LHC Group (LHCG)

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LHC Group (LHCG)

Q3 2012 Earnings Call

November 08, 2012 11:00 am ET


Eric C. Elliott - Vice President of Investor Relations

Keith G. Myers - Co-Founder, Chairman and Chief Executive Officer

Peter J. Roman - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer

Donald D. Stelly - President and Chief Operating Officer


Ralph Giacobbe - Crédit Suisse AG, Research Division

Darren Lehrich - Deutsche Bank AG, Research Division

Kevin Campbell - Avondale Partners, LLC, Research Division

Bradley D. Maiers - Piper Jaffray Companies, Research Division

Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division

Wes Huffman - Avondale Partners, LLC, Research Division



Good day, ladies and gentlemen. Welcome to the LHC Group Third Quarter 2012 Earnings Conference Call. [Operator Instructions] And as a reminder, this conference is being recorded. Now I'll turn the conference over to Eric Elliott, Senior Vice President of Investor Relations for LHC Group. Please begin.

Eric C. Elliott

Thank you, Tyrone, and welcome, everyone, to LHC Group's earnings conference call for the third quarter ended September 30, 2012. Hopefully, everyone has received a copy of our earnings release. If not, you may obtain a copy along with other key information about LHC Group and the industry on our website at www.lhcgroup.com. In a moment, we'll hear from Keith Myers, Chief Executive Officer, Don Stelly, President and Chief Operating Officer; and Pete Roman, Chief Financial Officer of LHC Group.

Before that, I would like to remind everyone that statements included in this conference call and in our press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements include, but are not limited to, comments regarding our financial results for 2012 and beyond. Actual results could differ materially from those projected in forward-looking statements because of a number of risk factors and uncertainties, which are discussed in our annual and quarterly SEC filings. LHC Group shall have no obligation to update the information provided on this call to reflect subsequent events.

Now I'm pleased to introduce the CEO of LHC Group, Keith Myers.

Keith G. Myers

Thank you, Eric, and good morning, everyone. Like so many along the eastern seaboard, many of our LHC Group employees and shareholders for that matter, are dealing with the effects of Hurricane Sandy. I'd like to first take a moment and let those impacted know that our thoughts and prayers are with you and your families. A total of 30 of our LHC locations were in the storm's path and I'm so proud of our employees who continue to go above and beyond to help ensure the well-being of our patients.

Like all residents along the Gulf Coast, LHC Group grappled with many short-term challenges from Hurricane Isaac. This slow-moving storm affected 85 of our locations for an extended period. However, we are proud of the dedication exhibited by our clinicians, who helped make sure every patient was safe before, during and after the storm. Our LHC Group team continues to show resiliency in the face of challenge and adversity. Once again, we have clearly demonstrated our ability to operate efficiently, delivering high-quality care in a cost-effective manner, even under the most difficult of circumstances. Our industry-leading model of post-acute care partnerships with hospitals and health systems positions us well for the future and we are well poised to continue delivering value to our patients, our partners and our stakeholders.

I also want to recognize our outstanding team members for their commitment to clinical excellence. We recently learned that nearly 60% of our LHC Group Home Health agencies were honored as HomeCare Elite in 2012. HomeCare Elite status recognizes the top 25% of Home Health agencies in the country based on quality of care, quality improvement, patient experience, process, measure, implementation and financial performance. This honor is proof positive of our company's commitment to always putting quality first.

Today, I want to briefly discuss CMS's final rule for 2013. CMS estimates the net impact on the home health industry to be $10 million, or 0.1% overall reduction in payments in 2013. Specifically components of the proposed rule are: a small increase in the proposed base rate to $2,137.73 compared to the 2012 rate of $2,138.52, a market basket update of 2.3 versus the proposed rate of 2.5, a 1% reduction mandated by the Affordable Care Act, a 1.3% reduction related to case mix adjustments that would carry over from 2012 and wage index updates that would decrease industry payments by an estimated 0.4%.

In addition, other notable changes in the rule are an improvement to the face-to-face requirement that would allow nonphysician practitioners in an inpatient setting to perform the encounter and inform the certifying physician, and an improvement to therapy assessment addressing missed reassessment visits and establishing ranges for reassessment visits. At LHC Group, we estimate the impact of proposed rules to be a reduction to Medicare revenue of approximately 0.50% in 2013 due to the changes to the wage index. This estimate does not include any projection of the potential deficit reduction sequester approved earlier by Congress as it is unclear whether or not that reduction will take effect. If the sequester is imposed, it would become effective in January 2013 and will reduce payments by an additional 2%.

Now turning to our acquisition pipeline. As you know LHC Group is a national leader in post-acute care partnerships with hospitals and health systems around the country. In the third quarter, we welcomed Texas Health Resources and Methodist Health System as significant new partners in the North Texas market, and we continue to engage in active conversations with potential partners around the country. As you would expect, however, these partnerships take time to develop as we work from point of initial contact to formation of the joint venture. As such, we have adopted a 2-pronged approach. During these times when conversions are occurring on the joint venture side and until pricing on the freestanding side falls to a level that we feel appropriate, we will continue to be acquirers of our stock. We began this process in June and have since repurchased 1.3 million shares.

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