Earnings Transcript for AMED - Q4 Fiscal Year 2022

Operator: Greetings and welcome to the Amedisys Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions]. It is now my pleasure to introduce your host, Mr. Nick Muscato, Chief Strategy Officer. Thank you. Please go ahead.

Nick Muscato: Thank you, operator, and welcome to the Amedisys investor conference call to discuss the results of the fourth quarter and year ended December 31, 2022. A copy of our press release, supplemental slides and related Form 8-K filing with the SEC are available on the Investor Relations page of our website. Speaking on today's call from Amedisys will be Paul Kusserow, Chairman and CEO; and Scott Ginn, CFO and Acting COO. Before we get started with our call, I would like to remind everyone that statements made on this conference call today may constitute forward-looking statements and are protected under the safe harbor of the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to Amedisys today. The company assumes no obligation to update information provided on this call to reflect subsequent events other than as required under applicable securities laws. These forward-looking statements may involve a number of risks and uncertainties, which may cause the company's results or actual outcomes to differ materially from such statements. These risks and uncertainties include factors detailed in our SEC filings, including our Forms 10-K, 10-Q and 8-K. In addition, as required by SEC Regulation G, a reconciliation of any non-GAAP measure mentioned during our call today to the most comparable GAAP measure will also be available in our Forms 10-K, 10-Q and 8-K. Thank you, and I'll turn the call over to Amedisys' Chairman and CEO, Paul Kusserow.

Paul Kusserow: Thanks, Nick. Hello, everyone, and welcome to the Amedisys Fourth Quarter and Year-end 2022 Earnings Call. It's a privilege to be back and talking to you all again. In a few short months I've been back as CEO, I've had the distinct pleasure of spending time in the field with our clinicians who provide the highest-quality care to their patients wherever they call home. What you do on a daily basis is truly inspiring and reaffirms to me more than ever that the future of Amedisys is extraordinary and unique. Despite a choppy 2022, our 20,000-plus associates have successfully steered us to deliver results that we can really be proud of. As I've returned as CEO, the 2 questions I get are

Scott Ginn: Thanks, Paul. For the fourth quarter of 2022 on a GAAP basis, we delivered net income of $31.7 million or $0.97 per diluted share on $562 million in revenue, a revenue increase of $3 million compared to 2021. For the full year 2022 on a GAAP basis, our net income was $119 million or $3.63 per diluted share or $2.22 billion in revenue. For the quarter, our results were impacted by income or expense items, adjusting our GAAP results that we've been characterized as noncore, temporary or onetime in nature. Slide 14 of our supplemental slides provides detail regarding these items and the income statement line items each adjustment impacts. For the full year of 2022 on an adjusted basis, revenue grew $25 million or 1% to $2.2 billion. EBIT decreased $38 million or 12.5% to $262 million. EBITDA as a percentage of revenue decreased 190 basis points to 11.7%, and EPS decreased $0.94 to $5.01. The key drivers of our decrease in EBITDA were the reinstatement of sequestration during 2022 and losses from the acquisitions, which negatively impacted EBITDA by $47 million for 2022. Adjusting for these items, our legacy operations improved $9 million over prior year and a year with a significant shift in business mix and continued wage pressures. For the fourth quarter on an adjusted basis, our results were as follows. Revenue grew $3 million to $562 million. EBITDA decreased $5 million or 7.6% to $60 million. The reinstatement of sequestration and acquisitions reduced EBITDA by $13 million over prior year. Performing a similar normalization, our debt for full year results in $8 million year-over-year improvement in legacy performance. EBITDA as a percentage of revenue decreased 90 basis points to 10.7%. EPS decreased $0.02 to $1.16 per share. Now turning to our fourth quarter adjusted segment performance. Keep in mind, segment-level EBITDA is pre-corporate allocation. In home health, revenue was $343 million, up $5 million or 2% compared to prior year. Revenue per episode was $30 -- was up $38 or 1.3%. The increase in revenue per episode is a result of a 3.2% increase in reimbursement, partially offset by the reinstatement of sequestration at 2%. Total same-store admissions were up 5% driven by growth in our per visit payers. Business and commission costs per visit increased $6.64. An increase in cost per visit was driven by planned wage increases, an increase in salary employees and the impact of lower visits. G&A increased approximately $4 million mainly driven by acquisitions. Segment EBITDA decreased $4 million to $60 million, which is inclusive of a $7 million impact from the reinstatement of sequestration and acquisitions. EBITDA margin declined 140 basis points to 7.4% as our increase in revenue per episode and the decrease in visits per episode were not enough to overcome labor pressures and a changing mix of business. Now turning to our hospital segment results. For the fourth quarter, revenue was $198 million, down $7 million over prior year. Net revenue per day was down $1.42. The 3.8% rate increase was offset by the reinstatement of sequestration and revenue adjustments. Hospice cost per day decreased $3.24 primarily due to clinical optimization and reorganization initiatives, lower staffing levels and lower contractor utilization. EBITDA was $44 million, up approximately $3 million, which is inclusive of the negative impact of $4 million from the reinstatement of sequestration. G&A decreased $3 million due to clinical optimization and reorganization initiatives and lower staffing levels. Our business development strategy of shifting our referral patterns has resulted in lower admit volume, which allowed us to offset some of the typical Q4 seasonality around discharge rates. We are very pleased with our 220 basis point improvement in EBITDA margin despite census pressure. The combination of a fair rate update and our clinical optimization initiatives positions the segment for strong performance as our census recovers. Turning to our total general and administrative expenses. On an adjusted basis, total G&A was $189 million or 33.6% of total revenue, up 80 basis points. Excluding acquisitions, G&A was flat. Sequentially, G&A is up $7 million driven by higher incentive compensation costs, lower gains on the sale of fleet vehicles and the seasonality-driven increase in health insurance. For the quarter, we generated $41 million in cash flow from operations, which includes $27 million in repayment of deferred payroll taxes. For the year, we generated $133 million in cash flow from operations, which includes both the payment of deferred payroll taxes in the current quarter and the $34 million paid in Q3 for the ZPIC settlement. Our net leverage ratio at the end of the quarter was 1.5x. As you can see on Page 16 of our supplemental slide deck, we're initiating our guidance ranges for 2023. Our guidance ranges are adjusted revenue of $2.244 billion to $2.274 billion, adjusted EBITDA of $230 million to $240 million, and adjusted EPS of $4.13 to $4.36 on an estimated 32.9 million shares outstanding. Before I go into more details around our 2023 guidance, I think it is helpful to remind everyone that changes in our current 2023 outlook compared to our thoughts as we began 2022. First, our expectations for 2023 included a home health Medicare rate update of 2% to 3%, which would have added $20 million to $30 million in EBITDA. Secondly, we anticipated being further along in our high-acuity segment and expect a reduction in EBITDA losses. Additionally, 2023 will be the first year since 2019 that we will not benefit from the suspension of sequestration or the add-back of COVID-related costs. Normalizing for the $13 million in sequestration and $6 million in COVID costs results in a 2022 starting point of $243 million as we bridge to 2023. Beyond the sequestration and COVID costs, there are several key factors impacting our 2023 guidance, which are outlined on Slides 17 and 18 of our supplemental slides. These items consist of the following. Higher-than-normal labor costs and enhancements to our benefit plans result in approximately $45 million headwind; keep in mind, our first half of 2022 results were impacted by raises given in August of 2022; an incentive compensation headwind of $23 million; continued mix shift away from episodic past to per visit resulted in a $14 million headwind; other items totaling approximately $10 million, such as an increase in the mileage reimbursement rate for our commissions and higher supply and freight costs; and last, the divestiture of our PCL line of business, which contributed $6 million segment-level EBITDA in 2022 and was budgeted to contribute $4 million of EBITDA between May and December of 2023. We expect revenue growth, margin improvement, clinical optimization, reorganization initiatives and a hospice rate increase of 3.8% to be our key drivers in overcoming the majority of the headwinds. Keep in mind that while the industry's home health rate update is expected to be 0.7%, our modeling suggests a flat update for our operations in 2023. As such, the net pricing update for the home health and hospice segments for 2023 is $14 million net of sequestration reinstatement. Some additional items which are typical as we move from Q4 to Q1 are

Operator: [Operator Instructions]. Today's first question is coming from Brian Tranquilut of Jefferies.

Brian Tanquilut: I guess, just my question on the guidance, Scott, really appreciate all the color that you've given. But maybe as I think about the bridge, right, I mean, just any detail that you can give us that would highlight your confidence in the achievability of this given kind of like the guidance track record last year? And then maybe for Paul, how are you thinking about guidance-setting this year? And what do you need to do to deliver and execute on these targets that you've set for earnings this year?

Paul Kusserow: Yes. I can -- let me just start off in terms of what our expectations are. And Scott has been -- we've been working on this for a long time and really thinking it through. It's conservative. We do have to hit marks, for sure, in this environment. But I think what we've done, and Nick has been really good helping us with this, we're pulling on the right levers. So if we do the right thing in terms -- particularly in terms of turnover and -- which has a big flow through, we are able to go back to some of the payers and renegotiate some of these contracts, maybe move some to case rate drive down. I'm confident we can drive down the Contessa losses as we dig in deeper to the clients. So I feel very -- but I'm always this way, I'm always very optimistic about this. I think I think we have a lot to say grace over, and I feel very good about it. But we do have -- this is a year of tremendous execution. And I feel good about Scott in the COO seat. So I think he's going to drive the results well. So I'll turn it over to him after I set him up for this.

Scott Ginn: I appreciate it. Brian, certainly a lot of thought and a lot of learnings over the last couple of years from a guidance perspective. I think if you look back and kind of think about how to view this, I would say that I think there's more predictability in some of the outcomes. I think there's still a lot of moving parts around mix. We talk about labor will still be a challenge. But we are seeing some -- a little bit more consistency in hospice discharge rates. The volume is strong from a home health perspective. It's to be how do we manage that capacity. So I think there's enough levers and opportunities in the year for us to perform. And if you go step back historically and you can kind of look at how we've done some things, is that we probably were a little bit more aggressive on the top line in the past and left more room on the cost side. I think we took a different approach for that. We always pulled down on costs. We're significantly under what we thought last year, but not enough to overcome the misses around the top line. So I think we were more thoughtful and gave ourselves more run rate moving into 2023. So I feel good about what we put together. But we're 1 month in and so far, so good. And we'll talk again after another quarter.

Paul Kusserow: Yes, it's been a good start.

Operator: The next question is coming from Matt Larew William Blair.

Matthew Larew: Maybe I'll just pile a couple here on the MA side. One would be just in terms of the Aetna deal, if you could just give us an update on how that has been progressing after the positive update you gave last quarter. And then within the MA book, I think you'd referenced that about half of that revenue base was in the process of being moved over. Just either what's contemplating guidance or more of what your expectations are in terms of when and if that piece is over? And Paul, is there sort of a cutoff at some point here where you're going to add negotiations and kind of move on to the other business? Just trying to think about how you're pressuring the payers to sort of get with the program.

Paul Kusserow: Yes. We've been sitting down with quite extensive maps. And again, we -- as I talked about in the prepared remarks, we believe that the paradigm is changing. And I think with the absorption, as we talked about last night, there's 3 -- traditionally 3 big players, 2 of them are going away. And so we're the big independent one. And I think a lot of people are coming to us and trying to figure out how to get that capacity that potentially could be absorbed into the 2 large MA players that are going to be taking out the 2 competitors. So I feel that it's going to be a very, very different paradigm with capacity constraints. So we're at the table with all the big payers. As I talked about, we've gotten a lot of anecdotal evidence that post-acute costs are going up. I've definitely heard with some large hospital systems that have gone to bid that the length of stay is a significant problem because of the inability to discharge into the home. So again, that's pushing demand. So as the -- as we are able to secure all the -- the big thing for us is securing that labor supply and making sure we have it. And then I think at that -- then we want to go back and start to do our own utilization with case rate like we've been doing with Aetna and then give that back to them in terms of capacity. So Aetna is going well. It's early days, but it's going well. And we're clearly engaging with the rest of the industry to bring some others over the line so that we can have case -- more case rate deals versus per visit deals. I don't know, Scott, did I miss anything?

Scott Ginn: I think you covered it. I think that we see that as an opportunity as we manage it. I think one thing, as you look at our -- we've called out some clinical optimization initiatives out there. Centralization of intake is one item we did, and I think that gives us -- will give us a better visibility into the appropriate management of our capacity, which we'll speak a lot into how we deal with the managed care issues going forward. So we think there's a lot of opportunities there. And we expect to be aggressive around the table to get the right rates that we deserve.

Paul Kusserow: Yes. And in places -- I guess, let me just answer your question directly also, Matt. If we can't get better contracts and we have other places to take our business, we'll start to either cancel those contracts and start to move our business. So we clearly have been looking at the maps and studying. If we have to get to that level, we'll do it.

Operator: The next question is coming from Justin Bowers of Deutsche Bank.

Justin Bowers: So a 2-parter for me. One, just on hospice. It sounds like discharge rates are stabilizing, and we know that's been sort of an industry-wide issue during the pandemic. But as you look forward to 2023, how do you parse out sort of your ability to execute versus what may or may not be some lingering structural challenges in the issue with the hospice guide? And then Scott, if you could just help us bridge 4Q to 1Q 2023 with all the moving parts, that would be helpful.

Scott Ginn: Yes. Sure, Justin. So from a discharge rate, you're absolutely right, we've seen stabilization around those. I think we're seeing it more predictable. The patterns match up to what they have been historically. They're just still at a higher rate. So that -- it hasn't exactly returned, but I feel like we've got a good line of sight there. I mean, I think what it's pushed us from an admit perspective is really watching our referral sources. And we ran through some periods where we had high high-churn patients, which took a toll in our commissions. And we looked at data. If you have more than 6 deaths in a month, the propensity of turnover is much higher. So that became a concern for us. So I think we've gotten more directed in how we're really look at our referral sources and as we manage it. And we've guided to roughly a 3% ADC growth. That will be a slow and steady slog throughout the year, but I think it's achievable and I feel good about what our teams have in place going forward. If we think about just going to the Q4 to Q1, Q1 is going to be interesting. And we've always said to talk about year-over-year and sequestration issues. Remember, we'll still have sequestration in the comps in prior year. So the Q1 margins are going to be the toughest ones because they had a full sequestration benefit in Q1 of last year. As we think about the walk forward, I called out some items that certainly were impactful, and some of them are normal seasonality, one around the 2-day differential in days on hospice, which is roughly $4 million, payroll tax reset is roughly $2 million. And we do put back our STI and LTI plans. That's probably another $3 million. So you've got roughly a $9 million noise going from Q4 to Q1. This year is even going to be a bigger issue because we have the COVID cost issue coming in. That's another $1.5 million to $2 million because we will not be adding that back. And then last year, we had a $7 million good guy for rate increase on home health. So that's not going to be here this year. So last year, we were plus $1.5 million. So I would say that number is going to be closer to a 50 type of a number in this year when you kind of put all those pieces together.

Operator: The next question is coming from A.J. Rice of Credit Suisse.

A.J. Rice: I might just ask a little bit more on the labor. Paul, you're talking about being sure you differentiate yourself. And I know one thing you guys have talked about is making sure there's some fuel subsidies and so forth. I wonder if you'd talk more in a tight market how Amedisys is going to differentiate itself among the labor pool and get that incremental nurse. I don't think it's paying more. And then specifically to understand how tight it is, are you turning away volume at this point? Or are you able to get -- cover the volume that you want to get that's coming your way?

Paul Kusserow: Yes. In certain cases -- I'll answer that, but we have our fantastic new Head of Human Resources here. I'm going to punt to him because he's got all the details, which thus far, he's done a great job. But yes, are there -- are we turning away business in certain markets where we're having a hard time hiring? Yes, we call them NTUCs, and we do have NTUCs. I think the question that I'm always looking with NTUCs is there's some I don't mind and there's others I do mind. So -- but in general, we're pretty accommodating, and we make it work because we have a good PRN pool and we can bring that to work. We don't like bringing in contractors to do it, but in certain cases, we've done that. And that's what we're trying to do is bring that pool, our PRN pool, so that we can take care of it that way. But in general, our NTUCs are quite under control and only in a couple places. I'll turn it over to Adam to talk about how we're doing competitively and why we're going to produce some of the fantastic results we say we're going to produce.

Adam Holton: Yes. Sure. Thanks, Paul. And A.J., great question. I'll just highlight a few things. Obviously, on the people, labor side, it's 2 parts of the equation

Paul Kusserow: So you asked, A.J. and Adam delivered, so thanks.

Operator: Our next question is coming from Ben Hendrix of RBC Capital Markets.

Benjamin Hendrix: What are your plans for the proceeds from the personal care divestiture? Specifically, are you're marking any of that for reinvestment into the PC network strategy or to other developments? And then related to that, you noted really strong reception among regional PC providers when you announced that network strategy some years ago. Just wondering if you can update us on how that's grown and how impactful that could be as a top line contribution over the long term.

Scott Ginn: Let me -- I'll start with just the proceed question and let Paul talk a little bit more about the network. So from a proceed perspective, we have a robust M&A pipeline, and we're excited to have that. We've got some good opportunities ahead of us. Right now, we're sitting on -- at the end of 12/31, nothing drawn on our revolver. So certainly, a lot of dry powder, and this would add to it. I think a buyback is always something we can think about. We have $100 million authorized under -- from our Board of Directors. So we can do that. But I think my immediate desire would see where we're going is M&A pipeline first. I mean interest rates have creeped up. We're sitting at a 5% rate on that revolver at this point. So that's somewhat meaningful. So right now, we'll kind of hold it a bit and see if we can get some deals over the finish line. If not, we certainly can buy back some stock at an opportune time.

Paul Kusserow: Yes. And Ben, good question on the personal care. We have a network. So we've put that together. We've just added Houseworks who -- the CEO of Houseworks who used to run our personal care business. So we sold it back to him. So we're very -- and a lot of the needs are based in the Northeast. So we feel good about that. Our primary partners are Brightstar and WellSky, and so we cover almost all the ZIP codes in the U.S. So when we need them, we've been integrating them in. It's largely been a-- basically been mainly focused on running the business in the 3 states we're in, but we're going to move that. And the reason why we think this is the right time to start to move the network is, particularly with Contessa scaling up, there's a lot of need for personal care in there, particularly with a higher-acuity patient to make sure that their activities of daily living are taken care of, their social determinants, that sort of thing, which is what this group is good at. So I think we're going to be employing that network pretty heavily through Contessa. Also as we move into the palliative care business, we do need personal care. I was out visiting some care centers last week up in New England and was just looking at how they were staffing. And again, I think there's going to be more need for personal care. So we anticipate in coordination with the clinical care that we're delivering both on the home health and hospice side. So I feel very good about how that's going to grow. But we built it now -- the field of dreams, we built it. And we're going to make sure they come. And I don't know what we're going to be expecting from a top line growth, but this business will grow because we put together a rather unique asset, particularly for our benefit.

Operator: The next question is coming from John Ransom of Raymond James.

John Ransom: Paul, when you got back under the hood and looked at Contessa, what do you think the core issue is in terms of it being slower to ramp? Do you think it's just your hospital partners being more bureaucratic than you thought? Or is it payers resisting, doctors resisting? What do you think the real is here is there?

Paul Kusserow: I think everybody loves the idea, and I think everybody is addicted to the idea. I think once we actually look at the complication of implementing the idea -- again, I went to some big systems and really dug in to see what's going on. It's making sure the hospitalists, the folks running the ERs are all bought in reselling, reselling, reselling. I think that's it. I also think that some of the hospitals are plugged up. And particularly, I think we're -- there's some big benefits for us though. As their length of stay continues to go up, they're going to have to find ways to decant a lot of these patients and push them elsewhere. And that's what Contessa is very good at. And then we've been talking with them about saying, if you're really having length of stay issues, these DRGs are the ones you don't want to get locked up in the hospital system. So I think a lot of it's working through convincing them that the 111 DRGs that we do target that generally are not moneymakers for these hospitals are what's appropriate. So I feel good about that, particularly with the length of stay pressures on the financials for the hospitals. On the payer side, it's -- on the payer side, they take a while to do risk-based programs. They want to look at the corridors, they want to look at our algorithms. I feel in the Tennessee deal that we just closed and announced, that took a year. And what we ended up was a really good deal with the folks, but it was very fair. But I think that going through that exercise was good. We're going through the exercise with other payers. Again, the value proposition of Contessa is so good from the perspective of the providers, the payers, the patients. You get a trifecta with that. And I think that ultimately is what's pushing Contessa through. But they -- but our -- very clear, we've heard -- I've heard in all 14 partners I've gone to see, they want more. And so that's what we're figuring out now is how to scale, get there faster because I think we've been slow out of the gate.

Operator: The next question is coming from Scott Fidel of Stephens Inc.

Scott Fidel: Two quick questions. First, just on Contessa. It would be helpful if you can walk us through the full year loss expectation and then how you expect that may sort of trend over the course of the year in terms of the quarters. And then second, just if you've got a view on operating cash flow expectations for 2023.

Paul Kusserow: You want to take that one?

Scott Ginn: Yes. Sure. I'll tell you. Just from a loss perspective, we're pretty much flat to where we are late this year. I think we came in around a $30 million EBITDA drag. I think that will kind of be in that range again next year. And from a -- how to think about the timing, that I would say probably 54% of that losses will be in the first half with around 40 -- the rest of it, the 46%, in the back half. You're going to have some early quarter loading around some of this risk from the accounting from a risk-based perspective. So you'll have a little bit heavier cost potentially early on there. So that's what we see that from a view perspective. I think we feel good about how that develops throughout the year. From a cash flow from ops, we're looking somewhere around, I'd say, 2 10 million to 2 15 type of million dollar number, which is pretty strong for us. Had a decent year this year even without -- with the payback and deferred. We had that ZPIC payback that I mentioned in my prepared comments. So we expect another strong year of cash flow from ops as we bridge into a year with about to have another $50 million in cash coming on to the sale of PCL with only 1.5x levered. So we would be very excited about getting some of these deals that we have in this pipeline closed.

Paul Kusserow: Yes. We like it. Do you want to talk a little bit about the pipeline? What you're looking at? What we like?

Scott Ginn: Sure. I think the one thing to really kind of update from our dialogues probably in the past is we talked to a lot of heavy, heavy on home health. We want to do small home health deals. I think one I'd say that -- a lot of JV conversations in the pipeline now, which has been new. And I think Contessa is really -- which has driven that. More hospice coming in lately, which has been interesting. And I think we're ready to -- the deal that we can get through diligence and has the best fit geographically will be the one we get done. So a lot of great deals, a lot of things that have come into play recently, and we feel very good to have such a full pipeline.

Paul Kusserow: Yes. Low leverage, full pipeline and lower prices. So it's time to go out and buy. So we're focusing on that.

Operator: The next question is coming from Tao Qiu of Stifel.

Tao Qiu: I'd like to ask about the home health visit per episode. That number dipped further to 12.5 in the fourth quarter. I think last quarter, you guys mentioned that the metrics would stabilize at 13.2 to 13.4. Is there any structural reason that could keep visitation lower than the stabilized level for longer? And what's a good number to use in our assumption for the year?

Scott Ginn: Yes. I think the pressure -- some of the pressure around that is you do see some softer visits and higher lupus coming out of the holiday months into the winter months. So that's coming down a bit, stepping down. It's probably not unusual. I think capacity issues certainly play into that, unfortunately. We don't like to see that impact the care about patients, but it's the reality of where we are today. I would expect -- and if you get last year, I think we were in the 13-ish type of range. I think you would see us probably hover around there. I think you'll still -- from a cost perspective, we'll be lower probably in Q1, and they'll probably even out. But I think in that 13, 13.2 is probably a range that makes sense. But you won't get back there immediately just from the dynamics coming off of holiday months and so forth. And Q1 will probably stay pretty light.

Operator: The next question is coming from Whit Mayo of SVB Securities.

Benjamin Mayo: I think, Paul, one of the reasons that you and the industry have taken Medicare Advantage in the past is that your referral sources asked for it. They frankly require you to take it. And historically, it just feels like they've been intertwined to a degree. And so how do you ring fence the risk that if you go down the path of going out of network or cutting off MA referrals that you could inadvertently impact your fee-for-service, too? It just feels going down this path, there is risk that the strategy could disrupt overall operations. Just how do you think about that dynamic?

Paul Kusserow: No. That's a great question. Thanks. Yes, so I've been out -- obviously, I don't want to start to say that I'm going to start to redirect business unless I go out and figure out with the people that are directing the business. So I've been out talking to discharge planners, case managers, talking with our CTCs who are in the hospitals, talking with the folks who are out there in -- our account executives who are talking to doctors. And the issue is -- it used to be -- as you alluded to, it used to be, I'm going to give you a bundle and there's good stuff in the bundle and there's not-so-good stuff from a business perspective, and you take the whole bundle or you go to the back of the line. And that's how -- when there was ample capacity, we took that. Now you go to the discharge planners, and there is just take it. Whatever you can take, take. And since our quality is so good, we're always at the first of the line in terms of -- because we've been producing on STARS. So I think we can have more serious negotiations with these folks. And I've talked to them about this. And I think -- and since managed care is absorbing a fair amount of the capacity of our competitors. I think that capacity will get steered towards our competitors, which is lower-paying business. So I think in general, it's going to -- I think it's, again, a new paradigm. I think it's a new conversation. We got 850 salespeople who got to go out and have these conversations. But I'm comfortable because length of stay is such an intensive pressure right now. I think they just want to get people out of the hospital bed. So I think it's going to move to our benefit. Again, it's like in a capacity-constrained environment.

Operator: The next question is coming from Gary Taylor of Cowen.

Gary Taylor: I had 2 questions. The first on Contessa, I know the last couple of quarters, you've given EPS dilution. It sort of seems like that's running maybe $8 million or $9 million EBITDA loss a quarter. And so maybe that's somewhere between $30 million and $40 million EBITDA loss in '22. I just want to make sure I had that right. And then from the third quarter, I thought -- I might not remember this, but I thought there was a thinking maybe that would improve $20 million or so. So I guess, I just want to get to kind of -- is that about where you were running? And how much improvement is embedded in the '23 guidance for Contessa.

Scott Ginn: Yes, you're right on top of that. We did for the full year, Contessa lost about $30 million. I would say we're going to continue on with that kind of $30 million type of loss, we think, which is embedded in our guidance right now. Do we get ahead of that and outperform? Potentially. But right now, we're considering it from a loss perspective, flat year-over-year. I think if you go back in my prepared comments, we would have thought -- I think we would have brought down Contessa probably roughly $10-ish million at the beginning. But I think some developments in palliative care as we stand up that program as well as some slowness in hitting some of the -- where we thought we would be with some other JV relationships, I think we're behind. I think we've acknowledged that, but I think we feel very good about where this is headed from a long-term perspective.

Paul Kusserow: Yes. And I think what we've also done is we've brought over some really good new clients that we are ramping up on -- some prestigious ones. So Memorial Hermann, Baylor Scott & White, University of Arkansas are doing really interesting stuff. So we're going to jump in on those because we think that, one, there's a tremendous depth of business that we can go in and have really good contributions. And we've made that choice, and I think it was a good choice.

Operator: The next question is coming from Joanna Gajuk of Bank of America.

Joanna Gajuk: So when it comes to your guidance, you talk about a 5% volume growth target for home health. So inside that target, what do you assume the Medicare people service volume growth to be versus the non-Medicare? Because including the Medicare, at least the way you disclosed, the Medicare fee-for-service revenue has been declining high single digits, while the other piece is growing much faster. So that's the first part of the question. And I guess it's tied to my second question around staffing. So do you need to grow your clinical staff, the 5% in home health and 3% in hospice, on a net basis to drive the volumes? And I guess, how did you do in terms of net staffing last year?

Scott Ginn: Yes. So first, on the growth, we guide to 5% growth. That total admit growth, really didn't give a color. We haven't really given a lot of color on Medicare. But I would say that in order to keep -- and moving that, I would say we had some slight growth in Medicare business going forward. I think we're being pretty conservative around that number based on what we've seen with enrollment numbers as well as utilization. Utilization of the Medicare benefit for Medicare enrollees actually came down in that back half of the year, which has probably surprised the industry a bit. We've seen it as we look at data from competitors across the board. So we still believe we're taking share even in a market that's depressed. So we'll continue to do that. But that will certainly -- as it develops throughout the year, we'll be thing we'll watch closely. From a staffing, we're going to have to continue to grow staffing. I think there are certain markets where we do have better opportunity on Medicare, where we were probably lighter staffed. Our Northeast region is an area that we have some opportunity. So we're focused, and Adam alluded to really having some focused care center calls where we really need to get staffing in. So we'll continue to do that. And we're going to one on one, add staff, slow down the turnover and make sure all these clinical optimization initiatives that our clinicians can be as efficient as possible where we maximize productivity. That's really our goal for 2023.

Operator: The next question is coming from Andrew Mok of UBS.

Andrew Mok: Just wanted to follow up on Contessa. Was hoping you could give us a bit more detail on the financial outlook and time line there. You mentioned stable operating results, I think, for '23 from an operating loss perspective. But it sounds like there's a lot of activity with respect to JV partnerships. So just curious when the revenue from those JV partnerships will materialize in results. And what's the new time line to break even from all of this?

Nick Muscato: Andrew, this is Nick. I can take that one. This is one of those questions where we're going to answer with it. It depends, right? And I think a lot of that is dependent upon which line of business within Contessa is growing and where the payer interest has been, right? So we have our core group of joint venture partners today where we're doing Hospital at Home, SNF at Home, and we'll look to grow that number into the future. You're going to see some additional volume opportunity within kind of that core business set as JVs that we executed but were not implemented in 2022 come online in 2023. So that will be a partial driver of the top line. And then as you can see in kind of the bridge that we laid out in the guide, the palliative business has the opportunity to grow top line pretty significantly as we get better experience and more experience with that business. There should be some earnings that come along with that. So you could see some significant step-ups in revenue in the coming years, especially land more palliative deals. And that's not going to directly result in a moderation of those losses. So it really depends on which line of business is growing the fastest. We continue to work every day, like Paul said, with our joint venture partners to increase volume to service their needs. That is obviously a cost-effective way to help impact that loss number. Not ready to come out and give specific guidance around when we get to breakeven because we need to see how some of these new contract developments play out over the course of this year. But as soon as we have better line of sight around that, obviously, we will let you guys know. We do think that, as we stated last year, we're at kind of the nexus from a loss perspective. So things will only improve from here. But again, it's just going to depend on what those payer relationships look like and what those hospital relationships would look like as we move throughout 2023.

Paul Kusserow: And I think just to add to what Nick is saying, Andrew, is we -- the palliative -- if we do palliative right, we can solve a lot of the loss issues with 2 or 3 more palliative deals. So we're out pushing those very hard and having a lot of conversations. So we're hopeful we can do that. And again, we've got 12 extremely good partners, 14 all in, but 12 really good places to go very deep and continue to -- we'll continue to focus on growing those 5, 10x what they currently are today. So again, we just have to play where we already are and dig deeper. So we view the opportunity as fairly close at hand. And the other thing is, as these prestigious systems come to us and want to partner with us, we believe that we're going to continue to take them. And then hopefully, as we do that, we'll get more efficient at getting them up to scale faster than what we're doing now.

Operator: The last question today is coming from John Ransom of Raymond James.

John Ransom: Just the connectRN investment, I know the hope was to try to integrate a gig staffing model inside your home health business. Where is that going relative to your initial expectations? And what are the plans for that in 2023?

Nick Muscato: John, thanks for the question. I would say when we talked about the connectRN investment, we talked about kind of a 2-part phasing of how we utilize their services. One, kind of using the platform as is to help us find contracted staff in areas of acute need, which we did kind of in the Northeast last year and had a couple of pilots running for specifically kind of that Phase 1 implementation. Phase 2 has always been what I think is the more interesting opportunity, especially as we talk about capacity constraints and this dynamic of people coming on to Amedisys and then transitioning to part time and then to PRN. So we have a large untapped capacity opportunity within our PRN staff. And we are now piloting in 2 of our home health regions. And we'll be rolling this out likely to the remainder of the organization throughout the year, utilizing that platform to offer our PRN workforce shift-based labor with the hopes that we get an additional couple of visits out of those folks a week. Like Scott said, I think, on this call, those are people that are already credentialed, already provisioned. They know our system. And so in a world where capacity is key, if we're able to drive additional productivity out of that group, that's a big offset to potential contractor cost that we see in our cost per visit. So that pilot is rolling out as we speak today. I think we would probably got to this point a little bit faster than we thought we would just kind of given the need. And so the connectRN team has been incredibly receptive and helpful to helping us think through what is a very differentiated kind of staffing strategy within home health, and we'll look to kind of maximize that opportunity throughout the year.

Paul Kusserow: Yes. And just to follow up on Nick, John, I was out in Wakefield, Massachusetts where we were piloting connectRN and got some direct feedback about how in a very constrained labor environment, it was enabling them to take care of more patients so -- as well as helping them build out a PRN pool, so bringing in outside folks as well as taking and making our existing pool more efficient. So we feel good about it. And that's the future, particularly as the gig economy kicks in to health care workers who want that level of independence. This is going to be a key thing.

Operator: At this time, I would like to turn the floor back over to Mr. Kusserow for closing comments.

Paul Kusserow: Well, thank you very much. I appreciate it. I want to thank everyone who joined us on our call today. I would also like, again, to thank all of our caregivers who delivered yet another great quarter of results. Thank you for all you do. Thanks for taking care of the patients that really need us. So it's much appreciated. I'd like to thank all of you on the phone as well and on the webcast for your interest in Amedisys and care in the home, and I'm looking forward to seeing you all out there on the road in the coming weeks. Until then, take care. Thanks for listening.

Operator: Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.