Amedisys Inc (AMED): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

Summary:
Amedisys posted a weak fourth-quarter 2013 with adjusted loss from continuing operations of $0.05 per share, wider than the Zacks Consensus Estimate loss by $0.02. It also marked a massive downfall from the year-ago adjusted income from continuing operations of $0.25 per share. Revenues of $303.5 million fared better than the estimate of $295 million but were down 13.7% year over year. Higher cost per visit in home health, higher-than-expected employee healthcare cost and an accrual of $450,000 related to one of the company's care centers were responsible for the company's dismal bottom-line results. However, Amedisys is poised to gain from a solid foothold in the still untapped home health and Hospice services market which should catalyze growth. In addition, positive demographic trend is another upside. Thus we initiate our coverage on Amedisys at Neutral.

Overview:

Amedisys Inc. AMED provides home health and hospice services throughout the U.S. to more than 360,000 chronic, co-morbid, and aging American population. The company also offers clinically focused programs for chronic conditions and various diseases such as diabetes, coronary artery disease, congestive heart failure, orthopedics, complex wound care, geriatric surgical recovery, balance retraining, behavioral health and stroke recovery, as well as various rehabilitative programs. It provides hospice services to patients using an interdisciplinary care team comprising a physician, nurses, home health aides, social workers, therapists, dieticians, volunteers, counselors, chaplains and bereavement coordinators, when required. Amedisys was founded in 1982 and is headquartered in Baton Rouge, LA.

As of Dec 31, 2013, the company had 367 Medicare-certified home health care centers, 92 Medicare-certified hospice care centers and one hospice inpatient unit across 37 states within the U.S., the District of Columbia and Puerto Rico.

The company depends on reimbursement from Medicare (for chronic care) for a significant portion of its revenue due to the age demographics of its patient base (average age of 81). Medicare represented approximately 84% of Amedisys' net service revenue in 2013 compared with 82% in 2012.

Amedisys plans to diversify its payment sources and becomes less reliant upon Medicare, based on the needs of the aging population, uncertainty surrounding health care reform, and new health care models currently in development, such as Accountable Care Organizations (ACOs).

Health Care Reform Update

In Nov 2012, Centers for Medicare and Medicaid Services CMS issued a final rule to update and revise Medicare home health reimbursement rates for fiscal 2013. The final rule includes a 2.3% market basket increase, a 1% reduction mandated by the Patient Protection and Affordable Care Act (PPACA), and a negative 1.32% case-mix adjustment. The net effect of these changes is a 0.04% decrease in the base rate. Additionally, the wage index was updated which impacts providers differently depending on their geographic location and a change made to the outlying observation eligibility standards. In total, CMS estimates that the effect of these changes will result in a 0.01% reduction in reimbursement to home health providers.

In Jul 2012, CMS issued a notice to update and revise the Medicare hospice wage index for fiscal year 2013. The notice includes a 2.6% market basket update, which is reduced by a productivity adjustment of 0.7%, a 0.3% adjustment from the PPACA and 0.7% for the updated wage index and budget neutrality adjustment factor. The net effect of the notice increases the base rate for 2013 by 0.9%.

In Mar 2010, President Obama introduced the Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act of 2010 (HCERA), which amends the PPACA (collectively, the Health Care Reform Bills). The Health Care Reform Bills made a number of changes to Medicare payment rates, including the reinstatement of the 3% home health rural add-on, which began on Apr 1, 2010 (expiring Jan 1, 2016). The Health Care Reform Bills also include a systemic rebasing of the amount that the CMS reimburses for home health services, to be phased in over four years, beginning in 2014.

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