The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. NATURE OF OPERATIONS,
CONSOLIDATION AND PRESENTATION OF FINANCIAL STATEMENTS
Amedisys, Inc., a Delaware corporation, and its consolidated subsidiaries
(Amedisys, we, us, or our) are a multi-state provider of home health, hospice and personal care services with approximately 74% and 75% of our revenue derived from Medicare for the three and nine-month
periods ended September 30, 2017 and approximately 78% of our revenue derived from Medicare for the three and nine-month periods ended September 30, 2016. As of September 30, 2017, we owned and operated 328 Medicare-certified home
health care centers, 81 Medicare-certified hospice care centers and 16 personal-care care centers in 34 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). Our results of operations for the interim periods presented are not necessarily indicative of results of our operations for the entire year and have not been
audited by our independent auditors.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with
U.S. GAAP have been condensed or omitted from the interim financial information presented. 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, 2016, as filed with the Securities and Exchange Commission (SEC) on March 1, 2017 (the Form
10-K),
which
includes information and disclosures not included herein.
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 materially differ from those estimates.
Reclassifications and Comparability
Certain
reclassifications have been made to prior periods financial statements in order to conform to the current periods presentation.
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.
Equity 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 accounted for under the equity method of accounting was $26.8 million as of September 30, 2017,
and $27.8 million as of December 31, 2016. 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 earn net service revenue
through our home health, hospice and personal-care care centers by providing a variety of services almost exclusively in the homes of our patients. This net service revenue is earned and billed either on an episode of care basis, on a per visit
basis or on a daily basis depending upon the payment terms and conditions established with each payor for services provided. We refer to home health revenue earned and billed on a
60-day
episode of care as
episodic-based revenue.
5
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
When we record our service revenue, we record it net of estimated revenue adjustments and contractual
adjustments to reflect amounts we estimate to be realizable for services provided, as discussed below. We believe, based on information currently available to us and based on our judgment, that changes to one or more factors that impact the
accounting estimates (such as our estimates related to revenue adjustments, contractual adjustments and episodes in progress) we make in determining net service revenue, which changes are likely to occur from period to period, will not materially
impact our reported consolidated financial condition, results of operations, cash flows or our future financial results.
Home Health Revenue
Recognition
Medicare Revenue
Net service revenue
is recorded under the Medicare prospective payment system (PPS) based on a
60-day
episode payment rate that is subject to adjustment based on certain variables including, but not limited to:
(a) an outlier payment if our patients 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 fewer than five;
(c) a partial payment if our patient transferred to another provider or we received a patient 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) adjustments to payments if we are unable to perform periodic therapy assessments;
(f) 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; (g) changes in the base episode payments established by the Medicare Program;
(h) adjustments to the base episode payments for case mix and geographic wages; and (i) recoveries of overpayments. In addition, we make adjustments to Medicare revenue if we find that we are unable to produce appropriate documentation of
a face to face encounter between the patient and physician.
We make adjustments to Medicare revenue to reflect differences between estimated and actual
payment amounts, our discovered inability to obtain appropriate billing documentation or authorizations and other reasons unrelated to credit risk. 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 revenue adjustment and a corresponding reduction to patient accounts receivable.
Therefore, we believe that our reported net service revenue and patient accounts receivable will be the net amounts to be realized from Medicare for services rendered.
In addition to revenue recognized on completed episodes, we also recognize a portion of revenue associated with episodes in progress. Episodes in progress are
60-day
episodes of care that begin during the reporting period, but were not completed as of the end of the period. We estimate this revenue on a monthly basis based upon historical trends. The primary factors
underlying this estimate are the number of episodes in progress at the end of the reporting period, expected Medicare revenue per episode and our estimate of the average percentage complete based on the number of days elapsed during an episode of
care. As of September 30, 2017 and 2016, 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 immaterial and, therefore,
the resulting credits were recorded as a reduction to our outstanding patient accounts receivable in our condensed consolidated balance sheets for such periods.
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.
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,
as applicable. Contractual adjustments 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 and are also recorded as a reduction to our outstanding patient accounts receivable. In addition, 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 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 accounts for 98% of our total net Medicare hospice service revenue for each of the three and nine-month periods ended September 30, 2017, and 99% of our total net Medicare
hospice service
6
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
revenue for each of the three and nine-month periods ended September 30, 2016. Beginning January 1, 2016, the Centers for Medicare and Medicaid Services (CMS) has provided
for 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, beginning January 1, 2016, Medicare is also reimbursing for 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.
We make adjustments to Medicare revenue for an 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 our historical collection rate of over 99% on Medicare claims, and record it during the period services are rendered
as an estimated revenue adjustment and as a reduction to our outstanding patient accounts receivable.
Additionally, as Medicare hospice revenue is
subject to an inpatient cap limit and an overall payment cap for each provider number, we monitor these caps and estimate amounts due back to Medicare if we estimate a cap has been exceeded. We record these adjustments as a reduction to revenue
and an increase in other accrued liabilities. Beginning for the cap year ending October 31, 2014, providers are required to self-report and pay their estimated cap liability by March 31
st
of
the following year. As of September 30, 2017, we have settled our Medicare hospice reimbursements for all fiscal years through October 31, 2012. As of September 30, 2017 we have recorded $1.0 million for estimated amounts due
back to Medicare in other accrued liabilities for the Federal cap years ended October 31, 2013 through October 31, 2017. As of December 31, 2016, we had recorded $0.8 million for estimated amounts due back to Medicare in other
accrued liabilities for the Federal cap years ended October 31, 2013 through October 31, 2016.
Hospice
Non-Medicare
Revenue
We record gross revenue on an accrual basis based upon the date of service at amounts
equal to our established rates or estimated per day rates, as applicable. Contractual adjustments are recorded for the difference between our established rates and the amounts estimated to be realizable from patients, third parties and others for
services provided and are deducted from gross revenue to determine our net service revenue and patient accounts receivable.
Personal Care Revenue
Recognition
Personal Care
Non-Medicare
Revenue
We generate net service revenues by providing our services directly to patients primarily on a per hour, visit or unit basis. We receive payment for providing
such services from our customers, including state and local governmental agencies, managed care organizations, commercial insurers and private consumers. Net service revenues are principally provided based on authorized hours, visits or units
determined by the relevant agency, at a rate that is either contractual or fixed by legislation, which are recognized as net service revenue at the time services are rendered.
Patient Accounts Receivable
Our patient accounts
receivable are uncollateralized and consist of amounts due from Medicare, Medicaid, other third-party payors and patients. As of September 30, 2017 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 fully reserve for accounts
which are aged at 365 days or greater. 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 credit risk associated with our Medicare accounts, which represent 60% and 61% of our net patient accounts receivable at September 30,
2017 and December 31, 2016, 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. Accordingly, we do not record an allowance for doubtful accounts for our
Medicare patient accounts receivable, which are recorded at their net realizable value after recording estimated revenue adjustments as discussed above. During the three and nine-month periods ended September 30, 2017, we recorded
$3.5 million and $11.9 million, respectively, in estimated revenue adjustments to Medicare revenue as compared to $1.6 million and $5.9 million during the three and nine-month periods ended September 30, 2016, respectively.
We believe there is a certain level of credit risk associated with
non-Medicare
payors. To provide for our
non-Medicare
patient accounts receivable that could become uncollectible in the future, we establish an allowance for doubtful accounts to reduce the carrying amount to its estimated net realizable value.
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
7
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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
re-submitted.
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 patients 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. We estimate an allowance for doubtful accounts based upon our assessment of historical and expected net collections, business and economic conditions, trends in payment and an evaluation of
collectability based upon the date that the service was provided. Based upon our best judgment, we believe the allowance for doubtful accounts adequately provides for accounts that will not be collected due to credit risk.
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
|
|
Financial Instrument
|
|
Carrying Value
as of
September 30, 2017
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|
Quoted Prices in Active
Markets for Identical
Items
(Level 1)
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|
|
Significant Other
Observable Inputs
(Level 2)
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|
|
Significant
Unobservable Inputs
(Level 3)
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|
Long-term obligations
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|
$
|
92.0
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|
|
$
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|
|
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$
|
92.8
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|
$
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|
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:
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Level 1 Quoted prices in active markets for identical assets and liabilities.
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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.
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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.
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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.
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):
8
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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For the Three-Month Periods
Ended September 30,
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|
For the Nine-Month Periods
Ended September 30,
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|
|
2017
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|
|
2016
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|
|
2017
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|
|
2016
|
|
Weighted average number of shares outstandingbasic
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|
|
33,838
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|
|
|
33,309
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|
|
|
33,640
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|
|
|
33,142
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|
Effect of dilutive securities:
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Stock options
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|
|
271
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|
|
207
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|
|
279
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|
|
|
156
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|
Non-vested
stock and stock units
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|
|
254
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|
|
|
307
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|
|
|
336
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|
|
|
401
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|
|
|
|
|
|
|
|
|
|
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|
|
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Weighted average number of shares outstandingdiluted
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|
|
34,363
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|
|
|
33,823
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|
|
|
34,255
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|
|
|
33,699
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Anti-dilutive securities
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|
|
337
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|
|
|
204
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|
|
|
279
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|
|
254
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|
|
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|
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|
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|
|
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Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
2014-09,
Revenue from Contracts with Customers (Topic 606)
, which requires an entity to recognize the amount of revenue for which it expects to be entitled for the transfer of promised goods or services
to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP. In August 2015, the FASB issued ASU
2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the
Effective Date
, to defer the effective date of the standard from January 1, 2017 to January 1, 2018, with an option that permits companies to adopt the standard as early as the original effective date. The new ASU reflects the
decisions reached by the FASB at its meeting in July 2015. Early application prior to the original effective date is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company has
substantially completed its evaluation of the standard and does not expect a material impact on its consolidated financial statements upon implementation of ASU
2014-09
and ASU
2015-14
on January 1, 2018.
In February 2016, the FASB issued ASU
2016-02,
Leases (Topic 842)
, which will require lessees to recognize a lease liability and
right-of-use
asset for all
leases (with the exception of short-term leases) at the commencement date. The ASU is effective for annual and interim periods beginning on or after December 15, 2018. Early adoption is permitted. The standard requires a modified retrospective
transition method which requires application of the new guidance for all periods presented. While the Company expects adoption of this standard to lead to a material increase in the assets and liabilities recorded on our balance sheet, we are still
evaluating the overall impact on our consolidated financial statements and related disclosures and the effect of the standard on our ongoing financial reporting.
In March 2016, the FASB issued ASU
2016-09,
Compensation Stock Compensation (Topic 718):
Improvements
to Employee Share-Based Payment Accounting
, which will simplify the accounting for share-based payment award transactions, including income tax consequences, classification of awards as either equity or liability and classification on the
statement of cash flows. The ASU is effective for annual and interim periods beginning after December 15, 2016. We adopted this ASU effective January 1, 2017, and as a result, we recorded a $0.4 million increase to our
non-current
deferred tax asset and retained earnings for tax benefits that were not previously recognized under the prior rules. Additionally, on a prospective basis, we recorded excess tax benefits as a discrete
item in our income tax provision within our condensed consolidated statements of operations. We recorded tax expense of less than $0.1 million and excess tax benefits of $3.0 million within our consolidated statements of operations for the
three and nine-month periods ended September 30, 2017, respectively. Historically these amounts were recorded as additional
paid-in
capital in our condensed consolidated balance sheet. We also elected to
prospectively apply the change to the presentation of cash payments made to taxing authorities on the employees behalf for shares withheld upon stock vesting on our condensed consolidated statements of cash flows for the nine-month period
ended September 30, 2017. We have also elected to continue our current policy of estimating forfeitures of stock-based compensation awards at grant date and revising in subsequent periods to reflect actual forfeitures.
In August 2016, the FASB issued ASU
2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash
Receipts and Cash Payments
, which provides specific guidance on eight cash flow classification issues not specifically addressed by U.S. GAAP. The ASU is effective for annual and interim periods beginning after December 15, 2017. Early
adoption is permitted. The standard should be applied using a retrospective transition method unless it is impractical to do so for some of the issues. In such case, the amendments for those issues would be applied prospectively as of the earliest
date practicable. The Company does not expect an impact on its consolidated financial statements and related disclosures upon implementation of ASU
2016-15
on January 1, 2018.
In January 2017, the FASB issued ASU
2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a
Business
, which provides guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The ASU is effective for annual and interim periods beginning after
December 15, 2017. The impact on our consolidated financial statements and related disclosures will depend on the facts and circumstances of any specific future transactions.
In January 2017, the FASB issued ASU
2017-04,
IntangiblesGoodwill and Other (Topic 350)Simplifying the
Test for Goodwill Impairment
, which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge (Step 2 of the goodwill impairment test). Instead, impairment will be measured using the
difference of the carrying amount to the fair
9
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
value of the reporting unit. The ASU is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the effect that ASU
2017-04
will have on its consolidated financial statements and related disclosures and the effect of the standard on its ongoing financial reporting.
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 arms 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 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. Preliminary purchase price allocation is adjusted,
as necessary, up to one year after the acquisition closing date if management obtains more information regarding asset valuation and liabilities assumed.
On February 1, 2017, we acquired the assets of Home Staff, L.L.C. which owns and operates three personal-care care centers servicing the state of
Massachusetts for a total purchase price of $4.0 million (subject to certain adjustments), of which $0.4 million was placed in a promissory note to be paid over 24 months, subject to any offsets or withholds for indemnification purposes.
The purchase price was paid with cash on hand on the date of the transaction. During the three-month period ended March 31, 2017, we recorded goodwill ($3.8 million), other intangibles
non-compete
agreements ($0.2 million) and other assets and liabilities, net ($0.5 million) in connection with the acquisition. The
non-compete
agreements will be amortized over a weighted-average period of 2.8 years.
On May 1, 2017, we acquired three home health care centers (one in each Illinois, Massachusetts and Texas) and two hospice care centers (one in each
Arizona and Massachusetts) from Tenet Healthcare for a total purchase price of $20.5 million, (subject to certain adjustments). The purchase price was paid with cash on hand on the date of the transaction. Based on our preliminary purchase
price allocation, we recorded goodwill ($20.9 million) and other assets and liabilities, net ($0.8 million) in connection with this acquisition during the three-month period ended June 30, 2017. We will finalize the purchase price allocation
for this acquisition once we receive the final valuation report from our outside appraisal firm.
4. LONG-TERM OBLIGATIONS
Long-term debt consisted of the following for the periods indicated (amounts in millions):
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September 30, 2017
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December 31, 2016
|
|
$100.0 million Term Loan; principal payments plus accrued interest payable quarterly;
interest rate at ABR Rate plus applicable percentage or Eurodollar Rate plus the applicable percentage (3.24% at September 30, 2017); due August 28, 2020
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$
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91.3
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$
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95.0
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|
$200.0 million Revolving Credit Facility; interest only payments; interest rate at ABR Rate
plus applicable percentage or Eurodollar Rate plus the applicable percentage; due August 28, 2020
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Promissory notes
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0.7
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|
0.7
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|
Deferred debt issuance costs
|
|
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(2.1
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)
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|
|
(2.7
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)
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|
|
89.9
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|
|
|
93.0
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|
Current portion of long-term obligations
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|
|
(9.4
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)
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|
|
(5.2
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)
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Total
|
|
$
|
80.5
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$
|
87.8
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Our weighted average interest rate for our $100.0 million Term Loan, under our Credit Agreement, was 3.2% and 3.0% for
the three and nine-month periods ended September 30, 2017, respectively, and 2.5% for the three and nine-month periods ended September 30, 2016, respectively. Our weighted average interest rate for our $200.0 million Revolving Credit
Facility was 4.5% and 3.5% for the three and nine-month periods ended September 30, 2016, respectively.
10
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of September 30, 2017, our consolidated leverage ratio, as defined by our Credit Agreement, was 0.9,
our consolidated fixed charge coverage ratio, as defined by our Credit Agreement, was 4.1 and we are in compliance with our 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 September 30, 2017, our availability under our $200.0 million Revolving Credit Facility was $167.3 million as we had $32.7 million
outstanding in letters of credit.
5. COMMITMENTS AND CONTINGENCIES
Legal ProceedingsOngoing
We are involved in
the following legal actions:
Securities Class Action Lawsuits
As previously disclosed, between June 10 and July 28, 2010, several putative securities class action complaints were filed in the United States
District Court for the Middle District of Louisiana (the District Court) against the Company and certain of our former senior executives. The cases were consolidated into the first-filed action
Bach, et al. v. Amedisys, Inc., et
al.
Case No.
3:10-cv-00395,
and the District Court appointed as
co-lead
plaintiffs the Public Employees Retirement
System of Mississippi and the Puerto Rico Teachers Retirement System (the
Co-Lead
Plaintiffs). They filed a consolidated, amended complaint which all defendants moved to dismiss. The District
Court granted the defendants motions to dismiss on June 28, 2012, and the
Co-Lead
Plaintiffs appealed that ruling to the United States Court of Appeals for the Fifth Circuit (the Fifth
Circuit). On October 2, 2014, a three-judge panel of the Fifth Circuit reversed the District Courts dismissal and remanded the case to the District Court for further proceedings. The defendants request for an
en banc
review
was denied on December 29, 2014 and their Petition for a Writ of Certiorari from the United States Supreme Court was denied on June 29, 2015.
After remand to the District Court, the Plaintiffs were granted leave to file a First Amended Consolidated Complaint (the First Amended Securities
Complaint) on behalf of all purchasers or acquirers of Amedisys securities between August 2, 2005 and September 30, 2011. The First Amended Securities Complaint alleges that the Company and seven individual defendants violated
Section 10(b), Section 20(a), and Rule
10b-5
of the Securities Exchange Act of 1934 by materially misrepresenting the Companys financial results and concealing a scheme to obtain higher
Medicare reimbursements and additional patient referrals by (1) providing medically unnecessary care to patients, including certifying and
re-certifying
patients for medically unnecessary
60-day
treatment episodes; (2) implementing clinical tracks such as Balanced for Life and wound care programs that provided a
pre-set
number of therapy visits
irrespective of medical need; (3) upcoding patients Medicare forms to attribute a primary diagnosis to a medical condition associated with higher billing rates; and (4) providing improper and illegal remuneration
to physicians to obtain patient certifications or
re-certifications.
The First Amended Securities Complaint seeks certification of the case as a class action and an unspecified amount of damages, as well as
interest and an award of attorneys fees.
All defendants moved to dismiss the First Amended Securities Complaint on December 15, 2015. While
that motion was pending the parties agreed to mediate the case. This mediation was not successful. On August 19, 2016, the District Court issued its ruling on the defendants motions to dismiss, dismissing with prejudice all claims against
two former officers, dismissing all except Section 20(a) claims against three former officers, and denying all other relief. The Company and four individual defendants then filed their answers to the First Amended Securities Complaint on
October 20, 2016. The independent executrix of the estate of William F. Borne, who was substituted as a defendant in the case after Mr. Bornes death, filed her answer on February 6, 2017.
On June 12, 2017, the Company reached an
agreement-in-principle
to settle
this matter. All parties to the action executed a binding term sheet that, subject to final documentation and court approval, provided in part for a settlement payment of approximately $43.7 million, which we accrued as of June 30, 2017,
and the dismissal with prejudice of the litigation. Approximately $15.0 million of the settlement amount paid by the Companys insurance carriers during the three-month period ended September 30, 2017, was previously recorded with
other current assets in our condensed consolidated balance sheet as of June 30, 2017. The net of these two amounts, $28.7 million, was recorded as a charge in our condensed consolidated statements of operations during the three-month
period ended June 30, 2017 and paid with cash on hand during the three-month period ended September 30, 2017.
Subpoena Duces Tecum 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 Attorneys 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. Based on the information currently available to us, we cannot predict the timing or outcome of this investigation or reasonably estimate the amount or range of potential losses, if any, which may arise from this matter.
11
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Civil Investigative Demand Issued by the U.S. Department of Justice
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 Attorneys
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. Based on the information currently available to us, we cannot predict the timing or outcome of this
investigation or reasonably estimate the amount or range of potential losses, if any, which may arise from this matter.
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 Attorneys 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. Based on the information
currently available to us, we cannot predict the timing or outcome of this investigation or reasonably estimate the amount or range of potential losses, if any, which may arise from this matter.
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.
Other Investigative MattersOngoing
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 formalizes various aspects of our already existing ethics and compliance programs and
contains other requirements designed to help ensure our ongoing compliance with federal health care program requirements. Among other things, the CIA requires 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 specifically requires 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. Upon breach of the CIA, we could become liable for payment of certain stipulated penalties, or could be excluded from participation in federal health care programs. The corporate integrity agreement has a term of five
years.
Idaho and Wyoming Self-Report
During 2016,
the Company engaged an independent auditing firm to perform a clinical audit of the hospice care centers acquired by Frontier Home Health and Hospice in April 2014. No assurances can be given as to the timing or outcome of the audit on the Company,
its consolidated financial condition, results of operations or cash flows, which could be material, individually or in the aggregate.
Other
Investigative MattersClosed
Computer Inventory and Data Security Reporting
On March 1 and March 2, 2015, we provided official notice under federal and state data privacy laws concerning the outcome of an extensive risk
management process to locate and verify our large computer inventory. The process identified approximately 142 encrypted computers and laptops for which reports were required under federal and state data privacy laws. The devices at issue were
originally assigned to Company clinicians and other team members who left the Company between 2011 and 2014. We reported these devices to the U.S. Department of Health and Human Services, state agencies, and individuals whose information may be
involved, as required under applicable law because we could not rule out unauthorized access to patient data on the devices. In accordance with our CIA, we notified the OIG of this matter. As of September 30, 2017, this matter has been
resolved, and the Company incurred no penalties or fees.
12
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Third Party AuditsOngoing
From time to time, in the ordinary course of business, we are subject to audits under various governmental programs in which third party firms engaged by the
Centers for Medicare and Medicaid Services (CMS) conduct extensive review of claims data to identify potential improper payments under the Medicare program.
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 ZPICs 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 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 September 30, 2017, 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 indemnified by the prior owners of the hospice operations for amounts relating to the period prior to August 1, 2009. As of September 30, 2017, we have an indemnity receivable of
approximately $4.9 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. 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.
As these matters continue to develop, the Company is working with the appropriate
stakeholders to favorably resolve these matters. 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 estimated potential range of loss related
to this review is between $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) and $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 is subject to indemnification by the prior owners for up to $12.6 million as disclosed above).
As of September 30, 2017, 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 and have recorded this amount with other assets, net in our condensed consolidated balance sheet as of September 30, 2017. 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 September 30, 2017, $7.8 million of net receivables have been impacted by this payment
suspension.
13
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 $0.9 million for any individual covered life. Our
workers compensation insurance has a retention limit of $0.5 million per incident and our professional liability insurance has a retention limit of $0.3 million per incident.
6. 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, which was established with the
acquisition of Associated Home Care during the three-month period ended March 31, 2016, 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.
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 companys chief operating
decision maker and therefore are not disclosed below (amounts in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three-Month Period Ended September 30, 2017
|
|
|
|
Home Health
|
|
|
Hospice
|
|
|
Personal
Care
|
|
|
Other
|
|
|
Total
|
|
Net service revenue
|
|
$
|
269.5
|
|
|
$
|
96.5
|
|
|
$
|
14.2
|
|
|
$
|
|
|
|
$
|
380.2
|
|
Cost of service, excluding depreciation and amortization
|
|
|
168.2
|
|
|
|
47.8
|
|
|
|
10.6
|
|
|
|
|
|
|
|
226.6
|
|
General and administrative expenses
|
|
|
70.9
|
|
|
|
19.0
|
|
|
|
3.1
|
|
|
|
25.9
|
|
|
|
118.9
|
|
Provision for doubtful accounts
|
|
|
5.4
|
|
|
|
1.2
|
|
|
|
0.5
|
|
|
|
|
|
|
|
7.1
|
|
Depreciation and amortization
|
|
|
0.9
|
|
|
|
0.2
|
|
|
|
|
|
|
|
3.1
|
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
245.4
|
|
|
|
68.2
|
|
|
|
14.2
|
|
|
|
29.0
|
|
|
|
356.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
24.1
|
|
|
$
|
28.3
|
|
|
$
|
|
|
|
$
|
(29.0
|
)
|
|
$
|
23.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three-Month Period Ended September 30, 2016
|
|
|
|
Home Health
|
|
|
Hospice
|
|
|
Personal
Care
|
|
|
Other
|
|
|
Total
|
|
Net service revenue
|
|
$
|
268.9
|
|
|
$
|
82.0
|
|
|
$
|
10.7
|
|
|
$
|
|
|
|
$
|
361.6
|
|
Cost of service, excluding depreciation and amortization
|
|
|
162.4
|
|
|
|
41.9
|
|
|
|
7.8
|
|
|
|
|
|
|
|
212.1
|
|
General and administrative expenses
|
|
|
71.8
|
|
|
|
17.6
|
|
|
|
2.3
|
|
|
|
32.7
|
|
|
|
124.4
|
|
Provision for doubtful accounts
|
|
|
4.0
|
|
|
|
1.4
|
|
|
|
0.1
|
|
|
|
|
|
|
|
5.5
|
|
Depreciation and amortization
|
|
|
1.6
|
|
|
|
0.3
|
|
|
|
|
|
|
|
3.3
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
239.8
|
|
|
|
61.2
|
|
|
|
10.2
|
|
|
|
36.0
|
|
|
|
347.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
29.1
|
|
|
$
|
20.8
|
|
|
$
|
0.5
|
|
|
$
|
(36.0
|
)
|
|
$
|
14.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine-Month Period Ended September 30, 2017
|
|
|
|
Home Health
|
|
|
Hospice
|
|
|
Personal
Care
|
|
|
Other
|
|
|
Total
|
|
Net service revenue
|
|
$
|
814.5
|
|
|
$
|
272.8
|
|
|
$
|
42.1
|
|
|
$
|
|
|
|
$
|
1,129.4
|
|
Cost of service, excluding depreciation and amortization
|
|
|
496.1
|
|
|
|
134.9
|
|
|
|
31.2
|
|
|
|
|
|
|
|
662.2
|
|
General and administrative expenses
|
|
|
207.7
|
|
|
|
56.2
|
|
|
|
9.2
|
|
|
|
85.4
|
|
|
|
358.5
|
|
Provision for doubtful accounts
|
|
|
12.6
|
|
|
|
4.8
|
|
|
|
0.7
|
|
|
|
|
|
|
|
18.1
|
|
Depreciation and amortization
|
|
|
2.7
|
|
|
|
0.7
|
|
|
|
0.1
|
|
|
|
9.6
|
|
|
|
13.1
|
|
Securities Class Action Lawsuit settlement, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.7
|
|
|
|
28.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
719.1
|
|
|
|
196.6
|
|
|
|
41.2
|
|
|
|
123.7
|
|
|
|
1,080.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
95.4
|
|
|
$
|
76.2
|
|
|
$
|
0.9
|
|
|
$
|
(123.7
|
)
|
|
$
|
48.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine-Month Period Ended September 30, 2016
|
|
|
|
Home Health
|
|
|
Hospice
|
|
|
Personal
Care
|
|
|
Other
|
|
|
Total
|
|
Net service revenue
|
|
$
|
817.2
|
|
|
$
|
230.8
|
|
|
$
|
23.2
|
|
|
$
|
|
|
|
$
|
1,071.2
|
|
Cost of service, excluding depreciation and amortization
|
|
|
483.6
|
|
|
|
120.1
|
|
|
|
16.8
|
|
|
|
|
|
|
|
620.5
|
|
General and administrative expenses
|
|
|
215.3
|
|
|
|
51.8
|
|
|
|
5.0
|
|
|
|
106.4
|
|
|
|
378.5
|
|
Provision for doubtful accounts
|
|
|
10.8
|
|
|
|
2.8
|
|
|
|
0.1
|
|
|
|
|
|
|
|
13.7
|
|
Depreciation and amortization
|
|
|
4.4
|
|
|
|
1.0
|
|
|
|
|
|
|
|
9.3
|
|
|
|
14.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
714.1
|
|
|
|
175.7
|
|
|
|
21.9
|
|
|
|
115.7
|
|
|
|
1,027.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
103.1
|
|
|
$
|
55.1
|
|
|
$
|
1.3
|
|
|
$
|
(115.7
|
)
|
|
$
|
43.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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9. SUBSEQUENT EVENT
On October 2, 2017, we acquired Intercity Home Care, a personal care provider in Massachusetts with three care centers for a purchase price of
$9.6 million.
15