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AMEDISYS INC – 10-K – 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 2021, 2020 and 2019. 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." For a discussion of a comparison of the years endedDecember 31, 2020 andDecember 31, 2019 , please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , filed with theSecurities and Exchange Commission onFebruary 25, 2021 .
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%, 75% and 74% of our revenue derived from Medicare for 2021, 2020 and 2019, respectively. Our operations involve servicing patients through our four reportable business segments: home health, hospice, personal care and high acuity 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. Our high acuity care segment, which was established with the acquisition ofContessa Health ("Contessa") onAugust 1, 2021 , delivers the essential elements of inpatient hospital and skilled nursing facility ("SNF") care to patients in their homes. As ofDecember 31, 2021 , we owned and operated 331 Medicare-certified home health care centers, 175 Medicare-certified hospice care centers, 14 personal-care care centers and 8 high acuity care joint ventures in 38 states withinthe United States and theDistrict of Columbia .
Care Centers Summary (
Home Health Hospice Personal Care High Acuity Care
At December 31, 2018 323 84 12 -
Acquisitions/Expansions/Denovos 3 59 - -
Closed/Consolidated (5) (5) - -
At December 31, 2019 321 138 12 -
Acquisitions/Expansions/Denovos 4 54 2 -
Closed/Consolidated (5) (12) - -
At December 31, 2020 320 180 14 -
Acquisitions/Expansions/Denovos 11 1 - 8
Closed/Consolidated - (6) - -
At December 31, 2021 331 175 14 8
2021 Developments
•Maintained the highest Quality of
industry of 4.33 stars with 95% of our care centers at 4+ Stars.
•Outperformed the industry on all Hospice Item Set ("HIS") measures while
preparing for the Hospice Care Index measures.
•Launched a formal Environmental, Social and Governance ("ESG") program with
oversight from the Board of Directors.
•Performed 11.5 million visits.
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•Expanded our usage and relationship with Medalogix, a predictive data and
analytics company, helping to further optimize our current business and
positioning us to work more closely with Medicare Advantage payors.
•Meaningfully differentiated our service offering via the acquisition of
Contessa, a tech enabled, risk taking, high acuity in-home care asset.
•Acquired/opened 11 home health care centers and 1 hospice care center.
•Innovated on how we engage and recruit clinicians via our investment in
ConnectRN.
•Increased operating income 15%.
2022 Strategy
•Further advance our industry leading Quality of
home health.
•Drive best-in-class hospice quality as measured by the Hospice Care Index.
•Continue to better the communities and patients we serve by further
incorporating Environmental, Social and Governance practices into our business
operations.
•Advance our culture and sense of belonging through diversity and inclusion
initiatives.
•Build a learning culture through world class leadership development.
•Reduce turnover in all roles, especially focused on critical clinician
positions.
•Engage our clinical staff and drive additional productivity with new
opportunities and ways to work via our ConnectRN investment and other workforce
optimization initiatives.
•Further expand our analytics capabilities internally and through our Medalogix
investment.
•Consistently grow all lines of business.
•Pursue consolidations in the home health and hospice industries via a
regional-based acquisition strategy.
•Execute new hospital at home joint venture agreements and expand Contessa's service offering into new lines of business such as palliative care at home and primary care at home. Financial Performance
Results for the year ended
COVID-19 and a full year of the suspension of sequestration (as compared to
eight months in 2020). On a consolidated basis, we increased operating income
acquisition reduced operating income by
Our home health care centers experienced growth in volumes and improvement in utilization and clinician mix which, combined with rate increases and a full year of sequestration relief, led to the segment delivering a$47 million increase in operating income. Our hospice segment experienced a 4% decline in our same store average daily census, which is the main driver of hospice revenue, primarily due to a decline in our length of stay due to a delay in the timing of patients coming onto service and an increase in the discharge rate of our patients.
Our personal care segment continued to be impacted by COVID-19 and staffing
shortages during 2021.
Our high acuity care segment expanded its joint venture footprint and made significant investments to build the clinical, operational and technological infrastructure necessary to support the development and future growth of home recovery care programs on a national scale.
Economic and Industry Factors
Our home health, hospice, and personal care segments operate in 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, 74% and 29% of our home health and
hospice care centers, respectively, operate in CON/POA states.
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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.
Wages and other expenses increase during periods of inflation and when labor
shortages occur in the marketplace. The impact of inflation on the Company is
primarily in the area of labor costs. The healthcare industry is labor
intensive. We have experienced, and expect to continue to experience, increases
in wage costs. In addition, increases in healthcare costs are typically higher
than inflation and impact our costs under our employee benefit plans.
CMS Payment Updates
Hospice
OnJuly 29, 2021 , CMS issued the final rule to update hospice payment rates and the wage index for fiscal year 2022, effective for services provided beginningOctober 1, 2021 . CMS estimates hospices serving Medicare beneficiaries will see a 2.0% increase in payments. This increase is the result of a 2.7% market basket adjustment as required under PPACA less a 0.7% productivity adjustment. Additionally, CMS increased the aggregate cap amount by 2.0% to$31,298 . The final rule also rebases the labor shares for all four levels of care, includes updates to the hospice conditions of participation ("COPs"), which make permanent certain flexibilities allowed during the COVID-19 public health emergency, and finalizes changes to the Hospice Quality Reporting Program. Based on our analysis of the final rule, we expect our impact to be in line with the 2.0% increase.Home Health OnNovember 2, 2021 , CMS issued the Home Health Final Rule for Medicare home health providers for calendar year 2022. CMS estimates that the final rule will result in a 3.2% increase in payments to home health providers. This increase is the result of a 2.6% payment update (3.1% market basket adjustment less a 0.5% productivity adjustment) plus a 0.7% fixed-dollar loss ratio adjustment, reduced by 0.1% for the rural add-on. Based on our analysis of the final rule, we expect our impact to be in line with the 3.2% increase. The final rule also provides for the expansion of the Home Health Value-Based Purchasing ("HHVBP") model to all 50 states beginningJanuary 1, 2023 with calendar year 2023 being the first performance year and calendar year 2025 being the first payment year with a proposed maximum payment adjustment, up or down, of 5%. The following payment adjustments are effective for each of the years indicated based on CMS's final rules: Home Health Hospice 2022 2021 2020 2022 (1) 2021 2020 Market Basket Update 3.1 % 2.0 % 1.5 % 2.7 % 2.4 % 3.0 % Rural Add-On Adjustment (0.1) (0.1) (0.2) - - - Productivity Adjustment (0.5) - - (0.7) - (0.4) Behavioral Assumptions - - (4.4) - - - Fixed-Dollar Loss Ratio Adjustment 0.7 - - - - - Estimated Industry Impact 3.2 % 1.9 % (3.1 %) 2.0 % 2.4 % 2.6 % Estimated Company-Specific Impact (2) 3.2 % 1.9 % (2.8 %)
2.0 % 2.4 % 0.5 %
(1)Effective for services provided fromOctober 1, 2021 toSeptember 30, 2022 . (2)Our company-specific impact of the home health final rule could differ depending on differences in the wage index, our patient case mix and other factors, such as LUPAs or outliers, which are described in more detail under Critical Accounting Estimates below. Our company-specific impact of the hospice final rule could differ based on our mix of patients and differences in the wage index. Sequestration InMarch 2020 , the bipartisan Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") provided for the suspension of the automatic 2% reduction of Medicare claim reimbursements ("sequestration") for the periodMay 1, 2020 throughDecember 31, 2020 . The impact was an increase to our 2020 net service revenue of approximately$23 million . InDecember 2020 ,Congress passed additional COVID-19 relief legislation as part of the Consolidated Appropriations Act, 2021. This legislation extended the suspension of sequestration throughMarch 31, 2021 . InApril 2021 ,Congress passed H.R. 1868, which among other items, provided for an additional extension of the temporary suspension of sequestration throughDecember 31, 2021 . The impact was an increase to our 2021 net service revenue of approximately$36 million . InDecember 2021 ,Congress 37 -------------------------------------------------------------------------------- passed the Protecting Medicare and American Farmers from Sequester Cuts Act. This legislation extended the 2% suspension of sequestration throughMarch 31, 2022 ; sequestration will be reinstated as a 1% reduction to Medicare claim reimbursements for the periodApril 1, 2022 throughJune 30, 2022 and 2% thereafter.
Novel Coronavirus Pandemic ("COVID-19")
Our operations and financial performance continue to be impacted by COVID-19. The financial impacts of COVID-19 during the years endedDecember 31, 2021 and 2020 are discussed in further detail under "Results of Operations" below. While we currently believe that we have a reasonable view of operations, the uncertainty created by COVID-19 could alter our outlook of the pandemic's impact on our consolidated financial condition, results of operations or cash flows. The following factors could potentially impact our performance: the increase or decrease in the number of COVID-19 cases nationwide, the severity and impacts of new variants of the virus, uncertainty regarding vaccine utilization rates and efficacy, staffing shortages due to clinician quarantines as well as federal, state and local vaccine mandates, the return of patient confidence to enter a hospital or a doctor's office, the utilization of elective procedures, the ability to have access to our patients in their homes and in facilities, supply chain disruption and our ability to find suitable alternative products at reasonable prices, cost normalization around personal protective equipment ("PPE") and any future or prolonged shelter-in-place orders and other federal, state and local requirements. Potential impacts of COVID-19 on our results include lower revenue; higher salary and wage expense related to quarantine pay, contract clinicians, wage inflation and training; and increased supply costs related to supply chain constraints, PPE and COVID-19 testing. The impacts to net service revenue may consist of the following:
•lower volumes due to interruption of the operations of our referral sources,
patients' unwillingness to accept services and restrictions on access to
facilities for hospice services;
•lower reimbursement due to missed visits resulting in an increase in low
utilization payment adjustments ("LUPAs") and lost billing periods; and
•lower hospice average daily census due to a decline in average length of stay.
On
provided for the following:
•$175 billion to healthcare providers, including hospitals on the front lines of the COVID-19 pandemic. Of this total allocated amount,$30 billion was distributed immediately to providers based on their proportionate share of Medicare fee-for-service reimbursements in 2019. Healthcare providers were required to sign an attestation confirming receipt of theProvider Relief Fund ("PRF") funds and agree to the terms and conditions of payment. Our home health and hospice segments received approximately$100 million from the first$30 billion of funds distributed to healthcare providers inApril 2020 , which is inclusive of$2 million related to our joint venture care centers (equity method investments). We also acquired approximately$6 million of PRF funds in connection with the acquisition of AseraCare. Under the terms and conditions for receipt of the payment, we were allowed to use the funds to cover lost revenues and health care costs related to COVID-19 throughJune 30, 2021 , and we were required to properly and fully document the use of these funds in reports to theU.S. Department of Health and Human Services ("HHS"). All required reporting was completed during the three-month period endedSeptember 30, 2021 . For our wholly-owned subsidiaries, we only utilized PRF funds to the extent we had qualifying COVID-19 expenses; we did not use PRF funds to cover lost revenues resulting from COVID-19. The grant income associated with the COVID-19 expenses incurred is reflected in other operating income within our consolidated statements of operations. •The temporary suspension of the automatic 2% reduction of Medicare claim reimbursements ("sequestration") for the periodMay 1, 2020 throughDecember 31, 2020 . See CMS Payment Updates above for details on extensions beyondDecember 31, 2020 . •The deferral of the employer share of social security tax (6.2%), effective for payments due after the enactment date throughDecember 31, 2020 . During 2020, we deferred approximately$55 million of social security tax. Approximately$27 million was paid duringDecember 2021 ; the remaining balance is due onDecember 31, 2022 and is reflected in payroll and employee benefits within our consolidated balance sheet.
•The temporary suspension of Medicare patient coverage criteria and
documentation and care requirements and the expansion of providing home health
and hospice care to patients via telehealth.
•The ability for non-physician practitioners to certify for home health, order
home health services, establish and review plans of care and certify and
recertify eligibility.
Our personal care segment did not receive funds under the CARES Act; however, it
did receive funds totaling
Provider Sustainability Program, which were used during 2020 to cover costs
related to
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COVID-19. The grant income associated with the COVID-19 expenses incurred is
reflected in other operating income within our consolidated statements of
operations.
The well-being of our employees has been one of our top priorities during this pandemic. We have taken the following steps to support our employees: implemented paid leave during required quarantine periods; awarded bonuses to our clinicians and caregivers who have seen patients during the pandemic; completed an early cash pay-out of employee paid-time-off; instituted work-from-home arrangements for our corporate and administrative support employees; allowed employees to temporarily suspend any 401(k) plan loan deductions and offered employees the option of making a withdrawal from their 401(k) plan for coronavirus-related distributions without incurring the additional 10% early withdrawal penalty; expanded access to telehealth services to all employees; provided access to COVID-19 self-test kits to all employees and created aCOVID-19 Resource Center , available 24 hours a day, seven days a week for employees to access educational materials, safety documents, policies, clinical protocols and operational metrics. The safety of our clinicians and patients has also been a focus, and as a result, we have made the following business changes: developed clinical protocols for COVID-19 testing, proper usage of PPE, caring for COVID-positive patients and maintaining safety measures in our care centers; researched each state's vaccination plan to develop a state by state protocol to work with local health departments and other health systems to obtain vaccine appointments for our clinical staff; implemented software enabling us to track staff that have been vaccinated; procured PPE and created a centralized distribution center for all critical PPE, allowing us to flex our supplies on a care center by care center basis, based on need and demand.
Network Developments
InAugust 2020 , we signed a Care Coordination Agreement withBrightStar Care to add its agencies to theAmedisys personal care network, which helps facilitate the coordination of care between our home health and hospice care centers and a network of personal care partners. InJuly 2019 , we signed an agreement withClearCare, Inc. ("ClearCare"), the provider of the personal care industry's leading software platform, representing 4,000 personal care agencies in every zip code inthe United States . Our agreement withClearCare creates an opportunity to establish a network partnership betweenAmedisys and personal care agencies usingClearCare in order to better coordinate patient care. Long term, we believe these agreements will allow us to build a nation-wide network of personal care agencies and further our efforts to provide patients with a true care continuum in the home. These relationships will also help us as we continue to have innovative payment conversations with Medicare Advantage plans who have begun to recognize the value that combined home health, hospice, personal care and high acuity care services bring to their members and care delivery infrastructure.
Governmental Inquiries and Investigations and Other Litigation
See Item 8, Note 11 - Commitments and Contingencies to our consolidated
financial statements for a discussion of and updates regarding legal proceedings
and investigations we are involved in. No assurances can be given as to the
timing or outcome of these items.
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Results of Operations
Consolidated
The following table summarizes our consolidated results of operations (amounts
in millions):
For the Years Ended December 31,
2021 2020 2019
Net service revenue $ 2,214.1 $ 2,071.5 $ 1,955.6
Other operating income 13.3 34.4 -
Cost of service, excluding depreciation and
amortization 1,233.4 1,185.4 1,150.3
Gross margin, excluding depreciation and
amortization 994.0 920.5 805.3
% of net service revenue 44.9 % 44.4 % 41.2 %
Other operating expenses 711.2 668.2 607.9
% of net service revenue 32.1 % 32.3 % 31.1 %
Depreciation and amortization 30.9 28.8 18.4
Asset impairment charge - 4.2 1.5
Operating income 251.9 219.3 177.5
Total other income (expense), net 28.3 (8.4) (7.1)
Income tax expense (70.1) (25.6) (42.5)
Effective income tax rate 25.0 % 12.2 % 24.9 %
Net income 210.2 185.2 127.9
Net income attributable to noncontrolling interests (1.1) (1.6) (1.1)
Net income attributable to Amedisys, Inc. $ 209.1 $
183.6
Year Ended
On a consolidated basis, our operating income increased approximately$33 million on a net service revenue increase of$143 million . These results were impacted by the acquisition of Contessa onAugust 1, 2021 , which contributed$4 million in revenue and an operating loss of$10 million , which is inclusive of$1 million of amortization associated with our technology intangible asset. The year-over-year increases in operating income and net service revenue are primarily related to the impact of COVID-19 on prior year's results, the acquisition of AseraCare onJune 1, 2020 , rate increases, the suspension of sequestration effectiveMay 1, 2020 , improvements in clinician utilization and discipline mix, higher severance incurred in prior year related to reductions in staffing primarily within our home health segment and the closure of our hospiceU.S. Department of Justice ("DOJ") matters (see Item 8, Note 11 - Commitments and Contingencies to our consolidated financial statements for additional information). Partially offsetting these items, we experienced a decline in our same store hospice average daily census, which is the main driver of hospice revenue, a decrease in other operating income due to the expiration of the CARES Act PRF funds, an increase in our cost of service resulting from increases in both our home health cost per visit and hospice cost of service per day and an increase in our other operating expenses. Our AseraCare acquisition, which closed onJune 1, 2020 , includes a full year of acquired operations in the current year compared to seven months in the prior year. For the year endedDecember 31, 2021 , AseraCare contributed$103 million in revenue and operating income of$2 million , which is inclusive of$1 million in acquisition and integration costs and$8 million in intangibles amortization. For the year endedDecember 31, 2020 , AseraCare contributed$64 million in revenue and an operating loss of$8 million , which is inclusive of$8 million in acquisition and integration costs and$6 million in intangibles amortization. As noted above, we received CARES Act PRF funds and Mass Home Care ASAP COVID-19 Provider Sustainability Program funds, which were used to cover COVID-19 expenses. We recorded income related to both of these programs, totaling$13 million and$34 million , to other operating income within our consolidated statements of operations during the years endedDecember 31, 2021 and 2020, respectively. Due to the expiration of the CARES Act PRF funds onJune 30, 2021 , we were not able to recognize any operating income during the six-month period endedDecember 31, 2021 to offset the$8 million of COVID-19 costs incurred during this period. Our operating results reflect an increase in our other operating expenses compared to prior year. Our 2021 other operating expenses include five months of the acquired operations of Contessa and a full year of the acquired operations of AseraCare compared to seven months in the prior year, both of which have resulted in a year over year increase totaling$15 million . 40 -------------------------------------------------------------------------------- Excluding the Contessa and AseraCare acquisitions, our other operating expenses increased 4% due to the addition of resources to support growth, planned wage increases, higher health insurance costs, investments related to PDGM, higher recruiting costs, increased costs associated with insurance and legal settlements, increased information technology fees, higher travel and training spend and higher acquisition and integration costs partially offset by lower incentive compensation costs, lower employer payroll taxes associated with employee stock option exercises, lower costs directly attributable to COVID-19 and higher gains on the sale of fleet vehicles. Total other income (expense), net includes the following items (amounts in millions): For the Years Ended December 31, 2021 2020 Interest income $ -$ 0.3 Interest expense (9.5) (11.0) Equity in earnings from equity method investments 4.9
4.0
Gain (loss) on equity method investments 31.1
(3.0)
Miscellaneous, net 1.8
1.3
Total other income (expense), net$ 28.3
Interest expense decreased$2 million year over year as a result of a decrease in outstanding borrowings under our revolving credit facility under our Second Amended Credit Agreement (see Item 8, Note 8 - Long-Term Obligations to our consolidated financial statements for additional information regarding our Second Amended Credit Agreement). Gain (loss) on equity method investments includes a$31 million gain in 2021 related to our investment in Medalogix and a$3 million loss in 2020 from the sale of our investment in theHeritage Healthcare Innovation Fund, LP (see Item 8, Note 1 - Nature of Operations, Consolidation and Presentation of Financial Statements to our consolidated financial statements for additional information). Our 2020 effective income tax rate was impacted by a$24.0 million income tax benefit recorded in connection with a stock option exercise byPaul B. Kusserow , Chief Executive Officer and Chairman of the Board ofAmedisys (see Item 8, Note 9 - Income Taxes to our consolidated financial statements for additional information). 41
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Home Health Segment
The following table summarizes our home health segment results of operations:
For the Years Ended December 31,
2021 2020 2019
Financial Information (in millions):
Medicare $ 914.5 $ 847.3 $ 859.2
Non-Medicare 439.3 401.9 397.2
Net service revenue 1,353.8 1,249.2 1,256.4
Other operating income 7.3 20.2 -
Cost of service 756.6 729.9 754.1
Gross margin 604.5 539.5 502.3
Depreciation and amortization 4.3 3.9 4.2
Asset impairment charge - 3.4 1.5
Other operating expenses 328.5 307.2 297.2
Operating income $ 271.7 $ 225.0 $ 199.4
Same Store Growth (1):
Medicare revenue 8 % (1 %) 4 %
Non-Medicare revenue 9 % 1 % 16 %
Total admissions 6 % 1 % 7 %
Total volume (2)(6) 5 % 2 % 5 %
Key Statistical Data - Total (3):
Admissions 353,075 331,354 328,693
Recertifications (6) 183,134 177,631 171,421
Total volume (6) 536,209 508,985 500,114
Medicare completed episodes 311,531 301,856 306,520
Average Medicare revenue per completed episode (4) $ 2,959 $ 2,836 $ 2,853
Medicare visits per completed episode (5) 13.9 14.9 17.0
Visiting Clinician Cost per Visit $ 93.44 $ 89.62 $ 83.11
Clinical Manager Cost per Visit $ 9.75 $ 9.17 $ 8.04
Total Cost per Visit $ 103.19 $ 98.79 $ 91.15
Visits 7,331,935 7,388,549 8,273,308
(1)Same store information represents the percent change in our Medicare,
Non-Medicare and Total revenue, admissions or volume for the period as a percent
of the Medicare, Non-Medicare and Total revenue, admissions or volume of the
prior period. Effective July 1, 2019 , same store is defined as care centers that
we have operated for at least the last twelve months and startups that are an
expansion of a same store care center.
(2)Total volume includes all admissions and recertifications.
(3)Total includes acquisitions, start-ups and denovos.
(4)Average Medicare revenue per completed episode is the average Medicare
revenue earned for each Medicare completed episode of care. Average Medicare
revenue per completed episode for the years ended December 31, 2021 and 2020
reflects the transition to PDGM effective January 1, 2020 and the suspension of
sequestration effective May 1, 2020 .
(5)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.
(6)Prior year amounts have been recast to conform to the current year
calculation.
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Year Ended
Operating Results
Overall, our operating income increased$47 million on a$105 million increase in net service revenue. The year over year increases are primarily related to total volume growth, an increase in our Medicare revenue per episode, higher severance incurred in prior year related to reductions in staffing and significant improvement in our operating performance driven by improvements in our clinician utilization and discipline mix, both of which have contributed to year over year gross margin expansion. These items were partially offset by an increase in our total cost per visit, a decrease in other operating income due to the expiration of the CARES Act PRF funds and an increase in our other operating expenses.
Net Service Revenue
Our net service revenue increased$105 million (8%) on a 5% increase in total volume and a 4% increase in Medicare revenue per episode. The volume growth was driven by a 6% increase in same store admissions and a 3% increase in recertification volume. Our admissions were significantly impacted by COVID-19 in the second quarter of the prior year. The increase in Medicare revenue per episode is the result of a 1.9% increase in reimbursement, a full year of the 2.0% benefit related to the suspension of sequestration (effectiveMay 1, 2020 ), an increase in the functional impairment of our patients and a change in the source/timing and geographic dispersion of our patients.
Other Operating Income
Other operating income consists of the recognition of funds received from the CARES Act PRF, which were available for use throughJune 30, 2021 . For our wholly-owned subsidiaries, we utilized the funds to cover COVID-19 related costs only and recognized income related to these costs totaling$7 million and$20 million during the years endedDecember 31, 2021 and 2020, respectively. We incurred COVID-19 related costs totaling$6 million during the six-month period endedDecember 31, 2021 ; however, we were not able to recognize any income to offset these costs due to the expiration of the CARES Act PRF funds onJune 30, 2021 . The COVID-19 costs were associated with the purchase of PPE, bonuses paid to our clinicians, premiums paid to contract clinicians in COVID-19 high demand areas, clinician training, quarantine pay and COVID-19 testing. The COVID-19 costs incurred during the year endedDecember 31, 2021 totaling$13 million have been recorded to cost of service within our consolidated statements of operations. Of the$20 million of COVID-19 costs incurred in the prior year,$19 million was recorded to cost of service and$1 million was recorded to other operating expenses within our consolidated statements of operations.
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 total cost of service increased 4% primarily due to a 4% increase in our total cost per visit. Our total visits declined year over year despite a 5% increase in total volume primarily due to improvements in clinician utilization, as evidenced by a decline of 1.0 visits per completed episode year over year. The 4% increase in our total cost per visit is due to planned wage increases, higher costs associated with the utilization of contractors to supplement our staffing levels, increases in new hire pay, wage inflation, inclement weather pay and higher health insurance costs partially offset by a decrease in COVID-19 costs and higher severance incurred in prior year in connection with a reduction in staffing.
Other Operating Expenses
Other operating expenses increased approximately$21 million primarily due to planned wage increases, the addition of resources to support volume growth, higher health insurance costs, higher recruiting fees, investments related to PDGM and increased costs associated with insurance and legal settlements. These increases were partially offset by lower incentive compensation costs and lower costs directly attributable to COVID-19 in the current year. 43 --------------------------------------------------------------------------------
Hospice Segment
The following table summarizes our hospice segment results of operations:
For the Years Ended December
31,
2021 2020
2019
Financial Information (in millions): Medicare$ 750.1 $ 710.0 $ 586.6 Non-Medicare 41.7 40.1 30.6 Net service revenue 791.8 750.1 617.2 Other operating income 6.0 13.1 - Cost of service 425.2 400.6 335.1 Gross margin 372.6 362.6 282.1 Depreciation and amortization 2.7 2.2 1.6 Asset impairment - 0.8 - Other operating expenses 198.4 175.4 137.5 Operating income$ 171.5 $ 184.2 $ 143.0 Same Store Growth (1): Medicare revenue - % 4 % 7 % Hospice admissions 2 % 6 % 4 % Average daily census (4 %) 1 % 7 % Key Statistical Data - Total (2): Hospice admissions 53,507 49,694 40,194 Average daily census 13,271 13,081 11,164 Revenue per day, net$ 163.47 $ 156.69 $ 151.47 Cost of service per day$ 87.77 $ 83.67 $ 82.24 Average discharge length of stay 94 99
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(1)Same store information represents the percent change in our Medicare revenue, Hospice admissions or average daily census for the period as a percent of the Medicare revenue, Hospice admissions or average daily census of the prior period. EffectiveJuly 1, 2019 , same store is defined as care centers that we have operated for at least the last twelve months and startups that are an expansion of a same store care center. (2)Total includes acquisitions and denovos.
Year Ended
Operating Results
Our operating results for the year endedDecember 31, 2021 include the acquisition of AseraCare onJune 1, 2020 (44 hospice care centers). Acquisitions are included in our consolidated financial statements from their respective acquisition dates. As a result, our hospice segment operating results for 2021 and 2020 are not fully comparable. Overall, our operating income decreased$13 million on a$42 million increase in net service revenue. The year over year decrease in operating income is primarily due to a decline in our same store average daily census, an increase in our cost of service per day, a decrease in other operating income due to the expiration of the CARES Act PRF funds and an increase in our other operating expenses. These items were partially offset by changes in reimbursement, the suspension of sequestration effectiveMay 1, 2020 , the acquisition of AseraCare which resulted in increases to net service revenue and operating income totaling$38 million and$5 million , respectively, and the reversal of a$7 million accrual previously recorded in connection with settlement discussions with the DOJ; we received notice during the second quarter of 2021 that the DOJ has closed its investigation (see Item 8, Note 11 - Commitments and Contingencies to our consolidated financial statements for additional information). 44 --------------------------------------------------------------------------------
Net Service Revenue
Our net service revenue increased$42 million . Our results include a full year of the acquired operations of AseraCare in the current year compared to seven months in the prior year which resulted in an increase to net service revenue of$38 million . Additionally, revenue was positively impacted by the 2.4% increase in reimbursement effectiveOctober 1, 2020 ($12 million ), the 2.0% increase in reimbursement effectiveOctober 1, 2021 ($3 million ), the suspension of sequestration effectiveMay 1, 2020 ($4 million year over year increase) and the reversal of a$7 million accrual as mentioned above. These items were partially offset by a 4% decline in our same store average daily census, which is the main driver of hospice revenue. Our same store average daily census was down year over year primarily due to a decline in our length of stay resulting from a delay in the timing of patients coming onto service and an increase in the discharge rate of our patients.
Other Operating Income
Other operating income consists of the recognition of funds received from the CARES Act PRF which were available for use throughJune 30, 2021 . For our wholly-owned subsidiaries, we utilized the funds to cover COVID-19 related costs only and recognized income related to these costs totaling$6 million and$13 million during the years endedDecember 31, 2021 and 2020, respectively. We incurred COVID-19 related costs totaling$2 million during the six-month period endedDecember 31, 2021 ; however, we were not able to recognize any income to offset these costs due to the expiration of the CARES Act PRF funds onJune 30, 2021 . The COVID-19 costs were associated with the purchase of PPE, bonuses paid to our clinicians, clinician training, quarantine pay and COVID-19 testing. The COVID-19 costs incurred during the year endedDecember 31, 2021 totaling$8 million have been recorded to cost of service within our consolidated statements of operations. Of the$13 million of COVID-19 costs incurred in the prior year,$12 million was recorded to cost of service and$1 million was recorded to other operating expenses within our consolidated statement of operations.
Cost of Service, Excluding Depreciation and Amortization
Our hospice cost of service increased 6%. Excluding our AseraCare acquisition, our cost of service increased 1% due to planned wage increases, higher costs associated with the utilization of contractors to supplement our staffing levels, increased costs to hire and retain employees, higher health insurance costs and an increase in visits performed by our hourly hospice aides and licensed practical nurses due to COVID-19 access restrictions being eased partially offset by a 4% decline in our same store average daily census and lower COVID-19 costs.
Other Operating Expenses
Other operating expenses increased$23 million , approximately$12 million of which is related to our AseraCare acquisition. The remaining increase is due to the addition of resources to support growth, planned wage increases, higher health insurance costs, increased costs associated with insurance and legal settlements, higher travel and training spend and higher recruiting fees partially offset by lower incentive compensation costs. 45
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Personal Care Segment
The following table summarizes our personal care segment results of operations:
For the Years Ended December 31,
2021 2020 2019
Financial Information (in millions):
Medicare $ - $ - $ -
Non-Medicare 65.0 72.2 82.0
Net service revenue 65.0 72.2 82.0
Other operating income - 1.1 -
Cost of service 49.1 54.9 61.1
Gross margin 15.9 18.4 20.9
Depreciation and amortization 0.2 0.2 0.2
Other operating expenses 11.2 12.4 12.3
Operating income $ 4.5 $ 5.8 $ 8.4
Key Statistical Data - Total:
Billable hours 2,275,511 2,730,121 3,308,338
Clients served 12,074 15,019 17,364
Shifts 974,409 1,177,586 1,488,175
Revenue per hour $ 28.54 $ 26.45 $ 24.80
Revenue per shift $ 66.66 $ 61.31 $ 55.13
Hours per shift 2.3 2.3 2.2
Year Ended
Operating income related to our personal care segment decreased$1 million on a$7 million decrease in net service revenue. The decrease in net service revenue is due to the impact of COVID-19 and staffing shortages partially offset by rate increases. The impact of COVID-19 has been partially mitigated by a reduction in cost of service as most of our personal care employees are paid on an hourly basis and a reduction in our other operating expenses. 46
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High Acuity Care Segment
The following table summarizes our high acuity care segment results of
operations:
For the Years Ended December 31,
2021 2020 2019
Financial Information (in millions):
Medicare $ - $ - $ -
Non-Medicare 3.5 - -
Net service revenue 3.5 - -
Other operating income - - -
Cost of service 2.5 - -
Gross margin 1.0 - -
Depreciation and amortization 1.3 - -
Other operating expenses 10.0 - -
Operating loss $ (10.3) $ - $ -
Key Statistical Data - Total:
Full risk admissions 107 - -
Limited risk admissions 413 - -
Total admissions 520 - -
Direct medical loss ratio 54.0 % - -
Number of joint ventures 8 - -
Market penetration 31 % - -
Patient satisfaction 97 % - -
Year Ended
Operating Results
Overall, our high acuity care segment generated revenue totaling$4 million and an operating loss of$10 million . Although we expect our high acuity care segment to continue to generate operating losses over the next year, we also expect improvement in our operating income as we leverage our operating structure through growth in current and future joint ventures and expansion into new lines of business such as palliative care at home and primary care at home.
Net Service Revenue
Our high acuity care segment provides home recovery care services for high
acuity patients on either a full risk or limited risk basis, each with different
reimbursement arrangements. Full risk admissions are admissions for which we
assume the risk for all related healthcare services during a 30-day or 60-day
episodic period in exchange for a contracted bundled rate based upon the
assigned diagnosis related group ("DRG"). Limited risk admissions are admissions
for which we assume the risk for certain healthcare services during a shorter
acute phase period (equivalent to an inpatient hospital stay) in exchange for a
contracted per diem payment.
Since August 1, 2021 , we generated net service revenue of $4 million resulting
from 107 full risk admissions and 413 limited risk admissions across our joint
ventures with health system partners. Revenue per episode was comprised of
$10,457 for full risk episodes and $5,693 for limited risk episodes. The
significant utilization of limited risk episodes was primarily due to the impact
of heavy COVID-19 surges across certain of our joint venture markets and the
resulting patient acuity which necessitated that a portion of our patients'
inpatient stays occur within the inpatient hospital facilities rather than in
the home.
Cost of Service, Excluding Depreciation and Amortization
Our cost of service consists primarily of medical costs associated with direct
clinician care provided to our patients during the applicable episode period,
whether such care was provided on the day of program admission, in the patients'
homes or via telehealth. Our cost of service was favorably impacted by the
significant utilization of limited risk episodes, which exclude certain
high-cost components of full risk episode spend such as emergency room costs and
inpatient hospitalization costs.
47
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Other Operating Expenses
Other operating expenses primarily consist of salaries and benefits. We have made significant investments to build the clinical, operational and technological infrastructure necessary to support the development and future growth of home recovery care programs on a national scale. We have employees at both the local market level and at our corporate offices, including a virtual care unit that enables us to provide monitoring services and virtual patient rounding visits via telehealth.
Corporate
The following table summarizes our corporate results of operations:
For the Years Ended
2021 2020
2019
Financial Information (in millions): Other operating expenses$ 163.1 $ 173.2 $ 160.9 Depreciation and amortization 22.4 22.5 12.4 Total operating expenses$ 185.5 $ 195.7 $ 173.3 Corporate expenses consist of costs related to our executive management and corporate 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
Corporate other operating expenses decreased approximately$10 million during the year endedDecember 31, 2021 . Other operating expenses associated with our AseraCare acquisition declined$7 million year over year primarily due to higher acquisition and integration costs incurred in the prior year. Excluding the AseraCare acquisition, corporate other operating expenses decreased$3 million year over year due to lower incentive compensation costs, lower employer payroll taxes associated with employee stock option exercises and higher gains on the sale of fleet vehicles; these items were partially offset by planned wage increases, additional functional support, higher health insurance costs, increased information technology fees and higher acquisition and integration costs related to 2021 mergers and acquisition activity.
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,
2021 2020 2019
Cash provided by operating activities $ 188.9 $ 289.0 $ 202.0
Cash used in investing activities (281.6) (287.1) (352.9)
Cash provided by (used in) financing activities 55.1 (15.0) 227.2
Net (decrease) increase in cash, cash equivalents
and restricted cash (37.6) (13.1) 76.3
Cash, cash equivalents and restricted cash at
beginning of period 83.4 96.5 20.2
Cash, cash equivalents and restricted cash at end
of period $ 45.8 $
83.4
Cash provided by operating activities for 2021, 2020 and 2019 have provided 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 our net income, the collections of our accounts receivable and the timing of payments of accrued expenses. Cash provided by operating activities decreased$100.1 million during 2021 compared to 2020 primarily due to the deferral of payroll taxes and the receipts of CARES Act PRF funds in the prior year and an increase in days revenue outstanding in the current year partially offset by an increase in operating income. Our cash used in investing activities primarily consists of the purchase of property and equipment, investments and acquisitions. Our 2020 cash flows from investing activities included proceeds from the sale of our investment in theHeritage Healthcare Innovation Fund, LP (see Item 8, Note 1 - Nature of Operations, Consolidation and Presentation of Financial 48 --------------------------------------------------------------------------------
Statements to our consolidated financial statements for additional information).
Excluding these proceeds, cash used in investing activities decreased
million
Our financing activities primarily consist of borrowings under our term loan and/or revolving credit facility, repayments of borrowings, the remittance of taxes associated with shares withheld on non-cash compensation, proceeds related to the exercise of stock options and the purchase of stock under our employee stock purchase plan and the purchase of company stock under our stock repurchase programs. Additionally, during 2020, our financing activities included the receipt of PRF funds, which we did not expect to retain, totaling$60 million . We repaid all unutilized PRF funds during 2021 (see Item 8, Note 3 - Novel Coronavirus Pandemic ("COVID-19") to our consolidated financial statements for additional information). Cash provided by financing activities totaled$55.1 million during 2021 primarily due to net borrowings under our Second Amended Credit Agreement to fund acquisitions partially offset by the repurchase of company stock and the repayment of unutilized PRF funds. Cash used in financing activities totaled$15.0 million during 2020 primarily due to net repayments of borrowings and the remittance of tax withholding obligations related to non-cash compensation and stock option exercises (see Item 8, Note 10 - Capital Stock and Share-Based Compensation to our consolidated financial statements for additional information), partially offset by the receipt of PRF funds.
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 2021, we spent
expenditures for 2022 are expected to be approximately
Additionally, during 2021, pursuant to our authorized stock repurchase program, we repurchased 446,832 shares of our common stock at a weighted average price of$223.49 per share and a total cost of approximately$100 million . The repurchased shares are classified as treasury shares.
As of
Facility.
Based on our operating forecasts and our debt service requirements, we believe we will have sufficient liquidity to fund our operations, capital requirements and debt service requirements for the next twelve months and beyond.
Outstanding Patient Accounts Receivable
Our patient accounts receivable increased$19.8 million fromDecember 31, 2020 toDecember 31, 2021 primarily due to the elimination of requests for anticipated payment ("RAPs") effectiveJanuary 1, 2021 . Our cash collection as a percentage of revenue was 104% and 106% for the twelve-month periods endedDecember 31, 2021 and 2020, respectively. Our days revenue outstanding, net atDecember 31, 2021 was 43.2 days which is an increase of 3.0 days fromDecember 31, 2020 . Our patient accounts receivable includes unbilled receivables and are aged based upon the 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. 49 --------------------------------------------------------------------------------
The following schedules detail our patient accounts receivable, by payor class,
aged based upon initial date of service (amounts in millions, except days
revenue outstanding):
0-90 91-180 181-365 Over 365 Total
At December 31, 2021 :
Medicare patient accounts receivable $ 176.7 $ 7.5 $ 1.1 $ 1.4 $ 186.7
Other patient accounts receivable:
Medicaid 16.0 1.5 0.7 - 18.2
Private 59.7 8.7 1.7 - 70.1
Total $ 75.7 $ 10.2 $ 2.4 $ - $ 88.3
Total patient accounts receivable $ 275.0
Days revenue outstanding (1) 43.2
0-90 91-180 181-365 Over 365 Total
At December 31, 2020 :
Medicare patient accounts receivable $ 156.2 $ 5.4 $ 2.1 $ 0.8 $ 164.5
Other patient accounts receivable:
Medicaid 20.7 1.7 1.5 - 23.9
Private 58.4 6.4 1.9 - 66.7
Total $ 79.1 $ 8.1 $ 3.4 $ - $ 90.6
Total patient accounts receivable $ 255.1
Days revenue outstanding (1) 40.2
(1)Our calculation of days revenue outstanding is derived by dividing our ending
patient accounts receivable at December 31, 2021 and 2020 by our average daily
net service revenue for the three-month periods ended December 31, 2021 and
2020, respectively.
Indebtedness
Second Amendment to the Credit Agreement
OnJuly 30, 2021 , we entered into the Second Amendment to our Credit Agreement (as amended by the Second Amendment, the "Second Amended Credit Agreement"). The Second Amended Credit Agreement provides for a senior secured credit facility in an initial aggregate principal amount of up to$1.0 billion , which includes a$550.0 million Revolving Credit Facility and a term loan facility with a principal amount of up to$450.0 million (the "Amended Term Loan Facility" and collectively with the Revolving Credit Facility, the "Amended Credit Facility").
Net proceeds from the
fund the Contessa acquisition.
Our weighted average interest rate for borrowings under our$450.0 million Amended Term Loan Facility was 1.6% for the period endedDecember 31, 2021 and 2.2% for the period endedDecember 31, 2020 . Our weighted average interest rate for borrowings under our$550.0 million Revolving Credit Facility was 1.9% for the period endedDecember 31, 2021 and 2.2% for the period endedDecember 31, 2020 .
As of
consolidated interest coverage ratio was 27.8 and we are in compliance with our
covenants under the Second Amended Credit Agreement.
As of
Credit Facility was
See Item 8, Note 8 - Long Term Obligations to our consolidated financial
statements for additional details on our outstanding long-term obligations.
50 --------------------------------------------------------------------------------
Stock Repurchase Program
2021 Stock Repurchase Program
On
stock repurchase program, under which we could repurchase up to
our outstanding common stock through
Repurchase Program").
Under the terms of the 2021 Share Repurchase program, we were allowed to repurchase shares from time to time through open market purchases, unsolicited or solicited privately negotiated transactions, an accelerated stock repurchase program and/or a trading plan in compliance with Exchange Act Rule 10b5-1. The timing and the amount of the repurchases was 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 446,832 shares of our common stock at a weighted average price of$223.49 per share and a total cost of approximately$100 million during the year endedDecember 31, 2021 . We did not repurchase any shares pursuant to this stock repurchase program during the year endedDecember 31, 2020 . The repurchased shares are classified as treasury shares. OnAugust 2, 2021 , our Board of Directors authorized a share repurchase program, under which we may repurchase up to$100 million of our outstanding common stock throughDecember 31, 2022 to commence upon the completion of the Company's 2021 Share Repurchase Program (the "New Share Repurchase Program"). Under the terms of the New Share Repurchase Program, we are allowed to repurchase shares from time to time through open market purchases, unsolicited or solicited privately negotiated transactions, an accelerated stock repurchase program and/or a trading plan in compliance with Exchange Act Rule 10b5-1. The timing and the amount of the repurchases will be determined by management based on a number of factors, including but not limited to share price, trading volume and general market conditions, as well as on working capital requirements, general business conditions and other factors. We have not repurchased any shares under the New Share Repurchase Program as ofDecember 31, 2021 .
2019 Stock Repurchase Program
On
stock repurchase program, under which we could have repurchased up to
million
repurchase any shares pursuant to this stock purchase program during 2019 or
2020. This stock repurchase plan expired on
Contractual Obligations
Our future contractual obligations atDecember 31, 2021 were as follows (amounts in millions): Payments Due by Period Less than 1-3 4-5 After Total 1 Year Years Years 5 Years Long-term obligations$ 448.0 $ 12.0 $ 36.6 $ 399.4 $ - Interest on long-term obligations (1) 30.3 7.1 13.5 9.7 - Finance leases 1.7 1.1 0.6 - - Operating leases 105.8 33.4 48.5 20.3 3.6 Purchase obligations (2) 11.6 9.2 2.0 0.4 - Joint venture commitment 9.3 9.3 - - - Uncertain tax positions 2.7 2.7 - - -$ 609.4 $ 74.8 $ 101.2 $ 429.8 $ 3.6
(1)Interest on debt with variable rates was calculated using the current rate
for that particular debt instrument at
(2)Purchase obligations are primarily related to information technology
contracts and software licenses.
51 --------------------------------------------------------------------------------
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 withU.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, business combinations, 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 account for revenue from contracts with customers in accordance with
Accounting Standards Codification ("ASC") 606, Revenue from Contracts with
Customers, and as such, we recognize revenue in the period in which we satisfy
our performance obligations under our contracts by transferring our promised
services to our customers in amounts that reflect the consideration to which we
expect to be entitled in exchange for providing patient care, which are the
transaction prices allocated to the distinct services. Our cost of obtaining
contracts is not material.
Revenues are recognized as performance obligations are satisfied, which varies
based on the nature of the services provided. Our performance obligation is the
delivery of patient care services in accordance with the nature and frequency of
services outlined in physicians' orders, which are determined by a physician
based on a patient's specific goals.
Our performance obligations relate to contracts with a duration of less than one
year; therefore, we have elected to apply the optional exemption provided by ASC
606 and are not required to disclose the aggregate amount of the transaction
price allocated to performance obligations that are unsatisfied or partially
unsatisfied as of the end of the reporting period. The unsatisfied or partially
unsatisfied performance obligations are generally completed when the patients
are discharged, which generally occurs within days or weeks of the end of the
reporting period.
We determine the transaction price based on gross charges for services provided,
reduced by estimates for contractual and non-contractual revenue adjustments.
Contractual revenue adjustments are recorded for the difference between our
standard rates and the contracted rates to be realized from patients,
third-party payors and others for services provided. Non-contractual revenue
adjustments include discounts provided to self-pay, uninsured patients or other
payors, adjustments resulting from payment reviews and adjustments arising from
our inability to obtain appropriate billing documentation, authorizations or
face-to-face documentation. Subsequent changes to the estimate of the
transaction price are recorded as adjustments to net service revenue in the
period of change.
Non-contractual revenue adjustments are recorded for self-pay, uninsured
patients and other payors by major payor class based on our historical
collection experience, aged accounts receivable by payor and current economic
conditions. The non-contractual revenue adjustments represent the difference
between amounts billed and amounts we expect to collect based on our collection
history with similar payors. We assess our ability to collect for the healthcare
services provided at the time of patient admission based on our verification of
the patient's insurance coverage under Medicare, Medicaid, and other commercial
or managed care insurance programs. Medicare represents approximately 75% of our
consolidated net service revenue.
Amounts due from third-party payors, primarily commercial health insurers and
government programs (Medicare and Medicaid), include variable consideration for
retroactive revenue adjustments due to settlements of audits and payment
reviews. We determine our estimates for non-contractual revenue adjustments
related to audits and payment reviews based on our historical experience and
success rates in the claim appeals and adjudication process.
We determine our estimates for non-contractual revenue adjustments related to
our inability to obtain appropriate billing documentation, authorizations or
face-to-face documentation based on our historical experience which primarily
includes a historical collection rate of over 99% on Medicare claims. Revenue is
recorded at amounts we estimate to be realizable for services provided.
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Home Health Revenue Recognition
Medicare Revenue
EffectiveJanuary 1, 2020 , theCenters for Medicare and Medicaid Services ("CMS") implemented a revised case-mix adjustment methodology, the Patient-Driven Groupings Model ("PDGM"), to better align payment with patient care needs and to ensure that clinically complex and ill beneficiaries have adequate access to home health care. PDGM uses 30-day periods of care rather than 60-day episodes of care as the unit of payment, eliminates the use of the number of therapy visits provided in determining payment and relies more heavily on clinical characteristics and other patient information. All Medicare contracts are required to have a signed plan of care which represents a single performance obligation, comprised of the delivery of a series of distinct services that are substantially similar and have a similar pattern of transfer to the customer. Accordingly, we account for the series of services ("episode") as a single performance obligation satisfied over time, as the customer simultaneously receives and consumes the benefits of the goods and services provided. An episode starts the first day a billable visit is performed and ends 60 days later or upon discharge, if earlier, with multiple continuous episodes allowed. Under PDGM, each 60-day episode includes two 30-day payment periods. Net service revenue is recorded based on the established Federal Medicare home health payment rate for a 30-day period of care. ASC 606 notes that if an entity has a right to consideration from a customer in an amount that corresponds directly with the value of the entity's performance completed to date, the entity may recognize revenue in the amount to which the entity has a right to invoice. We have elected to apply the "right to invoice" practical expedient and therefore, our revenue recognition is based on the reimbursement we are entitled to for each 30-day payment period. We utilize our historical average length of stay for each 30-day period of care as the measure of progress towards the satisfaction of our performance obligation. PDGM uses timing, admission source, functional impairment levels and principal and other diagnoses to case-mix adjust payments. The case-mix adjusted payment for a 30-day period of care is subject to additional adjustments 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 provided was less than the established threshold, which ranges from two to six visits and varies for every case-mix group under PDGM; (c) a partial payment if a patient transferred to another provider or from another provider before completing the 30-day period of care; and (d) the applicable geographic wage index. Payments for routine and non-routine supplies are included in the 30-day payment rate. Medicare can also make various adjustments to payments received if we are unable to produce appropriate billing documentation or acceptable authorizations. 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 to revenue with a corresponding reduction to patient accounts receivable. A 0.1% change in our Medicare collection rate would impact our annual Medicare revenue by approximately$0.9 million . Amounts due from Medicare include variable consideration for retroactive revenue adjustments due to settlements of audits and payment reviews. We determine our estimates for non-contractual revenue adjustments related to audits and payment reviews based on our historical experience and success rates in the claim appeals and adjudication process. The Medicare home health benefit requires that beneficiaries be homebound (meaning that the beneficiary is unable to leave his/her home without a considerable and taxing effort), require intermittent skilled nursing, physical therapy or speech therapy services and receive treatment under a plan of care established and periodically reviewed by a physician. In order to provide greater flexibility during the novel coronavirus pandemic ("COVID-19"), CMS relaxed the definition of homebound status through the duration of the public health emergency. During the pandemic, a beneficiary is considered homebound if they have been instructed by a physician not to leave their home because of a confirmed or suspected COVID-19 diagnosis or if the patient has a condition that makes them more susceptible to contracting COVID-19. Therefore, if a beneficiary is homebound due to COVID-19 and requires skilled services, the services will be covered under the Medicare home health benefit. During 2020, 20% of the reimbursement from each Medicare 30-day payment rate was billed near the start of each 30-day period of care, referred to as a request for anticipated payment ("RAP"), and cash was typically received before all services were rendered. Any cash received from Medicare for a RAP for a 30-day period of care that exceeded the associated revenue earned was recorded to accrued expenses within our consolidated balance sheets. CMS fully eliminated all upfront payments associated with RAPs effectiveJanuary 1, 2021 . 53 --------------------------------------------------------------------------------
Non-Medicare Revenue
Episodic-based Revenue. We recognize revenue in a similar manner as we recognize
Medicare revenue for amounts that are paid by other insurance carriers,
including Medicare Advantage programs; however, these amounts can vary based
upon the negotiated terms which generally range from 95% 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. Contractual revenue 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. We also make non-contractual
revenue adjustments to non-episodic revenue based on our historical experience
to reflect the estimated transaction price. We receive a minimal amount of our
net service revenue from patients who are either self-insured or are obligated
for an insurance co-payment.
Hospice Revenue Recognition
Hospice Medicare Revenue
Gross revenue is recorded on an accrual basis based upon the date of service at
amounts equal to the estimated payment rates. The estimated payment rates are
predetermined daily or hourly rates for each of the four levels of care we
deliver. The four levels of care are routine care, general inpatient care,
continuous home care and respite care. Routine care accounted for 97% of our
total Medicare hospice service revenue for each of 2021, 2020 and 2019,
respectively. There are two separate payment rates for routine care: payments
for the first 60 days of care and care beyond 60 days. In addition to the two
routine rates, we may also receive a service intensity add-on ("SIA"). The SIA
is based on visits made in the last seven days of life by a registered nurse or
medical social worker for patients in a routine level of care.
The performance obligation is the delivery of hospice services to the patient,
as determined by a physician, each day the patient is on hospice care.
We make adjustments to Medicare revenue for non-contractual revenue adjustments, which include our inability to obtain appropriate billing documentation or acceptable authorizations and other reasons unrelated to credit risk. We estimate the impact of these non-contractual revenue adjustments based on our historical experience, which primarily includes a historical collection rate of over 99% on Medicare claims, and record it during the period services are rendered. A 0.1% change in our Medicare collection rate would impact our annual Medicare revenue by approximately$0.8 million . Additionally, our hospice service revenue is subject to certain limitations on payments from Medicare which are considered variable consideration. We are subject to an inpatient cap limit and an overall Medicare payment cap for each provider number. We monitor these caps on a provider-by-provider basis and estimate amounts due back to Medicare if we estimate a cap has been exceeded. We record these adjustments as a reduction to revenue and an increase in accrued expenses within our consolidated balance sheets. Providers are required to self-report and pay their estimated cap liability byFebruary 28th of the following year. As ofDecember 31, 2021 , we have settled our Medicare hospice reimbursements for all fiscal years throughOctober 31, 2015 . As ofDecember 31, 2021 , we have recorded$4.5 million for estimated amounts due back to Medicare in accrued expenses for the Federal cap years endedOctober 31, 2016 throughSeptember 30, 2022 . As ofDecember 31, 2020 , we had recorded$9.3 million for estimated amounts due back to Medicare in accrued expenses for the Federal cap years endedOctober 31, 2014 throughSeptember 30, 2021 .
Hospice Non-Medicare Revenue
Gross revenue is recorded on an accrual basis based upon the date of service at
amounts equal to our established rates or estimated per day rates, as
applicable. Contractual revenue adjustments are recorded for the difference
between our standard rates and the contractual rates to be realized from
patients, third-party payors and others for services provided and are deducted
from gross revenue to determine our net service revenue. We also make
non-contractual adjustments to non-Medicare revenue based on our historical
experience to reflect the estimated transaction price.
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Personal Care Revenue Recognition
Personal Care Revenue
We generate net service revenue by providing our services directly to patients
based on authorized hours, visits or units determined by the relevant agency, at
a rate that is either contractual or fixed by legislation. Net service revenue
is recognized at the time services are rendered based on gross charges for the
services provided, reduced by estimates for contractual and non-contractual
revenue adjustments. We receive payment for providing such services from payors,
including state and local governmental agencies, managed care organizations,
commercial insurers and private consumers. Payors include the following elder
service agencies: Aging Services Access Points ("ASAPs"), Senior Care Options
("SCOs"), Program of All-Inclusive Care for the Elderly ("PACE") and the
Veterans Administration ("VA").
High Acuity Care Revenue Recognition
High Acuity Care Revenue
Our revenues are derived from contracts with (1) health insurance plans for the
coordination and provision of home recovery care services to patients who are
enrolled members in those insurance plans and (2) health system partners for the
coordination and provision of home recovery care services to patients who are
discharged early from a health system facility to complete their inpatient stay
at home.
Under our health insurance plan contracts, we provide home recovery care
services for high acuity care patients on a full risk basis whereby we assume
the risk for the coordination and payment of all required medical services
necessary to treat the medical condition for which the patient was diagnosed in
a home-based setting for a 30-day or 60-day episode of care in exchange for a
fixed contracted bundled rate based upon the assigned diagnosis related group
("DRG"). Our performance obligation is the coordination and provision of patient
care in accordance with physicians' orders over either a 30-day or 60-day
episode of care. The majority of our care coordination services and direct
patient care is provided in the first five to seven days of the episode period
(the "acute phase"). Monitoring services and follow-up direct patient care, as
deemed necessary by the treating physician, is provided throughout the remainder
of the episode. Since the majority of our services are provided during the acute
phase, we recognize net service revenues over the acute phase based on gross
charges for the services provided per the applicable managed care contract
rates, reduced by estimates for revenue adjustments.
Under our contracts with health system partners, we provide home recovery care
services for high acuity patients on a limited risk basis whereby we assume the
risk for certain healthcare services during the remainder of an inpatient acute
stay serviced at the patient's home in exchange for a contracted per diem rate.
The performance obligation is the coordination and provision of required medical
services, as determined by the treating physician, for each day the patient
receives inpatient-equivalent care at home. As such, revenues are recognized as
services are administered and as our performance obligations are satisfied on a
per diem basis, reduced by estimates for revenue adjustments.
We recognize adjustments to revenue during the period in which changes to
estimates of assigned patient diagnoses or episode terminations become known, in
accordance with the applicable managed care contracts. For certain health
insurance plans, revenue is reduced by amounts owed by enrollees to healthcare
providers under deductible, coinsurance or copay provisions of health insurance
plan policies, since those amounts are repaid to the health insurance plans by
us as part of a retrospective reconciliation process.
Business Combinations
We account for acquisitions using the acquisition method of accounting in accordance with ASC 805, Business Combinations. Acquisitions are accounted for as purchases and are included in our consolidated financial statements from their respective acquisition dates. Assets acquired, liabilities assumed and noncontrolling interests, if any, are measured at fair value on the acquisition date using the appropriate valuation method.Goodwill generated from acquisitions is recognized for the excess of the purchase price over tangible and identifiable intangible assets. In determining the fair value of identifiable intangible assets and any noncontrolling interests, we use various valuation techniques including the income approach, the cost approach and the market approach. These valuation methods require us to make estimates and assumptions surrounding projected revenues and costs, growth rates and discount rates.
As ofDecember 31, 2021 , we had a goodwill balance of$1,196.1 million .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 55
--------------------------------------------------------------------------------
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 the market capitalization of our stock.U.S. GAAP allows for impairment testing to be done on either a quantitative or qualitative basis. During 2021, we performed a qualitative assessment to determine if it is more likely than not that the fair value of our reporting units are less than their carrying values by evaluating relevant events and circumstances including financial performance, market conditions and share price. Based on this assessment, we concluded that the goodwill associated with our home health, hospice and high acuity care reporting units was not considered at risk of impairment as ofOctober 31, 2021 . In addition to the qualitative assessment, we also performed a quantitative analysis for our personal care reporting unit due to the decline in revenues resulting from the impact of COVID-19 and staffing shortages using an income and market approach. Based on this analysis, we concluded that the goodwill associated with our personal care reporting unit was not considered at risk of impairment as ofOctober 31, 2021 . Since the date of our last 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 their carrying amounts. As ofDecember 31, 2021 , we had an other intangible assets balance of$111.2 million . Intangible assets consist of certificates of need, licenses, acquired names, non-compete agreements and technology. We amortize non-compete agreements and acquired names that we do not intend to use indefinitely on a straight-line basis over their estimated useful lives, which are generally two to three years for non-compete agreements and up to three years for acquired names. We amortize technology over its estimated useful service life, which is generally up to seven years. 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. We performed a qualitative assessment of our indefinite-lived intangible assets during 2021 and determined that 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 indefinite-lived intangible assets would be less than their carrying amounts. During 2020, we also performed a qualitative assessment of our indefinite-lived intangible assets; as a result of this analysis, we wrote off approximately$4.2 million of acquired names that were no longer in use.
Liberty Mutual Reports 4Q And Full Year 2021 Results
Former South St. Paul boys basketball coach disbarred from practicing law [Pioneer Press, St. Paul, Minn.]
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