The following discussion and analysis provides information we believe is relevant to an assessment and understanding of our results of operations and financial condition for the three and six-month periods ended
June 30, 2022. This discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included herein and the consolidated financial statements and notes and the related Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2021filed with the Securities and Exchange Commission("SEC") on February 24, 2022(the "Form 10-K"), which are incorporated herein by this reference. Historical results that appear in the condensed consolidated financial statements should not be interpreted as being indicative of future operations.
Unless otherwise specified, “
We are a provider of high-quality in-home healthcare and related services to the chronic, co-morbid, aging American population, with approximately 74% of our consolidated net service revenue derived from Medicare for the three and six-month periods ended
June 30, 2022and approximately 75% of our consolidated net service revenue derived from Medicare for the three and six-month periods ended June 30, 2021. Our operations involve servicing patients through our four reportable business segments: home health, hospice, personal care and high acuity care. Our home health segment delivers a wide range of services in the homes of individuals who may be recovering from an illness, injury or surgery. Our hospice segment provides care that is designed to provide comfort and support for those who are facing a terminal illness. Our personal care segment provides patients assistance with the essential activities of daily living. Our high acuity care segment, which was established with the acquisition of Contessa Health("Contessa") on August 1, 2021, delivers the essential elements of inpatient hospital and skilled nursing facility ("SNF") care to patients in their homes. As of June 30, 2022, we owned and operated 353 Medicare-certified home health care centers, 174 Medicare-certified hospice care centers, 14 personal-care care centers and 9 admitting high acuity care joint ventures in 38 states within the United Statesand the District of Columbia.
Summary of care centers (
Home Personal Health Hospice Care High Acuity Care As of December 31, 2021 331 175 14 8 Acquisitions/Startups/Denovos 24 - - 1 Closed/Consolidated (2) (1) - - As of June 30, 2022 353 174 14 9 Recent Developments Acquisitions
April 1, 2022, we acquired two home health locations from AssistedCare Home Health, Inc.and RH Homecare Services, LLC, doing business as AssistedCare Home Healthand AssistedCare of the Carolinas ("AssistedCare"), respectively, for a purchase price of $25 million.
Government Investigations and Inquiries and Other Litigation
See Note 6 – Commitments and Contingencies to our summary consolidated financial statements for discussion and updates regarding legal proceedings and investigations in which we are involved. No assurance can be given as to the timing or the outcome of these elements.
July 29, 2021, CMS issued the final rule to update hospice payment rates and the wage index for fiscal year 2022, effective for services provided beginning October 1, 2021. CMS estimated hospices serving Medicare beneficiaries would see a 2.0% increase in payments. This increase was the result of a 2.7% market basket adjustment as required under the Patient Protection and Affordable HealthCare Act and the Health Care and Education Reconciliation Act (collectively, "PPACA") less a 0.7% productivity adjustment. Additionally, CMS increased the aggregate cap amount by 2.0% to $31,298. The final rule also rebased the labor shares for all four levels of care, included updates to the hospice conditions of participation ("COPs"), which made permanent certain flexibilities allowed during the novel coronavirus pandemic ("COVID-19") public health emergency, and finalized changes to the Hospice Quality Reporting Program. Based on our analysis of the final rule, we estimated that our impact would be in line with the 2.0% increase. On July 27, 2022, CMS issued the final rule to update hospice payment rates and the wage index for fiscal year 2023, effective for services provided beginning October 1, 2022. CMS estimates hospices serving Medicare beneficiaries will see a 3.8% increase in payments. This increase is the result of a 4.1% market basket adjustment as required under PPACA less a 0.3% productivity adjustment. Additionally, CMS proposed to increase the aggregate cap amount by 3.8% to $32,487. Based on our analysis of the proposed rule, we expect our impact to be in line with the 3.8% increase.
November 2, 2021, CMS issued the Home Health Final Rule for Medicare home health providers for calendar year 2022. CMS estimated that the final rule would result in a 3.2% increase in payments to home health providers. This increase was the result of a 2.6% payment update (3.1% market basket adjustment less a 0.5% productivity adjustment) plus a 0.7% fixed-dollar loss ratio adjustment, reduced by 0.1% for the rural add-on. Based on our analysis of the final rule, we estimated that our impact would be in line with the 3.2% increase. The final rule also provided for the expansion of the Home Health Value-Based Purchasing ("HHVBP") model to all 50 states beginning January 1, 2023with calendar year 2023 being the first performance year and calendar year 2025 being the first payment year with a proposed maximum payment adjustment, up or down, of 5%. On June 17, 2022, CMS issued a proposed payment change for Medicare home health providers for calendar year 2023. CMS estimates that the proposed rule will result in a 4.2% decrease in payments to home health providers. This decrease is the result of a 2.9% payment update (3.3% market basket adjustment less a 0.4% productivity adjustment) less a permanent adjustment of 6.9% (derived from a 7.69% behavioral assumption adjustment), reduced by 0.2% for the update to the fixed-dollar loss ratio ("FDL") used in determining outlier payments. This rule also proposes a permanent 5% cap on negative wage index changes for home health agencies. Based on our preliminary analysis of the proposed rule, we expect our impact to be in line with the 4.2% rate cut.
In addition to the permanent adjustment of 6.9%, CMS is also considering a temporary adjustment of approximately
A group of bipartisan lawmakers has introduced a bill, The Preserving Access to Home Health Act of 2022, which upon enactment, would pause the implementation of any temporary or permanent adjustments to the Medicare home health base payment rate until 2026. This would delay the cuts currently proposed by CMS and would allow time for the industry and CMS to work on a more reasonable methodology that adequately measures the impact of the transition to PDGM and fully accounts for the impacts that COVID-19 has had on utilization, patient mix and the level of care provided by home health agencies.
March 2020, Congresspassed the bipartisan Coronavirus Aid, Relief and Economic Security Act ("CARES Act") which provided for the suspension of the automatic 2% reduction of Medicare claim reimbursements ("sequestration") for the period May 1, 2020through December 31, 2020. In December 2020, Congresspassed additional COVID-19 relief legislation as part of the Consolidated Appropriations Act, 2021. This legislation extended the suspension of sequestration through March 31, 2021. In April 2021, Congresspassed H.R. 1868, which among other items, provided for an additional extension of the temporary suspension of sequestration through December 31, 2021. In December 2021, Congresspassed the Protecting Medicare and American Farmers from Sequester Cuts Act. This legislation extended the 2% suspension of sequestration through March 31, 2022; sequestration was reinstated as a 1% reduction to Medicare claim reimbursements for the period April 1, 2022through June 30, 2022and has been fully reinstated as a 2% reduction to Medicare claim reimbursements effective July 1, 2022. The reinstatement of sequestration will result in a reduction of our net service revenue for the remainder of the year.
Novel Coronavirus Pandemic (“COVID-19”)
Our operations and financial performance continue to be impacted by COVID-19. The financial impacts of COVID-19 are discussed in further detail under "Results of Operations" below. While we currently believe that we have a reasonable view of 28 -------------------------------------------------------------------------------- operations, the uncertainty created by COVID-19 could alter our outlook of the pandemic's impact on our consolidated financial condition, results of operations or cash flows. The following factors could potentially impact our performance: the increase or decrease in the number of COVID-19 cases nationwide; the severity and impacts of new variants of the virus; uncertainty regarding vaccine utilization rates and efficacy; staffing shortages due to clinician quarantines, the competitive labor market and federal, state and local vaccine mandates; the return of patient confidence to enter a hospital or a doctor's office; the utilization of elective procedures; the ability to have access to our patients in their homes and in facilities; supply chain disruption and our ability to find suitable alternative products at reasonable prices; cost normalization around personal protective equipment ("PPE"); and any future or prolonged shelter-in-place orders and other federal, state and local requirements. Potential impacts of COVID-19 on our results include lower revenue; higher salary and wage expense related to quarantine pay, contract clinicians, wage inflation, increased costs to hire and retain employees and training; and increased supply costs related to supply chain constraints, PPE and COVID-19 testing. The impacts to net service revenue may consist of the following:
• lower volumes due to the disruption of operations of our referral sources, patient reluctance to accept services and facility access restrictions for palliative care services;
• Lower reimbursement due to missed visits resulting in increased Low Usage Payment Adjustments (“LUPA”) and lost billing periods; and
• Lower average daily count in palliative care due to a decrease in our average length of stay.
•$175 billion to healthcare providers, including hospitals on the front lines of the COVID-19 pandemic. Of this total allocated amount,
$30 billionwas distributed immediately to providers based on their proportionate share of Medicare fee-for-service reimbursements in 2019. Healthcare providers were required to sign an attestation confirming receipt of the Provider Relief Fund("PRF") funds and agree to the terms and conditions of payment. Our home health and hospice segments received approximately $100 millionfrom the first $30 billionof funds distributed to healthcare providers in April 2020, which is inclusive of $2 millionrelated to our joint venture care centers (equity method investments). We also acquired approximately $6 millionof PRF funds in connection with the acquisition of AseraCare Hospice. Under the terms and conditions for receipt of the payment, we were allowed to use the funds to cover lost revenues and health care costs related to COVID-19 through June 30, 2021, and we were required to properly and fully document the use of these funds in reports to the U.S. Department of Health and Human Services("HHS"). All required reporting was completed during the three-month period ended September 30, 2021. For our wholly-owned subsidiaries, we only utilized PRF funds to the extent we had qualifying COVID-19 expenses; we did not use PRF funds to cover lost revenues resulting from COVID-19. The grant income associated with the COVID-19 expenses incurred is reflected in other operating income within our condensed consolidated statements of operations. •The temporary suspension of sequestration for the period May 1, 2020through December 31, 2020. See The Centers for Medicare and Medicaid Services("CMS") Payment Updates above for details on extensions beyond December 31, 2020. •The deferral of the employer share of social security tax (6.2%), effective for payments due after the enactment date through December 31, 2020. During 2020, we deferred approximately $55 millionof social security tax. Approximately $27 millionwas paid during December 2021; the remaining balance is due on December 31, 2022and is reflected in payroll and employee benefits within our condensed consolidated balance sheet.
• Temporary suspension of Medicare patient coverage criteria and documentation and care requirements and expansion of the provision of home health care and palliative care to patients via telehealth.
•The ability for non-physician practitioners to certify home care, order home health services, establish and review care plans, and certify and recertify eligibility.
The well-being of our employees has been one of our top priorities during the pandemic. We have taken the following steps to support our employees: implemented paid leave during any required quarantine periods; awarded bonuses to our clinicians and caregivers who saw patients during the pandemic; completed an early cash pay-out of employee paid-time-off; instituted work-from-home arrangements for our corporate and administrative support employees; allowed employees to temporarily suspend any 401(k) plan loan deductions and offered employees the option of making a withdrawal from their 401(k) plan for coronavirus-related distributions without incurring the additional 10% early withdrawal penalty; expanded access to telehealth services to all employees; provided access to COVID-19 self-test kits to all employees and created a
COVID-19 Resource Center, available 24 hours a day, seven days a week for employees to access educational materials, safety documents, policies, clinical protocols and operational metrics. 29 -------------------------------------------------------------------------------- The safety of our clinicians and patients has also been a focus, and as a result, we have made the following business changes: developed clinical protocols for COVID-19 testing, proper usage of PPE, caring for COVID-positive patients and maintaining safety measures in our care centers; researched each state's vaccination plan to develop a state by state protocol to work with local health departments and other health systems to obtain vaccine appointments for our clinical staff; implemented software enabling us to track staff that have been vaccinated; procured PPE; and created a centralized distribution center for all critical PPE, allowing us to flex our supplies on a care center by care center basis, based on need and demand.
Three-month period ended
Consolidated The following table summarizes our consolidated results of operations (amounts in millions): For the Three-Month Periods Ended June 30, 2022 2021 Net service revenue
$ 557.9 $ 564.2Other operating income - 4.6 Cost of service, excluding depreciation and amortization 316.2 308.7 Gross margin, excluding depreciation and amortization 241.7 260.1 % of revenue 43.3 % 46.1 % Other operating expenses 187.9 175.3 % of revenue 33.7 % 31.1 % Depreciation and amortization 6.2 6.7 Operating income 47.6 78.1 Total other (expense) income (7.3) 31.0 Income tax expense (11.3) (28.5) Effective income tax rate 28.0 % 26.1 % Net income 29.0 80.6 Net loss (income) attributable to noncontrolling interests 0.6 (0.5) Net income attributable to Amedisys, Inc. $ 29.6 $ 80.1On a consolidated basis, our operating income decreased $31 millionon a $6 milliondecrease in net service revenue. The year-over-year decrease in operating income is primarily due to the acquisitions of Contessa on August 1, 2021and Evolution and AssistedCare on April 1, 2022(which combined contributed $18 millionin revenue and an operating loss of $11 million), an $8 millionaccrual related to our Infinity Home Care, L.L.C.Zone Program Integrity Contractor ("Infinity ZPIC") audits and a $7 millionfavorable adjustment recorded in the prior year related to our U.S. Department of Justice("DOJ") matters (see Note 6 - Commitments and Contingencies to our condensed consolidated financial statements for additional information regarding both the Infinity ZPIC and DOJ matters). Excluding our acquisitions and the Infinity ZPIC and DOJ matters, our operating income decreased $5 millionon a $9 milliondecrease in net service revenue primarily due to a year over year decline in our home health volumes, the reinstatement of sequestration at 1%, a shift in our home health patient mix from episodic payors to lower margin per visit payors, a decrease in our other operating income due to the expiration of the CARES Act PRF funds and an increase in our cost of service resulting from labor cost increases. We were able to partially overcome these items through improvements in home health clinician utilization and reductions in our hospice staffing levels. Additionally, our year over year results were positively impacted by rate increases. As noted above, we received CARES Act PRF funds in 2020 which were used to cover COVID-19 expenses incurred by our home health and hospice segments through June 30, 2021. We recorded income related to these funds totaling $5 millionin other operating income within our condensed consolidated statements of operations during the three-month period ended June 30, 2021. This income fully offset the COVID-19 costs incurred during this period, which totaled $5 million. Due to the expiration of the CARES Act PRF funds on June 30, 2021, we were not able to recognize any operating income during the three-month period ended June 30, 2022to offset the $2 millionof COVID-19 costs incurred during this period. 30 -------------------------------------------------------------------------------- Our operating results reflect a $13 millionincrease in our other operating expenses compared to prior year. Excluding our acquisitions, our other operating expenses were flat as the addition of resources to support growth, planned wage increases, higher travel and training spend, higher acquisition and integration costs, severance and lease termination costs related to hospice care center closures and consolidations and increased information technology fees were partially offset by higher gains on the sale of fleet vehicles and a favorable legal settlement. Total other (expense) income includes the following items (amounts in millions): For the Three-Month Periods Ended June 30, 2022 2021 Interest expense, net $ (8.3) $ (1.9)Equity in earnings from equity method investments 0.7 1.3 Gain on equity method investment - 31.1 Miscellaneous, net 0.3 0.5 Total other (expense) income $
Interest expense, net increased
$6 millionyear over year as a result of interest accrued in conjunction with the Infinity ZPIC audits discussed above and outstanding term loan borrowings under our Second Amended Credit Agreement (see Note 5 - Long-Term Obligations to our condensed consolidated financial statements for additional information regarding our Second Amended Credit Agreement). Gain on equity method investments for the prior year includes a $31 milliongain related to our investment in Medalogix (see Note 1 - Nature of Operations, Consolidation and Presentation of Financial Statements to our condensed consolidated financial statements for additional information). 31
© Edgar Online, source