OUR PUR POSE
It’s all about helping people.
OUR MISSION
We provide exceptional care and unparalleled service
to patients and families who have placed their trust in us.
OUR VISION
We will improve the quality of life in the United States
by transforming the delivery of healthcare services.
KEITH G. MYERS
Chairman and
Chief Executive Officer
TO OUR VALUED STAKEHOLDERS
We are pleased to report that LHC Group achieved strong
for further gains in organic growth in 2016 and for
operating and financial performance for 2015, a year of
robust acquisition activity during the year, based on an
accelerating fundamental change in the healthcare industry
unprecedented pipeline of active potential transactions. As
that is creating new growth opportunities for our company.
the transition intensifies, we are focused on becoming the
These opportunities are driven by the continuing shift in
partner of choice for healthcare providers and payors seeking
healthcare reimbursement from traditional fee-for-service to
to improve their patients’ non-acute care, thereby creating
value-based models. With this transition, our value as a proven
further long-term growth in earnings and shareholder value.
provider of high-quality, non-acute health care in very low-cost
Consistent with the healthcare market’s increasing focus
venues is coming more sharply into focus for our existing and
on non-acute care, quality measurement rose to the top
potential health system and managed care partners, who are
of provider assessment criteria in 2015. The Centers for
subject to financial risk under the new models. Through our
Medicare and Medicaid Services (CMS) implemented its
home health, hospice and community-based services, we
“Five-Star Quality Rating System” in July, making a huge
can help our partners reduce this risk and significantly lower
impact on the home health industry in terms of perception.
their costs by reducing their patients’ length of stay in more
As an organization committed to excellence, we are always
intensive and expensive institutional settings. As a result, under
on the lookout for opportunities and innovative practices that
a value-based model, healthcare providers and payors now
keep us ahead of the curve and provide quality and value for
have strong incentives to leverage our capabilities.
patients and their families.
Although this transition is in a relatively early stage,
Quality is not a new concept to us here at LHC Group. In fact,
we believe it had a positive impact on the execution of
it is one of the six “Pillars of Excellence” – PEOPLE, SERVICE,
our organic growth and acquisition strategies in 2015,
QUALITY, EFFICIENCY, GROWTH and ETHICS – that guide us
contributing to an 11.3 percent increase in net service
in everything we do. For 21 years, our team has worked to
revenue for 2015 over 2014, and a 39.6 percent increase in
set the standard in our industry in terms of identifying areas
adjusted net income per diluted share attributable to
that need improvement, implementing solutions, measuring
LHC Group. We also believe it positions the company
results and delivering the best possible value and outcome.
1
F O C U S E D:
O N L E A D I N G T H E W A Y
P E O P L E
Our PEOPLE include skilled healthcare and
and aggressive marketing campaigns. We also maintain a
support professionals throughout our company
strong base of traditional recruitment methods. These tools
– in 25 states around the nation. At LHC Group, we
allow us to attract and hire employees who are aligned with
know the quality of our employees affects the quality of our
our core principles.
service. For this reason, we remain focused on attracting
We expect each employee to perform consistently at his
and retaining the best people as part of our workforce. The
or her best level, and we expect those in a management
quality of our workforce is vital to our continued success.
position to take an active role in ensuring the success of
Employee engagement leads to employee satisfaction –
those in their charge. Our leaders aren’t here only to issue
which, in turn, leads to greater patient satisfaction and
orders, but to lead by example, put others first and make
overall organizational success.
it part of their job to see that team members flourish and
Our goal is to promote an environment that inspires
exceed our patients’ expectations every day – a concept
commitment, passion and excellence in our team. This is
called “Servant Leadership.”
a key component of our people pillar and is inherent in our
The Purpose Fund and The Hospice Promise Foundation – two
company culture.
non-profit organizations affiliated with our company – continue to
LHC Group is at the forefront of candidate attraction,
empower employees to assist each other and their communities
leveraging powerful tools such as social media sharing,
in times of need. In 2015, we reached new highs in both the
search engine optimization, candidate supply and demand,
amount of funds raised and the number of people assisted.
2
FOCUSED:
ON A REMARKABLE BIRTHDAY
The staff at University of Tennessee Hospice in Knoxville helped make a special occasion even more
remarkable for one of their patients. The patient resided at an assisted-living facility and was
preparing to celebrate her 102nd birthday. Her nurse – recognizing what a momentous occasion
this was – resolved to make the event as memorable as possible for her, her friends and family.
The agency staff organized a surprise birthday party at the facility, providing a cake and inviting
family and fellow residents. Chaplain Charles Jenkins sang for her, the candles were lit and the
cake was shared with the other residents. The patient and her family were impressed and moved
by the effort the agency made to help mark this special moment in their lives.
3
S E R V I C E
Rather than selling a product, LHC Group is a
each of our unique markets. This mindset allows each agency
company focused on providing a SERVICE to
to demonstrate what they do best, and why each home
our customers. Our service to patients remains centered on
health, hospice, long-term acute care or community-based
the quality of health care we provide and the compassion we
services patient should want to utilize their services.
demonstrate when delivering that care.
Since it is our mission to provide excellent service to our
We find it beneficial to keep in mind our humble beginning
patients, we also focus on broadening our scope of service,
as a single agency in rural Louisiana – where our foundation
enabling us to touch the lives of more patients and families.
of service was laid with our first few patients. Health care is
In October of 2015, we opened our first family health clinic
local. This is why we focus on the service differentiators in
in Lebeau, La. – making a difference for patients in that
as of 12/31
7,903
8,186
10,767
10,922
community. In November of 2015, we hired our first two
nurse practitioners – in Lafayette, La., and in Huntington,
W. Va. – so we could provide primary care services under
physician direction to patients who cannot leave home or get
to their primary care physician.
We are excited to bring our excellent service to more
patients, families and communities across the country.
Service is not excellent unless you are willing to take the
extra step, which we consistently prove we are eager to do.
We take seriously our continuing obligation to serve as
responsible corporate citizens in the local communities
where we live. Around the nation, we partner with and
support organizations and causes such as the American
Heart Association, Boys and Girls Clubs of America, Meals on
2012
2013
2014
2015
Wheels, Susan G. Komen and United Way, to name a few.
4
Employees FOCUSED:
ON A SHELTER FROM THE STORM
In Mountain Home, Ark., staff and clinicians at Hospice of North Arkansas were caring
for a very ill five-month-old girl with brain stem cancer. About two weeks after the child
was admitted, the service area was placed under a winter storm warning.
The family knew the gravel roads in their area were impassable in deep snow and ice.
They lived on a mountain and would have nowhere to go with the deteriorating weather
conditions. The family was desperate for emergency accommodations.
The next morning, heavy snow began falling in the area. Ken House, the hospice administrator,
contacted a locally owned motel near the family’s home which offered them
a discounted rate. Margaret Sumrall, a nurse who lived near the family,
helped them gather essential personal belongings and took them to the motel.
For the next ten days, the family had a warm and comfortable place to stay
with the baby until she passed peacefully on the morning of the tenth day.
5
Q U A L I T Y
In virtually all aspects, healthcare provider
always go the extra mile and exceed expectations. With this
evaluation is shifting towards QUALITY. We believe
ongoing focus, LHC Group saw its CMS provider scores move
quality will become the biggest determining factor regarding
steadily in a positive direction in 2015 – to a point where we
provider success or failure. The single most important
were operating at a rate above the national average. As an
differentiator will be a provider’s ability to produce quality
organization focused on excellence, we are committed to
outcomes for patients at the best possible value.
continued investment in technology, education and training
As I mentioned previously, release of the CMS Star Ratings
of our team, and instituting the best methods and procedures
system is already having a major impact on the home health
required to continually improve our quality.
industry. Starting in 2018, CMS will make quality the key
According to 2015 research released by Jefferies
determinant for Medicare payments, instituting a value-based
Group LLC, a New York-based global investment bank and
purchasing system specifically for home health. We believe
institutional securities firm that provides financial advisory
the key to being highly valued by patients and families who
services, LHC Group achieved the best patient satisfaction
depend on us is to do more than what is expected – to
ratings among our publicly traded competitors. Our company
We believe these ratings will
become increasingly important as
participants in alternative payment
models (bundles, ACOs) shift
referrals to high quality providers.
received a CMS Star Rating of 4.37 for patient satisfaction,
compared to an industry average of 4.03, and a 3.45 rating
for quality, in contrast to a 3.25 industry average. Their report
also found that publicly traded companies – including LHC
Group – continue to outperform privately held peers.
The Jefferies report called LHC Group’s ratings gains
“noteworthy” among our peers, and further stated: “...we
believe these ratings will become increasingly important as
participants in alternative payment models (bundles, ACOs)
shift referrals to high quality providers.”
- The Jefferies Group
We have executed an individualized performance improvement
6
Q U A L I T Y
In virtually all aspects, healthcare provider
always go the extra mile and exceed expectations. With this
evaluation is shifting towards QUALITY. We believe
ongoing focus, LHC Group saw its CMS provider scores move
quality will become the biggest determining factor regarding
steadily in a positive direction in 2015 – to a point where we
provider success or failure. The single most important
were operating at a rate above the national average. As an
differentiator will be a provider’s ability to produce quality
organization focused on excellence, we are committed to
outcomes for patients at the best possible value.
continued investment in technology, education and training
As I mentioned previously, release of the CMS Star Ratings
of our team, and instituting the best methods and procedures
system is already having a major impact on the home health
required to continually improve our quality.
industry. Starting in 2018, CMS will make quality the key
According to 2015 research released by Jefferies
determinant for Medicare payments, instituting a value-based
Group LLC, a New York-based global investment bank and
purchasing system specifically for home health. We believe
institutional securities firm that provides financial advisory
the key to being highly valued by patients and families who
services, LHC Group achieved the best patient satisfaction
plan to identify opportunities at the local provider level. We
develop solutions. The numbers demonstrate that they are
depend on us is to do more than what is expected – to
ratings among our publicly traded competitors. Our company
believe this initiative has proven successful as evidenced by our
moving the needle in the right direction.
We believe these ratings will
become increasingly important as
participants in alternative payment
models (bundles, ACOs) shift
referrals to high quality providers.
received a CMS Star Rating of 4.37 for patient satisfaction,
consistent improvement in CMS Star Rating scores.
In 2015, a total of 95 LHC Group home health locations
compared to an industry average of 4.03, and a 3.45 rating
With the expertise of our Quality and Performance
ranked among the nation’s best in an independent rating of
for quality, in contrast to a 3.25 industry average. Their report
Improvement teams, we help find root causes and develop
home health quality and performance. The locations were
also found that publicly traded companies – including LHC
and implement action plans that produce results. These teams
named to the 2015 HomeCare Elite list, compiled annually
Group – continue to outperform privately held peers.
provide global resources, tactics and monitoring reports and
by National Research Corporation and Decision Health to
The Jefferies report called LHC Group’s ratings gains
oversight, but actual improvement happens at the provider level.
recognize the top-performing and most successful home care
“noteworthy” among our peers, and further stated: “...we
This improvement is a reflection of our ongoing
providers in the United States. The market-leading review
believe these ratings will become increasingly important as
commitment to quality and of the great work our Quality
names the top home healthcare locations in the country
participants in alternative payment models (bundles, ACOs)
Department is doing. The department makes it a priority
based on a collection of performance measures.
shift referrals to high quality providers.”
to make contact on a weekly basis with locations that are
In our home health division, nearly half of LHC Group’s
- The Jefferies Group
We have executed an individualized performance improvement
under-performing in an effort to identify problem areas and
providers achieved acute-care hospitalization rates better
6
7
than the national average of 16 percent in 2015. And
currently, 100 percent of LHC Group’s locations have either
earned Joint Commission accreditation or are in the process
of completing accreditation.
In 2015, LHC Group’s hospice division met or exceeded
national benchmark standards on five out of five key
indicators of patient satisfaction. Our hospice agencies also
exceeded the national benchmark on all seven “Hospice Item
Set” quality measures – a new set of standards required by
CMS in 2014.
LHC Group’s long-term acute-care facilities are committed
to helping patients with medically complex issues that
require intensive, long-term care. Their proven clinical results
reflect that commitment. According to the latest published
benchmarking data (2015) from Deyta Analytics, Inc., our
LTAC hospitals – when compared to similar facilities around
the nation – achieved significantly better ratings for both
“Best Possible Hospital” and “Likeliness of Recommending.”
Our community-based services division covered 90 percent
of its requested service hours in 2015. The division also
achieved a nearly 90 percent overall satisfaction rating on
In all that we do, quality has been and will continue to be
internal customer service surveys in 2015, as well as
our focus – the benchmark by which we measure success.
100 percent compliance in responding to referrals within
It’s the right thing to do – for our patients, our shareholders
a 24-hour period.
and for our LHC Group family members.
8
FOCUSED:
ON THERAPY HUGS
Each day after his treatment, Mary Cockrell, physical therapist at our home health agency
in Decatur, Ill., helped lift the elderly gentleman back into his recliner – with a big hug
to thank her for the gesture. One day his wife, also a patient, commented that she
had not received a hug from “her sweetheart” in a long time. Mary made it her
mission to see the day when the pair was able to embrace once again.
After some treatment and help from an occupational therapist, the couple was
able to share a recliner – and that elusive hug – for the first time in quite a while.
“It was the most adorable, sweetest moment,” Mary said. “They just held onto each
other… it was a moment that I never wanted to end, and it was like time stood still.
I’m so glad I was able to witness that kind of love.
That’s not an average day – it was a pretty awesome day.”
9
E F F I C I E N C Y
To remain a strong and vibrant company, LHC
We will never become so enamored of short-term gain that we
Group operates with purpose, EFFICIENCY and
jeopardize the long-term success of our organization.
discipline. Since we founded this company in 1994, we
Through the appropriate management of risk and the
have consistently demonstrated our ability to achieve
continuous evaluation of strategic opportunities, we create
real-time, continuing financial success while also
value for our shareholders while positioning our company for
delivering long-term value.
the future. The following results demonstrate our ongoing
To achieve our mission and meet our fiduciary responsibility
commitment to responsible and strategic financial planning:
to our shareholders, we make it a priority to finance our
mission through responsible management and stewardship.
•
LHC Group’s balance sheet contains little debt. Our
in millions
current leverage ratio is 1.2x compared to the average
leverage ratio of the S&P 500 companies at 3.7x.
•
On Dec. 31, 2015, return on investment for LHC Group
was 7.7 percent – compared to an average of 6.2
percent for S&P 500 companies.
$637.6
$658.3
$733.6
$816.4
•
On Dec. 31, 2015, return on assets for LHC Group was
6.1 percent – compared to the average of 2.5 percent
for S&P 500 companies.
In 2014, LHC Group finished the year with G&A expenses
of 30.9 percent of revenue. In 2015, we reduced that
percentage by 140 basis points – demonstrating that even
with double-digit growth, we have been able to hold our G&A
expenses at a stable level. In short, we are doing more with
2012
2013
2014
2015
less – the definition of efficiency.
10
Net Service Revenue
FOCUSED:
ON A NEW CALLING
At the age of nine, Elizabeth Peterson experienced a new calling – she
knew she wanted to become a hospice nurse. Elizabeth had just lost her father, Randy,
of Moses Lake, Wash., after a battle with cancer. During his final days, the clinicians at Assured Home Health
and Hospice in Moses Lake provided care for Randy and his family.
Elizabeth loved animals and had often talked with her father about her dream of growing up to
be a veterinarian. However, with her father’s passing, she was convinced of the new direction
in her life. “My real passion is taking care of people,” she said.
Elizabeth wrote an essay for a local competition shortly after her father’s death. The topic
was “What I want to be when I grow up,” and Elizabeth’s entry on her calling to the hospice
profession won the contest. Elizabeth and her mother, Dorothy, still volunteer at
Assured Home Health and Hospice. They have become a part of the
organization’s family of caregivers.
11
G R O W T H
Our strong revenue and earnings made 2015
our improved marketing capabilities related to enhanced
another outstanding year for GROWTH. Our
services and business intelligence were driven by this
performance for the year reflected balanced growth as
system. In addition, we believe our continued engagement
we produced a significant increase in organic revenue,
with our existing and potential healthcare provider and
executed a successful acquisition strategy and drove margin
payor partners regarding value-based reimbursement
improvement through increased operating leverage and
models had a favorable impact on the organic growth
focused cost containment initiatives.
rates of home health, hospice and community-based
Our organic growth in home health revenue for 2015 was
services. The organic growth of our hospice business was
4.5 percent, while organic hospice revenues increased 8.6
also positively affected by the completion of two de novo
percent. In 2015, our home health business benefited from
facilities during 2015.
the completion of our point-of-care system. As a result,
Our 2015 growth was further driven by the completion
as of 12/31
116,249
129,581 142,087 153,951
of seven acquisitions during the year. Included in these
transactions were nine home health agencies, 17 hospice
agencies and two community-based services agencies,
bringing aggregate annualized revenue of $64.6 million to
LHC Group. These transactions reflect growing consolidation
pressures in our highly fragmented industry related to the
increasing cost and complexity of operating a competitive
healthcare business, especially given the transition away
from fee-for-service.
This environment has contributed to an extraordinary level
of development activity for LHC Group, which has led to the
strongest pipeline of potential transactions we’ve ever had.
As of March 1, 2016, we were in active discussions regarding
20 potential acquisitions, representing approximately $1
2012 2013 2014 2015
billion in annualized revenue.
12
Admissions 25 LHC Group states
The pipeline is well diversified: 10 opportunities are health
system joint ventures and 10 are freestanding; 11 are smaller,
as of 12/31
282
308
340
363
local opportunities, while seven are regional in scope and two
are larger with revenue in excess of $100 million; and home
health and hospice each represent about 45 percent of the
opportunities, with community-based services accounting
for the remainder. While our pipeline represents transactions
that could potentially be completed over the next 12 months,
some of these potential transactions will, undoubtedly, turn
out to be longer-term opportunities or not come to fruition
at all. Nonetheless, we expect to have an active year for
acquisitions in 2016, as our potential opportunities continue
to increase.
2012 2013 2014 2015
13
Locations E T H I C S
Encouraging and cultivating a culture of ETHICS is
LHC Group has also implemented an agency-level focused
a key component of maintaining quality. LHC Group
compliance audit program which targets high-risk areas identified
has developed and implemented cutting-edge techniques
by data mining, compliance reports to the hotline or other
and measurements through which we ensure our company’s
means. In addition, an end-of-episode audit process has been
adherence to the highest ethical standards in the industry.
implemented at each agency to review each claim prior to its
Years ago, LHC Group developed an industry-leading
release for billing.
comprehensive compliance program based on the Office of
At LHC Group, our ability to recognize opportunities – and
Inspector General’s Compliance Program Guidance. Since
our willingness to capitalize on them – means we will never
then, the National Association for Home Care has invited
succumb to mediocrity. As a result, we entered 2016 as one of
LHC Group to present its compliance program to industry
the nation’s leading providers of non-acute healthcare with the
members on numerous occasions. Since 2009, LHC Group has
demonstrated quality-of-care, market density and scale,
dedicated a budget of more than $1.5 million solely to
data-driven technology capabilities, financial strength and
our Compliance Department.
acquisition expertise to thrive in the changing healthcare
LHC Group’s Compliance Department currently has 18
environment. Our goal is to continue earning the loyalty of
full-time dedicated employees focused entirely on compliance,
the many patients, families, communities, referral sources
including eight full-time registered nurses dedicated to
and partners we are privileged to serve and, through this
compliance auditing and monitoring. These RNs have,
performance, grow our business and shareholder value.
combined, about 168 years of nursing experience and about
I thank each and every one of our shareholders, employees and
120 years of home health experience. All clinical compliance
partners for your help in delivering on our promises and fulfilling
auditors are required to attain and maintain COS-C and HCS-D
our mission. And I thank you for the privilege and honor it is to be
home health coding and OASIS certifications.
a part of this outstanding team.
Our industry-leading auditing and monitoring controls include
Sincerely,
a provider-level clinical billing compliance audit program,
which results in repayment of all identified overpayments and
implementation of a root cause-based action plan for all identified
errors. A full-time RN is dedicated to overseeing successful
implementation of all compliance action plans.
Keith G. Myers, Chairman and CEO
14
FOCUSED:
ON A NEW PAIR OF SHOES
For more than seven long years, Crystal Jones’ elderly patient had been unable
to wear shoes due to the severity of her Lymphedema. She told Crystal – a certified
Lymphedema therapist at Home Care Solutions in Dickson, Tenn. – that
her main goal was to be able to put on a pair of shoes.
Her doctors had told her that she would have to live this way from now on – there was
nothing that could be done. But Crystal didn’t let that stop her. For months they worked
toward their goal, trying several different treatments. Just over two months into treatment,
the woman was able to put on a new pair of shoes for the first time in seven years – which
she wore proudly to her doctor’s appointment.
“It’s a great feeling to see someone achieve that – to see the expression on
their face,” Crystal said. “It’s a great feeling to know you had a part in that.
We helped change her outlook on life.”
15
F I N A N C I A L H I G H L I G H T S
(in thousands, except share and per share data)
Net service revenue
Cost of service revenue
Gross margin
Provision for bad debts
General and administrative expenses
Impairment of intangibles and other
Operating income
Interest expense
Non-operating income
Income from continuing operations before income taxes and noncontrolling interest
Income tax expense
Income from continuing operations
Less net income attributable to noncontrolling interests
Year Ended December 31
2015
2014
$816,366
480,878
335,488
19,243
248,629
1,273
66,343
(2,302)
457
64,498
22,848
41,650
9,315
$733,632
434,775
298,857
15,780
233,945
3,646
45,486
(2,486)
265
43,265
14,513
28,752
6,915
Net income attributable to LHC Group’s common stockholders
$32,335
$21,837
Earnings per share – basic:
Net income attributable to LHC Group’s common stockholders
$1.86
$1.27
Earnings per share – diluted:
Net income attributable to LHC Group’s common stockholders
$1.84
$1.26
Weighted average shares outstanding:
Basic
Diluted
17,405,379
17,547,531
17,229,026
17,315,333
16
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
3 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
l
For the fiscal year ended December 31, 2015
or
l 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: 001-33989
LHC GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
71-0918189
(I.R.S. Employer Identification No.)
901 Hugh Wallis Road South
Lafayette, Louisiana 70508
(Address of principal executive offices, including zip code)
(337) 233-1307
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Common Stock, par value $0.01 per share
(Title of each class)
NASDAQ Global Select Market
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Exchange Act:
None
3
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes l No l
3
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes l No l
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
3
been subject to such filing requirements for the past 90 days. Yes l
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
3
period that the registrant was required to submit and post such files). Yes l
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (117 CFR 229.405) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
3
reference in Part III of this Form 10-K or any amendment to this Form 10-K. l
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
No l
No l
3
Large accelerated filer l Accelerated filer l
3
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes l No l
As of June 30, 2015, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $496.8 million
based on the closing sale price as reported on the NASDAQ Global Select Market. For purposes of this determination shares beneficially
owned by officers, directors and ten percent stockholders have been excluded, which does not constitute a determination that such persons
are affiliates.
Non-accelerated filer l Smaller reporting company l
There were 17,972,512 shares of common stock, $0.01 par value, issued and outstanding as of February 29, 2016.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Annual Report to Stockholders for the fiscal year ended December 31, 2015 are incorporated by reference in
Part II of this Annual Report on Form 10-K. Portions of the Registrant’s Proxy Statement for its 2016 Annual Meeting of Stockholders are
incorporated by reference in Part III of this Annual Report on Form 10-K.
LHC GROUP, INC.
Table of Contents
PART I.
Cautionary Statement Regarding Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II.
Item 5.
Item 6.
Item 7.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . 37
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV.
Item 15.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . 56
Disclosure Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . 60
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Exhibits, and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Signatures
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibit Index
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form 10-K
FOCUSED: ON LEADING THE WAY
PART I
Cautionary Statement Regarding Forward-Looking Statements
This Annual Report on Form 10-K and the information incorporated by reference herein contain certain statements and information that
may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements relate to future plans and strategies, anticipated
events or trends, future financial performance and expectations and beliefs concerning matters that are not historical facts or that
necessarily depend upon future events. The words “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “foresee,”
“estimate,” “predict,” “potential,” “intend,” and similar expressions are intended to identify forward-looking statements. Specifically, this
Annual Report on Form 10-K contains, among others, forward-looking statements about:
• our expectations regarding financial condition or results of operations for periods after December 31, 2015;
• our critical accounting policies;
• our business strategies and our ability to grow our business;
• our participation in the Medicare and Medicaid programs;
• the reimbursement levels of Medicare and other third-party payors;
• the prompt receipt of payments from Medicare and other third-party payors;
• our future sources of and needs for liquidity and capital resources;
• the effect of any changes in market rates on our operating and cash flows;
• our ability to obtain financing;
• our ability to make payments as they become due;
• the outcomes of various routine and non-routine governmental reviews, audits and investigations;
• our expansion strategy, the successful integration of recent acquisitions and, if necessary, the ability to relocate or restructure our
current facilities;
• the value of our proprietary technology;
• the impact of legal proceedings;
• our insurance coverage;
• the costs of medical supplies;
• our competitors and our competitive advantages;
• our ability to attract and retain valuable employees;
• the price of our stock;
• our compliance with environmental, health and safety laws and regulations;
• our compliance with health care laws and regulations;
• our compliance with Securities and Exchange Commission laws and regulations and Sarbanes-Oxley requirements;
• the impact of federal and state government regulation on our business; and
• the impact of changes in or future interpretations of fraud, anti-kickback or other laws.
The forward-looking statements included in this report reflect our current views and assumptions only as of the date this report is filed with
the Securities and Exchange Commission. Except as required by law, we assume no responsibility and do not intend to release updates or
revisions to forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise. The
occurrence of any of the events described in Part I, Item 1A. Risk Factors in this Annual Report on Form 10-K or incorporated by reference
into this Annual Report on Form 10-K, and other events that we have not predicted or assessed, could have a material adverse effect on our
earnings, financial condition and business, and any such forward-looking statements should not be relied on as a prediction of future events.
We qualify all of our forward-looking statements by this cautionary statement. In addition, with respect to all of our forward-looking statements,
we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
You should read this Annual Report on Form 10-K, the information incorporated by reference into this Annual Report on Form 10-K and
the documents filed as exhibits to this Annual Report on Form 10-K completely and with the understanding that our actual future results or
achievements may differ materially from what we expect or anticipate.
Unless otherwise indicated, “LHC Group,” “we,” “us,” “our” and “the Company” refer to LHC Group, Inc. and its consolidated subsidiaries.
Form 10-K Part I
3
LHC GROUP
Item 1. Business.
Overview
We provide post-acute health care services to patients through our home nursing agencies, hospice agencies, community-based services
agencies, and long-term acute care hospitals (“LTACHs”). As of December 31, 2015, through our wholly- and majority-owned subsidiaries,
equity joint ventures and controlled affiliates, we operated in 363 service providers in 25 states within the continental United States.
We operate in four segments: home health services, hospice services, community-based services, and facility-based services, the latter
through our LTACHs.
Our home health service locations offer a wide range of services, including skilled nursing, medically-oriented social services and physical,
occupational, and speech therapy. The nurses, home health aides, and therapists in our home health agencies work closely with
patients and their families to design and implement individualized treatment plans in accordance with a physician-prescribed plan of care.
As of December 31, 2015, we operated 283 home health service locations, of which 168 are wholly-owned by us, 109 are majority-
owned by us through equity joint ventures, three are under license lease arrangements, and the operations of the remaining three locations
are managed by us.
Our hospices provide end-of-life care to patients with terminal illnesses through interdisciplinary teams of physicians, nurses, home health
aides, counselors, and volunteers. We offer a wide range of services, including pain and symptom management, emotional and spiritual
support, inpatient and respite care, homemaker services, and counseling. As of December 31, 2015, we operated 56 hospice locations,
of which 43 are wholly-owned by us, 11 are majority-owned by us through equity joint ventures, and two are under license lease
arrangements.
Our community-based service locations offer assistance with activities of daily living to elderly, chronically ill, and disabled patients.
As of December 31, 2015, we operated 13 locations, of which 12 are wholly-owned by us and 1 is majority-owned by us through an
equity joint venture.
Our LTACH locations provide services primarily to patients with complex medical conditions who have transitioned out of a hospital
intensive care unit but whose conditions remain too severe for treatment in a non-acute setting. As of December 31, 2015, our LTACHs
had 223 licensed beds. We own and operate six LTACHs with eight locations, of which all but one are located within host hospitals.
We also own and operate a pharmacy, a family health center, and a family health clinic. Of these 11 facility-based services locations,
six are wholly-owned by us and five are majority-owned by us through equity joint ventures.
Our net service revenue by segment for the years ended December 31, 2015, 2014 and 2013 was as follows (amounts in thousands):
Year Ended December 31,
Home Health Services
Hospice Services
Community-Based Services
Facility-Based Services
Consolidated Net Service Revenue
2015
2014
2013
$ 613,188
85,854
41,202
76,122
$ 564,966
67,621
27,698
73,347
$ 523,512
56,172
3,207
75,392
$ 816,366
$ 733,632
$ 658,283
Our founders began operations in September 1994 as St. Landry Home Health, Inc. in Palmetto, Louisiana. After several years of
expansion, our founders reorganized their business and began operating as Louisiana Healthcare Group, Inc. in June 2000. In March 2001,
Louisiana Healthcare Group, Inc. reorganized and became a wholly owned subsidiary of The Healthcare Group, Inc., a Louisiana
business corporation. In December 2002, The Healthcare Group, Inc. merged into LHC Group, LLC, a Louisiana limited liability company,
with LHC Group, LLC being the surviving entity. In January 2005, LHC Group, LLC established a wholly owned Delaware subsidiary,
LHC Group, Inc. and on February 9, 2005, LHC Group, LLC merged into LHC Group, Inc., a Delaware corporation with LHC Group, Inc.
being the surviving entity. Our principal executive offices are located at 901 Hugh Wallis Road, South, Lafayette, Louisiana, 70508.
Our telephone number is (337) 233-1307. Our website is www.lhcgroup.com. Information contained on our website is not part of or
incorporated by reference into this Annual Report on Form 10-K.
4
Form 10-K Part I
FOCUSED: ON LEADING THE WAY
Business Strategy
Our objective is to become the leading provider of home health, hospice, and community-based services in the United States. To achieve
this objective, we intend to:
Drive internal growth in existing markets. We intend to drive internal growth in our current markets by increasing the number of health
care providers from whom we receive referrals and by expanding the breadth of our services in each market. We intend to achieve this
growth by: (1) continuing to educate health care providers about the benefits of our services, (2) reinforcing the position of our agencies
and facilities as community assets, (3) maintaining our emphasis on high-quality medical care for our patients, (4) identifying related
products and services needed by our patients and their communities, and (5) providing a superior work environment for our employees.
Achieve margin improvement through the active management of costs. The majority of our net service revenue is generated under
the Medicare prospective payment systems (“PPS”) through which we are paid pre-determined rates based upon the clinical condition
and severity of the patients in our care. Because our profitability in a fixed payment system depends upon our ability to manage the costs
of providing care, we continue to pursue initiatives to improve our margins and net income.
Expand into new markets. We intend to continue expanding into new markets by utilizing our point of care technology, developing
de novo locations, and acquiring existing Medicare and/or Medicaid-certified agencies in attractive markets throughout the United States.
We will also continue our unique strategy of partnering with hospitals and health systems, as these ventures provide significant return
on investment. We also plan to acquire larger freestanding agencies that can serve as growth platforms in markets we do not currently serve
in order to support our growth into new markets.
Pursue strategic acquisitions and develop joint ventures. We will continue to identify and evaluate opportunities for strategic
acquisitions in new and existing markets that will enhance our market position, increase our referral base, and expand the breadth of
services we offer. We endeavor to joint venture with hospitals to provide post-acute services, such as home health, hospice, and
community-based services.
Services
We provide post-acute care services in the United States by providing quality cost-effective health care services to patients within the
comfort and privacy of their home, place of residence, or long-term acute care hospital facility. Our services can be broadly classified into
four principal categories: (1) home health services, (2) hospice services, (3) community-based services, and (4) facility-based services
offered through our LTACHs.
Home Health Services
Our registered nurses and licensed practical nurses provide a variety of medically necessary services to homebound patients who are
suffering from acute or chronic illness, recovering from injury or surgery, or who otherwise require caring, teaching or monitoring. These
services include, but are not limited to:
• wound care and dressing changes,
• cardiac rehabilitation,
• infusion therapy,
• pain management,
• pharmaceutical administration,
• skilled observation and assessment, and
• patient education.
We have also designed proprietary guidelines to treat chronic diseases and conditions, including diabetes, hypertension, arthritis,
Alzheimer’s disease, low vision, spinal stenosis, Parkinson’s disease, osteoporosis, complex wound care, and chronic pain. Through our
medical social workers, we counsel patients and their families with regard to financial, personal, and social concerns that arise from a
patient’s health-related problems. We provide skilled nursing, ventilator and tracheotomy services, extended care specialties, medication
administration and management, and patient and family assistance and education. We also provide management services to third-
party home nursing agencies, often as an interim solution until proper state and regulatory approvals for an acquisition can be obtained.
Form 10-K Part I
5
LHC GROUP
Our physical, occupational and speech therapists provide therapy services to patients in their home. Our therapists coordinate
multi-disciplinary treatment plans with physicians, nurses and social workers to restore basic mobility skills such as getting out of bed and
walking safely with crutches or a walker. As part of the treatment and rehabilitation process, a therapist will stretch and strengthen muscles,
test balance and coordination abilities, and teach home exercise programs. Our therapists assist patients and their families with improving
and maintaining a patient’s ability to perform functional activities of daily living, such as the ability to dress, cook, clean, and manage other
activities safely in the home environment. Our speech and language therapists provide corrective and rehabilitative treatment to patients
who suffer from physical or cognitive deficits or disorders that create difficulty with verbal communication or swallowing.
All of our home nursing agencies offer 24-hour personal emergency response system and support services through a third-party service
provider (“PERS”) for qualified patients who require intensive medical monitoring, but want to maintain an independent lifestyle. These
services consist principally of a communicator that connects to the telephone line in the patient’s home and a personal help button that is
worn or carried by the individual patient that, when activated, initiates a telephone call from the patient’s communicator to PERS’s
central monitoring facilities. Their trained personnel identify the nature and extent of the patient’s particular need and notify the patient’s
family members, neighbors, and/or emergency personnel, as needed.
We believe our use of this system increases patient satisfaction and loyalty by providing our patients a point of contact between
scheduled nursing visits. As a result, we believe that we provide a more complete regimen of care management than our competitors in
the markets in which we operate by offering this service to qualified patients as part of their home health plan of care.
Hospice Services
Our Medicare-certified hospice operations provide a full range of hospice services designed to meet the individual physical, spiritual, and
psychosocial needs of terminally ill patients and their families. Our hospice services are primarily provided in a patient’s home, but can also
be provided in a nursing home, assisted living facility or hospital. The key services provided through our hospice agencies include pain and
symptom management accompanied by palliative medication, emotional, and spiritual support, inpatient and respite care, homemaker
services, dietary counseling, and family bereavement counseling and social worker visits for up to 13 months after a patient’s death.
Community-Based Services
Our community-based service operations offer a wide range of services to patients in their home or in a medical facility. The services range
from assistance with grooming, medication reminders, meal preparation, assistance with feeding, light housekeeping, respite care,
transportation, and errand services.
Facility-Based Services
Long-Term Acute Care Hospitals. Our LTACHs treat patients with severe medical conditions who require a high-level of care and
frequent monitoring by physicians and other clinical personnel. Patients who receive our services in an LTACH have been diagnosed as
being too medically unstable for treatment in a non-acute setting. For example, our LTACHs typically serve patients suffering from
respiratory failure, neuromuscular disorders, cardiac disorders, non-healing wounds, renal disorders, cancer, head and neck injuries, and
mental disorders. We also treat patients diagnosed with musculoskeletal impairments that restrict their ability to perform normal
activities of daily living.
Other. As part of our facility-based services, we operate an institutional pharmacy, which focuses on providing a full array of services to
our LTACHs, a family health center, and a family health clinic.
Operations
Financial information relating to the home health, hospice, community-based, and facility-based operating segments of our business,
including their contributions to our net service revenue, operating income, and total assets for each of the twelve months ended
December 31, 2015, 2014 and 2013, respectively, is found in Note 11 to the Consolidated Financial Statements included in this
Annual Report on Form 10-K.
Our home health agencies are operated in one segment that is separated into four geographical regions and further separated into
individual operating areas. Our hospice agencies are operated in one segment that is separated into four geographical regions. Our
community-based agencies are operated in one segment within one geographic region. Each of our home health agencies is staffed with
experienced clinical home health and administrative professionals who provide a wide range of patient care services. Each of our home
health agencies, hospice agencies, and community-based agencies are licensed and certified by the state and federal governments. As of
6
Form 10-K Part I
FOCUSED: ON LEADING THE WAY
December 31, 2015, 268 of our 283 home health service locations and 34 of our 56 hospice service locations were accredited by the
Joint Commission, a nationwide commission that establishes standards relating to the facilities, administration, quality of patient care, and
operation of medical staffs of hospitals. Those not yet accredited are working towards achieving this accreditation, a process which can
take up to six months. As we acquire companies, we apply for accreditation 12 to 18 months after completing the acquisition.
Our facility-based service locations are operated in one segment within one geographic region. Our facility-based services follow a clinical
approach under which each patient is discussed in weekly, multidisciplinary team meetings. In these meetings, patient progress is
assessed and compared to goals and future goals are set. We believe that this model results in higher quality care and more predictable
discharge patterns and avoids unnecessary delays.
Our home health service locations use our Service Value Point system, a proprietary clinical resource allocation model and cost management
system. The system is a quantitative tool that assigns a target level of resource units to a group of patients based upon their initial
assessment and estimated skilled nursing and therapy needs. The Service Value Point system allows the Director of Nursing or Branch
Manager to allocate adequate resources throughout the group of patients assigned to his or her care, rather than focusing on the
profitability of an individual patient.
Patient care is coordinated on-site at the agency level of each home health service, hospice service, and community-based service location.
All coding, medical records, case management, utilization review, and medical staff credentialing are provided on-site at the hospital level
of each facility-based service location. Centralized functions such as payroll, accounting, financial reporting, billing, collections, regulatory
and legal compliance, risk management, pharmacy, information technology, and general clinical oversight accomplished by periodic
on-site surveys are provided from our executive offices.
Joint Ventures
As of December 31, 2015, we had 64 equity joint ventures including 57 with hospitals, four with physicians, and three with other parties.
We also operated three agency license leasing agreements.
Equity Joint Ventures
Our equity joint ventures are generally structured as limited liability companies in which we own a majority equity interest and our partner(s)
own(s) a minority equity interest. At the time of formation, each party contributes capital to the equity joint venture in the form of cash
or property. We believe that the amount contributed by each party to the equity joint venture represents their pro-rata portion of the fair
market value of the equity joint venture, and we maintain processes to confirm and document those determinations. None of our equity
joint venture partners are required to make or influence referrals to our equity joint ventures. In fact, agreements with our hospital joint
venture partners, which make up 89% of our equity joint venture partners, require that they follow the same Medicare discharge planning
regulations, that, among other things, require the hospitals to offer each Medicare patient a list of available Medicare-certified home
nursing agency options and to allow the patient to choose his or her own provider.
We structure our equity joint ventures as either manager-managed or board-managed. We control our manager-managed joint ventures,
since LHC Group, Inc. is typically designated as the manager to oversee the day-to-day operations of the joint venture. We control our
board-managed joint ventures, since we typically hold a majority of the votes required to take board action and/or we control the senior
officer positions, although a majority of our joint ventures require super majority board approval for certain actions. Our equity joint
venture partners participate in the profits and losses of the joint venture in proportion to their equity interests. Distributions from our equity
joint ventures are made pro-rata based on percentage ownership interests and are not based on referrals made to the equity joint
venture by any of the partners.
The 64 equity joint ventures individually contribute between 0.02% and 3.46% of our consolidated net service revenue, with only two of the
equity joint ventures accounting for greater than 3% of our consolidated net service revenue for the year ended December 31, 2015.
Most of our equity joint ventures include a buy/sell option that grants to us and our equity joint venture partners the right to require the
other party to either purchase all of the exercising member’s membership interests or sell to the exercising member all of the non-
exercising member’s membership interests, at the non-exercising member’s option, within 30 days of the receipt of notice of the exercise
of the buy/sell option. In some instances, the purchase price under these buy/sell provisions is based on a multiple of the historical or
future earnings before income taxes, depreciation and amortization of the equity joint venture at the time the buy/sell option is exercised.
In other instances, the buy/sell purchase price will be negotiated by the parties but will be subject to a fair market valuation process.
Form 10-K Part I
7
LHC GROUP
License Leasing Agreements
As of December 31, 2015, we had three license leasing agreements, through our wholly-owned subsidiaries, granting us the right to use
the lessors’ home health licenses necessary to operate home nursing agencies and hospice agencies. These license leasing agreements
are entered into when state law would otherwise prohibit the sale and transfer of the agency. The table below details the monthly fees and
termination dates of the license leasing agreements.
Number of License
Leasing Agreements
2015 Current Monthly Fee
Increase in Monthly Fee
Initial Termination Dates
1
1
1
$18,375
Based on net quarterly projections
with an annual cap of $423,000
Based on net quarterly projections
with an annual cap of $208,000
5% increase every three years
None
2017 with a 2 year automatic renewal
2015 with a 1 year automatic renewal
None
2015 with a 1 year automatic renewal
In all three license leasing agreements, we have a right of first refusal in the event that the lessor intends to sell the agency to a third party.
Management Services Agreements
As of December 31, 2015, we had three management services agreements under which we manage the operations of home nursing
agencies. We do not have ownership interest in these home nursing agencies. Instead, for a fee, we provide billing, management, and
other consulting services suited to and designed for the efficient operation of the home nursing agency. We are responsible for the costs
associated with the locations and personnel required for the provision of services. Under one management services agreement, we are
compensated based on a percentage of cash collections for the agency, and under the other two management services agreements we
are reimbursed for operating expenses and receive a percentage of the operating net income of the agencies. The term of these
management services agreements is typically five years, with an option to renew for an additional five-year term. All management services
agreements will automatically renew annually unless either party gives written notice of termination.
We record management services revenue as services are provided in accordance with the management services agreements.
Competition
The home health care market is highly fragmented. According to the Medicare Payment Advisory Commission, an independent agency
that advises Congress on various Medicare issues (“MedPac”), there were approximately 12,613 Medicare-certified home nursing
agencies in the United States in 2013. In 2015, MedPac estimated that approximately 16% of Medicare-certified home health agencies
provided a majority of their services in rural areas, and 89% of agencies were proprietary. We believe we are well positioned to build
and maintain long-term relationships with local hospitals, physicians, and other health care providers and to become the highest quality
post-acute provider in our markets. In our experience, because most rural areas do not have the population size to support more than
one or two general acute care hospitals, the local community hospital often plays a significant role in rural market health care delivery
systems. Rural patients who require home nursing frequently receive care from a small home care agency or an agency that, while
owned and run by the local community hospital, is not an area of focus for that hospital. Similarly, patients in these markets who require
services typically offered by LTACHs are more likely to remain in the community hospital because it is often the only local facility
equipped to deal with severe and complex medical conditions. We choose to enter these rural markets through affiliations with local
hospitals, since we typically experience significantly less competition for the services we provide.
As we expand into new markets, we may encounter competitors that have greater resources or greater access to capital. Generally,
competition in our home health service markets comes from small local and regional providers. These providers include facility- and
hospital-based providers, visiting nurse associations, and nurse registries. We are unaware of any competitor offering our breadth of
services and focusing on the needs of rural markets.
Although several publicly held and privately owned national and regional companies own or manage LTACHs, they generally do not operate
in the rural markets that we serve. Generally, competition in our facility-based service markets comes from local health care providers.
We believe our diverse service offerings, collaborative approach to working with health care providers, business experience gained from
focusing on rural markets and patient-oriented operating model provide our principal competitive advantages over local providers.
8
Form 10-K Part I
Quality Control
The LHC Group Quality Department, led by our Chief Clinical Officer, is responsible for formulating quality of care indicators, identifying
performance improvement priorities, and facilitating best-practices for quality care. Company-wide, we have adopted a “Plan, Do, Check,
Act” methodology for our quality/performance improvement activities and initiatives. We also set forth a quality platform that reviews:
FOCUSED: ON LEADING THE WAY
• performance improvement audits;
• Joint Commission accreditation;
• state and regulatory surveys;
• publicly reported quality data; and
• patient perception of care.
The Quality Department is also responsible for ensuring that the infrastructure of the quality initiatives throughout the Company is
appropriate, for overseeing and evaluating the effectiveness of the quality plans and initiatives, and for recommending appropriate quality
and performance improvement initiatives.
The Clinical Quality Committee of the Board of Directors is responsible for advising our clinical leadership, monitoring the performance of
our locations based on internal and external benchmarks, overseeing and evaluating the effectiveness of the performance improvement
and quality plans, facilitating best practices based on internal and external comparisons, and fostering enhanced awareness of clinical
performance by the Board of Directors.
As part of our ongoing quality control, internal auditing, and monitoring programs, we conduct internal regulatory audits and mock surveys
at each of our agencies and facilities at least once a year. If an agency or facility does not achieve a satisfactory rating, we require that
it prepare and implement a plan of correction. We then follow-up to verify that all deficiencies identified in the initial audit and survey have
been corrected.
As required under the Medicare conditions of participation, we maintain a continuous quality improvement program, which involves:
• ongoing education of staff and quarterly continuous quality improvement meetings at each of our agencies, facilities and principal
executive offices;
• monthly comprehensive audits of patient charts performed at each of our agencies and facilities;
• at least annually, a comprehensive survey readiness assessment on each of our agencies and facilities;
• review of Home Health Compare scores;
• assessment of patient’s and/or family member’s perception of care using Press Ganey, SHP and Deyta; and
• assessment of infection control practices and risk events.
We constantly expand and refine our continuous quality improvement programs. Specific written policies, procedures, training, and
educational materials and programs, as well as auditing and monitoring activities, have been prepared and implemented to address the
functional and operational aspects of our business. Our programs also address specific areas identified for improvement through
regulatory interpretation and enforcement activities. We believe our consistent focus on continuous quality improvement programs provide
us with a competitive advantage in the markets we serve.
Compliance
We have established and continually maintain a comprehensive compliance and ethics program that is designed to assist all of our
employees to exceed applicable standards established by federal and state laws and regulations and industry practice. Our goal is
to foster and maintain the highest standards of compliance, ethics, integrity, and professionalism in every aspect of our business dealings,
and we utilize our compliance and ethics program to assist our employees toward achieving that goal.
The purpose of our compliance and ethics program is to promote and foster compliance with applicable legal and regulatory
requirements, the requirements of the Medicare and Medicaid programs and other government healthcare programs, industry standards,
our Code of Conduct and Ethics, and our other policies and procedures that support and enhance overall compliance within our
Company. Our compliance and ethics program focuses on regulations related to the federal False Claims Act, the Stark Law, the federal
Anti-Kickback Law, billing and overall adherence to health care regulations.
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To ensure the independence of our compliance department staff, we have implemented the following:
• our Chief Compliance Officer reports to and has direct oversight by the Audit Committee of the Board of Directors;
• our compliance department has its own operating budget; and
• our compliance department has the authority to independently investigate any compliance or ethical concerns, including, when deemed
necessary, the authority to interview any company personnel, access any company property (including electronic communications) and
engage counsel to assist in any investigation.
Among other activities, our compliance department staff is responsible for the following activities:
• drafting and revising the Company’s policies and procedures related to compliance and ethics issues;
• reviewing, making recommended revisions, disseminating and tracking attestations to our Code of Conduct and Ethics;
• measuring compliance with our policies and procedures, Code of Conduct and Ethics and legal and regulatory requirements related to
the Medicare and Medicaid programs and other government healthcare programs, laws and regulations;
• developing and providing compliance-related training and education to all of our employees and, as appropriate, directors, contractors
and other representatives and agents, including new-hire compliance training for all new employees, annual compliance training for
all employees, sales compliance training to all members of our sales team, billing compliance training to all members of our billing and
revenue cycle team and other job-specific and role-based compliance training of certain employees;
• performing an annual company-wide risk assessment;
• implementing an annual compliance auditing and monitoring work plan and performing and following up on various risk-based auditing
and monitoring activities, including both clinical and non-clinical auditing and monitoring activities at the corporate level and at the local
agency/facility level;
• developing, implementing and overseeing our Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) privacy and security
compliance program;
• monitoring, responding to and overseeing the resolution of issues and concerns raised through our anonymous compliance hotline;
• monitoring, responding to and resolving all compliance and ethics-related issues and concerns raised through any other form of
communication;
• ensuring that we take appropriate corrective and disciplinary action when noncompliant or improper conduct is identified; and
• monitoring, measuring and reporting on the Company’s compliance with its corporate integrity agreement with the Office of Inspector
General of the Department of Health and Human Services (“OIG”), including, without limitation, reviewing, revising and distributing
the Code of Conduct and Ethics and compliance-related policies and procedures, reviewing revising and distributing all required training,
assisting the independent review organization with its review procedures, overseeing the timely repayment of any identified
overpayments, overseeing the timely reporting of any reportable events and ensuring the timely submission of the Company’s annual
reports to the OIG.
All employees are required to report incidents, issues or other concerns that they believe in good faith may be in violation of our Code of
Conduct and Ethics, our policies and procedures, applicable legal and regulatory requirements or the requirements of the Medicare and
Medicaid programs and other government health care programs. All employees are encouraged to either contact our Chief Compliance
Officer directly or to contact our 24-hour toll-free compliance hotline when they have questions or concerns about any compliance or
ethics issues. All reports to our compliance hotline are kept confidential to the extent allowed by law, and employees have the option to
remain anonymous. When cases reported to our compliance hotline involve a compliance or ethics issue or any possible violation of law or
regulation, the matter is referred to the compliance department for investigation. Retaliation against employees in connection with
reporting compliance or ethical concerns is considered a serious violation of our Code of Conduct and Ethics, and, if it occurs, will result
in discipline, up to and including termination of employment.
We continually expand and refine our compliance and ethics programs. We promote a culture of compliance, ethics, integrity and
professionalism within the Company through persistent messages from our senior leadership concerning the necessity of strict compliance
with legal requirements and company policies and procedures. We believe our consistent focus on our compliance and ethics program
provides us with a competitive advantage in the markets we serve.
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Technology and Intellectual Property
Our Service Value Point system is a proprietary information system that assists us in, among other things, monitoring clinical utilization and
other cost factors, supporting our health care management techniques, internal benchmarking, clinical analysis, outcomes monitoring
and claims generation, revenue cycle management, and revenue reporting at our home nursing agencies. We were issued a patent for our
Service Value Point system during 2009 by the U.S. Patent and Trademark Office. This proprietary home nursing clinical resource and
cost management system is a quantitative tool that assigns a target level of resource units to each patient based upon our staff’s initial
assessment of the patient’s estimated skilled nursing and therapy needs. We designed this system to empower our direct care employees
to make appropriate day-to-day clinical care decisions while also allowing us to monitor and manage the quality and delivery of care
across our system, including the cost of providing that care, on both a patient-specific and agency-specific basis.
In addition to our Service Value Point system, our business is substantially dependent on non-proprietary software. For example, we utilize a
third-party software information system for billing and maintaining patient claim receivables for our LTACHs. Also, as of December 31, 2015,
our home nursing and hospice agencies primarily utilized commercially-available billing and patient claim systems.
During 2014, we successfully completed the roll out of our point of care (“POC”) strategy. Our POC system allows a visiting clinician to
access records and other information from the patient’s home or at the POC, complete required documentation at the POC and submit it
electronically into our patient record system. As of December 31, 2015, all of our home nursing and hospice locations were utilizing our
POC system.
Technology plays a key role in our ability to expand operations and maintain effective managerial control. The software we use is based
on client-server technology and is highly scalable. We believe our software and systems are flexible, easy-to-use and allow us to
accommodate further growth. We believe that our ability to build and enhance our information and software systems provides us with a
competitive advantage that allows us to grow our business in a cost-efficient manner and provide better patient care.
Reimbursement
Medicare
The federal government’s Medicare program, governed by the Social Security Act of 1965 (the “Social Security Act”), reimburses health
care providers for services furnished to Medicare beneficiaries. These beneficiaries generally include persons age 65 and older and those
who are chronically disabled. The program is primarily administered by the Department of Health and Human Services (“HHS”) and
the Centers for Medicare & Medicaid Services (“CMS”). Medicare payments accounted for 74.5%, 75.9% and 79.8% of our net service
revenue for the years ended December 31, 2015, 2014 and 2013, respectively. Medicare reimburses us based upon the setting in
which we provide our services or the Medicare category in which those services fall.
In 2011, sequestration was implemented in the Budget Control Act of 2011(BCA, P.L. 112-25) as a tool in federal budget control. The
sequestration cut to Medicare payments began on April 1, 2013, and reduced Medicare payments for patients whose service dates
ended on or after April 1, 2013 by 2%. Absent any additional Congressional action, the 2% sequestration cuts are planned to continue
through 2023.
Home Health
The Medicare home nursing benefit is available to patients who need care following discharge from a hospital, as well as patients who
suffer from chronic conditions that require ongoing intermittent care. While the services received need not be rehabilitative or of a finite
duration, patients who require full-time skilled nursing for an extended period of time generally do not qualify for Medicare home nursing
benefits. As a condition of coverage under Medicare, beneficiaries must: (1) be homebound, meaning they are unable to leave their home
without a considerable and taxing effort; (2) require intermittent skilled nursing, physical therapy or speech therapy services that are
covered by Medicare; and (3) receive treatment under a plan of care that is established and periodically reviewed by a physician. Qualifying
patients also may receive reimbursement for occupational therapy, medical social services and home health aide services if these
additional services are part of a plan of care prescribed by a physician.
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We receive a standard prospective Medicare payment for delivering care over a 60-day episode of care. There is no limit to the number
of episodes a beneficiary may receive as long as he or she remains eligible. The base episode payment is a flat rate that is adjusted upward
or downward based upon differences in the expected resource needs of individual patients as indicated by clinical severity, functional
severity and service utilization. The magnitude of the adjustment is determined by each patient’s categorization into one of 153 payment
groups, known as Home Health Resource Groups and the costliness of care for patients in each group relative to the average patient.
Payment is further adjusted for differences in local labor costs using the hospital wage index. We bill and are reimbursed for services in
two stages: an initial request for advance payment when the episode commences and a final claim when the episode is completed. We
submit all Medicare claims through the Medicare Administrative Contractors for the federal government. We receive 60% of the estimated
payment for a patient’s initial episode up-front (after the initial assessment is completed and upon initial billing) and the remaining 40%
upon completion of the episode and after all final treatment orders are signed by the physician. In the event of subsequent episodes,
reimbursement timing is 50% up-front and 50% upon completion of the episode. Final payments may reflect one of four retroactive
adjustments to ensure the adequacy and effectiveness of the total reimbursement: (1) an outlier payment if the patient’s care was unusually
costly; (2) a low utilization adjustment if the number of visits was fewer than five; (3) a partial payment if the patient transferred to another
provider before completing the episode; or (4) a payment adjustment based upon the level of therapy services required in the population
base. Because such adjustments are determined upon the completion date of the episode, retroactive adjustments could impact our
financial results.
In 2011, CMS finalized two provisions of the Patient Protection and Affordable Care Act (“the PPACA”) that substantially impact our
business. First, as a condition for Medicare payment, the PPACA mandates that prior to certifying a patient’s eligibility for home health
services, the certifying physician must document that he or she, or allowed non-physician practitioner, had a face-to-face encounter
with the patient that relates to the condition for which the patient receives home health services. The face-to-face encounter must occur
within 90 days prior to the start of care or 30 days after the start of care. Documentation regarding these encounters must be present
in the patient’s home health medical record. In 2015, documentation supporting these encounters must be in the certifying physician’s or
hospital medical record.
Beginning in 2015, CMS also made important changes to therapy assessment requirements. A professional qualified therapist
assessment must take place at least once every 30 days during a therapy patient’s course of treatment.
We verify a patient’s eligibility for home health benefits at the time of admission. Through the verification process we are able to determine
the payor source and eligibility for reimbursement of each patient. Accordingly, we do not have material amounts of reimbursements
pending approval based on the eligibility of a patient to receive reimbursement from the applicable payor program. Further, we provide
only limited services to patients who are ineligible for reimbursement from a third party payor. Therefore, we do not have any material
amounts of reimbursements due from patients who are self-pay.
The base payment rate for Medicare home nursing was $2,961.38 per 60-day episode for the year ended December 31, 2015. The
base payment rate does not include the 2% reduction to Medicare payment through sequestration as mandated by the Budget Control
Act of 2011.
Home health payment rates are updated annually by the home health market basket percentage as adjusted by Congress. CMS
establishes the home health market basket index, which measures inflation in the prices of an appropriate mix of goods and services
included in home health services.
Hospice
In order for a Medicare beneficiary to qualify for the Medicare hospice benefit, two physicians must certify that, in their clinical judgment,
the beneficiary has less than six months to live, assuming the beneficiary’s disease runs its normal course. In addition, the Medicare
beneficiary must affirmatively elect hospice care and waive any rights to other Medicare curative benefits related to his or her terminal
illness. At the end of each benefit period (described below), a physician must recertify that the Medicare beneficiary’s life expectancy is six
months or less in order for the beneficiary to continue to qualify for and to receive the Medicare hospice benefit. The first two benefit
periods are 90 days and subsequent benefit periods are 60 days. A Medicare beneficiary may revoke his or her election at any time and
resume receiving traditional Medicare benefits. There is no limit on how long a Medicare beneficiary can receive hospice benefits and
services, provided that the beneficiary continues to meet Medicare hospice eligibility criteria.
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Medicare reimburses for hospice care using one of four predetermined daily or hourly rates based upon the level of care we furnish to
a beneficiary. These rates are subject to annual adjustments based on inflation and geographic wage considerations. The base Medicare
rate for services that we provide to a beneficiary depends upon which of the following four levels of care we provide to that beneficiary:
• Routine Care. Care that is not classified under any of the other levels of care, such as the work of nurses, social workers or home
health aides.
• General Inpatient Care. Pain control or acute or chronic symptom management that cannot be managed in a setting other than an
inpatient Medicare certified facility, such as a hospital, skilled nursing facility or hospice inpatient facility.
• Continuous Home Care. Care for patients experiencing a medical crisis that requires nursing services to achieve palliation and
symptom control, if the agency provides a minimum of eight hours of care within a 24-hour period.
• Respite Care. Short-term, inpatient care to give temporary relief to the caregiver who regularly provides care to the patient.
Medicare limits the reimbursement we may receive for inpatient care services (both respite and general care) for hospice patients. Under the
“80-20 rule,” if the number of inpatient care days of hospice care furnished by us to Medicare hospice beneficiaries under a unique provider
number exceeds 20% of the total days of hospice care furnished by us to all Medicare hospice beneficiaries for both inpatient and
in-home care, Medicare payments to us for inpatient care days exceeding the inpatient cap will be reduced to the routine home care rate, with
excess amounts due back to Medicare. This determination is made annually based on the twelve-month period beginning on November 1
each year. Our Medicare hospice reimbursement is also subject to a cap amount calculated at the end of the hospice cap period,
based on the twelve-month period beginning on November 1 each year, which determines the maximum allowable payments per provider.
In 2011, CMS finalized a face-to-face encounter requirement for hospice reimbursement, mandating that a physician or qualifying nurse
practitioner must certify a face-to-face encounter with the patient no later than the 30-day period prior to the 180th-day recertification
(beginning of the third benefit period) and each subsequent recertification in order to gather clinical findings that support continued
hospice care.
In the fiscal year 2016 hospice payment rule, CMS established a new two-tiered payment system for routine home care hospice services,
which replaces the former single per diem routine home care rate. Effective January 1, 2016, hospices will be reimbursed at a higher
routine home care rate ($186.84) for days 1 through 60 of a hospice episode of care and a lower rate ($146.83) for days 61 and beyond of
a hospice episode of care. In this rule, CMS also provided for a Service Intensity Add-on increasing payments for routine home care
services provided directly by registered nurses and social workers to hospice patients during the final seven days of life.
Long-Term Acute Care Hospitals
All Medicare payments to our LTACHs are made in accordance with a PPS specifically applicable to LTACHs, referred to as “LTACH-PPS.”
The LTACH-PPS was established by CMS final regulations published in 2002, that require each patient discharged from an LTACH to be
assigned a distinct long-term care diagnosis-related group (“MS-LTC-DRG”), which take into account (among other things) the severity of
a patient’s condition. Our LTACHs are paid a pre-determined fixed amount based upon the assigned MS-LTC-DRG (adjusted for area
wage differences), which includes adjustments for short stay and high cost outlier patients (described in further detail below). The payment
amount for each MS-LTC-DRG classification is intended to reflect the average cost of treating a Medicare patient assigned to that
MS-LTC-DRG in an LTACH.
Adjustments to MS-LTC-DRG payments might include:
• Short Stay Outlier Policy. CMS has established a modified payment methodology for Medicare patients with a length-of-stay less than
or equal to five-sixths of the geometric average length-of-stay for that particular MS-LTC-DRG, referred to as a short stay outlier, or
“SSO.” When LTACH-PPS was established, SSO cases were paid based on the lesser of (1) 120% of the average cost of the case;
(2) 120% of the LTC-DRG specific per diem amount multiplied by the patient’s length-of-stay; or (3) the full LTC-DRG payment. CMS
modified the payment methodology for discharges occurring on or after July 1, 2006, which changed the limitation in clause (1) above
to reduce payment for SSO cases to 100% (rather than 120%) of the average cost of the case, and also added a fourth limitation,
potentially further limiting payment for SSO cases at a per diem rate derived from blending 120% of the MS-LTC-DRG specific per diem
amount with a per diem rate based on the general acute care hospital inpatient prospective payment system, or “IPPS.” Under this
methodology, as a patient’s length-of-stay increases, the percentage of the per diem amount based upon the IPPS component will
decrease and the percentage based on the MS-LTC-DRG component will increase.
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• High Cost Outliers. Some cases are extraordinarily costly, producing losses that may be too large for healthcare providers to offset.
Cases with unusually high costs, referred to as “high cost outliers,” receive a payment adjustment to reflect the additional resources
utilized. CMS provides an additional payment if the estimated costs for the patient exceed the adjusted MS-LTC-DRG payment plus a
fixed-loss amount that is established in the annual payment rate update.
• Interrupted Stays. An interrupted stay occurs when an LTACH patient is admitted upon discharge to a general acute care hospital,
inpatient rehab facility (“IRF”), skilled nursing facility or a swing-bed hospital and returns to the same LTACH within a specified period of
time. If the length-of-stay at the receiving provider is equal to or less than the applicable fixed period of time, it is considered to be an
interrupted stay case and is treated as a single discharge for the purposes of payment to the LTACH.
Freestanding, HwH and Satellite LTACHs
LTACHs may be organized and operated as freestanding facilities or as a hospital within a hospital, or “HwH.” An HwH is an LTACH that is
located on the “campus” of another hospital, meaning the physical area immediately adjacent to a hospital’s main buildings, other areas
and structures that are not strictly contiguous to a hospital’s main buildings but are located within 250 yards of its main buildings, and any
other determined, on an individual case bases by the applicable CMS regional office, to be part of a hospital’s campus. An LTACH that
uses the same Medicare provider number of an affiliated “primary site” LTACH is known as a “satellite.” Under Medicare policy, a satellite
LTACH must be located within 35 miles of its primary site LTACH and be administered by such primary site LTACH. As of December 31,
2015, we had a total of eight LTACH facilities, with 223 licensed beds. Seven of our LTACH facilities were classified as HwHs and one was
classified as freestanding. Of the seven HwH facilities, three were located in Metropolitan Statistical Area (“MSA”) or urban areas and four
were located in non-MSA or rural areas. One of our HwH facilities was a satellite location of a parent hospital located in an MSA. Our single
freestanding location was a remote campus site of a parent located in an MSA.
An LTACH must have an average inpatient length-of-stay for Medicare patients (including both Medicare covered and non-covered days)
of greater than 25 days during each annual cost reporting period. LTACHs that fail to exceed an average length-of-stay of 25 days
during any cost reporting period may be paid under the general acute care hospital IPPS. CMS clarified its policy on the calculation of the
average length-of-stay by specifying that all data on all Medicare inpatient days, including Medicare Advantage days, must be included
in the average length-of-stay calculation effective for cost reporting periods beginning on or after January 1, 2012.
Fiscal Year 2015 Rates
On August 4, 2014, CMS released its final rule for LTACH Medicare reimbursement for fiscal year 2015 (affecting discharges and cost
reporting periods beginning on or after October 1, 2014 through September 30, 2015). In aggregate, payments for fiscal year 2015
increased by 1.1% over fiscal year 2014 rates. The 1.1% increase consists of a 2.9% inflationary market basket update, offset by a 0.5%
reduction for the productivity adjustment, and a 0.2% reduction to the market basket as defined by PPACA. LTACH payment rates were
also reduced by approximately 1.3% for the “one-time” budget neutrality adjustment factor under the last year of a three-year phase in
and increased by 0.2% for wage index budget neutrality adjustment.
The Bipartisan Budget Act of 2013 “BBA 2013” included the following changes in LTACH policies:
LTACH Patient Criteria: Effective for cost reporting periods beginning on or after October 1, 2015, Medicare payment for LTACH
services will change based on certain new patient criteria. To be paid at the full Medicare LTACH-PPS rate, a patient discharged from
an LTACH must either (1) have a short-term acute care hospital stay including a three day length-of-stay in an intensive care unit during
that hospitalization preceding the LTACH stay, or (2) receive ventilator services for more than 96 hours while hospitalized in the LTACH.
In addition such patients cannot be hospitalized in an LTACH for a psychiatric or rehabilitation diagnosis.
Site Neutral Payment: Also effective for cost reporting periods beginning on or after October 1, 2015, all other Medicare discharges
from LTACHs will be paid at a new “site neutral” rate, which is the lesser of: (1) the IPPS comparable per diem amount determined
using the formula in the LTACH short-stay outlier regulation, plus applicable outlier payments, or (2) 100% of the cost of the services
provided. The site neutral payment provision will be phased in over two years, so discharges receiving a “site neutral” rate get paid
50% based on current LTAC rate and 50% based on the “site neutral” rate. Our LTACHs have cost-reporting periods that begin in
July or September of each year so we will not have any impact until the third quarter of 2016.
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Twenty-five Day Average Length-of-stay: Patient stays paid the site neutral rate will not count toward calculation of the 25 day
average length-of-stay requirement for LTACHs. Additionally, the law clarifies that patient stays paid by Medicare Advantage plans
will also not count toward the 25 day average length-of-stay requirement for LTACHs. The BBA 2013 also included a provision
that these exceptions to the 25 day average length-of-stay will not be used in calculating the length-of-stay for short-term acute care
hospitals that seek to qualify as LTACHs as of December 10, 2013.
25 Percent Rule Relief: Prior relief from compliance with the 25 Percent Rule for freestanding LTACHs, HWHs and satellite facilities
will be extended without interruption for cost reporting periods beginning through December 28, 2016. Grandfathered HWHs are
permanently exempt from the 25 Percent Rule. CMS must report to Congress by December 18, 2015 on whether the 25 Percent Rule
should continue to be applied through June 30, 2019.
Compliance With LTACH Patient Criteria: Effective for cost reporting periods beginning in federal fiscal year 2020, LTACHs with
less than half of their discharges paid at the full LTACH-PPS rates will lose certification as LTACHs and will transition to payment
under the IPPS for all discharges in subsequent cost reporting periods. However, CMS is required to establish a process for LTACHs
to seek reinstatement of LTACH-PPS payments for applicable discharges.
Moratorium on LTACHs: The BBA 2013 enacted a moratorium on new LTACH beds and hospitals (including satellite locations)
effective January 1, 2015 through September 30, 2017. The law clarifies that there will be no exceptions to the moratorium.
Fiscal Year 2016 Rates
On July 31, 2015, CMS issued a final rule to update fiscal year 2016 payment policies and rates under the IPPS and LTACH-PPS, which
affects discharges occurring in cost reporting periods beginning on or after October 1, 2015. CMS projects that LTACH-PPS rates would
decrease by 4.6%. This estimated decrease is primarily attributable to the statutory decrease in payment rates for site neutral LTACH-PPS
cases that do not meet the clinical criteria to qualify for higher LTACH rates in cost reporting years beginning on or after October 1, 2015.
Cases that do qualify for higher LTACH-PPS rates will see a payment rate increase of 1.7% (based on a market basket update of 2.4%
adjusted by a multi-factor productivity adjustment of -0.5 percentage point and an additional adjustment of -0.2 percentage point in
accordance with the Affordable Care Act). CMS also finalized its proposal to implement a transitional blended payment rate (50% site
neutral rate and 50% LTACH-PPS rates) for site neutral discharges occurring in fiscal years 2016 and 2017.
Medicaid
Medicaid is a joint federal and state funded health insurance program for certain low-income individuals administered by the states.
Medicaid reimburses health care providers using a number of different systems, including cost-based, prospective payment and negotiated
rate systems. Rates are also subject to adjustment based on statutory and regulatory changes, administrative rulings, government
funding limitations and interpretations of policy by individual state agencies.
Non-Governmental Payors
Payments from non-governmental payor sources are based on episodic-based rates or per visit basis depending upon the terms and
conditions of the payor. This reimbursement category includes payors such as insurance companies, workers’ compensation programs,
health maintenance organizations, preferred provider organizations, other managed care companies and employers, as well as
payments received directly from patients.
Patients are generally not responsible for any difference between customary charges for our services and amounts paid by Medicare
and Medicaid programs and the non-governmental payors, but are responsible for services not covered by these programs or plans, as
well as co-payments for deductibles and co-insurance obligations of their coverage. Patient out-of-pocket costs for the payment of
deductibles and co-insurance have increased in recent years. Collection of amounts due from individuals is typically more difficult than
collection of amounts due from government or business payors. Because the majority of our billed services are paid in full by Medicare,
Medicaid or private insurance, co-payments from patients do not represent a material portion of our billed revenue and corresponding
accounts receivable. To further reduce their health care costs, most commercial payors such as insurance companies, health maintenance
organizations, preferred provider organizations and other managed care companies have negotiated discounted fee structures or fixed
amounts for services performed, rather than paying health care providers the amounts normally billed.
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In response to the challenges associated with collecting from commercial payors, we began negotiating higher reimbursement rates with a
majority of our commercial payors. As of December 31, 2015, our managed care contracts included 177 different payors between all of
our divisions, seven of which were national contracts, 25 were regional contracts and 145 were state and local contracts/standing letters
of agreement. If we are unable to continue negotiating higher reimbursement rates with commercial payors or if commercial payors
continue to reduce health care costs through reduction in home health reimbursement, it could have a material adverse impact on our
financial results.
Government Regulations
General
The health care industry is highly regulated and we are required to comply with federal, state and local laws which significantly affect our
business. These laws and regulations are extremely complex and, in many instances, the industry does not have the benefit of significant
regulatory or judicial interpretation. Regulations and policies frequently change, and we monitor these changes through trade and
governmental publications and associations. The significant areas of federal and state regulation that could affect our ability to conduct
our business include the following:
• Medicare and Medicaid participation and reimbursement regulations;
• the federal Anti-Kickback Statute and similar state laws;
• the federal Stark Law and similar state laws;
• false claims laws and regulations;
• HIPAA;
• laws and regulations imposing civil monetary penalties;
• environmental health and safety laws;
• licensing laws and regulations; and
• laws and regulations governing certificates of need and permits of approval.
If we fail to comply with these applicable laws and regulations, we could suffer civil or criminal penalties, including the loss of our licenses
to operate and our ability to participate in federal and state health care programs, which would materially adversely affect our financial
condition and results of operations. Although we believe we are in material compliance with all applicable laws and regulations, these are
complex matters and a review of our practices by a court or law enforcement or regulatory authority could result in an adverse
determination that could harm our business. Furthermore, the laws applicable to us are subject to change, interpretation and amendment,
which could adversely affect our ability to conduct our business.
Medicare Participation
To participate in the Medicare program and receive Medicare payments, our agencies and facilities must comply with regulations
promulgated by CMS. Among other things, these requirements, known as “conditions of participation,” relate to the type of facility, its
personnel and its standards of medical care. While we intend to continue to participate in the Medicare reimbursement programs, we
cannot guarantee that our agencies, facilities and programs will continue to qualify for Medicare participation.
Federal Anti-Kickback Statute
Provisions of the Social Security Act of 1965, commonly referred to as the Anti-Kickback Statute, prohibit the payment or receipt of
anything of value in return for the referral of patients or arranging for the referral of patients, or in return for the recommendation,
arrangement, purchase, lease or order of items or services that are covered by a federal health care program such as Medicare and
Medicaid. Violation of the Anti-Kickback Statute is a felony and sanctions include imprisonment of up to five years, criminal fines of
up to $25,000, civil monetary penalties of up to $50,000 per act plus three times the amount claimed or three times the remuneration
offered and exclusion from federal health care programs (including the Medicare and Medicaid programs). Many states have adopted
similar prohibitions against payments intended to induce referrals of Medicaid and other third-party payor patients.
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The OIG has published numerous “safe harbors” that exempt some practices from enforcement action under the Anti-Kickback Statute.
These safe harbors exempt specified activities, including bona-fide employment relationships, contracts for the rental of space or
equipment, personal service arrangements and management contracts, so long as all of the requirements of the safe harbor are met. The
OIG has recognized that the failure of an arrangement to satisfy all of the requirements of a particular safe harbor does not necessarily
mean that the arrangement violates the Anti-Kickback Statute. Instead, each arrangement is analyzed on a case-by-case basis, which is
very fact specific. While we operate our business to comply with the prohibitions of the Anti-Kickback Statute, we cannot guarantee that
all our arrangements will satisfy a safe harbor or will ultimately be viewed as being compliant with the Anti-Kickback Statute.
We endeavor to conduct our operations in compliance with federal and state health care fraud and abuse laws, including the Anti-
Kickback Statute and similar state laws. However, our practices may be challenged in the future and the fraud and abuse laws may be
interpreted in a way that finds us in violation of these laws. If we are found to be in violation of the Anti-Kickback Statute, we could be
subject to civil and criminal penalties and we could be excluded from participating in federal health care programs such as Medicare and
Medicaid. The occurrence of any of these events could significantly harm our business and financial condition.
Stark Law
Congress has passed significant prohibitions against physician self-referrals of patients for certain designated health care services,
commonly known as the Stark Law, which prohibits a physician from making referrals for particular health care services (called designated
health services) to entities with which the physician, or an immediate family member of the physician, has a financial relationship.
The term “financial relationship” is defined very broadly to include most types of ownership or compensation relationships. The Stark Law
also prohibits the entity receiving the referral from seeking payment under the Medicare or Medicaid programs for services rendered
pursuant to a prohibited referral. If an entity is paid for services rendered pursuant to a prohibited referral, it may incur civil penalties and
could be excluded from participating in the Medicare or Medicaid programs. If an arrangement is covered by the Stark Law, the
requirements of a Stark Law exception must be met for the physician to be able to make referrals to the entity for designated health
services and for the entity to be able to bill for these services.
“Designated health services” under the Stark Law is defined to include home health services, inpatient and outpatient hospital services,
clinical laboratory services, physical therapy services, occupational therapy services, radiology services (including magnetic resonance
imaging, computerized axial tomography scans and ultrasound services), radiation therapy services and supplies, and the provision of
durable medical equipment and supplies, parenteral and enteral nutrients, equipment and supplies, prosthetics, orthotics and prosthetic
devices and supplies, and outpatient prescription drugs. The Stark Law defines a financial relationship to include: (1) a physician’s
ownership or investment interest in an entity and (2) a compensation relationship between a physician and an entity. Under the Stark Law,
financial relationships include both direct and indirect relationships.
Physicians refer patients to us for several Stark Law designated health services, including home health services, inpatient and outpatient
hospital services and physical therapy services. We have compensation arrangements with some of these physicians or their professional
practices in the form of medical director and consulting agreements. We also have operations owned by joint ventures in which
physicians have an investment interest. In addition, other physicians who refer patients to our agencies and facilities may own shares of
our stock. As a result of these relationships, we could be deemed to have a financial relationship with physicians who refer patients
to our facilities and agencies for designated health services. If so, the Stark Law would prohibit the physicians from making those referrals
and would prohibit us from billing for the services unless a Stark Law exception applies.
The Stark Law contains exceptions for certain physician ownership or investment interests and physician compensation arrangements.
If an investment relationship or compensation agreement between a physician, or a physician’s immediate family member, and the subject
entity satisfies all requirements for a Stark Law exception, the Stark Law will not prohibit the physician from referring patients to the
entity for designated health services. The exceptions for a physician investment relationship include ownership in an entire hospital and
ownership in rural providers. The exceptions for compensation arrangements cover employment relationships, personal services
contracts and space and equipment leases, among others. We believe our physician investment relationships and compensation
arrangements with referring physicians meet the requirements as exceptions under the Stark Law and that our operations comply with
the Stark Law.
Form 10-K Part I
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LHC GROUP
The Stark Law also includes an exception for a physician’s ownership or investment interest in certain entities through the ownership
of stock that is listed on the New York Stock Exchange or NASDAQ. If the ownership meets certain other requirements, the Stark Law
will not apply to prohibit the physician from referring to the entity for designated health services. For example, this Stark Law exception
requires that the entity issuing the stock have at least $75.0 million in stockholders’ equity at the end of its most recent fiscal year or on
average during the previous three fiscal years. As of December 31, 2015, 2014 and 2013, we have in excess of $75.0 million in
stockholders’ equity.
If an entity violates the Stark Law, it could be subject to civil penalties of up to $15,000 per prohibited claim and up to $100,000 for
knowingly entering into certain prohibited referral schemes. The entity also may be excluded from participating in federal health care
programs (including Medicare and Medicaid). There are no criminal penalties for violations of Stark Law. If the Stark Law was found
to apply to our relationships with referring physicians and those relationships did not meet the requirement of an exception under the
Stark Law, we would be required to restructure these relationships or refuse to accept referrals for designated health services from
these physicians. If we were found to have submitted claims to Medicare or Medicaid for services provided pursuant to a referral
prohibited by the Stark Law, we would be required to repay any amounts we received from Medicare for those services and could be
subject to civil monetary penalties. Further, we could be excluded from participating in Medicare and Medicaid. If we were required to
repay any amounts to Medicare, subjected to fines, or excluded from the Medicare and Medicaid Programs, our business and financial
condition would be harmed significantly.
Many states have physician relationship and referral statutes that are similar to the Stark Law. Some of these laws generally apply
without regard to whether the payor is a governmental body (such as Medicare) or a commercial party (such as an insurance company).
While we believe that our operations are structured to comply with applicable state laws with respect to physician relationships and
referrals, any finding that we are not in compliance with these state laws could require us to change our operations or could subject us to
penalties. This, in turn, could have a significantly negative impact on our operations.
False Claims
The submission of claims to a federal or state health care program for items and services that are “not provided as claimed” may lead to
the imposition of civil monetary penalties, criminal fines and imprisonment and/or exclusion from participation in state and federally funded
health care programs, including the Medicare and Medicaid programs, under false claims statutes such as the federal False Claims Act.
Under the federal False Claims Act, actions against a provider can be initiated by the federal government or by a private party on behalf of
the federal government. These private parties are often referred to as qui tam relators, and relators are entitled to share in any amounts
recovered by the government. Both direct enforcement activity by the government and qui tam actions have increased significantly in
recent years, increasing the risk that a health care company like us will have to defend a false claims action, pay fines or be excluded from
the Medicare and Medicaid programs as a result of an investigation. Many states have enacted similar laws providing for the imposition
of civil and criminal penalties for the filing of fraudulent claims. While we operate our business to avoid exposure under the federal False
Claims Act and similar state laws, because of the complexity of the government regulations applicable to our industry, we cannot
guarantee that we will not be the subject of an action under the federal False Claims Act or similar state law.
Anti-fraud Provisions of the HIPAA
In an effort to combat health care fraud, Congress included several anti-fraud measures in HIPAA. Among other things, HIPAA broadened
the scope of certain fraud and abuse laws, extended criminal penalties for Medicare and Medicaid fraud to other federal health care
programs and expanded the authority of the OIG to exclude persons and entities from participating in the Medicare and Medicaid programs.
HIPAA also extended the Medicare and Medicaid civil monetary penalty provisions to other federal health care programs, increased the
amounts of civil monetary penalties and established a criminal health care fraud statute.
Federal health care offenses under HIPAA include health care fraud and making false statements relating to health care matters. Under
HIPAA, among other things, any person or entity that knowingly and willfully defrauds or attempts to defraud a health care benefit program
is subject to a fine, imprisonment or both. Also under HIPAA, any person or entity that knowingly and willfully falsifies or conceals or
covers up a material fact or makes any materially false or fraudulent statements in connection with the delivery of or payment of health
care services by a health care benefit plan is subject to a fine, imprisonment or both. HIPAA applies not only to governmental plans but
also to private payors.
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Form 10-K Part I
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Administrative Simplification Provisions of HIPAA
HHS’s final regulations governing electronic transactions involving health information are part of the administrative simplification provisions
of HIPAA, commonly referred to as the Transaction Standards rule. The rule establishes standards for eight of the most common health
care transactions by reference to technical standards promulgated by recognized standards publishing organizations. Under the rule, any
party transmitting or receiving health transactions electronically must send and receive data in a single format, rather than the large
number of different data formats currently used. This rule applies to us in connection with submitting and processing health claims, and
also applies to many of our payors and to our relationships with those payors. We believe that our operations materially comply with the
Transaction Standards rule.
These regulatory requirements impose significant administrative and financial obligations on companies like us that use or disclose
electronic health information. We have modified our existing HIPAA privacy and security policies and procedures to comply with the
HIPAA regulations.
Civil Monetary Penalties
The Secretary of HHS may impose civil monetary penalties on any person or entity that presents, or causes to be presented, certain
ineligible claims for medical items or services. The severity of penalties varies depending on the offense, from $2,000 to $50,000 per
violation, plus treble damages for the amount at issue and may include exclusion from federal health care programs such as Medicare
and Medicaid.
HHS can also impose penalties on a person or entity who offers inducements to beneficiaries for program services, who violates rules
regarding the assignment of payments, or who knowingly gives false or misleading information that could reasonably influence the
discharge of patients from a hospital. Persons who have been excluded from a federal health care program and who retain ownership in
a participating entity and persons who contract with excluded persons may be penalized.
HHS can also impose penalties for false or fraudulent claims and those that include services not provided as claimed. In addition, HHS
may impose penalties on claims:
• for physician services that the person or entity knew or should have known were rendered by a person who was unlicensed, or by a
person who misrepresented either their qualifications in obtaining their license, or their certification in a medical specialty;
• for services furnished by a person who was, at the time the claim was made, excluded from the program to which the claim was
made; or
• that show a pattern of medically unnecessary items or services.
Penalties also are applicable in certain other cases, including violations of the federal Anti-Kickback Statute, payments to limit certain
patient services and improper execution of statements of medical necessity.
Environmental, Health and Safety Laws
We are subject to federal, state and local regulations governing the storage, use and disposal of materials and waste products. Although
we believe that our safety procedures for storing, handling and disposing of these hazardous materials comply with the standards
prescribed by law and regulation, we cannot completely eliminate the risk of accidental contamination or injury from those hazardous
materials. In the event of an accident, we could be held liable for any damages that result and any liability could exceed the limits or fall
outside the coverage of our insurance. We may not be able to maintain insurance on acceptable terms, or at all. We could incur significant
costs and the diversion of our management’s attention to comply with current or future environmental laws and regulations. We are not
aware of any violations related to compliance with environmental, health and safety laws through 2015.
Licensing
Our agencies and facilities are subject to state and local licensing regulations ranging from the adequacy of medical care to compliance
with building codes and environmental protection laws. To assure continued compliance with these various regulations, governmental and
other authorities periodically inspect our agencies and facilities. Additionally, health care professionals at our agencies and facilities are
required to be individually licensed or certified under applicable state law. We operate our business to ensure that our employees and
agents possess all necessary licenses and certifications.
Form 10-K Part I
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LHC GROUP
The institutional pharmacy operations within our facility-based services segment are also subject to regulation by the various states
in which we conduct the pharmacy business, as well as by the federal government. The pharmacies are regulated under the Food,
Drug and Cosmetic Act and the Prescription Drug Marketing Act, which are administered by the United States Food and Drug
Administration. Under the Comprehensive Drug Abuse Prevention and Control Act of 1970, administered by the United States Drug
Enforcement Administration, as a dispenser of controlled substances, our pharmacy operations must register with the Drug Enforcement
Administration, file reports of inventories and transactions and provide adequate security measures. Failure to comply with such
requirements could result in civil or criminal penalties. We are not aware of any violations of applicable laws relating to our institutional
pharmacy operations through December 31, 2015.
Certificate of Need and Permit of Approval Laws
In addition to state licensing laws, some states require a provider to obtain a certificate of need or permit of approval prior to establishing,
constructing, acquiring or expanding certain health services, operations or facilities. In these states, approvals are required for capital
expenditures exceeding certain amounts that involve certain facilities or services, including home nursing agencies. The certificate of need
or permit of approval issued by the state determines the service areas for the applicable agency or program. The following U.S.
jurisdictions require certificates of need or permits of approval for home nursing agencies: Alabama, Alaska, Arkansas, Georgia, Hawaii,
Kentucky, Maryland, Mississippi, Montana, New Jersey, New York, North Carolina, Rhode Island, South Carolina, Tennessee, Vermont,
Washington, West Virginia and the District of Columbia. In addition, the state of Louisiana continues to have a moratorium on the issuance
of new licenses for home nursing agencies that we expect to remain in effect for 2016.
State certificate of need and permit of approval laws generally provide that, prior to the addition of new capacity, the construction of new
facilities or the introduction of new services, a designated state health planning agency must determine that a need exists for those beds,
facilities or services. The process is intended to promote comprehensive health care planning, assist in providing high quality health care at
the lowest possible cost and avoid unnecessary duplication by ensuring that only needed health care facilities and operations will be built
and opened.
Accreditations
The Joint Commission is a nationwide commission that establishes standards relating to the physical plant, administration, quality of
patient care and operation of medical staffs of health care organizations. Currently, Joint Commission accreditation of home nursing and
hospice agencies is voluntary. However, some managed care organizations use Joint Commission accreditation as a credentialing
standard for regional and state contracts. As of December 31, 2015, the Joint Commission had accredited 268 of our 283 home health
agencies and 34 of our 56 hospice agencies. Those not yet accredited are working towards achieving this accreditation. As we acquire
companies, we apply for accreditation 12 to 18 months after completing the acquisition.
Employees
As of December 31, 2015, we had 10,922 employees, of which 6,835 were full-time. None of our employees are subject to a collective
bargaining agreement. We consider our relationships with our employees and independent contractors to be good.
Insurance
We are subject to claims and legal actions in the ordinary course of our business. To cover claims that may arise, we maintain commercial
insurance for healthcare professional liability, general liability, automobile liability, employed lawyers liability, fiduciary liability, information
security and privacy liabilities, and workers’ compensation/employer’s liability in amounts that we believe are appropriate and sufficient for
our operations. We maintain claims-made healthcare professional liability and occurrence based general liability insurance that provides
primary limits of $1.0 million per incident/ occurrence and $3.0 million in annual aggregate amounts. We maintain workers’ compensation
insurance that meets state statutory requirements and provides a primary employer liability limit of $1.0 million to cover claims that may
arise in the states in which we operate, excluding Ohio and Washington. Coverage for workers compensation matters within Ohio and
Washington is procured from each state’s specific mandated programs and not through third party insurance payors. Under our
workers’ compensation insurance policies, the Company maintains a deductible of the first $0.5 million in workers compensation liability.
We maintain automobile liability insurance for all owned, hired and non-owned autos with a primary limit of $1.0 million. In addition, we
currently maintain multiple layers of umbrella coverage in the aggregate amount of $40.0 million that provides excess coverage for
healthcare professional liability, general liability, automobile liability and employer’s liability. We also maintain directors’ and officers’ liability
insurance in the aggregate amount of $65.0 million. The cost and availability of insurance coverage has varied widely in recent years.
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Form 10-K Part I
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While we believe that our insurance policies and coverage are adequate for a business enterprise of our type, we cannot guarantee that our
insurance coverage is sufficient to cover all future claims or that it will continue to be available in adequate amounts or at a reasonable cost.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and amendments
to those reports are available free of charge on our internet website at www.lhcgroup.com as soon as reasonably practicable after such
reports are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). The SEC also maintains an internet
site at www.sec.gov that contains such reports, proxy and information statements and other information regarding issuers that file
electronically with the SEC. These reports may also be obtained at the SEC’s Public Reference Room at 100 F Street NE, Washington, D.C.
20549. Information on the operation of the Public Reference Room is available by calling the SEC at (800) SEC-0330. Information
contained on our website is not part of or incorporated by reference into this Annual Report on Form 10-K.
Item 1A. Risk Factors.
The risks and uncertainties described below and elsewhere in this Annual Report on Form 10-K could cause our actual results to differ
materially from past or expected results and are not the only ones we face. Other risks and uncertainties that we have not predicted or
assessed may also adversely affect us.
If any of the negative effects associated with the following risks occur, our earnings, financial condition or business could be materially
harmed and the trading price of our common stock could decline, resulting in the loss of all or part of stockholders’ investments.
Risk Factors Related to Reimbursement and Government Regulation
We cannot predict the effect that health care reform and other changes in government programs may have on our business, financial
condition or results of operations.
The PPACA and the Health Care Education Reconciliation Act of 2010 (collectively, the “Acts”) were signed into law by President Obama
on March 23, 2010, and March 30, 2010, respectively. The Acts dramatically alter the United States’ health care system and are
intended to decrease the number of uninsured Americans and reduce overall health care costs. The Acts attempt to achieve these goals
by, among other things, requiring most Americans to obtain health insurance, expanding Medicare and Medicaid eligibility, reducing
Medicare and Medicaid payments, and tying reimbursement to the satisfaction of certain quality criteria. The Acts also contain a number
of measures that are intended to reduce fraud and abuse in the Medicare and Medicaid programs. Because a majority of the measures
contained in the Acts have either just recently or not yet taken effect, it is difficult to predict the impact the Acts will have on our operations.
However, depending on how they are ultimately interpreted and implemented, the Acts could have an adverse effect on our business
and its financial condition and results of operations.
We derive a majority of our consolidated net service revenue from Medicare. If there are changes in Medicare rates or methods
governing Medicare payments for our services, or if we are unable to control our costs, our results of operations and cash flows could
decline materially.
For the years ended December 31, 2015, 2014 and 2013, we received 74.5%, 75.9% and 79.8%, respectively, of our net service revenue
from Medicare. Reductions in Medicare rates or changes in the way Medicare pays for services could cause our net service revenue and
net income to decline, perhaps materially. See Part I, Item 1. Reimbursement in this Annual Report on Form 10-K for additional information
regarding reimbursements. Reductions in Medicare reimbursement could be caused by many factors, including:
• administrative or legislative changes to the base rates under the applicable prospective payment systems;
• the reduction or elimination of annual rate increases;
• the imposition or increase by Medicare of mechanisms shifting more responsibility for a portion of payment to beneficiaries, such
as co-payments;
• adjustments to the relative components of the wage index used in determining reimbursement rates;
• changes to case mix or therapy thresholds;
• the reclassification of home health resource groups or long-term care diagnosis-related groups; or
• further limitations on referrals to long-term acute care hospitals from host hospitals.
Form 10-K Part I
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LHC GROUP
We receive fixed payments from Medicare for our services based on the level of care provided to our patients. Consequently, our
profitability largely depends upon our ability to manage the cost of providing these services. Medicare currently provides for an annual
adjustment of the various payment rates, such as the base episode rate for our home nursing services, based upon the increase or
decrease of the medical care expenditure, which may be less than actual inflation. This adjustment could be eliminated or reduced in any
given year. Also beginning on April 1, 2013 Medicare reimbursement was cut an additional 2% through sequestration as mandated by
the Congressional Budget Act. Further, Medicare routinely reclassifies home health resource groups and long-term care diagnosis-related
groups. As a result of those reclassifications, we could receive lower reimbursement rates depending on the case mix of the patients
we service. If our cost of providing services increases by more than the annual Medicare price adjustment, or if these reclassifications result
in lower reimbursement rates, our results of operations, net income and cash flows could be adversely impacted.
We are subject to extensive government regulation. Any changes in the laws and regulations governing our business, or the interpretation
and enforcement of those laws or regulations, could require us to modify our operations and could negatively impact our operating results
and cash flows.
As a provider of health care services, we are subject to extensive regulation on the federal, state and local levels, including with regard to:
• licensure and certificates of need and permits of approval;
• coding and billing for services;
• conduct of operations, including financial relationships among health care providers, Medicare fraud and abuse and physician
self-referral;
• maintenance and protection of records, including HIPAA;
• environmental protection, health and safety;
• certification of additional agencies or facilities by the Medicare program; and
• payment for services.
The laws and regulations governing our operations, along with the terms of participation in various government programs, regulate how
we do business, the services we offer and our interactions with patients and other providers. See Part I, Item 1. Government Regulations
in this Annual Report on Form 10-K for additional information concerning applicable laws and regulations. These laws and regulations,
and their interpretations, are subject to frequent change. Changes in existing laws, regulations, their interpretations or the enactment of
new laws or regulations could increase our costs of doing business and cause our net income to decline. If we fail to comply with
these applicable laws and regulations, we could suffer civil or criminal penalties, including the loss of our licenses to operate and our ability
to participate in federal and state reimbursement programs.
The PPACA also amended the False Claims Act to provide that a provider must report and return overpayments within 60 days of
identifying the overpayment or the claims for the services that generated the overpayments become false claims subject to the False Claims
Act. Overpayments include payments for services for which the provider does not have proper documentation. If we were to identify
documentation failures that could not be corrected we could be required to return payments received for those claims within the mandated
60-day time period. If we fail to identify and return overpayments within the required 60-day period we could be subject to suits under
the False Claims Act by the government or relators (whistleblowers). On February 13, 2015, CMS announced that it will delay finalizing
regulations that were intended to clarify when a payment is “identified” for purposes of the 60-day rule. Notwithstanding the delay,
providers are still required to comply with the rule even though there is considerable uncertainty over exactly when the 60-day period
begins. Due to this uncertainty, our continued compliance with the False Claims Act and its implementing regulations could have a
material adverse impact on our business and operations.
On October 6, 2014, CMS issued a proposed rule that would revise the Medicare and Medicaid conditions of participation for home
health agencies. The proposed rule would require home health agencies to develop, implement, and maintain an agency-wide, data-driven
quality assessment and improvement program and a system of communication and integration to identify patient needs and coordinate
care. The proposed rule also aims to clarify and expand current patient rights requirements and contains several other clarifications and
updates largely focused on creating a more patient-centered, data-driven, outcome-oriented process for patient care. If the proposed
rule is finalized, we expect to face costs associated with compliance with such changes.
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Form 10-K Part I
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On December 11, 2014, CMS proposed a star rating methodology for home health agencies to meet the PPACA’s call for more transparent,
public information on provider quality. All Medicare-certified home health agencies would be eligible to receive a star rating (from one to
five stars) based on a number of quality measures, such as timely initiation of care, drug education provided to patients, fall risk assessment,
depression assessments, improvements in bed transferring, and bathing, among others. The “Quality of Patient Care Star Ratings”
were first published in July, 2015, and are updated quarterly thereafter based upon new data that is published with the ratings on the
“Home Health Compare” section of the medicare.gov website. While we are pleased with the initial ratings received by our home
health agencies and are striving to improve our results, it is not clear at this time what impact, if any, the new rating system will have on
our home health business.
We are also subject to various routine and non-routine governmental reviews, audits and investigations. These audits include those
conducted through the recovery audit contractor program and the zone program integrity contractor program, in which third party firms
engaged by CMS conduct extensive reviews of claims data and non-medical and other records to identify potential improper payments
under the Medicare Program. In recent years, federal and state civil and criminal enforcement agencies have heightened and coordinated
their oversight efforts related to the health care industry, including with respect to referral practices, cost reporting, billing practices,
joint ventures and other financial relationships among health care providers. Although we have invested substantial time and effort in
implementing policies and procedures to comply with laws and regulations, we could be subject to liabilities arising from violations. A violation
of the laws governing our operations, or changes in the interpretation of those laws, could result in the imposition of fines, civil or criminal
penalties, the termination of our rights to participate in federal and state-sponsored programs or the suspension or revocation of our licenses
to operate. If we become subject to material fines or if other sanctions or other corrective actions are imposed upon us, we may suffer a
substantial reduction in net income.
We are subject to federal and state laws that govern our employment practices. Failure to comply with these laws, or changes to these
laws that increase our employment-related expenses, could adversely impact our operations.
We are required to comply with all applicable federal and state laws and regulations relating to employment, including occupational safety
and health requirements, wage and hour requirements, employment insurance, and equal employment opportunity laws. These laws can
vary significantly among states and can be highly technical. Costs and expenses related to these requirements are a significant operating
expense and may increase as a result of, among other things, changes in federal or state laws or regulations requiring employers to
provide specified benefits to employees, increases in the minimum wage and local living wage ordinances, increases in the level of existing
benefits, or the lengthening of periods for which unemployment benefits are available. We may not be able to offset any increased costs
and expenses. Furthermore, any failure to comply with these laws, including even a seemingly minor infraction, can result in significant
penalties which could harm our reputation and have a material adverse effect on our business. Additionally, a number of states require that
direct care workers receive state-mandated minimum wage and/or overtime pay. Opponents say that the new protections will make
in-home care more expensive for government programs that pay for such services, and that these new rules and regulations could result
in a reduction in covered services. We will continue to evaluate the effect of these various new rules and regulations on our operations.
Current economic conditions and continued decline in spending by the Federal and State governments could adversely affect our results
of operations and cash flows.
Worldwide economic conditions have significantly declined and will likely remain depressed for the foreseeable future. While our services are
not typically sensitive to general declines in the federal and state economies, the erosion in the tax base caused by the general economic
downturn has caused, and will likely continue to cause, restrictions on the federal and state governments’ ability to obtain financing and a
decline in spending. As a result, we may face reimbursement rate cuts or reimbursement delays from Medicare and Medicaid and other
governmental payors, which could adversely impact our results of operations and cash flows.
Form 10-K Part I
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LHC GROUP
If any of our agencies or facilities fail to comply with the conditions of participation in the Medicare program, that agency or facility could
be terminated from Medicare, which could adversely affect our net service revenue and net income.
Our agencies and facilities must comply with the extensive conditions of participation in the Medicare program. These conditions of
participation vary depending on the type of agency or facility, but, in general, require our agencies and facilities to meet specified
standards relating to personnel, patient rights, patient care, patient records, administrative reporting and legal compliance. If an agency or
facility fails to meet any of the Medicare conditions of participation, that agency or facility may receive a notice of deficiency from the
applicable state surveyor. If that agency or facility then fails to institute a plan of correction to correct the deficiency within the time period
provided by the state surveyor, that agency or facility could be terminated from the Medicare program. We respond in the ordinary
course to deficiency notices issued by state surveyors and none of our facilities or agencies have ever been terminated from the Medicare
program for failure to comply with the conditions of participation. Any termination of one or more of our agencies or facilities from the
Medicare program for failure to satisfy the Medicare conditions of participation could adversely affect our net service revenue and net income.
Our revenue may be negatively impacted by a failure to appropriately document services, resulting delays in reimbursement.
Reimbursement to us is conditioned upon providing the correct administrative and billing codes and properly documenting the services
themselves, including the level of service provided, and the necessity for the services. If incorrect or incomplete documentation is provided
or inaccurate reimbursement codes are utilized, this could result in nonpayment for services rendered and could lead to allegations of
billing fraud. This could subsequently lead to civil and criminal penalties, including exclusion from government healthcare programs, such
as Medicare and Medicaid. In addition, third-party payors may disallow, in whole or in part, requests for reimbursement based on
determinations that certain amounts are not covered, services provided were not medically necessary, or supporting documentation was
not adequate. In addition, timing delays 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, 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.
The inability of our long-term acute care hospitals to maintain their certification as long-term acute care hospitals could have an adverse
affect on our results of operations and cash flows.
If our LTACHs fail to meet or maintain the standards for Medicare certification as LTACHs, such as for average minimum patient length-of-
stay and restrictions on sources of referral (e.g. 25 Percent rule), they will receive reimbursement under the prospective payment system
applicable to general acute care hospitals rather than the system applicable to long-term acute care hospitals. Payments at rates
applicable to general acute care hospitals would likely result in our LTACHs receiving less Medicare reimbursement than they currently
receive for their patient services. If any of our LTACHs were subject to payment as general acute care hospitals, our net service revenue
and net income would decline.
The implementation of new patient criteria for our LTACHs under the BBA 2013 will reduce the population of patients eligible for
LTACH-PPS and change the basis upon which we are paid which could adversely affect our revenues and profitability.
The BBA 2013 creates new Medicare criteria and payment rules for our LTACHs. Under the new criteria, our LTACHs treating patients with
at least a three-day prior stay in an acute care hospital intensive care unit and patients on prolonged mechanical ventilation admitted from
an acute care hospital will continue to receive payment under LTACH-PPS rate. Other patients will continue to have access to LTACH
care, but our LTACH will be paid at a “site-neutral rate” for these patients, based on the lesser of per diem Medicare rates paid for patients
with the same diagnoses under IPPS or LTACH costs.
The effective date of the new patient criteria was October 1, 2015, followed by a two-year phase-in period tied to each LTACH’s cost
reporting period. During the phase-in period, payment for patients receiving the site-neutral rate will be based 50% on the current
LTACH-PPS rate and 50% on the new site-neutral rate. For our two LTACHs that have a cost reporting period starting before July 1 of each
year, the phase-in will begin on June 1, 2016. For our six LTACHs that have a cost reporting period starting on or after July 1 of each
year, the phase-in will begin on September 1, 2016.
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Form 10-K Part I
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We continue to analyze Medicare and internal data to estimate the number of our cases that will continue to be paid under the LTACH-PPS
rate. At this time, we estimate that less than one-third of our current LTACH patients will be paid at the site-neutral rate under the new
criteria once it is fully phased-in. The site-neutral payment rates will be based on the lesser of per diem Medicare rates paid for patients
with the same diagnoses under IPPS or our LTACHs costs. There can be no assurance that these site-neutral payments will not be
materially less than the payments currently provided under LTACH-PPS rates.
The additional patient criteria imposed by the BBA 2013 will reduce the population of patients eligible for LTACH-PPS rates and change
the basis upon which our LTACHs are paid for other patients. In addition, the BBA 2013 will generate additional governmental regulations,
including interpretations and enforcement actions surrounding those regulations. These changes could have a material adverse effect
on our business, financial position, results of operations and liquidity.
Our hospice operations are subject to two annual Medicare caps. If any of our hospice providers exceeds such caps, our business and
consolidated financial condition, results of operations and cash flows could be materially adversely affected.
Overall payments made by Medicare to each hospice provider number (generally corresponding to each of our hospice agencies) are
subject to an inpatient cap amount and an overall payment cap amount, which are calculated and published by the Medicare fiscal
intermediary on an annual basis covering the period from November 1 through October 31. If payments received under any of our hospice
provider numbers exceeds either of these caps, we may be required to reimburse Medicare for payments received in excess of the caps,
which could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
If the structures or operations of our joint ventures are found to violate the law, it could have a material adverse impact on our financial
condition and consolidated results of operations.
Several of our joint ventures are with hospitals and physicians, which are governed by the federal Anti-Kickback Statute and similar state
laws. These anti-kickback statutes prohibit the payment or receipt of anything of value in return for referrals of patients or services
covered by governmental health care programs, such as Medicare. The OIG has published numerous safe harbors that exempt qualifying
arrangements from enforcement under the federal Anti-Kickback Statute. We have sought to satisfy as many safe harbor requirements
as possible in structuring our joint ventures. For example, each of our equity joint ventures with hospitals and physicians is structured in
accordance with the following principles:
• the investment interest offered is not based upon actual or expected referrals by the hospital or physician;
• our joint venture partners are not required to make or influence referrals to the joint venture;
• at the time the joint venture is formed, each hospital or physician joint venture partner is required to make an actual capital contribution
to the joint venture equal to the fair market value of his or her investment interest and is at risk to lose his or her investment;
• neither we nor the joint venture entity lends funds to or guarantees a loan to the hospital or physician to acquire interests in the joint
venture; and
• distributions to our joint venture partners are based solely on their equity interests and are not affected by referrals from the hospital
or physician.
Despite our efforts to meet the safe harbor requirements where possible, our joint ventures may not satisfy all elements of the safe
harbor requirements.
If any of our joint ventures were found to be in violation of federal or state anti-kickback or physician referral laws, we could be required to
restructure them or refuse to accept referrals from the physicians or hospitals with which we have entered into a joint venture. We also
could be required to repay to Medicare amounts we have received pursuant to any prohibited referrals, and we could suffer civil or criminal
penalties, including the loss of our licenses to operate and our ability to participate in federal and state health care programs. If any of
our joint ventures were subject to any of these penalties, our business could be materially adversely affected. If the structure of any of our
joint ventures were found to violate federal or state anti-kickback statutes or physician referral laws, we may be unable to implement our
growth strategy, which could have an adverse impact on our future net income and consolidated results of operations.
Form 10-K Part I
25
LHC GROUP
The application of state certificate of need and permit of approval regulations and compliance with federal and state licensing
requirements could substantially limit our ability to operate and grow our business.
Our ability to expand operations in a state will depend on our ability to obtain a state license to operate. States may have a limit on the
number of licenses they issue. For example, Louisiana currently has a moratorium on the issuance of new home nursing agency licenses.
We cannot predict whether this moratorium will be extended beyond this date or whether any other states in which we operate, or may
wish to operate in the future, may adopt a similar moratorium.
As of December 31, 2015, we operated in 12 states that require health care providers to obtain prior approval, known as a certificate
of need or a permit of approval, for the purchase, construction or expansion of health care facilities, to make certain capital expenditures
or to make changes in services or bed capacity. The failure to obtain any requested certificate of need, permit of approval or other license
could impair our ability to operate or expand our business.
Risk Factors Related to Capital and Liquidity
The condition of the financial markets, including volatility and weakness in the equity, capital and credit markets, could limit the availability
and terms of debt and equity financing sources to fund the capital and liquidity requirements of our business.
Financial markets experienced significant disruptions over the past few years. These disruptions have impacted liquidity in the debt markets,
making financing terms for borrowers less attractive and, in certain cases, significantly reducing the availability of certain types of debt
financing. Despite the instability over the past few years within the financial markets nationally and globally, we have not experienced any
individual lender limitations to extend credit under our revolving credit facility. However, the obligations of each of the lending institutions
in our revolving credit facility are separate and the availability of future borrowings under our revolving credit facility could be impacted by
further volatility and disruptions in the financial credit markets or other events. Our inability to access our revolving credit facility or refinance
the revolving credit facility would have a material adverse effect on our business, financial positions, results of operations and liquidity.
Based on our current plan of operations, including acquisitions, we believe our existing cash balance, when combined with expected cash
flows from operations and amounts available under our revolving credit facility, will be sufficient to fund our growth strategy and to meet
our anticipated operating expenses, capital expenditures and debt service obligations for at least the next 12 months. If our future net
service revenue or cash flow from operations is less than we currently anticipate, we may not have sufficient funds to implement our growth
strategy. Further, we cannot readily predict the timing, size and success of our acquisition and internal development efforts and the
associated capital commitments. If we do not have sufficient cash resources, our growth could be limited unless we are able to obtain
additional equity or debt financing.
The agreement governing our revolving credit facility contains, and future debt agreements may contain, various covenants that limit our
discretion in the operation of our business.
The agreement and instruments governing our revolving credit facility, and the agreements and instruments governing future debt
agreements may contain various restrictive covenants that, among other things, require us to comply with or maintain certain financial
tests and ratios that may restrict our ability to:
• incur more debt;
• redeem or repurchase stock, pay dividends or make other distributions;
• make certain investments;
• create liens;
• enter into transactions with affiliates;
• make unapproved acquisitions;
• merge or consolidate;
• transfer or sell assets; and/or
• make fundamental changes in our corporate existence and principal business.
26
Form 10-K Part I
FOCUSED: ON LEADING THE WAY
In addition, events beyond our control could affect our ability to comply with and maintain such financial tests and ratios. Any failure by us
to comply with or maintain all applicable financial tests and ratios and to comply with all applicable covenants could result in an event of
default with respect to our revolving credit facility or any other future debt agreements. An event of default could lead to the acceleration of
the maturity of any outstanding loans and the termination of the commitments to make further extensions of credit. Even if we are able to
comply with all applicable covenants, the restrictions on our ability to operate our business at our sole discretion could harm our business
by, among other things, limiting our ability to take advantage of financing, mergers, acquisitions and other corporate opportunities.
Our net service revenue is concentrated in a small number of states, which makes us sensitive to regulatory and economic changes
in those states.
For the year ended December 31, 2015, our facilities in Louisiana, Mississippi, Tennessee, Alabama, and Arkansas accounted for
approximately 61.1% of our net service revenue. Accordingly, any changes in the current demographic, economic, competitive, or
regulatory conditions in these states could have an adverse effect on our business, financial condition, results of operations and
cash flows. Medicaid changes in these states could also have a material adverse effect on our results of operations and cash flows.
Hurricanes or other adverse weather events could negatively affect the local economies in which we operate or disrupt our operations,
which could have an adverse effect on our business or results of operations.
Our operations along coastal areas in the southern United States are particularly susceptible to hurricanes. Such weather events can
disrupt our operations, result in damage to our properties and negatively affect the local economies in which we operate. Future hurricanes
could affect our operations or the economies in those market areas and result in damage to certain of our facilities, the equipment
located at such facilities or equipment rented to patients in those areas. Our business or results of operations may be adversely affected
by these and other negative effects of future hurricanes. Although we maintain insurance coverage, we cannot guarantee that our
insurance coverage will be adequate to cover any losses or that we will be able to maintain insurance at a reasonable cost in the future.
If our losses from business interruption or property damage exceed the amount for which we are insured, our results of operations and
financial condition would be adversely affected.
We may be more vulnerable to the effects of a public health catastrophe than other businesses due to the nature of our patients.
The majority of our patients are older individuals and others with complex medical challenges, many of whom may be more vulnerable
than the general public during a pandemic or in a public health catastrophe. Our employees are also at greater risk of contracting
contagious diseases due to their increased exposure to vulnerable patients. For example, if a flu pandemic were to occur, we could suffer
significant losses to our consumer population or a reduction in the availability of our employees and, at a high cost, be required to hire
replacements for affected workers. Accordingly, certain public health catastrophes could have a material adverse effect on our financial
condition and results of operations.
Delays in reimbursement may cause liquidity problems.
Our business is characterized by delays in reimbursement from the time we request payment for our services to the time we receive
reimbursement or payment. A portion of our estimated reimbursement (60% for an initial episode of care and 50% for subsequent
episodes of care) for each Medicare episode is billed at the commencement of the episode and we typically receive payment within
approximately seven days. The remaining reimbursement is billed upon completion of the episode and is typically paid within 14 to 17 days
from the billing date. If we have information system problems or issues arise with Medicare or other payors, we may encounter further
delays in our payment cycle. For example, in the past we have experienced delays resulting from problems arising out of the
implementation by Medicare of new or modified reimbursement methodologies or as a result of natural disasters, such as hurricanes.
We have also experienced delays in reimbursement resulting from our implementation of new information systems related to our accounts
receivable and billing functions. Any future timing delay may cause working capital shortages. As a result, working capital management,
including prompt and diligent billing and collection, is an important factor in our consolidated results of operations and liquidity. Our
working capital management procedures may not successfully negate this risk. Significant delays in payment or reimbursement could
have an adverse impact on our liquidity and financial condition.
Form 10-K Part I
27
LHC GROUP
Risk Factors Related to Operations and our Growth Strategy
We could be required to record a material non-cash charge to income if our recorded goodwill or intangible assets are impaired.
Goodwill and other intangible assets represent a significant portion of the assets on our balance sheet and are assessed for impairment
annually or whenever circumstances indicate potential impairment. The goodwill assessment includes comparing the fair value of each
reporting unit to the carrying value of the assets assigned to the reporting unit. If the carrying value of the reporting unit were to exceed
our estimate of fair value of the reporting unit, we would be required to estimate the fair value of the assets and liabilities within the
reporting unit to ascertain the fair value of goodwill. If we determine that the fair value is less than our book value, we could be required to
record a non-cash impairment charge to our consolidated statements of operations, which could have a material adverse effect on our
earnings, debt covenants and ability to access capital.
We assess other intangible assets, such as trade names and licenses, individually, based on expected revenue and cash flows to be
generated by those assets. Specific economic factors and conditions attributed to local agencies could cause these expected revenue
and cash flows to decrease. If we determine that the fair value is less than the carrying value, we could be required to record material
non-cash impairment charges, which could have a material adverse effect on our earnings, debt covenants and ability to access capital.
Our allowance for contractual adjustments and doubtful accounts may not be sufficient to cover uncollectible amounts.
On an ongoing basis, we estimate the amount of Medicare, Medicaid and private insurance receivables that we will not be able to collect.
This allows us to calculate the expected loss on our receivables for the period we are reporting. Our allowance for contractual adjustments
and doubtful accounts may underestimate actual uncollectible receivables for various reasons, including:
• adverse changes in our estimates as a result of changes in payor mix and related collection rates;
• inability to collect funds due to missed filing deadlines or inability to prove that timely filings were made;
• adverse changes in the economy generally exceeding our expectations; or
• unanticipated changes in reimbursement from Medicare, Medicaid and private insurance companies.
If our allowance for contractual adjustments and doubtful accounts is insufficient to cover losses on our receivables, our business,
financial position and results of operations could be materially adversely affected.
Changes in the case mix of patients, as well as payor mix and payment methodologies, may have a material adverse effect on our results
of operations and cash flows.
The sources and amounts of our patient revenue are determined by a number of factors, including the mix of patients and the rates of
reimbursement among payors. Generally, we receive higher reimbursement for services rendered under Medicare. Changes in the case
mix of the patients, payment methodologies or payor mix among private pay, Medicare and Medicaid may significantly affect our results of
operations and cash flows.
Shortages in qualified nurses and other health care professionals could increase our operating costs significantly or constrain our ability
to grow.
We rely on our ability to attract and retain qualified nurses and other health care professionals. The availability of qualified nurses
nationwide has declined in recent years and competition for these and other health care professionals has increased and, therefore, salary
and benefit costs have risen accordingly. Our ability to attract and retain nurses and other health care professionals depends on several
factors, including our ability to provide desirable assignments and competitive benefits and salaries. We may not be able to attract and
retain qualified nurses or other health care professionals in the future. In addition, the cost of attracting and retaining these professionals
and providing them with attractive benefit packages may be higher than anticipated which could cause our net income to decline. Moreover,
if we are unable to attract and retain qualified professionals, the quality of services offered to our patients may decline or our ability to
grow may be constrained.
28
Form 10-K Part I
FOCUSED: ON LEADING THE WAY
If we are required to either repurchase or sell a substantial portion of the equity interests in our joint ventures, our capital resources and
financial condition could be materially adversely impacted.
Upon the occurrence of fundamental changes to the laws and regulations applicable to our joint ventures, or if a substantial number of our
joint venture partners were to exercise the buy/sell provisions contained in many of our joint venture agreements, we may be obligated
to purchase or sell the equity interests held by us or our joint venture partners. In some instances, the purchase price under these buy/sell
provisions is based on a multiple of the historical or future earnings before income taxes, depreciation and amortization of the equity joint
venture at the time the buy/sell option is exercised. In other instances, the buy/sell purchase price will be negotiated by the partners but
will be subject to a fair market valuation process. In the event the buy/sell provisions are exercised and we lack sufficient capital to
purchase the interest of our joint venture partners, we may be obligated to sell our equity interest in these joint ventures. If we are forced
to sell our equity interest, we will lose the benefit of those particular joint venture operations. If these buy/sell provisions are exercised
and we choose to purchase the interest of our joint venture partners, we may be obligated to expend significant capital in order to complete
such acquisitions. If either of these events occurs, our net service revenue and net income could decline or we may not have sufficient
capital necessary to implement our growth strategy.
If we are unable to maintain relationships with existing referral sources or establish new referral sources, our growth and net income could
be adversely affected.
Our success depends significantly on referrals from physicians, hospitals and other health care providers in the communities in which we
deliver our services. Our referral sources are not obligated to refer business to us and may refer business to other health care providers.
We believe many of our referral sources refer business to us as a result of the quality of patient care provided by our local employees in the
communities in which our agencies and facilities are located. If we are unable to retain these employees, our referral sources may refer
business to other health care providers. Our loss of, or failure to maintain, existing relationships or our failure to develop new relationships
could adversely affect our ability to expand our operations and operate profitably.
We face competition, including from competitors with greater resources, which may make it difficult for us to compete effectively as a
provider of post-acute health care services.
We compete with local and regional home nursing and hospice companies, hospitals and other businesses that provide post-acute health
care services, some of which are large, established companies that have significantly greater resources than we do. Our primary competition
comes from local operators in each of our markets. We expect our competitors to develop joint ventures with providers, referral sources
and payors, which could result in increased competition. The introduction by our competitors of new and enhanced service offerings, in
combination with industry consolidation and the development of competitive joint ventures, could cause a decline in net service revenue
and loss of market acceptance of our services. Future increases in competition from existing competitors or new entrants may limit our
ability to maintain or increase our market share. We may not be able to compete successfully against current or future competitors and
competitive pressures may have a material adverse impact on our business, financial condition and results of operations.
We may close additional underperforming agencies in the future.
We regularly review the performance of our various agencies. Our review considers the current financial performance, market penetration,
forecasted market growth and current and future reimbursement payment forecasts. During 2015, we incurred exit activity costs of
$1.8 million in connection with the closure of certain underperforming agencies, including lease termination payments, relocation costs,
severance costs and asset and intangible write-offs.
We will continue to monitor the performance of our agencies on an ongoing basis, and additional closures may from time to time occur
in the future. If we take any further action to close agencies, we will incur additional costs and expenses, which may require us to record
significant charges in future periods. While any such closures would be made in connection with our constant efforts to improve our
profitability, associated charges would have a negative impact on our revenue and possibly our operating results during the short-term.
Form 10-K Part I
29
LHC GROUP
Future acquisitions may be unsuccessful and could expose us to unforeseen liabilities. Further, our acquisition and internal development
activity may impose strains on our existing resources.
Our growth strategy involves the acquisition of home nursing agencies and facilities throughout the United States. These acquisitions
involve significant risks and uncertainties, including difficulties integrating acquired personnel and other corporate cultures into our
business, the potential loss of key employees or patients of acquired agencies and the assumption of liabilities and exposure to unforeseen
liabilities of acquired agencies. We may not be able to fully integrate the operations of the acquired businesses with our current business
structure in an efficient and cost-effective manner. The failure to effectively integrate any of these businesses could have a material adverse
effect on our operations.
We generally structure our acquisitions as asset purchase transactions in which we expressly state that we are not assuming any
pre-existing liabilities of the seller and obtain indemnification rights from the previous owners for acts or omissions arising prior to the date
of such acquisitions. However, the allocation of liability arising from such acts or omissions between the parties could involve the
expenditure of a significant amount of time, manpower and capital. Further, the former owners of the agencies and facilities we acquire may
not have the financial resources necessary to satisfy our indemnification claims relating to pre-existing liabilities. If we were unsuccessful
in a claim for indemnification from a seller, the liability imposed could materially adversely affect our operations.
In addition, as we continue to expand our markets, our growth could strain our resources, including management, information and
accounting systems, regulatory compliance, logistics and other internal controls. Our resources may not keep pace with our anticipated
growth. If we do not manage our expected growth effectively, our future prospects could be affected adversely.
We may face increased competition for attractive acquisition and joint venture candidates.
We intend to continue growing through the acquisition of additional home-based agencies and the formation of joint ventures with
hospitals for the operation of home-based agencies. We face competition for acquisition and joint venture candidates, which may limit
the number of acquisition and joint venture opportunities available to us or lead to the payment of higher prices for our acquisitions and
joint ventures. We cannot guarantee that we will be able to identify suitable acquisition or joint venture opportunities in the future or that any
such opportunities, if identified, will be consummated on favorable terms, if at all. Without successful acquisitions or joint ventures, our
future growth rate could decline. In addition, we cannot guarantee that any future acquisitions or joint ventures, if consummated, will result
in further growth.
Federal regulation may impair our ability to consummate acquisitions or open new agencies.
Changes in federal laws or regulations may materially adversely impact our ability to acquire home nursing agencies or open new start-up
home nursing agencies. For example, CMS has adopted a regulation known as the “36 Month Rule” that is applicable to home health
agency acquisitions. Subject to certain exceptions, the 36 Month Rule prohibits buyers of certain home health agencies – those that either
enrolled in Medicare or underwent a change in ownership fewer than 36 months prior to the acquisitions – from assuming the Medicare
billing privileges of the acquired agency. Instead, the acquired home health agencies must enroll as new providers with Medicare. As a result,
the 36 Month Rule may further increase competition for acquisition targets that are not subject to the rule, and may cause significant
Medicare billing delays for the purchases of home health agencies that are subject to the rule.
We are subject to a corporate integrity agreement and could be subject to substantial monetary penalties or suspension of participation
in federal health care programs for noncompliance.
On September 29, 2011, we entered into a corporate integrity agreement (“CIA”) with the Office of Inspector General of the Department
of Health and Human Services. The CIA imposes certain auditing, self-reporting and training requirements that we must comply with. Failure
to comply with certain obligations may lead to the imposition of monetary penalties and/or exclusion from participation in the federal
health care programs. The imposition of monetary penalties would adversely affect our profitability. An exclusion from participation in the
federal health care programs would have a material adverse effect on our financial condition as a substantial portion of our net service
revenue is attributable to payments received under the Medicare and Medicaid programs.
30
Form 10-K Part I
FOCUSED: ON LEADING THE WAY
If we are subject to substantial malpractice or other similar claims, it could materially adversely impact our results of operations and
financial condition.
The services we offer have an inherent risk of professional liability and substantial damage awards. We, and the nurses and other health
care professionals who provide services on our behalf, may be the subject of medical malpractice claims. These nurses and other
health care professionals could be considered our agents and, as a result, we could be held liable for their medical negligence. 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. We maintain malpractice liability insurance that provides primary coverage on a
claims-made basis of $1.0 million per incident and $3.0 million in annual aggregate amounts. In addition, we maintain multiple layers of
umbrella coverage in the aggregate amount of $40.0 million that provide excess coverage for professional malpractice and other liabilities.
We are responsible for deductibles and amounts in excess of the limits of our coverage. Claims that could be made in the future in
excess of the limits of such insurance, if successful, could materially adversely affect our financial condition. In addition, our insurance
coverage may not continue to be available to us at commercially reasonable rates, in adequate amounts or on satisfactory terms.
Failure of, or problems with, our critical software or information systems could harm our business and operating results.
We depend upon reliable and secure information systems to provide valuable tools by which we manage our business, comply with legal
requirements and provide services. In addition to our Service Value Point system, our business is also substantially dependent on
non-proprietary software. We utilize a third-party software information system for billing and maintaining patient claim receivables for our
LTACHs. Our systems require constant maintenance and upgrading to preserve and enhance system capabilities and security. Problems
with, or the failure of, our information systems or software could negatively impact our clinical performance and our management and
reporting capabilities. Any significant problems with or failures of our information systems or software could materially and adversely affect
our operations and reputation, result in significant costs to us, cause delays in our ability to bill Medicare or other payors for our services,
or impair our ability to provide our services in the future. The costs incurred in correcting any errors or problems with our proprietary and
non-proprietary software may be substantial and could adversely affect our net income. Our agencies also depend upon our information
systems for accounting, billing, collections, risk management, quality assurance, payroll, education tracking and operational performance.
If we experience a reduction in the performance, reliability, availability or accuracy of our information systems, our operations and
financial performance, and ability to report timely and accurate information, could be adversely affected.
Operations that we acquire must be integrated into our various information systems in an efficient and effective manner. For certain aspects,
we rely upon third party contractors to assist us with those activities. If we are unable to integrate and transition any acquired business
into our information systems, due to our failures or any failure of our third party contractors, we could incur unanticipated expenses, suffer
disruptions in service, experience regulatory issues and lose revenue from the operation of such business.
Our information systems are networked via public network infrastructure and standards based encryption tools that meet regulatory
requirements for transmission of protected health information over such networks. We have installed privacy protection systems on our
network and point-of-care devices to prevent unauthorized access to proprietary, sensitive and legally protected information. However,
threats from computer viruses, instability of the public network on which our data transit relies, or other instances that might render those
networks unstable or disabled would create operational difficulties for us, including difficulties effectively transmitting claims and
maintaining efficient clinical oversight of our patients, as well as disrupting revenue reporting and billing and collections management, which
could adversely affect our business or operations. If personal or protected information of our patients, employees or others with whom
we do business is tampered with, stolen or otherwise improperly accessed, we may incur additional fines and penalties associated with
the breach of security or take other action with respect to judicial or regulatory actions arising out of the incident, including under HIPAA
or other judicial acts, as applicable.
Our information systems are also subject to damage or service interruption due to natural disasters, floods, fires, loss of power, loss of
telecommunications connectivity, and other events that may be beyond our immediate control. While we maintain and test various disaster
recovery plans and procedures, our failure to successfully implement and execute upon such plans and procedures, and restore the full
operational capabilities of our information systems and software in an effective and efficient manner, could have a material adverse effect
on the functionality of our information systems and our business, financial condition, results of operations and cash flows, and cause a
possible significant disruption of our operations and services.
Form 10-K Part I
31
LHC GROUP
Our inability to effectively and timely transition to the new ICD-10 coding system could disrupt our operations.
CMS has mandated that all providers implement the use of new patient codes for medical coding, referred to as ICD-10 codes, on or
before October 1, 2015. This mandate substantially increased the number of medical billing codes by which we will seek reimbursement,
increasing the complexity of submitting claims for reimbursement. Claims that we submit to CMS after October 1, 2015 must use ICD-10
codes or such claims will not be paid. Transition to the new ICD-10 system required alterations to our clinical software systems, as well as
training of our staff involved in the coding and billing processes. In addition to these upfront costs of transition to ICD-10, it is possible
that we could experience disruption or delays in payment due to implementation issues, including software errors, coding errors or a
decrease in the productivity of our staff involved in coding and billing processes. Any such delays in payment could disrupt our operations
and materially and adversely affect our business.
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
secure favorable contracts with managed care payors. However, we may not be successful in these efforts. Additionally, there is a risk that
any favorable managed care contracts that we can secure may be terminated on short notice, since managed care contracts typically
permit the payor to terminate without cause, typically on 60 days notice. Such provisions can provide payors with leverage to reduce volume
or obtain favorable pricing. Our failure to negotiate, secure and maintain favorable managed care contracts could have a material adverse
effect on our business and consolidated financial condition, results of operations and cash flows.
Risk Factors Related to our Ownership and Management
Start-up home nursing agencies can be delayed from opening in a timely manner due to processing or regulatory approvals.
There can be delays associated with opening a de novo home nursing agency. These delays are the result of processing delays with the
state regulatory bodies as well as processing delays by the associated fiscal intermediaries that serve as billing liaisons between the
home nursing agency and CMS. To initiate operations at a de novo home nursing agency, we must submit the necessary applications
along with the required documentation to the appropriate state and federal regulatory bodies. However, CMS has issued a memorandum
which prioritizes the initial surveys for new Medicare providers as lowest priority for the state regulatory bodies. Moreover, depending
on state requirements, the fiscal intermediary may need to receive the state license before the approval process can move forward. Once
the necessary application and documentation has been submitted to the state and federal regulatory bodies, there is a testing period of
transmitting data from the applicant to CMS. Once complete, the home nursing agency receives a provider agreement and corresponding
number and can begin billing. If we are unable to obtain regulatory approval for our de novo home nursing agencies in a timely manner,
such delays could have a material adverse effect on our business and our consolidated financial condition, results of operations and
cash flows.
As a holding company, we have no material assets or operations of our own.
We are a holding company, whereby our material assets and operations are held by our subsidiaries. Accordingly, our ability to service
our debt, if any, is dependent upon the earnings from the business conducted by our subsidiaries. The distributions of those earnings or
advances or other distributions of funds by these subsidiaries to us are contingent upon the subsidiaries’ earnings and are subject to
various business considerations. In addition, distributions by subsidiaries could be subject to statutory restrictions, including state laws
requiring that the subsidiary be solvent, or contractual restrictions. If our subsidiaries are unable to make sufficient distributions or
advances to us, we may not have the cash resources necessary to service our debt.
The loss of certain executive management or key employees could have a material adverse effect on our operations and financial
performance.
Our success depends upon the continued employment of our executive management team and key employees and our ability to retain
and motivate these individuals. If we lose the services of one or more of our executive officers or key employees, we may not be able
to successfully manage our business, achieve our business goals or replace them with equally qualified personnel. The loss of any of our
executive officers or key employees could have a material adverse effect on our operations and financial performance.
32
Form 10-K Part I
FOCUSED: ON LEADING THE WAY
Our executive officers and directors and their affiliates hold a substantial portion of our outstanding shares of common stock and could
exercise significant influence over matters requiring stockholder approval, regardless of the wishes of other stockholders.
Our executive officers and directors and individuals or entities affiliated with them, beneficially own an aggregate of approximately 18.6%
of our outstanding shares of common stock as of December 31, 2015. The interests of these stockholders may differ from other
stockholders’ interests. If they were to act together, these affiliated stockholders would be able to significantly influence all matters that
our stockholders vote upon, including the election of directors, business combinations, the amendment of our certificate of incorporation
and other significant corporate actions.
Certain provisions of our charter, bylaws, and Delaware law may delay or prevent a change in control of the Company.
Delaware law and our governing documents contain provisions that may enable our Board of Directors to resist a change in control of the
Company. These provisions include:
• a staggered Board of Directors;
• limitations on persons authorized to call a special meeting of stockholders;
• the authorization of undesignated preferred stock, the terms of which may be established and shares of which may be issued without
stockholder approval; and
• advance notice procedures required for stockholders to nominate candidates for election as directors or to bring matters before an
annual meeting of stockholders.
These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control of the Company. These
provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors or cause us to take other
corporate actions.
We have implemented other anti-takeover provisions or provisions that could have an anti-takeover effect. 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 common stock. Therefore,
our stockholders may be deprived of opportunities to profit from a sale of control.
Our common stock is traded infrequently, which may cause volatility in our stock price, including a decline in value.
We have a relatively low volume of daily trades in our common stock on the NASDAQ Global Select Market (“NASDAQ”). For example,
the average daily trading volume of our common stock on NASDAQ over the three-month trading period ending February 25, 2016 was
approximately 123,812 shares per day. Because our common stock is traded infrequently, the price per share of our common stock can
fluctuate more significantly from day-to-day than a widely held stock that is actively traded on a daily basis. For example, trading of a large
volume of our common stock may have a significant impact on the trading price of our common stock. In addition, future issuances
of our common stock, including the exercise of any options or the vesting of any restricted stock that we may grant to directors, executive
officers and other employees in the future and the issuance of our common stock in connection with acquisitions, could have an adverse
effect on the market price of our common stock.
We do not anticipate paying dividends on our common stock in the foreseeable future and, consequently, your ability to achieve a return
on your investment will depend solely on appreciation in the price of our common stock.
We do not pay dividends on our shares of common stock and intend to retain all future earnings to finance the continued growth and
development of our business and for general corporate purposes. In addition, we do not anticipate paying cash dividends on our common
stock in the foreseeable future. Any future payment of cash dividends will depend upon our financial condition, capital requirements,
credit facility limitations, earnings and other factors deemed relevant by our board of directors.
Form 10-K Part I
33
LHC GROUP
If we identify deficiencies in our internal control over financial reporting, our business and our stock price could be adversely affected.
We are required to report on the effectiveness of our internal control over financial reporting as required by Section 404 of Sarbanes-Oxley.
Under Section 404, we are required to assess the effectiveness of our internal control over financial reporting and report our conclusion
in our Annual Report. Our independent registered public accounting firm is also required to report its conclusion regarding the effectiveness
of our internal control over financial reporting. The existence of one or more material weaknesses could require us and our auditor to
conclude that our internal control over financial reporting is not effective. If material weaknesses in our internal control over financial
reporting are identified, we could be subject to regulatory scrutiny and a loss of public confidence in our financial reporting, which could
have an adverse effect on our business and price of our common stock.
Item 1B. Unresolved Staff Comments.
We have no unresolved written comments from the staff of the SEC regarding our periodic or current reports filed under the Exchange Act.
Item 2. Properties.
Our principal executive office is located in Lafayette, Louisiana, in a 66,846 square feet building that is leased. The lease agreement
commenced on February 1, 2015 and will expire on March 30, 2025.
Of our operating service locations, three are owned by us and the remaining locations are in leased facilities. Most of our operating service
locations are located in general commercial office space. Generally, the leases have initial terms of one year, but range from one to five
years. Most of the leases either contain multiple options to extend the lease period in one-year increments or convert to a month-to-month
lease upon the expiration of the initial term.
Eight of our LTACHs are HWHs, meaning we have a lease or sublease for space with the host hospital. Generally, our leases or subleases
for LTACHs have initial terms of five years, but range from three to ten years. Most of our leases and subleases for our LTACHs contain
multiple options to extend the term in one-year increments.
The following table shows our locations of our home health services, hospice services, community-based services, and facility-based
services facilities as of December 31, 2015:
Home Health
Services
Hospice
Services
Community- Facility-Based
Based Services
Services
43
34
32
30
27
19
17
9
9
9
9
8
6
4
4
4
4
4
2
2
2
2
1
1
1
283
7
10
2
—
6
5
3
—
—
—
4
9
3
—
—
2
—
—
—
—
1
—
—
4
—
56
—
—
1
5
—
—
—
—
1
—
1
—
2
—
—
—
—
—
—
—
3
—
—
—
—
13
11
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
11
Louisiana
Mississippi
Tennessee
Kentucky
Alabama
Arkansas
West Virginia
Illinois
Maryland
Texas
Washington
Georgia
Missouri
California
Colorado
Idaho
Oregon
Virginia
Arizona
Florida
North Carolina
Ohio
Rhode Island
South Carolina
Wisconsin
34
Form 10-K Part I
FOCUSED: ON LEADING THE WAY
Item 3. Legal Proceedings.
We are involved in various legal proceedings arising in the ordinary course of business. Although the results of litigation cannot be
predicted with certainty, management believes the outcome of pending litigation will not have a material adverse effect on our condensed
consolidated financial statements, after considering the effect of our insurance coverage.
On June 13, 2012, a putative shareholder securities class action was filed against the Company and its Chairman and Chief Executive
Officer in the United States District Court for the Western District of Louisiana, styled City of Omaha Police & Fire Retirement System v.
LHC Group, Inc., et al., Case No. 6:12-cv-1609-JTT-CMH. The action was filed on behalf of LHC shareholders who purchased shares of
the Company’s common stock between July 30, 2008 and October 26, 2011, alleging violations of Section 10(b), 20(a), and 20A of the
Securities Exchange Act of 1934, as amended. On June 16, 2014, following mediation, the parties entered a Stipulation of Settlement.
On August 5, 2014, the District Court entered an Order Preliminarily Approving Settlement and Providing for Notice. On March 3, 2015,
the District Court entered its Judgments adopting the Report and Recommendation previously issued and dismissing the action with
prejudice. The time for appeal has passed and no appeals were filed. This matter is now concluded. The Company’s insurance carrier
funded the entire $7.9 million settlement amount.
On October 18, 2013, a derivative complaint was filed by a purported Company shareholder against certain of the Company’s current and
former executive officers, employees and members of its Board of Directors in the United States District Court for the Western District of
Louisiana, styled Plummer v. Myers, et al., Case No. 6:13-cv-2899-JTT-CMH. The action was brought derivatively on behalf of the
Company, which is also named as a nominal defendant. Plaintiff generally alleges that the individual defendants breached their fiduciary
duties owed to the Company. The complaint also alleges claims for insider selling and unjust enrichment against the Company’s Chairman
and Chief Executive Officer and the Company’s former President and Chief Operating Officer.
On December 30, 2013, a related derivative complaint was filed by a purported Company shareholder against certain of the Company’s
current and former executive officers, employees and members of its Board of Directors in the United States District Court of the Western
District of Louisiana, styled McCormack v. Myers, et al., Case No. 6:13-cv-3301-JTT-CMH. The action was brought derivatively on the
Company’s behalf and the Company was also named as a nominal defendant. Plaintiff generally alleges that the individual defendants
breached their fiduciary duties owed to the Company and wasted corporate assets. Plaintiff also alleges that the Company’s Chairman
and Chief Executive Officer caused false and misleading statements to be issued in violation of Section 10(b) of the Exchange Act and
Rule 10b-5 promulgated thereunder and that the Company’s Directors are control persons under Section 20(a) of the Exchange Act. The
complaint also alleges claims for insider selling, misappropriation of information and unjust enrichment against the Company’s Chairman
and Chief Executive Officer and the Company’s former President and Chief Operating Officer.
On March 25, 2014, the McCormack derivative action was consolidated with the Plummer derivative action described above and stayed.
On October 7, 2015, the parties entered into a Stipulation of Settlement. On October 19, 2015, Plaintiffs filed an Unopposed Motion for
Preliminary Approval of Proposed Derivative Settlement. On October 26, 2015, the District Court entered an Order Preliminary Approving
Settlement in the amount of $0.6 million. On January 11, 2016, the District Court entered its Order and Final Judgment approving the
settlement and dismissing the consolidated action with prejudice. The Company’s insurance carrier has funded the entire amount, which
was immediately releasable to Plaintiffs’ counsel on January 11, 2016. The Company’s balance sheet reflects the entire settlement in
current assets as a receivable due from insurance carrier and correspondingly reflects the entire settlement in current liabilities as a legal
settlement payable.
Item 4. Mine Safety Disclosures.
Not applicable.
Form 10-K Part I
35
LHC GROUP
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.
Sales of Unregistered Common Stock
None.
Market Information and Holders
Our common stock trades on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “LHCG.” As of February 22, 2016, there
were approximately 156 registered holders of record of our common stock.
Dividend Policy
We have not paid any dividends on our common stock since our initial public offering in 2005 and do not anticipate paying dividends in
the foreseeable future. We currently intend to retain future earnings, if any, to support the development and growth of our business.
Payment of future dividends, if any, will be at the discretion of our Board of Directors and subject to any requirements under our credit
facility or any future debt instruments.
Price Range of Common Stock
The following table provides the high and low prices of our common stock during each quarter in 2015 and 2014 as quoted by NASDAQ:
2015
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2014
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Low
$ 49.16
51.12
40.61
34.40
$ 31.46
25.77
22.30
24.59
$ 42.97
36.95
30.15
28.88
$ 22.74
21.30
19.90
21.80
The closing price of our common stock as reported by NASDAQ on March 1, 2016 was $37.43.
Performance Graph
This item is incorporated by reference from our Annual Report to Stockholders for the fiscal year ended December 31, 2015.
Issuer Purchases of Equity Securities
In October 2010, our Board of Directors authorized a program to repurchase shares of our common stock, par value $0.01 per share,
from time to time, in an amount not to exceed $50.0 million (“Stock Repurchase Program”). During the twelve months ended
December 31, 2015, 2014, and 2013, no shares were repurchased. In accordance with the terms of the Stock Repurchase Agreement,
it expired on September 4, 2015.
36
Form 10-K Part I I
FOCUSED: ON LEADING THE WAY
Item 6. Selected Financial Data.
The selected consolidated financial data presented below is derived from our audited consolidated financial statements for each of the
years in the five year period ended December 31, 2015. The financial data for the years ended December 31, 2015, 2014 and 2013
should be read together with our consolidated financial statements and related Notes included in Part II, Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations and Item 8. Financial Statements and Supplementary Data included herein
(amounts in thousands, except share and per share data).
Year Ended December 31,
2015
2014
2013
2012
2011
Consolidated Statements of Operations Data:
Net service revenue
Gross margin
Operating income (loss)
Income (loss) from continuing operations
Net income (loss) available to LHC Group, Inc.’s
$ 816,366
335,488
66,343
41,650
$ 733,632
298,857
45,486
28,752
$ 658,283
274,819
46,737
29,146
$ 637,569
271,817
54,305
35,428
$ 633,872
281,526
(6,382)
(3,651)
common stockholders
32,335
21,837
22,342
27,440
(13,244)
Net income (loss) attributable to LHC Group Inc.’s
common stockholders per basic share:
$
1.86
$
1.27
$
1.31
$
1.54
$
(0.73)
Net income (loss) attributable to LHC Group Inc.’s
common stockholders per diluted share:
$
1.84
$
1.26
$
1.30
$
1.53
$
(0.73)
Weighted average shares outstanding:
Basic
Diluted
17,405,379
17,547,531
17,229,026
17,315,333
17,049,794 17,853,321
17,132,751 17,899,195
18,265,118
18,265,118
As of December 31,
2015
2014
2013
2012
2011
Consolidated Balance Sheet Data:
Cash
Total assets
Total debt
Total LHC Group, Inc. stockholders’ equity
$ 6,139
566,054
98,784
354,582
531
$
491,739
61,008
318,639
$ 14,014
422,226
23,212
293,009
$ 9,720
386,894
19,500
268,181
256
$
396,376
34,820
263,683
Form 10-K Part I I
37
LHC GROUP
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis contains forward-looking statements about future revenues, operating results, plans and expectations.
Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and
uncertainties and our results could differ materially from the results anticipated by our forward-looking statements as a result of many
known or unknown factors, including, but not limited to, those factors discussed in Part I, Item 1A. Risk Factors. Also, please read
the “Cautionary Statement Regarding Forward-Looking Statements” set forth at the beginning of this Annual Report on Form 10-K.
In addition, read the following discussion in conjunction with Part 1 of this Annual Report on Form 10-K as well as our Consolidated
Financial Statements and the related Notes contained elsewhere in this Annual Report on Form 10-K.
Overview
We provide post-acute health care services primarily to Medicare beneficiaries throughout the United States, through our home health
agencies, hospice agencies, community-based services agencies, and long-term acute care hospitals (“LTACHs”). Our net service revenue
increased $82.8 million to $816.4 million for the year ending December 31, 2015 from $733.6 million for the year ending December 31,
2014. During 2015, we acquired 28 agencies, such that, as of December 31, 2015, we operated 363 locations in the following 25 states:
Alabama, Arizona, Arkansas, California, Colorado, Florida, Georgia, Idaho, Illinois, Kentucky, Louisiana, Maryland, Mississippi, Missouri,
North Carolina, Ohio, Oregon, Rhode Island, South Carolina, Tennessee, Texas, Virginia, Washington, West Virginia and Wisconsin.
Segments
Our services are classified into four segments: (1) home health services; (2) hospice services; (3) community-based services and
(4) facility-based services offered primarily through our LTACHs.
Through our home health services segment we offer a wide range of services, including skilled nursing, medically-oriented social services,
and physical, occupational and speech therapy. As of December 31, 2015, we operated 283 home health service locations, of which
168 are wholly-owned by us, 109 are majority-owned or controlled by us through equity joint ventures, three are controlled by us through
license lease arrangements and the remaining three are only managed by us.
Through our hospice services segment, we offer a wide range of services, including pain and symptom management, emotional and
spiritual support, inpatient and respite care, homemaker services, and counseling. As of December 31, 2015, we operated 56 hospice
locations, of which 43 are wholly-owned by us, 11 are majority-owned by us through equity joint ventures and two are controlled by us
through license lease arrangements.
Through our community-based services segment, our services are performed by paraprofessional personnel, and include assistance to
the elderly, chronically ill, and disabled patients with activities of daily living. As of December 31, 2015, we operated 13 community-based
services locations, of which 12 are wholly-owned and one is majority-owned through an equity joint venture.
We provide facility-based services principally through our LTACHs. As of December 31, 2015, we owned and operated six LTACHs with
eight locations, of which all but one are located within host hospitals. We also operate a pharmacy, family health center, and family
health clinic. Of these 11 facility-based services locations as of December 31, 2015, six are wholly-owned by us and five are controlled
by us through equity joint ventures.
The percentage of net service revenue contributed from each reporting segment for the each of the periods ended December 31, 2015,
2014 and 2013 was as follows:
Type of Segment
Home Health Services
Hospice Services
Community-Based Services
Facility-Based Services
2015
75.1%
10.5
5.1
9.3
2014
77.0%
9.2
3.8
10.0
2013
79.5%
8.5
0.5
11.5
100.0%
100.0%
100.0%
38
Form 10-K Part I I
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Development Activities
The following table provides a summary of our acquisitions, divestitures and internal development activities from January 1, 2013 through
December 31, 2015. This table does not include the three management services agreements under which we manage the operations
of three home nursing agencies, through our home health services segment, nor does it include our pharmacy, family health center and
family health clinic, through our facility-based services segment.
FOCUSED: ON LEADING THE WAY
Total at January 1, 2013
Developed
Acquired
Divested/Merged
Total at January 1, 2014
Developed
Acquired
Divested/Merged
Total at January 1, 2015
Developed
Acquired
Divested/Merged
Total at December 31, 2015
Recent Developments
Home-Based Services
Home Health
Agencies
Hospice
Agencies
Community-
Based
Agencies
Long-Term
Acute Care
Hospitals
233
—
23
—
256
3
40
(22)
277
—
9
(6)
280
32
—
2
—
34
1
6
(3)
38
2
17
(1)
56
6
1
—
—
7
—
6
(1)
12
—
2
(1)
13
9
—
—
—
9
—
—
(1)
8
—
—
—
8
When the Patient Protection and Affordable Care Act (“PPACA”) was enacted in 2010, it changed a number of Medicare payment rates,
including the reinstatement of the 3% home health rural add-on, which began on April 1, 2010 (expired on January 1, 2016). Other changes
from PPACA that took effect on or after January 1, 2011 were:
• reduced the market basket adjustment to be determined by CMS for each of 2011, 2012 and 2013 by 1%;
• instituted a full productivity adjustment beginning in 2015; and
• re-based the base payment rate for Medicare beginning in 2014 and phasing in over a four year period.
On October 30, 2014, CMS issued a Final Rule (effective January 1, 2015) regarding payment rates for home health services provided during
2015. The net impact of all policies in the rule is a reduction in Medicare payments of 0.3%. CMS estimated that freestanding proprietary
agencies would have a 0.9% reduction in Medicare reimbursement compared with 2014 levels. The final rule included the following elements:
• The national, standardized 60-day episode payment rate increased from $2,869.27 in 2014 to $2,961.38 in 2015. This is a net
3.2% increase in standardized rate, due to application of (1) a wage index budget neutrality factor (+.24%) and (2) a case mix budget
neutrality factor (+3.66%) to the 2014 standard rate which is offset by a recalibration of the case mix, then subtracting the rebasing
adjustment of -$80.95 (2.82% of 2014 rates), then applying the net market basket adjustment of +2.1% (Market Basket =+2.6%,
Productivity Adjustment =-0.5%).
• The 2013 Office of Management and Budget (“OMB”) core-based statistical area (“CBSA”) designations for calculating wage indexes
were adopted. The proposed rule updated the HHA wage index using a 50/50 blend of the existing CBSA designations and the new
CBSA designations outlined in a February 28, 2013, Office of Management and Budget bulletin, respectively. Nationally, 37 counties
shifted from urban to rural and 105 counties shifted from rural to urban.
• The face-to-face narrative requirement was eliminated. CMS will only consider medical records from the patient’s certifying physician or
discharging facility in determining initial eligibility for Medicare’s home health benefit. Physician claims for certification/re-certification
of eligibility (not the face-to-face encounter visit) will be considered a non-covered service if the HHA claim was non-covered because
the patient was ineligible for the home health benefit.
• The scheduling and administration of therapy reassessments were modified to every 30 calendar days as opposed to tracking and
counting therapy visits, especially for multiple-discipline therapy episodes.
• The 3% rural add-on will only apply to counties that are classified as rural under the 2013 CBSA designations. Nationally, 37 counties
will shift from urban to rural and pick up the rural add-on, and 105 counties will shift from rural to urban and will lose the rural add-on,
but may offset some of that loss by a positive increase in wage index.
• CMS also made several minor policy changes, which will not affect reimbursement.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-K Part I I
39
LHC GROUP
On April 14, 2015, legislation was passed which limits any increase in home health payments to 1% for fiscal year 2018, and extends the
3% rural home health safeguard for two years through December 31, 2017.
On October 30, 2015, CMS released a Final Rule (effective January 1, 2016) regarding payment rates for home health services provided
during calendar year 2016. The national, standardized 60-day episode payment rate will increase to $2,965.12 in 2016. The rural
rate will be $3,054.07. This is a net 0.01% increase in the national, standardized 60-day episode payment rate, due to application of
(1) rebasing decrease of $80.95, (2) case-mix adjustment decrease of 0.97%, (3) net market basket increase of 1.9%, (4) case-mix
recalibration budget neutrality adjustment increase of 1.87%, and (5) wage index budget neutrality adjustment increase of 0.11%. The
home health market basket percentage increase for 2016 is 2.3% and the multifactor productivity adjustment is 0.4% for a net home
health market basket of 1.9%. CMS reduced its estimate of nominal case-mix growth between 2012 and 2014 from 3.41% to 2.88%
(0.53%) and spread the adjustment over three years at 0.97% each year to account for nominal case-mix growth. The finalized
payment policies results in a 1.4% reduction in Medicare payments for all home health agencies.
In addition, CMS finalized its proposal to implement a Home Health Value-Based Purchasing (“HHVBP”) program that is intended to
incentivize the delivery of high-quality patient care. The HHVBP program would withhold 3% to 8% of Medicare payments, which
would be redistributed to participating home health agencies depending on their performance relative to specified measures. The HHVBP
would apply to all home health agencies in Arizona, Florida, Iowa, Massachusetts, Maryland, Nebraska, North Carolina, Tennessee,
and Washington.
Hospice
On August 22, 2014, CMS released its Final Rule for hospice for fiscal year 2015, which increased Medicare reimbursement payments
by 1.4% over fiscal year 2014. The 1.4% increase consists of a 2.9% inflationary market basket update offset by a 0.7% reduction related
to the wage index changes and the sixth year of CMS’s seven-year phase-out of its wage index budget neutrality adjustment factor, a
0.5% reduction for the productivity adjustment, and a 0.3% reduction to the market basket as defined by PPACA. The following table shows
the hospice Medicare payment rates for fiscal year 2014, which began on October 1, 2014 and ended September 30, 2015:
Description
Routine Home Care
Continuous Home Care
Full Rate = 24 hours of care
$38.75 = hourly rate
Inpatient Respite Care
General Inpatient Care
Rate Per Patient Day
$ 159.34
$ 929.91
$ 164.81
$ 708.77
On July 31, 2015, CMS released a Final Rule that updated the Medicare hospice payment rates and wage index for fiscal year 2016,
which is estimated to be an increase in payment rates of 1.1%. Beginning January, 1, 2016, CMS finalized its proposal for two routine
home care rates, in a budget-neutral manner, to provide separate payment rates for the first 60 days of care and care beyond 60 days.
In addition to the two routine home care rates, CMS is implementing a service intensity add-on payment that would help to promote and
compensate for the provision of skilled visits at end of life. As finalized, fiscal year 2016 will be the seventh and final year of the Budget
Neutrality Adjustment Factor for hospice. CMS updated the aggregate hospice cap to $27,382.63 for the cap year ending October 31, 2015
and to $27,820.75 for the 2016 cap year. CMS is also changing the hospice inpatient and aggregate cap year to coincide with the fiscal
year (October 1 to September 30) beginning October 1, 2017. The following table shows the hospice Medicare payment rates for fiscal year
2016, which began on October 1, 2015 and will end September 30, 2016:
Description
Rate Per Patient Day
Routine Home Care (October 1, 2015 through December 31, 2015)
Routine Home Care days 1-60 (effective January 1, 2016)
Routine Home Care days 60+ (effective January 1, 2016)
Continuous Home Care
Full Rate = 24 hours of care
$39.37 = hourly rate
Inpatient Respite Care
General Inpatient Care
$ 161.89
$ 186.84
$ 146.83
$ 944.79
$ 167.45
$ 720.11
40
Form 10-K Part I I
Management’s Discussion and Analysis of Financial Condition and Results of Operations
FOCUSED: ON LEADING THE WAY
Community-Based Services
Community-based services are in-home care services, which are primarily performed by paraprofessional personnel, and include
assistance with activities of daily living to elderly, chronically ill, and disabled patients. Revenue is generated on an hourly basis.
Our primary payors are TennCare Managed Care Organization and Medicaid. Approximately 82% of our net service revenue in this
segment is generated in Tennessee.
Facility-Based Services
On December 26, 2013, President Obama signed into law the Bipartisan Budget Act of 2013 (Public Law 113-67). This new law prevents
a scheduled payment reduction for physicians and other practitioners who treat Medicare patients from taking effect on January 1, 2014.
Included in the legislation are the following changes to LTACH reimbursement:
• Medicare discharges from LTACHs will continue to be paid at full LTACH-PPS rates if
• the patient spent at least three days in a short-term care hospital (“STCH”) intensive care unit (“ICU”) during a STCH stay that
immediately preceded the LTACH stay, or
• the patient was on a ventilator for more than 96 hours in the LTACH (based on the MS-LTACH DRG assigned) and had a STCH stay
immediately preceding the LTACH stay.
• Also, the LTACH discharge cannot have a principal diagnosis that is psychiatric or rehabilitation.
• All other Medicare discharges from LTACHs will be paid at a new “site neutral” rate, which is the lesser of:
• the IPPS comparable per diem amount determined using the formula in the short-stay outlier regulation at 42 C.F.R. § 412.529(d)(4)
plus applicable outlier payments, or
• 100% of the estimated cost of the services involved.
• The above new payment policy will not be effective until LTACH cost reporting periods beginning on or after October 1, 2015, and the
site neutral payment rate will be phased-in over two years.
• For cost reporting periods beginning on or after October 1, 2015, discharges paid at the site neutral payment rate or by a Medicare
Advantage plan (Part C) will be excluded from the LTACH average length-of-stay (“ALOS”) calculation.
• For cost reporting periods beginning in fiscal year 2016 and later, CMS will notify LTACHs of their “LTACH discharge payment
percentage” (i.e., the number of discharges not paid at the site neutral payment rate divided by the total number of discharges).
• For cost reporting periods beginning in fiscal year 2020 and later, LTACHs with less than 50% of their discharges paid at the full
LTACH-PPS rates will be switched to payment under the IPPS for all discharges in subsequent cost reporting periods. However, CMS
will set up a process for LTACHs to seek reinstatement of LTACH-PPS rates for applicable discharges.
• MedPAC will study the impact of the above changes on quality of care, use of hospice and other post-acute care settings, different
types of LTACHs and growth in Medicare spending on LTACHs. MedPAC is to submit a report to Congress with any recommendations
by June 30, 2019. The report is to also include MedPAC’s assessment of whether the 25 Percent rule should continue to be applied.
• 25 Percent rule relief for freestanding LTACHs, HWHs and satellite facilities will be extended without interruption for cost reporting
periods beginning on or after December 29, 2007. The 25 Percent rule is scheduled to become effective: (i) for freestanding LTACHs for
cost reporting periods beginning on or after July 1, 2016, and (ii) for HWHs and satellite facilities for cost reporting periods beginning on
or after October 1, 2016. Grandfathered HWHs will be permanently exempt from the 25 Percent rule. CMS must report to Congress by
December 18, 2015 on whether the 25 Percent rule should continue to be applied.
• The moratorium on new LTACH facilities and increases in LTACH beds will be renewed for the period from April 1, 2014 to September 30,
2017. Although the introductory language only refers to a moratorium extension for LTACH bed increases, the amendment to the
Medicare, Medicaid, and SCHIP Extension Act (“MMSEA”) would extend both moratoriums. No exceptions will apply during this extension
of the moratoriums. The original rule renewed the moratorium for the period beginning January 1, 2015; however, a provision with
HR4302 accelerated the moratorium period beginning on April 1, 2014.
• Not later than October 1, 2015, CMS will establish a new functional status quality measure for change in mobility of ventilator patients.
• As part of the fiscal year 2015 or 2016 rulemaking, CMS is to study payment rates and regulations that apply to the special category of
neoplastic disease LTACHs and may adjust such payment rates.
On August 4, 2014, CMS released its final rule for LTACH Medicare reimbursement for fiscal year 2015, which began on October 1, 2014
and ended on September 30, 2015. In the aggregate, payments for fiscal year 2015 increased by 1.1% over fiscal year 2014 rates. The
1.1% increase consisted of a 2.9% inflationary market basket update, offset by a 0.5% reduction for the productivity adjustment, and a
0.2% reduction to the market basket as defined by PPACA. LTACH payment rates were also reduced by approximately 1.3% for the
“one-time” budget neutrality adjustment factor under the last year of a three-year phase-in and increased by 0.2% for wage index budget
neutrality adjustment.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-K Part I I
41
LHC GROUP
On July 31, 2015, CMS issued a Final Rule to update fiscal year 2016 payment policies and rates under the IPPS and LTACH PPS, which
affects discharges occurring in cost reporting periods beginning on or after October 1, 2015. CMS projects that LTACH PPS rates
would decrease by 4.6%. This estimated decrease is preliminary attributable to the statutory decrease in payment rates for site neutral
LTACH PPS cases that do not meet the clinical criteria to qualify for higher LTACH rates in cost reporting years beginning on or after
October 1, 2015. Cases that do qualify for higher LTACH PPS rates will see a payment rate increase of 1.7% (based on a market basket
update of 2.4% adjusted by a multi-factor productivity adjustment of -0.5 percentage point and an additional adjustment of -0.2 percentage
point in accordance with the Affordable Care Act). CMS also finalized its proposal to implement a transitional blended payment rate
(50% site neutral rate and 50% LTACH PPS rates) for site neutral discharges occurring in fiscal years 2016 and 2017.
On October 1, 2015, CMS ICD-10 requirements for electronic billing transactions went into effect. In preparation, we have formally trained
coding staff, invested in technology system upgrades, and provided compliance education for all ICD-10 changes. At this early stage of
implementation, we are not able to predict the financial impact that ICD-10 may have on our overall financial position due to the possible
delays in reimbursement, underpayment for services, or possible denials of payments from payors.
None of the above described estimated changes to Medicare payments for home health, hospice and LTACHs include the deficit
reduction sequester cuts to Medicare that began on April 1, 2013, which reduced Medicare payments by 2% for patients whose service
dates ended on or after April 1, 2013.
2015 and 2014 Operational Data
The following table sets forth, for the period indicated, each of our segment’s data regarding census, aggregate admissions, Medicare
admissions, billable hours and patient days:
Home Health Services:
Average census
Average Medicare census
Admissions
Medicare admissions
Hospice Services:
Average census
Average Medicare census
Admissions
Medicare admissions
Patient days
Community-Based Services:
Billable hours
LTACHs:
Patient days
Three Months
Three Months
Three Months
Three Months
Ended March 31, Ended June 30, Ended Sept. 30, Ended Dec. 31,
2015
2015
2015
2015
36,450
27,235
35,965
24,875
1,357
1,256
1,481
1,285
122,179
36,834
27,336
35,211
23,862
1,446
1,328
1,497
1,316
131,565
36,858
27,278
35,772
24,114
1,528
1,411
1,584
1,379
140,592
37,060
27,432
36,249
24,060
2,360
2,205
2,225
1,935
217,157
294,016
316,598
318,995
307,781
16,162
15,393
15,422
14,450
42
Form 10-K Part I I
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Home Health Services:
Average census
Average Medicare census
Admissions
Medicare admissions
Hospice Services:
Average census
Average Medicare census
Admissions
Medicare admissions
Patient days
Community-Based Services:
Billable hours
LTACHs:
Patient days
FOCUSED: ON LEADING THE WAY
Three Months
Three Months
Three Months
Three Months
Ended March 31, Ended June 30, Ended Sept. 30, Ended Dec. 31,
2014
2014
2014
2014
32,988
24,938
30,913
21,141
1,223
1,124
1,232
1,065
110,043
36,450
27,080
33,850
22,975
1,371
1,259
1,426
1,267
124,744
35,974
26,615
33,962
22,970
1,389
1,271
1,476
1,272
127,832
36,153
26,781
34,329
23,404
1,387
1,282
1,412
1,252
127,633
41,064
274,234
291,301
304,618
16,462
14,939
15,362
15,589
Consolidated Results of Operations
The following table sets forth, for the periods indicated, our consolidated results (amounts in thousands):
Year Ended December 31,
Consolidated Services Data:
Net service revenue
Cost of service revenue
Gross margin
Provision for bad debts
General and administrative expenses
Impairment of intangibles and other
Operating income
Interest expense
Non-operating income
Income tax expense
Income attributable to noncontrolling interests
2015
2014
2013
$ 816,366
480,878
335,488
19,243
248,629
1,273
66,343
(2,302)
457
22,848
9,315
$ 733,632
434,775
298,857
15,780
233,945
3,646
45,486
(2,486)
265
14,513
6,915
$ 658,283
383,464
274,819
13,929
213,633
520
46,737
(1,995)
263
15,859
6,804
Net income available to LHC Group, Inc.’s common stockholders
$ 32,335
$ 21,837
$ 22,342
The following table sets forth our consolidated results as a percentage of net service revenue, except income tax expense, which is
presented as a percentage of income attributable to LHC Group, Inc.’s common stockholders:
Year Ended December 31,
Consolidated Services Data:
Cost of service revenue
Gross margin
Provision for bad debts
General and administrative expenses
Impairment of intangibles and other
Operating income
Interest expense
Non-operating income
Income tax expense
Income attributable to noncontrolling interests
Net income attributable to LHC Group, Inc.’s common stockholders
2015
2014
2013
58.9%
41.1
2.4
30.5
0.2
8.1
(0.3)
0.1
41.4
1.1
4.0
59.3%
40.7
2.2
31.9
0.5
6.2
(0.3)
—
39.9
0.9
3.0
58.3%
41.7
2.1
32.5
0.1
7.1
(0.3)
—
41.5
1.0
3.4
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-K Part I I
43
LHC GROUP
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Net Service Revenue
Consolidated net service revenue for the year ended December 31, 2015 was $816.4 million compared to $733.6 million for the same
period in 2014, an increase of $82.8 million, or 11.3%. Consolidated net service revenue growth in 2015 was primarily due to both our
acquisitions of 28 agencies during 2015 and an increase in same store growth. Consolidated net service revenue was comprised of the
following for the periods ending December 31:
Type of Segment
Home Health Services
Hospice Services
Community-Based Services
Facility-Based Services
2015
2014
75.1%
10.5
5.1
9.3
77.0%
9.2
3.8
10.0
100.0%
100.0%
Revenue derived from Medicare represented 74.5% and 75.9% of our consolidated net service revenue for the years ended
December 31, 2015 and 2014, respectively.
The following table sets forth each of our segment’s revenue growth or loss, admissions, census, episodes and patient days for the
twelve months ended December 31, 2015 and the related change from the same period in 2014 (amounts in thousands, except admissions,
census, episode data and patient days):
Home Health Services
Revenue
Revenue Medicare
New admissions
New Medicare admissions
Average census
Average Medicare census
Home health episodes
Hospice Services
Revenue
Revenue Medicare
New admissions
New Medicare admissions
Average census
Average Medicare census
Patient days
Community-Based Services
Revenue
Billable hours
Facility-Based Services
LTACHs
Revenue
Patient days
Same Store (1)
De Novo (2)
Organic (3)
Organic
Growth
(Loss) %
Acquired (4)
Total
Total
Growth
(Loss) %
$ 588,003
$ 452,136
137,041
92,290
35,216
26,114
184,774
$ 71,620
$ 66,378
5,952
5,191
1,284
1,184
514,496
$ 2,105
1,542
507
339
132
92
610
$ 1,809
1,783
46
45
34
33
12,440
$ 590,108
$ 453,678
137,548
92,629
35,348
26,206
185,384
$ 73,429
$ 68,161
5,998
5,236
1,318
1,217
526,936
4.5%
3.5
3.4
2.4
0.1
(0.5)
1.4
8.6
9.0
8.2
7.8
(1.9)
(1.5)
7.5
$ 23,080
19,515
5,649
4,282
1,404
1,091
5,824
$ 12,425
11,685
789
679
357
336
84,557
$ 613,188
$ 473,193
143,197
96,911
36,752
27,297
191,208
$ 85,854
$ 79,846
6,787
5,915
1,675
1,553
611,493
8.5%
7.9
7.6
7.1
4.1
3.6
4.5
27.1
27.8
22.4
21.8
24.7
25.8
24.7
$ 31,797
947,395
$ 180
5,844
$ 31,977
953,239
15.4%
4.6%
$ 9,225
260,630
$ 41,202
1,213,869
48.8%
33.2%
$ 72,668
61,427
$ —
—
$ 72,668
61,427
—
—
$
—
—
$ 72,668
61,427
3.2%
(1.5)
(1) Same Store – location that has been in service with us for greater than 12 months.
(2) De Novo – internally developed location that has been in service for 12 months or less.
(3) Organic – combination of same store and de novo.
(4) Acquired – purchased location that has been in service with us 12 months or less.
Organic growth is primarily generated by population growth in areas covered by mature agencies and by increased market share in
acquired and developing agencies. Historically, acquired agencies have the highest growth in admissions and average census in the first
24 months after acquisition, and have the highest contribution to organic growth, measured as a percentage of growth, in the second full
year of operation after the acquisition.
44
Form 10-K Part I I
Management’s Discussion and Analysis of Financial Condition and Results of Operations
FOCUSED: ON LEADING THE WAY
Cost of Service Revenue
Consolidated cost of service revenue for the year ended December 31, 2015 was $480.9 million compared to $434.8 million for the same
period in 2014, an increase of approximately $46.1 million, or 10.6%; however, as a percentage of net service revenue, it is a decrease
of 0.4%. Of the $46.1 million increase, acquisitions purchased during 2015 accounted for $8.7 million. The remainder of the increase was
due to the accretion of same store agencies.
The following table summarizes cost of service revenue (amounts in thousands, except percentages, which are percentages of the
segment’s respective net service revenue):
Home Health Services
Salaries, wages and benefits
Transportation
Supplies and services
Total
Hospice Services
Salaries, wages and benefits
Transportation
Supplies and services
Total
Community-Based Services
Salaries, wages and benefits
Transportation
Supplies and services
Total
Facility-Based Services
Salaries, wages and benefits
Transportation
Supplies and services
Total
Provision for Bad Debts
2015
2014
$ 320,548
21,056
13,146
52.3%
3.4
2.1
$ 295,340
21,463
13,053
52.3%
3.8
2.3
$ 354,750
57.9%
$ 329,856
58.4%
$ 35,022
3,638
12,246
40.8%
4.2
14.3
$ 27,263
3,027
9,514
40.3%
4.5
14.1
$ 50,906
59.3%
$ 39,804
58.9%
28,525
263
288
69.2%
0.6
0.7
$ 19,287
170
154
69.63%
0.61
0.56
$ 29,076
70.5%
$ 19,611
70.8%
$ 29,898
240
16,008
$ 46,146
39.3%
0.3
21.0
60.6%
$ 30,047
281
15,176
$ 45,504
41.0%
0.4
20.1
62.0%
Consolidated provision for bad debts for the year ended December 31, 2015 was $19.2 million compared to $15.8 million for the same
period in 2014, an increase of approximately $3.4 million, or 21.5%. Provision for bad debts increased in the home health services segment
due to additional reserves being recorded for patient claims related to prior period patient care associated with commercial payors.
Accounts receivable that are aged over 365 days have increased during the period by $4.5 million. For home health services and
facility-based services, an increase of $2.1 million was due to the continued backlog of Medicare Administrative Contractor audit claims
awaiting appeal hearing. Appeals have historically experienced a substantial success rate in claim recovery. In addition, aged accounts
receivable in our home health services and community-based services increased by $0.8 million due to a legacy system transition for prior
year acquisitions. The remainder of the aged accounts receivable continues to be reviewed and submitted to payors for collection.
All aged accounts receivable have been reserved for any estimated uncollectible accounts.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-K Part I I
45
LHC GROUP
General and Administrative Expenses
Consolidated general and administrative expenses for the year ended December 31, 2015 were $248.6 million compared to $233.9 million
for the same period in 2014, an increase of approximately $14.7 million, or 6.3%; however, as a percentage of net service revenue, it is
a decrease of 1.5%. The following table summarizes general and administrative expenses (amounts in thousands, except percentages,
which are percentages of the segment’s respective net service revenue):
Home Health Services
General and administrative
Depreciation and amortization
Total
Hospice Services
General and administrative
Depreciation and amortization
Total
Community-Based Services
General and administrative
Depreciation
Total
Facility-Based Services
General and administrative
Depreciation and amortization
Total
2015
2014
$ 182,651
8,484
$ 191,135
29.8%
1.4
31.2%
$ 180,364
6,917
$ 187,281
31.9%
1.2
33.1%
$ 24,973
1,544
$ 26,517
29.1%
1.8
30.9%
$ 17,796
1,086
$ 18,882
26.3%
1.6
27.9%
$ 8,350
156
$ 8,506
20.3%
0.4
20.7%
$ 6,445
106
$ 6,551
23.3%
0.4
23.7%
$ 20,702
1,769
$ 22,471
27.2%
2.3
29.5%
$ 19,769
1,462
$ 21,231
27.0%
2.0
28.9%
For home health services, hospice services, and community-based services, $6.9 million of the increase was from agencies acquired
during 2015. The remainder of the increase was due to growth in our same store agencies. This increase was partially offset with savings
associated with prior year closures of underperforming providers. For facility-based services segment, general and administrative expenses
increased due to the implementation of management roles in sales and administrative support staff.
Depreciation and amortization expense increased in the home health services segment and hospice services segment due to the
capitalization of point of care licenses. In 2014, we successfully completed the roll out of our point of care technology. These licenses are
amortized over their estimated useful life of 36 months. Depreciation in the facility-based services segment increased due to the purchase
of patient care equipment, which occurred during the latter part of 2014.
Prior to 2015, the Company’s principal executive offices were located in three properties. During 2015, the Company consolidated its
corporate headquarters into one property. Depreciation expense associated with leasehold improvements and office furniture in the original
three properties was accelerated during 2015 as the Company terminated those leases and disposed of the assets; the depreciation
expense related to this was $1.3 million.
Impairment of intangibles and other
Consolidated impairment of intangibles and other for the year ended December 31, 2015 was $1.3 million compared to $3.6 million for
the same period in 2014. During 2015, goodwill and other intangible asset disposal costs for underperforming providers that were closed
was $0.7 million and an other intangible asset impairment of $0.6 million in home health segment was recorded. In 2014, goodwill
and other intangible asset disposal costs for closures were $1.6 million. In addition, there was $2.0 million related to the impairment of
intangible trade name in the home-health segment.
Net Income Attributable to Noncontrolling Interest
Consolidated net income attributable to noncontrolling interest represents the minority owners’ allocable share of income in the joint
ventures. For the year ended December 31, 2015, noncontrolling interest was $9.3 million compared to $6.9 million for the same period
in 2014, an increase of approximately $2.4 million, or 34.8%. Noncontrolling interest increased due to the overall growth in same store
agencies, and overall operational efficiencies gained through the joint ventures use of our point of care platform.
46
Form 10-K Part I I
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Net Service Revenue
Consolidated net service revenue for the year ended December 31, 2014 was $733.6 million compared to $658.3 million for the same
period in 2013, an increase of $75.3 million, or 11.4%. Consolidated net service revenue growth in 2014 was primarily due from our
acquisition of 52 agencies during 2014 and an increase in admits. Consolidated net service revenue was comprised of the following for
FOCUSED: ON LEADING THE WAY
the periods ending December 31:
Type of Segment
Home Health Services
Hospice Services
Community-Based Services
Facility-Based Services
2014
2013
77.0%
9.2
3.8
10.0
79.5%
8.5
0.5
11.5
100.0%
100.0%
Revenue derived from Medicare represented 75.9% and 79.8% of our consolidated net service revenue for the years ended
December 31, 2014 and 2013, respectively.
The following table sets forth the growth or loss of each of our segment’s revenue and patient statistical data for the twelve months ended
December 31, 2014 and the related change for the same period in 2013 (revenue amounts are in thousands):
Home Health Services
Revenue
Revenue Medicare
New admissions
New Medicare admissions
Average census
Average Medicare census
Episodes
Hospice Services
Revenue
Revenue Medicare
New admissions
New Medicare admissions
Average census
Average Medicare census
Patient days
Community-Based Services
Revenue
Billable hours
Facility-Based Services
LTACHs
Revenue
Patient days
Same Store (1)
De Novo (2)
Organic (3)
Organic
Growth
(Loss) %
Acquired (4)
Total
Total
Growth
(Loss) %
$ 530,640
$ 412,544
123,659
84,489
32,891
24,774
172,472
$ 63,502
$ 58,687
5,159
4,506
1,262
1,158
460,798
$ 3,902
910,964
$ —
—
—
—
—
—
$ —
—
—
—
—
—
—
$ 273
34
$ 530,640
$ 412,544
123,659
84,489
32,891
24,774
172,472
$ 63,502
$ 58,687
5,159
4,506
1,262
1,158
460,798
1.4%
(0.4)
1.6
1.2
(3.5)
(4.1)
0.9
13.1
12.7
4.9
6.8
10.5
11.0
10.5
$ 34,404
$ 25,940
9,395
6,001
2,408
1,562
10,424
$ 4,119
$ 3,841
387
350
81
77
29,454
$ 565,044
$ 438,484
133,054
90,490
35,299
26,336
182,896
$ 67,621
$ 62,528
5,546
4,856
1,343
1,235
490,252
7.9%
5.9
9.3
8.4
3.6
1.9
7.0
20.4
20.1
12.8
15.1
17.5
18.3
17.5
4,175
910,998
30.2
493.3
$ 23,523
219
27,698
911,217
763.7
493.4
$ 70,442
62,352
$ —
—
$ 70,442
62,352
(2.0)
0.8
—
$ 70,442
62,352
(2.0)
0.8
(1) Same Store – location that has been in service with us for greater than 12 months.
(2) De Novo – internally developed location that has been in service for 12 months or less.
(3) Organic – combination of same store and de novo.
(4) Acquired – purchased location that has been in service with us 12 months or less.
Organic growth is primarily generated by population growth in areas covered by mature agencies and by increased market share in
acquired and developing agencies. Historically, acquired agencies have the highest growth in admissions and average census in the first
24 months after acquisition, and have the highest contribution to organic growth, measured as a percentage of growth, in the second full
year of operation after the acquisition.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-K Part I I
47
LHC GROUP
Cost of Service Revenue
Consolidated cost of service revenue for the year ended December 31, 2014 was $434.8 million compared to $383.5 million for the same
period in 2013, an increase of $51.3 million, or 13.4%. The following table summarizes cost of service revenue (amounts in thousands,
except percentages, which are percentages of the segment’s respective net service revenue):
Home Health Services
Salaries, wages and benefits
Transportation
Supplies and services
Total
Hospice Services
Salaries, wages and benefits
Transportation
Supplies and services
Total
Community-Based Services
Salaries, wages and benefits
Transportation
Supplies and services
Total
Facility-Based Services
Salaries, wages and benefits
Transportation
Supplies and services
Total
2014
2013
$ 295,340
21,463
13,053
52.3%
3.8
2.3
$ 269,016
21,443
12,130
51.4%
4.1
2.3
$ 329,856
58.4%
$ 302,589
57.8%
$ 27,263
3,027
9,514
40.3%
4.5
14.1
$ 23,512
2,745
7,955
41.9%
4.9
14.1
$ 39,804
58.9%
$ 34,212
60.9%
$ 19,287
170
154
$ 19,611
69.6%
0.6
0.6
70.8%
$ 2,339
39
20
$ 2,398
72.9%
1.2
0.6
74.7%
$ 30,047
281
15,176
41.0%
0.4
20.1
$ 28,772
301
15,192
38.2%
0.4
20.2
$ 45,504
62.0%
$ 44,265
58.7%
The increase in cost of service revenue was related to the acquisitions of Deaconess and Elk Valley, and Life Care Home Health, Inc.,
which was offset by productivity improvements and efficiencies gained from our POC technology.
Provision For Bad Debts
Consolidated provision for bad debts for the year ended December 31, 2014 was $15.8 million compared to $13.9 million for the same
period in 2013, an increase of $1.9 million, or 13.7%. On a consolidated basis, provision for bad debts as a percentage of net service
revenue remained consistent. For home health services, provision for bad debts increased due to an increase in collection risks identified
on certain commercial insurance claims and self pay claims. For hospice services, a decrease occurred due to the recognition of a
Change in Ownership (“CHOW”) by CMS for two agencies acquired in 2013. These CHOWs allowed previously “at risk” patient claims to
be billed and collected, thereby reducing provision for bad debts during 2014. For facility-based services, the decrease was due to the
recoverability of accounts receivable that were previously reserved.
48
Form 10-K Part I I
Management’s Discussion and Analysis of Financial Condition and Results of Operations
General and Administrative Expenses
Consolidated general and administrative expenses for the year ended December 31, 2014 was $233.9 million compared to $213.6 million
for the same period in 2013, an increase of $20.3 million, or 9.5%. The following table summarizes general and administrative expenses
(amounts in thousands, except percentages, which are percentages of the segment’s respective net service revenue):
FOCUSED: ON LEADING THE WAY
Home Health Services
General and administrative
Depreciation and amortization
Total
Hospice Services
General and administrative
Depreciation and amortization
Total
Community-Based Services
General and administrative
Depreciation and amortization
Total
Facility-Based Services
General and administrative
Depreciation and amortization
Total
2014
2013
$ 180,364
6,917
31.9%
1.2
$ 168,881
6,175
32.3%
1.2
$ 187,281
33.1%
$ 175,056
33.4%
$ 17,796
1,086
26.3%
1.6
$ 15,335
875
27.3%
1.6
$ 18,882
27.9%
$ 16,210
28.9%
$ 6,445
106
23.3%
0.4
$
972
46
30.3%
1.4
$ 6,551
23.7%
$ 1,018
31.7%
$ 19,769
1,462
$ 21,231
27.0%
2.0
28.9%
$ 20,121
1,228
$ 21,349
26.7%
1.6
28.3%
The increase in general and administrative expenses were related to the acquisitions of Deaconess and Elk Valley, and Life Care Home
Health, Inc., which was offset by staffing efficiencies gained through our POC technology. Depreciation increased due to the increase in
POC devices and licenses utilized in our locations.
Impairment of intangibles and other
Consolidated impairment of intangibles and other for the year ended December 31, 2014 was $3.6 million compared to $0.5 million for
the same period in 2013. The increase relates to the consolidation of a limited number of locations in service area overlap markets and the
closure of underperforming providers. Goodwill and other intangible asset disposal costs for these closures were $1.6 million. In addition,
there was $2.0 million related to the impairment of intangible trade name in the home health services segment.
Interest Expense
Consolidated interest expense for the year ended December 31, 2014 was $2.5 million compared to $2.0 million for the same period
in 2013, an increase of approximately $0.5 million, or 25%. The increase relates directly to balances outstanding on our revolving credit
facility in each year, respectively.
Net Income Attributable to Noncontrolling Interest
Consolidated net income attributable to noncontrolling interest represents the minority owners’ allocable share of income in the equity
joint venture partners. For the year ended December 31, 2014, noncontrolling interest was $6.9 million compared to $6.8 million for the
same period in 2013, an increase of approximately $0.1 million, or 1.5%.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-K Part I I
49
LHC GROUP
Liquidity and Capital Resources
Cash at December 31, 2015 was $6.1 million, compared to $0.5 million at December 31, 2014. Based on our current plan of operations,
including acquisitions, we believe this amount, when combined with expected cash flows from operations and amounts available under our
revolving credit facility will be sufficient to fund our growth strategy and to meet our anticipated operating expenses, capital expenditures
and debt service obligations for at least the next 12 months.
Liquidity
Our principal source of liquidity needed to fund our operating activities is the collection of patient accounts receivable, most of which are
collected from governmental and third-party commercial payors. We also have the ability to obtain additional liquidity, if necessary, through
our revolving credit facility, which provides for aggregate borrowings, including outstanding letters of credit, up to $225 million.
Our reported cash flows are affected by various external and internal factors, including the following:
• Operating Results – Our net income has a significant effect on our operating cash flows. Any significant increase or decrease in our
net income could have a material effect on our operating cash flows.
• Timing of Acquisitions – We use a portion of our operating and/or financing cash flows for acquisitions. When the acquisitions occur
at or near the end of a period, our cash outflows significantly increase.
• Timing of Payroll – Our employees are paid bi-weekly on Fridays. Operating cash flows decline in reporting periods that end on a Friday.
• Self Insurance Plan Funding – We are self-funded for health insurance and workers compensation insurance. Any significant changes
in the amount of insurance claims submitted could have a direct effect on our operating cash flows.
Cash used in investing activities primarily relates to acquisitions of home nursing and hospice agencies, while cash used by financing
activities primarily relates to payments on outstanding debt agreements and payments to our noncontrolling interest partners.
The following table summarizes changes in cash flows (amounts in thousands):
Year Ended December 31,
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
2015
2014
$ 59,934
(83,855)
29,529
$ 38,657
(82,038)
29,898
The acquisitions of Halcyon Healthcare, LLC and Nurses Registry and Home Health Corporation, LLC affected operating cash flows
for 2015.
Accounts Receivable days sales outstanding (“DSO”) for the year ended December 31, 2015 was 46 days compared to 47 days for the
same period in 2014.
Credit Facility
Our revolving credit facility with Capital One, National Association is unsecured and provides for a maximum aggregate principal borrowing
of $225 million (with a letter of credit sub-limit equal to $15 million), and is scheduled to expire on June 18, 2019. We are required to
pay a commitment fee for the unused commitments at rates ranging from 0.225% to 0.375% per annum depending upon the Company’s
consolidated Leverage Ratio, as defined in the Credit Agreement.
A letter of credit fee equal to the applicable Eurodollar rate multiplied by the face amount of the letter of credit is charged upon issuance and
on each anniversary date while the letter of credit is outstanding. The agent’s standard up-front fee and other customary administrative
charges are also due upon issuance of the letter of credit, along with a renewal fee on each anniversary date while the letter of credit is
outstanding. At December 31, 2015 and 2014, outstanding letters of credit were $9.8 million and $7.1 million, respectively, which are
issued as collateral on our workers’ compensation insurance.
50
Form 10-K Part I I
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Borrowings accrue interest under the Credit Agreement at either the Base Rate or Eurodollar rate are subject to the applicable margins
FOCUSED: ON LEADING THE WAY
as set forth below:
Leverage Ratio
≤ 1.00:1.00
>1.00:1.00 ≤ 1.50:100
>1.50:1.00 ≤ 2.00:1.00
>2.00:1.00
Eurodollar Margin
Base Rate Margin
Commitment Fee Rate
1.75%
2.00%
2.25%
2.50%
0.75%
1.00%
1.25%
1.50%
0.225%
0.250%
0.300%
0.375%
Our Credit Agreement contains customary affirmative, negative and financial covenants. For example, without prior approval of our bank
group, we are restricted in incurring additional debt, disposing of assets, making investments, allowing fundamental changes to our
business or organization and making certain payments in respect of stock or other ownership interests, such as dividends and stock
repurchases, up to $50.0 million. Under our Credit Agreement, we are also required to meet certain financial covenants with respect to
minimum fixed charge coverage and leverage ratios.
Our Credit Agreement contains customary events of default, including bankruptcy and other insolvency events, cross-defaults to other
debt agreements, a change in control involving us or any subsidiary guarantor and the failure to comply with certain covenants.
At December 31, 2015, we were in compliance with all covenants contained in the Credit Agreement governing our credit facility.
Contractual Obligations
The following table discloses aggregate information about our contractual obligations and the periods in which payments are due as of
December 31, 2015 (amounts in thousands):
Contractual Cash Obligation
Total
Less Than 1 Year
1-3 Years
3-5 Years
Payment Due by Period
Long-term debt
Operating leases
Total contractual cash obligations
Off-Balance Sheet Arrangements
$ 98,784
55,232
$ 154,016
$
241
25,207
$ 25,448
$
516
17,832
$ 18,348
$ 98,027
6,661
$ 104,688
More Than
5 Years
$ —
5,532
$ 5,532
We currently do not have any off-balance sheet arrangements with unconsolidated entities, financial partnerships or entities often referred
to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange
traded contracts. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had
engaged in these relationships.
Critical Accounting Policies
The following discussions describe our critical accounting policies, which we believe require the most significant judgments and estimates
used in the preparation of our consolidated financial statements.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported revenue and expenses during the reporting period. Changes in the accounting
estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ materially from our estimates. To the
extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be
affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances and
we evaluate these estimates on an ongoing basis.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-K Part I I
51
LHC GROUP
Principles of Consolidation
The consolidated financial statements include all subsidiaries and controlled entities controlled. We define control as ownership of a
majority of the voting interest of an entity. The consolidated financial statements include entities in which we have the obligation to absorb
losses of the entities or the right to receive benefits from the entities and have voting control over the entities or both, as a result of
ownership, contractual or other financial interests in the entities.
The following table summarizes the percentage of net service revenue earned by type of ownership or relationship we had with the
operating entity:
Ownership Type
Wholly owned subsidiaries
Equity joint ventures
License leasing arrangements
Management services
2015
55.2%
42.9
1.0
0.9
2014
53.5%
43.9
1.8
0.8
2013
48.8%
48.5
1.9
0.8
100.0%
100.0%
100.0%
All significant inter-company accounts and transactions have been eliminated in consolidation. Business combinations accounted for as
purchases have been included in the consolidated financial statements from the respective dates of acquisition.
The following describes the Company’s consolidation policy with respect to its various ventures excluding wholly owned subsidiaries:
Equity Joint Ventures
Our equity joint ventures are structured as limited liability companies in which we typically own a majority equity interest ranging from
51% to 91%. Each member of all but one of our equity joint ventures participates in profits and losses in proportion to their equity
interests. We have one equity joint venture partner whose participation in losses is limited; otherwise, earnings and losses are based on
ownership interest. We consolidate these entities as we have voting control over the entities.
License Leasing Arrangements
Through our wholly owned subsidiaries, we lease home health licenses necessary to operate certain of our home nursing agencies. We
own 100% of the equity of these entities and consolidate them based on such ownership, as well as our obligation to absorb losses of the
entities and the right to receive benefits from the entities.
Management Services
We have various management services agreements under which we manage certain operations of agencies and facilities. We do not
consolidate these agencies or facilities, as we do not have an ownership interest and do not have an obligation to absorb losses of the
entities or the right to receive the benefits from the entities other than our management fee.
Revenue Recognition
For a detailed discussion of revenue recognition, see Item 1, which is incorporated here by reference.
We report net service revenue at the estimated net realizable amount due from Medicare, Medicaid, commercial insurance, managed care
payors, patients and others for services rendered. All payors contribute to the home health services, hospice services, community-based
services and facility-based services.
The following table sets forth the percentage of net service revenue earned by category of payor for the respective years ending
December 31:
Payor
Medicare
Medicaid
Other
2015
74.5%
1.5
24.0
2014
75.9%
1.4
22.7
2013
79.8%
1.4
18.8
100.0%
100.0%
100.0%
52
Form 10-K Part I I
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The percentage of net service revenue contributed from each reporting segment was as follows for the respective years ending
FOCUSED: ON LEADING THE WAY
December 31:
Type of Segment
Home Health Services
Hospice Services
Community-Based Services
Facility-Based Services
Medicare
Home Health Services
2015
75.1%
10.5
5.1
9.3
2014
77.0%
9.2
3.8
10.0
2013
79.5%
8.5
0.5
11.5
100.0%
100.0%
100.0%
Our home nursing Medicare patients are classified into one of 153 home health resource groups prior to receiving services. Based on
this home health resource group, we are entitled to receive a standard prospective Medicare payment for delivering care over a
60-day period referred to as an episode. We recognize revenue based on the number of days elapsed during an episode of care within
the reporting period.
Final payments from Medicare may reflect one of four retroactive adjustments to ensure the adequacy and effectiveness of the total
reimbursement: (a) an outlier payment if the patient’s care was unusually costly; (b) a low utilization adjustment if the number of visits was
fewer than five; (c) a partial payment if the patient transferred to another provider before completing the episode; or (d) a payment
adjustment based upon the level of therapy services required in the population base. Management estimates the impact of these payment
adjustments based on historical experience and records this estimate during the period the services are rendered. Our payment is
also adjusted for geographic wage differences. In calculating our reported net service revenue from home nursing services, we adjust the
prospective Medicare payments by an estimate of the adjustments.
Hospice Services
We are paid by Medicare under a per diem payment system. We receive one of four predetermined daily or hourly rates based upon the
level of care we furnish to the patient. We record net service revenue from hospice services based on the daily or hourly rate and
recognize revenue as hospice services are provided.
Hospice payments are also subject to an inpatient cap and an overall Medicare payment cap. Inpatient cap relates to individual programs
receiving more than 20% of its total Medicare reimbursement from inpatient care services, and the overall Medicare payment cap relates
to individual programs receiving reimbursements in excess of a “cap amount” calculated by multiplying the number of beneficiaries during
the period by a statutory amount that is indexed for inflation. The determination for each cap is made annually based on the twelve-month
period ending on October 31 of each year. We monitor our limits on a provider-by-provider basis and record an estimate of its liability
for reimbursements received in excess of the cap amount. Beginning with the cap year October 1, 2014, CMS implemented a new process
requiring hospice providers to self-report their cap liabilities and remit applicable payment by March 31 of the following year.
Facility-Based Services
Long-Term Acute Care Services. We are reimbursed by Medicare for services provided under the LTACH-PPS, which was implemented
on October 1, 2002. Each patient is assigned a long-term care diagnosis-related group. We are paid a predetermined fixed amount
intended to reflect the average cost of treating a Medicare patient classified in that particular long-term care diagnosis-related group. For
selected patients, the amount may be further adjusted based on length-of-stay and facility-specific costs, as well as in instances where
a patient is discharged and subsequently re-admitted, among other factors. We calculate the adjustment based on a historical average of
these types of adjustments for claims paid. Similar to other Medicare prospective payment systems, the rate is also adjusted for
geographic wage differences. Revenue is recognized for our LTACHs as services are provided.
Medicaid, Managed Care and Other Payors
Our Medicaid reimbursement is based on a predetermined fee schedule applied to each service provided. Therefore, revenue is
recognized for Medicaid services as services are provided based on this fee schedule. Our managed care payors and other payors
reimburse us, and we recognize revenue, in a manner similar to our Medicare and Medicaid reimbursements.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-K Part I I
53
LHC GROUP
Management Services
We record management services revenue as services are provided in accordance with the various management services agreements to
which we are a party. As described in the agreements, we provide billing, management and other consulting services suited to and
designed for the efficient operation of the applicable home nursing agency or inpatient rehabilitation facility. We are responsible for the
costs associated with the locations and personnel required for the provision of services. We are compensated based on a percentage
of cash collections for one management services agreement and reimbursed for operating expenses plus a percentage of operating net
income for the remaining management services agreements.
Income Tax
We operate in numerous tax jurisdictions and recognize income tax expense based on the revenue and expenses earned in those
jurisdictions, which requires us to apportion and allocate revenue and expenses in all taxable jurisdictions. During 2011, we entered into a
settlement with the United States of America which we believe is fully deductible for income tax purposes. In compliance with the
provisions of Accounting Standards Codification 740 and based on our assessment of probable outcomes, we recorded an unrecognized
tax position of $3.2 million.
Accounts Receivable and Allowances for Uncollectible Accounts
We report accounts receivable net of estimated allowances for uncollectible accounts and adjustments. Accounts receivable are
uncollateralized and primarily consist of amounts due from Medicare, other third-party payors and patients. To provide for accounts
receivable that could become uncollectible in the future, we establish an allowance for uncollectible accounts to reduce the carrying
amount of such receivables to their estimated net realizable value. The amount of the provision for uncollectible accounts is based upon
our assessment of historical and expected net collections, business and economic conditions and trends in government reimbursement.
Uncollectible accounts are written off after exhausting collection efforts and we have concluded that the account will not be collected.
Because Medicare is our primary payor, the credit risk associated with receivables from other payors is limited. We believe the credit risk
associated with our Medicare accounts, which represent over 55% of our patient accounts receivable at December 31, 2015 and 2014,
respectively, is limited due to (a) our historical collections experience with Medicare and (b) the fact that Medicare is a U.S. government payor.
We do not believe that there are any other significant concentrations of receivables from any particular payor that would subject it to
any significant credit risk in the collection of accounts receivable.
A portion of the estimated Medicare prospective payment system reimbursement from each submitted home nursing episode is received
in the form of a request for anticipated payment (“RAP”). We submit a RAP for 60% of the estimated reimbursement for the initial episode
at the start of care. The full amount of the episode is billed after the episode has been completed. The RAP received for that particular
episode is deducted from the 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 Medicare
claims in process for that particular provider. The RAP and final claim must then be resubmitted. For subsequent episodes of care contiguous
with the first episode for a particular patient, we submit a RAP for 50% instead of 60% of the estimated reimbursement.
Our Medicare population is paid at a prospectively set amount that can be determined at the time services are rendered. Our Medicaid
reimbursement is based on a predetermined fee schedule applied to each individual service we provide. Our managed care contracts are
structured similar to the Medicare and Medicaid payment methodologies. Because of our payor mix, we are able to more accurately
calculate our actual amount due at the patient level and adjust the gross charges to the actual amount at the time of billing. This negates
the need to record an estimated allowance for uncollectible accounts, similar to a contractual adjustment, when reporting the majority
of our net service revenue for each reporting period.
At December 31, 2015, our allowance for uncollectible accounts, as a percentage of patient accounts receivable, was approximately
19.5%, or $26.7 million, compared to 16.0%, or $18.6 million, at December 31, 2014.
54
Form 10-K Part I I
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following table sets forth, as of December 31, 2015, the aging of accounts receivable (based on the end of episode date) (amounts
FOCUSED: ON LEADING THE WAY
in thousands):
Payor
Medicare
Medicaid
Other
Total
0-90
91-180
181-365
Over 365
Total
$ 65,910
2,994
26,794
$ 95,698
$ 8,244
1,033
7,248
$ 16,525
$ 4,971
903
7,699
$ 13,573
$ 4,960
561
5,745
$ 11,266
$ 84,085
5,491
47,486
$ 137,062
For home health services, hospice services, and community-based services, we calculate the allowance for uncollectible accounts as a
percentage of total patient receivables. The percentage changes depending on the payor and increases as the patient receivables age.
For facility-based services, we calculate the allowance for uncollectible accounts based on a claim by claim review.
The following table sets forth, as of December 31, 2014, the aging of accounts receivable (based on the end of episode date) (amounts
in thousands):
Payor
Medicare
Medicaid
Other
Total
0-90
91-180
181-365
Over 365
Total
$ 51,919
2,039
27,375
$ 81,333
$ 7,945
761
6,253
$ 14,959
$ 6,142
666
6,164
$ 12,972
$ 2,131
250
4,435
$ 6,816
$ 68,137
3,716
44,227
$ 116,080
The following table summarizes the activity and ending balances in the allowance for uncollectible accounts (amounts in thousands):
Year ended December 31:
2015
2014
2013
Goodwill and Intangible Assets
Beginning of
Year Balance
Additions
Deductions
End of
Year Balance
$ 18,582
14,334
11,863
$ 19,243
15,780
13,929
$ 11,113
11,532
11,458
$ 26,712
18,582
14,334
We have a significant amount of goodwill on our balance sheet that resulted from the numerous business acquisitions we have made in
prior years. We review goodwill and other intangible assets with indefinite lives annually for impairment or more frequently if circumstances
indicate impairment may have occurred. We evaluate goodwill for impairment by comparing the current fair value of each of our reporting
units to their carrying value, including goodwill. To the extent the carrying value of a reporting unit exceeds the fair value of the reporting
unit, the Company would be required to perform the second step of the impairment test. Our impairment analysis is performed on
November 30th of each year.
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 its
carrying value. We evaluated relevant events and circumstances, such as market conditions, financial performance, and share price to
determine if any goodwill impairment is indicated. Based on our analysis, an impairment of goodwill was not indicated.
We have not recognized any goodwill impairment charges in 2015, 2014 or 2013 related to the annual impairment testing; however,
we did recognize a disposal of $0.4 million and $0.2 million related to goodwill associated with the closure of underperforming locations
in 2015 and 2014, respectively.
Included in intangible assets are definite-lived assets subject to amortization such as software licenses, non-compete agreements and
defensive assets, which are defined as trade names that are not actively used. Amortization of the definite-lived intangible assets is
calculated on a straight-line basis over the estimated useful lives of the related assets. Software licenses are amortized over a three year
period and non-compete agreements are amortized over the life of the agreement, usually ranging from one to three years.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-K Part I I
55
LHC GROUP
We also have indefinite-lived assets that are not subject to amortization expense such as actively used trade names, certificates of need
and licenses to conduct specific operations within geographic markets. Such trade names, certificates of need and licenses have indefinite
lives because there are no legal, regulatory, contractual, economic or other factors that would limit the useful life of these intangible assets
and we intend to renew and operate the certificates of need and licenses and use these trade names indefinitely. These indefinite-lived
intangibles are reviewed annually for impairment or more frequently if circumstances indicate impairment may have occurred. To determine
whether an indefinite-lived intangible asset is impaired, we perform a qualitative assessment to support the conclusion that the indefinite-
lived intangible asset is not impaired. Based on the results of that qualitative assessment, we may perform a quantitative test. The quantitative
impairment test on trade names uses the relief-from-royalty method. Under this method, the fair value of the trade name is determined
by calculating the present value of the after-tax cost savings associated with owning the trade names and, therefore, not having to pay
royalties for use over its estimated useful life. The quantitative impairment test for certificates of need and licenses applies the cost
approach. Under this method, assumptions are made about the cost to replace the certificates of need and licenses. Lower revenue
expectations caused primarily by changes in payor contracts and Medicare reimbursement cuts may reduce the fair values of certain
intangible assets below their carrying values. Based on our analysis, we recorded an intangible asset charge of $0.6 million, $2.0 million
and $0.5 million for the twelve months ended December 31, 2015, 2014 and 2013, respectively. We recognized a disposal of $0.3 million
and $1.4 million related to other indefinite-lived intangible assets associated with the closure of underperforming locations in 2015 and
2014, respectively.
As a result of these respective impairment charges, the carrying values of the related intangible assets were adjusted to their estimated fair
values as of December 31, 2015 and 2014. Any further decline in the estimated fair values of these intangibles could result in additional
impairment charges being recorded. We determined that, except for the impairment charges described above, there were no indicators
that any other intangible assets were impaired as a result of the impairment analysis conducted as of November 30, 2015.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Our exposure to market risk relates to fluctuations in interest rates from borrowings under the credit facility. Our letter of credit fees and
interest accrued on our debt borrowings are subject to the applicable Eurodollar rate or Base Rate. A hypothetical 100 basis point
increase in interest rates on the average daily amounts outstanding under the credit facility would have increased interest expense by
$0.6 million for the year ended December 31, 2015.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements and financial statement schedules in Part IV, Item 15 of this Annual Report on Form 10-K are
incorporated by reference into this Item 8.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
56
Form 10-K Part I I
FOCUSED: ON LEADING THE WAY
Item 9A. Disclosure Controls and Procedures.
Evaluation of Disclosure Control and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by
the Company in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s
management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.
Under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial
Officer, management evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2015.
Based on that evaluation, the Company’s Chief Executive Officer and its Chief Financial Officer concluded that the Company’s disclosure
controls and procedures (as such term is defined under Rule 13a-15(e) promulgated of the Exchange Act) were effective as of
December 31, 2015.
Management’s Annual Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as that
term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of the Company’s management,
including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of its internal control over financial
reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. 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.
Based on management’s testing and evaluation under the framework in Internal Control – Integrated Framework (2013), management
concluded that our internal control over financial reporting was effective as of December 31, 2015.
Under guidelines established by the SEC, companies are allowed to exclude acquisitions from their assessment of internal control over
financial reporting during the first year of an acquisition while integrating the acquired company. Accordingly, our assessment of the
internal controls excluded Halcyon Healthcare, LLC which was acquired on October 1, 2015. Halcyon Healthcare’s operations represented
approximately 1% of both total assets and total revenues as of and for the year ended December 31, 2015.
The attestation report of KPMG LLP, the independent registered public accounting firm that audited the financial statements included in
this Annual Report on Form 10-K, is included herein.
Changes in Internal Control Over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting, as such term is defined in Rule 13a-15(f)
of the Exchange Act, during the Company’s fiscal quarter ended December 31, 2015 that have materially affected, or are reasonably likely
to materially affect, the Company’s internal control over financial reporting.
Form 10-K Part I I
57
LHC GROUP
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
LHC Group, Inc.
We have audited LHC Group, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established
in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). LHC Group, Inc.’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 conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 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.
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.
In our opinion, LHC Group, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31,
2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).
LHC Group, Inc. acquired Halcyon Healthcare, LLC (“Halcyon”) on October 1, 2015, and management excluded from its assessment
of the effectiveness of LHC Group, Inc.’s internal control over financial reporting as of December 31, 2015, Halcyon’s internal control over
financial reporting associated with approximately 1% of both total assets and total revenues included in the consolidated financial
statements of LHC Group, Inc. and subsidiaries as of and for the year ended December 31, 2015. Our audit of internal control over
financial reporting of LHC Group, Inc. also excluded an evaluation of the internal control over financial reporting of Halcyon.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of LHC Group, Inc. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated
statements of income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2015,
and our report dated March 3, 2016 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Baton Rouge, Louisiana
March 3, 2016
58
Form 10-K Part I I
Item 9B. Other Matters.
None noted.
FOCUSED: ON LEADING THE WAY
Form 10-K Part I I
59
LHC GROUP
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item regarding our directors and executive officers is incorporated by reference from the information
contained under the heading “Information About Directors, Nominees and Management” in the definitive Proxy Statement relating to the
Company’s 2016 Annual Meeting of Stockholders.
The information required by this Item regarding compliance with Section 16(a) of the Exchange Act is incorporated by reference from
the information contained under the heading “Section 16(a) Beneficial Ownership Reporting Compliance” in the definitive Proxy Statement
relating to the Company’s 2016 Annual Meeting of Stockholders.
The information required by this Item regarding our corporate governance Nominating Committee and Audit Committee is incorporated
by reference from the information contained under the heading “The Board of Directors and Corporate Governance” in the definitive Proxy
Statement relating to the Company’s 2016 Annual Meeting of Stockholders.
Code of Conduct and Ethics
We have adopted a code of ethics that applies to all of our directors, officers and employees. This code is publicly available in the
investor relations area of our website at www.lhcgroup.com. Any substantive amendments to this code, or any waivers granted for any
directors or executive officers, including our principal executive officer, principal financial officer, principal accounting officer or controller,
will be disclosed on our website and remain available there for at least 12 months. This code of ethics is not incorporated in this report by
reference. Copies of our code of ethics will also be provided, without charge, upon written request to Investor Relations at LHC Group, Inc.,
901 Hugh Wallis Road South, Lafayette, Louisiana, 70508.
Item 11. Executive Compensation.
The information required by this Item regarding our executive compensation and Compensation Committee is incorporated by reference
from the information contained under the heading “Executive Officer Compensation” in the definitive Proxy Statement relating to the
Company’s 2016 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.
The information required by this Item regarding our securities authorized for issuance under equity compensation plans and security
ownership of certain beneficial owners and management is incorporated by reference from the information contained under the headings
“Security Ownership of Certain Beneficial Owners and Management” in the definitive Proxy Statement relating to the Company’s 2016
Annual Meeting of Stockholders.
Equity Compensation Plan Information
Plan Catagory
(a)
(b)
Number of Shares
to be Issued
Upon Exercise of
Outstanding Options,
Warrants, and Rights
Weighted-Average
Exercise Price of
Outstanding Price of
Outstanding Rights
(c)
Number of Shares
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column a)
Equity compensation plans approved by Stockholders:
Equity compensation plans not approved by Stockholders:
Total
5,500
—
5,500
$ 20.09
—
$ 20.09
704,797
—
704,797
60
Form 10-K Part II I
FOCUSED: ON LEADING THE WAY
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item regarding transactions with related persons is incorporated by reference from the information
contained under the heading “Certain Relationships and Related Transactions” in the definitive Proxy Statement relating to the Company’s
2016 Annual Meeting of Stockholders.
Item 14. Principal Accounting Fees and Services.
The information required by this Item regarding accounting and audit fees is incorporated by reference from the information contained
under the heading “Principal Accounting Fees and Services” in the definitive Proxy Statement relating to the Company’s 2016 Annual Meeting
of Stockholders.
Form 10-K Part III
61
LHC GROUP
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) Documents to be filed with Form 10-K:
(1) Financial Statements
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2015 and 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For each of the years in the three-year period ended December 31, 2015
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-1
F-2
F-3
F-4
F-5
F-6
(2) Financial Statement Schedules
There are no financial statement schedules included in this report.
(3) Exhibits
The Exhibits are listed in the Index of Exhibits required by Item 601 of Regulation S-K included herewith, which is incorporated
by reference.
62
Form 10-K Part I V
FOCUSED: ON LEADING THE WAY
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
LHC Group, Inc.:
We have audited the accompanying consolidated balance sheets of LHC Group, Inc. and subsidiaries as of December 31, 2015 and
2014, and the related consolidated statements of income, changes in equity, and cash flows for each of the years in three-year period
ended December 31, 2015. 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 conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
LHC Group, Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of
the years in three-year period ended December 31, 2015, 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), LHC Group, Inc.’s
internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 3, 2016
expressed an unqualified opinion on the effectiveness of the LHC Group, Inc.’s internal control over financial reporting.
/s/ KPMG LLP
Baton Rouge, Louisiana
March 3, 2016
Report of Independent Registered Public Accounting Firm
Form 10-K Part I V
F-1
LHC GROUP
LHC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
As of December 31,
ASSETS
Current assets:
Cash
Receivables:
Patient accounts receivable, less allowance for uncollectible accounts
of $26,712 and $18,582, respectively
Other receivables
Amounts due from governmental entities
Total receivables, net
Deferred income taxes
Prepaid income taxes
Prepaid expenses
Other current assets
Receivable due from insurance carrier
Total current assets
Property, building and equipment, net of accumulated depreciation of $38,907 and $44,683, respectively
Goodwill
Intangible assets, net of accumulated amortization of $8,496 and $6,560, respectively
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities
Salaries, wages and benefits payable
Self insurance reserves
Current portion of long-term debt
Amounts due to governmental entities
Legal settlement payable
Total current liabilities
Deferred income taxes
Income tax payable
Revolving credit facility
Long-term debt, less current portion
Total liabilities
Noncontrolling interest-redeemable
Stockholders’ equity:
LHC Group, Inc. stockholders’ equity:
Common stock – $0.01 par value: 40,000,000 shares authorized; 22,224,423 and
22,015,211 shares issued in 2015 and 2014, respectively
Treasury stock – 4,776,560 and 4,734,363 shares at cost, respectively
Additional paid-in capital
Retained earnings
Total LHC Group, Inc. stockholders’ equity
Noncontrolling interest – non-redeemable
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying Notes to the Consolidated Financial Statements
2015
2014
$ 6,139
$
531
110,350
2,093
1,081
113,524
—
1,949
10,833
5,835
550
138,830
38,096
290,694
96,405
2,029
$ 566,054
$ 24,586
28,098
9,636
241
7,055
550
70,166
23,729
3,415
98,000
543
195,853
12,408
222
(37,139)
113,793
277,706
354,582
3,211
357,793
$ 566,054
97,498
1,334
1,164
99,996
11,381
3,093
8,724
3,777
7,850
135,352
34,787
240,019
79,685
1,896
$ 491,739
$ 19,278
22,466
6,559
230
4,459
7,850
60,842
33,592
3,415
60,000
778
158,627
11,517
220
(35,660)
108,708
245,371
318,639
2,956
321,595
$ 491,739
F-2
Form 10-K Part IV
Consolidated Balance Sheets
LHC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share and per share data)
For the Year Ended December 31,
Net service revenue
Cost of service revenue
Gross margin
Provision for bad debts
General and administrative expenses
Impairment of intangibles and other
Operating income
Interest expense
Non-operating income
Income from continuing operations before income taxes and
noncontrolling interests
Income tax expense
Income from continuing operations
Less net income attributable to noncontrolling interests
Net income attributable to LHC Group, Inc.’s common stockholders
Earnings per share – basic:
Net income attributable to LHC Group, Inc.’s common stockholders
Earnings per share – diluted:
Net income attributable to LHC Group, Inc.’s common stockholders
Weighted average shares outstanding:
Basic
Diluted
See accompanying Notes to the Consolidated Financial Statements
FOCUSED: ON LEADING THE WAY
2015
2014
2013
$ 816,366
480,878
$ 733,632
434,775
$ 658,283
383,464
335,488
19,243
248,629
1,273
66,343
(2,302)
457
64,498
22,848
41,650
9,315
32,335
1.86
1.84
$
$
$
298,857
15,780
233,945
3,646
45,486
(2,486)
265
43,265
14,513
28,752
6,915
21,837
1.27
1.26
$
$
$
274,819
13,929
213,633
520
46,737
(1,995)
263
45,005
15,859
29,146
6,804
22,342
1.31
1.30
$
$
$
17,405,379
17,547,531
17,229,026
17,315,333
17,049,794
17,132,751
Consolidated Statements of Income
Form 10-K Part IV
F-3
LHC GROUP
LHC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Amounts in thousands, except share data)
LHC Group, Inc.
Common Stock
Issued
Treasury
Amount
Shares
Amount
Shares
Additional
Paid-In
Capital
Noncontrolling
Interest –
Total
Retained
Earnings Non-redeemable Equity
Noncontrolling
Interest –
Redeemable
Net
Income
Balances at December 31, 2012
Net income
$ 216
—
21,578,772
—
(33,846)
—
4,653,039 $ 100,619
—
—
$ 201,192
22,342
$ 4,033
1,244
$ 272,214
23,586
$ 11,426
5,560 $ 29,146
Transfer of noncontrolling interest
Noncontrolling interest
Noncontrolling interest distributions
Purchase of additional controlling
interest
Nonvested stock compensation
Issuance of vested stock
Treasury shares redeemed to pay
income tax
Excess tax benefits-vesting
nonvested stock
Issuance of common stock under
Employee Stock Purchase Plan
Balances at December 31, 2013
Net income
Acquired noncontrolling interest
Sale of noncontrolling interest
Noncontrolling interest distributions
Purchase of additional controlling
interest
Nonvested stock compensation
Issuance of vested stock
Treasury shares redeemed to pay
income tax
Excess tax benefits-vesting
nonvested stock
Issuance of common stock under
Employee Stock Purchase Plan
Balances at December 31, 2014
Net income
Acquired noncontrolling interest
Purchase of additional controlling
interest
Noncontrolling interest distributions
Stock options exercised
Nonvested stock compensation
Issuance of vested stock
Treasury shares redeemed to pay
income tax
Excess tax benefits-vesting
nonvested stock
Issuance of common stock under
Employee Stock Purchase Plan
Balances at December 31, 2015
—
—
—
—
—
—
—
—
—
—
—
—
—
184,403
—
—
—
—
—
—
—
—
—
—
(1,267)
3,886
—
—
(869)
40,608
—
—
—
—
(50)
—
—
—
—
—
—
—
(1,342)
—
(1,060)
1,342
608
(7,066)
(1,342)
—
(1,060)
—
—
—
(1,267)
3,886
—
—
(869)
—
(50)
(612)
—
—
—
—
2
$ 218
38,459
—
21,801,634 $ (34,715)
—
784
4,693,647 $ 103,972
—
$ 223,534
—
$ 2,875
786
$ 295,884
—
$ 11,258
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
177,272
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(945)
40,716
—
—
—
—
—
161
—
(359)
4,094
—
—
60
21,837
—
1,214
138
23,051
138
161
(1,271)
(359)
4,094
—
(1,271)
—
—
—
—
(945)
—
60
28,752
5,701
130
(5,572)
—
—
—
—
—
—
—
—
—
—
—
2
$ 220
36,305
—
22,015,211 $ (35,660)
—
780
4,734,363 $ 108,708
—
$ 245,371
—
$ 2,956
782
$ 321,595
—
$ 11,517
—
—
32,335
—
1,737
155
34,072
155
7,578
—
41,650
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
9,500
—
176,989
—
—
—
—
—
—
—
—
—
—
—
—
(275)
—
144
4,225
—
—
(1,479)
42,197
—
—
—
211
(6,687)
—
—
—
—
—
—
—
—
(1,637)
—
—
—
(275)
(1,637)
144
4,225
—
—
(1,479)
—
211
2
$ 222
22,723
—
22,224,423 $ (37,139)
—
780
4,776,560 $ 113,793
—
$ 277,706
—
$ 3,211
782
$ 357,793
$ 12,408
See accompanying Notes to the Consolidated Financial Statements
F-4
Form 10-K Part IV
Consolidated Statements of Changes in Equity
LHC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
For the Year Ended December 31,
2015
2014
2013
FOCUSED: ON LEADING THE WAY
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense
Provision for bad debts
Stock-based compensation expense
Deferred income taxes
Impairment of intangibles and other
Changes in operating assets and liabilities, net of acquisitions:
Receivables
Prepaid expenses and other assets
Prepaid income taxes
Accounts payable and accrued expenses
Net amounts due to/from governmental entities
Net cash provided by operating activities
Investing activities
Cash paid for acquisitions, primarily goodwill and intangible assets
Purchases of property, building and equipment
Net cash (used in) investing activities
Financing activities
Proceeds from line of credit
Payments on line of credit
Excess tax benefits from vesting of restricted stock
Proceeds from issuance of common stock under ESPP
Proceeds from debt issuance
Payments on debt
Noncontrolling interest distributions
Payment of deferred financing fees
Purchase of additional controlling interest
Sale of noncontrolling interest
Redemption of treasury stock to pay income tax
Proceeds from exercise of stock options
Net cash provided by (used in) financing activities
Change in cash
Cash at beginning of period
Cash at end of period
Supplemental disclosures of cash flow information
Interest paid
Income taxes paid
$ 41,650
$ 28,752
$ 29,146
11,955
19,243
4,225
1,518
1,990
(27,951)
(3,793)
441
10,526
130
59,934
(70,572)
(13,283)
(83,855)
83,000
(45,000)
914
782
—
(233)
(8,324)
—
(275)
—
(1,479)
144
29,529
5,608
531
$ 6,139
$ 1,870
$ 20,361
9,571
15,780
4,094
2,402
3,650
(16,372)
191
911
(10,460)
138
38,657
(73,933)
(8,105)
(82,038)
75,000
(37,000)
124
782
—
(202)
(6,843)
(852)
(359)
193
(945)
—
29,898
(13,483)
14,014
531
$
8,325
13,929
3,886
2,351
520
(18,961)
(749)
3,299
4,395
(226)
45,915
(26,920)
(8,343)
(35,263)
73,000
(70,500)
18
786
1,212
—
(8,126)
—
(1,879)
—
(869)
—
(6,358)
4,294
9,720
$ 14,014
$ 2,461
$ 11,781
$ 1,961
$ 21,606
Supplemental disclosure of non-cash transactions:
2014 non-cash transaction. $2.7 million of licenses associated with the Company’s point of care technology were capitalized as additions to property,
building and equipment upon placing associated equipment in service. These licenses were purchased during the twelve months ended December 31, 2010
and previously recorded in other assets on the balance sheet.
See accompanying Notes to the Consolidated Financial Statements
Consolidated Statements of Cash Flows
Form 10-K Part IV
F-5
LHC GROUP
LHC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
LHC Group, Inc. (the “Company”) is a health care provider specializing in the post-acute continuum of care primarily for Medicare
beneficiaries. The Company provides home health services, hospice services, community-based services, and facility-based services,
the latter primarily through long-term acute care hospitals (“LTACHs”). As of December 31, 2015, the Company, through its wholly
and majority-owned subsidiaries, equity joint ventures and controlled affiliates, operated 363 service providers in 25 states within the
continental United States.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“US GAAP”) requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported revenue and expenses during the reporting period. Actual
results could differ from those estimates.
The most significant estimates relate to revenue recognition, collectability of accounts receivable and impairment tests of goodwill and
other indefinite-lived intangible assets. A description of the significant accounting policies and a discussion of the significant estimates and
judgments associated with such policies are described below.
Principles of Consolidation
The consolidated financial statements include all subsidiaries and entities controlled by the Company. Control is defined by the Company
as ownership of a majority of the voting interest of an entity. Third party equity interests in the consolidated joint ventures are reflected as
noncontrolling interests in the Company’s consolidated financial statements.
The following table summarizes the percentage of net service revenue earned by type of ownership or relationship the Company had with
the operating entity for the periods presented for the years ending December 31:
Ownership Type
Wholly owned subsidiaries
Equity joint ventures
License leasing arrangements
Management services
2015
55.2%
42.9
1.0
0.9
2014
53.5%
43.9
1.8
0.8
2013
48.8%
48.5
1.9
0.8
100.0%
100.0%
100.0%
All significant inter-company accounts and transactions have been eliminated in consolidation. All business combinations accounted for
as purchases have been included in the consolidated financial statements from the respective dates of acquisition.
The following discussion describes the Company’s consolidation policy with respect to its various ventures excluding wholly owned
subsidiaries:
Equity Joint Ventures
A majority of the Company’s equity joint ventures are structured as limited liability companies in which the Company typically owns a
majority equity interest ranging from 51% to 91%. Each member of all but one of the Company’s equity joint ventures participates in profits
and losses in proportion to their equity interests. The Company has one equity joint venture partner whose participation in losses is
limited. The Company consolidates these entities as the Company has the obligation to absorb losses of the entities and the right to
receive benefits from the entities and generally has voting control over the entities.
F-6
Form 10-K Part IV
Notes to Consolidated Financial Statements
License Leasing Arrangements
The Company, through wholly owned subsidiaries, leases home health licenses necessary to operate certain of its home nursing and
hospice agencies. As with wholly owned subsidiaries, the Company owns 100% of the equity of these entities and consolidates them
FOCUSED: ON LEADING THE WAY
based on such ownership.
Management Services
The Company has various management services agreements under which the Company manages operations of certain agencies and
facilities. The Company does not consolidate these agencies or facilities, as the Company does not have an ownership interest and does
not have an obligation to absorb losses of the entities or the right to receive the benefits from the entities other than management fees.
Revenue Recognition
The Company reports net service revenue at the estimated net realizable amount due from Medicare, Medicaid and others for services
rendered. The Company assesses the patient’s ability to pay for their healthcare services at the time of patient admission based on
the Company’s verification of the patient’s insurance coverage under the Medicare, Medicaid and other commercial or managed care
insurance programs. All such payors contribute to the net service revenue of the Company’s home health services, hospice services
and facility-based services.
The following table sets forth the percentage of net service revenue earned by category of payor for the years ending December 31:
Payor
Medicare
Medicaid
Other
2015
74.5%
1.5
24.0
2014
75.9%
1.4
22.7
2013
79.8%
1.4
18.8
100.0%
100.0%
100.0%
The percentage of net service revenue contributed from each reporting segment was as follows for the years ending December 31:
Type of Segment
Home Health Services
Hospice Services
Community-Based Services
Facility-Based Services
Medicare
Home Health Services
2015
75.1%
10.5
5.1
9.3
2014
77.0%
9.2
3.8
10.0
2013
79.5%
8.5
0.5
11.5
100.0%
100.0%
100.0%
The Company’s home nursing Medicare patients are classified into one of 153 home health resource groups prior to receiving services.
Based on this home health resource group, the Company is entitled to receive a standard prospective Medicare payment for delivering
care over a 60-day period referred to as an episode. The Company recognizes revenue based on the number of days elapsed during an
episode of care within the reporting period.
Final payments from Medicare may reflect one of four retroactive adjustments to ensure the adequacy and effectiveness of the total
reimbursement: (a) an outlier payment if the patient’s care was unusually costly; (b) a low utilization adjustment if the number of visits was
fewer than five; (c) a partial payment if the patient transferred to another provider before completing the episode; or (d) a payment
adjustment based upon the level of therapy services required in the population base. Management estimates the impact of these payment
adjustments based on historical experience and records this estimate during the period the services are rendered. The Company’s
payment is also adjusted for geographic wage differences. In calculating the Company’s reported net service revenue from home nursing
services, the Company adjusts the prospective Medicare payments by an estimate of the adjustments.
Notes to Consolidated Financial Statements
Form 10-K Part IV
F-7
LHC GROUP
Hospice Services
The Company is paid by Medicare under a per diem payment system. The Company receives one of four predetermined daily or hourly
rates based upon the level of care the Company furnished. The Company records net service revenue from hospice services based on the
daily or hourly rate and recognizes revenue as hospice services are provided.
Hospice payments are subject to an inpatient cap and an overall Medicare payment cap. The inpatient cap relates to individual programs
receiving more than 20% of its total Medicare reimbursement from inpatient care services and the overall Medicare payment cap relates
to individual programs receiving reimbursements in excess of a “cap amount,” calculated by multiplying the number of beneficiaries during
the period by a statutory amount that is indexed for inflation. The determination for each cap is made annually based on the 12 -month
period ending on October 31 of each year. The Company monitors its limits on a provider-by-provider basis and records an estimate of its
liability for reimbursements received in excess of the cap amount. Annually, the Company receives notification of whether any of its
hospice providers have exceeded either cap. Beginning with cap year ended October 1, 2014, CMS implemented a new process requiring
hospice providers to self-report their cap liabilities and remit applicable payment by March 31 of the following year.
Facility-Based Services
Long-Term Acute Care Services. The Company is reimbursed by Medicare for services provided under the long-term acute care
hospital (“LTACH”) prospective payment system. Each patient is assigned a long-term care diagnosis-related group. The Company is paid
a predetermined fixed amount intended to reflect the average cost of treating a Medicare patient classified in that particular long-term
care diagnosis-related group. For selected patients, the amount may be further adjusted based on length-of-stay and facility-specific
costs, as well as in instances where a patient is discharged and subsequently re-admitted, among other factors. The Company calculates
the adjustment based on a historical average of these types of adjustments for claims paid. Similar to other Medicare prospective
payment systems, the rate is also adjusted for geographic wage differences. Revenue is recognized for the Company’s LTACHs as
services are provided.
Medicaid, Managed Care and Other Payors
The Company’s Medicaid reimbursement is based on a predetermined fee schedule applied to each service provided. Therefore, revenue
is recognized for Medicaid services as services are provided based on this fee schedule. Managed care and other payors reimburse
the Company in a manner similar to either Medicare or Medicaid. Accordingly, the Company recognizes revenue from managed care and
other payors in the same manner as the Company recognizes revenue from Medicare or Medicaid.
Management Services
The Company records management services revenue as services are provided in accordance with the various management services
agreements to which the Company is a party. As described in the management services agreements, the Company provides billing,
management and other consulting services suited to and designed for the efficient operation of the applicable home nursing agency. The
Company is responsible for the costs associated with the locations and personnel required for the provision of services. The Company
is compensated based on a percentage of cash collections for one management service agreement and reimbursed for operating expenses
plus a percentage of operating net income for two management service agreements.
Accounts Receivable and Allowances for Uncollectible Accounts
The Company reports accounts receivable net of estimated allowances for uncollectible accounts and adjustments. Accounts receivable
are uncollateralized and primarily consist of amounts due from Medicare, Medicaid, other third-party payors, and patients. To provide for
accounts receivable that could become uncollectible in the future, the Company establishes an allowance for uncollectible accounts to
reduce the carrying amount of such receivables to their estimated net realizable value. Because Medicare is the Company’s primary payor,
the credit risk associated with receivables from other payors is limited. The Company believes the credit risk associated with its
Medicare accounts, which have historically exceed 55.0% of its patient accounts receivable, is limited due to (i) the historical collection
rate from Medicare and (ii) the fact that Medicare is a U.S. government payor. The Company does not believe that there are any other
significant concentrations of receivables from any particular payor that would subject it to any significant credit risk in the collection of
accounts receivable.
The amount of the provision for bad debts is based upon the Company’s assessment of historical and expected net collections,
business and economic conditions and trends in government reimbursement. Uncollectible accounts are written off when the Company
has determined that the account will not be collected.
F-8
Form 10-K Part IV
Notes to Consolidated Financial Statements
FOCUSED: ON LEADING THE WAY
A portion of the estimated Medicare prospective payment system reimbursement from each submitted home nursing episode is received
in the form of a request for anticipated payment (“RAP”). The Company submits a RAP for 60% of the estimated reimbursement for
the initial episode at the start of care. The full amount of the episode is billed after the episode has been completed. The RAP received for
that particular episode is deducted from the 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 Medicare claims in process for that particular provider. The RAP and final claim must then be resubmitted. For subsequent
episodes of care contiguous with the first episode for a particular patient, the Company submits a RAP for 50% instead of 60% of the
estimated reimbursement.
The Company’s Medicare population is paid at a prospectively set amount that can be determined at the time services are rendered.
The Company’s Medicaid reimbursement is based on a predetermined fee schedule applied to each individual service we provide. The
Company’s managed care contracts are structured similar to either the Medicare or Medicaid payment methodologies. Because of its
payor mix, the Company is able to calculate its actual amount due at the patient level and adjust the gross charges down to the actual
amount at the time of billing. This negates the need to record an estimated contractual allowance when reporting net service revenue
for each reporting period.
Business Combination
The Company accounts for business combinations using the acquisition method. The assets typically acquired consist primarily of
Medicare licenses, trade names, certificates of need and/or a non-compete agreement. The assets acquired and liabilities assumed, if any,
are measured at fair value on the acquisition date using the appropriate valuation method. The noncontrolling interest associated with
joint venture acquisitions is also measured and recorded at fair value as of the acquisition date. The residual purchase price is recorded as
goodwill. The operations of the acquisitions are included in the consolidated financial statements from their respective dates of acquisition.
Goodwill and Intangible Assets
The Company performs its annual impairment review of goodwill at November 30, and when a triggering event occurs between annual
impairment tests. For 2015, the Company performed a qualitative assessment of goodwill and determined that it is not more likely than
not that the fair values of its reporting units are less than the carrying amounts.
The Company has not recognized any goodwill impairment charges in 2015, 2014 or 2013 related to the annual impairment testing.
During the twelve months ended December 31, 2015 and 2014, the Company recognized a disposal of $0.4 million and $0.2 million,
respectively, of goodwill associated with the closure of underperforming locations.
Included in intangible assets are definite-lived assets subject to amortization such as non-compete agreements and defensive assets,
which are defined as trade names that are not actively used. Amortization of definite-lived intangible assets is calculated on a straight-line
basis over the estimated useful lives of the related assets, ranging from two to five years. The Company also has indefinite-lived assets
that are not subject to amortization expense such as trade names, certificates of need and licenses to conduct specific operations within
geographic markets. The Company has concluded that trade names, certificates of need and licenses have indefinite lives, because there
are no legal, regulatory, contractual, economic or other factors that would limit the useful life of these intangible assets and the Company
intends to renew and operate the certificates of need and licenses and use the trade names indefinitely. These indefinite-lived intangible
assets are reviewed annually for impairment or more frequently if circumstances indicate impairment may have occurred. To determine
whether an indefinite-lived intangible asset is impaired, the Company performs a qualitative assessment to support the conclusion that
the indefinite-lived intangible asset is not impaired. Based on the results of that qualitative assessment, the Company may perform a
quantitative test. The Company utilizes a relief-from-royalty method in its quantitative impairment test of trade names. Under this method,
the fair value of the trade name is determined by calculating the present value of the after-tax cost savings associated with owning the
trade names and, therefore, not having to pay royalties for use over its estimated useful life. The Company utilizes the replacement cost
approach in its quantitative impairment test for certificates of need and licenses. Under this method, assumptions are made about the
cost to replace the certificates of need and licenses. During the twelve months ended December 31, 2015, 2014 and 2013, the Company
recorded impairment charges related to indefinite-lived intangible assets of $0.6 million, $2.0 million and $0.5 million, respectively. During
the twelve months ended December 31, 2015 and 2014, the Company recognized $0.3 million and $1.4 million, respectively, of disposal
costs related to other indefinite-lived intangible assets associated with the closure of underperforming locations.
Notes to Consolidated Financial Statements
Form 10-K Part IV
F-9
LHC GROUP
Due to/from Governmental Entities
The Company’s LTACHs are reimbursed for certain activities based on tentative rates. The amounts recorded in due to/from governmental
entities on the Company’s consolidated balance sheets relate to settled and open cost reports that are subject to the completion of
audits and the issuance of final assessments. Final reimbursement is determined based on submission of annual cost reports and audits
by the fiscal intermediary. Adjustments are accrued on an estimated basis in the period the related services were rendered and further
adjusted as final settlements are determined. These adjustments are accounted for as changes in estimates. Additionally, reimbursements
received in excess of hospice cap amounts are recorded in this account.
Property, Building and Equipment
Property, building and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful
lives of the individual assets. The estimated useful life of buildings is 39 years, while the estimated useful lives of transportation equipment
and furniture and other equipment range from 3 to 10 years. The useful life for leasehold improvements is the shorter of the lease term
or the expected life of the leasehold improvement. Assets that are sold or retired are written off and any gain or losses are recorded in
operating income. Routine repairs and maintenance costs are expensed as incurred.
Property, building and equipment are reviewed whenever events or changes in circumstances occur that indicate possible impairment.
There were no impairments recognized during the periods ended December 31, 2015, 2014 or 2013.
The following table describes the Company’s components of property, building and equipment for the years ended December 31, 2015
and 2014 (amounts in thousands):
Land
Building and improvements
Transportation equipment
Fixed equipment
Office furniture and medical equipment
Less accumulated depreciation
2015
2014
$ 2,033
10,026
6,912
3,373
54,659
77,003
38,907
$ 38,096
$
543
9,238
6,191
3,661
59,837
79,470
44,683
$ 34,787
Depreciation expense for the years ended December 31, 2015, 2014 and 2013 was $10.0 million, $7.5 million and $6.9 million,
respectively, which was recorded in general and administrative expenses.
Noncontrolling Interest
The nonredeemable interest held by third parties in subsidiaries owned or controlled by the Company is reported on the consolidated
balance sheets as noncontrolling interest as a component of stockholders’ equity. Redeemable interest held by third parties in subsidiaries
owned or controlled by the Company is reported on the consolidated balance sheets outside of permanent equity. All noncontrolling
interest reported in the consolidated statements of income reflects the respective interests in the income or loss after income taxes of the
subsidiaries attributable to the other parties, the effect of which is removed from the net income attributable to the Company.
F-10
Form 10-K Part IV
Notes to Consolidated Financial Statements
FOCUSED: ON LEADING THE WAY
Stock-Based Compensation
The Company grants restricted stock or restricted stock units to employees and members of its Board of Directors as a form of
compensation. The expense for such awards is based on the grant date fair value of the award and is recognized on a straight-line basis
over the requisite service period. See Note 7 to these consolidated financial statements.
Earnings Per Share
The following table sets forth shares used in the computation of basic and diluted per share information for the years ended December 31,
2015, 2014 and 2013:
Weighted average number of shares outstanding for basic per share calculation
Effect of dilutive potential shares:
Options
Nonvested restricted stock
2015
2014
2013
17,405,379
17,229,026
17,049,794
3,663
138,488
4,284
82,023
4,058
78,899
Adjusted weighted average shares for diluted per share calculation
17,547,531
17,315,333
17,132,751
Antidilutive shares
200,525
173,360
182,225
Recently Issued Accounting Pronouncements
On May 28, 2014, the FASB issued ASU No. 2014-9, Revenue from Contracts with Customers, (“ASU 2014-9”) which requires an entity to
recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU
2014-9 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for
the Company on January 1, 2017. Early adoption is not permitted. The standard permits the use of either the retrospective or cumulative
effect transition method. The Company is evaluating the effect that ASU 2014-9 will have on its consolidated financial statements and
related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing
financial reporting.
On November 20, 2015, the FASB issued ASU No. 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes, (“ASU 2015-17”)
which requires an entity with a classified balance sheet to present all deferred tax assets and liabilities as noncurrent. The new standard
is effective for the Company on January 1, 2017; however, early adoption is permitted. The Company is electing to early adopt the new
standard effective December 31, 2015. The standard permits the use of prospective transition and, as such, prior periods were not
adjusted in the Company’s financial statements.
Notes to Consolidated Financial Statements
Form 10-K Part IV
F-11
LHC GROUP
3. Acquisitions and Disposals
2015 Acquisitions
On October 1, 2015, the Company acquired 100% of the membership interests of Halcyon Healthcare, LLC (“Halcyon”). Halcyon has
16 hospice locations throughout Alabama, Mississippi, and South Carolina. On November 11, 2015, the Company acquired 100% of the
assets of Nurses’ Registry and Home Health Corporation, LLC (“Nurses Registry”). Nurses Registry has five locations, four home health
agencies and one community-based services agency, located in Kentucky. The goodwill associated with Halcyon and Nurses Registry
was $47.2 million.
In addition, the Company acquired the majority-ownership of five home health agencies, one hospice agency, and one community-based
services agency during the twelve months ended December 31, 2015.
The total aggregate purchase prices for the Company’s acquisitions were $71.4 million, of which $70.1 million was paid in cash. The
purchase prices are determined based on the Company’s analysis of comparable acquisitions and the target market’s potential future
cash flows. The Company paid $0.4 million in acquisition-related costs, which was recorded in general and administrative expenses.
The Company’s home health services segment, hospice services segment, and community-based services segment recognized
aggregate goodwill of $7.1 million, $43.3 million, and $0.6 million, respectively. Goodwill generated from the acquisitions was recognized
based on the expected contributions of each acquisition to the overall corporate strategy. The Company expects its portion of
goodwill to be fully tax deductible. The acquisitions were accounted for under the acquisition method of accounting, and, accordingly,
the accompanying financial information includes the results of operations of the acquired entities from the dates of acquisition.
The following table summarizes the aggregate consideration paid for the acquisitions and the amounts of the assets acquired and
liabilities assumed at the acquisition dates, as well as their fair value at the acquisition dates and the noncontrolling interest acquired
(amounts in thousands):
Consideration
Cash
Fair value of total consideration transferred
Recognized amounts of identifiable assets acquired and liabilities assumed
Trade name
Certificates of needs/licenses
Other identifiable intangible assets
Cash
Accounts receivable
Fixed assets
Accounts payable
Other assets and (liabilities), net
Total identifiable assets
Noncontrolling interest
Goodwill, including noncontrolling interest of $36
$ 70,123
70,123
6,530
11,609
953
700
4,202
521
(1,389)
(3,937)
19,189
152
$ 51,086
Trade names, certificates of need and licenses are indefinite-lived assets and, therefore, not subject to amortization. Acquired trade names
that are not being used actively are amortized over the estimated useful life on the straight line basis. Trade names are valued using the
relief from royalty method, a form of the income approach. Certificates of needs are valued using the replacement cost approach based on
registration fees and opportunity costs. Licenses are valued based on the estimated direct costs associated with recreating the asset,
including opportunity costs based on an income approach. In the case of states with a moratorium in place, the licenses are valued using
the multi period excess earnings method. The other identifiable assets include non-compete agreements that are amortized over the life
of the agreements, ranging from one to three years. Noncontrolling interest is valued at fair value by applying a discount to the value of the
acquired entity for lack of control.
F-12
Form 10-K Part IV
Notes to Consolidated Financial Statements
FOCUSED: ON LEADING THE WAY
The Company has conducted a preliminary assessment of deferred income tax accounting and the calculation of the final net working
capital adjustment and has recognized provision amounts in it is initial accounting for the acquisition of Halcyon for all identified liabilities
in accordance with the requirements of ASC Topic 805. However, the Company is continuing its review of these matters during the
measurement period, and if new information obtained about facts and circumstances that existed at the acquisition date identified
adjustments to the assets and liabilities initially recognized, the acquisition accounting will be revised to reflect the resulting adjustments to
the provisional amounts initially recognized.
The following table contains unaudited pro forma consolidated income statement information assuming the 2015 acquisitions closed
January 1, 2014 (amount in thousands, except earnings per share):
Net service revenue
Operating income
Net income
Basic earnings per share
Diluted earnings per share
2015
2014
$ 868,075
67,520
33,044
1.90
1.88
$ 789,761
45,671
21,949
1.27
1.27
The pro forma information presented above includes adjustments for (i) depreciation expense, (ii) amortization of identifiable intangible
assets, (iii) income tax provision using the Company’s effective tax rate and (iv) estimate of additional costs to provide administrative
costs for these locations. This pro forma information is presented for illustrative purposes only and may not be indicative of the results
of operations that would have actually occurred. In addition, future results may vary significantly from the results reflected in the
pro forma information.
2014 Acquisitions
The total aggregate purchase price for the Company’s acquisitions, which closed in the twelve months ended December 31, 2014, was
$75.5 million, of which $73.9 million was paid in cash. The purchase prices are determined based on an analysis of comparable
acquisitions and the target market’s potential future cash flows. The company paid $1.0 million in acquisition-related costs, which was
recorded in general and administrative expenses.
The Company’s home health services segment, hospice services segment, and community-based services segment recognized
aggregate goodwill of $22.9 million, $5.3 million, and $17.1 million, respectively. Goodwill generated from the acquisitions was recognized
based on the expected contributions of each acquisition to the overall corporate strategy. The Company expects its portion of goodwill
to be fully tax deductible.
4. Goodwill and Other Intangibles, Net
The following table summarizes changes in goodwill by reporting unit during the twelve months ended December 31, 2015 and 2014
(amounts in thousands):
Home Health
Reporting Unit
Hospice
Reporting Unit
Community-Based Facility-Based
Reporting Unit
Reporting Unit
Balance as of December 31, 2013
Goodwill from acquisitions
Goodwill related to noncontrolling interests
Goodwill related to disposal
Balance as of December 31, 2014
Goodwill from acquisitions
Goodwill related to noncontrolling interests
Goodwill related to disposal
Balance as of December 31, 2015
$ 173,574
22,809
113
(200)
$ 196,296
7,069
14
(384)
$ 202,995
$ 9,463
5,330
—
—
$ 14,793
43,343
—
—
$ 58,136
$ 265
17,074
—
—
$ 17,339
638
22
(27)
$ 17,972
$ 11,591
—
—
—
$ 11,591
—
—
—
$ 11,591
Total
$ 194,893
45,213
113
(200)
$ 240,019
51,050
36
(411)
$ 290,694
Notes to Consolidated Financial Statements
Form 10-K Part IV
F-13
LHC GROUP
The Company determined that there was no impairment for the goodwill of any reporting units as of December 31, 2015, 2014 and 2013
based on the Company’s annual impairment testing; however, the Company did record $0.4 million and $0.2 million of disposal of
goodwill during the years ended December 31, 2015 and 2014, respectively, due to the closure of underperforming locations. This was
recorded in impairment of intangibles and other.
The Company performed an impairment analysis on its indefinite-lived intangible assets related to the Company’s trade names, licenses
and certificates of need to determine the fair values as of November 30, 2015 and 2014. Lower revenue expectations caused by payor
contract changes and projected Medicare reimbursement cuts reduced the fair values of certain intangible assets below their carrying values.
Based on that analysis, the Company recorded an impairment charge of $0.6 million, $2.0 million, and $0.5 million for the years ended
December 31, 2015, 2014 and 2013, respectively, which was recorded in impairment of intangibles and other.
The following tables summarize the changes in intangible assets during the twelve months ended December 31, 2015 and 2014
(amounts in thousands):
Indefinite-lived assets:
Trade names
Certificates of need/licenses
Total
Amortizing assets:
Trade names
Non-compete agreements
Total
Balance at December 31, 2015
Indefinite-lived assets:
Trade names
Certificates of need/licenses
Total
Amortizing assets:
Trade names
Non-compete agreements
Total
Balance at December 31, 2014
Remaining
Useful Life
Indefinite
Indefinite
2 months – 5 years
3 months – 2 years
Remaining
Useful Life
Indefinite
Indefinite
2 months – 5 years
3 months – 3 years
December 31, 2015
Gross
Carrying
Amount
$ 60,762
29,807
90,569
8,985
5,347
14,332
$ 104,901
Accumulated
Amortization
$ —
—
—
(4,385)
(4,111)
(8,496)
$ (8,496)
December 31, 2014
Gross
Carrying
Amount
$ 54,732
19,058
$ 73,790
$ 8,230
4,225
12,455
$ 86,245
Accumulated
Amortization
$ —
—
$ —
$ (2,797)
(3,763)
(6,560)
$ (6,560)
Net
Carrying
Amount
$ 60,762
29,807
90,569
4,600
1,236
5,836
$ 96,405
Net
Carrying
Amount
$ 54,732
19,058
$ 73,790
$ 5,433
462
5,895
$ 79,685
Intangible assets of $66.4 million, net of accumulated amortization, related to the home health services segment, $21.8 million related to the
hospice segment, $7.3 million related to the community-based services segment and $0.9 million related to the facility-based services
segment as of December 31, 2015. Amortization for the years ended December 31, 2015, 2014 and 2013 was $1.9 million, $2.1 million
and $1.5 million, respectively, which was recorded in general and administrative expenses.
Disposal of Intangible Assets in Company’s Subsidiary
During the twelve months ended December 31, 2015 and 2014, the Company disposed of intangible assets for underperforming
providers in the home health segment. The loss on the disposal of these providers was $0.3 million and $1.4 million, respectively, which
was recorded in impairment of intangibles and other.
F-14
Form 10-K Part IV
Notes to Consolidated Financial Statements
FOCUSED: ON LEADING THE WAY
5. Income Taxes
The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred taxes
are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the
enacted tax laws that will be in effect when the differences are expected to reverse.
Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2015 and 2014 were as follows
(amounts in thousands):
Deferred tax assets:
Allowance for uncollectible accounts
Accrued employee benefits
Stock compensation
Accrued self-insurance
Acquisition costs
Net operating loss carry forward
Intangible asset impairment
Uncertain tax position – state tax portion
Uncertain tax position – interest expense
Other
Valuation allowance
Deferred tax assets
Deferred tax liabilities:
Amortization of intangible assets
Tax depreciation in excess of book depreciation
Prepaid expenses
Non-accrual experience accounting method
Deferred tax liabilities
Net deferred tax liability
2015
2014
$ 9,048
5,260
1,068
2,517
1,651
983
43
215
254
93
(44)
$ 21,088
(35,355)
(8,201)
(655)
(606)
(44,817)
$ (23,729)
$ 6,397
4,195
1,228
2,526
1,510
927
49
215
186
121
(44)
$ 17,310
(29,370)
(7,994)
(697)
(1,459)
(39,520)
$ (22,210)
Based on the Company’s historical pattern of taxable income, the Company believes it will produce sufficient income in the future to
realize its deferred income tax assets. Management provides a valuation allowance for any net deferred tax assets when it is more likely
than not that a portion of such net deferred tax assets will not be recovered.
The components of the Company’s income tax expense from continuing operations, less noncontrolling interest, were as follows
(amounts in thousands):
Current:
Federal
State
Deferred:
Federal
State
Total income tax expense
2015
2014
2013
$ 18,094
3,232
21,326
1,389
133
1,522
$ 22,848
$ 10,195
1,916
12,111
2,187
215
2,402
$ 14,513
$ 11,962
1,546
13,508
1,448
903
2,351
$ 15,859
Notes to Consolidated Financial Statements
Form 10-K Part IV
F-15
LHC GROUP
A reconciliation of the difference between the federal statutory tax rate and the Company’s effective tax rate for income taxes for each
period is as follows:
Federal statutory tax rate
State income taxes, net of federal benefit
Nondeductible expenses
Credits and other
Effective tax rate
2015
35.0%
3.9
2.5
—
41.4%
2014
35.0%
3.5
2.3
(0.9)
39.9%
2013
35.0%
3.5
3.1
—
41.6%
A reconciliation of the differences between income tax expense on net income attributable to the Company, computed at the federal
statutory rate and provisions for income taxes for each period is as follows (amounts in thousands):
Income taxes computed at federal statutory tax rate
State income taxes, net of federal benefit
Nondeductible expenses
Other items
Income tax credits
Total income tax expense
2015
2014
2013
$ 19,314
2,184
1,352
278
(280)
$ 22,848
$ 12,723
1,407
766
(99)
(284)
$ 14,513
$ 13,360
1,641
1,022
101
(265)
$ 15,859
The Company is subject to both federal tax and state income tax for jurisdictions within which it operates. Within these jurisdictions, the
Company is open to examination for tax years ended after December 31, 2011.
As of December 31, 2015, $3.4 million was recorded in income tax payable as an unrecognized tax benefit which, if recognized, would
decrease the Company’s effective tax rate. All of the Company’s unrecognized tax benefit is due to the settlement with the United States
of America, which was announced September 30, 2011. On July 31, 2014, the Internal Revenue Service (“IRS”) issued a notice of
proposed adjustment asserting that a portion of the original tax deduction claimed by the Company associated with the settlement of the
United States of America should be disallowed. The Company is currently appealing this proposed adjustment with the IRS Appeals.
The Company intends to vigorously defend its original position of the deductibility of the full settlement on its 2011 tax return. A reconciliation
of the total amounts of unrecognized tax benefits follows (amounts in thousands):
Total unrecognized tax benefits as of December 31, 2014
Increases (decreases) in unrecognized tax benefits as a result of:
Tax positions taken during the current period
Total unrecognized tax benefits as of December 31, 2015
$ 3,415
—
$ 3,415
The Company recognizes interest and penalties related to uncertain tax positions in interest expense and general and administrative
expenses, respectively. During the years ended December 31, 2015, 2014 and 2013, the Company recognized $0.2 million each year in
interest expense, and recorded an accrued liability of interest payments related to uncertain tax positions.
F-16
Form 10-K Part IV
Notes to Consolidated Financial Statements
FOCUSED: ON LEADING THE WAY
6. Debt
Credit Facility
On June 18, 2014, the Company entered into a Credit Agreement (the “Credit Agreement”) with Capital One, National Association, which
provides a senior, secured revolving line of credit commitment with a maximum principal borrowing limit of $225.0 million and a letter
of credit sub-limit equal to $15.0 million. The expiration date of the Credit Agreement is June 18, 2019. Revolving loans under the Credit
Agreement bear interest at either a (1) Base Rate, which is defined as a fluctuating rate per annum equal to the highest of (a) the Federal
Funds Rate in effect on such day plus 0.5% (b) the Prime Rate in effect on such day and (c) the Eurodollar Rate for a one month interest
period on such day plus 1.0%, plus a margin ranging from 0.75% to 1.5% per annum or (2) Eurodollar rate plus a margin ranging from
1.75% to 2.5% per annum. Swing line loans bear interest at the Base Rate. Borrowings under a Base Rate or Eurodollar Rate may be
outstanding at any time; however, there shall not be more than 15 Eurodollar borrowings outstanding at any given time. The Company
is required to pay a commitment fee for the unused commitments at rates ranging from 0.225% to 0.375% per annum depending upon
the Company’s consolidated Leverage Ratio, as defined in the Credit Agreement. The Base Rate at December 31, 2015 was 4.50%
and the Eurodollar rate was 2.42%. As of December 31, 2015, the interest rate on outstanding borrowings was 2.24%.
As of December 31, 2015 the Company had $98.0 million drawn and letters of credit in the amount of $9.8 million outstanding under the
credit facility. At December 31, 2014, the Company had $60.0 million drawn and letters of credit in the amount of $7.1 million outstanding
under the credit facility.
The scheduled principal payments on long-term debt for each of the five years subsequent to December 31, 2015 is as follows
(amounts in thousands):
Year
2016
2017
2018
2019
2020
Total
7. Stockholders’ Equity
Stock Repurchase Program
Principal Payment Amount
$
241
256
260
98,027
—
$ 98,784
In October 2010, the Company’s Board of Directors authorized a program to repurchase shares of the Company’s common stock, par
value $0.01 per share, from time to time, in an amount not to exceed $50.0 million (“Stock Repurchase Program”). During the twelve
months ended December 31, 2015, 2014 and 2013, no shares were repurchased. In accordance with the terms of the Stock Repurchase
Program, it expired on September 4, 2015.
Equity Based Awards
At the Company’s 2010 Annual Meeting of Stockholders, the stockholders of the Company approved the Company’s 2010 Long Term
Incentive Plan (the “2010 Incentive Plan”). The 2010 Incentive Plan is administered by the Compensation Committee of the Company’s
Board of Directors (the “Compensation Committee”). A total of 1,500,000 shares of the Company’s common stock are reserved and
491,037 shares are available for issuance pursuant to awards granted under the 2010 Incentive Plan. A variety of discretionary awards for
employees, officers, directors and consultants are authorized under the 2010 Incentive Plan, including incentive or non-qualified statutory
stock options and nonvested stock. All awards must be evidenced by a written award certificate which will include the provisions specified
by the Compensation Committee. The Compensation Committee will determine the exercise price for non-statutory stock options, which
cannot be less than the fair market value of the Company’s common stock as of the date of grant.
In the event of a change of control as defined in the 2010 Incentive Plan, all restricted periods and restrictions imposed on non-performance
based restricted stock awards will lapse and outstanding options will become immediately exercisable in full.
Notes to Consolidated Financial Statements
Form 10-K Part IV
F-17
LHC GROUP
Share Based Compensation
Stock Options
The following table represents stock options activity for the year ended December 31, 2015:
Options outstanding at January 1, 2015
Options granted
Options exercised
Options forfeited or expired
Options outstanding at December 31, 2015
Options exercisable at December 31, 2015
Number
of Shares
15,000
—
(9,500)
—
5,500
5,500
Weighted
Average
Average
Remaining
Exercise Price Contractual Term
Aggregate
Intrinsic
Value
$ 16.88
—
15.21
—
$ 20.09
$ 20.09
1.0 year
—
—
—
0.5 years
0.5 years
$ 214,575
—
—
—
—
$
$ 140,470
All options are fully vested and exercisable at December 31, 2015. There were no options granted and no compensation expense related
to stock options grants recorded in the years ended December 31, 2015, 2014 or 2013.
Nonvested Stock
The Company issues stock-based compensation to employees in the form of nonvested stock, which is an award of common stock
subject to certain restrictions. The awards, which the Company calls nonvested shares, generally vest over a five year period, conditioned
on continued employment for the full incentive period. Compensation expense for the nonvested stock is recognized for the awards
that are expected to vest. The expense is based on the fair value of the awards on the date of grant recognized on a straight-line basis
over the requisite service period, which generally relates to the vesting period.
During 2015, 2014 and 2013, respectively, 182,865, 172,545 and 198,243 nonvested shares were granted to employees pursuant to the
2010 Incentive Plan.
The Company also issues nonvested stock to its independent directors of the Company’s Board of Directors. During 2015, 2014 and
2013, respectively, 16,200, 26,900 and 24,300 nonvested shares of stock were granted to the independent directors under the 2005
Director Compensation Plan. The shares issued under the 2005 Director Compensation Plan were drawn from the 1,500,000 shares
reserved for issuance under the 2010 Incentive Plan. The shares fully vest one year from the date of the grant, except for grants
provided to new directors, which vest one-third on the date of grant and one-third on each of the first two anniversaries of the grant date.
The fair value of nonvested shares is determined based on the closing trading price of the Company’s shares on the grant date. The
weighted average grant date fair values of nonvested shares granted during the years ended December 31, 2015, 2014 and 2013 were
$34.06, $23.59 and $21.45, respectively.
The following table represents the nonvested stock activity for the year ended December 31, 2015:
Nonvested shares outstanding at January 1, 2015
Granted
Vested
Forfeited
Nonvested shares outstanding at December 31, 2015
Number
of Shares
524,287
199,065
(177,887)
(18,374)
527,091
Weighted
Average
Grant Date
Fair Value
$ 22.56
34.06
23.28
20.57
$ 26.64
As of December 31, 2015, there was $9.5 million of total unrecognized compensation cost related to non-vested shares granted.
That cost is expected to be recognized over the weighted average period of 2.96 years. The total fair value of shares vested in the year
ended December 31, 2015 was $4.1 million and the total fair value of shares vested in the years December 31, 2014 and 2013 was
$3.9 million each. The Company records compensation expense related to non-vested share awards at the grant date for shares that are
awarded fully vested and over the vesting term on a straight line basis for shares that vest over time. The Company has recorded
$4.2 million, $4.1 million and $3.9 million in compensation expense related to non-vested stock grants in the years ended December 31, 2015,
2014 and 2013, respectively.
F-18
Form 10-K Part IV
Notes to Consolidated Financial Statements
FOCUSED: ON LEADING THE WAY
Employee Stock Purchase Plan
In 2006, the Company adopted the Employee Stock Purchase Plan allowing eligible employees to purchase the Company’s common
stock at 95% of the market price on the last day of each calendar quarter. There were 250,000 shares reserved for the plan.
On June 20, 2013, the Amended and Restated Employee Stock Purchase Plan was approved by the Company’s stockholders. As a result
of the amendment, the Employee Stock Purchase Plan was modified as follows:
• An additional 250,000 shares of common stock were authorized for issuance over the term of the Employee Stock Purchase Plan.
• The term of the Employee Stock Purchase Plan was extended from January 1, 2016 to January 1, 2023.
The following table represents the shares issued during 2015, 2014 and 2013 under the Employee Stock Purchase Plan:
Shares available as of January 1, 2012
Additional shares authorized for issuance
Shares issued in 2013
Shares issued in 2014
Shares issued in 2015
Shares available as of December 31, 2015
Treasury Stock
Weighted
Average
Per Share
Price
$ 20.39
$ 21.49
$ 34.37
Number
of Shares
61,247
250,000
38,459
36,305
22,723
213,760
In conjunction with the vesting of the non-vested shares of stock, recipients incur personal income tax obligations. The Company
allows the recipients to turn in shares of common stock to satisfy those personal tax obligations. The Company redeemed 42,197,
40,716 and 40,608 shares of common stock related to these tax obligations during the years ended December 31, 2015, 2014 and
2013, respectively.
8. Leases
In certain instances, state laws may prohibit the sale of a home nursing agency or hospitals may be reluctant to sell their home health
agencies. In these instances, the Company, through its wholly owned subsidiaries, enters into a lease agreement for a Medicare and
Medicaid license, as well as the associated provider number to provide home health or hospice services. As of December 31, 2015, the
Company had three license lease arrangements to operate four home nursing agencies and three hospice agencies.
One of the leases was entered into in 2007 and expires in 2017. Expense related to this lease was $0.2 million for each of the years ended
December 31, 2015, 2014, and 2013, respectively. Payment due under this lease is $0.2 million in 2016.
Two of the leases were amended during 2010 to extend the lease terms to one year with an automatic renewal clause of four years.
Expense related to these leases was $0.5 million, $0.4 million, and $0.3 million for the years ended December 31, 2015, 2014 and 2013,
respectively. The lease payments associated with these leases are based on a percentage of quarterly net profits; therefore, the future
payments will vary with the future profits.
The Company leases office space and equipment at its various locations. Many of the leases contain renewal options with varying terms
and conditions. Management expects that in the normal course of business, expiring leases will be renewed or, upon making a decision to
relocate, replaced by leases for new locations. Operating lease terms range from three to ten years. Rent expense includes insurance,
maintenance, and other costs as required by the lease. Total rental expense was $20.7 million, $21.1 million and $17.2 million for the years
ended December 31, 2015, 2014 and 2013, respectively.
Notes to Consolidated Financial Statements
Form 10-K Part IV
F-19
LHC GROUP
The Company began participating in a fleet program during 2014. The program allows employees that drive over 12,000 miles on an
annual basis to qualify for a vehicle; all participation is voluntary. The individual operating leases are for a minimum of 12 months. Fleet
expense was $7.2 million and $3.6 million for the years ended December 31, 2015 and 2014.
Future minimum rental commitments under non-cancelable operating leases are as follows (amounts in thousands):
Year
2016
2017
2018
2019
2020
Thereafter
9. Employee Benefit Plan
Defined Contribution Plan
Total
$ 25,207
11,066
6,766
4,052
2,609
5,532
$ 55,232
The Company sponsors a 401(k) plan for all eligible employees. The plan allows participants to contribute up to $18,000 in 2015, tax
deferred (subject to IRS guidelines). The plan also allows discretionary Company contributions as determined by the Company’s Board of
Directors. Effective January 1, 2006, the Company implemented a discretionary match of up to two percent of participating employee
contributions. The employer contribution will vest 20% after two years and 20% each additional year until it is fully vested in year six.
Contribution expense to the Company was $5.4 million, $4.7 million and $3.7 million in the years ended December 31, 2015, 2014 and
2013, respectively.
10. Commitments and Contingencies
Contingencies
The Company is involved in various legal proceedings arising in the ordinary course of business. Although the results of litigation cannot
be predicted with certainty, management believes the outcome of pending litigation will not have a material adverse effect, after considering
the effect of the Company’s insurance coverage, on the Company’s interim financial information.
On June 13, 2012, a putative shareholder securities class action was filed against the Company and its Chairman and Chief Executive
Officer in the United States District Court for the Western District of Louisiana, styled City of Omaha Police & Fire Retirement System v.
LHC Group, Inc., et al., Case No. 6:12-cv-1609-JTT-CMH. The action was filed on behalf of LHC shareholders who purchased shares of
the Company’s common stock between July 30, 2008 and October 26, 2011, alleging violations of Sections 10(b), 20(a) and 20A
of the Securities Exchange Act of 1934, as amended. On June 16, 2014, following mediation, the parties entered into a Stipulation of
Settlement. On August 5, 2014, the District Court entered an Order Preliminarily Approving Settlement and Providing for Notice. On
March 3, 2015, the District Court entered its Judgments adopting the Report and Recommendation previously issued and dismissing the
action with prejudice. The time for appeal has passed and no appeals were filed. This matter is now concluded. The Company’s insurance
carrier has funded the entire $7.9 million settlement amount.
On October 18, 2013, a derivative complaint was filed by a purported Company shareholder against certain of the Company’s current
and former executive officers, employees and members of its Board of Directors in the United States District Court for the Western District
of Louisiana, styled Plummer v. Myers, et al., Case No. 6:13-cv-2899-JTT-CMH. The action was brought derivatively on behalf of the
Company, which is also named as a nominal defendant. Plaintiff generally alleges that the individual defendants breached their fiduciary
duties owed to the Company. The complaint also alleges claims for insider selling and unjust enrichment against the Company’s
Chairman and Chief Executive Officer and the Company’s former President and Chief Operating Officer.
F-20
Form 10-K Part IV
Notes to Consolidated Financial Statements
FOCUSED: ON LEADING THE WAY
On December 30, 2013, a related derivative complaint was filed by a purported Company shareholder against certain of the Company’s
current and former executive officers, employees and members of its Board of Directors in the United States District Court of the Western
District of Louisiana, styled McCormack v. Myers, et al., Case No. 6:13-cv-3301-JTT-CMH. The action was brought derivatively on
the Company’s behalf and the Company was also named as a nominal defendant. Plaintiff generally alleges that the individual defendants
breached their fiduciary duties owed to the Company and wasted corporate assets. Plaintiff also alleges that the Company’s Chairman
and Chief Executive Officer caused false and misleading statements to be issued in violation of Section 10(b) of the Exchange Act and
Rule 10b-5 promulgated thereunder and that the Company’s Directors are control persons under Section 20(a) of the Exchange Act.
The complaint also alleges claims for insider selling, misappropriation of information and unjust enrichment against the Company’s Chairman
and Chief Executive Officer and the Company’s former President and Chief Operating Officer.
On March 25, 2014, the McCormack derivative action was consolidated with the Plummer derivative action described above and stayed.
On October 7, 2015, the parties entered into a Stipulation of Settlement. On October 19, 2015, Plaintiffs filed an Unopposed Motion for
Preliminary Approval of Proposed Derivative Settlement. On October 26, 2015, the District Court entered an Order Preliminarily Approving
Settlement in the amount of $0.6 million. On January 11, 2016, the District Court entered its Order and Final Judgment approving
the settlement and dismissing the consolidated action with prejudice. The Company’s insurance carrier has funded the entire settlement
amount, which was immediately releasable to Plaintiffs’ counsel on January 11, 2016. The Company’s balance sheet reflects the entire
settlement in current assets as a receivable due from insurance carrier and correspondingly reflects the entire settlement in current
liabilities as a legal settlement payable.
Joint Venture Buy/Sell Provisions
Most of the Company’s joint ventures include a buy/sell option that grants to the Company and its joint venture partners the right to
require the other joint venture party to either purchase all of the exercising member’s membership interests or sell to the exercising
member all of the non-exercising member’s membership interest, at the non-exercising member’s option, within 30 days of the receipt of
notice of the exercise of the buy/sell option. In some instances, the purchase price is based on a multiple of the historical or future
earnings before income taxes and depreciation and amortization of the equity joint venture at the time the buy/sell option is exercised. In
other instances, the buy/sell purchase price will be negotiated by the partners and subject to a fair market valuation process. The
Company has not received notice from any joint venture partners of their intent to exercise the terms of the buy/sell agreement nor has
the Company notified any joint venture partners of its intent to exercise the terms of the buy/sell agreement.
Compliance
The laws and regulations governing the Company’s operations, along with the terms of participation in various government programs,
regulate how the Company does business, the services offered and its interactions with patients and the public. These laws and
regulations, and their interpretations, are subject to frequent change. Changes in existing laws or regulations, or their interpretations, or
the enactment of new laws or regulations could materially and adversely affect the Company’s operations and financial condition.
The Company is subject to various routine and non-routine governmental reviews, audits and investigations. In recent years, federal and
state civil and criminal enforcement agencies have heightened and coordinated their oversight efforts related to the health care industry,
including referral practices, cost reporting, billing practices, joint ventures and other financial relationships among health care providers.
Violation of the laws governing the Company’s operations, or changes in the interpretation of those laws, could result in the imposition
of fines, civil or criminal penalties, and/or termination of the Company’s rights to participate in federal and state-sponsored programs and
suspension or revocation of the Company’s licenses. The Company believes that it is in material compliance with all applicable laws
and regulations.
Notes to Consolidated Financial Statements
Form 10-K Part IV
F-21
LHC GROUP
11. Segment Information
The Company’s segments consist of home health services, hospice services, community-based services, and facility-based services.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies.
During the first quarter of 2015, the Company had a change in the composition of segments due to the community-based services
meeting the criteria of qualitative thresholds established by ASC 280, Segment Reporting. Prior period segment data has been restated
to reflect the newly reportable segment. Community-based services were previously included in home-based services.
The following tables summarize the Company’s segment information for the twelve months ended December 31, 2015, 2014 and 2013
(amounts in thousands):
Net service revenue
Cost of service revenue
Provision for bad debts
General and administrative expenses
Impairment of intangibles and other
Operating income
Interest expense
Non-operating income
Income from continuing operations before
income taxes and noncontrolling interests
Income tax expense
Income from continuing operations
Less net income (loss) attributable to
noncontrolling interests
Net income attributable to LHC Group, Inc.’s
common stockholders
Total assets
Year Ended December 31, 2015
Home Health
Services
Hospice
Services
Community-
Facility-
Based Services Based Services
Total
$ 613,188
354,750
15,736
191,135
1,245
50,322
(1,819)
397
48,900
17,173
31,727
7,424
$ 85,854
50,906
1,002
26,517
—
7,429
(253)
38
7,214
2,541
4,673
1,077
$ 41,202
29,076
1,816
8,506
28
1,776
(23)
3
1,756
787
969
(144)
$ 76,122
46,146
689
22,471
—
6,816
(207)
19
6,628
2,347
4,281
$ 816,366
480,878
19,243
248,629
1,273
66,343
(2,302)
457
64,498
22,848
41,650
958
9,315
$ 24,303
$ 394,392
$ 3,596
$ 101,641
$ 1,113
$ 31,235
$ 3,323
$ 38,786
$ 32,335
$ 566,054
Year Ended December 31, 2014
Home Health
Services
Hospice
Services
Community-
Facility-
Based Services Based Services
Total
Net service revenue
Cost of service revenue
Provision for bad debts
General and administrative expenses
Impairment of intangibles and other
Operating income
Interest expense
Non-operating income
Income from continuing operations before
income taxes and noncontrolling interests
Income tax expense
$ 564,966
329,856
13,072
187,281
3,269
31,488
(1,969)
201
29,720
10,999
Income from continuing operations
Less net income attributable to noncontrolling interests
18,721
5,121
$ 67,621
39,804
909
18,882
202
$ 27,698
19,611
873
6,551
—
7,824
(249)
43
7,618
1,955
5,663
1,122
663
(19)
2
646
105
541
(36)
$ 73,347
45,504
926
21,231
175
5,511
(249)
19
5,281
1,454
3,827
708
$ 733,632
434,775
15,780
233,945
3,646
45,486
(2,486)
265
43,265
14,513
28,752
6,915
Net income attributable to LHC Group, Inc.’s
common stockholders
Total assets
$ 13,600
$ 386,511
$ 4,541
$ 34,847
577
$
$ 34,027
$ 3,119
$ 36,354
$ 21,837
$ 491,739
F-22
Form 10-K Part IV
Notes to Consolidated Financial Statements
FOCUSED: ON LEADING THE WAY
Net service revenue
Cost of service revenue
Provision for bad debts
General and administrative expenses
Impairment of intangibles and other
Operating income (loss)
Interest expense
Non-operating income
Income (loss) from continuing operations before
income taxes and noncontrolling interests
Income tax expense (benefit)
Home Health
Services
$ 523,512
302,589
11,623
175,056
344
33,900
(1,591)
142
32,451
12,634
Income (loss) from continuing operations
Less net income attributable to noncontrolling interests
19,817
4,596
Year Ended December 31, 2013
Hospice
Services
$ 56,172
34,212
1,215
16,210
175
4,360
(200)
26
4,186
1,797
2,389
956
Community-
Facility-
Based Services Based Services
Total
$ 3,207
2,398
5
1,018
—
(214)
(9)
—
(223)
(89)
(134)
—
$ 75,392
44,265
1,086
21,349
1
8,691
(195)
95
8,591
1,517
7,074
1,252
$ 658,283
383,464
13,929
213,633
520
46,737
(1,995)
263
45,005
15,859
29,146
6,804
Net income (loss) attributable to LHC Group, Inc.’s
common stockholders
Total assets
$ 15,221
$ 355,858
$ 1,433
$ 28,557
$ (134)
$ 1,242
$ 5,822
$ 36,569
$ 22,342
$ 422,226
12. Fair Value of Financial Instruments
The carrying amounts of the Company’s cash, receivables, accounts payable and accrued liabilities approximate their fair values. The
estimated fair value of intangible assets was calculated using level 3 inputs based on the present value of anticipated future benefits.
For the year ended December 31, 2015, the carrying value of the Company’s long-term debt approximates fair value as the interest rates
approximates current rates.
13. Allowance for Uncollectible Accounts
The following table summarizes the activity and ending balances in the allowance for uncollectible accounts for the twelve months ended
December 31, 2015, 2014 and 2013 (amounts in thousands):
2015
2014
2013
14. Concentration of Risk
Beginning of Year
Balance
Additions
Deductions
$ 18,582
14,334
11,863
$ 19,243
15,780
13,929
$ 11,113
11,532
11,458
End of Year
Balance
$ 26,712
18,582
14,334
The Company’s Louisiana facilities accounted for approximately 21.0%, 22.7% and 26.0% of net service revenue during the years ended
December 31, 2015, 2014 and 2013, respectively. Any material change in the current economic or competitive conditions in Louisiana
could have a disproportionate effect on the Company’s overall business results.
Notes to Consolidated Financial Statements
Form 10-K Part IV
F-23
LHC GROUP
15. Unaudited Summarized Quarterly Financial Information
The following table represents the Company’s unaudited quarterly results of operations (amounts in thousands, except share data):
Net service revenue
Gross margin
Net income attributable to LHC Group, Inc.’s common stockholders
Basic earnings per share:
Net income attributable to LHC Group, Inc.’s common stockholders
Diluted earnings per share:
Net income attributable to LHC Group, Inc.’s common stockholders
Weighted average shares outstanding:
Basic
Diluted
Net service revenue
Gross margin
Net income attributable to LHC Group, Inc.’s common stockholders
Basic earnings per share:
Net income attributable to LHC Group, Inc.’s common stockholders
Diluted earnings per share:
Net income attributable to LHC Group, Inc.’s common stockholders
Weighted average shares outstanding:
Basic
Diluted
First Quarter
2015
$ 193,079
78,653
6,805
$
$
0.39
0.39
Second Quarter Third Quarter Fourth Quarter
2015
2015
2015
$
$
$
200,172
83,533
8,950
$ 204,122
83,249
8,845
$ 218,993
90,053
7,735
0.51
0.51
$
$
0.51
0.50
$
$
0.44
0.44
17,322,791
17,489,483
17,410,971
17,529,100
17,436,731
17,610,953
17,447,691
17,647,483
First Quarter
2014
$ 163,681
66,347
4,068
$
$
0.24
0.24
Second Quarter Third Quarter Fourth Quarter
2014
2014
2014
$
$
$
188,867
77,340
6,061
$ 187,713
74,591
6,174
$ 193,371
80,579
5,534
0.35
0.35
$
$
0.36
0.36
$
$
0.32
0.32
17,148,043
17,268,716
17,233,264
17,277,224
17,260,078
17,356,916
17,274,677
17,419,423
Because of the method used to calculate per share amounts, quarterly per share amounts may not necessarily total to the per share
amounts for the entire year.
F-24
Form 10-K Part IV
Notes to Consolidated Financial Statements
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
FOCUSED: ON LEADING THE WAY
LHC GROUP, INC.
/s/ KEITH G. MYERS
Keith G. Myers
POWER OF ATTORNEY
Chief Executive Officer
March 3, 2016
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Keith G. Myers and
Dionne E. Viator and either of them (with full power in each to act alone) as true and lawful attorneys-in-fact with full power of substitution,
for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K
and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-fact, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
Chief Executive Officer and Chairman of the Board of Directors
March 3, 2016
Executive Vice President, Chief Financial Officer, Principal Accounting Officer March 3, 2016
/s/ KEITH G. MYERS
Keith G. Myers
/s/ DIONNE E. VIATOR
Dionne E. Viator
/s/ MONICA F. AZARE
Monica F. Azare
/s/ JOHN B. BREAUX
John B. Breaux
/s/ JOHN L. INDEST
John L. Indest
/s/ GEORGE A. LEWIS
George A. Lewis
/s/ RONALD T. NIXON
Ronald T. Nixon
Director
Director
Director
Director
Director
/s/ CHRISTOPHER S. SHACKELTON
Christopher S. Shackelton
Director
/s/ W.J. “BILLY” TAUZIN
W.J. “Billy” Tauzin
/s/ KENNETH E. THORPE
Kenneth E. Thorpe
/s/ BRENT TURNER
Brent Turner
/s/ DAN S. WILFORD
Dan S. Wilford
Director
Director
Director
Director
March 3, 2016
March 3, 2016
March 3, 2016
March 3, 2016
March 3, 2016
March 3, 2016
March 3, 2016
March 3, 2016
March 3, 2016
March 3, 2016
Signatures
Form 10-K Part IV
F-25
LHC GROUP
EXHIBIT INDEX
Exhibit
Number
Description of Exhibits
3.1
Certificate of Incorporation of LHC Group, Inc. (previously filed as Exhibit 3.1 to LHC Group’s Form S-1/A (File No. 333-120792)
filed on February 14, 2005).
3.2
Bylaws of LHC Group, Inc., as amended on December 3, 2007 (previously filed as Exhibit 3.2 to LHC Group’s Form 10-Q
for the quarterly period ended March 31, 2008, filed on May 9, 2008).
4.1
Specimen Stock Certificate of LHC Group’s Common Stock, par value $0.01 per share (previously filed as Exhibit 4.1 to
LHC Group’s Form S-1/A (File No. 333-120792) filed on February 14, 2005).
10.1+
LHC 2003 Key Employee Equity Participation Plan (previously filed as Exhibit 10.3 to LHC Group’s Form S-1 (File No.
333-120792) filed on November 26, 2004).
10.2+
LHC Group, Inc. 2005 Long-Term Incentive Plan (previously filed as Exhibit 10.4 to the Form S-1/A (File No. 333-120792)
filed on February 14, 2005).
10.3+
LHC Group, Inc. 2010 Long-Term Incentive Plan (previously filed as Exhibit 10.1 to LHC Group’s Form 10-Q for the quarterly
period ended June 30, 2010, filed on August 6, 2010).
10.4+
LHC Group, Inc. Second Amended and Restated 2005 Non-Employee Directors Compensation Plan (previously filed as
Exhibit 10.4 to LHC Group’s Form 10-K for the year ended December 31, 2014, filed on March 11, 2015).
10.5+
Form of Indemnity Agreement between LHC Group and directors and certain officers (previously filed as Exhibit 10.10 to
the Form S-1/A (File No. 333-120792) filed on February 14, 2005).
10.6+
LHC Group, Inc. 2006 Employee Stock Purchase Plan (previously filed as Exhibit 99.2 to LHC Group’s Form 8-K filed on
June 16, 2006).
10.7
Settlement Agreement among the United States of America, LHC Group, Inc. and certain of its subsidiaries and relator,
dated September 29, 2011 (previously filed as Exhibit 10.1 to LHC Group’s Form 8-K filed on September 30, 2011).
10.8
Corporate Integrity Agreement between the Office of Inspector General of the Department of Health and Human Services
and LHC Group, Inc., dated September 29, 2011 (previously filed as Exhibit 10.2 to LHC Group’s Form 8-K filed on
September 30, 2011).
10.9
Credit Agreement, dated as of June 18, 2014, among LHC Group, Inc., Capital One, National Association, as administrative
agent, sole bookrunner, sole lead arranger, and a lender, JPMorgan Chase Bank, N.A., Regions Bank and Compass Bank,
as co-syndication agents and lenders, and Whitney Bank, as a lender (previously filed as Exhibit 10.1 to LHC Group’s Form 8-K
filed on June 23, 2014).
10.10+
Amended and Restated Employment Agreement between Donald D. Stelly and LHC Group, Inc. dated August 19, 2013
(previously filed as Exhibit 10.1 to the Form 8-K filed August 19, 2013).
10.11+
Amended and Restated Employment Agreement between Keith G. Myers and LHC Group, Inc. dated April 1, 2014
(previously filed as Exhibit 10.1 to the Form 8-K filed April 4, 2014).
10.12+
Employment Agreement between Dionne E. Viator and LHC Group, Inc. dated December 3, 2014 (previously filed as
Exhibit 10.1 to the Form 8-K filed December 4, 2014).
10.13+
Amendment to LHC Group, Inc. Second Amended and Restated 2005 Non-Employee Directors Compensation Plan,
effective January 20, 2015. (previously filed as Exhibit 10.1 to LHC Group’s Form 10-Q filed on May 7, 2015).
10.14+
Amended and Restated Employment Agreement between Joshua L. Proffitt and LHC Group, Inc. dated August 7, 2015
(previously filed as Exhibit 10.2 to the Form 10-Q filed November 5, 2015)
21.1
Subsidiaries of the Registrant.
23.1
Consent of KPMG LLP.
F-26
Form 10-K Part IV
FOCUSED: ON LEADING THE WAY
Exhibit
Number
Description of Exhibits
31.1
Certification of Keith G. Myers, Chief Executive Officer pursuant to Rule 13a- 14(a)/15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Dionne E. Viator, Chief Financial Officer pursuant to Rule 13a- 14(a)/15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS XBRL Instance Document
101.SCH XBRL Schema Document
101.CAL XBRL Calculation Linkbase Document
101.DEF XBRL Definition Linkbase Document
101.LAB XBRL Label Linkbase Document
101.PRE XBRL Presentation Linkbase Document
Attached as Exhibit 101 to this report are documents formatted in XBRL (Extensible Business Reporting Language). Users of this data are
advised pursuant to Rule 406T of Regulation S-T that the interactive data file is deemed not filed or part of a registration statement or
prospectus for purposes of section 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities
Exchange Act of 1934, and otherwise not subject to liability under these sections. The financial information contained in the XBRL-related
documents is “unaudited” or “unreviewed.”
+
Indicates a management contract or compensatory plan.
Form 10-K Part IV
F-27
CORPORATE INFORMATION
Independent Registered Public Accounting Firm
KPMG LLP
301 Main Street, Suite 2150 • Baton Rouge, LA 70801
kpmg.com
Transfer Agent and Registrar
American Stock Transfer & Trust Company LLC
6201 15th Avenue • Brooklyn, NY 11219
800.937.5449
Corporate Headquarters
LHC Group, Inc.
901 Hugh Wallis Road South • Lafayette, LA 70508
Phone: 866.LHC.GROUP • Fax: 337.235.8037
LHCgroup.com
Common Stock
LHC Group’s common stock is traded on the NASDAQ Global Select Market under the symbol
“LHCG.” At March 18, 2015, the company had a total of approximately 6,950 shareholders,
including stockholders of record and approximately 5,850 persons or entities holding common
stock in nominee name.
Performance Graph
The graph below matches the cumulative 5-Year total return of holders of LHC Group, Inc.’s common
stock with the cumulative total returns of the NASDAQ Composite index and a customized peer group of
four companies that includes: Almost Family Inc., Amedisys Inc., Gentiva Health Services Inc. and National
Healthcare Corp., The graph assumes that the value of the investment in our common stock, in each index,
and in the peer group (including reinvestment of dividends) was $100 on 12/31/2010 and tracks it through
12/31/2015.
PERFORMANCE GRAPH
Comparison of 5-Year Cumulative Total Return* Among LHC Group, Inc., The NASDAQ Composite Index and a Peer Group
$250
$200
$150
$100
$50
$0
12/10
12/11
12/12
12/13
12/14
12/15
12/10
12/11
12/12
12/13
12/14
12/15
LHC Group Inc.
NASDAQ Composite
Peer Group
$ 100.00
$ 100.00
$ 100.00
$ 42.77
$ 100.53
$ 53.96
$ 71.00
$ 116.92
$ 62.51
$ 80.13
$ 166.19
$ 79.84
$ 103.93
$ 188.78
$ 110.52
$ 150.97
$ 199.95
$ 132.55
* $100 invested on 12/31/10 in stock or in index, including reinvestment of dividends. Fiscal year ending December 31.
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
LEADERSHIP
Executive Officers
Keith G. Myers
Chief Executive Officer
Donald D. Stelly
President, Chief Operating Officer
Dionne E. Viator
Executive Vice President,
Chief Financial Officer and Treasurer
Joshua L. Proffitt
Executive Vice President,
Corporate Development, General Counsel
and Corporate Secretary
Directors
Keith G. Myers
Chairman
W. J. “Billy” Tauzin
Lead Independent Director
Compensation Committee
Nominating and Governance Committee
Dan S. Wilford
Chair — Nominating and Governance Committee
Audit Committee
Clinical Quality Committee
George A. Lewis
Chair — Audit Committee
John L. Indest
Chair — Clinical Quality Committee
Ronald T. Nixon
Chair — Corporate Development Committee
Audit Committee
Nominating and Governance Committee
Monica F. Azare
Chair — Compensation Committee
Clinical Quality Committee
John B. Breaux
Compensation Committee
Nominating and Governance Committee
Brent Turner
Audit Committee
Corporate Development Committee
Christopher S. Shackelton
Audit Committee
Corporate Development Committee
Kenneth E. Thorpe, PhD
Clinical Quality Committee
Corporate Development Committee