ADDUS HOMECARE CORP MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)

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You should read the following discussion together with our unaudited condensed
consolidated financial statements and the related notes included elsewhere in
this quarterly report on Form 10-Q. This discussion contains forward-looking
statements about our business and operations. Statements that are predictive in
nature, that depend upon or refer to future events or conditions or that include
words like "believes," "belief," "expects," "plans," "anticipates," "intends,"
"projects," "estimates," "may," "might," "would," "should" and similar
expressions are intended to be forward-looking statements as defined by the
Private Securities Litigation Reform Act of 1995. These statements are based on
the beliefs and assumptions of our management based on information currently
available to management. Such forward-looking statements are subject to risks,
uncertainties and other important factors that could cause actual results and
the timing of certain events to differ materially from future results expressed
or implied by such forward-looking statements. These risks and uncertainties
include, but are not limited to, the anticipated impact to our business with
respect to developments related to the COVID-19 pandemic, including, without
limitation, those related to the length and severity of the pandemic, as well as
the timing, availability and acceptance of effective medical treatments,
vaccines and booster shots; the spread of potentially more contagious and/or
virulent forms of the virus; the pandemic's impact on our operations,
reimbursement and our consumer population; measures we are taking to respond to
the pandemic; the impact of government regulation, stimulus and relief measures,
including the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"),
Paycheck Protection Program and Health Care Enhancement Act ("PPPHCE Act"), the
Consolidated Appropriations Act, 2021 ("CAA"), the COVID-Related Tax Relief Act
of 2020, the American Rescue Plan of 2021 ("ARPA") and any other stimulus or
relief legislation, along with the related uncertainties regarding such measures
and any future measures related to COVID-19; negative economic conditions in the
United States, including inflationary conditions; increased expenses related to
personal protective equipment ("PPE"), labor, supply chain, or other
expenditures, including as a result of inflationary conditions; workforce
disruptions, including shortages and increased labor expenses, associated with
competitive labor market conditions; the impact of vaccine mandates on the
workforce; and supply shortages and disruptions; changes in operational and
reimbursement processes and payment structures at the state or federal levels;
changes in Medicaid, Medicare, other government program and managed care
organizations policies and payment rates; changes in, or our failure to comply
with, existing, federal and state laws or regulations, or our failure to comply
with new government laws or regulations on a timely basis; competition in the
healthcare industry; the geographical concentration of our operations; changes
in the case mix of consumers and payment methodologies; operational changes
resulting from the assumption by managed care organizations of responsibility
for managing and paying for our services to consumers; the nature and success of
future financial and/or delivery system reforms; changes in estimates and
judgments associated with critical accounting policies; our ability to maintain
or establish new referral sources; our ability to renew significant agreements
or groups of agreements; our ability to attract and retain qualified personnel;
federal, state and city minimum wage pressure, including any failure of any
governmental entity to enact a minimum wage offset and/or the timing of any such
enactment; changes in payments and covered services due to the overall economic
conditions, and deficit spending by federal and state governments; cost
containment initiatives undertaken by federal, state and other third-party
payors; our ability to access financing through the capital and credit markets;
our ability to meet debt service requirements and comply with covenants in debt
agreements; business disruptions due to natural disasters, acts of terrorism,
pandemics, riots, civil insurrection or social unrest, looting, protests,
strikes or street demonstrations; our ability to integrate and manage our
information systems; our ability to prevent cyber-attacks or security breaches
to protect our information technology systems and confidential consumer data;
our expectations regarding the size and growth of the market for our services;
the acceptance of privatized social services; our expectations regarding changes
in reimbursement rates; eligibility standards and limits on services imposed by
state governmental agencies; the potential for litigation; discretionary
determinations by government officials; our ability to successfully implement
our business model to grow our business; our ability to continue identifying,
pursuing, consummating and integrating acquisition opportunities and expand into
new geographic markets; the impact of acquisitions and dispositions on our
business, including the potential inability to realize the benefits of potential
acquisitions; the effectiveness, quality and cost of our services; our ability
to successfully execute our growth strategy; changes in tax rates; the impact of
public health emergencies, including the COVID-19 pandemic; the impact of
inclement weather or natural disasters; and various other matters, many of which
are beyond our control. In addition, these forward-looking statements are
subject to the risk factors set forth in Part I, Item 1A of our Annual Report on
Form 10-K for the period ended December 31, 2021, filed with the SEC on February
25, 2022. You should carefully review all of these factors. Moreover, our
business may be materially adversely affected by factors that are not currently
known to us, by factors that we currently consider immaterial or by factors that
are not specific to us, such as general economic conditions. These
forward-looking statements were based on information, plans and estimates at the
date of this report, and we assume no obligation to update any forward-looking
statements to reflect changes in underlying assumptions or factors, new
information, future events or other changes, except as may be required by law.

Insight

We are a home care services provider operating three segments: personal care,
hospice and home health. Our services are principally provided in-home under
agreements with federal, state and local government agencies, managed care
organizations, commercial insurers and private individuals. Our consumers are
predominantly "dual eligible," meaning they are eligible to receive both
Medicare and Medicaid benefits. Managed care revenues accounted for 35.8% and
37.2% of our net service revenues during the three months ended June 30, 2022
and 2021, respectively, and 35.8% and 37.5% of our net service revenues during
the six months ended June 30, 2022 and 2021, respectively.

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A summary of certain consolidated financial results is provided in the table
below.

                                           For the Three Months Ended       For the Six Months Ended
                                                    June 30,                        June 30,
                                              2022             2021           2022             2021
Net service revenues by segment:             (Amounts in Thousands)          (Amounts in Thousands)
Personal care                              $  174,330       $  176,267     $  343,962       $  341,135
Hospice                                        52,074           36,909         99,801           73,003
Home health                                    10,536            4,717         19,811            9,057
Total net service revenues                 $  236,940       $  217,893     $  463,574       $  423,195

Net income                                 $   11,250       $   11,597     $   19,720       $   20,491




As of June 30, 2022, we provided our services in 22 states through 206 offices.
We served approximately 58,000 and 56,000 discrete individuals, respectively,
during the six months ended June 30, 2022 and 2021. Our personal care segment
also includes staffing services, with clients including assisted living
facilities, nursing homes and hospice facilities.

Update on the COVID-19 pandemic

Although the United States has experienced a moderation of infection and related
hospitalization rates, there continues to be a significant number of COVID-19
cases and deaths in the United States and throughout the world. The long-term
trends of new cases and deaths in the United States and the future impact of the
pandemic continue to be unknown.

CMS issued an interim rule in November 2021 requiring COVID-19 vaccinations for
Medicare- and Medicaid-certified providers and suppliers, including hospices and
home health agencies, which covers clinical staff, individuals providing
services under arrangements, volunteers and staff who are not involved in direct
patient care. Additionally, some states have implemented, or may implement in
the future, vaccine mandates with respect to healthcare personnel. It is
currently difficult to predict the impact that any of these vaccine mandates may
have on us or the extent to which these vaccine mandates will ultimately become
effective. However, we expect that these rules, to the extent that they become
effective, will impact our home health and hospice segments.

For the three and six months ended June 30, 2022, COVID-19-related expenses in
our personal care segment were approximately $1.1 million and $2.8 million,
respectively, and are included in cost of service revenues on the Consolidated
Statements of Income. For the three and six months ended June 30, 2021,
COVID-19-related expenses in our personal care segment were approximately $11.4
million and $13.3 million, respectively, which were offset by $10.4 million and
$11.3 million, respectively, related to the utilization of a portion of the
funds received from the Provider Relief Fund in November 2020 and included in
cost of service revenues on the Condensed Consolidated Statements of Income.
Additionally, we recognized revenue of $1.6 million and $3.0 million
attributable to temporary rate increases from certain payors in our personal
care segment for the three and six months ended June 30, 2022, respectively, and
$3.1 million and $4.8 million for the three and six months ended June 30, 2021,
respectively.

For the three and six months ended June 30, 2021, COVID-19-related expenses in
our hospice segment were approximately $1.9 million, which were offset by $1.9
million, related to the utilization of a portion of the funds received from the
Queen City Hospice Provider Relief Fund and included in cost of service revenues
on the Condensed Consolidated Statements of Income.

As of June 30, 2022, the Company deferred the recognition of $5.4 million of
payments received from payors for COVID-19 reimbursement, included within
accrued expenses, which will be recognized as we incur specific expenses related
to the pandemic, such as expenses related to acquiring additional PPE and
COVID-19 related paid time off, or will be returned to the extent
COVID-19-related expenses are not incurred. We are not able to reasonably
predict the total costs we will incur related to the COVID-19 pandemic, and such
costs could be substantial.

Federal and state agencies continue to issue regulations and guidance related to
the COVID-19 pandemic, and the public health situation continues to evolve, and,
therefore, we cannot currently predict with certainty the extent to which our
business, results of operations, financial condition or liquidity will
ultimately be impacted by the pandemic. We will continue to assess the impact
and consequences of the COVID-19 pandemic and government responses to the
pandemic, including the implementation of the CARES Act, the PPPHCE Act, the
CAA, the ARPA, other stimulus and relief legislation, the President's National
COVID-19 Preparedness Plan, and existing and potential additional federal, state
and local vaccine mandates, on our business, results of operations, financial
condition and cash flows. Given the dynamic nature of these circumstances, the
related financial effect cannot be reasonably estimated at this time but is not
expected to materially adversely impact our business. See Part I, Item 1A-Risk
Factors - "The COVID-19 pandemic could negatively affect our operations,
business and financial condition, and our liquidity could also be negatively
impacted, particularly if the U.S. economic and/or public health conditions
deteriorate in connection with the pandemic" of our Annual Report on Form
10-K for the year ended December 31, 2021, filed with the SEC on February 25,
2022.

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See “Cash and Capital Resources” below for more information on funds received related to COVID-19 pandemic relief.

Recruitment

As the labor market has tightened and unemployment has declined in comparison to
earlier levels, the competition for new caregivers, including skilled healthcare
staff, and support staff has increased. In addition, the United States economy
continues to experience significant inflationary pressures and a competitive
labor market. To the extent that we continue to experience a shortage of
caregivers, it may hinder our ability to fully meet the continuing demand for
both our non-clinical and clinical services. The increased staffing challenges,
including COVID-19 related quarantine requirements and inflationary pressures,
resulted in increased labor costs to satisfy our staffing requirements during
the three and six months ended June 30, 2022 compared to 2021 in our
non-clinical and clinical operations.

Acquisitions

In addition to our organic growth, we have grown through acquisitions that have
expanded our presence in current markets, with the goal of having all three
levels of in-home care in our markets or facilitating our entry into new markets
where in-home care has been moving to managed care organizations.

On August 1, 2021, we completed the acquisition of Armada Skilled Homecare of
New Mexico LLC, Armada Hospice of New Mexico LLC and Armada Hospice of Santa Fe
LLC (collectively, "Armada") for approximately $29.8 million, including the
amount of acquired excess cash held by Armada at the closing of the acquisition
(approximately $0.7 million), with funding provided by our revolving credit
facility. With the purchase of Armada, we expanded our home health and hospice
services in the state of New Mexico.

On October 1, 2021, we completed the acquisition of Summit Home Health, LLC
("Summit") for approximately $8.1 million, with funding provided by available
cash. With the purchase of Summit, we added clinical services in Illinois to our
home health segment.

On February 1, 2022, we completed the acquisition of the hospice and palliative
operations of JourneyCare, Inc. ("JourneyCare") for approximately $86.6
million, including the amount of acquired excess cash held by JourneyCare at the
closing of the acquisition (approximately $0.5 million) plus the finalization of
net working capital payable to seller of $1.6 million, with funding provided
through a combination of a $35.0 million draw under the revolving credit
facility and available cash on hand. With the JourneyCare acquisition, we added
hospice services in Illinois.

Receipts by payer and significant states

Our payors are principally federal, state and local governmental agencies and
managed care organizations. The federal, state and local programs under which
the agencies operate are subject to legislative and budgetary changes and other
risks that can influence reimbursement rates. We are experiencing a transition
of business from government payors to managed care organizations, which we
believe aligns with our emphasis on coordinated care and the reduction of the
need for acute care.

Our revenue by payer and material statements by segment were as follows:

Personal Care Segment                                                  For the Three Months Ended June 30,                                             

For the six months ended June 30th,

                                                                  2022                                     2021                                     2022                                     2021
                                                                            % of                                     % of                                     % of                                     % of
                                                                           Segment                                  Segment                                  Segment                                  Segment
                                                        Amount           Net Service             Amount           Net Service             Amount           Net Service             Amount           Net Service
                                                    (in Thousands)        Revenues           (in Thousands)        Revenues           (in Thousands)        Revenues           (in Thousands)        Revenues

State, local and other government programs $85,462

     49.0   %   $         88,382              50.2   %   $        169,370              49.2   %   $        169,231              49.6   %
Managed care organizations                                   80,577              46.2                 78,865              44.7                157,967              45.9                154,321              45.2
Private pay                                                   4,610               2.7                  5,046               2.9                  9,236               2.7                  9,949               2.9
Commercial insurance                                          2,093               1.2                  2,676               1.5                  4,117               1.2                  5,022               1.5
Other                                                         1,588               0.9                  1,298               0.7                  3,272               1.0                  2,612               0.8

Total Net Personal Care Services Revenue $174,330

    100.0   %   $        176,267             100.0   %   $        343,962             100.0   %   $        341,135             100.0   %
Illinois                                           $         88,797              50.9   %   $         84,788              48.0   %   $        173,480              50.4   %   $        158,172              46.3   %
New Mexico                                                   26,473              15.2                 25,484              14.5                 51,912              15.1                 49,077              14.4
New York (1)                                                 21,127              12.1                 25,535              14.5                 42,513              12.4                 53,110              15.6
All other states                                             37,933              21.8                 40,460              23.0                 76,057              22.1                 80,776              23.7

Total Net Personal Care Services Revenue $174,330

    100.0   %   $        176,267             100.0   %   $        343,962             100.0   %   $        341,135             100.0   %


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(1) The Company has materially suspended all new patient admissions

          under the New York CDPAP program as discussed below.




Hospice Segment                                                    For the Three Months Ended June 30,                                               

For the six months ended June 30th,

                                                              2022                                     2021                                    2022                                    2021
                                                                         % of                                    % of                                    % of                                    % of
                                                                        Segment                                 Segment                                 Segment                                 Segment
                                                    Amount            Net Service            Amount           Net Service            Amount           Net Service            Amount           Net Service
                                                (in Thousands)         Revenues          (in Thousands)        Revenues          (in Thousands)        Revenues          (in Thousands)        Revenues
Medicare                                       $          47,152              90.5   %   $        34,452              93.3   %   $        90,637              90.8   %   $        68,437              93.8   %
Commercial insurance                                       2,726               5.2                   959               2.6                 4,970               5.0                 1,492               2.0
Managed care organizations                                 1,968               3.8                 1,395               3.8                 3,683               3.7                 2,882               3.9
Other                                                        228               0.5                   103               0.3                   511               0.5                   192               0.3
Total hospice segment net service revenues     $          52,074             100.0   %   $        36,909             100.0   %   $        99,801             100.0   %   $        73,003             100.0   %
Ohio                                           $          17,245              33.1   %   $        14,694              39.8   %   $        33,574              33.7   %   $        28,808              39.4   %
Illinois (2)                                              13,561              26.0                     -                 -                16,078              16.1                     -                 -
New Mexico                                                 7,846              15.1                 8,717              23.6                23,102              23.1                17,948              24.6
All other states                                          13,422              25.8                13,498              36.6                27,047              27.1                26,247              36.0
Total hospice segment net service revenues     $          52,074             100.0   %   $        36,909             100.0   %   $        99,801             100.0   %   $        73,003             100.0   %


(2) With the JourneyCare acquisition, the Society expanded its hospice

          services in the state of Illinois.



Home Health Segment                                                   For the Three Months Ended June 30,                                             

For the six months ended June 30th,

                                                                 2022                                      2021                                     2022                                      2021
                                                                            % of                                     % of                                      % of                                     % of
                                                                           Segment                                  Segment                                   Segment                                  Segment
                                                      Amount             Net Service             Amount           Net Service             Amount            Net Service             Amount           Net Service
                                                  (in Thousands)          Revenues           (in Thousands)        Revenues           (in Thousands)         Revenues           (in Thousands)        Revenues
Medicare                                         $           7,592               72.1   %   $          3,825              81.1   %   $          14,404 
            72.7   %   $          7,327              80.9   %
Managed care organizations                                   2,262               21.5                    822              17.4                   4,166              21.0                  1,620              17.9
Other                                                          682                6.4                     70               1.5                   1,241               6.3                    110               1.2

Total net revenues from home health services $10,536

    100.0   %   $          4,717             100.0   %   $          19,811             100.0   %   $          9,057             100.0   %
New Mexico                                       $           9,070               86.1   %   $          4,717             100.0   %   $          16,579              83.7   %   $          9,057             100.0   %
Illinois (3)                                                 1,466               13.9                      -                 -                   3,232              16.3                      -                 -

Total net revenues from home health services $10,536

    100.0   %   $          4,717             100.0   %   $          19,811             100.0   %   $          9,057             100.0   %


(3) With the acquisition of Summit, the Company has expanded its home care offering

services in the state of Illinois.


We derive a significant amount of our net service revenues in Illinois, which
represented 43.8% and 38.9% of our net service revenues for the three months
ended June 30, 2022 and 2021, respectively, and accounted for 41.6% and 37.4% of
our net service revenues for the six months ended June 30, 2022 and 2021,
respectively.

A significant amount of our net service revenues are derived from one payor, the
Illinois Department on Aging, the largest payor program for our Illinois
personal care operations, which accounted for 20.7% and 22.6% of our net service
revenues for the three months ended June 30, 2022 and 2021, respectively, and
accounted for 20.7% and 21.5% of the Company's net service revenues for the six
months ended June 30, 2022 and 2021, respectively.

Reimbursement Rate Changes

Illinois

On November 26, 2019, the City of Chicago voted to approve additional increases
in the Chicago minimum wage to $14 per hour beginning July 1, 2020 and to $15
per hour beginning July 1, 2021. In subsequent years, minimum wage will be
increased through a cost of living adjustment capped at 2.5%.

Effective January 1, 2021, the state of Illinois fiscal year 2021 budget
increased hourly in-home care rates through the Community Care Program by 7.1%,
to $23.40 from $21.84. However, the rate increase was delayed and did not take
effect until April 1, 2021, as a result of the

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failure of the November 2020 referendum to revise the Illinois income tax code.
The Company recognized $2.0 million related to the rate increase for the year
ended December 31, 2021, which was received during the three and six months
ended June 30, 2022.

Originally, the Illinois fiscal year 2022 budget included a scheduled increase
of hourly in-home care rates to $24.96, to be effective January 1, 2022. On July
12, 2021, in connection with the temporary increase in federal funding for
Medicaid HCBS authorized by the ARPA, Illinois submitted its Initial Spending
Plan and Narrative to CMS for approval. This plan included the acceleration of
the rate increase to $24.96 to November 1, 2021 from January 1, 2022 (i.e., two
months earlier). CMS granted partial approval of the Illinois plan, including
the acceleration of the rate increase to November 1, 2021. However, CMS noted
that the state will need to submit an amendment for certain Medicaid waiver
programs with regard to any rate change methodology and has highlighted that pay
increases for providers of HCBS funded through the temporary increase in federal
matching funds available under the ARPA will require an updated rate
methodology. We recognized revenue of $3.6 million related to the rate increase
for the year ended December 31, 2021, of which $2.1 million was received during
the three and six months ended June 30, 2022. The remainder is expected to be
received during the third quarter of 2022.

The Illinois the budget for fiscal year 2023 was promulgated by the Governor on
April 19, 2022 and includes a $0.70 effective rate increase January 1, 2023. The
Chicago minimum wage increased by 2.5% in force July 1, 2022.

Our business will benefit from the rate increases noted above as planned for
2023, but there is no assurance that there will be additional offsetting rate
increases in Illinois for fiscal years beyond fiscal year 2023, and our
financial performance will be adversely impacted for any periods in which an
additional offsetting reimbursement rate increase is not in effect.

Impact of changes in Medicare and Medicaid reimbursement

Home health

Home health services provided to Medicare beneficiaries are paid under the
Medicare Home Health Prospective Payment System ("HHPPS"), which uses national,
standardized 30-day period payment rates for periods of care that meet a certain
threshold of home health visits (periods of care that do not meet the visit
threshold are paid a per-visit payment rate for providing care). Although
payment is made for each 30-day period, the HHPPS permits continuous 60-day
certification periods through which beneficiaries are verified as eligible for
the home health benefit. The daily home health payment rate is adjusted for
case-mix and area wage levels. CMS uses the Patient-Driven Groupings
Model ("PDGM") as the case-mix classification model to place periods of care
into payment categories, classifying patients based on clinical characteristics
and their resource needs. An outlier adjustment may be paid for periods of care
where costs exceed a specific threshold amount.

CMS updates the HHPPS payment rates each calendar year. For calendar year 2022,
CMS increased HHPPS rates by an estimated 3.2%, which reflects a 3.1% market
basket update and a productivity adjustment of negative 0.5 percentage points,
among other changes. Home health providers that do not comply with quality data
reporting requirements are subject to a 2-percentage point reduction to their
market basket update. In addition, beginning January 1, 2022, Medicare requires
home health agencies to submit a one-time Notice of Admission ("NOA") for each
patient that establishes that the beneficiary is under a Medicare home health
period of care. Failure to submit the NOA within five calendar days from the
start of care will result in a reduction to the 30-day period payment amount for
each day from the start of care date until the date the NOA is submitted.

Effective January 1, 2022, CMS began implementing a nationwide expansion of the
Home Health Value-Based Purchasing ("HHVBP") Model. Under the model, home health
agencies will receive increases or decreases to their Medicare fee-for-service
payments of up to 5%, based on performance against specific quality measures
relative to the performance of other home health providers. Data collected in
each performance year will impact Medicare payments two years later. Calendar
year 2023 is the first performance year under the expanded HHVBP Model, which
will affect payments in calendar year 2025.

In certain states, payment of claims may be impacted by the Review Choice
Demonstration for Home Health Services, a program intended to identify and
prevent fraud, reduce the number of Medicare appeals and improve provider
compliance with Medicare program requirements. The program applies to home
health agencies in Illinois, Ohio, North Carolina, Florida and Texas and may
expand, in the future, into additional states. Providers in states subject to
the Review Choice Demonstration may initially select from the following claims
review and approval processes: pre-claim review, post-payment review or a
minimal post-payment review with a 25% payment reduction. Home health agencies
that maintain high compliance levels will be eligible for additional options
that may be less burdensome. We are currently unable to predict what impact, if
any, this program may have on our result of operations or financial position.

Hospice

Hospice services provided to Medicare beneficiaries are paid under the Medicare
Hospice Prospective Payment System, under which CMS sets a daily rate for each
day a patient is enrolled in the hospice benefit. CMS updates these rates each
federal fiscal year. Effective October 1, 2021, CMS increased hospice payment
rates by 2.0%. This reflects a 2.7% market basket increase and a negative 0.7
percentage point productivity adjustment. Hospices that do not satisfy quality
reporting requirements are subject to a 2 percentage point reduction to the

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update of the grocery basket. Starting in 2024, the market basket update reduction for failure to report quality data will increase to 4 percentage points.

Overall payments made by Medicare to each hospice provider number are subject to
an inpatient cap and an aggregate cap, which is set each federal fiscal year.
The inpatient cap limits the number of days of inpatient care to no more than
20% of total patient care days. The aggregate cap, which limits the total
Medicare reimbursement that a hospice may receive based on an annual
per-beneficiary cap amount and the number of Medicare patients served, was
updated to $31,297.61 for federal fiscal year 2022. If a hospice's Medicare
payments exceed its inpatient or aggregate caps, it must repay Medicare the
excess amount.

New York CDPAP

The New York Consumer Directed Personal Assistance Program ("CDPAP") is a
self-directed care alternative program that allows eligible individuals who need
help with activities of daily living or skilled nursing services to choose their
caregivers. We provide support services as a CDPAP fiscal intermediary. In 2021,
the Company was not selected to enter into contracts as a Lead Fiscal
Intermediary and submitted a formal protest in response to the selection
process, which was filed and accepted on March 19, 2021. The Company has not
received a response to the formal protest.

The New York fiscal year 2023 state budget, passed in April 2022, amends the
current Fiscal Intermediary Request For Offer ("RFO") process to authorize all
fiscal intermediaries that submitted an RFO application and served at least 200
clients in New York City or 50 clients in other counties between January 1, 2020
and March 31, 2020 to contract with the New York State Department of Health and
continue to operate in all counties contained in their application. Under this
provision, the Company is allowed to continue to contract with all of its
current payors for CDPAP services. The Company continues to assess the future of
its participation in this program. Given the status of the program, the Company
suspended materially all of its new patient admissions under the New York CDPAP.

Components of our income statements

Net service income

We generate net service revenues by providing our services directly to consumers
and primarily on an hourly basis in our personal care segment, on a daily basis
in our hospice segment and on an episodic basis in our home health segment. We
receive payment for providing such services from our private consumers and
payors, including federal, state and local governmental agencies, managed care
organizations and commercial insurers.

In our personal care segment, net service revenues are principally provided
based on authorized hours, determined by the relevant agency, at an hourly rate,
which is either contractual or fixed by legislation, and are recognized at the
time services are rendered. In our hospice segment, net service revenues are
provided based on daily rates for each of the levels of care and are recognized
as services are provided. In our home health segment, net service revenues are
based on an episodic basis at a stated rate and recognized based on the number
of days elapsed during a period of care within the reporting period. We also
record estimated implicit price concessions (based primarily on historical
collection experience) related to uninsured accounts to record revenues.

Service revenue cost

We incur direct care wages, payroll taxes and benefit-related costs in
connection with providing our services. We also provide workers' compensation
and general liability coverage for our employees. Employees are also reimbursed
for their travel time and related travel costs in certain instances.

General and administrative expenses

Our general and administrative expenses include our costs for operating our
network of local agencies and our administrative offices. Our agency expenses
consist of costs for supervisory personnel, our community care supervisors and
office administrative costs. Personnel costs include wages, payroll taxes and
employee benefits. Facility costs include rents, utilities, and postage,
telephone and office expenses. Our corporate and support center expenses include
costs for accounting, information systems, human resources, billing and
collections, contracting, marketing and executive leadership. These expenses
consist of compensation, including stock-based compensation, payroll taxes,
employee benefits, legal, accounting and other professional fees, travel,
general insurance, rents, provision for doubtful accounts and related facility
costs. Expenses related to streamlining our operations such as costs related to
terminated employees, termination of professional services relationships, other
contract termination costs and asset write-offs are also included in general and
administrative expenses.

Depreciation and amortization

Depreciable assets consist primarily of furniture and equipment, network and telephone administration equipment and operating system software. Depreciable and leased assets are depreciated on a straight-line basis over their useful life or, if it is lower and if

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applicable, their lease terms. We amortize our intangible assets with finite
lives, consisting of customer and referral relationships, trade names,
trademarks and non-competition agreements, using straight line or accelerated
methods based upon their estimated useful lives.

Interest charges

Interest expense is recognized as incurred and consists primarily of interest and unused line of credit charges on the credit facility.

income tax expense

All of our income is from domestic sources. We incur state and local taxes in
states in which we operate. The effective income tax rate was 25.1% and 26.7%
for the three months ended June 30, 2022 and 2021, respectively. The effective
income tax rates are 26.3% and 23.5% for the six months ended June 30, 2022 and
2021, respectively, compared to our federal statutory rate of 21%. The
difference between our federal statutory and effective income tax rates was
principally due to the inclusion of state taxes, non-deductible compensation,
excess tax expense/benefit and the use of federal employment tax credits.

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