Amedisys CFO Exit Appears to Spook Investors

Despite Amedisys Inc. (Nasdaq: AMED) posting strong earnings for the second quarter of 2016 and beating analysts’ expectations, investors initially didn’t appear confident in the results as the home health and hospice company’s share price plummeted 13% Wednesday morning.

Baton Rouge, Louisiana-based Amedisys reported an adjusted net service revenue of $361.7 million for the second quarter and adjusted earnings per diluted share of $0.42, exceeding Wall Street analysts’ predictions by $8.63 million and $0.22, respectively. Even so, Amedisys’ share price took a hit to $45.70 around 10:40 a.m., though it spiked back up following the company’s conference call with analysts to $51.08 at 4 p.m..

The lack of confidence might be attributed to the retirement announcement of CFO Ronald A. LaBorde, software implementation costing more than anticipated and the Centers for Medicare & Medicaid Services’ (CMS) proposed 1% reduction in home health payments hitting Amedisys harder than the rest of the industry, according to Brian Tanquilut, senior vice president of healthcare services equity research at Jefferies & Company, Inc.

“I think the No.1 reason is, you have a CFO leaving,” he told Home Health Care News. “In this environment, where the market is very jittery, people are reacting negatively to that.”

Otherwise, CMS estimated home health payments would go down 1% in CY2017, or $180 million. When Amedisys ran simulations of the reduction on its own cases, the company realized it would experience a 2.5% decrease, which is slightly worse than the industry average, Tanquilut said. Additionally, the fact that Amedisys is incurring a greater financial impact from the implementation of its new software platform proved surprising to investors, he said.

But Amedisys isn’t overly worried about the disruption, as efficiencies are stemming from the implementation alongside the extra expenses.

“I’m not really that fussed over the deeper chop than we thought,” LaBorde said on the call. “It came from things we have a handle on.”

From Deal Prices to Labor Costs

Higher acquisition prices potentially constraining deal flow also prompted questions among analysts, though Amedisys President and CEO Paul B. Kusserow tried to put any concerns to rest during the call.

For one, Kusserow announced a pipeline consisting of over $100 million in EBITDA in June, and he raised the bar to $200 million in EBITDA when addressing analysts Wednesday. Within that pipeline, he expects two-thirds to be larger deals, and the rest to be more tuck-in transactions.

Despite the robust pipeline, Kusserow acknowledged high prices may keep deals from being completed in the near-term, emphasizing the company will have the patience to wait for the right moves. Still, he doesn’t foresee an imbalance in valuations significantly deterring the company from making deals altogether.

“I’m not overly concerned that we’re going to be sitting on piles of cash, waiting for people to sober up on the pricing,” Kusserow said.

Additionally, Kusserow stressed Amedisys’ focus on unskilled care, as evidenced by the $4.4 million acquisition of Danvers, Massachusetts-based Professional Profiles announced Monday to further grow the company’s newfound private duty footprint. The deal followed a definitive agreement announced in February to purchase Associated Home Care, a private duty agency based in North Andover, Massachusetts, for $28 million.

“If you’re going to keep people in the home, you have to have both [private duty and skilled care],” Kusserow said. “This is our first toe in the water in New England, we’ll prove our case in New England, and then we’ll take it to other markets.”

A continued focus on labor expenditures has been pressing across the industry, too, and Amedisys hasn’t been immune.

The provider’s cost of service has increased $40 million, and a subsequent uptick in cost per visit is primarily the result of relying on contractors. The cost associated with the use of contractors is up $0.85 per home health visit, LaBorde said, and the company is looking to downplay its dependence on such workers.

“Maybe even worse than the expenses of outside laborers is the quality of labor they deliver—they don’t deliver the quality we expect,” Kusserow said.

Other topics Amedisys executives addressed include:

—Pre-Claim Review: The pre-claim review requirement rolled out by CMS will impact less than 10% of Amedisys’ total home health revenue, according to Kusserow. “While we believe there are better ways to directly fight fraud in the industry, we view this favorably as compared to the initial prior authorization requirement,” he said.

—Bundled Payments: CMS recently proposed a new bundled payment model for patients with certain heart conditions and those recovering from hip and femur fractures, and Amedisys is excited about the additions to the existing Comprehensive Care for Joint Replacement bundled payment model. “These are exactly the types of patients we have the ability to impact,” Kusserow said. “We have the protocols in place, and we know how to bend the curve here.”

Written by Kourtney Liepelt

Photo Credit: “Wall Street Sign” by NakashiCC BY-SA 2.0