Gen Digital Inc.
Q1 2017 Earnings Call Transcript

Published: 9 May 2017

[Operator:]

Good morning, my name is Crystal and I’ll be your conference operator today. At this time I’d like to welcome everyone to the First Quarter 2017 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I’d now like to hand the conference over to Lori Mayer, Vice President of Investor Relations. Please go ahead.

[Lori Mayer:]

Good morning and thank you for joining us today. We filed our earnings press release this morning. This announcement is available in the Investor Relations section of our website at www.genesishcc.com. A replay of this call will also be available on our website for one year. Before we begin, I would like it to quickly review a few housekeeping matters. First, any forward-looking statements made today are based on management's current expectations, assumptions and beliefs about our business and the environment in which we operate. These statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call. Listeners should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results. Except as required by Federal Securities Law Genesis HealthCare and its affiliates do not undertake to publicly update or revise any forward-looking statements are changes that arise as a result from new information, future events, changing circumstances or for any other reason. In addition, any operation we mention today is operated by a separate independent operating subsidiary that has its own management, employees and assets. References to the consolidated company and its assets and activities, as well as the use of the terms, we, us, our and similar verbiage are not meant to imply that Genesis HealthCare has direct operating assets, employees or revenue or that any of the various operations are operated by the same entity. Our discussion today and the information in our earnings release and in our public filings include references to adjusted EBITDAR, EBITDA and adjusted EBITDA which are non-GAAP financial measures. We believe the presentation of non-GAAP financial measures provides useful information to investors regarding our results because these financial measures are useful for trending, analyzing and benchmarking the performance and value of our business, but such non-GAAP financial measures should not be relied upon at the exclusion of GAAP financial measures. Please refer to the Company's reasons for non-GAAP financial disclosures and its GAAP to non-GAAP reconciliations contained in today's earnings release. And with that, I will turn the call over to George Hager, CEO of Genesis HealthCare.

[George Hager:]

Thank you, Lori. Good morning and thank you for joining us today. I'd like to focus today's call on a brief discussion of our first quarter results, industry trends and progress on our long-term strategic and value-based initiatives. I’ll also provide brief comments regarding recently proposed Medicare payment rules. Then I will turn the call over to Tom DiVittorio, Genesis' Chief Financial Officer. I’m very pleased with our first quarter results particularly given our challenging operating environment. Our experienced and disciplined team executed our tactical initiatives and effectively managed the controllable aspects of the business. As a result of these efforts our revenue and EBITDA in the quarter met our expectations and exceeded first call consensus estimates. We’ve reaffirmed our full year guidance range with respect to EBITDAR and EBITDA and are making a slight adjustment to the high end of the revenue range to reflect certain asset divestitures that occurred ahead of schedule. Tom will provide more detail on guidance later on this call. In addition to our strong operating performance this quarter, I’d like to discuss several important fundamental business developments we saw this quarter. First and I think most importantly to note, we achieved year-over-year growth in skilled patient admissions for the first time since 2015. Our skilled patient admissions increased by 1% versus the first quarter of 2016. Providing optimism regarding our expectations of increases in demographically driven demand for post-acute services. With the continued declines in average length of stay, it was critically important to see such strong admission flow coming from our large managed care and acute care relationships. We will continue to focus on improved patient outcomes and lower cost as we develop stronger preferred provider relationships with our strategic partners. Second, we continued to make progress with our value based programs through a reduction of hospital readmissions and sniff length of stay, our bundle payment for care improvement or BPCI Model-3 centers recognized $3.5 million in estimated gain share this quarter that annualizes that almost $15 million an approximate increase of 50% over the gain share recognized in the prior year. We expect this upward trend to continue as we advance our knowledge base and implement more and more operational changes that will yield success under this program. In addition to our BPCI centers, over 200 of our centers are participating in accountable care organization in which more than 500 physicians, nurse practitioners and physician assistance provide care under the Medicare Shared Saving Program or MSSP. We’ve not yet recognized any revenue from MSSP since the Medicare reconciliation is based on full year 2016 performance, a full year in arrears. We do not expect to receive this reconciliation until mid 2017. However, Genesis early and meaningful participation in both BPCI and MSSP has provided us access to six significant data which upon analysis has enabled us to enhance care delivery and improved outcomes at lower cost. These programs will continue to drive improved performance and are evolving value based environment. Third, we continue to monetize strategic unrecognized assets of the business. In April 2017, Genesis entered into a dining and nutritional services partnership to further leverage our national platforms, process expertise and technology. The relationship which is expected to be accretive to Genesis will provide additional liquidity, cost efficiency and enhanced operational performance. There are several other unrecognized assets of our company including Genesis rehabilitation services in China, vitality to you, our community based rehab business, Genesis care transition, Genesis physician services and the Genesis ACO and career staff. We will continue to pursue capital and strategic operating partnerships to accelerate revenue and earnings growth from these assets. Fourth, we continued our efforts to streamline our operations. On April 1, we sold all 18 locations in the States of Kansas, Missouri, Iowa and Nebraska which produced $3 million of annual negative EBITDA. With the departure of these facilities we were able to reduce funded leverage by over $80 million and can now redirect our focus to our core markets. During the last four months we also divested of another seven non-strategic leased facilities reducing overall annual rent by $1.7 million. In summary, our strong operating performance, the recovery of skilled patient admission volumes, our continued improved performance under our value based programs. The unlocking of unrecognized value in our portfolio and the commitment to our core market focus will all serve to improve our operational outcomes and our financial foundation. Before I turn the call over to Tom, I would like to address CMS's proposed sniff payment rules our preliminary views of the advanced notice of proposed rulemaking. First with respect to the 2018 rules, there were no surprises which of course is good news. The 1% cap on our rate increase was legislated at the time of the Doc Fix and is reflected in our guidance. There were no surprises with the structure of the fiscal 2019 2% withhold tied to sniff re-hospitalization that begins October next year. That model was introduced back in 2014. There is also a number of quads to reporting mandates and proposals none of which are problematic for us. And we are actually encouraged by some of the proposals that address few of the process and administrative burdens contained in the requirement of participation. So overall, the 2018 proposed rules are what we expected and of course we are far along developing our feedback and comments to these rules. As for the advanced notice of proposed rulemaking what are referred to as the pre-rule. It is premature for anyone to estimate or simulate what the impact could be to certain providers or groups of providers. There simply is not enough information to accurately do so and we expect there will be multiple iterations of this rules set before it is finalized, let alone implemented and operationalized. With that said we are actually encouraged by few aspects of the pre-rule. One, we know it must be implemented on a budget neutral basis. So overall funding levels will not be impacted. Two, the proposal includes the number of important elements that advance by the industry. So it is very clear to us that CMS is committed to including providers in the process of developing a new and improved payment system. And three, there are a number of positive features that would allow providers to operate more efficiently from the administrative and care delivery perspective, those elements could meaningfully influence the overall outcome of these rules. So to reiterate, we are actually pretty encouraged by what we see in the pre-rule and we are working closely with our peers through AHCA to provide constructive comments back to CMS. With that I would like to turn the call over to Tom DiVittorio, our Chief Financial Officer. Tom.

[Tom DiVittorio:]

Thanks George. Good morning, everyone. My comments today will start with a recap of operating results and trends then move to balance sheet, cash flow and capital structure and conclude with 2017 guidance. Although, we did experience continued organic contraction in the business, the majority of our revenue and earnings declined in the year-over-year quarter was caused by the number of facility divestitures in excessive acquisitions, the loss of Texas MPAP reimbursement discussed last quarter and having one less calendar day this year due to the 2016 leap year. Specifically, revenue in 1Q ‘17 of $1.389 billion declined $83 million or 5.6% from 1Q ‘16. Of this 5.6% decline 2.9% is attributed to the net impacted by divestitures in excess of acquisition loss of the Texas MPAP reimbursement and the leap year with 2.7% due to organic contraction principally caused by lower occupancy and skilled mix impacting both of our business segments. Adjusted EBITDAR in 1Q ‘17 of $165.7 million declined $12.8 million or 7.1% from 1Q ‘16. Of this 7.1% decline, 5.6% is attributed to the net impact of divestitures in excess of acquisitions, the loss of the Texas MPAP reimbursement and the leap year with only 1.5% due to organic contraction. Our actions to reduce overhead and operating costs, strong AR collections and a resulting reduction in bad debts, effective management of our routine operating costs relative to business volume and our ability to participate in BPCI program gain share enabled us to offset the majority of the organic business contraction. This is also the first full quarter we’ve realized the benefits of the lease restructuring transactions we discussed last quarter. As a result of these transactions and the net impact of divestitures in excessive acquisitions our cash rent expense was lower in 1Q ‘17 than 1Q ‘16 by $2.1 million or 1.7%. This is the first reported year-over-year drop in our cash rent since we began reporting as a public company two years ago. Moving now to operating trends and metrics with respect to occupancy. Operating occupancy in 1Q, 17 of 85.6% declined 50 basis points from the prior year quarter but grew 50 basis points from the sequential quarter. Skilled census mix in 1Q, 17 of 20.6% declined 60 basis points from the prior year quarter but grew 130 basis points from the sequential quarter. This sequential quarter growth in skilled mix is more in line with the seasonal patterns we expect in the first quarter. We were encouraged to see same store skilled patient admissions in 1Q, 17 increased 1% as compared to 1Q, 16. Despite strong admission volume, overall same store skilled patient days declined 5% in 1Q, 17 as compared to 1Q, 16 due to greater penetration of short state Medicare advantage patients who inherently have shorter length of stay than Medicare patients and a decline of 1.7 days in the average length of stay of short stay Medicare patients. The average length of stay of Medicare advantage patients grew 0.4 days or 2% in 1Q, 17 as compared to 1Q, 16. So in our inpatient segment our year-over-year skilled mixed decline for the first time in recent memory was not driven by admission volumes, but with exclusively filled by lower length of stay among Medicare patients and greater penetration of Medicare advantage. As a result of our participation and accountable care and bundled payment programs we are in a unique position to recapture in future periods some of the current year lost revenue caused by our success managing down episodic costs principally through managing down length of stay where clinically appropriate. We continue to believe these actions will increasingly yield opportunities to gain market share short stay skilled patients as acute care providers increasingly narrow their discharge panels to fewer and fewer post-acute providers. On the topic of all-in nursing labor costs versus reimbursement rate growth, we saw favorable movement in nursing wage inflation this quarter. In 1Q, 17 wage inflation for non-overtime hours worked by our employee nursing staff were 1.2% over 1Q, 16. We continue to experience growth in our use of overtime hours and agency staff to supplement staffing constrains in certain markets. Including overtime hours in agency costs our all-in nursing wage cost per worked hour grew 2.3% in 1Q, 17 over 1Q, 16. These labor inflation statistics showed a 70 basis points improvement from the year-over-year inflation experienced in 4Q, 16. Markets having the greatest impact on nursing wage inflation relative to reimbursement rates are primarily located in the mid West and western states specifically California, Texas, New Mexico, and two states we exited in April Kansas and Missouri. The previously mentioned rate of all-in nursing labor inflation of 2.3% exceeds the approximate 1.4% weighted average reimbursement rate growth we received from our Medicaid payers outside of Texas over the same period. In summary we are encouraged this quarter by some moderation in labor inflation, we will continue to monitor these trends very closely. Now moving to the balance sheet and cash flow, the business generated very strong operating cash flow of $44.6 million in 1Q, 17 fueled by solid trade receivable collections and good working capital management. As a result of your revolving credit facility balance was at lowest reported level in a year and our liquidity position of $124 million continues to strengthen. We expect additional growth in liquidity in the coming quarters as a result of the recent asset sales, the strategic dinning and nutrition partnership and continued disciplined management of working capital and capital spending. Now moving to capital structure. Last week we entered into a series of amendments to our largest lease and loan agreements. These amendments adjust financial covenants to levels that better align with the current post-acute operating environment and our collective outlook over the next few years. The relationships we have with all of your credit partners remains very strong constructive and collaborative. And finally our 2017 earnings guidance, we are reaffirming our previously published full year 2017 earnings guidance range for all measures with the exception of two; revenue and net loss attributed to Genesis. So the first is revenue. We are bringing down the top end of your revenue guidance range from $5.6 billion to $5.5 billion to account for the fact that previous high end of our guidance range assumed that some of our planned divestitures could slip later into the year. Through April we have completed 25 of the 37 planned divestitures so we now have better visibility on the impacted divestitures to the full year revenue. This change in revenue guidance has no impact on our view of adjusted EBITDAR, EBITDA and adjusted EBITDA and we are reaffirming our previous guidance for these measures. Net loss attributed to Genesis has been adjusted at the low and the high end of the range to include estimates of certain non-recurring, non-cash charges and greater precision in the estimated income tax provision. With that Crystal, please open the line for questions.

[Operator:]

Thank you. [Operator Instruction] Your first question comes from the line of Chad Vanacore with Stifel.

[Unidentified Analyst:]

Hey good morning. It's [indiscernible] for Chad. First question just on the new dinning contracts, is there a potential for more outsourcing opportunities on the platform and really how should we think about cost savings there?

[George Hager:]

Chad, I don't think there are additional opportunities on outsourcing. We have already our housekeeping and laundry well more than a year ago and this is the last opportunity. Its new partnership though is sequencing in over time so it's not fully deployed as we speak this morning. But we think there are opportunities to continue to improve that line of your business. And the cost savings from the program as well as the liquidity enhancement from the partnership have all been reflected in our views of guidance.

[Unidentified Analyst:]

All right, great. And then just switching gears to the occupancy gains in the quarter, do you guys think it's sustainable, was some of it just due to the strong seasonality in Q1 any read through and how Q2 is shaping up and some of this also benefited by disposing of some of those non-strategic assets?

[George Hager:]

I am going to take, Tom you might take the ones I missed but it's I want to clarify one point the growth in admission volume is first quarter of 17 versus first quarter of 16. So there is no question that from the seasonality perspective at least in our experience on sequential quarter first quarter versus prior year fourth quarter there should be growth. Historically, your first quarter is your strongest admission volume growth quarter of the calendar year. So to answer your question of, is it seasonality we are comparing two similar periods current year versus prior year so now to answer your question is not, this is not a seasonally impacted growth. I think is a very important point to highlight in the quarter in 15, we have been experiencing quarter over prior year quarter decline in the admission volumes. So look one quarter does not make a trend, but what we have talked about for the last year or so is two things that we believe will impact census overtime in the near to medium term. One, our demographics, I think there is still a question as to when demographic truly and meaningfully impact admission volumes and census. And two, we believe that ultimately, the at risk parties in the healthcare continuum whether they be ACOs, managed care payers, acute care providers or physician groups will continue to concentrate their referral patterns to those providers that deliver the outcomes that they are looking for which have principally reduced hospital readmissions and lower length of stay all of which metrics we are performing very well on. So, I don't think we can say that the first quarter is necessarily a trend but the fact that for the first quarter in two years we are seeing growth that gives us some optimism that we are seeing, we are somewhere near the trough point and hopefully will begin to see both demographics and our strategies or clinical specialization and a focus on outcome impact referral patterns into both post-acute care and general but more specifically into our networks.

[Unidentified Analyst:]

Okay, great, sorry.

[Tom DiVittorio:]

I will just cover the last part of your question which was around the divestitures. So just to be clear, the 18 facilities and I’ll focus on those. We divested of those in April so those facilities are fully reflected in both periods that we are reporting here 1Q, 16 and 1Q, 17 they will come offline in terms of our KPIs that we report starting next quarter. Clearly those facilities had some drag on operating metric they had some drag obviously on operating performances as well since they were generating negative EBITDA so we will be sure in our next quarter as we have done in the past on these calls to make it clear what our same-store year-over-year occupancy looks like so that we are focused on the core business. But just to be clear those facilities are not in the – are in fact still reflected in the 1Q results and in the KPIs.

[Unidentified Analyst:]

Okay and then just to clarify on divestitures, I think last quarter guidance included divestitures of 31 facilities it looks like you guys already divested 25 and I think you have an additional 12 that you are going to divest in 2017 so is there a new incremental list so I’ve that correct?

[George Hager:]

Yes, we have added a few to that list since we last reported that's correct.

[Unidentified Analyst:]

Okay. And then last question from me, just on the BPCI and model-3 centers, I think you guys said there was 3.5 million in estimated gain share which is roughly 15 million on annual basis. That seems to be like a 50% increase I think last quarter, conservative investment was 20% so should we continually see this improve?

[George Hager:]

Yes, our expectations are that we have learned a lot, there is no question opportunities to continue to manage episodic cost down to more efficient methods to provide the care that our patients need in our centers, so yes we expect this program to continue to improve obviously the number of facilities is capped to 32. Also highlights the statistics when you look at our BPCI centers just to give you some perspective, they represent about 9% of our total Medicare daily census. Yet when you look at that reduction in our Medicare census as Tom identified those centers, sorry two centers represent about 17% our decline in Medicare centers and obviously all of that is coming back through the gain share process so what Tom and I have been talking about for several quarters now is that some of our census declines are we've called self-inflicted for things like BPCI where you actually gain sharing on a retrospective basis but also in addition those are the types of cost savings programs that strategic partners like Managed Care Payers and ACO sponsors and Model-2 sponsors are looking for their post acute partners, so it is a program that we expect continue to improve over time.

[Unidentified Analyst:]

All right, nice quarter thanks for the answers.

[Operator:]

Your next question comes from the line of Joanna Gajuk with Bank of America.

[Unidentified Analyst:]

Okay, great. Actually this is Kevin Fischbeck, pinch hitting for Joanna this morning. So I guess, I want to go back, the new food service agreement that you have mentioned that in your guidance was that always contemplate in your original guidance or was that something new that you had this quarter?

[Tom DiVittorio:]

It wasn't included in our original guidance, Kevin specifically but as you can imagine there's a number of things that we're always looking at to try to improve margins in the business. So it is accretive to our earnings, we've got a fairly wide range on our guidance, so although it's an important partnership for us and it is accretive from an earnings point of view not enough for us to move our guidance meaningfully.

[Unidentified Analyst:]

And when you mentioned liquidity, do you mean this help your working capital, how this helps liquidity or is there something else.

[Tom DiVittorio:]

It's definitely accretive to working capital.

[Unidentified Analyst:]

Okay and just wanted to go back to your comments around the change in the perfect payment system. My reading was that CMS indicated they didn't necessarily think that the changes had to be budget neutral and that was one thing that they were looking for comments on, just want to get your view on the confidence that this change is in fact going to be budget neutral.

[George Hager:]

Kevin [indiscernible] that I think we can all research what authority CMS has, our understanding that CMS does not have authority to implement a new way or pertinent system that is not anything other than budget neutral, so I don't think they have, independent, an unauthorized ability to cut funding to the industry, that’s our knowledge.

[Unidentified Analyst:]

Yes and I generally agree with that and then as far as that goes I mean we think about it the industry has kind of been moving towards rehabilitation over time and certainly as the incentive structure changed over time you guys put in new initiatives and new capabilities to treat the higher rehab patients. If it moves in the other direction, would you expect the similar opportunity? Is there a certain patient population that you look at right now that say well we don't really go after this population because the payment for non-therapy ancillary services just not enough, would you, is there a new market there new opportunity there how should we think about that?

[George Hager:]

Kevin, we don't really know enough is the problem what is out there, we're all working aggressively as we look to provide comment but there might be some limit about that but we're also not seeing in this current proposed new role a large shipped way from reimbursement for therapy services and it does look like there might be some opportunities here to provide the required therapy at a lower cost point in that they increase the percentage of therapy that can be provided by under concurrent and group programs almost double, I believe they have doubled the amount of therapy that can be provided under group and concurrent methods from 25% to 50%. So I think there is acknowledgment here that there could be opportunity here to provide the required care at lower cost point and achieve at least equal if not better outcomes.

[Unidentified Analyst:]

Okay and how would that impact your therapy business outside of just the nursing home side?

[George Hager:]

We believe it would be positive I mean if you can provide the care and the reimbursement is not negatively impacted for therapy it should improve the performance of our therapy company.

[Unidentified Analyst:]

Okay and just my last question.

[George Hager:]

Kevin still there is a lot to be, this is very early on but what we saw we don’t see anything terribly negative here or there. There might be some opportunities to really provide service in a more efficient means based on our very early reading here.

[Unidentified Analyst:]

Okay thanks and then to the last question anyway Tom to quantify the impact of flu on the quarter and how that might impact its goal mix?

[Tom DiVittorio:]

Kevin, this is Tom. That’s really difficult to do I mean if we go back and sort of look at how we thought about the first quarter last year I think we cited both flu and weather as a contributing factor to why our skilled mix in 1Q ’16 was so much lower than it was in 1Q ’15 and the interesting dynamic there was that 1Q ’15 we had a very harsh winter and we had sort of record flu and flu-like cases that were reported and then in 1Q ’16 we had exactly the opposite we had 1Q. We had extraordinary low flu and an incredibly mild winter. So that year-over-year swing that was what we focused on this year flu is certainly up, but I would call it from our perspective still a relatively low year in terms of the number of flu like admissions that we were taking if you look at it over say a five year period, certainly higher than last year all time low. And from a weather point of view, still a relatively mild winter for us. We had a couple of storms up in the New England States that had some impact and it was a little colder this winter than last but I would say it had a very, I would say immaterial impact on our year-over-year analysis first quarter ’17 versus first quarter ’16.

[Unidentified Analyst:]

Okay, great that's helpful, thanks.

[Operator:]

Your next question comes from the line of AJ Rice with UBS.

[AJ Rice:]

Thanks. Hi everybody. First, maybe go back to BPCI, Maybe I should know this but so you have got booking 3.5 million this quarter, what period of time does that relate to? I guess I'm a little unclear on that.

[George Hager:]

At this point, that has been what our game is for this quarter. Now we’re technically still on arrears because have never caught up completely for the six months in arrears usages especially as the gain shares that print it up in each quarterly reconciliation but 3.5 million represents our view of, our estimate of the gain this quarter from the reduced utilization at our BPCI centers. One [quarter] of activity that we expect to be recurring if not improving as we go forward.

[AJ Rice:]

Okay, so it's not true of all your balance it's actually evaluate this quarter and that's what you thinking you are in this quarter?

[George Hager:]

Yes.

[AJ Rice:]

Okay, it's good clarification, I didn't know that actually. You said that this is part of and I quantify a little bit what some of the decline which you have seen I guess revenues and volume to some degree is because obviously you're trying to add here to the cost reductions under BPCI when you look at the sort of impact of the decline in volume that hearing to this and generating that 3.5 million is driving, do you think you come out ahead at the end of the day the offset volume versus the incentive payments you're getting?

[George Hager:]

A great question AJ and the answer to that question is absolutely yes. The reality is that if you think about it logically what is coming out of your gain share and first of all we are also gain share and our ability to improve hospital readmissions [indiscernible] our folks on readmissions in our BPCI centers they've improved in that statistics significantly more than our facilities in total to gain sharing one and every hospital readmission that you can prevent. In addition, what else is coming [out] of your episodic cost is the total paradigm price for Medicare admission. So your Medicare days are coming down but what is also coming down is the cost since that day of share is not being provided to the cost of therapy, the cost of medications, the cost of medical supplies and to some degree some element of your routine costs does not provided for that safe care that no longer is being reimbursed for it. What you lose is the margin will comes out of your gain share as the total revenue. So you can imagine that you come out ahead and then you add to that your ability to manage down readmission so there is nothing in terms of program but there is a significant positive from this program.

[AJ Rice:]

Okay. I think last quarter there was a commentary about a $50 million cost restructuring program, is there an update on where you guys stand on that and maybe some of this like the dining may have been part of that but any update on that?

[Tom DiVittorio:]

Hi AJ, it’s Tom. The dining was not a part of the $50 million and all of the actions that needed to be taken to realize that $50 million have already occurred. So execution risk at this point is really zero and a fair number of those activities really didn't start to take hold until the middle of the first quarter. So we were going to sort of put a number on how much of the 50 we’ve realized in the first quarter, but probably be somewhere around $6 million.

[AJ Rice:]

Okay and as the rest kicking in the second quarter or is it sort of gradually build up over the course of the year?

[Tom DiVittorio:]

I would say that is probably more, the remaining $44 million you would expect will be ratably recognized over the next three quarters with maybe a little bit of ramp but it's a fairly flat slope.

[AJ Rice:]

Okay and then last question on the labor, obviously it's encouraging and several of the other providers wanted to little bit easing on labor expense, we look generally the economy doesn't seem like there's all of a sudden either perceived weakness or sluggishness particularly on the jobs front, but have you been able to sort of assess what might be going on and why you might be seeing a little bit of easing on labor pressure?

[George Hager:]

AJ, it just not enough, movement either way to really make an assessment there, it’s obviously an area especially in light of somewhat constrained Medicaid growth that we're looking at very aggressively here, but some of that could be a function of the fact that there's no question overall utilization patterns of virtually every element of the healthcare delivery system are contracting. So, it does make some skill level and licensed professional available to the market, but the movement was so small and it's really hard to reach a hard conclusion here.

[AJ Rice:]

Okay, thanks a lot.

[Operator:]

Your next question comes from Dana Hambly with Stephens.

[Unidentified Analyst:]

Hey good morning. This is Jacob Johnson on for Dana. First question on the amended credit agreement any changes to your cost of debt as a result of that or anything else to give out there?

[George Hager:]

No. On the loans just some very, I would call them nominal market rate consent fees, nothing material.

[Unidentified Analyst:]

All right. And then, you had a purchase option on call it 400 million of real estate of Welltower, do you have any updates on your plan for those facilities?

[George Hager:]

Yes, we are still in conversation as you might have imagined with Welltower, on the total portfolio I would say that the constraints on us truly be able to buy the real estate back is access to equity capital financing. And so a true buyback I think is not likely in the near term, but there are assets in the Welltower portfolio I think that could be restructured similar to the transactions done with [indiscernible] and Lindsay Goldberg. The prior two transactions that we announced that quick phase of the accretive for both companies, so those conversations are active ongoing, I would say nothing expected to be consummated in the very near term. But we’ll continue to look at opportunities to optimize the portfolio.

[Unidentified Analyst:]

And then last question, did I hear correctly that same-store Medicare advantage length to stay was up in the first quarter?

[George Hager:]

That's right. Up little less than half a day about 10%.

[Unidentified Analyst:]

Does that suggest you that some pressurized trough for those patients?

[George Hager:]

Well, as we look back at Medicare advantage length of stay over the last couple of years, it bounces around a little bit somewhere between, anywhere between 18.5 and 19.5 days length of stay and it's really been fairly steady. So I wouldn't read too much into that increase. We may see a drop 2% next quarter and then up 2% in the next quarter so it just seems to stay within that range.

[Unidentified Analyst:]

Great that's it from me. Thanks for taking the questions.

[George Hager:]

You are welcome.

[Operator:]

Your next question comes from line of Frank Morgan with RBC Capital Market.

[Frank Morgan:]

Good morning. I wanted to go back to, I hopped down a little bit late but on AJ's question about those BPCI estimates, I think you said 3.5 million in the quarter. Would you remind us what that was say maybe in the fourth quarter or from your previous quarters?

[George Hager:]

Well, Frank we recognized about 10 million in fiscal 2016.

[Frank Morgan:]

Okay. So it's for your…

[George Hager:]

And then it trends it up, so we are running at a rate of that would be about 15 million for 17 quarter run rate.

[Frank Morgan:]

Okay and you think first quarter, is it a good run rate or you think that could go up?

[George Hager:]

We think that can go up.

[Frank Morgan:]

Okay. Maybe I didn't ask the hard enough question. How much do you think it might go up over the course of the year?

[George Hager:]

Frank, it's really hard to judge I mean, look we are seeing gain share data, we’re somewhat in arrears here because the latest settlements that data that we have Tom, is for the September, so we are starting to see data for September quarter because we are six months in arrears. But Frank, we continue, when we look at the data, our length of stay in our BPCI centers is significantly below the length of stay in our other centers, readmission rates improve significantly more in our BPCI centers. So there is an intense focus here and so it's hard to quantify at this point but based on the trend we are seeing, we do expect that number to move.

[Frank Morgan:]

And maybe you said this before I got on but on the Medicare Shared Savings Programs, did you mention what kind of accruals you are recognizing there?

[George Hager:]

Yes, we are not recognizing any accruals Frank. What we really, first for BPCI, what BPCI started obviously it's with quarterly reconciliation for BPCI six months in arrears what we, almost looked at it early on, on a cash basis we had to see the reconciliation and get the cash. [Indiscernible] some history that helps us some in accrual rates but since we have not been into any reconciliation on Medicare Shared Savings, we have not recognized any revenue. We have always taken all of the hits as we have managed utilization and cost throughout all 16, but we probably won't see that reconciliation for 16 which is an annual reconciliation for MSSP until sometime probably mid even later July.

[Frank Morgan:]

And I don't think you put any of that in your guidance is that fair?

[George Hager:]

Yes Frank, we have $10 million reflected in our guidance for our estimate of the MSSP gain share reconciliation.

[Frank Morgan:]

Okay. Thank you.

[Operator:]

At this time I’m showing there are no further questions.

[George Hager:]

All right everyone, thank you. We appreciate your support to the company and Tom and I and Lori will be available for any other questions throughout the day. Thank you again.

[Operator:]

This does conclude today’s conference call, you may now disconnect.