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2: EX-31.1 Certification -- §302 - SOA'02 HTML 22K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 22K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 19K
11: R1 Cover page HTML 70K
12: R2 Condensed Consolidated Balance Sheets HTML 139K
13: R3 Condensed Consolidated Balance Sheets HTML 42K
(Parenthetical)
14: R4 Condensed Consolidated Statements of Income HTML 88K
15: R5 Condensed Consolidated Statements of Changes in HTML 78K
Equity
16: R6 Condensed Consolidated Statements of Cash Flows HTML 122K
17: R7 Basis of Presentation and Significant Events HTML 30K
18: R8 Significant Accounting Policies HTML 72K
19: R9 Divestiture and Joint Venture Activities HTML 21K
20: R10 Goodwill and Intangibles HTML 80K
21: R11 Debt HTML 23K
22: R12 Stockholder's Equity HTML 41K
23: R13 Commitments and Contingencies HTML 25K
24: R14 Noncontrolling interests HTML 29K
25: R15 Leases HTML 40K
26: R16 Fair Value of Financial Instruments HTML 21K
27: R17 Segment Information HTML 103K
28: R18 Income Taxes HTML 23K
29: R19 Significant Accounting Policies (Policies) HTML 52K
30: R20 Significant Accounting Policies (Tables) HTML 53K
31: R21 Goodwill and Intangibles (Tables) HTML 112K
32: R22 Stockholder's Equity (Tables) HTML 37K
33: R23 Noncontrolling interests (Tables) HTML 23K
34: R24 Leases (Tables) HTML 42K
35: R25 Segment Information (Tables) HTML 99K
36: R26 Basis of Presentation and Significant Events - HTML 23K
Organization (Details)
37: R27 Basis of Presentation and Significant Events - HTML 42K
COVID-19 (Details)
38: R28 Significant Accounting Policies - Percentage of HTML 43K
Net Service Revenue Earned by Category of Payor
(Details)
39: R29 Significant Accounting Policies - Additional HTML 42K
Information (Details)
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Computation of Basic and Diluted Per Share
Information (Details)
41: R31 Divestiture and Joint Venture Activities (Details) HTML 27K
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Recorded Goodwill by Reporting Unit (Details)
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Intangible Assets (Details)
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46: R36 Stockholder's Equity - Additional Information HTML 62K
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Issued Under Employee Stock Purchase Plan
(Details)
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Information (Details)
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Noncontrolling Interest-Redeemable (Details)
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(Address of principal executive offices including zip code)
(i337) i233-1307
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon
Stock, par value of $0.01
iLHCG
iNASDAQ Global Select Market
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYesý No ¨
Indicate by check mark
whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). iYesý No ¨
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ý
Number of shares of common stock, par value $0.01, outstanding as of May 4, 2021: i31,666,163
shares.
Current
liabilities - deferred employer payroll tax
i25,928
i25,928
Total
current liabilities
i701,515
i681,436
Deferred
income taxes
i54,954
i47,237
Income
taxes payable
i6,404
i6,203
Revolving
credit facility
i—
i20,000
Other
long term liabilities
i25,928
i25,928
Long-term
operating lease liabilities
i71,431
i70,275
Total
liabilities
i860,232
i851,079
Noncontrolling
interest — redeemable
i17,939
i18,921
Commitments
and contingencies
i
i
Stockholders’ equity:
LHC
Group, Inc. stockholders’ equity:
Preferred stock – $ii0.01/
par value; ii5,000,000/ shares authorized;
iiiinone///
issued or outstanding
i—
i—
Common
stock — $ii0.01/ par value; ii60,000,000/
shares authorized; i36,507,148 and i36,355,497 shares issued, and i31,240,270
and i31,139,840 shares outstanding, respectively
i365
i364
Treasury
stock — i5,266,878 and i5,215,657 shares at cost, respectively
(i78,552)
(i69,011)
Additional
paid-in capital
i966,201
i962,120
Retained
earnings
i669,956
i635,297
Total
LHC Group, Inc. stockholders’ equity
i1,557,970
i1,528,770
Noncontrolling
interest — non-redeemable
i86,713
i84,584
Total
stockholders' equity
i1,644,683
i1,613,354
Total
liabilities and stockholders' equity
$
i2,522,854
$
i2,483,354
See
accompanying Notes to Condensed Consolidated Financial Statements.
(1) Net
income excludes net income attributable to noncontrolling interest-redeemable of $i2.3 million during the three months ended March 31, 2021. Noncontrolling interest-redeemable is reflected outside of permanent equity on the condensed consolidated balance sheets. See Note 8 of the Notes to Condensed Consolidated Financial Statements.
(1) Net
income excludes net income attributable to noncontrolling interest-redeemable of $i3.6 million during the three months ended March 31, 2020. Noncontrolling interest-redeemable is reflected outside of permanent equity on the condensed consolidated balance sheets. See Note 8 of the Notes to Condensed Consolidated Financial Statements.
See
accompanying Notes to Condensed Consolidated Financial Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. iBasis
of Presentation and Significant Events
Organization
LHC Group, Inc. (the “Company”) is a health care provider specializing in the post-acute continuum of care. The Company provides services through ifive segments: home health, hospice, home and community-based services, facility-based services, the latter primarily through long-term acute care hospitals (“LTACHs”), and
healthcare innovations services ("HCI").
As of March 31, 2021, the Company, through its wholly- and majority-owned subsidiaries, equity joint ventures, controlled affiliates, and management agreements operated i829 service locations in i35
states within the continental United States and the District of Columbia.
COVID-19 Update
SARS-CoV-2 ("COVID-19") continues to spread and various responses related to stay-at-home restrictions, travel restrictions, and other public health and safety measures continue to evolve. We communicate with our clinicians and other employees all updated policies and procedures as we monitor changes related to the pandemic. Policies and procedures related to social distancing and cleaning procedures remain in place as the safety of our patients and employees are vital. The effects of COVID-19 continue to materially impact our business. As a result, operating results for the three months ended March 31, 2021 may not be indicative of the results that may be expected for the year ending December
31, 2021, and operating results for the three months ended March 31, 2021 may not be directly comparable to operating results for the three months ended March 31, 2020.
CARES Act
In response to COVID-19, the U.S. Government enacted the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") on March 27, 2020. The CARES Act was passed to provide $100 billion of Provider Relief Funds for distribution to eligible providers who provided diagnoses, testing, or care for individuals with a possible or actual case of COVID-19, specifically to reimburse providers for health care related expenses related to the prevention of the spread of COVID-19, preparations for treating cases of COVID-19 positive patients, and for
lost revenues attributable to COVID-19. The CARES Act also provided financial hardship relief to Medicare providers impacted by the COVID-19 pandemic in order to provide necessary funds when there is a disruption in Medicare claims submission and/or Medicare claims processing by distributing funds through the Accelerated and Advanced Payments Program ("AAPP").
In addition, the CARES Act suspended the 2% sequestration payment adjustments on Medicare patient claims with dates of service from May 1 through December 31, 2020, suspended the application of site-neutral payment for LTACH admissions that were admitted during the Public Health Emergency ("PHE"), and delayed payment of the employer portion of social security tax. On April 14, 2021, Congress passed legislation to continue the suspension of sequestration
payment adjustments of Medicare patient claims through December 31, 2021.
Provider Relief Fund
As of March 31, 2021, the Company had $i93.3 million in payments from the Provider Relief Fund. The Company intends to return these funds to the government and has recorded a short-term
liability of $i93.3 million in government stimulus advance in our condensed consolidated balance sheets.
AAPP
As of March 31, 2021, the Company had $i318.0
million of accelerated payments under the AAPP, which was recorded in contract liabilities - deferred revenue in our condensed consolidated balance sheets in accordance with Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers ("Topic 606"). On October 1, 2020, the repayment and recoupment terms for AAPP funds were amended by the Continuing Appropriations Act, 2021 and Other Extensions Act, which provides that recoupment will begin one year from the date the AAPP funds were received. Under these revised terms, recoupment of AAPP will occur under a tiered approach. Beginning in the second quarter of
2021 and continuing for 11 months, CMS will recoup 25% of Medicare payments otherwise owed to the Company. If any amount of AAPP funds that we received from CMS remain unpaid after the initial 11 month period, CMS will recoup 50% of Medicare payments otherwise
owed to the Company during the following six months. Interest will begin accruing on any amount of the AAPP funds that we received from CMS that remain unpaid following those recoupment periods. CMS will
issue a repayment letter to the Company for any such outstanding amounts, which must be paid in full within 30 days from the date of the letter. The Company intends to repay the full amount before any interest accrues.
Other
During the three months ended March 31, 2021, the Company recognized $i6.4
million of net service revenue due to the suspension of the 2% sequestration payment adjustment. During the three months ended March 31, 2021, the Company recognized $i8.9 million of net service revenue due to the suspension of LTACH site-neutral payments. As of March 31, 2021, the
Company deferred $i51.8 million of employer social security taxes, $i25.9 million of which was recorded in current liabilities - deferred
employer payroll tax and $i25.9 million of which was recorded in other long term liabilities on our condensed consolidated balance sheets.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020, the related unaudited condensed consolidated statements of income
for the three months ended March 31, 2021 and 2020, the unaudited condensed consolidated statements of changes in equity for the three months ended March 31, 2021 and 2020, the unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2021 and 2020, and related notes (collectively, these financial statements are referred to as the "interim financial statements" and together with the related notes are referred to herein as the “interim financial information”) have been prepared by the Company. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair presentation in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been included. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from the interim financial information presented. This report should be read in conjunction with the Company’s consolidated financial statements and related notes included in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 Form 10-K"). The 2020 Form 10-K was filed with the Securities and Exchange Commission (the “SEC”) on February 26, 2021, and includes information and disclosures not included herein.
2. iSignificant Accounting Policies
i
Use
of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported revenue and expenses during the reporting period. Actual results could differ from those estimates.
Critical Accounting Policies
The Company’s most critical accounting policies relate to revenue recognition.
i
Net
Service Revenue
Net service revenue from contracts with customers is recognized in the period the performance obligations are satisfied under the Company's contracts by transferring the requested services to patients in amounts that reflect the consideration to which is expected to be received in exchange for providing patient care, which is the transaction price allocated to the services provided in accordance with Topic 606andASU 2015-14, Revenue from Contracts
with Customers (Topic 606): Deferral of the Effective Date (collectively, "ASC 606").
Net service revenue is recognized as performance obligations are satisfied, which can vary depending on the type of services provided. The performance obligation is the delivery of patient care in accordance with the requested services outlined in physicians' orders, which are based on specific goals for each patient.
The performance obligations are associated with contracts in duration of less than one year; therefore, the optional exemption provided by ASC 606 was elected resulting in the Company not being required to disclose the aggregate amount of the transaction price allocated to
the performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting period. The Company's unsatisfied or partially unsatisfied performance obligations are primarily completed when the patients are discharged and typically occur within days or weeks of the end of the period.
The Company determines the transaction price based on gross charges for services provided, reduced by estimates for explicit and implicit price concessions. Explicit price
concessions include contractual adjustments provided to patients and third-party payors. Implicit price concessions include discounts provided to self-pay, uninsured patients or other payors, adjustments resulting from regulatory reviews, audits, billing reviews and other matters. Subsequent changes to the estimate of the transaction price are recorded as adjustments to net service revenue in the period of change. Subsequent changes that are determined to be the result of an adverse change in the patient's ability to pay (i.e. change in credit risk) are recorded as a provision for doubtful accounts within general and administrative expenses.
Explicit price concessions are recorded for the difference between our standard rates and the contracted rates to be realized from patients, third-party payors and others for services provided.
Implicit price concessions are recorded for self-pay,
uninsured patients and other payors by major payor class based on historical collection experience and current economic conditions, representing the difference between amounts billed and amounts expected to be collected. The Company assesses the ability to collect for the healthcare services provided at the time of patient admission based on the verification of the patient's insurance coverage under Medicare, Medicaid, and other commercial or managed care insurance programs.
Amounts due from third-party payors, primarily commercial health insurers and government programs (Medicare and Medicaid), include variable consideration for retroactive revenue adjustments due to settlements of audits and reviews. The Company has determined estimates for price concessions
related to regulatory reviews based on historical experience and success rates in the claim appeals and adjudication process. Revenue is recorded at amounts estimated to be realizable for services provided.
i
The following table sets forth the percentage of net service revenue earned by category of payor for the three months ended March 31, 2021 and 2020:
The
following describes the payment models in effect during the three months ended March 31, 2021. Such payment models have been subject to temporary adjustments made by CMS in response to COVID-19 pandemic as described elsewhere in this Quarterly Report on Form 10-Q. The i2% sequestration reduction adjustment was suspended for patient claims with dates of service that began May 1, 2020 through December 31, 2021.
The Company records revenue as services are provided under the Patient Driven Groupings Model ("PDGM"). For each i30-day period, the patient is classified into one of i432
home health resource groups prior to receiving services. Each i30-day period is placed into a subgroup falling under the following categories: (i) timing being early or late, (ii) admission source being community or institutional, (iii) one of 12 clinical groupings based on the patient's principal diagnosis, (iv) functional impairment level of low, medium, or high, and (v) a co-morbidity adjustment of none, low, or high based on the patient's secondary diagnoses.
Each 30-day period payment from Medicare reflects base payment adjustments for case-mix and
geographic wage differences. In addition, payments may reflect one of three retroactive adjustments to the total reimbursement: (a) an outlier payment if the patient’s care was unusually costly; (b) a low utilization adjustment whereby the number of visits is dependent on the clinical grouping; and/or (c) a partial payment if the patient transferred to another provider or from another provider before completing the episode. The retroactive adjustments outlined above are recognized in net service revenue when the event causing the adjustment occurs and during the period in which the services are provided to the patient. The Company reviews these adjustments to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustments is subsequently resolved. Net service revenue
and related patient accounts receivable are recorded at amounts estimated to be realized from Medicare for services rendered.
Hospice
The Company records revenue based upon the date of service at amounts equal to the estimated payment rates. The Company receives ione
of ifour predetermined daily rates based upon the level of care provided by the Company, which can be routine care, general inpatient care, continuous home care, and respite care. There are two separate payment rates for routine care: payment for the first 60 days of care and care beyond 60 days. In addition to the two routine rates, the Company
may also receive a service intensity add-on ("SIA"). The SIA is based on visits made in the last seven days of life by a registered nurse or medical social worker for patients in a routine level of care.
The performance obligation is the delivery of hospice services to the patient, as determined by a physician, each day the patient is on hospice care.
Adjustments to Medicare revenue are made from regulatory reviews, audits, billing reviews and other matters. The Company estimates the impact of these adjustments based on our historical experience.
Hospice payments are subject to variable consideration through an inpatient cap and an overall Medicare payment cap. The inpatient cap relates to individual programs receiving more than i20%
of their total Medicare reimbursement from inpatient care services, and the overall Medicare payment cap relates to individual programs receiving reimbursements in excess of a “cap amount,” determined by Medicare to be payment equal to 12 months of hospice care for the aggregate base of hospice patients, indexed for inflation. The determination for each cap is made annually based on the i12-month period ending on September 30 of each year. The Company monitors its limits
on a provider-by-provider basis and records an estimate of its liability for reimbursements received in excess of the cap amount, if any, in the reporting period.
Facility-Based Services
Gross revenue is recorded as services are provided under the LTACH prospective payment system. Each patient is assigned a long-term care diagnosis-related group. The Company is paid a predetermined fixed amount intended to reflect the average cost of treating a Medicare LTACH patient classified in that particular long-term care diagnosis-related group. For selected LTACH patients, the amount may be further adjusted based on length-of-stay and facility-specific costs, as well as in instances where a patient is discharged and subsequently re-admitted, among other factors. The
Company calculates the adjustment based on a historical average of these types of adjustments for LTACH claims paid. Similar to other Medicare prospective payment systems, the rate is also adjusted for geographic wage differences. Net service revenue adjustments resulting from reviews and audits of Medicare cost report settlements are considered implicit price concessions for LTACHs and are measured at expected value.
Non-Medicare Revenues
Other sources of net service revenue for all segments fall into Medicaid, managed care or other payors of the Company's services. Medicaid reimbursement is based on a predetermined fee schedule applied to each service provided. Therefore, revenue is recognized for Medicaid services as services are provided based on this fee schedule. The
Company's managed care and other payors reimburse the Company based upon a predetermined fee schedule or an episodic basis, depending on the terms of the applicable contract. Accordingly, the Company recognizes revenue from managed care and other payors as services are provided, such costs are incurred, and estimates of expected payments are known for each different payor, thus the Company's revenue is recorded at the estimated transaction price.
The HCI segment provides strategic health management services to Accountable Care Organizations ("ACOs") that have been approved to participate in the Medicare Shared Savings Program ("MSSP"). The HCI segment has service agreements with ACOs that provide for sharing of MSSP payments received by the ACO, if any. ACOs are legal entities that contract with CMS to provide services to the Medicare fee-for-service population for a specified annual period with the goal of providing better care for the individual, improving health for populations and lowering costs. ACOs share savings with CMS to the extent that the actual costs of serving assigned beneficiaries are below certain trended benchmarks of such beneficiaries and certain
quality performance measures are achieved. The generation of shared savings is the performance obligation of each ACO, which only become certain upon the final issuance of unembargoed calculations by CMS, generally in the third quarter of each year.
i
Patient Accounts Receivable
The Company reports patient accounts receivable from services rendered at their estimated transaction price, which includes price concessions based on the amounts expected to be due from payors. The
Company's patient accounts receivable is uncollateralized and primarily consist of amounts due from Medicare, Medicaid, other third-party payors, and to a lesser degree patients. The credit risk from other payors is limited due to the significance of Medicare as the primary payor. The Company believes the credit risk associated with its Medicare accounts is limited due to (i) the historical collection rate from Medicare and (ii) the fact that Medicare is a U.S. government payor. The Company does not believe that there are any other significant concentrations from any particular payor that would subject it to any significant credit risk in the collection of patient accounts receivable.
i
Earnings
Per Share
Basic per share information is computed by dividing the relevant amounts from the condensed consolidated statements of income by the weighted-average number of shares outstanding during the period, under the treasury stock method. Diluted per share information is also computed using the treasury stock method, by dividing the relevant amounts from the condensed consolidated statements of income by the weighted-average number of shares outstanding plus potentially dilutive shares.
i
The
following table sets forth shares used in the computation of basic and diluted per share information and, with respect to the data provided for the three months ended March 31, 2021 and 2020 (amounts in thousands):
Weighted
average number of shares outstanding for basic per share calculation
i31,165
i31,020
Effect
of dilutive potential shares:
Nonvested stock
i267
i283
Adjusted
weighted average shares for diluted per share calculation
i31,432
i31,303
Anti-dilutive
shares
i120
i120
/
Assets
Held for Sale
As of March 31, 2021, the Company's assets held for sale was $i3.1 million, which consisted of property and fixed assets of ione
hospice facility in Knoxville, Tennessee and ione pharmacy operation in Lafayette, Louisiana.
During the three months ended March 31, 2021, the Company entered into an Asset Purchase Agreement with a buyer concerning the sale of one pharmacy operation located in Lafayette, Louisiana. The sale occurred during the second quarter of 2021 for a purchase price of $i1.2 million.
i
Recently
Adopted Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Simplifications to accounting for income taxes, which removes certain exceptions to the general principles of Topic 740 and adds guidance to reduce complexity in accounting for income taxes. The Company adopted the new guidance effective January 1, 2021. The adoption of the new guidance did not have a material impact to the Company.
In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by the transition away from reference rates expected to be discontinued to alternative reference rates. The pronouncement is effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into on or before December 31, 2022. The Company is currently evaluating
the impact of this standard on the Company's consolidated financial statements.
3. Divestiture and iJoint Venture Activities
Divestiture
During the three months ended March 31,
2021, the Company sold its controlling membership interests in a home health agency previously operated as an equity joint venture. The total consideration for this controlling interest sale was $i0.2 million. The transaction was accounted for as a loss on the sale of an entity and recorded in general and administrative expenses.
Joint Venture Activities
During
the three months ended March 31, 2021, the Company purchased the noncontrolling membership interest in one of our equity joint venture partnerships, whereby the agency became a wholly-owned subsidiary of the Company. The total consideration for this noncontrolling interest purchase was $i0.1 million. The transaction
was accounted for as an equity transaction.
During the three months ended March 31, 2021, the Company sold a noncontrolling membership interest in a home health agency previously operated as an equity joint venture. The total consideration for this noncontrolling interest sale was $i0.3 million. The transaction was accounted for as an equity
transaction.
4. iGoodwill and Intangibles
i
The
changes in recorded goodwill and intangible assets by reporting unit for the three months ended March 31, 2021 were as follows (amounts in thousands):
The
Company did record an impairment of $i0.2 million related to the closure of underperforming locations. The amount of disposal of goodwill was determined using prices of comparable business in the market and the amount of disposal of the Medicare license was its carrying value at the time of closure. This was recorded in impairment of intangibles and other on the company's consolidated statements of income. In addition, the
Company divested a Certificate of Need of $i0.4 million, which was accounted for as a loss on the sale of an entity and recorded in general and administrative expenses.
iiThe
following tables summarize the changes in intangible assets during the three months ended March 31, 2021 and December 31, 2020 (amounts in thousands): /
Remaining
useful lives for trade names, customer relationships, and non-compete agreements were i8.5, i17.0, and i2.9
years, respectively, at March 31, 2021. Similar periods at December 31, 2020 were i8.8, i17.3, and i2.9
years for trade names, customer relationships, and non-compete agreements, respectively. Amortization expense was $ii0.3/
million for each of the three months ended March 31, 2021 and 2020, respectively. Amortization expense was recorded in general and administrative expenses.
5. iDebt
Credit Facility
On March
30, 2018, the Company entered into a Credit Agreement with JPMorgan Chase Bank, N.A., which was effective on April 2, 2018 (the "Credit Agreement"). The Credit Agreement provides a senior, secured revolving line of credit commitment with a maximum principal borrowing limit of $i500.0 million, which includes an additional $i200.0
million accordion expansion feature, and a letter of credit sub-limit equal to $i50.0 million. The expiration date of the Credit Agreement is March 30, 2023. The Company’s obligations under the Credit Agreement are secured by substantially all of the assets of the Company and its wholly-owned subsidiaries
(subject to customary exclusions), which assets include the Company’s equity ownership of its wholly-owned subsidiaries and its equity ownership in joint venture entities. The Company’s wholly-owned subsidiaries also guarantee the obligations of the Company under the Credit Agreement.
Revolving loans under the Credit Agreement bear interest at, as selected by the Company, either a (a) Base Rate, which
is defined as a fluctuating rate per annum equal to the highest of (1) the Federal Funds Rate in effect on such day plus i0.5% (2) the Prime Rate in effect on such day and (3) the Eurodollar Rate for a one month interest period on such day plus i1.5%,
plus a margin ranging from i0.50% to i1.25% per annum or (b) Eurodollar rate plus a margin ranging from i1.50%
to i2.25% per
annum, with pricing varying based on the Company's quarterly consolidated Leverage Ratio. Swing line loans bear interest at the Base Rate. The
Company is limited to i15 Eurodollar borrowings outstanding at any time. The Company is required to pay a commitment fee for the unused commitments at rates ranging from i0.20%
to i0.35% per annum depending upon the Company’s quarterly consolidated Leverage Ratio. The Base Rate as of March 31, 2021 was i4.00%
and the LIBOR rate was i1.88%.
On March 5, 2021, the ICE Benchmark Administration, the administrator of LIBOR, announced its intention to cease the publication of LIBOR settings for 1-month, 3-month, 6-month, and 12-month LIBOR borrowings immediately on June 30, 2023. The announcement did not identify any successor administrator.
As of March 31,
2021, the Company had letters of credit issued in the amount of $i25.4 million, and $i474.6
million of remaining borrowing capacity available under the Credit Agreement. At December 31, 2020, the Company had $i20.0 million drawn and letters of credit issued in the amount of $i25.4
million under the Credit Facility.
Under the terms of the Credit Agreement, the Company is required to maintain certain financial ratios and comply with certain financial covenants. The Credit Agreement permits the Company to make certain restricted payments, such as purchasing shares of its stock, within certain parameters, provided the Company maintains compliance with those financial ratios and covenants after giving effect to such restricted payments. The Company was in compliance with its debt covenants under the Credit Agreement at March 31,
2021.
6. iStockholder’s Equity
Equity Based Awards
The 2018 Incentive Plan is administered by the Compensation Committee of the Company’s Board of Directors. The total number of shares of the
Company's common stock originally reserved were i2,210,544 shares and a total of i1,754,704
shares are currently available for issuance. A variety of discretionary awards for employees, officers, directors, and consultants are authorized under the 2018 Incentive Plan, including incentive or non-qualified stock options and restricted stock, restricted stock units and performance-based awards. All awards must be evidenced by a written award certificate which will include the provisions specified by the Compensation Committee of the Board of Directors. The Compensation Committee determines the exercise price for stock options, which cannot be less than the fair market value of the Company’s common stock as of the date of grant.
Share Based Compensation
Nonvested Stock
During the three months ended March 31,
2021, the Company granted i7,200 nonvested shares of common stock to independent directors under the Second Amended and Restated 2005 Non-Employee Directors Compensation Plan. The shares vest i100%
on the ione year anniversary date.
During the three months ended March 31, 2021, employees and a consultant were granted i105,560
and i5,735 shares, respectively, of nonvested shares of common stock pursuant to the 2018 Incentive Plan. The shares vest over a period of ifive
years, conditioned on continued employment and in accordance with the consulting agreement. The fair value of nonvested shares of common stock is determined based on the closing trading price of the Company’s common stock on the grant date.
i
The following table represents the share grants activity for the three months ended March 31, 2021:
As
of March 31, 2021, there was $i48.4 million of total unrecognized compensation cost related to nonvested shares of common stock granted. That cost is expected to be recognized over the weighted average period of i3.33
years. The Company records compensation expense related to nonvested stock awards at the grant date for shares of common stock that are awarded fully vested, and over the vesting term on a straight-line basis for shares of common stock that vest over time. The Company estimates forfeitures at the time of grant and revises the estimate in subsequent periods if actual forfeitures differ to ensure that total compensation expense recognized is at least equal to the value of vested awards. The Company recorded $i3.5
million and
$i3.7 million of compensation expense related to nonvested stock grants for the three months ended March 31, 2021 and 2020,
respectively.
Employee Stock Purchase Plan
In 2006, the Company adopted the Employee Stock Purchase Plan whereby eligible employees may purchase the Company’s common stock at i95% of the market price
on the last day of the calendar quarter. There were i250,000 shares of common stock initially reserved for the plan. In 2013, the Company adopted the Amended and Restated Employee Stock Purchase Plan, which reserved an additional i250,000
shares of common stock to the plan.
i
The table below details the shares of common stock issued during 2021:
In
conjunction with the vesting of the nonvested shares of common stock or the exercise of stock options, recipients incur personal income tax obligations. The Company allows the recipients to turn in shares of common stock to satisfy minimum tax obligations. During the three months ended March 31, 2021, the Company redeemed i51,221
shares of common stock valued at $i9.5 million, related to share vesting tax obligations. Such shares are held as treasury stock and are available for reissuance by the Company.
7. iCommitments
and Contingencies
Contingencies
The Company provides services in a highly regulated industry and is a party to various proceedings and regulatory and other governmental and internal audits and investigations in the ordinary course of business (including audits by Zone Program Integrity Contractors ("ZPICs") and Recovery Audit Contractors ("RACs") and investigations resulting from the Company's obligation to self-report suspected violations of law). Management cannot predict the ultimate outcome of any regulatory and other governmental and internal audits and investigations. While such audits and investigations are the subject of administrative appeals, the appeals process, even if successful,
may take several years to resolve. The Department of Justice, CMS, or other federal and state enforcement and regulatory agencies may conduct additional investigations related to the Company's businesses. These audits and investigations have caused and could potentially continue to cause delays in collections, recoupments from governmental payors. Currently, the Company has recorded $i16.9
million in other assets, which are due from government payors related to the disputed finding of pending appeals of ZPIC audits. Additionally, these audits may subject the Company to sanctions, damages, extrapolation of damage findings, additional recoupments, fines, and other penalties (some of which may not be covered by insurance), which may, either individually or in the aggregate, have a material adverse effect on the Company's business and financial condition.
We are involved in various legal proceedings arising in the ordinary course of business. Although the results of litigation cannot be predicted with certainty, we believe the outcome of pending litigation will not have a material adverse effect, after considering the effect of our insurance
coverage, on our consolidated financial information.
Legal fees related to all legal matters are expensed as incurred.
Joint Venture Buy/Sell Provisions
Most of the Company’s joint ventures include a buy/sell option that grants to the Company and its joint venture partners the right to require the other joint venture party to either purchase all of the exercising member’s membership interests or sell to the exercising member all of the non-exercising member’s membership interest, at the non-exercising member’s option, within i30
days of the receipt of notice of the exercise of the buy/sell option. In some instances, the purchase price is based on a multiple of the historical or future earnings before income taxes and depreciation and amortization of the equity joint venture at the time the buy/sell option is exercised. In other instances, the buy/sell purchase price will be negotiated by the partners and subject to a fair market valuation process. The Company has not received notice from any joint venture partners of their intent to exercise the terms of the buy/sell agreement nor has the Company notified any joint venture partners of its intent to exercise the terms of the buy/sell agreement.
The laws and regulations governing the Company’s operations, along with the terms of participation in various government programs, regulate how the Company does business, the services offered and its interactions with patients and the public. These laws and regulations, and their interpretations, are subject to frequent change. Changes in existing laws or regulations, or their interpretations, or the enactment of new laws or regulations could materially and adversely affect the Company’s operations and financial condition.
The
Company is subject to various routine and non-routine governmental reviews, audits and investigations. In recent years, federal and state civil and criminal enforcement agencies have heightened and coordinated their oversight efforts related to the health care industry, including referral practices, cost reporting, billing practices, joint ventures and other financial relationships among health care providers. Violation of the laws governing the Company’s operations, or changes in the interpretation of those laws, could result in the imposition of fines, civil or criminal penalties and/or termination of the Company’s rights to participate in federal and state-sponsored programs and suspension or revocation of the
Company’s licenses. The Company believes that it is in material compliance with all applicable laws and regulations.
8. iNoncontrolling interests
The Company classifies noncontrolling interests
of its joint venture parties based upon a review of the legal provisions governing the redemption of such interests. In each of the Company’s joint ventures, those provisions are embodied within the joint venture’s operating agreement. For joint ventures with operating agreement provisions that establish an obligation for the Company to purchase the third-party partners’ noncontrolling interests other than as a result of events that lead to a liquidation of the joint venture, such noncontrolling interests are classified as redeemable noncontrolling interests in temporary equity. For joint ventures with operating agreement provisions that establish an obligation that the Company purchase the third party partners’
noncontrolling interests, but which obligation is triggered by events that lead to a liquidation of the joint venture, such noncontrolling interests are classified as nonredeemable noncontrolling interests in permanent equity. Additionally, for joint ventures with operating agreement provisions that do not establish an obligation for the Company to purchase the third-party partners’ noncontrolling interests (e.g., where the Company has the option, but not the obligation, to purchase the third-party partners’ noncontrolling interests), such noncontrolling interests are classified as nonredeemable noncontrolling interests in permanent equity.
The Company’s equity joint
ventures that are classified as redeemable noncontrolling interests are subject to operating agreement provisions that require the Company to purchase the noncontrolling partner’s interest upon the occurrence of certain triggering events, which are defined as the bankruptcy of the partner or the partner’s exclusion from the Medicare or Medicaid programs. These triggering events and the related repurchase provisions are specific to each redeemable equity joint venture, since the triggering of a repurchase obligation for any one redeemable noncontrolling interest in an equity joint venture does not necessarily impact any of the other redeemable noncontrolling interests in other equity joint ventures. Upon the occurrence of a triggering event requiring the purchase of a redeemable noncontrolling interest, the
Company would be required to purchase the noncontrolling partner’s interest based upon a valuation methodology set forth in the applicable joint venture agreement.
Redeemable noncontrolling interests and nonredeemable noncontrolling interests are initially recorded at their fair value as of the closing date of the transaction establishing the joint venture. Such fair values are determined using various accepted valuation methods, including the income approach, the market approach, the cost approach, and a combination of one or more of these approaches. A number of facts and circumstances concerning the operation of the joint venture are evaluated for each transaction, including (but not limited to) the ability to choose management, control over acquiring or liquidating assets, and controlling the joint venture’s strategy and direction, in order to determine the fair value of the noncontrolling interest.
Based
upon the Company’s evaluation of the redemption provisions concerning redeemable noncontrolling interests as of March 31, 2021, the Company determined in accordance with authoritative accounting guidance that it was not probable that an event otherwise requiring redemption of any redeemable noncontrolling interest would occur (i.e., the date for such event was not set or such event is not certain to occur). Therefore, none of the redeemable noncontrolling interests were identified as mandatorily redeemable interests at such times, and the Company did not record any values in respect of any mandatorily redeemable interests.
Subsequent
to the closing date of the transaction establishing the joint venture, the Company records adjustments to the carrying amounts of noncontrolling interests during each reporting period to reflect (a) comprehensive income (loss) attributed to each noncontrolling interest, which is calculated by multiplying the noncontrolling interest percentage by the comprehensive income (loss) of the joint venture’s operations, (b) dividends paid to the noncontrolling interest partner, and (c) any other transactions that increase or decrease the Company’s ownership interest in each joint venture, as a result of which the Company retains its controlling interest. If the
Company determines that, based upon its analysis as of the end of each reporting period in accordance with authoritative accounting guidance, that it is not probable that an event would occur to otherwise require the
redemption of a redeemable noncontrolling interest (i.e., the date for such event is not set or such event is not certain to occur), then the Company does not adjust the recorded amount of such redeemable noncontrolling interest.
The carrying amount of each redeemable equity instrument presented in temporary
equity for the three months ended March 31, 2021 is not less than the initial amount reported for each instrument.
i
The following table summarizes the activity of noncontrolling interest-redeemable for the three months ended March 31, 2021 (amounts in thousands):
The
Company determines if a contract contains a lease at inception date. The Company's leases are operating leases, primarily for office and office equipment, that expire at various dates over the next ifive years. The facility based leases have renewal options for periods ranging from one to nine years. As it is not reasonably certain these renewal options will be exercised, the options were not considered in the lease term, and payments associated
with the option years are excluded from lease payments.
Payments due under operating leases include fixed and variable payments. These variable payments for the Company's office leases can include operating expenses, utilities, property taxes, insurance, common area maintenance, and other facility-related expense. Additionally, any leases with terms less than one year were not recognized as operating lease right of use assets or payables for short term leases in accordance with the election of ‘package of practical expedient’ under ASU 2016-02.
The Company recognizes operating lease right of use assets and operating lease payable based on the present value of the future
minimum lease payments at the lease commencement date. The Company's leases do not provide implicit rates. Therefore, the Company used an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments. As of March 31, 2021, the weighted-average remaining lease term was i4.10 and weighted-average
discount rate was i4.42%.
i
The following table summarizes the operating lease right of use assets and related lease payables in our condensed consolidated balance
sheets at March 31, 2021 and December 31, 2020 (amounts in thousands):
The carrying amounts of the Company’s cash, receivables, accounts payable and accrued liabilities approximate their fair values because of their short maturity.
11. iSegment
Information
The Company's reporting segments include (1) home health services, (2) hospice services, (3) home and community-based services, (4) facility-based services, and (5) HCI. The accounting policies of the segments are the same as those described in the summary of significant accounting policies, as described in Note 2 of the Notes to Condensed Consolidated Financial Statements.
Reportable segments have been identified based upon how management has organized the business by services provided to customers and how the chief operating decision maker manages the business and allocates resources, consistent with the criteria in ASC 280, Segment Reporting.
i
The
following tables summarize the Company’s segment information for the three months ended March 31, 2021 and 2020 (amounts in thousands):
Cost
of service revenue (excluding depreciation and amortization)
i220,440
i38,034
i38,453
i20,342
i3,933
i321,202
General
and administrative expenses
i116,023
i16,626
i11,459
i10,380
i3,378
i157,866
Operating
income (loss)
i31,358
i5,871
(i1,448)
(i1,041)
(i937)
i33,803
Interest
expense
(i1,900)
(i303)
(i266)
(i219)
(i80)
(i2,768)
Income
(loss) before income taxes and noncontrolling interest
i29,458
i5,568
(i1,714)
(i1,260)
(i1,017)
i31,035
Income
tax expense (benefit)
i3,289
i608
(i206)
(i199)
(i133)
i3,359
Net
income (loss)
i26,169
i4,960
(i1,508)
(i1,061)
(i884)
i27,676
Less
net income (loss) attributable to noncontrolling interests
i4,606
i967
(i155)
i243
(i9)
i5,652
Net
income (loss) attributable to LHC Group, Inc.'s common stockholders
$
i21,563
$
i3,993
$
(i1,353)
$
(i1,304)
$
(i875)
$
i22,024
Total
assets
$
i1,548,224
$
i251,354
$
i252,846
$
i90,791
$
i69,067
$
i2,212,282
12. iIncome
Taxes
The effective tax rate for the three months ended March 31, 2021 and 2020 benefited from $i2.1 million and $i1.2 million,
respectively, of excess tax benefits associated with stock-based compensation arrangements.
U.S. GAAP prescribes a recognition threshold and measurement attribute for the accounting and financial statement disclosure of tax positions taken or expected to be taken in a tax return. The evaluation of a tax position is a two-step process. The first step requires the Company to determine whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. The second step requires the Company to recognize in the financial statements each tax position that meets the more likely than not criteria, measured at the amount of benefit that has a greater than 50% likelihood of
being realized. The Company’s unrecognized tax benefits would affect the tax rate, if recognized. The Company includes the full amount of unrecognized tax benefits in income taxes payable in noncurrent liabilities in the company's condensed consolidated balance sheets. The Company anticipates it is reasonably possible an increase or decrease in the amount of unrecognized tax benefits could be made in the next twelve months. However, the Company does not presently anticipate that any increase or decrease in unrecognized tax benefits will
be material to the consolidated financial statements. As of March 31, 2021 and December 31, 2020, the Company recognized $i6.4 million and $i6.2
million, respectively, in unrecognized tax benefits.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains certain statements, including the potential future impact of COVID-19 on our results of operations and liquidity, the potential impact of actions we have taken to mitigate the impact of COVID-19, the potential impact on supply chain
disruptions and increased costs associated with obtaining personal protective equipment, the expected benefit of the CARES Act on our liquidity, and information that may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements relate to future plans and strategies, anticipated events or trends, future financial performance, and expectations and beliefs concerning matters that are not historical facts or that necessarily depend upon future events. The words “may,”“should,”“could,”
“would,”“expect,”“plan,”“intend,”“anticipate,”“believe,”“estimate,”“project,”“predict,”“potential,” and similar expressions are intended to identify forward-looking statements. Specifically, this report contains, among others, forward-looking statements about:
•our expectations regarding financial condition or results of operations for periods after March 31, 2021;
•our critical accounting policies;
•our business strategies and our ability to grow our business;
•our participation in the Medicare and Medicaid programs;
•the
reimbursement levels of Medicare and other third-party payors, including changes in reimbursement resulting from regulatory changes;
•the prompt receipt of payments from Medicare and other third-party payors;
•our future sources of and needs for liquidity and capital resources;
•the effect of any regulatory changes or anticipated regulatory changes;
•the effect of any changes in market rates on our operations and cash flows;
•our ability to obtain financing;
•our ability to make payments as they become due;
•the
outcomes of various routine and non-routine governmental reviews, audits and investigations;
•our expansion strategy, the successful integration of recent acquisitions and, if necessary, the ability to relocate or restructure our current facilities;
•the value of our proprietary technology;
•the impact of legal proceedings;
•our insurance coverage;
•our competitors and our competitive advantages;
•our ability to attract and retain valuable employees;
•the price of our stock;
•our
compliance with environmental, health and safety laws and regulations;
•our compliance with health care laws and regulations;
•our compliance with Securities and Exchange Commission laws and regulations and Sarbanes-Oxley requirements;
•the impact of federal and state government regulation on our business; and
•the impact of changes in future interpretations of fraud, anti-kickback, or other laws.
The forward-looking statements included in this report reflect our current views about future events, are based on assumptions, and are subject to known and unknown risks and uncertainties. Many important factors could cause actual results or achievements to
differ materially from any future results or achievements expressed in or implied by our forward-looking statements. Many of the factors that will determine future events or achievements are beyond our ability to control or predict. Important factors that could cause actual results or achievements to differ materially from the results or achievements reflected in our forward-looking statements include, among other things, the factors discussed in the Part II, Item 1A. “Risk Factors,” included in this report and in our other filings with the SEC, including our 2020 Form 10-K, as updated by our subsequent filings with the SEC. This report should be read in conjunction with the 2020 Form 10-K, and all of our other filings made with the SEC through the date of this report, including quarterly reports on Form 10-Q and current reports on Form 8-K.
The forward-looking statements contained in this report reflect our views
and assumptions only as of the date this report is filed with the SEC. Except as required by law, we assume no responsibility for updating any forward-looking statements.
We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
You should read this report, the information incorporated by reference into this report, and the documents
filed as exhibits to this report completely and with the understanding that our actual future results or achievements may differ materially from what we expect or anticipate.
Unless the context otherwise requires, “we,”“us,”“our,” and the “Company” refer to LHC Group, Inc. and its consolidated subsidiaries.
OVERVIEW
General
We provide quality, cost-effective post-acute health care services to our patients. As of March 31, 2021, we have 829 service providers in 35 states within the continental United States
and the District of Columbia. Our services are classified into five segments: (1) home health services, (2) hospice services, (3) home and community-based services, (4) facility-based services primarily offered through our long-term acute care hospitals (“LTACHs”), and (5) healthcare innovations services ("HCI"). We intend to increase the number of service providers within each of our segments that we operate through continued acquisitions, joint ventures, and organic development.
Our home health service locations offer a wide range of services, including skilled nursing, medically-oriented social services, and physical, occupational, and speech therapy. As of March 31, 2021, we operated 531 home health services locations, of which 318 are wholly-owned, 209 are majority-owned through equity joint ventures, two are under license lease arrangements, and the
operations of the remaining two locations are only managed by us.
Our hospices provide end-of-life care to patients with terminal illnesses through interdisciplinary teams of physicians, nurses, home health aides, counselors, and volunteers. We offer a wide range of services, including pain and symptom management, emotional and spiritual support, inpatient and respite care, homemaker services, and counseling. As of March 31, 2021, we operated 120 hospice locations, of which 56 are wholly-owned, 62 are majority-owned through equity joint ventures, and two are under license lease arrangements.
Through our home and community-based services segment, services are performed by skilled nursing and paraprofessional personnel, and include assistance with activities of daily living to the elderly, chronically ill, and disabled patients. As
of March 31, 2021, we operated 129 home and community-based services locations, of which 117 are wholly-owned and 12 are majority-owned through equity joint ventures.
We provide facility-based services principally through our LTACHs. As of March 31, 2021, we operated 11 LTACHs with 12 locations, all but three of which are located within host hospitals. We also operate two skilled nursing facilities, one pharmacy, a family health center, a rural health clinic, one physician practice, and 18 therapy clinics. Of these 36 facility-based services locations, 26 are wholly-owned, and 10 are majority-owned through equity joint ventures.
Our HCI segment reports on our developmental activities outside its other business segments. The HCI segment includes (a) Imperium Health Management,
LLC, an ACO enablement company, (b) Long Term Solutions, Inc., an in-home assessment company serving the long-term care insurance industry, and (c) certain assets operated by Advanced Care House Calls, which provides primary medical care for patients with chronic and acute illnesses who have difficulty traveling to a doctor’s office. These activities are intended ultimately, whether directly or indirectly, to benefit our patients and/or payors through the enhanced provision of services in our other segments. The activities all share a common goal of improving patient experiences and quality outcomes, while lowering costs. They include, but are not limited to, items such as: technology, information, population health management, risk-sharing, care-coordination and transitions, clinical advancements, enhanced patient engagement and informed clinical decision and technology enabled in-home clinical assessments. We have 13 HCI locations, of which 12 are wholly-owned
and one is majority-owned through an equity joint venture.
The Joint Commission is a nationwide commission that establishes standards relating to the physical plant, administration, quality of patient care, and operation of medical staffs of health care organizations. Currently, Joint Commission accreditation of home nursing and hospice agencies is voluntary. However, some managed care organizations use Joint Commission accreditation as a credentialing standard for regional and state contracts. As of March 31, 2021, the Joint Commission had accredited 500 of our 531 home health services locations and 98 of our 120 hospice agencies. Those not yet accredited are
working towards achieving this accreditation. As we acquire companies, we apply for accreditation 12 to 18 months after completing the acquisition.
The percentage of net service revenue contributed from each reporting segment for the three months ended March 31, 2021 and 2020 was as follows:
Three
Months Ended March 31,
Reporting segment
2021
2020
Home health services
71.2
%
71.7
%
Hospice
services
11.9
11.8
Home and community-based services
9.4
9.5
Facility-based services
6.4
5.8
Healthcare
innovations services
1.1
1.2
100.0
%
100.0
%
Recent Developments
The reader is encouraged to review our detailed discussion of health care legislation and
Medicare regulations in the similarly titled section in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” along with the discussions in Part I, Item 1, “Business; Government Regulation” and in Part I, Item 1A, “Risk Factors” in our 2020 Form 10-K.
Coronavirus and Coronavirus Aid, Relief, and Economic Security Act
The following portions of the CARES Act impacted us during the three months ended March 31, 2021:
•Suspension of the 2% sequestration payment adjustment: CMS suspended the 2% sequestration payment adjustment for patient claims with dates of services from May 1, 2020 through December
31, 2020, which was subsequently amended to continue through December 31, 2021. During the three months ended March 31, 2021, we recognized $6.4 million of net service revenue due to the suspension of the 2% sequestration payment adjustment.
•Waiver of the application of site-neutral payment: Under Section 1886(m)(6)(A)(i) of the Act, the claims processing systems was updated to pay all LTACH cases admitted during the COVID-19 PHE period at the LTACH PPS standard federal rate, effective for claims with an admission date occurring on or after January 27, 2020 through the end of the PHE period. During the three months ended March 31, 2021, we recognized $8.9 million of net service
revenue due to the suspension of site-neutral payments.
While during the three months ended March 31, 2021, we did not experience a material disruption in our ability to continue to provide services to our patients, there is no guarantee that we won’t experience such service disruption in the future or a decrease in demand for our services as a result of COVID-19. The rapid development and fluidity of this situation makes it difficult to predict the ultimate impact of COVID-19 on our business and operations. Nevertheless, COVID-19 presents a material uncertainty which could materially impact our business and results of operations in the future.
Hospice
On April 8, 2021, CMS released a proposed rule for fiscal year 2022 to update payment
rates and the wage index. The proposed hospice payment update is a 2.3% increase to the payment rates. The proposed rule will apply a 2.5% market basket update and a 0.2 percentage point cut for productivity. In addition, the proposed rule increases the aggregate cap value of $31,389.66 for fiscal year 2022, as compared to $30,683.93 for fiscal year 2021.
Based on these estimates, the following are the proposed fiscal year 2022 base payment rates for various levels of care, which will begin on October 1, 2021 and will end September 30, 2022 and final fiscal year 2021 base payment rates for various levels of care, which began on October 1, 2020 and will end September 30, 2021 (payment rates for hospice providers not complying
with the hospice quality reporting requirements will be 2% lower than the values referenced below):
$59.68 = hourly rate for 2021 $61.07 = hourly rate for 2022
Inpatient Respite Care
$
474.43
$
461.09
General Inpatient Care
$
1,070.35
$
1,045.66
Facility-based
On April 27, 2021, CMS issued a proposed rule for the fiscal year 2022 Long-Term Care Hospital Prospective Payment System ("LTACH-PPS"), which described that CMS expects LTACH-PPS payments for fiscal year 2022 to increase by 1.4%. LTACH-PPS payments for fiscal year 2022 for discharges paid using the standard LTACH payment rate are expected to increase by 1.2% due primarily to the annual standard Federal rate update for fiscal year 2022 of 2.2% and a projected 0.8% decrease in high cost outlier payments. LTACH-PPS payments for fiscal year 2022 for discharges paid using the site neutral payment rate are expected to increase by 3%.
The following table summarizes our consolidated results of operations for the three months ended March 31, 2021 and 2020 (amounts in thousands, except percentages, which are percentages of consolidated net service revenue, unless indicated otherwise):
2021
2020
Increase (Decrease)
Net
service revenue
$
524,835
$
512,871
$
11,964
Cost of service revenue (excluding depreciation and amortization)
310,272
59.1
%
321,202
62.6
%
(10,930)
General
and administrative expenses
163,249
31.1
157,866
30.8
5,383
Impairment of intangibles and other
177
—
177
Interest
expense
(263)
(2,768)
(2,505)
Income tax expense
9,441
26.2
(1)
3,359
26.8
(1)
6,082
Net
income attributable to noncontrolling interests
6,774
5,652
1,122
Net income attributable to LHC Group, Inc.’s common stockholders
$
34,659
$
22,024
$
12,635
(1)
Effective tax rate as a percentage of income from continuing operations attributable to our common stockholders, excluding the excess tax benefits realized of $2.1 million and $1.2 million during the three months ended March 31, 2021 and 2020, respectively. The effective tax rate for the three months ended March 31, 2020 also benefited from a $2.2 million impact from the enactment of the CARES Act.
Net service revenue
The following table sets forth each of our segment’s revenue growth or loss, admissions, census, episodes, patient days, and billable hours for the three months ended March 31, 2021 and the related change from the same period
in 2020 (amounts in thousands, except admissions, census, episode data, patient days and billable hours, which are actual amounts; net service revenue excludes implicit price concessions):
The
below data for the three months ended March 31, 2021 was impacted by the COVID-19 pandemic.
Organic (1)
Organic Growth (Loss) %
Acquired (2)
Total
Total Growth (Loss) %
Home health services
Revenue
$
377,744
3.1
%
$
3,981
$
381,725
2.2
%
Revenue
Medicare
$
239,405
(3.1)
$
2,761
$
242,166
(4.1)
Admissions
107,142
(0.4)
780
107,922
(0.2)
Medicare
Admissions
53,979
(9.0)
434
54,413
(9.1)
Average Census
83,136
10.1
802
83,938
9.0
Average
Medicare Census
44,769
(0.8)
468
45,237
(1.9)
Home Health Episodes
83,695
(4.7)
915
84,610
(6.2)
Hospice
services
—
Revenue
$
60,431
2.7
$
3,833
$
64,264
6.8
Revenue
Medicare
$
55,677
2.9
$
3,747
$
59,424
7.3
Admissions
5,323
7.6
254
5,577
10.2
Medicare
Admissions
4,734
7.6
176
4,910
8.4
Average Census
4,183
(0.9)
274
4,457
3.9
Average
Medicare Census
3,898
(0.8)
265
4,163
4.2
Patient days
376,419
(1.9)
24,700
401,119
2.8
Home
and community-based services
Revenue
$
48,960
(1.2)
$
541
$
49,501
(1.6)
Billable
hours
1,872,841
(4.0)
28,440
1,901,281
(4.2)
Facility-based services
LTACHs
Revenue
$
32,127
17.6
$
—
$
32,127
17.6
Patient
days
21,160
5.0
—
21,160
5.0
Other facility-based services
Revenue
$
1,901
(35.9)
$
—
$
1,901
(35.9)
HCI
Revenue
$
5,939
(10.8)
$
—
$
5,939
(10.8)
Consolidated
Revenue
$
527,102
3.2
$
8,355
$
535,457
2.8
(1)
Organic - combination of same store, a location that has been in service with us for greater than 12 months, and de novo, an internally developed location that has been in service for 12 months or less.
(2) Acquired - purchased location that has been in service with us 12 months or less.
We had a decrease in our home health revenue per episode during 2020. COVID-19 caused our Medicare reimbursement to decline due to a decrease in patient acuity and a decrease in institutional admissions. Patient volumes declined in our home and community-based segment due to the continued impact of COVID-19.
Our home health and hospice segment received the benefit of the suspension of the 2% sequestration payment adjustment for Medicare claims and the LTACHs received the benefit of the suspension of the 2% sequestration payment
adjustment and the waiver of site-neutral payments for LTACH Medicare claims.
The following table summarizes cost of service revenue (amounts in thousands, except percentages, which are percentages of the segment’s respective net service revenue):
During
2021, our cost of service revenue was impacted by effective cost mitigation strategies associated with the implementation of PDGM within the home health segment. Cost of service revenue in our home and community-based segment declined due to the lower patient volumes resulting in a decrease in billable hours and a decrease in total costs.
General and administrative expenses
The following table summarizes general and administrative expenses (amounts in thousands, except percentages, which are percentages of the segment’s respective net service revenue):
Consolidated
general and administrative expenses increased as a percentage of net service revenue from 30.8% in 2020 to 31.1% in 2021. The increase in general and administrative expenses as a percentage of net service revenue was a result of heightened costs and the additional administrative costs of COVID-19 and increased investments in our technology infrastructure. Finally, the increase from 2021 to 2020 related to costs associated with the completion of certain acquisitions during latter part of 2020.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Our cash balance at March 31, 2021 was $292.3 million and we have $555.7 million of
available liquidity from cash and our revolving credit facility, net of $411.2 million liabilities associated with the AAPP and Provider Relief Fund. Based on our current plan of operations, including acquisitions, we believe this amount, when combined with expected cash flows from operations and amounts available under our revolving credit facility will be sufficient to fund our growth strategy and to meet our anticipated operating expenses, capital expenditures, and debt service obligations for at least the next 12 months.
Our principal source of liquidity for operating activities is the collection of patient accounts receivable, most of which are collected from governmental and third-party commercial payors. We also have the ability to obtain additional liquidity, if necessary, through our credit facility, which provides for aggregate borrowings, including outstanding letters of credit.
The
following table summarizes changes in cash (amounts in thousands):
A reduction in our days sales outstanding
and stabilized costs for needed personal protective equipment improved our operating cash flows in 2021. We did not utilize any proceeds in our credit agreement during 2021 as compared to the first quarter of 2020, which caused the decrease of cash used in our financing activities.
Indebtedness
On March 30, 2018, we entered into a Credit Agreement with JPMorgan Chase Bank, N.A., which was effective on April 2, 2018 (the "Credit Agreement"). The Credit Agreement provides a senior, secured revolving line of credit commitment with a maximum principal borrowing limit of $500.0 million, which includes an additional $200.0 million accordion expansion feature, and a letter of credit sub-limit equal to $50.0 million. The expiration date of the Credit Agreement is March
30, 2023. Our obligations under the Credit Agreement are secured by substantially all of the assets of the Company and its wholly-owned subsidiaries, which assets include the Company’s equity ownership of its wholly-owned subsidiaries and its equity ownership in joint venture entities. Our wholly-owned subsidiaries also guarantee the obligations of the Company under the Credit Agreement.
Revolving
loans under the Credit Agreement bear interest at, as selected by us, either a (a) Base Rate, which is defined as a fluctuating rate per annum equal to the highest of (1) the Federal Funds Rate in effect on such day plus 0.5%, (2) the Prime Rate in effect on such day, and (3) the Eurodollar Rate for a one month interest period on such day plus 1.5%, plus a margin ranging from 0.50% to 1.25% per annum or (b) Eurodollar rate plus a margin ranging from 1.50% to 2.25% per annum. Swing line loans bear interest at the Base Rate. We are limited to 15 Eurodollar borrowings outstanding at the same time. We are required to pay a commitment fee for the unused commitments at rates ranging from 0.20% to 0.35% per annum depending upon our consolidated Leverage Ratio, as defined in the Credit Agreement. The Base Rate as of March 31, 2021 was 4.00% and the LIBOR rate was 1.88%.
On March
5, 2021, the ICE Benchmark Administration, the administrator of LIBOR, announced its intention to cease the publication of LIBOR settings for 1-month, 3-month, 6-month, and 12-month LIBOR borrowings immediately on June 30, 2023. The announcement did not identify any successor administrator.
As of March 31, 2021, we had letters of credit outstanding in the amount of $25.4 million under the Credit Agreement, and had approximately $474.6 million of remaining borrowing capacity available under the Credit Agreement. At December 31, 2020, we had $20.0 million drawn and letters of credit outstanding in the amount of $25.4 million under the Credit Facility.
Under the Credit Agreement with JPMorgan Chase Bank, N.A., a letter of credit
fee shall be equal to the applicable Eurodollar rate on the average daily amount of the letter of credit exposure. The agent’s standard up-front fee and other customary administrative charges will also be due upon issuance of the letter of credit along with a renewal fee on each anniversary date of such issuance while the letter of credit is outstanding. Borrowings accrue interest under the Credit Agreement at either the Base Rate or the Eurodollar rate, and are subject to the applicable margins set forth below:
Our Credit Agreement contains customary
affirmative, negative and financial covenants, which are subject to customary carve-outs, thresholds, and materiality qualifiers. The Credit Facility allows us to make certain restricted payments within certain parameters provided we maintain compliance with those financial ratios and covenants after giving effect to such restricted payments or, in the case of repurchasing shares of its stock, so long as such repurchases are within certain specified baskets.
Our Credit Agreement also contains customary events of default, which are subject to customary carve-outs, thresholds, and materiality qualifiers. These include bankruptcy and other insolvency events, cross-defaults to other debt agreements, a change in control involving us or any subsidiary guarantor, and the failure to comply with certain covenants.
At March 31, 2021, we
were in compliance with all debt covenants.
Contingencies
For a discussion of contingencies, see Note 7 of the Notes to Condensed Consolidated Financial Statements, which is incorporated herein by reference.
Off-Balance Sheet Arrangements
We do not currently have any off-balance sheet arrangements with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. As
such, we are not materially exposed to any financing, liquidity, market, or credit risk that could arise if we had engaged in these relationships.
Critical Accounting Policies
For a discussion of critical accounting policies, see Note 2 of the Notes to Condensed Consolidated Financial Statements, which is incorporated herein by reference. For a full description of the Company's other critical accounting policies, see Note 2 of the Notes to Consolidated Financial Statements in the 2020 Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our
exposure to market risk relates to changes in interest rates for borrowings under our credit facility. Our letter of credit fees and interest accrued on our debt borrowings are subject to the applicable Eurodollar or Base Rate. A hypothetical basis point increase in interest rates on the average daily amounts outstanding under the credit facility would not have increased our interest expense for the three months ended March 31, 2021.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We established disclosure controls and procedures which are designed to provide reasonable assurance of achieving their objectives and to ensure that information
required to be disclosed in its reports filed under the Securities Exchange Act of 1934 as amended (the “Exchange Act”) is recorded, processed, summarized, disclosed and reported within the time periods specified in the SEC’s rules and forms. This information is also accumulated and communicated to our management and Board of Directors to allow timely decisions regarding required disclosure.
In connection with the preparation of this Quarterly Report on Form 10-Q, as of March 31, 2021, under the supervision and with the participation of management, including the principal executive officer and principal financial officer, management conducted an evaluation of the effectiveness of the disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act.
Based on this evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2021, the end of the period covered by this Quarterly Report.
Changes in Internal Controls Over Financial Reporting
We, including the principal executive officer and principal financial officer, do not expect that our disclosure controls or our internal controls over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls’ effectiveness to future
periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and, based on an evaluation of the controls and procedures, the principal executive officer and principal financial officer concluded the disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2021, the end of the period covered by this Quarterly Report.
For a discussion of legal proceedings, see Note 7 of the Notes to Condensed Consolidated Financial Statements, which is incorporated herein by reference.
ITEM 1A. RISK FACTORS.
There have been no material changes in the Company’s risk factors from those in Part I, Item
1A, “Risk Factors” of our 2020 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
XBRL
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101.SCH
XBRL Schema Document
101.CAL
XBRL Calculation Linkbase Document
101.DEF
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101.LAB
XBRL
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Attached as Exhibit 101 to this report are documents formatted in XBRL (Extensible Business Reporting Language). Users of this data are advised pursuant to Rule 406T of Regulation S-T that the interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of section 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise not subject to liability under these sections. The financial information contained in the XBRL-related documents is “unaudited” or “unreviewed.”
*This
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Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.