Amedisys Pushes Forward with Big Changes, Mulls New Name
Amedisys Inc. (NASDAQ: AMED) has started to right the ship in recent months, and it will continue to take dramatic steps to improve its margins and grow the business, leaders said Wednesday in announcing first quarter 2015 earnings.
Executives at the major home health and hospice provider highlighted a significant shift: The company is abandoning its home-grown software system, AMS3, which has been under development for five years. Instead, it will be implementing a product from Homecare Homebase.
AMS3 was an ambitious attempt to create an information technology system that could aggregate and analyze the vast amount of data related to the 60,000-plus patients that Baton Rouge, La.-based Amedisys cares for each day.
The goal was to be able to utilize this data to furnish better, more efficient care, saving money while improving on measures such as readmission rates. This theoretically would make Amedisys a preferred partner for health care systems as the United States transitions away from fee-for-service and toward payments based more on outcomes and costs.
However, the project also was costly — writing off the effort came to $75.2 million. However, it was apparent that the system would not be ready to implemented across the company in a timely manner, and so the leadership team decided to pull the plug.
By “getting out of the software business,” Amedisys expects to save $20 million annually in operating expenses, which translates to 2% of current revenue, said CEO and President Paul Kusserow.
The transition to Homecare Homebase is expected to take 18 to 24 months to complete, Amedisys executives said.
Judging by industry standards, the transition likely will result in a four- to six-week dips in productivity as clinicians learn the new system, followed by an improvement in productivity, said CIO Martin B. Howard.
Scrapping AMS3 is just the latest big decision at Amedisys, which recently was foundering as it faced operational challenges as well as a $150 million legal settlement with the federal government. Kusserow came on board in December 2014 following a stint in which he consulted at the company. Under his leadership, the company earlier this month announced a dramatic C-suite shakeup.
The bold moves may keep coming. Even the name of the company is up for debate, Kusserow revealed on Wednesday’s call with analysts.
“It’s a tough name for a lot of folks, and I don’t think it reflects what we do,” he said, referring to the fact that the company name often is mispronounced. The name also suggests a medical system, he noted, saying it doesn’t capture the fact the company is a care provider for some of the most vulnerable people in the U.S. health care system.
However, the name is well-respected in certain markets where the company is long-established, such as Georgia, Kusserow acknowledged. He does not want to “mess with success” in those cases, and so any potential new name would be carefully vetted, he said.
So far, the new direction for the company appears to be paying off, despite an overall first-quarter loss of $35 million related to writing off AMS3.
The company’s revenue was up 1% compared to the same quarter in 2014. Adjusted for the write-off, net income from continuing operations was $9.8 million, compared with a net loss of $2.2 million in 2014.
Amedisys reported $0.30 earnings per share for the first quarter, compared with $0.07 for the first quarter last year.
The share price traded up 4.8% on Wednesday after the earnings were announced.
While the current focus on improving margins is appropriate, the company is beginning to more aggressively target growth, Kusserow said.
“We have really good folks in the field starting conversations in key areas,” he said of merger and acquisition activity. “We’re also going to be sensitive with valuation and our ability to do accretive deals.”
When asked if Amedisys might expand beyond home care and hospice, Kusserow said he believes there is “a lot of growth inherent in our core business.” However, he noted that the definition of home care might expand as technology and other developments move more post-acute care into the home.
“We believe the home is the future,” he said. “We’re going to focus on making the home a bigger piece of the post-acute pie.”
Written by Tim Mullaney