Amedisys, Inc. (AMED) CEO Paul Kusserow on Q3 2018 Results - Earnings Call Transcript

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About: AMEDISYS Inc (AMED)
by: SA Transcripts

Amedisys, Inc. (NASDAQ:AMED) Q3 2018 Results Conference Call October 30, 2018 11:00 AM ET

Executives

Nick Muscato - Vice President of Strategic Finance

Paul Kusserow - President and Chief Executive Officer

Scott Ginn - Chief Financial Officer

Chris Gerard - Chief Operating Officer

Dave Kemmerly - General Counsel and Senior Vice President of Government Affairs

Christy Vitulli - Senior Vice President of Payor Services

Analysts

Brian Tanquilut - Jefferies

Matt Larew - William Blair

Frank Morgan - RBC Capital Markets

Joanna Gajuk - Bank of America/Merrill Lynch

Matthew Gillmor - Robert W. Baird

Kevin Ellich - Craig-Hallum

Operator

Greetings, and welcome to the Amedisys' Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief 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 your host, Nick Muscato, Vice President of Strategic Finance. Thank you, sir. You may begin.

Nick Muscato

Thank you, operator, and welcome to the Amedisys investor conference call to discuss the results of the second quarter ended September 30, 2018. A copy of our press release, supplemental slides and related Form 8-K filings with the SEC, are available on the Investor Relations page of our Web site.

Speaking today on call from Amedisys will be Paul Kusserow, President and Chief Executive Officer and Scott Ginn, Chief Financial Officer. Also joining us are Chris Gerard, Chief Operating Officer and Dave Kemmerly, General Counsel and Senior Vice President of Government Affairs.

Before we get started with our call, I would like to remind everyone that statements made on this conference call today may constitute forward-looking statements and are protected under the Safe Harbor of Private Securities Litigation Reform Act. These forward-looking statements are based on information available to Amedisys today.

The Company assumes no obligation to update information provided on this call to reflect subsequent events other than as required under applicable securities laws. These forward-looking statements may invoke a number of risks and uncertainties, which may cause the Company’s results or actual outcomes to differ materially from such statements. These risks and uncertainties include factors detailed in our SEC filings, including our Forms 10-K, 10-Q, and 8-K.

In addition, as required by SEC Regulation G, a reconciliation of any non-GAAP measures mentioned during our call today to the most comparable GAAP measures will also be available in our Forms 10-K, 10-Q, and 8-K.

Thank you. And now, I will turn the call over to Amedisys’ CEO, Paul Kusserow.

Paul Kusserow

Thanks, Nick and welcome to the Amedisys' third quarter 2018 earnings call. This has been another extremely strong quarter for Amedisys, and we are very pleased with our results. As always, I want to thank all of my colleagues at Amedisys over 18,000 strong, who are responsible for such a great performance. Your unwavering dedication to caring for our patients, wherever they call home, has once again translated into results you should all be very proud of. Thank you for once again proving, delivering great care can drive great economics.

Now, let's look at the third quarter results. For the third quarter, traditionally, our most challenging, we generated $417 million in adjusted revenue, up 10% year-over-year. We generated EBITDA of $45 million, up 23% year-over-year and adjusted earnings per share of $0.95, up 70% year-over-year. These great results have led us to again increase our full year guidance ranges to better reflect how we see the rest of the year shaping up. Scott will elaborate on this in his comments.

Now, let's quickly review how we are doing in our four strategic areas of focus. Let's start with why we get up in the morning, patient care or driving clinical excellence and distinction. Once again, we have posted industry leading quality scores with January 19 preview putting us at an average of 4.4 stars. We have also 69 care centers rated at 5 stars with 94% of our overall portfolio rated at 4 stars or better. I would like to acknowledge and applaud all our clinicians who are consistently providing outstanding care and always striving to best our already impressive results.

As I've said great care equals great business. Our focus on clinical quality continues to generate financial returns as our financial performance in the home health Value Based Purchasing, VBP pilot program indicates. For the third quarter, we received approximately $275,000 in bonus payments from CMS, up from approximately $0.25 million in the second quarter. We also continue to believe and advocate that this demo should be expanded nationwide and institutionalize as a better way for CMS to generate significant tax payer savings and to drive quality patient outcomes.

Indiscriminate straight-line rebasing doesn’t reward for quality and is a bad practice if you want to move towards value-based care as CMS says it wants to. For our hospice business, the Hospice Compare November 2018 release of quality metrics shows Amedisys outperforming the national average in all seven measurement categories. We are very pleased with these results and expect our clinical quality to continue to improve in hospice. Taking great care of our patients is what we do and we will never stop trying to best ourselves here.

Moving on to employer of choice. As we discussed last quarter, we surpassed our full-year 2018 goal of 800 home health Business Development professionals and we have maintained and increased this headcount throughout the third quarter. We are now going back and adding business development FTEs in select and strategic locations where we have clinical capacity and the ability to take on even more business.

To that point, the other side of the equation is having enough clinical staff to take on all the business are over 800 BD FTEs are bringing in. The way we track our progress with clinical staffing is through voluntary turnover. We maintained our impressive full-time voluntary turnover metric, ending third quarter at 18%. I'm very pleased with our efforts here but believe still we have room for further improvement, especially with our key nursing work force.

Now, let's discuss operational efficiency. Our focus on maximizing the efficiency of our operations is reflected in the operating leverage we are achieving throughout our organization. For the quarter, our total adjusted EBITDA margin was 10.8%, up 110 basis points year-over-year from 9.7%. This was another great quarter of EBITDA outperformance, and I am particularly happy with this margin given that the third quarter is always the most challenging quarter for our Company.

Finally, driving growth. In our home health division, we had another strong volume quarter, ending the quarter at 6% same-store total volume growth, which is admissions plus re-certifications. This is the number we've focus on as it reflects all sources of growth. Our total episodic volume growth was 5% and our total same-store admission growth was 4%. Though, we are pleased with our growth results, we still think there is ample opportunity to increase all of these metrics. Fighting for fee for service growth remains a priority and challenge.

With our quality scores, increased business development staff and analytical tools, we expect and will improve. We have also talked at length about our desire to movie into more innovative payment arrangements and eventually risk models with Medicare advantage plans. I'm pleased to report that during the third quarter, we have started several pilots, operationalizing four different payment innovation models, with three different payers across 15 different states. Two of these models are upside only in which our payment rate will be increased for driving stars improvements, ACH rate reduction and medication reconciliation. Though, these relationships are in the early stages, results have been very positive and we are receiving increased rates from all our payer partners.

The other two payment innovations we are involved with are, limited risk, gain share models, in which we have minimal downside risk and then opportunities to earn a bonus base on several different quality indicators. We see these models as the future of our Medicare Advantage business and are continuing to work to grow the number of risk-taking payment innovations we are involved in.

In hospice, we continue to build ADC at an impressive pace, growing at 11% to 7,768 for the quarter. Admissions were up 8%, both impressive numbers, given the strong year-over-year comps, our hospice business basis every quarter. In personal care, total hours per quarter grew approximately 32%. We are very pleased with the progress our personal care team has made, integrating the four assets we have acquired since 2016. And we plan to continue to scale, grow and expand the business, both organically and inorganically across our footprint.

To that point, I'm also pleased to announce that on October 1st, we closed on our acquisition of Bring Care Home, a personal care provider in northeastern Massachusetts. Bring Care Home adds even more density to our Massachusetts personal care presence, and we are excited to have this new additions to our personal-care family. On the M&A front on October 9th, we signed a definitive agreement to acquire Compassionate Care Hospice, the 8th largest hospice organization in the country, for a net purchase price of $290 million or about 10.7 times multiple. Post integration and synergies, we expect this multiple to decline to 7.8 times.

Once the deal closes, which we expect it will in February of next year, Amedisys will be the third largest hospice organization in the U.S., allowing us to bring our best in class clinical distinction to hospice patients in 34 states. Upon close, we will be immediately implementing HomeCare HomeBase and making investments into the business to aid and accelerating growth and increasing margin. We expect 2019 to be a year of investment into Compassionate Care locations which may result in minor plant disruption, but we will see significant margin bounce back and expansions throughout 2020 and beyond. We will update everyone on our quarterly calls as we bring Compassionate Care into our family throughout 2019.

For over a year, we have remained very disciplined in our M&A function and refuse to engage in many overpriced auction processes, or pay private equity multiples. Our deliberate sole sourcing strategy paid off with Compassionate Care and we expect it to, in other proprietary deals, we are currently sourcing. I want to take this opportunity to welcome the over 2,300 Compassionate Care professionals to the Amedisys team. We are very excited to have you in the family, and we cannot wait to experience the wonderful work we are all going to do together.

Given our substantial cash flow generation and continued desire to acquire high quality assets, we will still be looking to add more reasonably priced tuck-in's to all our lines of business. Our proprietary tuck-in pipeline remains full and as always, we will continue to remain disciplined on valuation and quality. Addressing the always active regulatory fronts, on July 2, CMS released the 2019 proposed rule for home health that included a plus 2.1% payment update for 2019. Notably, this is the first positive payment for home health in nearly a decade and represents an estimated $400 million rate improvement for the industry. We are excited about not having to overcome another rate cut by CMS.

I also want to remind everyone that the Bipartisan Budget Act of 2018 mandated a plus 1.5 Market Basket update in 2020, which should result in two consecutive years of positive updates for the industry. This plus 1.5% Market Basket update in 2020 could also help offset the possible reduction in home health reimbursement associated with behavioral assumptions, if it is not prohibited by legislation or negotiations with CMS before them. The 2019 proposed rule also included a revised case mix adjustment methodology for 2020, known as the patient driven groupings model, or simply PDGM.

PDGM, as proposed, is a redesign of the home health payment system, primarily based on moving to a 30 day unit of payment, payment driven by patient characteristics and elimination of therapy threshold as of basis for reimbursement. I want to stress that this year's proposal provides ample time to transition to the new payment model in 2020, if the model remains unchanged.

We do have concerns, however, about the use, scope and impact of behavioral assumptions, in the transition to the new payment model. We, as well as our industry colleagues, have shared our concerns with members of Congress, House and Senate Republican and Democrat and secured introduction in September and October, of three bills two in the senate and one in the house. These bills would all prohibit CMS from making rate adjustments based on behavioral assumptions and require that the phasing of any necessary rate adjustments being no greater than 2% per year to limit the risk of disruption as we transition to a new payment model.

Our government affairs team is working daily with members of Congress, their staff and committee staff to have Congress, adopt the behavioral assumptions prohibition in these three bills. As evidenced by introduction of these bills by Democrat and Republican members, Congress is receptive to industry concerns about the use of behavioral assumption, preventing a truly budget neutral transition to a new payment model.

Importantly, this is a precedent for not utilizing behavioral assumptions in the transition to a new payment model, most recently in the skilled nursing SNF rule. We will continue to work with the bills' authors and other members of Congress over the remainder of 2018 and into 2019, if necessary, to pass legislation mandating that any behavioral adjustments be made after the transition to the new payment model. The CMS 2019 final rule will not be the final opportunity to impact PDGM. Some people have badly misunderstood this as game over, it's far from that. Congress can act on the use of behavioral assumptions until the rule is implemented in January 2020, 14 months from now, and after 2020, if compelled by issues with the transition to the new payment model.

In closing on regulatory issues, I want to emphasize as I have been on previous earnings calls that when confronted with regulatory changes, we will prepare and adopt as we have successfully done in the past. We have time 14 months clinical and operational expertise, available resources, industry experience and seasoned leadership to implement and operationalize PDGM in an efficient and effective manner. We're just getting started. There's lots more to be done before the dust settles.

As you all can see, we had another great quarter during what is typically a more difficult back half of the year. Next year looks good. 2020 will be good too. We've got this. And once again thank you to all the Amedisys employees for all they did to drive this success. Processing on our patients and employees continues to drive outstanding results.

With that, I'll turn it over to Scott who will take us through a more detailed review of our financial performance for the quarter. Beam us up, Scotty.

Scott Ginn

Thanks, Paul. I'm very pleased to report another excellent quarter of financial results, driven by strong volumes and margin expansion. For the third quarter of 2018 on a GAAP basis, we delivered net income of $0.96 per diluted share, an increase of $0.54 on $417 million in revenue, an increase of $44 million or 12% compared to 2017. For the quarter, our results were minimally impacted by income or expense items adjusting our GAAP results that we have characterized as non-core temporary or one-time in nature.

Slide 15 of our supplemental slide provides details regarding these items and the income statement line items to each adjustment impacts. For the quarter on an adjusted basis, our results were as follows; revenue grew $37 million or 10% to $417 million; EBITDA increased over $8 million or 23% to $45 million; EBITDA as a percentage of revenue increased to 110 basis points; and EPS increased $0.39 or 70% to $0.95 per share.

Before I turn to segment performance, I want to remind you a few items that impacted our performance in Q3 compared to Q2. Planned wage increases which are effective in August added approximately $3 million in cost. Seasonality of health claims added an additional $2 million in cost and Q3 had an additional holiday, which added approximately $2 million in cost. The majority of these sequential increases were in cost of revenue.

Now, turning to our third quarter adjusted segment performance. In home health, revenue was $295 million, up $24.3 million or 9% compared to prior year, driven by 6% increase in same-store total volumes. On a same-store basis, total admissions were up 4%, episodic admissions were up 3% and episodic volumes were up 5%. Our Medicare recertification rate was 39%, a 120 basis point improvement from prior year. Segment EBITDA was $44.3 million, up $11.1 million with an adjusted EBITDA margin of 15%, representing a 270 basis point improvement.

This marks the second straight quarter of significant year-over-year improvement in the EBITDA margin. As a reminder, the home health segment delivered a 300 basis point improvement in the second quarter. We are very encouraged that the focus on growth and operational efficiency has resulted in significant margin expansion in the face of negative reimbursement and planned wage increases.

Visiting commission cost per visit increased only $0.25 compared to prior year in spite of the $0.77 impact of annual raises. Overall, cost per visit was up just $0.13, or approximately 0.1%. Other items impacting the third quarter results of our home health segment include hurricane Florence, which impacted approximately 100 admissions and added approximately $300,000 related to inclement weather pay and other costs associated with employee support during the storm. Revenue per episode increased $35 despite the 70 basis point rate cut. This was driven by the acuity level of our patients, which was offset by 1.1% increase in visits per episode.

G&A was down $500,000 or 230 basis points compared 2017 and was 23.3% of home health revenue for the quarter, which matches last quarter's low than it has been over two years. The continued growth in volume and the reorganization and closures and consolidations we announced in the latter half of 2017 help to offset the cost of additional BD resources. The segment was able to support a $24 million increase in revenue, while reducing overall G&A expense. I cannot overemphasize how pleased I'm with segments' financial performance over the past two quarters.

Now, turning to our Hospice segment. For the third quarter, revenue was $103 million, up $7.5 million, an increase of 8%; same-store average daily expenses was up 11% and same-store admissions were up 8%; segment EBITDA of $29 million flat versus prior year; net revenue per day was down 2.5% to $144.71 and cost to service per day was down $0.24.

The segment EBITDA margin was down 200 basis points, mainly due to an increase of approximately $3 million related to revenue price concessions and cash with the impact of revenue per day about $4.42. Additionally, investors in our business development staff and administrative employees to drive and support continued growth, resulted in an increase in G&A expense. We anticipate the segments return a year-over-year growth in EBITDA during the fourth quarter.

Our personal care segment generated approximately $19 million in revenue in the third quarter, representing growth of 39% with over 810,000 billable hours. Our results are not comparable to prior years as they include the results of two acquisitions completed since the third quarter of 2017. We continue to be pleased with the integration process and look for similar success as we integrate Bring Care Home during the fourth quarter.

Turning to our total general and administrative expenses. On an adjusted basis, total G&A was $123 million or 29.6% of total revenue. Total G&A was down 120 basis point as a percentage of revenue compared to prior year. The sequential increase is driven by plan wage increases and higher health claims. We remain focused on driving operational efficiencies across the entire company. From a cash flow perspective, we generated $68.5 million from cash flows from operations for the quarter and paid down $70 million on our revolving credit facility, bringing our net leverage ratio to 0.3 times. Year-to-date, we had generated $159 million in cash flows from operations and $152 million in free cash flow.

Finally, as you can see on Page 17 of our supplemental slide deck, we are updating our guidance ranges for the year. Our new ranges are; revenue of $1.65 billion to 1.67 billion, adjusted EBITDA of the $177 million to $180 million, and adjusted EPS of $3.54 to $3.60. Following items guidance specific to Q4 has been considered in our guidance; sequential increases in health claims and workers compensation expense ranging between $4 million and $5 million; and an additional month of planned wage increases of approximately $1.5 million.

This will conclude our prepared remarks. Operator, please open the line for questions.

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session [Operator Instructions] Thank you. Our first question comes from the line of Brian Tanquilut with Jefferies. Please proceed with your question.

Brian Tanquilut

Paul, thank you all the color that you've given on reimbursement and your views on where that stands and what the Company can do. But you don’t mind just walking us thorough how you would say about the different moving products on market basket, the behavioral changes that CMS is expecting that you would implement and how you're thinking about your ability to hit those things to match CMS's assumptions as they think about budget neutrality.

Paul Kusserow

I think, in general, we think that there's a bit of an overreach on the initial cut, particularly in 2020, particularly when we're changing our payment systems that it's not a president it's been out there and CMS is clearly hearing a lot about this from everybody out there in the business. The tradition has been more or less in the 1% to 2% range. So, we are clearly having a lot of conversations with them about this. We feel comfortable they are listening, particularly there's some new people in there who we feel very comfortable with who seem to want to make sure that the home health benefit is strong and there's enough people out there to who we will be able to take home health. So, we feel good about that.

In terms of how we are prepping for this, we are well ahead of this actually when after the rule came out in July we have been working on this on a daily basis. So we feel good if it's the worst case scenario. One thing I think though that I didn’t want to bring up was that we are getting two increases. And I think that's very important from a cumulative perspective, as we said there is a 2.1% increase and there is a 1.5% market basket update. So when you look at that and you net that out versus what's CMS potentially in the worst case scenario would take, it's not particularly -- it's something that we could live with particularly as we are going through and doing some care protocols redesign, which is going to be mandated.

And so we feel very comfortable about this. We're a little confused in terms of why people are getting all alarmed at a rule, which is coming out on 19 and we still have 14 months to go. The industry has done a fantastic job and our team has done a fantastic job introducing legislation, two in the Senate and one of the house. And we feel good about that either this year or next year that they'll be able to -- that we'll be able to get some things done at least its CMS is very aware of this. So we hope they understand, the Congress seems to be listening very well here.

So it's just the beginning of a long dialogue, a long back and forth. And you know, I would say people ought to get concerned if things haven't changed in a year from now. But there is still a long way to go. Dave, do you have anything to add to that?

Dave Kemmerly

I just want to clarify, maybe reiterate a couple of points you made. First to start off, Brian, with your question on, I think the behavioral assumption. So CMS and the proposal will reach budget neutrality through the use of behavioral assumptions, which was mandated by the Bipartisan Budget Act passed and provisions, which was passed in February of this year. And we think that 6.4% is probably overstated. If you look at historical transitions and new payment models and as Paul said, usually it runs around to 2% or something like that. So, we think the 6.4% is overstated.

Our other issue is that’s a behavioral assumption before any observed evidence, before any actual change in behavior. And so, what our legislation does simply say look we are asking prohibit use the behavioral assumptions to reach budget neutrality, do behavioral adjustment after the fact and we will true up at that point. So, we think it's overstated and we think there's an audience for our arguments here and we've got a lot of support. We've got three pieces of legislation we introduced two on the senate side one in the house Bipartisan support for those. But we will try to make them move on those in the lame-duck session. If that’s not successful, we will work throughout this 2019 session of Congress, so it gives us 14 months to seek legislative release.

If not, on a parallel path, we're going to continue to talk to CMS, and CMS will have this final rule, which is not final, I think on PDGM. I think it's very informative and we'll have the bulk over there. But there will be another proposal or another final rule next year. So we will continue to work on the regulatory side, we'll work on the legislative side. And obviously as you asked about, I think Chris and Scott can speak to this. We're working daily to operationalize PDGM based on what we've seen so far. So I think that's where we are. I don’t know if that answers your question, but I tried to get to it fairly and simply Brain.

Paul Kusserow

I'm going to stress this, we're going to -- I want people to hear about see our versions of PDGM. So we're going to take some time on this question. So I want to make sure Chris respond to this. Dave, do you have one another thing…

Dave Kemmerly

One other thing, I think it's been over looked and it's significant and I think Paul mentioned it. The Bipartisan Budget that Congress remained at 1.5% update in 2020. So we'll also have that nice piece of the puzzle in 2020 as we enter transition to new payment system. And as Paul said, we'll also have the tailwind of the bump in our base rate of 2.1% industry increase in 2019. So, those are two nice factors that you referenced, Brian.

Chris Gerard

From an operations perspective, we're looking heads down on this as if this is going to be enacted the way it is. So, we have a task force worked around this. We're diving into and understanding where our patients are coming from, what they are diagnosis, what their acuity levels are, working on protocols. They can get the best possible outcomes with the right number of visits over the right period of time. And we'll continue to do that. And we'll of course proactive if there's any changes in the actual 2019 final rule or the 2020 proposed rule that comes out next July. So we’re going to internally be looking as if this is going to happen the way it is and look to mitigate the negative impacts as quickly as we can in this as good as we can. And then also looking to 2020 as this is an opportunity for us to maybe even go out and expand our overall home health business, because it could become a good opportunity for us.

Brian Tanquilut

Paul, shifting gears to the Medicare Advantage discussions. Do you mind just giving us some more color on how you see that playing out in terms of the expansion of the current agreement that you have with the payers. How you're getting paid? Where do you think payments levels could go? I mean, because they match Medicare fee-for-service rate over time once it include the value base component of that.

Paul Kusserow

Well, I have Christy Vitulli here who will talk a bit about the methodologies that we're employing. There's four different methodologies so she'll give you a summary of that. She runs this and she has been great in terms of pushing these innovations. We have a lot more in the pipes that we are having conversations around. What we did here was we landed some -- we got a toe holds here frankly and we were able to engage some very good payer partners and tried different set of payment methodologies. The idea is what we want to do, as the world knows, fee-for-service pays us very well at $160 average per visit and it's around 123 to 124 that were basically getting from managed care MA largely at this point.

So, obviously, what we're trying to do is do more take more risk, drive the most important things that the payers want at this point, which is fundamentally ACH rate. So we are taking risk on a lot of these in ACH rates. The other thing we're doing is we're maintaining quality, so their star scores can approve and that we can deliver high quality of results. And then we are working in some areas of med reconciliation. So we feel very good about this. We're having, obviously, a lot of conversations.

I think the payers are particularly starting to really think about bringing in home health and the ability to keep people and allow them to aging place, and allow them to stay at home is the more optimal thing, particularly with chronics as chronics live with these diseases for 10 to 20 years. It's important that if they are going to be on the roles of MA that they really limit the amount of institutionalization that occur with a lot of these chronics and particularly frequent fliers in and out of hospital.

I'll let Christy just describe briefly on the payment models that we have or the managed care models. So that I think people can understand the types of things we are doing out there.

Christy Vitulli

The four models that Paul was describing really fall I think into two buckets. The first is the easy one and the one that most of our industry is familiar with that we would describe as pay for performance or upside only. And a lot of those models are, as Paul described, focused really on quality and process improvements. They are easy to administer. They are easy to scale. And they are allowing us to demonstrate a proof of concept around what we can do in the home. The second model that we deployed and it's the one that we recently launched is really what we would categorize as risk management. So we have not only the opportunity to earn an upside but also we are exposed to some downside if we miss the mark. And the goals around those types of programs are also quality oriented that really do have that ACH trade and readmission rate as an area of focus.

So, we do believe that we will be able to demonstrate the value of HomeCare services and that will help us define I think future reimbursement structures that get us to [Technical Difficulty] today in Medicare. I don’t know that we will get it there but it will be better than where we are today.

Paul Kusserow

Yes, these are all better than where we started from. So, Christy and her crew are doing a really fantastic job of getting out there, having conversations, bringing some of these deals in. And we're working hard to make sure that we -- and we will keep obviously everybody apprised, and the results thus far are very good. But its early days and we want to be able to show lot of success there, because the more we can change the game with Medicare advantage, clearly, which is growing faster than fee for service and get better rates and take risk that's clearly important for us in the future as Medicare advantage gets increased penetration.

Operator

Our next question comes from the line of Matt Larew with William Blair. Please proceed with your question.

Matt Larew

Paul, it sounds like you don’t feel restrained in anyway despite the recent CCH deal with respect to either additional tuck-in acquisitions or really accelerating some of the organic investments that you have made. So, could you just maybe talk about, in light of the rather large capital commitment you're going to make to CCH, how you plan to continue both investing in the business and potentially sourcing other deals?

Paul Kusserow

Yes, we are -- post this, we are going to be leveraged -- as you saw 1.5 times and the top where we believe we need to say take another look is about 3.5 times. As you also saw, we are generating a huge amount of cash. And with this cash flow, we believe we can pay things down very quickly. I think our idea here is and our initial strategy here, which I think is a good strategy is, we -- first of all, we believe in proprietary sourcing. And Scott again has done a fantastic job with the M&A team here of really going out and finding deals that we believe are very reasonable. We aren't participating in the crazy auctions that we've seen people participate where they're over-paying and it's economically -- it just can't make itself work.

So we believe there is and we do have other very good deals in the pipeline. We believe we should be going after them, particularly in hospice. Our grand plan here was during this time pre-PDGM was to bulk up as much as we can in hospice, and because it's a very favorable reimbursement environment. And once we get CCH up in running toward the end of next year and into '20, we should be over 50% EBITDA on hospice. And we believe this positions us very well if there is any bumps on PDGM. Again, we don't -- the more we're digging in, the more we think we've got this in terms of PDGM and we feel very optimistic about it. But we want to make sure that we have a very nice balanced portfolio of a very strong business going into 2020.

So we've really looked at portfolio balance stabilization through investing in hospice, which as know, we're extraordinarily good at. So, that's the grand plan and we're continuing to execute on it. We still have hospice deals in the pipeline. We feel very good about our pipeline and our sourcing, and we're going to continue to execute on it and continue to pay down our debt very rapidly, particularly with our strong cash flow. I don't know, Scott, do you have anything to add?

Scott Ginn

No, you hit it pretty well there, Paul. I think as somewhat of cash generations and strong, Matt, we did 160 year-to-date in cash flow from ops, free cash flow right around 151. We're going to probably end up around the 200 range in cash flow from ops for full-year, so real strong there. I think the only thing that would -- it's about pace more than ability to buy for us. Certainly, we want to get kicked off strong on the acquisition that we've just announced and yet moving really well from integration perspective. But you'll see us continuing to be as aggressive as we can be on getting the other deals done.

Paul Kusserow

So we will also continue and we rebooted that from -- we actually had one de novo out there right now is our stock case and we are really well from a timing perspective. So as we get guidance in the next year, we will continue to talk about rolling out more de novo. So we're going to continue to do as much as we can to help grow that segment inorganically as we can.

Chris Gerard

We still feel very confident and very good about the regulatory outlook for hospice for the next few years.

Matt Larew

And then with respect to -- Christy, just curious these early at risk or upside only deals. Are these focused on specific patient subgroups like a COPD population? Or are they more focused on specific geographic markets just curious that way if we can get the perspective on how they might scale overtime?

Christy Vitulli

Actually no, they are all inclusive to the Medicare Advantage population that we're serving in the target end markets that we're doing pilots there. And it is focused on readmission rates and some of the leading indicators to readmission rates like timely initiation of care, reducing fall risk, et cetera.

Paul Kusserow

Because the key though -- you asked a really good question, Matt. The key is, is there going to be SNF possibilities out there, are we having conversations with people that do SNFs. Yes. Because we have developed very specific protocols around disease types and we believe that these protocols can deliver good savings for payers and that a lot of the SNF strategies, as you know, some of us came from Humana. A lot of the SNF strategies that we did have in Humana were HomeBase. And so we believe that you can very much drive good outcomes in SNFs through a very specific HomeCare -- SNF HomeCare process.

Matt Larew

And then maybe just to sneak one more in here. Obviously, the EBITDA margin performance on home health side has been very impressive and maybe this one is for Chris. A big focus this year was improving some of the underperforming care centers and that’s maybe something that we haven’t touched on last quarter or two. Could you just maybe give us an update on the progress you have made there, and maybe what the next step here if you've made your way through a lot of that work?

Chris Gerard

We have made some nice progress that we've seen throughout the year with the folks on these care centers. What we did see in Q3, which is typically our toughest quarter for the industry altogether is the ebb and flow that basically those subset of care centers flowed with the rest of the care centers. But net-net when we put the opportunity out there at the end of last year going into this year, we've taken advantage of about three $3 million to $4 million of opportunity that was on the table. Again to remind you what we do as we recalibrate the list every quarter to see who's fallen off and who adds to do list. So this is something that we will continue to always do. It's best practice and we will see that we're focusing on the areas where we are not performing well and making the corrective -- taking the corrective actions.

Paul Kusserow

But I think the idea though, Matt, is all boats flow to the rising tide. And I think Chris and his team have done a very nice job of making sure the tide ride. So it's -- the base level is getting constantly pulled up and no one wants to be on that list by the way as you can imagine.

Operator

Our next question comes from the line of Frank Morgan with RBC. Please proceed with your question.

Frank Morgan

I wanted to go back to comments you made about the integration of the Compassionate Care acquisition. I just want to make sure I understood and get clarification there, some integration headwinds for margins. But how do you balance that? I think you had called that maybe something like $10 million of synergies over time. So how does that -- as we get into 2019, how do those two dynamics work and just give me a little more color there. Thanks.

Scott Ginn

So what we're seeing, we think we'll close 2:1 and we are going to disrupt that margin in first and second quarter growing out HomeCare HomeBase. Our goal is going to be is to protect ADC as much as possible. We will have cost added into that. We really think more about how we exit that Q4. We expect to start realizing some of those synergies in the Q4 2019 but we're really not getting a full rate into the back half of 2020 is when we expect to see the synergies come out.

Operator

Our next question comes from the line of Joanna Gajuk with Bank of America/Merrill Lynch. Please proceed with your question.

Joanna Gajuk

So actually, I want to ask small questions on quarter itself, because I'm not sure I understood. Did you talk about Medicare admissions the same-store number, what was the growth this quarter? Because you were talking about expectations for mid-single digits and I guess it was up 2% in Q2. So I just want to ask you how things were trending this quarter for same-store Medicare admissions.

Chris Gerard

Last quarter we talked about, we broke out the Medicare admissions and it was 2.2%. I just want to -- as we've been couching this is that the episodic business is what pays our bills. We get paid Medicare fee for service, but we have a number of nice contracts out there that pay us episodically as well. We treat those equally too Medicare in terms of how we incent our BD staff to go out and obtain these admissions, as well as we focus on our research rate because we feel like research is an opportunity for us to drive the ground level care for our patients. And we had some compressed research rates in 2017 really coming out of HomeCare HomeBase roll out.

So the two key factor we look at, our total admissions on the episodic basis, which for the quarter came out at 3% for Q3 and then our total volume, which is the admissions in the research on episodic, which is Medicare plus the PPS payers came out at 5%. We are focused keenly on driving that Medicare fee for service admission growth. It pays a little bit better than the PPS. We're 90% to 100% on the PPS side. This is where we're spending a lot of our energy. We haven't won that game yet by any means, but we feel like there is still opportunity for us to go out and take additional market share.

Joanna Gajuk

So what was the growth in the quarter from Medicare admission?

Chris Gerard

The Medicare admissions for the quarter was 0.2% growth.

Joanna Gajuk

But you're saying that there is also growth in the episodic admissions on the MA business. So on that front, can you talk about average pricing for these contracts? I know that you've spent some time on the call talking about this at risk models you’re initiating, and you plan to initiate more of those. But I was just talking about aggregate or any way you can frame it for us in terms of any improvement you're seeing on these MA rates?

Chris Gerard

On the MA rates that we're taking there or other -- our new gain?

Joanna Gajuk

The non-risk, I guess, because it's very early in terms of this new program, right?

Chris Gerard

So the non-risk, basically our contracted rate is 90% to 100% of the Medicare fee for service base episodically. But we have a good deal of volume that come through special needs plan, SNF, which are higher acuity, higher revenue per episodic patients, but also higher resource required patients as well. So our revenue per episode on our PPS business, we grew at about 70% in Q3 is very close to be and on par with that Medicare fee for service even after you take 10% discount based on our contracting rates.

Joanna Gajuk

So that's very interesting commentary there. But actually on another side of equations here in terms of anything to mention or discuss here around -- there were cost pressures. I mean we hear some pressure for your health care services in some markets. So anything that's changing for you in your markets or anything in terms of how you think about future next year or after that in terms of your labor costs?

Paul Kusserow

We don’t see it, Joanna. Again, we've been very lucky but I think as what you saw when we talked about our -- we put a lot back into our -- in terms of quality and our employees. So, we find that our employees, all things being equal, want to come in and work with us, because we are focused on quality and taking care of our employees and taking care of our patients. So, we feel we are -- there are some pockets of the countries that are more difficult just because there is a shortage of clinicians. But we haven't seen that sneaking overall. Also, remember every year we give raises. And we have been doing this consistently. We believe it’s a right thing to do. And it allows people to feel that we are going to -- if there's money to be shared, we will do it with our employees and we have been doing it. Scott has been very, very adamant about making sure every August we give our employees a pay raise.

Scott Ginn

Joanna, if you look at the leverage we are getting off of that, so the raise that Paul is alluding to was roughly across the $0.77 per visit for the quarter. We'd end up being only 13. So we're out to overcome that right now. I think the one area you see where certain markets specific we start with hire people and you can see that in our contractor cost per visit is up $0.54 year-over-year. So, that’s the one area we will work on and continue to hire people and make adjustments in markets as need be. But as Paul said, it's specific to markets in general what we have done from the raise approach has been effective for us.

Operator

[Operator Instructions] Our next question comes from the line of Matthew Gillmor with Robert W. Baird. Please proceed with your question.

Matthew Gillmor

Maybe following up on one of Joanna's questions on the volume trends in the home health business. I guess it makes a certain amount of sense that with a bunch of new BD hires, the episodic adamants would certainly be below trend. You said you are spending a lot of time on that. I was curious if you could tell us the playbook that gets deployed to move that in the right direction with higher fee-for-service volumes and how long does that take to play out what we see improving next year or does it take longer?

Chris Gerard

I think the playbook is still been consistent around where we are adding the BD. We talked about what we did in 2016 to really replenish the BD team a lot of focus went around that. The headline is that where we did add BD heads throughout 2017 and 2018, we see Medicare fee-for-service growth, a nice trend in Medicare fee for service growth. Today, out of our 808 reps that we have on our team today, 20% of them were hired in 2018 and 22% were hired in 2017. So 42% of our 808 reps have been hired in last year and half.

What we've been tracking there is real clearly how are they ramping, how are we assigning accounts and are they generating the value we expect, and the answer to those questions are yes. What we are seeing now though is that we have markets where we have chosen not to -- incidentally have chosen not to really add rasps and that’s where we are getting more focused on where do we have clinical capacity. And we have also opportunities to take market share and we are getting more strategic about adding the reps into those markets. I feel like we are still early stages. We're getting the results that obviously don’t come as quickly as we always want. But the signs are is we have the individuals out there, doing the right activities are generating the referrals, our conversion rates are holding tight. Our retention is better.

So this is going to lead us to as we continue to strategically add these reps in very specific markets. We'll see that show growth throughout 2019 and beyond. So it's not rocket science but it's been very, very simple playbook. But we're staying very consistent with it.

Paul Kusserow

Yes, what we've seen, Matt, is where we hire incrementally we have outsized growth fee for service growth considerably between 3.5% and 5% where we don’t -- we see -- and so we're obviously spending time going back to the places where we need to hire incrementally and making sure that we drive that, because it's pretty simple formula. You see where you hire you drive growth. Where you aren't hiring, you are not doing as well. So, I think our focus in the home health business are hopefully seeing this, we are making sure they are doing and that what we are doing.

Matthew Gillmor

As a follow-up, I wanted to ask about the Metalogix investment, I know it's something that's probably small on the ground scheme of things. But just curious how that's connected with some of the payer partnerships and maybe more broadly, where do you stand with respect to building out some of these risk and capabilities?

Paul Kusserow

So we love Metalogix, but I'm going to let to Chris and Christy talk. Christy, why don’t you talk about it in terms of what we're able to do increasingly with payers as a result of that?

Christy Vitulli

It's really an exciting investment opportunity for us and it's really garnished the attention a lot of the payers that we've just started talking to about a couple of things; one, its ability to view data science and technology to help us get out ahead of risk, management risk within the episode that we're currently seeing in the patients; and also helping us to identify readmission risks beyond what is a traditional home health episode. So now, we're able to look at that continuum to care beyond just that traditional 60 days and think about taking risk across about a broader spectrum of services as well as time.

It's also giving us the ability to look at identification of patients that are approaching end of life care and how we can get more proactive without leveraging all of our assets across that continuum. Chris, anything that you would add?

Chris Gerard

Yes, I would say that this something we're really excited about. It's something that the products that Elliott and his team have put together up to now, they have three products that are fully functional out there that we as a medics, we at Amedisys, we can benefit from day one. So we're being purposeful about getting those rolled-out. We get more excited about how this is really a value play when we're talking to payers out there and how we can rethink about how we're taking care of patients in their homes. And then also there's a PDGM in play as well where we can really use their ability to analyze the data and help us in developing the care protocols that achieve the right patient outcomes with right number of business over the right amount of time. So, we see it as a super win for us to be involved in this and we're really excited about being able to leverage that into the future.

Paul Kusserow

It's going to be very helpful from utilization perspective as this calls new protocols for PDGM.

Operator

Our next question comes from the line of Kevin Ellich with Craig-Hallum. Please proceed with your question.

Kevin Ellich

I guess first for Scott or maybe Chris, margin expansions been great. Can you maybe talk about where you think margins can go with the rate increases that you'll see in 2019 and 2020? And Paul thanks again for calling those great increases, I was not sure if people realized, you were mandated to get the 1.5% rate increase in 2020. And then also on the hospice side, we have seen some increases in cost. And I know you are actually building that to be a much bigger part of the business. Just wondering how much more we'll need to bake into the models on the cost side for hospice?

Chris Gerard

So, just for a margin expansion, you just -- we step off from where we are now certainly moving in the fourth quarter and illustrated what I talked about in guidance. So 2020, we are going to have some additional costs really to help but if you think just long-term around margins, lot of leverage we are getting in the platforms in great shape is just around continuing to grow that top line. So, I think we will have a great ability to do that, getting the rate increase next year is certainly going to help move that up, a lot of productivity gains we have had that’s something that the pace of that will moderate. We think there's certain levels where we don’t want to push the clinician from a visit perspective just too much outside of what they can do to provide the best care possible. So, we are mindful of that as we push that.

We have other opportunities around utilization we are not really need to be around that. To get to that we knew there was some building blocks, the HomeCare HomeBase we had to get to as we talked to in previous calls, there is some stuff we need to do internally around how we pay our clinicians to help move that utilization number. So there is things we will be working on. So we have some ability to expand that. And if you think forward and the Hospice acquisition when we get to 2020, we expect the EBITDA to be 50% Hospice. So you're going to get some more margin expansion just out of that alone.

So there is things there, we've done a lot of great work and 300 followed by 270 basis point improvement, and the home health segment is pretty strong. I don’t think I can convince Chris to that all through next year, but it's certainly exciting where we are fitting that on and have some opportunities to continue to grow that. And we will be able to give some more color on that as we give guidance next year, and think about how we are able to use those rate increases that we are going to get for the first time in several years as we get to the final rule.

Kevin Ellich

And then just going back to the Medicare Advantage comment and a lot of discussion there. Wondering what's the bigger opportunity in the two buckets that Christy laid out, the pay-for-performance or at risk? And then, I guess, how should we think about how you are managing the risk and when we could actually see some of those benefits?

Paul Kusserow

Well, these are relatively small pilots at this point. So, we're trying -- and that’s just very purposeful. We are having larger discussions for larger regions with larger -- some of these payers, so with large payers. So, I think the idea is we're putting our tail into water and fairly aggressively on a number of -- a variety of different payment methodologies and risk methodologies. We're clearly putting the tools in place so that we can see how much we can actually change things like ACH, drive quality. So we are going to do this. We are going to report out on how we are doing.

So I guess we think that the advantage of this is going to be that we are going to get hopefully to or above fee-for-service rates, because we are taking more risk and we are putting more, and we are developing much better economics on the payer side, so we want to share in that. But will we ever be a full risk company? No. We will not take risk base -- we will not be doing risk based capital adding actuaries on adding underwriters on at least at this stage. So, I don’t know Christy…

Christy Vitulli

That was great commentary, Paul, thank you. I think the opportunity for us with these payers is to demonstrate our value, demonstrate our results and then start scaling it. So that we can drive bigger impacts with our strategic key payer partners in the space.

Operator

We have no further questions at this time. I would now like to turn the floor back over to management for closing comments.

Paul Kusserow

Thanks Christie. And I want to thank everyone who joined us on our call today. We hope that was in lightening, clarifying and it inspires confidence. We appreciate your interest in Amedisys. I'd also again like to thank all our employees who delivered these phenomenal results. Keep doing what you are doing. We hope everyone have a wonderful day and we look forward to updating you on our ever evolving progress and purposeful work on our next quarterly earnings call in February. Have a good day.

Operator

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.