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LHC GROUP, INC – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS This Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain statements, including the potential future impact of COVID-19 on our results of operations and liquidity, the potential impact of actions we have taken to mitigate the impact of COVID-19, the potential impact on supply chain disruptions and increased costs associated with obtaining personal protective equipment, the expected benefit of the CARES Act on our liquidity, and information that may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements relate to future plans and strategies, anticipated events or trends, future financial performance, and expectations and beliefs concerning matters that are not historical facts or that necessarily depend upon future events. The words "may," "should," "could," "would," "expect," "plan," "intend," "anticipate," "believe," "estimate," "project," "predict," "potential," and similar expressions are intended to identify forward-looking statements. Specifically, this report contains, among others, forward-looking statements about: •our expectations regarding financial condition or results of operations for periods afterSeptember 30, 2021 ; •our critical accounting policies; •our business strategies and our ability to grow our business; •our participation in the Medicare and Medicaid programs; •the reimbursement levels of Medicare and other third-party payors, including changes in reimbursement resulting from regulatory changes; •the prompt receipt of payments from Medicare and other third-party payors; •our future sources of and needs for liquidity and capital resources; •the effect of any regulatory changes or anticipated regulatory changes; •the effect of any changes in market rates on our operations and cash flows; •our ability to obtain financing; •our ability to make payments as they become due; •the outcomes of various routine and non-routine governmental reviews, audits and investigations; •our expansion strategy, the successful integration of recent acquisitions and, if necessary, the ability to relocate or restructure our current facilities; 26 -------------------------------------------------------------------------------- Table of Contents •the value of our proprietary technology; •the impact of legal proceedings; •our insurance coverage; •our competitors and our competitive advantages; •our ability to attract and retain valuable employees; •the price of our stock; •our compliance with environmental, health and safety laws and regulations; •our compliance with health care laws and regulations; •our compliance withSecurities and Exchange Commission laws and regulations and Sarbanes-Oxley requirements; •the impact of federal and state government regulation on our business; and •the impact of changes in future interpretations of fraud, anti-kickback, or other laws. The forward-looking statements included in this report reflect our current views about future events, are based on assumptions, and are subject to known and unknown risks and uncertainties. Many important factors could cause actual results or achievements to differ materially from any future results or achievements expressed in or implied by our forward-looking statements. Many of the factors that will determine future events or achievements are beyond our ability to control or predict. Important factors that could cause actual results or achievements to differ materially from the results or achievements reflected in our forward-looking statements include, among other things, the factors discussed in the Part II, Item 1A. "Risk Factors," included in this report and in our other filings with theSEC , including our 2020 Form 10-K, as updated by our subsequent filings with theSEC . This report should be read in conjunction with the 2020 Form 10-K, and all of our other filings made with theSEC through the date of this report, including quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements contained in this report reflect our views and assumptions only as of the date this report is filed with theSEC . Except as required by law, we assume no responsibility for updating any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You should read this report, the information incorporated by reference into this report, and the documents filed as exhibits to this report completely and with the understanding that our actual future results or achievements may differ materially from what we expect or anticipate. Unless the context otherwise requires, "we," "us," "our," and the "Company" refer toLHC Group, Inc. and its consolidated subsidiaries. OVERVIEW General We provide quality, cost-effective post-acute health care services to our patients. As ofSeptember 30, 2021 , we have 868 service providers in 35 states within the continentalUnited States and theDistrict of Columbia . Our services are classified into five segments: (1) home health services, (2) hospice services, (3) home and community-based services, (4) facility-based services primarily offered through our long-term acute care hospitals ("LTACHs"), and (5) healthcare innovations services ("HCI"). We intend to increase the number of service providers within each of our segments that we operate through continued acquisitions, joint ventures, and organic development. Our home health service locations offer a wide range of services, including skilled nursing, medically-oriented social services, and physical, occupational, and speech therapy. As ofSeptember 30, 2021 , we operated 532 home health services locations, of which 320 are wholly-owned, 208 are majority-owned through equity joint ventures, two are under license lease arrangements, and the operations of the remaining two locations are only managed by us. 27 -------------------------------------------------------------------------------- Table of Contents Our hospices provide end-of-life care to patients with terminal illnesses through interdisciplinary teams of physicians, nurses, home health aides, counselors, and volunteers. We offer a wide range of services, including pain and symptom management, emotional and spiritual support, inpatient and respite care, homemaker services, and counseling. As ofSeptember 30, 2021 , we operated 155 hospice locations, of which 92 are wholly-owned, 61 are majority-owned through equity joint ventures, and two are under license lease arrangements. Through our home and community-based services segment, services are performed by skilled nursing and paraprofessional personnel, and include assistance with activities of daily living to the elderly, chronically ill, and disabled patients. As ofSeptember 30, 2021 , we operated 130 home and community-based services locations, of which 117 are wholly-owned and 13 are majority-owned through equity joint ventures. We provide facility-based services principally through our LTACHs. As ofSeptember 30, 2021 , we operated 11 LTACHs with 12 locations, all but three of which are located within host hospitals. We also operate two skilled nursing facilities, a family health center, a rural health clinic, two physician practices, and 19 therapy clinics. Of these 37 facility-based services locations, 26 are wholly-owned, and 11 are majority-owned through equity joint ventures. Our HCI segment reports on our developmental activities outside its other business segments. The HCI segment includes (a)Imperium Health Management, LLC , an ACO enablement company, (b)Long Term Solutions, Inc. , an in-home assessment company serving the long-term care insurance industry, and (c) certain assets operated by Advanced Care House Calls, which provides primary medical care for patients with chronic and acute illnesses who have difficulty traveling to a doctor's office. These activities are intended ultimately, whether directly or indirectly, to benefit our patients and/or payors through the enhanced provision of services in our other segments. The activities all share a common goal of improving patient experiences and quality outcomes, while lowering costs. They include, but are not limited to, items such as: technology, information, population health management, risk-sharing, care-coordination and transitions, clinical advancements, enhanced patient engagement and informed clinical decision and technology enabled in-home clinical assessments. We have 14 HCI locations, of which 13 are wholly-owned and one is majority-owned through an equity joint venture.The Joint Commission is a nationwide commission that establishes standards relating to the physical plant, administration, quality of patient care, and operation of medical staffs of health care organizations. Currently, Joint Commission accreditation of home nursing and hospice agencies is voluntary. However, some managed care organizations use Joint Commission accreditation as a credentialing standard for regional and state contracts. As ofSeptember 30, 2021 , the Joint Commission had accredited 522 of our 532 home health services locations and 110 of our 155 hospice agencies. Those not yet accredited are working towards achieving this accreditation. As we acquire companies, we apply for accreditation 12 to 18 months after completing the acquisition. The percentage of net service revenue contributed from each reporting segment for the three and nine months endedSeptember 30, 2021 and 2020 was as follows: Three Months Ended September 30, Nine Months Ended September 30, Reporting segment 2021 2020 2021 2020 Home health services 68.4 % 70.4 % 70.7 % 70.6 % Hospice services 14.6 11.2 12.8 11.8 Home and community-based services 8.1 9.1 8.8 9.5 Facility-based services 5.7 6.3 5.9 6.3 Healthcare innovations services 3.2 3.0 1.8 1.8 100.0 % 100.0 % 100.0 % 100.0 % Recent Developments The reader is encouraged to review our detailed discussion of health care legislation and Medicare regulations in the similarly titled section in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," along with the discussions in Part I, Item 1, "Business; Government Regulation" and in Part I, Item 1A, "Risk Factors" in our 2020 Form 10-K. Coronavirus and Coronavirus Aid, Relief, and Economic Security Act The following portions of the CARES Act impacted us during the nine months endedSeptember 30, 2021 : 28 -------------------------------------------------------------------------------- Table of Contents •Provider Relief Fund: During 2020, we received$93.3 million in payments from theProvider Relief Fund . We returned all funds to the government during the nine months endedSeptember 30, 2021 . •CAAP: During 2020, we received$318.0 million of accelerated payments under the CAAP, of which$141.6 million was recouped by CMS during the nine months endedSeptember 30, 2021 and$176.3 million of contract liabilities - deferred revenue remains on our condensed consolidated balance sheets. •Suspension of the 2% sequestration payment adjustment: CMS suspended the 2% sequestration payment adjustment for patient claims with dates of services fromMay 1, 2020 throughDecember 31, 2020 , which was subsequently amended to continue throughDecember 31, 2021 . During the three months endedSeptember 30, 2021 and 2020, we recognized$6.8 million and$6.5 million of net service revenue, respectively, due to the suspension of the 2% sequestration payment adjustment. During the nine months endedSeptember 30, 2021 and 2020, we recognized$19.7 million and$11.5 million of net service revenue, respectively, due to the suspension of the 2% sequestration payment adjustment. •Waiver of the application of site-neutral payment: Under Section 1886(m)(6)(A)(i) of the Act, the claims processing systems was updated to pay all LTACH cases admitted during the COVID-19 PHE period at the LTACH PPS standard federal rate, effective for claims with an admission date occurring on or afterJanuary 27, 2020 through the end of the PHE period. During the three months endedSeptember 30, 2021 , we recognized$5.7 million and$6.4 million of net service revenue, respectively, due to the suspension of LTACH site-neutral payments. During the nine months endedSeptember 30, 2021 and 2020, we recognized$18.2 million and$11.1 million of net service revenue, respectively, due to the suspension of LTACH site-neutral payments. During the nine months endedSeptember 30, 2021 , we did experience higher costs related to higher contract labor utilization due to an increase in our clinicians being on quarantine from COVID-19 exposure or potential exposure. There is no guarantee that we won't experience similar impacts in the future or experience a decrease in demand for our services as a result of COVID-19. The rapid development and fluidity of this situation makes it difficult to predict the ultimate impact of COVID-19 on our business and operations. Nevertheless, COVID-19 presents a material uncertainty which could materially impact our business and results of operations in the future.Home Health OnNovember 2, 2021 , CMS released the final rule for the calendar year 2022 to update base payment rates by 3.2%, which is based on a payment update of 2.6%, a 0.7% increase due to the reduction of the fixed-dollar loss ratio for outliers, and a 0.1% reduction due to the rural add-on percentages mandated by the Bipartisan Budget Act of 2018. The base 30 day payment rate is increased from$1,901.12 to$2,031.64 . The final rule expanded the Home Health Value-Based Purchasing ("HHVBP") model nationally, with the first performance year beginningJanuary 1, 2023 . Starting in 2025, fee-for-service payments to home health agencies will be adjusted based on the quality of care provided to beneficiaries during the calendar year 2023 performance year. Hospice OnJuly 29, 2021 , CMS released the final rule for fiscal year 2022 to update payment rates and the wage index. The final hospice payment update is a 2.0% increase to the payment rates. The final rule will apply a 2.7% market basket update and a 0.7 percentage point cut for productivity. In addition, the final rule increases the aggregate cap value of$31,297.61 for fiscal year 2022, as compared to$30,683.93 for fiscal year 2021. The following are the final fiscal year 2022 base payment rates for various levels of care, which began onOctober 1, 2021 and will endSeptember 30, 2022 and final fiscal year 2021 base payment rates for various levels of care, which began onOctober 1, 2020 and endedSeptember 30, 2021 (payment rates for hospice providers not complying with the hospice quality reporting requirements will be 2% lower than the values referenced below): 29
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Final Fiscal Year 2022 Fiscal Year 2021
Description Rate per patient day Rate per patient day
Routine Home Care days 1-60 $ 203.40 $
199.25
Routine Home Care days 60+ $ 160.74 $
157.49
Continuous Home Care $ 1,462.52 $
1,432.41
Full rate = 24 hours of care$59.68 = hourly rate for 2021$60.94 = hourly rate for 2022 Inpatient Respite Care $ 473.75 $ 461.09 General Inpatient Care $ 1,068.28 $ 1,045.66 Facility-based OnAugust 2, 2021 , CMS issued a final rule for the fiscal year 2022 Long-Term Care Hospital Prospective Payment System ("LTACH-PPS"), which described that LTACH-PPS payments for fiscal year 2022 will increase by 1.1%. LTACH-PPS payments for fiscal year 2022 for discharges paid using the standard LTACH payment rate will increase by 0.9% due primarily to the annual standard Federal rate update for fiscal year 2022 of 1.9% and 0.8% decrease in high cost outlier payments. LTACH-PPS payments for fiscal year 2022 for discharges paid using the site neutral payment rate will increase by 3%. RESULTS OF OPERATIONS Three months endedSeptember 30, 2021 compared to three months endedSeptember 30, 2020 Summary consolidated financial information The following table summarizes our consolidated results of operations for the three months endedSeptember 30, 2021 and 2020 (amounts in thousands, except percentages, which are percentages of consolidated net service revenue, unless indicated otherwise): Increase 2021 2020 (Decrease) Net service revenue$ 565,451 $ 530,684 $ 34,767 Cost of service revenue (excluding depreciation and amortization) 343,862 60.8 % 305,246 57.5 % 38,616 General and administrative expenses 176,444 31.2 161,463 30.4 14,981 Impairment of intangibles and other - 22 (22) Government stimulus (income) expense - 44,435 44,435 Interest expense (1,135) (431) 704 Income tax expense 10,150 27.5 (1) 4,595 27.7 (1) 5,555 Net income attributable to noncontrolling interests 6,126 (8) 6,134 Net income attributable to LHC Group, Inc.'s common stockholders$ 27,734 $ 14,500 $ 13,234
(1) Effective tax rate as a percentage of income from continuing operations
attributable to our common stockholders, excluding the excess tax benefits
realized of
Net service revenue The following table sets forth each of our segment's revenue growth or loss, admissions, census, episodes, patient days, and billable hours for the three months endedSeptember 30, 2021 and the related change from the same period in 2020 (amounts in thousands, except admissions, census, episode data, patient days and billable hours, which are actual amounts; net service revenue excludes implicit price concessions): 30
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The below data for the three months endedSeptember 30, 2021 was impacted by the COVID-19 pandemic. Organic Total Growth Growth Organic (1) (Loss) % Acquired (2) Total (Loss) % Home health services Revenue$ 389,670 4.5 %$ 3,014 $ 392,684 4.7 % Revenue Medicare$ 238,603 (2.6)$ 2,351 $ 240,954 (2.2) Admissions 107,442 3.6 1,050 108,492 4.0 Medicare Admissions 52,341 (5.7) 186 52,527 (6.0) Average Census 83,777 2.5 481 84,258 2.4 Average Medicare Census 43,359 (7.4) 316 43,675 (7.3) Home Health Episodes 83,635 (4.0) 915 84,550 (5.0) Hospice services Revenue$ 63,902 0.9$ 20,744 $ 84,646 34.4 Revenue Medicare$ 59,326 2.4$ 19,146 $ 78,472 36.2 Admissions 5,140 0.1 1,326 6,466 27.4 Medicare Admissions 4,606 0.1 1,146 5,752 25.9 Average Census 4,293 (2.5) 1,404 5,697 29.7 Average Medicare Census 4,057 (1.0) 1,277 5,334 30.4 Patient days 395,917 (2.2) 128,182 524,099 29.7 Home and community-based services Revenue$ 46,278 (8.9) $ 79$ 46,357 (9.3) Billable hours 1,813,284 (6.0) 4,427 1,817,711 (6.4) Facility-based services LTACHs Revenue$ 31,241 (4.3) $ 245$ 31,486 (3.7) Patient days 22,187 (8.4) 535 22,722 (6.4) Other facility-based services Revenue$ 1,303 (37.4) $ -$ 1,303 (37.4) HCI Revenue$ 18,213 12.6 $ -$ 18,213 12.6 Consolidated Revenue$ 550,607 2.7$ 24,082 $ 574,689 6.4 (1) Organic - combination of same store, a location that has been in service with us for greater than 12 months, and de novo, an internally developed location that has been in service for 12 months or less. (2) Acquired - purchased location that has been in service with us 12 months or less. Our home health and hospice segment received the benefit of the suspension of the 2% sequestration payment adjustment for Medicare claims and the LTACHs received the benefit of the suspension of the 2% sequestration payment adjustment and the waiver of site-neutral payments for LTACH Medicare claims. Cost of service revenue The following table summarizes cost of service revenue (amounts in thousands, except percentages, which are percentages of the segment's respective net service revenue): 31
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Three Months Ended September 30,
2021 2020
Home health services
Salaries, wages and benefits $ 209,972 54.3 % $ 184,644 49.4 %
Transportation 9,358 2.4 9,019 2.4
Supplies and services 11,509 3.0 11,860 3.2
Total $ 230,839 59.7 % $ 205,523 55.0 %
Hospice services
Salaries, wages and benefits $ 37,485 45.4 % $ 26,535 44.4 %
Transportation 2,354 2.8 1,865 3.1
Supplies and services 11,792 14.3 8,780 14.7
Total $ 51,631 62.5 % $ 37,180 62.2 %
Home and community-based services
Salaries, wages and benefits $ 33,632 73.4 % $ 36,020 74.4 %
Transportation 429 1.0 457 0.9
Supplies and services 325 0.7 187 0.4
Total $ 34,386 75.1 % $ 36,664 75.7 %
Facility-based services
Salaries, wages and benefits $ 17,499 54.0 % $ 16,271 48.8 %
Transportation 12 - 21 0.1
Supplies and services 6,214 19.2 5,921 17.8
Total $ 23,725 73.2 % $ 22,213 66.7 %
HCI
Salaries, wages and benefits $ 3,214 18.0 % $ 3,496 22.3 %
Transportation 50 0.3 57 0.4
Supplies and services 17 0.1 113 0.7
Total $ 3,281 18.4 % $ 3,666 23.4 %
Consolidated
Salaries, wages and benefits $ 301,802 53.4 % $ 266,966 50.3 %
Transportation 12,203 2.1 11,419 2.2
Supplies and services 29,857 5.3 26,861 5.0
Total $ 343,862 60.8 % $ 305,246 57.5 %
During 2021, cost of service revenue in our home health segment was impacted by
the use of nursing contract labor due to the high number of our clinicians in
quarantine for COVID-19. Cost of service revenue in our home and community-based
segment declined due to the lower patient volumes resulting in a decrease in
billable hours and a decrease in total costs. Supplies associated with COVID-19
decreased in all same-store locations in 2021 as compared to 2020 as we incurred
substantial costs in 2020 to acquire needed personal protective equipment to
protect our clinicians during the start of the global pandemic. We continue to
purchase additional personal protective equipment; however, we are observing an
overall decline in utilization and an overall price per unit decline for these
supplies.
General and administrative expenses
The following table summarizes general and administrative expenses (amounts in
thousands, except percentages, which are percentages of the segment's respective
net service revenue):
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Three Months Ended September 30,
2021 2020
Home health services
General and administrative $ 123,656 32.0 % $ 115,749 31.0 %
Depreciation and amortization 3,039 0.8 3,043 0.8
Total $ 126,695 32.8 % $ 118,792 31.8 %
Hospice services
General and administrative $ 21,710 26.3 % $ 16,159 27.0 %
Depreciation and amortization 838 1.0 509 0.9
Total $ 22,548 27.3 % $ 16,668 27.9 %
Home and community-based services
General and administrative $ 11,335 24.7 % $ 10,519 21.7 %
Depreciation and amortization 429 0.9 418 0.9
Total $ 11,764 25.6 % $ 10,937 22.6 %
Facility-based services
General and administrative $ 10,230 31.6 % $ 10,494 31.5 %
Depreciation and amortization 820 2.5 945 2.8
Total $ 11,050 34.1 % $ 11,439 34.3 %
HCI
General and administrative $ 4,155 23.2 % $ 3,325 21.2 %
Depreciation and amortization 232 1.3 302 1.9
Total $ 4,387 24.5 % $ 3,627 23.1 %
Consolidated
General and administrative $ 171,086 30.3 % $ 156,246 29.4 %
Depreciation and amortization 5,358 0.9 5,217 1.0
Total $ 176,444 31.2 % $ 161,463 30.4 %
During 2021, consolidated general and administrative expenses increased as a
percentage of revenue from 30.4% to 31.2%. We incurred $5.2 million of
acquisition transaction expenses during the third quarter of 2021. Our
consolidated general and administrative expenses, excluding the acquisition
transaction expenses, remained flat comparing third quarter of 2021 to third
quarter of 2020.
Nine months ended September 30, 2021 compared to nine months ended September 30,
2020
Summary consolidated financial information
The following table summarizes our consolidated results of operations for the
nine months ended September 30, 2021 and 2020 (amounts in thousands, except
percentages, which are percentages of consolidated net service revenue, unless
indicated otherwise):
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Increase
2021 2020 (Decrease)
Net service revenue $ 1,636,193 $ 1,530,875 $ 105,318
Cost of service revenue (excluding
depreciation and amortization) 972,006 59.4 % 933,160 61.0 % 38,846
General and administrative expenses 506,754 31.0 469,903 30.7 36,851
Impairment of intangibles and other 937 622 315
Government stimulus (income) expense - - -
Interest expense (1,541) (4,040) (2,499)
Income tax expense 32,909 26.6 (1) 23,181 26.5 (1) 9,728
Net income attributable to noncontrolling
interests 22,010 18,753 3,257
Net income attributable to LHC Group,
Inc.'s common stockholders $ 100,036 $ 81,216 $ 18,820
(1) Effective tax rate as a percentage of income from continuing operations
attributable to our common stockholders, excluding the excess tax benefits
realized of $2.4 million during each of the nine months ended September 30, 2021
and 2020. The effective tax rate for the nine months ended September 30, 2020
also benefited from a $2.2 million impact from the enactment of the CARES Act.
Net service revenue
The following table sets forth each of our segment's revenue growth or loss,
admissions, census, episodes, patient days, and billable hours for the nine
months ended September 30, 2021 and the related change from the same period in
2020 (amounts in thousands, except admissions, census, episode data, patient
days and billable hours, which are actual amounts; net service revenue excludes
implicit price concessions):
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Table of Contents The below data for the nine months endedSeptember 30, 2021 was impacted by the COVID-19 pandemic. Organic Total Growth Growth Organic (1) (Loss) % Acquired (2) Total (Loss) % Home health services Revenue$ 1,168,752 8.0 %$ 7,194 $ 1,175,946 7.7 % Revenue Medicare$ 725,516 1.2$ 5,915 $ 731,431 1.0 Admissions 321,812 6.1 3,684 325,496 6.4 Medicare Admissions 160,598 (2.5) 1,332 161,930 (2.6) Average Census 84,183 7.7 400 84,583 7.2 Average Medicare Census 44,381 (2.6) 301 44,682 (2.9) Home Health Episodes 251,987 (0.5) 2,836 254,823 (2.1) Hospice services Revenue$ 187,073 1.5$ 26,098 $ 213,171 15.6 Revenue Medicare$ 173,416 2.3$ 24,439 $ 197,855 16.7 Admissions 15,411 2.9 1,599 17,010 13.4 Medicare Admissions 13,771 3.4 1,366 15,137 13.3 Average Census 4,270 (1.9) 600 4,870 11.9 Average Medicare Census 4,003 (1.2) 554 4,557 12.5 Patient days 1,166,618 (2.2) 163,939 1,330,557 11.5 Home and community-based services Revenue$ 143,510 (3.4) $ 950$ 144,460 (4.5) Billable hours 5,550,772 (3.1) 46,357 5,597,129 (4.3) Facility-based services LTACHs Revenue$ 93,394 2.9$ 1,758 $ 95,152 2.6 Patient days 60,849 (9.6) 3,232 64,081 (7.0) Other facility-based services Revenue$ 3,895 (44.8) $ -$ 3,895 (44.8) HCI Revenue$ 30,436 6.1 $ -$ 30,436 6.1 Consolidated Revenue$ 1,627,060 5.8$ 36,000 $ 1,663,060 6.8 (1) Organic - combination of same store, a location that has been in service with us for greater than 12 months, and de novo, an internally developed location that has been in service for 12 months or less. (2) Acquired - purchased location that has been in service with us 12 months or less. Our home health and hospice segment received the benefit of the suspension of the 2% sequestration payment adjustment for Medicare claims and the LTACHs received the benefit of the suspension of the 2% sequestration payment adjustment and the waiver of site-neutral payments for LTACH Medicare claims. Cost of service revenue The following table summarizes cost of service revenue (amounts in thousands, except percentages, which are percentages of the segment's respective net service revenue): 35
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Nine months ended September 30,
2021 2020
Home health services
Salaries, wages and benefits $ 601,998 52.0 % $ 561,783 52.0 %
Transportation 27,408 2.4 27,554 2.5
Supplies and services 33,731 2.9 41,772 3.9
Total $ 663,137 57.3 % $ 631,109 58.4 %
Hospice services
Salaries, wages and benefits $ 93,950 44.9 % $ 80,297 44.3 %
Transportation 6,151 2.9 5,604 3.1
Supplies and services 29,747 14.2 26,584 14.7
Total $ 129,848 62.0 % $ 112,485 62.1 %
Home and community-based services
Salaries, wages and benefits $ 101,711 71.0 % $ 109,594 75.8 %
Transportation 1,259 0.9 1,398 1.0
Supplies and services 971 0.7 2,872 2.0
Total $ 103,941 72.6 % $ 113,864 78.8 %
Facility-based services
Salaries, wages and benefits $ 48,420 50.0 % $ 46,575 48.2 %
Transportation 29 - 101 0.1
Supplies and services 16,911 17.5 17,664 18.3
Total $ 65,360 67.5 % $ 64,340 66.6 %
HCI
Salaries, wages and benefits $ 9,527 32.0 % $ 10,905 40.2 %
Transportation 166 0.6 205 0.8
Supplies and services 27 0.1 252 0.9
Total $ 9,720 32.7 % $ 11,362 41.9 %
Consolidated
Salaries, wages and benefits $ 855,606 52.3 % 809,154 52.9 %
Transportation 35,013 2.1 34,862 2.3
Supplies and services 81,387 5.0 89,144 5.8
Total $ 972,006 59.4 % $ 933,160 61.0 %
During 2021, cost of service revenue in our home health segment was impacted by
the effective cost mitigation strategies associated with the implementation of
PDGM. Cost of service revenue in our home and community-based segment declined
due to the lower patient volumes resulting in a decrease in billable hours and a
decrease in total costs. Supplies associated with COVID-19 decreased in all
same-store locations in 2021 as compared to 2020 as we incurred substantial
costs in 2020 to acquire needed personal protective equipment to protect our
clinicians during the start of the global pandemic. We continue to purchase
additional personal protective equipment; however, we are observing an overall
decline in utilization and an overall price per unit decline for these supplies.
General and administrative expenses
The following table summarizes general and administrative expenses (amounts in
thousands, except percentages, which are percentages of the segment's respective
net service revenue):
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Nine months ended September 30,
2021 2020
Home health services
General and administrative $ 360,727 31.2 % $ 335,892 31.1 %
Depreciation and amortization 8,610 0.7 9,132 0.8
Total $ 369,337 31.9 % $ 345,024 31.9 %
Hospice services
General and administrative $ 56,874 27.2 % $ 48,015 26.5 %
Depreciation and amortization 1,915 0.9 1,545 0.9
Total $ 58,789 28.1 % $ 49,560 27.4 %
Home and community-based services
General and administrative $ 34,016 23.7 % $ 32,303 22.4 %
Depreciation and amortization 1,200 0.8 1,217 0.8
Total $ 35,216 24.5 % $ 33,520 23.2 %
Facility-based services
General and administrative $ 30,765 31.8 % $ 29,174 30.2 %
Depreciation and amortization 2,448 2.5 2,810 2.9
Total $ 33,213 34.3 % $ 31,984 33.1 %
HCI
General and administrative $ 9,473 31.8 % $ 8,918 32.8 %
Depreciation and amortization 726 2.4 897 3.3
Total $ 10,199 34.2 % $ 9,815 36.1 %
Consolidated
General and administrative $ 491,855 30.1 % $ 454,302 29.7 %
Depreciation and amortization 14,899 0.9 15,601 1.0
Total $ 506,754 31.0 % $ 469,903 30.7 %
During 2021, consolidated general and administrative expenses increased as a
percentage of revenue from 30.7% to 31.0%. We incurred
acquisition transaction expenses during the nine months ended
2021
acquisition transaction expenses, remained flat comparing 2021 to 2020.
LIQUIDITY AND CAPITAL RESOURCES Liquidity Our cash balance atSeptember 30, 2021 was$29.5 million and we have$243.3 million of available liquidity from cash and our revolving credit facility, net of$176.3 million liabilities associated with the CAAP. We have additional capacity in our revolving credit facility of$500.0 million per our accordion expansion. Based on our current plan of operations, including acquisitions, we believe this amount, when combined with expected cash flows from operations, will be sufficient to fund our growth strategy and to meet our anticipated operating expenses, capital expenditures, and debt service obligations for at least the next 12 months. Our principal source of liquidity for operating activities is the collection of patient accounts receivable, most of which are collected from governmental and third-party commercial payors. We also have the ability to obtain additional liquidity, if necessary, through our credit facility, which provides for aggregate borrowings, including outstanding letters of credit. The following table summarizes changes in cash (amounts in thousands): 37
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Nine months ended September 30,
2021 2020
Net cash provided by (used in):
Operating activities $ (51,616)$ 455,743 Investing activities (412,242) (41,773) Financing activities 206,805 (191,878) Change in cash$ (257,053) $ 222,092
Cash at beginning of period 286,569
31,672
Cash at end of period $ 29,516 $ 253,764
The CARES Act provided additional cash during the nine months ended September
30, 2020 and increased our net cash provided by operating activities by $317.9
million of Accelerated and Advance Payments and $33.6 million payment deferral
of our portion of social security payroll tax. The initial impact of COVID-19 in
2020 also increased our prepaid medical supplies due to the need of obtaining
personal protective equipment to our clinicians and increased our salaries,
wages and benefits associated with the increased staffing demands associated
with our response to COVID-19.
In 2021, CMS recouped $141.6 million of the Accelerated and Advance Payments and
we returned $93.3 million of Provider Relief Funds back to the government. We
paid $42.0 million in income taxes, of which $17.3 million related to the CARES
Act legislation. In addition, we acquired businesses of $383.5 million and
utilized our credit agreement for funding of these acquisitions. These cash
outflows were offset by a reduction in our days sales outstanding and stabilized
costs for needed personal protective equipment.
Indebtedness
On March 30, 2018 , we entered into a Credit Agreement with JPMorgan Chase Bank,
N.A ., which was effective on April 2, 2018 (the "Credit Agreement"). The Credit
Agreement provided a senior, secured revolving line of credit commitment with a
maximum principal borrowing limit of $500.0 million , which included an
additional $200.0 million accordion expansion feature, and a letter of credit
sub-limit equal to $50.0 million . The expiration date of the Credit Agreement
was March 30, 2023 . On August 3, 2021 , we entered into an Amended and Restated
Senior Credit Facility (the "2021 Amended Credit Agreement"), which amends and
restates in its entirety the Credit Agreement. The 2021 Amended Credit Agreement
provides a senior, secured revolving line of credit commitment with a maximum
principal borrowing limit of $800.0 million , which includes an additional $500.0
million accordion expansion, and a letter of credit sub-limit equal to $75.0
million . The expiration date of the 2021 Amended Credit Agreement is August 3,
2026 .
Our obligations under the 2021 Amended Credit Agreement are secured by
substantially all of our assets and our wholly-owned subsidiaries (subject to
customary exclusions), which assets include our equity ownership of our
wholly-owned subsidiaries and our equity ownership in joint venture entities.
Our wholly-owned subsidiaries also guarantee the obligations of the Company
under the 2021 Amended Credit Agreement.
Revolving loans under the 2021 Amended Credit Agreement bear interest at, as
selected us, at either (i) the prevailing London Interbank Offered Rate
("LIBOR") (with interest periods of one, three or six months at our option) plus
a spread of 1.25% to 2.0% based on our quarterly consolidated Leverage Ratio or
(ii) the prevailing prime or base rate plus a spread of 0.25% to 1.00% based on
our quarterly consolidated Leverage Ratio. Swing line loans bear interest at the
Base Rate. We are limited to 15 Eurodollar borrowings outstanding at any time.
We are required to pay a commitment fee for the unused commitments at rates
ranging from 0.15% to 0.30% per annum depending upon our quarterly consolidated
Leverage Ratio. The Base Rate as of September 30, 2021 was 3.75% and the LIBOR
rate was 1.63%. As of September 30, 2021 , the effective interest rate on
outstanding borrowings under the 2021 Amended Credit Agreement was 1.63%.
On March 5, 2021 , the ICE Benchmark Administration , the administrator of LIBOR,
announced its intention to cease the publication of LIBOR settings for 1-month,
3-month, 6-month, and 12-month LIBOR borrowings immediately on June 30, 2023 .
Effective October 25, 2021 , JPMorgan Chase Bank, N.A transitioned our 2021
Amended Credit Agreement to an alternate rate to CME Term SOFR Reference Rate
("SOFR"), which is administered by CME Group Benchmark Administration Ltd
("CME"). Due to the differences observed between LIBOR rates and SOFR published
rates, JPMorgan Chase Bank, N.A . will use a credit spread adjustment ("CSA") in
order to minimize value transfer and leave the existing margin applicable to our
2021 Amended Credit Agreement. The CSA used by JPMorgan Chase Bank, N.A . is
based on the average of the differences between LIBOR and SOFR over a 12-month
period and will be added to SOFR.
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As ofSeptember 30, 2021 , we had$355.0 million drawn, letters of credit issued in the amount of$25.4 million , and$419.6 million of remaining borrowing capacity available under the 2021 Amended Credit Agreement. AtDecember 31, 2020 , we had$20.0 million drawn and letters of credit issued in the amount of$25.4 million under the Credit Facility. Under the 2021 Amended Credit Agreement withJPMorgan Chase Bank, N.A ., a letter of credit fee shall be equal to the applicable Eurodollar rate on the average daily amount of the letter of credit exposure. The agent's standard up-front fee and other customary administrative charges will also be due upon issuance of the letter of credit along with a renewal fee on each anniversary date of such issuance while the letter of credit is outstanding. Borrowings accrue interest under the 2021 Amended Credit Agreement at either the Base Rate or the Eurodollar rate, and are subject to the applicable margins set forth below: Base Eurodollar Rate Commitment Leverage Ratio Margin Margin Fee Rate ?1.00:1.00 1.25 % 0.25 % 0.15 % >1.00:1.00 ? 2.00:1.00 1.50 % 0.50 % 0.20 % >2.00:1.00 ? 3.00:1.00 1.75 % 0.75 % 0.25 % >3.00:1.00 2.00 % 1.00 % 0.30 % Our 2021 Amended Credit Agreement contains customary affirmative, negative and financial covenants, which are subject to customary carve-outs, thresholds, and materiality qualifiers. The Credit Facility allows us to make certain restricted payments within certain parameters provided we maintain compliance with those financial ratios and covenants after giving effect to such restricted payments or, in the case of repurchasing shares of its stock, so long as such repurchases are within certain specified baskets. Our 2021 Amended Credit Agreement also contains customary events of default, which are subject to customary carve-outs, thresholds, and materiality qualifiers. These include bankruptcy and other insolvency events, cross-defaults to other debt agreements, a change in control involving us or any subsidiary guarantor, and the failure to comply with certain covenants. AtSeptember 30, 2021 , we were in compliance with all debt covenants. Contingencies For a discussion of contingencies, see Note 7 of the Notes to Condensed Consolidated Financial Statements, which is incorporated herein by reference. Off-Balance Sheet Arrangements We do not currently have any off-balance sheet arrangements with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market, or credit risk that could arise if we had engaged in these relationships. Critical Accounting Policies For a discussion of critical accounting policies, see Note 2 of the Notes to Condensed Consolidated Financial Statements, which is incorporated herein by reference. For a full description of the Company's other critical accounting policies, see Note 2 of the Notes to Consolidated Financial Statements in the 2020 Form 10-K.
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