quarter and increased use of contract labor to keep referral sources strong during that onboarding period.

We now believe we have full-time nursing capacity that will allow us to reduce our use of contract labor and improve clinical productivity going forward. .

Our home office general and administrative expenses increased approximately $4 million year-over-year, primarily due to incremental costs incurred as a stand-alone company and increased employee group medical claims.

For the first quarter of 2022, the net overhead allocation from Encompass Health was $3.1 million, as shown on Page 26 of the supplemental slides that accompanied our earnings release. .

For the first quarter of 2023, we recorded stand-alone company costs of $5.1 million. These costs include expenses associated with the transition services agreement we have in Encompass Health as well as costs we are incurring to ramp up our team and their resources. .

In regards to free cash flow, we generated over $28 million during the first quarter. Adjusted free cash flow during the quarter benefited from the timing of payroll and a $6 million income tax refund related to overpayments in 2022. We continue to expect to generate between $49 million and $88 million of adjusted free cash flow in 2023. .

Let's transition now to the balance sheet. Information on our debt and liquidity metrics is included on Page 15 of the supplemental slides. We exited the quarter with net leverage of 4.2x. Our credit agreement requires that our ratio not exceed 4.75x. Our leverage ratio is more sensitive to changes in adjusted EBITDA than it is to reductions in debt.

As we've noted previously, the ramp from quarter-to-quarter in 2023 is expected to be steep. The strongest quarters of 2022 were in the first half of the year and will be replaced in the trailing 12-month calculation of adjusted EBITDA by what we expect to be the lowest quarters of 2023. .

While net debt decreased approximately $25 million from December 31 to March 31, our trailing 12-month adjusted EBITDA decreased approximately $22 million. This is putting pressure on our leverage. This pressure on our leverage also constrains our liquidity by effectively limiting the amount we can draw on our revolving credit facility. .

As of March 31, we had $107.6 million of available liquidity, including $37.6 million of cash on hand, which we believe is sufficient to support our operations and financial obligations.

As a reminder, post our spin-off from Encompass Health, we've drawn on the revolver only once for $20 million during the fourth quarter of 2022 when we funded 3 acquisitions and made a $15 million deferred payroll tax payment related to CARES Act funds.

Through today, we have repaid $10 million of that revolver borrowing and made $15 million in required payments on our term loan. .

Our current forecast indicates we will continue to be in compliance with our financial covenants.

Given the leverage pressures mentioned earlier, we are continually and closely evaluating our expected compliance with the covenants under our credit agreement and we'll take all appropriate steps to proactively negotiate such covenants if needed and when appropriate. .

Let's turn now to guidance. As we stated previously, we knew the headwinds in 2023 were going to be stronger in the first half of the year, and we noted the ramp from quarter-to-quarter this year would be steep. Given the increase in employee group medical claims, our quarter 1 results were just shy of our internal expectations.

With our expansion of Medicare Advantage contracts and improved rates combined with reduced staffing capacity constraints, we expect to see improvements in our bottom line throughout 2023. .

We maintain our 2023 guidance that includes adjusted EBITDA of $125 million to $140 million.

Given the slightly weaker-than-expected first quarter results, the higher end of the range assumes sequential trends in episodic admissions in home health accelerate, the quick and smooth transition of non-episodic admissions to our new national and regional payer contracts and improved clinical productivity in hospice. .

With that, we will open the line for questions. .

[Operator Instructions] Our first question comes from Brian Tanquilut from Jefferies. .

I guess, Crissy, thank you for the comment on the cadence for the year and the improvement from Q1. But maybe if you can share with us kind of like where the confidence comes from and your visibility into sequential gains versus Q1.

And I know there's seasonality in your business, but what can you tell investors to make them feel -- to get the same level of confidence that you have to get to the numbers for the year?.

Yes. So I think it kind of gets back to the closing remarks of my script. The new national contract that Barb mentioned earlier and that was part of our earnings release as well as the 2 new convener contracts, they all became effective May 1.

And so we are 10 days into looking at the performance of those contracts and working with our teams to shift those contracts into replacing former contracts or historic contracts. So it's a little too early to know how quickly and smoothly we can make that transition. .

As Barb mentioned, for every 5% of current non-episodic visits under one of our historic contracts that we can move to one of these new national or regional contracts, that's $2 million of adjusted EBITDA annually. .

Now again, it went into effect May 1 so you have to time line adjust that. But it's a big -- it's a significant impact, and that's before we even focused on growing as a result of those contracts. So that's one of the bigger drivers of the rest of the year. .

In addition, episodic admissions, recall that historically, when we had a national contract, one of the other benefits or side benefits to a national contract is that our referral sources, we become more of a one-stop shop for them.

And so when you go in and say that we can now take these patients, they also tend to provide more episodic patients to you again because you're meeting more of their direct need. So that's one of the things that we're focused on in regards to how can we accelerate and continue some of the episodic growth that we've seen thus far. .

And then the last factor is the clinical productivity in hospice. Again, as we noted, hospice has reached a point of staffing capacity that we're comfortable with and believe that we have the full-time nurses in place that we need. And so we can begin trending out, trending down the contract labor as we go through the rest of the year.

And that's why you see that guidance consideration. We did take that guidance consideration up from 4% to 5% to 4% to 6% for hospice cost per day.

But again, we stay comfortable with that knowing that the first quarter included contract labor usage but what we're seeing now is reduction in that and improved clinical productivity given the full-time nursing capacity we have. .

That makes a lot of sense. And then maybe, Barb, I know in the past, you guys have talked about how there's some -- maybe part of the headwinds in volume or admissions is kind of like the decoupling from Encompass, right? So as I think about -- a lot of folks are focused on the admissions number.

Maybe if you can walk us through how you're thinking about the trend or how we should be thinking about how that whole situation will evolve over the course of the year and where that bottoms out?.

Sure. Well, I think we're raising stability in the volume that we're getting from the Encompass [ Health ]. But it kind of goes to what Crissy was just mentioning.

One of the things that we had our sales team focused on at the end of last year and early this year was going out to all of our key referral sources, which included the Encompass [ Health ], saying what are the other payers that would be helpful for you for us to focus on so that we can be a better provider for you, a more wholesome provider. .

And so -- because there are some markets that have a pretty significant local or regional payer, that will make a big difference.

And so the focus on getting onto these regionals as well as the new national I think is going to help us again be able to go and say, we can now let us earn more of that fee for service, whether it's an Encompass [ Health ] or for other facility, that really gives us the ability to go in and be more of a good provider that can take a long list of patients.

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Our next question comes from A.J. Rice from Crédit Suisse. .

Maybe first to ask about the MA trends. I know your revenue per visit was up 8.8% in the current quarter. That does not seem like it had much impact from the recontracting you're talking about today.

What do you think the trend looks like for the rest of the year there given the recontracting? How quick do you sort of get to a normalized rate with this new national contract? And also, it's not clear to me, were you not in contract with this payer before and therefore, any volume you get from them is incremental? Or were you getting just less profitable volume from them previously?.

So this is a new national contract. I will say that it is 1 of the top 5 payers. And we -- actually, they have lives in all of our markets, but one. So there were some out of network, very little that we were seeing in some of our markets, but this is a new national contract for us. .

Okay.

Any thoughts on the 8.8% revenue per visit and how that might trend over the rest of the year?.

A.J., again, this contract has been in place for all of 10 total calendar days, not even business days at this point. It's something that we are monitoring.

We have put the tools -- the appropriate tools in the hands of our branch leaders and regional presidents in the field so that they can find these referral sources, find these patients and start transitioning historic referrals into these new contracts.

So we're doing everything we can to make that adjustment as quickly and efficiently as possible, but it's just too early in the time line to tell anything at this point. .

There are some branches that will move faster. We certainly have some that historically, were turning this volume way on a consistent basis. That will be quicker for those because they already have referral sources that have needed us to take these patients.

And then in other markets, we're working with the teams to find the facilities and the physicians that take care of these patients so that they can go after the business. .

I understand. I guess I was just trying to see if there was anything else going on that's helping on the revenue per visit in MA. The hospice costs jumped per day, 13%. I know you revised slightly your cost per day assumption for the rest of the year. It sounds like a lot of it is this move to the case management model.

But I wonder, is there any way to parse out how much is that? And when does that start to roll off so we can get some comfort on reversion to more of a modest increase number? Or -- and how much is sort of just the natural trend in the business increasing at this point?.

So A.J., the -- just -- I'll try to put some color around that. The nurse productivity, so just the onboarding think of it impacts of all of this where nurses are not operating at their full clinical capacity level, that was a little over 500 basis points in the quarter.

You also had a contract labor that was around 240 basis points impact of that during the quarter. And then group medical was another 130 basis points of that..

Everything else is that -- those are kind of the biggest driving factors. The dedicated on call and triage nurses, that is a permanent part of the cost structure because it is part of being able to have a case management model and to attract and retain nurses in our hospice sector. So that part will stay.

And it will come to a matter of now that we have as we increase clinical productivity of these nurses and we increase our volumes, then that fixed cost structure will start to come down just like other areas that you've seen. .

Our next question comes from Jamie Perse from Goldman Sachs. .

Just focusing on the national contract, again.

Can you give any details just in terms of how the rate came in versus your expectations, the structure of that contract or anything to call out there?.

And then secondly, on a related note, how does this help you in terms of negotiating incremental contracts either with your existing partner and the renegotiation process there or just accelerating the process around incremental national payers?.

Sure. Well, I think, first, we can't give specifics on a contract, but what I will say is kind of what we've been consistently saying on our either new or renegotiated, we are not willing to enter a new contract if -- unless we can get a discount at 25% to 30% or lower on a per visit.

And on an episodic contract, we're seeing them come in at 0 to 10% of a discount on the episodic. So that's been pretty consistent on any of the new regional as well as the national and the convener contracts. .

And so then the goal is, as you mentioned, is going to be for us to move away from these lower paying historic payers, both national and regionals that have paid us with a much higher discount than what I just quoted and use that to say, we continue to want to serve those patients, but we're only going to be able to serve those patients if we can come back and renegotiate the fair rates.

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Okay. And then just the home health cost per visit trends, they declined from $92 in the second half of last year to $88. Can you just help us bridge what the relief there was? And if that's a sustainable rate for the rest of the year? Just any color on what you're seeing in terms of cost trend there would be really helpful. .

Yes. So much of what drove the Q1 cost was an improvement in productivity. So again, it is about clinical staff recruitment, retention and making them productivity through volumes in the field. Productivity improved 200 basis points year-over-year. So that's able to offset the merit market and other factors. .

I'll also point out, I think I said in my script that the group medical increased 120 basis points, that was impacting the cost per visit as well. So if you take that out, then you're talking about a well-controlled cost per visit in home health. .

Our next question comes from Jason Cassorla from Citigroup. .

Maybe just a follow-up on that question.

I guess, in context of the 4% to 5% home health cost per visit growth, I guess, are you assuming that accelerates in the back half of the year? Are you being kind of prudent around your expectations given the backdrop? Just given where you're at that 1% in the quarter, ex those medical claim versus the 4% to 5% guide.

Just any more color around that front would be helpful. .

Yes. Absolutely. We're definitely closely watching our group medical costs because recall that we also noted that in our fourth quarter earnings results as well as the Q1 results. ..

I think the other thing that we've also talked about and that is included in that guidance consideration for cost per visit is we recognize that there will be markets where we have to make market adjustments in order to recruit and retain staff.

In fact, we're in the process of doing some of that now again, just in high-growth areas where we believe that we need to make those adjustments. So that's one thing that's yet to come and why the guidance consideration is where it is. .

Okay. And then just a follow-up, going back to the commentary around the new national and regional. And I know you threw out that 5% move to 2% benefit to EBITDA.

But maybe just -- can you give us an idea of what a realistic move like that could be over time? How easy could it be to move 5% of that volume over and maybe help size or frame it for us so we have an idea of what you could really kind of generate on that front. .

Sure. I will say, I think we will have a lot more color on that at the end of the second quarter. Again, with us only being 10 days into it, it is difficult. What I would say is that when we provided the tools to the field, one of the tools that we did provide was a very quick calculator.

If I move x of this to x of this, this is what it does for me at my local branch level because there are branches that are going to be able to do this relatively quickly because they've been turning this other payer away. .

So I think it's hard to say from a national level. It is definitely a branch-by-branch management. And again, and there -- some of these, there's more lives available in some markets than others. So I think we're going to have a much better feel for this company-wide by the end of the second quarter.

But we have provided those tools to the field for them to realize boy, if I can move 25%, 30%, 40% of my business from x to these new ones, what -- that makes a significant difference from me at a local branch level. .

Our next question comes from Joanna Gajuk from Bank of America. .

So I guess, first is a follow-up on the MA book of business and the 5% you're talking about.

So can you just remind us when we look at your MA book of business, what percent of that book is episodic versus non-episodic?.

So I would say on a revenue basis, when you look at our payer mix, Joanna, right now, our -- of our total Medicare Advantage revenue, anywhere from 25% to 30% in a given quarter would be episodic and the remainder would be non-episodic. .

Okay. And I guess my other question in terms of your expectations for the upcoming home health proposal, a Medicare rate proposal.

So what do you expect to see in their proposal when it comes to behavior adjustment and also recruitment?.

Sure. I don't think that we would be surprised to see the other half in the proposed rules. So the other half of that behavioral adjustment to come through. I think we will be surprised if they propose to implement any of the temporary cuts in '24 on top of the other half of the permanent.

It's possible they would lay out some sort of schedule for how it would be applied, but I think the industry would be surprised if they were part of 2024. .

There has been -- a forecast error correction has been requested of CMS when we look at the market basket rate that was given over the last few years. So that is something that was sent to CMS prior to the proposed rule going to OMB. So again, anticipate we get the other half.

I think what's going to be critical is what sort of market basket do we get with them. .

[Operator Instructions] Our next question comes from Andrew Mok from UBS Financial. .

A couple of questions on hospice. Same-store hospice admissions were down 11% in the quarter, which I think is the seventh straight quarter of double-digit negative organic volume growth.

When you take a step back and evaluate that business, what do you attribute the sustained admissions weakness to? And when do you think that will start to stabilize, especially with respect to the new case management system that you're implementing?.

Sure. So I think there's a combination of things. Obviously, some of it's been the staffing that really had us not going to as many referral sources as the staffing began to really get in better place in the first quarter.

We did increase the sales headcount in the field because that was something that we did not proactively replace when we had attrition in the past just because it was hard to hire a salesperson to go out there and sell something you didn't have. But we do have a good sales coverage now in each of the local markets. .

And again, on top of that, with the diversification of the referral sources, the case management model was critical to that.

Because if we're going to increase the referrals coming from facilities, we need to be able to take those admissions within 24 hours of getting that referral and the case management model is going to allow for a greater ability to accept those referrals timely. .

Got it. And then on patient days in hospice, that was down 4% sequentially from the fourth quarter, even though admissions was up 7% and discharge length of stay was up 4 days.

Can you help us understand what's going on here that would result in patient days down sequentially when the underlying components seem to indicate up?.

Sure. And so not only -- to your point, our sequential admissions were up and discharges were only up about half of what admissions. So one would anticipate that our ADC would grow. That really came on the heels of having 137 more deaths in that 1 to 30 length of stay range.

So you're right, even though our discharge length of stay was up, that was more on the heels of long lengths of stay, patients that had died on service. But when you have this many that die within that 1 to 30 days, you're not able then to actually see that bump in ADC that you would expect with that admission and discharge sequential movement. .

Got it. Okay. And I'm just going to make the assumption that I'm last here and use that as an opportunity to squeeze in one more. Your corporate G&A increased $5 million quarter-over-quarter and $10 million year-over-year. With all the pressure in the business, you're investing in G&A at a time when most of your peers are pulling back.

Can you help us understand why increasing G&A and back-office staff is the right investment decision here when there is additional reimbursement cuts on the horizon?.

Sure. So I think that we need to clarify on the back-office staffing increase year-over-year, Andrew. That's not us adding headcount, that's us having the ability to fill branch director and other administrative members of our back office in the field, meaning we have more people in place and less open positions at this point in time year-over-year.

So I think that's what we're talking about when we talk about the improved back-office staffing portion of that. .

Group medical is playing a significant role in the increase in those costs. And then, of course, to -- the incremental stand-alone cost of being a stand-alone company are also a factor. .

And we have a question from A.J. Rice from Crédit Suisse. .

With Andrew saying he might be the last one. I figured I'd try one more time here. Let me ask -- actually, I'll ask 2 here, too.

On the convener contracts, can you just walk us through what you think that will do versus the referrals of having the discharge planner move volume to you? What incrementally -- the discharge planners rely on the conveners more so and you think that will provide incremental volume? How should we think about that part of your renegotiated contracts? And how significant and how quickly it will impact your results?.

Sure. So it is different working with the convener. So some referred to them as benefit administrators. Others, conveners. And just remember, they're independent companies that do provide post-acute services on behalf of the health plan and there are times that they're the risk-bearing providers.

So their goal is really to guide care to high-quality proven providers who can lower the overall cost of care. So they do work directly with those -- particularly the facilities to help make sure that the patients from that payer get to the right providers. .

If you think about it, historically, the payers have only been focused on kind of creating that network, not necessarily a high-quality network. And as fragmented as home health is, these conveners have played a role in really going and narrowing down who the patient should go to.

And so it's really us working alongside the conveners to get the patients to our services. .

And then I would just add that it's important to remember that these are new contracts. These are not renegotiated. We've spent a lot of time talking about the importance of more contracts and improved rates. And these convener contracts as well as the new national payer contract, they are all -- both of those, they are new and at better rates. .

Okay. And maybe my other follow-up would be that -- and I don't know what there is to say about it, but I'll ask it. So if you look at the landscape competitively, obviously, you've got United having bought LHC. And it looks like they're going to continue to buy in the market. You've got Kindred under Humana being active.

Now you've got Option Care and Amedisys announcing they're joining up.

As you guys sort of over the last -- one of the last people standing that's independent and public and you mentioned, Crissy, about having to watch your -- where you're at vis-à-vis covenants, et cetera, et cetera, what's the thinking about whether you need to have at some point in the future, a big more deep-pocketed partner that you're aligned with? Is there room to go forward and accomplish everything you're trying to do independently? Have you seen any changes in the market because of some of these deals and willingness to work with you or availability of deals or whatever?.

Well, A.J., I think it's difficult to speculate on various announcements and transactions in the industry. We are focused on operating this company and executing on our payer innovation strategy as well as our recruitment and retention of staff strategy. That's really all we can say about those. We just don't speculate on those types of items. .

More competition for deals or not really? Or about the same as it was 6 months ago in your mind?.

Well, remember that even the investment communities received a lot of information recently on the fact that M&A deal was down significantly in the first quarter of this year. The trends have been down. A lot of that having to do with home health reimbursement uncertainty.

I read reports recently that stated that the first quarter of 2023 was the lowest transaction quarter since 2018. And so I think that's important. Also, remember that the bid-ask spread between buyer and sellers are just too high right now. .

We have no further questions. I would like to turn the call back over to Mark Brewer for closing remarks. .

Thank you so much, operator, and we appreciate everybody joining the call today. As a reminder, there will be a replay of the call available on our website, and we look forward to talking to you in a couple of months when we recap our second quarter 2023 earnings. Have a great day. .

This concludes today's conference call. Thank you for your participation. You may now disconnect..