AMEDISYS : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

The following discussion and analysis provides information we believe is
relevant to an assessment and understanding of our results of operations and
financial condition for 2020, 2019 and 2018. This discussion should be read in
conjunction with our audited financial statements included in Item 8, "Financial
Statements and Supplementary Data" and Part I, Item 1, "Business" of this Annual
Report on Form 10-K. The following analysis contains forward-looking statements
about our future revenues, operating results and expectations. See "Special
Caution Concerning Forward-Looking Statements" for a discussion of the risks,
assumptions and uncertainties affecting these statements as well as Part I, Item
1A, "Risk Factors."
Overview
We are a provider of high-quality in-home healthcare and related services to the
chronic, co-morbid, aging American population, with approximately 75%, 74% and
73% of our revenue derived from Medicare for 2020, 2019 and 2018, respectively.
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Our operations involve servicing patients through our three reportable business
segments: home health, hospice and personal care. Our home health segment
delivers a wide range of services in the homes of individuals who may be
recovering from an illness, injury or surgery. Our hospice segment provides care
that is designed to provide comfort and support for those who are facing a
terminal illness. Our personal care segment provides patients assistance with
the essential activities of daily living. As of December 31, 2020, we owned and
operated 320 Medicare-certified home health care centers, 180 Medicare-certified
hospice care centers and 14 personal-care care centers, including unconsolidated
joint ventures, in 39 states within the United States and the District of
Columbia.
Care Centers Summary (Includes Unconsolidated Joint Ventures)
                                  Home Health        Hospice        Personal Care
At December 31, 2017                  323              83                 

15

Acquisitions/Start-Ups/Denovos          1               1                  1
Closed/Consolidated                    (1)              -                 (4)
At December 31, 2018                  323              84                 12
Acquisitions/Start-Ups/Denovos          3              59                  -
Closed/Consolidated                    (5)             (5)                 -
At December 31, 2019                  321             138                 12
Acquisitions/Start-Ups/Denovos          4              54                  2
Closed/Consolidated                    (5)            (12)                 -
At December 31, 2020                  320             180                 14


When we refer to "same store business," we mean home health, hospice and
personal-care care centers that we have operated for at least the last twelve
months and start-ups that are an expansion of a same store care center; when we
refer to "acquisitions," we mean home health, hospice and personal-care care
centers that we acquired within the last twelve months; and when we refer to
"denovos," we mean home health, hospice and personal-care care centers opened by
us in the last twelve months which are not an expansion of a same store care
center. Once a care center has been in operation for a twelve month period, the
results for that particular care center are included as part of our same store
business from that date forward.
2020 Developments
•Achieved the highest Quality of Patient Care Star Score in the Home Health
industry in the October 2020 Home Health Compare ("HHC") release of 4.33 stars
with 95% of our care centers at 4+ Stars.
•Outperformed the industry on all Hospice Item Set ("HIS") measures.
•Performed over 11.5 million visits.
•Acquired and successfully integrated Asana Hospice ("Asana") and AseraCare
Hospice ("AseraCare") making Amedisys the third largest hospice company in the
United States, exceeding 13,000 in hospice average daily census.
•Successfully procured personal protective equipment ("PPE") and implemented
protocols to ensure the safety of our employees and patients during the novel
coronavirus pandemic as discussed in further detail under Novel Coronavirus
Pandemic ("COVID-19") below.
•Ended the year with overall voluntary turnover of 18.3% and reduced our early
exit rate by 6% over 2019, ending 2020 at 11.9%.
•Successfully piloted several tools and data analytics platforms of Medalogix, a
predictive data and analytics company, helping to further optimize our current
business and positioning us to work more closely with Medicare Advantage payors.
•Implemented pay practice changes and staffing model efficiencies to further
drive operational excellence.
•Successfully navigated the transition to the Patient-Driven Groupings Model
("PDGM") while continuing to deliver operational efficiencies through margin
expansion.
•Executed a Care Coordination Agreement with BrightStar Care to facilitate the
coordination of care between home health and hospice care centers and a network
of personal care partners.
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•Increased operating income 24%.
•Expanded home health gross margin as a percentage of revenue by 320 basis
points.
•Delivered $289 million in cash flow from operations.
2021 Strategy
•Further advance our industry leading Quality of Patient Care Star scores in
home health.
•Drive best-in-class hospice quality while continuing to integrate acquired
hospice assets.
•Advance our culture and sense of belonging through diversity and inclusion
initiatives.
•Build a learning culture through world class leadership development.
•Reduce turnover in critical clinician roles.
•Continue our success in operating under PDGM.
•Expand our analytics capabilities internally and through our Medalogix
investment.
•Deliver above industry average growth rates in all three lines of business.
•Pursue consolidations in the home health industry via a regional-based
acquisition strategy.
•Incrementally innovate around our core business to deliver new home based care
models such as Skilled Nursing Facility ("SNF") at Home.
Financial Performance
Results for the year ended December 31, 2020 were impacted by acquisitions,
COVID-19, the suspension of sequestration and the transition to PDGM. On a
consolidated basis, we increased operating income $42 million on a $116 million
increase in net service revenue.
Our home health care centers experienced growth in volumes and improvement in
utilization and clinician mix which, combined with our variable cost structure
and sequestration relief, mitigated a significant portion of our estimated
COVID-19 impact and led to the segment delivering a $26 million increase in
operating income.
Our hospice segment completed the acquisitions of Asana and AseraCare in 2020.
These acquisitions contributed approximately $13 million in operating income to
the hospice segment.
Our personal care segment contributed approximately $6 million in operating
income during 2020.
Economic and Industry Factors
Our home health, hospice and personal care segments operate in a highly
fragmented and highly competitive industry. The degree of competitiveness varies
based upon whether our care centers operate in states that require a certificate
of need ("CON") or permit of approval ("POA"). In such states, expansion by
existing providers or entry into the market by new providers is permitted only
where determination is made by state health authorities that a given amount of
unmet healthcare need exists. Currently, 71% and 27% of our home health and
hospice care centers, respectively, operate in CON/POA states.
As the Federal government continues to debate a reduction in expenditures and a
reform of the Medicare system, our industry continues to face reimbursement
pressures. These reform efforts could result in major changes in the health care
delivery and reimbursement system on a national and state level, including
changes directly impacting the reimbursement systems for our home health and
hospice care centers.
Payment
Hospice
On July 31, 2020, the Centers for Medicare and Medicaid Services ("CMS") issued
a final rule to update hospice payment rates and the wage index for fiscal year
2021 effective for services provided beginning October 1, 2020. CMS estimates
hospices serving Medicare beneficiaries would see an estimated 2.4% increase in
payments. This increase is the result of a 2.4% market basket adjustment as
required under the Patient Protection and Affordable Health Care Act and the
Health Care and Education Reconciliation Act (collectively, "PPACA"). The rule
also changed the hospice wage index by adopting the most recent Office
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of Management and Budget statistical area delineations with a five percent cap
on wage index decreases. Finally, CMS increased the aggregate cap amount by 2.4%
to $30,684. Based on our analysis of the final rule, we expect our impact to be
in line with the 2.4% increase.
Home Health
On October 31, 2019, CMS issued the Calendar Year 2020 Home Health Final Rule,
which confirmed the implementation of PDGM effective January 1, 2020 as well as
a change in the unit of payment from a 60-day episode of care to a 30-day period
of care. Additionally, in an effort to reduce fraud risks, CMS reduced requests
for anticipated payment ("RAPs") for 2020 to 20% with the full elimination in
2021. CMS estimated that the final rule would result in a 1.3% increase in
payments to home health providers. The increase is the result of a statutorily
mandated 1.5% market basket increase pursuant to the Bipartisan Budget Act of
2018, reduced by 0.2% for the rural add-on. In calculating the impact, CMS also
assumed that the industry would make certain behavioral changes related to
coding practices, low utilization payment adjustment ("LUPA") management and
co-morbidities. As a result, CMS reduced reimbursement by 4.36%. The impact of
the final rule on us was a 2.8% reduction in revenue for 2020.
On October 29, 2020, CMS issued the Home Health Final Rule for Medicare home
health providers for calendar year 2021. CMS estimates that the final rule will
result in a 1.9% increase in payments to home health providers. The increase is
the result of a 2.0% market basket adjustment reduced by 0.1% for the rural
add-on. Based on our analysis of the final rule, we expect our impact to be in
line with the 1.9% increase. Additionally, CMS made permanent the telehealth
flexibilities that were announced in the Interim Final Rule (Emergency Rule) for
COVID-19 in March 2020. These flexibilities allow home health agencies to
provide certain care via telehealth if it is clinically appropriate and included
in the plan of care. Telehealth visits still do not count as visits for purposes
of patient eligibility or payment.
The following payment adjustments are effective for each of the years indicated
based on CMS's final rules:
                                                         Home Health                                                        Hospice
                                       2021                  2020                  2019                2021 (1)                2020                 2019
Market Basket Update                       2.0  %               1.5  %                3.0  %                 2.4  %               3.0  %               2.9  %
Rural Add-On Adjustment                   (0.1)                (0.2)                    -                      -                    -                    -
PPACA Adjustment                             -                    -                     -                      -                    -                 (0.3)
Productivity Adjustment                      -                    -                  (0.8)                     -                 (0.4)                (0.8)
Behavioral Assumptions                       -                 (4.4)                    -                      -                    -                    -
Estimated Industry Impact
Including Behavioral Assumptions           1.9  %              (3.1  %)               2.2  %                 2.4  %               2.6  %               1.8  %
Estimated Company-Specific
Impact (2)                                 1.9  %              (2.8  %)               1.2  %                 2.4  %               0.5  %               1.6  %


(1)Effective for services provided from October 1, 2020 to September 30, 2021.
(2)Our company-specific impact of the home health final rule could differ
depending on differences in the wage index, our patient case mix and other
factors, such as LUPAs or outliers, which are described in more detail under
Critical Accounting Estimates below. Our company-specific impact of the hospice
final rule could differ based on our mix of patients and differences in the wage
index.
Novel Coronavirus Pandemic ("COVID-19")
Our operations and financial performance for the year ended December 31, 2020
have been impacted by COVID-19. The impacts on our operations began during the
second week of March 2020, as we experienced declines in referral volumes and an
increase in missed visits. Our home health segment experienced a referral
low-point the week of April 5th. Since that time, we have seen a steady recovery
in referral volumes and a corresponding drop in missed visits. In our hospice
segment, our referrals hit their low-point the week of March 22nd. While hospice
admission volumes have improved significantly, the slowdown in March has
impacted our average daily census and has been most significant in our
facility-based census. Additionally, we have seen a decline in our hospice
average daily census as a result of a significant increase in deaths, an
increase in the discharge rate of same-month admissions and a delay in the
timing of patients coming onto service resulting in a shorter length of stay.
The financial impacts of COVID-19 during the year ended December 31, 2020 are
discussed in further detail under "Results of Operations" below.
While we currently believe that we have a reasonable view of operations, the
uncertainty created by COVID-19 could alter our outlook of the pandemic's impact
on our consolidated financial condition, results of operations or cash flows.
The following factors could potentially impact our performance: the continued
increase or decrease in the number of COVID-19 cases nationwide, the severity
and impacts of new variants of the virus, uncertainty regarding vaccine
distribution timing and
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efficiency, the utilization of elective procedures, the return of patient
confidence to enter a hospital or a doctor's office, the ability to have access
to our patients in their homes and in facilities, cost normalization around PPE
and any future or prolonged shelter-in-place orders and other federal, state and
local requirements. Potential impacts of COVID-19 on our results include lower
revenue, higher salary and wage expense related to quarantine pay and training
and increased supply costs related to PPE and COVID-19 testing. The impacts to
revenue may consist of the following:
•lower volumes due to interruption of the operations of our referral sources,
patients' unwillingness to accept services and restrictions on access to
facilities for hospice services;
•lower reimbursement due to missed visits resulting in an increase in LUPAs and
lost billing periods; and
•lower hospice average daily census due to a decline in average length of stay
and an increase in deaths.
On March 27, 2020, the bipartisan Coronavirus Aid, Relief, and Economic Security
Act ("CARES Act") was signed into legislation. The CARES Act provides for the
following:
•$175 billion to healthcare providers, including hospitals on the front lines of
the COVID-19 pandemic. Of this total allocated amount, $30 billion was
distributed immediately to providers based on their proportionate share of
Medicare fee-for-service reimbursements in 2019. Healthcare providers were
required to sign an attestation confirming receipt of the Provider Relief Fund
("PRF") funds and agree to the terms and conditions of payment. Our home health
and hospice segments received approximately $100 million from the first
$30 billion of funds distributed to healthcare providers in April 2020, which is
inclusive of $2 million related to our joint venture care centers (equity method
investments). We also acquired approximately $6 million of PRF funds in
connection with the acquisition of AseraCare. Consistent with the terms and
conditions for receipt of the payment, we are allowed to use the funds to cover
lost revenues and health care costs related to COVID-19, and we are required to
properly and fully document the use of these funds in reports to the U.S.
Department of Health and Human Services ("HHS").
For our wholly-owned subsidiaries, we have decided to only utilize PRF funds to
the extent we have qualifying COVID-19 expenses, which totaled $33 million for
our home health and hospice segments during the year ended December 31, 2020.
Accordingly, for our wholly-owned subsidiaries, we will not be using the funds
to cover lost revenues resulting from COVID-19. In September 2020, HHS issued
new guidance noting that PRF funds can be used through June 30, 2021. We do not
believe that we will fully utilize the funds received; therefore, we have
recorded a liability related to the funds that we do not expect to utilize
totaling $60 million which is reflected in the Provider Relief Fund Advance
account in current liabilities within our consolidated balance sheet. Funds that
we intend to use in the future to cover COVID-19 expenses, which we have
estimated to be approximately $12 million, have been recorded to a deferred
liability account within accrued expenses in our consolidated balance sheet.
These estimates may change as our ability to utilize and retain the funds will
depend on the magnitude, timing and nature of the impact of the pandemic.
•The temporary suspension of the automatic 2% reduction of Medicare claim
reimbursements ("sequestration") for the period May 1 through December 31, 2020.
The impact was an increase to our 2020 net service revenue of approximately $23
million. In December 2020, Congress passed additional COVID-19 relief
legislation as part of the Consolidated Appropriations Act, 2021. This
legislation extended the suspension of sequestration through March 31, 2021.
•The deferral of the employer share of social security tax (6.2%), effective for
payments due after the enactment date. Fifty percent is due on December 31, 2021
with the remaining amounts due on December 31, 2022. As of December 31, 2020, we
have deferred approximately $55 million of social security tax which has
increased our cash flow from operations by the same amount; approximately $28
million is reflected in each of payroll and employee benefits and other
long-term obligations within our consolidated balance sheet.
•The temporary suspension of Medicare patient coverage criteria and
documentation and care requirements and the expansion of providing home health
and hospice care to patients via telehealth.
•The ability for non-physician practitioners to certify for home health, order
home health services, establish and review plans of care and certify and
recertify eligibility.
The well-being of our employees has been one of our top priorities during this
pandemic. We have taken the following steps to support our employees:
implemented up to 14 days of paid leave during any required quarantine periods;
awarded SPIRIT bonuses to our clinicians and caregivers who have seen patients
during the pandemic; completed an early cash pay-out of employee paid-time-off;
instituted work-from-home arrangements for our corporate and administrative
support employees; allowed employees to temporarily suspend any 401(k) plan loan
deductions and offered employees the option of making a
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withdrawal from their 401(k) plan for coronavirus-related distributions without
incurring the additional 10% early withdrawal penalty; granted access to Teladoc
services to all employees; provided access to COVID-19 self-test kits to all
employees and created a COVID-19 Resource Center, available 24 hours a day,
seven days a week for employees to access educational materials, safety
documents, policies, clinical protocols and operational metrics.
The safety of our clinicians and patients has also been a focus, and as a
result, we have made the following business changes: developed clinical
protocols for COVID-19 testing, proper usage of PPE, caring for COVID-positive
patients and maintaining safety measures in our care centers; researched each
state's vaccination plan to develop a state by state protocol to work with local
health departments and other health systems to obtain vaccine appointments for
our clinical staff; implemented software enabling us to track staff that have
been vaccinated; procured millions in PPE and created a centralized distribution
center for all critical PPE, allowing us to flex our inventory on a care center
by care center basis, based on need and demand. We have had success in utilizing
both traditional and non-traditional suppliers for our PPE needs. While we were
very fortunate to secure the supplies needed, we faced significantly higher per
unit costs for the purchase of PPE.
Network Developments
In August 2020, we signed a Care Coordination Agreement with BrightStar Care to
add its agencies to the Amedisys personal care network, which helps facilitate
the coordination of care between our home health and hospice care centers and a
network of personal care partners.
In July 2019, we signed an agreement with ClearCare, Inc. ("ClearCare"), the
provider of the personal care industry's leading software platform, representing
4,000 personal care agencies in every zip code in the United States. Our
agreement with ClearCare creates an opportunity to establish a network
partnership between Amedisys and personal care agencies using ClearCare in order
to better coordinate patient care.
Long term, we believe these agreements will allow us to build a nation-wide
network of personal care agencies and further our efforts to provide patients
with a true care continuum in the home. These relationships will also help us as
we continue to have innovative payment conversations with Medicare Advantage
plans who have begun to recognize the value that combined home health, hospice
and personal care services bring to their members and care delivery
infrastructure.
Governmental Inquiries and Investigations and Other Litigation
See Item 8, Note 11 - Commitments and Contingencies to our consolidated
financial statements for additional information regarding the subpoena and civil
investigative demands issued by the U.S. Department of Justice and the South
Carolina and Florida Zone Program Integrity Contractor audits. No assurances can
be given as to the timing or outcome of these items.
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Results of Operations
Consolidated
The following table summarizes our consolidated results of operations (amounts
in millions):
                                                               For the Years Ended December 31,
                                                         2020                2019                2018
Net service revenue                                 $   2,071.5          $  1,955.6          $  1,662.6
Other operating income                                     34.4                   -                   -
Cost of service, excluding depreciation and
amortization                                            1,185.4             1,150.3               992.9
Gross margin, excluding depreciation and
amortization                                              920.5               805.3               669.7
% of revenue                                               44.4  %             41.2  %             40.3  %
Other operating expenses                                  668.2               607.9               501.3
% of revenue                                               32.3  %             31.1  %             30.1  %
Depreciation and amortization                              28.8                18.4                13.3
Asset impairment charge                                     4.2                 1.5                   -
Operating income                                          219.3               177.5               155.1
Total other (expense) income, net                          (8.4)               (7.1)                3.8
Income tax expense                                        (25.6)              (42.5)              (38.8)
Effective income tax rate                                  12.2  %             24.9  %             24.4  %
Net income                                                185.2               127.9               120.1

Net income attributable to noncontrolling interests        (1.6)               (1.1)               (0.8)
Net income attributable to Amedisys, Inc.           $     183.6          $  

126.8 $ 119.3

Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019
On a consolidated basis, our operating income increased approximately $42
million on a revenue increase of $116 million. COVID-19 resulted in significant
impacts to all of our segments; however, we experienced a significant increase
in our gross margin as a percentage of revenue which drove our improvement over
2019. Our results were also impacted by acquisitions, the suspension of
sequestration, the transition to PDGM, a reduction in revenue adjustments,
severance associated with reductions in staffing levels, primarily within our
home health segment and an asset impairment charge related to our acquired names
intangibles.
Our 2020 results include the acquisitions of Asana and AseraCare, which
contributed revenue of $88 million and an operating loss of $12 million, which
is inclusive of acquisition and integration costs totaling $10 million and
intangibles amortization totaling $9 million. Our results also reflect one
additional month of revenue and operating income from Compassionate Care Hospice
("CCH"), which was acquired on February 1, 2019, and three additional months of
revenue and operating income from RoseRock Healthcare ("RoseRock"), which was
acquired on April 1, 2019.
COVID-19 disrupted both net service revenue and costs during 2020. The most
significant impact occurred in the second quarter during which we experienced a
$30 million decline in net service revenue over prior year due to COVID-19. Our
variable cost structure helped us mitigate a significant portion of the revenue
impact. Our home health segment, which was the most heavily impacted by
COVID-19, recovered quickly and returned to year over year growth in volumes
during the third and fourth quarters. Our hospice segment experienced declines
in admissions during the second quarter but saw an overall slower decline in
average daily census, which is the main driver of hospice revenue. While we have
experienced strong admission growth during the third and fourth quarters, a
significant increase in deaths, an increase in the discharge rate of same-month
admissions and a delay in the timing of patients coming onto service has driven
down our length of stay resulting in average daily census growth of only 1% year
over year. Based on our current projections, we are anticipating a decline in
average daily census early in 2021 despite strong growth in admissions. We
expect that our length of stay will return to normal levels during 2021.
Our 2020 operating results were positively impacted by the suspension of
sequestration effective May 1, 2020, which resulted in an increase to net
service revenue of approximately $23 million ($13 million home health, $10
million hospice) but negatively impacted by the change in reimbursement under
PDGM, which resulted in a $23 million reduction in net service revenue. We were
able to significantly mitigate the PDGM rate cut and expand margin in our home
health segment by
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delivering improvements in clinician utilization and discipline mix and by
reducing our revenue adjustments. Additionally, we experienced an expansion in
our hospice gross margin resulting from lower costs associated with a decline in
visit volumes due to access restrictions imposed by facilities as well as a
reduction in revenue adjustments; prior year results included a $7 million
reduction to revenue related to settlement discussions with the U.S. Department
of Justice (See Item 8, Note 11 - Commitments and Contingencies to our
consolidated financial statements for additional information).
Each of our segments incurred incremental costs related to COVID-19. As noted
above, for our wholly-owned subsidiaries, we have elected to use the CARES Act
Provider Relief Funds to cover COVID-19 expenses incurred by our home health and
hospice segments which totaled $33 million during 2020. Our personal care
segment received funds from the Mass Home Care ASAP COVID-19 Provider
Sustainability Program totaling $1 million. We have used these funds to cover
COVID-19 expenses as well. We have recorded income associated with both of these
programs totaling $34 million in other operating income within our consolidated
statement of operations.
Our operating results reflect a 1.2% increase in our other operating expenses as
a percentage of revenue compared to prior year; this increase is due to the
addition of resources to support growth (primarily business development
employees), investments related to PDGM and planned wage increases, partially
offset by overall reductions in spend during the pandemic and lower acquisition
and integration costs.
Last, we recorded a $4 million asset impairment charge related to acquired names
which are no longer in use (see Item 8, Note 5 - Goodwill and Other Intangible
Assets, Net to our consolidated financial statements for additional
information).

Total other (expense) income, net includes the following items (amounts in
millions):
                                                            For the Years Ended
                                                               December 31,
                                                             2020              2019
Interest income                                       $      0.3             $  0.1
Interest expense                                           (11.0)             (14.5)
Equity in earnings from equity method investments            4.0                5.3
Miscellaneous, net                                          (1.7)               2.0
                                                      $     (8.4)            $ (7.1)



Interest expense decreased $4 million in 2020 from 2019 as a result of a
decrease in borrowings under our Amended Credit Agreement (see Item 8, Note 8 -
Long-Term Obligations to our consolidated financial statements for additional
information regarding our Amended Credit Agreement). Miscellaneous, net includes
a $3 million loss from the sale of our investment in the Heritage Healthcare
Innovation Fund, LP during 2020 (see Item 8, Note 1 - Nature of Operations,
Consolidation and Presentation of Financial Statements to our consolidated
financial statements for additional information).
Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018
Overall, our operating income increased $22 million on a revenue increase of
$293 million. Our 2019 operating results include the acquisitions of CCH and
RoseRock which contributed approximately $174 million in revenue and an
operating loss of approximately $5 million, which is inclusive of $14 million in
acquisition and integration costs and $6 million in intangibles amortization.
Additionally, our operating income was negatively impacted by a $7 million
accrual related to settlement discussions with the U.S. Department of Justice
(see Item 8, Note 11 - Commitments and Contingencies to our consolidated
financial statements for additional information) and a $2 million asset
impairment charge related to our acquired names (see Item 8, Note 5 - Goodwill
and Other Intangible Assets, Net to our consolidated financial statements for
additional information).
Our year-to-date performance reflects growth and operating improvement in all
three segments of our legacy operations. We expanded gross margin as a
percentage of revenue in our home health and personal care segments. Both
segments benefited from rate increases with home health also delivering
improvements in clinician utilization and discipline mix. Our hospice segment's
gross margin as a percentage of revenue decreased due to our acquisition
activity. Additionally, our other operating expenses as a percentage of revenue
increased only 1% compared to 2018; this increase is inclusive of approximately
$16 million in acquisition and integration costs. Excluding the acquisition and
integration costs, our other operating expenses as a percentage of revenue
remained relatively flat compared to 2018 despite planned wage increases and the
addition of resources to support growth.
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Total other (expense) income, net includes the following items (amounts in
millions):
                                                            For the Years Ended
                                                                December 31,
                                                              2019              2018
Interest income                                       $       0.1              $ 0.3
Interest expense                                            (14.5)              (7.4)
Equity in earnings from equity method investments             5.3                7.7
Miscellaneous, net                                            2.0                3.2
                                                      $      (7.1)             $ 3.8



Interest expense increased $7 million in 2019 from 2018 as a result of an
increase in borrowings under our Amended Credit Agreement (see Item 8, Note 8 -
Long-Term Obligations to our consolidated financial statements for additional
information regarding our Amended Credit Agreement). Equity in earnings from
equity method investments includes gains of $2 million and $5 million for 2019
and 2018, respectively.

Home Health Division
The following table summarizes our home health segment results of operations:
                                                                   For the Years Ended December 31,
                                                           2020                   2019                  2018
Financial Information (in millions):
Medicare                                             $      847.3            $      859.2          $      830.8
Non-Medicare                                                401.9                   397.2                 343.7
Net service revenue                                       1,249.2                 1,256.4               1,174.5
Other operating income                                       20.2                       -                     -
Cost of service                                             729.9                   754.1                 722.1
Gross margin                                                539.5                   502.3                 452.4
Asset impairment charge                                       3.4                     1.5                     -
Other operating expenses                                    311.1                   301.4                 279.8
Operating income                                     $      225.0            $      199.4          $      172.6
Same Store Growth (1):
Medicare revenue                                               (1  %)                   4  %                  6  %
Non-Medicare revenue                                            1  %                   16  %                 18  %
Total admissions                                                1  %                    7  %                  5  %
Total volume (2)                                                2  %                    5  %                  7  %
Key Statistical Data - Total (3):
Admissions                                                331,354                 328,693               309,325
Recertifications                                          181,195                 172,568               168,509
Total volume                                              512,549                 501,261               477,834

Medicare completed episodes (6)                           301,856                 306,520               301,701

Average Medicare revenue per completed episode (4) (6)

$      2,836            $      2,853          $      2,799
Medicare visits per completed episode (5) (6)                14.9                    17.0                  17.4

Visiting Clinician Cost per Visit                    $      89.62            $      83.11          $      81.88
Clinical Manager Cost per Visit                      $       9.17            $       8.04          $       8.01
Total Cost per Visit                                 $      98.79            $      91.15          $      89.89
Visits                                                  7,388,549               8,273,308             8,033,654


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(1)Same store information represents the percent change in our Medicare,
Non-Medicare and Total revenue, admissions or volume for the period as a percent
of the Medicare, Non-Medicare and Total revenue, admissions or volume of the
prior period. Effective July 1, 2019, same store is defined as care centers that
we have operated for at least the last twelve months and startups that are an
expansion of a same store care center.
(2)Total volume includes all admissions and recertifications.
(3)Total includes acquisitions and denovos.
(4)Average Medicare revenue per completed episode is the average Medicare
revenue earned for each Medicare completed episode of care. Average Medicare
revenue per completed episode for the year ended December 31, 2020 reflects the
transition to PDGM effective January 1, 2020 and the suspension of sequestration
effective May 1, 2020.
(5)Medicare visits per completed episode are the home health Medicare visits on
completed episodes divided by the home health Medicare episodes completed during
the period.
(6)Prior year amounts have been recast to conform to the current year
calculation.
Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019
Operating Results
Overall, our operating income increased $26 million on a $7 million decrease in
net service revenue. Our results for the year ended December 31, 2020 were
impacted by COVID-19, the suspension of sequestration, the transition to PDGM,
severance associated with reductions in staffing levels and a reduction in
revenue adjustments. Despite the decrease in net service revenue, we saw
significant improvement in our operating performance driven by improvements in
our clinician utilization and discipline mix, both of which have contributed to
year over year gross margin expansion.
COVID-19 resulted in disruption to our home health volumes beginning at the end
of the first quarter through most of the second quarter and amplified the
negative impact of the PDGM rate cut on our Medicare revenue per episode.
Volumes significantly improved during the third and fourth quarters and our
efforts to operationalize PDGM reduced the impact of the PDGM rate cut in the
second half of the year. While we are very encouraged by the improvement in
volumes and Medicare revenue per episode that we have experienced, we will
continue to closely monitor COVID-19 cases and the potential impacts on our
operating results.
Our operating results were also impacted by incremental costs totaling $20
million related to COVID-19, which were offset by the recognition of income
totaling $20 million associated with the CARES Act Provider Relief Fund, and
severance totaling $5 million related to reductions in staffing levels.
Net Service Revenue
Our net service revenue decreased $7 million primarily due to the impacts of
COVID-19 and the 2020 change in reimbursement under PDGM. The combination of
these resulted in lower volumes than anticipated and lower Medicare revenue per
episode for the year ended December 31, 2020. COVID-19 significantly increased
the number of missed visits which increased the number of LUPA episodes and the
number of episodes with lost billing periods (i.e. episodes with no visits
during one of the 30-day billing periods), leading to a decline in our Medicare
revenue per episode. Additionally, the implementation of PDGM resulted in a $23
million reduction in net service revenue during the year ended December 31,
2020. This reduction was partially offset by $13 million resulting from the
suspension of sequestration effective May 1, 2020.
We have seen significant increases in both volumes and Medicare revenue per
episode in the second half of the year as the impacts of COVID-19 have moderated
and as we have been able to refocus our efforts on operationalizing PDGM. We
have provided additional training, increased our focus on OASIS accuracy and
coding and also completed the rollout of Medalogix Care to all of our home
health care centers, all of which have resulted in higher case mix and
functional impairment scores for our patients. Additionally, we have seen a
reduction in our revenue adjustments year over year.
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Other Operating Income
Other operating income consists of the recognition of funds received from the
CARES Act Provider Relief Fund. In accordance with the terms and conditions,
these funds can be used to cover lost revenues as well as costs directly
attributable to COVID-19. For our wholly-owned subsidiaries, we have elected to
utilize the funds to cover COVID-19 related costs only, and therefore, have
recognized income equal to the amount of COVID-19 costs incurred to date
totaling $20 million. These costs are associated with the purchase of personal
protective equipment, bonuses paid to our clinicians, clinician training,
quarantine pay and COVID-19 testing. Of the $20 million of COVID-19 costs
incurred to date, $19 million has been recorded to cost of service and $1
million has been recorded to other operating expenses.
Cost of Service, Excluding Depreciation and Amortization
Our cost of service consists of costs associated with direct clinician care in
the homes of our patients as well as the cost of clinical managers who monitor
the overall delivery of care. Overall, our total cost of service decreased 3% on
an 11% decrease in total visits. Lower costs associated with a decline in
volumes driven by COVID-19, improvements in clinician utilization as evidenced
by a decline of 2.1 visits per completed episode year over year and optimization
of discipline mix were partially offset by an 8% increase in our total cost per
visit, which was driven by planned wage increases, an increase in the
utilization of contractors to supplement clinician visits in certain areas, new
hire pay, a change in the mix of our visits, costs directly attributable to
COVID-19 totaling approximately $19 million and severance totaling $5 million
related to a reduction in staffing levels. While we compensate our clinicians on
a per visit basis, there is a fixed cost component of our cost structure which
resulted in an increase in our cost per visit as we had a significant decline in
visits.
Other Operating Expenses
Other operating expenses increased approximately $10 million primarily due to
planned wage increases, the addition of resources to support volume growth,
investments related to PDGM and approximately $1 million of costs directly
attributable to COVID-19. These increases were partially offset by a reduction
in travel and training expense and an overall reduction in spend during the
pandemic.
Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018
Operating Results
Overall, our operating income increased $27 million on an $82 million increase
in net service revenue. Our gross margin as a percentage of revenue was
positively impacted by the 2019 changes in reimbursement, growth in volumes, the
acuity level of our patients, improved utilization and a focus on discipline
mix. The impact of the 2019 change in reimbursement was an increase in net
service revenue and gross margin of approximately $12 million.
Net Service Revenue
Our revenue increased $82 million (7%) on a 5% increase in total volume and a 2%
increase in Medicare revenue per episode. The volume growth was driven by a 7%
increase in admissions offset by lower recertification volume. The increase in
Medicare revenue per episode is the result of a 1.2% increase in reimbursement
with the remainder due to an increase in the acuity level of our patients.
Additionally, our non-Medicare (per visit and episodic) rates increased
approximately 3% which is a combination of rate increases and increases in the
acuity level of our patients. Revenue was also positively impacted by a
reduction in our revenue adjustments.
Cost of Service, Excluding Depreciation and Amortization
Our cost of service increased 4% on a 3% increase in total visits. Our total
cost per visit increased approximately 1% as improvements in clinician
utilization and optimization of discipline mix partially offset planned wage
increases. Additionally, changes in our home health care center staffing
resulted in a shift of some office staff from cost of service to other operating
expenses totaling approximately $4 million.
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Other Operating Expenses
Other operating expenses increased approximately $22 million primarily due to an
increase in salaries and benefits expense as a result of the addition of
resources to support volume growth, planned wage increases and the home health
staffing shifts referenced above.
Hospice Division
The following table summarizes our hospice segment results of operations:
                                                For the Years Ended 

December 31,

                                            2020                  2019      

2018

Financial Information (in millions):
Medicare                               $     710.0             $  586.6       $  390.2
Non-Medicare                                  40.1                 30.6           20.7
Net service revenue                          750.1                617.2          410.9
Other operating income                        13.1                    -              -
Cost of service                              400.6                335.1          212.0
Gross margin                                 362.6                282.1          198.9
Asset impairment                               0.8                    -              -
Other operating expenses                     177.6                139.1           85.7
Operating income                       $     184.2             $  143.0       $  113.2
Same Store Growth (1):
Medicare revenue                                 4  %                 7  %          11  %

Hospice admissions                               6  %                 4  %           8  %
Average daily census                             1  %                 7  %          11  %
Key Statistical Data - Total (2):
Hospice admissions                          49,694               40,194         27,596
Average daily census                        13,081               11,164          7,588
Revenue per day, net                   $    156.69             $ 151.47       $ 148.36
Cost of service per day                $     83.67             $  82.24       $  76.53
Average discharge length of stay                99                   98     

100

(1)Same store information represents the percent change in our Medicare revenue,
Hospice admissions or average daily census for the period as a percent of the
Medicare revenue, Hospice admissions or average daily census of the prior
period. Effective July 1, 2019, same store is defined as care centers that we
have operated for at least the last twelve months and startups that are an
expansion of a same store care center.
(2)Total includes acquisitions and denovos.
Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019
Operating Results
Our operating results for 2020 include the results of the acquisition of Asana
on January 1, 2020 (8 hospice care centers) and AseraCare on June 1, 2020 (44
hospice care centers). Acquisitions are included in our consolidated financial
statements from their respective acquisition dates. As a result of our
acquisitions, our hospice segment operating results for 2020 and 2019 are not
fully comparable.
Overall, our operating income increased $41 million on a $133 million increase
in net service revenue. Our 2020 results include the acquisitions of Asana and
AseraCare, which contributed revenue of $88 million and operating income of $13
million. Our results also reflect one additional month of revenue and operating
income from CCH and three additional months of revenue and operating income from
RoseRock. Additionally, our operating results were favorably impacted by the
following: 1% growth in average daily census, changes in reimbursement, which
resulted in an increase in net service revenue and gross margin of approximately
$6 million and $3 million, respectively, lower revenue adjustments, the
suspension of sequestration effective May 1, 2020 and lower visit volumes due to
facility access restrictions.
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Net Service Revenue
Our net service revenue increased $133 million, approximately $88 million of
which is attributable to our Asana and AseraCare acquisitions during 2020. The
remaining increase in net service revenue is the result of one additional month
of revenue from our 2019 acquisition of CCH (approximately $15 million), three
additional months of revenue from our 2019 acquisition of RoseRock
(approximately $2 million), growth in our average daily census, the suspension
of sequestration effective May 1, 2020 ($9 million excluding acquisitions), a
0.5% increase in reimbursement effective October 1, 2019 ($3 million), a 2.4%
increase in reimbursement effective October 1, 2020 ($3 million, excluding
acquisitions) and lower revenue adjustments as prior year results included a $7
million reduction to revenue related to settlement discussions with the U.S.
Department of Justice (see Note 11 - Commitments and Contingencies to our
consolidated financial statements for additional information).
While COVID-19 significantly impacted our admission volumes during the second
quarter, our hospice admissions rebounded quickly, resulting in strong year over
year growth in admissions during the third and fourth quarters. Our same store
admissions growth was up 6% year over year; however, our average daily census,
which is the main driver of hospice revenue, was up only 1%. Generally, changes
in average daily census lag changes in admission volumes; however, we have not
seen an increase in our average daily census growth due to a significant
increase in the number of deaths, an increase in the discharge rate of
same-month admissions and a delay in the timing of patients coming onto service
resulting in a lower length of stay. This lower length of stay resulted in a
declining census as we exited 2020. Based on our current projections, we expect
this trend to continue into 2021.
Other Operating Income
Other operating income consists of the recognition of funds received from the
CARES Act Provider Relief Fund. In accordance with the terms and conditions,
these funds are intended to cover lost revenues as well as costs directly
attributable to COVID-19. For our wholly-owned subsidiaries, we have elected to
utilize the funds to cover COVID-19 related costs only, and therefore, have
recognized income equal to the amount of COVID-19 costs incurred to date
totaling $13 million. These costs are associated with the purchase of personal
protective equipment, bonuses paid to our clinicians, clinician training,
quarantine pay and COVID-19 testing. Of the $13 million of COVID-19 costs
incurred to date, $12 million has been recorded to cost of service and $1
million has been recorded to other operating expenses.
Cost of Service, Excluding Depreciation and Amortization
Our hospice cost of service increased $66 million, approximately $52 million of
which is attributable to our Asana and AseraCare acquisitions during 2020. The
remaining increase is primarily due to one additional month of costs from our
2019 acquisition of CCH, three additional months of costs from our 2019
acquistion of RoseRock, a 1% increase in average daily census, planned wage
increases, COVID-19 costs totaling $12 million and an increase in our general
inpatient and respite facility costs as the majority of the reimbursement
increase, which became effective October 1, 2019, was passed through to these
facilities. These increases were offset by a decline in visits performed by our
hourly licensed practical nurses and hospice aides due to facility access
restrictions as well as lower transportation costs.
Other Operating Expenses
Other operating expenses increased $39 million, approximately $25 million of
which is related to our Asana and AseraCare acquisitions during 2020. The
remaining increase is due to the addition of resources to support census growth
and planned wage increases, partially offset by a decrease in travel and
training expense.
Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018
Operating Results
On February 1, 2019, we acquired CCH, which owned and operated 53 hospice care
centers. On April 1, 2019, we acquired RoseRock, which owned and operated one
hospice care center. Acquisitions are included in our consolidated financial
statements from their respective acquisition dates. As a result, our hospice
segment operating results for 2019 and 2018 are not fully comparable.
Overall, our operating income increased $30 million on a $206 million increase
in net service revenue. Our operating income was negatively impacted by a $7
million reduction to revenue and gross margin related to settlement discussions
with the U.S. Department of Justice (see Item 8, Note 11 - Commitments and
Contingencies to our consolidated financial statements for
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additional information). Our operating results were positively impacted by
changes in reimbursement, which resulted in an increase in net service revenue
and gross margin of approximately $7 million and $6 million, respectively. The
majority of the revenue increase associated with the 2020 change in
reimbursement, which became effective October 1, 2019, was passed through to our
general inpatient and respite facilities. Our operating results were also
positively impacted by continued growth and by our acquisitions which
contributed approximately $174 million in net service revenue and $22 million in
operating income to our hospice segment's results for the year ended December
31, 2019.
Net Service Revenue
Our hospice revenue increased $206 million; approximately $174 million of which
is attributable to our acquisition activities. The remaining $32 million
increase is the result of a 7% increase in our average daily census and
increases in reimbursement totaling 1.6% and 0.5% effective for services
provided from October 1, 2018 and October 1, 2019, respectively, partially
offset by an increase in our revenue adjustments, which include a $7 million
reduction to revenue and gross margin related to the U.S. Department of Justice
matter noted above.
Cost of Service, Excluding Depreciation and Amortization
Our hospice cost of service increased $123 million, approximately $110 million
of which is attributable to our acquisition activity. The remaining $13 million
increase is primarily due to a 7% increase in average daily census, planned wage
increases and an increase in our general inpatient and respite facility costs as
the majority of the reimbursement increase, which became effective October 1,
2019, was passed through to these facilities. Our cost of service per day
increased 7%, largely driven by our acquisitions as our same store cost of
service per day remained relatively flat.
Other Operating Expenses
Other operating expenses increased $53 million; approximately $42 million of the
increase is related to our acquisition activity. The remaining $11 million
increase is due to increases in other care center related expenses, primarily
salaries and benefits expense due to the addition of resources to support census
growth and planned wage increases, professional fees and travel and training
expense.
Personal Care Division
The following table summarizes our personal care segment results of operations:
                                                              For the Years Ended December 31,
                                                       2020                  2019                 2018
Financial Information (in millions):
Medicare                                          $          -          $         -          $         -
Non-Medicare                                              72.2                 82.0                 77.2
Net service revenue                                       72.2                 82.0                 77.2
Other operating income                                     1.1                    -                    -
Cost of service                                           54.9                 61.1                 58.8
Gross margin                                              18.4                 20.9                 18.4
Other operating expenses                                  12.6                 12.5                 13.1
Operating income                                  $        5.8          $       8.4          $       5.3
Key Statistical Data - Total (1):
Billable hours                                       2,730,121            3,308,338            3,248,304
Clients served                                          15,019               17,364               17,981
Shifts                                               1,177,586            1,488,175            1,468,541
Revenue per hour                                  $      26.45          $     24.80          $     23.75
Revenue per shift                                 $      61.31          $     55.13          $     52.54
Hours per shift                                            2.3                  2.2                  2.2

(1)Total includes acquisitions.

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Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019
Operating income related to our personal care segment decreased approximately $3
million on a $10 million decrease in net service revenue. The decrease in net
service revenue is due to the impact of COVID-19 partially offset by rate
increases. The impact of COVID-19 was mitigated by a reduction in costs as most
of our personal care employees are paid on an hourly basis and rate increases
which were intended to address market pressures and incremental costs related to
the pandemic. Our personal care segment incurred approximately $2 million of
COVID-19 costs related to the purchase of PPE, bonuses paid to our employees and
quarantine pay. Additionally, our personal care segment received funds totaling
$1 million under the Mass Home Care ASAP COVID-19 Provider Sustainability
Program. These funds were used to cover COVID-19 related costs and are recorded
to other operating income within our consolidated statement of operations.
Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018
Operating income related to our personal care segment increased $3 million on a
$5 million increase in net service revenue. These results are inclusive of the
acquisitions of East Tennessee Personal Care Services (May 2018) and Bring Care
Home (October 2018). As a result, our personal care operating results for 2019
and 2018 are not fully comparable.
Gross margin as a percentage of revenue increased 170 basis points as the
segment benefited from rate increases combined with operating cost controls.
Additionally, other operating expenses decreased approximately $1 million
resulting in an increase in operating income.
Corporate
The following table summarizes our corporate results of operations:
                                                For the Years Ended 

December 31,

                                                 2020                 2019  

2018

Financial Information (in millions):
Other operating expenses               $      173.2                 $ 160.9      $ 127.6
Depreciation and amortization                  22.5                    12.4          8.4
Total operating expenses               $      195.7                 $ 173.3      $ 136.0


Corporate expenses consist of costs relating to our executive management and
administrative support functions, primarily information services, accounting,
finance, billing and collections, legal, compliance, risk management,
procurement, marketing, clinical administration, training, human resources and
administration.
Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019
Corporate total operating expenses increased approximately $22 million during
the year ended December 31, 2020 compared to 2019. Our 2020 acquisitions of
Asana and AseraCare added approximately $15 million which is inclusive of $9
million related to intangibles amortization. The remaining $7 million increase
is primarily due to one additional month of corporate support costs from our
2019 acquisition of CCH, planned wage increases, the addition of corporate
support staff, an increase in employer payroll taxes associated with employee
stock option exercises, incentive compensation accruals, fees related to our
ClearCare partnership and lower gains on the sale of fleet vehicles in 2020 as
compared to 2019; these items were partially offset by decreases in travel and
training expense and acquisition and integration costs.
Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018
During 2019, corporate operating expenses increased $37 million; approximately
$27 million of which is attributable to the CCH acquisition: $7 million relates
to CCH corporate and administrative support functions, $6 million relates to CCH
intangibles amortization and approximately $14 million relates to CCH
acquisition and integration costs. Excluding the impact of the CCH acquisition,
corporate operating expenses increased $10 million which represents 3% of our
$293 million increase in revenue. This increase is primarily due to increases in
salaries and benefits expense and information technology expense which were
partially offset by decreases in professional fees and legal settlements as well
as gains on the sale of fleet vehicles.
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Liquidity and Capital Resources
Cash Flows
The following table summarizes our cash flows for the periods indicated (amounts
in millions):
                                                              For the Years Ended December 31,
                                                        2020                 2019                2018
Cash provided by operating activities              $      289.0          $    202.0          $    223.5
Cash used in investing activities                        (287.1)             (352.9)              (22.2)
Cash (used in) provided by financing activities           (15.0)              227.2              (267.4)
Net (decrease) increase in cash, cash equivalents
and restricted cash                                       (13.1)               76.3               (66.1)
Cash, cash equivalents and restricted cash at
beginning of period                                        96.5                20.2                86.4
Cash, cash equivalents and restricted cash at end
of period                                          $       83.4          $  

96.5 $ 20.2

Cash provided by operating activities for 2020, 2019 and 2018 have provided
sufficient liquidity to finance our capital expenditures, both routine and
non-routine, and acquisitions. Changes in our cash provided by operating
activities during the past three years were primarily the result of fluctuations
in our net income, the collections of our accounts receivable and the timing of
payments of accrued expenses. Additionally, our cash provided by operating
activities for 2020 also includes the deferral of payroll taxes as provided for
in the CARES Act totaling $55.4 million and the receipt of Provider Relief
Funds, which we expect to retain, totaling $38.5 million, partially offset by
the payment of COVID-19 related expenses.
Our cash used in investing activities primarily consists of the purchase of
property and equipment, investments in equity method investees and acquisitions.
Additionally, during 2020, our cash flows from investing activities includes
proceeds from the sale of our investment in the Heritage Healthcare Innovation
Fund, LP (see Item 8, Note 1 - Nature of Operations, Consolidation and
Presentation of Financial Statements to our consolidated financial statements
for additional information). Cash used in investing activities decreased $65.8
million during 2020 compared to 2019 as a result of a reduction in acquisition
spend. Cash used in investing activities increased $330.7 million during 2019
compared to 2018 primarily due to the acquisitions of CCH and RoseRock.
Our financing activities primarily consist of borrowings under our term loan
and/or revolving credit facility, repayments of borrowings, the remittance of
taxes associated with shares withheld on non-cash compensation and proceeds
related to the exercise of stock options and the purchase of stock under our
employee stock purchase plan. Additionally, during 2020, our financing
activities included the receipt of Provider Relief Funds, which we do not expect
to retain, totaling $60 million (see Note 3 - Novel Coronavirus Pandemic
("COVID-19") to our consolidated financial statements for additional
information). Cash used in financing activities totaled $15.0 milling during
2020 primarily due to repayments of borrowings and the remittance of tax
withholding obligations related to non-cash compensation and stock option
exercises (see Item 8, Note 10 - Capital Stock and Share-Based Compensation to
our consolidated financial statements for additional information), partially
offset by the receipt of Provider Relief Funds totaling $60.0 million. Cash
provided by financing activities totaled $227.2 million during 2019 and is
primarily related to our borrowings under our Amended Credit Agreement to fund
acquisitions. Cash used in financing activities totaled $267.4 million in 2018
and is primarily related to our repurchase of company stock and the repayments
of borrowings.
Liquidity
Typically, our principal source of liquidity is the collection of our patient
accounts receivable, primarily through the Medicare program. In addition to our
collection of patient accounts receivable, from time to time, we can and do
obtain additional sources of liquidity by the incurrence of additional
indebtedness.
During 2020, we spent $5.3 million in capital expenditures compared to
$7.9 million and $6.6 million during 2019 and 2018, respectively. Our capital
expenditures for 2021 are expected to be approximately $6.0 million to
$8.0 million, excluding the impact of any future acquisitions.
As of December 31, 2020, we had $81.8 million in cash and cash equivalents and
$470.2 million in availability under our $550.0 million Revolving Credit
Facility. Our cash and cash equivalents include $60.0 million related to CARES
Act funds that we do not expect to utilize and have recorded as a liability
within our consolidated balance sheet as of December 31, 2020.
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Based on our operating forecasts and our debt service requirements, we believe
we will have sufficient liquidity to fund our operations, capital requirements
and debt service requirements.
Outstanding Patient Accounts Receivable
Our patient accounts receivable increased $17.5 million from December 31, 2019
to December 31, 2020 due to our acquisition activity which added $19.6 million
to accounts receivable and the reduction in RAP payments under PDGM, partially
offset by a reduction in days revenue outstanding which decreased 0.7 days
despite an estimated negative impact of 2.7 days related to the transition to
PDGM. Our cash collection as a percentage of revenue was 106% and 105% for the
twelve-month periods ended December 31, 2020 and 2019, respectively. Our days
revenue outstanding, net at December 31, 2020 was 40.2 days which is a decrease
of 0.7 days from December 31, 2019.
Our patient accounts receivable includes unbilled receivables and are aged based
upon the initial service date. We monitor unbilled receivables on a care center
by care center basis to ensure that all efforts are made to bill claims within
timely filing deadlines. Our unbilled patient accounts receivable can be
impacted by acquisition activity, probe edits or regulatory changes which result
in additional information or procedures needed prior to billing. The timely
filing deadline for Medicare is one year from the date the episode was
completed, varies by state for Medicaid-reimbursable services and varies among
insurance companies and other private payors.
The following schedules detail our patient accounts receivable, by payor class,
aged based upon initial date of service (amounts in millions, except days
revenue outstanding):
                                         0-90        91-180      181-365       Over 365        Total
At December 31, 2020:
Medicare patient accounts receivable   $ 156.2      $  5.4      $    2.1      $     0.8      $ 164.5
Other patient accounts receivable:
Medicaid                                  20.7         1.7           1.5              -         23.9
Private                                   58.4         6.4           1.9              -         66.7
Total                                  $  79.1      $  8.1      $    3.4      $       -      $  90.6
Total patient accounts receivable                                                            $ 255.1
Days revenue outstanding (1)                                                                    40.2


                                         0-90        91-180      181-365       Over 365        Total
At December 31, 2019:
Medicare patient accounts receivable   $ 115.2      $ 13.8      $    6.8      $     1.0      $ 136.8
Other patient accounts receivable:
Medicaid                                  22.6         5.7           4.0              -         32.3
Private                                   60.0         6.3           2.2              -         68.5
Total                                  $  82.6      $ 12.0      $    6.2      $       -      $ 100.8
Total patient accounts receivable                                                            $ 237.6
Days revenue outstanding (1)                                                                    40.9


(1)Our calculation of days revenue outstanding, net is derived by dividing our
ending net patient accounts receivable at December 31, 2020 and 2019 by our
average daily net patient service revenue for the three-month periods ended
December 31, 2020 and 2019, respectively.
Indebtedness
First Amendment to Amended and Restated Credit Agreement
On February 4, 2019, we entered into the First Amendment to the Credit Agreement
(as amended by the First Amendment, the "Amended Credit Agreement"). The Amended
Credit Agreement provides for a senior secured credit facility in an initial
aggregate principal amount of up to $725.0 million, which includes the $550.0
million Revolving Credit Facility under the Credit Agreement, and a term loan
facility with a principal amount of up to $175.0 million (the "Term Loan
Facility" and collectively with the Revolving Credit Facility, the "Credit
Facility"), which was added by the First Amendment.
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We borrowed the entire principal amount of the Term Loan Facility on February 4,
2019 in order to fund a portion of the purchase price of the CCH acquisition,
with the remainder of the purchase price and associated transactional fees and
expenses funded by proceeds from the Revolving Credit Facility.
Our weighted average interest rate for borrowings under our $175.0 million Term
Loan Facility was 2.2% for the period ended December 31, 2020 and 3.8% for the
period February 4, 2019 to December 31, 2019. Our weighted average interest rate
for borrowings under our $550.0 million Revolving Credit Facility was 2.2% for
the period ended December 31, 2020 and 4.0% for the period ended December 31,
2019.
As of December 31, 2020, our consolidated leverage ratio was 0.6, our
consolidated interest coverage ratio was 25.6 and we are in compliance with our
covenants under the Amended Credit Agreement.
As of December 31, 2020, our availability under our $550.0 million Revolving
Credit Facility was $470.2 million as we have $51.0 million outstanding in
borrowings and $28.8 million outstanding in letters of credit.
See Item 8, Note 8 - Long Term Obligations to our consolidated financial
statements for additional details on our outstanding long-term obligations.
Share Repurchases
2021 Stock Repurchase Program
On December 23, 2020, we announced that our Board of Directors authorized a
stock repurchase program, under which we may repurchase up to $100 million of
our outstanding common stock through December 31, 2021.
Under the terms of the program, we are allowed to repurchase shares from time to
time through open market purchases, unsolicited or solicited privately
negotiated transactions, an accelerated stock repurchase program, and/or a
trading plan in compliance with Exchange Act Rule 10b5-1. The timing and the
amount of the repurchases will be determined by management based on a number of
factors, including but not limited to share price, trading volume and general
market conditions, as well as on working capital requirements, general business
conditions and other factors.
We did not repurchase any shares pursuant to this stock repurchase program
during the year ended December 31, 2020.
2019 Stock Repurchase Program
On February 25, 2019, we announced that our Board of Directors authorized a
stock repurchase program, under which we could repurchase up to $100 million of
our outstanding common stock through March 1, 2020. We did not repurchase any
shares pursuant to this stock purchase program during 2019 or 2020. The stock
repurchase plan expired on March 1, 2020.
2018 Share Repurchase
On June 4, 2018, we purchased 2,418,304 of our common shares from affiliates of
KKR Credit Advisors (US) LLC ("KKR"), representing one-half of KKR's then
current holdings in the Company and 7.1% of the aggregate outstanding shares of
the Company's common stock for a total purchase price of $181.4 million
including related direct costs. The Company repurchased the shares at $73.96
which represents 96% of the closing stock price of the Company's common stock on
June 4, 2018. The repurchased shares are classified as treasury shares.
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Contractual Obligations
Our future contractual obligations at December 31, 2020 were as follows (amounts
in millions):
                                                               Payments Due by Period
                                                        Less than        1-3          4-5         After
                                            Total         1 Year        Years        Years       5 Years
Long-term obligations                     $ 215.1      $      8.8      $ 20.8      $ 185.5      $      -
Interest on long-term obligations (1)         8.5             3.3         5.0          0.2             -
Finance leases                                2.7             1.8         0.9            -             -
Operating leases                             97.6            32.2        42.9         17.9           4.6
Purchase obligations (2)                     19.3             8.7         9.9          0.7             -
Uncertain tax positions                       2.7               -         2.7            -             -
                                          $ 345.9      $     54.8      $ 82.2      $ 204.3      $    4.6


(1)Interest on debt with variable rates was calculated using the current rate
for that particular debt instrument at December 31, 2020.
(2)Purchase obligations are primarily related to information technology
contracts and software licenses.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations
is based upon our consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenue and
expenses and related disclosures of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates, including those related to revenue
recognition, collectability of accounts receivable, reserves related to
insurance and litigation, business combinations, goodwill, intangible assets,
income taxes and contingencies. We base these estimates on our historical
experience and various other assumptions that we believe to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results experienced may vary materially and
adversely from our estimates. To the extent there are material differences
between our estimates and the actual results, our future results of operations
may be affected.
We believe the following critical accounting policies represent our most
significant judgments and estimates used in the preparation of our consolidated
financial statements.
Revenue Recognition
We account for revenue from contracts with customers in accordance with
Accounting Standards Codification ("ASC") 606, Revenue from Contracts with
Customers, and as such, we recognize revenue in the period in which we satisfy
our performance obligations under our contracts by transferring our promised
services to our customers in amounts that reflect the consideration to which we
expect to be entitled in exchange for providing patient care, which are the
transaction prices allocated to the distinct services. The Company's cost of
obtaining contracts is not material.
Revenues are recognized as performance obligations are satisfied, which varies
based on the nature of the services provided. Our performance obligation is the
delivery of patient care services in accordance with the nature and frequency of
services outlined in physicians' orders, which are determined by a physician
based on a patient's specific goals.
The Company's performance obligations relate to contracts with a duration of
less than one year; therefore, the Company has elected to apply the optional
exemption provided by ASC 606 and is not required to disclose the aggregate
amount of the transaction price allocated to performance obligations that are
unsatisfied or partially unsatisfied as of the end of the reporting period. The
unsatisfied or partially unsatisfied performance obligations are generally
completed when the patients are discharged, which generally occurs within days
or weeks of the end of the reporting period.
We determine the transaction price based on gross charges for services provided,
reduced by estimates for contractual and non-contractual revenue adjustments.
Contractual revenue adjustments are recorded for the difference between our
standard rates and the contracted rates to be realized from patients, third
party payors and others for services provided. Non-contractual revenue
adjustments include discounts provided to self-pay, uninsured patients or other
payors, adjustments resulting from payment reviews and adjustments arising from
our inability to obtain appropriate billing documentation, authorizations or
face-
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to-face documentation. Subsequent changes to the estimate of the transaction
price are recorded as adjustments to net service revenue in the period of
change.
Non-contractual revenue adjustments are recorded for self-pay, uninsured
patients and other payors by major payor class based on our historical
collection experience, aged accounts receivable by payor and current economic
conditions. The non-contractual revenue adjustments represent the difference
between amounts billed and amounts we expect to collect based on our collection
history with similar payors. The Company assesses its ability to collect for the
healthcare services provided at the time of patient admission based on the
Company's verification of the patient's insurance coverage under Medicare,
Medicaid, and other commercial or managed care insurance programs. Medicare
represents approximately 75% of the Company's consolidated net service revenue.
Amounts due from third-party payors, primarily commercial health insurers and
government programs (Medicare and Medicaid), include variable consideration for
retroactive revenue adjustments due to settlements of audits and payment
reviews. We determine our estimates for non-contractual revenue adjustments
related to payment reviews based on our historical experience and success rates
in the claim appeals and adjudication process.
We determine our estimates for non-contractual revenue adjustments related to
our inability to obtain appropriate billing documentation, authorizations, or
face-to-face documentation based on our historical experience which primarily
includes a historical collection rate of over 99% on Medicare claims. Revenue is
recorded at amounts we estimate to be realizable for services provided.
Home Health Revenue Recognition
Medicare Revenue
Effective January 1, 2020, CMS implemented a revised case-mix adjustment
methodology, PDGM, to better align payment with patient care needs and ensure
that clinically complex and ill beneficiaries have adequate access to home
health care. PDGM uses 30-day periods of care rather than 60-day episodes of
care as the unit of payment, eliminates the use of the number of therapy visits
provided in determining payment and relies more heavily on clinical
characteristics and other patient information.
Net service revenue is recorded based on the established Federal Medicare home
health payment rate for a 30-day period of care. ASC 606 notes that if an entity
has a right to consideration from a customer in an amount that corresponds
directly with the value of the entity's performance completed to date, the
entity may recognize revenue in the amount to which the entity has a right to
invoice. We have elected to apply the "right to invoice" practical expedient and
therefore, our revenue recognition is based on the reimbursement we are entitled
to for each 30-day payment period. We utilize our historical average length of
stay for each 30-day period of care as the measure of progress towards the
satisfaction of our performance obligation.
PDGM uses timing, admission source, functional impairment levels and principal
and other diagnoses to case-mix adjust payments. The case-mix adjusted payment
for a 30-day period of care is subject to additional adjustments based on
certain variables including, but not limited to: (a) an outlier payment if our
patient's care was unusually costly (capped at 10% of total reimbursement per
provider number); (b) a low utilization payment adjustment ("LUPA") if the
number of visits provided was less than the established threshold, which ranges
from two to six visits and varies for every case-mix group under PDGM; (c) a
partial payment if a patient transferred to another provider or from another
provider before completing the 30-day period of care; and (d) the applicable
geographic wage index. Payments for routine and non-routine supplies are now
included in the 30-day payment rate.
Medicare can also make various adjustments to payments received if we are unable
to produce appropriate billing documentation or acceptable authorizations. We
estimate the impact of such adjustments based on our historical experience,
which primarily includes a historical collection rate of over 99% on Medicare
claims, and record this estimate during the period in which services are
rendered to revenue and a corresponding reduction to patient accounts
receivable.
Amounts due from Medicare include variable consideration for retroactive revenue
adjustments due to settlements of audits and payment reviews. We determine our
estimates for non-contractual revenue adjustments related to payment reviews
based on our historical experience and success rates in the claim appeals and
adjudication process.
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The Medicare home health benefit requires that beneficiaries be homebound
(meaning that the beneficiary is unable to leave his/her home without a
considerable and taxing effort), require intermittent skilled nursing, physical
therapy or speech therapy services, and receive treatment under a plan of care
established and periodically reviewed by a physician. In order to provide
greater flexibility during the novel coronavirus pandemic ("COVID-19"), CMS has
relaxed the definition of homebound status through the duration of the public
health emergency. During the pandemic, a beneficiary is considered homebound if
they have been instructed by a physician not to leave their home because of a
confirmed or suspected COVID-19 diagnosis or if the patient has a condition that
makes them more susceptible to contracting COVID-19. Therefore, if a beneficiary
is homebound due to COVID-19 and requires skilled services, the services will be
covered under the Medicare home health benefit.
All Medicare contracts are required to have a signed plan of care which
represents a single performance obligation, comprised of the delivery of a
series of distinct services that are substantially similar and have a similar
pattern of transfer to the customer. Accordingly, the Company accounts for the
series of services ("episode") as a single performance obligation satisfied over
time, as the customer simultaneously receives and consumes the benefits of the
goods and services provided. An episode starts the first day a billable visit is
performed and ends 60 days later or upon discharge, if earlier, with multiple
continuous episodes allowed.
A portion of reimbursement from each Medicare episode, referred to as a request
for anticipated payment ("RAP") is billed near the start of each 30-day period
of care, and cash is typically received before all services are rendered. Any
cash received from Medicare for a RAP for a 30-day period of care that exceeds
the associated revenue earned is recorded to accrued expenses within our
consolidated balance sheets. CMS reduced the upfront payment for RAPs to 20% for
2020 and has fully eliminated payments associated with RAPs in 2021.
Non-Medicare Revenue
Episodic-based Revenue. We recognize revenue in a similar manner as we recognize
Medicare revenue for amounts that are paid by other insurance carriers,
including Medicare Advantage programs; however, these amounts can vary based
upon the negotiated terms which generally range from 90% to 100% of Medicare
rates.
Non-episodic based Revenue. Gross revenue is recorded on an accrual basis based
upon the date of service at amounts equal to our established or estimated
per-visit rates. Contractual revenue adjustments are recorded for the difference
between our standard rates and the contracted rates to be realized from
patients, third parties and others for services provided and are deducted from
gross revenue to determine net service revenue. We also make non-contractual
revenue adjustments to non-episodic revenue based on our historical experience
to reflect the estimated transaction price. We receive a minimal amount of our
net service revenue from patients who are either self-insured or are obligated
for an insurance co-payment.
Hospice Revenue Recognition
Hospice Medicare Revenue
Gross revenue is recorded on an accrual basis based upon the date of service at
amounts equal to the estimated payment rates. The estimated payment rates are
predetermined daily or hourly rates for each of the four levels of care we
deliver. The four levels of care are routine care, general inpatient care,
continuous home care and respite care. Routine care accounted for 97% of our
total Medicare hospice service revenue for each of 2020, 2019 and 2018,
respectively. There are two separate payment rates for routine care: payments
for the first 60 days of care and care beyond 60 days. In addition to the two
routine rates, we may also receive a service intensity add-on ("SIA"). The SIA
is based on visits made in the last seven days of life by a registered nurse or
medical social worker for patients in a routine level of care.
The performance obligation is the delivery of hospice services to the patient,
as determined by a physician, each day the patient is on hospice care.
We make adjustments to Medicare revenue for non-contractual revenue adjustments,
which include our inability to obtain appropriate billing documentation or
acceptable authorizations and other reasons unrelated to credit risk. We
estimate the impact of these non-contractual revenue adjustments based on our
historical experience, which primarily includes a historical collection rate of
over 99% on Medicare claims, and record it during the period services are
rendered.
Additionally, our hospice service revenue is subject to certain limitations on
payments from Medicare which are considered variable consideration. We are
subject to an inpatient cap limit and an overall Medicare payment cap for each
provider number. We monitor these caps on a provider-by-provider basis and
estimate amounts due back to Medicare if we estimate a cap has been exceeded. We
record these adjustments as a reduction to revenue and an increase in accrued
expenses within our consolidated balance sheets. Providers are required to
self-report and pay their estimated cap liability by February 28th of the
following year. As of December 31, 2020, we have settled our Medicare hospice
reimbursements for all fiscal years through
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October 31, 2013. As of December 31, 2020, we have recorded $9.3 million for
estimated amounts due back to Medicare in accrued expenses for the Federal cap
years ended October 31, 2014 through September 30, 2021; approximately $2.0
million of this balance was acquired with the AseraCare acquisition. As of
December 31, 2019, we had recorded $5.7 million for estimated amounts due back
to Medicare in accrued expenses for the Federal cap years ended October 31, 2013
through September 30, 2020.
Hospice Non-Medicare Revenue
Gross revenue is recorded on an accrual basis based upon the date of service at
amounts equal to our established rates or estimated per day rates, as
applicable. Contractual revenue adjustments are recorded for the difference
between our standard rates and the contractual rates to be realized from
patients, third party payors and others for services provided and are deducted
from gross revenue to determine our net service revenue. We also make
non-contractual adjustments to non-Medicare revenue based on our historical
experience to reflect the estimated transaction price.
Personal Care Revenue Recognition
Personal Care Revenue
We generate net service revenues by providing our services directly to patients
based on authorized hours, visits or units determined by the relevant agency, at
a rate that is either contractual or fixed by legislation. Net service revenue
is recognized at the time services are rendered based on gross charges for the
services provided, reduced by estimates for contractual and non-contractual
revenue adjustments. We receive payment for providing such services from payors,
including state and local governmental agencies, managed care organizations,
commercial insurers and private consumers. Payors include the following elder
service agencies: Aging Services Access Points ("ASAPs"), Senior Care Options
("SCOs"), Program of All-Inclusive Care for the Elderly ("PACE") and the
Veterans Administration ("VA").
Business Combinations
We account for acquisitions using the acquisition method of accounting in
accordance with ASC 805, Business Combinations. Acquisitions are accounted for
as purchases and are included in our consolidated financial statements from
their respective acquisition dates. Assets acquired and liabilities assumed, if
any, are measured at fair value on the acquisition date using the appropriate
valuation method. Goodwill generated from acquisitions is recognized for the
excess of the purchase price over tangible and identifiable intangible assets.
In determining the fair value of identifiable intangible assets, we use various
valuation techniques including discounted cash flow analysis, the income
approach, the cost approach and the market approach. These valuation methods
require us to make estimates and assumptions surrounding projected revenues and
costs, future growth and discount rates.
Goodwill and Other Intangible Assets
Goodwill represents the amount of the purchase price in excess of the fair
values assigned to the underlying identifiable net assets of acquired
businesses. Goodwill is not amortized, but is subject to an annual impairment
test. Tests are performed more frequently if events occur or circumstances
change that would more likely than not reduce the fair value of the reporting
unit below its carrying amount. These events or circumstances include, but are
not limited to, a significant adverse change in the business environment,
regulatory environment or legal factors, or a substantial decline in the market
capitalization of our stock.
U.S. GAAP allows for impairment testing to be done on either a quantitative or
qualitative basis. During 2020, we utilized a qualitative analysis for our
annual impairment test and determined that there were no triggering events that
would indicate that it is "more likely than not" that the carrying values of our
reporting units are higher than their respective fair values. As a result, we
did not record any goodwill impairment charges and none of the goodwill
associated with our various reporting units was considered at risk of impairment
as of October 31, 2020. Since the date of our last annual goodwill impairment
test, there have been no material developments, events, changes in operating
performance or other circumstances that would cause management to believe it is
more likely than not that the fair value of any of our reporting units would be
less than their carrying amounts.
Intangible assets consist of certificates of need, licenses, acquired names and
non-compete agreements. We amortize non-compete agreements and acquired names
that we do not intend to use indefinitely on a straight-line basis over their
estimated useful lives, which is generally two to three years for non-compete
agreements and up to three years for acquired names. Our indefinite-lived
intangible assets are reviewed for impairment annually or more frequently if
events occur or circumstances change that would more likely than not reduce the
fair value of the intangible asset below its carrying amount. During 2020, we
performed a qualitative assessment of our indefinite-lived intangible assets; as
a result of this analysis, we wrote off approximately $4.2 million of acquired
names that are no longer in use. There have been no material developments,
events,
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changes in operating performance or other circumstances that would cause management to believe it is more likely than not that the fair value of any of our remaining intangible assets would be less than their carrying amounts.

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