Amedisys Awaiting HHS Clarity Before Deploying $100M in CARES Act Relief Funding

Four months’ worth of surgical masks. Six months’ worth of N95 masks. One month’s worth of gowns — with an additional two months’ worth arriving soon. That’s just a quick snapshot of Amedisys Inc.’s (Nasdaq: AMED) current personal protective equipment (PPE) stockpile.

As most in-home providers are facing difficulties securing PPE, Amedisys has, so far, been able to navigate shortages resulting from the COVID-19 public health emergency. This has allowed the Baton Rouge, Louisiana-based home health, hospice and personal care services company to implement a protocol requiring clinicians to wear masks during all in-person visits, according to Amedisys President and CEO Paul Kusserow.

“We have continued to find success in utilizing both traditional and non-traditional suppliers for our PPE needs,” Kusserow said during a Thursday morning conference call to discuss Q1 financial results. “For all other critical PPE, we have an average of three months’ of inventory on-hand and will be continuing to source aggressively.”

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The company has also created a centralized distribution center for all its PPE.

“[This allows] us to flex our PPE inventory on a care center-by-care center basis, depending on need and demand,” Kusserow said.

While Amedisys is prepared to weather COVID-19-related storms, the company has seen some disruption due to the coronavirus.

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In the second week of March, Amedisys experienced an increase in missed visits and declines in referral volumes across all three lines of the company’s business, hitting home health the hardest.

Since then, the company has seen a steady recovery in referral volumes and missed visits, but due to a number of factors, it is difficult to predict the pace of recovery, according to Kusserow.

“There are numerous unknown factors, including the continued increase or decrease in the number of COVID-19 cases nationwide, the pace at which elective procedures return to normal levels, the return of patient confidence to enter a hospital or a doctors office, access to our patients in their homes,” he said. “Cost normalization around PPE and any future or prolonged shelter-in-place orders.”

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Overall, Amedisys recorded $1 million in increased costs due to the virus in the first quarter of 2020, according to the company. Specifically, the costs included increased training expenses, quarantine pay and PPE.

The company has future plans to utilize capital from the CARES Act Provider Relief Fund to replace lost revenue and health care costs related to the COVID-19 virus, but is calling for more clarity from the U.S. Department of Health and Human Services (HHS) before moving forward.

Amedisys received $100 million from the first tranche of emergency funding, a total based on 2019 fee-for-service Medicare revenue.

“We expect written clarification in the coming days, on the formula and the distribution of funds,” Kusserow said. “At this time, we have fully segregated these funds into their own account and will not be utilizing them until final written guidance is received from HHS.”

Financial results

While not shielded from COVID-19 disruption entirely, Amedisys recorded a strong first-quarter performance and experienced overall revenue growth.

As a business, Amedisys has 480 care centers in 38 states and Washington, D.C., according to company statistics.

For the first quarter of 2020, Amedisys’s net service revenue came in at $491.7 million, up 5% compared to $467.3 million in the same period a year ago. About 61.7% of the company’s revenue came from its home health business, 34.5% from hospice and 3.8% personal care.

Despite the impact of COVID-19, the company should see gradual improvement over the next few months, analysts predict.

In part, Amedisys’s strong margin performance can be attributed to the company’s Patient-Driven Groupings Model (PDGM) mitigation efforts.

“We remain confident that we can achieve our target improvement and mitigate the impacts of behavioral assumptions once COVID-19 subsides,” Scott Ginn, CFO of Amedisys, said during the earnings call. “Our two main areas of focus, on the cost side, are clinical staffing mix and utilization. We have made excellent progress to date on both measures.”

Hospice strategy

During the call, Amedisys also commented on its pending acquisition of AseraCare.

In April, the company announced it planned to purchase the hospice company for $235 million.

Strategically, landing AseraCare falls in line with the Amedisys’s past efforts to beef up its hospice business, an area where the company saw a growing opportunity.

“Since we developed our three-pronged inorganic hospice strategy, which included larger hospice deals, tucks-ins and de novos, we have executed on each of these prongs,” Kusserow said.

Upon completion of the deal, Amedisys will operate 190 hospice care centers in 30 states. The deal is slated to close in 30-days, barring any COVID-related slowdowns.

“AseraCare is an extremely high-quality hospice asset that is in 14 states and operates 44 care centers … and has $117 million in revenue,” Kusserow said.

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