ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information we believe is relevant to an assessment and understanding of our results of operations and financial condition for
2017
,
2016
and
2015
. This discussion should be read in conjunction with our audited financial statements included in Item 8, “Financial Statements and Supplementary Data” and Part I, Item 1, “Business” of this Annual Report on Form 10-K. The following analysis contains forward-looking statements about our future revenues,
operating results and expectations. See “Special Caution Concerning Forward-Looking Statements” for a discussion of the risks, assumptions and uncertainties affecting these statements as well as Part I, Item 1A, “Risk Factors.”
Overview
We are a provider of high-quality in-home healthcare and related services to the chronic, co-morbid, aging American population, with approximately
75%
,
78%
and
80%
of our revenue derived from Medicare for
2017
,
2016
and
2015
respectively.
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 an illness, injury or surgery. Our hospice segment provides care that is designed to provide comfort and support for those who are facing a terminal illness. Our personal care segment provides patients assistance with the essential activities of daily living. As of
December 31, 2017
, we owned and operated
323
Medicare-certified home health care centers,
83
Medicare-certified hospice care centers and
15
personal-care care centers, including unconsolidated joint ventures, in
34
states within the United States and the District of Columbia.
Care Centers Summary
|
|
|
|
|
|
|
|
|
|
|
Home Health
|
|
Hospice
|
|
Personal Care
|
At December 31, 2014
|
316
|
|
|
80
|
|
|
—
|
|
Acquisitions
|
15
|
|
|
1
|
|
|
—
|
|
Closed/Consolidated/Sold
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
At December 31, 2015
|
329
|
|
|
79
|
|
|
—
|
|
Acquisitions/Start-Ups
|
1
|
|
|
—
|
|
|
14
|
|
Closed/Consolidated
|
(3
|
)
|
|
—
|
|
|
—
|
|
At December 31, 2016
|
327
|
|
|
79
|
|
|
14
|
|
Acquisitions/Start-Ups
|
3
|
|
|
2
|
|
|
7
|
|
Closed/Consolidated
|
(10
|
)
|
|
—
|
|
|
(6
|
)
|
At December 31, 2017
|
320
|
|
|
81
|
|
|
15
|
|
Unconsolidated Joint Ventures
|
3
|
|
|
2
|
|
|
—
|
|
Total Including Unconsolidated Joint Ventures at December 31, 2017
|
323
|
|
|
83
|
|
|
15
|
|
When we refer to “same store business,” we mean home health, hospice and personal-care care centers that we have operated for at least the last twelve months; when we refer to “acquisitions,” we mean home health, hospice and personal-care care centers that we acquired within the last twelve months; and when we refer to “start-ups,” we mean home health, hospice and personal-care care centers opened by us in the last twelve months. Once a care center has been in operation for a twelve month period, the results for that particular care center are included as part of our same store business from that date forward. Non-Medicare revenue, admissions, recertifications or completed episodes includes home health revenue, admissions, recertifications or completed episodes of care for those payors that pay on an episodic or per visit basis, which includes Medicare Advantage programs and private payors.
2017
Developments
|
|
•
|
Acquired the assets of Home Staff, L.L.C and Intercity Home Care, solidifying our position as the largest personal care provider in Massachusetts.
|
|
|
•
|
Made significant strides in delivering on our goal of clinical distinction with 88% of our care centers at 4+ Stars in the January 2018 Home Health Compare ("HHC") release.
|
|
|
•
|
Increased total revenue 7% and operating income 37%.
|
|
|
•
|
Realized planned reductions in operating expenses post-completion of our Homecare Homebase ("HCHB") rollout.
|
|
|
•
|
Exceeded 7,000 in hospice average daily census.
|
|
|
•
|
Lowered our business development staff vacancy rate to 1%.
|
|
|
•
|
Lowered company voluntary turnover rate to 22%.
|
|
|
•
|
Completed home health division restructure plan which is expected to generate between $7 million and $9 million in annualized savings.
|
2018
Strategy
|
|
•
|
Continue to build on our industry-leading hospice platform by exploring various growth opportunities including small and large acquisitions and denovos.
|
|
|
•
|
Continue to focus on organic growth and inorganic expansion in all three segments.
|
|
|
•
|
Continue our commitment to clinical distinction with a goal of all care centers achieving a 4.0 Quality Star Rating.
|
|
|
•
|
Focus on recruitment and retention of world class employees while fostering a culture of engagement to become the employer of choice in the industry.
|
|
|
•
|
Improve productivity through increased proficiency in HCHB, productivity staffing tools and standardized scheduling processes.
|
|
|
•
|
Optimize portfolio by focusing on margin improvement in underperforming care centers.
|
Financial Performance
Results for the year ended
December 31, 2017
were the culmination of our focused efforts on operational improvements that began during 2014.
Our home health care centers experienced same store episodic volume growth in 2017. The home health segment saw an increase in non-Medicare revenue which combined with cost controls were able to partially mitigate the impact of the 2017 CMS rate cut (see "Results of Operations”).
Our hospice segment achieved significant growth in admissions and average daily census combined with strong cost controls in 2017, all of which helped deliver a $27 million improvement in our operating income over the year ended December 31, 2016 (see “Results of Operations”).
Our personal care segment completed two acquisitions in 2017. These acquisitions contributed approximately $1 million in personal care operating income as a result of associated integration costs.
Economic and Industry Factors
Home health, hospice and personal care services are a highly fragmented and highly competitive industry. The degree of competitiveness varies based upon whether our care centers operate in states that require a certificate of need (CON) or permit of approval (POA). In such states, expansion by existing providers or entry into the market by new providers is permitted only where determination is made by state health authorities that a given amount of unmet healthcare need exists. Currently,
68%
and
39%
of our home health and hospice care centers, respectively operate in CON/POA states.
As the Federal government continues to debate a reduction in expenditures and a reform of the Medicare system, our industry continues to face reimbursement pressures. These reform efforts could result in major changes in the health care delivery and reimbursement system on a national and state level, including changes directly impacting the reimbursement systems for our home health and hospice care centers.
In the Calendar Year 2018 Home Health Proposed Rule, released in July 2017, CMS proposed changes to the Home Health Prospective Payment System (“HHPPS”), known as the Home Health Groupings Model (“HHGM”). Among a number of major differences from the current payment system, the HHGM would have distinguished between referrals from institutions and those from the community, with community referrals receiving lower payments. In addition, a 60-day episode would consist of two 30-day periods, each paid separately, with the initial 30-day period paid higher than any other period. However, HHGM was not included in the final rule released in November 2017.
On February 9, 2018, Congress passed the Bipartisan Budget Act of 2018 ("BBA of 2018"), which funded government operations, set two-year government spending limits and enacted a variety of healthcare related policies. Specific to home health, the BBA of 2018 provides for a targeted extension of the home health rural add-on payment, a reduction of the 2020 market basket update, modification of eligibility documentation requirements and reform to the HHPPS. The HHPPS reform includes the following parameters:
|
|
•
|
For home health units of service beginning on January 1, 2020, a 30-day payment system will apply.
|
|
|
•
|
The transition to the 30-day payment system must be budget neutral.
|
|
|
•
|
CMS must conduct at least one Technical Expert Panel during 2018, prior to any notice and comment rulemaking process, related to the design of any new case-mix adjustment model.
|
The following payment adjustments are effective for each of the years indicated based on CMS’s final rules relative to Medicare reimbursement and the passage of the BBA of 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Health
|
|
Hospice
|
|
2018 (1)
|
|
2017
|
|
2016
|
|
2018 (2)
|
|
2017
|
|
2016
|
Market Basket Update
|
1.0
|
%
|
|
2.8
|
%
|
|
2.3
|
%
|
|
1.0
|
%
|
|
2.7
|
%
|
|
2.4
|
%
|
Rebasing
|
—
|
|
|
(2.3
|
)
|
|
(2.4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
50/50 Blend of Wage Index
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
Nominal Case Mix Adjustment
|
(0.9
|
)
|
|
(0.9
|
)
|
|
(0.9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
PPACA Adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.3
|
)
|
|
(0.3
|
)
|
Budget Neutrality Adjustment Factor
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.7
|
)
|
Productivity Adjustment
|
—
|
|
|
(0.3
|
)
|
|
(0.4
|
)
|
|
—
|
|
|
(0.3
|
)
|
|
(0.5
|
)
|
Estimated Industry Impact
|
0.1
|
%
|
|
(0.7
|
)%
|
|
(1.4
|
)%
|
|
1.0
|
%
|
|
2.1
|
%
|
|
1.1
|
%
|
Estimated Company-Specific Impact
(3)
|
(0.7
|
)%
|
|
(2.0
|
)%
|
|
(1.7
|
)%
|
|
1.0
|
%
|
|
2.0
|
%
|
|
—
|
%
|
|
|
(1)
|
Effective for episodes scheduled to be completed on or after January 1, 2018.
|
|
|
(2)
|
Effective for services provided from October 1, 2017 to September 30, 2018.
|
|
|
(3)
|
Our company-specific impact of the final rules differs depending on differences in the wage index and the impact of coding and outlier changes.
|
As part of the 2016 final rule issued in October 2015, CMS finalized their proposal to implement a Home Health Value-Based Purchasing ("HHVBP") model in nine states that seeks to test whether incentives for better care can improve outcomes in the delivery of home health services. Financial impacts from this change, either positive or negative, would begin January 1, 2018, applied to that calendar year based on 2016 performance data and for future years as detailed below.
|
|
|
|
Performance Year
|
Year Reward/ Penalty Imposed
|
Maximum Reward/ Penalty
|
2016
|
2018
|
3%
|
2017
|
2019
|
5%
|
2018
|
2020
|
6%
|
2019
|
2021
|
7%
|
2020
|
2022
|
8%
|
Care centers operating in the states included in the proposed model account for approximately 30% of our 2017 home health Medicare revenue. Based on our performance to date, we anticipate that we will receive approximately $1 million in 2018 related to HHVBP.
Governmental Inquiries and Investigations and Other Litigation
Corporate Integrity Agreement
In connection with a settlement agreement with the U.S. Department of Justice, on April 23, 2014, 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 CIA has a term of five years. We expect the CIA to impact operating expenses by approximately $1 million to $2 million annually.
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 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.
Civil Investigative Demands 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.
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.
Florida Zone Program Integrity Contractor Audit
During the three-month period ended September 30, 2017, we received a request for medical records from SafeGuard Services, L.L.C. ("SafeGuard"), a Zone Program Integrity Contractor ("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. Subsequent to the request for medical records, we received Requests for Repayment from Palmetto GBA, L.L.C. ("Palmetto") regarding two of these care centers. As a result we recorded a reduction in revenue in our consolidated statement of operations of approximately $7 million during the three-month period ended September 30, 2017.
See Item 8, Note
9
– Commitments and Contingencies to our consolidated financial statements for additional information regarding our CIA, the Subpoena issued by the U.S. Department of Justice, the CIDs issued by the U.S. Department of Justice and the Florida ZPIC audit. No assurances can be given as to the timing or outcome of these items.
Results of Operations
Consolidated
The following table summarizes our consolidated results of operations (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Net service revenue
|
$
|
1,533.7
|
|
|
$
|
1,437.4
|
|
|
$
|
1,280.5
|
|
Gross margin, excluding depreciation and amortization
|
633.0
|
|
|
604.4
|
|
|
554.6
|
|
% of revenue
|
41.3
|
%
|
|
42.0
|
%
|
|
43.3
|
%
|
Other operating expenses
|
499.4
|
|
|
523.2
|
|
|
472.4
|
|
% of revenue
|
32.6
|
%
|
|
36.4
|
%
|
|
36.9
|
%
|
Provision for doubtful accounts
|
25.1
|
|
|
19.5
|
|
|
14.1
|
|
Securities Class Action Lawsuit settlement, net
|
28.7
|
|
|
—
|
|
|
—
|
|
Asset impairment charge
|
1.3
|
|
|
4.4
|
|
|
77.3
|
|
Operating income (loss)
|
78.5
|
|
|
57.3
|
|
|
(9.2
|
)
|
Total other income, net
|
2.3
|
|
|
4.2
|
|
|
8.9
|
|
Income tax expense
|
(50.1
|
)
|
|
(23.9
|
)
|
|
(2.0
|
)
|
Effective income tax rate
|
62.0
|
%
|
|
38.9
|
%
|
|
650.6
|
%
|
Net income (loss)
|
30.7
|
|
|
37.6
|
|
|
(2.3
|
)
|
Net income attributable to noncontrolling interests
|
(0.4
|
)
|
|
(0.4
|
)
|
|
(0.7
|
)
|
Net income (loss) attributable to Amedisys, Inc.
|
$
|
30.3
|
|
|
$
|
37.3
|
|
|
$
|
(3.0
|
)
|
Year Ended
December 31, 2017
Compared to the Year Ended
December 31, 2016
Overall, our operating income increased $21 million on a revenue increase of $96 million. Our decline in gross margin as a percentage of revenue was the result of the 2017 and 2018 changes to home health and hospice reimbursement which reduced revenue and gross margin by approximately $14 million, net. Our 2017 results are inclusive of a $30 million charge for the Securities Class Action Lawsuit settlement and related legal fees, a $7 million reduction in revenue as a result of the Florida ZPIC audit and charges of approximately $3 million related to our home health closures and restructuring plan. Our 37% increase in operating income despite the cumulative impact of $40 million from the items noted above was driven by the continued growth of our hospice division and continued reductions in operating expenses across the organization.
Our 2017 operating results include the results of our acquisition of three home health and two hospice care centers on May 1, 2017 and our personal care acquisitions of Home Staff, L.L.C and Intercity Home Care. These three acquisitions accounted for approximately $22 million of our $96 million increase in revenue and $5 million of our $525 million in other operating expenses.
Total other income, net includes the impact of the following items (amounts in millions):
|
|
|
|
|
|
|
|
|
|
For the Years Ended
December 31,
|
|
2017
|
|
2016
|
Legal settlements
|
$
|
2.0
|
|
|
$
|
2.3
|
|
Equity in earnings from equity method investment
|
0.8
|
|
|
3.5
|
|
Interest expense related to tax audit reserve
|
—
|
|
|
(0.6
|
)
|
Interest expense related to Florida ZPIC audit
|
(0.3
|
)
|
|
—
|
|
Interest expense related to long-term obligations
|
(4.7
|
)
|
|
(4.5
|
)
|
|
$
|
(2.2
|
)
|
|
$
|
0.7
|
|
Excluding these items, total other income, net increased $1 million in 2017 from 2016.
Our 2017 income tax expense includes a $21 million charge related to the remeasurement of our deferred tax assets and liabilities to the enacted corporate income tax rate of 21% as required by the enactment of H.R. 1 (Tax Cuts and Jobs Act), on December 22, 2017 (see Item 8, Note 7 - Income Taxes to our consolidated financial statements).
Year Ended
December 31, 2016
Compared to the Year Ended
December 31, 2015
Our 2016 operating results include the results of Infinity HomeCare (“Infinity”), Associated Home Care and Professional Profiles beginning on the date of their acquisition. These three acquisitions accounted for $85 million of our $157 million increase in revenue and $35 million of our $56 million increase in other operating expenses. Our operating results were also impacted by an increase of approximately $21 million in costs associated with our move to HCHB. Approximately $8 million relates to implementation services provided by a third party while $4 million is the result of a non-cash charge to write off assets (primarily laptops) not compatible with our new platform. The remaining $9 million is related to disruption in care center operations as well as additional corporate resources to support multiple systems. In addition to the $21 million related to HCHB, we experienced an increase of $5 million in bad debt and contractual reserves due to increased write-offs and accounts receivable aging due to the HCHB disruption. While we anticipated these costs to continue as we completed the roll-out, our care centers generally returned to normal operating results approximately 60 to 90 days after implementation; we completed the HCHB roll-out during the three-month period ended December 31, 2016. Additionally, our results were impacted by approximately $12 million as a result of the 2016 CMS rate cut.
Total other income, net includes the impact of the following items (amounts in millions):
|
|
|
|
|
|
|
|
|
|
For the Years Ended
December 31,
|
|
2016
|
|
2015
|
Legal settlements
|
$
|
2.3
|
|
|
$
|
7.4
|
|
Equity in earnings from equity method investment
|
3.5
|
|
|
6.7
|
|
Interest expense related to tax audit reserve
|
(0.6
|
)
|
|
—
|
|
Life insurance proceeds
|
—
|
|
|
1.0
|
|
Debt refinance costs
|
—
|
|
|
(3.2
|
)
|
Interest expense related to long-term obligations
|
(4.5
|
)
|
|
(7.6
|
)
|
Gain (loss) on disposal of property and equipment or sale of care centers
|
—
|
|
|
0.2
|
|
|
$
|
0.7
|
|
|
$
|
4.5
|
|
Excluding these items, total other income, net decreased $1 million in 2016 from 2015.
Home Health Division
The following table summarizes our home health segment results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Financial Information
(in millions)
:
|
|
|
|
|
|
Medicare
|
$
|
793.3
|
|
|
$
|
822.4
|
|
|
$
|
761.4
|
|
Non-Medicare
|
308.5
|
|
|
263.1
|
|
|
243.7
|
|
Net service revenue
|
1,101.8
|
|
|
1,085.5
|
|
|
1,005.1
|
|
Cost of service
|
670.9
|
|
|
643.7
|
|
|
584.2
|
|
Gross margin
|
430.9
|
|
|
441.8
|
|
|
420.9
|
|
Provision for doubtful accounts
|
17.9
|
|
|
13.8
|
|
|
12.2
|
|
Asset impairment charge
|
1.3
|
|
|
—
|
|
|
—
|
|
Other operating expenses
|
281.9
|
|
|
289.4
|
|
|
268.4
|
|
Operating income
|
$
|
129.8
|
|
|
$
|
138.6
|
|
|
$
|
140.3
|
|
Same Store Growth (1):
|
|
|
|
|
|
Medicare revenue
|
(4
|
)%
|
|
2
|
%
|
|
3
|
%
|
Non-Medicare revenue
|
17
|
%
|
|
8
|
%
|
|
21
|
%
|
Medicare admissions
|
(2
|
)%
|
|
3
|
%
|
|
3
|
%
|
Total Episodic admissions
|
1
|
%
|
|
4
|
%
|
|
3
|
%
|
Total Episodic volume
|
3
|
%
|
|
3
|
%
|
|
1
|
%
|
Total admissions
|
2
|
%
|
|
2
|
%
|
|
7
|
%
|
Key Statistical Data - Total (2):
|
|
|
|
|
|
Medicare:
|
|
|
|
|
|
Admissions
|
190,132
|
|
|
194,662
|
|
|
178,226
|
|
Recertifications
|
106,774
|
|
|
103,193
|
|
|
99,762
|
|
Total volume
|
296,906
|
|
|
297,855
|
|
|
277,988
|
|
|
|
|
|
|
|
Completed episodes
|
290,227
|
|
|
289,862
|
|
|
269,227
|
|
Visits
|
5,067,436
|
|
|
5,124,002
|
|
|
4,797,734
|
|
Average revenue per completed episode (3)
|
$
|
2,823
|
|
|
$
|
2,839
|
|
|
$
|
2,825
|
|
Visits per completed episode (4)
|
17.3
|
|
|
17.5
|
|
|
17.5
|
|
Non-Medicare:
|
|
|
|
|
|
Admissions
|
107,665
|
|
|
98,448
|
|
|
96,934
|
|
Recertifications
|
46,364
|
|
|
38,618
|
|
|
35,870
|
|
Visits
|
2,347,363
|
|
|
2,050,975
|
|
|
1,954,543
|
|
Total (2):
|
|
|
|
|
|
Visiting Clinician Cost per Visit
|
$
|
82.04
|
|
|
$
|
81.18
|
|
|
$
|
78.23
|
|
Clinical Manager Cost per Visit
|
$
|
8.44
|
|
|
$
|
8.53
|
|
|
$
|
8.29
|
|
Total Cost per Visit
|
$
|
90.48
|
|
|
$
|
89.71
|
|
|
$
|
86.52
|
|
Visits
|
7,414,799
|
|
|
7,174,977
|
|
|
6,752,277
|
|
|
|
(1)
|
Same store information represents the percent increase (decrease) in our Medicare and Non-Medicare revenue, admissions or volume for the period as a percent of the Medicare and Non-Medicare revenue, admissions or volume of the prior period.
|
|
|
(2)
|
Total includes acquisitions.
|
|
|
(3)
|
Average Medicare revenue per completed episode is the average Medicare revenue earned for each Medicare completed episode of care.
|
|
|
(4)
|
Medicare visits per completed episode are the home health Medicare visits on completed episodes divided by the home health Medicare episodes completed during the period.
|
Year Ended
December 31, 2017
Compared to the Year Ended
December 31, 2016
Overall, our operating income decreased $9 million on a $16 million increase in revenue. Our decrease in gross margin as a percentage of revenue was the result of the 2017 and 2018 changes in reimbursement which reduced revenue and gross margin by $17 million. Additionally, our results include a $7 million reduction in revenue and gross margin related to a reserve recorded
as the result of a ZPIC audit in four care centers in Florida. Growth in episodic volumes and reductions in operating expenses helped to mitigate the impacts of the items noted above.
Net Service Revenue
Our Medicare revenue decreased approximately $29 million which includes a $7 million reduction in revenue related to the Florida ZPIC audit. Our total Medicare volumes (admissions plus recertifications) decreased by approximately 1,000 from 2016, and our revenue per episode decreased by 60 basis points which resulted in a reduction in revenue of approximately $5 million. Additionally, our provision for revenue adjustments increased approximately $7 million primarily related to the aging of Medicare receivables for our Florida care centers included in the ZPIC audit and the related billing hold. The decrease in revenue per episode is the result of the combined impact of the 2017 and 2018 CMS rate cuts on our episodes in progress which reduced our revenue by approximately $17 million; this reduction was offset by a $12 million increase related to the acuity level of our patients.
Our non-Medicare revenue increased approximately $45 million. Admissions from episodic payors increased 27% while our per visit payors increased 2%. We continue to focus on contract payors with significant concentrations in our markets and those that add incremental margin to our operations as we continue to evaluate our portfolio of managed care contracts.
Cost of Service, Excluding Depreciation and Amortization
Our cost of service consists of costs associated with direct clinician care in the homes of our patients as well as the cost of clinical managers who monitor the overall delivery of care. Our cost of service increased 4% on a 3% increase in total visits. Our cost per visit increased 1% as the result of annual wage increases and increases in health insurance costs. These increases were partially mitigated by improvements in clinician productivity.
Other Operating Expenses
Other operating expenses decreased $8 million despite incurring approximately $4 million in costs related to our home health restructuring plan. These charges were offset by decreases in other care center related expenses, primarily salaries and benefits as the result of planned decreases post our HCHB rollout. Other operating expenses include approximately $3 million related to acquisitions during 2017.
Our provision for doubtful accounts increased $4 million on a $45 million increase in revenue.
Year Ended
December 31, 2016
Compared to the Year Ended
December 31, 2015
Overall, our operating income decreased $2 million on a $21 million increase in gross margin offset by a $23 million increase in other operating expenses. These results are inclusive of Infinity which accounted for $49 million of our total revenue increase and $18 million of other operating expenses. Our results were negatively impacted by approximately $12 million related to the CMS rate cut which became effective January 1, 2016 and approximately $6 million as the result of disruptions associated with the roll-out of HCHB.
Net Service Revenue
Our Medicare revenue increased $61 million which is inclusive of $48 million from acquired care centers. The increase in same store revenue is due to higher admission volumes. Our revenue per episode was relatively flat despite the impact of the CMS rate cut in 2016; the increase was due to an increase in patient acuity.
Our non-Medicare revenue increased approximately $19 million, with revenues from episodic payors increasing 16% while our revenue from per visit payors grew 5%.
Cost of Service, Excluding Depreciation and Amortization
Our cost of service increased $59 million primarily as a result of a 6% increase in visits and a 4% increase in cost per visit. The increase in cost per visit is primarily due to higher health insurance expense, planned wage increases and additional costs related to our HCHB roll-out.
Other Operating Expenses
Other operating expenses increased $21 million due to increases in other care center related expenses, primarily salaries and benefits, travel and training expense and HCHB maintenance and hosting fees. Other operating expense related to care centers acquired from Infinity was approximately $18 million. We completed the consolidation of our legacy Florida operations with Infinity and the conversion of Infinity to our back office platform during 2016.
Our provision for doubtful accounts increased $2 million on a $19 million increase in revenue.
Hospice Division
The following table summarizes our hospice segment results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Financial Information
(in millions):
|
|
|
|
|
|
Medicare
|
$
|
350.7
|
|
|
$
|
297.7
|
|
|
$
|
258.5
|
|
Non-Medicare
|
20.3
|
|
|
18.3
|
|
|
16.9
|
|
Net service revenue
|
371.0
|
|
|
316.0
|
|
|
275.4
|
|
Cost of service
|
184.8
|
|
|
163.1
|
|
|
141.7
|
|
Gross margin
|
186.2
|
|
|
152.9
|
|
|
133.7
|
|
Provision for doubtful accounts
|
5.9
|
|
|
5.5
|
|
|
1.9
|
|
Other operating expenses
|
77.5
|
|
|
71.5
|
|
|
64.1
|
|
Operating income
|
$
|
102.8
|
|
|
$
|
75.9
|
|
|
$
|
67.7
|
|
Same Store Growth (1):
|
|
|
|
|
|
Medicare revenue
|
17
|
%
|
|
15
|
%
|
|
13
|
%
|
Non-Medicare revenue
|
10
|
%
|
|
9
|
%
|
|
18
|
%
|
Hospice admissions
|
11
|
%
|
|
17
|
%
|
|
16
|
%
|
Average daily census
|
15
|
%
|
|
16
|
%
|
|
12
|
%
|
Key Statistical Data - Total (2):
|
|
|
|
|
|
Hospice admissions
|
25,381
|
|
|
22,526
|
|
|
19,205
|
|
Average daily census
|
6,820
|
|
|
5,912
|
|
|
5,105
|
|
Revenue per day, net
|
$
|
149.04
|
|
|
$
|
146.05
|
|
|
$
|
147.78
|
|
Cost of service per day
|
$
|
74.25
|
|
|
$
|
75.36
|
|
|
$
|
76.06
|
|
Average discharge length of stay
|
93
|
|
|
96
|
|
|
92
|
|
|
|
(1)
|
Same store information represents the percent increase (decrease) in our Medicare and Non-Medicare revenue, Hospice admissions or average daily census for the period as a percent of the Medicare and Non-Medicare revenue, Hospice admissions or average daily census of the prior period.
|
|
|
(2)
|
Total includes acquisitions.
|
Year Ended
December 31, 2017
Compared to the Year Ended
December 31, 2016
Overall, our operating income increased $27 million on a $33 million increase in gross margin offset by a $6 million increase in other operating expenses. Our significant growth in volumes and decrease in cost of service per day have resulted in a 22% increase in gross margin.
Net Service Revenue
Our hospice revenue increased approximately $55 million due to an increase in our average daily census as a result of an 11% increase in hospice admissions and an increase in reimbursement effective for services provided from each October 1, 2016 and 2017.
Cost of Service, Excluding Depreciation and Amortization
Our hospice cost of service increased $22 million as the result of a 15% increase in average daily census. Our cost of service per day decreased $1.11 primarily due to significant improvements in salary and pharmacy cost per day driven by cost controls and census growth.
Other Operating Expenses
Other operating expenses increased $6 million due to increases in other care center related expenses, primarily salaries and benefits, medical director fees and HCHB-related IT fees, driven by our census growth.
Year Ended
December 31, 2016
Compared to the Year Ended
December 31, 2015
Overall, our operating income increased $8 million on a $19 million increase in gross margin offset by an $11 million increase in other operating expenses.
Net Service Revenue
Our hospice revenue increased approximately $41 million during 2016 due to an increase in our average daily census as a result of a 17% increase in hospice admissions. We benefited from a 1.1% hospice rate increase effective October 1, 2015. Beginning January 1, 2016, CMS 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 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.
Our revenue per day was impacted by an increase in contractual reserves and write-offs which occurred during the HCHB roll-out.
Cost of Service, Excluding Depreciation and Amortization
Our hospice cost of service increased $21 million as the result of a 16% increase in average daily census.
Other Operating Expenses
Other operating expenses increased $11 million due to increases in other care center related expenses, primarily salaries and benefits and HCHB maintenance and hosting fees.
We experienced an increase in days revenue outstanding, net as we transitioned to the HCHB platform. As such, our provision for doubtful accounts increased approximately $4 million, which is reflective of an increase in our accounts receivable aging.
Personal Care Division
The following table summarizes our personal care segment results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Financial Information
(in millions):
|
|
|
|
|
|
Medicare
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-Medicare
|
60.9
|
|
|
35.9
|
|
|
—
|
|
Net service revenue
|
60.9
|
|
|
35.9
|
|
|
—
|
|
Cost of service
|
45.0
|
|
|
26.3
|
|
|
—
|
|
Gross margin
|
15.9
|
|
|
9.6
|
|
|
—
|
|
Provision for doubtful accounts
|
1.3
|
|
|
0.2
|
|
|
—
|
|
Other operating expenses
|
13.8
|
|
|
7.9
|
|
|
—
|
|
Operating income
|
$
|
0.8
|
|
|
$
|
1.5
|
|
|
$
|
—
|
|
Key Statistical Data:
|
|
|
|
|
|
Billable hours
|
2,604,794
|
|
|
1,539,093
|
|
|
—
|
|
Clients served
|
16,826
|
|
|
10,219
|
|
|
—
|
|
Shifts
|
1,195,511
|
|
|
696,956
|
|
|
—
|
|
Revenue per hour
|
23.37
|
|
|
23.32
|
|
|
—
|
|
Revenue per shift
|
50.92
|
|
|
51.49
|
|
|
—
|
|
Hours per shift
|
2.2
|
|
|
2.2
|
|
|
—
|
|
Year Ended
December 31, 2017
Compared to the Year Ended
December 31, 2016
On February 1, 2017, we acquired the assets of Home Staff LLC, which owned and operated three personal-care care centers, one of which was subsequently consolidated with one of our existing personal-care care centers. On October 1, 2017, we acquired the assets of Intercity Home Care, which owned and operated four personal-care care centers, three of which were subsequently consolidated with our existing personal-care care centers. Acquisitions are included in our consolidated financial statements from their respective acquisition dates. As a result, our personal care operating results for 2017 and 2016 are not fully comparable.
Operating income related to our personal care division decreased by approximately $1 million on a $6 million increase in gross margin offset by a $1 million increase in provision for doubtful accounts and a $6 million increase in other operating expenses. The increase in other operating expenses is driven by our acquisition activity.
Year Ended
December 31, 2016
On March 1, 2016, we acquired Associated Home Care, a personal care home health care company with nine care centers. On September 1, 2016, we acquired the assets of Professional Profiles, Inc. which owned and operated four personal-care care centers. In addition, during the three-month period ended September 30, 2016 we opened a start-up personal-care care center. Operating income related to our new personal care division for 2016 was approximately $2 million on net service revenue of $36 million and cost of service of $26 million; other operating expenses were approximately $8 million.
Corporate
The following table summarizes our corporate results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Financial Information
(in millions):
|
|
|
|
|
|
Other operating expenses
|
$
|
113.7
|
|
|
$
|
141.9
|
|
|
$
|
126.5
|
|
Depreciation and amortization
|
12.5
|
|
|
12.4
|
|
|
13.4
|
|
Total operating expenses before asset impairment charge and Securities Class Action Lawsuit settlement, net
|
$
|
126.2
|
|
|
$
|
154.3
|
|
|
$
|
139.9
|
|
Asset impairment charge
|
—
|
|
|
4.4
|
|
|
77.3
|
|
Securities Class Action Lawsuit settlement, net
|
$
|
28.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total operating expenses
|
$
|
154.9
|
|
|
$
|
158.7
|
|
|
$
|
217.2
|
|
Corporate expenses consist of costs relating to our 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.
Year Ended
December 31, 2017
Compared to the Year Ended
December 31, 2016
Excluding the $30 million Securities Class Action Lawsuit settlement and related legal fees in 2017 and the asset impairment charge in 2016, corporate other operating expenses have decreased approximately $28 million primarily as a result of an $8 million reduction in HCHB implementation costs and an $11 million reduction in acquisition activity (including acquired corporate support and other acquisition costs). We also experienced reductions in various other operating expenses including salaries and benefits, non-cash compensation and personnel costs. These reductions are a direct result of planned reductions post installation of HCHB and a restructure plan initiated in 2016.
Year Ended
December 31, 2016
Compared to the Year Ended
December 31, 2015
Corporate other operating expenses increased approximately $14 million which is inclusive of approximately $12 million in corporate support expenses related to acquisitions, a $3 million increase in non-cash compensation and a $4 million increase related to HCHB implementation costs offset by decreases of approximately $5 million in various other costs (including a $2 million decrease in legal settlement expenses).
Liquidity and Capital Resources
Cash Flows
The following table summarizes our cash flows for the periods indicated (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Cash provided by operating activities
|
105.7
|
|
|
$
|
62.2
|
|
|
107.8
|
|
Cash used in investing activities
|
(44.0
|
)
|
|
(52.0
|
)
|
|
(67.4
|
)
|
Cash used in financing activities
|
(5.5
|
)
|
|
(7.5
|
)
|
|
(20.9
|
)
|
Net increase in cash and cash equivalents
|
56.2
|
|
|
2.7
|
|
|
19.5
|
|
Cash and cash equivalents at beginning of period
|
30.2
|
|
|
27.5
|
|
|
8.0
|
|
Cash and cash equivalents at end of period
|
$
|
86.4
|
|
|
$
|
30.2
|
|
|
$
|
27.5
|
|
Cash provided by operating activities totaled $105.7 million for 2017, $62.2 million for 2016 and $107.8 million for 2015. During each year, we maintained sufficient liquidity to finance our capital expenditures, both routine and non-routine, and acquisitions.
Changes in our cash provided by operating activities during the past three years were primarily the result of fluctuations in the collections of our accounts receivable and timing of the payments of accrued expenses. During 2017, operating cash flows were negatively impacted by approximately $30 million in litigation fees related to the Securities Class Action Lawsuit settlement (see Item 8, Note
9
– Commitments and Contingencies to our consolidated financial statements). During 2016, operating cash flows were negatively impacted by approximately $20 million in fees related to the conversion to HCHB, severance costs related to a reorganization plan, acquisition costs and litigation.
Cash used in investing activities decreased $8.0 million during
2017
compared to
2016
primarily due to decreases in cash paid for acquisitions ($1.8 million), capital expenditures ($5.0 million) and investments ($0.6 million). Cash used in investing activities decreased $15.4 million during
2016
compared to
2015
primarily due to decreases in cash paid for acquisitions ($33.6 million), capital expenditures ($5.7 million) and investments ($2.4 million), offset by decreases in proceeds from the sale of property and equipment related to the sale of our former corporate headquarters.
Cash used in financing activities decreased $2.0 million during
2017
compared to
2016
primarily due to a decrease in tax benefits from stock compensation plans and repurchases of company stock pursuant to our stock repurchase program, offset by shares withheld upon stock vesting and proceeds from issuance of stock upon exercise of stock options. Cash used in financing activities decreased $13.4 million during
2016
compared to
2015
primarily due to tax benefits from stock compensation plans and a decrease in repayments of outstanding borrowings, offset by repurchases of company stock pursuant to our stock repurchase program.
Liquidity
Typically, our principal source of liquidity is the collection of our patient accounts receivable, primarily through the Medicare program. In addition to our collection of patient accounts receivable, from time to time, we can and do obtain additional sources of liquidity by the incurrence of additional indebtedness.
During
2017
, we spent $
10.7
million in capital expenditures compared to $
15.7
million and $
21.4
million during
2016
and
2015
, respectively. Our capital expenditures for
2018
are expected to be approximately $7.0 million to $9.0 million.
As of
December 31, 2017
, we had
$86.4 million
in cash and cash equivalents and
$167.3 million
in availability under our $200.0 million Revolving Credit Facility.
During the three-month period ended September 30, 2017, we settled the Securities Class Action Lawsuit for approximately $43.7 million, of which approximately $15.0 million was paid by the Company's insurance carriers. We used cash on hand to make the required remaining $28.7 million payment during the three-month period ended September 30, 2017.
Based on our operating forecasts and our new debt service requirements, we believe we will have sufficient liquidity to fund our operations, capital requirements and debt service requirements.
Outstanding Patient Accounts Receivable
Our patient accounts receivable, net increased $35.1 million from
December 31, 2016
to
December 31, 2017
. Our cash collection as a percentage of revenue was
99%
for the twelve-month periods ended
December 31, 2017
and
2016
. Our days revenue outstanding, net at
December 31, 2017
was
44.0
days which is an increase of 3.8 days from
December 31, 2016
. The Florida ZPIC
audit (see Item 8, Note
9
- Commitments and Contingencies to our consolidated financial statements) which resulted in $6.8 million of net receivables being placed on payment suspension as of December 31, 2017, has added 1.6 days to our days revenue outstanding, net. Additionally accounts receivable of the three home health and two hospice care centers acquired on May 1, 2017, has added 1.5 days to our days revenue outstanding, net. As is typical with newly acquired care centers, we experienced an increase in our aging of receivables due to regulatory delays related to the change of ownership process. We expect to have this completed during the first quarter of 2018.
Our patient accounts receivable includes unbilled receivables and are aged based upon our initial service date. We monitor unbilled receivables on a care center by care center basis to ensure that all efforts are made to bill claims within timely filing deadlines. Our unbilled patient accounts receivable can be impacted by acquisition activity, probe edits or regulatory changes which result in additional information or procedures needed prior to billing. The timely filing deadline for Medicare is one year from the date the episode was completed, varies by state for Medicaid-reimbursable services and varies among insurance companies and other private payors.
Our provision for estimated revenue adjustments (which is deducted from our service revenue to determine net service revenue) and provision for doubtful accounts were as follows for the periods indicated (amounts in millions). Our policy is to fully reserve for both our Medicare and other patient accounts receivable that are aged over 365 days; however, we have elected to not apply this policy to those accounts impacted by the Florida ZPIC audit.
|
|
|
|
|
|
|
|
|
|
For the Years Ended
December 31,
|
|
2017
|
|
2016
|
Provision for estimated revenue adjustments
|
$
|
14.4
|
|
|
$
|
7.9
|
|
Provision for doubtful accounts
|
25.1
|
|
|
19.5
|
|
Total
|
$
|
39.5
|
|
|
$
|
27.4
|
|
As a percent of revenue
|
2.6
|
%
|
|
1.9
|
%
|
The following schedules detail our patient accounts receivable, net of estimated revenue adjustments, by payor class, aged based upon initial date of service (amounts in millions, except days revenue outstanding, net):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-90
|
|
91-180
|
|
181-365
|
|
Over 365
|
|
Total
|
At December 31, 2017:
|
|
|
|
|
|
|
|
|
|
Medicare patient accounts receivable, net (1)
|
$
|
95.9
|
|
|
$
|
16.1
|
|
|
$
|
6.6
|
|
|
$
|
0.6
|
|
|
$
|
119.2
|
|
Other patient accounts receivable:
|
|
|
|
|
|
|
|
|
|
Medicaid
|
14.8
|
|
|
3.7
|
|
|
2.5
|
|
|
0.3
|
|
|
21.3
|
|
Private
|
54.3
|
|
|
10.3
|
|
|
9.7
|
|
|
7.3
|
|
|
81.6
|
|
Total
|
$
|
69.1
|
|
|
$
|
14.0
|
|
|
$
|
12.2
|
|
|
$
|
7.6
|
|
|
$
|
102.9
|
|
Allowance for doubtful accounts (2)
|
|
|
|
|
|
|
|
|
(20.9
|
)
|
Non-Medicare patient accounts receivable, net
|
|
|
|
|
|
|
|
|
$
|
82.0
|
|
Total patient accounts receivable, net
|
|
|
|
|
|
|
|
|
$
|
201.2
|
|
Days revenue outstanding, net (3)
|
|
|
|
|
|
|
|
|
44.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-90
|
|
91-180
|
|
181-365
|
|
Over 365
|
|
Total
|
At December 31, 2016:
|
|
|
|
|
|
|
|
|
|
Medicare patient accounts receivable, net (1)
|
$
|
82.7
|
|
|
$
|
17.1
|
|
|
$
|
1.4
|
|
|
$
|
—
|
|
|
$
|
101.2
|
|
Other patient accounts receivable:
|
|
|
|
|
|
|
|
|
|
Medicaid
|
13.6
|
|
|
3.6
|
|
|
3.6
|
|
|
0.2
|
|
|
21.0
|
|
Private
|
39.8
|
|
|
10.4
|
|
|
7.6
|
|
|
3.8
|
|
|
61.6
|
|
Total
|
$
|
53.4
|
|
|
$
|
14.0
|
|
|
$
|
11.2
|
|
|
$
|
4.0
|
|
|
$
|
82.6
|
|
Allowance for doubtful accounts (2)
|
|
|
|
|
|
|
|
|
(17.7
|
)
|
Non-Medicare patient accounts receivable, net
|
|
|
|
|
|
|
|
|
$
|
64.9
|
|
Total patient accounts receivable, net
|
|
|
|
|
|
|
|
|
$
|
166.1
|
|
Days revenue outstanding, net (3)
|
|
|
|
|
|
|
|
|
40.2
|
|
|
|
(1)
|
The following table summarizes the activity and ending balances in our estimated revenue adjustments (amounts in millions), which is recorded to reduce our Medicare outstanding patient accounts receivable to their estimated net realizable value, as we do not estimate an allowance for doubtful accounts for our Medicare claims.
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
December 31,
|
|
2017
|
|
2016
|
Balance at beginning of period
|
$
|
4.1
|
|
|
$
|
4.0
|
|
Provision for estimated revenue adjustments
|
14.4
|
|
|
7.9
|
|
Write offs
|
(12.3
|
)
|
|
(7.8
|
)
|
Balance at end of period
|
$
|
6.2
|
|
|
$
|
4.1
|
|
Our estimated revenue adjustments were
4.9%
and
3.9%
of our outstanding Medicare patient accounts receivable at
December 31, 2017
and
December 31, 2016
, respectively.
|
|
(2)
|
The following table summarizes the activity and ending balances in our allowance for doubtful accounts (amounts in millions), which is recorded to reduce only our Medicaid and private payor outstanding patient accounts receivable to their estimated net realizable value.
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
December 31,
|
|
2017
|
|
2016
|
Balance at beginning of period
|
$
|
17.7
|
|
|
$
|
16.5
|
|
Provision for doubtful accounts
|
25.1
|
|
|
19.5
|
|
Write offs
|
(21.9
|
)
|
|
(18.3
|
)
|
Balance at end of period
|
$
|
20.9
|
|
|
$
|
17.7
|
|
Our allowance for doubtful accounts was
20.3%
and
21.5%
of our outstanding Medicaid and private patient accounts receivable at
December 31, 2017
and
December 31, 2016
, respectively.
|
|
(3)
|
Our calculation of days revenue outstanding, net is derived by dividing our ending net patient accounts receivable (i.e., net of estimated revenue adjustments and allowance for doubtful accounts ) at
December 31, 2017
and
2016
by our average daily net patient revenue for the three-month periods ended
December 31, 2017
and
2016
, respectively.
|
Indebtedness
Credit Agreement
On August 28, 2015, we entered into a Credit Agreement that provides for senior secured facilities in an initial aggregate principal amount of up to $300 million.
The Credit Facilities are comprised of (a) a term loan facility in an initial aggregate principal amount of $100 million (the “Term Loan”); and (b) a revolving credit facility in an initial aggregate principal amount of up to $200 million (the “Revolving Credit Facility”). The Revolving Credit Facility provides for and includes within its $200 million limit a $25 million swingline facility and commitments for up to $50 million in letters of credit. Upon lender approval, we may increase the aggregate loan amount under the Credit Facilities by a maximum amount of $150 million.
The net proceeds of the Term Loan and existing cash on hand were used to pay off (i) our existing term loan under our Prior Credit Agreement, dated as of October 22, 2012, as amended (the “Prior Credit Agreement”) with a principal balance of $27 million and (ii) our existing term loan under our prior Second Lien Credit Agreement dated July 28, 2014 (the “Second Lien Credit Agreement”), with a principal balance of $70 million. The final maturity of the Term Loan is August 28, 2020. The Term Loan began amortizing on March 31, 2016 and will continue amortizing over 10 quarterly installments (eight remaining quarterly installments of $2.5 million beginning March 31, 2018, followed by two quarterly installments of $3.1 million beginning March 31, 2020, subject to adjustment for prepayments), with the remaining balance due upon maturity.
The Revolving Credit Facility may be used to provide ongoing working capital and for general corporate purposes of the Company and its subsidiaries, including permitted acquisitions, as defined in the Credit Agreement. The final maturity of the Revolving Credit Facility is August 28, 2020 and will be payable in full at that time.
The interest rate in connection with the Credit Facilities shall be selected from the following by us: (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 for an interest period of one month plus 1% per annum. The “Eurodollar Rate” means the rate at which Eurodollar deposits in the London interbank market for an interest period of one, two, three or six months (as selected
by us) are quoted. The “Applicable Rate” is based on the consolidated leverage ratio and is presented in the table below. As of
December 31, 2017
, the Applicable Rate is
1.00%
per annum for Base Rate Loans and
2.00%
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 Facilities, as presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Leverage Ratio
|
|
Margin for
ABR Loans
|
|
Margin for
Eurodollar Loans
|
|
Commitment
Fee
|
|
Letter of
Credit Fee
|
≥ 2.75 to 1.0
|
|
2.00
|
%
|
|
3.00
|
%
|
|
0.40
|
%
|
|
3.00
|
%
|
< 2.75 to 1.0 but ≥ 1.75 to 1.0
|
|
1.50
|
%
|
|
2.50
|
%
|
|
0.35
|
%
|
|
2.50
|
%
|
< 1.75 to 1.0 but ≥ 0.75 to 1.0
|
|
1.00
|
%
|
|
2.00
|
%
|
|
0.30
|
%
|
|
2.00
|
%
|
< 0.75 to 1.0
|
|
0.50
|
%
|
|
1.50
|
%
|
|
0.25
|
%
|
|
1.50
|
%
|
Our weighted average interest rate for our $100.0 million Term Loan, under our Credit Agreement, was
3.1%
and
2.5%
for the period ended
December 31, 2017
and
December 31, 2016
, respectively. Our weighted average interest rate for our $200.0 million Revolving Credit Facility was
3.5%
for the period ended
December 31, 2016
.
As of
December 31, 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.
The 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 fixed charge coverage ratio of EBITDA plus rent expense (less cash taxes less capital expenditures) to scheduled debt repayments plus interest expense plus rent expense, all 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. As of
December 31, 2017
, our consolidated leverage ratio was
0.9
and our consolidated fixed charge coverage ratio was
4.4
and we are in compliance with the Credit Agreement. The 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.
The Credit Facilities are guaranteed by substantially all of our wholly-owned direct and indirect subsidiaries. The Credit Agreement requires at all times that we (i) provide guaranties 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 guarantees from subsidiaries that in the aggregate represent not less than 70% of consolidated adjusted EBITDA, subject to certain exceptions.
In connection with entering into the Credit Agreement, we entered into (i) a Security Agreement with the Administrative Agent dated August 28, 2015 and (ii) a Pledge Agreement with the Administrative Agent dated as of August 28, 2015 for the purpose of securing the payment of our obligations under the Credit Agreement. Pursuant to the Security Agreement and the Pledge Agreement, as of the effective date of the Credit Agreement, our obligations under the Credit Agreement are secured by (i) the grant of a first lien security interest in the non-real estate assets of substantially all of our direct and indirect, wholly-owned subsidiaries (subject to exceptions) and (ii) the pledge of the equity interests in (a) substantially all of our direct and indirect, wholly-owned corporate, limited liability company and limited partnership subsidiaries and (b) those joint ventures which constitute subsidiaries under the Credit Agreement (subject, in the case of the Pledge Agreement, to exceptions).
In connection with the entry into the Credit Agreement, on August 28, 2015, each of the Prior Credit Agreement and the Second Lien Credit Agreement were terminated. The Company paid a call premium of $700,000 associated with the termination of the Second Lien Credit Agreement and the voluntary prepayment of the amounts owed thereunder as of August 28, 2015, and expensed $2.5 million in deferred debt issuance costs during the three-month period ended September 30, 2015. Also in connection with our entry into the Credit Agreement, we recorded $2.4 million in deferred debt issuance costs as other assets in our consolidated balance sheet during 2015 which was reclassified to long-term obligations, less current portion during 2016 in accordance with Accounting Standards Update 2015-03,
Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
.
Stock Repurchase Program
On September 9, 2015, we announced that our Board of Directors authorized a stock repurchase program allowing for the repurchase of up to $75 million of our outstanding common stock on or before September 6, 2016, the date on which the stock repurchase program expired.
Under the terms of the program, we were 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 were allowed to enter into Rule 10b5-1 plans to effect some or all of the repurchases. The timing and the amount of the repurchases
were 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.
Pursuant to this program, we repurchased 324,141 shares of our common stock at a weighted average price of $37.96 per share and a total cost of approximately $12.3 million during 2016 and 116,859 shares of our common stock at a weighted average price of $39.20 per share and a total cost of approximately $4.6 million during 2015. The repurchased shares are classified as treasury shares.
Contractual Obligations
Our future contractual obligations at
December 31, 2017
were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
Total
|
|
Less than
1 Year
|
|
1-3
Years
|
|
4-5
Years
|
|
After
5 Years
|
Long-term obligations
|
$
|
90.7
|
|
|
$
|
10.6
|
|
|
$
|
80.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest on long-term obligations (1)
|
7.4
|
|
|
3.1
|
|
|
4.3
|
|
|
—
|
|
|
—
|
|
Operating leases
|
80.8
|
|
|
23.6
|
|
|
31.7
|
|
|
13.9
|
|
|
11.6
|
|
Capital commitments
|
0.7
|
|
|
0.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchase obligations
|
52.0
|
|
|
15.5
|
|
|
27.1
|
|
|
9.4
|
|
|
—
|
|
Uncertain tax positions
|
2.7
|
|
|
0.6
|
|
|
2.1
|
|
|
—
|
|
|
—
|
|
|
$
|
234.3
|
|
|
$
|
54.1
|
|
|
$
|
145.3
|
|
|
$
|
23.3
|
|
|
$
|
11.6
|
|
|
|
(1)
|
Interest on debt with variable rates was calculated using the current rate of that particular debt instrument at
December 31, 2017
.
|
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, collectability of accounts receivable, reserves related to insurance and litigation, goodwill, intangible assets, income taxes and contingencies. We base these estimates on our historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results experienced may vary materially and adversely from our estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations may be affected.
We believe the following critical accounting policies represent our most significant judgments and estimates used in the preparation of our consolidated financial statements.
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, on a daily basis or based on authorized hours, visits or units, 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.
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. We make adjustments to Medicare revenue on completed episodes to reflect differences between estimated and actual payment amounts, and 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. In addition, management evaluates the potential for revenue adjustments and, when appropriate, provides allowances based upon the best available information.
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 relative to the average length of an episode of care.
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, 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. We make adjustments to Medicare revenue for our discovered inability to obtain appropriate billing documentation or 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 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 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 September 30, 2017, providers are required to self-report and pay their estimated cap liability by February 28th of the following year. As of
December 31, 2017
, we have settled our Medicare hospice reimbursements for all fiscal years through October 31, 2012 and we have recorded
$0.9 million
for estimated amounts due back to Medicare in other accrued liabilities for the Federal cap years ended October 31, 2013 through September 30, 2018. 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 September 30, 2017.
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 visit 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 payor clients, including state and local governmental agencies, managed care organizations, commercial insurers and private consumers. Payor clients 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). 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 – Allowance for Doubtful Accounts
Our patient accounts receivable are uncollateralized and consist of amounts due from Medicare, Medicaid, other third-party payors and patients. Our policy is to fully reserve for accounts which are aged at 365 days or greater; however, we have elected to not apply this policy to those accounts impacted by the Florida ZPIC audit (see Item 8, Note
9
- Commitments and Contingencies to our consolidated financial statements for additional information). We write off accounts on a monthly basis once we have exhausted our collection efforts and deem an account to be uncollectible. 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.
We believe there is a certain level of collectibility 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. 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 collectibility 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 collectibility risk.
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 in the period in which a claim is incurred, including with respect to both reported claims and claims incurred but not reported, up to specified deductible limits. These costs have generally been estimated based upon independent third-party actuarial calculations which consider historical claims data. Such estimates, and the resulting reserves, are reviewed and updated by us on a quarterly basis.
Goodwill and Other Intangible Assets
Goodwill represents the amount of the purchase price in excess of the fair values assigned to the underlying identifiable net assets of acquired businesses. Goodwill is not amortized, but is subject to an annual impairment test. Tests are performed more frequently if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. These events or circumstances include but are not limited to, a significant adverse change in the business environment; regulatory environment or legal factors; or a substantial decline in market capitalization of our stock.
Generally Accepted Accounting Principles ("GAAP") allows for impairment testing to be done on either a quantitative or qualitative basis. During
2017
, we utilized a qualitative analysis for our annual impairment test and determined that there were no triggering events that would indicate that it were "more likely than not" that the carrying value of our reporting units were higher than their respective fair values. As a result, we did not record any goodwill impairment charges and none of the goodwill associated with our various reporting units were considered at risk of impairment as of October 31,
2017
. Since the date of our last annual goodwill impairment test, there have been no material developments, events, changes in operating performance or other circumstances that would cause management to believe it is more likely than not that the fair value of any of our reporting units would be less than its carrying amount.
Intangible assets consist of Certificates of Need, licenses, acquired names and non-compete agreements. We amortize non-compete agreements and acquired names that we do not intend to use in the future on a straight-line basis over their estimated useful lives, which is generally three years for non-compete agreements and up to five years for acquired names. Our indefinite-lived intangible assets are reviewed for impairment annually or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of the intangible asset below its carrying amount. During 2017, we performed a qualitative assessment to determine that our indefinite-lived intangible assets were not impaired. There have been no material developments, events,
changes in operating performance or other circumstances that would cause management to believe it is more likely than not that the fair value of any of our intangible assets would be less than its carrying amount.
Income Taxes
We use the asset and liability approach for measuring deferred tax assets and liabilities based on temporary differences existing at each balance sheet date using currently enacted tax rates. Our deferred tax calculation requires us to make certain estimates about future operations. Deferred tax assets are reduced by a valuation allowance when we believe it is more likely than not that some portion or all of the deferred tax assets will not be realized. The effect of a change in tax rate is recognized as income or expense in the period that includes the enactment date. As of
December 31, 2017
and
2016
our net deferred tax assets were
$56.1 million
and
$107.9 million
, respectively. Our net deferred tax asset at
December 31, 2017
includes a
$21.4 million
decrease resulting from the remeasurement of deferred taxes using the reduced U.S. corporate tax rates included in H.R. 1 (the Tax Cuts and Jobs Act) enacted on December 22, 2017.
Management regularly assesses the ability to realize deferred tax assets recorded in the Company’s entities based upon the weight of available evidence, including such factors as the recent earnings history and expected future taxable income. In the event future taxable income is below management’s estimates or is generated in tax jurisdictions different than projected, we could be required to increase the valuation allowance for deferred tax assets. This would result in an increase in our effective tax rate.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Amedisys, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Amedisys, Inc. and subsidiaries ("the Company") as of
December 31, 2017
and
2016
, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended
December 31, 2017
, and the related notes (collectively, "the consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2017
and
2016
, and the results of its operations and its cash flows for each of the years in the three-year period ended
December 31, 2017
, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of
December 31, 2017
, based on criteria established in
Internal Control – Integrated Framework
(2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2018 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company's auditor since 2002.
/s/ KPMG LLP
Baton Rouge, Louisiana
February 28, 2018
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2017
|
|
2016
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
86,363
|
|
|
$
|
30,197
|
|
Patient accounts receivable, net of allowance for doubtful accounts of $20,866, and $17,716
|
201,196
|
|
|
166,056
|
|
Prepaid expenses
|
7,329
|
|
|
7,397
|
|
Other current assets
|
16,268
|
|
|
11,260
|
|
Total current assets
|
311,156
|
|
|
214,910
|
|
Property and equipment, net of accumulated depreciation of $146,814 and $138,650
|
31,122
|
|
|
36,999
|
|
Goodwill
|
319,949
|
|
|
288,957
|
|
Intangible assets, net of accumulated amortization of $30,610 and $27,864
|
46,061
|
|
|
46,755
|
|
Deferred income taxes
|
56,064
|
|
|
107,940
|
|
Other assets, net
|
49,130
|
|
|
38,468
|
|
Total assets
|
$
|
813,482
|
|
|
$
|
734,029
|
|
LIABILITIES AND EQUITY
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
25,384
|
|
|
$
|
30,358
|
|
Payroll and employee benefits
|
89,936
|
|
|
82,480
|
|
Accrued expenses
|
89,104
|
|
|
63,290
|
|
Current portion of long-term obligations
|
10,638
|
|
|
5,220
|
|
Total current liabilities
|
215,062
|
|
|
181,348
|
|
Long-term obligations, less current portion
|
78,203
|
|
|
87,809
|
|
Other long-term obligations
|
3,791
|
|
|
3,730
|
|
Total liabilities
|
297,056
|
|
|
272,887
|
|
Commitments and Contingencies – Note 9
|
|
|
|
Equity:
|
|
|
|
Preferred stock, $0.001 par value, 5,000,000 shares authorized; none issued or outstanding
|
—
|
|
|
—
|
|
Common stock, $0.001 par value, 60,000,000 shares authorized; 35,747,134, and 35,253,577 shares issued; and 33,964,767 and 33,597,215 shares outstanding
|
35
|
|
|
35
|
|
Additional paid-in capital
|
568,780
|
|
|
537,472
|
|
Treasury stock at cost 1,782,367, and 1,656,362 shares of common stock
|
(53,713
|
)
|
|
(46,774
|
)
|
Accumulated other comprehensive income
|
15
|
|
|
15
|
|
Retained earnings (deficit)
|
204
|
|
|
(30,545
|
)
|
Total Amedisys, Inc. stockholders’ equity
|
515,321
|
|
|
460,203
|
|
Noncontrolling interests
|
1,105
|
|
|
939
|
|
Total equity
|
516,426
|
|
|
461,142
|
|
Total liabilities and equity
|
$
|
813,482
|
|
|
$
|
734,029
|
|
The accompanying notes are an integral part of these consolidated financial statements.
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Net service revenue
|
$
|
1,533,680
|
|
|
$
|
1,437,454
|
|
|
$
|
1,280,541
|
|
Cost of service, excluding depreciation and amortization
|
900,726
|
|
|
833,055
|
|
|
725,915
|
|
General and administrative expenses:
|
|
|
|
|
|
Salaries and benefits
|
305,938
|
|
|
306,981
|
|
|
279,425
|
|
Non-cash compensation
|
16,295
|
|
|
16,401
|
|
|
11,824
|
|
Other
|
159,980
|
|
|
180,048
|
|
|
161,186
|
|
Provision for doubtful accounts
|
25,059
|
|
|
19,519
|
|
|
14,053
|
|
Depreciation and amortization
|
17,123
|
|
|
19,678
|
|
|
20,036
|
|
Asset impairment charge
|
1,323
|
|
|
4,432
|
|
|
77,268
|
|
Securities Class Action Lawsuit settlement, net
|
28,712
|
|
|
—
|
|
|
—
|
|
Operating expenses
|
1,455,156
|
|
|
1,380,114
|
|
|
1,289,707
|
|
Operating income (loss)
|
78,524
|
|
|
57,340
|
|
|
(9,166
|
)
|
Other income (expense):
|
|
|
|
|
|
Interest income
|
158
|
|
|
75
|
|
|
71
|
|
Interest expense
|
(5,031
|
)
|
|
(5,164
|
)
|
|
(10,783
|
)
|
Equity in earnings from equity method investments
|
3,381
|
|
|
5,588
|
|
|
9,823
|
|
Miscellaneous, net
|
3,769
|
|
|
3,727
|
|
|
9,747
|
|
Total other income, net
|
2,277
|
|
|
4,226
|
|
|
8,858
|
|
Income (loss) before income taxes
|
80,801
|
|
|
61,566
|
|
|
(308
|
)
|
Income tax expense
|
(50,118
|
)
|
|
(23,935
|
)
|
|
(2,004
|
)
|
Net income (loss)
|
30,683
|
|
|
37,631
|
|
|
(2,312
|
)
|
Net income attributable to noncontrolling interests
|
(382
|
)
|
|
(370
|
)
|
|
(709
|
)
|
Net income (loss) attributable to Amedisys, Inc.
|
$
|
30,301
|
|
|
$
|
37,261
|
|
|
$
|
(3,021
|
)
|
Basic earnings per common share:
|
|
|
|
|
|
Income (loss) attributable to Amedisys, Inc. common stockholders
|
$
|
0.90
|
|
|
$
|
1.12
|
|
|
$
|
(0.09
|
)
|
Weighted average shares outstanding
|
33,704
|
|
|
33,198
|
|
|
33,018
|
|
Diluted earnings per common share:
|
|
|
|
|
|
Income (loss) attributable to Amedisys, Inc. common stockholders
|
$
|
0.88
|
|
|
$
|
1.10
|
|
|
$
|
(0.09
|
)
|
Weighted average shares outstanding
|
34,304
|
|
|
33,741
|
|
|
33,018
|
|
The accompanying notes are an integral part of these consolidated financial statements.
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Net income (loss)
|
$
|
30,683
|
|
|
$
|
37,631
|
|
|
$
|
(2,312
|
)
|
Other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
Comprehensive income (loss)
|
30,683
|
|
|
37,631
|
|
|
(2,312
|
)
|
Comprehensive income attributable to non-controlling interests
|
(382
|
)
|
|
(370
|
)
|
|
(709
|
)
|
Comprehensive income (loss) attributable to Amedisys, Inc.
|
$
|
30,301
|
|
|
$
|
37,261
|
|
|
$
|
(3,021
|
)
|
The accompanying notes are an integral part of these consolidated financial statements.
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts in thousands, except common stock shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Common Stock
|
|
Additional
Paid-in
Capital
|
|
Treasury
Stock
|
|
Accumulated
Other
Comprehensive
Loss (Income)
|
|
Retained
Earnings (Deficit)
|
|
Noncontrolling
Interests
|
Shares
|
|
Amount
|
|
Balance, December 31, 2014
|
$
|
397,762
|
|
|
34,569,526
|
|
|
$
|
35
|
|
|
$
|
481,762
|
|
|
$
|
(19,860
|
)
|
|
$
|
15
|
|
|
$
|
(64,785
|
)
|
|
$
|
595
|
|
Issuance of stock – employee stock purchase plan
|
2,204
|
|
|
79,323
|
|
|
—
|
|
|
2,204
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance of stock – 401(k) plan
|
6,032
|
|
|
184,412
|
|
|
—
|
|
|
6,032
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercise of stock options
|
399
|
|
|
15,380
|
|
|
—
|
|
|
399
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance/(cancellation) of non-vested stock
|
—
|
|
|
(61,675
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Non-cash compensation
|
11,824
|
|
|
—
|
|
|
—
|
|
|
11,824
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Tax benefit from stock options exercised and restricted stock vesting
|
2,073
|
|
|
—
|
|
|
—
|
|
|
2,073
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Tax deficit from stock options exercised and restricted stock vesting
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Surrendered shares
|
(2,525
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,525
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Shares repurchased
|
(4,581
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,581
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Noncontrolling interest distribution
|
(436
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(436
|
)
|
Net loss
|
(2,312
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,021
|
)
|
|
709
|
|
Balance, December 31, 2015
|
410,436
|
|
|
34,786,966
|
|
|
35
|
|
|
504,290
|
|
|
(26,966
|
)
|
|
15
|
|
|
(67,806
|
)
|
|
868
|
|
Issuance of stock – employee stock purchase plan
|
2,483
|
|
|
63,688
|
|
|
—
|
|
|
2,483
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance of stock – 401(k) plan
|
6,682
|
|
|
145,660
|
|
|
—
|
|
|
6,682
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance/(cancellation) of non-vested stock
|
—
|
|
|
257,263
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Non-cash compensation
|
16,401
|
|
|
—
|
|
|
—
|
|
|
16,401
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Tax benefit from stock options exercised and restricted stock vesting
|
7,241
|
|
|
—
|
|
|
—
|
|
|
7,241
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Surrendered shares
|
(7,493
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,493
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Shares repurchased
|
(12,315
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,315
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Noncontrolling interest distribution
|
(329
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(329
|
)
|
Assets contributed to equity investment
|
405
|
|
|
—
|
|
|
—
|
|
|
375
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30
|
|
Net income
|
37,631
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
37,261
|
|
|
370
|
|
Balance, December 31, 2016
|
461,142
|
|
|
35,253,577
|
|
|
35
|
|
|
537,472
|
|
|
(46,774
|
)
|
|
15
|
|
|
(30,545
|
)
|
|
939
|
|
Issuance of stock – employee stock purchase plan
|
2,382
|
|
|
53,848
|
|
|
—
|
|
|
2,382
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance of stock – 401(k) plan
|
8,223
|
|
|
156,487
|
|
|
—
|
|
|
8,223
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance/(cancellation) of non-vested stock
|
—
|
|
|
139,016
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercise of stock options
|
4,554
|
|
|
144,206
|
|
|
—
|
|
|
4,554
|
|
|
|
|
|
|
|
|
|
Non-cash compensation
|
16,295
|
|
|
—
|
|
|
—
|
|
|
16,295
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Tax benefit from stock options exercised and restricted stock vesting
|
448
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
448
|
|
|
—
|
|
Surrendered shares
|
(6,939
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,939
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Noncontrolling interest distribution
|
(216
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(216
|
)
|
Assets contributed to equity investment
|
(146
|
)
|
|
—
|
|
|
—
|
|
|
(146
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Net income
|
30,683
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30,301
|
|
|
382
|
|
Balance, December 31, 2017
|
$
|
516,426
|
|
|
35,747,134
|
|
|
$
|
35
|
|
|
$
|
568,780
|
|
|
$
|
(53,713
|
)
|
|
$
|
15
|
|
|
$
|
204
|
|
|
$
|
1,105
|
|
The accompanying notes are an integral part of these consolidated financial statements.
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
Net income (loss)
|
$
|
30,683
|
|
|
$
|
37,631
|
|
|
$
|
(2,312
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
17,123
|
|
|
19,678
|
|
|
20,036
|
|
Provision for doubtful accounts
|
25,059
|
|
|
19,519
|
|
|
14,053
|
|
Non-cash compensation
|
16,295
|
|
|
16,401
|
|
|
11,824
|
|
401(k) employer match
|
8,754
|
|
|
6,875
|
|
|
6,089
|
|
Write-off of investment
|
—
|
|
|
196
|
|
|
—
|
|
Loss on disposal of property and equipment
|
—
|
|
|
582
|
|
|
775
|
|
Gain on sale of care centers
|
—
|
|
|
—
|
|
|
(184
|
)
|
Deferred income taxes
|
52,178
|
|
|
24,547
|
|
|
(677
|
)
|
Write off of deferred debt issuance costs/debt discount
|
—
|
|
|
—
|
|
|
2,512
|
|
Equity in earnings from equity method investments
|
(3,381
|
)
|
|
(5,588
|
)
|
|
(9,823
|
)
|
Amortization of deferred debt issuance costs/debt discount
|
735
|
|
|
740
|
|
|
959
|
|
Return on equity investment
|
5,321
|
|
|
4,323
|
|
|
5,610
|
|
Asset impairment charge
|
1,323
|
|
|
4,432
|
|
|
77,268
|
|
Changes in operating assets and liabilities, net of impact of acquisitions:
|
|
|
|
|
|
Patient accounts receivable
|
(59,731
|
)
|
|
(55,519
|
)
|
|
(36,493
|
)
|
Other current assets
|
(4,940
|
)
|
|
4,231
|
|
|
6,455
|
|
Other assets
|
(12,749
|
)
|
|
(11,415
|
)
|
|
(3,523
|
)
|
Accounts payable
|
(2,843
|
)
|
|
3,970
|
|
|
7,639
|
|
Accrued expenses
|
31,843
|
|
|
(7,618
|
)
|
|
8,406
|
|
Other long-term obligations
|
61
|
|
|
(726
|
)
|
|
(829
|
)
|
Net cash provided by operating activities
|
105,731
|
|
|
62,259
|
|
|
107,785
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
Proceeds from sale of deferred compensation plan assets
|
622
|
|
|
230
|
|
|
1,229
|
|
Proceeds from the sale of property and equipment
|
249
|
|
|
—
|
|
|
20,000
|
|
Purchases of deferred compensation plan assets
|
—
|
|
|
—
|
|
|
(19
|
)
|
Purchases of property and equipment
|
(10,707
|
)
|
|
(15,717
|
)
|
|
(21,429
|
)
|
Purchase of investments
|
(476
|
)
|
|
(1,040
|
)
|
|
(3,485
|
)
|
Proceeds from sale of investment
|
—
|
|
|
—
|
|
|
5,000
|
|
Acquisitions of businesses, net of cash acquired
|
(33,715
|
)
|
|
(35,522
|
)
|
|
(69,130
|
)
|
Proceeds from disposition of care centers
|
—
|
|
|
—
|
|
|
413
|
|
Net cash used in investing activities
|
(44,027
|
)
|
|
(52,049
|
)
|
|
(67,421
|
)
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
Proceeds from issuance of stock upon exercise of stock options and warrants
|
4,554
|
|
|
—
|
|
|
399
|
|
Proceeds from issuance of stock to employee stock purchase plan
|
2,382
|
|
|
2,483
|
|
|
2,204
|
|
Shares withheld upon stock vesting
|
(6,939
|
)
|
|
—
|
|
|
—
|
|
Tax benefit from stock options exercised and restricted stock vesting
|
—
|
|
|
7,241
|
|
|
2,073
|
|
Non-controlling interest distribution
|
(216
|
)
|
|
(329
|
)
|
|
(436
|
)
|
Proceeds from revolving line of credit
|
—
|
|
|
134,500
|
|
|
63,400
|
|
Repayments of revolving line of credit
|
—
|
|
|
(134,500
|
)
|
|
(78,400
|
)
|
Proceeds from issuance of long-term obligations
|
—
|
|
|
—
|
|
|
100,000
|
|
Principal payments of long-term obligations
|
(5,319
|
)
|
|
(5,000
|
)
|
|
(103,000
|
)
|
Debt issuance costs
|
—
|
|
|
—
|
|
|
(2,553
|
)
|
Purchase of company stock
|
—
|
|
|
(12,315
|
)
|
|
(4,581
|
)
|
Assets contributed to equity investment
|
—
|
|
|
405
|
|
|
—
|
|
Net cash used in financing activities
|
(5,538
|
)
|
|
(7,515
|
)
|
|
(20,894
|
)
|
Net increase in cash and cash equivalents
|
56,166
|
|
|
2,695
|
|
|
19,470
|
|
Cash and cash equivalents at beginning of period
|
30,197
|
|
|
27,502
|
|
|
8,032
|
|
Cash and cash equivalents at end of period
|
$
|
86,363
|
|
|
$
|
30,197
|
|
|
$
|
27,502
|
|
Supplemental Disclosures of Cash Flow Information:
|
|
|
|
|
|
Cash paid for interest
|
$
|
2,697
|
|
|
$
|
2,897
|
|
|
$
|
6,175
|
|
Cash paid for income taxes, net of refunds received
|
$
|
315
|
|
|
$
|
755
|
|
|
$
|
(12,185
|
)
|
The accompanying notes are an integral part of these consolidated financial statements.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
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
75%
,
78%
and
80%
of our revenue derived from Medicare for
2017
,
2016
and
2015
, respectively. As of
December 31, 2017
, we owned and operated
323
Medicare-certified home health care centers,
83
Medicare-certified hospice care centers and
15
personal-care care centers in
34
states within the United States and the District of Columbia.
Use of Estimates
Our accounting and reporting policies conform with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). In preparing the consolidated financial statements, we are required to make estimates and assumptions that impact the amounts reported in the 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 period’s presentation.
Principles of Consolidation
These 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 consolidated financial statements, and business combinations accounted for as purchases have been included in our 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 consolidated financial statements. During the three-month period ended September 30, 2016, we sold a
30%
interest in one of our care centers while maintaining controlling interest in the newly formed joint venture.
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
$26.4 million
as of
December 31, 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, on a daily basis or based on authorized hours, visits or units, 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.
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.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
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 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 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 relative to the average length of an episode of care. As of
December 31, 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 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 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, 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
99%
of our total net Medicare hospice service revenue for each of
2017
,
2016
and
2015
, respectively. Beginning January 1, 2016, 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.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
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 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, 2017, providers are required to self-report and pay their estimated cap liability by February 28th of the following year. As of
December 31, 2017
, we have settled our Medicare hospice reimbursements for all fiscal years through October 31, 2012 and we have recorded
$0.9 million
for estimated amounts due back to Medicare in other accrued liabilities for the Federal cap years ended October 31, 2013 through September 30, 2018. 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 September 30, 2017.
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 payor clients, including state and local governmental agencies, managed care organizations, commercial insurers and private consumers. Payor clients 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). 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.
Cash and Cash Equivalents
Cash and cash equivalents include certificates of deposit and all highly liquid debt instruments with maturities of three months or less when purchased.
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
December 31, 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. Our policy is to fully reserve for accounts which are aged at
365
days or greater; however, we have elected not to apply this policy to those accounts impacted by the Florida ZPIC audit (see Note
9
- Commitments and Contingencies). 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
61%
of our net patient accounts receivable at
December 31, 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
2017
,
2016
and
2015
, we recorded
$14.4 million
,
$7.9 million
and
$6.1 million
, respectively, in estimated revenue adjustments to Medicare revenue.
We believe there is a certain level of collectibility 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.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
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.
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. 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.
Property and Equipment
Property and equipment is stated at cost and we depreciate it on a straight-line basis over the estimated useful lives of the assets. Additionally, we have internally developed computer software for our own use. Additions and improvements (including interest costs for construction of qualifying long-lived assets) are capitalized. Maintenance and repair expenses are charged to expense as incurred. The cost of property and equipment sold or disposed of and the related accumulated depreciation are eliminated from the property and related accumulated depreciation accounts, and any gain or loss is credited or charged to other general and administrative expenses.
We consider our reporting units to represent asset groups for purposes of testing long-lived assets for impairment. We assess the impairment of a long-lived asset group whenever events or changes in circumstances indicate that the asset’s carrying value may not be recoverable. Factors we consider important that could trigger an impairment review include but are not limited to the following:
|
|
•
|
A significant change in the extent or manner in which the long-lived asset group is being used.
|
|
|
•
|
A significant change in the business climate that could affect the value of the long-lived asset group.
|
|
|
•
|
A significant change in the market value of the assets included in the asset group.
|
If we determine that the carrying value of long-lived assets may not be recoverable, we compare the carrying value of the asset group to the undiscounted cash flows expected to be generated by the asset group. If the carrying value exceeds the undiscounted cash flows, an impairment charge is indicated. An impairment charge is recognized to the extent that the carrying value of the asset group exceeds its fair value.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
We generally provide for depreciation over the following estimated useful service lives.
|
|
|
|
Years
|
Building
|
39
|
Leasehold improvements
|
Lesser of life or lease or expected useful life
|
Equipment and furniture
|
3 to 7
|
Vehicles
|
5
|
Computer software
|
3 to 5
|
As of December 31, 2014, we had
$75.8 million
of internally developed software costs related to the development of AMS3 Home Health and Hospice (“AMS3”). Expanded beta testing to additional sites in February of 2015 demonstrated that AMS3 was disruptive to operations. Additional analysis of the system determined that the system was not ready to be fully implemented and would require significant time and investment to redesign. Therefore, during the three-month period ended March 31, 2015, we made the decision to discontinue AMS3 and recorded a non-cash asset impairment charge of
$75.2 million
to write-off the software costs incurred related to the development of AMS3.
During 2015, we began the transition of all our care centers from our proprietary operating system to Homecare Homebase (“HCHB”), a leading home health and hospice platform, with all of our care centers operating on HCHB as of December 31, 2016. As part of our conversion process, we determined that a number of assets (primarily laptops) were not compatible with HCHB and had no other alternative or secondary use. As a result, we recorded a non-cash asset impairment charge of
$4.4 million
to write-off these assets during the three-month period ended December 31, 2016.
During the three-month period ended September 30, 2015, we commenced an active program to sell our corporate headquarters located in Baton Rouge, Louisiana. In accordance with U.S. GAAP, we classified this asset as held for sale and reduced the carrying value of the asset to its estimated fair value less estimated costs to sell the asset; no further depreciation expense for the asset was recorded. As a result, we recorded a non-cash asset impairment charge of
$2.1 million
during the three-month period ended September 30, 2015. The asset was sold during the three-month period ended December 31, 2015 and the Company now leases equivalent office space.
The following table summarizes the balances related to our property and equipment for
2017
and
2016
(amounts in millions):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2017
|
|
2016
|
Building and leasehold improvements
|
7.8
|
|
|
6.9
|
|
Equipment and furniture
|
72.9
|
|
|
71.9
|
|
Computer software
|
97.2
|
|
|
96.8
|
|
|
177.9
|
|
|
175.6
|
|
Less: accumulated depreciation
|
(146.8
|
)
|
|
(138.6
|
)
|
|
$
|
31.1
|
|
|
$
|
37.0
|
|
Depreciation expense for
2017
,
2016
and
2015
was
$14.4 million
,
$17.2 million
and
$20.0 million
, respectively.
Goodwill and Other Intangible Assets
Goodwill represents the amount of the purchase price in excess of the fair values assigned to the underlying identifiable net assets of acquired businesses. Goodwill is not amortized, but is subject to an annual impairment test. Tests are performed more frequently if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. These events or circumstances include but are not limited to, a significant adverse change in the business environment; regulatory environment or legal factors; or a substantial decline in market capitalization of our stock.
Each of our operating segments described in Note
14
– Segment Information is considered to represent an individual reporting unit for goodwill impairment testing purposes. We consider each of our home health care centers to constitute an individual business for which discrete financial information is available. However, since these care centers have substantially similar operating and economic characteristics and resource allocation and significant investment decisions concerning these businesses are centralized and the benefits broadly distributed, we have aggregated these care centers and deemed them to constitute a single reporting unit. We have applied this same aggregation principle to our hospice care centers and personal-care care centers and have also deemed them to be a single reporting unit.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
During
2017
, we performed a qualitative assessment to determine if it is more likely than not that the fair value of the reporting units are less than its carrying value by evaluating relevant events and circumstances including financial performance, market conditions and share price. Based on this assessment, we did not record any goodwill impairment charges and none of the goodwill associated with our various reporting units was considered at risk of impairment as of October 31,
2017
. Since the date of our last annual goodwill impairment test, there have been no material developments, events, changes in operating performance or other circumstances that would cause management to believe it is more likely than not that the fair value of any of our reporting units would be less than its carrying amount.
Intangible assets consist of Certificates of Need, licenses, acquired names and non-compete agreements. We amortize non-compete agreements and acquired names that we do not intend to use in the future on a straight-line basis over their estimated useful lives, which is generally
three years
for non-compete agreements and up to
five years
for acquired names. Our indefinite-lived intangible assets are reviewed for impairment annually or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of the intangible asset below its carrying amount. During 2017, we performed a qualitative assessment to determine that our indefinite-lived intangible assets were not impaired. There have been no material developments, events, changes in operating performance or other circumstances that would cause management to believe it is more likely than not that the fair value of any of our intangible assets would be less than its carrying amount.
Debt Issuance Costs
We amortize deferred debt issuance costs related to our long-term obligations over its term through interest expense, unless the debt is extinguished, in which case unamortized balances are immediately expensed. We amortized
$0.7 million
,
$0.7 million
and
$0.8 million
in deferred debt issuance costs in
2017
,
2016
and
2015
, respectively. As of
December 31, 2017
and
2016
, we had unamortized debt issuance costs of
$1.9 million
and
$2.7 million
, respectively, recorded as long-term obligations, less current portion in our accompanying consolidated balance sheets. The unamortized debt issuance costs of
$1.9 million
at
December 31, 2017
, will be amortized over a weighted-average amortization period of
2.7
years.
Fair Value of Financial Instruments
The following details our financial instruments where the carrying value and the fair value differ (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at Reporting Date Using
|
Financial Instrument
|
As of
December 31, 2017
|
|
Quoted Prices in Active
Markets for Identical
Items
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
Long-term obligations
|
$
|
90.7
|
|
|
$
|
—
|
|
|
$
|
91.8
|
|
|
$
|
—
|
|
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.
Income Taxes
We use the asset and liability approach for measuring deferred tax assets and liabilities based on temporary differences existing at each balance sheet date using currently enacted tax rates. Our deferred tax calculation requires us to make certain estimates about future operations. Deferred tax assets are reduced by a valuation allowance when we believe it is more likely than not that some portion or all of the deferred tax assets will not be realized. The effect of a change in tax rate is recognized as income or expense in the period that includes the enactment date. As of
December 31, 2017
and
2016
our net deferred tax assets were
$56.1 million
and
$107.9 million
, respectively. Our net deferred tax asset at
December 31, 2017
includes a
$21.4 million
decrease resulting
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
from the remeasurement of deferred taxes using the reduced U.S. corporate tax rates included in H.R. 1 (Tax Cuts and Jobs Act) enacted on December 22, 2017.
Management regularly assesses the ability to realize deferred tax assets recorded in the Company’s entities based upon the weight of available evidence, including such factors as the recent earnings history and expected future taxable income. In the event future taxable income is below management’s estimates or is generated in tax jurisdictions different than projected, we could be required to increase the valuation allowance for deferred tax assets. This would result in an increase in our effective tax rate.
Share-Based Compensation
We record all share-based compensation as expense in the financial statements measured at the fair value of the award. We recognize compensation cost on a straight-line basis over the requisite service period for each separately vesting portion of the award. We reflect the excess tax benefits related to stock option exercises as financing cash flows. Share-based compensation expense for
2017
,
2016
and
2015
was
$16.3 million
,
$16.4 million
and
$11.8 million
, respectively, and the total income tax benefit recognized for these expenses was
$6.4 million
,
$6.4 million
and
$4.7 million
, respectively.
Weighted-Average Shares Outstanding
Net income (loss) 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 (loss) attributable to Amedisys, Inc. common stockholders (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Weighted average number of shares outstanding – basic
|
33,704
|
|
|
33,198
|
|
|
33,018
|
|
Effect of dilutive securities:
|
|
|
|
|
|
Stock options
|
281
|
|
|
162
|
|
|
—
|
|
Non-vested stock and stock units
|
319
|
|
|
381
|
|
|
—
|
|
Weighted average number of shares outstanding – diluted
|
34,304
|
|
|
33,741
|
|
|
33,018
|
|
Anti-dilutive securities
|
271
|
|
|
221
|
|
|
922
|
|
Advertising Costs
We expense advertising costs as incurred. Advertising expense for
2017
,
2016
and
2015
was
$6.5 million
,
$7.8 million
and
$6.9 million
, respectively.
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 will retrospectively adopt ASU 2014-09 and ASU 2015-14 (collectively, "ASC 606") on January 1, 2018 and as a result, substantially all amounts that were previously presented as provision for doubtful accounts in our consolidated statements of operations will now be considered an implicit price concession resulting in a reduction in net service revenue. Except for this adjustment, the company does not expect a material impact on its consolidated financial statements upon implementation of ASC 606 on January 1, 2018.
In April 2015, the FASB issued ASU 2015-03,
Interest—Imputation of Interest
(Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
. The amendments in this ASU required that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. ASU 2015-03 was effective for annual and interim periods beginning on or after December 15, 2015. We adopted this ASU during the three-month period ended March 31, 2016, and applied the change retrospectively for prior period balances of unamortized debt issuance
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
costs, resulting in a
$3.4 million
reduction in other assets, net and long-term obligations, less current portion, on our consolidated balance sheet as of December 31, 2015.
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): Improvement to Employee Share-Based Payment Accounting
, which simplified 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 was 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 consolidated statements of operations. We recorded excess tax benefits of
$3.2 million
within our consolidated statements of operations for the year ended December 31, 2017, respectively. Historically these amounts were recorded as additional paid-in capital in our 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 consolidated statements of cash flows for the year ended December 31, 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. We intend to implement ASU 2017-01 on January 1, 2018; the impact of implementation 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,
Intangibles - Goodwill 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 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 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 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
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
to one year after the acquisition closing date if management obtains more information regarding asset valuation and liabilities assumed.
2017 Acquisitions
Personal Care Division
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. We expect the entire amount of goodwill recorded for this acquisition to be deductible for income tax purposes over approximately
15
years.
On October 1, 2017, we acquired the assets of Intercity Home Care which owns and operates
four
personal-care care centers servicing the state of Massachusetts for a total purchase price of
$9.6 million
(subject to certain adjustments), of which
$1.0 million
was placed in escrow for indemnification purposes and working capital price adjustments. The purchase price was paid with cash on hand on the date of the transaction. During the three-month period ended December 31, 2017, we recorded goodwill (
$9.1 million
), other intangibles - non-compete agreements (
$0.4 million
) and other assets and liabilities, net (
$0.1 million
) in connection with the acquisition. We expect the entire amount of goodwill recorded for this acquisition to be deductible for income tax purposes over approximately
15
years.
Home Health and Hospice Divisions
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. During the three-month period ended December 31, 2017, we received the final report from our outside appraisal firm. As a result, we reduced our preliminary goodwill by
$2.8 million
and recorded corresponding increases in other intangibles - Medicare licenses (
$0.1 million
) and other intangibles - acquired names of business (
$2.7 million
). We expect the entire amount of goodwill recorded for this acquisition to be deductible for income tax purposes over approximately
15
years.
The following table contains unaudited pro forma condensed consolidated statement of operations information for the years ended December 31, 2017 and 2016 assuming that our 2017 acquisitions closed on January 1, 2016 (amounts in millions, except per share data):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Net service revenue
|
$
|
1,557.6
|
|
|
$
|
1,501.5
|
|
Operating income (loss)
|
78.7
|
|
|
59.7
|
|
Net income
|
30.8
|
|
|
39.0
|
|
Basic earnings (loss) per share
|
$
|
0.90
|
|
|
$
|
1.16
|
|
Diluted earnings (loss) per share
|
$
|
0.89
|
|
|
$
|
1.15
|
|
The pro forma information presented above includes adjustments for (i) amortization of identifiable intangible assets and (ii) income tax provision using 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.
2016 Acquisitions
Personal Care Division
On March 1, 2016, we acquired Associated Home Care ("AHC") for a total purchase price of
$27.7 million
, net of cash acquired (subject to certain adjustments), of which
$0.5 million
was placed in escrow for indemnification purposes and working capital price adjustments. The purchase price was paid with cash on hand on the date of the transaction. AHC owned and operated
nine
personal-care care centers servicing the state of Massachusetts. In connection with the acquisition, we recorded goodwill (
$18.5 million
), other intangibles (
$4.8 million
) and other assets and liabilities, net (
$4.4 million
). We expect the entire amount of goodwill recorded for this acquisition to be deductible for income tax purposes over approximately
15
years.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
On September 1, 2016, we acquired the assets of Professional Profiles, Inc. ("PPI") for a total purchase price of
$4.4 million
, (subject to certain adjustments), of which
$0.7 million
was placed in a promissory note to be paid over 24 months, subject to any offsets or withholds for indemnification purposes. PPI owned and operated
four
personal-care care centers servicing the state of Massachusetts. In connection with the acquisition, we recorded goodwill (
$4.2 million
) and other intangibles – non-compete agreements (
$0.2 million
). We expect the entire amount of goodwill recorded for this acquisition to be deductible for income tax purposes over approximately
15
years.
Home Health Division
On October 20, 2016, we acquired the assets of a former nonprofit organization in New York for a purchase price of
$4.6 million
. In connection with the acquisition, we recorded goodwill (
$4.4 million
) and other intangibles – certificate of need (
$0.2 million
). We expect the entire amount of goodwill recorded for this acquisition to be deductible for income tax purposes over approximately
15
years.
2015 Acquisitions
Hospice Division
On July 24, 2015, we acquired
one
hospice care center in Tennessee for a total purchase price of
$5.8 million
. The purchase price was paid with cash on hand on the date of the transaction. In connection with the acquisition, we recorded goodwill (
$5.5 million
) and other intangibles (
$0.3 million
).
Home Health Division
On October 2, 2015, we acquired the assets of a home health care center in Georgia for a total purchase price of
$0.3 million
. The purchase price was paid with cash on hand on the date of the transaction. In connection with the acquisition, we recorded goodwill (
$0.3 million
).
On December 31, 2015, we acquired Infinity HomeCare (“Infinity”) for a total purchase price of
$63 million
, net of cash acquired (subject to certain adjustments), of which
$3.2 million
was placed in escrow for indemnification purposes and working capital price adjustments. The purchase price was paid with cash on hand on the date of the transaction. Infinity owned and operated
15
home health care centers servicing the state of Florida. In connection with the acquisition, we recorded goodwill (
$50.2 million
), other intangibles (
$10.9 million
) and other assets and liabilities, net (
$1.9 million
). Approximately
$47.6 million
of the
$50.2 million
recorded as goodwill is expected to be deductible for income tax purposes over approximately
15
years.
4. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
During
2017
, we did not record any goodwill impairment charges as a result of our annual impairment test and none of the goodwill associated with our various reporting units were considered at risk of impairment as of October 31,
2017
. Since the date of our last annual goodwill impairment test, there have been
no
material developments, events, changes in operating performance or other circumstances that would cause management to believe it is more likely than not that the fair value of any of our reporting units would be less than its carrying amount.
During 2017, we recorded a non-cash impairment charge of
$1.3 million
related to those care centers that were closed or consolidated during 2017 as discussed in Note
12
- Exit and Restructuring Activities.
During the fiscal year
2016
, we did not record any goodwill impairment charges as a result of our annual impairment test and none of the goodwill associated with our various reporting units were considered at risk of impairment.
During the fiscal year
2015
, we did not record any goodwill impairment charges as a result of our annual impairment test and none of the goodwill associated with our various reporting units were considered at risk of impairment.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
The following table summarizes the activity related to our goodwill for
2017
,
2016
and
2015
(amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
Home Health
|
|
Hospice
|
|
Personal Care
|
|
Total
|
Balances at December 31, 2014
|
$
|
16.5
|
|
|
$
|
189.1
|
|
|
$
|
—
|
|
|
$
|
205.6
|
|
Additions
|
50.6
|
|
|
5.5
|
|
|
—
|
|
|
56.1
|
|
Balances at December 31, 2015
|
67.1
|
|
|
194.6
|
|
|
—
|
|
|
261.7
|
|
Additions
|
4.4
|
|
|
—
|
|
|
22.7
|
|
|
27.1
|
|
Adjustments related to acquisitions (1)
|
0.1
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
Balances at December 31, 2016
|
71.6
|
|
|
194.6
|
|
|
22.7
|
|
|
288.9
|
|
Additions
|
13.4
|
|
|
4.7
|
|
|
12.9
|
|
|
31.0
|
|
Balances at December 31, 2017
|
$
|
85.0
|
|
|
$
|
199.3
|
|
|
$
|
35.6
|
|
|
$
|
319.9
|
|
|
|
(1)
|
During 2016, we adjusted goodwill by
$0.1 million
as a result of our completion of the purchase price accounting for our 2015 acquisition of Infinity.
|
The following table summarizes the activity related to our other intangible assets, net for
2017
,
2016
and
2015
(amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Intangible Assets, Net
|
|
Certificates of
Need and
Licenses
|
|
Acquired
Names of
Business
|
|
Non-Compete
Agreements (2)
|
|
Total
|
Balances at December 31, 2014
|
$
|
23.1
|
|
|
$
|
10.1
|
|
|
$
|
—
|
|
|
$
|
33.2
|
|
Additions
|
1.1
|
|
|
4.1
|
|
|
5.9
|
|
|
11.1
|
|
Write-off
|
(0.3
|
)
|
|
—
|
|
|
—
|
|
|
(0.3
|
)
|
Balances at December 31, 2015
|
23.9
|
|
|
14.2
|
|
|
5.9
|
|
|
44.0
|
|
Additions
|
0.2
|
|
|
3.5
|
|
|
1.5
|
|
|
5.2
|
|
Amortization
|
—
|
|
|
—
|
|
|
(2.5
|
)
|
|
(2.5
|
)
|
Balances at December 31, 2016
|
24.1
|
|
|
17.7
|
|
|
4.9
|
|
|
46.7
|
|
Additions
|
0.1
|
|
|
2.7
|
|
|
0.6
|
|
|
3.4
|
|
Write-off (1)
|
(0.5
|
)
|
|
(0.8
|
)
|
|
—
|
|
|
(1.3
|
)
|
Amortization
|
—
|
|
|
—
|
|
|
(2.7
|
)
|
|
(2.7
|
)
|
Balances at December 31, 2017
|
$
|
23.7
|
|
|
$
|
19.6
|
|
|
$
|
2.8
|
|
|
$
|
46.1
|
|
|
|
(1)
|
Write-off of intangible assets related to the closure and consolidation of care centers as discussed in Note
12
- Exit and Restructuring Activities.
|
|
|
(2)
|
The weighted average amortization period of our non-compete agreements is
1.3 years
.
|
See Note
3
– Acquisitions for further details on additions to goodwill and other intangible assets, net.
The estimated aggregate amortization expense related to intangible assets for each of the five succeeding years is as follows (amounts in millions):
|
|
|
|
|
|
|
2018
|
$
|
2.4
|
|
2019
|
0.3
|
|
2020
|
0.1
|
|
2021
|
—
|
|
2022
|
—
|
|
|
$
|
2.8
|
|
5. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
Additional information regarding certain balance sheet accounts is presented below (amounts in millions):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2017
|
|
2016
|
Other current assets:
|
|
|
|
Payroll tax escrow
|
$
|
7.2
|
|
|
$
|
6.7
|
|
Income tax receivable
|
3.4
|
|
|
1.3
|
|
Due from joint ventures
|
2.0
|
|
|
1.7
|
|
Other
|
3.7
|
|
|
1.6
|
|
|
$
|
16.3
|
|
|
$
|
11.3
|
|
Other assets:
|
|
|
|
Workers’ compensation deposits
|
$
|
0.4
|
|
|
$
|
0.4
|
|
Health insurance deposits
|
0.5
|
|
|
0.5
|
|
Other miscellaneous deposits
|
0.9
|
|
|
0.9
|
|
Indemnity receivable
|
17.0
|
|
|
4.9
|
|
Investments
|
26.4
|
|
|
27.8
|
|
Other
|
3.9
|
|
|
4.0
|
|
|
$
|
49.1
|
|
|
$
|
38.5
|
|
Accrued expenses:
|
|
|
|
Health insurance
|
$
|
14.1
|
|
|
$
|
10.6
|
|
Workers’ compensation
|
29.3
|
|
|
26.8
|
|
Florida ZPIC audit, gross liability
|
17.4
|
|
|
—
|
|
Legal and other settlements
|
6.4
|
|
|
5.7
|
|
Lease liability
|
0.9
|
|
|
0.4
|
|
Charity care
|
1.5
|
|
|
1.4
|
|
Estimated Medicare cap liability
|
0.9
|
|
|
0.8
|
|
Hospice cost of revenue
|
9.1
|
|
|
7.2
|
|
Patient liability
|
5.3
|
|
|
4.3
|
|
Other
|
4.2
|
|
|
6.1
|
|
|
$
|
89.1
|
|
|
$
|
63.3
|
|
Other long-term obligations:
|
|
|
|
Reserve for uncertain tax positions
|
$
|
—
|
|
|
$
|
0.3
|
|
Deferred compensation plan liability
|
1.9
|
|
|
1.8
|
|
Other
|
1.9
|
|
|
1.6
|
|
|
$
|
3.8
|
|
|
$
|
3.7
|
|
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
6. LONG-TERM OBLIGATIONS
Long-term debt consisted of the following for the periods indicated (amounts in millions):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2017
|
|
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 (3.57% at December 31, 2017); due August 28, 2020
|
$
|
90.0
|
|
|
$
|
95.0
|
|
$200.0 million Revolving Credit Facility; interest only quarterly payments; interest rate at ABR Rate plus applicable percentage or Eurodollar Rate plus the applicable percentage; due August 28, 2020
|
—
|
|
|
—
|
|
Promissory notes
|
0.7
|
|
|
0.7
|
|
Principal amount of long-term obligations
|
90.7
|
|
|
95.7
|
|
Deferred debt issuance costs
|
(1.9
|
)
|
|
(2.7
|
)
|
|
88.8
|
|
|
93.0
|
|
Current portion of long-term obligations
|
(10.6
|
)
|
|
(5.2
|
)
|
Total
|
$
|
78.2
|
|
|
$
|
87.8
|
|
Maturities of debt as of
December 31, 2017
are as follows (amounts in millions):
|
|
|
|
|
|
|
|
Long-term
obligations
|
2018
|
$
|
10.6
|
|
2019
|
10.1
|
|
2020
|
70.0
|
|
2021
|
—
|
|
2022
|
—
|
|
|
$
|
90.7
|
|
Credit Agreement
On August 28, 2015, we entered into a Credit Agreement that provides for senior secured facilities in an initial aggregate principal amount of up to
$300 million
(the “Credit Facilities”).
The Credit Facilities are comprised of (a) a term loan facility in an initial aggregate principal amount of
$100 million
(the “Term Loan”); and (b) a revolving credit facility in an initial aggregate principal amount of up to
$200 million
(the “Revolving Credit Facility”). The Revolving Credit Facility provides for and includes within its
$200 million
limit a
$25 million
swingline facility and commitments for up to
$50 million
in letters of credit. Upon lender approval, we may increase the aggregate loan amount under the Credit Facilities by a maximum amount of
$150 million
.
The net proceeds of the Term Loan and existing cash on hand were used to pay off (i) our existing term loan under our prior Credit Agreement, dated as of October 22, 2012, as amended (the “Prior Credit Agreement”) with a principal balance of
$27 million
and (ii) our existing term loan under our prior Second Lien Credit Agreement dated July 28, 2014 (the “Second Lien Credit Agreement”), with a principal balance of
$70 million
. The final maturity of the Term Loan is
August 28, 2020
. The Term Loan began amortizing on March 31, 2016 and will continue amortizing over
10
quarterly
installments (
eight
remaining quarterly installments of
$2.5 million
beginning March 31, 2018, followed by
two
quarterly installments of
$3.1 million
beginning March 31, 2020, subject to adjustment for prepayments), with the remaining balance due upon maturity.
The Revolving Credit Facility may be used to provide ongoing working capital and for general corporate purposes of the Company and our subsidiaries, including permitted acquisitions, as defined in the Credit Agreement. The final maturity of the Revolving Credit Facility is
August 28, 2020
and will be payable in full at that time.
The interest rate in connection with the Credit Facilities shall be selected from the following by us: (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 for an interest period of one month plus
1%
per annum. The “Eurodollar Rate” means the rate at which Eurodollar deposits in the London interbank market for an interest period of
one
,
two
,
three
or
six
months (as selected by us) are quoted. The “Applicable Rate” is based on the consolidated leverage ratio and is presented in the table below. As of
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
December 31, 2017
, the Applicable Rate is
1.00%
per annum for Base Rate Loans and
2.00%
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 Facilities, as presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Leverage Ratio
|
|
Margin for ABR
Loans
|
|
Margin for Eurodollar
Loans
|
|
Commitment
Fee
|
|
Letter of
Credit Fee
|
≥ 2.75 to 1.0
|
|
2.00
|
%
|
|
3.00
|
%
|
|
0.40
|
%
|
|
3.00
|
%
|
< 2.75 to 1.0 but ≥ 1.75 to 1.0
|
|
1.50
|
%
|
|
2.50
|
%
|
|
0.35
|
%
|
|
2.50
|
%
|
< 1.75 to 1.0 but ≥ 0.75 to 1.0
|
|
1.00
|
%
|
|
2.00
|
%
|
|
0.30
|
%
|
|
2.00
|
%
|
< 0.75 to 1.0
|
|
0.50
|
%
|
|
1.50
|
%
|
|
0.25
|
%
|
|
1.50
|
%
|
Our weighted average interest rate for our
$100.0 million
Term Loan, under our Credit Agreement, was
3.1%
and
2.5%
for the period ended
December 31, 2017
and
December 31, 2016
, respectively. Our weighted average interest rate for our
$200.0 million
Revolving Credit Facility was
3.5%
for the period ended
December 31, 2016
.
As of
December 31, 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.
The 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 fixed charge coverage ratio of EBITDA plus rent expense (less cash taxes less capital expenditures) to scheduled debt repayments plus interest expense plus rent expense, all 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. As of
December 31, 2017
, our consolidated leverage ratio was
0.9
and our consolidated fixed charge coverage ratio was
4.4
and we are in compliance with the Credit Agreement. The 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.
The Credit Facilities are guaranteed by substantially all of our wholly-owned direct and indirect subsidiaries. The 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 guarantees from subsidiaries that in the aggregate represent not less than
70%
of consolidated adjusted EBITDA, subject to certain exceptions.
In connection with entering into the Credit Agreement, we entered into (i) a Security Agreement with the Administrative Agent dated August 28, 2015 and (ii) a Pledge Agreement with the Administrative Agent dated as of August 28, 2015 for the purpose of securing the payment of our obligations under the Credit Agreement. Pursuant to the Security Agreement and the Pledge Agreement, as of the effective date of the Credit Agreement, our obligations under the Credit Agreement are secured by (i) the grant of a first lien security interest in the non-real estate assets of substantially all of our direct and indirect, wholly-owned subsidiaries (subject to exceptions) and (ii) the pledge of the equity interests in (a) substantially all of our direct and indirect, wholly-owned corporate, limited liability company and limited partnership subsidiaries and (b) those joint ventures which constitute subsidiaries under the Credit Agreement (subject, in the case of the Pledge Agreement, to exceptions).
In connection with our entry into the Credit Agreement, on August 28, 2015, each of the Prior Credit Agreement and the Second Lien Credit Agreement were terminated. The Company paid a call premium of
$700,000
associated with the termination of the Second Lien Credit Agreement and the voluntary prepayment of the amounts owed thereunder as of August 28, 2015, and expensed
$2.5 million
in deferred debt issuance costs during the three-month period ended September 30, 2015. Also in connection with our entry into the Credit Agreement, we recorded
$2.4 million
in deferred debt issuance costs as other assets in our consolidated balance sheet during 2015 which was reclassified to long-term obligations, less current portion during 2016 in accordance with ASU 2015-03.
Promissory Notes
Our promissory notes outstanding of
$0.7 million
, issued in conjunction with acquisitions, bear an interest rate in a range of
2.6%
to
2.9%
.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
7. INCOME TAXES
Income taxes attributable to continuing operations consist of the following (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Current income tax expense/(benefit):
|
|
|
|
|
|
Federal
|
$
|
(2.0
|
)
|
|
$
|
(0.5
|
)
|
|
$
|
2.2
|
|
State and local
|
(0.1
|
)
|
|
(0.1
|
)
|
|
0.5
|
|
|
(2.1
|
)
|
|
(0.6
|
)
|
|
2.7
|
|
Deferred income tax expense/(benefit):
|
|
|
|
|
|
Federal
|
51.2
|
|
|
22.1
|
|
|
(0.5
|
)
|
State and local
|
1.0
|
|
|
2.4
|
|
|
(0.1
|
)
|
Foreign
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
52.2
|
|
|
24.5
|
|
|
(0.7
|
)
|
Income tax expense
|
$
|
50.1
|
|
|
$
|
23.9
|
|
|
$
|
2.0
|
|
Total income tax expense for the years ended
December 31, 2017
,
2016
and
2015
was allocated as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Income from continuing operations
|
$
|
50.1
|
|
|
$
|
23.9
|
|
|
$
|
2.0
|
|
Interest expense
|
—
|
|
|
(0.1
|
)
|
|
0.2
|
|
Goodwill
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
Stockholders’ equity
|
(0.3
|
)
|
|
(7.2
|
)
|
|
(2.1
|
)
|
|
$
|
49.8
|
|
|
$
|
16.6
|
|
|
$
|
—
|
|
A reconciliation of significant differences between the reported amount of income tax expense and the expected amount of income tax expense that would result from applying the U.S. federal statutory income tax rate of 35 percent to income before taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015 (1)
|
Income tax expense at U.S. federal statutory rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State and local income taxes, net of federal income tax benefit
|
3.8
|
|
|
4.8
|
|
|
(7.1
|
)
|
Excess tax benefits from share-based compensation (2)
|
(3.5
|
)
|
|
—
|
|
|
—
|
|
Valuation allowance
|
0.2
|
|
|
0.1
|
|
|
79.1
|
|
Tax credits
|
(0.8
|
)
|
|
(0.6
|
)
|
|
136.0
|
|
Tax rate change (3)
|
26.5
|
|
|
—
|
|
|
—
|
|
Uncertain tax positions
|
(0.3
|
)
|
|
(1.0
|
)
|
|
(230.3
|
)
|
Other items, net (4)
|
1.1
|
|
|
0.6
|
|
|
(663.3
|
)
|
Income tax expense/(benefit)
|
62.0
|
%
|
|
38.9
|
%
|
|
(650.6
|
)%
|
|
|
(1)
|
The information provided for the year ended December 31, 2015 does not provide a meaningful reconciliation of the effective tax rate or comparable to other periods. The effective tax rate for the year is influenced by the relationship of the amount of “effective tax rate drivers” (i.e. non-deductible expenses, non-taxable income, tax credits, valuation allowance, uncertain tax positions, etc.) to income or loss before taxes. A significant asset impairment was recorded in the first quarter of 2015, resulting in a scenario where the company’s loss before tax for the year was near zero. Consequently, for 2015, the relationship between the “effective tax rate drivers” and loss before taxes is distorted.
|
|
|
(2)
|
In March 2016, the FASB issued ASU 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
, which simplified the accounting for share-based payment award transactions, including income tax consequences. The new guidelines required excess tax benefits and tax deficiencies to be recorded in the income statement when stock awards vest or are settled. As a result, the Company recognized a
$2.9 million
federal income tax benefit in the consolidated statement of operations (rather than additional paid-in capital) for the year ended
December 31, 2017
from share-based compensation excess tax benefits.
|
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
|
|
(3)
|
On December 22, 2017, H.R. 1 (Tax Cuts and Jobs Act), which reduces the U.S. federal corporate tax rate to
21%
from
35%
, effective January 1, 2018 was enacted. According to ASC 740,
Income Taxes
, deferred tax assets and liabilities are remeasured to reflect the effects of enacted changes in tax rates at the date of enactment, even though the tax rate changes are not effective until a future period. The Company's remeasurement of its deferred tax assets and liabilities to reflect the enacted reduced tax rate resulted in a
$21.4 million
deferred income tax expense during the three-month period ended
December 31, 2017
.
|
|
|
(4)
|
Includes various items such as, non-deductible expenses, non-taxable income and return-to-accrual adjustments.
|
As of
December 31, 2017
and
2016
, the Company had income taxes receivable of
$3.4 million
and
$1.3 million
, respectively, included in other current assets. The income tax receivable at
December 31, 2017
includes a
$2.3 million
Alternative Minimum Tax (AMT) Credit carryforward. The Tax Cuts and Jobs Act repeals the AMT for corporations and makes it refundable in years
2018
through
2020
. Since the AMT credit carryforward is refundable from 2018 through 2020 and the company plans to utilize its AMT credit carryforward to reduce taxable income in 2018, the AMT credit carryforward was reclassified from deferred tax assets to other current assets as of
December 31, 2017
.
Deferred tax assets (liabilities) consist of the following components (amounts in millions):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2017 (1)
|
|
2016
|
Deferred tax assets:
|
|
|
|
Allowance for doubtful accounts
|
$
|
5.3
|
|
|
$
|
6.9
|
|
Accrued payroll & employee benefits
|
9.0
|
|
|
11.4
|
|
Workers’ compensation
|
7.9
|
|
|
10.9
|
|
Amortization of intangible assets
|
26.0
|
|
|
56.3
|
|
Share-based compensation
|
6.1
|
|
|
7.8
|
|
Net operating loss carryforwards (2)
|
20.1
|
|
|
44.2
|
|
Tax credit carryforwards (3)
|
4.6
|
|
|
4.8
|
|
Other
|
2.4
|
|
|
1.1
|
|
Gross deferred tax assets
|
81.4
|
|
|
143.4
|
|
Less: valuation allowance
|
(0.7
|
)
|
|
(0.4
|
)
|
Net deferred tax assets
|
80.7
|
|
|
143.0
|
|
Deferred tax (liabilities):
|
|
|
|
Property and equipment
|
(4.0
|
)
|
|
(7.8
|
)
|
Deferred revenue
|
(18.0
|
)
|
|
(23.2
|
)
|
Investment in partnerships
|
(2.1
|
)
|
|
(3.2
|
)
|
Other liabilities
|
(0.5
|
)
|
|
(0.9
|
)
|
Gross deferred tax liabilities
|
(24.6
|
)
|
|
(35.1
|
)
|
Net deferred tax assets (liabilities)
|
$
|
56.1
|
|
|
$
|
107.9
|
|
|
|
(1)
|
On December 22, 2017, H.R. 1 (Tax Cuts and Jobs Act), which reduces the U.S. federal corporate tax rate to
21%
from
35%
, effective January 1, 2018, was enacted. According to ASC 740,
Income Taxes
, deferred tax assets and liabilities are remeasured to reflect the effects of enacted changes in tax rates at the date of enactment, even though the tax rate changes are not effective until a future period. The Company's remeasurement of its deferred tax assets and liabilities to reflect the enacted reduced tax rate resulted in a
$21.4 million
deferred income tax expense during the three-month period ended
December 31, 2017
.
|
|
|
(2)
|
The net operating loss (“NOL”) carry forwards in the income tax returns include unrecognized tax benefits resulting from uncertain tax positions. Accordingly, the deferred tax assets recognized for the NOL carry forwards, as of
December 31, 2017
and
2016
, are presented net of unrecognized tax benefits of
$2.1 million
and
$3.1 million
, respectively.
|
|
|
(3)
|
The tax credit carry forwards in the income tax returns include unrecognized tax benefits resulting from uncertain tax positions. Accordingly, the deferred tax assets recognized for the tax credit carry forwards are presented net of unrecognized tax benefits of
$0.7 million
for each of the years ended
December 31, 2017
and
2016
.
|
As of
December 31, 2017
, we have U.S. net operating loss (“NOL”) carry forwards of
$52.6 million
that are available to reduce future taxable income and begin to expire in 2034. In addition, we have research and development tax credits and employment tax credits of
$1.9 million
and
$0.4 million
, respectively, available to reduce future U.S. federal income taxes which begin to expire in 2032.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
As of
December 31, 2017
, we have state NOL carry forwards of
$223.0 million
that are available to reduce future taxable income. In addition, we have
$3.8 million
of various state tax credits available to reduce future taxable income. The state NOL and tax credit carry forwards begin to expire at various times.
The valuation allowance for deferred tax assets as of
December 31, 2017
and
2016
was
$0.7 million
and
$0.4 million
, respectively. The net change in the total valuation allowance for the year ended
December 31, 2017
and
December 31, 2016
was an increase of
$0.3 million
and
$0.1 million
, respectively. The valuation allowance is primarily related to certain state NOL and state tax credit carry forwards.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those jurisdictions during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carry back and carry forward periods), projected future taxable income, and tax-planning strategies in making this assessment. In order to fully realize the deferred tax assets, the Company will need to generate future taxable income before the expiration of the carry forwards governed by the tax code. Based on the current level of pretax earnings, the Company will generate the minimum amount of future taxable income needed to support the realization of the deferred tax assets. As a result, as of
December 31, 2017
, management believes that it is more likely than not that we will realize the benefits of these deferred tax assets, net of the existing valuation allowances. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced.
Uncertain Tax Positions
We account for uncertain tax positions in accordance with the authoritative guidance for uncertain tax positions. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
Balance at beginning of period
|
$
|
4.1
|
|
|
$
|
4.7
|
|
Additions for tax positions related to current year
|
—
|
|
|
—
|
|
Additions for tax positions related to prior year
|
—
|
|
|
—
|
|
Reductions for tax positions related to prior years
|
—
|
|
|
—
|
|
Lapse of statute of limitations
|
(0.3
|
)
|
|
(0.6
|
)
|
Change in statutory tax rate
|
(1.1
|
)
|
|
—
|
|
Settlements
|
—
|
|
|
—
|
|
Balance at end of period
|
$
|
2.7
|
|
|
$
|
4.1
|
|
The Company's remeasurement of its deferred tax assets and liabilities to reflect the enacted reduced tax rate as a result of the recent tax reform resulted in a
$1.1 million
reduction in its uncertain tax positions recorded in net deferred tax assets at
December 31, 2017
. As of
December 31, 2017
, there is
$2.7 million
of unrecognized tax benefits recorded in deferred income taxes within the consolidated balance sheet that, if recognized in future periods, would impact our effective tax rate.
During the years ended
December 31, 2017
and
2016
, we recognized less than
$(0.1) million
and
$(0.1) million
of interest and penalties, respectively, as components of penalties or interest expense in connection with our reserve for uncertain tax positions. Interest and penalties, related to uncertain tax positions, included in the consolidated balance sheet at
December 31, 2017
and
2016
were less than
$0.1 million
.
We are subject to income taxes in the U.S. and in many of the
50
individual states, with significant operations in Louisiana, Alabama, Georgia, Massachusetts and Tennessee. We are open to examination in the U.S. and in various individual states for tax years ended December 31, 2014 through December 31, 2017. We are also open to examination in various states for the years ended
2001
–
2017
resulting from net operating losses generated and available for carry forward from those years.
8. CAPITAL STOCK AND SHARE-BASED COMPENSATION
We are authorized by our Certificate of Incorporation to issue
60,000,000
shares of common stock,
$0.001
par value and
5,000,000
shares of preferred stock,
$0.001
par value. As of
December 31, 2017
, there were
35,747,134
and
33,964,767
shares of common stock issued and outstanding, respectively, and
no
shares of preferred stock issued or outstanding. Our Board of Directors is
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
authorized to fix the dividend rights and terms, conversion and voting rights, redemption rights and other privileges and restrictions applicable to our preferred stock.
Share-Based Awards
Our 2008 Omnibus Incentive Compensation Plan (the “Plan”) authorizes the grant of various types of equity-based awards, such as stock awards, restricted stock units, stock appreciation rights and stock options to eligible participants, which include all of our employees and all employees of our
50%
or more owned subsidiaries, our non-employee directors and certain consultants. The vesting terms of the awards may be tied to continued employment (or, for our non-employee directors, continued service on the Board of Directors) and/or achievement of certain pre-determined performance goals. We refer to stock awards subject to service-based vesting conditions as “non-vested stock” and restricted stock units subject to service-based or a combination of service-based and performance-based vesting conditions as “non-vested stock units.” The Plan is administered by the Compensation Committee of our Board of Directors, which determines, within the provisions of the Plan, those eligible employees to whom, and the times at which, awards shall be granted. The Compensation Committee, in its discretion, may delegate its authority and duties under the Plan to specified officers; however, only the Compensation Committee may approve the terms of awards to our executive officers.
Equity-based awards may be granted for a number of shares not to exceed, in the aggregate, approximately
5.5 million
shares of common stock, and we had approximately
1.2 million
shares available at
December 31, 2017
. The price per share for stock options shall be of no less than the greater of (a)
100%
of the fair value of a share of common stock on the date the option is granted or (b) the aggregate par value of the shares of our common stock on the date the option is granted. If a stock option is granted to any owner of
10%
or more of our total combined voting power of us and our subsidiaries, the price is to be at least
110%
of the fair value of a share of our common stock on the date the award is granted. Each equity-based award vests ratably over a
12 month
to six year period, with the exception of those issued under contractual arrangements that specify otherwise, that may be exercised during a period as determined by our Compensation Committee or as otherwise approved by our Compensation Committee. The contractual terms of stock options exercised shall not exceed
ten
years from the date such option is granted.
Employee Stock Purchase Plan (“ESPP”)
We have a plan whereby our eligible employees may purchase our common stock at
85%
of the market price at the time of purchase. On June 7, 2012, our stockholders ratified an amendment adopted by our Board of Directors to increase the total number of shares of our common stock authorized for the issuance under our ESPP from
2,500,000
shares to
4,500,000
shares, and as of
December 31, 2017
, there were
1,410,511
shares available for future issuance. The following is a detail of the purchases that were made or pending Board of Director approval under the plan:
|
|
|
|
|
|
|
|
Employee Stock Purchase Plan Period
|
Shares Issued
|
|
Price
|
2015 and Prior
|
2,977,712
|
|
|
$
|
14.20
|
|
January 1, 2016 to March 31, 2016
|
13,850
|
|
|
41.09
|
|
April 1, 2016 to June 30, 2016
|
14,236
|
|
|
42.91
|
|
July 1, 2016 to September 30, 2016
|
16,520
|
|
|
40.32
|
|
October 1, 2016 to December 31, 2016
|
16,882
|
|
|
36.24
|
|
January 1, 2017 to March 31, 2017
|
13,244
|
|
|
43.43
|
|
April 1, 2017 to June 30, 2017
|
11,446
|
|
|
53.39
|
|
July 1, 2017 to September 30, 2017
|
12,276
|
|
|
47.57
|
|
October 1, 2017 to December 31, 2017
|
13,323
|
|
|
44.80
|
|
|
3,089,489
|
|
|
|
ESPP expense included in general and administrative expense in our accompanying consolidated statements of operations was
0.4 million
for each of
2017
,
2016
and
2015
, respectively.
Stock Options
We use the Black-Scholes option pricing model to estimate the fair value of our stock options. There were
308,292
,
268,538
and
590,647
options granted during
2017
,
2016
and
2015
, respectively. Stock option compensation expense included in general and administrative expense in our accompanying consolidated statements of operations was
$5.6 million
,
$6.3 million
and
$3.8 million
for
2017
,
2016
and
2015
, respectively.
The fair value of the
2017
awards were estimated using the following assumptions:
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
|
|
|
|
|
Risk Free Rate
|
1.99% - 2.16%
|
Expected Volatility
|
50.18% - 51.81%
|
Expected Term
|
5.78 - 6.25 years
|
Weighted Average Fair Value
|
$28.02
|
We used the simplified method to estimate the expected term for the stock options granted during
2017
.
The following table presents our stock option activity for
2017
:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted
Average Exercise
Price
|
|
Weighted
Average Contractual
Life (Years)
|
Outstanding options at January 1, 2017
|
1,008,157
|
|
|
$
|
31.54
|
|
|
8.42
|
Granted
|
308,292
|
|
|
43.13
|
|
|
|
Exercised
|
(144,206
|
)
|
|
31.58
|
|
|
|
Canceled, forfeited or expired
|
(262,513
|
)
|
|
39.18
|
|
|
|
Outstanding options at December 31, 2017
|
909,730
|
|
|
$
|
33.25
|
|
|
7.62
|
Exercisable options at December 31, 2017
|
381,932
|
|
|
$
|
28.73
|
|
|
7.20
|
The aggregate intrinsic value of our outstanding options and exercisable options at
December 31, 2017
was
$18.1 million
and
$9.2 million
, respectively. Total intrinsic value of options exercised was
$3.9 million
and
$0.2 million
for 2017 and
2015
, respectively; there were no options exercised during 2016.
The following table presents our non-vested stock option award activity for
2017
:
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted Average
Exercise Price
|
Non-vested stock options at January 1, 2017
|
726,699
|
|
|
$
|
32.58
|
|
Granted
|
308,292
|
|
|
43.13
|
|
Vested
|
(260,814
|
)
|
|
30.54
|
|
Forfeited
|
(246,379
|
)
|
|
39.48
|
|
Non-vested stock options at December 31, 2017
|
527,798
|
|
|
$
|
36.52
|
|
At
December 31, 2017
, there was
$5.8 million
of unrecognized compensation cost related to stock options that we expect to be recognized over a weighted-average period of
1.9
years.
Non-Vested Stock
We issue shares of non-vested stock with vesting terms ranging from one to six years. The compensation expense is determined based on the market price of our common stock at the date of grant applied to the total number of shares that are anticipated to fully vest. Non-vested stock compensation expense included in general and administrative expenses in our accompanying consolidated statements of operations was
$1.7 million
,
$2.3 million
and
$5.0 million
for
2017
,
2016
and
2015
, respectively.
The following table presents our non-vested stock award activity for
2017
:
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted Average
Grant Date Fair
Value
|
Non-vested stock at January 1, 2017
|
209,378
|
|
|
$
|
22.20
|
|
Granted
|
19,152
|
|
|
62.67
|
|
Vested
|
(170,292
|
)
|
|
21.61
|
|
Canceled, forfeited or expired
|
(11,240
|
)
|
|
19.51
|
|
Non-vested stock at December 31, 2017
|
46,998
|
|
|
$
|
41.48
|
|
The weighted average grant date fair value of non-vested stock granted was
$62.67
,
$50.55
and
$28.48
in
2017
,
2016
and
2015
, respectively.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
At
December 31, 2017
, there was
$0.7 million
of unrecognized compensation cost related to non-vested stock award payments that we expect to be recognized over a weighted average period of
0.5
years.
Non-Vested Stock Units
We issue non-vested stock unit awards that are service-based, performance-based or a combination of both with vesting terms ranging from
one
to
six
years. Based on the terms and conditions of these awards, we determine if the awards should be recorded as either equity or liability instruments. The compensation expense is determined based on the market price of our common stock at the date of grant, applied to the total number of units that are anticipated to vest, unless the award specifies differently. We account for such awards similar to our non-vested stock awards; however,
no
shares of stock are issued to the recipient until the stock unit awards have vested and after the pre-determined delivery date has occurred.
Non-Vested Stock Units – Service-Based
Service-based non-vested stock unit compensation expense included in general and administrative expenses in our accompanying consolidated statements of operations was
$3.6 million
,
$3.6 million
and
$1.0 million
for
2017
,
2016
and
2015
, respectively.
The following table presents our service-based non-vested stock units activity for
2017
:
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted Average
Grant Date Fair
Value
|
Non-vested stock units at January 1, 2017
|
249,429
|
|
|
$
|
42.05
|
|
Granted
|
126,447
|
|
|
53.79
|
|
Vested
|
(57,106
|
)
|
|
42.41
|
|
Canceled, forfeited or expired
|
(83,928
|
)
|
|
44.00
|
|
Non-vested stock units at December 31, 2017
|
234,842
|
|
|
$
|
47.58
|
|
The weighted average grant date fair value of service-based non-vested stock units granted was
$53.79
,
$45.60
and
$37.98
in
2017
,
2016
and
2015
, respectively.
At
December 31, 2017
, there was
$6.7 million
of unrecognized compensation cost related to our service-based non-vested stock units that we expect to be recognized over a weighted average period of
2.1
years.
Non-Vested Stock Units – Service-Based and Performance-Based Awards
During
2017
, we awarded performance-based awards to certain employees. The target level established by the award, which is based on the Company’s
2017
adjusted earnings before interest, taxes and depreciation (“EBITDA”), provided for the recipients to receive
194,109
non-vested stock units if the target was achieved. The target number of shares to be potentially awarded has been reduced by forfeitures as indicated in the table below. Performance-based non-vested stock units compensation expense included in general and administrative expenses in our consolidated statements of operations was
$5.0 million
,
$3.7 million
and
$1.3 million
for
2017
,
2016
and
2015
, respectively.
The following table presents our performance-based non-vested stock units activity for
2017
:
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted Average
Grant Date Fair
Value
|
Non-vested stock units at January 1, 2017
|
224,857
|
|
|
$
|
45.08
|
|
Granted
|
194,109
|
|
|
52.99
|
|
Vested
|
(73,998
|
)
|
|
45.23
|
|
Canceled, forfeited or expired
|
(92,020
|
)
|
|
47.50
|
|
Non-vested stock units at December 31, 2017
|
252,948
|
|
|
$
|
51.15
|
|
The weighted average grant date fair value of performance-based non-vested stock units granted was
$52.99
,
$46.29
and
$39.54
in
2017
,
2016
and
2015
, respectively.
At
December 31, 2017
, there were
$7.7 million
in unrecognized compensation costs related to our performance-based non-vested stock units that we expect to be recognized over a weighted average period of
2.0
years.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
9. COMMITMENTS AND CONTINGENCIES
Legal Proceedings – Ongoing
We are involved in the following legal actions:
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 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. 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.
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 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. 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 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. 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.
Legal Proceedings – Settled
Wage and Hour Litigation
On July 25, 2012, a putative collective and class action complaint was filed in the United States District Court for the District of Connecticut against us in which
three
former employees allege wage and hour law violations. The former employees claim that they were not paid overtime for all hours worked over 40 hours in violation of the Federal Fair Labor Standards Act (“FLSA”), as well as the Pennsylvania Minimum Wage Act. More specifically, they allege they were paid on both a per-visit and an hourly basis, and that such a pay scheme resulted in their misclassification as exempt employees, thereby denying them overtime pay.
On June 10, 2015, the Company and plaintiffs participated in a mediation whereby they agreed to fully resolve all of plaintiffs’ claims in the lawsuit for
$8.0 million
, subject to approval by the Court. As of September 30, 2015, we had an accrual of
$8.0 million
for this matter. On January 29, 2016, the Court approved the final settlement of this case. The settlement became effective on February 26, 2016. As a result of the final amount calculated by the settlement administrator based on claims timely submitted, we reduced our accrual to
$5.3 million
as of December 31, 2015; this amount was paid during the three-month period ended March 31, 2016.
On September 13, 2012, a putative collective and class action complaint was filed in the United States District Court for the Northern District of Illinois against us in which a former employee alleges wage and hour law violations. The former employee
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
claims she was paid on both a per-visit and an hourly basis, and that such a pay scheme resulted in her misclassification as an exempt employee, thereby denying her overtime. The plaintiff alleges violations of federal and state law and seeks damages under the FLSA and the Illinois Minimum Wage Law. On December 23, 2015, the parties agreed to explore the possibility of a mediated settlement of the Illinois case, and a mediation occurred on April 18, 2016. The parties agreed to settle the case for
$0.8 million
, subject to court approval, which the Company had accrued as of September 30, 2016. On August 4, 2016, the Court approved the final settlement of this case. The final payment of
$0.6 million
was paid on November 21, 2016.
Frontier Litigation
On April 2, 2015, Frontier Home Health and Hospice, L.L.C. (“Frontier”) filed a complaint against the Company in the United States District Court for the District of Connecticut alleging breach of contract, negligent misrepresentation and unfair and deceptive trade practices under Conn. Gen. Stat. §42-110b. Frontier acquired our interest in
five
home health and
four
hospice care centers in Wyoming and Idaho in April 2014. The complaint alleges that certain of the hospice patients on service at the time of the acquisition did not meet Medicare eligibility requirements and that we breached certain of the representations and warranties under the purchase agreement and therefore, the businesses were worth less than the purchase price. Under the complaint, Frontier seeks declaratory judgment from the District Court that, under the terms of the purchase agreement with Frontier, we are obligated to determine the amount of the alleged Medicare overpayments and reimburse the government for the same in a timely manner, as well as unspecified compensatory and punitive damages, attorneys’ fees and pre- and post-judgment interest. The Company resolved the Frontier litigation for
$2.9 million
during the three-month period ended December 31, 2016.
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”).
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 Company’s 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.
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 Company’s 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. On December 19, 2017, the Court entered the final order and judgment on the case.
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 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
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
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 Matters – Settled
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.
Corporate Integrity Agreement
During the course of our compliance with the CIA, the Company identified several reportable events and notified the OIG as required. As of December 31, 2015, the Company had an accrual of
$4.7 million
for these matters. On May 5, 2016, the company entered into a settlement agreement with the OIG and the matters were fully resolved for
$4.7 million
; this amount was paid during the three-month period ended June 30, 2016.
Third Party Audits – Ongoing
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 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 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 December 31, 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 December 31, 2017, we have an indemnity receivable of approximately
$4.9 million
for the amount withheld related to the period prior to August 1, 2009.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
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 Level I Administrative Appeals, also known as Redetermination, the alleged overpayment for the Lakeland Care Centers has been reduced to $
27.0 million
and the alleged overpayment for the Clearwater Care Center has been reduced to
$3.3 million
. The Company has filed or is in the process of filing Level II Administrative Appeals, also known as Reconsideration. The Company 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 stands by its original estimated 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 is subject to indemnification by the prior owners for up to
$12.6 million
as disclosed above) to
$30.3 million
based on the partial success achieved by the Company in prosecuting its Level I Administrative Appeals.
As of December 31, 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 December 31, 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 December 31, 2017,
$6.8 million
of net receivables have been impacted by this payment suspension.
Operating Leases
We have leased office space at various locations under non-cancelable agreements that expire between 2018 and 2028, and require various minimum annual rentals. Our typical operating leases are for lease terms of
one
to
seven years
and may include, in addition to base rental amounts, certain landlord pass-through costs for our pro-rata share of the lessor’s real estate taxes, utilities and common area maintenance costs. Some of our operating leases contain escalation clauses, in which annual minimum base rentals increase over the term of the lease.
Total minimum rental commitments as of
December 31, 2017
are as follows (amounts in millions):
|
|
|
|
|
|
|
2018
|
$
|
23.6
|
|
2019
|
18.1
|
|
2020
|
13.6
|
|
2021
|
8.9
|
|
2022
|
5.0
|
|
Future years
|
11.6
|
|
Total
|
$
|
80.8
|
|
Rent expense for non-cancelable operating leases was
$28.6 million
,
$27.5 million
and
$23.7 million
for
2017
,
2016
and
2015
, respectively.
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
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.
The following table presents details of our insurance programs, including amounts accrued for the periods indicated (amounts in millions) in accrued expenses in our accompanying balance sheets. The amounts accrued below represent our total estimated liability for individual claims that are less than our noted insurance coverage amounts, which can include outstanding claims and claims incurred but not reported.
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
Type of Insurance
|
2017
|
|
2016
|
Health insurance
|
$
|
14.1
|
|
|
$
|
10.6
|
|
Workers’ compensation
|
29.3
|
|
|
26.8
|
|
Professional liability
|
4.3
|
|
|
4.7
|
|
|
47.7
|
|
|
42.1
|
|
Less: long-term portion
|
(1.2
|
)
|
|
(0.8
|
)
|
|
$
|
46.5
|
|
|
$
|
41.3
|
|
The retention limit per claim for our health insurance, worker’s compensation and professional liability is
$0.9 million
,
$0.5 million
and
$0.3 million
, respectively.
Employment Contracts
We have commitments related to our Key Executive Severance Plan applicable to a number of our senior executives, as well as the employment agreement entered into with our Chief Executive Officer, each of which generally commit us to pay severance benefits under certain circumstances.
Other
We are subject to various other types of claims and disputes arising in the ordinary course of our business. While the resolution of such issues is not presently determinable, we believe that the ultimate resolution of such matters will not have a significant effect on our consolidated financial condition, results of operations and cash flows.
10. EMPLOYEE BENEFIT PLANS
401(K) Benefit Plan
We maintain a plan qualified under Section 401(k) of the Internal Revenue Code for all employees who have reached
21
years of age, effective the first month after hire date. Under the plan, eligible employees may elect to defer a portion of their compensation, subject to Internal Revenue Service limits.
Effective January 1, 2017, our match of contributions to be made to each eligible employee contribution is
$0.44
for every
$1.00
of contribution made up to the first
6%
of their salary. During
2016
and
2015
, our match of contributions to be made to each eligible employee contribution was
$0.375
for every
$1.00
of contribution made up to the first
6%
of their salary. The match is discretionary and thus is subject to change at the discretion of management. These contributions are made in the form of our common stock, valued based upon the fair value of the stock as of the end of each calendar quarter end. We expensed approximately
$8.8 million
,
$6.9 million
and
$6.1 million
related to our 401(k) benefit plan for
2017
,
2016
and
2015
, respectively.
Deferred Compensation Plan
We had a Deferred Compensation Plan for additional tax-deferred savings to a select group of management or highly compensated employees. Amounts credited under the Deferred Compensation Plan were funded into a rabbi trust, which is managed by a trustee. The trustee has the discretion to manage the assets of the Deferred Compensation Plan as deemed fit, thus the assets are not necessarily reflective of the same investment choices made by the participants.
Effective January 1, 2015, all prospective salary deferrals ceased. Participants will be allowed to make transactions with any remaining account balances as they wish per plan guidelines.
11. STOCK REPURCHASE PROGRAM
On September 9, 2015, we announced that our Board of Directors authorized a stock repurchase program allowing for the repurchase of up to
$75 million
of our outstanding common stock on or before
September 6, 2016
, the date on which the stock repurchase program expired.
Under the terms of the program, we were 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 were allowed to enter into Rule 10b5-1 plans to effect some or all of the repurchases. The timing and the amount of the repurchases were 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.
Pursuant to this program, we repurchased
324,141
shares of our common stock at a weighted average price of
$37.96
per share and a total cost of approximately
$12.3 million
during 2016 and
116,859
shares of our common stock at a weighted average price of
$39.20
per share and a total cost of approximately
$4.6 million
during 2015. The repurchased shares are classified as treasury shares.
12. EXIT AND RESTRUCTURING ACTIVITIES
During the three-month period ended December 31, 2017, we closed
four
Florida home health care centers, consolidated another
three
Florida home health care centers with care centers servicing the same markets and implemented a plan to restructure our home health division. As a result of these actions, we recorded non-cash charges of
$1.3 million
in asset impairment expense related to the write-off of intangible assets,
$0.6 million
in other general and administrative expenses related to lease termination costs and
$3.0 million
in salaries and benefits related to severance costs which was offset by a reduction in non-cash compensation of approximately
$1.0 million
within our consolidated statements of operations for 2017.
Our reserve activity for our
2017
exit and restructuring activity is as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
2017 Exit Activity
|
|
Lease
Termination
|
|
Severance
|
Balances at December 31, 2016
|
$
|
—
|
|
|
$
|
—
|
|
Charge in 2017
|
0.6
|
|
|
3.0
|
|
Cash expenditures in 2017
|
—
|
|
|
(0.7
|
)
|
Balances at December 31, 2017
|
$
|
0.6
|
|
|
$
|
2.3
|
|
13. VALUATION AND QUALIFYING ACCOUNTS
The following table summarizes the activity and ending balances in our allowance for doubtful accounts and estimated revenue adjustments (amounts in millions):
Allowance for Doubtful Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year End
|
Balance at
Beginning of Year
|
|
Provision for
Doubtful
Accounts
|
|
Write-Offs
|
|
Balance at End
of Year
|
2017
|
$
|
17.7
|
|
|
$
|
25.1
|
|
|
$
|
(21.9
|
)
|
|
$
|
20.9
|
|
2016
|
16.5
|
|
|
19.5
|
|
|
(18.3
|
)
|
|
17.7
|
|
2015
|
14.3
|
|
|
14.1
|
|
|
(11.9
|
)
|
|
16.5
|
|
Estimated Revenue Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year End
|
Balance at
Beginning of Year
|
|
Provision for
Estimated
Revenue
Adjustments
|
|
Write-Offs
|
|
Balance at End
of Year
|
2017
|
$
|
4.1
|
|
|
$
|
14.4
|
|
|
$
|
(12.3
|
)
|
|
$
|
6.2
|
|
2016
|
4.0
|
|
|
7.9
|
|
|
(7.8
|
)
|
|
4.1
|
|
2015
|
3.1
|
|
|
6.1
|
|
|
(5.2
|
)
|
|
4.0
|
|
l4. 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 the essential activities of daily living. 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 company’s chief operating decision maker and therefore are not disclosed below (amounts in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2017
|
|
Home Health
|
|
Hospice
|
|
Personal Care
|
|
Other
|
|
Total
|
Net service revenue
|
$
|
1,101.8
|
|
|
$
|
371.0
|
|
|
$
|
60.9
|
|
|
$
|
—
|
|
|
$
|
1,533.7
|
|
Cost of service, excluding depreciation and amortization
|
670.9
|
|
|
184.8
|
|
|
45.0
|
|
|
—
|
|
|
900.7
|
|
General and administrative expenses
|
278.4
|
|
|
76.6
|
|
|
13.6
|
|
|
113.7
|
|
|
482.3
|
|
Provision for doubtful accounts
|
17.9
|
|
|
5.9
|
|
|
1.3
|
|
|
—
|
|
|
25.1
|
|
Depreciation and amortization
|
3.5
|
|
|
0.9
|
|
|
0.2
|
|
|
12.5
|
|
|
17.1
|
|
Securities Class Action Lawsuit settlement, net
|
—
|
|
|
—
|
|
|
—
|
|
|
28.7
|
|
|
28.7
|
|
Asset impairment charge
|
1.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.3
|
|
Operating expenses
|
972.0
|
|
|
268.2
|
|
|
60.1
|
|
|
154.9
|
|
|
1,455.2
|
|
Operating income (loss)
|
$
|
129.8
|
|
|
$
|
102.8
|
|
|
$
|
0.8
|
|
|
$
|
(154.9
|
)
|
|
$
|
78.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2016
|
|
Home Health
|
|
Hospice
|
|
Personal Care
|
|
Other
|
|
Total
|
Net service revenue
|
$
|
1,085.5
|
|
|
$
|
316.0
|
|
|
$
|
35.9
|
|
|
$
|
—
|
|
|
$
|
1,437.4
|
|
Cost of service, excluding depreciation and amortization
|
643.7
|
|
|
163.1
|
|
|
26.3
|
|
|
—
|
|
|
833.1
|
|
General and administrative expenses
|
283.4
|
|
|
70.2
|
|
|
7.9
|
|
|
141.9
|
|
|
503.4
|
|
Provision for doubtful accounts
|
13.8
|
|
|
5.5
|
|
|
0.2
|
|
|
—
|
|
|
19.5
|
|
Depreciation and amortization
|
6.0
|
|
|
1.3
|
|
|
—
|
|
|
12.4
|
|
|
19.7
|
|
Asset impairment charge
|
—
|
|
|
—
|
|
|
—
|
|
|
4.4
|
|
|
4.4
|
|
Operating expenses
|
946.9
|
|
|
240.1
|
|
|
34.4
|
|
|
158.7
|
|
|
1,380.1
|
|
Operating income (loss)
|
$
|
138.6
|
|
|
$
|
75.9
|
|
|
$
|
1.5
|
|
|
$
|
(158.7
|
)
|
|
$
|
57.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2015
|
|
Home Health
|
|
Hospice
|
|
Personal Care
|
|
Other
|
|
Total
|
Net service revenue
|
$
|
1,005.1
|
|
|
$
|
275.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,280.5
|
|
Cost of service, excluding depreciation and amortization
|
584.2
|
|
|
141.7
|
|
|
—
|
|
|
—
|
|
|
725.9
|
|
General and administrative expenses
|
263.2
|
|
|
62.7
|
|
|
—
|
|
|
126.5
|
|
|
452.4
|
|
Provision for doubtful accounts
|
12.2
|
|
|
1.9
|
|
|
—
|
|
|
—
|
|
|
14.1
|
|
Depreciation and amortization
|
5.2
|
|
|
1.4
|
|
|
—
|
|
|
13.4
|
|
|
20.0
|
|
Asset impairment charge
|
—
|
|
|
—
|
|
|
—
|
|
|
77.3
|
|
|
77.3
|
|
Operating expenses
|
864.8
|
|
|
207.7
|
|
|
—
|
|
|
217.2
|
|
|
1,289.7
|
|
Operating income (loss)
|
$
|
140.3
|
|
|
$
|
67.7
|
|
|
$
|
—
|
|
|
$
|
(217.2
|
)
|
|
$
|
(9.2
|
)
|
15. UNAUDITED SUMMARIZED QUARTERLY FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
Attributable to
Amedisys, Inc.
Common
Stockholders (1)
|
|
Revenue
|
|
Net Income (Loss)
Attributable to
Amedisys, Inc.
|
|
Basic
|
|
Diluted
|
2017
|
|
|
|
|
|
|
|
1st Quarter (2)(3)
|
$
|
370.5
|
|
|
$
|
15.1
|
|
|
$
|
0.45
|
|
|
$
|
0.44
|
|
2nd Quarter (2)(3)
|
378.8
|
|
|
4.5
|
|
|
0.13
|
|
|
0.13
|
|
3rd Quarter (2)(4)
|
380.2
|
|
|
14.6
|
|
|
0.43
|
|
|
0.42
|
|
4th Quarter (2)(4)(5)
|
404.2
|
|
|
(3.8
|
)
|
|
(0.11
|
)
|
|
(0.11
|
)
|
|
$
|
1,533.7
|
|
|
$
|
30.3
|
|
|
$
|
0.90
|
|
|
$
|
0.88
|
|
2016
|
|
|
|
|
|
|
|
1st Quarter (6)(7)(8)
|
$
|
348.8
|
|
|
$
|
6.2
|
|
|
$
|
0.19
|
|
|
$
|
0.19
|
|
2nd Quarter (6)(7)(8)
|
360.7
|
|
|
10.7
|
|
|
0.32
|
|
|
0.32
|
|
3rd Quarter (6)(7)(8)
|
361.6
|
|
|
11.4
|
|
|
0.34
|
|
|
0.34
|
|
4th Quarter (6)(7)(8)(9)
|
366.3
|
|
|
8.9
|
|
|
0.27
|
|
|
0.26
|
|
|
$
|
1,437.4
|
|
|
$
|
37.3
|
|
|
$
|
1.12
|
|
|
$
|
1.10
|
|
|
|
(1)
|
Because of the method used in calculating per share data, the quarterly per share data may not necessarily total to the per share data as computed for the entire year.
|
|
|
(2)
|
During each of the four quarters of 2017, we incurred certain costs associated with various legal matters. Net of income taxes, these costs amounted to
$0.1 million
,
$18.0 million
,
$0.1 million
and
$0.2 million
for the three-month periods ended March 31, 2017, June 30, 2017, September 30, 2017 and December 31, 2017, respectively.
|
|
|
(3)
|
During the first and second quarters of 2017, we incurred certain costs associated with various acquisitions. Net of income taxes, these costs amounted to
$0.4 million
and
$0.2 million
for the three-month periods ended March 31, 2017 and June 30, 2017, respectively.
|
|
|
(4)
|
During the third and fourth quarters of 2017, we incurred certain costs as a result of our home health division restructure plan. Net of income taxes, these costs amounted to
$1.0 million
and
$1.2 million
for the three-month periods ended September 30, 2017 and December 31, 2017, respectively.
|
|
|
(5)
|
During the fourth quarter of 2017, we recorded a charge of
$21.4 million
, net of income taxes as the result of the enactment of H.R. 1 (Tax Cuts and Jobs Act).
|
|
|
(6)
|
During each of the four quarters of 2016, we incurred certain costs associated with the implementation of Homecare Homebase. Net of income taxes, these costs amounted to
$1.5 million
,
$1.6 million
,
$1.2 million
and
$0.8 million
for the three-month periods ended March 31, 2016, June 30, 2016, September 30, 2016 and December 31, 2016, respectively.
|
|
|
(7)
|
During each of the four quarters of 2016, we incurred certain costs associated with various legal matters. Net of income taxes, these costs amounted to
$0.9 million
,
$0.3 million
,
$0.2 million
and
$1.8 million
for the three-month periods ended March 31, 2016, June 30, 2016, September 30, 2016 and December 31, 2016, respectively.
|
|
|
(8)
|
During each of the four quarters of 2016, we incurred certain costs associated with various acquisitions. Net of income taxes, these costs amounted to
$1.0 million
,
$0.2 million
,
$0.3 million
and
$0.5 million
for the three-month periods ended March 31, 2016, June 30, 2016, September 30, 2016 and December 31, 2016, respectively.
|
|
|
(9)
|
During the fourth quarter of 2016, we recorded a non-cash asset impairment charge to write-off assets as a result of our conversion from our proprietary operating system to Homecare Homebase in the amount of
$2.7 million
, net of income taxes.
|
16. RELATED PARTY TRANSACTIONS
On November 20, 2015, we engaged KKR Consulting, LLC (“KKR Capstone”), a consulting company of operational professionals that works exclusively with portfolio companies of Kohlberg Kravis Roberts & Co. Nathaniel M. Zilkha, a member of our Board of Directors, is a member of KKR Management, LLC, which is an affiliate of KKR Asset Management LLC (“KAM”), a substantial stockholder of our Company, and an affiliate of Kohlberg Kravis Roberts & Co. During 2016, we incurred costs of approximately
$1.6 million
related to consulting services provided to the Company in the ordinary course of business. Mr. Zilkha did not receive any direct compensation or direct financial benefit from the engagement of KKR Capstone.
Effective October 22, 2015, we entered into a contract for telemonitoring services with Care Innovations, LLC (“Care Innovations”). At that time, Paul Kusserow, our President and Chief Executive Officer, was a member of the Advisory Board to Care Innovations. In connection with our contract for telemonitoring services for the Company, Care Innovations was to receive an annual fee of approximately
$1.8 million
. During 2016, we incurred costs of approximately
$1.5 million
related to this related party engagement. We did not incur any additional costs related to this engagement during 2017. Mr. Kusserow did not receive any direct compensation or direct financial benefit from the engagement of Care Innovations as our telemonitoring partner and no longer serves as a member of Care Innovations' Advisory Board.
17. SUBSEQUENT EVENTS
On February 9, 2018, Congress passed the Bipartisan Budget Act of 2018 ("BBA of 2018"), which funded government operations, set two-year government spending limits and enacted a variety of healthcare related policies. Specific to home health, the BBA of 2018 provides for a targeted extension of the home health rural add-on payment, a reduction of the 2020 market basket update, modification of eligibility documentation requirements and reform to the Home Health Prospective Payment System (“HHPPS”). The HHPPS reform includes the following parameters:
|
|
•
|
For home health units of service beginning on January 1, 2020, a 30-day payment system will apply.
|
|
|
•
|
The transition to the 30-day payment system must be budget neutral.
|
|
|
•
|
CMS must conduct at least one Technical Expert Panel during 2018, prior to any notice and comment rulemaking process, related to the design of any new case-mix adjustment model.
|