LHC Group, Inc.
Q4 2014 Earnings Call Transcript

Published: 26 Feb 2015

[Operator:]

Good day, ladies and gentlemen. And welcome to LHC Group Fourth Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to hand the conference over to Mr. Eric Elliott. Sir, you may begin.

[Eric C. Elliott:]

Thank you, Sayi, and welcome, everyone, to LHC Group's earnings conference call for the fourth quarter and year ended December 31, 2014. Hopefully, everyone has received a copy of our earnings release. If not, you may obtain a copy, along with other key information about LHC Group and the industry, on our website. In a moment, we'll hear from Keith Myers, Chief Executive Officer; Don Stelly, President and Chief Operating Officer; and Dionne Viator, Chief Financial Officer of LHC Group. Before that, I would like to remind everyone that statements included in this conference call and in our press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements include, but are not limited to, comments regarding our financial results for 2014 and beyond. Actual results could differ materially from those projected in forward-looking statements because of a number of risk factors and uncertainties, which are discussed in our annual and quarterly SEC filings. LHC Group shall have no obligation to update the information provided on this call to reflect subsequent events. Now I'm pleased to introduce the CEO of LHC Group, Keith Myers.

[Keith G. Myers:]

Thank you, Eric, and good morning, everyone. We are pleased with the operating results and the overall performance of our company and our team in 2014. Our focus on reducing overhead cost, combined with the investments we've made in point of care technology and other foundational improvements over the past several years, is allowing us to improve operational efficiencies while at the same time improving quality and patient outcomes. As mentioned on our last earnings call, we have now completed our organization-wide conversion to point of care, and thus have eliminated certain general and administrative expenses and consolidated a number of locations and service area overlap markets as planned during the fourth quarter of 2014. These initiatives are expected to yield annual cost savings of approximately $8 million beginning in 2015. Our organization-wide conversion to point of care has enhanced our competitive advantage in the marketplace by significantly elevating our capabilities in areas of disease management, clinical decision support, medication management, transitions in care, quality measurements, compliance, clinical care improvement and expanded our capability to electronically exchange key clinical information with hospitals, physicians and other providers of care and commercial payers. We now have the foundation and capacity to leverage our electronic health record data set, along with data we receive from partner health organizations and have the ability to integrate with ACOs in meaningful ways through bidirectional data exchange. In addition, we also have real-time access to all data, which gives us the ability to quickly identify gaps in care, identify emergent risk and apply evidence-based best practices to mitigate the risk. As we celebrate our first 20 years and look forward to the next chapter in our company's story, our proven healthcare delivery model and our proven track record of creating high returns on acquisitions, combined with our hospital joint venture strategy, positions us well to take advantage of the unprecedented growth opportunities ahead and to be the forefront of change as our country moves toward a more integrated healthcare delivery system. From a growth standpoint, 2014 was a solid year for us in respect to being our single largest acquisitive year in the history of the company. We acquired $105 million in aggregate trailing 12-month revenues and successfully integrated 57 new locations across 15 states. Given our organizational readiness and the level of consolidation expected to occur over the next several years, we anticipate exceeding our 2014 acquisition activity in 2015 and in the years ahead. Another area of growth we are focused on are ACOs and bundled payment arrangements. We are currently involved in 4 ACOs and are participating in 2 separate Model 2 bundled payment for care improvement CMS projects. With regard to the 4 ACOs we are currently participating in, we have obtained preferred provider status, while in 3 entities, we are receiving reimbursement at Medicare rates. And in the fourth, we have the ability to receive reimbursement in excess of Medicare rates if we achieve certain quality measures. Managed Care also continues to be an area of focus for us in terms of growth opportunity. Over the past year, we've made significant strides with managed care payers by demonstrating our ability to lower their overall per member per month costs, while at the same time improving quality and patient outcomes and lowering unnecessary and costly inpatient admissions. As a result, we've been able to negotiate a share of the savings and improve our rates by over 10% on average. We are encouraged by the strides we've made with managed care payers over the past 2 years and look forward to strengthening existing partnerships and continuing to strategically grow this area of our business. I'll now turn the call over to Don and Dionne. But before doing so, I'd like to congratulate and thank our entire team for their unwavering commitment to excellence. Your ability to consistently deliver high-quality care to the growing number of patients, families and communities we serve is a testament to the collective talent, work ethic and experience of the growing number of healthcare professionals, who make up our LHC Group family. Dionne?

[Dionne E. Viator:]

Thank you, Keith, and good morning, everyone. For the fourth quarter of 2014, our consolidated net revenue -- net service revenue was $193.4 million. Our adjusted net income was $7.7 million, and our adjusted fully diluted earnings per share was $0.45 per share. For the year of 2014, our consolidated net service revenue was $733.6 million. Our adjusted net income was $24 million, and our adjusted fully diluted earnings per share was $1.39 per share. Pretax adjustments for the fourth quarter and the year include $1.6 million of disposal costs on closures of 3 underperforming locations, $2 million for an impairment related to an acquired trade name and $1.1 million in severance and lease termination fees related to closing and consolidating locations in the fourth quarter. This reduction in staff and termination of leases coincides with the completion of our conversion to point of care. We also experienced a reduction in tax expense of $657,000 in the fourth quarter from the identification of additional deductions to be taken in 2014, as well as the retroactive reinstatement of the Work Opportunity Tax Credit program. On a business segment basis, Home Health revenue was $147.6 million in the fourth quarter of 2014 and $565 million for the 2014 year, as compared to $131.5 million and $523.5 million, respectively, in the same periods of 2013. Home Health same-store revenue growth in the fourth quarter of 2014 was 2%, and 1.4% for the 2014 year, as compared to the same periods last year. Hospice revenue was $18.3 million in the fourth quarter of 2014, and $67.6 million for the 2014 year, as compared to $15.2 million and $56.2 million, retrospectively -- respectively, in the same periods of 2013. Hospice same-store revenue growth in the fourth quarter of 2014 was 10% and 13.1% for the 2014 year, as compared to the same periods last year. Community-based services revenue was $9.4 million in the fourth quarter of 2014 and $27.7 million for the 2014 year, as compared to $832,000 and $3.2 million, respectively, in the same periods of 2013. LTAC revenue was $17.4 million in the fourth quarter of 2014 and $70.4 million for the year 2014, as compared to $17.1 million and $71.9 million, respectively, in the same periods of 2013. On a consolidated basis, our gross margin was 41.7% of revenue in the fourth quarter and 40.7% for the 2014 year, as compared to 42.4% and 41.7% of revenue in the same periods of the prior year. The decrease in year-over-year gross margin was principally driven by the revenue reductions associated with the 2014 home health reimbursement rule. On a sequential quarter basis, our consolidated gross margin of 41.7%, compared to 39.7% of revenue in the third quarter of 2014, is an increase of 200 basis points. The sequential increase in gross margin is primarily due to the improvement in margins from recently acquired locations. Our general and administrative cost in the fourth quarter of 2014 was 31.7% of revenue and 31.9% for the year, as compared to 33.5% and 32.5% of revenue in the same periods of 2013. Our bad debt costs in the fourth quarter of 2014 represented 2.1% of revenue and 2.2% of revenue for the 2014 year, as compared to 2.5% and 2.1% of revenue for the same periods in 2013. The slight year-over-year increase in bad debt costs as a percent of revenue resulted from an increase in our commercial revenue as a percentage of our total revenue. Our effective tax rate in the fourth quarter of 2014 was 37.5% and was 39.9% for the 2014 year. As I mentioned earlier, there was a $657,000 reduction to tax expense, which lowered the effective tax rate. Regarding 2015 full year guidance, next -- net service revenue is expected to be in the range of $755 million to $775 million. And fully diluted earnings per share are expected to be in the range of $1.50 to $1.70. This guidance does not take into account the impact of future reimbursement changes, if any, future acquisitions, any future stock buyback or share repurchases, if made, any new de novo locations, if opened, or any future legal expenses outside the ordinary course of business, if necessary. For the full year of 2015, we expect gross margin to be in the range of 40.5% to 41.5%; G&A as a percent of revenue to be in the range of 31% to 32%; bad debt as a percent of revenue to be in the range of 2% to 2.5%; and our effective tax rate in 2015 to be in the range of 40.5% to 41.5%. However, specifically, as we look at the first quarter of 2015, it should be noted, when compared to the fourth quarter of 2014, that we will see a seasonal increase in payroll taxes of approximately $2 million. That concludes my prepared remarks. I'm now pleased to turn the call over to Don Stelly.

[Donald D. Stelly:]

Thank you, Dionne, and good morning, everyone, and thanks for listening in. I'd like to start by recognizing and thanking our team as well. The manner in which we continue to balance priorities is what allows us to produce and report these results, as well as lay the foundation for the years ahead. 2014 had us celebrate our 20-year anniversary, brought to an end of 4-year conversion to electronic health technology and prepared us now to turn our full attention toward clinical innovation, service diversification and acquisition integration. On the clinical front, we have developed and are instituting care pass for mobility restoration, diabetes, congestive heart failure, COPD and hypertension. Inside of these major diagnostic categories, our service models have been designed to increase patient encounters, decrease episodic cost and improve outcomes, especially emergent care avoidance. Early on, we are extremely pleased with the result. And as we go, I will more clearly score the effect when key metrics such as cost per episode and ACH rates, and that will be for both commercial and Medicare populations. Next is a quick update on market development. And we now have 38 markets in which we have 2 or more in-home service lines. We have mapped out a total of 10 additional markets that we intend to develop in this year of 2015. This strategy, as well as our repurposed sales efforts, will build upon the organic admit growth produced by home care and hospice in 2014 rates of 1.6% and 6.8%, respectively. We've experienced solid same-store growth in the past 3-month period. Because of that fact, our company census today is at a present all-time high. Our average daily census, up 623 patients or 1.5% since our last earnings call held in November 6. Unfortunately, like so many others, we've had our fair share of weather-related issues around the country. More specifically, we have seen 149 of our agencies experiencing a partial or total closure inside of the quarter thus far, an interruption of 5,684 business hours. While we do not yet know the full effect on earnings, I can tell you that the weather has bumped February's daily admit run rate down by 56 Medicare admits per business day as compared to January. Even so, we still believe our organic growth rate will fall somewhere between 2% to 2.5% for the full year and believe that our guidance recently issue factors all that we presently know into consideration. If we get through to next weeks and have a different perspective, we will, of course, let you all know through disclosure. Lastly, and just touching on the subject of acquisitions, Keith stated that we innovated 57 locations at $105 million in trailing revenue last year. Our operations team is poised, ready and excited to top that record-breaking year again in '15. With that, I, again, thank you for listening to our prepared remarks. And now turn it over to the operator to open the line for questions.

[Operator:]

[Operator Instructions] The first question comes from Ralph Giacobbe from Crédit Suisse.

[Ralph Giacobbe:]

Do you embed any expectation from the relaxing of the face-to-face rules into your projections at this point?

[Donald D. Stelly:]

Ralph, this is Don. Yes. As a matter of fact, a little more specifically, I didn't -- I listed census in my prepared remarks about where we were in first quarter. If you remember, unfortunately, we had weather problems last year as well. But before we started on this weather run in the last 2 weeks, we were running at about a 12% organic growth rate. And while I can't really say that face-to-face has attributed to that substantially, I do know it does affect it in a positive light. Because remember, the change relieved the burden of the physician from creating that narrative. Now, internally, we're asking our teams, our nursing teams, to do that. But it absolutely has positively gained momentum and is attributory to that run rate. It's just unfortunate we kind of had a bump down. So it does affect us positively and, honestly, you know that we're always conservative. I really believe that we could exceed at 2.5%. I'm just not ready to state this right now because I don't know the kind of the headwinds ahead.

[Ralph Giacobbe:]

Okay, that's fair. And then just to be clear on the guidance, I think you mentioned, the guidance does consider the last kind of couple weeks, where you've seen a little bit of a blip down in terms of the census numbers.

[Donald D. Stelly:]

Yes, it does. And honestly, as we sit today, I think we feel good where we're anticipating the first quarter. What I don't know and the reason I'm just a little hesitant is that with the admit slowdown, it's going to probably affect us in between another 60 and 100 days when the discharges come through. So if there'd be any hiccup, it'd probably in Q2. But we're still very confident in our growth trajectory in the way we're turning around Life Care and Deaconess that we think will pick that up on the back end. So it does include where we sit today, yes.

[Ralph Giacobbe:]

Okay. All right, that's helpful. And then the revenue guidance, maybe it was a little bit light, is that just from consolidating and maybe even shedding a couple of locations? And maybe it'd be helpful if you give us a sense, I may have missed it if you gave it already, of what the drag of those -- or of that would've been to the top line and maybe the impact and how we should think about it to the EBITDA line?

[Donald D. Stelly:]

Yes. If I remember, and Eric can tell me, I think we had about $10 million on the top line that was attributed to those closures. So although we see that decay, that helped us accrete on margin. As we sit today, and it's mostly from Life Care and still a few from Deaconess, we're still running at about 21 agencies that have total drag. So the top line right now is mainly attributed to what we closed, but the accretion going forward is going to be the improvement on those 2 that I just mentioned.

[Ralph Giacobbe:]

Okay, that's helpful. And then maybe one more. When I do look at the margins, you ended kind of the fourth quarter, looks like, just under 10%. And I know there's seasonality. But based on some of our math, the midpoint of the guidance would put margins somewhere in the kind of 8.5% to 9% range. So just wondering how to think about the drivers on what would pull that margin down considering all your kind of efficiency efforts, particularly around point of care.

[Donald D. Stelly:]

Well -- and that's true, and I guess common sense would take that fourth quarter and just map it through. But then again, we've got things that we've tried to bridge, such as merit raises. We've got about $4.5 million to $5 million that was going to flow through. We've got things like ICD-10 that we're mapping through. So those are the 2 main drivers. And if you want, offline, Eric has a whole spreadsheet that he can kind of walk you through. But in a nutshell, those are the 2 biggest ones.

[Operator:]

Our next question comes from Kevin Ellich from Piper Jaffray.

[Kevin K. Ellich:]

Keith, I was wondering if you could maybe give us some more color on your participation in the ACO model. And also, I think you said you're in 2 of the BPCI Initiative Model 2 plans, is that right?

[Keith G. Myers:]

Yes, that's correct. So Don and I will tag team that a little bit. With -- first with the ACOs, we're experiencing in most markets, to be honest, is people sticking a toe in the water in these ACO models. Right now, we're not taking a lot of -- we're not taking any risk, really, in ACO models. It's just really a volume play. By becoming the preferred provider, we increase our volume at Medicare or higher rates. In the future, we think there'll be potential for even more upside as we're allowed to participate in upside with -- in those programs. So it's -- so I guess what I'm saying is it's accretive to us in terms of growing our volume, and at the same time, it's a learning experience for us. And the same applies to the 2 bundled payment arrangements. I'm mean, those we have a defined stake in the upside and the same thing on the volume play. So all of the volume comes to us because we're in the bundle. Our interim reimbursement is at Medicare levels. And the savings we generate are from the patients moving downstream to home care, out of more costly inpatient settings in those bundle arrangements. And then we're -- we have the opportunity to share on the backside in those savings we generate. And, again, we're learning a tremendous -- we're learning tremendously in those experiments. And it's really helping us, more than anything, to fashion our arrangements with managed care payers and to develop innovative models where we can reduce their cost, and then share in a portion of the savings we generate with them to get our rates up to levels where we can afford to take that business and generate a margin.

[Donald D. Stelly:]

Kevin, this is Don. I think I'll tag on. We are learning a lot, and what we're learning is that we like it. A couple of maybe soft things, is it's really creating alignment with us in the physician constituency. The Pioneer Medicare ACO that we're in, is the one that Keith was alluding to, have the upside. But with what we learned and now that we're able to share data because of our point of care conversion, we truly see it as an opportunity. But again, I want to say what Keith said, we're really seeing that people are kind of dipping their toe in it, and we're excited to do it alongside because the other 4 are really just volume plays. And we're really excited about it. And I don't think you'd [ph] be surprised if we continue to do that and really, really add a lot to our market development in the coming months.

[Kevin K. Ellich:]

Great. And on the bundled plans, have you -- do you have to partner with another provider? And can you say which convenor you guys have selected to work with?

[Keith G. Myers:]

Yes, sure. So in this round, we're partnered with 2 hospitals.

[Donald D. Stelly:]

Talk about the hospitals?

[Keith G. Myers:]

Yes. So it's Ochsner and West Tennessee Health System. And the analytics part in the convenor is Nava Health. Nava Health is providing all of the analytics. And so the share and the savings is among those 3 partners being LHC, Nava Health and the partner hospital.

[Kevin K. Ellich:]

And then, is it -- you said that you have defined upside. I guess what percent of the savings would you see? Is it an equal split between the 3 of you?

[Keith G. Myers:]

Yes. I don't think we can disclose that.

[Donald D. Stelly:]

Yes, we can't. We can't disclose those terms.

[Kevin K. Ellich:]

No problem. Okay. Great. And then, I guess just switching over to the acquisitions, very strong activity, it's got the season offside [ph] this year. Keith, are we still looking and thinking about traditional home care, home health? Or is there something outside of the scope that we should be thinking about as well?

[Keith G. Myers:]

Yes. That's a great question. So the answer is, yes, to the are we still thinking traditional. So to remind you, we have a corporate development team that manages a pipeline of the, let's call it, traditional acquisitions that we built the company with, hospital joint ventures and smaller-type regional freestanding opportunities. I mean, we generally process somewhere north of 100 opportunities a year. And we'll pull the trigger on some percentage of that based on pricing and how much pressure is in the market. That continues to take place today, just as it always has, and we're actually seeing our volume increase there. But separate and aside from that, we've started managing a separate pipeline that we actually managed from the executive level. And it's larger opportunities, like the Deaconess-type opportunities, that are coming to market because of all of the changes and the consolidation we see taking place. So we want to seize on those opportunities, so we created these 2 separate initiatives. And so the combination of those 2 is what gives us a high degree of confidence that we're just going to see an acceleration in our acquisition growth. And the timing is about as good as it could be for us, too, where we have -- our balance sheet, as you know is very strong. And so we're capable from that standpoint. We've talked about all of the fundamentals being in place from compliance to completion of point of care conversion. And we're able to project and perform and synergize the acquisitions like we've never been able to in the history of the company. So -- and then the opportunities are coming to market. So it's -- we just feel like now is the time to do it.

[Donald D. Stelly:]

If you know -- Kevin, this is Don. I'll chime in. I don't want to -- Keith's comment to mislead you. By traditional, we're also -- don't be surprised if we do lead in markets with hospice or community-based services now because we have some really good opportunities in the pipeline. And as you can tell from what Dionne talked about in her prepared comments, the addition of Elk Valley in Tennessee, which came through our Deaconess, is extremely accretive to us right now. We've learned a lot, and it's a synergistic service line in these tri- and bi-level markets. So while I don't want to put fault on what Keith said because he's absolutely right, I just wouldn't want you to be shocked if we were to announce something in a new market that is home health, hospice or community-based services.

[Keith G. Myers:]

Okay. Well said, right.

[Kevin K. Ellich:]

Great. And then just one last one for Dionne, and I missed this. So, you said that, I think, you guys will have a $2 million increase in payroll expense or tax. And I was just wondering when is that going to hit?

[Dionne E. Viator:]

That will be in the first quarter. That's just due to the timing of the new year. It's seasonal, happens at the first quarter of every year if you want to look back at the trending there.

[Operator:]

Our next question comes from Darren Lehrich from Deutsche Bank.

[Darren Perkin Lehrich:]

So I just want to pick up on the question around the acquisition piece. And Keith, you're obviously dual tracking or managing 2 tracks, I should say, on -- in terms of some larger deals that maybe are out there. I guess the question is, the balance sheet's, obviously, in great shape to do more deals. But you -- to the extent that you see larger deals out there, would you ever consider equity? I mean, just given the trading liquidity of your stock, it's certainly an obstacle. So is equity a factor in your thinking when you consider some of the larger deals, just given the balance sheet?

[Keith G. Myers:]

Yes. So the short answer is, yes, if we have the need to. Right now, we have -- our credit facility is at $225 million and we're outstanding at about $60 million. So we -- right now, we don't see that need short term. But of course if the opportunities come to market and we're able to integrate them, which I believe we've never been better prepared to do that, so we'd go to the market if we needed to do that to take advantage of those opportunities, absolutely.

[Darren Perkin Lehrich:]

Okay. That's helpful. And then 2 other things. Just first, I know you've identified the cost savings having an impact in 2015. I guess, I'm curious to know, was there any of that that's built into the fourth quarter? Or should we be thinking about the full annualization of this really effective in 2015?

[Donald D. Stelly:]

Yes, this is Don. It did affect the fourth quarter. As a matter of fact, it even affected January so far because a part of our startup teams, we were finalizing, as Keith alluded to, the conversion of point of care. So it affected both. But again, I think, I'd say that our guidance takes that into consideration. And if -- I don't want to get too far ahead of myself, if anything, you'll see us ramp that EPS per quarter up, reflective of what I just said, as we go into the year.

[Darren Perkin Lehrich:]

Okay. But just so I'm clear, the impact of it, is it all $8 million that you expect to be for the year? Or you expect to be at $8 million exiting 2015? I just want to make sure I'm hearing you correctly.

[Donald D. Stelly:]

If you look at 2015 as compared to '14, the delta of everything we've done would be the $8 million.

[Darren Perkin Lehrich:]

Got it. Okay. And then the last thing, I know you've mentioned the 2% to 2.5% organic growth assumption for 2015. Can you just maybe frame that a little bit differently? I'm assuming you're talking about volumes. So to the extent that we put the other pieces of the puzzle together, rate from the Medicare side, I know there's obviously still some headwinds in home health, but between the various segments what your view is on Medicare rate. And then Keith, I thought you've mentioned some pretty impressive manage care-type rate increases. So how does that sort of fit into the pricing?

[Donald D. Stelly:]

So I'll take maybe the first part on Medicare rate. The effect of the rule, essentially, it was 0 effect on us going from '15 as compared to '14. So if you're mapping those volumes out, I'd keep pricing to where it's been consistent. You'll notice in the filings that we've seen historically the admit growth rate not necessarily proportionalized to census. That's really because the length of stay on the newer patients that we've gotten with the Deaconess, with the Life Care and some other have a shorter length of stay. I do think that you'd probably mapped that more congruent. So 2%, 2.5% on the volumes both on census and on admits, and then I'd keep pricing solid. And then Keith, on the managed care side or Dionne, maybe you may want to take a little bit of that for me?

[Keith G. Myers:]

So, on the growth side, I don't know if we're ready to start ramping -- telling you to ramp up growth on the managed care side. Because while the rates have improved by 10%, I want to -- I don't want to -- I want to make sure you understand they're not at Medicare rates across the board. And so we do have to be careful about it, our payer mix, in that regard. But the good news is that the -- we have the right trajectory. Our rates are continuing to increase with payers. And I think the reason is that we're seeking to partner with them, not asking them to give us a handout or a better rate in exchange for nothing. We're proving to them our ability to lower their overall cost and then negotiating a share of the savings we generate. Dionne, do you want...

[Dionne E. Viator:]

Right. I think that, overall, these new payments methodologies with managed care payers are still a small portion of the overall payer mix. So minimal, if any, are built into the projections and the guidance that we're giving. These are opportunities that we want to continue to work with payers in creating quality measures in a self-funded way to increase rates for ourselves. But to this point, minimal impact on projections.

[Operator:]

Our next question comes from Brian Hoffman from Avondale Partners.

[Brian Evan Hoffman:]

Another question on acquisitions. You stated that you're expecting some larger opportunities that are coming to market. That seems a bit different than what you've said in the past. Over the past few quarters, you've been targeting more smaller operations. So can you just give a bit more color, what in the environment has changed to allow some of these larger opportunities come to market?

[Keith G. Myers:]

So, yes. So that's a good question. So we're not taking our focus in any way off of the highly accretive smaller acquisitions that we've always done. I want to make sure everyone gets that, those are very core. But with -- but on the larger acquisition front, it's not so much the acquisitions that are coming to market are processes being run, there are some of those. But we're reaching out proactively to people that we've talked to over the years that just weren't ready, and we saw a number of things. Just people thought there was still maybe upside. Or in many cases, we couldn't come to terms on what we thought the -- what we thought future reimbursement would look like. And now we have some clarity, so we're able to come to terms. And then there's been acquisitions that have occurred in the market that we all know about that have kind of gotten some of these potential sellers off the fence somewhat in thinking, if not now, then when. And I think that's driving all of that. But -- so does that help at all? I mean, I think a big part of it, though, is just the efforts on our part, like we've made a deliberate decision to manage a separate pipeline and activity so it's not -- we're not just waiting for an inbound call. We're actually, in a sense, budgeting for it and going out and pursuing those.

[Brian Evan Hoffman:]

Okay. Great. Yes, that's very helpful. And then the revenue per patient day in the hospice segment, it looks like that ticked up both sequentially and year-over-year. Can you discuss what's driving that? And is that run rate from the fourth quarter sustainable?

[Donald D. Stelly:]

Yes, that's a good question and good pickup. Actually, what happened there is the third quarter was actually a little low and the fourth quarter a little bit high. So I'd take 2 of them and blend them together.

[Brian Evan Hoffman:]

Got it. Okay. And then last question for me, maybe a bit bigger picture question. With hospitals starting to feel some impact from the readmission penalties, are you seeing any changes in your discussions with hospitals with respect to how they view home health or potentially, what types of home health agencies patients are choosing to get discharged through?

[Keith G. Myers:]

Yes. Another good question. So we're seeing that and we're seeing it in a big way. I can't remember the last time I've met with a hospital that didn't say that home health -- in the last year, that didn't say that home health was a core strategy going forward. And contrast that to 5 years ago, we would go in and try to beat -- get on the radar screen. It was hard to get an audience. So we -- one of the conferences that we're very active in every year is the J.P. Morgan Healthcare Conference out in California. That was a good measure for me. Over the years, we've had to really be aggressive in trying to get people to take meetings with us. And this year, we had to bring 2 teams of people from this company and work 2 tracks just to be able to facilitate all the meetings that were requested with us. So we're seeing a lot of activity. That's the good news. The reality, though, is when you're dealing with health systems and especially the nonprofit health systems, these conversations don't happen overnight. It can take many months and up to a year to -- for one of those to consummate and turn into a contract and a joint venture. So the pipeline is greatly expanded, but it's just hard to judge all the timing.

[Donald D. Stelly:]

Brian, this is Don. I think the add that I would put in there is that, that need is there and is one reason that we're so bullish on this bi-level and tri-level of care strategy because the hospitals have the need to eliminate that patient going back even if they're not homebound. And so our community-based service model kind of nuzzled [ph] up against traditional home health gives us solution to our partners. And we're seeing that and what we think is tremendously effective in markets like UT right now where we're full force into the tri-level of care market.

[Operator:]

[Operator Instructions] And our next question comes from Toby Wann from Obsidian Research.

[Toby Wann:]

Just a quick question about deal pricing, if you can kind of update us on kind of what you're seeing in multiples. People are wanting those sorts of things. And if it varies by home health versus hospice, if they're desperate in single silo?

[Keith G. Myers:]

Yes, sure. So I'll start on that. On hospice, generally speaking, we're seeing around 1x the revenue being a pretty good baseline and where the market is now. On the home health side, we see a lot of variation there. I mean it's -- and that's because we see opportunities coming to us that are unprofitable and not very well managed from a cost standpoint. And so in those cases, we're seeing multiples at -- from, let's just say, 0.3x to 0.6x the revenue, in that range depending on how upside down they are and we have to go and turn those around, so we factor all that in. On really well-run home health agencies, probably 0.8x to 1x revenue. And we tend to look at it from a revenue perspective. Because if we go in and look at a home health agency that has margins that are too high in our opinion, we don't know if they're sustainable. So we try to, really -- they may be wanting an EBITDA multiple, especially if they run margins up some in prepping for a sale. And so we tend to default them to that revenue number to make sure we don't overpay.

[Operator:]

I'm showing no further questions at this time. I'd like to hand the conference back over to Mr. Keith Myers for closing remarks.

[Keith G. Myers:]

Okay. Thank you, operator. On behalf of all of us here at LHC, thank you, once again, for taking time to listening in and participating in our call this morning. As always, we're available to answer any questions that may come up between quarterly calls. Have a great day, and thank you, again, for supporting and believing in the mission of LHC Group.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect, and have a wonderful day.