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Amedisys: Cheap for a Good Reason

From Barron's - June 2005 - Oscar Schafer:

We are short Amedisys, a home-health-care company based in Louisiana. The company derives 93% of its revenues from Medicare. Home-health reimbursement is based on episodes of care, defined as 60-day periods, not the number of nurse visits. The government reimburses companies for each episode, with an upfront fee based on the patient's condition. Over the past few years, visits by Amedisys employees have fallen from 19 to 16 per episode. This decline occurred without an apparent change in the sickness of their patients. The company's visits per episode are now below national and regional averages. At the same time, the second-episode referral rate -- how often Amedisys patients require a second episode of care -- has risen from about 25% to 30% to 35%. This is far from the national average of 15% to 20%.
As these numbers move apart, more patients are ending up in the hospital or having urgent unplanned medical care. Amedisys claims that it is the most efficient provider in the market, as evidenced by the low number of visits. Yet, as the company becomes more "efficient," a greater percentage of its patients require a second episode of care.

Something smells funny, Oscar.

Exactly. The beneficiary of this trend is Amedisys' gross margins, which have risen steadily for several years and hit record levels in the first quarter of 2005.

The Office of the Inspector General of the Department of Health and Human Services has said recently that one of its major focuses this year is fraud and abuse in home-health care. If I worked for the OIG I would certainly take a hard look at any company with high and rising margins and aberrant patient-care metrics. The stock trades for 32.78 and we think it will go below 20.

--end--

Amedisys: Cheap for a Good Reason

Chemin said: " I am just afraid that one raid from fed will wipe out 50% of the equity value overnight. "

Let me - again - try to refer to facts. The following is from a 2008 GAO report. Note: "outlier" payments are extra payments made for the sickest patients. Outlier payments to AMED are less than 2% -- I can't find the exact number right now. Also note that AMED does not have a presence in Miami-Dade. The home health providers referred to below in Miami-Dade are the small providers - the so-called mom&pop shops:

GAO-09-185 Report:
Medicare home health spending and utilization was due in part to upcoding Medicare claims by billing for outlier cases that qualified for additional payments, although beneficiaries did not require this level of care. For example, in Miami-Dade County, a pattern of an unusually high number of outlier cases in 2007 indicated fraudulent upcoding of Medicare home health claims. According to one PSC’s analysis, in 2007, 57.5 percent of home health cases in Miami-Dade County were outlier cases, compared with 0.4 percent in Chicago, 8.6 percent in Dallas, 2.2 percent in Houston, and 2.2 percent in Atlanta.27 The PSC’s analysis showed that Miami-Dade HHAs received more than $550 million in outlier payments in 2007—an amount more than four times greater than the combined total paid to HHAs in Chicago, Dallas, Houston, and Atlanta, even though there were more people over age 65 in each of the other four metropolitan areas.

++++++++++++++++++++++...

Now, Chemin, where do you think the feds will raid for home health fraud? Do you think it will be somewhere in Miami?? Home health fraud is rampant in Miami - the statistics clearly show that. Yet you seem to believe that the feds will concentrate on AMED. Why?

AMED has a respected MD in charge of its medical operations, it has the Marwood report, it consistently ranks better than national averages on 9 or 10 out of 13 quality issues as reported by CMS, and it has a big compliance department with anonymous 800#s for reporting fraud. Yet you and all the shorts think a raid by the feds is imminent. Sorry, but I don't see the evidence that supports your position!

But I really should stop posting. The truth will come out over the next few years. And if I am right that AMED (and the other big public home health companies) by-and-large are playing by the medicare rules, then the shorts will make me a lot of money.

I welcome any evidence that contradicts the above! I have no allegiance to AMED, AFAM, GTIV and LHCG other than an expectation that they will grow and prosper. However, I would push the "sell" button in an instant if I thought they were crooked.

Amedisys: Cheap for a Good Reason

Since I am quoted above, I feel obligated to respond. Note - I a long AMED - so take this fact into consideration.

Chimin has made what looks to be a good argument for staying away from AMED. He's quoted a lot of sources - both positive and negative about AMED. And Chimin's conclusion = not only stay away from AMED, but short it.

For those of you still reading, here is why I invest in AMED:

Issue: COO turnover. This was reported to be a power struggle -- and nothing in the months since this hit has disputed this interpretation. The CEO at investor conferences told everyone that it was a power struggle -- the resigning COO wanted to become CEO sooner than planned -- and the CEO said he regretted the resignation of the COO. There has been plenty of time for the COO to put out his version of the story (if it was more than a power struggle), but nothing has emerged. Therefore, I believe the story as stated.

Issue: Medicare Fraud. I would ask the interested investor to look at two documents on this issue. The first is a federal OIG report on Home Healthcare Fraud. It is a shocking report. There is rampant fraud in the medicare home health program -- especially in the Miami and South Florida area. The second document is AMED's description of its internal auditing program to prevent and/or detect fraud within AMED. I think AMED's auditing program is outstanding. My quickie conclusion? The home healthcare industry has a lot of dirt on its hands -- but the dirt belongs to the very small home healthcare agencies (there are over 8,000 of them). The big players in the field -- AMED, GTIV, AFAM and LHCG -- are the good guys. They are delivering services honestly -- and getting paid appropriately.

Issue: Lack of COO. This is a drag on the stock until they fill the position. Personally, I wish they had filled it yesterday -- so I am disappointed. Why the delay? Since I am long AMED, I tend to think the problem is getting a bigshot to permanently relocate to Baton Rouge LA -- which is not an urban paradise. Others may thing - and with justification - that the delay is due to concern over why the previous COO left. This is a legitimate concern and an unresolved issue!

Issue: growth in revenue. AMED has grown by leaps and bounds due to acquisitions -- and the acquisition activity has dried up due to uncertainty over the Obama health plan. This is understandable! The big homehealth players (as identified above) all will have very moderate revenue growth in 2010 due to what I will call the "Obama Pause" in acquisition activity. This is a non-issue. If you make any projections based on the Obama Pause, I think you are misguided.

Issue: Citron report and short interest. The Citron report was unnerving to me -- but I went to work looking at the facts. And those facts indicate AMED's cash earnings don't portend an accounts receivable cover-up. As for employee 'revelations', AMED has 15,000 employees and my look at one complaint board showed more employee dissatisfaction over mileage reimbursement rates (during the $4 gas per gallon period) than over patient care issues. And what about the huge short interest? It scares me - and I constantly ask what do the shorts know that I don't. My answer - so far - is that all the concerns raised above (COO turnover, medicare fraud, uncertainty over Obama care) are the drivers behind the short interest. I worry about the short interest but for now I see good answers to the legitimate concerns of the shorts.

Amedisys: Attractively Valued and Breaking Out

But AMED's lack of appointing a COO may drag on the stock. Management made the usual "we have a great list of applicants" comment after the very unexpected departure of the last COO - but has been silent on the COO search for months.

Also, your revenue growth stats above are true -- but are based on buyouts more than same-store revenue growth. The Obama heathcare uncertainty will affect revenue growth in 2010.

A Leverage-Wary Partridge in a Pair Tree

I can't help but think of a possible merger of AMED + LHCG:

+ AMED is more large-market oriented and LHCG is more rural.
+ LHCG is going (struggling with?) field computerization while AMED has a working laptop system.
+ AMED is looking for a new COO - perhaps an opportunity to merge admin staffs without too much in-fighting.

Home Healthcare Industry: Short Explanation

What about the negative piece on AMED by Citron Research -- the short-seller? Any take on that?