AMEDISYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
For the Six-Month
Periods Ended June 30
|
|
2019
|
|
2018
|
Cash Flows from Operating Activities:
|
|
|
|
Net income
|
$
|
65,613
|
|
|
$
|
60,861
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
Depreciation and amortization
|
8,074
|
|
|
6,718
|
|
Non-cash compensation
|
12,153
|
|
|
7,811
|
|
401(k) employer match
|
4,686
|
|
|
4,894
|
|
Amortization and impairment of operating lease right of use assets
|
17,495
|
|
|
—
|
|
(Gain) loss on disposal of property and equipment
|
(2
|
)
|
|
650
|
|
Deferred income taxes
|
5,875
|
|
|
9,145
|
|
Equity in earnings from equity method investments
|
(4,932
|
)
|
|
(4,836
|
)
|
Amortization of deferred debt issuance costs/debt discount
|
433
|
|
|
355
|
|
Write off of deferred debt issuance costs
|
—
|
|
|
38
|
|
Return on equity investment
|
842
|
|
|
2,204
|
|
Changes in operating assets and liabilities, net of impact of acquisitions:
|
|
|
|
Patient accounts receivable
|
(24,165
|
)
|
|
3,604
|
|
Other current assets
|
(8,343
|
)
|
|
(11,680
|
)
|
Other assets
|
(56
|
)
|
|
688
|
|
Accounts payable
|
(9,475
|
)
|
|
3,623
|
|
Accrued expenses
|
29,262
|
|
|
4,548
|
|
Other long-term obligations
|
(181
|
)
|
|
2,347
|
|
Operating lease liabilities
|
(16,200
|
)
|
|
—
|
|
Operating lease right of use assets
|
(1,754
|
)
|
|
—
|
|
Net cash provided by operating activities
|
79,325
|
|
|
90,970
|
|
Cash Flows from Investing Activities:
|
|
|
|
Proceeds from sale of deferred compensation plan assets
|
213
|
|
|
471
|
|
Proceeds from the sale of property and equipment
|
146
|
|
|
11
|
|
Investments in equity method investees
|
(210
|
)
|
|
—
|
|
Purchases of property and equipment
|
(2,693
|
)
|
|
(1,611
|
)
|
Acquisitions of businesses, net of cash acquired
|
(345,414
|
)
|
|
(4,074
|
)
|
Net cash used in investing activities
|
(347,958
|
)
|
|
(5,203
|
)
|
Cash Flows from Financing Activities:
|
|
|
|
Proceeds from issuance of stock upon exercise of stock options
|
1,343
|
|
|
2,609
|
|
Proceeds from issuance of stock to employee stock purchase plan
|
1,534
|
|
|
1,157
|
|
Shares withheld upon stock vesting
|
(4,490
|
)
|
|
(2,832
|
)
|
Noncontrolling interest distribution
|
(457
|
)
|
|
(350
|
)
|
Proceeds from borrowings under term loan
|
175,000
|
|
|
—
|
|
Proceeds from borrowings under revolving line of credit
|
184,500
|
|
|
127,500
|
|
Repayments of borrowings under revolving line of credit
|
(92,000
|
)
|
|
—
|
|
Principal payments of long-term obligations
|
(2,277
|
)
|
|
(90,475
|
)
|
Debt issuance costs
|
(847
|
)
|
|
(2,433
|
)
|
Purchase of company stock
|
—
|
|
|
(181,402
|
)
|
Net cash provided by (used in) financing activities
|
262,306
|
|
|
(146,226
|
)
|
Net decrease in cash and cash equivalents
|
(6,327
|
)
|
|
(60,459
|
)
|
Cash and cash equivalents at beginning of period
|
20,229
|
|
|
86,363
|
|
Cash and cash equivalents at end of period
|
$
|
13,902
|
|
|
$
|
25,904
|
|
Supplemental Disclosures of Cash Flow Information:
|
|
|
|
Cash paid for interest
|
$
|
4,187
|
|
|
$
|
2,080
|
|
Cash paid for income taxes, net of refunds received
|
$
|
7,849
|
|
|
$
|
6,149
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. NATURE OF OPERATIONS, CONSOLIDATION AND PRESENTATION OF FINANCIAL STATEMENTS
Amedisys, Inc., a Delaware corporation, (together with its consolidated subsidiaries, referred to herein as “Amedisys,” “we,” “us,” or “our”) is a multi-state provider of home health, hospice and personal care services with approximately
74%
of our revenue derived from Medicare for the
three and six
-month periods ended
June 30, 2019
and
2018
. As of
June 30, 2019
, we owned and operated
322
Medicare-certified home health care centers,
137
Medicare-certified hospice care centers and
12
personal-care care centers in
38
states within the United States and the District of Columbia.
Basis of Presentation
In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly our financial position, our results of operations, and our cash flows in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial reporting. Our results of operations for the interim periods presented are not necessarily indicative of the results of our operations for the entire year and have not been audited by our independent auditors.
This report should be read in conjunction with our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended
December 31, 2018
, as filed with the Securities and Exchange Commission (“SEC”) on February 28, 2019 (the “Form 10-K”), which includes information and disclosures not included herein. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from the interim financial information presented, as allowed by such SEC rules and regulations.
Recently Adopted Accounting Pronouncements
On January 1, 2019, the Company adopted Accounting Standards Update ("ASU") 2016-02,
Leases (Topic 842);
ASU 2018-01,
Land Easement Practical Expedient for Transition to Topic 842
; ASU 2018-10,
Codification Improvements to Topic 842, Leases
; and ASU 2018-11,
Targeted Improvements
(collectively, "Topic 842") using a modified retrospective transition approach, which requires the new standards to be applied to all leases existing at the date of initial application. Under Topic 842, lessees are required to recognize a lease liability and right-of-use asset ("ROU asset") for all leases with a term greater than twelve months and to disclose key information about leasing arrangements. Additionally, leases will be classified as either financing or operating; the classification will determine the pattern of expense recognition and classification within the statement of operations.
We are using the standards' effective date as our date of initial application. Consequently, our financial information was not updated and the disclosures required under the new standard are not provided for dates and periods prior to January 1, 2019.
The new standard provides several optional practical expedients that can be adopted at transition. We have elected the "package of practical expedients," which allows us to not reassess our prior conclusions regarding lease identification, lease classification and initial direct costs. We did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us.
The most significant effects related to this adoption relate to (1) the recognition of new ROU assets and lease liabilities on our balance sheet for our real estate and fleet operating leases; and (2) significant new disclosures about our leasing activities. Upon adoption, we recognized approximately
$80 million
in additional operating lease liabilities with corresponding ROU assets of approximately the same amount.
The new standard also provides practical expedients for an entity's ongoing accounting. We have elected the practical expedient that allows us to not separate lease and non-lease components for all of our leases. We are applying the short-term lease recognition exemption to certain information technology leases; therefore, we did not recognize ROU assets and lease liabilities for these leases.
Use of Estimates
Our accounting and reporting policies conform with U.S. GAAP. In preparing the unaudited condensed consolidated financial statements, we are required to make estimates and assumptions that impact the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Principles of Consolidation
These unaudited condensed consolidated financial statements include the accounts of Amedisys, Inc. and our wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in our accompanying unaudited condensed consolidated financial statements, and business combinations accounted for as purchases have been included in our unaudited condensed consolidated financial statements from their respective dates of acquisition. In addition to our wholly owned subsidiaries, we also have certain equity investments that are accounted for as set forth below.
Investments
We consolidate investments when the entity is a variable interest entity and we are the primary beneficiary or if we have controlling interests in the entity, which is generally ownership in excess of
50%
. Third party equity interests in our consolidated joint ventures are reflected as noncontrolling interests in our condensed consolidated financial statements.
We account for investments in entities in which we have the ability to exercise significant influence under the equity method if we hold
50%
or less of the voting stock and the entity is not a variable interest entity in which we are the primary beneficiary. The book value of investments that we account for under the equity method of accounting was
$39.4 million
and
$35.1 million
as of
June 30, 2019
and
December 31, 2018
, respectively, and is reflected in other assets within our condensed consolidated balance sheets.
We account for investments in entities in which we have less than a
20%
ownership interest under the cost method of accounting if we do not have the ability to exercise significant influence over the investee.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
We account for revenue from contracts with customers in accordance with ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
and ASU 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
(collectively, "ASC 606"), and as such, we recognize revenue in the period in which we satisfy our performance obligations under our contracts by transferring our promised services to our customers in amounts that reflect the consideration to which we expect to be entitled in exchange for providing patient care, which are the transaction prices allocated to the distinct services. The Company's cost of obtaining contracts is not material.
Revenues are recognized as performance obligations are satisfied, which varies based on the nature of the services provided. Our performance obligation is the delivery of patient care services in accordance with the nature and frequency of services outlined in physicians' orders, which are determined by a physician based on a patient's specific goals.
The Company's performance obligations relate to contracts with a duration of less than one year; therefore, the Company has elected to apply the optional exemption provided by ASC 606 and is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting period. The unsatisfied or partially unsatisfied performance obligations are generally completed when the patients are discharged, which generally occurs within days or weeks of the end of the reporting period.
We determine the transaction price based on gross charges for services provided, reduced by estimates for explicit and implicit price concessions. Explicit price concessions include contractual adjustments provided to patients and third-party payors. Implicit price concessions include discounts provided to self-pay, uninsured patients or other payors, adjustments resulting from payment reviews and adjustments arising from our inability to obtain appropriate billing documentation, authorizations or face-to-face documentation. Subsequent changes to the estimate of the transaction price are recorded as adjustments to net service revenue in the period of change. Subsequent changes that are determined to be the result of an adverse change in the patient's ability to pay (i.e. change in credit risk) are recorded as a provision for doubtful accounts.
Explicit price concessions are recorded for the difference between our standard rates and the contractual rates to be realized from patients, third party payors and others for services provided.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Implicit price concessions are recorded for self-pay, uninsured patients and other payors by major payor class based on our historical collection experience, aged accounts receivable by payor and current economic conditions. The implicit price concession represents the difference between amounts billed and amounts we expect to collect based on our collection history with similar payors. The Company assesses its ability to collect for the healthcare services provided at the time of patient admission based on the Company's verification of the patient's insurance coverage under Medicare, Medicaid, and other commercial or managed care insurance programs. Medicare represents approximately
74%
of the Company's consolidated net service revenue for the three and six-month periods ended
June 30, 2019
and
2018
.
Amounts due from third-party payors, primarily commercial health insurers and government programs (Medicare and Medicaid), include variable consideration for retroactive revenue adjustments due to settlements of audits and payment reviews. We determine our estimates for price concessions related to payment reviews based on our historical experience and success rates in the claim appeals and adjudication process. Revenue is recorded at amounts we estimate to be realizable for services provided.
We determine our estimates for implicit price concessions related to our inability to obtain appropriate billing documentation, authorizations, or face-to-face documentation based on our historical experience, which primarily includes a historical collection rate of over
99%
on Medicare claims.
Revenue by payor class as a percentage of total net service revenue is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three-Month Periods Ended June 30
|
|
For the Six-Month
Periods Ended June 30
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Home Health:
|
|
|
|
|
|
|
|
Medicare
|
44
|
%
|
|
50
|
%
|
|
45
|
%
|
|
51
|
%
|
Non-Medicare - Episodic-based
|
9
|
%
|
|
8
|
%
|
|
9
|
%
|
|
8
|
%
|
Non-Medicare - Non-episodic based
|
12
|
%
|
|
12
|
%
|
|
12
|
%
|
|
12
|
%
|
Hospice (1):
|
|
|
|
|
|
|
|
Medicare
|
30
|
%
|
|
24
|
%
|
|
29
|
%
|
|
23
|
%
|
Non-Medicare
|
1
|
%
|
|
1
|
%
|
|
1
|
%
|
|
1
|
%
|
Personal Care
|
4
|
%
|
|
5
|
%
|
|
4
|
%
|
|
5
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
(1) Acquired Compassionate Care Hospice on February 1, 2019 and RoseRock Healthcare on April 1, 2019.
|
Home Health Revenue Recognition
Medicare Revenue
Net service revenue is recorded under the Medicare prospective payment system (“PPS”) based on an established Federal Medicare home health episode payment rate, that is subject to adjustment based on certain variables, including, but not limited to (a) an outlier payment if our patient’s care was unusually costly (capped at
10%
of total reimbursement per provider number); (b) a low utilization payment adjustment (“LUPA”) if the number of visits was
four
or fewer; (c) a partial payment if a patient transferred to another provider or we admitted a patient transferring from another provider before completing the episode; (d) a payment adjustment based upon the level of therapy services required (with various incremental adjustments made for additional visits, with larger payment increases associated with the
sixth
,
fourteenth
and
twentieth
visit thresholds); (e) the number of episodes of care provided to a patient, regardless of whether the same home health provider provided care for the entire series of episodes; (f) changes in the base episode payments established by the Medicare Program; and (g) adjustments to the base episode payments for case mix and geographic wages. Medicare rates are based on the severity of the patient's condition, service needs and goals, and other factors relating to the cost of providing services and supplies, bundled into an episode of care, not to exceed
60
days. An episode starts the first day a billable visit is performed and ends 60 days later or upon discharge, if earlier, with multiple continuous episodes allowed.
The Medicare home health benefit requires that beneficiaries be homebound (meaning that the beneficiary is unable to leave their home without a considerable and taxing effort), require intermittent skilled nursing, physical therapy or speech therapy services, and receive treatment under a plan of care established and periodically reviewed by a physician. All Medicare contracts are required
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
to have a signed plan of care which represents a single performance obligation, comprised of the delivery of a series of distinct services that are substantially similar and have a similar pattern of transfer to the customer. Accordingly, the Company accounts for the series of services ("episode") as a single performance obligation satisfied over time, as the customer simultaneously receives and consumes the benefits of the goods and services provided. Expected Medicare revenue per episode is recognized based on a pro-rated service output method, utilizing our historical average length of episode prior to discharge.
The base episode payment can be adjusted based on each patient's health including clinical condition, functional abilities and service needs, as well as for the applicable geographic wage index, low utilization, patient transfers and other factors. The services covered by the episode payment include all disciplines of care in addition to medical supplies. Medicare can also make various adjustments to payments received if we are unable to produce appropriate billing documentation or acceptable authorizations. In addition, we make adjustments to Medicare revenue if we find we are unable to obtain appropriate billing documentation, authorizations or face-to-face documentation. We estimate the impact of such adjustments based on our historical experience, which primarily includes a historical collection rate of over
99%
on Medicare claims, and record this estimate during the period in which services are rendered as an estimated price concession and a corresponding reduction to patient accounts receivable.
A portion of reimbursement from each Medicare episode is billed near the start of each episode, and cash is typically received before all services are rendered. The amount of revenue recognized for episodes of care which are incomplete at period end is based on the company's average percentage of days complete on episodes as of the end of the year. As of
June 30, 2019
, the difference between the cash received from Medicare for a request for anticipated payment (“RAP”) on episodes in progress and the associated estimated revenue was recorded to accrued expenses within our condensed consolidated balance sheets.
Non-Medicare Revenue
Episodic-based Revenue.
We recognize revenue in a similar manner as we recognize Medicare revenue for episodic-based rates that are paid by other insurance carriers, including Medicare Advantage programs; however, these rates can vary based upon the negotiated terms which generally range from
90%
to
100%
of Medicare rates.
Non-episodic based Revenue.
Gross revenue is recorded on an accrual basis based upon the date of service at amounts equal to our established or estimated per-visit rates. Explicit price concessions are recorded for the difference between our standard rates and the contracted rates to be realized from patients, third parties and others for services provided and are deducted from gross revenue to determine net service revenue. We also make adjustments to non-episodic revenue for any implicit price concessions, based on historical experience, to reflect the estimated transaction price. We receive a minimal amount of our net service revenue from patients who are either self-insured or are obligated for an insurance co-payment.
Hospice Revenue Recognition
Hospice Medicare Revenue
Gross revenue is recorded on an accrual basis based upon the date of service at amounts equal to the estimated payment rates. The estimated payment rates are predetermined daily or hourly rates for each of the four levels of care we deliver. The four levels of care are routine care, general inpatient care, continuous home care and respite care. Routine care accounted for
99%
and
98%
of our gross Medicare hospice service revenue for three and six-month periods ended
June 30, 2019
, respectively, and
98%
of our gross Medicare hospice service revenue for the three and
six
-month periods ended
June 30, 2018
. There are two separate payment rates for routine care: payments for the first
60
days of care and care beyond
60
days. In addition to the two routine rates, we may also receive a service intensity add-on (“SIA”). The SIA is based on visits made in the last seven days of life by a registered nurse (“RN”) or medical social worker (“MSW”) for patients in a routine level of care.
The performance obligation is the delivery of hospice services to the patient, as determined by a physician, each day the patient is on hospice care.
We make adjustments to Medicare revenue for implicit price concessions, which include our inability to obtain appropriate billing documentation or acceptable authorizations and other reasons unrelated to credit risk. We estimate the impact of these adjustments based on our historical experience, which primarily includes a historical collection rate of over
99%
on Medicare claims, and record it during the period services are rendered.
Additionally, our hospice service revenue is subject to certain limitations on payments from Medicare which are considered variable consideration. We are subject to an inpatient cap limit and an overall Medicare payment cap for each provider number. We monitor these caps on a provider-by-provider basis and estimate amounts due back to Medicare if we estimate a cap has been exceeded. We
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
record these adjustments as a reduction to revenue and an increase in accrued expenses within our condensed consolidated balance sheet. Beginning for the cap year ending October 31, 2017, providers are required to self-report and pay their estimated cap liability by February 28
th
of the following year. As of
June 30, 2019
, we have settled our Medicare hospice reimbursements for all fiscal years through October 31, 2012. As of
June 30, 2019
, we have recorded
$3.7 million
in accrued expenses for estimated amounts due back to Medicare for the Federal cap years ended October 31, 2013 through September 30, 2019; approximately
$1.5 million
of this amount is related to the cap liability acquired as part of the Compassionate Care Hospice ("CCH") acquisition. As of
December 31, 2018
, we had recorded
$1.7 million
for estimated amounts due back to Medicare in accrued expenses for the Federal cap years ended October 31, 2013 through September 30, 2019.
Hospice Non-Medicare Revenue
Gross revenue is recorded on an accrual basis based upon the date of service at amounts equal to our established rates or estimated per day rates, as applicable. Explicit price concessions are recorded for the difference between our standard rates and the contractual rates to be realized from patients, third party payors and others for services provided and are deducted from gross revenue to determine our net service revenue. We also make adjustments to non-Medicare revenue for any implicit price concessions, based on historical experience, to reflect the estimated transaction price.
Personal Care Revenue Recognition
Personal Care Revenue
We generate net service revenues by providing our services directly to patients based on authorized hours, visits or units determined by the relevant agency, at a rate that is either contractual or fixed by legislation. Net service revenue is recognized at the time services are rendered based on gross charges for the services provided, reduced by estimates for price concessions. We receive payment for providing such services from payors, including state and local governmental agencies, managed care organizations, commercial insurers and private consumers. Payors include the following elder service agencies: Aging Services Access Points (ASAPs), Senior Care Options (SCOs), Program of All-Inclusive Care for the Elderly (PACE) and the Veterans Administration (VA).
Patient Accounts Receivable
We report accounts receivable from services rendered at their estimated transaction price, which includes price concessions based on the amounts expected to be due from payors. Our patient accounts receivable are uncollateralized and consist of amounts due from Medicare, Medicaid, other third-party payors and patients. As of
June 30, 2019
, there is no single payor, other than Medicare, that accounts for more than
10%
of our total outstanding patient receivables. Thus, we believe there are no other significant concentrations of receivables that would subject us to any significant credit risk in the collection of our patient accounts receivable. We write off accounts on a monthly basis once we have exhausted our collection efforts and deem an account to be uncollectible. We believe the collectibility risk associated with our Medicare accounts, which represent
59%
and
56%
of our patient accounts receivable at
June 30, 2019
and
December 31, 2018
, respectively, is limited due to our historical collection rate of over
99%
from Medicare and the fact that Medicare is a U.S. government payor.
We do not believe there are any significant concentrations of revenues from any payor that would subject us to any significant credit risk in the collection of our accounts receivable.
Medicare Home Health
For our home health patients, our pre-billing process includes verifying that we are eligible for payment from Medicare for the services that we provide to our patients. Our Medicare billing begins with a process to ensure that our billings are accurate through the utilization of an electronic Medicare claim review. We submit a RAP for
60%
of our estimated payment for the initial episode at the start of care or
50%
of the estimated payment for any subsequent episodes of care contiguous with the first episode for a particular patient. The full amount of the episode is billed after the episode has been completed (“final billed”). The RAP received for that particular episode is then deducted from our final payment. If a final bill is not submitted within the greater of
120
days from the start of the episode, or
60
days from the date the RAP was paid, any RAPs received for that episode will be recouped by Medicare from any other claims in process for that particular provider number. The RAP and final claim must then be resubmitted.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Medicare Hospice
For our hospice patients, our pre-billing process includes verifying that we are eligible for payment from Medicare for the services that we provide to our patients. Our Medicare billing begins with a process to ensure that our billings are accurate through the utilization of an electronic Medicare claim review. We bill Medicare on a monthly basis for the services provided to the patient.
Non-Medicare Home Health, Hospice and Personal Care
For our non-Medicare patients, our pre-billing process primarily begins with verifying a patient’s eligibility for services with the applicable payor. Once the patient has been confirmed for eligibility, we will provide services to the patient and bill the applicable payor. Our review and evaluation of non-Medicare accounts receivable includes a detailed review of outstanding balances and special consideration to concentrations of receivables from particular payors or groups of payors with similar characteristics that would subject us to any significant credit risk.
Debt Issuance Costs
During the three-month period ended March 31, 2019, we recorded
$0.8 million
in deferred debt issuance costs as a reduction to long-term obligations, less current portion in our condensed consolidated balance sheet in connection with our entry into the Amended Credit Agreement (See Note 5 - Long-Term Obligations). As of
June 30, 2019
and December 31, 2018, we had unamortized debt issuance costs of
$4.0 million
and
$3.5 million
, respectively, recorded as long-term obligations, less current portion in our condensed consolidated balance sheet. We amortize deferred debt issuance costs related to our long-term obligations over the term of the obligation through interest expense, unless the debt is extinguished, in which case unamortized balances are immediately expensed. We amortized
$0.2 million
and
$0.4 million
in deferred debt issuance during the three and six-month periods ended
June 30, 2019
, respectively. The unamortized debt issuance costs of
$4.0 million
will be amortized over a weighted-average amortization period of
4.6
years.
Fair Value of Financial Instruments
The following details our financial instruments where the carrying value and the fair value differ (amounts in millions):
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Fair Value at Reporting Date Using
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Financial Instrument
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Carrying Value as of
June 30, 2019
|
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Quoted Prices in Active
Markets for Identical
Items
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
Long-term obligations
|
$
|
274.8
|
|
|
$
|
—
|
|
|
$
|
268.5
|
|
|
$
|
—
|
|
The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. The three levels of inputs are as follows:
|
|
•
|
Level 1 – Quoted prices in active markets for identical assets and liabilities.
|
|
|
•
|
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
|
•
|
Level 3 – Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities.
|
Our deferred compensation plan assets are recorded at fair value and are considered a level 2 measurement. For our other financial instruments, including our cash and cash equivalents, patient accounts receivable, accounts payable, payroll and employee benefits and accrued expenses, we estimate the carrying amounts approximate fair value.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Weighted-Average Shares Outstanding
Net income per share attributable to Amedisys, Inc. common stockholders, calculated on the treasury stock method, is based on the weighted average number of shares outstanding during the period. The following table sets forth, for the periods indicated, shares used in our computation of the weighted-average shares outstanding, which are used to calculate our basic and diluted net income attributable to Amedisys, Inc. common stockholders (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three-
Month Periods
Ended June 30,
|
|
For the Six-
Month Periods
Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Weighted average number of shares outstanding - basic
|
32,075
|
|
|
33,439
|
|
|
32,038
|
|
|
33,705
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
Stock options
|
537
|
|
|
425
|
|
|
548
|
|
|
381
|
|
Non-vested stock and stock units
|
321
|
|
|
315
|
|
|
327
|
|
|
305
|
|
Weighted average number of shares outstanding - diluted
|
32,933
|
|
|
34,179
|
|
|
32,913
|
|
|
34,391
|
|
Anti-dilutive securities
|
159
|
|
|
57
|
|
|
143
|
|
|
88
|
|
Business Combinations
We account for acquisitions using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805,
Business Combinations
. Acquisitions are accounted for as purchases and are included in our condensed consolidated financial statements from their respective acquisition dates. Assets acquired and liabilities assumed, if any, are measured at fair value on the acquisition date using the appropriate valuation method. Goodwill generated from acquisitions is recognized for the excess of the purchase price over tangible and identifiable intangible assets.
3. ACQUISITIONS
We complete acquisitions from time to time in order to pursue our strategy of increasing our market presence by expanding our service base and enhancing our position in certain geographic areas as a leading provider of home health, hospice and personal care services. The purchase price paid for acquisitions is negotiated through arm’s length transactions, with consideration based on our analysis of, among other things, comparable acquisitions and expected cash flows. Acquisitions are accounted for as purchases and are included in our condensed consolidated financial statements from their respective acquisition dates. Goodwill generated from acquisitions is recognized for the excess of the purchase price over tangible and identifiable intangible assets because of the expected contributions of the acquisitions to our overall corporate strategy. We typically engage outside appraisal firms to assist in the fair value determination of identifiable intangible assets for significant acquisitions. The preliminary purchase price allocation is adjusted, as necessary, up to one year after the acquisition closing date if management obtains more information regarding asset valuations and liabilities assumed.
On February 1, 2019, we acquired Compassionate Care Hospice ("CCH"), a national hospice care provider headquartered in New Jersey, for a purchase price of
$327.9 million
, net of cash acquired of
$6.7 million
.
The Company is in the process of finalizing its valuation of the assets acquired and liabilities assumed. During the three-month period ended June 30, 2019, we recorded measurement period adjustments based on changes to management's estimates and assumptions related to the assets acquired and liabilities assumed. Based on the Company's preliminary valuation, the total estimated consideration of
$327.9 million
has been allocated to assets acquired and liabilities assumed as of the acquisition date as follows (amounts in millions):
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
Amount
|
Patient accounts receivable
|
$
|
26.5
|
|
Prepaid expenses
|
0.9
|
|
Other current assets
|
0.2
|
|
Property and equipment
|
0.2
|
|
Deferred tax asset
|
0.3
|
|
Intangible assets
|
18.5
|
|
Total assets acquired
|
46.6
|
|
Accounts payable
|
(15.7
|
)
|
Payroll and employee benefits
|
(11.9
|
)
|
Accrued expenses
|
(10.5
|
)
|
Current portion of long-term obligations
|
(0.1
|
)
|
Total liabilities acquired
|
(38.2
|
)
|
Net identifiable assets acquired
|
8.4
|
|
Goodwill
|
319.5
|
|
Total estimated consideration
|
$
|
327.9
|
|
Intangible assets acquired include Medicare licenses, certificates of need, trade names and non-compete agreements. The trade names and non-compete agreements will be amortized over a weighted-average period of
2.0
and
2.3
years, respectively.
CCH contributed approximately
$46.0 million
in net service revenue and an operating loss of
$3.1 million
(inclusive of acquisition and integration costs totaling
$4.4 million
) during the three-month period ended June 30, 2019 and
$78.0 million
in net service revenue and an operating loss of
$4.9 million
(inclusive of acquisition and integration costs totaling
$10.0 million
) during the six-month period ended June 30, 2019.
The following table contains unaudited pro forma condensed consolidated statement of operations information for the three and six-month periods ended June 30, 2019 and 2018 assuming that the CCH acquisition closed on January 1, 2018 (amounts in millions, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three-
Month Periods
Ended June 30,
|
|
For the Six-
Month Periods
Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net service revenue
|
$
|
493.0
|
|
|
$
|
459.4
|
|
|
$
|
976.4
|
|
|
$
|
906.1
|
|
Operating income (loss)
|
44.8
|
|
|
48.1
|
|
|
95.4
|
|
|
89.9
|
|
Net income attributable to Amedisys, Inc.
|
33.7
|
|
|
34.8
|
|
|
68.9
|
|
|
63.7
|
|
Basic earnings (loss) per share
|
1.05
|
|
|
1.04
|
|
|
2.15
|
|
|
1.89
|
|
Diluted earnings (loss) per share
|
$
|
1.02
|
|
|
$
|
1.02
|
|
|
$
|
2.09
|
|
|
$
|
1.85
|
|
The pro forma information presented above includes adjustments for (i) amortization of identifiable intangible assets, (ii) interest on additional debt required to fund the CCH acquisition, (iii) non-recurring transaction costs and (iv) income taxes based on the Company’s statutory tax rate. This pro forma information is presented for illustrative purposes only and may not be indicative of the results of operations that would have actually occurred. In addition, future results may vary significantly from the results reflected in the pro forma information.
On April 1, 2019, we acquired RoseRock Healthcare ("RoseRock"), an Oklahoma based hospice provider, for a purchase price of
$17.5 million
. The purchase price was paid with cash on hand on the date of the transaction. Based on the Company's preliminary valuation, we recorded goodwill of
$15.8 million
and other intangibles including non-compete agreements of
$0.7 million
and tradenames of
$1.0 million
during the three-month period ended June 30, 2019. The non-compete agreement will be amortized over a weighted-average period of
2.8
years. RoseRock contributed approximately
$2.5 million
in net service revenue and
$0.5 million
in operating income during the three and six-month periods ended June 30, 2019.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. LEASES
We determine whether an arrangement is a lease at inception. We have operating leases, primarily for offices and fleet, that expire at various dates over the next
ten years
. We also have finance leases covering certain office equipment that expire at various dates over the next
three years
. Our leases do not contain any restrictive covenants.
Our office leases generally contain renewal options for periods ranging from one to
five years
. Because we are not reasonably certain to exercise these renewal options, the options are not considered in determining the lease term, and payments associated with the option years are excluded from lease payments. Our office leases also generally include termination options, which allow for early termination of the lease after the first one to three years. Because we are not reasonably certain to exercise these termination options, the options are not considered in determining the lease term; payments for the full lease term are included in lease payments. Our office leases do not contain any material residual value guarantees.
Our fleet leases include a term of 367 days with monthly renewal options thereafter. Our fleet leases also include terminal rental adjustment clauses (“TRAC”), which provide for a final rental payment adjustment at the end of the lease, typically based on the amount realized from the sale of the vehicle. The TRAC is structured such that it will almost always result in a significant payment by us to the lessor if the renewal option is not exercised. Based on the significance of the TRAC adjustment at the initial lease expiration, we believe that it is reasonably certain that we will exercise the monthly renewal options; therefore, the renewal options are considered in determining the lease term, and payments associated with the renewal options are included in lease payments.
For our fleet and office equipment leases, we use the implicit rate in the lease as the discount rate. For our office leases, the implicit rate is typically not available, so we use our incremental borrowing rate as the discount rate. Our lease agreements include both lease and non-lease components. We have elected the practical expedient that allows us to not separate lease and non-lease components for all of our leases.
Payments due under our operating and finance leases include fixed payments as well as variable payments. For our office leases, variable payments include amounts for our proportionate share of operating expenses, utilities, property taxes, insurance, common area maintenance and other facility-related expenses. For our vehicle and equipment leases, variable payments consist of sales tax.
The components of lease cost for the three and six-month periods ended June 30, 2019 are as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
For the
Three-Month Period Ended June 30, 2019
|
|
For the
Six-Month Period Ended June 30, 2019
|
Operating lease cost:
|
|
|
|
Operating lease cost
|
$
|
9.0
|
|
|
$
|
17.2
|
|
Impairment of operating lease ROU assets
|
0.2
|
|
|
0.3
|
|
Total operating lease cost
|
9.2
|
|
|
17.5
|
|
|
|
|
|
Finance lease cost:
|
|
|
|
Amortization of ROU assets
|
0.4
|
|
|
0.8
|
|
Interest on lease liabilities
|
—
|
|
|
0.1
|
|
Total finance lease cost
|
0.4
|
|
|
0.9
|
|
|
|
|
|
Variable lease cost
|
0.7
|
|
|
1.2
|
|
Short-term lease cost
|
—
|
|
|
0.1
|
|
|
|
|
|
Total lease cost
|
$
|
10.3
|
|
|
$
|
19.7
|
|
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Amounts reported in the condensed consolidated balance sheet as of June 30, 2019 for our operating leases are as follows (amounts in millions):
|
|
|
|
|
|
June 30, 2019
|
Operating lease ROU assets
|
$
|
85.0
|
|
|
|
Current portion of operating lease liabilities
|
26.2
|
|
Operating lease liabilities, less current portion
|
57.4
|
|
Total operating lease liabilities
|
$
|
83.6
|
|
Amounts reported in the condensed consolidated balance sheet as of June 30, 2019 for finance leases are included in the table below. The finance lease ROU assets are recorded within property and equipment, net of accumulated depreciation within our condensed consolidated balance sheet. The finance lease liabilities are recorded within current portion of long-term obligations and long-term obligations, less current portion within our condensed consolidated balance sheet.
|
|
|
|
|
|
June 30, 2019
|
Finance lease ROU assets
|
$
|
4.4
|
|
Accumulated amortization
|
(1.1
|
)
|
Finance lease ROU assets, net
|
3.3
|
|
|
|
Current installments of obligations under finance leases
|
1.5
|
|
Long-term portion of obligations under finance leases
|
1.8
|
|
Total finance lease liabilities
|
$
|
3.3
|
|
Supplemental cash flow information and non-cash activity related to our leases are as follows (amounts in millions):
|
|
|
|
|
|
For the
Six-Month Period Ended June 30, 2019
|
Cash paid for amounts included in the measurement of lease liabilities and ROU assets:
|
|
Operating cash flow from operating leases
|
$
|
(18.0
|
)
|
Financing cash flow from finance leases
|
(0.8
|
)
|
|
|
ROU assets obtained in exchange for lease obligations:
|
|
Operating leases
|
102.2
|
|
Finance leases
|
1.8
|
|
|
|
Reductions to ROU assets resulting from reductions to lease obligations:
|
|
Operating leases
|
(0.9
|
)
|
Finance leases
|
—
|
|
Amounts disclosed for ROU assets obtained in exchange for lease obligations include amounts added to the carrying amount of ROU assets resulting from lease modifications and reassessments.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Weighted average remaining lease terms and discount rates for our leases as of June 30, 2019 are as follows:
|
|
|
|
|
Years
|
Weighted average remaining lease term:
|
|
Operating leases
|
4.1
|
|
Finance leases
|
2.3
|
|
|
Rate
|
Weighted average discount rate:
|
|
Operating leases
|
4.1
|
%
|
Finance leases
|
5.3
|
%
|
Maturities of lease liabilities as of June 30, 2019 are as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
Operating
Leases
|
|
Finance
Leases
|
2019 (a)
|
$
|
14.1
|
|
|
$
|
0.8
|
|
2020
|
27.5
|
|
|
1.5
|
|
2021
|
19.8
|
|
|
1.1
|
|
2022
|
11.4
|
|
|
0.1
|
|
2023
|
7.6
|
|
|
—
|
|
Thereafter
|
10.7
|
|
|
—
|
|
Total undiscounted lease payments
|
91.1
|
|
|
3.5
|
|
Less: Imputed interest
|
(7.5
|
)
|
|
(0.2
|
)
|
Total lease liabilities
|
$
|
83.6
|
|
|
$
|
3.3
|
|
(a) Excludes the six-month period ended June 30, 2019.
5. LONG-TERM OBLIGATIONS
Long-term debt consisted of the following for the periods indicated (amounts in millions):
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
$175.0 million Term Loan; interest rate at Base Rate plus Applicable Rate or Eurodollar Rate plus Applicable Rate (4.0% at June 30, 2019); due February 4, 2024
|
$
|
173.9
|
|
|
$
|
—
|
|
$550.0 million Revolving Credit Facility; interest only payments; interest rate at Base Rate plus Applicable Rate or Eurodollar Rate plus Applicable Rate (3.9% at June 30, 2019); due February 4, 2024
|
100.0
|
|
|
7.5
|
|
Promissory notes
|
0.9
|
|
|
1.1
|
|
Finance leases
|
3.3
|
|
|
2.3
|
|
Principal amount of long-term obligations
|
278.1
|
|
|
10.9
|
|
Deferred debt issuance costs
|
(4.0
|
)
|
|
(3.5
|
)
|
|
274.1
|
|
|
7.4
|
|
Current portion of long-term obligations
|
(7.6
|
)
|
|
(1.6
|
)
|
Total
|
$
|
266.5
|
|
|
$
|
5.8
|
|
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
First Amendment to Amended and Restated Credit Agreement
On February 4, 2019, we entered into the First Amendment to our Credit Agreement (as amended by the First Amendment, the "Amended Credit Agreement"). The Amended Credit Agreement provides for a senior secured credit facility in an initial aggregate principal amount of up to
$725.0 million
, which includes a
$550.0 million
Revolving Credit Facility under the Credit Agreement and a term loan facility with a principal amount of up to
$175.0 million
(the "Term Loan Facility" and collectively with the Revolving Credit Facility, the "Credit Facility"), which was added by the First Amendment.
We borrowed the entire principal amount of the Term Loan Facility on February 4, 2019 in order to fund a portion of the purchase price of the CCH acquisition, with the remainder of the purchase price and associated transactional fees and expenses funded by proceeds from the Revolving Credit Facility.
The loans issued under the Credit Facility bear interest on a per annum basis, at our election, at either: (i) the Base Rate plus the Applicable Rate or (ii) the Eurodollar Rate plus the Applicable Rate. The “Base Rate” means a fluctuating rate per annum equal to the highest of (a) the federal funds rate plus
0.50%
per annum, (b) the prime rate of interest established by the Administrative Agent, and (c) the Eurodollar Rate plus
1%
per annum. The “Eurodollar Rate” means the quoted rate per annum equal to the London Interbank Offered Rate (“LIBOR”) or a comparable successor rate approved by the Administrative Agent for an interest period of one, two, three or six months (as selected by us). The “Applicable Rate” is based on the consolidated leverage ratio and is presented in the table below. As of
June 30, 2019
, the Applicable Rate is
0.50%
per annum for Base Rate loans and
1.50%
per annum for Eurodollar Rate loans. We are also subject to a commitment fee and letter of credit fee under the terms of the Credit Agreement, as presented in the table below.
|
|
|
|
|
|
|
Pricing Tier
|
Consolidated Leverage Ratio
|
Commitment Fee
|
Letter of Credit Fee
|
Eurodollar Rate Loans
|
Base Rate Loans
|
I
|
≥ 3.00 to 1.0
|
0.35%
|
1.75%
|
2.00%
|
1.00%
|
II
|
< 3.00 to 1.0 but ≥ 2.00 to 1.0
|
0.30%
|
1.50%
|
1.75%
|
0.75%
|
III
|
< 2.00 to 1.0 but ≥ 0.75 to 1.0
|
0.25%
|
1.25%
|
1.50%
|
0.50%
|
IV
|
< 0.75 to 1.0
|
0.20%
|
1.00%
|
1.25%
|
0.25%
|
The final maturity date of the Credit Facility is
February 4, 2024
. The Revolving Credit Facility will terminate and be due and payable as of the final maturity date. The Term Loan Facility, however, is subject to quarterly amortization of principal in the amount of (i)
0.625%
for the period commencing on February 4, 2019 and ending on March 31, 2020, (ii)
1.250%
for the period commencing on April 1, 2020 and ending on March 31, 2023, and (iii)
1.875%
for the period commencing on April 1, 2023 and ending on February 4, 2024. The remaining balance of the Term Loan Facility must be paid upon the final maturity date. In addition to the scheduled amortization of the Term Loan Facility, and subject to customary exceptions and reinvestment rights, we are required to prepay the Term Loan Facility, first, and the Revolving Credit Facility, second, with 100% of all net cash proceeds received by any loan party or any subsidiary thereof in connection with (a) any asset sale or disposition where such loan party receives net cash proceeds in excess of
$5 million
or (b) any debt issuance that is not permitted under the Amended Credit Agreement.
The Amended Credit Agreement requires maintenance of two financial covenants: (i) a consolidated leverage ratio of funded indebtedness to EBITDA, as defined in the Credit Agreement, and (ii) a consolidated interest coverage ratio of EBITDA to cash interest charges, as defined in the Credit Agreement. Each of these covenants is calculated over rolling four-quarter periods and also is subject to certain exceptions and baskets. The Amended Credit Agreement also contains customary covenants, including, but not limited to, restrictions on: incurrence of liens, incurrence of additional debt, sales of assets and other fundamental corporate changes, investments, and declarations of dividends. These covenants contain customary exclusions and baskets as detailed in the Amended Credit Agreement. In connection with our entry into the Amended Credit Agreement, we recorded
$0.8 million
in deferred debt issuance costs as long-term obligations, less current portion within our condensed consolidated balance sheet during the three-month period ended March 31, 2019.
The Revolving Credit Facility is guaranteed by substantially all of our wholly-owned direct and indirect subsidiaries. The Amended Credit Agreement requires at all times that we (i) provide guarantees from wholly-owned subsidiaries that in the aggregate represent not less than
95%
of our consolidated net revenues and adjusted EBITDA from all wholly-owned subsidiaries and (ii) provide
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
guarantees from subsidiaries that in the aggregate represent not less than
70%
of consolidated adjusted EBITDA, subject to certain exceptions.
Our weighted average interest rate for borrowings under our
$550.0 million
Revolving Credit Facility was
4.0%
for the three and six-month periods ended
June 30, 2019
. Our weighted average interest rate for borrowings under our
$175.0 million
Term Loan Facility was
4.0%
for the three-month period ended
June 30, 2019
and for the period February 4, 2019 to
June 30, 2019
.
As of
June 30, 2019
, our consolidated leverage ratio was
1.2
, our consolidated interest coverage ratio was
18.0
and we are in compliance with our covenants under the Amended Credit Agreement. In the event we are not in compliance with our debt covenants in the future, we would pursue various alternatives in an attempt to successfully resolve the non-compliance, which might include, among other things, seeking debt covenant waivers or amendments.
As of
June 30, 2019
, our availability under our
$550.0 million
Revolving Credit Facility was
$415.9 million
as we have
$100.0 million
outstanding in borrowings and
$34.1 million
outstanding in letters of credit.
Joinder Agreement
In connection with the CCH acquisition, we entered into a Joinder Agreement, dated as of February 4, 2019, pursuant to which CCH and its subsidiaries were made parties to, and became subject to the terms and conditions of, the Amended Credit Agreement, the Amended and Restated Security Agreement, dated as of June 29, 2018, and the Amended and Restated Pledge Agreement, dated as of June 29, 2018. Pursuant to the Joinder, the Amended and Restated Security Agreement and the Amended and Restated Pledge Agreement, CCH and its subsidiaries granted in favor of the Administrative Agent a first lien security interest in substantially all of their personal property assets and pledged to the Administrative Agent each of their respective subsidiaries' issued and outstanding equity interests. CCH and its subsidiaries also guaranteed our obligations, whether now existing or arising after the effective date of the Joinder, under the Amended Credit Agreement pursuant to the terms of the Joinder and the Amended Credit Agreement.
6. COMMITMENTS AND CONTINGENCIES
Legal Proceedings - Ongoing
We are involved in the following legal actions:
Subpoena Duces Tecum and Civil Investigative Demands Issued by the U.S. Department of Justice
On May 21, 2015, we received a Subpoena Duces Tecum (“Subpoena”) issued by the U.S. Department of Justice. The Subpoena requests the delivery of information regarding
53
identified hospice patients to the United States Attorney’s Office for the District of Massachusetts. It also requests the delivery of documents relating to our hospice clinical and business operations and related compliance activities. The Subpoena generally covers the period from January 1, 2011 through May 21, 2015. We are fully cooperating with the U.S. Department of Justice with respect to this investigation.
On November 3, 2015, we received a civil investigative demand (“CID”) issued by the U.S. Department of Justice pursuant to the federal False Claims Act relating to claims submitted to Medicare and/or Medicaid for hospice services provided through designated facilities in the Morgantown, West Virginia area. The CID requests the delivery of information to the United States Attorney’s Office for the Northern District of West Virginia regarding
66
identified hospice patients, as well as documents relating to our hospice clinical and business operations in the Morgantown area. The CID generally covers the period from January 1, 2009 through August 31, 2015. We are fully cooperating with the U.S. Department of Justice with respect to this investigation.
On June 27, 2016, we received a CID issued by the U.S. Department of Justice pursuant to the federal False Claims Act relating to claims submitted to Medicare and/or Medicaid for hospice services provided through designated facilities in the Parkersburg, West Virginia area. The CID requests the delivery of information to the United States Attorney’s Office for the Southern District of West Virginia regarding
68
identified hospice patients, as well as documents relating to our hospice clinical and business operations in the Parkersburg area. The CID generally covers the period from January 1, 2011 through June 20, 2016. We are fully cooperating with the U.S. Department of Justice with respect to this investigation.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Based on our analysis of sample claims data in connection with preliminary settlement discussions with the U.S. Department of Justice regarding the above matters, we recorded
$1.0 million
to accrued expenses in our condensed consolidated balance sheet as of March 31, 2019. We recorded an additional
$5.5 million
to accrued expenses during the three-month period ended June 30, 2019, with a total of
$6.5 million
recorded to accrued expenses in our condensed consolidated balance sheet as of June 30, 2019. Due to the ongoing nature of the investigations and current stage of the settlement discussions, we are unable to estimate a range of potential loss at this time, and we cannot predict the timing or outcome of these investigations.
In addition to the matters referenced in this note, we are involved in legal actions in the normal course of business, some of which seek monetary damages, including claims for punitive damages. We do not believe that these normal course actions, when finally concluded and determined, will have a material impact on our consolidated financial condition, results of operations or cash flows.
Legal fees related to all legal matters are expensed as incurred.
Other Investigative Matters - Ongoing
Corporate Integrity Agreement
On April 23, 2014, with no admissions of liability on our part, we entered into a settlement agreement with the U.S. Department of Justice relating to certain of our clinical and business operations. Concurrently with our entry into this agreement, we entered into a corporate integrity agreement (“CIA”) with the Office of Inspector General-HHS (“OIG”). The CIA formalized various aspects of our already existing ethics and compliance programs and contained other requirements designed to help ensure our ongoing compliance with federal health care program requirements. Among other things, the CIA required us to maintain our existing compliance program, executive compliance committee and compliance committee of the Board of Directors; provide certain compliance training; continue screening new and current employees to ensure they are eligible to participate in federal health care programs; engage an independent review organization to perform certain auditing and reviews and prepare certain reports regarding our compliance with federal health care programs, our billing submissions to federal health care programs and our compliance and risk mitigation programs; and provide certain reports and management certifications to the OIG. Additionally, the CIA required that we report substantial overpayments that we discover we have received from federal health care programs, as well as probable violations of federal health care laws. The corporate integrity agreement had a term of
five years
that ended on April 21, 2019. We filed our final annual report on July 19, 2019.
Compassionate Care Hospice Corporate Integrity Agreement
On January 30, 2015, Compassionate Care Hospice (“CCH”) entered into a Corporate Integrity Agreement with the Office of Inspector General- HHS (OIG). The CIA requires that CCH provide annual on-site compliance training; develop and implement policies to ensure compliance with federal health care program requirements; screen new and current employees to ensure that they are eligible to participate in federal health care programs; establish a compliance committee that contains both a Compliance Officer and a Chief Quality Officer; retain a Governing Authority expert who will periodically complete a compliance program review; and retain an independent review organization (IRO) to complete claims review for hospice services rendered in New York. Additionally, the CIA requires that CCH report substantial overpayments that CCH discovers it has received from federal health care programs, as well as probable violations of federal criminal, civil or administrative health care laws. Upon breach of the CIA, CCH could become liable for payment of certain stipulated penalties, or could be excluded from participation in federal health care programs. The CIA has a term of
five years
that will end on January 30, 2020.
Third Party Audits - Ongoing
From time to time, in the ordinary course of business, we are subject to audits under various governmental programs including Recovery Audit Contractors (“RACs”), Zone Program Integrity Contractors (“ZPICs”), Uniform Program Integrity Contractors ("UPICs"), Program Safeguard Contractors (“PSCs”) and Medicaid Integrity Contributors (“MICs”) in which third party firms engaged by the Centers for Medicare and Medicaid Services (“CMS”) conduct extensive reviews of claims data to identify potential improper payments. We cannot predict the ultimate outcome of any regulatory reviews or other governmental audits and investigations.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In July 2010, our subsidiary that provides hospice services in Florence, South Carolina received from a Zone Program Integrity Contractor (“ZPIC”) a request for records regarding a sample of
30
beneficiaries who received services from the subsidiary during the period of January 1, 2008 through March 31, 2010 (the “Review Period”) to determine whether the underlying services met pertinent Medicare payment requirements. We acquired the hospice operations subject to this review on August 1, 2009; the Review Period covers time periods both before and after our ownership of these hospice operations. Based on the ZPIC’s findings for
16
beneficiaries, which were extrapolated to all claims for hospice services provided by the Florence subsidiary billed during the Review Period, on June 6, 2011, the Medicare Administrative Contractor (“MAC”) for the subsidiary issued a notice of overpayment seeking recovery from our subsidiary of an alleged overpayment. We dispute these findings, and our Florence subsidiary has filed appeals through the Original Medicare Standard Appeals Process, in which we are seeking to have those findings overturned. An administrative law judge ("ALJ") hearing was held in early January 2015. On January 18, 2016, we received a letter dated January 6, 2016 referencing the ALJ hearing decision for the overpayment issued on June 6, 2011. The decision was partially favorable with a new overpayment amount of
$3.7 million
with a balance owed of
$5.6 million
, including interest, based on
9
disputed claims (originally
16
). We filed an appeal to the Medicare Appeals Council on the remaining
9
disputed claims and also argued that the statistical method used to select the sample was not valid. No assurances can be given as to the timing or outcome of the Medicare Appeals Council decision. As of
June 30, 2019
, Medicare has withheld payments of
$5.7 million
(including additional interest) as part of their standard procedures once this level of the appeal process has been reached. In the event we are not able to recoup this alleged overpayment, we are entitled to be indemnified by the prior owners of the hospice operations for amounts relating to the period prior to August 1, 2009. On January 10, 2019, an arbitration panel from the American Health Lawyers Association determined that the prior owners' liability for their indemnification obligation was
$2.8 million
. Accordingly, the Company reduced its indemnity receivable from
$4.9 million
to
$2.8 million
. The
$2.1 million
impact was recorded to general and administrative expenses, other within our consolidated statements of operations during the three-month period ended December 31, 2018. As of
June 30, 2019
, we have an indemnity receivable of approximately
$2.8 million
for the amount withheld related to the period prior to August 1, 2009.
In July 2016, the Company received a request for medical records from SafeGuard Services, L.L.C (“SafeGuard”), a ZPIC, related to services provided by some of the care centers that the Company acquired from Infinity Home Care, L.L.C. The review period covers time periods both before and after our ownership of the care centers, which were acquired on December 31, 2015. In August 2017, the Company received Requests for Repayment from Palmetto GBA, LLC ("Palmetto") regarding Infinity Home Care of Lakeland, LLC ("Lakeland Care Centers") and Infinity Home Care of Pinellas, LLC ("Clearwater Care Center"). The Palmetto letters are based on a statistical extrapolation performed by SafeGuard which alleged an overpayment of
$34.0 million
for the Lakeland Care Centers on a universe of
72
Medicare claims totaling
$0.2 million
in actual claims payments using a
100%
error rate and an overpayment of
$4.8 million
for the Clearwater Care Center on a universe of
70
Medicare claims totaling
$0.2 million
in actual claims payments using a
100%
error rate.
The Lakeland Request for Repayment covers claims between January 2, 2014 and September 13, 2016. The Clearwater Request for Repayment covers claims between January 2, 2015 and December 9, 2016. As a result of partially successful Level I and Level II Administrative Appeals, the alleged overpayment for the Lakeland Care Centers has been reduced to
$26.0 million
and the alleged overpayment for the Clearwater Care Center has been reduced to
$3.3 million
. The Company has now filed Level III Administrative Appeals, and will continue to vigorously pursue its appeal rights, which include contesting the methodology used by the ZPIC contractor to perform statistical extrapolation. The Company is contractually entitled to indemnification by the prior owners for all claims prior to December 31, 2015, for up to
$12.6 million
.
At this stage of the review, based on the information currently available to the Company, the Company cannot predict the timing or outcome of this review. The Company estimates a low-end potential range of loss related to this review of
$6.5 million
(assuming the Company is successful in seeking indemnity from the prior owners and unsuccessful in demonstrating that the extrapolation method used by SafeGuard was erroneous). The Company has reduced its high-end potential range of loss from
$38.8 million
(the maximum amount Palmetto claims has been overpaid for both the Lakeland Care Centers and the Clearwater Care Center, of which amount
$12.6 million
is subject to indemnification by the prior owners) to
$29.3 million
based on the partial success achieved by the Company in prosecuting its Level I and II Administrative Appeals.
As of
June 30, 2019
, we have an accrued liability of approximately
$17.4 million
related to this matter. We expect to be indemnified by the prior owners for approximately
$10.9 million
of the total
$12.6 million
available indemnification related to this matter and have recorded this amount within other assets in our condensed consolidated balance sheet as of
June 30, 2019
. The net of these two amounts,
$6.5 million
, was recorded as a reduction in revenue in our condensed consolidated statements of operations during the three-month period ended September 30, 2017. As of
June 30, 2019
,
$1.5 million
of receivables have been impacted by this payment suspension.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Insurance
We are obligated for certain costs associated with our insurance programs, including employee health, workers’ compensation and professional liability. While we maintain various insurance programs to cover these risks, we are self-insured for a substantial portion of our potential claims. We recognize our obligations associated with these costs, up to specified deductible limits in the period in which a claim is incurred, including with respect to both reported claims and claims incurred but not reported. These costs have generally been estimated based on historical data of our claims experience. Such estimates, and the resulting reserves, are reviewed and updated by us on a quarterly basis.
Our health insurance has an exposure limit of
$1.3 million
for any individual covered life. Our workers’ compensation insurance has a retention limit of
$1.0 million
per incident and our professional liability insurance has a retention limit of
$0.3 million
per incident.
7. SEGMENT INFORMATION
Our operations involve servicing patients through our
three
reportable business segments: home health, hospice and personal care. Our home health segment delivers a wide range of services in the homes of individuals who may be recovering from surgery, have a chronic disability or terminal illness or need assistance with completing important personal tasks. Our hospice segment provides palliative care and comfort to terminally ill patients and their families. Our personal care segment provides patients with assistance with the essential activities of daily living. The “other” column in the following tables consists of costs relating to executive management and administrative support functions, primarily information services, accounting, finance, billing and collections, legal, compliance, risk management, procurement, marketing, clinical administration, training, human resources and administration.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Management evaluates performance and allocates resources based on the operating income of the reportable segments, which includes an allocation of corporate expenses directly attributable to the specific segment and includes revenues and all other costs directly attributable to the specific segment. Segment assets are not reviewed by the company’s chief operating decision maker and therefore are not disclosed below (amounts in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three-Month Period Ended June 30, 2019
|
|
Home
Health
|
|
Hospice
|
|
Personal
Care
|
|
Other
|
|
Total
|
Net service revenue
|
$
|
318.6
|
|
|
$
|
153.2
|
|
|
$
|
21.2
|
|
|
$
|
—
|
|
|
$
|
493.0
|
|
Cost of service, excluding depreciation and amortization
|
187.8
|
|
|
87.3
|
|
|
15.6
|
|
|
—
|
|
|
290.7
|
|
General and administrative expenses
|
74.0
|
|
|
34.9
|
|
|
3.2
|
|
|
40.2
|
|
|
152.3
|
|
Depreciation and amortization
|
1.1
|
|
|
0.4
|
|
|
—
|
|
|
3.7
|
|
|
5.2
|
|
Operating expenses
|
262.9
|
|
|
122.6
|
|
|
18.8
|
|
|
43.9
|
|
|
448.2
|
|
Operating income (loss)
|
$
|
55.7
|
|
|
$
|
30.6
|
|
|
$
|
2.4
|
|
|
$
|
(43.9
|
)
|
|
$
|
44.8
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three-Month Period Ended June 30, 2018
|
|
Home
Health
|
|
Hospice
|
|
Personal
Care
|
|
Other
|
|
Total
|
Net service revenue
|
$
|
291.5
|
|
|
$
|
101.4
|
|
|
$
|
18.7
|
|
|
$
|
—
|
|
|
$
|
411.6
|
|
Cost of service, excluding depreciation and amortization
|
176.5
|
|
|
51.7
|
|
|
14.4
|
|
|
—
|
|
|
242.6
|
|
General and administrative expenses
|
68.4
|
|
|
20.3
|
|
|
3.3
|
|
|
31.1
|
|
|
123.1
|
|
Depreciation and amortization
|
0.8
|
|
|
0.3
|
|
|
—
|
|
|
2.0
|
|
|
3.1
|
|
Operating expenses
|
245.7
|
|
|
72.3
|
|
|
17.7
|
|
|
33.1
|
|
|
368.8
|
|
Operating income (loss)
|
$
|
45.8
|
|
|
$
|
29.1
|
|
|
$
|
1.0
|
|
|
$
|
(33.1
|
)
|
|
$
|
42.8
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six-Month Period Ended June 30, 2019
|
|
Home
Health
|
|
Hospice
|
|
Personal
Care
|
|
Other
|
|
Total
|
Net service revenue
|
$
|
628.7
|
|
|
$
|
290.2
|
|
|
$
|
41.4
|
|
|
$
|
—
|
|
|
$
|
960.3
|
|
Cost of service, excluding depreciation and amortization
|
373.5
|
|
|
161.4
|
|
|
31.1
|
|
|
—
|
|
|
566.0
|
|
General and administrative expenses
|
145.4
|
|
|
63.9
|
|
|
6.3
|
|
|
81.5
|
|
|
297.1
|
|
Depreciation and amortization
|
2.1
|
|
|
0.8
|
|
|
0.1
|
|
|
5.1
|
|
|
8.1
|
|
Operating expenses
|
521.0
|
|
|
226.1
|
|
|
37.5
|
|
|
86.6
|
|
|
871.2
|
|
Operating income (loss)
|
$
|
107.7
|
|
|
$
|
64.1
|
|
|
$
|
3.9
|
|
|
$
|
(86.6
|
)
|
|
$
|
89.1
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six-Month Period Ended June 30, 2018
|
|
Home
Health
|
|
Hospice
|
|
Personal
Care
|
|
Other
|
|
Total
|
Net service revenue
|
$
|
575.6
|
|
|
$
|
198.7
|
|
|
$
|
36.6
|
|
|
$
|
—
|
|
|
$
|
810.9
|
|
Cost of service, excluding depreciation and amortization
|
350.9
|
|
|
101.8
|
|
|
28.2
|
|
|
—
|
|
|
480.9
|
|
General and administrative expenses
|
136.4
|
|
|
40.3
|
|
|
6.5
|
|
|
61.3
|
|
|
244.5
|
|
Depreciation and amortization
|
1.6
|
|
|
0.5
|
|
|
0.1
|
|
|
4.5
|
|
|
6.7
|
|
Operating expenses
|
488.9
|
|
|
142.6
|
|
|
34.8
|
|
|
65.8
|
|
|
732.1
|
|
Operating income (loss)
|
$
|
86.7
|
|
|
$
|
56.1
|
|
|
$
|
1.8
|
|
|
$
|
(65.8
|
)
|
|
$
|
78.8
|
|
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. SHARE REPURCHASE
2019 Stock Repurchase Program
On February 25, 2019, we announced that our Board of Directors authorized a stock repurchase program, under which we may repurchase up to
$100 million
of our outstanding common stock through
March 1, 2020
.
Under the terms of the program, we are allowed to repurchase shares from time to time in open market transactions, block purchases or in private transactions in accordance with applicable federal securities laws and other legal requirements. We are allowed to enter into Rule 10b5-1 plans to effect some or all of the repurchases. The timing and the amount of the repurchases will be determined by management based on a number of factors, including but not limited to share price, trading volume and general market conditions, as well as on working capital requirements, general business conditions and other factors.
We did not repurchase any shares pursuant to this stock repurchase program during the three or six-month periods ended
June 30, 2019
.
2018 Share Repurchase
On June 4, 2018, we purchased
2,418,304
of our common shares from affiliates of KKR Credit Advisors (US) LLC ("KKR"), representing one-half of KKR's then-current holdings in the Company and
7.1%
of the aggregate outstanding shares of the Company's common stock for a total purchase price of
$181.4 million
including related direct costs. The Company repurchased the shares at
$73.96
which represents
96%
of the closing stock price of the Company's common stock on June 4, 2018. The repurchased shares are classified as treasury shares.