Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2013 |
Accounting Policies [Abstract] | ' |
Use of Estimates | ' |
Use of Estimates |
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenue and expenses during the reporting period. Actual results could differ from those estimates. |
Critical Accounting Policies | ' |
Critical Accounting Policies |
The Company’s most critical accounting policies relate to the principles of consolidation, revenue recognition and accounts receivable and allowances for uncollectible accounts. |
Principles of Consolidation | ' |
Principles of Consolidation |
The condensed consolidated financial statements include all subsidiaries and entities controlled by the Company. Control is defined by the Company as ownership of a majority of the voting interest of an entity. The condensed consolidated financial statements include entities in which the Company receives a majority of the entities’ expected residual returns, absorbs a majority of the entities’ expected losses, or both, as a result of ownership, contractual or other financial interests in the entity. Third party equity interests in the consolidated joint ventures are reflected as noncontrolling interests in the Company’s condensed consolidated financial statements. |
The following table summarizes the percentage of net service revenue earned by type of ownership or relationship the Company had with the operating entity: |
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| | Three Months Ended | | | Nine Months Ended | |
September 30, | September 30, |
| | 2013 | | | 2012 | | | 2013 | | | 2012 | |
Equity joint ventures | | | 48.1 | % | | | 49.1 | % | | | 48.9 | % | | | 48.7 | % |
Wholly-owned subsidiaries | | | 49.3 | % | | | 48.1 | % | | | 48.4 | % | | | 48.5 | % |
License leasing arrangements | | | 1.8 | % | | | 1.9 | % | | | 1.9 | % | | | 1.9 | % |
Management services | | | 0.8 | % | | | 0.9 | % | | | 0.8 | % | | | 0.9 | % |
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| | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
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All significant intercompany accounts and transactions have been eliminated in the Company’s accompanying condensed consolidated financial statements. Business combinations accounted for under the acquisition method have been included in the condensed consolidated financial statements from the respective dates of acquisition. |
The following describes the Company’s consolidation policy with respect to its various ventures excluding wholly-owned subsidiaries: |
Equity Joint Ventures |
The members of the Company’s equity joint ventures participate in profits and losses in proportion to their equity interests. The Company consolidates these entities as the Company has voting control over the entities. The Company typically owns a majority equity interest ranging from 51% to 91% in these joint ventures. |
License Leasing Arrangements |
The Company, through wholly-owned subsidiaries, leases home health licenses necessary to operate certain of its home nursing agencies. As with its wholly-owned subsidiaries, the Company owns 100% of the equity of these entities and consolidates them based on such ownership. |
Management Services |
The Company has various management services agreements under which the Company manages certain operations of agencies and facilities. The Company does not consolidate these agencies or facilities because the Company does not have an ownership interest and does not have an obligation to absorb losses of the entities or the right to receive the benefits from the entities. |
Revenue Recognition | ' |
Revenue Recognition |
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The Company reports net service revenue at the estimated net realizable amount due from Medicare, Medicaid, commercial insurance, managed care payors, patients and others for services rendered. All payors contribute to both the home-based services and facility-based services. |
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The following table sets forth the percentage of net service revenue earned by category of payor for the three and nine months ended September 30, 2013 and 2012: |
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| | Three Months Ended | | | Nine Months Ended | |
September 30, | September 30, |
| | 2013 | | | 2012 | | | 2013 | | | 2012 | |
Payor: | | | | | | | | | | | | | | | | |
Medicare | | | 80.3 | % | | | 77.2 | % | | | 79.8 | % | | | 77.9 | % |
Medicaid | | | 1.3 | % | | | 1.7 | % | | | 1.4 | % | | | 1.9 | % |
Other | | | 18.4 | % | | | 21.1 | % | | | 18.8 | % | | | 20.2 | % |
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| | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
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The percentage of net service revenue contributed from each reporting segment for the three and nine months ended September 30, 2013 and 2012 was as follows: |
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| | Three Months Ended | | | Nine Months Ended | |
September 30, | September 30, |
| | 2013 | | | 2012 | | | 2013 | | | 2012 | |
Home-based services | | | 89.2 | % | | | 88.3 | % | | | 88.3 | % | | | 88.3 | % |
Facility-based services | | | 10.8 | % | | | 11.7 | % | | | 11.7 | % | | | 11.7 | % |
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| | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
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Medicare |
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Home-Based Services |
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Home Nursing Services. The Company’s home nursing Medicare patients are classified into one of 153 home health resource groups prior to receiving services. Based on the patient’s home health resource group, the Company is entitled to receive a standard prospective Medicare payment for delivering care over a 60-day period referred to as an episode. The Company recognizes revenue based on the number of days elapsed during an episode of care within the reporting period. |
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Final payments from Medicare may reflect one of four retroactive adjustments to ensure the adequacy and effectiveness of the total reimbursement: (a) an outlier payment if the patient’s care was unusually costly; (b) a low utilization adjustment if the number of visits was fewer than five; (c) a partial payment if the patient transferred to another provider before completing the episode; or (d) a payment adjustment based upon the level of therapy services required in the population base. In calculating net service revenue, management estimates the impact of these payment adjustments based on historical experience and records this estimate as the services are rendered using the expected level of services that will be provided and the schedule of those services or a historical average of prior adjustments. |
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Hospice Services. The Company is paid by Medicare under a per diem payment system. The Company receives one of four predetermined daily or hourly rates based upon the level of care the Company furnished. The Company records net service revenue from hospice services based on the daily or hourly rate and recognizes revenue as hospice services are provided. |
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Hospice payments are also subject to an inpatient cap and an overall Medicare payment cap. Inpatient cap relates to individual programs receiving more than 20% of its total Medicare reimbursement from inpatient care services and the overall Medicare payment cap relates to individual providers receiving reimbursements in excess of a “cap amount,” calculated by multiplying the number of beneficiaries during the period by a statutory amount that is indexed for inflation. The determination for each cap is made annually based on the 12-month period ending on October 31 of each year. The Company monitors its limits on a provider-by-provider basis and records an estimate of its liability for reimbursements received in excess of the cap amount. Annually, the Company receives notification of whether any of its hospice providers have exceeded either cap. Adjustments resulting from these notifications have not been material. |
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Facility-Based Services |
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Long-Term Acute Care Services. The Company is reimbursed by Medicare for services provided under the LTACH prospective payment system. Each patient is assigned a long-term care diagnosis-related group. The Company is paid a predetermined fixed amount intended to reflect the average cost of treating a Medicare patient classified in that particular long-term care diagnosis-related group. For selected patients, the amount may be further adjusted based on length of stay and facility-specific costs, as well as in instances where a patient is discharged and subsequently re-admitted, among other factors. The Company calculates the adjustment based on a historical average of these types of adjustments for claims paid. Similar to other Medicare prospective payment systems, the rate is also adjusted for geographic wage differences. Revenue is recognized for the Company’s LTACHs as services are provided. |
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Medicaid, managed care and other payors |
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The Company’s Medicaid reimbursement is based on a predetermined fee schedule applied to each service provided. Therefore, revenue is recognized for Medicaid services as services are provided based on this fee schedule. The Company’s managed care and other payors reimburse the Company in a manner similar to either Medicare or Medicaid. Accordingly, the Company recognizes revenue from managed care and other payors in the same manner as the Company recognizes revenue from Medicare or Medicaid. |
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Management Services |
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The Company records management services revenue as such services are provided in accordance with the various management services agreements to which the Company is a party. As described in the management services agreements, the Company provides billing, management and other consulting services suited to and designed for the efficient operation of the applicable home nursing agency. The Company is responsible for the costs associated with the locations and personnel required for the provision of services. The Company is compensated based on two management fee structures. One management fee structure is based on a percentage of cash collections, while the second management fee structure is based on reimbursement of operating expenses plus a percentage of operating net income. |
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Accounts Receivable and Allowances for Uncollectible Accounts | ' |
Accounts Receivable and Allowances for Uncollectible Accounts |
The Company reports accounts receivable net of estimated allowances for uncollectible accounts and adjustments. Accounts receivable are uncollateralized and primarily consist of amounts due from Medicare, other third-party payors, and patients. To provide for accounts receivable that could become uncollectible in the future, the Company establishes an allowance for uncollectible accounts to reduce the carrying amount of such receivables to their estimated net realizable value. The credit risk for other concentrations of receivables is limited due to the significance of Medicare as the primary payor. The Company believes the credit risk associated with its Medicare accounts, which have historically exceeded 60% of its patient accounts receivable, is limited due to (i) the historical collection rate from Medicare and (ii) the fact that Medicare is a U.S. government payor. The Company does not believe that there are any other concentrations of receivables from any particular payor that would subject it to any significant credit risk in the collection of accounts receivable. |
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The provision for bad debts is based upon the Company’s assessment of historical and expected net collections, business and economic conditions and trends in government reimbursement. Uncollectible accounts are written off when the Company has determined the account will not be collected. |
A portion of the estimated Medicare prospective payment system reimbursement from each submitted home nursing episode is received in the form of a request for anticipated payment (“RAP”). The Company submits a RAP for 60% of the estimated reimbursement for the initial episode at the start of care. The full amount of the episode is billed after the episode has been completed. The RAP received for that particular episode is deducted from the 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 RAP received for that episode will be recouped by Medicare from any other Medicare claims in process for that particular provider. The RAP and final claim must then be resubmitted. For subsequent episodes of care contiguous with the first episode for a particular patient, the Company submits a RAP for 50% instead of 60% of the estimated reimbursement. |
The Company’s Medicare population is paid at a prospectively set amount that can be determined at the time services are rendered. The Company’s Medicaid reimbursement is based on a predetermined fee schedule applied to each individual service it provides. The Company’s managed care contracts and contracts with other payors are structured similar to either the Medicare or Medicaid payment methodologies. Because of its payor mix, the Company is able to calculate its actual amount due at the patient level and adjust the gross charges down to the actual amount at the time of billing. This negates the need to record an estimated contractual allowance when reporting net service revenue for each reporting period. |
Earnings Per Share | ' |
Earnings Per Share |
Basic per share information is computed by dividing the relevant amounts from the condensed consolidated statements of income by the weighted-average number of shares outstanding during the period, under the treasury stock method. Diluted per share information is also computed using the treasury stock method, by dividing the relevant amounts from the condensed consolidated statements of income by the weighted-average number of shares outstanding plus potentially dilutive shares. |
The following table sets forth shares used in the computation of basic and diluted per share information: |
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| | Three Months Ended | | | Nine Months Ended | |
September 30, | September 30, |
| | 2013 | | | 2012 | | | 2013 | | | 2012 | |
Weighted average number of shares outstanding for basic per share calculation | | | 17,083,201 | | | | 17,656,842 | | | | 17,035,541 | | | | 18,121,217 | |
Effect of dilutive potential shares: | | | | | | | | | | | | | | | | |
Options | | | 4,208 | | | | 1,935 | | | | 4,032 | | | | 1,849 | |
Nonvested stock | | | 94,604 | | | | 68,042 | | | | 70,102 | | | | 37,423 | |
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Adjusted weighted average shares for diluted per share calculation | | | 17,182,013 | | | | 17,726,819 | | | | 17,109,675 | | | | 18,160,489 | |
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Anti-dilutive shares | | | 94,299 | | | | 176,641 | | | | 181,648 | | | | 348,595 | |