Amedisys Inc
NASDAQ:AMED
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Amedisys Inc
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Greetings, and welcome to the Amedisys Q2 2021 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Nick Muscato. Thank you, Nick. You may begin.
Thank you, operator, and welcome to the Amedisys investor conference call to discuss the results of the second quarter ended June 30, 2021. A copy of our press release, supplemental slides and related Form 8-K filing with the SEC are available on our investor relations page on our website.
Speaking on today's call from Amedisys will be Paul Kusserow, Chairman and Chief Executive Officer; Chris Gerard, President and Chief Operating Officer; and Scott Ginn, Executive Vice President and Chief Financial Officer. Also joining us is Dave Kemmerly, Chief Legal and Government Affairs Officer.
Before we get started with our call, I would like to remind everyone that statements made on this conference call today may constitute forward-looking statements and are protected under the safe harbor of the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to Amedisys today. The company assumes no obligation to update information provided on this call to reflect subsequent events other than as required under applicable securities laws.
These forward-looking statements may involve a number of risks and uncertainties, which may cause the company's results or actual outcomes to differ materially from such statements. These risks and uncertainties include factors detailed in our SEC filings, including our Forms 10-K, 10-Q and 8-K.
In addition, as required by SEC Regulation G, a reconciliation of any non-GAAP measure mentioned during our call today to the most comparable GAAP measure will also be available in our Forms 10-K, 10-Q and 8-K.
Thank you. And now I'll turn the call over to Amedisys' Chairman and CEO, Paul Kusserow.
Thanks, Nick, and welcome to the Amedisys 2021 Second Quarter Earnings Call. We have a lot to discuss on today's call. But before we dive in, I want to express my sincerest appreciation to all 21,000 Amedisys employees that have helped navigate the company through an operating environment unlike any other in history over the course of the last 16 months.
COVID has changed how we do business, impacted us all and continues to threaten us with the surging Delta variant. It has been and still is all-hands-on-deck. And all along, our indefatigable and undaunted caregivers have been on the front lines, providing the industry's highest-quality care to the nation's most frail population.
Financial results are important, of course, but our first priority is always patient care. I don't want anyone to lose sight of just how heroic these efforts have been. And even though COVID is an obstacle we are dealing with daily, your unrelenting quest to care for your patients has always been truly awe-inspiring. Thank you for all that you do. I'm extremely proud of what this company does every day.
With that, I will dive right into a few developments that have taken place over the course of the second quarter, and then I'll turn it over to Chris Gerard to walk us through the second quarter operational update.
Since our last call, there has been a flurry of activity, highlighted by the signing and closing of Contessa. I am happy to announce that the deal closed August 1, and I want to take a moment to welcome all of the Contessa associates to the Amedisys family.
The leader in its space, Contessa is a risk-bearing, tech-enabled, hospital-at-home and SNF-at-home platform, one that Amedisys will continue to invest in for future growth in Contessa's current lines of business but also for new growth into the new areas of care in the home, such as palliative care, primary care, and expanding their technology base to allow for even more and new cross-functional risk arrangements across the home health spectrum.
Contessa also adds significant capabilities to Amedisys, such as a new Medicare Advantage-focused claims payment and risk analytics platform. Other strategic benefits from this acquisition include the addition of higher-acuity home-based care to our current service level offering, allowing Amedisys to create the premier home-based health system with the broadest reach in the industry. It also brings significant expansion of Amedisys' total addressable market, the TAM, of in-home care services from $44 billion to $73 billion. But more importantly, this allows us to deliver more care to a broader spectrum of people in their homes.
It also expands Amedisys home health and hospice's MA pipeline to include new or enhanced joint ventures and acquisitions with partner health systems. It accelerates admissions, expansions and growth opportunities for our core Amedisys home health and hospice businesses to seek care coordination and preferred provider arrangements with current and future hospital-at-home and SNF-at-home hospital partners. We are thrilled to get this deal closed, and we're already working hard to capitalize on the tremendous growth and new frontier opportunities for Amedisys and Contessa.
On the legislative front, on June 28, 2021, CMS issued the 2022 proposed rule for Medicare home health providers. CMS estimates that the proposed rule will result in a 1.7% increase in payments. Based on our preliminary analysis of the proposed rule, we expect our impact to be slightly higher than the industry average.
The proposed rule also provides for the expansion of the home health value-based purchasing model to all 50 states beginning January 1, 2022, with calendar year 2022 being the first performance year and calendar year 2024 the first payment year, with a proposed maximum payment adjustment or penalty of 5%.
We are pleased to see the nationwide expansion of VBP. Given our top-ranked composite STARS of 4.33 and that over 99% of our care centers have a STARS score of 4 or better and our advocacy of these -- of efforts with CMMI for 2 years, we are excited that CMS announced this expansion of VBP.
Also, on July 29, CMS issued the final payment rule for Medicare hospice providers for the fiscal year 2022, effective for services provided beginning October 1, 2021. CMS estimates that the final rule will result in a 2% increase in payments to hospice providers. We expect the Amedisys-specific impact to be in line with the industry. As you can see, a lot has transpired throughout the second quarter, and externally, within our business.
I'll now turn the call over to Chris Gerard to give us a rundown of our operational performance during the quarter and our projections for the year ahead. Chris?
Thanks, Paul. Now let's review our second quarter results by line of business, starting with home health. Home health continued its extremely strong performance again this quarter, growing total volume by 12% and total admissions by an impressive 20%. As you know, Q2 '20 was our most heavily impacted quarter due to COVID. And even though the year-over-year growth was suppressed in the second quarter of last year, performance in Q2 '21 was very impressive.
For the quarter, we performed 14.2 visits per episode, up 0.3 visits sequentially and down 1.2 visits year-over-year. We remain very comfortable with our VPE levels as we have seen strong increases in our quality scores.
As a reminder, we have consistently stated we will never do anything to impact all these scores. And given our continued improvement in home health quality scores, along with the decreased visits per episode, we're delivering on that promise.
On clinical mix, in Q2, we achieved 47.5% LPN utilization and 52.9% PTA utilization. As business per episode have come down, our ability to increase our LPN utilization has become more challenging. However, there is still room for improvement.
We also saw year-over-year productivity improvements in our home health clinical staff performances as visits per episode per FTE increased over 1%. Increased productivity, combined with decreased visits per episode, increases our capacity, which will be key to our future growth opportunities.
I want to once again call attention to how strong performance has been in our home health segment. From admission growth to margin growth, home health has really been hitting on all cylinders. Thank you to all of our home health associates for their continued efforts to drive our business forward.
Now moving on to hospice. For the quarter, we grew hospice total admissions by 2%, while ADC was down 3%. Unlike home health that saw a very sharp impact and steep rebound from COVID in 2020, the COVID impact and rebound in hospice has been slower to develop and has impacted the business into 2021 in multiple ways.
As you may recall, at the beginning of the year, we guided to a total admissions growth target of 18%. In order to achieve this, we needed to execute on the following. Grow our hospice BD FTEs from 476 when we were entering the new year to 528 by the mid of December, while growing our BD FTE productivity from about 8.7 referrals per month to about 10 referrals per month. Our initial projections were appropriately aggressive. We've been executing superlatively. And the data points and trends all show the path to 18% admissions growth.
Now what we did not expect and the reasons we're layering in more conservatism to our revised guidance was prolonged, and now, resurgent impact of COVID on our hospice business. Specifically, some of the significant impacts were as follows: the decline and continued suppressed occupancy rates in senior living facilities. A major referral source accounted for over 25% of our referrals. Occupancy pressures continues to be a headwind we are fighting today, especially with the Delta variant surging and pointing to a higher probability of occupancy being significantly lower throughout the remainder of 2021.
COVID patients on service significantly impacted our median length of stay during the early part of the year. Now we only had 18 days versus 26 days pre-COVID, a 32% decline. Excess burnout of something as a result of COVID in 2021 shrank admission opportunity.
And finally, we saw a significant increase in hospice BD FTE turnover, partially driven by COVID burnout and a change in human behavior, which many other industries are seeing, particularly on their BD staff.
The continuation of COVID impacts into the back half of 2021 were not baked into our original guidance and have clearly impacted our ability to achieve our previously projected growth targets. Some of these impacts have been out of our control, but there are efforts in place internally to help drive growth in the second half of the year.
As I've described above, there are no systemic issues or unresolved problems with our hospice business. Clinical quality and operations are fine and performing like we'd expect, and in most cases, better. Consistent growth through the pandemic has been our single hurdle.
Our recovery comes down to 2 things: hiring BD staff and retaining those we hire. If that sounds familiar, it should, as it is nearly the exact same strategy we put in place to grow our home health business in 2017 and had delivered the results we see today.
The strategy is not overly complicated, but it works. We have proven that in the past. So here's what we're doing. We're going back to our basic strategy that saw our hospice segment double its ADC organically from 2015 to 2019. We have added to our recruiting staff and have a team focused 100% on recruiting hospice BD team members. And though it has come later in the quarter, we made progress in ramping up our BD FTEs.
We have invested in the hospice BD leadership structure, adding VPs to BD, AVPs to BD and field trainers to help provide oversight and drive rep retention and productivity growth.
We are set to pilot new quality and growth tools in the field, including the Medalogix's Bridge program, which identifies patients currently in home health that may be in need of hospice; and Medalogix's Muse program, which will give our referral sources better insight into the quality of care we provide our patients.
And as we continue to move our BD leadership and BD staff back into the field, we will return to in-person trainings and ride-alongs. This in-person on-the-job training was lost during COVID as we moved to a virtual environment, and it will surely pay dividends as we have numerous VBD reps, many of whom have yet to meet their manager in person.
It is time for us to rebuild our community and hospice heart philosophy, which were impacted during the pandemic. Again, there's nothing overly complicated here, but all of these activities will result in stronger growth through the remainder of the year. We have a plan, have what we can control internally identified, and we'll execute and deliver on the levers you see today.
Now with that, I'll turn it over to Scott, who will take us through a more detailed review of our financial performance in the quarter and our projections for the remainder of the year. Scott?
Thanks, Chris. I am pleased with our second quarter financial results. For the second quarter of 2021, on a GAAP basis, we delivered net income of $2.43 per diluted share and $564 million in revenue, a revenue increase of $79 million or 16% compared to 2020. As a reminder, we have chosen to apply our CARES Act funds only to direct costs associated with COVID-19. The majority of these costs are included in cost of service.
For the quarter, our results were impacted by income or expense items adjusting our GAAP results that we have characterized as non-core, temporary or onetime in nature.
Slide 15 of our supplemental slides provides detail regarding these items and the income statement line items each adjustment impacts. You'll note that our adjustments include the recognition of CARES Act funds and direct costs associated with COVID-19.
Additionally, for the second quarter 2021, our GAAP results include a $30 million gain on our investment in Medalogix as well as reversal of a $6.5 million reserve for DOJ matter, which was closed during the quarter.
For the second quarter on an adjusted basis, our results were as follows: revenue grew $73 million or 15% to $558 million. EBITDA increased $17 million or 26% to $84 million. EBITDA as a percentage of revenue increased 130 basis points to 15%, representing our highest EBITDA margin in recent company history. And EPS increased $0.35 or 26% to $1.69 per share.
Significant items impacting our Q2 2021 consolidated results are as follows: the suspension of sequestration and rate increases added $13 million to revenue and gross margin. Improvement in home health revenue per episode, a reduction in visits per episode and improvement in clinician utilization drove a 320 basis point improvement in home health gross margin. And the AseraCare acquisition contributed $25 million in revenue, which represents a $16 million increase over prior year.
Now turning to our second quarter adjusted segment performance. Keep in mind, segment-level EBITDA is pre-corporate allocation. In home health, revenue was $349 million, up $59 million or 20% compared to prior year, driven by same-store total admissions growth of 20%.
Revenue per episode was up $168 or 6%. The increase in revenue per episode is a result of a 1.9% increase in reimbursement, 1 additional month of the suspension of sequestration, a decline in LUPAs resulting from missed visits related to COVID-19 in prior year, an increase in the functional impairment of our patients and a change in the timing and geographic dispersion of our patients.
Our implementation of Medalogix Care has led to a reduction of 1.2 visits per episode, while we continue improving on our quality scores. Visiting clinician cost per visit increased 8% over prior year. The increase was driven by planned wage increases and an increase in new hire pay, a significant increase in the utilization and rates of contract clinicians driven by growth in COVID-19 and higher insurance costs.
Our gross margin improved 320 basis points despite the 8% increase in cost per visit. The improvement was driven by a 6% increase in revenue per episode, our significant progress on clinical staffing mix and utilization and the variable nature of our business model, which benefited from significantly higher volumes.
G&A increased approximately $10 million, mainly driven by lower spend in Q2 2020 related to COVID-19 raises, higher health insurance costs, increases in care center administrative staff and business development resources and investments related to PDGM.
Segment EBITDA was $80 million, up $27 million with an EBITDA margin of 22.8%, representing a 450 basis point improvement. Sequentially, segment EBITDA was up $9.1 million, driven by strong admissions and a $55 increase in revenue per episode.
Now turning to our hospice segment results. For the second quarter, revenue was $191 million, up $14 million over prior year, an increase of 8%, which includes the addition of the AseraCare acquisition, which closed on June 1, 2020. Net revenue per day was up 2% driven by an additional month of a sequestration suspension and a 2.4% hospice rate increase that went into effect, October 1, 2020.
As Chris discussed, hospice admissions grew 2% and ADC declined 3% as the lingering impacts of COVID and business development staff turnover impacted growth. Hospice cost per day increased $6.15, primarily due to raises, health insurance costs, higher business performed by all our employees as prior year was impacted by access restrictions due to COVID and higher transportation costs.
EBITDA was $40 million, down approximately $6.5 million, a decrease of 14%. The AseraCare acquisition added incremental revenue of $16 million and EBITDA of $3 million to the segment's performance this quarter.
G&A increased $8 million, largely driven by the AseraCare acquisition and an increase in travel and training. Sequentially, segment EBITDA decreased $7 million, primarily due to an increase in health insurance costs, revenue adjustments, business development additions and travel and training.
Turning to our total general and administrative expenses. On an adjusted basis, total G&A was $171 million or 30.7% of total revenue, which is an increase of $20 million year-over-year and includes $5.5 million in additional costs related to the AseraCare acquisition. The increase reflects a slowdown in prior year's spend due to COVID-19, higher health insurance costs, raises, additional business development resources and operational support and investments related to PDGM, offset by a decrease in incentive accruals.
We continue to generate impressive cash flow in the second quarter producing $68 million in cash flow from operations. Cash flow from operations was ahead of internal projections due to strong cash collections. Year-over-year, our DSO increased 0.7 days and was down 1.2 days sequentially. As a result of our continued strong cash flow, our net leverage ratio at the end of the quarter was 0.5x.
Turning to M&A. On May 1, we acquired the regulatory assets of a home health provider in Randolph County, North Carolina. We started Q3 off with an increase in M&A activity as well. In addition to the closing of Contessa on August 1, we acquired Visiting Nurse Association, a home health and hospice provider with locations in Nebraska and Iowa, on July 1. And we closed on acquisition of a CON in Westchester County, New York, on July 12.
We also announced that the Board of Directors has approved an additional $100 million authorization for stock repurchases, which we will deploy opportunistically, which adds to the $26 million remaining from our previous authorization. Neither the Contessa deal nor the stock purchase -- stock repurchase authorization impacts our ability to acquire additional home health or hospice assets.
In connection with the closing of the Contessa acquisition, we have also closed on the amendment and extension of our credit facility. Under our new $1 billion senior secured credit facility, we will have a $450 million term loan and a $550 million revolver, which will be used for continued core business and organic growth. Thank you to our banking partners led by Bank of America for the seamless execution on this extension.
Finally, as you can see on Page 23 of our supplemental slide deck, we're updating our guidance ranges for 2021. This updated guidance reflects the lingering effect of COVID and the impact of its resurgence on our hospice business. Our core business guidance ranges are: adjusted revenue of $2.23 billion to $2.25 billion, adjusted EBITDA of $315 million to $320 million and adjusted EPS of $6.37 to $6.49.
Including the impact of acquisitions, primarily the Contessa and the VNA, these ranges are: adjusted revenue of $2.24 billion to $2.26 billion, adjusted EBITDA of $301 million to $308 million, adjusted EPS of $6.03 to $6.18.
Our performance in the first half of 2021 produced strong EBITDA and expanded margins, and though hospice growth was behind our projections, we were confident in our outlook. Given the recent surges in COVID-19, difficulties growing our BD staff in Q2 and uncertainty around how states, facilities and referral sources react, we feel it prudent to adjust our 2021 guidance ranges down. The key drivers of the reduction in guidance are primarily reduction in our second half hospice admit and ADC growth, continued need for the utilization of contractors and higher health costs.
Throughout 2020 and into 2021, we have been mindful of our need to deliver results, and we've managed costs aggressively after facing top line pressures. However, with our recent acquisition activity, we still believe that there's a significant opportunity to grow our hospice segment, which has required us to invest in leadership and continue to hire clinical employees to support this future growth.
Accordingly, and given that our hospice growth disruption has been isolated and turnover in hiring is not a systematic issue, we're committed to staffing our hospice segment for this growth opportunity despite the impact in near-term margins.
COVID-19 has impacted the operating metrics typically used to forecast both growth and cost assumptions for both core Amedisys and Contessa. We are basing our guidance on our current operating environment. COVID-19 continues to evolve in both the disease itself as well as disruptions to the health care systems and the economy. Any future regulations or government interventions, spiking clinicians and BD staff on quarantine, reduction in elective procedures, change in patient behavior and further decline in senior living occupancy could impact our ability to achieve this guidance.
I'll now turn the call back over to Paul to conclude. Paul?
Thanks, Scott. As you can see, the unanticipated lingering impacts of COVID on our hospice segment has delayed our ability to grow at our projected forecast. That said, the business continues to deliver great care and generate strong margins. We have isolated and identified the problem to 2 areas: BD turnover and hiring. We've developed action plans and assigned accountability to deliver these results.
We are confident in our ability to deliver our second half 2021 numbers, and hopefully, beyond. In parallel, we will use our new services via the Contessa acquisition to further propel us on our path to risk and solidify our very advantageous position.
We have work to do. We have made promises upon which we will deliver. We are motivated, excited and committed to achieving our goals. We have a good strategy, and we're sticking to it.
This ends our prepared remarks. Operator, please open the call for questions.
[Operator Instructions] Thank you. Our first question comes from Brian Tanquilut with Jefferies.
I guess for Paul, as I think about your home health business, your home nursing business did pretty well during the quarter, 20% organic growth, but obviously, challenges in hospice. Where do you sit today? How are you thinking about the long -- getting past 2021, how are you thinking about the sustainable growth rate? Or kind of if we're looking at an EBITDA growth outlook for, say, the next 2 to 3 years, how does that look today given everything that's changed and all the moving parts in the business?
Yes. So thank you for the question. We feel good about what we've done in hospice. As you know, we went out about 2 years ago and started buying up hospice and went from the eighth largest to the third largest hospice, spending about $700 million to build up our presence in hospice. We even did a deal, AseraCare, during COVID.
I think what we're seeing here is when COVID hit 16 months ago, we -- some of the things that we were getting -- trying to get done out there got slightly delayed. And then when you add the effects of the relatively short stays that we were getting with the COVID patients, we were seeing very strong admissions, but we were seeing days going down by 33% in terms of median days from 26 to 18.
So just long term, we feel very good about it. I think the key thing is we got a pretty good strategy. Our strategy is obviously to hire BD. We're seeing progress there, particularly in July. So we're seeing very good solidity there. We're seeing reduction in turnover. Probably, in May, we saw our worst month, April, May, getting better in June. Now July is good. People are going back to school. We believe there's some solidity there.
And in general, we're seeing admits improve, people settle down. But it's -- what we experienced between February and May was a real drop-off of, frankly, asking people to change behavior and come to work and put the necessary time in when they've been just taking orders at home. And we found that, that was a big challenge.
The other thing we're going to be working on -- there's really 3 things we're going to be needing to do: one, hiring more people; two, retaining better people just in BD. I think we're performing really well clinically and really well operationally. So I isolate our problem to just the area of BD growth, and that seems to be looking better. The other thing is we have, due to the acquisitions, some low ADC hospices. We have 54. We've identified these 54 as places where we're going to have to really dig in, get the ADC up so that we can get the economics in place.
So in general, we're still looking at hospice growth, in general, at between 6% and 7% CAGR for the next 5 to 7 years. So it's a great business. We love the business. We provide extraordinarily good care. We run the businesses well. The problem has been our growth has been obviously erratic in Q2, and that's going to play throughout the year. 2022, I'd say, looks a lot better; and 2023, obviously, much, much better.
I don't know, Scott, anything you want to correct me on?
No. I think you've hit it. I mean I think our ability to continue to grow EBITDA, we're very comfortable with that. I mean I think that, certainly, when you look at our acquisitions in CCH with -- absent COVID, it's probably a little behind where we wanted to be, but it's really performing extremely well. So is AseraCare.
I mean we had great growth there. Great growth in our, as we talked about, in our home health business, like 20% admit volumes. We hit 21 Medicare admits. So all of that's exceedingly strong. We continue to push on that, and we'll get some nice numbers into next year. We just got to rebuild in the back half here from an ADC perspective.
And we expect to do that by the end of this year.
Got it. And then I guess for Chris, you touched a little bit on the action plan. But maybe just if you can give us your perspective on kind of like the cadence of some of these moves that you're making in terms of when we will see some of the benefits as it relates to the ADC and kind of like what metrics you're looking at to say, okay, we are hitting the goals to get back on track. Just a little more detail on the action plan to turn the business around and also keep the growth healthy on the home nursing side.
Sure. Yes. Brian, in terms of some of the metrics we look at, obviously, sales calls drive referrals, which drives admits. And sales calls is a function of the productivity of your sales reps. So as we've been very clear, it takes a certain number of reps out making the right number of calls to the right accounts to generate the phone ringing that turns into admissions.
We identified coming out of Q1 into Q2 that we were behind in our FTEs. A little bit of that was because we had such a strong Q4, and actually, first part of Q1, we were seeing great productivity out of our reps, but most of that was kind of inflated due to the pandemic and COVID-related admits.
So our target and our goal was to really grow the BD force in Q2 going into Q3, and then to kind of getting on track for Q3 and Q4. We carried 476 into the year. We carried 480 into Q2, expecting to grow that significantly. But we only exited Q2 going into Q3 at 490, which was a disappointment for us.
So the driving factors there was a spike in our turnover -- our BD turnover, and Paul kind of mentioned some of the things that was driving that, as well as us making sure that we're getting enough new hires. I'm happy to say that now we're making real strong progress, 505 today and growing. And turnover has ticked down since our peak in May.
So what I watch every day is kind of how we're doing in terms of bringing our reps on and maintaining our reps and growing that force. And if you think about -- right now, today, 25% of our reps have been here 6 months or less. 41% have been here less than 1 year. Those are the formative periods for reps and productivity. So as we age those deeper into tenure, we should see additional pickup, and that should actually add to the overall productivity of our reps.
So our goal is in this year, well over 530, maybe even up to 550. The pace we're on, we can hit that. And making sure we're adding them in the right markets, and that should generate the referrals, and hence, the admits that we need to be on track.
Sequentially, I just -- I'd paid off back half of the year like this. I think you'll see sequential ADC improvement in Q3 over Q2, but flat to negative -- slightly down if we hit our internal goals for Q3, but impressive admit and ADC growth in Q4 going into 2022.
And just keep in mind that, that admit growth that we should generate in Q4, which I think will be respectable, relatively speaking, is going to be against a heavily inflated Q4 comp from last year when we had 400 COVID-related admits that we don't expect to get, but depending on the Delta variant, it could happen again.
But -- so I'm encouraged by how we're going to end this year, how we're going to basically move through the second half. I'm confident in the plan. It's just now a matter of just basically every day executing on it.
Our next question comes from Matt Larew with William Blair.
Scott, I was hoping maybe with the EBITDA guidance we set here for 2021, if you could just kind of remind us or help walk us through the moving parts for 2022. Obviously, just with sequester coming back, the hospice dynamic you've discussed, Contessa in play, it might just be helpful, at least for me, to kind of hear what you're seeing as the moving pieces for '22?
Yes. I mean we can always -- we'll start with kind of top line reimbursement, which always drives everything there for 2022 as we move forward. I mean right now, we expect sequestration to go away, which -- we'll see what happens. We were surprised that it was extended during this year. So we'll see.
Right now, on the surface, we're looking to get a -- somewhere around a 2% rate increase here in hospice effective October. So that's going to be a positive. The home health rule that came out is not final, is around 1.7%. Our internal modeling kind of puts us close to around a 2% number. We'll see once that gets finalized. So I mean that's certainly the big drivers for us.
I think as we move into next year, the continued development around our hospice -- this ADC issue will certainly help. I mean the comps should be favorable for us around there. So it will give us some expansion because, as I've said in my prepared comments, we've added cost to that segment in order to really get the growth out of it. So you will be seeing some ability to expand some margins around that.
Home health's in great shape. So I feel good about us. It's going to be a growth story, and the growth looks strong there. PDGM, we've done very well. So there's not a lot of expansion coming out of that. I think the opportunities in home health are going to be get our staffing right.
We've made good hires. I mean part of our pressure on cost per visit right now is new hire pay, which has added about $2, which you're not seeing in those numbers because we've really done great within our LP and RN mix, which has offset some of that with -- even given raises.
So the opportunity that we'll get those new hires productive and pull down that contractor pay, which is running at -- right now, at a year-over-year about a $4 million additional clip. So that's going to help us there upfront. So I think those are the key drivers.
I think our cost structure is built out. So we'll be mindful of G&A so that it's going to come back down the top line growth. And we think that once we get this hospice rightsized, then we'll continue to push on the home health side as well.
Okay. And then just on home health, obviously, the strong performance in the quarter. Just curious now as some of the CARES -- stimulus support to smaller providers is starting to reverse. Either from an organic perspective, curious what you're seeing out there, share taking or the ability to hire folks? And then just from an M&A perspective, what the pipeline either you're hearing about or seeing as?
Yes. I'll take the piece on the pipeline and let Chris kind of talk about the hiring if we're seeing anything around that. From a pipeline perspective, we haven't seen a lot really coming in. We do agree with what you're saying that, I think, as the stimulus dollars, that's going to -- you'll have all money back here in Q4, sequestration going away, that's going to put pressure on a lot.
So we expect it to open up. We've been active in our pipeline regardless of that and kind of just been more aggressive on pursuing targets, as I've said before. So I see that opening up, which will be a great opportunity for us to not only do some deals but also take share just from possibility of some folks having to step away from their business.
But Chris, I don't know if you have some thoughts around the hiring and how that we feel around that?
Yes. Matt, I don't think we're seeing yet the impact to the smaller providers out there related to PDGM. They're still propped up by a lot of subsidies out there. I do anticipate when that actually does start to impact, it only creates an opportunity for us to absorb care centers as well as staff.
The hiring environment out there right now, just -- it's very competitive, and it's very difficult. And it's not only competitive across our industry but, obviously, hospitals, other health systems are looking for staff as well.
So what we see right now is some regional pockets out there, where we're having to get very, very creative in terms of being able to build clinical capacity. But we're having good success. I think that, that is not going to alleviate itself anytime soon. So we've got to continue to stay diligent in finding ways to bring on staff.
We still feel like the best thing we can do is retain our staff and grow our staff internally. I'm very pleased with what we're doing in terms of our clinical retention and the capacity that we're building out of that. So that keeps me optimistic on our ability to handle our growth that's coming up.
Yes. Matt, I think one of the things that we're going to see is if there is a shakeout, I think it'll mitigate and alleviate, to a certain degree, the labor pressures. So we're hoping that a big shakeout will create some free agents that potentially we can grab.
So right now, the CARES Act has really fundamentally kept a lot of these people in place that we expected to get. So in general, hopefully, it should buy us some new territories and get us some new staff. So we're feeling we -- it can't happen soon enough from our perspective, but we're expecting it to happen into Q4, into next year.
Our next question comes from Justin Bowers with Deutsche Bank.
Well, just keeping with the labor kind of market dynamics, there's just a lot of mixed messages this quarter, but, it's, obviously, tough out there. Some of the issues that you're seeing in hospice, is that -- do you think it's kind of isolated there? Or is -- are you seeing some similar dynamics in the home health side of the business as well?
I'd say a few -- I'd say on the clinical side, we're doing phenomenally well, which is what's important. The big thing always is that we have clinicians. So I'd say on both sides, we're doing well. We haven't felt the pressure. We're feeling it in pockets, but we haven't felt it in a way that it's showing up in our financials. So we're going to continue to drive that. The efficiency of our recruiting group has been extraordinary. We still are very aggressively, though, looking for new things to make sure that we can close the backdoor in terms of turnover, but that's the key.
Where we've seen a change, frankly, is in the people selling. And we've just seen not so much in home health, but in hospice, we've seen some burnout. And we've seen some real difficulty transitioning from an at-home business where these folks were fundamentally dialing from their homes to actually getting out in the market. And that's where we saw the spike in turnover, where when we started to push these folks out, we -- in March, April, May, we saw some turnover. And that was a surprise to us. So we thought they'd be anxious to get out in the market.
What we're now seeing, though, is with schools starting, people making the decisions that they want to do it, do it in a way that is going to mean they're getting out there in the markets. We're seeing a lot more solidity, as Chris talked about with our sales force, a lot less in terms of people deciding how they want to work, where they want to work. COVID really changed a lot of people's ideas about work, particularly in business development and sales roles.
I don't know, Chris, if I missed anything?
Yes. The only thing I'd add to that, Justin, is, I mean, the stark difference between home health and hospice right now is really the composition of our care centers, in my opinion. If you think about our home health, it's been basically on an organic growth trajectory for the last several years, no acquisitions, no integrations, some de novos, but pretty much very, very structurally just kind of positioned to move through the pandemic and coming out of the pandemic.
And then you look at the composition of our hospice business, 180 locations. More than half of those have been in our portfolio for less than 2.5 years, of which more than half of that time has been practically a virtual world. We actually acquired a sizable hospice in the middle of the pandemic.
So we had to build out a divisional, regional and area leadership team for the right span of control on the sales side that I think we're a little delayed in doing, and probably, not as effective as we should have been. The team is in place now, but it's relatively new in place. So we've got to kind of get to know each other and get our rhythm going.
It's, essentially, the exact same structure we have on the home health side. It's just basically we're still just kind of getting familiar with one another coming out of a virtual world. And I think that, that has created a churn in our feet on the street that we didn't see coming.
Got it. So just -- I have a couple of follow-ups on mix then. With the sales force, are they structured? So are they calling on various institutions/settings? Or do you have folks that are dedicated to institutions, others that are dedicated to community? Just trying to get a better sense of that.
And then can you just remind us whether it's admissions or mix, how you're -- I'm sorry, admissions or days, like how that mix compares, let's say, pre-COVID versus kind of where we are now, like institutional versus community, either admissions or days?
I think the -- go ahead, Chris.
Go ahead, Paul. Yes. I would say...
I think -- go ahead.
I would say on the mix, starting with that, it's really been -- the only area that we've seen and still see kind of just a drag on us is on the senior living side. So with SNFs, ALs, ILs, which makes up about 25% of our actual volume on a normal day and still does today, it has been compressed. I mean their occupancies are down about 25%.
Our ADC year-to-date in those settings is down about 9% year-to-date. So we're really heavily dependent on them coming back as well as us finding new opportunities and referral sources, which I think we're doing a fine job here.
So in terms of days, if I look at median length of stay, which is kind of the most kind of a telling metric that we take a look at, really bottomed out in January as an organization. It has stabilized since April, and it's been consistent since April, back to pre-pandemic levels of around 26 days, which is encouraging for us. So now it's just a function of the volume coming in.
Back to the initial question -- the first question is, is that -- we do have specialists. We have hospital-dedicated liaisons that focus directly on transition planning and assistance in hospitals, which they may only have 1 or 2 hospitals that they actually work with.
And then we have hospice liaisons who are also kind of community-based, who are assigned a certain number of accounts that could be physicians' offices; could be facilities, ALs, ILs, SNFs; could also be kind of other home health agencies, or well, our own home health agencies that they actually spend time educating on the benefit of hospice. So we have a good mix of that.
And I think that basically our segment mix has not changed much. The most encouraging kind of sign out there, again, is the stabilization of median length of stay and us building now our feet on the street and getting to the number we need, and we should start to see the volume come with that.
Got it. And then just one last one, just on the -- what's kind of like the productivity assumptions for the segment on the 4Q exit? And then in terms of margins, are we a little more compression in the back half of the year before rebounding in 2022? Or are we at a good run rate at this point?
I'll take the productivity, and I'll let Scott handle the margin. On the productivity side on our reps, what we expected to get to this year when we had our initial guide was about 10 admits per month. We -- just for reference, we were doing about 10.5 admits per month in Q4 as we rolled into this year.
Obviously, with the mix of our reps now being newer, 25% less than 6 months, 41% less than a year, we've seen that come down to about 8.5. We have modest expectations for the rest of the year to hit this guided number of about 8.8. So -- and we have a good line of sight that we should be able to do that.
And I'll Scott -- let Scott address the margin question.
Yes. I'll take that. So generally and historically, Q2 has been our best -- our kind of all-in EBITDA margin here at 15%, the strongest one. So we'll see a step down in the Q2 and then a buildup from there.
I mean with some of the key drivers that -- and this is traditional to us. So as we move into the second of the year as we know health insurance always steps up, and that's a seasonality issue as well as we give raises, so those 2 are about $28 million that we faced moving into the second half of the year. So we'll have to build back out of that and climb back. But I expect for the year, this 15% to be the high watermark, which is kind of recovering a bit into -- when we get to Q4.
Our next question comes from Frank Morgan with RBC Capital Markets.
I think I'll move on from the BD issue. I think we've got that one now. Just curious on -- I guess one final question, though. When you went through this issue back with home health care several years ago, would you remind me how long it really took to kind of get the BD issues resolved there?
And certainly, understand it's a different backdrop today with the effect of your referral sources changing, but just remind me kind of how long that process of retooling and getting back on track to the end, how long did that take?
Chris, you got it?
Yes. I got it. Frank, so we identified the feet-on-the-street issue in Q2 of 2017. We took some time. It was a bigger sales force than we were trying to rebuild. We have almost twice the number of sales reps in the home health than we do at hospice, but the same strategy. And it took about 2 quarters to start getting some traction on that, and then starting to see the results come through.
And again, then the key is that, as those reps grow in tenure, their productivity grows, and then that's when you get -- so you get that -- the benefit. So as we went into 2018 and '19, we started to see more consistent growth that we were getting out of that staff.
And so I think we definitely saw this. We identified this within the Q1, so our quarter end of this. Slow progress in Q2, but expected a stronger progress in Q3. And I expect to see results in Q4.
Got you. And then, I guess moving on now, just some of these other issues. Obviously, hospice was the biggest part of it. But you're also with Contessa and VNA. Can you talk a little bit about the timing to breakeven on Contessa? Seems like maybe, at least from what I originally thought, looks like that EBITDA might be a little more negative, but maybe talk about trends there. And the path to recovery there would be my next question.
Want to talk about the split, Scott?
Yes. Just real quick to make sure folks are clear on what's in those numbers, and I have that on Page 22 of the slide deck with the impact of Contessa and VNA, that $12 million to $14 million range -- negative $14 million to negative $12 million. About $2 million of that is the VNA piece, and we'll start with that.
And I think we're happy about that deal. We like the geography. A lot of that, we expect to kind of get that to breakeven early into next year. So not really overly concerned about that. As we've talked about Contessa, it's really a top line build story. We've got line of sight into that $60 million range of revenue, which we feel good about. We've signaled before that we thought it was still going to be a negative $18 million drag into 2022. We believe in that.
I think it's going to be a first half heavy drag. And so I think 2023 is when we'd be looking to start seeing some really pull-down in that EBITDA loss and kind of sort of heading in the right direction. So feel good about that, and we learned a lot here through the back half of the year. We had to take down revenue of Contessa as well.
A lot of that was driven by the delay in a regulatory approval on an acquisition and some other pressures around hiring we got to get through. A little conservatism, I think, in that Contessa guide with COVID when they experienced through the first round of COVID, felt that it had some pressure on their capture rates. So that's something we're being mindful of.
Yes. And I've been out in the market, Frank, with Contessa calling on people. So I'm very encouraged about what I think -- how I think we're going to do in terms of bringing in clients and the opportunities that that's going to engender, particularly with the large hospital -- large sophisticated hospital systems, and the plans are excited about it. So I think we'll know a lot in the next 6 months as we go through and make all our calls and see which ones we can bring in.
Got you. Last one here. Just any early read on any kind of COVID surge impact from the variant so far that you're seeing out in the current quarter? And I guess with all this going on, should we expect any kind of slowdown in terms of appetite for MA? I mean are we in a phase now where we want to take our foot off the gas and kind of get these issues fixed and assimilated? Or are we full speed ahead? That's it.
I think -- in home health M&A, I think we're going to continue to look for deals, and we still have a good pipe. Scott can talk specifically about the pipe, but it's still very good. And again, I think prices are going to go down when there's a shakeout. I think there will be consolidation opportunities.
Hospice, I think we have to absorb and digest what we have. Although we are looking at deals, the pricing is crazy out there. Again, people are paying twice what we were paying 2 years ago for these assets. So it would have to be very strategic.
Scott and his team are doing a phenomenal job on de novos. And so we're anticipating launching up to 15 de novos this year. So we're continuing expansion.
Home health should be the place. Regional home health, very strategic to build out our map. And so I don't know, I missed anything?
No. You hit it. I mean I think that we feel good about the pipeline. I mean to Paul's point on hospice, it's expensive. It would be something that we really like the geography. Certainly, if there was a CON opportunity that makes sense, there's territories we're really wanting to get into.
I mean, as we said before, the operations of the hospice segment are terrific. We have great EBITDA margins, great quality. So we feel good about all of that, and we understand where the issues are on the growth and feel good that we can isolate that.
And certainly, home health, the appetite is strong there. Our operators, as you can see the results, they've done tremendous. So we think they're teed up and ready for some more.
Yes. I guess, Frank, just in general for the whole group, but we feel really good about our hospice strategy about how we build it up, about how it's unfolding. Clearly, we need some work on the BD, but that was a new world. So we're thinking this is bumps, not anything that we regret, not anything permanent, not anything we can box and execute on. So we feel very good about where we are in hospice, and we're going to prove it out in the second half of this year, get through it all.
Okay. And then any color on COVID post quarter?
COVID, yes, Chris can talk a bit about it. We're seeing obviously in low-vaccinated states, particularly in the Southeast, where we have some -- where we see some things like in Louisiana, Alabama, Florida, in particular, we're starting to see some access shutdown for our reps. So it hasn't affected us to date, but it is concerning. And we're going to track that. But the one thing I can say is, please, anybody who is not vaccinated on the call, please consider it. It's really important.
I don't know, Chris, any further color on that?
Yes. I mean other than, again, the Southeast, particularly like Florida, there's real -- there's some restrictions out there for access. But we're still going back to the same kind of playbook that worked for us last summer during the pandemic in terms of making sure that we're open for business, taking that -- taking those patients where we possibly can.
The only other thing is we have noticed a tick-up over the last 4 straight weeks of our own employees that are on quarantine, still not a lot, we're around 200 today. So that's something we're keeping a close eye on as the exposures are increasing a little bit.
Our next question comes from John Ransom with Raymond James.
Just go and trying to talk about something different. Your own -- I mean we're reading more stories about just big-time burnout. I mean people have been fighting this fire for 6 quarters now.
And -- so just curious about some of your stats on your labor force in terms of -- what are you seeing in terms of like -- how many of your own workers have yet to get vaccinated? What's the turnover look like? How many temps are you having to use? And do you think you're going into this next -- I mean assuming this thing burns out pretty quickly, how worried are you about just kind of going into the next battle with a bunch of troops that are, frankly, exhausted and burned out?
Yes. Good question. I think, in general, our troops are feeling good, particularly our clinical troops. And where the retention has been very good, our predictive model that we've built has been working really good, and we feel very strongly that we're doing the right things.
For example, in hospice, we know -- and this is where we had some burnout, but we were able, again, to use the model. If there's over 6 deaths in a month, then you chance -- that clinician doubles their chance of turning over. So we feel good about understanding this -- feeding this into the care centers.
So again, it's been -- the clinician retention has been extremely good, which is going to drive this. Our BD retention, in terms of people wanting to go back into the field, just in hospice has really been our issue. And again, it's -- they aren't going to anybody else. So it's not like they're jumping into further hospice -- into competitors. They're just going into different parts of life, and sometimes, just not going back to work. It's odd.
Chris, I missed anything?
Just back on the vaccination rate, the one thing, John, is that we saw it get to 50% pretty quick and then kind of leveled off. And we had kind of geographic disparity. With the south, some of the southern states have lower vaccination rates.
What we are seeing now is as we're starting to pick back up, I think the Delta variant has got people's attention, and we're hopeful that we're going to be able to really kind of push that number higher than it is today.
We will tell you that when we do a polling of our internal staff, we -- it's pretty stark to learn that around 20% that are pretty opposed to taking the vaccine for various reasons. So our goal is to make sure that we continue to educate and stress the importance of this, what it is for them, their families as well as our patients, and try to get as many of our employees vaccinated as possible.
And what we're also seeing, John, which I think is interesting is a lot of the clients now that we're calling on are basically saying we want only vaccinated workers. So there's going to be a tension, particularly in home health, which is on a per visit basis, if they're not able to work. And so that's going to be significant.
Right. I'm -- I was going to say an elderly clientele, I'm surprised that they would -- anybody would see someone who hadn't been vaccinated. That's surprising to me.
Yes. Yes. To me, too, frankly.
Our next question comes from Scott Fidel with Stephens.
First question, just wanted to just actually get a clarification just on the Contessa impact. Scott, I know you had mentioned that and touched the number. But I just want to make sure I was correct on the 2022. Did you say that, that was an $18 million EBITDA drag you're expecting? Or -- just want to clarify that.
Yes. That's what we originally said when we came out with the -- right around the deal time, that was the number. We'll certainly take a look at that again and -- as we exit this year and reevaluate, but that's what we put out to date. So I just -- I'm reiterating what we had originally put out.
Okay. Understood. And then just for a real question and maybe just a different topic as well. Interested just in your views here on the enhanced Medicaid HCBS funding proposal that the dems are working on, the $400 billion over 10 years that they're looking to put into reconciliation.
And if it does get included in a reconciliation and that bill actually gets passed, just interested in how you guys are thinking strategically about personal care? And whether that would influence your strategy there in terms of thinking about maybe sort of enhancing your focus on that relative to the current strategy?
I think, in general -- Scott, good question. In general, we clearly have a small personal care business and have elected to build it out through a network versus owning these due to a variety of things. We believe it's better handled on a local basis and building networks are better.
So through the network business and then with Contessa, as we take care of sicker people, we're building out the technology to include personal care. So particularly, in SNF-at-home and hospital-at-home, you will need these types of workers. So we think it's a good thing. We think, in general, it's going to be a good thing bringing people that might work elsewhere, particularly retail or in restaurants, things like that, that could come in.
So we think it's a good -- again, integrated -- anything for integrated care, we love. And I think this plays a lot towards integrated care, but it plays towards the lower end where we have very little exposure.
Our next question comes from Joanna Gajuk with Bank of America.
Thanks for all the explanations around the higher turnover. Obviously, we talked about it a lot here. But just to clarify, because I guess you mentioned you recruited -- or you have more staff that's dedicated for recruiting, and I guess you have new leadership there. But any particular actions you can take a new taking to actually attract the right, I guess, salespeople because it sounds like you're hiring, and just that, I guess, they quickly leave. So how can you kind of change that dynamic?
Well, actually, we have our head -- our Chief People Officer sitting in the room with us who was not expected to speak today, but I think she ought to talk about what our recruiting efforts are, some of the numbers we're seeing. I'm really happy with what we're doing from a recruiting perspective. I'm not so happy about our ability to control turnover on this, except July and June, we're getting a lot happier. So we got to close that backdoor.
Go ahead on the -- this is Sharon Brunecz, by the way.
Joanna, we've been really pleased. We've added additional resources both in people and like different sourcing tools to be able to attract people to the organization, both on the nursing side and the business development side. So I feel good about what we're doing on the top end of the funnel, and that our value proposition as a company is resonating in the market.
And as we've talked about here, the trouble really has been in business development turnover. Our predictive models have served us very well on the nursing side, and they've held firm, and we've been able to drive those turnover numbers down to great levels and have been sustained.
And this business development anomaly that we're working through has been our challenge. But we've seen that starting to turn here. And I like to believe that this is the beginning of the trend in driving those numbers back down to the levels that we need them to be at.
We're doing -- I'd say, Joanna, we -- with full capabilities, we can recruit between 30 and 40 folks a month. And then we're reducing our turnover rates down to -- if we can get from the high teens, low 20s, that's a very good day for us on a net basis.
And I think, as Chris was saying at the beginning of the year, we had about 478 reps. We now have about 505. Our target is 530. So we're about midway. We've got some good amounts coming in, I think, 20 to 30 coming in. So we're feeling very good.
Backdoor's closing. I'd like to see it close better. But once we get those folks in -- their productivity levels are pretty good. Initially, when we were looking -- the productivity levels initially, pre-COVID, were about 10.5 per month for our BD folks. They're now about high 8s, almost 9.
So productivity levels are pretty good. The key is getting them in, getting them trained up, keeping them and finding people who want to come to work out in the field. So -- but in general, we have our arms around this.
And then I'll repeat again. Where we really need to also focus is getting those 45-and-below ADC. We have 54 of them, care centers, up. So the economics of that and the care ability really starts to kick in. So we're putting a lot of extra attention on getting the BD folks in there and making sure they stay and making sure they're bringing in referrals so we can get above that ADC level and start to have some real economies of scale kick in.
Right. So it's more about just finding the right people, I guess, that stay and then they, I guess, can deliver, I guess, these goals in terms of bringing in admissions? And if I can just...
We're seeing them in a lot of other -- from a lot of other post-institutional sales forces. So we're starting to see good results from there. SNFs, obviously, people are -- and other places, and we're starting to see some firm infusion in some of these other places. So people understand what's going on and know how to kick in quickly.
And I think part of what we saw in Q2, in particular, as we said, the people we hired last year had been at home their whole career with us, if you will, right? And getting back out into the field is -- was new, and some people have decided that wasn't what they wanted to see.
People that we're bringing in now, right, the world has opened up. So we've moved past that issue, right? We're hiring people that are out actively selling in the field, and they're coming in, in environments where they need to be doing that. So I think people are more prepared for what they're going to need to do on a daily basis. So that's ramping up quickly.
No. That's great. And if I may, just I was trying to squeeze in the last question, also a follow-up on the same topic, I guess, or related in terms of labor on the nursing side. So you said there's some pockets of turnover issues as well, right? So I guess kind of is it a similar situation? Or it's more, I guess, related more so to burnout and the issue that people just want to maybe retire or move to other jobs faster?
Yes. I wouldn't say there's pockets of turnover that we're particularly concerned is -- I think there's pockets of recruitment that are difficult. There's areas where finding nurses in this environment, particularly urban areas, places like Baltimore, Boston, some of these other places that are very difficult to find nurses. It can take a long time with open racks.
And we could grow much faster, particularly in home health but also in hospice, if we were able to bring in some of these nurses. I think capacity -- and that's why, it's so important we control turnover. That's why, we're very happy with our turnover, which is the best it's ever been.
So we feel very strongly that, that's good. The key is recruiting, just getting some of these folks. It's a desert in some of these places just to find nurses.
Our last question comes from Brian Tanquilut with Jefferies.
I guess, for Scott or Nick, just really quickly on the buyback. If I recall, you had some left over from the last authorization, right? And then I guess a follow-up to that would be just, how soon are you allowed to be in the market to buy back stock? Because if I remember correctly, in March, you bought most of it, like soon after the earnings call and within 10 days. So just curious how you're thinking about share buybacks here?
Yes. Thanks, Brian. I'll take that. So yes, we spent roughly $74 million in that first half, probably brought on average price slightly below $2.50. So certainly, we were buyers at that range. And certainly, we'll use that additional $26 million plus that $100 million to be proactive as need be.
We would be able to do it as soon as kind of our window internally opens where we could put something in place to buy as an organization, which will be next week. So we'll kind of evaluate when things settle out a bit and kind of move forward as the need be.
I mean we're certainly bullish on where we're heading. Really nothing has changed from where we were before other than we got to fix this top line issue. Margins are phenomenal. So I feel good about the future of Amedisys. I'm certainly -- I'm a long-term Amedisys person, I've been here 14 years, so I'm certainly long at Amedisys. But I think that our opportunities are in front of us, and we'll be opportunistic at this price.
Thanks, Brian. All right. I want to thank everybody today who joined us on the call and would also like to again thank our employees who delivered a very good quarter. Thank you for doing this with all the trials and ambiguities of COVID. Please keep doing what you're doing. It's great. First things first, taking care of the people who need us the most. If we continue to take care of the people who need us, we will always thrive.
And we hope everyone has a wonderful day, and look forward to updating you on our ever-evolving progress and purposeful work on our next quarterly earnings call in late October. Thank you again, until then.
This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation. Have a great day.