LHC Group, Inc.
Q1 2021 Earnings Call Transcript

Published: 10 May 2021

[Operator:]

Good morning and welcome to the LHC Group First Quarter 2021 Earnings Conference Call. And please note this event is being recorded. I would now like to turn the conference over to Eric Elliott, Senior Vice President of Finance. Please go ahead.

[Eric Elliott:]

Thank you, Robert and good morning everyone. I would like to welcome you to LHC Group’s earnings conference call for the first quarter ended March 31, 2021. We issued our earnings release last night and I would like to also highlight that we have posted some supplemental information on the Quarterly Results section of our Investor Relations page. The supplemental deck as well as a copy of the earnings release, the 10-Q, and ultimately, a transcript of this call, once available, can be found on this page as well. Our supplemental deck includes our full year 2021 guidance assumptions, the impact of COVID-19, detail on the breakdown among sector performance and a significant amount of detail on the monthly trends. All of our non-GAAP reconciliations and breakdown of adjustments are included as well. We will reference this information in our remarks today.

[Keith Myers:]

Thank you, Eric and thank you everyone. As always, I want to begin by thanking our more than 30,000 LHC Group colleagues who daily live out our mission and vision of caring for people in need in communities we are privileged to serve throughout our country. I also want to acknowledge our recently published environmental, social and governance report that is available on our website. Since our founding nearly three decades ago, our goal has always been to be an invaluable asset and a responsible, contributing citizen of each community we are privileged to be part of and serve, well beyond being a valued community healthcare provider. This new ESG report brings to light the many activities and actions our team members throughout the country have undertaken to provide an even broader positive impact in thousands of communities we are privileged to serve throughout our country today. Now, I would like to begin by providing some perspective on how our policy efforts and current legislative and regulatory activities are providing tailwinds or shaping our business and that of the broader in-home healthcare services industry in a very positive way. We view 2021 as the beginning of a new extended period of perhaps unprecedented opportunity for LHC Group, in part, due to the heightened awareness in the wake of COVID of our full range of capabilities as a high-performing in-home healthcare services provider organization with a national footprint and legislative and regulatory tailwinds, including innovative waivers from CMS, flexibilities for remote certification of home care, telehealth, continued legislative relief from the 2% sequestration cut throughout the remainder of 2021 and broadly supported policies that aim to significantly increase access to in-home healthcare services. As I mentioned on our last earnings call, we are encouraged by the current administration’s plans to increase funding by up to $400 billion over the next 10 years to expand healthcare services delivered in the home. In addition, at least one legislative draft circulating on The Hill by Senator Casey, Chair of the Aging Committee and Senator Hassan and others exceeds this goal by creating a new entitlement under the Social Security Act for home and community-based services. Among other things, this proposal increases the Federal Medicaid Assistance Program, or FMAP funding, to 100% for home and community-based services and for the first time proposes to nationalize a presumption for in-home healthcare services.

[Josh Proffitt:]

Thank you, Keith and good morning everyone. Thank you for your time this morning. I am very excited to provide more details on our strong start to the year and why we are so bullish on our current operational and growth trajectories. Following up on Keith’s comments, continued inorganic and organic growth as well as increasing tailwinds from a legislative and regulatory perspective are perfect starting points from our prepared comments today. Last quarter, we set the table for the strategies we have created to deliver differentiated growth in 2021 and framed up our near and long-term growth potential. Today I want to focus on how well we are executing on this growth potential, our confidence in the trajectory over the next several quarters, and the strength of the sequential improvement. Ensuring we generate quality growth has been a top priority, and as you’ll see on Slide 10 of our supplemental deck, we are delivering with joint ventures, continued and sequential growth in episodic admissions, continued momentum with bringing on new referral sources, and the continued build-out of our co-location strategies. As highlighted on Slides 11 and 12, we’re pulling multiple organic and inorganic growth levers to hit our objectives, in particular, the levers on earnings share from competition, executing on the co-locations, driving margin growth from JVs and recent acquisitions and capitalizing on the upside opportunities afforded in connecting with the movement to more value-based reimbursement models, which I will touch on more in a few moments. We received positive feedback since last quarter on the data we provided on these slides to help model out the growth opportunities this year and going forward. With the exception of the M&A pipeline increasing 20% from the fourth quarter, those assumptions remain unchanged from Q4.

[Dale Mackel:]

Thank you, Josh and good morning everyone. We are pleased to report first quarter results that were ahead of our expectations. Specifically, on a year-over-year comparable basis, net service revenue increased 2.3% to $524.8 million, adjusted EBITDA increased 61.3% to $61.5 million and adjusted net income increased 86.7% to $43.6 million or $1.39 per diluted share. Our first quarter performance, coupled with our exit velocity, places us right where we need to be to deliver on our full year projections. Our revenue was above the midpoint while adjusted earnings and adjusted EBITDA exceeded the top end of the range. These are all the more impressive when you consider the significant headwinds we faced from the post-holiday COVID surge, the percentage of our staff on quarantine, the impact of the ice and snow storms and the related closure of 218 of our agencies for multiple days during February. With the detail we have provided in our earnings release and supplemental deck, I will spend most of my time on the key metrics and trends supporting our guidance and growth initiatives, and then turn to our raised guidance along with our strong capital and liquidity position. I would first like to call attention to Pages 14 and 24 in the supplemental deck where we’ve broken out the key revenue factors for our home health, hospice and home and community-based service segments. For home health, the sequential improvement in our revenue per Medicare episode continued through the first quarter with March exceeding pre-pandemic levels and April trending ahead of March. While the percentage of institutional admits was down this quarter due to the resurgence of COVID, which caused softer hospital volumes, we’ve seen this percentage start to climb back in April and believe this momentum will continue due to elective procedures starting to open up again. Our LUPA percentage on PDGM episodes continues to hold in line with our expectations of 8% to 9% and our case mix, while not yet back to pre-pandemic levels, is improving. Josh mentioned it a moment ago, but I want to dig in a little more into the hospice performance for this quarter. Similar to other hospice providers, we saw a decline in our length of stay during the quarter from 79.6 days in Q4 to 78.1 days in the current quarter. We attribute this decline to patients being discharged from institutional settings much larger than in the past, and also to the fact that many patients are not seeing their primary care physicians as regularly as they used to, and consequently, are being admitted to hospice much later in their disease states. Additionally, admissions from senior living facilities and SNFs continued to lag pre-COVID levels. For hospice, EBITDA margin of 10.5%, while up 60 basis points year-over-year, is down from 13.2% sequentially in Q4, primarily due to 3 factors

[Operator:]

The first question comes from A.J. Rice of Credit Suisse. Please go ahead.

[A.J. Rice:]

Thanks. Hi, everybody. First, I appreciate the updated information on the deal pipeline. I just wondered if you would comment on what you are seeing. I know a lot of those deals sound like they are exclusive to you, but in terms of pricing dynamics, competitive landscape, we are hearing about others pursue an activity that may not be new from your perspective, but I just wondered what your latest thinking is on the competitive landscape for deals?

[Keith Myers:]

Yes. Thanks for the question, A.J. This is Keith. I will start by saying from my perspective, on hospice, let’s start with that. So hospice is competitive, but I do see multiple variation depending on market and then just concentration in certain markets and volumes. But for us, we look at it a little bit different. We are building out a continuum of care. So, when we look at a hospice knowing that multiples are going to be high, we are focused in markets where we have a significant amount of home health volume, because we know that we have volume to bring to the table from our home health operations and from hospital partners. And so, everything – obviously, all the acquisitions we look at, we model out, but we will also build that into our models as we look at it. So, multiples are high and in some markets we have – we can model out the combination and make it work nicely for us. Then others, we just have to walk away from. Josh, you want to…

[Josh Proffitt:]

Yes. No. Keith, I think you very well said. I mean, of the ones, A.J., that we are currently working, many of them fit the exact mold that Keith just described. So, I would just reinforce our history of discipline, due diligence rigor, all the things that we are known for in the deals that we do close and that we execute upon. And even with somewhat higher multiples on some of the transactions we are still going to be ensuring that those deals have growth potential and upside and we are not just acquiring a static business or one that doesn’t have a lot of upside and growth in it. So, I feel really good, A.J. about what we have got going on in our pipeline.

[A.J. Rice:]

Okay. Then maybe for the follow-up question, it seems like referrals – and this seems like it’s for both businesses home health and hospice or from SNFs, senior housing that’s the one area that is still sort of depressed relative to pre-COVID levels. I guess, it’s probably two dynamics there, one being sort of a census in those facilities at this point is depressed and hasn’t fully come back and may not for a while and then there is also just getting access to the facilities? I wonder which of those – can you parse out? Is it really just the census has got to come back or is there some element of getting access to the patients as it reopens, you will see some pickup? And then can you comment on, I would think in home health at least you might see the referrals coming from other sources, all these new referral sources you are getting, so maybe that volume that would have come to you from those sources is coming elsewhere. But is it more of a home health issue or a hospice issue you would say, would you are seeing with those senior housing properties?

[Keith Myers:]

Yes. So Josh and I can tag-team that again both together. Let me just start with home health. With home health, we are looking at a lot of data from hospital partners and we feel that we are getting a lot of patients that were previously gone to SNF that are just coming directly to home health. We can see that we are dealing with a higher acuity patient population, that are being discharged from hospitals and we assume that these are the patients that were going to SNF now going straight to home. Hospice is a little more difficult. I mean we are – I know we are seeing some of that in hospice as well, but I don’t know if we have enough data to feel as certain about that as we do in home health. Josh, what do you think?

[Josh Proffitt:]

Yes. So I would say, A.J., it’s some of both, census and the facilities. It’s a diversion around the facilities, which Keith just mentioned and access. On the access issue, I would tell you talk with our growth leaders quite regularly just to see how that’s going. And I am encouraged that, that seems to be getting better and better almost by the week as we have more adoption of the vaccine throughout not only our workforce, but in the markets where we have SNF relationships. So, I am seeing the access get better week over week. I will give you a few data points just to really kind of drive home the point you are making. For home health, we are down about 350 basis points of the percentage of our referrals from SNFs. So, at Q1 last year, we are about 11.5% and we are about 8.5% right now. On the reverse, we are up 300 basis points on physician referrals, so a lot of what we have been talking about on the new referrals coming from physicians. So, I think the diversion around some of the congregate settings is not only, as Keith mentioned, coming directly out of hospital, but also coming from the community, from some of those new physicians we have been able to develop. And then on hospice, we are down about 300 basis points there as well when you look at SNFs, ALFs and ILFs, down from about 11% Q1 last year to right around 8% this year. So, the good news with all that, A.J., is if as the trends improve, as the census levels increase, as the access improves, then if we can continue the stickiness of those new physician arrangements, our hospital electives are bouncing back and then you throw in an increased trajectory from SNFs, ALFs and ILFs that gives you a lot of confidence in the growth in the last three quarters of the year.

[A.J. Rice:]

Okay, great. Thanks a lot.

[Josh Proffitt:]

Thanks.

[Operator:]

The next question comes from Scott Fidel of Stephens. Please go ahead.

[Scott Fidel:]

Hi, thanks and good morning everyone. First question, just wanted to go back in the fourth quarter, you had provided us with a really helpful bridge from 4Q to 2Q 2021 in terms of drivers of revenue and EBITDA. Just wanted to just get your sense on – you had called out a target to get to $550 million in revenue by 2Q, you had about $9 million worth of headwinds from Medicare sequestration and the PHC that now have been extended. So, just interested in that target you laid out for the $550 million in revenue? And then more specifically, the three segment components that you had sort of called out for the home health hospice and HCBS in terms of the growth that you are anticipating, how you are feeling about each of those buckets at this point relative to when you had initially provided that in the fourth quarter?

[Dale Mackel:]

Yes, thanks Scott for the question. This is Dale. We feel very good about the bridge that we put together from Q1 to Q2 we are still right on that trajectory. The only difference is that would update to it would be the change in sequestration and PAG extension, right. So, when you look at that – you look at the bridge we provide and you look at those changes, and you can see now we’re looking at on an adjusted basis with that. So I think everything sets up really well for that. I would say in terms of the 3 segments, feel really good about home health. The exit velocity out of Q1 was extremely strong. And I’d say we’re probably looking at some overperformance on them going into this bridge. A little bit of underperformance in hospice because of the length of stay challenge, right. That’s been something that’s kind of come up with everyone. We are not as directly impacted by it as we’re not as exposed to the senior living facilities from an admissions basis. But as Josh said, we’re from 11% admissions down to 8%, and that affects our length of stay. So I think we still feel good about hospice. We feel like the margins are going to be in the 11% to 12% range for that, but that’s probably a little softer than what we had projected. And then I’d say personal care business, again, I’d say a little change. There maybe – we expected that business to have the most difficult climb back from the pandemic, because of the labor supply and things like that. So I think we had tempered our expectations in Q2 quite well for that. So, I would say we are pretty much in line with that, but when you put that altogether, we feel very solid about the Q2 bridge.

[Josh Proffitt:]

Yes, Dale. And Scott, this is Josh. Maybe the only other two kind of data points I would give you tying back to that specifically on home health since that’s the lion’s share of the bridge. We have signaled we needed a home health census to be 87,500. And as I mentioned in my prepared remarks, we are already north of that and we have been between 87,500 and knocking on the door of 88,000 now for the better part of the last 2 weeks which gives a lot of confidence into that. And then if you look at our admissions per day run-rate, so the sustainability of that census, our admissions per day are higher than they have been ever. So, the last Q1 of last year pre-pandemic, we were just under 1,200 admits per day on home health and now we have had 2 consecutive months of north of 1,200 admits per day in home health. So, you have got to really like where we are at census and the admission throughput that we are having.

[Scott Fidel:]

Got it. And then just as my follow-up question, I guess it would be more of a strategic question around positioning around some of the policy dynamics. And Keith, I know you’ve called out the proposed enhanced $400 billion in HCBS funding and Medicaid that Biden’s proposing and some of the other things. And I am interested for LHCG, how you would think about the best way to position for this? If that spending ultimately is passed or something even close to that, would the strategy be to ramp up more of your direct PC exposure capability through Medicaid-funded HCBS or are you ultimately looking at trying to drive more of on the policy side towards ensuring that Medicare providers are eligible for a lot of that funding as well? Just trying to get sort of how you are thinking about I guess those two different sort of strategy elements relative to this enhanced proposed funding?

[Keith Myers:]

Yes, that’s a really good question. So right now, we are focused on trying to see the – we’re trying to bring the two programs together, Medicare and Medicaid. We know that combination of how that works well, and it’s been proven in other state models that we’re very familiar with. So it’s easy for us to plan in that direction. But with the $400 billion that’s proposed in spending, it’s difficult now because there’s a number that’s out there, but there’s not a lot of detail around how that’s going to be structured. And it could mean a lot of things; we don’t know how much union activity is going to be involved in that. So I think we’re taking a conservative approach in everything, so we’re staying very close to it from a policy perspective. And we’re just going to evaluate it as there’s more color around it. I’m not opposed to or not ruling out expansion into – more expansion into personal care services. We think that’s a vital service. It’s been the most difficult one for us to manage because of how it’s delivered, if there’s a different program in every state, different rates or to have stable staffing for it, all of those challenges and we are not big risk takers. I think you all know that. So, I would say that we are keeping a close eye on it and if there is an opportunity there and the risk profile is good enough for us, we will move in that direction. But for right now, we are spending the majority of our time trying to work towards the coordination of Medicare and Medicaid services together for patients through this choose home legislation or anything that’s structured remotely similar to that.

[Scott Fidel:]

Okay, got it. Thanks.

[Operator:]

The next question comes from Mr. Justin Bowers of Deutsche Bank. Hold on one moment, while I move you into the queue. You may go ahead. Thank you.

[Justin Bowers:]

Thank you for the esteem introduction operator. I just wanted to – I want to kind of just follow-up on A.J.’s and Scott’s questions and ask it a little differently, but if we take your 2Q bridge and add-back the sequestration and the PHE benefit and annualize that, just run that out for the next three quarters, we get at about $234 million of EBITDA. You take your 1Q print of $61.5 million it takes us to like $295 million, $296 million right in the middle of the current guide and it sounds like you are tracking now like slightly above the pace for 2Q or at least feeling good about that. Are we thinking about that the right way and is it fair to say is kind of your April census kind of holds for the rest of the year that you are right at the midpoint of the guide with maybe a little upside if things improve? Is that – am I oversimplifying things there or…

[Dale Mackel:]

Yes, Justin. This is Dale. I don’t think you are oversimplifying. I think this is how I would sort of look at the guidance at this point in time, right? So midpoint, the midpoint, we’ve raised revenue $10 million and we’ve raised EBITDA to $21 million, right? So let’s talk about the revenue context. There is three things we’re keeping our eye on related residually from the pandemic and one is pace of elective procedure recovery. So if you think about our guidance from the beginning of the year, right, we had assumptions around elective procedure recoveries. We had hospice length of stay assumptions, and we had personal care billable hour assumptions in there. I think we are all still seeing some slowness around the pace of elective procedure recovery. Obviously, we all understand the dynamic around the hospital length of stay right now. And that’s the one thing that we’re keeping ourselves a bit of caution around as we look forward. We expect it to come back, but timing of that is a little variable. And then personal care billable hours, same thing, right, slower to recover. So when you look at what we originally guided from a revenue perspective, we’re pulling back about $10 million to $12 million of revenue around those three data points and letting Q2 play itself out, see how those indicators start to play out for the next 2 to 3 months before we our view of that. We think it’s an appropriate stance to take. But when you look at the margin, I think you’re right on in the margin, right? Our margin print was really strong in Q1, and that was evidenced by our Q1 results, and that’s showing up firmly as flowing through in our guidance, right? So we’ve got the full margin flow through in there despite holding back about $10 million to $12 million of revenue.

[Josh Proffitt:]

And Justin, this is Josh and that was a pretty impressive introduction. So maybe I need to talk to operator and see if they can introduce us that way. That was pretty good. But what I’ll tell you – what I’ll add is I really want to put a fine point on what I said in my prepared remarks around the fact that during what is traditionally a seasonal decline, flatness to decline over the months of – toward the end of March and into April, and then as you get into May, June, then you’re in kind of that late spring, summer, and I went back and looked every year from – I stopped looking at 2014 just because it proved itself every year, you’ve seen that kind of trend. What we are seeing now, we’ve had a 2% growth in our census when it historically wouldn’t have done that. So I think your point is very well made that if that were to continue – and now that’s an if because we’re living in a new normal. But if that were to continue and census continues to increase throughout those months, then I do think you do have some potential for upside there. I don’t want to bake that in just yet, but that’s another reason I’m pretty bullish.

[Justin Bowers:]

Got it. And then maybe just I’ll follow-up on home health and some of the nuances in the volume there. Can you – one, you’re seeing like in April, it’s pretty obvious that the acuity is increasing there along with the institutions. Is that more – is the institutional side, is that all hospital or is it some of the other modalities? And then is there a way to help us think about the deferred and kind of elective volume, maybe from 4Q to 1Q? And I know it’s early, but how it’s trending now? And I’ll just hop back into the queue after that.

[Dale Mackel:]

Yes. So this is Dale. I’ll take that. Yes, so when you look at the sort of balance, first of all, what we’d say is the April, we want to give you guys as up-to-date indicators as we can. The caveat and the footnote, as you know, on the page is just an estimate; we’re not closed with April at this point, so we will make that caveat. But obviously, we’re very encouraged by what we’re seeing during the close process here. But I’d say the uptick in the institutional is probably some of the rebound that’s coming around hospital. I mean, their volumes, I think, are starting to recover. So that would make sense and align there. When you look at your question around the electives, I think this is pretty well known, but I think we view it the same way. We’re at about 75% of pre-COVID volumes around electives. And we fully expect that to get back toward pre-pandemic levels over the course of the balance of these three quarters, probably a little more heavier in the back half of the year. But for us, about 10% of our admissions come from the elective procedures. So that’s about 200, 250 basis points of opportunity for us, that as that process comes back or those volumes come back, that are additive to us.

[Justin Bowers:]

Understood. Thank you.

[Operator:]

The next question comes from Brian Tanquilut of Jefferies. Please go ahead.

[Brian Tanquilut:]

Hey, good morning guys. Josh, I’ll just follow-up or I guess – yes, I’ll follow-up on the comments on margin, so obviously, pretty strong this quarter. As we’ve seen visits kind of like bottom out, it feels like at the 12.6 visits per episode, how are you thinking about where that lands once LUPA normalizes and how are you thinking about that pace of recovery?

[Josh Proffitt:]

Yes, Brian. Good morning. I would say the 12.5 to 13 is now been pretty sustained and pretty consistent. And what we would have expected in our PDGM modeling for the patient population in the acuity that we were seeing, as we see case mix increase and as we see patient acuity go up, I think you could see – I don’t necessarily want to call it a rebound because I think it’s appropriate where it’s at. But as you see more post-electives, post-surgery, you might see that go up to 13, 13.5. But as we’ve said before, when that occurs, case mix goes up and the revenue comes with it. So I still feel very confident about the margin throughput. Under each of these, we’ve got some sensitivity analysis that we’ve done on visits per episode and how it relates to the different HHRGs and the co-morbidity stack and what all that looks like. So as the VPE were to pick up, the margin would still be sustainable in that way. So I feel really good about that. And then the other thing I have to mention as we’re talking about VPE is I want to give a cap tip to Dr. Doga and Angie and our entire clinical leadership team as well as our operators that have just unwaveringly not taken their eye off the ball on our quality outcomes, star ratings, patient satisfaction throughout not only PDGM execution, but the pandemic. And we continue to monitor those results monthly and feel really good how we’re pacing there as well.

[Brian Tanquilut:]

And then Josh, just to follow-up your point on ADC where census being the driver, right? So as I look at your admissions trends for the quarter versus what ADC trends were, and as I think about pushing that going forward, where do you see the recert rate movement going? Will we be able to sustain kind of like this elevated level of recert or is this just the new normal post-PDGM?

[Josh Proffitt:]

Yes. I think, Brian, our recert rate is somewhere around 36% or so. I wouldn’t necessarily say that’s elevated. There was a little bit of elevation earlier on in the pandemic if you go back and look at it quarter-over-quarter. But 35% to 38% or so is about what we would expect and about what we would run. So I think that’s pretty solid. So if your length of stay and your restart rate is pretty stable and solid, then you’re just looking at the correlation between the admit throughput and the census.

[Brian Tanquilut:]

Got it. Okay, thank you.

[Josh Proffitt:]

Yes. Thanks, Brain.

[Operator:]

The next question comes from Matt Larew of William Blair. Please go ahead.

[Matt Larew:]

Hi, good morning. Josh, I just wanted to talk a little bit on your comments on the M&A pipeline. I think you mentioned that’s largely creating more overlap markets. Maybe could you just confirm that that’s where the majority of the pipeline is versus anything you’ve seen on the footprint expansion side? And then are you starting to see anything sort of PDGM-related start to pop up in any of your discussions, maybe a return of some of the inbounds you saw before all the CARES dollars started flowing out?

[Josh Proffitt:]

Yes, Matt. Good morning. I would say on both of those that yes and yes. So the majority of the acquisitions in the pipeline, especially those that were pretty far along in our diligence and discussions are more overlap, either co-location overlap, which is the strategy that Keith described earlier or just market density opportunities in the states that we currently operate. So there is not a lot of geographic expansion or footprint growth in that kind of a way. And then on your second question, which was – remind me again, Matt, the second point that I said yes to already.

[Matt Larew:]

Yes, sure. Just you had mentioned pre-COVID that you were looking forward to maybe some PDGM opportunities coming and just curious if any of those are starting coming back?

[Josh Proffitt:]

Yes. No. I’m glad you did ask that one because if you look at our pipeline right now and even if you look at the difference between what we reported last call and this call, there is an uptick in home health in the pipeline. So last call, it was 80 or so percent weighted toward hospice, and now it’s 70 or so percent weighted toward hospice and about 30% of home health. And even this week, we’ve had two inbounds of some, what I’ll call small to medium size home health opportunities that we’re already kind of modeling and looking at. So I’ve definitely sensed and seen an uptick in home health specific activity over the last 2 months that we were not seeing in the fourth quarter.

[Matt Larew:]

Okay. That’s helpful. And then just a question on the hiring side, obviously, you have been sort of hiring record numbers to try to meet record demand. But I’m just curious is the availability of some of these clinicians do you think in any way related to other providers not paying COVID bumps, maybe a reduction in some of the travel payer bonuses that staffing agencies might’ve been using, just curious if there is any sort of different supply side dynamics that are syncing up with your hiring?

[Josh Proffitt:]

Yes. Matt, that’s a hard one to answer. I could speculate and give you my gut on it, which I think it might be some of a lot of things. I still continue to believe that just the flexibility and the type of work we do is very attractive. And then when you’re doing it in a pandemic setting where everyone is just going through fatigue and burnout throughout all levels of settings of healthcare, I think we are a good place for a lot of the clinical workforce. But I want to spend maybe more time talking about just our processes and what we have really focused on and improved over this last year from the efficiency of our onboarding and orientation process to the way we more closely monitor our speed of hire metrics. We have got daily pipeline reports that go out all throughout our operations and sales teams for their open positions. And the velocity of hiring, we’ve had back-to-back quarters that just keep jumping themselves in the hire number being historical highs. Last week alone, we had the strongest week in the company’s history. So I mean we’re watching this one that closely and had just another record week last week in hiring. So I’m really – I didn’t know we would be here, quite frankly, Matt. We put a lot of process in place. We added to our talent acquisition team, both at the leadership and at the kind of tactical level and in hopes of building up capacity for growth, but honestly, we are a little bit ahead of pace from what we would have expected.

[Matt Larew:]

Okay, good deal. Thanks, Josh.

[Josh Proffitt:]

Thanks, Matt.

[Operator:]

The next question comes from Frank Morgan of RBC Capital Markets. Please go ahead.

[Frank Morgan:]

Good morning. I guess I want to stay on the M&A side for just a second. I mean, when I hear your numbers of 5-day increase in DSOs and $34 million use of cash from the whole RAP elimination. You just got I think it’s going to hurt at some point. So I guess is it – of the deals, these recent deals that have come in or people talking about that or are people talking about what happens after sequestration ends? I mean I’m trying to figure out what scares mom-and-pops enough to actually want to actually consider selling their assets?

[Keith Myers:]

Yes. I mean I think on home – are you talking about home health primarily?

[Frank Morgan:]

Yes, yes. Yes.

[Keith Myers:]

Yes. So I think the decisions of home health of mom-and-pops to sell was made in 2019 and then the COVID pandemic and the stimulus money. You heard us say this. I think we’re all saying the same thing. I mean I think it’s the truth. We provided some relief and postponed the urgency. But there is just so much changing in the way home health is delivered, and I mentioned in my prepared comments about value-based purchasing, that’s a really big deal. When I look at our data and I see how far we’re outperforming home health agencies that are getting 91% of the business in places where we are, that’s just – that’s going to get found out and brought to light. And so to take their home health agencies from where they were and how they were operating them really is a cash cow. So, how they were living out of it? I just – I think that decision to sell has just been made, right. And so now we’re – it’s just their long-term view. I mean, I – let me just say a couple of other things. This is probably too witty. And I don’t want to mention any names and stuff. But there are people that started these like Ginger and I did and they grew them to a certain level, not at – and these are real. I’m thinking of really people now that I know that we’re talking to. But didn’t have the good fortune to end up in an LHC-type situation, but they grew a good business, started from something very small. And so they don’t have any debt. And so it’s they are nest egg that they are going to retire at. And so they are late 50s, mid-60s and just looking to move on. I just think it’s that simple.

[Frank Morgan:]

Got it. And the mix of the backlog, is that more a function or the size of the deals in the hospice side? Are these just like larger deals and therefore, represent a larger percentage? How would you characterize the backlog from that perspective?

[Keith Myers:]

Yes. So the hospices that we have in the pipeline now aren’t that – aren’t the kind that I just described to you. The ones that we’re looking at now were more investor-owned or investor-backed. And so they have done quite well with them to a point and just in the 5 to 7-year window where they are going to flip out of it and move on. So we’re not – there are some of the hospices that fit in other model that I described that are relationship-type deals. But the ones in our pipeline now aren’t, Josh, I don’t think, right?

[Josh Proffitt:]

Yes, just a couple...

[Keith Myers:]

I don’t know maybe some small, but the significant ones aren’t.

[Josh Proffitt:]

Yes. And on the size question, Frank, on the hospice deals, you’re right, they are a little chunkier, ranging from medium-sized to pretty good size, whereas on the home health, those are, I would say, more smaller to medium size as we’re consolidating after PDGM, as we just discussed.

[Frank Morgan:]

Got it. And then my last one here, just obviously, good management, you already commented on Brian’s question about the visits per episode. Beyond visits per episode, is there anything in terms of labor mix, substitutional labor between nurses and LPNs? Or any mix opportunity left in the cost – labor cost structure or from here as PDGM more just a function of refining, coding and more top line? Thank you.

[Josh Proffitt:]

Yes, Frank, I would tell you that you know us quite well and we have been very public with kind of our LPN/RN mix and our PTA/PT mix. And we continue to feel like we are operating very effectively there and efficiently and have monitored those metrics as the VPE had evolved through PDGM. But again, I hate to sound like a broken record going back to all of our preparation work before we executed on PDGM. But we knew what those were going to look like before the calendar flipped to 2020, and the team has executed quite well. So I wouldn’t say that there is a lot of upside or further improvement there. We’re still 45% or so mix on LPNs and probably 50%, 55% on PTAs.

[Dale Mackel:]

And Frank, this is Dale. What I would say is grow the opportunity is around contract labor portion. As Josh mentioned, with us, the strong hiring, strong retention, we’re starting to create – and our clinicians off quarantine. Our capacity is starting to get back to where we’re very comfortable with. And so that creates an opportunity to displace some of the more expensive contract labor. We’re a little bit overweight in contract labor yet in home health and hospice, but it’s gotten better in LTAC, but we feel like we’re at a good pivot point where it’s starting to going to get better for us.

[Keith Myers:]

Yes, that’s it, Frank. Let me – I need to throw this into the mix. So we’re talking about visits per episode. I think it’s time for us to start talking about how the delivery model changed as a result of PDGM and then was also influenced by COVID. So when we think inside LHC Group, just so you know, we don’t – we talk about visits, but we – but our big focus is on patient and talents and minutes of time with patients. So our patient encounters and the time that we spend with patients is at an all-time high. But we’re only having this discussion around visits. And you know what, I think what make it easier for all of us non-clinicians to understand is how differently we function today post COVID and how we have virtual meetings. If someone would have tried to convince us that there was value in a virtual meeting 2 years ago, not many of us would have thought that they make sense. But today, we’re – a significant amount of this time that our nurses and with patients are through telehealth. And those are all in addition to the visits we’re making. So at some point, we’re going to need to bring that up because if you keep talking about just visits, it gives the impression that we are spending less time with patients in this mode, and we’re actually not. We know we’re spending more time so how are we going to communicate that to the market.

[Frank Morgan:]

Okay. Let me ask one dumb follow-up. So what’s the difference between a visit and an encounter? Do you get to count things like telehealth or other things to create the encounter? And then I’ll hop off.

[Keith Myers:]

Yes. So these are not things that we put on a cost report. And so we’ve always put visits on and we’ve talked about home health in terms of visits. And we honestly didn’t do much of this pre-COVID. And pre-PDGM or pre-COVID, they won’t happen at the same time. But now we monitor all encounters with patients. So in the past, if a patient had some – had some issue and spent 30 minutes on the phone with a nurse during the course of the day, let’s just say, 5 years ago, that wasn’t something we would have tracked. And today, we track all of that as part of the encounter time with patients just to learn how the model is working. It doesn’t have any financial impact or it’s nothing we can bill for or anything.

[Frank Morgan:]

Okay, thank you. Good insights.

[Operator:]

The last question today comes from Joanna Gajuk of Bank of America. Please go ahead.

[Joanna Gajuk:]

Hi, thank you. I guess we are sticking around. Appreciate taking the question here. So I guess the follow-up is on the, I guess prepared remarks that Choose Home legislation that you seem to be even more, I guess, confident it could be introduced this year. So if this is passed, right, which we don’t know, like maybe next year, if things go right or maybe this year, I don’t know, if you can talk about kind of the timing of things? And also more importantly, if this is starting to create the SNF-at-home benefit, essentially, how big of an opportunity could this be for the industry and the company? Kind of any way you could frame it for us. I mean, obviously, you have a decent exposure in personal care, right? But can you – I mean, would you require more of these assets or would your partner to be able to kind of implement this in your market?

[Keith Myers:]

So the – I’ll start with this question about Choose Home. We – the model is nothing new. It borrows from the Oregon Health Plan and the Passport Program in Ohio, to be quite honest, and maybe adds a little more skilled side to take higher acuity patients. But – so when we proposed it, I think we were surprised by the receptiveness to it. And I think the reason that we’ve been surprised by the positive way other reception is because of the COVID experience we all just went through, shining the light on the need to have an alternative to institutional care for that patient population. So we are building champions on the heel on both the house and incentive side. And that is exceeding our expectation, at least exceeding my expectation. I’m pretty conservative so I always plan for the worst. But I’m just surprised at the champions that are getting behind us. But I just think it’s the right thing at the right time. So I am pretty confident that it’s get to introduced later this year. Now where does it go? Does it get passed? I just don’t know. So that’s where I am on the legislation. I mean every – all policy in Washington that you see right now, if you show up and want to talk about ideas to shift care to the home, everybody wants to talk to you. And I think a lot of it has to do with just the COVID experience. But I am sorry – but your second question about if it does pass...

[Josh Proffitt:]

SNF at home.

[Keith Myers:]

Yes, how big is the opportunity?

[Joanna Gajuk:]

Right. And then would you need more personal care, I guess, coverage to do that or would you have to own or partner?

[Keith Myers:]

So we would have to have more personal care activity because the Choose Home legislation incorporates an element of personal care with the traditional Medicare skilled benefit. So I would say in markets where our volume is lower, we would probably contract with a personal care provider if we didn’t already have that service in that market. But in larger markets, let’s just say, like the Dallas market where we have the THR joint venture. In that kind of market, we would probably acquire or build personal care. Just as the economies of scale if the volume is there and of course, how big the market is? I think in the regular home health model without this combined service, we have proven out that 40% of the patients being admitted to SNF could be cared for at home with just the traditional home health benefit. And we were doing that already. So when we look to this benefit, I think we’re talking about another 30% or 40%. So 70, which means 70% to 75% of patients that were going to SNF 2 or 3 years ago could be cared for in the home setting with a combination of services.

[Joanna Gajuk:]

Alright. Appreciate the color. I guess, I will end here, because the over time. Thank you.

[Keith Myers:]

Thanks, Joanna.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Keith Myers for any closing remarks.

[Keith Myers:]

Thank you, operator. As far as closing remarks, just as always, thank you for your questions. Thank you for participating in the call, and know that our management team will always be available to you between calls, contact Eric Elliott. And if you’d like to speak to myself, Dale or Josh, we will set time aside, and we’d be glad to speak with you and ask any questions you may have.

[Operator:]

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.