2018 ANNUAL REPORT
Dear Fellow Shareholders,
As I was pleased to announce on our fourth quarter earnings call, by just about any measure, 2018 was a
tremendous year for Amedisys. Our continued focus on our four strategic pillars—Clinical Distinction,
Employer of Choice, Operational Excellence and Efficiency, and Growth—helped us care for more
patients than ever before, while also seeing our stock price reach an all-time high. These strategic pillars,
developed in conjunction with our patients and caregivers, implemented by our management team, and
executed by our team members, provided us with excellent clinical and financial results in 2018; results
of which we are extremely proud.
We cared for more than 376,000 patients while making more 10 million visits across our three lines of
business, which helped us generate adjusted revenue* of $1.66 billion and EBITDA* of $180.6 million, a
10% and 27% increase over 2017 respectively. Even more impressive is that the $181 million in EBITDA
for 2018 represents a $71 million or 64% increase in EBITDA since 2016. Once again, we improved our
industry-leading quality performance in the Centers for Medicare & Medicaid Services (CMS) Star
ratings program and delivered on our mission to become the employer of choice by lowering turnover
and enabling our employees to be as efficient and effective as possible by giving them best-in-class tools,
data, and analytics. Additionally, we increased our productivity and continued our focus on growth,
both organically and inorganically.
More specifically, here’s how we’ve progressed on our four strategic pillars:
ACHIEVING CLINICAL DISTINCTION
When CMS began reporting on quality measures in 2015, our Quality of Patient Care (QPC) was above
the industry average at 3.49 Stars, which was good but not where we wanted to be. At that point, we
made a commitment to put patient quality at the heart of everything we do. Since then, we have focused
relentlessly on quality and the rewards have been many. We are proud to report that Amedisys raised our
already impressive QPC score from 4.22 Stars at the beginning of 2018 to 4.40 Stars in the January 2019
release. This is about a 26% improvement from 2015 when CMS began reporting the metric and more
than 4% above where we ended 2017. Also, 94% of our home health care centers achieved a rating of 4
Stars or higher, improving from 88% in 2017, 65% in 2016 and 31% in 2015. A special thank you to the 53
care centers that achieved a 5-Star rating during 2018! As I said, we are relentless in our drive to maintain
our industry-leading home health quality scores.
We have an equal focus on quality in our hospice business. Though hospice quality measures are newer
than in home health, we have applied the same unwavering attention to quality, and it continues to show.
In the Hospice Compare February 2019 release, Amedisys outperformed the national average in all
7 measurement categories. We expect to continue leading the industry on this front, with the belief that
CMS will reward high quality hospice providers in the future.
Last year, we recognized the support teams and clinicians who achieved clinical distinction by awarding
cash bonuses for our highest quality home health and hospice care centers. Our fourth quarter 2018
results included bonuses for our 33 qualifying home health 5-Star care centers, representing 627
clinicians, and to our top 10 hospice quality care centers, representing 192 clinicians. Clinical quality is
what drives this organization and it only makes sense to invest in our best.
Delivering on our commitment to quality is paramount—it’s the right thing to do for our patients, it’s the
right thing to do for our clinicians, and it’s the right thing to do for our shareholders.
BECOMING AN EMPLOYER OF CHOICE
In last year’s letter, I detailed our continuing focus on retaining our talented team members. I’m fond of
saying, “we are a people business,” because it’s true, Amedisys is nothing but its people and we wouldn’t
be what we are today without our incredible people. Outstanding clinicians in the field and support staff
in the care centers and at our corporate offices are truly our competitive differentiator. We have grown
our staff from 18,000 at the end of 2017 to more than 21,000, and we continue to implement strategies
aimed at lowering our voluntary turnover. In fact, our voluntary turnover decreased from 22.0% to
19.8% at the end of 2018. We also focused on rebuilding our home health Business Development staff, a
key component to our home health admissions growth, which had dipped to 759 FTEs as of December
31, 2017. In 2018, we grew this group to more than 800 FTEs and the results followed as we posted our
strongest Medicare FFS growth numbers since 2016 during the fourth quarter. Our people investment
and focus demonstrate our unwavering commitment to our people. We want to ensure we’re attracting,
developing, and retaining the best talent in the industry. This will allow us to deliver on our promise
to allow patients to live out their lives with dignity where they most want to be—in their homes—for as
long as possible. We do this by putting patients and employees first and giving our people innovative
and cutting-edge tools to deliver the best care and optimal outcomes for our patients. In 2019, our focus
on driving down our voluntary turnover numbers continues, especially within our clinical staff by
improving our training and orientation, defining career paths, and optimizing flexible schedules.
We are driven to create a company and a culture where no one should ever want to work anywhere else.
OPERATIONAL EFFICIENCY
Our focus on maximizing efficiencies in all areas of operation is particularly reflected in the operating
leverage we are achieving throughout our organization. In 2018, our total adjusted EBITDA margin was
10.8%, up 140 basis points from 9.4% in 2017. We have expanded our EBITDA margin by 310 basis points
since 2016. This was a great year of EBITDA performance and I am very happy with how our three lines
of business performed from an EBITDA margin perspective, but I particularly want to call your attention
to our home health performance. As you’ll recall, the past few years have seen a significant amount of
change for our home health business. Through it all, our home health staff consistently impressed me
with their enthusiasm to take on any challenge and excel, and you can see that by their performance in
2018. In the third and fourth quarters, our home health line of business expanded the margin by 270
basis points and 110 basis points, respectively. It was certainly an impressive performance and we are
working towards further margin improvement in 2019.
DRIVING GROWTH
I’m thrilled to share that all three lines of business experienced growth in 2018. In hospice, we posted
another incredible year of organic growth, increasing our average daily census (ADC) by 11% and
admissions by 8%. Those are impressive numbers, especially when you consider the competition we
face in hospice. In home health, we substantially grew our total volume by 7% and our total admissions
by 5%. Also, in the fourth quarter of 2018, we returned to Medicare FFS growth as we grew our FFS
admissions by more than 3%. We will look to continue to focus on improving on this number in 2019.
From an inorganic growth perspective, 2018 was a banner year, marked by the signing and subsequent
closing (February 1, 2019) of Compassionate Care Hospice, the second largest deal in Amedisys history,
making Amedisys the third largest hospice company in the U.S. Our hospice tuck-in pipeline remains
full and you should look for us to deploy more capital on hospice tuck-ins throughout 2019. We also
launched our hospice de novo engine in 2018 and ran a successful start-up from licensure through
revenue generation, which we intend to replicate and expand on in 2019. In personal care, we closed on
two additional acquisitions helping to expand our footprint and have now successfully acquired and
integrated six assets. Our team has proven to be effective and efficient integrators and we will continue to
evaluate personal care tuck-ins during 2019.
ANALYTICS
In 2018, you saw us deploy capital to make a strategic investment in an industry-leading predictive analytics
company, Medalogix. We are very excited by this partnership and will leverage our relationship to drive
smarter, more optimized patient care and help lower hospital readmissions. Look for us to make additional
strategic investments in businesses that can help further differentiate Amedisys.
VALUE-BASED REIMBURSEMENT
As payors and referral sources transition to value-based reimbursement and patients increasingly indicate
their preference to age in place, we believe that home health, hospice, and personal care are an essential
part of the solution to value-based healthcare reform, and payors have begun to recognize our value as well.
In 2018, we announced three different innovative payor contracts via four unique payment models covering
15 states. These models, in which we receive bonus payments for achieving a range of quality metrics, are
the beginning phase of what we believe to be the future of home health care reimbursement. As we expand
our relationships with these payors, deliver on our quality metrics, and expand our capabilities and delivery
of services in the home, we anticipate value-based reimbursement will be an ever-growing part of our
business. Today these are small, but they are an important building block for our future success.
HOME HEALTH PAYMENT REFORM
Looking ahead in 2019, payment reform and the Patient Driven Groupings Model (PDGM) is top of mind.
PDGM, as proposed, is a complete redesign of the home health payment system primarily based on
moving to a 30-day unit of payment, payment driven by specific patient diagnoses and characteristics, and
elimination of therapy thresholds as a basis for reimbursement. While we are preparing, on a daily-basis, for
the 2020 implementation of this new model, we continue to oppose the use, scope, and impact of behavioral
assumptions in the model. As a result, we are sharing our concerns with CMS and Congress. We remain
pleased with the level of conversations we are having at both CMS and Congress and are hopeful that the
behavioral assumptions will be addressed by Congress in the latter half of 2019 or by CMS in the final home
health rule for 2020. Rest assured, no matter the outcome, we are prepared internally to succeed and thrive
while making the transition to this new home health payment model.
THANK YOU
I’m exceedingly proud of our successes to date, and readily and humbly acknowledge that it takes the
work of all our team members, plus stable investors backing us to drive success, and for that we appreciate
our investors’ continued support. Having good, stable, long term investors who believe in our vision and
strategy is important to us and our stability. Our footprint now encompasses 38 states and the District of
Columbia, we have an advantageous seat in the healthcare ecosystem, and we are primed to benefit from
the aging population as a solution for ever rising healthcare costs. The future is very bright for Amedisys. For
all we have achieved, I sincerely thank everyone involved, but most particularly our employees. Again “we
are a company of people” who every day work to take care of our patients as best we can. That’s our job and
our mission. More than anyone else, our people—those who day in and day out commit to making life better
for all our patients—made our successes this past year possible. I can’t wait to see what wonderful things our
people will do next. Onward!
Paul Kusserow
President and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2018
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-24260
AMEDISYS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
11-3131700
(I.R.S. Employer
Identification No.)
3854 American Way, Suite A, Baton Rouge, LA 70816
(Address of principal executive offices, including zip code)
(225) 292-2031 or (800) 467-2662
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.001 per share
Name of Each Exchange on Which Registered
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant, based on the last
sale price as quoted by the NASDAQ Global Select Market on June 29, 2018 (the last business day of the registrant’s most recently
completed second fiscal quarter) was $2.3 billion. For purposes of this determination shares beneficially owned by executive
officers, directors and ten percent stockholders have been excluded, which does not constitute a determination that such persons
are affiliates.
As of February 22, 2019, the registrant had 32,010,292 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for its 2019 Annual Meeting of Stockholders (the “2019 Proxy Statement”)
to be filed pursuant to the Securities Exchange Act of 1934 with the Securities and Exchange Commission within 120 days of
December 31, 2018 are incorporated herein by reference into Part III of this Annual Report on Form 10-K.
SPECIAL CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
TABLE OF CONTENTS
BUSINESS
PART I.
ITEM 1.
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2.
ITEM 3.
ITEM 4. MINE SAFETY DISCLOSURES
PROPERTIES
LEGAL PROCEEDINGS
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
SELECTED FINANCIAL DATA
ITEM 6.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
ITEM 9.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
ITEM 16.
FORM 10-K SUMMARY
EXHIBIT INDEX
SIGNATURES
1
2
12
25
26
26
26
27
29
29
47
48
86
86
89
89
89
89
89
89
90
90
91
97
SPECIAL CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
When included in this Annual Report on Form 10-K, or in other documents that we file with the Securities and Exchange Commission
(“SEC”) or in statements made by or on behalf of the Company, words like “believes,” “belief,” “expects,” “plans,” “anticipates,”
“intends,” “projects,” “estimates,” “may,” “might,” “would,” “should” and similar expressions are intended to identify forward-
looking statements as defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve
a variety of risks and uncertainties that could cause actual results to differ materially from those described therein. These risks
and uncertainties include, but are not limited to the following: changes in or our failure to comply with existing federal and state
laws or regulations or the inability to comply with new government regulations on a timely basis, changes in Medicare and other
medical payment levels, our ability to open care centers, acquire additional care centers and integrate and operate these care
centers effectively, competition in the healthcare industry, changes in the case mix of patients and payment methodologies, changes
in estimates and judgments associated with critical accounting policies, our ability to maintain or establish new patient referral
sources, our ability to consistently provide high-quality care, our ability to attract and retain qualified personnel, changes in
payments and covered services by federal and state governments, future cost containment initiatives undertaken by third-party
payors, our access to financing, our ability to meet debt service requirements and comply with covenants in debt agreements,
business disruptions due to natural disasters or acts of terrorism, our ability to integrate, manage and keep our information systems
secure, our ability to comply with the requirements stipulated in our corporate integrity agreement, our ability to realize the
anticipated benefits of the acquisition of Compassionate Care Hospice, changes in law or developments with respect to any litigation
relating to the Company, including various other matters, many of which are beyond our control, and such other factors as discussed
throughout Part I, Item 1A. "Risk Factors" of this Annual Report on Form 10-K.
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or
quantified, you should not rely on any forward-looking statement as a prediction of future events. We expressly disclaim any
obligation or undertaking and we do not intend to release publicly any updates or changes in our expectations concerning the
forward-looking statements or any changes in events, conditions or circumstances upon which any forward-looking statement may
be based, except as required by law. For a discussion of some of the factors discussed above as well as additional factors, see
Part I, Item 1A, “Risk Factors” and Part II, Item 7, “Critical Accounting Estimates” within “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
Unless otherwise provided, “Amedisys,” “we,” “us,” “our,” and the “Company” refer to Amedisys, Inc. and our consolidated
subsidiaries and when we refer to 2018, 2017 and 2016, we mean the twelve month period then ended December 31, unless
otherwise provided.
A copy of this Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the SEC, including all exhibits,
is available on our internet website at http://www.amedisys.com on the “Investors” page under the “SEC Filings” link.
1
ITEM 1. BUSINESS
Overview
PART I
Amedisys, Inc. is a leading healthcare services company focused on providing care in the home. Our operations involve serving
patients across the United States through our three operating divisions: home health, hospice and personal care. We deliver clinically
distinct care that best suits our patients' needs, whether that is home-based recovery and rehabilitation after an operation or injury,
care that empowers patients to manage a chronic disease, hospice care at the end of life, or providing assistance with daily activities
through our personal care division.
We are among the largest, pure play providers of home health and hospice care in the United States, with 472 care centers in
38 states within the United States and the District of Columbia. Our 21,000 employees deliver the highest quality care making
more than ten million visits to more than 376,000 patients annually. Over 3,000 hospitals and 65,000 physicians nationwide have
chosen us as a partner in post-acute care.
Due to the age demographics of our patient base, our services are primarily paid for by Medicare which has represented
approximately 73% to 79% of our net service revenue over the last three years. We also remain focused on maintaining a profitable
and strategically important managed care contract portfolio.
Amedisys is headquartered in Baton Rouge, Louisiana, with an executive office in Nashville, Tennessee. Our common stock is
currently traded on the NASDAQ Global Select Market under the trading symbol “AMED.” Founded and incorporated in Louisiana
in 1982, Amedisys was reincorporated as a Delaware corporation prior to becoming a publicly traded company in August 1994.
Our strategy is to become the best choice for care wherever our patients call home. We accomplish this by providing clinically
distinct care, being the employer of choice and delivering operational excellence and efficiency, which when combined, drive
growth. Our mission is to provide best-in-class home health, hospice and personal care services allowing our patients to maintain
a sense of independence, quality of life and dignity while delivering industry leading outcomes. We believe that our unwavering
dedication to clinical quality and constant focus on both our patients and our employees differentiates us from our competitors.
Our Home Health Segment:
Amedisys Home Health provides compassionate healthcare to help our patients recover from surgery or illness, live with chronic
diseases, and prevent avoidable hospital readmissions. Our home health footprint includes 323 care centers located in 34 states
within the United States and the District of Columbia. Within these care centers, we deploy our care teams which include skilled
nurses who are trained, licensed and certified to administer medications, care for wounds, monitor vital signs and provide a wide
range of other nursing services; rehabilitation therapists specialized in physical, speech and occupational therapy; and social
workers and aides who assist our patients with completing important personal tasks.
We take an empowering approach to helping our patients and their families understand their medical conditions, how to manage
them and how to maximize the quality of their lives while living with a chronic disease or other health condition. Our clinicians
are trained to understand the whole patient – not just their medical diagnosis.
This commitment to clinical distinction is most evident in our clinical quality measures such as Star Ratings. In the Center for
Medicare and Medicaid Services (“CMS”) reports for the January 2019 release, the Quality of Patient Care star average across all
Amedisys providers is 4.40 with 94% of our providers at 4+ stars and 69 care centers rated at 5+ stars. Our Patient Satisfaction
average as of the last known release was 3.96, outperforming the industry average of 3.70. Our goal is to have all care centers
achieve a 4.0 Quality Star Rating, and we are implementing targeted action plans to continue to improve the quality of care we
deliver for our patients and further our culture of quality.
Our Hospice Segment:
Hospice care is designed to provide comfort and support for those who are dealing with a terminal illness. It is a benevolent form
of care that promotes dignity and affirms quality of life for the patient, family members and other loved ones. Individuals with a
terminal illness such as heart disease, pulmonary disease, Alzheimer’s, HIV/AIDS or cancer may be eligible for hospice care, if
they have a life expectancy of six months or less.
We operate 84 hospice care centers in 22 states within the United States. Within these care centers, we deploy our care teams which
include nurse practitioners and other skilled nurses, social workers, aides, bereavement counselors and chaplains.
2
At Amedisys Hospice, our focus is on building and retaining an exceptional team, delivering the highest quality care and service
to our patients and their families, and establishing Amedisys as the preferred and preeminent hospice provider in each community
we serve. In order to realize these goals, we invest in tailored training, development, and recognition programs for our employees,
including medical record training, employee skills training and leadership development. This has led to our team’s consistent
achievement at or above the national average in family satisfaction results and quality scores, as well as the trust of the healthcare
community.
Another element of our approach is our outreach strategy to more fully engage the entire community of eligible patients. These
outreach efforts have built our hospice patient population to more accurately represent the causes of death in the communities we
serve, with a specific focus on heart disease, lung disease, and dementia in order to address the historical underrepresentation of
non-cancer diagnoses.
By working to accept every eligible patient who seeks end-of-life care, we fulfill our hospice mission and strengthen our standing
in the community.
On February 1, 2019, we acquired Compassionate Care Hospice ("CCH"), a hospice provider headquartered in Parsippany, New
Jersey with 2,300 employees and 53 locations nationwide. With this acquisition, Amedisys now cares for more than 11,000 hospice
patients daily with 137 hospice care centers in 33 states, making us the third largest hospice provider in America.
Our Personal Care Segment:
On March 1, 2016, Amedisys acquired its first personal care company – an important step in executing our strategy of improving
the continuity of care our patients receive as their clinical needs change. We continued our strategy to expand our personal care
segment in 2017 and 2018 as we completed four additional acquisitions and currently operate 10 personal-care care centers in
Massachusetts and one personal-care care center in both Florida and Tennessee. We are continually looking to expand our personal
care footprint to states where we have a strong home health and hospice presence.
Personal care provides assistance with the essential activities of daily living. We believe that personal care services are highly
synergistic with our core skilled home health and hospice businesses, and that by acquiring these capabilities we will be able to
provide our patients and payor partners with a true continuum of care.
Responding to the Changing Regulatory and Reimbursement Environment:
As the government continues to seek opportunities to refine payment models, we believe that our strategy of becoming a leader
in providing a range of service across the at-home continuum positions us well for the future. Our ability to provide quality home
health, hospice and personal care allows us to partner with health systems and managed care organizations to improve care
coordination, reduce hospitalizations and lower costs.
Acquisitions:
On March 1, 2018, we acquired the assets of Christian Care at Home for a total purchase price of $2.3 million. Christian Care at
Home provided home health services to the state of Kentucky.
On May 1, 2018, we acquired the assets of East Tennessee Personal Care Services for a total purchase price of $2.0 million. East
Tennessee Personal Care Services owned and operated one personal-care care center servicing the state of Tennessee.
On October 1, 2018, we acquired the assets of Bring Care Home, a personal care provider which serviced the state of Massachusetts
for a total purchase price of $5.7 million.
On February 1, 2019, we acquired 100% of the ownership interests in Compassionate Care Hospice, a nationwide hospice provider
headquartered in Parsippany, New Jersey, for a purchase price of $340 million, which is inclusive of approximately $50 million
in payments related to a tax asset and working capital.
Financial Information:
Financial information for our home health, hospice and personal care segments can be found in our consolidated financial statements
included in this Annual Report on Form 10-K.
Our Employees
As of February 22, 2019, we employed approximately 21,000 employees, consisting of approximately 11,000 home health care
employees, 6,000 hospice care employees, 3,000 personal care employees and 1,000 corporate and divisional support employees.
3
Payment for Our Services
Home Health Medicare
The Medicare home health benefit is available both for patients who need home care following discharge from a hospital and
patients who suffer from chronic conditions that require ongoing, but intermittent, care.
As a condition of participation under Medicare, beneficiaries must be homebound (meaning that the beneficiary is unable to leave
his/her home without a considerable and taxing effort), require intermittent skilled nursing, physical therapy or speech therapy
services, and receive treatment under a plan of care established and periodically reviewed by a physician.
Medicare payment rates are based on the severity of the patient’s condition, his or her service needs and other factors relating to
the cost of providing services and supplies, bundled into 60-day episodes of care. An episode starts with the first day a billable
visit is performed and ends 60 days later or upon discharge, if earlier. If a patient is still in treatment on the 60th day, a recertification
assessment is undertaken to determine whether the patient needs additional care. If the patient’s physician determines that further
care is necessary, another episode begins on the 61st day (regardless of whether a billable visit is rendered on that day) and ends
60 days later. The first day of a consecutive episode, therefore, is not necessarily the new episode’s first billable visit.
Annually, the Medicare program base episodic rates are set through federal legislation, as follows:
Period
January 1, 2016 through December 31, 2016
January 1, 2017 through December 31, 2017
January 1, 2018 through December 31, 2018
January 1, 2019 through December 31, 2019
Base Episode
Payment
$
$
$
$
2,965
2,990
3,040
3,154
Medicare payments may be adjusted up or down as a result of one or more of the following: (a) an outlier payment if a patient’s
care was unusually costly (capped at 10% of total reimbursement per provider number); (b) a low utilization payment adjustment
(“LUPA”) if the number of visits during the episode was four or fewer; (c) a partial payment if a patient transferred to another
provider or we admitted a patient transferring from another provider before an episode was complete; (d) a payment adjustment
based upon the level of therapy services required (with various incremental adjustments made for additional visits, with larger
payment increases associated with the sixth, fourteenth and twentieth visit thresholds); (e) the number of episodes of care provided
to a patient, regardless of whether the same home health provider provided care for the entire series of episodes; (f) changes in
the base episode payments established by the Medicare program and (g) adjustments to the base episode payments for case mix
and geographic wages.
CMS issued a final rule that updates the Medicare Home Health Prospective Payment System ("HHPPS") rates and wage index
for calendar year ("CY") 2019. The final rule results in a 2.2 percent increase ($420 million) in payments to Home Health agencies
("HHA") in CY 2019. In addition, the most recent regulation from CMS finalizes the implementation of an alternative case-mix
adjustment methodology, the Patient Drive Groupings Model ("PDGM"). The PDGM will be implemented in a budget neutral
manner on January 1, 2020. See "Home Health Payment Reform" below for additional information on the most recent regulation
from CMS.
As a Medicare provider, we are subject to periodic audits by the Medicare program, and that program has various rights and
remedies against us if they assert that we have overcharged the program or failed to comply with program requirements. Home
Health providers are subject to pre- and post-payment reviews for compliance with Medicare coverage guidelines and medical
necessity. Adjustments on this basis may include individual claims adjustments or overpayment determinations based on an
extrapolated sample of claims. Medical necessity reviews evaluate whether services are clinically appropriate in terms of frequency,
type, extent, site and duration. Technical billing and documentation reviews focus on documentation of services. Medicare and
other payors may reject or deny claims for payment if the underlying paperwork does not support the medical necessity of services
or fails to establish satisfaction of a coverage rule; such as if a provider is unable to perform periodic therapy assessments required
by coverage criteria or cannot provide appropriate billing documentation, acceptable physician authorizations or face-to-face
meeting documentation.
Medicare can reopen previously filed and reviewed claims and require us to repay any overcharges, as well as make deductions
from future amounts due to us. In the ordinary course of business, we appeal the Medicare and Medicaid program's denial of costs
claimed to seek recovery of those denied costs.
4
Home Health Non-Medicare
Payments from Medicaid and private insurance carriers are episodic-based rates (60-day episode of care) or per-visit rates depending
upon the terms and conditions established with such payors. Episodic-based rates paid by our non-Medicare payors are paid in a
similar manner and subject to the same adjustments as discussed above for Medicare; however, these rates can vary based upon
negotiated terms which generally range from 90% to 100% of Medicare rates.
Hospice Medicare
The Medicare hospice benefit is available when a physician and specific clinical findings support a diagnosis of a terminal condition
where the patient has a terminal timeline of six months or less. Hospice care is evaluated in benefit periods; two 90-day benefit
periods followed by an unlimited number of 60-day benefit periods. Payments are based on daily rates for each day a beneficiary
is enrolled in the hospice benefit. The daily payment rates are intended to cover costs that hospices incur in furnishing services
identified in patients' care plans, based on specific levels of care. Payments are adjusted by a wage index to reflect health care
labor costs across the country and are established annually through federal legislation. Payments are made according to a fee
schedule that has four different levels of care: routine home care, continuous home care, inpatient respite care and general inpatient
care.
Medicare payment is provided for two separate payment rates for routine care: payments for the first 60 days of care and care
beyond 60 days. In addition to the two routine rates, on January 1, 2016, Medicare also began reimbursing for a service intensity
add-on (“SIA”). The SIA is based on visits made in the last seven days of life by a registered nurse (“RN”) or medical social worker
(“MSW”) for patients in a routine level of care.
Adjustments for medical necessity and technical billing requirements may be made to Medicare revenue based on the same claims
processing or medical necessity reviews described above for Home Health services when we find we are unable to obtain appropriate
billing documentation, authorizations or face-to-face documentation and other reasons unrelated to credit risk.
Two caps limit the amount and cost of care that any individual hospice provider number provides in a single year. Generally, each
hospice care center has its own provider number. However, where we have created branch care centers to help our parent care
centers serve a geographic location, the parent and branch have the same provider number.
•
Inpatient Cap - One cap limits the number of days of inpatient care an agency may provide to not more than 20 percent
of its total patient care days. The daily Medicare payment rate for any inpatient days of service that exceed the cap is set
at the routine home care rate, and the provider is required to reimburse Medicare for any amounts it receives in excess
of the cap.
• Overall Payment Cap - The other cap is an absolute dollar limit on the average annual payment per beneficiary a hospice
agency can receive. This cap is calculated by the Medicare fiscal intermediary at the end of each hospice cap period to
determine the maximum allowable payments per provider number. We estimate our potential cap exposure using
information available for both inpatient day limits as well as per beneficiary cap amounts. The total cap amount for each
provider is calculated by multiplying the number of beneficiaries electing hospice care during the period by a statutory
amount that is indexed for inflation.
Payment rates for hospice care, the hospice cap amount, and the hospice wage index are updated annually according to Section
1814(i)(1)(C)(ii)(VII) of the Social Security Act, which requires CMS to use the inpatient hospital market basket, adjusted for
multifactor productivity (MFP) and other adjustments as specified in the Social Security Act, to determine the hospice payment
update percentage. The caps are subject to annual and retroactive adjustments, which can cause providers to be required to reimburse
the Medicare program if such caps are exceeded. Our ability to stay within these caps depends on a number of factors, each
determined on a provider number basis, including the average length of stay and mix in level of care.
Our revenues are derived in large part from governmental third-party payors. There are budget pressures from government and
other payors to control health care costs and to reduce or limit increases in reimbursement rates for health care services.
Governmental payment programs are subject to statutory and regulatory changes, retroactive rate adjustments, administrative or
executive orders and government funding restrictions, all of which may materially increase or decrease the rate of program payments
to us for our services. It is possible that future budget cuts in Medicare and Medicaid may be enacted by Congress and implemented
by CMS. Therefore, we cannot assure you that payments from governmental or private payors will remain at levels comparable
to present levels or will, in the future, be sufficient to cover the costs allocable to patients eligible for reimbursement pursuant to
such programs.
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Hospice Non-Medicare
Non-Medicare payors pay at rates that differ from established Medicare rates for hospice services, and are based on separate,
negotiated agreements. We bill and are paid by these non-Medicare payors based on such negotiated agreements.
Personal Care Non-Medicare
Personal care payments are received from payor clients including state and local governmental agencies, managed care
organizations, commercial insurers and private consumers, based on rates that are either contractual or fixed by legislation.
Controls over Our Business System Infrastructure
We establish and maintain processes and controls over coding, clinical operations, billing, patient recertifications and compliance
to help monitor and promote adherence with Medicare requirements.
• Coding – Specified international classification of disease ("ICD") diagnosis codes are assigned to each of our patients
based on their particular health conditions (such as diabetes, coronary artery disease or congestive heart failure). Because
coding regulations are complex and are subject to frequent change, we maintain controls surrounding our coding process.
To reduce associated risk of coding failures, we provide coding training and annual update training to clinical managers
and provide training during orientation for new employees to ensure accurate information is gathered and provided to
our coding team. For home health, we also provide monthly specialized coding education, obtain outside expert coding
instruction, have certified clinician coders review all patient outcome and assessment information sets (“OASIS”) and
assign the appropriate ICD code. Our electronic medical records system (Homecare Homebase) includes automated home
health coding edits based on pre-defined compliance metrics.
• Clinical Operations – Regulatory requirements allow patients to be eligible for home health care benefits if they are
considered homebound and require skilled nursing, physical therapy or speech therapy services. These clinical services
may include: educating the patient about their disease, assessment and observation of disease status, delivery of clinical
skills such as wound care, administration of injections or intravenous fluids, management and evaluation of a patient’s
plan of care, physical therapy services to assist patients with functional limitations and speech therapy services for speech
or swallowing disorders. Patients eligible for hospice care are terminally ill (with a life expectancy of six months or less
if the illness runs its normal course). Our hospice program provides care and support to our patients and their families
with services including physical care, counseling, medication management and needed equipment and supplies for the
terminal illness and related condition. To help monitor and promote compliance with regulatory requirements, we provide
education on Medicare Guidelines for Coverage and Conditions of Participation, hold recurrent homecare regulatory
education, utilize outside expert regulatory services, and have a toll-free hotline to offer additional assistance.
• Billing – We maintain controls over our billing processes to help promote accurate and complete billing. To promote the
accuracy and completeness of our billing, we have annual billing compliance testing; use formalized billing attestations;
limit access to billing systems; use automated daily billing operational indicators; and take prompt corrective action with
employees who knowingly fail to follow our billing policies and procedures in accordance with a well-publicized “Zero
Tolerance Policy.”
• Patient Recertification – In order to be recertified for an additional episode of care, a patient must continue to meet
qualifying criteria and have a continuing medical need. Changes in the patient’s condition may require changes to the
patient’s medical regimen or modified care protocols within the episode of care. The patient’s progress towards established
goals is evaluated prior to recertification. As with the initial episode of care, a recertification requires orders from the
patient’s physician. Before any employee recommends recertification to a physician, we conduct a care center level,
multidisciplinary care team conference. Specific tools are used to ensure that the patient continues to meet coverage
criteria prior to recertifying.
• Compliance – We develop, implement and maintain ethics and compliance programs as a component of the centralized
corporate services provided to our home health, hospice and personal-care care centers. Our ethics and compliance program
includes a Code of Conduct for our employees, officers, directors, contractors and affiliates and a disclosure program for
reporting regulatory or ethical concerns to our compliance team through a confidential hotline, which is augmented by
exit interviews of departing employees. We promote a culture of compliance within our company through educational
presentations, regular newsletters and persistent messaging from our senior leadership to our employees stressing the
importance of strict compliance with legal requirements and company policies and procedures. Additionally, we have
mandatory compliance training and testing for all new employees upon hire and annually for all staff thereafter. We also
maintain a robust compliance audit program focusing on key risk areas.
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Our Regulatory Environment
We are highly regulated by federal, state and local authorities. Regulations and policies frequently change, and we monitor changes
through trade and governmental publications and associations.
Our home health and hospice subsidiaries are certified by CMS and therefore are subject to the rules and regulations of the Medicare
system. Additionally, all of our business lines are likewise subject to federal, state and local laws and regulations dealing with
issues such as occupational safety, employment, medical leave, insurance, civil rights, discrimination, building codes, privacy, and
recordkeeping. We have set forth below a discussion of the regulations that we believe most significantly affect our home health
and hospice businesses.
Licensure, Certificates of Need (CON) and Permits of Approval (POA)
Home health and hospice care centers operate under licenses granted by the health authorities of their respective states. Some
states require health care providers (including hospice and home health agencies) to obtain prior state approval for the purchase,
construction or expansion of health care locations, capital expenditures exceeding a prescribed amount, or changes in services.
For those states that require a CON or POA, the provider must also complete a separate application process establishing a location,
and must receive required approvals.
Certain states, including a number in which we operate, carefully restrict new entrants into the market based on demographic and/
or demonstrative usage of additional providers. These states limit the entry of new providers or services and the expansion of
existing providers or services in their markets through a CON process, which is periodically evaluated and updated as required by
applicable state law.
To the extent that we require a CON or other similar approvals to expand our operations, our expansion could be adversely affected
by the inability to obtain the necessary approvals, changes in the standards applicable to those approvals, and possible delays and
expenses associated with obtaining those approvals.
In every state where required, our care centers possess a license and/or CON or POA issued by the state health authority that
determines the local service area for the home health or hospice care centers. Currently, state health authorities in 20 states and
the District of Columbia require a CON or, in the State of Arkansas, a POA, in order to establish and operate a home health care
center, and state health authorities in 16 states and the District of Columbia require a CON to operate a hospice care center.
We operate home health care centers in the following CON states: Arkansas (POA), California, Georgia, Kentucky, Maryland,
Mississippi, Missouri, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Tennessee, Washington and West
Virginia, as well as the District of Columbia. We provide hospice related services in the following CON states: Alabama, Maryland,
North Carolina, Rhode Island, Tennessee and West Virginia.
Medicare Participation: Licensing, Certification and Accreditation
All providers are subject to compliance with various federal, state and local statues and regulations in the U.S. and receive periodic
inspection by state licensing agencies to review standards of medical care, equipment and safety.
Our care centers must comply with regulations promulgated by the United States Department of Health and Human Services and
CMS in order to participate in the Medicare program and receive Medicare payments. Section 1861(o) and 1891 of the SSA, 42
CFR 484.1. et seq., establish the conditions that an HHA must meet in order to participate in the Medicare program. Among other
things, these regulations, known as “Conditions of Participation (“COPs”),” relate to the type of facility, its personnel and its
standards of medical care, as well as its compliance with state and local laws and regulations.
New COPs, which went into effect on January 13, 2018, focus on the safe delivery of quality care provided to patients and the
impact of that care on patient outcomes through the protection and promotion of patients' rights, care planning, delivery and
coordination of services, and streamlining of regulatory requirements.
CMS has adopted alternative sanction enforcement options which allow CMS (i) to impose temporary management, direct plans
of correction or direct training and (ii) to impose payment suspensions and civil monetary penalties in each case on providers out
of compliance with the COPs. CMS has engaged a number of third party contractors, including Recovery Audit Contractors
(“RACs”), Program Safeguard Contractors (“PSCs”), Zone Program Integrity Contractors (“ZPICs”), Uniform Program Integrity
Contractors ("UPICs") and Medicaid Integrity Contributors (“MICs”), to conduct extensive reviews of claims data and state and
Federal Government health care program laws and regulations applicable to healthcare providers. These audits evaluate the
appropriateness of billings submitted for payment. In addition to identifying overpayments, audit contractors can refer suspected
violations of law to government enforcement authorities.
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If we fail to comply with applicable laws and regulations, we could be subjected to liabilities, including criminal penalties, civil
penalties (including the loss of our licenses to operate one or more of our businesses) and exclusion of a facility from participation
in the Medicare, Medicaid, and other federal and state health care programs. If any of our facilities were to lose its accreditation
or otherwise lose its certification under the Medicare and Medicaid programs, the facility may be unable to receive reimbursement
from the Medicare and Medicaid programs and other payors. We believe our facilities are in substantial compliance with current
applicable federal, state, local and independent review body regulations and standards. The requirements for licensure, certification
and accreditation are subject to change and, in order to remain qualified, it may become necessary for us to make changes in our
facilities, equipment, personnel and services in the future, which could have a material adverse impact on operations.
Regulations and Other Factors
The healthcare industry is subject to numerous laws, regulations and rules including, among others, those related to government
healthcare participation requirements, various licensure and accreditations, reimbursement for patient services, health information
privacy and security rules, and Medicare and Medicaid fraud and abuse provisions (including, but not limited to, federal statutes
and regulations prohibiting kickbacks and other illegal inducements to potential referral sources, false claims submitted to federal
health care programs and self-referrals by physicians).
Providers that are found to have violated any of these laws and regulations may be excluded from participating in government
healthcare programs, subjected to significant fines or penalties and/or required to repay amounts received from the government
for previously billed patient services. Although we believe our policies, procedures and practices comply with governmental
regulations, no assurance can be given that we will not be subjected to additional governmental inquiries or actions, or that we
would not be faced with sanctions, fines or penalties if so subjected.
Federal and State Anti-Fraud and Anti-Kickback Laws
As a provider under the Medicare and Medicaid systems, we are subject to various anti-fraud and abuse laws, including the Federal
health care programs’ anti-kickback statute and, where applicable, its state law counterparts. Affected government health care
programs include any health care plans or programs that are funded by the United States government (other than certain federal
employee health insurance benefits/programs), including certain state health care programs that receive federal funds, such as
Medicaid.
Subject to certain exceptions, these laws prohibit any offer, payment, solicitation or receipt of any form of remuneration to induce
or reward the referral of business payable under a government health care program or in return for the purchase, lease, order,
arranging for, or recommendation of items or services covered under a government health care program. A related law forbids the
offer or transfer of anything of value, including certain waivers of co-payment obligations and deductible amounts, to a beneficiary
of Medicare or Medicaid that is likely to influence the beneficiary’s selection of health care providers, again, subject to certain
exceptions. Violations of the anti-fraud and abuse laws can result in the imposition of substantial civil and criminal penalties and,
potentially, exclusion from furnishing services under any government health care program. In addition, the states in which we
operate generally have laws that prohibit certain direct or indirect payments or fee-splitting arrangements between health care
providers where they are designed to obtain the referral of patients from a particular provider.
Stark Laws
The Social Security Act includes a provision commonly known as the “Stark Law.” This law prohibits physicians from referring
Medicare and Medicaid patients to entities with which they or any of their immediate family members have a financial relationship,
unless an exception is met. These types of referrals are known as “self-referrals.” Sanctions for violating the Stark Law include
civil penalties up to $15,000 for each violation, up to $100,000 for sham arrangements, up to $10,000 for each day an entity fails
to report required information and exclusion from the federal health care programs. There are a number of exceptions to the self-
referral prohibition, including employment contracts, leases and recruitment agreements that adhere to certain enumerated
requirements.
Violations of the Stark Law result in payment denials and may also trigger civil monetary penalties and program exclusion. Several
of the states in which we conduct business have also enacted statutes similar in scope and purpose to the federal fraud and abuse
laws and the Stark Laws. These state laws may mirror the Federal Stark Laws or may be different in scope. The available guidance
and enforcement activity associated with such state laws varies considerably.
We monitor all aspects of our business and have developed a comprehensive ethics and compliance program that is designed to
meet or exceed applicable federal guidelines and industry standards. Nonetheless, because the law in this area is complex and
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constantly evolving, there can be no assurance that federal regulatory authorities will not determine that any of our arrangements
with physicians violate the Stark Law.
Federal and State Privacy and Security Laws
The Health Insurance Portability and Accountability Act of 1996, or HIPAA, requires us to comply with standards for the exchange
of health information within our company and with third parties, such as payors, business associates and patients. These include
standards for common health care transactions, such as: claims information, plan eligibility, payment information and the use of
electronic signatures; unique identifiers for providers, employers, health plans and individuals; and security, privacy and
enforcement.
HIPAA transactions regulations establish form, format and data content requirements for most electronic health care transactions,
such as health care claims that are submitted electronically. The HIPAA privacy regulations establish comprehensive requirements
relating to the use and disclosure of protected health information. The HIPAA security regulations establish minimum standards
for the protection of protected health information that is stored or transmitted electronically. Violations of the privacy and security
regulations are punishable by civil and criminal penalties.
The American Recovery and Economic Reinvestment Act of 2009 (“ARRA”) increased the amount of civil monetary penalties
that can be imposed for violations of HIPAA. ARRA also authorized state attorneys general to bring civil enforcement actions
under HIPAA. ARRA also requires that the Department of Health and Human Services ("HHS") promulgate regulations requiring
that certain notifications be made to individuals, to HHS and potentially to the media in the event of breaches of the privacy of
protected health information.
The Health Information Technology for Economic and Clinical Health (“HITECH”) Act was enacted in conjunction with ARRA.
Among other things, the HITECH Act makes business associates of covered entities directly liable for compliance with certain
HIPAA requirements, strengthens the limitations on the use and disclosure of protected health information without individual
authorizations, and adopts the additional HITECH Act enhancements, including enforcement of noncompliance with HIPAA due
to willful neglect. The changes to HIPAA enacted as part of ARRA reflect a Congressional intent that HIPAA’s privacy and security
provisions be more strictly enforced. These changes have stimulated increased enforcement activity and enhanced the potential
that health care providers will be subject to financial penalties for violations of HIPAA.
In addition to the federal HIPAA regulations, most states also have laws that protect the confidentiality of health information. Also,
in response to concerns about identity theft, many states have adopted so-called “security breach” notification laws that may impose
requirements regarding the safeguarding of personal information, such as social security numbers and bank and credit card account
numbers, and that impose an obligation to notify persons when their personal information has or may have been accessed by an
unauthorized person. Some state security breach notification laws may also impose physical and electronic security requirements.
Violation of state security breach notification laws can trigger significant monetary penalties.
The False Claims Act
The Federal False Claims Act ("FCA") prohibits false claims or requests for payment for health care services. Under the FCA, the
government may penalize any person who knowingly submits, or participates in submitting, claims for payment to the Federal
Government which are false or fraudulent, or which contain false or misleading information. Any person who knowingly makes
or uses a false record or statement to avoid paying the Federal Government, or knowingly conceals or avoids an obligation to pay
money to the Federal Government, may also be subject to fines under the FCA. Under the FCA, the term “person” means an
individual, company, or corporation.
The Federal Government has used the FCA to prosecute Medicare and other governmental program fraud in areas such as violations
of the Federal anti-kickback statute or the Stark Laws, coding errors, billing for services not provided, and submitting false cost
reports. The FCA has also been used to prosecute people or entities that bill services at a higher reimbursement rate than is allowed
and that bill for care that is not medically necessary. In addition to government enforcement, the FCA authorizes private citizens
to bring qui tam or “whistleblower” lawsuits, greatly extending the practical reach of the FCA. In 2018, the Department of Justice
("DOJ") announced that the FCA penalties would once again be increasing. The minimum per-claim penalty will be set for 2019
at $11,181 to $22,363.
The Fraud Enforcement and Recovery Act of 2009 (“FERA”) amended the False Claims Act with the intent of enhancing the
powers of government enforcement authorities and whistleblowers to bring False Claims Act cases. In particular, FERA attempts
to clarify that liability may be established not only for false claims submitted directly to the government, but also for claims
submitted to government contractors and grantees. FERA also seeks to clarify that liability exists for attempts to avoid repayment
of overpayments, including improper retention of federal funds. FERA also included amendments to False Claims Act procedures,
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expanding the government’s ability to use the Civil Investigative Demand process to investigate defendants, and permitting
government complaints in intervention to relate back to the filing of the whistleblower’s original complaint. FERA is likely to
increase both the volume and liability exposure of False Claims Act cases brought against health care providers.
In the Patient Protection and Affordable Care Act (discussed in more detail below), Congress enacted requirements related to
identifying and returning overpayments made under Medicare and Medicaid. CMS finalized regulations regarding this so-called
“60-day rule,” which requires providers to report and return Medicare and Medicaid overpayments within 60 days of identifying
the same. A provider who retains identified overpayments beyond 60 days may be liable under the False Claims Act. “Identification”
occurs when a person “has, or should have through the exercise of reasonable diligence,” identified and quantified the amount of
an overpayment. The final rule also established a six year lookback period, meaning overpayments must be reported and returned
if a person identifies the overpayment within six years of the date the overpayment was received. Providers must report and return
overpayments even if they did not cause the overpayment.
In addition to the False Claims Act, the Federal Government may use several criminal statutes to prosecute the submission of false
or fraudulent claims for payment to the Federal Government. Many states have similar false claims statutes that impose liability
for the types of acts prohibited by the False Claims Act. As part of the Deficit Reduction Act of 2005 (the “DRA”), Congress
provided states an incentive to adopt state false claims acts consistent with the Federal False Claims Act. Additionally, the DRA
required providers who receive $5 million or more annually from Medicaid to include information on Federal and state false claims
acts, whistleblower protections and the providers’ own policies on detecting and preventing fraud in their written employee policies.
Civil Monetary Penalties
The United States Department of Health and Human Services may impose civil monetary penalties ("CMP") for a variety of civil
offenses related to federal health care programs. They may be imposed upon any person or entity who presents, or causes to be
presented, certain ineligible claims for medical items or services, for providing improper inducements to beneficiaries to obtain
services, for payments to limit services to patients, and for offenses related to relationships with excluded individuals, among other
things.
Maximum CMP amounts have been increased significantly as a result of the Bipartisan Budget Act of 2018, which was signed
into law on February 9, 2018. The maximum CMP has increased from $55,262 to $100,000 for: (1) knowingly making or causing
to be made a false statement, omission or misrepresentation of a material fact in any application, bid, or contract to participate or
enroll as a provider or supplier (42 CFR 1003.210(a)(6)), and (2) making or using a false record or statement that is material to a
false or fraudulent claim (42 CFR 1003.210(a)(7)).
FDA Regulation
The U.S. Food and Drug Administration (“FDA”) regulates medical device user facilities, which include home health care providers.
FDA regulations require user facilities to report patient deaths and serious injuries to the FDA and/or the manufacturer of a device
used by the facility if the device may have caused or contributed to the death or serious injury of any patient. FDA regulations
also require user facilities to maintain files related to adverse events and to establish and implement appropriate procedures to
ensure compliance with the above reporting and recordkeeping requirements. User facilities are subject to FDA inspection, and
noncompliance with applicable requirements may result in warning letters or sanctions including civil monetary penalties,
injunction, product seizure, criminal fines and/or imprisonment.
Patient Protection and Affordable Care Act
In March 2010, comprehensive health care reform legislation was signed into law in the United States through the passage of the
Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (collectively, “PPACA”). Since
the 2016 election, it has been widely discussed that the PPACA will be “repealed and replaced.” PPACA calls for a number of
changes to HHA reimbursement, many of which were outlined in the 2019 regulations. These changes are discussed in greater
detail below.
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The Improving Medicare Post-Acute Care Transformation Act
In October 2014, the Improving Medicare Post-Acute Care Transformation Act (“IMPACT Act”) was signed into law requiring
the reporting of standardized patient assessment data for quality improvement, payment and discharge planning purposes across
the spectrum of post-acute care providers (“PACs”), including skilled nursing facilities and home health agencies. The IMPACT
Act requires PACs to begin reporting: (1) standardized patient assessment data at admission and discharge by October 1, 2018 for
post-acute care providers, including skilled nursing facilities and by January 1, 2019 for home health agencies; (2) new quality
measures, including functional status, skin integrity, medication reconciliation, incidence of major falls, and patient preference
regarding treatment and discharge at various intervals between October 1, 2016 and January 1, 2019; and (3) resource use measures,
including Medicare spending per beneficiary, discharge to community, and hospitalization rates of potentially preventable
readmissions by October 1, 2016 for post-acute care providers, including skilled nursing facilities and by October 1, 2017 for
home health agencies. Failure to report such data when required would subject a facility to a two percent reduction in market
basket prices then in effect.
The IMPACT Act further requires HHS and the Medicare Payment Advisory Commission (“MedPAC”), a commission chartered
by Congress to advise it on Medicare payment issues, to study alternative PAC payment models, including payment based upon
individual patient characteristics and not care setting, with corresponding Congressional reports required based on such analysis.
The IMPACT Act also included provisions impacting Medicare-certified hospices, including: (1) increasing survey frequency for
Medicare-certified hospices to once every 36 months; (2) imposing a medical review process for facilities with a high percentage
of stays in excess of 180 days; and (3) updating the annual aggregate Medicare payment cap.
See discussion of the effects of this law on our operations below.
Pre-Claim Review Demonstration for Home Health Services
On June 8, 2016, CMS announced the implementation of a three year Medicare pre-claim review ("PCR") demonstration for home
health services provided to beneficiaries in the states of Illinois, Florida, Texas, Michigan and Massachusetts. The pre-claim review
is a process through which a request for provisional affirmation of coverage is submitted for review before a final claim is submitted
for payment. On April 1, 2017, CMS paused the PCR Demonstration for Home Health Services while CMS considered a number
of changes. CMS revised the demonstration to incorporate more flexibility and choices for providers, as well as risk-based changes
to reward providers who show compliance with Medicare home health policies.
On May 31, 2018, CMS issued a notice indicating its intention to re-launch an HHA pre-claim review demonstration project. The
original program had drawn criticism that it created significant administrative burdens and reduced access to care. Now called the
Review Choice Demonstration for Home Health Services, the revised demonstration will give HHAs in the demonstration states
3 options: pre-claim review of all claims, post-payment review of all claims, or minimal post-payment review with a 25% payment
reduction for all home health services. The demonstration initially will apply to HHA providers in Florida, Illinois, North Carolina,
Ohio, and Texas, with the option to expand after 5 years to other states in the Medicare Administrative Contractor Jurisdiction M
(Palmetto). As of December 2018, CMS is continuing the process for Paperwork Reduction Act (PRA) approval for the restarted
program. After PRA approval is received, CMS will provide a start date for home health agencies in Illinois and instructions on
the choice selection process. CMS will later provide notice before phasing in the other demonstration states: Ohio, North Carolina,
Florida, and Texas.
Home Health Value-Based Purchasing
On January 1, 2016, CMS implemented Home Health Value-Based Purchasing ("HHVBP"). The HHVBP model was designed to
give Medicare-certified home health agencies incentives or penalties, through payment bonuses, to give higher quality and more
efficient care. HHVBP was rolled out to nine pilot states: Arizona, Florida, Iowa, Maryland, Massachusetts, Nebraska, North
Carolina, Tennessee and Washington, seven of which Amedisys currently has home health operations. Bonuses and penalties began
in 2018 with the maximum of plus or minus 3% growing to plus or minus 8% by 2022. Payment adjustments are calculated based
on performance in 20 measures which include current Quality of Patient Care and Patient Satisfaction star measures, as well as
measures based on submission of data to a CMS web portal. The measures used may be subject to modification or change by CMS.
Under the demonstration, agencies with higher performance receive bonuses, while those with lower scores receive lower payments
relative to current levels. Agency performance is evaluated against separate improvement and attainment scores, with payment
tied to the higher of these two scores. CMS used 2015 as the baseline year for performance, with 2016 as the first year for
performance measurement. The first payment adjustment began January 1, 2018, based on 2016 performance data. Between 2018
and 2022, the payment adjustment increases from 3 percent to 8 percent. Based on the CMS published Total Performance Score
results, we received a net positive adjustment in 2018 and are anticipating a net positive adjustment in 2019 as well.
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Home Health Payment Reform
On February 9, 2018, Congress passed the Bipartisan Budget Act of 2018 ("BBA of 2018"), which funded government operations,
set two-year government spending limits and enacted a variety of healthcare related policies. Specific to home health, the BBA of
2018 provides for a targeted extension of the home health rural add-on payment, a reduction of the 2020 market basket update,
modification of eligibility documentation requirements and reform to the HHPPS. The HHPPS reform included the following
parameters: for home health units of service beginning on January 1, 2020, a 30-day payment system will apply; the transition to
the 30-day payment system must be budget neutral; and CMS must conduct at least one Technical Expert Panel during 2018, prior
to any notice and comment rulemaking process, related to the design of any new case-mix adjustment model.
The final HHA regulations introduced by CMS (CMS-1689-FC) that updates the Medicare HHPPS and finalizes the implementation
of an alternative case-mix adjustment methodology, PDGM, will be implemented on January 1, 2020. The PDGM will adjust
payments to home health agencies providing home health services under Medicare Fee-For-Service based on patient characteristics
for 30-day periods of care and will also eliminate the use of therapy visits in the determination of payments. While the changes
are to be implemented in a budget neutral manner to the industry, the ultimate impact will vary by provider based on factors
including patient mix and admission source. Additionally, in arriving at the calculation of a rate that is budget neutral, CMS has
made assumptions about behavioral changes which have not yet been finalized.
Our Competitors
There are few barriers to entry in the home health and hospice jurisdictions that do not require certificates of need or permits of
approval. Our primary competition in these jurisdictions comes from local privately and publicly-owned and hospital-owned health
care providers. We compete based on the availability of personnel, the quality of services, expertise of visiting staff, and, in certain
instances, on the price of our services. In addition, we compete with a number of non-profit organizations that finance acquisitions
and capital expenditures on a tax-exempt basis or receive charitable contributions that are unavailable to us.
Available Information
Our company website address is www.amedisys.com. We use our website as a channel of distribution for important company
information. Important information, including press releases, analyst presentations and financial information regarding our
company, is routinely posted on and accessible on the Investor Relations subpage of our website, which is accessible by clicking
on the tab labeled “Investors” on our website home page. Visitors to our website can also register to receive automatic e-mail and
other notifications alerting them when new information is made available on the Investor Relations subpage of our website. In
addition, we make available on the Investor Relations subpage of our website (under the link “SEC Filings”), free of charge, our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, ownership reports on Forms 3, 4 and
5 and any amendments to those reports as soon as reasonably practicable after we electronically file or furnish such reports with
the SEC. Further, copies of our Certificate of Incorporation and Bylaws, our Code of Ethical Business Conduct, our Corporate
Governance Guidelines and the charters for the Audit, Compensation, Quality of Care, Compliance and Ethics and Nominating
and Corporate Governance Committees of our Board are also available on the Investor Relations subpage of our website (under
the link “Governance”). Reference to our website does not constitute incorporation by reference of the information contained on
the website and should not be considered part of this document.
Additionally, the public may read and copy any of the materials we file with the SEC at the SEC’s Public Reference Room at 100
F Street, NE, Room 1580, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained
by calling the SEC at (800) SEC-0330. Our electronically filed reports can also be obtained on the SEC’s internet site at http://
www.sec.gov.
ITEM 1A. RISK FACTORS
The risks described below, and risks described elsewhere in this Form 10-K, could have a material adverse effect on our business
and consolidated financial condition, results of operations and cash flows and the actual outcome of matters as to which forward-
looking statements are made in this Form 10-K. The risk factors described below and elsewhere in this Form 10-K are not the
only risks faced by Amedisys. Our business and consolidated financial condition, results of operations and cash flows may also
be materially adversely affected by factors that are not currently known to us, by factors that we currently consider immaterial or
by factors that are not specific to us, such as general economic conditions.
If any of the following risks are actually realized, our business and consolidated financial condition, results of operations and
cash flows could be materially adversely affected. In that case, the trading price of our common stock could decline.
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You should refer to the explanation of the qualifications and limitations on forward-looking statements under “Special Caution
Concerning Forward-Looking Statements.” All forward-looking statements made by us are qualified by the risk factors described
below.
Risks Related to Reimbursement
Federal and state changes to reimbursement and other aspects of Medicare and Medicaid could have a material adverse effect
on our business and consolidated financial condition, results of operations and cash flows.
Our net service revenue is primarily derived from Medicare, which accounted for 73%, 76% and 79% of our revenue during 2018,
2017 and 2016, respectively. Payments received from Medicare are subject to changes made through federal legislation. When
such changes are implemented, we must also modify our internal billing processes and procedures accordingly, which can require
significant time and expense. These changes, as further detailed in Part I, Item 1, “Business: Payment for Our Services,” can include
changes to base episode payments and adjustments for home health services, changes to cap limits and per diem rates for hospice
services and changes to Medicare eligibility and documentation requirements or changes designed to restrict utilization. Any such
changes, including retroactive adjustments, adopted in the future by the Center for Medicare and Medicaid Services (“CMS”)
could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
In April of 2015, Congress passed and President Obama signed the so-called “doc fix” in the form of the Medicare Access and
CHIP Reauthorization Act of 2015 (“MACRA”). This law replaces a long-standing physician reimbursement formula with
statutorily prescribed physician payment updates and provisions. MACRA provides for an increase of 3% of the payment amount
otherwise made for home health services furnished in rural areas and sets Medicare reimbursements for post-acute care providers
to increase by 1.0% in fiscal year 2018.
On February 2, 2016, CMS published a final rule, which is currently in effect, adding new requirements for Medicaid home health
services. Among other things, the final rule requires that for the initial ordering of home health services, the physician must
document that a face-to-face encounter that is related to the primary reason the beneficiary requires home health services occurred
no more than 90 days before or 30 days after the start of services. The final rule also requires that for the initial ordering of certain
medical equipment, the physician or authorized non-physician practitioner must document that a face-to-face encounter that is
related to the primary reason the beneficiary requires medical equipment occurred no more than six months prior to the start of
services. The requirements for face-to-face encounters continue to be one of the most complex issues in the industry and can be
the source of claims denials if not fulfilled.
On August 6, 2018, CMS published annual changes in Medicare hospice payment rates. As finalized, CMS estimates hospices
will see a 1.8% increase in Medicare payments for fiscal year 2019. This increase is the result of a 2.9% market basket adjustment
less a 0.8% productivity adjustment, less 0.3% as required under the Patient Protection and Affordable Health Care Act and the
Heath Care and Education Reconciliation Act (collectively, "PPACA"). CMS also increased the aggregate cap amount by 1.8% to
$29,205.44. As of December 31, 2018, we expect the impact of the 2019 final rule on us to be in line with that of the hospice
industry.
On November 1, 2018, CMS issued a final rule to update and revise Medicare home health reimbursement rates for calendar year
2019. CMS estimated that the net impact of the payment provisions of the final rule will result in an increase of 2.2% in
reimbursement to home health providers. This increase is the result of a 3.0% market basket increase less a 0.8% productivity
adjustment. As of December 31, 2018, we expect the impact of the 2019 final rule on us to be an increase of 1.2%.
Additionally, CMS proposed changes to the Home Health Prospective Payment System (“HHPPS”) case-mix adjustment
methodology through the use of a new Patient-Driven Groupings Model ("PDGM") for home health payments. This change is
proposed to be implemented January 1, 2020 and also includes a change in the unit of payment from a 60-day payment period to
a 30-day payment period and eliminates the use of therapy visits in the determination of payments. While the proposed changes
are to be implemented in a budget neutral manner to the industry, the ultimate impact will vary by provider based on factors
including patient mix and admission source. Additionally, in arriving at the calculation of a rate that is budget neutral, CMS has
made assumptions about behavioral changes which have not been finalized. The finalization of these assumptions could negatively
impact our 2020 rate of reimbursement and have a material adverse effect on our business and consolidated financial condition,
results of operations and cash flows.
There are continuing efforts to reform governmental health care programs that could result in major changes in the health care
delivery and reimbursement system on a national and state level, including changes directly impacting the reimbursement systems
for our home health and hospice care centers. Though we cannot predict what, if any, reform proposals will be adopted, health
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care reform and legislation may have a material adverse effect on our business and our financial condition, results of operations
and cash flows through decreasing payments made for our services.
We could be affected adversely by the continuing efforts of governmental payors to contain health care costs. We cannot assure
you that reimbursement payments under governmental payor programs, including Medicare supplemental insurance policies, will
remain at levels comparable to present levels or will be sufficient to cover the costs allocable to patients eligible for reimbursement
pursuant to these programs. Any such changes could have a material adverse effect on our business and consolidated financial
condition, results of operations and cash flows.
Quality reporting requirements may negatively impact Medicare reimbursement.
Hospice quality reporting was mandated by PPACA, which directs the Secretary to establish quality reporting requirements for
hospice programs. Failure to submit required quality data will result in a 2 percentage point reduction to the market basket percentage
increase for that fiscal year. This quality reporting program is currently “pay-for-reporting,” meaning it is the act of submitting
data that determines compliance with program requirements.
Similarly, in the Calendar Year 2015 Home Health Final Rule, CMS proposed to establish a new “Pay-for-Reporting Performance
Requirement” with which provider compliance with quality reporting program requirements can be measured. Home health agencies
that do not submit quality measure data to CMS are subject to a 2.0% reduction in their annual home health payment update
percentage. Home health agencies are required to report prescribed quality assessment data for a minimum of 70.0% of all patients
with episodes of care that occur on or after July 1, 2015. This compliance threshold increased by 10.0% in each of two subsequent
periods - i.e., for episodes beginning on or after July 1, 2016 and before June 30, 2017, home health agencies must score at least
80%, and for episodes beginning on or after July 1, 2017 and thereafter, the required performance level is at least 90%.
The Improving Medicare Post-Acute Care Transformation Act of 2014 (the “IMPACT Act”) requires the submission of standardized
data by home health agencies and other providers. Specifically, the IMPACT Act requires, among other significant activities, the
reporting of standardized patient assessment data with regard to quality measures, resource use, and other measures. Failure to
report data as required will subject providers to a 2% reduction in market basket prices then in effect. Additionally, reporting
activities associated with the IMPACT Act are anticipated to be quite burdensome.
There can be no assurance that all of our agencies will continue to meet quality reporting requirements in the future which may
result in one or more of our agencies seeing a reduction in its Medicare reimbursements. Regardless, we, like other healthcare
providers, are likely to incur additional expenses in an effort to comply with additional and changing quality reporting requirements.
Any economic downturn, deepening of an economic downturn, continued deficit spending by the Federal Government or state
budget pressures may result in a reduction in payments and covered services.
Adverse developments in the United States could lead to a reduction in Federal Government expenditures, including governmentally
funded programs in which we participate, such as Medicare and Medicaid. In addition, if at any time the Federal Government is
not able to meet its debt payments unless the federal debt ceiling is raised, and legislation increasing the debt ceiling is not enacted,
the Federal Government may stop or delay making payments on its obligations, including funding for government programs in
which we participate, such as Medicare and Medicaid. Failure of the government to make payments under these programs could
have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows. Further,
any failure by the United States Congress to complete the federal budget process and fund government operations may result in a
Federal Government shutdown, potentially causing us to incur substantial costs without reimbursement under the Medicare
program, which could have a material adverse effect on our business and consolidated financial condition, results of operations
and cash flows. As an example, the failure of the 2011 Joint Select Committee to meet its Deficit Reduction goal resulted in an
automatic reduction in Medicare home health and hospice payments of 2% beginning April 1, 2013.
Historically, state budget pressures have resulted in reductions in state spending. Given that Medicaid outlays are a significant
component of state budgets, we can expect continuing cost containment pressures on Medicaid outlays for our services.
In addition, sustained unfavorable economic conditions may affect the number of patients enrolled in managed care programs and
the profitability of managed care companies, which could result in reduced payment rates and could have a material adverse effect
on our business and consolidated financial condition, results of operations and cash flows.
Future cost containment initiatives undertaken by private third party payors may limit our future revenue and profitability.
Our non-Medicare revenue and profitability are affected by continuing efforts of third party payors to maintain or reduce costs of
health care by lowering payment rates, narrowing the scope of covered services, increasing case management review of services
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and negotiating pricing. There can be no assurance that third party payors will make timely payments for our services, and there
is no assurance that we will continue to maintain our current payor or revenue mix. We are continuing our efforts to develop our
non-Medicare sources of revenue and any changes in payment levels from current or future third party payors could have a material
adverse effect on our business and consolidated financial condition, results of operations and cash flows.
Risks Related to Laws and Government Regulations
We are operating under a Corporate Integrity Agreement. Violations of this agreement could result in substantial penalties or
exclusion from participation in the Medicare program.
On April 23, 2014, with no admissions of liability on our part, we entered into a settlement agreement with the U.S. Department
of Justice relating to certain of our clinical and business operations. Concurrently with our entry into this agreement, we entered
into a Corporate Integrity Agreement (“CIA”) with the Office of Inspector General-HHS (“OIG”). The CIA, which has a term of
five years, formalizes various aspects of our already existing ethics and compliance programs and contains other requirements
designed to help ensure our ongoing compliance with federal health care program requirements. Among other things, the CIA
requires us to maintain our existing compliance program, executive compliance committee and compliance committee of the Board
of Directors; provide certain compliance training; continue screening new and current employees to ensure they are eligible to
participate in federal health care programs; engage an independent review organization (“IRO”) to perform certain auditing and
reviews and prepare certain reports regarding our compliance with federal health care programs, our billing submissions to federal
health care programs and our compliance and risk mitigation programs; and provide certain reports and management certifications
to the OIG. Additionally, the CIA specifically requires that we report substantial overpayments that we discover we have received
from the federal health care programs, as well as probable violations of federal health care laws. Upon breach of the CIA, we could
become liable for payment of certain stipulated penalties, or could be excluded from participation in federal health care programs.
Although we believe that we are currently in compliance with the CIA, any violations of the agreement could have a material
adverse effect on our business and consolidated financial condition, results of operations and cash flows.
We are subject to extensive government regulation. Any changes to the laws and regulations governing our business, or to the
interpretation and enforcement of those laws or regulations, could have a material adverse effect on our business and
consolidated financial condition, results of operations and cash flows.
Our industry is subject to extensive federal and state laws and regulations. See Part I, Item 1, “Our Regulatory Environment” for
additional information on such laws and regulations. Federal and state laws and regulations impact how we conduct our business,
the services we offer and our interactions with patients, our employees and the public and impose certain requirements on us such
as:
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licensure and certification;
adequacy and quality of health care services;
qualifications of health care and support personnel;
quality and safety of medical equipment;
confidentiality, maintenance and security issues associated with medical records and claims processing;
relationships with physicians and other referral sources;
operating policies and procedures;
emergency preparedness risk assessments and policies and procedures;
policies and procedures regarding employee relations;
addition of facilities and services;
billing for services;
requirements for utilization of services;
documentation required for billing and patient care; and
reporting and maintaining records regarding adverse events.
These laws and regulations, and their interpretations, are subject to change. Changes in existing laws and regulations, or their
interpretations, or the enactment of new laws or regulations could have a material adverse effect on our business and consolidated
financial condition, results of operations and cash flows by:
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increasing our administrative and other costs;
increasing or decreasing mandated services;
causing us to abandon business opportunities we might have otherwise pursued;
decreasing utilization of services;
forcing us to restructure our relationships with referral sources and providers; or
requiring us to implement additional or different programs and systems.
Additionally, we are subject to various routine and non-routine reviews, audits and investigations by the Medicare and Medicaid
programs and other federal and state governmental agencies, which have various rights and remedies against us if they establish
that we have overcharged the programs or failed to comply with program requirements. Violation of the laws governing our
operations, or changes in interpretations of those laws, could result in the imposition of fines, civil or criminal penalties, and the
termination of our rights to participate in federal and state-sponsored programs and/or the suspension or revocation of our licenses.
If we become subject to material fines, or if other sanctions or other corrective actions are imposed on us, our business and
consolidated financial condition, results of operations and cash flows could be materially adversely affected.
We face periodic and routine reviews, audits and investigations under our contracts with federal and state government agencies
and private payors, and these audits could have adverse findings that may negatively impact our business.
As a result of our participation in the Medicare and Medicaid programs, we are subject to various governmental reviews, audits
and investigations to verify our compliance with these programs and applicable laws and regulations. We also are subject to audits
under various government programs, including the RAC, ZPIC, UPIC, PSC and MIC programs as well as in accordance with the
requirements of our CIA, in which third party firms engaged by CMS or by the Company conduct extensive reviews of claims
data and medical and other records to identify potential improper payments under the Medicare program. Private pay sources also
reserve the right to conduct audits. If billing errors are identified in the sample of reviewed claims, the billing error can be
extrapolated to all claims filed which could result in a larger overpayment than originally identified in the sample of reviewed
claims. Our costs to respond to and defend reviews, audits and investigations may be significant and could have a material adverse
effect on our business and consolidated financial condition, results of operations and cash flows. Moreover, an adverse review,
audit or investigation could result in:
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required refunding or retroactive adjustment of amounts we have been paid pursuant to the federal or state programs or
from private payors;
state or federal agencies imposing fines, penalties and other sanctions on us;
loss of our right to participate in the Medicare program, state programs, or one or more private payor networks; or
damage to our business and reputation in various markets.
These results could have a material adverse effect on our business and consolidated financial condition, results of operations and
cash flows.
If a care center fails to comply with the conditions of participation in the Medicare program, that care center could be subjected
to sanctions or terminated from the Medicare program.
Each of our care centers must comply with required conditions of participation in the Medicare program. If we fail to meet the
conditions of participation at a care center, we may receive a notice of deficiency from the applicable state surveyor. If that care
center then fails to institute an acceptable plan of correction to remediate the deficiency within the correction period provided by
the state surveyor, that care center could be terminated from the Medicare program or subjected to alternative sanctions. CMS
outlined its alternative sanction enforcement options for home health care centers through a regulation published in 2012; under
the regulation, CMS may impose temporary management, direct a plan of correction, direct training or impose payment suspensions
and civil monetary penalties, in each case, upon providers who fail to comply with the conditions of participation. Termination of
one or more of our care centers from the Medicare program for failure to satisfy the program’s conditions of participation, or the
imposition of alternative sanctions, could disrupt operations, require significant attention by management, or have a material
adverse effect on our business and reputation and consolidated financial condition, results of operations and cash flows.
We are subject to federal and state laws that govern our financial relationships with physicians and other health care providers,
including potential or current referral sources.
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We are required to comply with federal and state laws, generally referred to as “anti-kickback laws,” that prohibit certain direct
and indirect payments or other financial arrangements between health care providers that are designed to encourage the referral
of patients to a particular provider for medical services. In addition to these anti-kickback laws, the Federal Government has
enacted specific legislation, commonly known as the “Stark Law,” that prohibits certain financial relationships, specifically
including ownership interests and compensation arrangements, between physicians (and the immediate family members of
physicians) and providers of designated health services, such as home health care centers, to whom the physicians refer patients.
Some of these same financial relationships are also subject to additional regulation by states. Although we believe we have structured
our relationships with physicians and other potential referral sources to comply with these laws where applicable, we cannot assure
you that courts or regulatory agencies will not interpret state and federal anti-kickback laws and/or the Stark Law and similar state
laws regulating relationships between health care providers and physicians in ways that will adversely implicate our practices or
that isolated instances of noncompliance will not occur. Violations of federal or state Stark or anti-kickback laws could lead to
criminal or civil fines or other sanctions, including denials of government program reimbursement or even exclusion from
participation in governmental health care programs, which could have a material adverse effect on our business and consolidated
financial condition, results of operations and cash flows.
We may face significant uncertainty in the industry due to government health care reform.
The health care industry in the United States is subject to fundamental changes due to ongoing health care reform efforts and
related political, economic and regulatory influences. In March 2010, comprehensive health care reform legislation was signed
into law in the United States through the passage of PPACA. However, it is difficult to predict the full impact of PPACA due to
the law’s complexity and phased-in effective dates, as well as our inability to foresee how CMS and other participants in the health
care industry will respond to the choices available to them under the law.
PPACA makes a number of changes to Medicare payment rates and also calls for a rebasing of the home health payment system.
These reimbursement changes are described in detail in Part II, Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations: Overview – Economic and Industry Factors.”
Regulations implementing the provisions of the PPACA and related initiatives may similarly increase our costs, decrease our
revenues, expose us to expanded liability or require us to revise the ways in which we conduct our business.
PPACA also calls for a number of other changes to be made over time that will likely have a significant impact upon the health
care delivery system. For example, PPACA mandates creation of a home health value-based purchasing program, the development
of quality measures, and decreases in home health reimbursement rates, including rebasing, as further described in Part II, Item
7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations: Overview – Economic and Industry
Factors.”
In addition, various health care reform proposals similar to the federal reforms described above have also emerged at the state
level, including in several states in which we operate. We cannot predict with certainty what health care initiatives, if any, will be
implemented at the state level, or what the ultimate effect of federal health care reform or any future legislation or regulation may
have on us or on our business and consolidated financial condition, results of operations and cash flows.
In addition to impacting our Medicare businesses, PPACA may also significantly affect our non-Medicare businesses. PPACA
makes many changes to the underwriting and marketing practices of private payors. The resulting economic pressures could prompt
these payors to seek to lower their rates of reimbursement for the services we provide. At this time, it is not possible to estimate
what impact PPACA may have on our non-Medicare businesses.
Finally, efforts to repeal or substantially modify provisions of the PPACA continue in Congress. The ultimate outcomes of legislative
efforts to repeal, substantially amend, eliminate or reduce funding for the PPACA is unknown. In addition to the prospect for
legislative repeal or revision, the President and members of his administration hostile to the PPACA could seek to impose substantial
changes upon the PPACA through administrative action, including revised regulation and other Executive Branch action. The
effect of any major modification or repeal of the PPACA on our business, operations, or financial condition cannot be predicted,
but could be materially adverse.
Risks Related to our Growth Strategies
Our growth strategy depends on our ability to acquire additional care centers and integrate and operate these care centers
effectively. If our growth strategy is unsuccessful or we are not able to successfully integrate newly acquired care centers into
our existing operations, our business and consolidated financial condition, results of operations and cash flows could be
materially adversely affected.
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We may not be able to fully integrate the operations of our acquired businesses with our current business structure in an efficient
and cost-effective manner. Acquisitions involve significant risks and uncertainties, including difficulties in recouping partial episode
payments and other types of misdirected payments for services from the previous owners; difficulties integrating acquired personnel
and business practices into our business; the potential loss of key employees, referral sources or patients of acquired care centers;
the delay in payments associated with change in ownership, control and the internal process of the Medicare fiscal intermediary;
and the assumption of liabilities and exposure to unforeseen liabilities of acquired care centers. Further, the financial benefits we
expect to realize from many of our acquisitions are largely dependent upon our ability to improve clinical performance, overcome
regulatory deficiencies, improve the reputation of the acquired business in the community and control costs. The failure to
accomplish any of these objectives or to effectively integrate any of these businesses could have a material adverse effect on our
business and consolidated financial condition, results of operations and cash flows.
State efforts to regulate the establishment or expansion of health care providers could impair our ability to expand our operations.
Some states require health care providers (including skilled nursing facilities, hospice care centers, home health care centers and
assisted living facilities) to obtain prior approval, known as a CON or POA, in order to commence operations. See Part I, Item 1,
“Our Regulatory Environment” for additional information on CONs and POAs. If we are not able to obtain such approvals, our
ability to expand our operations could be impaired, which could have a material adverse effect on our business and consolidated
financial condition, results of operations and cash flows.
Federal regulation may impair our ability to consummate acquisitions or open new care centers.
Changes in federal laws or regulations may materially adversely impact our ability to acquire care centers or open new start-up
care centers. For example, the Social Security Act provides the Secretary with the authority to impose temporary moratoria on the
enrollment of new Medicare providers, if deemed necessary to combat fraud, waste or abuse under government programs. While
there are no active Medicare moratoria as of January 30, 2019, there can be no assurance that CMS will not adopt a moratorium
on new providers in the future. Additionally, in 2010, CMS implemented and amended a regulation known as the “36 Month
Rule” that is applicable to home health care center acquisitions. Subject to certain exceptions, the 36 Month Rule prohibits buyers
of certain home health care centers - those that either enrolled in Medicare or underwent a change in majority ownership fewer
than 36 months prior to the acquisition - from assuming the Medicare billing privileges of the acquired care center. The 36 Month
Rule may restrict bona fide transactions and potentially block new investments in home health agencies. These changes in federal
laws and regulations, and similar future changes, may further increase competition for acquisition targets and could have a material
detrimental impact on our acquisition strategy.
Risks Related to our Operations
Because we are limited in our ability to control rates received for our services, our business and consolidated financial condition,
results of operations and cash flows could be materially adversely affected if we are not able to maintain or reduce our costs
to provide such services.
As Medicare is our primary payor and rates are established through federal legislation, we have to manage our costs of providing
care to achieve a desired level of profitability. Additionally, non-Medicare rates are difficult for us to negotiate as such payors are
under pressure to reduce their own costs. As a result, we manage our costs in order to achieve a desired level of profitability
including, but not limited to, centralization of various processes, the use of technology and management of the number of employees
utilized. If we are not able to continue to streamline our processes and reduce our costs, our business and consolidated financial
condition, results of operations and cash flows could be materially adversely affected.
Our industry is highly competitive, with few barriers to entry in certain states.
There are few barriers to entry in home health markets that do not require a CON or POA. Our primary competition comes from
local privately-owned and hospital-owned health care providers. We compete based on the availability of personnel; the quality
of services; expertise of visiting staff; and in certain instances, on the price of our services. Increased competition in the future
may limit our ability to maintain or increase our market share.
Further, the introduction of new and enhanced service offerings by others, in combination with industry consolidation and the
development of strategic relationships by our competitors (including mergers of competitors with each other and with insurers),
could cause a decline in revenue or loss of market acceptance of our services or make our services less attractive. Additionally,
we compete with a number of non-profit organizations that can finance acquisitions and capital expenditures on a tax-exempt basis
or receive charitable contributions that are unavailable to us.
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Managed care organizations and other third party payors continue to consolidate, which enhances their ability to influence the
delivery of health care services. Consequently, the health care needs of patients in the United States are increasingly served by a
smaller number of managed care organizations. These organizations generally enter into service agreements with a limited number
of providers. Our business and consolidated financial condition, results of operations and cash flows could be materially adversely
affected if these organizations terminate us as a provider and/or engage our competitors as a preferred or exclusive provider. In
addition, should private payors, including managed care payors, seek to negotiate additional discounted fee structures or the
assumption by health care providers of all or a portion of the financial risk through prepaid capitation arrangements, our business
and consolidated financial condition, results of operations and cash flows could be materially adversely affected.
If we are unable to react competitively to new developments, our operating results may suffer. State CON or POA laws often limit
the ability of competitors to enter into a given market, are not uniform throughout the United States and are frequently the subject
of efforts to limit or repeal such laws. If states remove existing CONs or POAs, we could face increased competition in these
states. For example, New Hampshire repealed its CON laws in 2015, and legislation was recently introduced in South Carolina
that would have limited the application of its CON program. There can be no assurances that other states will not seek to eliminate
or limit their existing CON or POA programs, which could lead to increased competition in these states. Further, we cannot assure
you that we will be able to compete successfully against current or future competitors, which could have a material adverse effect
on our business and consolidated financial condition, results of operations and cash flows.
If we are unable to maintain relationships with existing patient referral sources, our business and consolidated financial
condition, results of operations and cash flows could be materially adversely affected.
Our success depends on referrals from physicians, hospitals and other sources in the communities we serve and on our ability to
maintain good relationships with existing referral sources. Our referral sources are not contractually obligated to refer patients to
us and may refer their patients to other providers. Our growth and profitability depends, in part, on our ability to establish and
maintain close working relationships with these patient referral sources and to increase awareness and acceptance of the benefits
of home health and hospice care by our referral sources and their patients. Our loss of, or failure to maintain, existing relationships
or our failure to develop new referral relationships could have a material adverse effect on our business and consolidated financial
condition, results of operations and cash flows.
If we are unable to provide consistently high quality of care, our business will be adversely impacted.
Providing quality patient care is the cornerstone of our business. We believe that hospitals, physicians and other referral sources
refer patients to us in large part because of our reputation for delivering quality care. Clinical quality is becoming increasingly
important within our industry. Effective October 2012, Medicare began to impose a financial penalty upon hospitals that have
excessive rates of patient readmissions within 30 days from hospital discharge. We believe this new regulation provides a competitive
advantage to home health providers who can differentiate themselves based upon quality, particularly by achieving low patient
acute care hospitalization readmission rates and by implementing disease management programs designed to be responsive to the
needs of patients served by referring hospitals. We are focused intently upon improving our patient outcomes, particularly our
patient acute care hospitalization readmission rates. If we should fail to attain our goals regarding acute care hospitalization
readmission rates and other quality metrics, we expect our ability to generate referrals would be adversely impacted, which could
have a material adverse effect upon our business and consolidated financial condition, results of operations and cash flows.
Additionally, Medicare has established consumer-facing websites, Home Health Compare and Hospice Compare, that present data
regarding our performance on certain quality measures compared to state and national averages. If we should fail to achieve or
exceed these averages, it may affect our ability to generate referrals, which could have a material adverse effect upon our business
and consolidated financial condition, results of operations and cash flows.
Our business depends on our information systems. Our inability to effectively integrate, manage and keep our information
systems secure and operational could disrupt our operations.
Our business depends on effective, secure and operational information systems which include systems provided by external
contractors and other service providers. Problems with, or the failure of, our technology and systems or any system upgrades or
programming changes associated with such technology and systems could have a material adverse effect on data capture, medical
documentation, billing, collections, assessment of internal controls and management and reporting capabilities. Any such problems
or failures and the costs incurred in correcting any such problems or failures, could have a material adverse effect on our business
and consolidated financial condition, results of operations and cash flows. Further, to the extent our external information technology
contractors or other service providers become insolvent or fail to support the software or systems we have licensed from them,
our operations could be materially adversely affected.
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Our care centers also depend upon our information systems for accounting, billing, collections, risk management, quality assurance,
human resources, payroll and other information. If we experience a reduction in the performance, reliability, or availability of our
information systems, our operations and ability to produce timely and accurate reports could be materially adversely affected.
Our information systems and applications require continual maintenance, upgrading and enhancement to meet our operational
needs. Our acquisition activity requires transitions and integration of various information systems. We regularly upgrade and
expand our information systems’ capabilities. If we experience difficulties with the transition and integration of information systems
or are unable to implement, maintain, or expand our systems properly, we could suffer from, among other things, operational
disruptions, regulatory problems and increases in administrative expenses.
We may be required to expend significant capital and other resources to protect against the threat of security breaches or to alleviate
problems caused by breaches, including unauthorized access to patient data and personally identifiable information stored in our
information systems, and the introduction of computer viruses or other malicious software programs to our systems. Our security
measures may be inadequate to prevent security breaches and our business operations could be materially adversely affected by
federal and state fines and penalties, legal claims or proceedings, cancellation of contracts and loss of patients if security breaches
are not prevented.
We have installed privacy protection systems and devices on our network and point of care tablets in an attempt to prevent
unauthorized access to information in our database. However, our technology may fail to adequately secure the confidential health
information and personally identifiable information we maintain in our databases. In such circumstances, we may be held liable
to our patients and regulators, which could result in fines, litigation or adverse publicity that could have a material adverse effect
on our business and consolidated financial condition, results of operations and cash flows. Even if we are not held liable, any
resulting negative publicity could harm our business and distract the attention of management.
Further, our information systems are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure,
break-ins and similar events. A failure to restore our information systems after the occurrence of any of these events could have a
material adverse effect on our business and consolidated financial condition, results of operations and cash flows. Because of the
confidential health information we store and transmit, loss of electronically stored information for any reason could expose us to
a risk of regulatory action and litigation and possible liability and loss.
We believe we have all the necessary licenses from third parties to use technology and software that we do not own. A third party
could, however, allege that we are infringing its rights, which may deter our ability to obtain licenses on commercially reasonable
terms from the third party, if at all, or cause the third party to commence litigation against us. In addition, we may find it necessary
to initiate litigation to protect our trade secrets, to enforce our intellectual property rights and to determine the scope and validity
of any proprietary rights of others. Any such litigation, or the failure to obtain any necessary licenses or other rights, could materially
and adversely affect our business.
Possible changes in the case mix of patients, as well as payor mix and payment methodologies, could have a material adverse
effect on our business and consolidated financial condition, results of operations and cash flows.
Our revenue is determined by a number of factors, including our mix of patients and the rates of payment among payors. Changes
in the case mix of our patients, payment methodologies or the payor mix among Medicare, Medicaid and private payors could
have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
Our failure to negotiate favorable managed care contracts, or our loss of existing favorable managed care contracts, could
have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
One of our strategies is to diversify our payor sources by increasing the business we do with managed care companies, and we
strive to put in place favorable contracts with managed care payors. However, we may not be successful in these efforts. Additionally,
there is a risk that the favorable managed care contracts that we put in place may be terminated. Managed care contracts typically
permit the payor to terminate the contract without cause, on very short notice, typically 60 days, which can provide payors leverage
to reduce volume or obtain favorable pricing. Our failure to negotiate and put in place favorable managed care contracts, or our
failure to maintain in place favorable managed care contracts, could have a material adverse effect on our business and consolidated
financial condition, results of operations and cash flows.
A write off of a significant amount of intangible assets or long-lived assets could have a material adverse effect on our
consolidated financial condition and results of operations.
A significant and sustained decline in our stock price and market capitalization, a significant decline in our expected future cash
flows, a significant adverse change in the business climate, or slower growth rates could result in the need to perform an impairment
20
analysis under Accounting Standard Codification (“ASC”) Topic 350 “Intangibles – Goodwill and Other” in future periods in
addition to our annual impairment test. If we were to conclude that a write down of goodwill is necessary, then we would record
the appropriate charge, which could result in material charges that are adverse to our consolidated financial condition and results
of operations. See Part II, Item 8, Note 4 – Goodwill and Other Intangible Assets, Net to our consolidated financial statements for
additional information.
Because we have grown in part through acquisitions, goodwill and other acquired intangible assets represent a substantial portion
of our assets. Goodwill was approximately $329.5 million as of December 31, 2018 and if we make additional acquisitions, it is
likely that we will record additional goodwill and intangible assets in our consolidated financial statements. We also have long-
lived assets consisting of property and equipment and other identifiable intangible assets of $73.6 million as of December 31,
2018, which we review on a periodic basis as well as when events or circumstances indicate that the carrying amount of an asset
may not be recoverable. If a determination that a significant impairment in value of our unamortized intangible assets or long-
lived assets occurs, such determination could require us to write off a substantial portion of our assets. A write off of these assets
could have a material adverse effect on our consolidated financial condition and results of operations.
A shortage of qualified registered nursing staff and other clinicians, such as therapists and nurse practitioners, could materially
impact our ability to attract, train and retain qualified personnel and could increase operating costs.
We compete for qualified personnel with other healthcare providers. Our ability to attract and retain clinicians depends on several
factors, including our ability to provide these personnel with attractive assignments and competitive salaries and benefits. We
cannot be assured we will succeed in any of these areas. In addition, there are shortages of qualified health care personnel in some
of our markets. As a result, we may face higher costs of attracting clinicians and providing them with attractive benefit packages
than we originally anticipated which could have a material adverse effect on our business and consolidated financial condition,
results of operations and cash flows. In addition, if we expand our operations into geographic areas where health care providers
historically have been unionized, or if any of our care center employees become unionized, being subject to a collective bargaining
agreement may have a negative impact on our ability to timely and successfully recruit qualified personnel and may increase our
operating costs. Generally, if we are unable to attract and retain clinicians, the quality of our services may decline and we could
lose patients and referral sources, which could have a material adverse effect on our business and consolidated financial condition,
results of operations and cash flows.
Our insurance liability coverage may not be sufficient for our business needs.
As a result of operating in the home health industry, our business entails an inherent risk of claims, losses and potential lawsuits
alleging incidents involving our employees that are likely to occur in a patient’s home. We maintain professional liability insurance
to provide coverage to us and our subsidiaries against these risks. However, we cannot assure you claims will not be made in the
future in excess of the limits of our insurance, nor can we assure you that any such claims, if successful and in excess of such
limits, will not have a material adverse effect on our business and consolidated financial condition, results of operations and cash
flows. Our insurance coverage also includes fire, property damage and general liability with varying limits. We cannot assure you
that the insurance we maintain will satisfy claims made against us or that insurance coverage will continue to be available to us
at commercially reasonable rates, in adequate amounts or on satisfactory terms. Any claims made against us, regardless of their
merit or eventual outcome, could damage our reputation and business.
We may be subject to substantial malpractice or other similar claims.
The services we offer involve an inherent risk of professional liability and related substantial damage awards. As of February 22,
2019, we have approximately 21,000 employees (11,000 home health, 6,000 hospice, 3,000 personal care and 1,000 corporate
employees). In addition, we employ direct care workers on a contractual basis to support our existing workforce. Due to the nature
of our business, we, through our employees and caregivers who provide services on our behalf, may be the subject of medical
malpractice claims. A court could find these individuals should be considered our agents, and, as a result, we could be held liable
for their acts or omissions. We cannot predict the effect that any claims of this nature, regardless of their ultimate outcome, could
have on our business or reputation or on our ability to attract and retain patients and employees. While we maintain malpractice
liability coverage that we believe is appropriate given the nature and breadth of our operations, any claims against us in excess of
insurance limits, or multiple claims requiring us to pay deductibles, could have a material adverse effect on our business and
consolidated financial condition, results of operations and cash flows.
If we are unable to maintain our corporate reputation, our business may suffer.
Our success depends on our ability to maintain our corporate reputation, including our reputation for providing quality patient
care and for compliance with Medicare requirements and the other laws to which we are subject. Adverse publicity surrounding
21
any aspect of our business, including the death or disability of any of our patients due to our failure to provide proper care, or due
to any failure on our part to comply with Medicare requirements or other laws to which we are subject, could negatively affect
our Company’s overall reputation and the willingness of referral sources to refer patients to us.
We depend on the services of our executive officers and other key employees.
We depend greatly on the efforts of our executive officers and other key employees to manage our operations. The loss or departure
of any one of these executives or other key employees could have a material adverse effect on our business and consolidated
financial condition, results of operations and cash flows.
Our operations could be impacted by natural disasters.
The occurrence of natural disasters in the markets in which we operate could not only impact the day-to-day operations of our
care centers, but could also disrupt our relationships with patients, employees and referral sources located in the affected areas
and, in the case of our corporate office, our ability to provide administrative support services, including billing and collection
services. In addition, any episode of care that is not completed due to the impact of a natural disaster will generally result in lower
revenue for the episode. For example, our corporate office and a number of our care centers are located in the southeastern United
States and the Gulf Coast Region, increasing our exposure to hurricanes and flooding. Future hurricanes or other natural disasters
may have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
Risks Related to Liquidity
Delays in payment may cause liquidity problems.
Our business is characterized by delays from the time we provide services to the time we receive payment for these services. If
we have difficulty in obtaining documentation, such as physician orders, experience information system problems or experience
other issues that arise with Medicare or other payors, we may encounter additional delays in our payment cycle.
In addition, timing delays in billings and collections may cause working capital shortages. Working capital management, including
prompt and diligent billing and collection, is an important factor in achieving our financial results and maintaining liquidity. It is
possible that documentation support, system problems, Medicare or other provider issues or industry trends may extend our
collection period, which may materially adversely affect our working capital, and our working capital management procedures
may not successfully mitigate this risk. CMS's inability to have its systems ready to properly reimburse home health providers
under the new PDGM could have a material adverse effect on our business and consolidated financial condition, results of operations
and cash flows.
On May 31, 2018, CMS issued a notice indicating its intention to re-launch a home health agency ("HHA") pre-claim review
demonstration project. Now called the Review Choice Demonstration for Home Health Services, the revised demonstration will
give HHAs in the demonstration states 3 options: pre-claim review of all claims, post-payment review of all claims, or minimal
post-payment review with a 25% payment reduction for all home health services. The demonstration initially will apply to HHA
providers in Florida, Illinois, North Carolina, Ohio, and Texas, with the option to expand after 5 years to other states in the Medicare
Administrative Contractor Jurisdiction M (Palmetto). As of December 2018, CMS is continuing the process for Paperwork
Reduction Act ("PRA") approval for the restarted program. After PRA approval is received, CMS will provide a start date for
home health agencies in Illinois and instructions on the choice selection process. CMS will later provide notice before phasing in
the other demonstration states: Ohio, North Carolina, Florida, and Texas. Compliance with this process could result in increased
administrative costs or delays in reimbursement for home health services in states subject to the demonstration.
Additionally, our hospice operations may experience payment delays. We have experienced payment delays when attempting to
collect funds from state Medicaid programs in certain instances. Delays in receiving payments from these programs may also
materially adversely affect our working capital.
Changes in units of payment for home health agencies could reduce our Medicare home health reimbursement levels.
As required by the Bipartisan Budget Act of 2018, the PDGM will change the unit of payment for home health agencies from a
60-day episode of care to 30-day periods of care. This change is proposed to be implemented January 1, 2020 in a budget neutral
manner. Thus, the move to the PDGM is not supposed to result in lower net reimbursement. However, CMS has made assumptions
about behavioral changes which have not been finalized, for example that home health agencies will change their documentation
and coding practices and would put the highest paying diagnosis code as the principal diagnosis code in order to have a 30-day
period be placed into a higher-paying clinical group. CMS may take into account expected behavioral effects of policy changes
related to the implementation of the proposed rule, resulting in lower reimbursement levels in some cases. Accordingly, the
22
implementation of the PDGM could negatively impact our 2020 rate of reimbursement and have a material adverse effect on our
business and consolidated financial condition, results of operations and cash flows. See Part I, Item 1, “Our Regulatory Environment
- Home Health Payment Reform” for additional information on the PDGM.
The volatility and disruption of the capital and credit markets and adverse changes in the United States and global economies
could impact our ability to access both available and affordable financing, and without such financing, we may be unable to
achieve our objectives for strategic acquisitions and internal growth.
While we intend to finance strategic acquisitions and internal growth with cash flows from operations and borrowings under our
revolving credit facility, we may require sources of capital in addition to those presently available to us. Uncertainty in the capital
and credit markets may impact our ability to access capital on terms acceptable to us (i.e. at attractive/affordable rates) or at all,
and this may result in our inability to achieve present objectives for strategic acquisitions and internal growth. Further, in the event
we need additional funds, and we are unable to raise the necessary funds on acceptable terms, our business and consolidated
financial condition, results of operations and cash flows could be materially adversely affected.
Our indebtedness could impact our financial condition and impair our ability to fulfill other obligations.
As of December 31, 2018, we had total outstanding indebtedness of approximately $8.6 million. Our level of indebtedness could
have a material adverse effect on our business and consolidated financial position, results of operations and cash flows and could
impair our ability to fulfill other obligations in several ways, including:
•
•
•
•
•
it could require us to dedicate a portion of our cash flow from operations to payments on our indebtedness, which
could reduce the availability of cash flow to fund acquisitions, start-ups, working capital, capital expenditures and
other general corporate purposes;
it could limit our ability to borrow money or sell stock for working capital, capital expenditures, debt service
requirements and other purposes;
it could limit our flexibility in planning for, and reacting to, changes in our industry or business;
it could make us more vulnerable to unfavorable economic or business conditions; and
it could limit our ability to make acquisitions or take advantage of other business opportunities.
In the event we incur additional indebtedness, the risks described above could increase.
The agreements governing our indebtedness contain various covenants that limit our discretion in the operation of our business
and our failure to satisfy requirements in these agreements could have a material adverse effect on our business and consolidated
financial condition, results of operations and cash flows.
The agreements governing our indebtedness (the “Debt Agreements”) contain certain obligations, including restrictive covenants
that require us to comply with or maintain certain financial covenants and ratios and restrict our ability to:
•
•
incur additional debt;
redeem or repurchase stock, pay dividends or make other distributions;
• make certain investments;
•
•
create liens;
enter into transactions with affiliates;
• make acquisitions;
•
enter into joint ventures;
• merge or consolidate;
•
•
•
invest in foreign subsidiaries;
amend acquisition documents;
enter into certain swap agreements;
• make certain restricted payments;
23
•
transfer, sell or leaseback assets; and
• make fundamental changes in our corporate existence and principal business.
Our Debt Agreements also limit our ability to reinvest the net cash proceeds from asset sales or subordinated debt issuances in
certain circumstances. For example, in the event we or any of our subsidiaries receive more than $5 million in net cash proceeds
from an asset sale, disposition or involuntary disposition, our Debt Agreements require us to prepay our term loan facility and
revolving credit facility with all of such net cash proceeds, unless we elect to reinvest the net cash proceeds in fixed or capital
assets related to our business.
In addition, events beyond our control could affect our ability to comply with the Debt Agreements. Any failure by us to comply
with or maintain all applicable financial covenants and ratios and to comply with all other applicable covenants could result in an
event of default with respect to the Debt Agreements. If we are unable to obtain a waiver from our lenders in the event of any non-
compliance, our lenders could accelerate the maturity of any outstanding indebtedness and terminate the commitments to make
further extensions of credit (including our ability to borrow under our revolving credit facility). Any failure to comply with these
covenants could have a material adverse effect on our business and consolidated financial condition, results of operations and cash
flows.
Risks Related to Ownership of Our Common Stock
The price of our common stock may be volatile.
The price at which our common stock trades may be volatile. The stock market from time to time experiences significant price
and volume fluctuations that impact the market prices of securities, particularly those of health care companies. The market price
of our common stock may be influenced by many factors, including:
•
•
•
•
•
•
•
•
•
•
•
our operating and financial performance;
variances in our quarterly financial results compared to research analyst expectations;
the depth and liquidity of the market for our common stock;
future purchases or sales of common stock by the Company or large stockholders or the perception that such purchases
or sales could occur;
investor, analyst and media perception of our business and our prospects;
developments relating to litigation or governmental investigations;
changes or proposed changes in health care laws or regulations or enforcement of these laws and regulations, or
announcements relating to these matters;
departure of key personnel;
changes in the Medicare, Medicaid and private insurance payment rates for home health and hospice;
announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or
capital commitments; or
general economic and stock market conditions.
In addition, the stock market in general, and the NASDAQ Global Select Market (“NASDAQ”) in particular, has experienced
price and volume fluctuations that we believe have often been unrelated or disproportionate to the operating performance of health
care provider companies. These broad market and industry factors may materially reduce the market price of our common stock,
regardless of our operating performance. Securities class-action cases have often been brought against companies following periods
of volatility in the market price of their securities.
The activities of short sellers could reduce the price or prevent increases in the price of our common stock. “Short sale” is defined
as the sale of stock by an investor that the investor does not own. Typically, investors who sell short believe the price of the stock
will fall, and anticipate selling shares at a higher price than the purchase price at which they will buy the stock. As of December 31,
2018, investors held a short position of approximately 1.9 million shares of our common stock which represented 6.1% of our
outstanding common stock. The anticipated downward pressure on our stock price due to actual or anticipated sales of our stock
by some institutions or individuals who engage in short sales of our common stock could cause our stock price to decline.
24
Sales of substantial amounts of our common stock or the availability of those shares for future sale, could materially impact
our stock price and limit our ability to raise capital.
The following table presents information about our outstanding common and preferred stock and our outstanding securities
exercisable for or convertible into shares of common stock:
Common stock outstanding
Preferred stock outstanding
Common stock available under 2018 Omnibus Incentive Compensation Plan
Stock options outstanding
Stock options exercisable
Non-vested stock outstanding
Non-vested stock units outstanding
As of December 31,
2018
31,973,505
—
2,350,831
833,315
462,845
14,904
467,077
If we were to sell substantial amounts of our common stock in the public market or if there was a public perception that substantial
sales could occur, the market price of our common stock could decline. These sales or the perception of substantial future sales
may also make it difficult for us to sell common stock in the future to raise capital.
Our Board of Directors may use anti-takeover provisions or issue stock to discourage a change of control.
Our certificate of incorporation currently authorizes us to issue up to 60,000,000 shares of common stock and 5,000,000 shares
of undesignated preferred stock. Our Board of Directors may cause us to issue additional stock to discourage an attempt to obtain
control of our company. For example, shares of stock could be sold to purchasers who might support our Board of Directors in a
control contest or to dilute the voting or other rights of a person seeking to obtain control. In addition, our Board of Directors could
cause us to issue preferred stock entitling holders to vote separately on any proposed transaction, convert preferred stock into
common stock, demand redemption at a specified price in connection with a change in control, or exercise other rights designed
to impede a takeover.
The issuance of additional shares may, among other things, dilute the earnings and equity per share of our common stock and the
voting rights of common stockholders.
We have implemented other anti-takeover provisions or provisions that could have an anti-takeover effect, including advance
notice requirements for director nominations and stockholder proposals, no cumulative voting for directors, director vacancies are
filled by remaining directors (including vacancies resulting from removal), and the number of directors is fixed by the Board of
Directors, and the Board of Directors can increase or decrease the size of the Board of Directors without stockholder approval
(within the range set forth in our Certificate of Incorporation and Bylaws). These provisions, and others that our Board of Directors
may adopt hereafter, may discourage offers to acquire us and may permit our Board of Directors to choose not to entertain offers
to purchase us, even if such offers include a substantial premium to the market price of our stock. Therefore, our stockholders may
be deprived of opportunities to profit from a sale of control.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
25
ITEM 2. PROPERTIES
Our executive office is located in Nashville, Tennessee in a leased property consisting of 25,097 square feet; our corporate
headquarters is located in Baton Rouge, Louisiana in a leased property consisting of 85,955 square feet. We believe we have
adequate space to accommodate our corporate staff located in these locations for the foreseeable future.
In addition to our executive office and corporate headquarters, we also lease facilities for our home health, hospice and personal-
care care centers. Generally, these leases have an initial term of five years with a three year early termination option, but range
from one to seven years. Most of these leases also contain an option to extend the lease period. The following table shows the
location of our 323 Medicare-certified home health care centers, 84 Medicare-certified hospice care centers and 12 personal-care
care centers at December 31, 2018:
State
Alabama
Arkansas
Arizona
California
Connecticut
Delaware
Florida
Georgia
Illinois
Indiana
Kansas
Kentucky
Louisiana
Massachusetts
Maine
Maryland
Mississippi
Missouri
Home Health
Hospice
Personal Care
State
Home Health
Hospice
Personal Care
30
5
3
4
4
2
20
62
3
5
1
17
10
5
2
8
9
6
7
—
1
—
1
—
—
6
—
1
1
—
4
9
4
2
—
—
— New Jersey
— New York
— New Hampshire
— North Carolina
— Ohio
— Oklahoma
1 Oregon
— Pennsylvania
— Rhode Island
— South Carolina
— Tennessee
— Texas
— Virginia
10 Washington
— West Virginia
— Wisconsin
— Washington, D.C.
—
Total
2
5
3
8
1
6
3
7
1
20
43
1
13
1
11
1
1
323
1
—
3
6
2
—
1
6
2
7
11
1
2
—
6
—
—
84
—
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
12
ITEM 3. LEGAL PROCEEDINGS
See Part II, Item 8, Note 9 – Commitments and Contingencies for information concerning our legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
26
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
PART II
Market Information and Holders
Our common stock trades on the NASDAQ Global Select Market under the trading symbol “AMED.” As of February 22, 2019,
there were approximately 510 holders of record of our common stock.
Dividend Policy
We have not declared or paid any cash dividends on our common stock or any other of our securities and do not expect to pay cash
dividends for the foreseeable future. We currently intend to retain our future earnings, if any, to fund the development and growth
of our business. Future decisions concerning the payment of dividends will depend upon our results of operations, financial
condition, capital expenditure plans and debt service requirements, as well as such other factors as our Board of Directors, in its
sole discretion, may consider relevant. In addition, our outstanding indebtedness restricts, and we anticipate any additional future
indebtedness may restrict, our ability to pay cash dividends; provided, however, that we may pay (i) dividends payable solely in
our equity securities and (ii) dividends if (1) no default or event of default under the Credit Agreement shall have occurred and be
continuing at the time of such dividend or would result therefrom, (2) we demonstrate that, upon giving pro forma effect to such
dividend, our consolidated leverage ratio (as defined in the Credit Agreement) is less than 2.0 to 1.0 and (3) we demonstrate a
minimum liquidity of $50 million upon giving effect to such dividend.
Purchases of Equity Securities
The following table provides the information with respect to purchases made by us of shares of our common stock during each of
the months during the three-month period ended December 31, 2018:
Period
October 1, 2018 to October 31, 2018
November 1, 2018 to November 30, 2018
December 1, 2018 to December 31, 2018
(a)
Total Number
of Shares (or Units)
Purchased
2,025
—
7,379
9,404 (1)
(b)
Average Price
Paid
per Share (or Unit)
115.10
$
—
124.24
122.27
$
(c)
Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs
(d)
Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) That May Yet Be
Purchased Under the
Plans or Programs
— $
—
—
— $
—
—
—
—
(1)
Includes shares of common stock surrendered to us by certain employees to satisfy tax withholding obligations in connection with the vesting of non-
vested stock previously awarded to such employees under our 2008 Omnibus Incentive Compensation Plan.
Stock Performance Graph
The Performance Graph below compares the cumulative total stockholder return on our common stock, $0.001 par value per share,
for the five-year period ended December 31, 2018, with the cumulative total return on the NASDAQ composite index and an
industry peer group over the same period (assuming the investment of $100 in our common stock, the NASDAQ composite index
and the industry peer group on December 31, 2013 and the reinvestment of dividends). The peer group we selected for 2018 is
comprised of: Adus Homecare ("ADUS"), Chemed ("CHE"), Encompass Health ("EHC"), LHC Group, Inc. (“LHCG”) and
National Healthcare (“NHC”). The peer group we selected for 2017 is comprised of: LHC Group, Inc. ("LHCG") and Almost
Family, Inc. ("AFAM"). The cumulative total stockholder return on the following graph is historical and is not necessarily indicative
of future stock price performance. No cash dividends have been paid on our common stock.
27
Amedisys, Inc.
NASDAQ Composite
2018 Peer Group
2017 Peer Group
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
12/31/2018
$
$
$
$
100.00
100.00
100.00
100.00
$
$
$
$
200.62
114.62
123.58
129.70
$
$
$
$
268.76
122.81
137.25
188.39
$
$
$
$
291.39
133.19
159.62
190.10
$
$
$
$
360.29
172.11
201.35
254.78
$
$
$
$
800.48
165.84
259.78
390.52
This stock performance information is “furnished” and shall not be deemed to be “soliciting material” or subject to Regulation
14A under the Securities Exchange Act of 1934 (the “Exchange Act”), shall not be deemed “filed” for purposes of Section 18 of
the Exchange Act or otherwise subject to the liabilities of that section, and shall not be deemed incorporated by reference in any
filing under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date of this report and
irrespective of any general incorporation by reference language in any such filing, except to the extent we specifically incorporate
the information by reference.
28
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below is derived from our audited consolidated financial statements for the
five-year period ended December 31, 2018, based on our continuing operations. The financial data for the years ended December 31,
2018, 2017 and 2016 should be read together with our consolidated financial statements and related notes included in Item 8,
“Financial Statements and Supplementary Data” and the information included in Item 7, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” herein.
Income Statement Data:
Net service revenue from continuing operations (1)
$
Operating income (loss) from continuing operations $
Net income (loss) from continuing operations
attributable to Amedisys, Inc.
$
Net income (loss) from continuing operations
attributable to Amedisys, Inc. per basic share
Net income (loss) from continuing operations
attributable to Amedisys, Inc. per diluted share
$
$
2018
2017 (2)
2016 (3)
2015 (4)
2014 (5)
(Amounts in thousands, except per share data)
1,662,578
155,148
119,346
3.64
3.55
$
$
$
$
$
1,511,272
78,524
30,301
0.90
0.88
$
$
$
$
$
1,419,261
57,340
37,261
1.12
1.10
$
$
$
$
$
1,266,489
$
1,188,111
(9,166) $
24,047
(3,021) $
12,992
(0.09) $
(0.09) $
0.40
0.40
(1) Net service revenue has been recast to present our retrospective adoption of Accounting Standards Update ("ASU")
2014-09, Revenue from Contracts with Customers (Topic 606) and ASU 2015-14, Revenue from Contracts with
Customers (Topic 606): Deferral of the Effective Date.
(2) During 2017, we recorded charges related to the Securities Class Action Lawsuit settlement, net and related legal fees in
the amount of $29.8 million ($18.1 million, net of tax). Additionally, we recorded a charge in the amount of $21.4
million as the result of H.R. 1 (Tax Cuts and Jobs Act) enacted on December 22, 2017.
(3) During 2016, we recorded charges related to Homecare Homebase (“HCHB”) implementation costs in the amount of
$8.4 million ($5.1 million, net of tax) and recognized a non-cash charge to write off assets as a result of our conversion
to the HCHB platform in the amount of $4.4 million ($2.7 million, net of tax).
(4) During 2015, we recorded non-cash charges to write off the software costs incurred related to the development of AMS3
Home Health and Hospice in the amount of $75.2 million ($45.5 million, net of tax) and to reduce the carrying value of
our corporate headquarters in the amount of $2.1 million ($1.2 million, net of tax).
(5) During 2014, we recorded charges for relators’ fees and exit and restructuring activity in the amount of $13.9 million
($8.5 million, net of tax) and recognized non-cash other intangibles impairment charges of $3.1 million ($2.0 million,
net of tax).
Balance Sheet Data:
Total assets (1)
Total debt, including current portion (1)
Total Amedisys, Inc. stockholders’ equity
Cash dividends declared per common share
2018
2017
2016
2015
2014
(Amounts in thousands)
$
$
$
$
717,118
7,387
481,582
$
$
$
— $
813,482
88,841
515,321
$
$
$
— $
734,029
93,029
460,203
$
$
$
— $
681,715
96,630
409,568
$
$
$
— $
666,956
113,586
397,167
—
(1) Total assets and Total debt, including current portion have been recast to present our retrospective adoption of
Accounting Standards Update 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation
of Debt Issuance Costs.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis provides information we believe is relevant to an assessment and understanding of our
results of operations and financial condition for 2018, 2017 and 2016. This discussion should be read in conjunction with our
audited financial statements included in Item 8, “Financial Statements and Supplementary Data” and Part I, Item 1, “Business”
of this Annual Report on Form 10-K. The following analysis contains forward-looking statements about our future revenues,
29
operating results and expectations. See “Special Caution Concerning Forward-Looking Statements” for a discussion of the risks,
assumptions and uncertainties affecting these statements as well as Part I, Item 1A, “Risk Factors.”
Overview
We are a provider of high-quality in-home healthcare and related services to the chronic, co-morbid, aging American population,
with approximately 73%, 76% and 79% of our revenue derived from Medicare for 2018, 2017 and 2016, respectively.
Our operations involve servicing patients through our three reportable business segments: home health, hospice and personal care.
Our home health segment delivers a wide range of services in the homes of individuals who may be recovering from an illness,
injury or surgery. Our hospice segment provides care that is designed to provide comfort and support for those who are facing a
terminal illness. Our personal care segment provides patients assistance with the essential activities of daily living. As of
December 31, 2018, we owned and operated 323 Medicare-certified home health care centers, 84 Medicare-certified hospice care
centers and 12 personal-care care centers, including unconsolidated joint ventures, in 34 states within the United States and the
District of Columbia.
Care Centers Summary (Includes Unconsolidated Joint Ventures)
At December 31, 2015
Acquisitions/Start-Ups
Closed/Consolidated
At December 31, 2016
Acquisitions/Start-Ups
Closed/Consolidated
At December 31, 2017
Acquisitions/Start-Ups
Closed/Consolidated
At December 31, 2018
Home Health
Hospice
Personal Care
332
1
(3)
330
3
(10)
323
1
(1)
323
81
—
—
81
2
—
83
1
—
84
—
14
—
14
7
(6)
15
1
(4)
12
When we refer to “same store business,” we mean home health, hospice and personal-care care centers that we have operated for
at least the last twelve months; when we refer to “acquisitions,” we mean home health, hospice and personal-care care centers that
we acquired within the last twelve months; and when we refer to “start-ups,” we mean home health, hospice and personal-care
care centers opened by us in the last twelve months. Once a care center has been in operation for a twelve month period, the results
for that particular care center are included as part of our same store business from that date forward.
2018 Developments
• Continued to deliver on our goal of clinical distinction with 94% of our care centers at 4+ Stars in the January 2019 Home
Health Compare ("HHC") release.
• Lowered company voluntary turnover rate to 20%.
• Expanded home health gross margin as a percentage of revenue by 40 basis points.
•
•
Signed a definitive agreement to acquire Compassionate Care Hospice, the 8th largest hospice provider in the United
States (subsequently closed on February 1, 2019).
Invested in Medalogix, a predictive data and analytics company, helping to further optimize our current business and
enabling us to work more closely with Medicare Advantage payors.
• Acquired the assets of Bring Care Home and East Tennessee Personal Care Services, further solidifying our position as
the largest personal care provider in Massachusetts and establishing our presence in Tennessee.
•
Increased total revenue 10% and operating income 98%.
• Exceeded 7,800 in hospice average daily census.
2019 Strategy
• Continue our commitment to clinical distinction with a goal of all care centers achieving a 4.0 Quality Star Rating.
30
•
Focus on recruitment and retention of world class employees while fostering a culture of engagement to become the
employer of choice in the industry.
• Continue to reduce voluntary turnover, specifically within our registered nurse ("RN") cohort.
•
•
Implement pay practice changes and staffing model efficiencies to further drive operational excellence.
Invest in the business to prepare ourselves for the Patient-Driven Groupings Model ("PDGM").
• Continue to build on our industry-leading hospice platform by exploring various growth opportunities including small
and large acquisitions and denovos.
•
Partner with innovative companies to drive new payment arrangements and new product offerings for Medicare Advantage
payors.
• Continue to focus on organic growth (denovos) and inorganic expansion in all three segments.
Financial Performance
Results for the year ended December 31, 2018 reflect the results of our focused efforts on operational improvements that began
during 2014.
Our home health care centers experienced growth in volumes and increases in clinician productivity which positively impacted
our gross margin as a percentage of revenue and led to the segment delivering a $43 million increase in operating income (see
"Results of Operations”) despite the impact of the 2018 Centers for Medicare and Medicaid Services ("CMS") rate cut.
Our hospice segment achieved significant growth in admissions and average daily census which helped deliver a $10 million
improvement in our operating income over the year ended December 31, 2017 (see “Results of Operations”).
Our personal care segment completed two acquisitions in 2018. These acquisitions contributed less than $1 million in personal
care operating income.
Economic and Industry Factors
Our home health, hospice and personal care segments operate in a highly fragmented and highly competitive industry. The degree
of competitiveness varies based upon whether our care centers operate in states that require a certificate of need (CON) or permit
of approval (POA). In such states, expansion by existing providers or entry into the market by new providers is permitted only
where determination is made by state health authorities that a given amount of unmet healthcare need exists. Currently, 65% and
40% of our home health and hospice care centers, respectively, operate in CON/POA states.
As the Federal government continues to debate a reduction in expenditures and a reform of the Medicare system, our industry
continues to face reimbursement pressures. These reform efforts could result in major changes in the health care delivery and
reimbursement system on a national and state level, including changes directly impacting the reimbursement systems for our home
health and hospice care centers.
The CMS Calendar Year 2019 Home Health Final Rule, released in November 2018, provides for the first payment rate increase
for home health providers since 2010. Additionally, CMS proposed changes to the Home Health Prospective Payment System
("HHPPS") case-mix adjustment methodology through the use of a new PDGM for home health payments. This change is proposed
to be implemented January 1, 2020 and also includes a change in the unit of payment from a 60-day payment period to a 30-day
payment period and eliminates the use of therapy visits in the determination of payments. While the proposed changes are to be
implemented in a budget neutral manner to the industry, the ultimate impact will vary by provider based on factors including
patient mix and admission source. Additionally, in arriving at the calculation of a rate that is budget neutral, CMS has made
assumptions about behavioral changes which have not been finalized.
31
The following payment adjustments are effective for each of the years indicated based on CMS’s final rules:
Home Health
2019 (1)
2018 (2)
2017
2019 (3)
Hospice
2018
2017
Market Basket Update
Rebasing
50/50 Blend of Wage Index
Nominal Case Mix Adjustment
PPACA Adjustment
Budget Neutrality Adjustment Factor
Productivity Adjustment
Estimated Industry Impact
Estimated Company-Specific Impact (4)
3.0%
—
—
—
—
—
(0.8)
2.2%
1.2%
1.0 %
—
—
(0.9)
—
—
—
0.1 %
(0.7)%
2.8 %
(2.3)
—
(0.9)
—
—
(0.3)
(0.7)%
(2.0)%
2.9%
—
—
—
(0.3)
—
(0.8)
1.8%
1.6%
1.0%
—
—
—
—
—
—
1.0%
1.0%
2.7%
—
—
—
(0.3)
—
(0.3)
2.1%
2.0%
(1) Effective for episodes scheduled to be completed on or after January 1, 2019.
(2) Includes the targeted extension of the home health rural add-on payment from the Bipartisan Budget Act of 2018.
(3) Effective for services provided from October 1, 2018 to September 30, 2019.
(4) Our company-specific impact of the final rules differs depending on differences in the wage index and the impact of coding
and outlier changes.
As part of the 2016 final rule issued in October 2015, CMS finalized their proposal to implement a Home Health Value-Based
Purchasing ("HHVBP") model in nine states that seeks to test whether incentives for better care can improve outcomes in the
delivery of home health services. Financial impacts from this change, either positive or negative, began January 1, 2018, and are
based on 2016 performance data. Benchmarks for future years are detailed below.
Performance Year
Year Reward/
Penalty Imposed
Maximum
Reward/ Penalty
2016
2017
2018
2019
2020
2018
2019
2020
2021
2022
3%
5%
6%
7%
8%
Based on our performance to date, we received approximately $1 million in 2018 and anticipate that we will receive approximately
$2 million in 2019 related to HHVBP.
Governmental Inquiries and Investigations and Other Litigation
Corporate Integrity Agreement
In connection with a settlement agreement with the U.S. Department of Justice, on April 23, 2014, we entered into a corporate
integrity agreement (“CIA”) with the Office of Inspector General-HHS (“OIG”). The CIA formalizes various aspects of our already
existing ethics and compliance programs and contains other requirements designed to help ensure our ongoing compliance with
federal health care program requirements. Among other things, the CIA requires us to maintain our existing compliance program,
executive compliance committee and compliance committee of the Board of Directors; provide certain compliance training;
continue screening new and current employees to ensure they are eligible to participate in federal health care programs; engage
an independent review organization to perform certain audits and reviews and prepare certain reports regarding our compliance
with federal health care programs, our billing submissions to federal health care programs and our compliance and risk mitigation
programs; and provide certain reports and management certifications to the OIG. Additionally, the CIA specifically requires that
we report substantial overpayments that we discover we have received from federal health care programs, as well as probable
violations of federal health care laws. Upon breach of the CIA, we could become liable for payment of certain stipulated penalties,
or could be excluded from participation in federal health care programs. The CIA has a term of five years. We expect the CIA to
impact operating expenses by approximately $1 million annually.
32
Subpoena Duces Tecum Issued by the U.S. Department of Justice
On May 21, 2015, we received a Subpoena Duces Tecum (“Subpoena”) issued by the U.S. Department of Justice. The Subpoena
requests the delivery of information regarding 53 identified hospice patients to the United States Attorney’s Office for the District
of Massachusetts. It also requests the delivery of documents relating to our hospice clinical and business operations and related
compliance activities.
Civil Investigative Demands Issued by the U.S. Department of Justice
On November 3, 2015, we received a civil investigative demand ("CID") issued by the U.S. Department of Justice pursuant to the
federal False Claims Act relating to claims submitted to Medicare and/or Medicaid for hospice services provided through designated
facilities in the Morgantown, West Virginia area.
On June 27, 2016, we received a CID issued by the U.S. Department of Justice pursuant to the federal False Claims Act relating
to claims submitted to Medicare and/or Medicaid for hospice services provided through designated facilities in the Parkersburg,
West Virginia area.
Florida Zone Program Integrity Contractor Audit
During the three-month period ended September 30, 2017, we received a request for medical records from SafeGuard Services,
L.L.C. ("SafeGuard"), a Zone Program Integrity Contractor ("ZPIC") related to services provided by some of the Florida care
centers that the Company acquired from Infinity Home Care, L.L.C. The review period covers time periods both before and after
our ownership of the care centers which were acquired on December 31, 2015. Subsequent to the request for medical records, we
received Requests for Repayment from Palmetto GBA, L.L.C. ("Palmetto") regarding two of these care centers. As a result we
recorded a reduction in revenue in our consolidated statement of operations of approximately $7 million during the three-month
period ended September 30, 2017.
See Item 8, Note 9 – Commitments and Contingencies to our consolidated financial statements for additional information regarding
our CIA, the Subpoena issued by the U.S. Department of Justice, the CIDs issued by the U.S. Department of Justice and the Florida
ZPIC audit. No assurances can be given as to the timing or outcome of these items.
Results of Operations
Consolidated
The following table summarizes our consolidated results of operations (amounts in millions):
Net service revenue
Gross margin, excluding depreciation and amortization
% of revenue
Other operating expenses
% of revenue
Securities Class Action Lawsuit settlement, net
Asset impairment charge
Operating income
Total other income, net
Income tax expense
Effective income tax rate
Net income
Net income attributable to noncontrolling interests
Net income attributable to Amedisys, Inc.
For the Years Ended December 31,
2018
1,662.6
669.7
40.3%
514.6
30.9%
—
—
155.1
3.8
(38.8)
24.4%
120.1
(0.8)
119.3
$
$
2017
1,511.3
607.9
40.2%
499.4
33.0%
28.7
1.3
78.5
2.3
(50.1)
62.0%
30.7
(0.4)
30.3
$
$
2016
1,419.3
584.8
41.2%
523.1
36.9%
—
4.4
57.3
4.2
(23.9)
38.9%
37.6
(0.4)
37.3
$
$
33
Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017
Overall, our operating income increased $77 million on a revenue increase of $151 million. Our 2017 operating results were
negatively impacted $40 million; these impacts include a $30 million charge for the Securities Class Action Lawsuit settlement
and related legal fees, a $7 million reduction in revenue as a result of the Florida ZPIC audit and charges of approximately $3
million related to our home health closures and restructuring plan. Excluding these 2017 impacts, operating income increased $37
million, driven by continued growth in our home health and hospice segments, increases in clinical productivity in our home health
segment and a continued focus on maintaining cost discipline, as our other operating expenses increased only 3% on a 10% increase
in net service revenue. In addition, our gross margin as a percentage of revenue was relatively flat despite a net reduction of $3
million in net service revenue and gross margin resulting from the 2018 changes in reimbursement and planned wage increases
that became effective during the three-month period ended September 30, 2018.
Our 2018 operating results include the results of our acquisition of Christian Care at Home which provided home health services
to the state of Kentucky, East Tennessee Personal Care Services which owned and operated one personal-care care center servicing
the state of Tennessee and certain personal care operations from Bring Care Home in Massachusetts. These three acquisitions
accounted for approximately $5 million of our $151 million increase in revenue and $1 million of our $15 million increase in other
operating expenses.
Total other income, net includes the following items (amounts in millions):
Interest income
Interest expense
Equity in earnings from equity method investments
Miscellaneous, net
For the Years Ended
December 31,
2018
2017
0.3
(7.4)
7.7
3.2
3.8
$
$
0.1
(5.0)
3.4
3.8
2.3
$
$
Interest expense includes interest expense related to the Florida ZPIC audit of $2 million for 2018. Equity in earnings from equity
method investments includes gains of $5 million and $1 million for 2018 and 2017, respectively, related to one of our equity
method investments. Miscellaneous, net includes proceeds from legal settlements of $1 million and $2 million for 2018 and 2017,
respectively. Excluding these items, total other income, net increased $1 million in 2018 from 2017.
Our 2017 income tax expense includes a $21 million charge related to the remeasurement of our deferred tax assets and liabilities
to the enacted corporate income tax rate of 21% as required by the enactment of H.R. 1 (Tax Cuts and Jobs Act), on December
22, 2017 (see Item 8, Note 7 - Income Taxes to our consolidated financial statements).
Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016
Overall, our operating income increased $21 million on a revenue increase of $92 million. Our decline in gross margin as a
percentage of revenue was the result of the 2017 and 2018 changes to home health and hospice reimbursement which reduced
revenue and gross margin by approximately $14 million, net. Our 2017 results are inclusive of a $30 million charge for the Securities
Class Action Lawsuit settlement and related legal fees, a $7 million reduction in revenue as a result of the Florida ZPIC audit and
charges of approximately $3 million related to our home health closures and restructuring plan. Our 37% increase in operating
income despite the cumulative impact of $40 million from the items noted above was driven by the continued growth of our hospice
division and continued reductions in operating expenses across the organization.
Our 2017 operating results include the results of our acquisition of three home health and two hospice care centers on May 1, 2017
and our personal care acquisitions of Home Staff, L.L.C and Intercity Home Care. These three acquisitions accounted for
approximately $22 million of our $92 million increase in revenue and $5 million of our $499 million in other operating expenses.
34
Total other income, net includes the impact of the following items (amounts in millions):
Interest income
Interest expense
Equity in earnings from equity method investments
Miscellaneous, net
For the Years Ended
December 31,
2017
2016
0.1
(5.0)
3.4
3.8
2.3
$
$
0.1
(5.2)
5.6
3.7
4.2
$
$
Equity in earnings from equity method investments includes gains of $1 million and $4 million for 2017 and 2016, respectively,
related to one of our equity method investments. Miscellaneous, net includes proceeds from legal settlements of $2 million for
each 2017 and 2016. Excluding these items, total other income, net increased $1 million in 2017 from 2016.
Our 2017 income tax expense includes a $21 million charge related to the remeasurement of our deferred tax assets and liabilities
to the enacted corporate income tax rate of 21% as required by the enactment of H.R. 1 (Tax Cuts and Jobs Act), on December
22, 2017 (see Item 8, Note 7 - Income Taxes to our consolidated financial statements).
35
Home Health Division
The following table summarizes our home health segment results of operations:
Financial Information (in millions):
Medicare
Non-Medicare
Net service revenue
Cost of service
Gross margin
Asset impairment charge
Other operating expenses
Operating income
Same Store Growth (1):
Medicare revenue
Non-Medicare revenue
Total admissions
Total volume (2)
Total Episodic admissions (3)
Total Episodic volume (4)
Key Statistical Data - Total (5):
Medicare:
Admissions
Recertifications
Total volume
Completed episodes
Visits
Average revenue per completed episode (6)
Visits per completed episode (7)
Non-Medicare:
Admissions
Recertifications
Total volume
Visits
Total (5):
Visiting Clinician Cost per Visit
Clinical Manager Cost per Visit
Total Cost per Visit
Visits
For the Years Ended December 31,
2018
2017
2016
830.8
343.7
1,174.5
722.1
452.4
—
279.8
172.6
6%
18%
5%
7%
4%
5%
190,748
112,773
303,521
296,223
5,261,315
2,854
17.6
118,577
55,736
174,313
2,772,339
81.88
8.01
89.89
8,033,654
$
$
$
$
$
$
793.3
290.6
1,083.9
670.9
413.0
1.3
281.9
129.8
(4%)
17%
2%
4%
1%
3%
190,132
106,774
296,906
290,227
5,067,436
2,823
17.3
107,665
46,364
154,029
2,347,363
82.04
8.44
90.48
7,414,799
$
$
$
$
$
$
822.4
249.3
1,071.7
643.7
428.0
—
289.4
138.6
2%
3%
2%
2%
4%
3%
194,662
103,193
297,855
289,862
5,124,002
2,839
17.5
98,448
38,618
137,066
2,050,975
81.18
8.53
89.71
7,174,977
$
$
$
$
$
$
(1) Same store information represents the percent increase (decrease) in our Medicare, Non-Medicare, Total and Episodic
revenue, admissions or volume for the period as a percent of the Medicare, Non-Medicare, Total and Episodic revenue,
admissions or volume of the prior period.
(2) Total volume includes all admissions and recertifications.
(3) Total Episodic admissions includes admissions for Medicare and Non-Medicare payors that bill on a 60-day episode of
care basis.
(4) Total Episodic volume includes admissions and recertifications for Medicare and Non-Medicare payors that bill on a 60-
day episode of care basis.
(5) Total includes acquisitions.
(6) Average Medicare revenue per completed episode is the average Medicare revenue earned for each Medicare completed
episode of care.
(7) Medicare visits per completed episode are the home health Medicare visits on completed episodes divided by the home
health Medicare episodes completed during the period.
36
Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017
Operating Results
Overall, our operating income increased $43 million on a $91 million increase in net service revenue. The $43 million increase
includes a $7 million reduction in revenue related to the Florida ZPIC audit in 2017. Our growth in volumes and increases in
clinician productivity positively impacted our gross margin as a percentage of revenue, which increased despite the 2018 changes
in reimbursement and planned wage increases that became effective during the three-month period ended September 30, 2018.
The impact of the 2018 changes in reimbursement was a reduction in net service revenue and gross margin of approximately $7
million.
Net Service Revenue
Our revenue increased $91 million on a 7% increase in total volume which is inclusive of a 5% increase in episodic volume. The
volume growth was driven by a 5% increase in admissions and a 130 basis point increase in our Medicare recertification rate. In
addition to the increase in volume, our revenue per episode is up $31 per episode as a result of an increase in the acuity level of
our patients which enabled us to overcome the 70 basis point reimbursement reduction effective January 1, 2018.
Cost of Service, Excluding Depreciation and Amortization
Our cost of service consists of costs associated with direct clinician care in the homes of our patients as well as the cost of clinical
managers who monitor the overall delivery of care. Our cost of service increased 8% on an 8% increase in total visits. Our increase
in total visits was driven by growth in volumes as well as an increase in visits per completed episode which is the result of an
increase in the acuity level of our patients. Our cost per visit decreased 1% as an increase in clinician productivity offset planned
wage increases.
Other Operating Expenses
Other operating expenses decreased approximately $2 million on an 8% increase in net service revenue primarily due to a decrease
in salaries and benefits expense as 2017 operating expenses included approximately $3 million in costs related to our home health
restructuring plan. Additionally, we experienced decreases in rent expense, professional fees and telecommunications expense
which were offset by increases in information technology expense and travel and training expense.
Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016
Operating Results
Overall, our operating income decreased $9 million on a $12 million increase in revenue. Our decrease in gross margin as a
percentage of revenue was the result of the 2017 and 2018 changes in reimbursement which reduced revenue and gross margin
by $17 million. Additionally, our results include a $7 million reduction in revenue and gross margin related to a reserve recorded
as the result of a ZPIC audit in four care centers in Florida. Growth in episodic volumes and reductions in operating expenses
helped to mitigate the impacts of the items noted above.
Net Service Revenue
Our Medicare revenue decreased approximately $29 million which includes a $7 million reduction in revenue related to the Florida
ZPIC audit. Our total Medicare volumes (admissions plus recertifications) decreased by approximately 1,000 from 2016, and our
revenue per episode decreased by 60 basis points which resulted in a reduction in revenue of approximately $5 million. The decrease
in revenue per episode is the result of the combined impact of the 2017 and 2018 CMS rate cuts on our episodes in progress which
reduced our revenue by approximately $17 million; this reduction was offset by a $12 million increase related to the acuity level
of our patients.
Our non-Medicare revenue increased approximately $41 million. Admissions from episodic payors increased 27% while our per
visit payors increased 2% as a result of our focus on contract payors with significant concentrations in our markets and those that
add incremental margin to our operations.
Cost of Service, Excluding Depreciation and Amortization
Our cost of service increased 4% on a 3% increase in total visits. Our cost per visit increased 1% as the result of annual wage
increases and increases in health insurance costs. These increases were partially mitigated by improvements in clinician productivity.
37
Other Operating Expenses
Other operating expenses decreased $8 million despite incurring approximately $3 million in costs related to our home health
restructuring plan. These charges were offset by decreases in other care center related expenses, primarily salaries and benefits as
the result of planned decreases post our Homecare Homebase ("HCHB") rollout. Other operating expenses included approximately
$3 million related to acquisitions during 2017.
Hospice Division
The following table summarizes our hospice segment results of operations:
Financial Information (in millions):
Medicare
Non-Medicare
Net service revenue
Cost of service
Gross margin
Other operating expenses
Operating income
Same Store Growth (1):
Medicare revenue
Non-Medicare revenue
Hospice admissions
Average daily census
Key Statistical Data - Total (2):
Hospice admissions
Average daily census
Revenue per day, net
Cost of service per day
Average discharge length of stay
For the Years Ended December 31,
2018
2017
2016
390.2
20.7
410.9
212.0
198.9
85.7
113.2
11%
21%
8%
11%
27,596
7,588
148.36
76.53
100
$
$
$
$
350.7
17.1
367.8
187.5
180.3
77.5
102.8
17%
20%
11%
15%
25,381
6,820
147.75
75.31
93
$
$
$
$
297.7
14.2
311.9
164.5
147.4
71.5
75.9
15%
(16%)
17%
16%
22,526
5,912
144.11
75.97
96
$
$
$
$
(1) Same store information represents the percent increase (decrease) in our Medicare and Non-Medicare revenue, Hospice
admissions or average daily census for the period as a percent of the Medicare and Non-Medicare revenue, Hospice
admissions or average daily census of the prior period.
(2) Total includes acquisitions.
Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017
Operating Results
Overall, our operating income increased $10 million on a $43 million increase in net service revenue. The 12% increase in net
service revenue was partially offset by a lower gross margin as a percentage of revenue primarily related to planned wage increases
that became effective during the three-month period ended September 30, 2018, an increase in revenue price concessions and
amounts due back to Medicare for hospice caps and an increase in other operating expenses.
Net Service Revenue
Our hospice revenue increased $43 million on an 11% increase in our average daily census and a 1.0% and 1.6% increase in
reimbursement effective for services provided from each October 1, 2017 and October 1, 2018, respectively. We experienced a $2
million increase in our revenue price concessions and cap which partially offset the revenue increase for the year ended December
31, 2018.
Cost of Service, Excluding Depreciation and Amortization
Our hospice cost of service increased $25 million (13%) as the result of an 11% increase in average daily census. Our cost of
service per day increased 2% primarily due to an increase in salary cost per day as a result of planned wage increases.
38
Other Operating Expenses
Other operating expenses increased $8 million on a 12% increase in net service revenue. The increase was related to other care
center related expenses, primarily salaries and benefits expense, advertising expense, information technology expense, professional
fees and travel and training expense as a result of the addition of resources to support census growth.
Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016
Operating Results
Overall, our operating income increased $27 million on a $33 million increase in gross margin offset by a $6 million increase in
other operating expenses. Our significant growth in volumes and decrease in cost of service per day resulted in a 22% increase in
gross margin.
Net Service Revenue
Our hospice revenue increased approximately $56 million due to an increase in our average daily census as a result of an 11%
increase in hospice admissions and an increase in reimbursement effective for services provided from each October 1, 2016 and
2017.
Cost of Service, Excluding Depreciation and Amortization
Our hospice cost of service increased $23 million as the result of a 15% increase in average daily census. Our cost of service per
day decreased $0.66 primarily due to significant improvements in salary and pharmacy cost per day driven by cost controls and
census growth.
Other Operating Expenses
Other operating expenses increased $6 million due to increases in other care center related expenses, primarily salaries and benefits,
medical director fees and HCHB-related IT fees, driven by our census growth.
Personal Care Division
During 2018, management revised its measurement of the personal care segment's operating income (loss) to exclude certain
expenses that were not directly attributable to the support of the segment, but rather a corporate support function. Prior periods
have been restated to conform to the current presentation. The following table summarizes our personal care segment results of
operations:
Financial Information (in millions):
Medicare
Non-Medicare
Net service revenue
Cost of service
Gross margin
Other operating expenses
Operating income
Key Statistical Data:
Billable hours
Clients served
Shifts
Revenue per hour
Revenue per shift
Hours per shift
For the Years Ended December 31,
2018
2017
2016
$
$
— $
— $
77.2
77.2
58.8
18.4
13.1
5.3
$
59.6
59.6
45.0
14.6
9.7
4.9
$
3,248,304
17,981
1,468,541
23.75
52.54
2.2
2,604,794
16,774
1,195,511
22.86
49.80
2.2
—
35.7
35.7
26.3
9.4
5.8
3.6
1,539,093
10,219
696,956
23.22
51.29
2.2
39
Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017
Operating income related to our personal care segment remained flat on an $18 million increase in net service revenue. 2018
revenues were positively impacted by the following acquisitions: Intercity Home Care (October 2017), East Tennessee Personal
Care Services (May 2018) and Bring Care Home (October 2018). The segment experienced a decrease in gross margin as a
percentage of revenue related to additional costs associated with these acquisitions and the Employer Medical Assistance
Contribution program ("EMAC") that became effective in the state of Massachusetts on January 1, 2018. Other operating expenses
increased $3 million on an $18 million increase in net service revenue. Acquisitions are included in our consolidated financial
statements from their respective acquisition dates. As a result, our personal care operating results for 2018 and 2017 are not fully
comparable.
Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016
Operating income related to our personal care division increased by approximately $1 million on a $5 million increase in gross
margin offset by a $4 million increase in other operating expenses. The increase in other operating expenses was driven by our
acquisition activity.
On February 1, 2017, we acquired the assets of Home Staff LLC, which owned and operated three personal-care care centers, one
of which was subsequently consolidated with one of our existing personal-care care centers. On October 1, 2017, we acquired the
assets of Intercity Home Care, which owned and operated four personal-care care centers, three of which were subsequently
consolidated with our existing personal-care care centers. As a result of these acquisitions, our personal care operating results for
2017 and 2016 are not fully comparable.
Corporate
During 2018, management revised its measurement of the personal care segment's operating income (loss) to exclude certain
expenses that were not directly attributable to the support of the segment, but rather a corporate support function. Prior periods
have been restated to conform to the current presentation. The following table summarizes our corporate results of operations:
Financial Information (in millions):
Other operating expenses
Depreciation and amortization
Total operating expenses before asset impairment charge and Securities
Class Action Lawsuit settlement, net
Asset impairment charge
Securities Class Action Lawsuit settlement, net
Total operating expenses
$
$
$
For the Years Ended December 31,
2018
2017
2016
127.6
8.4
136.0
—
—
136.0
$
$
$
117.8
12.5
130.3
—
28.7
159.0
$
$
$
144.0
12.4
156.4
4.4
—
160.8
Corporate expenses consist of costs relating to our executive management and administrative support functions, primarily
information services, accounting, finance, billing and collections, legal, compliance, risk management, procurement, marketing,
clinical administration, training, human resources and administration.
Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017
Excluding the Securities Class Action Lawsuit settlement during the year ended December 31, 2017, corporate operating expenses
increased 4% on a 10% increase in net service revenue. Approximately $2 million of the increase is related to a reduction in our
indemnity receivable related to the Florence, South Carolina third party audit (see Item 8, Note 9 - Commitments and Contingencies
to our consolidated financial statements for additional information). The remaining increase is related to increases in salaries and
benefits expense and travel and training expense which were offset by a decrease in depreciation and amortization.
Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016
Excluding the $30 million Securities Class Action Lawsuit settlement and related legal fees in 2017 and the asset impairment
charge in 2016, corporate other operating expenses decreased approximately $26 million primarily as a result of an $8 million
reduction in HCHB implementation costs and an $11 million reduction in acquisition activity (including acquired corporate support
and other acquisition costs). We also experienced reductions in various other operating expenses including salaries and benefits,
non-cash compensation and personnel costs. These reductions are a direct result of planned reductions post installation of HCHB
and a restructure plan initiated in 2016.
40
Liquidity and Capital Resources
Cash Flows
The following table summarizes our cash flows for the periods indicated (amounts in millions):
Cash provided by operating activities
Cash used in investing activities
Cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
For the Years Ended December 31,
2018
2017
2016
$
$
223.5
(22.2)
(267.4)
(66.1)
86.4
20.2
$
$
105.7
(44.0)
(5.5)
56.2
30.2
86.4
$
$
62.2
(52.0)
(7.5)
2.7
27.5
30.2
Cash provided by operating activities totaled $223.5 million for 2018, $105.7 million for 2017 and $62.2 million for 2016. During
each year, we maintained sufficient liquidity to finance our capital expenditures, both routine and non-routine, and acquisitions.
Changes in our cash provided by operating activities during the past three years were primarily the result of fluctuations in our
net income, the collections of our accounts receivable and the timing of payments of accrued expenses. During 2017, operating
cash flows were negatively impacted by approximately $30 million related to the Securities Class Action Lawsuit settlement (see
Item 8, Note 9 – Commitments and Contingencies to our consolidated financial statements). During 2016, operating cash flows
were negatively impacted by approximately $20 million in fees related to the conversion to HCHB, severance costs related to a
reorganization plan, acquisition costs and litigation.
Cash used in investing activities decreased $21.8 million during 2018 compared to 2017 primarily due to decreases in cash paid
for acquisitions ($24.5 million) and capital expenditures ($4.1 million) offset by an increase in investments ($6.7 million). Cash
used in investing activities decreased $8.0 million during 2017 compared to 2016 primarily due to decreases in cash paid for
acquisitions ($1.8 million), capital expenditures ($5.0 million) and investments ($0.6 million).
Cash used in financing activities increased $261.9 million during 2018 compared to 2017 primarily due to our repurchase of
company stock and the repayment of borrowings under our Term Loan and Revolving Credit Facility offset by borrowings under
our new Credit Agreement. Cash used in financing activities decreased $2.0 million during 2017 compared to 2016 primarily due
to a decrease in tax benefits from stock compensation plans and repurchases of company stock pursuant to our stock repurchase
program, offset by shares withheld upon stock vesting and proceeds from issuance of stock upon exercise of stock options.
Liquidity
Typically, our principal source of liquidity is the collection of our patient accounts receivable, primarily through the Medicare
program. In addition to our collection of patient accounts receivable, from time to time, we can and do obtain additional sources
of liquidity by the incurrence of additional indebtedness.
During 2018, we spent $6.6 million in capital expenditures compared to $10.7 million and $15.7 million during 2017 and 2016,
respectively. Our capital expenditures for 2019 are expected to be approximately $7.0 million to $9.0 million, excluding the impact
of any future acquisitions.
As of December 31, 2018, we had $20.2 million in cash and cash equivalents and $508.4 million in availability under our
$550.0 million Revolving Credit Facility.
During 2017, we settled the Securities Class Action Lawsuit for approximately $43.7 million, of which approximately $15.0 million
was paid by the Company's insurance carriers; we used cash on hand to make the required remaining $28.7 million.
Based on our operating forecasts and our new debt service requirements, we believe we will have sufficient liquidity to fund our
operations, capital requirements and debt service requirements.
Outstanding Patient Accounts Receivable
Our patient accounts receivable decreased $12.2 million from December 31, 2017 to December 31, 2018. Our cash collection as
a percentage of revenue was 104% and 101% for the twelve-month periods ended December 31, 2018 and 2017, respectively. Our
days revenue outstanding, net at December 31, 2018 was 38.0 days which is a decrease of 6.0 days from December 31, 2017.
41
Our patient accounts receivable includes unbilled receivables and are aged based upon our initial service date. We monitor unbilled
receivables on a care center by care center basis to ensure that all efforts are made to bill claims within timely filing deadlines.
Our unbilled patient accounts receivable can be impacted by acquisition activity, probe edits or regulatory changes which result
in additional information or procedures needed prior to billing. The timely filing deadline for Medicare is one year from the date
the episode was completed, varies by state for Medicaid-reimbursable services and varies among insurance companies and other
private payors.
The following schedules detail our patient accounts receivable, by payor class, aged based upon initial date of service (amounts
in millions, except days revenue outstanding, net):
At December 31, 2018:
Medicare patient accounts receivable
Other patient accounts receivable:
Medicaid
Private
Total
Total patient accounts receivable
Days revenue outstanding (1)
At December 31, 2017:
Medicare patient accounts receivable
Other patient accounts receivable:
Medicaid
Private
Total
Total patient accounts receivable
Days revenue outstanding (1)
$
$
$
$
0-90
91-180
181-365
Over 365
Total
95.5
$
8.1
$
1.0
$
1.8
$
106.4
13.1
51.3
64.4
$
2.7
6.7
9.4
$
1.1
4.4
5.5
$
—
3.3
3.3
$
$
16.9
65.7
82.6
189.0
38.0
0-90
91-180
181-365
Over 365
Total
95.9
$
16.1
$
6.6
$
0.6
$
119.2
13.8
51.0
64.8
$
3.2
7.5
10.7
$
1.3
4.1
5.4
$
(1.1)
2.2
1.1
$
$
17.2
64.8
82.0
201.2
44.0
(1) Our calculation of days revenue outstanding, net is derived by dividing our ending net patient accounts receivable at
December 31, 2018 and 2017 by our average daily net patient revenue for the three-month periods ended December 31,
2018 and 2017, respectively.
Indebtedness
Credit Agreement
On June 29, 2018, we entered into our Amended and Restated Credit Agreement ("Credit Agreement") which provides for a senior
secured revolving credit facility in an initial aggregate principal amount of up to $550.0 million (the "Revolving Credit Facility").
The funds available under the Revolving Credit Facility were used to pay off our existing indebtedness under our prior credit
agreement, dated as of August 28, 2015 (the "Prior Credit Agreement"), with a principal balance of $127.5 million.
The final maturity of the Revolving Credit Facility is June 29, 2023 and there is no mandatory amortization on the outstanding
principal balances which are payable in full upon maturity. The Revolving Credit Facility may be used to provide ongoing working
capital and for general corporate purposes of the Company and our subsidiaries, including permitted acquisitions, as defined in
the Credit Agreement.
Our weighted average interest rate for our $550.0 million Revolving Credit Facility was 3.8% for the period ended December 31,
2018. Our weighted average interest rate for our $100.0 million Term Loan, under our Prior Credit Agreement, was 3.1% for the
period ended December 31, 2017.
As of December 31, 2018, our consolidated leverage ratio was 0.1 and our consolidated interest coverage ratio was 59.9 and we
are in compliance with our covenants under the Credit Agreement.
As of December 31, 2018, our availability under our $550.0 million Revolving Credit Facility was $508.4 million as we have $7.5
million outstanding in borrowings and $34.1 million outstanding in letters of credit.
42
See Item 8, Note 6 - Long Term Obligations and Note 16 - Subsequent Events to our consolidated financial statements for additional
details on our outstanding long-term obligations.
2018 Share Repurchase
On June 4, 2018, we purchased 2,418,304 of our common shares from affiliates of KKR Credit Advisors (US) LLC ("KKR"),
representing one-half of KKR's holdings in the Company and 7.1% of the aggregate outstanding shares of the Company's common
stock for a total purchase price of $181.4 million including related direct costs. The Company repurchased the shares at $73.96
which represents 96% of the closing stock price of the Company's common stock on June 4, 2018. The repurchased shares are
classified as treasury shares.
Stock Repurchase Program
On September 9, 2015, we announced that our Board of Directors authorized a stock repurchase program allowing for the repurchase
of up to $75 million of our outstanding common stock on or before September 6, 2016, the date on which the stock repurchase
program expired.
Under the terms of the program, we were allowed to repurchase shares from time to time in open market transactions, block
purchases or in private transactions in accordance with applicable federal securities laws and other legal requirements. We were
allowed to enter into Rule 10b5-1 plans to effect some or all of the repurchases. The timing and the amount of the repurchases
were determined by management based on a number of factors, including but not limited to share price, trading volume and general
market conditions, as well as on working capital requirements, general business conditions and other factors.
Pursuant to this program, we repurchased 324,141 shares of our common stock at a weighted average price of $37.96 per share
and a total cost of approximately $12.3 million during 2016 and 116,859 shares of our common stock at a weighted average price
of $39.20 per share and a total cost of approximately $4.6 million during 2015. The repurchased shares are classified as treasury
shares.
Contractual Obligations
Our future contractual obligations at December 31, 2018 were as follows (amounts in millions):
Long-term obligations
Interest on long-term obligations (1)
Capital lease obligations
Operating leases
Capital commitments
Purchase obligations
Uncertain tax positions
Payments Due by Period
Total
Less than
1 Year
1-3
Years
4-5
Years
After
5 Years
$
$
8.6
0.1
2.3
78.7
0.5
23.4
2.7
116.3
$
$
0.5
0.1
1.1
23.3
0.5
10.2
—
35.7
$
$
0.6
—
1.2
31.9
—
10.3
2.7
46.7
$
$
7.5
—
—
13.7
—
2.9
—
24.1
$
$
—
—
—
9.8
—
—
—
9.8
(1) Interest on debt with variable rates was calculated using the current rate of that particular debt instrument at December 31,
2018.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements,
which have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of
these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue
and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including
those related to revenue recognition, collectability of accounts receivable, reserves related to insurance and litigation, goodwill,
intangible assets, income taxes and contingencies. We base these estimates on our historical experience and various other
assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results experienced may
vary materially and adversely from our estimates. To the extent there are material differences between our estimates and the actual
results, our future results of operations may be affected.
43
We believe the following critical accounting policies represent our most significant judgments and estimates used in the preparation
of our consolidated financial statements.
Revenue Recognition
We account for revenue from contracts with customers in accordance with Accounting Standards Update ("ASU") 2014-09, Revenue
from Contracts with Customers (Topic 606) and ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of
the Effective Date (collectively, "ASC 606"), and as such, we recognize revenue in the period in which we satisfy our performance
obligations under our contracts by transferring our promised services to our customers in amounts that reflect the consideration
to which we expect to be entitled in exchange for providing patient care, which are the transaction prices allocated to the distinct
services. The Company's cost of obtaining contracts is not material.
Revenues are recognized as performance obligations are satisfied, which varies based on the nature of the services provided. Our
performance obligation is the delivery of patient care services in accordance with the nature and frequency of services outlined in
physicians' orders, which are determined by a physician based on a patient's specific goals.
The Company's performance obligations relate to contracts with a duration of less than one year; therefore, the Company has
elected to apply the optional exemption provided by ASC 606 and is not required to disclose the aggregate amount of the transaction
price allocated to performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting period. The
unsatisfied or partially unsatisfied performance obligations are generally completed when the patients are discharged, which
generally occurs within days or weeks of the end of the reporting period.
We determine the transaction price based on gross charges for services provided, reduced by estimates for explicit and implicit
price concessions. Explicit price concessions include contractual adjustments provided to patients and third-party payors. Implicit
price concessions include discounts provided to self-pay, uninsured patients or other payors, adjustments resulting from payment
reviews and adjustments arising from our inability to obtain appropriate billing documentation, authorizations or face-to-face
documentation. Subsequent changes to the estimate of the transaction price are recorded as adjustments to net service revenue in
the period of change. Subsequent changes that are determined to be the result of an adverse change in the patient's ability to pay
(i.e. change in credit risk) are recorded as a provision for doubtful accounts.
Explicit price concessions are recorded for the difference between our standard rates and the contracted rates to be realized from
patients, third party payors and others for services provided.
Implicit price concessions are recorded for self-pay, uninsured patients and other payors by major payor class based on our historical
collection experience, aged accounts receivable by payor and current economic conditions. The implicit price concession represents
the difference between amounts billed and amounts we expect to collect based on our collection history with similar payors. The
Company assesses its ability to collect for the healthcare services provided at the time of patient admission based on the Company's
verification of the patient's insurance coverage under Medicare, Medicaid, and other commercial or managed care insurance
programs. Medicare represents approximately 73% of the Company's consolidated net service revenue.
Amounts due from third-party payors, primarily commercial health insurers and government programs (Medicare and Medicaid),
include variable consideration for retroactive revenue adjustments due to settlements of audits and reviews. We determine our
estimates for price concessions related to payment reviews based on our historical experience and success rates in the claim appeals
and adjudication process. Revenue is recorded at amounts we estimate to be realizable for services provided.
We determine our estimates for price concessions related to our inability to obtain appropriate billing documentation, authorizations,
or face-to-face documentation based on our historical experience, which primarily includes a historical collection rate of over 99%
on Medicare claims.
44
Home Health Revenue Recognition
Medicare Revenue
Net service revenue is recorded under the Medicare prospective payment system (“PPS”) based on an established Federal Medicare
home health episode payment rate, that is subject to adjustment based on certain variables including, but not limited to: (a) an
outlier payment if a patient’s care was unusually costly (capped at 10% of total reimbursement per provider number); (b) a low
utilization payment adjustment (“LUPA”) if the number of visits was four or fewer than; (c) a partial payment if a patient transferred
to another provider or we admitted a patient transferring from another provider before completing the episode; (d) a payment
adjustment based upon the level of therapy services required (with various incremental adjustments made for additional visits,
with larger payment increases associated with the sixth, fourteenth and twentieth visit thresholds); (e) the number of episodes of
care provided to a patient, regardless of whether the same home health provider provided care for the entire series of episodes;
(f) changes in the base episode payments established by the Medicare Program; and (g) adjustments to the base episode payments
for case mix and geographic wages. Medicare rates are based on the severity of the patient's condition, service needs and goals,
and other factors relating to the cost of providing services and supplies, bundled into an episode of care, not to exceed 60 days.
An episode starts the first day a billable visit is performed and ends 60 days later or upon discharge, if earlier, with multiple
continuous episodes allowed.
The Medicare home health benefit requires that beneficiaries be homebound (meaning that the beneficiary is unable to leave their
home without a considerable and taxing effort), require intermittent skilled nursing, physical therapy or speech therapy services,
and receive treatment under a plan of care established and periodically reviewed by a physician. All Medicare contracts are required
to have a signed plan of care which represents a single performance obligation, comprising of the delivery of a series of distinct
services that are substantially similar and have a similar pattern of transfer to the customer. Accordingly, the Company accounts
for the series of services ("episode") as a single performance obligation satisfied over time, as the customer simultaneously receives
and consumes the benefits of the goods and services provided. Expected Medicare revenue per episode is recognized based on a
pro-rated service output method, utilizing our historical average length of episode prior to discharge.
The base episode payment can be adjusted based on each patient's health including clinical condition, functional abilities, and
service needs, as well as for the applicable geographic wage index, low utilization, patient transfers and other factors. The services
covered by the episode payment include all disciplines of care in addition to medical supplies. Medicare can also make various
adjustments to payments received if we are unable to produce appropriate billing documentation or acceptable authorizations. In
addition, we make adjustments to Medicare revenue if we find we are unable to obtain appropriate billing documentation,
authorizations or face-to-face documentation. We estimate the impact of such adjustments based on our historical experience,
which primarily includes a historical collection rate of over 99% on Medicare claims, and record this estimate during the period
in which services are rendered as an estimated price concession and a corresponding reduction to patient accounts receivable.
A portion of reimbursement from each Medicare episode is billed near the start of each episode, and cash is typically received
before all services are rendered. The amount of revenue recognized for episodes of care which are incomplete at period end is
based on the company's average percentage of days complete on episodes as of the end of the year. As of December 31, 2018 and
2017, the difference between the cash received from Medicare for a request for anticipated payment (“RAP”) on episodes in
progress and the associated estimated revenue was immaterial and, therefore, the resulting credits were recorded as a reduction to
our outstanding patient accounts receivable in our consolidated balance sheets for such periods.
Non-Medicare Revenue
Episodic-based Revenue. We recognize revenue in a similar manner as we recognize Medicare revenue for episodic-based rates
that are paid by other insurance carriers, including Medicare Advantage programs; however, these rates can vary based upon the
negotiated terms which generally range from 90% to 100% of Medicare rates.
Non-episodic based Revenue. Gross revenue is recorded on an accrual basis based upon the date of service at amounts equal to
our established or estimated per-visit rates. Explicit price concessions are recorded for the difference between our standard rates
and the contracted rates to be realized from patients, third parties and others for services provided and are deducted from gross
revenue to determine net service revenue. We also make adjustments to non-episodic revenue for any implicit price concessions,
based on historical experience, to reflect the estimated transaction price.We receive a minimal amount of our net service revenue
from patients who are either self-insured or are obligated for an insurance co-payment.
Hospice Revenue Recognition
Hospice Medicare Revenue
Gross revenue is recorded on an accrual basis based upon the date of service at amounts equal to the estimated payment rates. The
estimated payment rates are predetermined daily or hourly rates for each of the four levels of care we deliver. The four levels of
45
care are routine care, general inpatient care, continuous home care and respite care. Routine care accounted for 97% of our total
net Medicare hospice service revenue for each of 2018, 2017 and 2016, respectively. There are two separate payment rates for
routine care: payments for the first 60 days of care and care beyond 60 days. In addition to the two routine rates, we may also
receive a service intensity add-on (“SIA”). The SIA is based on visits made in the last seven days of life by a registered nurse
(“RN”) or medical social worker (“MSW”) for patients in a routine level of care.
The performance obligation is the delivery of hospice services to the patient, as determined by a physician, each day the patient
is on hospice care.
We make adjustments to Medicare revenue for our inability to obtain appropriate billing documentation or acceptable authorizations
and other reasons unrelated to credit risk. We estimate the impact of these adjustments based on our historical experience, which
primarily includes a historical collection rate of over 99% on Medicare claims, and record it during the period services are rendered
as an estimated price concession and as a reduction to our outstanding patient accounts receivable.
Additionally, our hospice service revenue is subject to certain limitations on payments from Medicare which are considered variable
consideration. We are subject to an inpatient cap limit and an overall Medicare payment cap for each provider number. We monitor
these caps on a provider-by-provider basis and estimate amounts due back to Medicare if we estimate a cap has been exceeded. We
record these adjustments as a reduction to revenue and an increase in accrued expenses within our consolidated balance sheet.
Beginning for the cap year ending October 31, 2017, providers are required to self-report and pay their estimated cap liability by
February 28th of the following year. As of December 31, 2018, we have settled our Medicare hospice reimbursements for all fiscal
years through October 31, 2012. As of December 31, 2018, we have recorded $1.7 million for estimated amounts due back to
Medicare in accrued expenses for the Federal cap years ended October 31, 2013 through September 30, 2019. As of December 31,
2017, we had recorded $0.9 million for estimated amounts due back to Medicare in accrued expenses for the Federal cap years
ended October 31, 2013 through September 30, 2018.
Hospice Non-Medicare Revenue
Gross revenue is recorded on an accrual basis based upon the date of service at amounts equal to our established rates or estimated
per day rates, as applicable. Explicit price concessions are recorded for the difference between our established rates and the amounts
estimated to be realizable from patients, third parties and others for services provided and are deducted from gross revenue to
determine our net service revenue. We also make adjustments to non-Medicare revenue for any implicit price concessions, based
on historical experience, to reflect the estimated transaction price.
Personal Care Revenue Recognition
Personal Care Revenue
We generate net service revenues by providing our services directly to patients based on authorized hours, visits or units determined
by the relevant agency, at a rate that is either contractual or fixed by legislation. Net service revenue is recognized at the time
services are rendered based on gross charges for the services provided, reduced by estimates for price concessions. We receive
payment for providing such services from payors, including state and local governmental agencies, managed care organizations,
commercial insurers and private consumers. Payors include the following elder service agencies: Aging Services Access Points
(ASAPs), Senior Care Options (SCOs), Program of All-Inclusive Care for the Elderly (PACE) and the Veterans Administration
(VA).
Goodwill and Other Intangible Assets
Goodwill represents the amount of the purchase price in excess of the fair values assigned to the underlying identifiable net assets
of acquired businesses. Goodwill is not amortized, but is subject to an annual impairment test. Tests are performed more frequently
if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying
amount. These events or circumstances include, but are not limited to, a significant adverse change in the business environment,
regulatory environment or legal factors, or a substantial decline in the market capitalization of our stock.
Generally Accepted Accounting Principles ("GAAP") allows for impairment testing to be done on either a quantitative or qualitative
basis. During 2018, we utilized a qualitative analysis for our annual impairment test and determined that there were no triggering
events that would indicate that it is "more likely than not" that the carrying values of our reporting units are higher than their
respective fair values. As a result, we did not record any goodwill impairment charges and none of the goodwill associated with
our various reporting units was considered at risk of impairment as of October 31, 2018. Since the date of our last annual goodwill
impairment test, there have been no material developments, events, changes in operating performance or other circumstances that
would cause management to believe it is more likely than not that the fair value of any of our reporting units would be less than
their carrying amounts.
46
Intangible assets consist of Certificates of Need, licenses, acquired names and non-compete agreements. We amortize non-compete
agreements and acquired names that we do not intend to use in the future on a straight-line basis over their estimated useful lives,
which is generally three years for non-compete agreements and up to five years for acquired names. Our indefinite-lived intangible
assets are reviewed for impairment annually or more frequently if events occur or circumstances change that would more likely
than not reduce the fair value of the intangible asset below its carrying amount. During 2018, we performed a qualitative assessment
to determine that our indefinite-lived intangible assets were not impaired. There have been no material developments, events,
changes in operating performance or other circumstances that would cause management to believe it is more likely than not that
the fair value of any of our intangible assets would be less than their carrying amounts.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from fluctuations in interest rates. Our Revolving Credit Facility carries a floating interest rate
which is tied to the Eurodollar rate (i.e. LIBOR) and the Prime Rate and therefore, our consolidated statements of operations and
our consolidated statements of cash flows are exposed to changes in interest rates. As of December 31, 2018, the total amount of
outstanding debt subject to interest rate fluctuations was $7.5 million. A 1.0% interest rate change would cause interest expense
to change by approximately $0.1 million annually.
47
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Amedisys, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Amedisys, Inc. and subsidiaries (the Company) as of
December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and
cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes (collectively, the
consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and
our report dated February 28, 2019 expressed an unqualified opinion on the effectiveness of the Company's internal control over
financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for revenue
recognition in 2018, 2017 and 2016 due to the adoption of ASU No. 2014-09, Revenue from Contracts with Customers.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company's auditor since 2002.
Baton Rouge, Louisiana
February 28, 2019
48
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents
Patient accounts receivable
Prepaid expenses
Other current assets
Total current assets
Property and equipment, net of accumulated depreciation of $95,472 and $146,814
Goodwill
Intangible assets, net of accumulated amortization of $33,050 and $30,610
Deferred income taxes
Other assets
Total assets
Current liabilities:
Accounts payable
LIABILITIES AND EQUITY
$
$
Payroll and employee benefits
Accrued expenses
Current portion of long-term obligations
Total current liabilities
Long-term obligations, less current portion
Other long-term obligations
Total liabilities
Commitments and Contingencies – Note 9
Equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized; none issued or outstanding
Common stock, $0.001 par value, 60,000,000 shares authorized; 36,252,280 and 35,747,134 shares
issued; and 31,973,505 and 33,964,767 shares outstanding
Additional paid-in capital
Treasury stock at cost 4,278,775 and 1,782,367 shares of common stock
Accumulated other comprehensive income
Retained earnings
Total Amedisys, Inc. stockholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
As of December 31,
2018
2017
$
20,229
$
188,972
7,568
7,349
224,118
29,449
329,480
44,132
35,794
54,145
717,118
$
28,531
$
92,858
99,475
1,612
222,476
5,775
6,234
234,485
—
36
603,666
(241,685)
15
119,550
481,582
1,051
482,633
86,363
201,196
7,329
16,268
311,156
31,122
319,949
46,061
56,064
49,130
813,482
25,384
89,936
89,104
10,638
215,062
78,203
3,791
297,056
—
35
568,780
(53,713)
15
204
515,321
1,105
516,426
813,482
$
717,118
$
The accompanying notes are an integral part of these consolidated financial statements.
49
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
Net service revenue
Cost of service, excluding depreciation and amortization
General and administrative expenses:
Salaries and benefits
Non-cash compensation
Other
Depreciation and amortization
Asset impairment charge
Securities Class Action Lawsuit settlement, net
Operating expenses
Operating income
Other income (expense):
Interest income
Interest expense
Equity in earnings from equity method investments
Miscellaneous, net
Total other income, net
Income before income taxes
Income tax expense
Net income
Net income attributable to noncontrolling interests
Net income attributable to Amedisys, Inc.
Basic earnings per common share:
Net income attributable to Amedisys, Inc. common stockholders
Weighted average shares outstanding
Diluted earnings per common share:
Net income attributable to Amedisys, Inc. common stockholders
Weighted average shares outstanding
For the Years Ended December 31,
2018
2017
2016
$
1,662,578
$
1,511,272
$
1,419,261
992,863
903,377
834,381
316,522
17,887
166,897
13,261
—
—
1,507,430
155,148
278
(7,370)
7,692
3,240
3,840
158,988
(38,859)
120,129
(783)
119,346
3.64
32,791
$
$
305,938
16,295
159,980
17,123
1,323
28,712
1,432,748
78,524
158
(5,031)
3,381
3,769
2,277
80,801
(50,118)
30,683
(382)
30,301
0.90
33,704
$
$
3.55
$
0.88
$
33,609
34,304
306,981
16,401
180,048
19,678
4,432
—
1,361,921
57,340
75
(5,164)
5,588
3,727
4,226
61,566
(23,935)
37,631
(370)
37,261
1.12
33,198
1.10
33,741
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
50
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
Net income
Other comprehensive income
Comprehensive income
Comprehensive income attributable to non-controlling interests
Comprehensive income attributable to Amedisys, Inc.
For the Years Ended December 31,
2018
2017
2016
120,129
$
30,683
$
—
120,129
(783)
—
30,683
(382)
119,346
$
30,301
$
37,631
—
37,631
(370)
37,261
$
$
The accompanying notes are an integral part of these consolidated financial statements.
51
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts in thousands, except common stock shares)
Common Stock
Total
Shares
Amount
Additional
Paid-in
Capital
Treasury
Stock
Accumulated
Other
Comprehensive
Loss (Income)
Retained
Earnings
(Deficit)
Noncontrolling
Interests
Balance, December 31, 2015
$ 410,436
34,786,966
$
35
$ 504,290
$ (26,966) $
15
$ (67,806) $
868
Issuance of stock – employee stock
purchase plan
Issuance of stock – 401(k) plan
Issuance/(cancellation) of non-
vested stock
2,483
6,682
63,688
145,660
—
257,263
Non-cash compensation
16,401
Tax benefit from stock options
exercised and restricted stock
vesting
Surrendered shares
Shares repurchased
Noncontrolling interest distribution
Assets contributed to equity
investment
Net income
7,241
(7,493)
(12,315)
(329)
405
37,631
—
—
—
—
—
—
—
Balance, December 31, 2016
461,142
35,253,577
Issuance of stock – employee stock
purchase plan
Issuance of stock – 401(k) plan
Issuance/(cancellation) of non-
vested stock
Exercise of stock options
Non-cash compensation
Tax benefit from stock options
exercised and restricted stock
vesting
Surrendered shares
Noncontrolling interest distribution
Assets contributed to equity
investment
Net income
2,382
8,223
—
4,554
16,295
448
(6,939)
(216)
(146)
30,683
53,848
156,487
139,016
144,206
—
—
—
—
—
—
Balance, December 31, 2017
516,426
35,747,134
Issuance of stock – employee stock
purchase plan
Issuance of stock – 401(k) plan
Issuance/(cancellation) of non-
vested stock
Exercise of stock options
Non-cash compensation
Surrendered shares
Shares repurchased
Noncontrolling interest distribution
Repurchase of noncontrolling
interest
Net income
2,429
9,232
—
5,953
17,887
(6,570)
(181,402)
(1,090)
(361)
120,129
38,961
129,451
174,044
162,690
—
—
—
—
—
—
Balance, December 31, 2018
$ 482,633
36,252,280
$
—
—
—
—
—
—
—
—
—
—
35
—
—
—
—
—
—
—
—
—
—
35
—
—
1
—
—
—
—
—
—
—
36
2,483
6,682
—
16,401
7,241
—
—
—
375
—
—
—
—
—
—
(7,493)
(12,315)
—
—
—
537,472
(46,774)
2,382
8,223
—
4,554
16,295
—
—
—
(146)
—
—
—
—
—
—
—
(6,939)
—
—
—
568,780
(53,713)
2,429
9,232
(1)
5,953
17,887
—
—
—
—
—
—
(6,570)
— (181,402)
—
(614)
—
—
—
—
$ 603,666
$(241,685) $
—
—
—
—
—
—
—
—
—
—
15
—
—
—
—
—
—
—
—
—
—
15
—
—
—
—
—
—
—
—
—
—
15
—
—
—
—
—
—
—
—
—
37,261
(30,545)
—
—
—
—
—
448
—
—
—
30,301
204
—
—
—
—
—
—
—
—
—
119,346
$ 119,550
$
—
—
—
—
—
—
—
(329)
30
370
939
—
—
—
—
—
—
—
(216)
—
382
1,105
—
—
—
—
—
—
—
(1,090)
253
783
1,051
The accompanying notes are an integral part of these consolidated financial statements.
52
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Cash Flows from Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
For the Years Ended December 31,
2018
2017
2016
$
120,129
$
30,683
$
37,631
Depreciation and amortization
Non-cash compensation
401(k) employer match
Write-off of investment
Loss on disposal of property and equipment
Deferred income taxes
Equity in earnings from equity method investments
Amortization of deferred debt issuance costs/debt discount
Return on equity investment
Asset impairment charge
Changes in operating assets and liabilities, net of impact of acquisitions:
Patient accounts receivable
Other current assets
Other assets
Accounts payable
Accrued expenses
Other long-term obligations
Net cash provided by operating activities
Cash Flows from Investing Activities:
Proceeds from sale of deferred compensation plan assets
Proceeds from the sale of property and equipment
Purchases of property and equipment
Investments in equity method investees
Acquisitions of businesses, net of cash acquired
Net cash used in investing activities
Cash Flows from Financing Activities:
Proceeds from issuance of stock upon exercise of stock options
Proceeds from issuance of stock to employee stock purchase plan
Shares withheld upon stock vesting
Tax benefit from stock options exercised and restricted stock vesting
Non-controlling interest distribution
Proceeds from borrowings under revolving line of credit
Repayments of borrowings under revolving line of credit
Principal payments of long-term obligations
Debt issuance costs
Purchase of company stock
Assets contributed to equity investment
Repurchase of noncontrolling interest
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest
Cash paid for income taxes, net of refunds received
Supplemental Disclosures of Non-Cash Financing Activities:
Note payable issued for software licenses
Capital leases
13,261
17,887
8,976
—
714
20,271
(7,692)
797
6,158
—
12,224
8,679
2,947
3,165
13,524
2,443
223,483
715
54
(6,558)
(7,144)
(9,260)
(22,193)
5,953
2,429
(6,570)
—
(1,090)
138,000
(130,500)
(91,450)
(2,433)
(181,402)
—
(361)
(267,424)
(66,134)
86,363
20,229
3,522
14,278
418
2,936
$
$
$
$
$
17,123
16,295
8,754
—
—
52,178
(3,381)
735
5,321
1,323
(34,672)
(4,940)
(12,749)
(2,843)
31,843
61
105,731
622
249
(10,707)
(476)
(33,715)
(44,027)
4,554
2,382
(6,939)
—
(216)
—
—
(5,319)
—
—
—
—
(5,538)
56,166
30,197
86,363
2,697
315
$
$
$
— $
— $
19,678
16,401
6,875
196
582
24,547
(5,588)
740
4,323
4,432
(36,000)
4,231
(11,415)
3,970
(7,618)
(726)
62,259
230
—
(15,717)
(1,040)
(35,522)
(52,049)
—
2,483
—
7,241
(329)
134,500
(134,500)
(5,000)
—
(12,315)
405
—
(7,515)
2,695
27,502
30,197
2,897
755
—
—
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
53
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
1. NATURE OF OPERATIONS, CONSOLIDATION AND PRESENTATION OF FINANCIAL STATEMENTS
Amedisys, Inc., a Delaware corporation, (together with its consolidated subsidiaries, referred to herein as “Amedisys,” “we,” “us,”
or “our”) is a multi-state provider of home health, hospice and personal care services with approximately 73%, 76% and 79% of
our revenue derived from Medicare for 2018, 2017 and 2016, respectively. As of December 31, 2018, we owned and operated 323
Medicare-certified home health care centers, 84 Medicare-certified hospice care centers and 12 personal-care care centers in 34
states within the United States and the District of Columbia.
Recently Adopted Accounting Pronouncements
On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with
Customers (Topic 606) and ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
(collectively, "ASC 606"), the new accounting standards issued by the Financial Accounting Standards Board ("FASB") on revenue
recognition, using the full retrospective method. ASC 606 outlines a single comprehensive model to use in accounting for revenue
arising from contracts with customers. The standards supersede existing revenue recognition requirements and eliminate most
industry-specific guidance from U.S. Generally Accepted Accounting Principles ("U.S. GAAP"). The core principle of the revenue
recognition standard is to require an entity to recognize revenue to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. As a result
of the Company's adoption of ASC 606, the revenue and related estimated uncollectible amounts owed to us by non-Medicare
payors that were historically classified as provision for doubtful accounts are now considered a price concession in determining
net service revenue. Accordingly, the Company reports uncollectible balances due from third-party payors and uncollectible
balances associated with patient responsibility as a reduction of the transaction price and therefore, as a reduction in net service
revenue (or as it relates to Hospice room and board, an increase in cost of service, excluding depreciation and amortization) when
historically these amounts were classified as provision for doubtful accounts within operating expenses within our consolidated
statements of operations. In addition, the adoption of ASC 606 resulted in increased disclosure, including qualitative and quantitative
disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business,
which provides guidance to assist entities with evaluating whether transactions should be accounted for as an acquisition (or
disposal) of assets or a business. The ASU is effective for annual and interim periods beginning after December 15, 2017. We
adopted this ASU effective January 1, 2018, on a prospective basis. The impact on our consolidated financial statements and related
disclosures will depend on the facts and circumstances of any specific future transactions as evaluated under the new framework.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill
Impairment, which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment
charge (Step 2 of the goodwill impairment test). Instead, impairment will be measured using the difference between the carrying
amount and the fair value of the reporting unit. The ASU is effective for annual and interim periods beginning after December 15,
2019. Early adoption is permitted. We adopted this ASU effective January 1, 2018, on a prospective basis and will apply this
guidance to our future tests of goodwill impairment.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments, which provides specific guidance on eight cash flow classification issues not specifically addressed by U.S.
GAAP. The ASU is effective for annual and interim periods beginning after December 15, 2017. The standard should be applied
using a retrospective transition method unless it is impractical to do so for some of the issues. In such case, the amendments for
those issues would be applied prospectively as of the earliest date practicable. Our adoption of this standard on January 1, 2018,
using a retrospective transition method for each period presented, did not have an effect on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvement to Employee
Share-Based Payment Accounting, which simplified the accounting for share-based payment award transactions, including income
tax consequences, classification of awards as either equity or liability, and classification within the statement of cash flows. The
ASU was effective for annual and interim periods beginning after December 15, 2016. We adopted this ASU effective January
1, 2017, and as a result, we recorded a $0.4 million increase to our non-current deferred tax asset and retained earnings for tax
benefits that were not previously recognized under the prior rules. Additionally, on a prospective basis, we recorded excess tax
benefits as a discrete item in our income tax provision within our consolidated statements of operations. We recorded excess tax
benefits of $3.2 million within our consolidated statements of operations for the year ended December 31, 2017. Historically, these
amounts were recorded as additional paid-in capital in our consolidated balance sheet. We also elected to prospectively apply the
change to the presentation of cash payments made to taxing authorities on the employees' behalf for shares withheld upon stock
vesting within our consolidated statements of cash flows for the year ended December 31, 2017. We have also elected to continue
54
our current policy of estimating forfeitures of stock-based compensation awards at grant date and revising in subsequent periods
to reflect actual forfeitures.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize a lease liability and
right-of-use asset ("ROU asset") for all leases with a term greater than twelve months and to disclose key information about leasing
arrangements. Topic 842 was subsequently amended by ASU 2018-01, Land Easement Practical Expedient for Transition to Topic
842; ASU 2018-10, Codification Improvements to Topic 842, Leases; and ASU 2018-11, Targeted Improvements (collectively,
"Topic 842"). Under Topic 842, leases will be classified as either financing or operating. The classification will determine the
pattern of expense recognition and classification within the income statement.
Topic 842 is effective for us on January 1, 2019, with early adoption permitted. We expect to adopt the new standard on the effective
date using a modified retrospective transition approach, which requires the new standard to be applied to all leases existing at the
date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative
period presented in the financial statements as its date of initial application. We will use the effective date as our date of initial
application. Consequently, financial information will not be updated and the disclosures required under the new standard will not
be provided for dates and periods before January 1, 2019.
The new standard provides several optional practical expedients that can be adopted at transition. We expect to elect the "package
of practical expedients," which allows us to not reassess our prior conclusions regarding lease identification, lease classification
and initial direct costs. We do not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements; the
latter not being applicable to us.
We expect adoption of this standard to have a material effect on our financial statements. We are still evaluating the overall impact
of adoption; however, we currently believe the most significant effects relate to (1) the recognition of new ROU assets and lease
liabilities on our balance sheet for our real estate and fleet operating leases; and (2) significant new disclosures about our leasing
activities. We do not expect a significant change in our leasing activities between now and adoption.
On adoption, we are expecting to recognize additional operating liabilities of approximately $80 million, with corresponding ROU
assets of approximately the same amount, based on the present value of the remaining minimum rental payments under current
leasing arrangements for our existing operating leases.
The new standard also provides practical expedients for an entity’s ongoing accounting. We are planning to elect the practical
expedient that allows us to not separate lease and non-lease components for all of our leases. We are also planning to apply the
short-term lease recognition exemption to certain information technology leases; therefore, we will not recognize ROU assets and
lease liabilities for these leases.
Use of Estimates
Our accounting and reporting policies conform with U.S. GAAP. In preparing the consolidated financial statements, we are required
to make estimates and assumptions that impact the amounts reported in the consolidated financial statements and accompanying
notes. Actual results could materially differ from those estimates.
Reclassifications and Comparability
Certain reclassifications have been made to prior periods’ financial statements in order to conform to the current period’s
presentation. Effective January 1, 2018, we adopted ASC 606 on a full retrospective basis which required the reclassification of
certain previously reported results. See Note 2 - Summary of Significant Accounting Policies for further details on the impact of
the adoption of ASC 606.
Principles of Consolidation
These consolidated financial statements include the accounts of Amedisys, Inc., and our wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in our accompanying consolidated financial statements, and business
combinations accounted for as purchases have been included in our consolidated financial statements from their respective dates
of acquisition. In addition to our wholly owned subsidiaries, we also have certain equity investments that are accounted for as set
forth below.
55
Investments
We consolidate investments when the entity is a variable interest entity and we are the primary beneficiary or if we have controlling
interests in the entity, which is generally ownership in excess of 50%. Third party equity interests in our consolidated joint ventures
are reflected as noncontrolling interests in our consolidated financial statements. During 2016, we sold a 30% interest in one of
our care centers while maintaining a controlling interest in the newly formed joint venture; we repurchased the 30% interest during
2018.
We account for investments in entities in which we have the ability to exercise significant influence under the equity method if
we hold 50% or less of the voting stock and the entity is not a variable interest entity in which we are the primary beneficiary.
During 2018, we made a $7.0 million investment in a healthcare analytics company; this investment will be accounted for under
the equity method. The book value of investments that we account for under the equity method of accounting is $35.1 million and
$26.4 million as of December 31, 2018 and 2017, respectively and is reflected in other assets within our consolidated balance
sheets.
We account for investments in entities in which we have less than a 20% ownership interest under the cost method of accounting
if we do not have the ability to exercise significant influence over the investee.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Our adoption of ASC 606 on January 1, 2018, on a full retrospective basis, impacted the Company's previously reported results
as follows (amounts in thousands):
56
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
Consolidated Balance Sheets
Patient accounts receivable
Allowance for doubtful accounts
Consolidated Statements of Operations
Net service revenue
Cost of service, excluding depreciation and amortization
Provision for doubtful accounts
Net income attributable to Amedisys, Inc.
Consolidated Statements of Cash Flows
Provision for doubtful accounts
Changes in operating assets and liabilities, net of impact of
acquisitions:
Patient accounts receivable
Consolidated Statements of Operations
Net service revenue
Cost of service, excluding depreciation and amortization
Provision for doubtful accounts
Net income attributable to Amedisys, Inc.
Consolidated Statements of Cash Flows
Provision for doubtful accounts
Changes in operating assets and liabilities, net of impact of
acquisitions:
Patient accounts receivable
$
$
$
$
$
$
$
$
$
$
$
$
$
$
As Previously
Reported
Adjustment for the
Adoption of ASC 606
As Adjusted
As of December 31, 2017
201,196 $
20,866 $
— $
(20,866) $
201,196
—
For the year ended December 31, 2017
1,533,680 $
900,726 $
25,059 $
30,301 $
(22,408) $
2,651 $
(25,059) $
— $
1,511,272
903,377
—
30,301
25,059 $
(25,059) $
—
(59,731) $
25,059 $
(34,672)
For the year ended December 31, 2016
1,437,454 $
833,055 $
19,519 $
37,261 $
(18,193) $
1,326 $
(19,519) $
— $
1,419,261
834,381
—
37,261
19,519 $
(19,519) $
—
(55,519) $
19,519 $
(36,000)
We account for revenue from contracts with customers in accordance with ASC 606, and as such, we recognize revenue in the
period in which we satisfy our performance obligations under our contracts by transferring our promised services to our customers
in amounts that reflect the consideration to which we expect to be entitled in exchange for providing patient care, which are the
transaction prices allocated to the distinct services. The Company's cost of obtaining contracts is not material.
Revenues are recognized as performance obligations are satisfied, which varies based on the nature of the services provided. Our
performance obligation is the delivery of patient care services in accordance with the nature and frequency of services outlined in
physicians' orders, which are determined by a physician based on a patient's specific goals.
The Company's performance obligations relate to contracts with a duration of less than one year; therefore, the Company has
elected to apply the optional exemption provided by ASC 606 and is not required to disclose the aggregate amount of the transaction
price allocated to performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting period. The
unsatisfied or partially unsatisfied performance obligations are generally completed when the patients are discharged, which
generally occurs within days or weeks of the end of the reporting period.
We determine the transaction price based on gross charges for services provided, reduced by estimates for explicit and implicit
price concessions. Explicit price concessions include contractual adjustments provided to patients and third-party payors. Implicit
57
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
price concessions include discounts provided to self-pay, uninsured patients or other payors, adjustments resulting from payment
reviews and adjustments arising from our inability to obtain appropriate billing documentation, authorizations or face-to-face
documentation. Subsequent changes to the estimate of the transaction price are recorded as adjustments to net service revenue in
the period of change. Subsequent changes that are determined to be the result of an adverse change in the patient's ability to pay
(i.e. change in credit risk) are recorded as a provision for doubtful accounts.
Explicit price concessions are recorded for the difference between our standard rates and the contracted rates to be realized from
patients, third party payors and others for services provided.
Implicit price concessions are recorded for self-pay, uninsured patients and other payors by major payor class based on our historical
collection experience, aged accounts receivable by payor and current economic conditions. The implicit price concession represents
the difference between amounts billed and amounts we expect to collect based on our collection history with similar payors. The
Company assesses its ability to collect for the healthcare services provided at the time of patient admission based on the Company's
verification of the patient's insurance coverage under Medicare, Medicaid, and other commercial or managed care insurance
programs. Medicare represents approximately 73% of the Company's consolidated net service revenue.
Amounts due from third-party payors, primarily commercial health insurers and government programs (Medicare and Medicaid),
include variable consideration for retroactive revenue adjustments due to settlements of audits and reviews. We determine our
estimates for price concessions related to payment reviews based on our historical experience and success rates in the claim appeals
and adjudication process. Revenue is recorded at amounts we estimate to be realizable for services provided.
We determine our estimates for price concessions related to our inability to obtain appropriate billing documentation, authorizations,
or face-to-face documentation based on our historical experience, which primarily includes a historical collection rate of over 99%
on Medicare claims.
Revenue by payor class as a percentage of total net service revenue is as follows:
Home Health Medicare
Home Health Non-Medicare - Episodic-based
Home Health Non-Medicare - Non-episodic based
Hospice Medicare
Hospice Non-Medicare
Personal Care
Home Health Revenue Recognition
Medicare Revenue
As of December 31,
2018
2017
2016
50%
9%
12%
23%
1%
5%
53%
8%
11%
23%
1%
4%
58%
6%
11%
21%
1%
3%
100%
100%
100%
Net service revenue is recorded under the Medicare prospective payment system (“PPS”) based on an established Federal Medicare
home health episode payment rate, that is subject to adjustment based on certain variables including, but not limited to: (a) an
outlier payment if a patient’s care was unusually costly (capped at 10% of total reimbursement per provider number); (b) a low
utilization payment adjustment (“LUPA”) if the number of visits was four or fewer; (c) a partial payment if a patient transferred
to another provider or we admitted a patient transferring from another provider before completing the episode; (d) a payment
adjustment based upon the level of therapy services required (with various incremental adjustments made for additional visits,
with larger payment increases associated with the sixth, fourteenth and twentieth visit thresholds); (e) the number of episodes of
care provided to a patient, regardless of whether the same home health provider provided care for the entire series of episodes;
(f) changes in the base episode payments established by the Medicare Program; and (g) adjustments to the base episode payments
for case mix and geographic wages. Medicare rates are based on the severity of the patient's condition, service needs and goals,
and other factors relating to the cost of providing services and supplies, bundled into an episode of care, not to exceed 60 days.
An episode starts the first day a billable visit is performed and ends 60 days later or upon discharge, if earlier, with multiple
continuous episodes allowed.
58
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
The Medicare home health benefit requires that beneficiaries be homebound (meaning that the beneficiary is unable to leave their
home without a considerable and taxing effort), require intermittent skilled nursing, physical therapy or speech therapy services,
and receive treatment under a plan of care established and periodically reviewed by a physician. All Medicare contracts are required
to have a signed plan of care which represents a single performance obligation, comprising of the delivery of a series of distinct
services that are substantially similar and have a similar pattern of transfer to the customer. Accordingly, the Company accounts
for the series of services ("episode") as a single performance obligation satisfied over time, as the customer simultaneously receives
and consumes the benefits of the goods and services provided. Expected Medicare revenue per episode is recognized based on a
pro-rated service output method, utilizing our historical average length of episode prior to discharge.
The base episode payment can be adjusted based on each patient's health including clinical condition, functional abilities, and
service needs, as well as for the applicable geographic wage index, low utilization, patient transfers and other factors. The services
covered by the episode payment include all disciplines of care in addition to medical supplies. Medicare can also make various
adjustments to payments received if we are unable to produce appropriate billing documentation or acceptable authorizations. In
addition, we make adjustments to Medicare revenue if we find we are unable to obtain appropriate billing documentation,
authorizations or face-to-face documentation. We estimate the impact of such adjustments based on our historical experience,
which primarily includes a historical collection rate of over 99% on Medicare claims, and record this estimate during the period
in which services are rendered as an estimated price concession and a corresponding reduction to patient accounts receivable.
A portion of reimbursement from each Medicare episode is billed near the start of each episode, and cash is typically received
before all services are rendered. The amount of revenue recognized for episodes of care which are incomplete at period end is
based on the company's average percentage of days complete on episodes as of the end of the year. As of December 31, 2018 and
2017, the difference between the cash received from Medicare for a request for anticipated payment (“RAP”) on episodes in
progress and the associated estimated revenue was immaterial and, therefore, the resulting credits were recorded as a reduction to
our outstanding patient accounts receivable in our consolidated balance sheets for such periods.
Non-Medicare Revenue
Episodic-based Revenue. We recognize revenue in a similar manner as we recognize Medicare revenue for episodic-based rates
that are paid by other insurance carriers, including Medicare Advantage programs; however, these rates can vary based upon the
negotiated terms which generally range from 90% to 100% of Medicare rates.
Non-episodic based Revenue. Gross revenue is recorded on an accrual basis based upon the date of service at amounts equal to
our established or estimated per-visit rates. Explicit price concessions are recorded for the difference between our standard rates
and the contracted rates to be realized from patients, third parties and others for services provided and are deducted from gross
revenue to determine net service revenue. We also make adjustments to non-episodic revenue for any implicit price concessions,
based on historical experience, to reflect the estimated transaction price. We receive a minimal amount of our net service revenue
from patients who are either self-insured or are obligated for an insurance co-payment.
Hospice Revenue Recognition
Hospice Medicare Revenue
Gross revenue is recorded on an accrual basis based upon the date of service at amounts equal to the estimated payment rates. The
estimated payment rates are predetermined daily or hourly rates for each of the four levels of care we deliver. The four levels of
care are routine care, general inpatient care, continuous home care and respite care. Routine care accounted for 97% of our total
net Medicare hospice service revenue for each of 2018, 2017 and 2016, respectively. There are two separate payment rates for
routine care: payments for the first 60 days of care and care beyond 60 days. In addition to the two routine rates, we may also
receive a service intensity add-on (“SIA”). The SIA is based on visits made in the last seven days of life by a registered nurse
(“RN”) or medical social worker (“MSW”) for patients in a routine level of care.
The performance obligation is the delivery of hospice services to the patient, as determined by a physician, each day the patient
is on hospice care.
We make adjustments to Medicare revenue for our inability to obtain appropriate billing documentation or acceptable authorizations
and other reasons unrelated to credit risk. We estimate the impact of these adjustments based on our historical experience, which
primarily includes a historical collection rate of over 99% on Medicare claims, and record it during the period services are rendered
as an estimated price concession and as a reduction to our outstanding patient accounts receivable.
Additionally, our hospice service revenue is subject to certain limitations on payments from Medicare which are considered variable
consideration. We are subject to an inpatient cap limit and an overall Medicare payment cap for each provider number. We monitor
59
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
these caps on a provider-by-provider basis and estimate amounts due back to Medicare if we estimate a cap has been exceeded. We
record these adjustments as a reduction to revenue and an increase in accrued expenses within our consolidated balance sheet.
Beginning for the cap year ending October 31, 2017, providers are required to self-report and pay their estimated cap liability by
February 28th of the following year. As of December 31, 2018, we have settled our Medicare hospice reimbursements for all fiscal
years through October 31, 2012. As of December 31, 2018, we have recorded $1.7 million for estimated amounts due back to
Medicare in accrued expenses for the Federal cap years ended October 31, 2013 through September 30, 2019. As of December 31,
2017, we had recorded $0.9 million for estimated amounts due back to Medicare in accrued expenses for the Federal cap years
ended October 31, 2013 through September 30, 2018.
Hospice Non-Medicare Revenue
Gross revenue is recorded on an accrual basis based upon the date of service at amounts equal to our established rates or estimated
per day rates, as applicable. Explicit price concessions are recorded for the difference between our established rates and the amounts
estimated to be realizable from patients, third parties and others for services provided and are deducted from gross revenue to
determine our net service revenue. We also make adjustments to non-Medicare revenue for any implicit price concessions, based
on historical experience, to reflect the estimated transaction price.
Personal Care Revenue Recognition
Personal Care Revenue
We generate net service revenues by providing our services directly to patients based on authorized hours, visits or units determined
by the relevant agency, at a rate that is either contractual or fixed by legislation. Net service revenue is recognized at the time
services are rendered based on gross charges for the services provided, reduced by estimates for price concessions. We receive
payment for providing such services from payors, including state and local governmental agencies, managed care organizations,
commercial insurers and private consumers. Payors include the following elder service agencies: Aging Services Access Points
(ASAPs), Senior Care Options (SCOs), Program of All-Inclusive Care for the Elderly (PACE) and the Veterans Administration
(VA).
Cash and Cash Equivalents
Cash and cash equivalents include certificates of deposit and all highly liquid debt instruments with maturities of three months or
less when purchased.
Patient Accounts Receivable
We report accounts receivable from services rendered at their estimated transaction price, which includes price concessions based
on the amounts expected to be due from payors. Our patient accounts receivable are uncollateralized and consist of amounts due
from Medicare, Medicaid, other third-party payors and patients. As of December 31, 2018, there is no single payor, other than
Medicare, that accounts for more than 10% of our total outstanding patient receivables. Thus, we believe there are no other
significant concentrations of receivables that would subject us to any significant credit risk in the collection of our patient accounts
receivable. We write off accounts on a monthly basis once we have exhausted our collection efforts and deem an account to be
uncollectible. We believe the collectibility risk associated with our Medicare accounts, which represent 56% and 59% of our net
patient accounts receivable at December 31, 2018 and December 31, 2017, respectively, is limited due to our historical collection
rate of over 99% from Medicare and the fact that Medicare is a U.S. government payor.
60
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
We do not believe there are any significant concentrations of revenues from any payor that would subject us to any significant
credit risk in the collection of our accounts receivable.
Medicare Home Health
For our home health patients, our pre-billing process includes verifying that we are eligible for payment from Medicare for the
services that we provide to our patients. Our Medicare billing begins with a process to ensure that our billings are accurate through
the utilization of an electronic Medicare claim review. We submit a RAP for 60% of our estimated payment for the initial episode
at the start of care or 50% of the estimated payment for any subsequent episodes of care contiguous with the first episode for a
particular patient. The full amount of the episode is billed after the episode has been completed (“final billed”). The RAP received
for that particular episode is then deducted from our final payment. If a final bill is not submitted within the greater of 120 days
from the start of the episode, or 60 days from the date the RAP was paid, any RAPs received for that episode will be recouped by
Medicare from any other claims in process for that particular provider number. The RAP and final claim must then be resubmitted.
Medicare Hospice
For our hospice patients, our pre-billing process includes verifying that we are eligible for payment from Medicare for the services
that we provide to our patients. Our Medicare billing begins with a process to ensure that our billings are accurate through the
utilization of an electronic Medicare claim review. We bill Medicare on a monthly basis for the services provided to the patient.
Non-Medicare Home Health, Hospice, and Personal Care
For our non-Medicare patients, our pre-billing process primarily begins with verifying a patient’s eligibility for services with the
applicable payor. Once the patient has been confirmed for eligibility, we will provide services to the patient and bill the applicable
payor. Our review and evaluation of non-Medicare accounts receivable includes a detailed review of outstanding balances and
special consideration to concentrations of receivables from particular payors or groups of payors with similar characteristics that
would subject us to any significant credit risk.
Property and Equipment
Property and equipment is stated at cost and depreciated on a straight-line basis over the estimated useful lives of the assets or life
of the lease, if shorter. Additionally, we have internally developed computer software for our own use. Additions and improvements
(including interest costs for construction of qualifying long-lived assets) are capitalized. Maintenance and repair expenses are
charged to expense as incurred. The cost of property and equipment sold or disposed of and the related accumulated depreciation
are eliminated from the property and related accumulated depreciation accounts, and any gain or loss is credited or charged to
other general and administrative expenses.
We assess the impairment of a long-lived asset group whenever events or changes in circumstances indicate that the asset’s carrying
value may not be recoverable. Factors we consider important that could trigger an impairment review include but are not limited
to the following:
• A significant change in the extent or manner in which the long-lived asset group is being used.
• A significant change in the business climate that could affect the value of the long-lived asset group.
• A significant change in the market value of the assets included in the asset group.
If we determine that the carrying value of long-lived assets may not be recoverable, we compare the carrying value of the asset
group to the undiscounted cash flows expected to be generated by the asset group. If the carrying value exceeds the undiscounted
cash flows, an impairment charge is indicated. An impairment charge is recognized to the extent that the carrying value of the asset
group exceeds its fair value.
We generally provide for depreciation over the following estimated useful service lives.
Building
Leasehold improvements
Equipment and furniture
Vehicles
Computer software
Capital leases
Years
39
Lesser of lease term or expected useful life
3 to 7
5
3 to 5
3
61
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
During 2015, we began the transition of all our care centers from our proprietary operating system to Homecare Homebase
(“HCHB”), a leading home health and hospice platform, with all of our care centers operating on HCHB as of December 31, 2016.
As part of our conversion process, we determined that a number of assets (primarily laptops) were not compatible with HCHB
and had no other alternative or secondary use. As a result, we recorded a non-cash asset impairment charge of $4.4 million to
write-off these assets during the year ended December 31, 2016.
During 2018, we reviewed the balances of our property and equipment and as a result, eliminated those asset balances and related
accumulated depreciation for which the asset was no longer in service.
The following table summarizes the balances related to our property and equipment for 2018 and 2017 (amounts in millions):
Building and leasehold improvements
Equipment and furniture
Capital leases
Computer software
Less: accumulated depreciation
As of December 31,
2018
2017
8.7
53.4
2.9
59.9
124.9
(95.5)
$
29.4
$
7.8
72.9
—
97.2
177.9
(146.8)
31.1
Depreciation expense for 2018, 2017 and 2016 was $10.8 million, $14.4 million and $17.2 million, respectively.
Goodwill and Other Intangible Assets
Goodwill represents the amount of the purchase price in excess of the fair values assigned to the underlying identifiable net assets
of acquired businesses. Goodwill is not amortized, but is subject to an annual impairment test. Tests are performed more frequently
if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying
amount. These events or circumstances include, but are not limited to, a significant adverse change in the business environment,
regulatory environment or legal factors, or a substantial decline in the market capitalization of our stock.
Each of our operating segments described in Note 13 – Segment Information is considered to represent an individual reporting
unit for goodwill impairment testing purposes. We consider each of our home health care centers to constitute an individual business
for which discrete financial information is available. However, since these care centers have substantially similar operating and
economic characteristics and resource allocation and significant investment decisions concerning these businesses are centralized
and the benefits broadly distributed, we have aggregated these care centers and deemed them to constitute a single reporting unit.
We have applied this same aggregation principle to our hospice and personal-care care centers and have also deemed each of them
to be a single reporting unit.
During 2018, we performed a qualitative assessment to determine if it is more likely than not that the fair value of the reporting
units are less than their carrying values by evaluating relevant events and circumstances including financial performance, market
conditions and share price. Based on this assessment, we did not record any goodwill impairment charges and none of the goodwill
associated with our various reporting units was considered at risk of impairment as of October 31, 2018. Since the date of our last
annual goodwill impairment test, there have been no material developments, events, changes in operating performance or other
circumstances that would cause management to believe it is more likely than not that the fair value of any of our reporting units
would be less than their carrying amounts.
Intangible assets consist of Certificates of Need, licenses, acquired names and non-compete agreements. We amortize non-compete
agreements and acquired names that we do not intend to use in the future on a straight-line basis over their estimated useful lives,
which is generally three years for non-compete agreements and up to five years for acquired names. Our indefinite-lived intangible
assets are reviewed for impairment annually or more frequently if events occur or circumstances change that would more likely
than not reduce the fair value of the intangible asset below its carrying amount. During 2018, we performed a qualitative assessment
to determine that our indefinite-lived intangible assets were not impaired. There have been no material developments, events,
changes in operating performance or other circumstances that would cause management to believe it is more likely than not that
the fair value of any of our intangible assets would be less than their carrying amounts.
62
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
Debt Issuance Costs
During 2018, we recorded an additional $2.4 million in deferred debt issuance costs as a reduction to long-term obligations, less
current portion in our consolidated balance sheet in connection with our new Credit Agreement (See Note 6 - Long-Term
Obligations). As of December 31, 2018 and 2017, we had unamortized debt issuance costs of $3.5 million and $1.9 million,
respectively, recorded as long-term obligations, less current portion in our accompanying consolidated balance sheets. We amortize
deferred debt issuance costs related to our long-term obligations over the term of the obligation through interest expense, unless
the debt is extinguished, in which case unamortized balances are immediately expensed. We amortized $0.8 million, $0.7 million
and $0.7 million in deferred debt issuance costs in 2018, 2017 and 2016, respectively. The unamortized debt issuance costs of $3.5
million at December 31, 2018, will be amortized over a weighted-average amortization period of 4.5 years.
Fair Value of Financial Instruments
The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable,
that may be used to measure fair value. The three levels of inputs are as follows:
• Level 1 – Quoted prices in active markets for identical assets and liabilities.
• Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the assets or liabilities.
• Level 3 – Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the
assets or liabilities.
Our deferred compensation plan assets are recorded at fair value and are considered a level 2 measurement. For our other financial
instruments, including our cash and cash equivalents, patient accounts receivable, accounts payable, payroll and employee benefits
and accrued expenses, we estimate the carrying amounts approximate fair value. As of December 31, 2018, the carrying amount
of our long-term debt approximates fair value.
Income Taxes
We use the asset and liability approach for measuring deferred tax assets and liabilities based on temporary differences existing
at each balance sheet date using currently enacted tax rates. Our deferred tax calculation requires us to make certain estimates
about future operations. Deferred tax assets are reduced by a valuation allowance when we believe it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The effect of a change in tax rate is recognized as income or
expense in the period that includes the enactment date. As of December 31, 2018 and 2017, our net deferred tax assets were $35.8
million and $56.1 million, respectively. Our net deferred tax asset at December 31, 2017 was reduced $21.4 million as a result of
the remeasurement of deferred taxes using the reduced U.S. corporate tax rates included in H.R. 1 (Tax Cuts and Jobs Act) enacted
on December 22, 2017.
Management regularly assesses the ability to realize deferred tax assets recorded in the Company’s entities based upon the weight
of available evidence, including such factors as the recent earnings history and expected future taxable income. In the event future
taxable income is below management’s estimates or is generated in tax jurisdictions different than projected, we could be required
to increase the valuation allowance for deferred tax assets. This would result in an increase in our effective tax rate.
Share-Based Compensation
We record all share-based compensation as expense in the financial statements measured at the fair value of the award. We recognize
compensation cost on a straight-line basis over the requisite service period for each separately vesting portion of the award. Upon
adoption of ASU 2016-09 in 2017, we started recording the excess tax benefits related to stock option exercises as operating cash
flows; these amounts were previously classified as financing cash flows. Share-based compensation expense for 2018, 2017 and
2016 was $17.9 million, $16.3 million and $16.4 million, respectively, and the total income tax benefit recognized for these
expenses was $4.3 million, $6.4 million and $6.4 million, respectively.
Weighted-Average Shares Outstanding
Net income per share attributable to Amedisys, Inc. common stockholders, calculated on the treasury stock method, is based on
the weighted average number of shares outstanding during the period. The following table sets forth, for the periods indicated,
shares used in our computation of weighted-average shares outstanding, which are used to calculate our basic and diluted net
income attributable to Amedisys, Inc. common stockholders (amounts in thousands):
63
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
Weighted average number of shares outstanding – basic
Effect of dilutive securities:
Stock options
Non-vested stock and stock units
Weighted average number of shares outstanding – diluted
Anti-dilutive securities
Advertising Costs
For the Years Ended December 31,
2018
2017
2016
32,791
33,704
33,198
502
316
33,609
50
281
319
34,304
271
162
381
33,741
221
We expense advertising costs as incurred. Advertising expense for 2018, 2017 and 2016 was $7.0 million, $6.5 million and $7.8
million, respectively.
3. ACQUISITIONS
We complete acquisitions from time to time in order to pursue our strategy of increasing our market presence by expanding our
service base and enhancing our position in certain geographic areas as a leading provider of home health, hospice and personal
care services. The purchase price paid for acquisitions is negotiated through arm’s length transactions, with consideration based
on our analysis of, among other things, comparable acquisitions and expected cash flows. Acquisitions are accounted for as
purchases and are included in our consolidated financial statements from their respective acquisition dates. Goodwill generated
from acquisitions is recognized for the excess of the purchase price over tangible and identifiable intangible assets because of the
expected contributions of the acquisitions to our overall corporate strategy. We typically engage outside appraisal firms to assist
in the fair value determination of identifiable intangible assets for significant acquisitions. The preliminary purchase price allocation
is adjusted, as necessary, up to one year after the acquisition closing date if management obtains more information regarding asset
valuation and liabilities assumed.
2018 Acquisitions
Home Health Division
On March 1, 2018, we acquired the assets of Christian Care at Home which provided home health services to the state of Kentucky
for a total purchase price of $2.3 million. The purchase price was paid with cash on hand on the date of the transaction. Based on
our preliminary purchase price allocation, we recorded goodwill ($2.3 million) in connection with the acquisition during the three-
month period ended March 31, 2018. During the three-month period ended December 31, 2018, we reduced our preliminary
goodwill by $0.2 million and recorded a corresponding increase in other intangibles - certificate of need. We expect the entire
amount of goodwill recorded for this acquisition to be deductible for income tax purposes over approximately 15 years.
Personal Care Division
On May 1, 2018, we acquired the assets of East Tennessee Personal Care Services which owned and operated one personal-care
care center servicing the state of Tennessee for a total purchase price of $2.0 million (subject to certain adjustments, of which $0.2
million was placed in a promissory note to be paid over 24 months, subject to any offsets or withholds for indemnification purposes).
The purchase price was paid with cash on hand on the date of the transaction. During the three-month period ended June 30, 2018,
we recorded goodwill ($1.9 million) and other intangibles - non-compete agreements ($0.1 million) in connection with the
acquisition. We expect the entire amount of goodwill recorded for this acquisition to be deductible for income tax purposes over
approximately 15 years.
On October 1, 2018, we acquired the assets of Bring Care Home which serviced the state of Massachusetts for a total purchase
price of $5.7 million (subject to certain adjustments, of which $0.6 million was placed in a promissory note to be paid over 24
months, subject to any offsets or withholds for indemnification purposes). The purchase price was paid with cash on hand on the
date of the transaction. During the three-month period ended December 31, 2018, we recorded goodwill ($5.5 million) and other
intangibles - non-compete agreements ($0.2 million) in connection with the acquisition. We expect the entire amount of goodwill
recorded for this acquisition to be deductible for income tax purposes over approximately 15 years.
2017 Acquisitions
Home Health and Hospice Divisions
On May 1, 2017, we acquired three home health care centers (one in each Illinois, Massachusetts, and Texas) and two hospice
care centers (one in each Arizona and Massachusetts) from Tenet Healthcare for a total purchase price of $20.5 million, (subject
64
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
to certain adjustments). The purchase price was paid with cash on hand on the date of the transaction. Based on our preliminary
purchase price allocation, we recorded goodwill ($20.9 million) and other assets and liabilities, net ($0.8 million) in connection
with this acquisition during the three-month period ended June 30, 2017. During the three-month period ended December 31,
2017, we received the final report from our outside appraisal firm. As a result, we reduced our preliminary goodwill by $2.8 million
and recorded corresponding increases in other intangibles - Medicare licenses ($0.1 million) and other intangibles - acquired names
of business ($2.7 million). We expect the entire amount of goodwill recorded for this acquisition to be deductible for income tax
purposes over approximately 15 years.
Personal Care Division
On February 1, 2017, we acquired the assets of Home Staff, L.L.C. which owned and operated three personal-care care centers
servicing the state of Massachusetts for a total purchase price of $4.0 million (subject to certain adjustments), of which $0.4 million
was placed in a promissory note to be paid over 24 months, subject to any offsets or withholds for indemnification purposes. The
purchase price was paid with cash on hand on the date of the transaction. We recorded goodwill ($3.8 million), other intangibles
- non-compete agreements ($0.2 million) and other assets and liabilities, net ($0.5 million) in connection with the acquisition. We
expect the entire amount of goodwill recorded for this acquisition to be deductible for income tax purposes over approximately
15 years.
On October 1, 2017, we acquired the assets of Intercity Home Care which owned and operated four personal-care care centers
servicing the state of Massachusetts for a total purchase price of $9.6 million (subject to certain adjustments), of which $1.0 million
was placed in escrow for indemnification purposes and working capital price adjustments. The purchase price was paid with cash
on hand on the date of the transaction. We recorded goodwill ($9.1 million), other intangibles - non-compete agreements ($0.4
million) and other assets and liabilities, net ($0.1 million) in connection with the acquisition. We expect the entire amount of
goodwill recorded for this acquisition to be deductible for income tax purposes over approximately 15 years.
4. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
During 2018, 2017 and 2016, we did not record any goodwill impairment charges as a result of our annual impairment test and
none of the goodwill associated with our various reporting units was considered at risk of impairment as of October 31st of each
respective year (the date of our annual goodwill impairment test). Since the date of our last annual goodwill impairment test, there
have been no material developments, events, changes in operating performance or other circumstances that would cause
management to believe it is more likely than not that the fair value of any of our reporting units would be less than their carrying
amounts.
During 2017, we recorded a non-cash other intangible assets impairment charge of $1.3 million related to those care centers that
were closed or consolidated during 2017 as discussed in Note 12 - Exit and Restructuring Activities.
The following table summarizes the activity related to our goodwill for 2018, 2017 and 2016 (amounts in millions):
Balances at December 31, 2015 (1)
Additions
Adjustments related to acquisitions (2)
Balances at December 31, 2016
Additions
Balances at December 31, 2017
Additions
Balances at December 31, 2018 (1)
Home Health
Hospice
Personal Care
Total
$
67.1
$
194.6
$
— $
Goodwill
4.4
0.1
71.6
13.4
85.0
2.1
—
—
194.6
4.7
199.3
—
22.7
—
22.7
12.9
35.6
7.5
$
87.1
$
199.3
$
43.1
$
261.7
27.1
0.1
288.9
31.0
319.9
9.6
329.5
(1) Net of prior years' accumulated impairment losses of $733.7 million, which is inclusive of write-offs related to the sale
and closure of care centers.
(2) During 2016, we adjusted goodwill by $0.1 million as a result of our completion of the purchase price accounting for
our 2015 acquisition of Infinity HomeCare.
65
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
The following table summarizes the activity related to our other intangible assets, net for 2018, 2017 and 2016 (amounts in millions):
Other Intangible Assets, Net
Certificates of
Need and
Licenses
Acquired
Names of
Business
Non-Compete
Agreements (3)
Balances at December 31, 2015
$
23.9
$
14.2
$
Additions
Amortization
Balances at December 31, 2016
Additions
Write-off (1)
Amortization
Balances at December 31, 2017
Additions
Amortization
0.2
—
24.1
0.1
(0.5)
—
23.7
0.2
—
3.5
—
17.7
2.7
(0.8)
—
19.6
—
—
5.9
1.5
(2.5)
4.9
0.6
—
(2.7)
2.8
0.3
(2.5)
Total
$
Balances at December 31, 2018 (2)
$
23.9
$
19.6
$
0.6
$
44.0
5.2
(2.5)
46.7
3.4
(1.3)
(2.7)
46.1
0.5
(2.5)
44.1
(1) Write-off of intangible assets related to the closure and consolidation of care centers as discussed in Note 12 - Exit and
Restructuring Activities.
(2) Net of prior years' accumulated amortization of $0.5 million for acquired names of business and $21.7 million for non-
compete agreements.
(3) The weighted average amortization period of our non-compete agreements is 1.7 years.
See Note 3 – Acquisitions for further details on additions to goodwill and other intangible assets, net.
The estimated aggregate amortization expense related to intangible assets for each of the five succeeding years is as follows
(amounts in millions):
2019
2020
2021
2022
2023
$
$
0.4
0.2
—
—
—
0.6
66
5. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
Additional information regarding certain balance sheet accounts is presented below (amounts in millions):
As of December 31,
2018
2017
Other current assets:
Payroll tax escrow
Income tax receivable
Due from joint ventures
Other
Other assets:
Workers’ compensation deposits
Health insurance deposits
Other miscellaneous deposits
Indemnity receivable
Equity method investments
Other
Accrued expenses:
Health insurance
Workers’ compensation
Florida ZPIC audit, gross liability
Legal settlements and other audits
Lease liability
Charity care
Estimated Medicare cap liability
Hospice cost of revenue
Patient liability
Other
Other long-term obligations:
Reserve for uncertain tax positions
Deferred compensation plan liability
Other
6. LONG-TERM OBLIGATIONS
Long-term debt consists of the following for the periods indicated (amounts in millions):
$100.0 million Term Loan; principal payments plus accrued interest payable quarterly; interest rate at Base
Rate plus Applicable Rate or Eurodollar Rate plus the Applicable Rate (3.57% at December 31, 2017); due
August 28, 2020
$550.0 million Revolving Credit Facility; interest only payments; interest rate at Base Rate plus Applicable
Rate or Eurodollar Rate plus the Applicable Rate (3.85% at December 31, 2018); due June 29, 2023
Promissory notes
Capital leases
Principal amount of long-term obligations
Deferred debt issuance costs
Current portion of long-term obligations
Total
67
$
$
$
$
$
$
$
$
$
$
1.5
1.6
1.9
2.3
7.3
0.4
0.5
0.8
14.2
35.1
3.1
54.1
12.4
30.9
17.4
13.0
0.3
1.7
1.7
9.9
6.3
5.9
99.5
2.9
1.3
2.0
6.2
$
$
$
$
$
$
$
$
As of December 31,
2018
2017
— $
7.5
1.1
2.3
10.9
(3.5)
7.4
(1.6)
5.8
$
7.2
3.4
2.0
3.7
16.3
0.4
0.5
0.9
17.0
26.4
3.9
49.1
14.1
29.3
17.4
6.4
0.9
1.5
0.9
9.1
5.3
4.2
89.1
—
1.9
1.9
3.8
90.0
—
0.7
—
90.7
(1.9)
88.8
(10.6)
78.2
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
Maturities of debt as of December 31, 2018 are as follows (amounts in millions):
2019
2020
2021
2022
2023
Credit Agreement
Long-term
obligations
1.6
1.4
0.4
—
7.5
10.9
$
$
On June 29, 2018, we entered into our Amended and Restated Credit Agreement ("Credit Agreement") that provides for a senior
secured revolving credit facility in an initial aggregate principal amount of up to $550.0 million (the "Revolving Credit Facility").
The Revolving Credit Facility provides for and includes within its $550.0 million limit a $25.0 million swingline facility and
commitments for up to $60.0 million in letters of credit. Upon lender approval, we may increase the aggregate loan amount under
the Revolving Credit Facility by either i) $125.0 million or ii) an unlimited amount subject to a leverage limit of 0.5x under the
maximum allowable consolidated leverage ratio which is currently 3.0x per the Credit Agreement.
The funds available under the Revolving Credit Facility were used to pay off our existing indebtedness under our prior credit
agreement, dated as of August 28, 2015 (the "Prior Credit Agreement"), with a principal balance of $127.5 million. The final
maturity of the Revolving Credit Facility is June 29, 2023 and there is no mandatory amortization on the outstanding principal
balances which are payable in full upon maturity. The Revolving Credit Facility may be used to provide ongoing working capital
and for general corporate purposes of the Company and our subsidiaries, including permitted acquisitions, as defined in the Credit
Agreement.
The interest rate on borrowings under the Revolving Credit Facility shall be selected from the following: (i) the Base Rate plus
the Applicable Rate or (ii) the Eurodollar Rate plus the Applicable Rate. The “Base Rate” means a fluctuating rate per annum equal
to the highest of (a) the federal funds rate plus 0.50% per annum, (b) the prime rate of interest established by the Administrative
Agent, and (c) the Eurodollar Rate plus 1% per annum. The “Eurodollar Rate” means the quoted rate per annum equal to the
London Interbank Offered Rate ("LIBOR") or a comparable successor rate approved by the Administrative Agent for an interest
period of one, two, three or six months (as selected by us). The “Applicable Rate” is based on the consolidated leverage ratio and
is presented in the table below. As of December 31, 2018, the Applicable Rate is 0.50% per annum for Base Rate Loans and 1.50%
per annum for Eurodollar Rate Loans. We are also subject to a commitment fee and letter of credit fee under the terms of the Credit
Facilities, as presented in the table below.
Consolidated Leverage Ratio
Base Rate Loans
Eurodollar Rate Loans
Commitment
Fee
Letter of
Credit Fee
> 3.00 to 1.0
3.00 to 1.0 but > 2.00 to 1.0
2.00 to 1.0 but > 1.00 to 1.0
1.00 to 1.0
1.25%
1.00%
0.75%
0.50%
2.25%
2.00%
1.75%
1.50%
0.35%
0.30%
0.25%
0.20%
2.00%
1.75%
1.50%
1.25%
The Credit Agreement requires maintenance of two financial covenants: (i) a consolidated leverage ratio of funded indebtedness
to Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), as defined in the Credit Agreement, and (ii) a
consolidated interest coverage ratio of EBITDA to cash interest charges, as defined in the Credit Agreement. Each of these covenants
is calculated over rolling four-quarter periods and also is subject to certain exceptions and baskets. The Credit Agreement also
contains customary covenants, including, but not limited to, restrictions on: incurrence of liens; incurrence of additional debt; sales
of assets and other fundamental corporate changes; investments; and declarations of dividends. These covenants contain customary
exclusions and baskets as detailed in the Credit Agreement.
The Revolving Credit Facility is guaranteed by substantially all of our wholly-owned direct and indirect subsidiaries. The Credit
Agreement requires at all times that we (i) provide guarantees from wholly-owned subsidiaries that in the aggregate represent not
less than 95% of our consolidated net revenues and adjusted EBITDA from all wholly-owned subsidiaries and (ii) provide guarantees
from subsidiaries that in the aggregate represent not less than 70% of consolidated adjusted EBITDA, subject to certain exceptions.
68
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
In connection with entering into the Credit Agreement, we entered into (i) a Security Agreement with the Administrative Agent
dated June 29, 2018 and (ii) a Pledge Agreement with the Administrative Agent dated June 29, 2018 for the purpose of securing
the payment of our obligations under the Credit Agreement. Pursuant to the Security Agreement and the Pledge Agreement, as of
the effective date of the Credit Agreement, our obligations under the Credit Agreement are secured by (i) the grant of a first lien
security interest in the non-real estate assets of substantially all of our direct and indirect, wholly-owned subsidiaries (subject to
exceptions) and (ii) the pledge of the equity interests in (a) substantially all of our direct and indirect, wholly-owned corporate,
limited liability company and limited partnership subsidiaries and (b) those joint ventures which constitute subsidiaries under the
Credit Agreement (subject, in the case of the Pledge Agreement, to exceptions). In connection with our entry into the Credit
Agreement, we recorded $2.4 million in deferred debt issuance costs as a reduction to long-term obligations, less current portion
within our consolidated balance sheet during 2018.
Our weighted average interest rate for our $100.0 million Term Loan, under our Prior Credit Agreement, was 3.1% for the period
ended December 31, 2017. Our weighted average interest rate for borrowings under our $550.0 million Revolving Credit Facility
was 3.8% for the period ended December 31, 2018.
As of December 31, 2018, our consolidated leverage ratio was 0.1, our consolidated interest coverage ratio was 59.9 and we are
in compliance with our covenants under the Credit Agreement. In the event we are not in compliance with our debt covenants in
the future, we would pursue various alternatives in an attempt to successfully resolve the non-compliance, which might include,
among other things, seeking debt covenant waivers or amendments.
As of December 31, 2018, our availability under our $550.0 million Revolving Credit Facility was $508.4 million as we have $7.5
million outstanding in borrowings and $34.1 million outstanding in letters of credit.
On February 4, 2019, we entered into a first amendment to the Credit Agreement (the "First Amendment"). See Note 16 - Subsequent
Events for additional information on the First Amendment.
Promissory Notes
Our promissory notes outstanding of $1.1 million, issued in conjunction with acquisitions and software licenses, bear interest rates
ranging from 2.9% to 7.0%.
Capital Leases
Our capital leases outstanding of $2.3 million relate to leased equipment and bear interest rates ranging from 5.2% to 14.3%.
7. INCOME TAXES
Income taxes attributable to continuing operations consist of the following (amounts in millions):
Current income tax expense/(benefit):
Federal
State and local
Deferred income tax expense/(benefit):
Federal
State and local
Income tax expense
For the Years Ended December 31,
2018
2017
2016
$
$
16.4
$
2.1
18.5
14.5
5.8
20.3
38.8
$
(2.0) $
(0.1)
(2.1)
51.2
1.0
52.2
50.1
$
(0.5)
(0.1)
(0.6)
22.1
2.4
24.5
23.9
69
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
Total income tax expense for the years ended December 31, 2018, 2017 and 2016 was allocated as follows (amounts in millions):
Income from continuing operations
Interest expense
Stockholders’ equity
For the Years Ended December 31,
2018
2017
2016
$
$
38.8
$
50.1
$
0.1
—
—
(0.3)
38.9
$
49.8
$
23.9
(0.1)
(7.2)
16.6
A reconciliation of significant differences between the reported amount of income tax expense and the expected amount of income
tax expense that would result from applying the U.S. federal statutory income tax rate of 21 percent in 2018 and 35 percent in
2017 and 2016 to income before taxes is as follows:
Income tax expense at U.S. federal statutory rate (1)
State and local income taxes, net of federal income tax benefit
Excess tax benefits from share-based compensation (2)
Tax rate change (3)
Other items, net (4)
Income tax expense/(benefit)
For the Years Ended December 31,
2018
2017
2016
21.0%
4.8
(1.6)
—
0.2
24.4%
35.0%
3.8
(3.5)
26.5
0.2
62.0%
35.0%
4.8
—
—
(0.9)
38.9%
(1) On December 22, 2017, H.R. 1, originally known as the Tax Cuts and Jobs Act was enacted, which eliminated the progressive
U.S. federal corporate tax rate structure with a maximum corporate tax rate of 35% and replaced it with a flat tax rate of
21%, effective January 1, 2018.
(2) In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting, which simplified the accounting for share-based payment award transactions,
including income tax consequences. The new guidelines required excess tax benefits and tax deficiencies to be recorded
in the income statement when stock awards vest or are settled. As a result, the Company recognized a $2.5 million and
$2.9 million federal income tax benefit in the consolidated statement of operations (rather than additional paid-in capital)
for the years ended December 31, 2018 and December 31, 2017, respectively, from share-based compensation excess tax
benefits.
(3) According to Accounting Standard Codification ("ASC") 740, Income Taxes, deferred tax assets and liabilities are
remeasured to reflect the effects of enacted changes in tax rates at the date of enactment, even though the tax rate changes
are not effective until a future period. The Company's remeasurement of its deferred tax assets and liabilities to reflect the
enacted reduced tax rate, pursuant to the Tax Cuts and Jobs Act, resulted in a $21.4 million deferred income tax expense
during the three-month period ended December 31, 2017.
(4) Includes various items such as, non-deductible expenses, non-taxable income, tax credits, valuation allowance, uncertain
tax positions and return-to-accrual adjustments.
As of December 31, 2018 and 2017, the Company had income taxes receivable of $1.6 million and $3.4 million, respectively,
included in other current assets. The income tax receivable at December 31, 2017 includes a $2.3 million Alternative Minimum
Tax ("AMT") credit carryforward. The Tax Cuts and Jobs Act repealed the AMT for corporations and made it refundable in years
2018 through 2020. As a result, the company utilized its AMT credit carryforward to reduce taxable income in 2018. The AMT
credit carryforward was reclassified from deferred income taxes to other current assets as of December 31, 2017.
70
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
Deferred tax assets (liabilities) consist of the following components (amounts in millions):
Deferred tax assets:
Allowance for doubtful accounts
Accrued payroll & employee benefits
Workers’ compensation
Amortization of intangible assets
Share-based compensation
Net operating loss carryforwards (2)
Tax credit carryforwards (3)
Other
Gross deferred tax assets
Less: valuation allowance
Net deferred tax assets
Deferred tax (liabilities):
Property and equipment
Deferred revenue
Investment in partnerships
Other liabilities
Gross deferred tax liabilities
Net deferred tax assets (liabilities)
As of December 31,
2018
2017 (1)
$
5.6
$
11.2
8.3
14.7
6.9
5.9
2.8
2.9
58.3
(0.7)
57.6
(4.4)
(13.5)
(3.1)
(0.8)
(21.8)
$
35.8
$
5.3
9.0
7.9
26.0
6.1
20.1
4.6
2.4
81.4
(0.7)
80.7
(4.0)
(18.0)
(2.1)
(0.5)
(24.6)
56.1
(1) According to ASC 740, Income Taxes, deferred tax assets and liabilities are remeasured to reflect the effects of enacted
changes in tax rates at the date of enactment, even though the tax rate changes are not effective until a future period. The
Company's remeasurement of its deferred tax assets and liabilities to reflect the enacted reduced tax rate, pursuant to the
Tax Cuts and Jobs Act, resulted in a $21.4 million deferred income tax expense during the three-month period ended
December 31, 2017.
(2) According to ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a
Similar Tax Loss, or a Tax Credit Carryforward Exists, an unrecognized tax benefit is presented in the financial statements
as a reduction to a deferred tax asset when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward
is available to settle taxes that would result from the disallowance of the tax position. Otherwise, to the extent a net operating
loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional
incomes taxes that would result from the disallowance of a tax position, the unrecognized tax benefit is presented in the
financial statements as a liability and is not combined with deferred tax assets. As of December 31, 2017, the net operating
loss (“NOL”) carryforwards in the income tax returns include unrecognized tax benefits resulting from uncertain tax
positions. Accordingly, the deferred tax assets recognized for the NOL carryforwards, as of December 31, 2017, were
presented net of unrecognized tax benefits of $2.1 million. As of December 31, 2018, however, the unrecognized tax
benefits of $2.1 million were reclassified to other long-term obligations, since the Company utilized its remaining federal
NOL carryforward and much of its remaining state NOL carryforwards in 2018.
(3) According to ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a
Similar Tax Loss, or a Tax Credit Carryforward Exists, an unrecognized tax benefit is presented in the financial statements
as a reduction to a deferred tax asset when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward
is available to settle taxes that would result from the disallowance of the tax position. Otherwise, to the extent a net operating
loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional
incomes taxes that would result from the disallowance of a tax position, the unrecognized tax benefit is presented in the
financial statements as a liability and is not combined with deferred tax assets. As of December 31, 2017, the tax credit
carryforwards in the income tax returns include unrecognized tax benefits resulting from uncertain tax positions.
Accordingly, the deferred tax assets recognized for the tax credit carryforwards, as of December 31, 2017, were presented
net of unrecognized tax benefits of $0.7 million. As of December 31, 2018, however, the unrecognized tax benefits of $0.7
million were reclassified to other long-term obligations, since the Company utilized its remaining federal tax credit
carryforwards in 2018.
71
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
The Company utilized its remaining U.S. NOL carryforwards, research and development tax credits and employment tax credits
and approximately half of its remaining state NOL carryforwards and tax credits in 2018. As of December 31, 2018, we have state
NOL carryforwards of $118.8 million that are available to reduce future taxable income and $3.6 million of various state tax credits
available to reduce future state income taxes. The state NOL and tax credit carryforwards begin to expire at various times.
The valuation allowance for deferred tax assets which is primarily related to certain state NOLs and state tax credit carryforwards
was $0.7 million as of December 31, 2018, unchanged from the year ended December 31, 2017. The net change in the total valuation
allowance for the year ended December 31, 2017 was an increase of $0.3 million.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income in those jurisdictions during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and
carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment. In order to fully
realize the deferred tax assets, the Company will need to generate future taxable income before the expiration of the carryforwards
governed by the tax code. Based on the current level of pretax earnings, the Company will generate the minimum amount of future
taxable income needed to support the realization of the deferred tax assets. As a result, as of December 31, 2018, management
believes that it is more likely than not that we will realize the benefits of these deferred tax assets, net of the existing valuation
allowances. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates
of future taxable income during the carryforward period are reduced.
Uncertain Tax Positions
We account for uncertain tax positions in accordance with the authoritative guidance for uncertain tax positions. A reconciliation
of the beginning and ending amount of unrecognized tax benefits is as follows (amounts in millions):
Balance at beginning of period
Additions for tax positions related to current year
Additions for tax positions related to prior year
Reductions for tax positions related to prior years
Lapse of statute of limitations
Change in statutory tax rate (1)
Settlements
Balance at end of period
For the Years Ended December 31,
2018
2017
2.7
$
—
—
—
—
—
—
2.7
$
4.1
—
—
—
(0.3)
(1.1)
—
2.7
$
$
(1) The Company's remeasurement of its deferred tax assets and liabilities to reflect the enacted reduced tax rate as a result
of the recent tax reform resulted in a $1.1 million reduction in its uncertain tax positions recorded in net deferred tax
assets at December 31, 2017.
According to ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar
Tax Loss, or a Tax Credit Carryforward Exists, an unrecognized tax benefit is presented in the financial statements as a reduction
to a deferred tax asset when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is available to settle
taxes that would result from the disallowance of the tax position. To the extent a net operating loss carryforward, a similar tax loss,
or a tax credit carryforward is not available at the reporting date to settle any additional incomes taxes that would result from the
disallowance of a tax position, the unrecognized tax benefit is presented in the financial statements as a liability and is not combined
with deferred tax assets. As of December 31, 2018, the Company no longer has a federal net operating loss nor tax credit
carryforwards available to settle taxes that would result from the disallowance of its uncertain tax positions; therefore, the Company
reclassified the unrecognized tax benefits of $2.7 million from deferred income taxes to other long-term obligations as of December
31, 2018, that if recognized in future periods, would impact our effective tax rate.
We are subject to income taxes in the U.S. and in many of the 50 individual states, with significant operations in Louisiana,
Alabama, Georgia, Massachusetts and Tennessee. We are open to examination in the U.S. and in various individual states for tax
years ended December 31, 2014 through December 31, 2018. We are also open to examination in various states for the years ended
2004 – 2018 resulting from net operating losses generated and available for carryforward from those years.
72
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
8. CAPITAL STOCK AND SHARE-BASED COMPENSATION
We are authorized by our Certificate of Incorporation to issue 60,000,000 shares of common stock, $0.001 par value and 5,000,000
shares of preferred stock, $0.001 par value. As of December 31, 2018, there were 36,252,280 and 31,973,505 shares of common
stock issued and outstanding, respectively, and no shares of preferred stock issued or outstanding. Our Board of Directors is
authorized to fix the dividend rights and terms, conversion and voting rights, redemption rights and other privileges and restrictions
applicable to our preferred stock.
Share-Based Awards
On March 29, 2018, our Board of Directors and the Compensation Committee approved, subject to stockholder approval, the
Amedisys, Inc. 2018 Omnibus Incentive Compensation Plan (the “2018 Plan”). On June 6, 2018, our stockholders approved the
2018 Plan at the Company's annual meeting of stockholders. The 2018 Plan replaces our 2008 Omnibus Incentive Compensation
Plan (the “2008 Plan”), which terminated on June 6, 2018 when the stockholders approved the 2018 Plan. The 2018 Plan authorizes
the grant of various types of equity-based awards, such as stock awards, restricted stock units, stock appreciation rights and stock
options to eligible participants, which include all of our employees and all employees of our 50% or more owned subsidiaries, our
non-employee directors and certain consultants. The vesting terms of the awards may be tied to continued employment (or, for
our non-employee directors, continued service on the Board of Directors) and/or achievement of certain pre-determined
performance goals. We refer to stock awards subject to service-based vesting conditions as “non-vested stock” and restricted stock
units subject to service-based or a combination of service-based and performance-based vesting conditions as “non-vested stock
units.” The 2018 Plan is administered by the Compensation Committee of our Board of Directors, which determines, within the
provisions of the 2018 Plan, those eligible participants to whom, and the times at which, awards shall be granted. The Compensation
Committee, in its discretion, may delegate its authority and duties under the 2018 Plan to specified officers; however, only the
Compensation Committee may approve the terms of awards to our executive officers.
Equity-based awards may be granted for a number of shares not to exceed, in the aggregate, approximately 2.5 million shares of
common stock. We had approximately 2.4 million shares available at December 31, 2018. The price per share for stock options
shall be no less than the greater of (a) 100% of the fair value of a share of common stock on the date the option is granted or (b) the
aggregate par value of the shares of our common stock on the date the option is granted. If a stock option is granted to any owner
of 10% or more of the total combined voting power of us and our subsidiaries, the price is to be at least 110% of the fair value of
a share of our common stock on the date the award is granted. Each equity-based award vests ratably over a 12 month to five year
period, with the exception of those issued under contractual arrangements that specify otherwise, and may be exercised during a
period as determined by our Compensation Committee or as otherwise approved by our Compensation Committee. The contractual
terms of stock options exercised shall not exceed ten years from the date such option is granted. The Company analyzes historical
data of forfeited awards to develop an estimated forfeiture rate that is applied to the Company's non-cash compensation expense;
however, all non-cash compensation expense is adjusted to reflect actual vestings and forfeitures.
Employee Stock Purchase Plan (“ESPP”)
We have a plan whereby our eligible employees may purchase our common stock at 85% of the market price at the time of purchase.
On June 7, 2012, our stockholders ratified an amendment adopted by our Board of Directors to increase the total number of shares
of our common stock authorized for the issuance under our ESPP from 2,500,000 shares to 4,500,000 shares, and as of December 31,
2018, there were 1,377,017 shares available for future issuance. The following is a detail of the purchases that were made or
pending Board of Director approval under the plan:
Employee Stock Purchase Plan Period
2016 and Prior
January 1, 2017 to March 31, 2017
April 1, 2017 to June 30, 2017
July 1, 2017 to September 30, 2017
October 1, 2017 to December 31, 2017
January 1, 2018 to March 31, 2018
April 1, 2018 to June 30, 2018
July 1, 2018 to September 30, 2018
October 1, 2018 to December 31, 2018
Shares Issued
Price
3,039,200
$
13,244
11,446
12,276
13,323
10,913
8,673
6,052
7,856
3,122,983
14.72
43.43
53.39
47.57
44.80
51.29
72.64
106.22
99.54
73
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
ESPP expense included in general and administrative expense in our accompanying consolidated statements of operations was
$0.5 million for 2018 and $0.4 million for each of 2017 and 2016, respectively.
Stock Options
We use the Black-Scholes option pricing model to estimate the fair value of our stock options. There were 163,666, 308,292 and
268,538 options granted during 2018, 2017 and 2016, respectively. Stock option compensation expense included in general and
administrative expense in our accompanying consolidated statements of operations was $5.7 million, $5.6 million and $6.3 million
for 2018, 2017 and 2016, respectively.
The fair values of the awards were estimated using the following assumptions for each 2018, 2017 and 2016:
Risk Free Rate
Expected Volatility
Expected Term
Weighted Average Fair Value
Dividend Yield
For the Years Ended December 31,
2018
2017
2016
2.56% - 3.04%
1.99% - 2.16%
1.19% - 1.58%
42.00% - 45.32% 50.18% - 51.81% 53.44% - 54.89%
4.12 - 6.25 years
5.78 - 6.25 years
5.86 - 6.25 years
$42.48
—%
$28.02
—%
$25.99
—%
We used the simplified method to estimate the expected term for the stock options granted during 2018 as adequate historical
experience is not available to provide a reasonable estimate.
The following table presents our stock option activity for 2018:
Outstanding options at January 1, 2018
Granted
Exercised
Canceled, forfeited or expired
Outstanding options at December 31, 2018
Exercisable options at December 31, 2018
Number of
Shares
Weighted
Average Exercise
Price
Weighted
Average Contractual
Life (Years)
909,730
$
163,666
(162,690)
(77,391)
833,315
462,845
$
$
33.25
55.87
36.59
35.95
36.79
27.97
7.62
6.76
6.17
The aggregate intrinsic value of our outstanding options and exercisable options at December 31, 2018 was $66.9 million and
$41.3 million, respectively. Total intrinsic value of options exercised was $9.7 million and $3.9 million for 2018 and 2017,
respectively; there were no options exercised during 2016. The tax benefit from stock options exercised during the period amounted
to $1.6 million and $0.3 million for 2018 and 2017, respectively; there were no options exercised during 2016.
The following table presents our non-vested stock option activity for 2018:
Non-vested stock options at January 1, 2018
Granted
Vested
Forfeited
Non-vested stock options at December 31, 2018
Number of
Shares
Weighted Average
Grant Date Fair
Value
527,798
$
163,666
(246,442)
(74,552)
370,470
$
23.00
42.48
23.11
25.78
30.97
At December 31, 2018, there was $5.1 million of unrecognized compensation cost related to stock options that we expect to be
recognized over a weighted-average period of 1.7 years.
Non-Vested Stock
We issue shares of non-vested stock with vesting terms ranging from one to five years. The compensation expense is determined
based on the market price of our common stock at the date of grant applied to the total number of shares that are anticipated to
74
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
fully vest. Non-vested stock compensation expense included in general and administrative expenses in our accompanying
consolidated statements of operations was $1.4 million, $1.7 million and $2.3 million for 2018, 2017 and 2016, respectively.
The following table presents our non-vested stock activity for 2018:
Non-vested stock at January 1, 2018
Granted
Vested
Canceled, forfeited or expired
Non-vested stock at December 31, 2018
Number of
Shares
Weighted Average
Grant Date Fair
Value
46,998
$
14,904
(46,998)
—
14,904
$
41.48
80.54
41.48
—
80.54
The weighted average grant date fair value of non-vested stock granted was $80.54, $62.67 and $50.55 in 2018, 2017 and 2016,
respectively.
At December 31, 2018, there was $0.5 million of unrecognized compensation cost related to non-vested stock award payments
that we expect to be recognized over a weighted average period of 0.4 years.
Non-Vested Stock Units
We issue non-vested stock unit awards that are service-based, performance-based or a combination of both with vesting terms
ranging from one to five years. Based on the terms and conditions of these awards, we determine if the awards should be recorded
as either equity or liability instruments. The compensation expense is determined based on the market price of our common stock
at the date of grant, applied to the total number of units that are anticipated to vest, unless the award specifies differently. We
account for such awards similar to our non-vested stock awards; however, no shares of stock are issued to the recipient until the
stock unit awards have vested and after the pre-determined delivery date has occurred.
Non-Vested Stock Units – Service-Based
Service-based non-vested stock unit compensation expense included in general and administrative expenses in our accompanying
consolidated statements of operations was $4.5 million, $3.6 million and $3.6 million for 2018, 2017 and 2016, respectively.
The following table presents our service-based non-vested stock units activity for 2018:
Non-vested stock units at January 1, 2018
Granted
Vested
Canceled, forfeited or expired
Non-vested stock units at December 31, 2018
Number of
Shares
Weighted Average
Grant Date Fair
Value
234,842
$
107,051
(71,658)
(29,835)
240,400
$
47.58
95.14
46.55
44.20
69.49
The weighted average grant date fair value of service-based non-vested stock units granted was $95.14, $53.79 and $45.60 in
2018, 2017 and 2016, respectively.
At December 31, 2018, there was $11.0 million of unrecognized compensation cost related to our service-based non-vested stock
units that we expect to be recognized over a weighted average period of 2.3 years.
Non-Vested Stock Units – Service-Based and Performance-Based Awards
During 2018, we awarded performance-based awards to certain employees. The target level established by the award, which is
based on the Company’s 2018 adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”),
provided for the recipients to receive 115,338 non-vested stock units if the target was achieved. The target number of shares to be
potentially awarded has been reduced by forfeitures as indicated in the table below. Performance-based non-vested stock units
compensation expense included in general and administrative expenses in our consolidated statements of operations was $5.8
million, $5.0 million and $3.7 million for 2018, 2017 and 2016, respectively.
75
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
The following table presents our performance-based non-vested stock units activity for 2018:
Non-vested stock units at January 1, 2018
Granted
Vested
Canceled, forfeited or expired
Non-vested stock units at December 31, 2018
Number of
Shares
Weighted Average
Grant Date Fair
Value
252,948
$
115,338
(87,482)
(54,127)
226,677
$
51.15
79.59
49.91
52.60
65.76
The weighted average grant date fair value of performance-based non-vested stock units granted was $79.59, $52.99 and $46.29
in 2018, 2017 and 2016, respectively.
At December 31, 2018, there was $8.3 million in unrecognized compensation costs related to our performance-based non-vested
stock units that we expect to be recognized over a weighted average period of 1.9 years.
9. COMMITMENTS AND CONTINGENCIES
Legal Proceedings – Ongoing
We are involved in the following legal actions:
Subpoena Duces Tecum Issued by the U.S. Department of Justice
On May 21, 2015, we received a Subpoena Duces Tecum (“Subpoena”) issued by the U.S. Department of Justice. The Subpoena
requests the delivery of information regarding 53 identified hospice patients to the United States Attorney’s Office for the District
of Massachusetts. It also requests the delivery of documents relating to our hospice clinical and business operations and related
compliance activities. The Subpoena generally covers the period from January 1, 2011 through May 21, 2015. We are fully
cooperating with the U.S. Department of Justice with respect to this investigation. Based on the information currently available
to us, we cannot predict the timing or outcome of this investigation or reasonably estimate the amount or range of potential losses,
if any, which may arise from this matter.
Civil Investigative Demand Issued by the U.S. Department of Justice
On November 3, 2015, we received a civil investigative demand (“CID”) issued by the U.S. Department of Justice pursuant to the
federal False Claims Act relating to claims submitted to Medicare and/or Medicaid for hospice services provided through designated
facilities in the Morgantown, West Virginia area. The CID requests the delivery of information to the United States Attorney’s
Office for the Northern District of West Virginia regarding 66 identified hospice patients, as well as documents relating to our
hospice clinical and business operations in the Morgantown area. The CID generally covers the period from January 1, 2009
through August 31, 2015. We are fully cooperating with the U.S. Department of Justice with respect to this investigation. Based
on the information currently available to us, we cannot predict the timing or outcome of this investigation or reasonably estimate
the amount or range of potential losses, if any, which may arise from this matter.
On June 27, 2016, we received a CID issued by the U.S. Department of Justice pursuant to the federal False Claims Act relating
to claims submitted to Medicare and/or Medicaid for hospice services provided through designated facilities in the Parkersburg,
West Virginia area. The CID requests the delivery of information to the United States Attorney’s Office for the Southern District
of West Virginia regarding 68 identified hospice patients, as well as documents relating to our hospice clinical and business
operations in the Parkersburg area. The CID generally covers the period from January 1, 2011 through June 20, 2016. We are fully
cooperating with the U.S. Department of Justice with respect to this investigation. Based on the information currently available
to us, we cannot predict the timing or outcome of this investigation or reasonably estimate the amount or range of potential losses,
if any, which may arise from this matter.
In addition to the matters referenced in this note, we are involved in legal actions in the normal course of business, some of which
seek monetary damages, including claims for punitive damages. We do not believe that these normal course actions, when finally
concluded and determined, will have a material impact on our consolidated financial condition, results of operations or cash flows.
Legal fees related to all legal matters are expensed as incurred.
Legal Proceedings – Settled
Wage and Hour Litigation
76
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
On July 25, 2012, a putative collective and class action complaint was filed in the United States District Court for the District of
Connecticut against us in which three former employees allege wage and hour law violations. The former employees claim that
they were not paid overtime for all hours worked over 40 hours in violation of the Federal Fair Labor Standards Act (“FLSA”),
as well as the Pennsylvania Minimum Wage Act. More specifically, they allege they were paid on both a per-visit and an hourly
basis, and that such a pay scheme resulted in their misclassification as exempt employees, thereby denying them overtime pay.
On June 10, 2015, the Company and plaintiffs participated in a mediation whereby they agreed to fully resolve all of plaintiffs’
claims in the lawsuit for $8.0 million, subject to approval by the Court. As of September 30, 2015, we had an accrual of $8.0
million for this matter. On January 29, 2016, the Court approved the final settlement of this case. The settlement became effective
on February 26, 2016. As a result of the final amount calculated by the settlement administrator based on claims timely submitted,
we reduced our accrual to $5.3 million as of December 31, 2015; this amount was paid during the three-month period ended
March 31, 2016.
On September 13, 2012, a putative collective and class action complaint was filed in the United States District Court for the
Northern District of Illinois against us in which a former employee alleges wage and hour law violations. The former employee
claims she was paid on both a per-visit and an hourly basis, and that such a pay scheme resulted in her misclassification as an
exempt employee, thereby denying her overtime. The plaintiff alleges violations of federal and state law and seeks damages under
the FLSA and the Illinois Minimum Wage Law. On December 23, 2015, the parties agreed to explore the possibility of a mediated
settlement of the Illinois case, and a mediation occurred on April 18, 2016. The parties agreed to settle the case for $0.8 million,
subject to court approval, which the Company had accrued as of September 30, 2016. On August 4, 2016, the Court approved the
final settlement of this case. The final payment of $0.6 million was paid on November 21, 2016.
Frontier Litigation
On April 2, 2015, Frontier Home Health and Hospice, L.L.C. (“Frontier”) filed a complaint against the Company in the United
States District Court for the District of Connecticut alleging breach of contract, negligent misrepresentation and unfair and deceptive
trade practices under Conn. Gen. Stat. §42-110b. Frontier acquired our interest in five home health and four hospice care centers
in Wyoming and Idaho in April 2014. The complaint alleges that certain of the hospice patients on service at the time of the
acquisition did not meet Medicare eligibility requirements and that we breached certain of the representations and warranties under
the purchase agreement and therefore, the businesses were worth less than the purchase price. Under the complaint, Frontier seeks
declaratory judgment from the District Court that, under the terms of the purchase agreement with Frontier, we are obligated to
determine the amount of the alleged Medicare overpayments and reimburse the government for the same in a timely manner, as
well as unspecified compensatory and punitive damages, attorneys’ fees and pre- and post-judgment interest. The Company resolved
the Frontier litigation for $2.9 million during the three-month period ended December 31, 2016.
Securities Class Action Lawsuits
As previously disclosed, between June 10 and July 28, 2010, several putative securities class action complaints were filed in
the United States District Court for the Middle District of Louisiana (the “District Court”) against the Company and certain of
our former senior executives. The cases were consolidated into the first-filed action Bach, et al. v. Amedisys, Inc., et al. Case
No. 3:10-cv-00395, and the District Court appointed as co-lead plaintiffs the Public Employees’ Retirement System of Mississippi
and the Puerto Rico Teachers’ Retirement System (the “Co-Lead Plaintiffs”).
The Plaintiffs were granted leave to file a First Amended Consolidated Complaint (the “First Amended Securities Complaint”)
on behalf of all purchasers or acquirers of Amedisys’ securities between August 2, 2005 and September 30, 2011. The First
Amended Securities Complaint alleges that the Company and seven individual defendants violated Section 10(b), Section
20(a), and Rule 10b-5 of the Securities Exchange Act of 1934 by materially misrepresenting the Company’s financial results
and concealing a scheme to obtain higher Medicare reimbursements and additional patient referrals by (1) providing medically
unnecessary care to patients, including certifying and re-certifying patients for medically unnecessary 60-day treatment
episodes; (2) implementing clinical tracks such as “Balanced for Life” and wound care programs that provided a pre-set
number of therapy visits irrespective of medical need; (3) “upcoding” patients’ Medicare forms to attribute a “primary
diagnosis” to a medical condition associated with higher billing rates; and (4) providing improper and illegal remuneration
to physicians to obtain patient certifications or re-certifications. The First Amended Securities Complaint sought certification
of the case as a class action and an unspecified amount of damages, as well as interest and an award of attorneys’ fees.
On June 12, 2017, the Company reached an agreement-in-principle to settle this matter. All parties to the action executed a binding
term sheet that, subject to final documentation and court approval, provided in part for a settlement payment of approximately
$43.7 million, and the dismissal with prejudice of the litigation. Approximately $15.0 million of the settlement amount was paid
by the Company’s insurance carriers. The net of these two amounts, $28.7 million, was recorded as a charge in our consolidated
77
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
statements of operations and paid with cash on hand during 2017. On December 19, 2017, the Court entered the final order and
judgment on the case.
Other Investigative Matters – Ongoing
Corporate Integrity Agreement
On April 23, 2014, with no admissions of liability on our part, we entered into a settlement agreement with the U.S. Department
of Justice relating to certain of our clinical and business operations. Concurrently with our entry into this agreement, we entered
into a corporate integrity agreement (“CIA”) with the Office of Inspector General-HHS (“OIG”). The CIA formalizes various
aspects of our already existing ethics and compliance programs and contains other requirements designed to help ensure our
ongoing compliance with federal health care program requirements. Among other things, the CIA requires us to maintain our
existing compliance program, executive compliance committee and compliance committee of the Board of Directors; provide
certain compliance training; continue screening new and current employees to ensure they are eligible to participate in federal
health care programs; engage an independent review organization to perform certain audits and reviews and prepare certain reports
regarding our compliance with federal health care programs, our billing submissions to federal health care programs and our
compliance and risk mitigation programs; and provide certain reports and management certifications to the OIG. Additionally, the
CIA specifically requires that we report substantial overpayments that we discover we have received from federal health care
programs, as well as probable violations of federal health care laws. Upon breach of the CIA, we could become liable for payment
of certain stipulated penalties, or could be excluded from participation in federal health care programs. The corporate integrity
agreement has a term of five years.
Idaho and Wyoming Self-Report
During 2016, the Company engaged an independent auditing firm to perform a clinical audit of the hospice care centers acquired
by Frontier Home Health and Hospice in April 2014. As of December 31, 2018, we have recorded $1.3 million to accrued expenses
in our consolidated balance sheet related to this matter.
Other Investigative Matters – Settled
Corporate Integrity Agreement
During the course of our compliance with the CIA, the Company identified several reportable events and notified the OIG as
required. As of December 31, 2015, the Company had an accrual of $4.7 million for these matters. On May 5, 2016, the company
entered into a settlement agreement with the OIG and the matters were fully resolved for $4.7 million; this amount was paid during
the three-month period ended June 30, 2016.
Third Party Audits – Ongoing
From time to time, in the ordinary course of business, we are subject to audits under various governmental programs in which
third party firms engaged by the Centers for Medicare and Medicaid Services (“CMS”) conduct extensive review of claims data
to identify potential improper payments.
In July 2010, our subsidiary that provides hospice services in Florence, South Carolina received from a Zone Program Integrity
Contractor (“ZPIC”) a request for records regarding a sample of 30 beneficiaries who received services from the subsidiary during
the period of January 1, 2008 through March 31, 2010 (the “Review Period”) to determine whether the underlying services met
pertinent Medicare payment requirements. We acquired the hospice operations subject to this review on August 1, 2009; the Review
Period covers time periods both before and after our ownership of these hospice operations. Based on the ZPIC’s findings for 16
beneficiaries, which were extrapolated to all claims for hospice services provided by the Florence subsidiary billed during the
Review Period, on June 6, 2011, the Medicare Administrative Contractor ("MAC") for the subsidiary issued a notice of overpayment
seeking recovery from our subsidiary of an alleged overpayment. We dispute these findings, and our Florence subsidiary has filed
appeals through the Original Medicare Standard Appeals Process, in which we are seeking to have those findings overturned. An
administrative law judge ("ALJ") hearing was held in early January 2015. On January 18, 2016, we received a letter dated January 6,
2016 referencing the ALJ hearing decision for the overpayment issued on June 6, 2011. The decision was partially favorable with
a new overpayment amount of $3.7 million with a balance owed of $5.6 million including interest based on 9 disputed claims
(originally 16). We filed an appeal to the Medicare Appeals Council on the remaining 9 disputed claims and also argued that the
statistical method used to select the sample was not valid. No assurances can be given as to the timing or outcome of the Medicare
Appeals Council decision. As of December 31, 2018, Medicare has withheld payments of $5.7 million (including additional interest)
as part of their standard procedures once this level of the appeal process has been reached. In the event we are not able to recoup
this alleged overpayment, we are entitled to be indemnified by the prior owners of the hospice operations for amounts relating to
78
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
the period prior to August 1, 2009. On January 10, 2019, an arbitration panel from the American Health Lawyers Association
determined that the prior owners' liability for their indemnification obligation was $2.8 million. Accordingly, the Company reduced
its indemnity receivable from $4.9 million to $2.8 million. The $2.1 million impact was recorded to general and administrative
expenses, other within our consolidated statements of operations. As of December 31, 2018, we have an indemnity receivable of
approximately $2.8 million for the amount withheld related to the period prior to August 1, 2009.
In July 2016, the Company received a request for medical records from SafeGuard Services, L.L.C (“SafeGuard”), a ZPIC,
related to services provided by some of the care centers that the Company acquired from Infinity Home Care, L.L.C. The review
period covers time periods both before and after our ownership of the care centers, which were acquired on December 31,
2015. In August 2017, the Company received Requests for Repayment from Palmetto GBA, LLC (“Palmetto”) regarding
Infinity Home Care of Lakeland, LLC, (“Lakeland Care Centers”) and Infinity Home Care of Pinellas, LLC, (“Clearwater Care
Center”). The Palmetto letters are based on a statistical extrapolation performed by SafeGuard which alleged an overpayment
of $34.0 million for the Lakeland Care Centers on a universe of 72 Medicare claims totaling $0.2 million in actual claims
payments using a 100% error rate and an overpayment of $4.8 million for the Clearwater Care Center on a universe of 70
Medicare claims totaling $0.2 million in actual claims payments using a 100% error rate.
The Lakeland Request for Repayment covers claims between January 2, 2014 and September 13, 2016. The Clearwater Request
for Repayment covers claims between January 2, 2015 and December 9, 2016. As a result of partially successful Level I and
Level II Administrative Appeals, the alleged overpayment for the Lakeland Care Centers has been reduced to $26.0 million
and the alleged overpayment for the Clearwater Care Center has been reduced to $3.3 million. The Company has now filed
Level III Administrative Appeals, and will continue to vigorously pursue its appeal rights, which include contesting the
methodology used by the ZPIC contractor to perform statistical extrapolation. The Company is contractually entitled to
indemnification by the prior owners for all claims prior to December 31, 2015, for up to $12.6 million.
At this stage of the review, based on the information currently available to the Company, the Company cannot predict the timing
or outcome of this review. The Company estimates a low-end potential range of loss related to this review of $6.5 million
(assuming the Company is successful in seeking indemnity from the prior owners and unsuccessful in demonstrating that the
extrapolation method used by SafeGuard was erroneous). The Company has reduced its high-end potential range of loss from
$38.8 million (the maximum amount Palmetto claims has been overpaid for both the Lakeland Care Centers and the Clearwater
Care Center, of which amount $12.6 million is subject to indemnification by the prior owners) to $29.3 million based on the
partial success achieved by the Company in prosecuting its Level I and II Administrative Appeals.
As of December 31, 2018, we have an accrued liability of approximately $17.4 million related to this matter. We expect to be
indemnified by the prior owners for approximately $10.9 million of the total $12.6 million available indemnification related to
this matter and have recorded this amount within other assets in our consolidated balance sheet as of December 31, 2018. The net
of these two amounts, $6.5 million, was recorded as a reduction in revenue in our consolidated statements of operations during
2017. As of December 31, 2018, $1.5 million of net receivables have been impacted by this payment suspension.
Compliance
From time to time, the Company performs internal reviews of claims data to identify potential improper payments. Any
overpayments are recorded as a reduction in revenue in our consolidated statements of operations. As of December 31, 2018, we
have recorded $5.6 million to accrued expenses in our consolidated balance sheet as a result of these reviews.
Operating Leases
We have leased office space at various locations under non-cancelable agreements that expire between 2019 and 2028, and require
various minimum annual rentals. Our operating leases are for lease terms of one to ten years and may include, in addition to base
rental amounts, certain landlord pass-through costs for our pro-rata share of the lessor’s real estate taxes, utilities and common
area maintenance costs. Some of our operating leases contain escalation clauses, in which annual minimum base rentals increase
over the term of the lease.
79
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
Total minimum rental commitments for leased office space as of December 31, 2018 are as follows (amounts in millions):
2019
2020
2021
2022
2023
Future years
Total
$
$
23.3
18.7
13.2
8.5
5.2
9.8
78.7
Rent expense for non-cancelable operating leases was $27.8 million, $28.6 million and $27.5 million for 2018, 2017 and 2016,
respectively.
Insurance
We are obligated for certain costs associated with our insurance programs, including employee health, workers’ compensation and
professional liability. While we maintain various insurance programs to cover these risks, we are self-insured for a substantial
portion of our potential claims. We recognize our obligations associated with these costs, up to specified deductible limits in the
period in which a claim is incurred, including with respect to both reported claims and claims incurred but not reported. These
costs have generally been estimated based on historical data of our claims experience. Such estimates, and the resulting reserves,
are reviewed and updated by us on a quarterly basis.
The following table presents details of our insurance programs, including amounts accrued for the periods indicated (amounts in
millions) in accrued expenses in our accompanying balance sheets. The amounts accrued below represent our total estimated
liability for individual claims that are less than our noted insurance coverage amounts, which can include outstanding claims and
claims incurred but not reported.
Type of Insurance
Health insurance
Workers’ compensation
Professional liability
Less: long-term portion
As of December 31,
2018
2017
$
12.4
30.9
4.3
47.6
(1.1)
46.5
$
14.1
29.3
4.3
47.7
(1.2)
46.5
$
$
Our health insurance has an exposure limit of $1.0 million for any individual covered life. Our workers compensation insurance
has a retention limit of $0.5 million per incident and our professional liability insurance has a retention limit of $0.3 million per
incident. Effective January 1, 2019, our workers compensation insurance retention limit will increase to $1.0 million per incident.
Severance
We have commitments related to our Key Executive Severance Plan applicable to a number of our senior executives, as well as
the employment agreement entered into with our Chief Executive Officer, each of which generally commit us to pay severance
benefits under certain circumstances.
Other
We are subject to various other types of claims and disputes arising in the ordinary course of our business. While the resolution
of such issues is not presently determinable, we believe that the ultimate resolution of such matters will not have a significant
effect on our consolidated financial condition, results of operations and cash flows.
80
10. EMPLOYEE BENEFIT PLANS
401(k) Benefit Plan
We maintain a plan qualified under Section 401(k) of the Internal Revenue Code for all employees who have reached 21 years of
age, effective the first month after hire date. Under the plan, eligible employees may elect to defer a portion of their compensation,
subject to Internal Revenue Service limits.
Effective January 1, 2017, our match of contributions to be made to each eligible employee contribution is $0.44 for every $1.00
contributed up to the first 6% of their salary. During 2016, our match of contributions to be made to each eligible employee
contribution was $0.375 for every $1.00 contributed up to the first 6% of their salary. The match is discretionary and thus is subject
to change at the discretion of management. These contributions are made in the form of our common stock, valued based upon
the fair value of the stock as of the end of each calendar quarter end. We expensed approximately $9.0 million, $8.8 million and
$6.9 million related to our 401(k) benefit plan for 2018, 2017 and 2016, respectively.
Deferred Compensation Plan
We had a Deferred Compensation Plan for additional tax-deferred savings for a select group of management or highly compensated
employees. Amounts credited under the Deferred Compensation Plan were funded into a rabbi trust, which is managed by a trustee.
The trustee has the discretion to manage the assets of the Deferred Compensation Plan as deemed fit, thus, the assets are not
necessarily reflective of the same investment choices that would have been made by the participants.
Effective January 1, 2015, all prospective salary deferrals ceased. Participants will be allowed to make transactions with any
remaining account balances as they wish per plan guidelines.
11. SHARE REPURCHASE
2018 Share Repurchase
On June 4, 2018, we purchased 2,418,304 of our common shares from affiliates of KKR Credit Advisors (US) LLC ("KKR"),
representing one-half of KKR's holdings in the Company and 7.1% of the aggregate outstanding shares of the Company's common
stock for a total purchase price of $181.4 million including related direct costs. The Company repurchased the shares at $73.96
which represents 96% of the closing stock price of the Company's common stock on June 4, 2018. The repurchased shares are
classified as treasury shares.
Stock Repurchase Program
On September 9, 2015, we announced that our Board of Directors authorized a stock repurchase program allowing for the repurchase
of up to $75 million of our outstanding common stock on or before September 6, 2016, the date on which the stock repurchase
program expired.
Under the terms of the program, we were allowed to repurchase shares from time to time in open market transactions, block
purchases or in private transactions in accordance with applicable federal securities laws and other legal requirements. We were
allowed to enter into Rule 10b5-1 plans to effect some or all of the repurchases. The timing and the amount of the repurchases
were determined by management based on a number of factors, including but not limited to share price, trading volume and general
market conditions, as well as on working capital requirements, general business conditions and other factors.
Pursuant to this program, we repurchased 324,141 shares of our common stock at a weighted average price of $37.96 per share
and a total cost of approximately $12.3 million during 2016 and 116,859 shares of our common stock at a weighted average price
of $39.20 per share and a total cost of approximately $4.6 million during 2015. The repurchased shares are classified as treasury
shares.
12. EXIT AND RESTRUCTURING ACTIVITIES
During 2017, we closed four Florida home health care centers, consolidated another three Florida home health care centers with
care centers servicing the same markets and implemented a plan to restructure our home health division. As a result of these actions,
we recorded non-cash charges of $1.3 million in asset impairment expense related to the write-off of intangible assets, $0.6 million
in other general and administrative expenses related to lease termination costs and $3.0 million in salaries and benefits related to
severance costs which was offset by a reduction in non-cash compensation of approximately $1.0 million within our consolidated
statements of operations for 2017.
81
Our reserve activity for our 2017 exit and restructuring activity is as follows (amounts in millions):
Balances at December 31, 2016
Charge in 2017
Cash expenditures in 2017
Balances at December 31, 2017
Charge in 2018
Cash expenditures in 2018
Balances at December 31, 2018
l3. SEGMENT INFORMATION
2017 Exit Activity
Lease
Termination
Severance
$
$
— $
0.6
—
0.6
—
(0.5)
0.1
$
—
3.0
(0.7)
2.3
—
(2.3)
—
Our operations involve servicing patients through our three reportable business segments: home health, hospice and personal care.
Our home health segment delivers a wide range of services in the homes of individuals who may be recovering from surgery, have
a chronic disability or terminal illness or need assistance with the essential activities of daily living. Our hospice segment provides
palliative care and comfort to terminally ill patients and their families. Our personal care segment, which was established with the
acquisition of Associated Home Care during the three-month period ended March 31, 2016, provides patients with assistance with
the essential activities of daily living. The “other” column in the following tables consists of costs relating to executive management
and administrative support functions, primarily information services, accounting, finance, billing and collections, legal, compliance,
risk management, procurement, marketing, clinical administration, training, human resources and administration.
During 2018, management revised its measurement of the personal care segment's operating income (loss) to exclude certain
expenses that were not directly attributable to the support of the segment, but rather a corporate support function. Prior periods
have been restated to conform to the current presentation.
Management evaluates performance and allocates resources based on the operating income of the reportable segments, which
includes an allocation of corporate expenses directly attributable to the specific segment and includes revenues and all other costs
directly attributable to the specific segment. Segment assets are not reviewed by the company’s chief operating decision maker
and therefore are not disclosed below (amounts in millions).
Home Health
Hospice
Personal Care
Other
Total
For the Year Ended December 31, 2018
Net service revenue
$
1,174.5
$
410.9
$
$
— $
1,662.6
Cost of service, excluding depreciation and amortization
General and administrative expenses
Depreciation and amortization
Operating expenses
Operating income (loss)
Net service revenue
Cost of service, excluding depreciation and amortization
General and administrative expenses
Depreciation and amortization
Securities Class Action Lawsuit settlement, net
Asset impairment charge
Operating expenses
Operating income (loss)
$
$
722.1
276.3
3.5
1,001.9
212.0
84.6
1.1
297.7
77.2
58.8
12.8
0.3
71.9
—
127.6
8.4
136.0
—
117.8
12.5
28.7
—
159.0
992.9
501.3
13.3
1,507.5
155.1
903.4
482.3
17.1
28.7
1.3
1,432.8
78.5
172.6
$
113.2
$
5.3
$
(136.0) $
Home Health
Hospice
Personal Care
Other
Total
For the Year Ended December 31, 2017
— $
1,511.3
1,083.9
$
367.8
$
670.9
278.4
3.5
—
1.3
954.1
187.5
76.6
0.9
—
—
265.0
$
59.6
45.0
9.5
0.2
—
—
54.7
$
129.8
$
102.8
$
4.9
$
(159.0) $
82
Home Health
Hospice
Personal Care
Other
Total
For the Year Ended December 31, 2016
Net service revenue
$
1,071.7
$
311.9
$
35.7
$
— $
1,419.3
Cost of service, excluding depreciation and amortization
General and administrative expenses
Depreciation and amortization
Asset impairment charge
Operating expenses
Operating income (loss)
643.7
283.4
6.0
—
933.1
164.5
70.2
1.3
—
236.0
26.3
5.8
—
—
32.1
—
144.0
12.4
4.4
160.8
$
138.6
$
75.9
$
3.6
$
(160.8) $
834.5
503.4
19.7
4.4
1,362.0
57.3
14. UNAUDITED SUMMARIZED QUARTERLY FINANCIAL INFORMATION
2018
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2017
1st Quarter
2nd Quarter (2)
3rd Quarter
4th Quarter (3)
Net Income (Loss)
Attributable to
Amedisys, Inc.
Common
Stockholders (1)
Revenue
Net Income (Loss)
Attributable to
Amedisys, Inc.
Basic
Diluted
$
$
$
$
399.3
$
411.6
417.3
434.4
1,662.6
364.7
374.9
373.7
398.0
$
$
$
$
$
27.2
33.3
31.4
27.5
119.3
15.1
4.5
14.6
(3.8)
1,511.3
$
30.3
$
$
$
$
0.80
1.00
0.99
0.86
3.64
0.45
0.13
0.43
(0.11)
0.90
$
0.79
0.98
0.96
0.84
3.55
0.44
0.13
0.42
(0.11)
0.88
(1) Because of the method used in calculating per share data, the quarterly per share data may not necessarily total to the per
share data as computed for the entire year.
(2) During the second quarter of 2017, we incurred certain costs associated with the Securities Class Action Lawsuit settlement.
Net of income taxes, the costs amounted to $18.0 million for the three-month period ended June 30, 2017.
(3) During the fourth quarter of 2017, we recorded a charge of $21.4 million, net of income taxes as the result of the enactment
of H.R. 1 (Tax Cuts and Jobs Act).
15. RELATED PARTY TRANSACTIONS
On June 4, 2018, we purchased 2,418,304 of our common shares from affiliates of KKR Credit Advisors (US) LLC ("KKR"),
representing one-half of KKR's holdings in the Company and 7.1% of the aggregate outstanding shares of the Company's common
stock for a total purchase price of $181.4 million including related direct costs. The Company repurchased the shares at $73.96
which represents 96% of the closing stock price of the Company's common stock on June 4, 2018. At the time of the transaction,
KKR held approximately 14.2% of the Company's outstanding shares of common stock.
On November 20, 2015, we engaged KKR Consulting, LLC (“KKR Capstone”), a consulting company of operational professionals
that works exclusively with portfolio companies of Kohlberg Kravis Roberts & Co. Nathaniel M. Zilkha, a member of our Board
of Directors, is a member of KKR Management, LLC, which is an affiliate of KKR Asset Management LLC (“KAM”), a substantial
stockholder of our Company, and an affiliate of Kohlberg Kravis Roberts & Co. During 2016, we incurred costs of approximately
$1.6 million related to consulting services provided to the Company in the ordinary course of business. Mr. Zilkha did not receive
any direct compensation or direct financial benefit from the engagement of KKR Capstone.
Effective October 22, 2015, we entered into a contract for telemonitoring services with Care Innovations, LLC (“Care Innovations”).
At that time, Paul Kusserow, our President and Chief Executive Officer, was a member of the Advisory Board to Care Innovations.
In connection with our contract for telemonitoring services for the Company, Care Innovations was to receive an annual fee of
83
approximately $1.8 million. During 2016, we incurred costs of approximately $1.5 million related to this related party engagement.
We did not incur any additional costs related to this engagement during 2017 or 2018. Mr. Kusserow did not receive any direct
compensation or direct financial benefit from the engagement of Care Innovations as our telemonitoring partner and no longer
serves as a member of Care Innovations' Advisory Board.
16. SUBSEQUENT EVENTS
Acquisitions
On February 1, 2019, we acquired Compassionate Care Hospice ("CCH"), a national hospice care provider headquartered in New
Jersey, for a purchase price of $340 million, which is inclusive of approximately $50 million in payments related to a tax asset
and working capital.
On February 14, 2019, we signed a definitive agreement to acquire the assets of RoseRock Healthcare, an Oklahoma based hospice
provider for a purchase price of $17.5 million.
First Amendment to Amended and Restated Credit Agreement
On February 4, 2019, we entered into the First Amendment to the Credit Agreement (as amended by the First Amendment, the
“Amended Credit Agreement”). The Amended Credit Agreement provides for a senior secured credit facility in an initial aggregate
principal amount of up to $725 million, which includes the $550 million Revolving Credit Facility under the Credit Agreement,
and a term loan facility in the principal amount of up to $175 million (the “Term Loan Facility” and collectively with the Revolving
Credit Facility, the “Credit Facility”), which was added by the First Amendment.
We borrowed the entire principal amount of the Term Loan Facility on February 4, 2019 in order to fund a portion of the
purchase price of the CCH acquisition, with the remainder of the purchase price and associated transactional fees and expenses
funded by proceeds from the Revolving Credit Facility.
The loans issued under the Credit Facility bear interest on a per annum basis, at our election, at either (i) the Base Rate plus
an Applicable Rate or (ii) the Eurodollar Rate plus an Applicable Rate. The Amended Credit Agreement provides for an
Applicable Rate that is 0.25% lower than the rate provided in the Credit Agreement. As a result, the current Applicable Rate
for Base Rate loans and Eurodollar Rate loans is equal to 0.50% per annum and 1.50% per annum, respectively. We are also
subject to a commitment fee and letter of credit fee under the terms of the Amended Credit Agreement, as presented in the
table below.
Consolidated Leverage Ratio
Base Rate Loans
Eurodollar Rate
Loans
Commitment
Fee
Letter of
Credit Fee
< 0.75 to 1.0
1.00%
0.75%
0.50%
0.25%
2.00%
1.75%
1.50%
1.25%
0.35%
0.30%
0.25%
0.20%
1.75%
1.50%
1.25%
1.00%
The final maturity date of the Credit Facility is February 4, 2024. The Revolving Facility will terminate and be due and
payable as of the final maturity date. The Term Loan Facility, however, is subject to quarterly amortization of principal in
the amount of (i) 0.625% for the period commencing on February 4, 2019 and ending on March 31, 2020, (ii) 1.250% for the
period commencing on April 1, 2020 and ending on March 31, 2023, and (iii) 1.875% for the period commencing on April
1, 2023 and ending on February 4, 2024. The remaining balance of the Term Loan Facility must be paid upon the final maturity
date. In addition to the scheduled amortization of the Term Loan Facility, and subject to customary exceptions and reinvestment
rights, we are required to prepay the Term Loan Facility, first, and the Revolving Credit Facility, second, with 100% of all
net cash proceeds received by any loan party or any subsidiary thereof in connection with (a) any asset sale or disposition
where such loan party receives net cash proceeds in excess of $5 million or (b) any debt issuance that is not permitted under
the Amended Credit Agreement.
Joinder Agreement
In connection with the CCH acquisition, we entered into a Joinder Agreement, dated as of February 4, 2019, pursuant to which
CCH and its subsidiaries were made parties to, and became subject to the terms and conditions of, the Amended Credit
Agreement, the Amended and Restated Security Agreement, dated as of June 29, 2018, and the Amended and Restated Pledge
Agreement, dated as of June 29, 2018. Pursuant to the Joinder, the Amended and Restated Security Agreement, and the
Amended and Restated Pledge Agreement, CCH and its subsidiaries granted in favor of the Administrative Agent a first lien
security interest in substantially all of their personal property assets and pledged to the Administrative Agent each of their
respective subsidiaries’ issued and outstanding equity interests. CCH and its subsidiaries also guaranteed our obligations,
84
whether now existing or arising after the effective date of the Joinder, under the Amended Credit Agreement pursuant to the
terms of the Joinder and the Amended Credit Agreement.
Stock Repurchase Program
On February 25, 2019, we announced that our Board of Directors authorized a stock repurchase program, under which we
may repurchase up to $100 million of our outstanding common stock through March 1, 2020.
85
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures which are designed to provide reasonable assurance of achieving their
objectives and to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed,
summarized, disclosed and reported within the time periods specified in the SEC’s rules and forms. This information is also
accumulated and communicated to our management and Board of Directors to allow timely decisions regarding required disclosure.
In connection with the preparation of this Annual Report on Form 10-K, as of December 31, 2018, under the supervision and with
the participation of our management, including our principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and
15d-15(e) promulgated under the Exchange Act.
Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and
procedures were effective at a reasonable assurance level as of December 31, 2018, the end of the period covered by this Annual
Report on Form 10-K.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such
term is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act. Under the supervision and with the
participation of our management, including our principal executive officer and our principal financial officer, we conducted an
evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation
under the framework in Internal Control – Integrated Framework, our management concluded our internal control over financial
reporting was effective as of December 31, 2018.
Our internal control system is designed to provide reasonable assurance to our management and Board of Directors regarding the
preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed,
have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation.
KPMG LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this
Form 10-K, has issued a report on our internal control over financial reporting, which is included herein.
Changes in Internal Controls
There were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) that have
occurred during the quarter ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
86
Inherent Limitations on Effectiveness of Controls
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure
controls or our internal controls over financial reporting will prevent or detect all errors and all fraud. A control system, no matter
how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be
met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud,
if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and
that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is
based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls’ effectiveness
to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration
in the degree of compliance with policies and procedures. Our disclosure controls and procedures are designed to provide reasonable
assurance of achieving their objectives and, based on an evaluation of our controls and procedures, our principal executive officer
and our principal financial officer concluded our disclosure controls and procedures were effective at a reasonable assurance level
as of December 31, 2018, the end of the period covered by this Annual Report.
87
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Amedisys, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Amedisys, Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2018,
based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2018 and 2017, the related consolidated statements
of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended
December 31, 2018, and the related notes (collectively, the consolidated financial statements), and our report dated February 28,
2019 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Baton Rouge, Louisiana
February 28, 2019
88
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is incorporated by reference to the 2019 Proxy Statement to be filed with the SEC within
120 days after the end of the year ended December 31, 2018.
Code of Conduct and Ethics
We have adopted a code of ethics that applies to all of our directors, officers and employees, including our principal executive
officer, principal financial officer and principal accounting officer. This code of ethics, which is entitled Code of Ethical Business
Conduct, is posted at our internet website, http://www.amedisys.com. Any amendments to, or waivers of, the code of ethics will
be disclosed on our website promptly following the date of such amendment or waiver.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the 2019 Proxy Statement to be filed with the SEC within
120 days after the end of the year ended December 31, 2018.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this item is incorporated by reference to the 2019 Proxy Statement to be filed with the SEC within
120 days after the end of the year ended December 31, 2018.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference to the 2019 Proxy Statement to be filed with the SEC within
120 days after the end of the year ended December 31, 2018.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is incorporated by reference to the 2019 Proxy Statement to be filed with the SEC within
120 days after the end of the year ended December 31, 2018.
89
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
1. Financial Statements
All financial statements are set forth under Part II, Item 8 of this report.
2. Financial Statement Schedules
There are no financial statement schedules included in this report as they are either not applicable or included in
the financial statements.
3. Exhibits
The Exhibits are listed in the Exhibit Index required by Item 601 of Regulation S-K preceding the signature page
of this report.
ITEM 16. FORM 10-K SUMMARY
None.
90
EXHIBIT INDEX
The exhibits marked with the cross symbol (†) are filed and the exhibits marked with a double cross (††) are furnished with this
Form 10-K. Any exhibits marked with the asterisk symbol (*) are management contracts or compensatory plans or arrangements
filed pursuant to Item 601(b)(10)(iii) of Regulation S-K. The registrant agrees to furnish to the Commission supplementally upon
request a copy of any schedules or exhibits omitted pursuant to Item 601(b)(2) of Regulation S-K of any material plan of acquisition,
disposition or reorganization set forth below.
Exhibit
Number
2.1
Document Description
Equity Purchase Agreement dated February 5, 2016,
by and between the Company, as Purchaser, and
Michael Trigilio, as Seller
Report or Registration Statement
The Company’s Quarterly Report
on Form 10-Q for the quarter ended
March 31, 2016
SEC File or
Registration
Number
0-24260
Exhibit
or Other
Reference
2.1
2.2
2.3
2.4
3.1
3.2
First Amendment to Equity Purchase Agreement,
dated May 18, 2018, by and among the Company,
Amedisys Personal Care, LLC, Associated Home
Care, LLC, Elder Home Options, LLC and Michael
Trigilio
Share Repurchase Agreement, dated as of June 4,
2018, by and among the Company and the selling
stockholders set forth on Schedule I thereto
Stock Purchase Agreement, dated as of October 9,
2018, by and among Milton Heching, the Heching
2012 Exempt Irrevocable Trust, Amedisys Hospice,
L.L.C., Compassionate Care Hospice Group, Inc., and
solely for purposes of Sections 3.4, 4.3(a), 4.15 and
Article VIII thereof, Amedisys, Inc.
The Company’s Quarterly Report
on Form 10-Q for the quarter ended
June 30, 2018
0-24260
10.1
The Company's current Report on
Form 8-K filed on June 4, 2018
0-24260
2.1
The Company’s Quarterly Report
on Form 10-Q for the quarter ended
September 30, 2018
0-24260
2.1
Composite of Certificate of Incorporation of the
Company inclusive of all amendments through
June 14, 2007
The Company’s Quarterly Report
on Form 10-Q for the quarter ended
June 30, 2007
0-24260
3.1
Composite of By-Laws of the Company inclusive of
all amendments through April 20, 2016
4.1
Common Stock Specimen
10.1
Form of Director Indemnification Agreement dated
February 12, 2009
The Company’s Quarterly Report
on Form 10-Q for the quarter ended
March 31, 2016
The Company’s Registration
Statement on Form S-3 filed
August 20, 2007
The Company’s Annual Report on
Form 10-K for the year ended
December 31, 2008
0-24260
3.2
333-145582
4.8
0-24260
10.1
10.2*
10.3*
Amended and Restated Amedisys, Inc. Employee
Stock Purchase Plan dated June 7, 2012
The Company’s Current Report on
Form 8-K filed June 8, 2012
0-24260
10.1
Composite Amedisys, Inc. 2008 Omnibus Incentive
Compensation Plan (inclusive of Plan amendments
dated June 7, 2012, October 25, 2012, April 23, 2015
and June 4, 2015, January 20, 2017 and February 22,
2017 and the full text of the Amedisys, Inc. 2008
Omnibus Incentive Compensation Plan)
The Company's Annual Report on
Form 10-K for the year ended
December 31, 2016
0-24260
10.3
10.4*
Form of Nonvested Stock Award Agreement Issued
under the Amedisys, Inc. 2008 Omnibus Incentive
Compensation Plan
The Company’s Quarterly Report
on Form 10-Q for the quarter ended
June 30, 2008
0-24260
10.3
91
Exhibit
Number
10.5*
10.6*
10.7*
10.8*
10.9*
Document Description
Form of Restricted Stock Unit Agreement Issued
under the Amedisys, Inc. 2008 Omnibus Incentive
Compensation Plan
Report or Registration Statement
The Company’s Quarterly Report
on Form 10-Q for the quarter ended
June 30, 2008
SEC File or
Registration
Number
0-24260
Exhibit
or Other
Reference
10.4
Form of Stock Option Award Agreement Issued
under the Amedisys, Inc. 2008 Omnibus Incentive
Compensation Plan
The Company’s Annual Report on
Form 10-K for the year ended
December 31, 2014
0-24260
10.6
Form of Performance Stock Option Award
Agreement Issued under the Amedisys, Inc. 2008
Omnibus Incentive Compensation Plan
The Company’s Annual Report on
Form 10-K for the year ended
December 31, 2014
0-24260
10.7
Form of Restricted Stock Award Agreement Issued
under the Amedisys, Inc. 2008 Omnibus Incentive
Compensation Plan
The Company’s Annual Report on
Form 10-K for the year ended
December 31, 2014
0-24260
10.8
Form of Restricted Performance Stock Award
Agreement Issued under the Amedisys, Inc. 2008
Omnibus Incentive Compensation Plan
The Company’s Annual Report on
Form 10-K for the year ended
December 31, 2014
0-24260
10.9
†10.10* Form of Stock Option Award Agreement Issued
under the Amedisys, Inc. 2018 Omnibus Incentive
Compensation Plan
†10.11* Form of Restricted Stock Unit Award Agreement
Issued under the Amedisys, Inc. 2018 Omnibus
Incentive Compensation Plan
†10.12* Form of Performance Restricted Stock Unit Award
Agreement Issued under the Amedisys, Inc. 2018
Omnibus Incentive Compensation Plan
10.13*
Composite Amedisys, Inc. 1998 Stock Option Plan
(inclusive of amendments dated June 10, 2004,
June 8, 2006 and June 22, 2006 and the full text of
the Amedisys, Inc. 1998 Stock Option Plan)
The Company’s Registration
Statement on Form S-8 filed
June 22, 2007
333-143967
4.2
10.14*
Composite Director’s Stock Option Plan (inclusive
of Plan amendments dated June 10, 2004, and the full
text of the Directors Stock Option Plan)
The Company’s Annual Report on
Form 10-K for the year ended
December 31, 2005
0-24260
10.4
92
Exhibit
Number
Document Description
Report or Registration Statement
10.15* Amended and Restated Employment Agreement
dated as of September 27, 2018, by and among
Amedisys, Inc., Amedisys Holding, L.L.C. and Paul
B. Kusserow
The Company’s Current Report on
Form 8-K filed on October 3, 2018
SEC File or
Registration
Number
Exhibit
or Other
Reference
0-24260
10.1
10.16* Amedisys Holding, L.L.C. Severance Plan for Key
Executives dated as of April 30, 2015 (inclusive of all
amendments
adopted on or before
December 13, 2016)
thereto
The Company's Annual Report on
Form 10-K for the year ended
December 31, 2016
0-24260
10.15
10.17* Transition Agreement and General Release of
Lawrence Pernosky
10.18* Agreement to Terminate Transition Agreement and
General Release of Lawrence Pernosky
10.19* Confidential Separation Agreement and General
Release between the Company and Stephen E. Seim
The Company's Quarterly Report
on Form 10-Q for the quarter ended
September 30, 2017
The Company's Quarterly Report
on Form 10-Q for the quarter ended
September 30, 2017
The Company’s Quarterly Report
on Form 10-Q for the quarter ended
March 31, 2018
0-24260
10.1
0-24260
10.2
0-24260
10.1
10.20* Amedisys,
Inc.
Compensation Plan
2018 Omnibus
Incentive
The Company's Definitive Proxy
Statement filed on April 25, 2018
0-24260
Appendix
A
10.21* Amendment to the Amedisys, Inc. 2008 Omnibus
Incentive Compensation Plan, dated September 25,
2018
The Company's Quarterly Report
on Form 10-Q for the quarter ended
September 30, 2018
0-24260
10.1
10.22* Amendment to the Amedisys, Inc. 2018 Omnibus
Incentive Compensation Plan, dated September 25,
2018
The Company's Quarterly Report
on Form 10-Q for the quarter ended
September 30, 2018
0-24260
10.2
93
Exhibit
Number
10.23
10.24
10.25
10.26
Document Description
Amended and Restated Credit Agreement dated as of
June 29, 2018, among the Company and Amedisys
Holding, L.L.C., as borrowers, certain subsidiaries of
the Company party thereto as guarantors, Bank of
America, N.A., as Administrative Agent, Swingline
Lender and L/C Issuer, JPMorgan Chase Bank, N.A.,
as Syndication Agent, Capital One Bank National
Association, Citizens Bank, N.A., Compass Bank,
Fifth Third Bank, Hancock Whitney Bank, Regions
Bank, and Wells Fargo Bank, National Association, as
Co-Documentation Agents, the lenders party thereto,
Merrill Lynch, Pierce Fenner & Smith Incorporated,
Citizens Bank N.A., Fifth Third Bank and JPMorgan
Chase Bank, N.A., as Joint Lead Arrangers, and
Merrill Lynch, Pierce, Fenner & Smith Incorporated
and JPMorgan Chase Bank, N.A., as Joint
Bookrunners
Amended and Restated Security Agreement, dated as
of June 29, 2018, among the Company and Amedisys
Holding, L.L.C., as borrowers, certain other parties
identified as “grantors” on the signature pages thereto
and Bank of America, N.A., in its capacity as
Administrative Agent
Amended and Restated Pledge Agreement dated as of
June 29, 2018, among the Company and Amedisys
Holding, L.L.C., as borrowers, certain other parties
identified as “pledgors” on the signature pages thereto,
and Bank of America, N.A., in its capacity as
Administrative Agent
Settlement Agreement effective April 23, 2014 by and
among (a) the United States of America, acting
through the United States Department of Justice and
on Behalf of the Office of Inspector General of the
Department of Health and Human Services,
(b) Amedisys, Inc. and Amedisys Holding, L.L.C. and
(c) the various Relators named therein
Report or Registration Statement
The Company’s current Report on
Form 8-K filed on July 2, 2018
SEC File or
Registration
Number
0-24260
Exhibit
or Other
Reference
10.1
The Company’s current Report on
Form 8-K filed on July 2, 2018
0-24260
10.2
The Company’s current Report on
Form 8-K filed on July 2, 2018
0-24260
10.3
The Company’s Current Report on
Form 8-K filed on April 24, 2014
0-24260
10.1
10.27
Corporate Integrity Agreement effective April 22,
2014 between the Office of Inspector General of the
Department of Health and Human Services and
Amedisys, Inc. and Amedisys Holding, L.L.C.
The Company’s Current Report on
Form 8-K filed on April 24, 2014
0-24260
10.2
94
Report or Registration Statement
The Company’s Annual Report on
Form 10-K for the year ended
December 31, 2015
SEC File or
Registration
Number
0-24260
Exhibit
or Other
Reference
10.27
The Company’s Annual Report on
Form 10-K for the year ended
December 31, 2015
0-24260
10.28
Exhibit
Number
10.28
Document Description
Agreement and Plan of Merger dated October 31,
2015 by and among Amedisys Health Care West,
L.L.C., IHC Acquisitions, L.L.C., Infinity Home
Care, L.L.C., Axiom HealthEquity Holdings
Management, LLC, Infinity Healthcare Holdings,
LLC, and Amedisys, Inc.
10.29
Agreement of Purchase and Sale dated as of
November 25, 2015, between Amedisys, Inc., through
its wholly-owned subsidiary, Amedisys Property,
L.L.C., as seller and Franciscan Missionaries of Our
Lady of the Lake Heath System, Inc., as purchaser.
†21.1
Subsidiaries of the Registrant
†23.1
Consent of KPMG LLP
†31.1
†31.2
Certification of Paul B. Kusserow, President and Chief
Executive Officer (principal executive officer),
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
Certification of Scott G. Ginn, Chief Financial Officer
(principal financial officer), pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
††32.1 Certification of Paul B. Kusserow, President and Chief
Executive Officer (principal executive officer),
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
††32.2 Certification of Scott G. Ginn, Chief Financial Officer
(principal financial officer), pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
†101.I
NS
†101.S
CH
XBRL Instance
XBRL Taxonomy Extension Schema Document
†101.
CAL
XBRL Taxonomy Extension Calculation Linkbase
Document
95
Exhibit
Number
†101.
DEF
Document Description
Report or Registration Statement
XBRL Taxonomy Extension Definition Linkbase
SEC File or
Registration
Number
Exhibit
or Other
Reference
†101.L
AB
XBRL Taxonomy Extension Labels Linkbase
Document
†101.P
RE
XBRL Taxonomy Extension Presentation Linkbase
Document
96
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
AMEDISYS, INC.
By:
/S/ PAUL B. KUSSEROW
Paul B. Kusserow,
President, Chief Executive Officer and
Member of the Board
Date: February 28, 2019
97
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the date indicated:
Signature
Title
Date
/S/ PAUL B. KUSSEROW
Paul B. Kusserow
/S/ SCOTT G. GINN
Scott G. Ginn
/S/ LINDA J. HALL
Linda J. Hall
/S/ JULIE D. KLAPSTEIN
Julie D. Klapstein
/S/ RICHARD A. LECHLEITER
Richard A. Lechleiter
/S/ JAKE L. NETTERVILLE
Jake L. Netterville
/S/ BRUCE D. PERKINS
Bruce D. Perkins
/S/ JEFFREY A. RIDEOUT
Jeffrey A. Rideout
President, Chief Executive Officer
and Member of the Board (Principal
Executive Officer)
Chief Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
Director
Director
Director
Director
Director
Director
/S/ DONALD A. WASHBURN
Donald A. Washburn
Non-Executive Chairman of the
Board
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
/S/ NATHANIEL M. ZILKHA
Nathaniel M. Zilkha
Director
February 28, 2019
98
LIST OF SUBSIDIARIES
CORPORATIONS
AMEDISYS HOSPICE DELAWARE, INC., a Delaware corporation
COMPASSIONATE CARE HOSPICE, INC., a Pennsylvania corporation
COMPASSIONATE CARE HOSPICE GROUP, INC., a Florida corporation
COMPASSIONATE CARE HOSPICE OF CENTRAL FLORIDA, INC., a Florida corporation
COMPASSIONATE CARE HOSPICE OF GWYNEDD, INC., a Pennsylvania corporation
COMPASSIONATE CARE HOSPICE OF LAKE AND SUMTER, INC., a Florida corporation
COMPASSIONATE CARE HOSPICE OF MIAMI DADE AND THE FLORIDA KEYS, INC., a Florida corporation
HI-TECH CARE, INC., a Florida Corporation
HMR ACQUISITION, INC., a Delaware corporation
INFINITY HOME CARE ACQUISITION CORP., a Florida corporation
PEACEFUL DAYS HOSPICE, INC., a California corporation
LIMITED LIABILITY COMPANIES
ACCUMED HEALTH SERVICES, L.L.C., a Texas limited liability company
ACCUMED HOME HEALTH OF GEORGIA, L.L.C.., a Georgia limited liability company
ADVENTA HOSPICE, L.L.C., a Florida limited liability company
ALBERT GALLATIN HOME CARE AND HOSPICE SERVICES, LLC, a Delaware limited liability company
AMEDISYS ALABAMA, L.L.C., an Alabama limited liability company
AMEDISYS ARIZONA, L.L.C., an Arizona limited liability company
AMEDISYS ARKANSAS, LLC, an Arkansas limited liability company
AMEDISYS BA, LLC, a Delaware limited liability company
AMEDISYS DELAWARE, L.L.C., a Delaware limited liability company
AMEDISYS FLORIDA, L.L.C., a Florida limited liability company
AMEDISYS GEORGIA, L.L.C., a Georgia limited liability company
AMEDISYS HEALTH CARE WEST, L.L.C., a Delaware limited liability company
AMEDISYS HOLDING, L.L.C., a Louisiana limited liability company
AMEDISYS HOME HEALTH OF ALABAMA, L.L.C. an Alabama limited liability company
AMEDISYS HOME HEALTH OF SOUTH CAROLINA, L.L.C. a South Carolina limied liability company
AMEDISYS HOME HEALTH OF VIRGINIA, L.L.C. a Virginia limited liability company
AMEDISYS HOSPICE, L.L.C., a Louisiana limited liability company
AMEDISYS IDAHO, L.L.C., an Idaho limited liability company
AMEDISYS ILLINOIS, L.L.C., an Illinois limited liability company
AMEDISYS INDIANA, L.L.C., an Indiana limited liability company
AMEDISYS KANSAS, L.L.C., a Kansas limited liability company
AMEDISYS LA ACQUISITIONS, L.L.C., a Louisiana limited liability company
AMEDISYS LOUISIANA, L.L.C., a Louisiana limited liability company
AMEDISYS MAINE, P.L.L.C., a Maine professional limited liability company
AMEDISYS MARYLAND, L.L.C., a Maryland limited liability company
AMEDISYS MISSISSIPPI, L.L.C., a Mississippi limited liability company
AMEDISYS MISSOURI, L.L.C., a Missouri limited liability company
AMEDISYS NEW HAMPSHIRE, L.L.C., a New Hampshire limited liability company
AMEDISYS NEW JERSEY, L.L.C., a New Jersey limited liability company
AMEDISYS NORTH CAROLINA, L.L.C., a North Carolina limited liability company
AMEDISYS NORTHWEST, L.L.C., a Georgia limited liability company
AMEDISYS OHIO, L.L.C., an Ohio limited liability company
AMEDISYS OKLAHOMA, L.L.C., an Oklahoma limited liability company
AMEDISYS OREGON, L.L.C., an Oregon limited liability company
AMEDISYS PENNSYLVANIA, L.L.C., a Pennsylvania limited liability company
AMEDISYS PERSONAL CARE, LLC, a Delaware limited liability company
AMEDISYS RHODE ISLAND, L.L.C., a Rhode Island limited liability company
AMEDISYS SC, L.L.C., a South Carolina limited liability company
AMEDISYS SPECIALIZED MEDICAL SERVICES, L.L.C., a Louisiana limited liability company
AMEDISYS SP-IN, L.L.C., an Indiana limited liability company
AMEDISYS SP-KY, L.L.C., a Kentucky limited liability company
AMEDISYS SP-OH, L.L.C., an Ohio limited liability company
AMEDISYS SP-TN, L.L.C., a Tennessee limited liability company
AMEDISYS TENNESSEE, L.L.C., a Tennessee limited liability company
AMEDISYS TEXAS, L.L.C., a Texas limited liability company
AMEDISYS TLC ACQUISITION, L.L.C., a Louisiana limited liability company
AMEDISYS WASHINGTON, L.L.C., a Washington limited liability company
AMEDISYS WEST VIRGINIA, L.L.C., a West Virginia limited liability company
AMEDISYS WISCONSIN, L.L.C., a Wisconsin limited liability company
ANGEL WATCH HOME CARE, L.L.C., a Florida limited liability company
ASSOCIATED HOME CARE, L.L.C., a Massachusetts limited liability company
AVENIR VENTURES, L.L.C., a Louisiana limited liability company
BEACON HOSPICE, L.L.C., a Delaware limited liability company
CH HOLDINGS, LLC, a Louisiana limited liability company
COMPASSIONATE CARE HOSPICE OF BRYAN TEXAS, LLC, a Texas limited liability company
COMPASSIONATE CARE HOSPICE OF CENTRAL GEORGIA, LLC, a Georgia limited liability company
COMPASSIONATE CARE HOSPICE OF CENTRAL LOUISIANA, LLC, a Louisiana limited liability company
COMPASSIONATE CARE HOSPICE OF CENTRAL TEXAS, LLC, a Texas limited liability company
COMPASSIONATE CARE HOSPICE OF CLIFTON, LLC, a New Jersey limited liability company
COMPASSIONATE CARE HOSPICE OF DELAWARE, LLC, a Delaware limited liability company
COMPASSIONATE CARE HOSPICE OF HOUSTON, LLC, a Texas limited liability company
COMPASSIONATE CARE HOSPICE OF ILLINOIS, LLC, an Illinois limited liability company
COMPASSIONATE CARE HOSPICE OF KANSAS, LLC, a Kansas limited liability company
COMPASSIONATE CARE HOSPICE OF NORTHERN GEORGIA, LLC, a Georgia limited liability company
COMPASSIONATE CARE HOSPICE OF MAINE, LLC, a Maine limited liability company
COMPASSIONATE CARE HOSPICE OF MARLTON, LLC, a New Jersey limited liability company
COMPASSIONATE CARE HOSPICE OF MASSACHUSETTS, LLC, a Massachusetts limited liability company
COMPASSIONATE CARE HOSPICE OF MICHIGAN, LLC, a Michigan limited liability company
COMPASSIONATE CARE HOSPICE OF MINNESOTA, LLC, a Minnesota limited liability company
COMPASSIONATE CARE HOSPICE OF NEW HAMPSHIRE, LLC, a New Hampshire limited liability company
COMPASSIONATE CARE HOSPICE OF NORTH TEXAS, LLC, a Texas limited liability company
COMPASSIONATE CARE HOSPICE OF NORTHERN NEW JERSEY, LLC, a New Jersey limited liability company
COMPASSIONATE CARE HOSPICE OF NORTHWESTERN PENNSYLVANIA, LLC, a Pennsylvania limited liability
company COMPASSIONATE CARE HOSPICE OF OHIO, LLC, an Ohio limited liability company
COMPASSIONATE CARE HOSPICE OF PITTSBURG, LLC, a Pennsylvania limited liability company C
COMPASSIONATE CARE HOSPICE OF SAN DIEGO, LLC, a California limited liability company
COMPASSIONATE CARE HOSPICE OF SAVANNAH, LLC, a Georgia limited liability company
COMPASSIONATE CARE HOSPICE OF SOUTH CAROLINA, LLC, a South Carolina limited liability company
COMPASSIONATE CARE HOSPICE OF SOUTHEASTERN MASSACHUSETTS, LLC, a Massachusetts limited liability
company
COMPASSIONATE CARE HOSPICE OF SOUTHEASTERN TEXAS, LLC, a Texas limited liability company
COMPASSIONATE CARE HOSPICE OF THE CHESAPEAKE BAY, LLC, a Virginia limited liability company
COMPASSIONATE CARE HOSPICE OF THE DELMAR PENINSULA, LLC, a Delaware limited liability company
COMPASSIONATE CARE HOSPICE OF THE MIDWEST, LLC, a South Dakota limited liability company
COMPASSIONATE CARE HOSPICE OF WISCONSIN, LLC, a Wisconsin limited liability company
COMPASSIONATE CARE HOSPICE WEST, LLC, a California limited liability company
COMPREHENSIVE HOME HEALTHCARE SERVICES, L.L.C., a Tennessee limited liability company
ELDER HOME OPTIONS, L.L.C., a Massachusetts limited liability company
EMERALD CARE, L.L.C., a North Carolina limited liability company
FAMILY HOME HEALTH CARE, L.L.C., a Kentucky limited liability company
HHC, L.L.C., a Tennessee limited liability company
HOME HEALTH OF ALEXANDRIA, L.L.C., a Louisiana limited liability company
HOME HOSPITALISTS OF AMERICA, LLC, a Delaware limited liability company
HORIZONS HOSPICE CARE, L.L.C., an Alabama limited liability company
HOUSECALL HOME HEALTH, L.L.C., a Tennessee limited liability company
INFINITY HOME CARE, L.L.C., a Florida limited liability company
INFINITY HOME CARE OF BROWARD, LLC, a Florida limited liability company
INFINITY HOME CARE OF JACKSONVILLE, LLC, a Florida limited liability company
INFINITY HOME CARE OF LAKELAND, LLC, a Florida limited liability company
INFINITY HOME CARE OF OCALA, LLC, a Florida limited liability company
INFINITY HOME CARE OF PINELLAS, LLC, a Florida limited liability company
INFINITY HOME CARE OF PORT CHARLOTTE, LLC, a Florida limited liability company
INFINITY HOMECARE OF DISTRICT 9, LLC, a Florida limited liability company
NINE PALMS 1, L.L.C., a Virginia limited liability company
NINE PALMS 2, LLC, a Mississippi limited liability company
PATHWAYS TO COMPASSION, LLC, a Nebraska limited liability company
PATHWAYS TO COMPASSION, LLC, a New Jersey limited liability company
PATHWAYS TO COMPASSION OF CALIFORNIA, LLC, a California limited liability company
TENDER LOVING CARE HEALTH CARE SERVICES INTERNATIONAL, LLC, a Delaware limited liability company
TENDER LOVING CARE HEALTH CARE SERVICES OF BROWARD, LLC, a Delaware limited liability company
TENDER LOVING CARE HEALTH CARE SERVICES OF ERIE NIAGARA, LLC, a New York limited liability company
TENDER LOVING CARE HEALTH CARE SERVICES OF GEORGIA, LLC, a Delaware limited liability company
TENDER LOVING CARE HEALTH CARE SERVICES OF NASSAU SUFFOLK, LLC, a New York limited liability
company
TENDER LOVING CARE HEALTH CARE SERVICES OF NEW ENGLAND, LLC, a Delaware limited liability company
TENDER LOVING CARE HEALTH CARE SERVICES OF WEST VIRGINIA, LLC, a Delaware limited liability company
TENDER LOVING CARE HEALTH CARE SERVICES SOUTHEAST, LLC, a Delaware limited liability company
TENDER LOVING CARE HEALTH CARE SERVICES WESTERN, LLC, a Delaware limited liability company
TLC HOLDINGS I, L.L.C., a Delaware limited liability company
TLC HEALTH CARE SERVICES, L.L.C., a Delaware limited liability company
TUCSON HOME HEALTH, LLC, a Delaware limited liability company
JOINT VENTURES
AMEDISYS HOME HEALTH, A LAWRENCE MEDICAL CENTER PARTNER, L.L.C, a Delaware limited liability company
(66.67% ownership)
GEORGETOWN HOSPITAL HOME HEALTH, LLC, a Delaware limited liability company (70% ownership)
MARIETTA HOME HEALTH AND HOSPICE, L.L.C., an Ohio limited liability company (50% ownership)
MORGANTOWN HOSPICE, LLC, a Delaware limited liability company (80% ownership)
TRI-CITIES HOME HEALTH, LLC, a Delaware limited liability company (50% ownership)
WENTWORTH HOME CARE AND HOSPICE, LLC, a New Hampshire limited liability company (50% ownership)
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Amedisys, Inc.:
We consent to the incorporation by reference in the registration statement (Nos. 333-138255 and 333-145582) on Form S-3 and
(Nos. 333-60525, 333-51704, 333-53786, 333-143967, 333-152359, 333-182347, 333-205267, and 333-225461) on Form S-8 of
Amedisys, Inc. of our reports dated February 28, 2019, with respect to the consolidated balance sheets of Amedisys, Inc. as of
December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive income, stockholders' equity,
and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes (collectively, the
consolidated financial statements), and the effectiveness of internal control over financial reporting as of December 31, 2018,
which reports appear in the December 31, 2018 annual report on Form 10-K of Amedisys, Inc. Our report on the consolidated
financial statements refers to a change in the method of accounting for revenue recognition.
/s/ KPMG LLP
Baton Rouge, Louisiana
February 28, 2019
Exhibit 31.1
I, Paul B. Kusserow, certify that:
CERTIFICATION
1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2018, of Amedisys, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: February 28, 2019
/S/ Paul B. Kusserow
Paul B. Kusserow
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
I, Scott G. Ginn, certify that:
CERTIFICATION
1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2018, of Amedisys, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: February 28, 2019
/S/ Scott G. Ginn
Scott G. Ginn
Chief Financial Officer
(Principal Financial Officer)
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Amedisys, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2018
(the “Report”), I, Paul B. Kusserow, President and Chief Executive Officer of the Company, hereby certify to my knowledge,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: February 28, 2019
/S/ Paul B. Kusserow
Paul B. Kusserow
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Amedisys, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2018
(the “Report”), I, Scott G. Ginn, Chief Financial Officer of the Company, hereby certify to my knowledge, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: February 28, 2019
/S/ Scott G. Ginn
Scott G. Ginn
Chief Financial Officer
(Principal Financial Officer)
Home Health Segment Revenue
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1,174.5
Adjusted EBITDA*
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1,071.7
1,083.9
FY16
FY17
FY18
Hospice Segment Revenue
410.9
367.8
425
400
375
350
325
300
275
250
311.9
FY16
FY17
FY18
Personal Care Segment Revenue
)
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160
140
120
100
80
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$3.50
$3.00
181
142
110
FY16
FY17
FY18
Adjusted EPS*
$3.63
80
75
70
65
60
55
50
45
40
35
30
35.7
FY16
77.2
$2.50
$1.55
$2.21
59.6
$2.00
$1.50
$1.00
$0.50
FY17
FY18
FY16
FY17
FY18
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COMPANY LEADERSHIP
BOARD OF DIRECTORS
EXECUTIVE OFFICERS
DONALD A. WASHBURN
Non-Executive Chairman of the Board
Private Investments
LINDA J. HALL**
Entrepreneur-in-Residence
Carlson School of Business at the University
of Minnesota
PAUL B. KUSSEROW
President and Chief Executive Officer
SHARON BRUNECZ
Chief Human Resource Officer
CHRISTOPHER T. GERARD
Chief Operating Officer
SCOTT G. GINN
Chief Financial Officer
DAVID L. KEMMERLY
General Counsel
MICHAEL P. NORTH
Chief Information Officer
DAVID PEARCE
Chief Compliance Officer
JULIE D. KLAPSTEIN
Former CEO
Availity
PAUL B. KUSSEROW
President and Chief Executive Officer
Amedisys, Inc.
RICHARD A. LECHLEITER
President
Catholic Education Foundation
Retired Executive Vice President and Chief Financial
Officer, Kindred Healthcare, Inc.
JAKE L. NETTERVILLE
Chairman, Emeritus, of the Board of Directors
Postlethwaite & Netterville, A Professional
Accounting Corporation
BRUCE D. PERKINS
Former President of Healthcare Services
Humana
JEFFREY A. RIDEOUT, M.D., M.A., FACP
President and CEO
Integrated Healthcare Association
NATHANIEL M. ZILKHA**
Head of Credit and Global
Co-Head of Special Situations
KKR
**not standing for re-election at the 2019 annual meeting.
PERFORMANCE GRAPH
A performance graph
comparing the cumulative
total stockholder return
on our common stock for
the five-year period ended
December 31, 2018, with
the cumulative total return
on the NASDAQ composite
index and peer-group index
over the same period is
included in the Form 10-K.
INDEPENDENT
ACCOUNTANTS
KPMG LLP
Nashville, Tennessee
ANNUAL MEETING
The annual meeting of
stockholders will take
place on June 7, 2019, at
10:00 a.m. (CDT) at the
Nashville office, 209 10th
Avenue South, Suite 512,
Nashville, TN 37203.
STOCK LISTING
The company’s common
stock is listed on the
NASDAQ Global Select
Market under the symbol
“AMED.”
TRANSFER AGENT AND
REGISTRAR
American Stock Transfer
& Trust Company, LLC
6201 15th Avenue
Brooklyn, New York 11219
800.937.5449
FORM 10-K EXHIBITS
A copy of all exhibits to
the company’s Annual
Report on Form 10-K as
filed with the Securities
and Exchange Commission
is available free of charge
on our website at
www.amedisys.com
or by contacting:
Amedisys, Inc.
3854 American Way, Suite
A, Baton Rouge, LA 70816
IR@amedisys.com
* RECONCILIATION OF NON-GAAP MEASURES
Adjusted revenue, adjusted EBITDA and adjusted earnings per share (EPS) are non-GAAP financial measures.
See Exhibit 99.1 to our Current Reports on Form 8-K filed with the Securities and Exchange Commission on
February 27, 2019 and February 27, 2018 for a discussion and reconciliation of non-GAAP financial measures.
AMEDISYS ON THE INTERNET
Our company website address is www.amedisys.com. We use our website as a channel of distribution for important
company information. Important information, including press releases, investor presentations and financial information
regarding our company, is routinely posted on and accessible on the Investor Relations subpage of our website, which is
accessible by clicking on the tab labeled “Investors” on our website home page. Visitors to our website can also register
to receive automatic e-mail and other notifications alerting them when new information is made available on the
“Investors” subpage of our website. In addition, we make available on the “Investors” subpage of our website (under the
link “SEC filings”) free of charge our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, ownership reports on Forms 3, 4 and 5 and any amendments to those reports as soon as practicable after we
electronically file such reports with the SEC. Further, copies of our Certificate of Incorporation and Bylaws, our Code
of Ethical Business Conduct, our Corporate Governance Guidelines and the charters for the Audit, Compensation,
Nominating and Corporate Governance, Quality of Care and Compliance and Ethics Committees of our Board are also
available on the “Investors” subpage of our website (under the link “Governance”).
FORWARD-LOOKING STATEMENTS
We have included in this letter “forward-looking statements” within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Exchange Act relating to our operations, results of operations and other matters that are
based on our current expectations, estimates, assumptions and projections. Words such as “will,” “aim,” “look,” “expect,”
“believe” “plan,” “anticipate,” “intend,” “project,” “estimate,” “may,” “might,” “would,” “should” and similar expressions
are used to identify these forward-looking statements. These statements are not guarantees of future performance and
involve risks, uncertainties and assumptions that are difficult to predict. Forward-looking statements are based upon
assumptions as to future events that may not prove to be accurate. Actual outcomes and results may differ materially
from what is expressed or forecast in these forward-looking statements. Risks, uncertainties and other factors that
might cause such differences, some of which could be material, include, but are not limited to, the following: changes
in Medicare and other medical payment levels, our ability to open care centers, acquire additional care centers and
integrate and operate these care centers effectively, changes in or our failure to comply with existing federal and state
laws or regulations or the inability to comply with new government regulations on a timely basis, competition in
the healthcare industry, changes in the case mix of patients and payment methodologies, changes in estimates and
judgments associated with critical accounting policies, our ability to maintain or establish new patient referral sources,
our ability to consistently provide high-quality care, our ability to attract and retain qualified personnel, changes in
payments and covered services by federal and state governments, future cost containment initiatives undertaken by
third-party payors, our access to financing, our ability to meet debt service requirements and comply with covenants in
debt agreements, business disruptions due to natural disasters or acts of terrorism, our ability to integrate, manage and
keep our information systems secure, and changes in law or developments with respect to any litigation relating to the
Company, including various other matters, many of which are beyond our control, as well as factors discussed in our
Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Our forward-looking statements speak only as of
the date of this letter or as of the date they are made, and we undertake no obligation to update them.
AMEDISYS
CAREGIVERS
ARE EVERYDAY
SUPERHEROES
IN DISGUISE.
At Amedisys, we are
all caregivers at heart.
Whether we are caring
for our patients wherever
they call home, or
supporting those who do,
our efforts save the day
for more than 376,000
patients each year.