Last fall I took an old 2014 set I compiled of reimbursement data sampled nationwide for all payor sources by state, level of care, and did an added survey of 106 providers for information on actual reimbursement rates vs. actual billed rates from all sources. I extracted samples from all states Acadia operates, and then queried the U.K. private and even a sampling of NHS contracted private behavioral/mental health care facilities. I then added that to new data from 2014 onward asked through surveys over ninety days, from September through November of last year.
This was all base on the theory that Acadia is booking unrealized revenue that never existed, and never will exist, as something else, converting it to the balance sheet, and potentially; borrowing against it.
Since all healthcare providers are compensated by the same groups of customers (insurance, Medicaid, Medicare, self-pay, and the NHS in this case), each of their set customers is called a “payer/payor mix.” This helped me find out what other firms outside of Acadia in the private sector (virtually all use cash-basis accounting) are getting paid vs. what they are billing-out to these payors. Again, it’s almost unheard of for reimbursement to a healthcare provider equal to 100% of the billed amount. I didn't assume any up-coding, however, undoubtedly that has occurred with providers from time-to-time in this sector.
Raw Data Results. Source: Penn Little.
Then, I took the percentages of realized reimbursement and adjusted the "payor mix" to match Acadia and input the data as a “percentage of revenue” based upon what other providers actually receive, adjusted for geographical footprint level in each domicile (state, PR, and the U.K.) which provides a standard percentage for each year for each payor to multiply to its revenues broken down by payor in the 10K statements from 2011-2018. Then I took that fractional amount for each year for each of the three (four in the last three years with the U.K. coming online) payors. This allowed an estimate of how much Acadia would make if we are assuming the top line is the "billed amount” but not the “realized amount,” I also kept a running tally.
METRIC | DEFINITION | |
A | REVENUE | TOP LINE REVENUE PER ANNUM (10K) |
B | REALIZED REVENUE | TANGIBLY RECEIVED MONEY |
C | ALLOWANCE FOR BAD DEBT | FROM INCOME STATEMENT |
D | DISCREPANCY | ANNUAL AMOUNT OF MONEY UNREALIZED |
E | RUNNING TOTAL OF D | RUNNING TOTAL OF UNREALIZED REVENUE |
F | TOTAL CASH FLOW FROM CONTINUED INVESTMENT ACTIVITIES | FROM STATEMENT OF CASH FLOWS (10K) |
G | RUNNING TOTAL OF F | RUNNING TOTAL OF TOTAL CASH FLOW FROM CONT'D INVESTMENT ACTIVITIES (10K) |
X | GOODWILL | REFLECTED FROM BALANCE SHEET (10K) |
So essentially, I assumed:
FOR ONE YEAR: A - B - C = D
FOR RUNNING TOTAL: D(2012) + D(2013) + D(2014) = E TOTAL IN 2014, and so forth (in this case the max would be nine years, the ninth year is annualized)
We found the following results:
YEAR/METRIC | D | X | F | G |
2011 | $114,024 | $186,815 | $225,332 | $225,332 |
2012 | $336,511 | $557,402 | $524,644 | $749,976 |
2013 | $580,479 | $661,549 | $242,978 | $992,954 |
2014 | $661,369 | $802,986 | $860,774 | $1,853,728 |
2015 | $1,606,546 | $2,128,215 | $884,471 | $2,738,199 |
2016** | $2,714,908 | $2,681,188 | $660,365 | $3,398,564 |
2017 | $3,708,067 | $2,751,184 | $336,526 | $3,735,090 |
2018^ | $4,933,271 | $2,485,402 | $360,964 | $4,096,054 |
- (All metrics In thousands)
- ^2018 Remains annualized - if you want to explain it, maybe look at the big check?
- **Acquisitions virtually cessated in 2016
Strikingly, end of FY 2016, the number of “X” (goodwill on the balance sheet) stagnated starting in 2017 because acquisitions halted, and now, with impairment in 2018, albeit, solely in the U.K., goodwill is declining. Strikingly, 2016 Goodwill nearly equals the amount of compounded unrealized revenue or, “E,” in 2016. So, the debt appears most likely to be found in F (total cash flow from continued investment activities) each year, cumulatively. In 2017, G matched up to E (give or take a tiny percentage for margin of error). In 2017, G was increased by roughly 336,526 and is now roughly the same amount as F, so it's odd where that unique correlation is gained, but it's there...
The most reasonable explanation for how the unrealizable revenue would be offset in 2017 (you need to find an increase of roughly $1 billion) comes from my former accounting professor, Dr. Wayne Thomas, Ph.D. (of the University of Oklahoma's Price College of Business). Dr. Thomas said:
It’s also the case that property and equipment are subject to impairment testing, same as goodwill. ACHC currently has only approximately 10% (of net) accumulated (PP&E) depreciation on property and equipment. Consider Walmart, Target, LifePoint Health, and Tenet Healthcare. They each have depreciated PPE of over 40%. I have no idea what ACHC is doing with PPE, but if I wanted to boost earnings and assets, I’d slow down depreciation and ignore impairment testing. Why is ACHC at only 10%? Another 30% (similar to the four companies above) would be about $1 billion less in assets, and that doesn’t include any additional impairment.
Since Lifepoint has since been taken private, I showed (above) the massive difference in a comparison (individually by security using Dr. Thomas' examples, with HCA in place of Lifepoint). So, Tenet (THC), Target (TGT), Walmart (WMT), an Acadia (ACHC).
Thus, assume, under this theory, for 2017:
Accumulated depreciation is around 11%, and if you raise Acadia's number up to the comparable 40%, you will see a debt of $872 million in assets. Therefore, this would be the inverse-creation of assets.
YEAR | DEBIT | CREDIT |
ENTRY | NET CASH FLOW FROM SALE | GOODWILL |
2011 | $(206,379) | $186,815 |
2012 | $(64,985) | $557,402 |
2013 | $(813,871) | $661,549 |
2014 | $(1,552,573) | $802,986 |
2015 | $(2,127,350) | $2,128,215 |
2016 | $(2,437,539) | $2,681,188 |
2017 | $(2,455,730) | $2,751,174 |
2018 | $(2,455,730) | $2,396,412 |
(In Thousands)
E = X + (Accumulated Depreciation x 3.63), thus E (2017) =
$872 million + $2.839 billion =
$ 3.7103 Billion
The unrealized total through 2017, under Dr. Thomas' argument that PPE is utilized to offset stagnant M&A activity, appears to come close to 2017's "unrealized revenue total" of:
$ 3.7081 Billion
So, instead of considering that these unrealized revenue numbers as bad debt. The bad debt numbers appear to match that of any company out there.
for 2018, under the same theory results from $5.3 billion vs. $4.9 billion. Obviously, the discrepancy can be eliminated sans the goodwill impairment.
2018
In Acadia's 2018 10K, there is:
- no bad debt allowance.
- A total loss on impairment of $337.9 million, which includes a non-cash goodwill impairment charge of $325.9 million and a non-cash long-lived asset impairment charge of $12.0 million on the Company’s U.K. facilities related to the decline in estimated fair values.
- Transaction-related expenses of $24.5 million, which includes Chief Executive Officer transition costs of $14.0 million.
- Legal settlements expense of $22.1 million, which is primarily attributable to the establishment of a reserve related to the Company’s billing for lab services in West Virginia.
- Debt extinguishment costs of $0.9 million
While accumulated PP&E depreciation jumped to 16% in 2018, the "unrealized" number peaked above $5 billion.
If this data is accurate then the actual publicly traded lifetime net income of Acadia would be a net loss of $4.468 Billion, or a loss of $76.12 per share (based on average shares outstanding from 2011 through 2018), that metric increases to a loss of $56.51 per share loss when fully diluted.
METRIC | AMOUNT |
NET INCOME (2011-2018) | $ 253,912 |
UNREALIZED INCOME (2011-2018) | $ 4,933,271 |
ADJUSTED NET INCOME (2011-2018) | $ 4,679,815 |
(In Thousands)
Thus: it equates to…
MEAN SHARE VOLUME (2011-2018) | 61,469,000 |
GAAP EARNINGS PER SHARE AS STANDS (2011-2018) | $0.005 PS |
SHARE VOLUME (MAY 2019) | 87,288,000 |
NET EPS LESS TOTAL OF E (2011-2018)** | $(76.12) |
NET EPS LESS TOTAL OF E (2011-2018)^ | $(56.51) |
**Based on average shares over time frame ^fully diluted
So, if Reeve Waud, the Chairman boasts a 12x return for his firm's investment in Acadia, the average investor's half-penny (on paper) is acceptable how?
Factor in the hypothesis (hypothetically), well, the Chair of the Illinois State Police Merit Board keeps his return (for now), but who takes the beating?