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Almost Family, Inc. (NASDAQ:AFAM)

Q4 2008 Earnings Call

March 04, 2009, 11 am ET

Executives

Nick Laudico - IR

William Yarmuth - Chairman, President and CEO

Steve Guenthner - SVP and CFO

Analysts

Brian Tanquilut - Jefferies & Company

Whit Mayo - Robert W. Baird & Company

Kevin Ellich - RBC Capital Markets

Gregory Williams - Sidoti & Company

Reid Weaver - IMS Capital Management

Matthew Dundon - Caterpillar

Sudeep Singh - Deutsche Bank

David Freasto - Private Investor

Jonathan Mario - Private Investor

Operator

Greetings, and welcome to the Almost Family's Fourth Quarter 2008 Earnings Conference Call. At that time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder this conference is being recorded.

It is now my pleasure to introduce to your host Mr. Nick Laudico. Thank you. You may begin.

Nick Laudico

Thanks, operator. Joining us on the call today are William Yarmuth, Chairman, President and CEO; and Steve Guenthner, Senior Vice President and CFO.

All statements, other than statements of historical facts, included in this conference call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements may be identified by the use of forward-looking terminology such as may, will, expect, believe, estimate, project, anticipate, continue, or similar terms, variations of those terms or the negative of those terms. These forward-looking statements are based on the company's current plans, expectations and projections about future events.

Because forward-looking statements involve risks and uncertainties, the company's actual results could differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.

The potential risks and uncertainties which could cause actual results to differ materially include regulatory approvals or third-party consents may not be obtained, the impact of further changes in healthcare reimbursement systems, including the ultimate outcome of potential changes to Medicare reimbursement for home health services and to Medicaid reimbursement due to state budget shortfalls; the ability of the company to maintain its level of operating performance and achieve its cost control objectives; changes in our relationships with referral sources, the ability of the company to integrate acquired operations; government regulation; health care reforms; pricing pressures from Medicare, Medicaid and other third-party payers; changes in laws and interpretations of laws relating to the healthcare industry; and the company's self-insurance risks.

For a more complete discussion regarding these and other factors which could affect the company's financial performance, refer to the company's various filings with the Securities and Exchange Commission, including its filing on Form 10-K for the year ended December 31, 2007, in particular information under the headings Special Caution Regarding Forward-Looking Statements and Risk Factors. The Company undertakes no obligation to update or revise its forward-looking statements.

Right now, I would now like to turn the call over to William Yarmuth.

William Yarmuth

Thank you, Nick, and welcome everyone to our fourth quarter and full year 2008 conference call. I will begin by highlighting our key operating results of the fourth quarter and provide an update on our strategic initiative. Steve will then provide a detailed review of our operating and financial results, and then we will open the call to your question.

Before we begin though, I want to take a few minutes to acknowledge the current backdrop against which we report otherwise outstanding results. The US economy has seen a significant decline for some time. Unemployment levels are rising, production is contracting and the capital markets remain stable.

Fiscal pressures from declining revenue and the increased spending for items including towards the bailout of the financial services industry and the recent spending bill intended to stimulate the economy, have combined to increase the need for the federal government to find ways to save money.

Last week, President Obama published an outline of his fiscal 2010 federal budget proposal, which calls for a significant redistribution of federal spending on healthcare. In the proposal, the President calls for significant cuts in Medicare spending with the savings to be used to pay for healthcare coverage for the millions of uninsured America, till substantially all seniors in this country have healthcare coverage under the Medicare program, this is effectively a shift in spending away from this vulnerable elderly population. Unfortunately, the proposed budget also appears to call for a disproportionate reduction in spending for Home Healthcare services. We find this counter intuitive given that Home Health provides the lower cost alternative to higher cost institutional setting.

All of this has combined and caused a significant decline in the trading value of Almost Family shares in the marketplace. We believe this decline has come as a direct result of the external conditions related to the potential future Medicare reimbursement cuts for Home Healthcare and not as a result of any fundamental changes in our business-for-business model.

We will talk more about this later and I am sure you will have some questions about the implication if at all. Given the lack of any real information, we will answer those to the best of our ability following our prepared remarks.

The fourth quarter completed a milestone year for Almost Family. This included record financial results, robust acquisition activity and the successful opening of 14 de novo facilities. We substantially improved our capital resources through our secondary offering and significant expansion of our revolving credit facility. In addition, we generated organic revenue growth of 47%. This was driven across each of our geographic clusters of our senior efficacy mission, which built deeper relationships with existing referral resources and is winning over new referral resources with its approach to managing patients with complex medical needs.

We once again reported record results in the quarter headlined by net income of $5.2 million and diluted earnings per share of $0.62. This represents 151% year-over-year increase in net income. Our earnings per share grew about 68% even after increasing our outstanding shares about 48%. Fourth quarter revenues grew 84% to $66.2 million which included very strong results in our Visiting Nurse segment, where revenue more than doubled year-over-year and grew 15% sequentially over strong third quarter results.

For the full year, total revenue grew 61% to $212.6 million, driven largely by 80% growth in our Visiting Nurse segment along with 10% growth in our Personal Care business. 2008 net income increased 114% to $16.3 million, and earnings per diluted share grew 59% to $2.16 on 35% more shares outstanding.

In 2008, our more than 5,000 caregivers made more than 1.7 million visits to our patients' home and provided more than 3 million hours of direct patient care across 11 states. In so doing, we have helped to keep over 50,000 frail, elderly and disabled patients out of higher costs intuitional settings and at home where they really want to be.

The cornerstone of our local market strategy is our Senior Advocacy mission, which we have been rolling out at all of our existing 15 locations and implementing at recently acquired branches.

We are very pleased with the progress we have made in building this culture throughout our organization and believe our approach leads to the best possible care to the elderly patients we serve. Our visiting nurses and therapists are trained to perform a comprehensive evaluation of their patients who often have complex medical needs and identify what might be previously uncovered issues or threats to patients' health.

We then tailor individualized care plans to meet those needs providing the same meaningful skilled services in the home that nurses and therapists provide to patients rather in the hospital just at a much lower cost in the Medicare program.

Central to our Senior Advocacy mission is our strong commitment to invest in elevating the skill levels and expertise of our caregivers. We have several initiatives underway including training and educational programs, ultimately leading to the credentialing of our caregivers as geriatric care specialists. This adds tremendous value in recruiting and retention of staff, but more importantly brings a much higher quality of care to our patients, again leading to stronger organic growth overtime.

Turning to acquisitions, we are pleased to have substantially completed integration of our Patient Care acquisition, the largest in our history. We have transitioned its home office functions and systems to our global headquarters. And we look for continued strong results from that transaction. We have a strong pipeline of acquisition opportunities and ample capital resources to execute on our acquisition and organic growth strategy. Steve, will share more details with you in a moment during his prepared remarks.

In terms of de novo development, we continued to execute on our densification strategy to opening of six new de novo branches in the fourth quarter. For the full year 2008, we successfully opened 14 de novo branches which combined with our 11 acquired branches takes us to a total of 97 Visiting Nurse and Personal Care branches in 11 states concentrated in our three geographic clusters.

This represents 33% growth over the 73 branches we had at the beginning of 2008. Currently, we plan to open five to ten new start-up branches as extenders of our existing service territories in 2009.

Before turning the call over to Steve, I would like to briefly address the near term Medicare reimbursement outlook and also comment on President Obama's proposed budget outlay released last week. Medicare reimbursement rates in 2009 will be effectively flat over 2008. Based on 2.9% market basket update offsetting 2009 to 2.7% Case Mix Creep Adjustment. President's proposed budget indicates that the market basket update will be suspended for 2010, resulting in a 2.75% rate cut for that year. So based on that, we would have about two years of fairly rational and predictable reimbursement rate and 22 months from date to prepare for whatever else might be coming.

Much passed that though the visibility is less clear, it looks to us like the proposals not only suspends the market basket rate increase for 2011, but also includes a rebasing of rate by CMS, that according to the scoring and the budget proposal could lead to a total rate reduction in 2011 of nearly 10%. These rate cuts if enacted would come on the tail of two year of rate freezes.

We are having a number of reactions to this proposed budget. First, remember that it is currently only proposed, the President does not write the budget, Congress does. So, right now, there is no certainty that any of the proposal will be passed.

Secondly, think about the roughly 9,000 home health providers in the nation. Think about them in terms of a range with the larger, more efficient, more sophisticated providers at the top of the range, and the smaller, less efficient, less well under, at the bottom of the range.

We believe the proposal, if enacted, would have a significantly more negative effect on the providers in the bottom half of the range than it would on the providers in the top half of the range. And certainly more negative than on those providers in the top 25% of the range.

The National Association for Homecare has figured out the proposal, again if enacted, would cause 70% of the providers in the country to be operating in the red. If that happens, we would expect many of them to close their doors. This impact could lead to a very large but hopefully temporary dislocation of jobs for tens of thousands home health workers. Unfortunately, this would likely also create significant access problems for America's frail and elderly population.

From our perspective, the proposed budget would almost certainly increase the nation's unemployment numbers. Additionally, the patients without good access to home care or those who’s care is interrupted would most likely wind up back in the hospital or skilled nursing facility with the likely unintended consequence of raising, not reducing cost for Medicare program.

Overtime, we would expect most of the patients served by those closed providers to ultimately wind up, redistributed across the remaining providers, probably disproportionately winding up being served by the providers at or near the top end of the provider range.

The incremental margins on these dislocated patients would go a long way toward offsetting the reimbursement cuts for the providers that wind up caring for them. Well, I could probably go on and on about this, I would like to leave with this one additional book regarding reimbursement changes. There will always be changes, that's one certainty in Healthcare. To be an investor in this space one has to accept that fact. The key then is how well a company and its management team does navigating the change in fees of reimbursement.

There is one thing I do know, we have a very experienced and seasoned management team that for over 20 years prevents ability to adapt, to deal with reimbursement changes and to adjust course accordingly. Over the years, we have operated under cost reimbursement under the peer to DBA of 1997 inspired, in room payment system. Under Medicare PPS, under capitated arrangements, under per visit or per hour arrangement, under many different reimbursement structures. There are three overriding facts that will not change, what ever the reimbursement picture turns out to be

One, the senior population is large and growing fast, from 44 million to 62 million over the next 10 years. Two, it clearly costs less to care for seniors in their own homes than in facilities. And three, the patients want to be home, they do not want to be institutionalized. Unless the federal government just decides to do away with home health benefit altogether which we find incredibly illogical, we believe that the larger more sophisticated providers will ultimately come out on top with that I would want to like to turn the call over to Steve for a detailed discussion of our financial results, Steve.

Steve Guenthner

Thanks William. Much of what I have to say today about our fourth quarter and the entire year will sound very familiar to you. Since we have been talking about all year continued into the fourth quarter, generally all positive in comparison to last year and most accelerating in the fourth quarter as compared to prior quarters.

Net service revenue for the fourth quarter 2008, $66 million an 84% increase compared to $36 million in the fourth quarter of 2007. Our Visiting Nurse segment contributed 84% total revenue or $56 million with the balance of about $11 million coming from our Personal Care segment. Visiting Nurse revenues grew 108% over the fourth quarter of 2007 and 15% sequentially. This included 47% organic revenue growth and $20 million from acquired operations. This was also our first full quarter including the Patient Care acquisition.

We are very pleased with this high level of organic growth and it's a very positive trend that has grown consistently from 16% in the first quarter to now 47% in the fourth quarter contributing to overall organic revenue growth of 36% for the year. Our strong financial performance was driven primarily by continued organic growth in our Visiting Nurse segment as evidenced by these Medicare metrics for the fourth quarter. 17% organic admission growth, 38% organic episode growth, and 47% organic revenue growth. The ongoing strength of our organic admissions growth is particularly important because it's an indicator of the relationships we continue to build with referral sources at the local level.

We have seen this organic admissions growth rate increase from 4% in the first quarter to 14% in the second quarter, 15% in the third quarter, and now 17% in the fourth quarter. As William discussed in his comments regarding the President's budget proposal, the ability to generate organic admissions growth becomes even more important in times of dollar reimbursement and margin pressures. The acuity level of the patients we see continues to increase, a trend which can generally be expected to continue so long as America's senior population continues to grow older and sicker.

In the fourth quarter, our revenue per episode increased about 6% as compared to same quarter of last year. Our average visits per episode increased about 7%. And the direct cost of care per episode increased about 8%. This is not only indicative of the effect of the Medicare rate freeze but also of the higher intensity of care required by these higher acuity patients.

Our average episode length has increased from about 40 days at the beginning of the year to about 49 days at year-end. Our recertification rate reached 38% in the fourth quarter, up from 28% in 2007 and about 35% sequentially from the third quarter.

Net service revenue for all of 2008 was about $213 million, a 61% increase compared to $132 million in 2007. Our Visiting Nurse segment contributed 81% of our total revenue or $173 million with the balance of about $40 million coming from our Personal Care segment.

Visiting Nurse revenue grew 80% over 2007. As I mentioned earlier, this included a 36% organic revenue growth rate as compared to 27% organic revenue growth rate in 2007. And about $50 million in revenue from acquired operations.

As a result of the Medicare rate freeze in 2008, our Visiting Nurse segment experienced downward gross margin pressure of about 100 basis points. The increase in our VN segment operating income and our consolidated earnings is really all coming from our ability to attract more patients to care for organically in the same branches through the opening of extended start-up branches and through acquired operations.

All of this allows us to grow earnings despite downward margin pressure as we leverage our infrastructure cost across a larger business base. As a result, our net margin increased to 7.9% in the fourth quarter of 2008 as compared to 5.8% in the fourth quarter of 2007 and increased to 7.7% for all of 2008 as compared to 5.9% for all of 2007, despite the direct margin trend from the Medicare rate freeze.

In our Personal Care segment, we are starting to see some nice year-over-year increases in both revenue and profitability. In that segment, our revenues grew by a little over 10% and segment operating income grew just under 12% for all of 2008 compared to 2007.

For the fourth quarter Personal Care segment revenues were up 16% and segment operating income was up 67% over the same quarter of last year. Our performance here is improving, again due to organic volume growth but also on margin improvement due to an increased emphasis on mix of business and at total cost controls.

On allocated corporate expenses in the fourth quarter, total $4.7 million including about $1.1 million of transition expenses related to patient cares New Jersey home office. We have been saving in replacement costs in our Louisville home office as the New Jersey cost have been eliminated. We saved about $700,000 of net eliminated cost in the quarter or about $0.05 per share.

Day sales outstanding or DSO had accounts receivable stabilized to 48 days at year-end compared to 51 days at the end of the third quarter. As I have discussed on past calls, this is higher than in previous years as a result of an increase on the average length of our episode and our recertification rate, along with our tax restructuring project that we have initiated to lower our effective tax rate.

We expect to continue to see an increase in the average length of episode and our recertification rate which is a positive for the business. We would expect the DSO to shuttle in the mid-to-high 40s in 2009. As a result of our rapid growth, we had to increase on investment and accounts receivable by about $14 million of which $11 million is related to organic revenue growth and the balance is related primarily to the longer average episode length. Net cash flow from operations was about $5.8 million for the quarter and EBITDA was about $9.6 million. EBITDA for the entire year was just over $30 million.

Turning to our balance sheet. At year-end, total assets were about $161 million and total shareholders equity was about $95 million. We had a little over $1 million in cash and $32 million total debt, including about $24 million outstanding on our revolving credit facility.

Moving onto business development matters. During the quarter, we acquired a Home Health Agency in Fairfield, Ohio and a Certificate of Need for four additional counties in the State of Kentucky consistent with our near-term focus on densification in our Midwest geographic cluster. The integration of Fairfield agency is underway, we welcome these new employees and patients to Almost Family.

In Kentucky, we are evaluating the potential for de novo developments in the counties covered by the acquired Certificates of Need and have already begun servicing patients in these areas from our existing Louisville based branch. This progress in our Midwest cluster builds on the momentum of our Patient Care and Apex acquisitions earlier in the year.

In total, we have acquired 11 Visiting Nurse branches in 2008 expanding our market presence in Florida, Connecticut and Ohio and giving us an initial market presence in New Jersey and Pennsylvania. This has led to a more diversified geographic footprint and more opportunities for densification around the status local branch.

While acquisitions will continue to be an important part of our strategic plan, given the current condition of the capital markets, the increase we are seeing in the number of acquisition candidates and the decrease we are seeing in the number of buyers, we are in a great position to be very selective about which deals we choose to pursue. We have a nice pipeline with attractive deals and we will continue to work towards closing some transactions in the near-term.

It's a little hard to tell at the moment what impact the budget in the credit market will have on the availability of desirable transactions, but it seems reasonable to expect private valuations to decline and more sellers to come to market. As we have been in the past, we will continue to be very deliberate in our approach and very judicious in our use of capital.

Regarding our capital structure, we said many times over the years that we are relatively leverage averse. One has only to consider the administration's current budget proposal to understand why. As we proceed, we will keep a close watch on reimbursement in the credit markets to make sure we don't overpay or get over-levered in the process.

We actively consider with any investment opportunity, the amount of time needed to de-lever and whether the clarity in the reimbursement environment over that time presents us with a manageable risk.

In closing, given the conditions in the credit market, I would like to point out that we have about $50 million available on our $75 million credit facility led by JPMorgan which is good until mid-2011. Hopefully by then we will see some improvement in the capital markets. William?

William Yarmuth

Thanks, Steve. We will now open the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question is from the line of Art Henderson with Jefferies & Company. Please state your question.

Brian Tanquilut - Jefferies & Company

Hey, guys, it's actually Brian. Congratulations on a good quarter.

William Yarmuth

Thanks, Brian.

Brian Tanquilut - Jefferies & Company

Bill, thank you for giving us that color on your view on the budget and all that stuff, but let me just ask you first, do you have any GAAP or has the industry group figured out why the homecare sector was singled out in the manner that it was, particularly given Obama's campaign question to make sure that seniors have access to homecare services.

And then as a follow-up to that, what is the industry, I know, you guys have an alliance going on? What is alliance doing to justify to Medicare or to the administration, the value that you guys bring to table?

William Yarmuth

Well, first of all, it appears that a lot of the budget proposal neared a lot of what MedPac had proposed earlier in the year. So you could just go back, and kind of look at MedPac rationale, why they might have chosen to pursue the tap that they did with Home Health in the budget.

And so, relative to the actions they were going to take. First, there is the alliance for Home Health quality innovation that has been developed and put together over the last year, and really our mission there is to try to educate and provide research on behalf of the industry to show that the benefits that it offers for the health care delivery system and we will continue to do that.

Relative to the budget proposal, we would look to the National Association of Home Care to lead the efforts as it relates to the proposal. And we will support them. And I think that what we will see is a meaningful grass root groundswell of people in the industry and people who exploit the industry to try to demonstrate its importance and communicate its importance to members of Congress.

I think that will be vigorous, and I think we will all work together following the lead of the National Association of Home Caring, and relative to its real value and demonstrating its real value, we have always sort of recommend that any member of congress calls some Home Health provider in their district and go see a patient and see the care that we are providing, and the level and quality of care and the skills that are being provided to people in their home. And I think once they see that, they will understand that the President's proposal is not well founded.

Brian Tanquilut - Jefferies & Company

Got you, thank you for that, and then next question. Given the magnitude of the cuts, that they are proposing, what are you guys looking at operationally, I mean are there areas within your current operations that you can improve to basically shore up margins as these major cuts happen?

William Yarmuth

Yeah, I think the last part of the question that you made is the operative part. First, we said these are proposals now, and they haven't been enacted. And they have been out there I guess less then a week now.

So, what we will do is certainly we will study all details. And as we always do, we look for ways to improve the efficiency of our business. But our primary approach has been, and I think it shows in our organic growth rate, is we are all about trying to get more patients and service more patients and demonstrate that we are the provider that should take care of those patients. And when we do that, we get the organic growth.

We talked about sort of in the prepared remarks, we think that’s the first place to get to deal with reimbursement issues. And obviously, we will deal with other areas, both productivity of caregivers and techniques we can use for that, efficiencies within our administrative staff, management information systems that will help us control costs and we are looking that we will go from top to bottom on our income statement and try to figure out where we can impact savings without jeopardizing the care we provide for a patient.

Brian Tanquilut - Jefferies & Company

And then Bill, just on the Medicaid, obviously you put out some pretty good numbers on the PC business, but we are obviously hearing a lot of Medicaid state budgets being under a lot of pressure. How should we be thinking about that going forward?

William Yarmuth

I think we have talked about this on previous calls relative to Personal Care in the Medicaid arena. First of all, I think one of the things you probably will see with the economy being where it is. There is going to be more people on Medicaid and there is going to be more demand for Medicaid services. So, I guess relative to us, as a service provider that’s potentially a positive and state government I think has been consistent.

Most state governments in which we operate have been consistent in their support of home and community based service as an alternative to long-term institutional care. I do not think that's going to change. I think the pressures are going to be greater, to contain the long-term cost and keep people out of nursing homes.

And I think there will be funding for it, and I do think the President already is committed and I think it has made an allocation of funds to the state government in the last few weeks and I think a lot of that money will be used to support those patients.

Brian Tanquilut - Jefferies & Company

Got you, and then last question. You had talked about your senior advocacy programs being completely rolled out. Now in terms of your specialty programs what's the penetration rate right now in your specialty programs?

William Yarmuth

Well, first off, I don’t believe I have said they are completely rolled out. I believe I have said we were rolling them out through our existing branches and to the branches that we have -- to the new branches that have joined our family of care givers through the acquisitions that we have made.

So we are in the process of doing that, it will take a while because we continually try to innovate and we learn from the innovation that we are using with the senior advocacy. So we would hope to continue to see some meaningful impact from further rolling the standards of excellence and standards of care and clinical programs that we have as a part of that out to our operations. But it’s probably, we have been doing it for about a year now so, we still have ways to go.

Brian Tanquilut - Jefferies & Company

Thanks and congratulations to you guys.

William Yarmuth

Thanks.

Operator

Thank you. Our next question is from the line of Whit Mayo with Robert W. Baird. Please state your question.

Whit Mayo - Robert W. Baird & Company

Thanks. First question on your recertification rate, it was growing I guess 38% if I heard you correctly for the quarter. I would have thought that the revenue per episode would have been a little bit higher, probably a little bit more normal for some of your peers. So can you help me understand and kind of frame up kind of what was going on there and looking at the number, looking at your episodes how many had therapy visits at this point?

Steve Guenthner

Whit this is Steve, I am not sure what you are referring to, about why you think the recerf rate would change the revenue per episode. We have experienced about a 6% increase in our revenue per episode as it relates to an increase in the acuity level of our patients and so if you want to ask more specific, I guess I could probably try.

Whit Mayo - Robert W. Baird & Company

Well I have been working under the assumptions that the second and third and fourth episodes were paid more for the same patient than the first episode. So I would have thought that number would have been a little bit higher than 6%, but we can probably talk about that offline if you want?

Steve Guenthner

Yeah actually I think you have to get past the second episode before you get any increases in reimbursement, actually third episode on. So yeah we can talk about that offline.

Whit Mayo - Robert W. Baird & Company

Yeah, okay. And just on the integration of Patient Care, how much do you have left to do within their home office at this point and can you remind us kind of what you guys are doing with the billing conversions and how that’s going?

William Yarmuth

Sure, we said back in, I guess in summer when we announced the Patient Care transaction that one of the things that was really attractive to us about the business is that the branch operations were very strong and were generating branch level contribution very consistent with our own.

So, there really was not a whole a lot of work for us to do from an integration perspective in the branches. The work that we had to do was the elimination of Patient Care's New Jersey home office and substantially all of that has been completed over the course of 2008.

With regard to infrastructure, Patient Care is, with its eight branches and roughly $50 million run rate, our entry into the world of point of care devices we have historically not employed in our business and we have taking the opportunity to study real time value of those devices and that technology and learn more about it. And in order to give ourselves full command and control of what's going on in the business, we have built a software interface between the Patient Care information system and our own information system.

And as we have talked about in the past, our information system we build our own here and we have invested the vast majority of our dollars on management information out of this system relative than the input devices used in their homes. And so we get a very rich set of management information reports that allow us to have a complete handle on what’s going on in the business all of the time, and we accomplished that actually a little bit prior to closing the transaction. So, we are feeling pretty very -very comfortable with our integration there and would expect no material transaction cost to be in the first quarter of '09.

Whit Mayo - Robert W. Baird & Company

Okay, thanks. And I think I missed or I am little confused on the expense number that you gave before, I guess the integrate or transition cost, you said $1.1 million and then there was a $700,000 number, can you break out those for me?

Steve Guenthner

I can do that.

Whit Mayo - Robert W. Baird & Company

Thank you

Steve Guenthner

The $1.1 million is very easy to identify, very discreet costs, mostly payroll paid to individuals working in the Patient Care West Orange, New Jersey office in the home office there. And what we said we were doing in the course of 2008 was phasing into our home office here those incremental people and physicians and the costs that we would need to take-over the work that have previously been done by that New Jersey home office. And that’s where most of the near-term earnings accretion in the deal comes from and it’s a little bit more challenging to measure exactly given our organic growth rate and the new branches that we are opening elsewhere in the organization.

It’s a little bit challenging to discreetly identify specifically how many dollars of cost we have here, but we’ve said that we were going to spend about $1.6 million incremental run rate annually once we are done. So we’ve sort of said we take that $1.1 million minus about $400,000, which is the quarter’s worst of the $1.6 million, and that’s how we have estimated that $700,000 pre-tax and about a nickel after-tax.

Whit Mayo - Robert W. Baird & Company

Okay, so that was just a severance related payment.

Steve Guenthner

Well it’s the payroll that we paid them during the time period that they worked, because that was actually work that they were doing. It wasn’t just severance payout, but actually work taking twice that the folks were doing to help us transition those functions.

Whit Mayo - Robert W. Baird & Company

Okay. That's fine. And looking at the balance sheet, there is some deferred tax liabilities that moved up in the current category. I know there is some moving parts with purchase price allocation for Patient Care. Can you kind of flush out those numbers for us and I guess it has some implications for your D&A as well?

William Yarmuth

Yes, the accounting rules provide us with an allocation period, a window of time in which we get to make our purchase price allocation post transaction, we used outside folks to help us with that valuation, consultants to help us determine that and of course, we work through since this is an acquisition of stock. We worked through all of the historical tax returns and tax positions and we have not only to deal with the Patient Care's last fiscal year-end, but also brining all of that information down to the acquisition date and calculating the resulting deferred tax asset and deferred tax liabilities from there.

So, those things moved a little bit from September as we really only had about 30 days post closing to make our very initial recording of the purchase price allocation as of September, and that has gotten refined to a large degree as of December, although, I will tell you that we are not done yet. We feel comfortable with our estimates, but that purchase accounting window remains open and will not be closed until sometime during 2009.

The period can not exceed a year, so we will certainly be done by probably the end of the second quarter, but we don’t expect a whole lot of movement to past there.

Whit Mayo - Robert W. Baird & Company

Okay. So, looking at the D&A number in the fourth quarter, is that a good base to start from as a run rate or should that step back up, I guess you saw a little bit lower acquired intangibles in the quarter?

William Yarmuth

We think that’s a pretty good number.

Whit Mayo - Robert W. Baird & Company

Okay, great. That’s all I have got. Thanks.

William Yarmuth

I am sorry. Thanks Whit.

Operator

Thank you. Our next question is from the line of Kevin Ellich with RBC Capital Markets. Please state your question.

Kevin Ellich - RBC Capital Markets

Good morning guys. Thanks for taking my question. I guess, Bill, just starting off, you gave a good outlook and commentary on the reimbursement changes with the proposed budget. But let's say, in 2011, obviously, it’s kind of tough to imagine what will happen, but if indeed those cuts stand, what's your plan from a strategic standpoint, I mean, would you just [hurry] down, accrue cash or would you go out and make a bunch of acquisitions in that type of environment?

William Yarmuth

Well, Kevin, it's hard to sort of anticipate what the environment is going to be like. So, we think there is going to be if it has to, we think there will be some real issues in the industry relative to some of the providers that we talked about in this whole range that I have talked about in my presentation. And so, I think what we would do first in an anticipation of it, we will go through the process of putting together or sort of strategic plan for how we would adapt to the reimbursement change when it happens. And then, what we would likely do is first continue to pursue organic revenue growth.

So, we would emphasize going out into the marketplace and continuing to increase the number of patients that we care for in our existing branches. We would, over the time, evaluate the acquisition market, see what it looks like. And, we would look to see where we would potentially begin a process of opening up some de novo branches maybe more at a little bit more aggressive rate than we are right now. But once again it’s all very hypothetical at this point, I do feel very confident that we have been through, if that were to happen, we have been through dramatic reimbursement changes in the past and I am very confident that we will be able to first that situation, come up with an operating plan that will allow us to continue to operate profitably through that process and look for ways to grow the business.

Kevin Ellich - RBC Capital Markets

Okay, that’s helpful. And then thinking about that number you mentioned, the 70% of collateral that would be operating with negative margins. And given the potential for access to care issue, what do you think the likelihood of the 5% real add-on would be at this point? And I am not trying to handicap, just where did you update that and then what percent of your business is non-urban?

William Yarmuth

Well, that's probably not a question that I would care to answer, because for us the rule add-on is not a meaningful part of our business or service model, so I would probably prefer not to make much comment about that or its prospects or over that.

Kevin Ellich - RBC Capital Markets

Okay, I understand. And then Steve, going back to the 47% organic revenue growth, I think you said 17% organic mission growth and then was the remainder pricing or?

Steve Guenthner

38% was episode growth, so we talked about the increase in the recertification rate, which has been taken place over the course of the year in our business due in part to a change in our approach in marketing, and kind of where we are going to get patients, the Senior Advocacy Mission as we further educate, and credential our caregivers, identifying previously unidentified and unmet needs of patients. And also the recertification rates are increasing nationwide as the population ages and gets sicker and as Home Care rates continue to find ways to keep people out of hospitals longer.

Kevin Ellich - RBC Capital Markets

Okay.

Steve Guenthner

So right now it is a little tough to tell just based on all the public disclosures and not everything is out etcetera, but we think that we are somewhere in the middle of the path among the public companies at least in terms of recertification rate. And it's again a little challenging to predict exactly, but it's probably close to stabilizing out right at the moment.

We did see about a 6% increase in the revenue per episode and most of that was an increase in the severity index or the case rate for the patients, which is an indicator of their clinical needs. And of course, we talked about the fact that we are doing about 7% more visits, which is reflective of the increased intensity.

So the patients are sicker and we are doing more care on them. And so the revenue side and the cost side are moving hand-in-hand there.

Kevin Ellich - RBC Capital Markets

Okay. On the case rate or severity, have you guys ever disclosed that or provided that information?

Steve Guenthner

No.

Kevin Ellich - RBC Capital Markets

Okay, are you willing to at this time, or not?

Steve Guenthner

We will not at this minute.

Kevin Ellich - RBC Capital Markets

Okay, thanks.

Steve Guenthner

So consider it.

Kevin Ellich - RBC Capital Markets

And then thinking about the Personal Care business private duty, have you noticed any weakness given the troubles in the economy, and can you give us the payor mix on that side of the business.

Steve Guenthner

Sure, the business is close to 75% Medicaid state government programs, tacking on just a little bit of what William said. The President says, I guess it's all of ours now, the spending stimulus bill that was passed and went into effect one week or two ago did send a lot of money to state governments, a big budget which is being used to help with Medicaid budgets.

Medicaid is the biggest spend in most of the government programs. We think all of that is recognition of the value of that. The number of patients eligible for Medicaid is not going to go down, it's going to go up. People are getting older. There are easily three requirements for the Medicaid, one is you have to meet the medical requirement; number two you have meet the income and asset requirement. And as our frail and elderly population see this retirement evaporate with the marketplace. And people get older, we are going to see nothing but increased demand for that.

I think on the positive side, we are seeing more and more people interested in work as healthcare workers and so there are more, as unemployment rises there are more people looking for work. So we have the wonderful benefit of being able to offer those folks employment opportunities, and so we really are feeling okay about that part of the business.

Now, from a margin perspective, the direct margin on that business absent mix changes across the various states that we operate in, most of the margins have been squeezed down to the point where there is not much else to squeeze out.

So regulatory implications let’s just pay less will probably result in no care. And they visit thereafter very, very long time. It is close to $20 billion spend we always talk about the size of the Medicare home health spend while the home and community based care spend from the Medicare provinces probably just a little bit bigger in terms of total dollars and actually we think that that’s probably an area where we are going to see as margins decline on the Medicare business. We probably are going to ultimately want that being pretty happy that we are still in the Personal Care business to see it be able to grow and become a more meaningful contributor to our business. It’s not a change in our strategy not as yet. But it becomes much more helpful as time goes on.

Kevin Ellich - RBC Capital Markets

I see. And then last one question, in view of the acquisition environment and the current valuation of the company, what type of multiples are we looking at or what you had to target when making acquisitions and does the current valuation change your outlook as to how many deals you want to target, uses of cash?

Steve Guenthner

Most of what I am going to say about that is going to echo the prepared comments.

Kevin Ellich - RBC Capital Markets

Okay.

Steve Guenthner

And tying on to what the question, I guess William responded to earlier. There are going to be winners and losers. First, regarding 2011 we are all guessing. There is not, I mean there is very thin information available in the President's budget outline to tell us what the proposal really even is for 2011. And we have analysts on this call who do not agree on what the President's proposal is. So we are doing a whole lot of guessing. And we sort of laid out for you, what our best guess is which is it looks like because of the net back recommendation for 2011, but we do not really know that.

We just know that there is a proposed savings of $2.5 billion in 2011, I guess the budget is probably in the low $20 billion range. So it certainly appears to be a 10% saving. If that occurs, if that is in fact a 10% reimbursement reduction and volumes redistribute as low end providers go out of the business. There will be winners and losers. So to some degree we hope to be a winner, we will work to be a winner and be a recipient of that volume, but there will be other people who will be recipients of that volume as well who will remain as attractive acquisition candidates to us.

The issue with regard to acquisition is stability and predictability and there are two issues here. One is like this moment the reimbursement is not very predictable. Number two, the credit markets are essentially shut down. So you have two factors that are going to lead to in our view significant -- well have already led to in our view, a significant contraction in the number of transactions and we think that if deals are going to get done, they are going to get done on a lower valuation than they otherwise would have.

So, those two factors put together cause us to say the things that we said. We will continue to be able to do the acquisitions, will need to be very selective, they will need to be very thoughtful in evaluating the delevering period. And matching that up -- actually it’s a long and short matching of of the delevering period and the predictability of the reimbursement environment. So, within that context, we will continue to look for acquisitions and make good when we find them.

Kevin Ellich - RBC Capital Markets

Sounds good, thanks guys.

Steve Guenthner

Thank you, Kevin.

Operator

Thank you. Our next question is from the line of Greg Williams with Sidoti and Company. Please state your question.

Gregory Williams - Sidoti & Company

Good morning. Great quarter guys, and thanks for taking my call. Can you just go back and talk about the last Thursday's budget at the senate, sounds like any seasonal lead the way. And we like to keep telling you, besides the grass roots effort which you mentioned, should we consider any other options or any concession like a moratorium on new agencies or anything else?

William Yarmuth

Well, I do not speak for the industry. But I know that there was a proposal that was put forth last year relative to some way to constrain the growth of Home Care through a more towing provider numbers. I mean, yeah, more new provider numbers as a part of some discussion about, I think, the rural add-on. But I think that was out there and was floating around. But that obviously was not passed. I do not know whether when we get into this and if there is a [receive] at the table and you can talk about options, whether that would resurface or not. I know that wasn’t a item that was floating around.

We have, at this point, Greg, we know so little about, I mean we are sitting here, we reread the budget like everybody else and tried to go back to and figure out where the proposals came from and studied the net packed document, studied the CBO documents. And if you kind of go back and say, see Will, this initiative or that initiative came out of this page in CBO book and the concept wasn't same, but the savings and the numbers were different. And so, I think we all have been sort of struggling and asking questions about, does anybody have details? And I really don’t believe not only do we not have details, I don’t believe many people in Congress have much details. I know they are doing some hearings, have been doing some hearings over the last couple of days in Washington, but I am sure that anybody has it.

So, I think it would be really premature on our part to say anything other than it's out there, clearly it's something that we need to keep our eye on and we as an industry need to work to try to get the right message to the members of Congress about our industry and how important it is in the healthcare delivery system, and how important it is to seniors. But we really are trying to take the lead from National Association of Home Care from ou advantage point. I will assume not for profit segment and the industry is going look to the D&AA to lead their efforts, but I do believe we will come at this as the united industry and I think we can be pretty effective.

Gregory Williams - Sidoti & Company

Okay, thanks for the color. I mean I agree lack of clarity is frustrating here. Can we just change gears, I wanted to talk about Florida and I know that’s one on there, and possibly GAO reports that was issued in Congress. Can you guys have a heavy presence in Florida, do you scrutinize the landscape probably more so and others. Maybe can you give some insight on what you guys saw in Dade County and others and can you identify or punish these agencies. What do you think the reaction will be with the regulatory bodies?

William Yarmuth

Well, I think we have talked about this on our last call, it came up and we made some comments about it, because we do have a large presence in Florida. We do not provide services in Dade County and that was intentional on our part. I believe that most people in the industry knew that was some role providers in Dade County that were probably not playing by the rules potentially taking advantage of the rules. That’s happened number of times, and it's been in Dade County back in 1995, 96 and 97. So, we all knew they were there and some people like us choose not to provide services not to get into that arena.

And we also I think shared some information in the last conference call about, when you look at the data it was pretty obvious that there was some abhorrent behavior going on in Dade County relative to outliers and relative to the number of visits per patient, relative to the number of patients on service. And so, while we commend the fact that the government has come in and put a stop to that, I personally strongly object to any inference that Miami is indicative of what's going on around the rest of the country and our industry. So, I think that’s probably the comment that I would like to make is, if the GAO report comes out and talks about Florida and mentions Miami, as far as I am concerned I don’t think that's reflective of the industry. And I think if anybody looked at the numbers, and we can certainly go with those with you offline if you would like, I think they would come to the same conclusion.

Steve Guenthner

I would just add in that the findings with regard to the OIC in Miami-Dade County are not limited to home healthcare that we provide. But also cover home oxygen, durable medical equipment, infusion clinics and all kinds of other Medicare suppliers. We don’t know what it is about Miami-Dade County, but it appears to be a hot bid of compliant and government investigation issue in a lot of areas. Not just related to home health nursing.

Gregory Williams - Sidoti & Company

Okay, great for that insight and great quarter guys thanks.

Steve Guenthner

Thank you.

William Yarmuth

Thanks Dave.

Operator

Thank you. Our next question is from the line of Reid Weaver with IMS Capital Management. Please state your question.

Reid Weaver - IMS Capital Management

Good morning guys, great quarter.

William Yarmuth

Hi, thank you.

Reid Weaver - IMS Capital Management

I just had a quick question here, I know you are probably getting ready to end the call here. In the December conference you seem to have opinions against point of care technology. And you mentioned that you had some point of care technology coming with the patient care acquisitions. Are you open to considering the source of technology for other parts of your business especially if the efficiencies to beginning in the face of the changing reimbursement environment?

William Yarmuth

Certainly we are open to it, that's why we are using it in eight of the branches in which I guess couple of 1000 patients a day in New Jersey and Connecticut in the patient care deal.

Our view on technology is evolving, as technology is evolving, there are people out trying to push point of care devices out in the home healthcare for 10 or 15 year's. And earlier on in that process the primary problem with them was it didn't work and the failure rates were very-very high. So that technology is evolving, it has become more stable, we have become more open to the idea.

Number 2 is, we believe that the interaction between our clinicians, our caregivers and the patients is the single most important thing in the care delivery process. Flipping a laptop open and sticking that between the patient and caregiver, we think is detrimental to the interaction.

So we have said, look if we can get to the point where it essentially the technology looks like flip chart, you can right on it, check boxes on it and it doesn't intrude in that experience, then we would be far more open to it.

So there is two reasons we have sort of ahead on the list of our previous position not to put that technology in. Our experiment is going on right now, is post implementation. There are a number of almost horror stories where people have had very difficult time with training with loss of business during the period of implementation and the change management issues associated with putting the technology in.

So as we evolve, as it becomes easier for the devices to work, they work more. They are not intrusive and they are much more reliable, change management becomes easier. We are not a believer that the computer can tell the nurse what kind of care plan she should put in place or he should put in place for that patient.

In our model, the critical thought process, and a critical judgment of the caregiver is central to developing the best care plan. The computer could be a tool, it could be an input device. Frankly what we have seen so far in most implementations, it's an input device just like a sheet of paper in a relatively lower cost clerical person, chain something and works back in the office input device. So we are really not all that focused on the methodology to get the data into the computer. We are much more focused in investing our time and energy in developing the skill levels of our people and working towards credentialing them as geriatric care managers. So, their eyes and ears and hands are on the patient, focused on the patient to get the best outcome for the patient. So when the technology can exist in that process, we are out for it.

Steve Guenthner

We have made the decision years ago not to pursue hand-held technology as a key element to our service delivery model, because we thought we should concentrate on other things that would yield us more patients and focus on the service, and we would continue to evaluate hand-held technology. We are continuing to evaluate and we will continue to evaluate it regardless of reimbursement change. We just didn't think that it was a key element to our service delivery that we needed to commit resources to be a pioneer in that area.

Reid Weaver - IMS Capital Management

Okay, sounds good. Thanks very much.

Steve Guenthner

Thank you.

Operator

Our next question is from the line of Matthew Dundon with Caterpillar. Please state your questions.

Matthew Dundon - Caterpillar

Hi, and also congrats. I don't know if you guys have taken a look at it. But MedPac, the other day came out with a report that said they wanted to take a look at the relationship between providers that make referrals in home health agencies. How do you describe sort of where you stand as it relates to this kind of relationship?

William Yarmuth

Well, we have operated under, I guess for years, and that's pretty straightforward regulation as it relates to try to abuse and anti-kickback that we have strongly followed. And so I don't know, I can't say that I'm familiar with what MedPac came out with and what they were referring to, but our policy is that we are going to follow the rules and regulations and there has been a movement recently, and Florida is a big state of ours and they passed some regulations that went into effect last July, that were pretty restricted, in fact they were more than pretty restricted, they were extremely restrictive about the kinds of relationship that you could have with referral sources and primarily physician.

So, we probably see that happening going forward in the industry throughout the country that they may follow the prescription that Florida has established last year, and we would support that. I mean maybe not as restrictive as it is, but they have one of the rules that you can't drop off, you can’t get somebody a sticky pair, you can get $5,000.

Now that may be a little bit overly restrictive, but I think the philosophy that we had was better that way than the other way. And so better overly restrictive than too loose. And so we support that, we think it's going to end up being good for the industry long-term, we think it would probably be more pervasive, at the same time restrictions I think are going on in the pharmaceutical business right now in terms of their detailing.

So I think from a trend perspective, we are going to see more of it. And we believe, we will go out and get more patients by educating our referral sources about the skills that we have and skill level we have and care providers that we have, our geriatric specialists and educating them on what can be done in the home, and what can be done for their patient.

And by doing that, we think, we will win them as a referral source and that's our challenge and that's our goal in the particular sort of arrangement with physicians, we don't necessarily support.

Steve Guenthner

Just so there is no confusion, the MedPac document really talks about physician relationships with respect to all health care entities, and actually more specifically talks about them with regard to drug and device manufacturers and hospitals. So, and again, just in the interest of clarity, we have no physician ownerships in any of our agencies or any of our operations.

Matthew Dundon - Caterpillar

And how do you guys stand in terms of compensating physicians, also any referrals?

William Yarmuth

So, the regulations are pretty straight, the rules are pretty straight forward. And we abide by those rules and we are comfortable with those rules.

Matthew Dundon - Caterpillar

And do you guys follow sort of the Florida guidelines outside of Florida?

Steve Guenthner

In some areas, we do, but not totally. When you say the Florida guidelines, can you be a little more specific on Florida guidelines with respect to what?

Matthew Dundon - Caterpillar

With respect to relationships with providers, the situation we just have been talking about that you indicated was something that Florida had already sort of implemented relatively strict.

Steve Guenthner

I would not call that a model. I would not call it a model plan. I think what I was basically saying is we back the direction that is growing and may be Med Pack is talking about that. Really, I think that the claim field is really not leveled in a lot of areas and other healthcare providers can have far more robust financial relationships with physicians than we can. So, I think if the government goes towards some strict guidelines, it would probably be a benefit.

Matthew Dundon - Caterpillar

Right. That’s what I was trying to understand.

Steve Guenthner

Yeah.

Matthew Dundon - Caterpillar

It clearly seems like they are going in that direction.

Steve Guenthner

It does seem that way, yes.

Matthew Dundon - Caterpillar

Thank you.

Steve Guenthner

Thank you.

Operator

Thank you. Our next question is from the line of Derrick Dagnan with Deutsche Bank. Please state your question.

Sudeep Singh - Deutsche Bank

Hi, its actually Sudeep Singh in for Dagnan. Thanks for taking my question. Just along the same lines, can you talk about what percentage of your referrals come from physicians versus maybe half both discharge planners?

William Yarmuth

Yeah we have some information on that.

Steve Guenthner

Sure Sudeep this is Steve, we have seen a change and I guess a lot of people have seen a change over the past 5 or 6 years. Years and years ago, Home Care was almost entirely dominated by hospital discharges. As the benefit has evolved, the number or the percentage of the patients that come to us directly from the hospitals has declined or say it another way, the number of patients that have come to us directly from physician offices or not from a discharge from a hospital or in-patients skilled nursing facility has increased. About five years ago, that number was about a third of our admissions coming not from hospital and skilled nursing facility discharges, and today it’s approaching half.

Sudeep Singh - Deutsche Bank

Okay great thanks a lot?

Operator

Yeah, thank you and our next question is from the line of [David Freasto], a Private Investor. Please state your question.

David Freasto - Private Investor

Good morning gentlemen a great quarter. I would like to ask about the de novos that you have put on the board; you said that you established 14 de novos in 2008. When you say start up is up the same as de novo?

William Yarmuth

Yeah.

David Freasto - Private Investor

And are these new agencies or are they just branches in conjunction with your densification effort.

William Yarmuth

Well David, primarily we call them extenders. It could be a new branch that could be a part of an agency or it could be a new agency depending upon regulatory requirements or limitation. But they are essentially extenders of an existing branch that as our business grows we will, and our office size gets to a certain size, then we will begin to create an extender branch out into a local community near where the traditional name for a parent might be. And so we just extend our reach and our service and our presence in those local communities.

And so, I’ll use the example in Jacksonville, Florida where we acquired Apex in March of last year and we have now opened, I think about five branches around the Jacksonville area and outside of the Jacksonville area in some small towns that were referral sources and feeders from Jacksonville and where they had patients. And what we found overtime is by doing that and putting a management team of clinical management team in that area, and being a part of that community and able to build those businesses in a pretty rapid pace and continue to grow in the areas that we moved those patients from, there were services. Really creating capacity in our existing offices and then a local presence that we found has been very helpful in our ability to grow organically.

David Freasto - Private Investor

Now, those offices at least at first loose money. Steve, do have any idea of how much say per quarter in the most recent quarter that was a drag on your earnings as those startups aids that will go from an earnings drag to an earnings generator.

William Yarmuth

Let me give a little granularly to you David. There is a variation in how this can work out. Where we do what I would call a Greenfield startup. You are correct, it would tend to generate operating losses when we first start. For example, we opened a branch in Columbus, Ohio and we really didn’t have any kind of Medicare certified business anywhere near there, we had acquired a licensing provider number in another acquisition, a][nd part of the development strategy here especially when you require some things and you have some duplicate licenses, overlapping licenses, provider numbers, you can sort of move them around a little bit get startup action going.

So, in that example, we did start an office in Columbus during the year. And it would have some small startup loses but not very significant. We can get that to you while I am talking here. Most of the, can you get that [John], the Columbus number? Most of the startups that we do, because they are extender branches don't start with an operating loss. So, for example, I’ll use a little different example North of Kentucky, that's 35 miles outside Louisville little community called Shelbyville, Kentucky has a small hospital, has a medical office building, its medical practices. And we had been serving out of our Louisville office to about 50 patients out there. We just had nurses driving out there.

So, we got to the point where we said, what we should do, we can just rent some space, hire a director put it, hire a sales person or two from the Shelbyville marketplace. And let’s go out and market that hospital and doctor community and some of the outline communities around Shelbyville. We did that about two years ago and our 50 patients there has grown to about 200 patients to-date. So, it never really had any startup losses to talk about. And that's really the much sounder economically, operationally, much sounder way to go at these de novo's and the vast majority of the de novo's we have done has been like that as opposed to the Columbus, Ohio example, that I was talking about.

David Freasto - Private Investor

Right. So what you are saying is that in the most recent quarter, the drag on earnings of new startups, because once upon a time you did breakout startup losses. I heard back in the adult days, would you say that there is any of losses in there $0.05?

William Yarmuth

I would say that it’s maybe 120 grand, year-to-date pre-tax. Not a significant number anyway. This is not just, David is a better investor in our company for very long time back when we were in the medical day care business, we would go out, start a new day center with substantial amount of real estate cost, fixed cost that would come to the bottom line until we got to certain occupancies sort of like system billing works, these healthcare startups are not, they don't really follow that model for us.

David Freasto - Private Investor

Right. And just so I go on record about the stock, I know that there are limits to what you can say or what you will say. Even as we speak, stock is down despite phenomenal earnings pressured by the Medicare concerns etcetera. Is there a point at which the cash is better spent, buying back stock, I don’t think we are at that point but/or some other use of the cash when the valuation is so low?

William Yarmuth

I would say that we think there is real opportunities in this industry, growth opportunities for us and the best use of our cash would be to pursue growth in whatever form we do, whether it's the acquisition or de novo at this point in time. That’s probably all we would like to stay at this time on that topic.

David Freasto - Private Investor

Okay. Guys, thanks and again a phenomenal quarter.

Steve Guenthner

Thank you

Operator

Thank you. Our next question is from the line of [Jonathan Mario] a Private Investor. Please state your questions.

Jonathan Mario - Private Investor

Good afternoon gentlemen, congratulations and thank you for taking the call. As the President’s budget becomes more apparent, is there any specific criteria that you could foresee that will significantly affect Almost Family aside from the previously mentioned home healthcare that you spoke of already, or is it just too big at this point?

William Yarmuth

I would say virtually everything that we have seen in the President’s proposal is very vague and some of the proposals that they have out there, are not projected to come into play for three or four years. So I mean, it will be so speculative on our part to basically say that there is anything else out there.

I think we are focused on the part of the budget that can impact us the most right now. As we have said, we think even if it is enacted, there is a fair amount of clarity between now and 2011 about the reimbursement, and there is always the opportunity to 2011, it's a long way and a lot of things can happen between 2011 that could result in anything that’s passed today not being implemented two years from now.

Steve Guenthner

So, there is a whole amount of congressional cycle that happens, as this Medicare beyond instead of spending thing after every year, so you have a whole amount of cycle to go through.

Jonathan Mario - Private Investor

Alright. Thank you very much

William Yarmuth

Okay, thank you

Operator

Thank you. There are no further questions at this time. I would like to turn the floor back over to management for closing comments.

William Yarmuth

Thank you. Before I close the call I want to thank you through our more than 5,000 employees who get up every morning, go into the homes of thousands of frail elderly patient with the sole purpose of enabling those patients to stay in their homes and out of hospitals and nursing homes. This is truly what we are all about and all of our success over the past year is a direct result of their commitment. We thank them for everything they do. As always, we thank you for your continued interest in Almost Family and this concludes our call. Thank you.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Source: Almost Family, Inc., Q4 2008 Earnings Call Transcript
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