EHC - Earnings call transcript Q2 2019 | Encompass Health Corporation

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Operator

Good morning, everyone, and welcome to Encompass Health Second Quarter 2019 Earnings Conference Call. [Operator Instructions].

If you have any objectives, you may disconnect at this time. I will now turn the call over to Crissy Carlisle, Encompass Health's Chief Investor Relations Officer.

Crissy Carlisle

Thank you, operator, and good morning, everyone. Encompass quarter joining earnings for you Health's XXXX second call. Thank Officer; Birmingham on President Officer; Mark Financial Corporate Inpatient Secretary; the Officer; Counsel me Vice Chief Fay, Darby, today Hospital; Doug Jacobsmeyer, Patrick Rehabilitation call Chief Andy Executive With Senior and Chief Treasurer; Operations. in are and of General Duck, President, Financial and Tarr, Coltharp, Accounting Price, Barb Ed President Julie today's segment Executive Chief Home of via also is Officer in Hospice Anthony, April Health participating our call phone. and

Before do copy, we in which in page statements, the already the find two with on not second X-K set page also release. greater the information detail the are on On available the of Form will if the supplemental our supplemental began, Safe you encompasshealth.com. you of last forth have earnings website SEC are Harbor quarter a earnings related at filed release information,

filed. including the encourage the the we and X-K. materially uncertainties discussed are cause related forward release projections, earnings call, Form XX-K We risks you March the XX, and results looking XXXX that The the of make and ended quarter to them. XX, expectations for our filings, and when Form estimates, Certain June SEC year company's our XXXX in XX, the December for which beyond differ to many read are uncertainties, actual statements ended Form will control. During risks from could to and are subject XX-Q and which XXXX

of undertake these duty forward looking do based which cautioned of speak projections, the place and statements. You on future forward other a estimates, not only and are not We as reliance on update presented events today. to to looking are current estimates undue information guidance

will call financial Our certain this non-GAAP information and discussion measures. on include supplemental

which and as measures, the is the information part supplemental at release to website. end related with filed end are at of yesterday of the available most measure directly GAAP the Form available on X-K such comparable of press For the our all reconciliation the the of SEC,

Before adhere allow would question question. to I Mark, to I up to rule submit to we one will that and a turn it remind one question over everyone everyone follow to the like

you please put the feel questions, have If back additional in to yourself free queue.

I that, over the will turn With call to Mark.

Mark Tarr

good Crissy everyone you, Thank call. and morning today's to joining

quarter The share for per EBITDA consolidated was Encompass increasing with strong increasing revenue second another X.X%, X.X% Health quarter and adjusted X.X%. increasing adjusted earnings

will by reflect time and model, my our trends. demographic solid Doug performance the details I minutes. of in and business our and financial regulatory favorable the strength of initiatives sustainability review business is that update on spend a our environment. a strategic These will the backed results model an few just providing operating

rehabilitation joint second portfolio opening XX-bed hospitals new hospital inpatient the continued a our in expand of venture quarter, to Lubbock, Texas. During we by

also We of the hospital including hospitals, added in existing Florida. completion our XX addition bed our Ocala, our at beds to third

a to in XXXX hospital for our in that increasing beds with has services demand hospital XX-bed to opened grown now This due market. and XX

De IRF in Novo additional three openings anticipate We XXXX.

this venture Idaho, joint XX-bed past Boise, Our Saint hospital in Alphonsus opened with Sunday.

We hospitals Murrieta, completion. owned Texas nearing Katy, have and wholly California, in

both Novo rehabilitation and with owned De Our remains joint opportunities. robust venture hospital wholly inpatient pipeline

Georgia. announcements new to later plans build leader hospitals waters industry agencies to year new in our That to to announced We rehabilitation make We regulatory to plans our state certificates. the Tampa in Florida, inpatient obtain and continue hospitals. be an we XX-bed build complex this a regarding hospital for navigating two frequently of in expect recently Bay, successfully new need

hospice added in one of added which Alabama markets. closed and XX on Alacare Home and to second overlap the new During three portfolio, new South XX home and location Health including also acquisition we Hospice, our across health Carolina July locations home the quarter, health we Xst,

opening new new collaboration created overlap new location South in health and markets, the home of overlap to Carolina our markets more three acquisition in expand benefits enabling Both and of the us to patients. the clinical Texas incremental Alacare hospital created the for us,

Our two and XXXX. clinical the collaboration point the quarter work clinical together a quarter rate a achieve segments XX.X% to increase increase in over continue second to XXXX, basis second of collaboration of XXX

our on from recovering We needs the also focus strokes. of patients continued meeting

rehabilitation. expertise growth XXX with the in that treating have of of strategic have that stroke we is our the number in Certification patients, American practice We stroke Disease-Specific Heart/American hospitals stroke Joint Stroke clinical guidelines contributing our we earned treat. Currently, and Commission Association patients by sponsorship organization the and combined believe the released to

patients all CAGR stroke three-year for approximately is X%. Our

For recognized CAGR our Medicare value rehabilitative from approximately demonstrate stroke These gross the three-year plans, the are being in our that inpatient is XX%. patients statistics for Advantage stroke services market. of recovering

of stroke and rehabilitation setting expertise hospital will educate these specific inpatient on the patients efforts We and continue provision of our in efficacy physicians, to clinical and the the rehabilitation of payers, our services.

solutions also by patient across on cost hospital in Progress reducing our lowering post outcomes focus readmissions of the episode entire and development care. the that continues acute of improving care of

And rehabilitation other In the pilot inpatient project our model Houston for market. half home part this the existing prediction in clinically All combined of seven are XXXX, the collaborate pilot this refine hospitals several of tools in with our markets To XX-day with April, our launched and IRFs in agencies. post continued overlap acute that health of first we model. readmission a

on across to improve see continuing each inpatient Our our to working abilities functional patient's CARE October rehabilitation for CARE system with reliability Xst the And documentation our this elements. continue the the improved of focused under to hospitals also We hospitals portfolio. are the inter-rate on prepare transition remain Tool year. that captures we hospitals payment for to

in company basis of be points system reimbursement the to information As disclosed the we would new for included Medicare of XXXX. result down the on XXXX three for this XXXX Year fourth IRF XX will rule, believe our in previously continue Fiscal in flat to proposed first and quarter based rates and to transition payment the that quarters

Year Fiscal any the final rule XXXX release IRFs to now. for CMS expect We day

In Patient-Driven this implementation prepare CMS released rule home on result to implementation. CMS Earlier XXXX January proposed CMS PDGM's XXXX as of reimbursement the month, Model assumed for adopt rule a cuts X, of the could health. home the PDGM and behavior The health, counteracting the updated Groupings affirmed for that at occur implementation continue of proposed aimed proposal or we changes to provider believes PDGM.

changes mix PDGM of over estimated The resulted X.X%. the XXXX to acquisition X.X% the our We the impact have of from to XXX home in and updated patient negative course health point negative improvement implementing from business of our Alacare. basis

X%. proposed behavioral the CMS rule, the to X.X% total Within negative from cuts increased assumption negative

behavioral the legislation. discussions adjustments magnitude unprecedented and nature of contained with practices adjustments behavioral related in to relief negative continue amount, the that to from very CMS X.X% increased to coding rule negative X.X%. We will Within and assumed and Assumed the through this about concerned via remain seek

Penny, derived model. to Regarding Health Innovation Home XXXX the bipartisan evidence use would new require the the data Congress legislation called and payment CMS observed in from latter, Payment actual of Act

looked consistent be bill is this a range The with rare in have of like would that for in behavior within ensure cuts changes Bipartisan day phased any what a support X% more less. would past industry value needed as widely by is is and health support also care receiving of parties, the but both we for setting, a preferred only home care is appreciated as seniors. setting shows believe many of not the American for home low-cost manner

rules part and will few months, CMS of to we the on as or Congress of as feedback provide issuance to individually home CMS rule continue Over health we of the proposed work Congress. final and from trade associations next our intervention wait the

objective, care efficiencies of plans in and includes preparation to support technology the Our administrative to incremental evidence-based for generate functions. PDGM use drive

Homecare further to of on working and doubling PDGM are a care our health with we working home the patients of from serve We key enhancements all periods part increased periods, in our MetaLogics its not as require result move are XX-day billing payment billing related do with ensure costs. to plans for payment system frequency refine XX-day Homebase will to we

Transitions care admission Also, as continuing of have our an investments result we increase a acute Care program, in made seeing in from hostels. the we are

able will As you, driving, increasing payment to We remind company trend which the proposed services for to we is on predicated through operating and we work segments systems stated our we being believe continue have provide. we new the and for changes as neither to well-positioned track demographic demand so. of do the of our we record a changes previously, a proven long-term these company, have outlook for are

connect to deliver with comment continue settlement care to in I further home of and outcomes, inpatient provider strengthen also And networks, payers order and to of will the expand hospitals of continuum our health the Department locations, across hospice and to relationships with Justice. finalization network rehabilitation want systems, healthcare our We healthcare on superior briefly our patient

we misdiagnosed the hospitals not and to rule. $XX June, are in certain investigation, us compliance which conditions independent of in XXXX exercise our judgment. The was this doctors XX-percent medical In for March million. disclosed of claims initially Justice settled employed doctors manipulate with Department These by

corporate of from cases, the evidence investigation or of deal original It There doing. all nothing the integrity diagnosis. because The lasted hospitals was settlement is years discovery. their wrong and they our The releases no by agreement needed all no identified great involved falsity stood settlement. a correction. to In of produced seven date of there that XXXX

shareholders, this up settlement my distractions litigation will XXXX and a substantial interest I the cost burdens of guidance. is the comments our best as with internal in of prolonged and of We discussion wrap our of investigation. a avoids believe it

our XXXX we to our expectations the to adjusted guidance acquisition results our of of of This on for are updates increasing includes current $XXX Alacare. Based range $XXX of guidance for million our the . remainder and EBITDA a half XXXX, first

to will over I Doug. turn that, it With

Doug Coltharp

Thanks, morning, Mark, and everyone. good

operating in segments. Our by strong business characterized both were again QX financial and trends results

X.X% diluted to Our increase share. and revenue an a X.X%, $XXX.X a EPS per in adjusted $X.X in consolidated million increase cuing adjusted EBITDA X.X% grew to

million owing first previously strong claims. half of balances from to decline and primarily cash the to increased Probe related last the collections free flow down for denied Adjusted accounts Targeted TPE of the first at year, half Educate reviews XXXX modestly receivable or of remain and $XXX

fund borrowings XXX of $XX million our X.XX% credit dividends the During to DOJ XXXX. The and stock, months settlement. we a six cash of million common acquisition $XX $XX in Alacare our common the million of cash under and revolving on million million XXXX, due $XXX.X repurchases, facility notes stock first voluntary CapEx, in our flow in redemption senior used of free $XXX million

approximately ratio increased leverage funded our X.X levels of debt a As and activity, $XXX result modestly increased this million by our year to end per times.

fund we XX and the further leverage appreciation the a rise expect of We half rollover our as X more exercise of and in the shares redemption, as in on of stock pages supplemental fully subsidiary ratio slides. rights home the second to and health the hospice year, described the

segment continuing basis approximately business growth market. the of points growth from into XX per driven the of City the results, Revenue impacted IRF last X.X% discharge. now and in effects QX Panama negatively period increased QX revenues discharge XX on basis to discharged Moving reserves increase a to by revenue. Michael same the X.X% points X.X% for X.X% related was increased in Same-store of revenue over by year debt Hurricane X.X%, bad

we did draw we and reviews jurisdiction regarding any have of too in at Palmetto first early TPE to resolution. the process conclusions approximately the of These is are the initiation review under XX their the it quarter, with had During Palmetto. hospitals TPE reviews see the

have to continue ALJ in at the adjudication We in $XXX claims denied million previously level. excess of awaiting

by our segment increased expense million. partially points in offset an increase EBITDA SWB IRF of by trends X.X% in within for expectations. group QX Higher and $XXX.X to favorable to wages medical XX expense. range in adjusted of Workers' revenues Compensation salaries XX.X% QX the increased and were basis

favorable compared basis QX Labor due productivity and provider XX year. points and and for in X.XX improved X.XX be declined to taxes lower. operating EPOB during with expense. liability to other in primarily professional quarter Other trends of expenses the general by last as QX

Home home XX.X% revenue QX, segment, growth in hospice. hospice volume as and increase to and revenue admissions an with X.X% growth. by a including health same-store health health XX% gains our in grew driven QX XX.X% X.X% in in was now home Turning increased increase

over XXXX. Hospice the Revenue episodes the of audit was same-store ADC to due and year. but primarily also favorable per timing basis hospice XX ZPIC of of growth included XX% episode QX growth strong points of acquisitions, increased approximately to resolution the prior XX.X%. completed X,XXX in QX declined by revenue attributable

remains business Alacare XXX EBITDA and strategic making. health hospice The adds priority we from Camellia. $XX.X hospice was acquisition hospice ADC to segment increase ADC and a in progress X, scale evidence of in and is adjusted our approximately XX% Building Home million, our business. the of are again acquisition year the increase of QX benefited May for XXXX prior over an the the

adjusted of cost segment and of continued EBITDA in services was Growth driven as caregiver revenue owing our optimization percent on focus lower a also by to productivity.

During held flat while visit cost per year $XX, as declined visits on to was year-over-year QX, health a per compared our XX.X home episode ago. XX.X a to basis

both our primarily G&A a dollars as the due to initiative. rebranding percentage QX corporate associated revenue our in again compared as Finally, for of nominal and decreased XXXX, in QX expenses with reduction to consolidated

And now, questions. will for open the we line

Operator

line the Mayo [Operator Instructions] UBS. of comes Whit Your from with first question

Mark Tarr

Good morning, Whit.

Doug Coltharp

Morning, Whit.

Whit Mayo

maybe acute, pipeline survey you minute for some rehab inpatient of is just any any on there if or a on this Novo's shows work just a De there helpful. around inpatient be ventures just rehabs. are and Mark, post would doing interest stroke thoughts some just focus can new the I'm thanks, wondering Hey, Is for that about spend Some Thanks. growing our development partnerships the talking see in and guys. joint developing market? you themes

Mark Tarr

Yes.

think I combination Whit. the of a above it's

close look our and at facility total to joint our systems. made partnership is venture third our up are hospital of years of hospitals If now back old you with about portfolio first arrangements history, a of XX

to the expand all all of those and reserve of types more have systems, care more needs acute acute primarily things they focus and service to things become service programs. to looking patients are for on needs As service and care the difficult and progressed programs their and lines capital

majority out And can for Health chance line of like acute us Encompass inpatient needs patients to someone those with taking those product health but building of patients their they and manage a they care that have includes grow and space, clinical in also vast so combine times expertise to and and and our hospital the rehab programs a freestanding expand that rehabilitation patients. their of rehab an for home and look backgrounds them for the new

Doug Coltharp

also we De doing that and of capacity a quite it's think of a I things expansions. about been of and been adding in spite Well, the bed have function for fact is of we long a period talking two that have time hospitals couple by that Novo

relatively X%. to supply of licensed XX If in patients in for beds and you last is for CAGR overall and demographic that approaching we IRFs decade, look contrast been space about, aged nationwide, the the the the trend about flat it where the have that has stands XX between been talking

now this they capacity those is So Mark pending acute the address as and expertise I there by hospitals needs. care had being is to patients acute they the recognized said think imbalance recognized, are neither post that increasingly that nor

Mark Tarr

wholly well mentioned size very in so pipeline opportunities, to pipeline markets the Texas opportunities California, Murrieta, earlier, owned as and mentioned comments as our like have feel we Whit, partnership an we the Katy, both contains good expand. our as about in -- I and my of opportunity we we

Whit Mayo

Great. That And question No. second my helpful. for maybe is April.

maybe any if crystallized seen the now if wondering you your reshaped or your are to for there is mind on thinking Just Thanks. that Sure in management share wasn't portfolio anything new anything you just about any XXXX, development, that views maybe how targeted have XXXX. your strategic about proposal plan

April Anthony

there Yes. no would reshaping views. I is our of say

markets to that down it very think one and those XX% is looking the of talked that to find expectations we the going mean, pretty proposal flaws up so XX%. similar be I think a we inherent PDGM last are in we the And markets we are be has is that variance, our What in had I across tails at and about lot do long going you country even out PDGM came it's year. of the find as are find to opportunities. these proposal

the mix where efficiencies markets expansion of is time. and to across just we increases view, where based perspective, and the than opportunity growth will think better will lean looking of take a the markets, into of margin at markets some advantage organization the on But from big at efficiency have expected markets the change of regions, it's opportunities find there those created to to patients we continue in are from fare for our in and are be over looking and an a think because in we not the those there We geographic certainly those others high the particularly acquisition would industry look our that we for in going perspective. opportunities but down think we I disruption we

Whit Mayo

Thanks. Okay.

Operator

The next the question from of with Matt William Blair. Larew comes line

Matt Larew

ask I to track. Doug Hi, EBITDA guidance about higher with EPS wanted moving Good guidance guidance, morning. obviously on and revenue staying

have Mark deal alluded momentum strong guidance Alacare obviously half the dynamics the you some know, through various the back coming You that performance walk closing the then to Could with quarter. in of and changes? some IRF beds what the facilities the online, of affect in us of and new you those are year the just

Doug Coltharp

Yes.

consider. a think things I So of number to

productivity of and expense have costs had visits performance or within the quarters per has visit home regard controlling been the we of good all, the first of and the out the that second as we to into you have compare performances first of as the that we the with episode. year, per categories. very year, half half had business, episodes in year, that move form of to both managing In two some First the much of of health in the

and get where bit as A, bit were improvements we that B, in year things you to just of metrics because second those into periods made that anniversarying limited. there are levers can some become the half; Those a more challenging the more PTO, a is the last drive you are pull more little

been, little the hospice think, building an bit assumption degree that for and we'd a in second on the health guarded both this is labor upside there. So have I the and more year of we productivity half regard to with same of home see

On was we provider regard to in had developments half helped us gave anticipating to what the that that things OOE helped taxes some benefit us us weren't some again first the And necessarily -- of the drive that of to lower. that on favorable side, IRF also we year. a component with

then card there remains wild the and out So volume. always on

so basically things we the are assumptions And really, items line are for the underlying those our the that regarding year. not have changed half the second key of

we of We but see causes assumptions. pricing we'd predominately develop, set revenue in first through volume the materialize impacting are half combination expectations, halfway will we which of our haven't the those how and the year realistic change year and those is anything the assumptions and the things believe out line, us to seen we that

to regard a successfully although highly organization on to Alacare, of size. an know nonetheless money I compatible about mind acquired multiple is with there enterprise questions our some acquired business that With and Alacare, very we with takes time that takes one that that. and have Bear well-run been in it fronts. It integrate

system acquired we the under the those is is that six use on usually cases enterprise And EBITDA retraining the and of even that for about during best then falls impact expenses, need acquisition we into company take what category, efforts think and we that Alacare are category. months of and into there the find that place, to that Homebase, Alacare falls Homecare, an the first

Matt Larew

revenue pretty what side. the despite and up comp helpful, is I discharge, per again on wanted follow strong That to a then strong. Thanks. Okay. Obviously, difficult was and growth same-store IRF

growth call first of the in I You you with wondered, discharge any and Medicare per on pricing. just on Advantage stroke side, the trends quarter the revenue same-store either Doug, either color driving second could what quarter? provide if mentioned some additional was or

Doug Coltharp

the underscores regard was another growth value excess again, Medicare Advantage our I stroke quarter, In the XX% in our we the so than and really proposition within quarter discharge growth in which saw Matt, Medicare on the and basis. business was strong neuro Advantage greater per revenue second book of think business, the was to our discharge a know, there. book of concentrated with categories, pricing You and growth of X%

and think a discount I the And as declined things, those between fee-per-service to our of Medicare result our XX%. book Advantage

see so there. developments to very we continue favorable And

seeing the health We in on home growth are Advantage well. good side Medicare as

the still number Our Medicare they payments second in to Advantage XX% unfortunately, toward IRF quarter home reconciling same have the of regard risk schedule as fee-for-service grew of Advantage visits, but made health in the about the in hasn't Medicare with on the business. terms

for Medicare becomes about progress home think are continue And home those Advantage. opportunity so there make sometimes limited IRF difficult but what there more We get gap clinical in the resources to our on markets there, to us take side. to excited and on is than we close the it will is to health that devoting side health

Mark Tarr

quarter it's our in worth multi-year our percentage this I seen IRFs, quarter the was discharges as Matt, total for period strokes. last a have think noting we a of highest in

We local my is pleased brand. out the and in we that and and have Association mentioned the the our relationship markets trending building comments, in how very with American with I Strokes are as program reaching

Doug Coltharp

disparity is The exists on side. Medicare clinical Medicare IRF one collaboration headwind the of that that of And the again that our payment to on between home Medicare terms Advantage of a be in fee-for-service is there and growth relates Advantage that, a rate. health thing creates cognizant to side little the in bit it

the whom of the side on a collaboration a to percentage that not a health whereas the both collaboration a basis year-over-year sequentially So our to Medicare the we pure many make negatively with we and clinical home bit quite healthcare clinical little pace on are keeping the of on MA rate. weighs continues as higher require on basis, that patients, side significant see IRFs strides on home rate

more over are be health, time, contracts exists are that the on home addressed with that establishing confident is making given we a but significant favorable disparity plans to we on turn progress not little of that now. that bit there a will MA a It's and right

Matt Larew

all Thanks detail. Okay. for that

Operator

from comes Gilmore next Your with line of Baird. the question Matthew

Matthew Gilmore

that planners? Thanks. rate can Hey. the sense that of the demonstrating the some especially tackling digit or us Barb, IRF on Mark or for give more with more discussions, for a Advantage plan And you sort I to the blocking everybody. the discharge is you stroke up guys, of of you Medicare in the double side. cases. target with have Medicare either wanted market? to Is number follow value Hey, Hey, about on stroke same-store if growth how growth the sustainability health at and level it any comment respect with Advantage that Can

Barbara Jacobsmeyer

those both the that precert. will It's things, having times, with as not not Sure. thought it's we that get of referral the getting be will and them about I many case say by managers, deterred that actually a

certainly precerts to patient of of them more our with to is helping get end director on that actually decision made we once on do that the directly peer-to-peer, and That us plan to pair, stay get talks doing know to is the to we that are to are outcome that what emphasize back are need home, converted. the we referral, called backup with we they medical So the let these following physicians good where precert the director we side times of get that precert precert for what successful we a as where and that have our there and that have reinforce physician the and when the that have medical really

Matthew Gilmore

saw line how kind health MetaLogics plans but and home sort how the give follow a up, MetaLogics the as partnership. today we a and PDGM your guess a care ask develop sort visit how will with work are to work down then I wanted developed sense little And side care under that you I bit of plans in year-over-year, on with the per of episode and for come maybe just of about with

Mark Tarr

in to that. April Matt, on I'm going weigh to ask

April Anthony

Sure. Matt, patient-specific care a is planning very I effort. think still

within And that the the so using for basis their at on defined we MetaLogics practices we best make a all of But absolutely each end for Homecare using plan can to is tools patient-by-patient the are deploying that sure care on Homebase specific really based are every day, patient. needs. we

But couldn't our of do things human And effort let look one with into is of for in back ability just a match closest does that patient and MetaLogics intelligence sort best we is tool what and practice. the us a we the with when that data effectively go to the really outcome go did are at finding to you are to historic back lean best way back that at one the is through the the achieve look we looking today. really

to accomplish outcomes challenges goes in really back have it able so we And their before particular our this like the past, this think how that do patient. way, of again we we kind and challenges been about us this clinicians could to say to have had for patients

the default getting certainly tool, nurse the to And is meet what sure that have blend is we that that needs. make we so technology, seeing of with truly observed we that together is in patient spite or don't just the therapist fact they seeing realities the ever need the to the their that individualized

But being adding by that clinicians encounter resources, needed our sure value are as of every practice efficient, as we challenges a about I and can. that helped has single best what to about more tool to combination make do challenges us in it best that having be we think to is bit that discerning think and our

incremental a MetaLogics base And so, I utilization we think have tool deploy That across statistic. is helped continue will we to greater us of think in attune that our and as the I business, improvements

Matthew Gilmore

Got it. Thanks very much.

Operator

comes Brian of question line Jefferies. next from with Tanquilut Your

Mark Tarr

Good Morning, Brian.

Brian Tanquilut

question guys. morning, my will April I good first. shoot Hey, to first

you terms could in revised provisions cost anything think that. well, things the but PDGM Estimate, other abilities know we as levers rule about to such is you some share PT April that have the as proposed I PDGM So assistants that on can and top think the of there impact you Is side the your to mitigate line I and like you adjust the us there for in cut? do thoughts on there as with give

April Anthony

to Sure. there. thoughts some share Happy

ability it that PTAs maintenance category maintenance than therapy. fall to therapy the is of less to therapy, episodes provision our to the As of relates into use is X% the limited new specifically

any utilized many incremental is industry. not really to the think is in for that a move health nation. very of going PTAs criteria and agencies frankly, our around home that across is way low to So the for consistent ability therapy use I the very Maintenance for us dial service material

I going changer. particularly So a see we be don't are think that to game

therapy has being been of what is for the I is That not maintenance continue said, nursing of game whether it's to past changer coders upon area are PTA but a what use our across with in our our area, and therapy in whether just we PTAs, it discipline. or clinicians, our is the whether in will improve really it's optimizing all the occupational LPN Encompass population think assistant

more our of PT a three can PTA have LPN us average disciplines you send a tune lower efficiency about delta, if instead RN. our cost instead helped I together, of some really an $XX been per of have per and areas if visit, The effective or Those that visit. those the blend

clinicians, higher is of to the as really all as that on discipline, productivity a out of making sure efficiency that to combination professional level level And we the expect what are and levels that our our think we we blend so, that of realize together I and that, discipline optimization of productivity element drives both of able you well the cost. is when And how cost. we to significant add that the driver control the

talked rule, under important this ago, in the utilization in about that a service. most no next will we for just efficient as driver, Secondarily, our really being some therapy of moment there recognizing the be room PDGM is particularly excessive disciplines,

for that value every to are patient. mentioned I earlier, very discerning and going adding as We to are have the truly instance, we be ensure in

by very just that heighten Every come today. We control visit focus can that are still from just really on well that no are way But have ability our progress. utilization perspective. we to that approach. be confirm and making think on longer outcome-driven or kind going will are I focused an going of this And to heighten is of you course, and to things our

That administrative to it efficiencies releasing Homecare on effectively do tools be more have sure at is key utilizing just that the more that productivity make Homebase administratively in manner. scheduling we they than finally, to and ever system are going to we our looking and do in home And fact our that of automated a driver. Homebase realize gain some optimization before, a will late then those next and we Homecare of have can some this efficient in year impact areas year have

I say are by those of itself, is move tuning. there a help us we particular That all, one lot outcomes So going to realize fine of that a it's the adjustments year. just need dial wouldn't just the small for is area will it's lot next together

Brian Tanquilut

I appreciate that.

your April about think impact and in IRF Doug Do to that this on will year. PDGM I as it out I guess you still next, later changed feel I you pass grow can reimbursement your like at the EBITDA adjustment thoughts the down laid everything XXXX? and So on

Doug Coltharp

So the pieces furnish. and challenge. of the And math that information that use some the all significant walk the it's I'm stuff is available is let's through materials to going a we in

will proposed to you business from rate challenge XXXX. is at carry the look size is that think base of what got that I against have do the rules the cuts in by created the into XXXX So the

make in you this billion somewhere is if to an assumption million So to $X revenue year the home range. be for health going $XXX that

division you look the the Medicare XXXX X.XX% you net that Advantage updated get fee-for-service other anything on and patient for X.X PDGM you health, price % Medicare have mix at about between for the specific, payers, if mix. year that payer reduction and we full for have home the of And the before a

almost that XXXX creates the that And $XX headwind against so XXXX carrying million. of you book a into same revenue business of are from

that, productivity in are things to SWB. On on for top going optimization through although do headwind said we and improve visits and to continue our on of surface, you are anticipated based to that the episodes labor so have April going to increase a care has forth, the

X% our SWB. to assumption are that that revenue SW category, stick that going in benefits million go to X we if in so $XX up And shortfall, against have % increases you about that or X that % with another and $XX suggested

to of math the adjustments, Mitigate So that, million at of even the are EBITDA before not an what before behavioral business. million extent health EBITDA would through you you started the to headwind. create On adjustments looked year and we every $XX incremental you the comes behavioral got whatever $XX doing a same able X% have that through, headwind in top home come

for year. for increase are the net Then over the probably fourth jump all IRF a three with with pricing and in between X% reduction more a sector wind you the positive do a normalized quarter, X.X% up that of to going XX% of quarters the run increase, you the kind you somewhere first the math to and through, to and X.XX% same

that against $XX but price between have million of headwind. million to that continue create so increase, SWB going $XX And you the somewhere will so of might and generate level $XX or to and $XX de-levering risk million incremental revenue are another that million,

be that productivity So mix get hurdle. are you and be gains, growth that that challenge as changes volume over and you changes going patient - dependent will we dependent productivity exists to on is largely gains to in move on then in both businesses or in the

have the EBITDA. the realistically to in to of single digits you be it to grow on math in is of going get, level order are gains position chance where you kind put depending you that it, do you high if probably suggests to volume productivity need might a a yourself And that the in going growth on

concerned So to challenge. it and saying that there a on the and that behavioral going relies quarters challenge that create adjustments, is it's coding we the are X% about of a off remained going to to the respond play does big amount comes significant to ability through somewhat not table, that three that our we significant that role of if adjustments be a are a very is

Brian Tanquilut

right. Got Doug. Thanks, All it.

Operator

question Sarah next from James line Jaffray. the comes Piper with of Your

Mark Tarr

Sarah. Hello,

Sarah James

That was it. I question up helpful. morning. to ask incredibly just follow math on Good wanted you. a Thank

you in curve if of And math it a think one as I today, tails? call how imagine you you guys be being the tail. $XX is those earlier wondering experience framed different are ran PDGM headwind in you different could - that about out that know, long I'm million how the You how was the through with up very average. But

Mark Tarr

specific business book Alacare. XXXX, of from is to Well, that our plus

Sarah James

it. Got

And Okay. then…

Mark Tarr

industry aren't Those numbers, our those numbers. are

Sarah James

areas it's bit was then you about your maybe being competitive And Okay. you those reimbursement and a advantage tough tails, whether areas where geographic share as it about advantage if the where an talked can think footprint, is you have gain better. operational from or you out in a in little

you for strategically that are does in with your to to how change you just versus about So your health by degree what wanting think PDGM? footprint to footprint and optimize trying in regions weigh versus tail not locked to IRF overlap wanting home

Mark Tarr

Mark. is This

and committed to systems overlap We the where that of between our to our that payer the that. markets, can and health. in long-term think is methods where home integrate benefits and are future, are has care so We going are creating ongoing committed strategy we we facilities

regulatory the of in good come at out record, on other form, good of those take our said to look I our As on changes you you fashion. side very track both segments comments, my opening on environment, if very in in the

facing is fundamentals and is by of two this in of our to trends. are both how strong with our segments very at strategy. That this these up are segments coming regulatory about time, committed what changes demographic of feel both The the we us driven we

long-term from us the short-term on nothing see we So strategy. here that our deters

Sarah James

you. Thank

Operator

question comes RBC Markets. Capital Morgan Frank of line Your from with next

Mark Tarr

Frank. morning, Good

Frank Morgan

have Good been level just of questions a morning. let me answered, ask here. but high my Most one

say you year. or spending say, industry and on year healthcare this, change are nothing being you passed. over up this right and the decline can you let's gets are for but affect right no you just penalized code behavioral And Medicare are legislation, for or is year, Let's say offset home don't that next there actually revenues don't let's is you

supposed what is this neutral, happens that Thanks. with budget be Given point that at CMS? to

Mark Tarr

supposedly requirement period Well, they'll to a it the do that unintended implementation offset and the adjustments look rule there a period. and multi-year reconciliation, consequences back is budget neutral rate of back to get make a a future a requirement, over

that complicated lot take is point. is suspect. of problem it that and enforceability the untested it a the ship, and to a has but is rides that different been this forms is supposed reconciliation mechanism not tested The of be mechanism well There be can at it and

Operator

question Fischbeck America. next Bank Kevin of The of line comes from with the

Kevin Fischbeck

Yes. Great. Thanks.

the the sounds in behavioral coding other component you you adjustment? then can about mostly are a So How was adjustment. bit. you PDGM your this rate seemed Is proposal it little to worried net to like I I of confident the understand, for be offset adjustment versus you guess adjustment back wash, a view? the did feel last up going about to The higher. think second. just behavior guess year? core And components a Do that of behavioral

Mark Tarr

going on am Kevin. that April in to to ask I weigh

April Anthony

Yes.

assumed be if has of times, if the we one to Medicare secondary coding will the primary a Kevin, recall industry than do to would is fully is will the that there you that So adjustment reimbursement yield hardest that that a XXX% that. think the up experiencing realize, is with going current code higher code, is their patient code that

not guidelines. behavior, that we feel on last that there where our actually going situations are will able think be this looking, appropriate coding year, not will do that where following able be are think past we and had episodes a back place there good been coding research We to simply is, program based that be and and to compliant of we in

equal able percent got know absolutely We do what hard ample part choose appropriate, is a kind the it to in really co-morbid of different some a times will couple areas other, more And area issues. there courses are to that parallel if of be that code it's when and patient so, to sort the lucrative time a the is it. running have you justification that of who of believe when they because and there is we than one are is

anticipate look trying we that that But appropriate. where is patient-by-patient of of and So it's the will not find those matter on situations be basis a do to a time. XXX% it certainly clinically

little is As that that one adjustment, bit also to relates it we a think suspect. the LUPA

We be certainly assumed. care add two think the to has you either us redistribute that you the LUPAs or one would you visits to degree again, it increase able or and where potentially seems the are two within perhaps Medicare be care periods to can to enough there will offset that occasions XX-day away visits unlikely

you averaging LUPA, just needs not to you at the go I is lower if the frankly, we that realize we industry the X%-X% LUPA was look where where you back that old fifth the those some have super in able think still that opportunities. had are world, all and easy and always practice than and to And historic to is think visit get there do patients had others be going reality to

be should a we in data, of obviously able easier. think think will that and one come it's little be are that hard I to you co-morbidity pretty adjustments It's collecting But predict. success in mitigate The whether LUPA realm to really job should so I do or of that of will to be where not just the co-morbidity adjustment, is the bit be most able we that if proposed, good and behavior the a change realize, small. it coding as will

such time it's not to absolutely think the clinically range, XX% to percentage if to believe to the time will that. be is Because XXX% of will just But a XX% we be realize find say I situation, where appropriate I do I what had it a it to probably would of that, guess I in But it's we able patient-specific that. situation.

Kevin Fischbeck

seems smoothly? this guess the that something other is there problem know Is there will assuming you this. with, of are just done time? a ever can that is be changes government comfortable I have are you and you agencies? you at to had company Is you be obviously to anything are CMS happen not agencies Or you that for? do from that get doesn't need to there congressional really that is doing can and and look should likely obviously will looking XXX% more any that Or do the you I anything theoretically industry could looking a this and I that that know, regulatory for have ensure think, that

April Anthony

coding not understand of the to we going guidelines, give free any code. do pass, is coding believe us rules to are that there regulators we just the As that any disregard say always the and up

process blind be we there, expect the And absent anything see defend that you you turn auditors going because that made we told our eye it's you have do. and audit going the pass, to so to to choices when don't you really this, that are free have that we to says just a to and do

stand to come later decision, we that look to at defend the pass coding but that don't could was when as offered and that said the have you wasn't back XXX% and free industry. I if know, today, accepted it without guidelines they to going we make technology, behavior, I I knew and being that got have question, an I I of that happen time If see

code. going completely we think just, are assume the know, so unrealistic to do that you follow compliant, and up that are that is And disregard, rules long-standing it we to automatically like honorable agencies coding practices

who that to doing we for we will those one there Unfortunately, going fact spite choices, of not may do that, are of but is those be agencies be and penalized this that. benefit wrong some that make agencies rule in so the really dishonorable

Mark Tarr

dialogue want said, does with up team of clarify on matter that just statements. up CMS out add not and we change point. That today. on, doing we CMS, I Or April a have recommended expect there doesn't to fact come is are as of this to that to what giving But their she mean they Kevin, have having members

there, and bipartisan one and bills and proposed help gaining I made we shot Congress there house with there year the what talked out and been going by Senate have feel the understand impact about to momentum our the one momentum legislative have to my in perhaps the good front significant be in In two it and patients to are comments, understand, changes the that this of having may that has the best would to how members about end.

Operator

John question comes line Ransom next Your with Raymond from James. of

John Ransom

it's I dangerous Doug, math. when morning. attempt Good always

So going we I'm making. and mistakes are you tell all going to me attempt to math the are some

$XXX through million is XXX if of math revenue, would million revenues, historically a ADC if $XX we day, the just little million of we And low be they so about hospice the about rest about growth bit million once and one correctly? this a transition said thinking could this get the and thinking you that of in margin, $XX not at Alacare, and or health. hospice are So to be think maybe $XXX home do contribution, $XX of a teens, we XXs EBITDA north about high

Doug Coltharp

in are within I not is the But range transition, it think far the you rate off. through words today. at it's that not of used the is it The expectations to future. run once business key are the we certainly gets have

John Ransom

half rate And if that contribution. about for we maybe back like or the think half, that something run the so

or million like So half a something the contribution that back in annualized, a year? $X million the like dollar of $XX maybe

Doug Coltharp

very adopts sure a business coding of the No. optimization. that caregiver integrate deliberate and and to all a time that A, And series Well, acquisition an successful through to undertake acquired our through practices processes and to of marketing sales was that to now. again, we business bad business from we make run right we what make have any not B, I it's besides said previously rate very

are Alacare, impact and takes takes we over, it the that six that in business get which months. it we the months, will next and in about And good case with a from and within to think contribution time moved good some expenses EBITDA X case, a dealing

John Ransom

to million just do. was instead million, million what mean, would $XX I it run $X think so assume rate of from not be it $XX the haircut I I clear, trying a could to

million you talked $XX in million back So a $XX half the $X I versus will the run about. assume rate million be

full had kind really surprisingly trying April be glass they PDGM, year you other budged, figure is a question know, I at it the hostile, to bang appears are on So CMS haven't out. We has take even remaining would and industry half to That a My though, guess. away is fairly of CMS for

of have half a But an this health. little bit seen have of announcement the is what you and there prices at past there hasn't of and full guys versus but the years? did saw least the some at say, couple pick of break chance bargain We up the kind ton morning nots have over in really to maybe this well, they [indiscernible], of been be the have glass home take, we M&A will they not, a a out relatively Alacare, dam will

April Anthony

that contributor came X% out be and the I XXXX. to definitely proposal in rule, acquisition in see think proposed think that But it. I going some I as John, are that we to much PDGM particular, wraps opportunity July anything, as in down new to and XXXX, think XX% will XXXX in the in a drop to

to a many meet. lower amount, going cash make That once are to is sub current their really for catalyst find wraps to get flow real going flow flow live to decline when a I they in see the they XX% really from of that cash XXX-patient be XX% off that level XX% agencies the struggling the call themselves in smaller, new level, them, think wrap it of these ends a payment

I think small in a of XXXX as purchase. I period from is health to XXXX And of like the think result, to going that. fallout these there be available industry, saw a lot home we and become I some think will agencies And the to

- struggle are that opportunities I with philosophy have cash some they PPS be IPS consistent during we with those markets, in if And a this combine the in going particular, is PDGM think wrap to struggle this push happen and opportunity a saw how financial to change going it era. very flow with cost you and will effective then the

where sure of that of to the going to to find scale want that are and be definitely up So find opportunities a likely that flow development next a out, we health more in call we engine acquisition perspective. they significant cash do going you for watch are cost hit the moments cuing as were year are really play trying to home space a the think smaller, first deals to because those less you are we make but year we in PDGM may from efficient some our for so agencies and distress large

Operator

from the of comes Craig-Hallum. line question Kevin Ellich next The with

Kevin Ellich

calls of help going pass? lasting legislation on again, you could just get Hey, guys. the here wondering and that what I'm sorry. pull That I there, long could and to is kind might know, most in bipartisan be of legislation and do if out Other is discuss, crystal ball on little likely but a sort what we attached know it of with PDGM terms bill think you out I timing could guess us you think the when visibility the you your

Mark Tarr

that will and that there that year. week's could came opportunities, caused we think the [indiscernible] number out those to, of will opportunities know the that exactly apprise that discussion which opportunities proposal be it we we think don't we some be will given and Well, a particularly himself, think at last budget the the with end attached there be bill be of will

Doug Coltharp

of that than rather recently, process done bill been the get most raise. the going with minute to it to deal think kind be hail I last out attached we later. something a budget be Mary may I or to think Had the extender debt probably was sooner a is here not budget some appropriations opportunities for week, felt starts There it deal there Yes. last some ceiling came as to

for to opportunities now, in the happen there increased if that So are earlier anything, process.

Mark Tarr

you your as crystal out But get ball. said,

have but Congress. are that show will are the with we from associations. we and just that with active that, as work continue the attention gotten we months momentum I we only in there, six we happy gotten very also of trade not a members to So very want the are to we company, you have past And the

think built couple month. has momentum we of last the that over that So

Kevin Ellich

guys. Sounds good. Thanks,

Operator

no With to Crissy closing audio would Carlisle questions, back like for the now call hand I to remarks. further

Crissy Carlisle

me call please additional If at anyone you joining for again has Thank today’s questions, call. XXX-XXX-XXXX.

Operator

ask today's lines. your conclude does disconnect you your conference and thank please participation This that call. We you for

Crissy Carlisle	Chief Investor Relations Officer
Mark Tarr	President and Chief Executive Officer
Doug Coltharp	Chief Financial Officer
Barb Jacobsmeyer	President, Inpatient Rehabilitation Hospital
Patrick Darby	General Counsel and Corporate Secretary
Andy Price	Chief Accounting Officer
April Anthony	Chief Executive Officer of our Home Health and Hospice
Julie Duck	Senior Vice President of Financial Operations
Ed Fay	Treasurer
Whit Mayo	UBS
Matt Larew	William Blair
Matthew Gillmor	Robert Baird
Brian Tanquilut	Jefferies
Sarah James	Piper Jaffray
Frank Morgan	RBC Capital Markets
Kevin Fischbeck	Bank of America
John Ransom	Raymond James & Associates
Kevin Ellich	Craig Hallum

Encompass Health (EHC) 30 Jul 192019 Q2 Earnings call transcript