Logo of jester cap with thought bubble.

Image source: The Motley Fool.

LHC Group Inc (NASDAQ:LHCG)
Q1 2019 Earnings Call
May. 9, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the LHC Group Q1 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, today's conference is being recorded.

I would now like to introduce your host for today's conference Mr. Eric Elliott, Senior Vice President of Finance. You may begin sir.

Eric Elliott -- Senior Vice President of Finance

Thank you Kevin, and welcome everyone to LHC Group's earnings conference call for the first quarter ended March 31, 2019. Everyone should have received a copy of our earnings release last night. I would also like to highlight that we have posted some supplemental information on the quarter and our guidance for 2019 on the Quarterly Results section of our Investor Relations page. The supplemental deck as well as a copy of the earnings release, the 10-Q and ultimately a transcript of this call when available will be found on this page. Our supplemental deck includes all of our reconciliations and breakdown of adjustments. We will refer to these non-GAAP measures during our call today.

In a moment, we'll have some prepared comments from Keith Myers, Chairman and Chief Executive Officer; Josh Proffitt, Chief Financial Officer; and Don Stelly, President and Chief Operating Officer.

Before we start, I would like to remind everyone that statements included in this conference call, in our press release and in our supplemental financial information 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 2019 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 Chairman and CEO of LHC Group, Keith Myers.

Keith G. Myers -- Chairman and Chief Executive Officer

Thank you Eric, and thank you everyone for dialing in, participating in this morning's call. Right off the top, I want to take a moment to directly thank our 32,000 team members serving at locations around the nation. Each and every day, this dedicated hardworking group makes the difference in the lives of so many patients, families and communities we are blessed to serve. Our employees cultivate, sustain our unique culture and our culture is the one aspect of our organization that truly sets us apart from our competitors, and it has done so for 25 years. Our employees' dedication to our six pillars of excellence reinforces the strength of that culture and sharing it resonates in every corner of our LHC Group organization.

I'd also like to wish all our nurses, clinicians and caregivers, a Happy Nurses Week, a week reminding us if these folks, who deliver hands-on care to those we are privileged to serve, they are the backbone of our company and our distinctive culture we cherish here at LHC Group. It's our nurses, clinicians and caregivers, who provide hands-on care to those we are privileged to serve and who ensure that our standards of excellence are met and surpassed every day. So, thank you. Thank you for all what you do.

LHC Group is a clinically driven company and we have always had a clinician in charge of day-to-day operations, beginning with my wife, Jenssa (ph) then John Indest, a registered nurse, who continues to serve on our Board and Chair our Quality Committee and of course, since 2009, Don, who is a registered nurse and former hospital CEO.

We have a long history of highly valuing clinical leadership in the boardroom, C-Suiteand throughout our LHC Group family. Clinical quality and patient satisfaction are our anchors and, of course, clinical quality and patient satisfaction is a direct result of the people planning and delivering care. Our people are the only asset capable of creating the spirit of camaraderie, enthusiasm and empathy required for our organization to consistently achieve high levels of quality and patient satisfaction. And because of lower corporate tax rate, we have been able to reinvest even more in our people by increasing merit raises for field staff, absorbing more employees healthcare premiums and investing more in technology and education. We also remain highly efficient in controlling non-patient care costs, which has been a long-standing hallmark of our clinically driven operating model. Our commitment to quality and efficiency and our proficiency in maximizing both of these vital measures has a direct impact on our organic growth and ability to generate margin growth from acquisitions and joint ventures, while at the same time improving quality outcomes and patient satisfaction.

Our first quarter provides an excellent example of how we continue pursuing growth in different ways; leveraging our commitment to quality, as an established national platform, that spend the full continuum of post-acute care with an industry-leading reputation as the preferred partner for hospitals and health systems and an increasing number of leading payers across the country. In every market we serve, our goal is to co or try locate hospice and other services in markets, where we currently provide home health.

Today our market platform extends across 35 states and the District of Columbia reaching 60% of the populationaged 65 and over, and we have just begun to tap that potential. In each market we serve, we typically meet with home health with the goal of becoming the market leader in quality and patient satisfaction. Once home health is established, the primary push is to co-locate hospice with home and community-based services following as the third leg of the strategy.

Our dedicated and experienced in-house corporate development team is constantly scouring markets for tuck-in acquisitions in hospice and home and community-based services to co-locate with our home health operation. As the record shows, we were active on the acquisition front in 2018 and maintain a new acquisition target of $100 million to $150 million each year. We expect to complete a number of these acquisition this year.

Our joint venture activity has been our most active growth front to-date this year. The first phase of the Geisinger joint venture, which included the home health and hospice locations in Pennsylvania closed on April 1st. The second phase, which includes the home health and hospice locations in New Jersey is scheduled to close on June 1st.

We discussed this joint venture on our last call, with its annual revenue contribution and the inclusion of both home health and hospice, along with incredible brand credibility that Geisinger name provides, it certainly is the type of joint venture LHC Group is known for. A unique aspect that sets this partnership apart is Geisinger's health plan. Being in the same room with the hospital and the payer, creates alignment and provides an opportunity for us to work closely to develop value-based reimbursement models for managed Medicare and managed Medicaid populations.

The joint venture we announced last week with Capital Regional Medical Center is another example of what we have accomplished with other partners. Together, we are growing and expanding into new markets in Missouri reaching an agreement to acquire two home health agencies and one hospice agency from SSM Health expected to close on June 1st.

Our proven business model, strong integrated operations and proven ability to adapt to changes in reimbursement models more efficiently than most positions us for robust growth. Over time, our industry will continue to shift to more value-based reimbursement models. This transition plays directly to our strengths and we have embraced it.

The great example of CMS' recent announcement of a new voluntary risk-based initiative called the primary care initiatives or PCI. More details will come over the next few months, but this initiative reinforces what LHC Group has been saying all along, that care delivered in the home, will have a permanent role in value-based models moving forward.

PCI calls for better alignment and coordination of care and an emphasis on quality. Once again, this falls directly into our expertise and strength and we are well positioned to take advantage of this. Any shift of care into the home and any payment model built on delivering value should prove to be a net gain for LHC Group. In some way, the same can be said for PDGM, our new payment model set to begin next year.

Our constructive dialog with CMS and our work with Congress will continue to develop ways to improve PDGM for the benefit of our patients. A good example is the bipartisan Home Health Payment Innovation Act of 2019, that representatives introduced yesterday, along with 10 other Democrat and Republican sponsors to preserve Medicare recipients access to home healthcare and provide a pathway for innovative approaches to using these services.

H.R.2573 is the companion bill to this legislation introduced earlier this year by Senator Collins and Jones. As Don will discuss later, our preparations for PDGM have accelerated and been incorporated into our normal processes for driving further efficiencies and implementing care.

Here's Josh to provide some color on our financial results and 2019 guidance. Josh?

Joshua L. Proffitt -- Chief Financial Officer

Thank you Keith, and good morning everyone. Thank you all for joining our call. As always, I'd like to begin my prepared remarks by saying how much I appreciate all of our clinical professionals across the country and what they do each and every day. It is a privilege to serve you as you tirelessly serve others. I would also like to thank our home office support teams, whose level of commitment and service to the field is greatly appreciated.

Our supplemental financial information posted on the website provides more detail on the breakdown among sector performance, guidance and assumptions. I will reference that supplemental deck in my summary remarks this morning. For the first quarter financial results, here the big takeaways. With $0.98 of adjusted earnings per share in the first quarter, we have a strong start to the year, an early indication of more growth to come as the year progresses.

Based on these results, additional operational efficiencies and a lower estimated effective tax rate, we've raised our 2019 guidance. We are now expecting adjusted earnings growth of over 21% on a per share basis at the midpoint compared to last year. We realized a total of approximately $7.4 million in pre-tax cost synergies in the first quarter from the acquisition of Almost Family, which brings the cumulative amount to just over $21.5 million.

Incremental margin improvement has continued across our segments on a year-over-year basis across every operating segment within the company. Organic growth was strong at home health and hospice yet again as we maintained our industry-leading quality and patient satisfaction scores and continue to raise the scores at legacy Almost Family locations.

I would also like to briefly touch on the Q1 revenues. While the approximate $503 million consolidated revenue that we generated during the quarter met our expectations and our modeling, we were ahead of home health revenue consensus, but slightly below in HCBS revenue. Don will provide more color on our plans for HCBS improvement in a few moments.

Turning to Page 9 of the supplemental deck. I would note that our adjusted consolidated gross margin of 37.1% in Q1 was a 190 basis point improvement year-over-year. Consolidated adjusted G&A expense as a percent of revenue was 27.8% in the first quarter, which was down 80 basis points from the 28.6% in the same period a year ago.

Our adjusted consolidated EBITDA was 9.2%, which is up 250 basis points year-over-year. One important point to highlight in our first quarter results was the $6 million non-cash impairment charge we took during the quarter related to the discontinuation of the home health moratorium over four states by CMS in the first quarter. Also as part of our strategy to optimize the portfolio, we closed eight locations in Q1 that represented a total of $7.4 million in revenue and an annual contribution loss of $714,000. We also incurred some severance cost, lease termination fees and impairment costs related to these closures.

All of these costs were accounted for in our adjustment set-forth in the supplemental deck, which are detailed on Page 10. This improvement across all metrics was broad-based. Pages 8 through 15 of the supplemental deck highlight the results and Page 7 notes the key stats by segment.

Turning to Page 21 of the deck, we've outlined a number of our debt and liquidity metrics, including the fact that adjusted free cash flow was $34.1 million for the first quarter as compared to $19.5 million in Q4. DSOs improved to 47 days from 51 days in the first quarter of last year, as we continue to improve our collections on managed care receivables and receivables from the Almost Family acquisition. Recall that we are expecting DSOs to remain close to this range, if not slightly below throughout 2019.

Our balance sheet remains strong with net leverage at 0.92 times adjusted estimated EBITDA for 2019. With $231 million available on our credit facility and an accordion feature that can provide an additional $200 million of capacity, we are well positioned to remain in growth mode on the joint venture and acquisition front for the foreseeable future.

As I noted earlier, we are increasing each of our revenue, adjusted EPS and adjusted EBITDA guidance for 2019. The details of this guidance raise are on Pages 16 and 17 of the supplemental deck. At the midpoint of this range, we're expecting adjusted EPS growth of 21.1%, net service revenue growth of 16.9% and adjusted EBITDA growth of 34%, as compared to 2018.

In summary, we are very pleased to be raising guidance as we are coming out of the gate strong in 2019. We are generating strong organic growth, realizing expected synergies, driving incremental margin improvement, working with an increasing number of managed care payers and creating new growth opportunities. All of these efforts are a good indication that we are in growth mode and focusing on what we do best at the clinical and home office levels.

That concludes my prepared remarks and I'm happy to further address and answer any questions during the Q&A section. I'm now pleased to turn the call over to Don.

Donald D. Stelly -- President and Chief Operating Officer

Thank you, Josh. And good morning, everyone. We are off to a good start for 2019 and that's a direct result of the hard work and commitment from our team each and every day. I too want to wish all of our nurses, clinicians and caregivers, a very Happy Nurses Week. As someone, who started his career as a nurse, I have great fondness and connection to all of you, who care for the patients and families, we are privileged to serve. Simply put, thank you.

I want to focus my time this morning on some quick updates on the Almost Family integration, our organic growth, quality scores and how we are responding to the recent CMS rulings. First, on Almost Family, all of our KPIs continue to trend in the right direction and we've outlined those on Page 18 of the supplemental deck. The contribution margin is increasing in the quality star ratings of Almost Family agencies was up to 3.86 in the CMS April preview compared with 3.63 in January and 3.61 in October. Patient satisfaction star rating was also up in the Almost Family agencies in the April preview to 4.04, as compared to 3.66 in January and 3.57 in October.

As you heard from us many times before, quality and patient satisfaction comes before sales in the market. So, this continued improvement in quality is important to the maximization of growth from this acquisition. With the one-year anniversary now behind us, we are on track with the conversion to our instance of Homecare Homebase and feel good about where we are in the integration after the first 12 months.

Across our legacy markets and in the recent joint ventures, we have demonstrated a strong correlation between quality and the product that we offer to the referral community and to the patients we're serving that result in organic growth and we see the same opportunity with Almost Family, as we build on this quality improvement. We truly expect to see more of this over the next three to five years.

The incremental growth opportunities, Keith mentioned earlier through market expansion and extension of our co-located and trial located service offerings remain a top priority as well. A great example would be in Florida, where we have the opportunity to now engage and negotiate with managed care payers, but also with potential joint venture partners.

We have called out before, how much success we've had in other states along these lines. In addition, prior to its joint venture with Community Health Systems, Almost Family did not really have the history that we have here at LHC Group. So, we believe there is great opportunity to utilize our assets in Florida to partner with hospitals in the state.

Turning to our organic growth for the quarter, we are in our usual 5% to 7% annual target range with home health admissions up 5.7% and hospice admissions up 6.2%. From our segment results on Page 14 of the supplemental deck, you can see that our home and community-based service segment has not performed as well as the others, post integration with Almost Family, as there is much opportunity that we've left on the table.

But similar to the path that we took in hospice, a path that are illustrated last year we've made some changes in the structure of home and community-based business to quickly address the issues and we expect to see improvement over the next quarters, just as we've seen in hospice in the result of today.

While our quality scores, which are outlined on Page 20 of the supplemental, we continue to see improvement with same-store LHC quality scores up in the April preview to 4.67 in April from 4.59 in January, which includes all recent acquisitions exclusive of Almost Family. One other topic that comes up a lot in our discussions and has been a particular focus this earning cycle is PDGM. I can tell you that we meet weekly on PDGM and we will be thoroughly prepared, no matter how the final rule develops.

This preparation has been an excellent exercise that we've incorporated into our management operating reviews. We obviously can't go into specifics of how we intend to respond and evolve, but rest assured, we have done this each time there's been a reimbursement change and this will be no different than the others. Fact is, absent the behavioral assumptions, we are fully embracing PDGM. Again, make no mistake, we will be ready either way, and well down the path in our preparations.

Now I'd like to offer just a few comments on last month's proposed rules by CMS for hospice and LTACHs for 2020. In order to better align reimbursement with the cost of continuous homecare, inpatient respite care and GIP care, CMS is significantly increased in payments for the three levels of hospice service for fiscal 2019 and proposing the cut the routine homecare rate by 2.7% to achieve budget neutrality. While the majority of our hospice revenues fall under the RAC category, the impact to LHC Group is slightly positive according to the CMS impact file. As a reminder, hospice currently makes up 10.3% of our total revenue.

Keith mentioned earlier, the primary care initiative program for CMS. This program will help our hospice offering as well as it places an emphasis on better integrating hospice with other care and encouraging other payers to align payment, quality and reporting, which would, of course, play to our strengths.

CMS also proposed a rate increase for LTACHs that would be more favorable than the final rule for fiscal 2019. The bottom line would be a 0.9% rate increase. Regular LTACH cases are expected to see an increase of 2.3%, which reflects the 2.7% standard Federal rate update less decreases for outlier payments and other factors. LTACH-PPS payments for cases continuing to transition to site-neutrality payments are expected to decrease by approximately 4.9%. This accounts for the LTACH site-neutral payment rate cases that will no longer be paid a blended payment rate as the rolling statutory transition period ends for LTACH discharges occurr in a cost reporting periods beginning in fiscal year 2020, which for us will begin 6/1/2020 for two of our hospitals and the remainder of them beginning 9/1/2020.

Thank you again to all of my fellow colleagues, and thank you for listening in on our call today. Operator, we are now ready to open the floor for Q&A.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from Brian Tanquilut with Jefferies.

Brian Tanquilut -- Jefferies -- Analyst

Hey, good morning guys. Congrats on the quarter. I guess my first question just housekeeping, Josh. Just to reiterate the $0.10 guidance increase in EPS, how is that broken out again between tax, or is that all tax and what's operational in there?

Joshua L. Proffitt -- Chief Financial Officer

Yeah, no Brian. Thanks and good morning. Great question. The EPS raise of $0.10 is really split about half and half. About half is due to the lower effective tax rate that we are now estimating, so called that about a $0.05. And then the other $0.05 raise for the EPS side is directly attributable to our continued operational efficiencies and better margins really across all segments. If you look at the margin improvement year-over-year across every segment within the company and having some visibility into how's April pacing and where we're coming out of the gate even in May, we definitely feel like from an operational perspective that we needed to raise, which is set forth in our $2 million guide raise on EBITDA as well.

Brian Tanquilut -- Jefferies -- Analyst

Good color there. So, that was going to be my next question. So, as I think about the fact that you're raising guidance very early in the year, margin performance was strong in the quarter. I mean, what are the margin leverage left, or where do you see incremental margin opportunity, as we progress throughout the year?

Joshua L. Proffitt -- Chief Financial Officer

Yeah, I mean, there are definitely still some incremental margin levers remaining Brian, on the Almost Family side for sure, very pleased with the 260 basis point margin improvement across that portfolio year-over-year. But to get a little bit more granular, I would say piggybacking on what Don mentioned earlier, we expect to start seeing some incremental margin improvement in the home and community-based services segment.

I wouldn't expect a lot of that in Q2, but as we continue to implement the things Don alluded to, I think you'll start seeing that in Q3, Q4 and going into 2020, similarly to how we turn the hospice around. And then there's a little bit left in the hospice segment as well. I couldn't be more proud of our operational team for where they've gotten that segment. But I think there's a little bit of lever there, so to speak, Don?

Donald D. Stelly -- President and Chief Operating Officer

Yeah, Brian, just a little more color. Let's go to the home and community-based services. The results that we put out there are not at all a surprise to us and I want to give you a little color. The State of Ohio was to the legacy Almost Family CBS business. As honestly Florida was to their skilled nursing. Those were the two states respectively that really drove that portfolio. We saw it early and we've made substantive changes organizationally, regulatory wise just a gaggle of things, I would say in Ohio and we see that Josh alluded to where we are in May, we see that already taking shape.

So, we truly believe that at a low mark, we got 150 basis point improvement on the table for HCBS. You all know me by now pretty conservative, I think it's 200 basis points as we go out and run the rest of the year. And then I would go back to Florida, let's just forget growth on Florida for a second. If we grow it not at all, we know that we have at least 200 basis points on that $100 million. So, those are big levers. Back to your question and we still have what I would call the normal smaller operational levers that we're going to continue to pull, as we prepare for PDGM.

Brian Tanquilut -- Jefferies -- Analyst

And Don, just a follow-up on that comment. So, as I think about AFAM, obviously one year in the fold now. I'm thinking about organic growth there now on the same store base. So, should I expect at least near-term some sort of deceleration in the reported same-store? Then like you said on your prepared remarks, three to five years, this is your long-term growth driver, it will be one of the key long-term drivers. Is that a good way of think about that?

Donald D. Stelly -- President and Chief Operating Officer

Yeah, it really is. Keith alluded to something earlier that I really, I want to bring back. He talked about the clinical practice of the model generating that anchor. And our Chief Analytics Officer, Rajesh Shetye coming into this. The value creation really is defined as lower cost and higher quality. When you look at our comps, we're definitely doing that and with Almost Family converting to the one instance, getting the continue link into the home and community-based services, and then certainly cascading our PlayMaker CRM, so we can see where sales is, and what they're doing. Those things are almost at maturity right now. But Brian, we've been together long time now on these calls, I've always said that new acquisitions take shape in about 12 or 18 months transactional -- post transaction. That was big, and it's ahead of that if you just, we can't lose sight because we've been talking about Almost Family so long it appears. We just finished the earmark (ph) . So, you're absolutely thinking about it right and this is going to be huge fuel for this engine going into 2020.

Brian Tanquilut -- Jefferies -- Analyst

And last question for me Josh. Just on the quarter, I know, you don't give quarterly guidance, but it seems like it was a little bit of revenue mismodeling in Q1. So, how should we be thinking about just the Q2 progression from Q1, especially given the fact that you shutdown eight locations during the quarter?

Joshua L. Proffitt -- Chief Financial Officer

Yeah, no. Great question, Brian. And I won't lay out specifics on the quarters, but you can definitely expect revenue improvement in Q2. Part of that is mismodeling, I would maybe agree with. But part of it is also just where the census is today versus, where it was, where we started out the year. So, you're definitely going to see incremental period over period revenue growth throughout the year, and likewise with EPS and EBITDA as well.

Brian Tanquilut -- Jefferies -- Analyst

All right. Sounds good. Thanks guys.

Operator

Our next question comes from Joanna Gajuk with Bank of America.

Joanna Gajuk -- Bank of America Securities-Merrill Lynch -- Analyst

Hello, good morning. Thank you. So, just to follow up on the eight locations that you closed, it's smaller than I guess what happened in Q4. But what I guess what was the decision behind closing these and which segments those assets were included in?

Joshua L. Proffitt -- Chief Financial Officer

Yeah, Joanna, this is Josh. Don and I can tackle this one as well. Good morning. As you know, it was significantly less locations than we were closed in Q4. And I believe as we mentioned, even on our last call, you're going to continue to see, as we always do some portfolio optimization at lesser tranches, as we're moving forward. The eight that were closed that account for about $7.4 million. I want to say five of them were home health, one was an old legacy DME company that we had just you kind of had within the portfolio that was starting to drag on us. And then the hospice were two.

Joanna Gajuk -- Bank of America Securities-Merrill Lynch -- Analyst

All right. So, it sounds like there could be maybe potentially some incremental closures, but it sounds like you did a lot of the closing in Q4, now a couple in Q1?

Donald D. Stelly -- President and Chief Operating Officer

Joanna, this is Don. You're absolutely right. I would still say that you're always going to see some closure activity in the company two-fold. One, their market changes that smaller census is tend to make it a drag and we look at that during MORs. But don't forget, we're so acquisitive that we bring all of these things in and whether it's political or its community related, we've got to take time and gain crediability before we actually close those, especially in overlapping market. So, some companies wait to do it all at one time and make this big bang. We do it as just part of operations of culling the assets that are going to drag and I would absolutely think you're going to continue to see that and we always have.

Joanna Gajuk -- Bank of America Securities-Merrill Lynch -- Analyst

Yeah, that make sense. And then like, my question you mentioned you continue growing your relationships with MA plans and August two months ago, you start talking more about this new payment models you are developing with some of the MA plans. So, any update there in terms of where you stand? You know, any incremental new contracts you signed and also any things to add in terms of the negotiations of the existing contracts with MA plans? I guess last time you were flagging some of the incremental improvements for legacy SSM business as well as the legacy LHC business. So, any color overall on the relationships and how the rates are progressing with MA plan?

Joshua L. Proffitt -- Chief Financial Officer

Sure Joanna, this is Josh. Great question. And I'll attack it in the same three-pronged nature that I've attacked this topic over the past several calls. We continue to have a strong focus on not only rate improvement, which I would say is the first prong and one of the topics you're alluding to. And we continue to see incremental period over period improvements there just by negotiating better rates and doing a better job of identifying some Almost Family contracts.

Then I would say, better operationalizing the contracts that we have both in the field as well as back-office. And I alluded to this earlier in my prepared remarks, we continue to see the back-office costs being better leveraged for that book of business, lower bad debt, lower cost of revenue cycle management around those contracts.

And then third, which I think is at the heart of your question, the new payment models and as far as incrementally since the last time we spoke, we've got two new ones in queue since our last earnings call. One that I really couldn't be more excited about is in connection with our new joint venture with Geisinger that we've talked about. And we're working on a very innovative payment model later. And then the other one, I won't get into the specifics, but we've negotiated a good base rate from the payer and then we have upside bonus potential based on reductions in total cost of care. And this is the first of its kind where we're truly evaluating patients that we take on service, looking at a baseline benchmark of total cost of care leading up to that. And then whatever we can generate in savings us getting a piece of that. So, that upside is being in the works for negotiation as well.

Joanna Gajuk -- Bank of America Securities-Merrill Lynch -- Analyst

That's helpful. And just a follow-up on that, so how would you describe the average delta between MA plans' pricing on average versus your service book? And how does compared to say a year ago?

Donald D. Stelly -- President and Chief Operating Officer

Yeah, I mean, as you know, it's slightly below the Medicare rate and there's a lot of factors for that right. I mean there's different requirements that are required under the Medicare patient population that aren't required under the MA. But I mean, as you know, that delta that gap, from early 2016 to now year-over-year continues to close, which is how we've been able to better marginalize and leverage that business. And we're very specific and how we negotiate and what contracts we execute. We're not going to execute contracts that are far below Medicare. We're only going to execute the ones that we know that we can operate.

Joanna Gajuk -- Bank of America Securities-Merrill Lynch -- Analyst

Great. If I may squeeze last one. On the innovation segment, so adjusted EBITDA there, I know it's very small part of your business. But I guess it's somewhat similar to we just talked about. The EBITDA turned positive. So, can you just give a couple of thoughts on what's going on in that business, and any kind of seasonality, we should think about bonus payments, or things like that? Thank you.

Keith G. Myers -- Chairman and Chief Executive Officer

Really couldn't be more excited about the incremental turnaround, if you will, in the HCI segment as most folks that were familiar with the legacy Almost Family business, they really ran that as a loss leader, three quarters out of the year and then when I got the Medicare shared savings payment in Q3, that was the big bump that they received. Don really set forth a challenge to all the leaders within that segment several months ago to run and operate each of those segments as a stand-alone profitably on a month-over-month basis and not just wait to be lifted by that MSSP payment in October. And I really think they are performing well in doing that. Don?

Donald D. Stelly -- President and Chief Operating Officer

Yeah, that's a really good way. (ph) A hats off to our Imperium Group as well as our Advanced Care House Call group, they were combined losing roughly $500,000 loss of month when we did the merger. And I think all of you know, our philosophy here everything has to live within itself and live on its own. And we essentially said that's how we're going to operate and they did it. So, the upside for this segment is truly huge and they're doing a phenomenal job. So, while it's a smaller part right now, it's integral into our strategy going forward into the '20s.

Joanna Gajuk -- Bank of America Securities-Merrill Lynch -- Analyst

Great, thanks.

Operator

Thank you. Our next question comes from Kevin Ellich with Craig-Hallum.

Kevin Ellich -- Craig-Hallum Capital Group -- Analyst

Good morning. I have a couple of questions for you guys. I guess, Don, maybe starting off with Almost Family, Homecare Homebase, wondering where if that stands, you know, you are on track to complete that transition in Q3. Is that right?

Donald D. Stelly -- President and Chief Operating Officer

Yes, it is. Right now we slated for mid-November to complete it. So, we're just under 70% completion. And even though the largest book of business with the highest profitability is going last, I don't expect any hiccup from that at all. And that's our Northeast division. So, will be fully buttoned down, as we go into Thanksgiving that's been our goal all along.

Kevin Ellich -- Craig-Hallum Capital Group -- Analyst

Got it. And then, I mean, have you seen any or much disruption from that? And then thinking about Almost Family, you're having Homecare Homebase, how much margin expansion or improvement should we expect once that transition is done?

Donald D. Stelly -- President and Chief Operating Officer

I'm going to admit this, even though we've been able to accrete the margin, it has been more disruptive in two of the divisions than I thought it would be. And it's only because the instance that Almost Family was using wasn't the same inside of itself. And so the more similar the instance is, the more congruent with the operating processes we found. And so all of that to say that I talked about the margin improvement in Florida, that is the biggest driver. The Northeast is doing extremely well. They're actually comped to legacy LHC Group and then the rest fall somewhere in between. So, I'd probably take that, as I said with Florida being the biggest driver, if you look it just rudimentary about $110 million roughly about 200 basis points. We see that being able to be captured right now and that's why, honestly, we decided to do Florida first.

Kevin Ellich -- Craig-Hallum Capital Group -- Analyst

Got you. That's helpful. And then flipping over to the LTACH facility based business, it looks like occupancy was down to about 70%. I know, I think you had a closure, so in that segment. Just wondering why occupancy fell about 10% this quarter on a year-over-year basis?

Donald D. Stelly -- President and Chief Operating Officer

Yeah. The two hospital did attribute to that, but honestly that was pretty good execution on our part. We had too many site-neutral people in the beds about a year ago. So, we made a consorted effort, we brought a sales guy in and said, we've got to go after, more so the qualifying patients, and that's what you're seeing is a healthier census, you can see it in the margins, and you can see it in the case mix.

Kevin Ellich -- Craig-Hallum Capital Group -- Analyst

Got you. That's helpful. And then also, you've had a lot of commentary on the HCV business, but it also looks like revenue per billable hours down on a year-over-year basis, but kind of flat sequentially. Is this, you know, the $23 or whatever you kind of rate we should be thinking about, or how should that trend?

Donald D. Stelly -- President and Chief Operating Officer

Yeah, that's a really good pickup. It is how we should be thinking about it, because remember, on the legacy side for LHC, our Elk Valley asset was by far more skilled care than normal across the country by the way, not just us home and community-based services. So, all you see, it is a dilutive effect of bringing in the AFAM assets over the top of the legacy. So, that is a good number. And as we grow the billable hours, I would not change that number. I think that's what we're going to see.

Kevin Ellich -- Craig-Hallum Capital Group -- Analyst

Got you. And then I do have one for Keith, clearly you've had some nice JV activity to start off the year. Wondering how the pipeline looks and should we expect now that almost families annualized. Wondering if you've got some bigger deals in the pipeline, we should be thinking about, given your liquidity?

Keith G. Myers -- Chairman and Chief Executive Officer

Yeah, so, yeah, absolutely. The pipeline, I think, we've said before the Almost Family merger had no impact on the pipeline, the way we structure, so the pipeline remains robust. And I think Geisinger is a good example of the type joint ventures you see as moving more and more toward multi-hospital system, as opposed to single, as many single hospitals. We're still -- those are highly accretive and we continue to focus on those smaller hospitals, stand-alones or small groups, but just a maturity we're seeing more of the larger systems in the pipeline.

Kevin Ellich -- Craig-Hallum Capital Group -- Analyst

Got it. Thanks guys.

Keith G. Myers -- Chairman and Chief Executive Officer

Thanks Kevin.

Operator

Our next question comes from Matt Larew with William Blair.

Matt Larew -- William Blair & Company -- Analyst

Hi, good morning. I just want to ask briefly about Geisinger. I know you're only one month into Phase 1 here. So, you probably don't have big takeaways. But can you just maybe give us a sense at the conversations you're having. Keith you alluded not should be with old friend, but what you're picking out as targets for success over the next four to eight months, with what are you going to describe as a game-changing opportunity?

Joshua L. Proffitt -- Chief Financial Officer

Yeah, Matt, great question. This is Josh. I'll start and let Don get into the specifics operationally. But to go back to even one of my answers to Joanna, we are already at the table working with the health plan to put in some new innovative payment models, both on the managed Medicare and commercial patient population, but also on the managed Medicaid patient population.

So, to already be at that place, this close to the initial closing date of April 1 is a really good place and a little bit ahead of schedule, where we would normally be in a joint venture and that's directly attributable to the strategic nature of the partnership. And the fact that this is a partner, who has its own health plan. Don?

Donald D. Stelly -- President and Chief Operating Officer

Yeah. This is going to be really a great joint venture for our company. I'll say this maybe just with a smile. Getting to zero here was a big win for us. They were losing a lot of money and already, our team has done a phenomenal job of our first milestone was just it breakeven. And so we've gotten to that point. We're very, very close to that point. So, if we can continue to model that and then overlay our June run, we think it can start being an accretive in the fourth quarter.

Matt Larew -- William Blair & Company -- Analyst

Great. Thanks for the detail. But a couple more just be -- couple of questions here on the home health side. Is anything you would call out in terms of the home health Medicare revenue per episode strength as well as same-store Medicare admission maybe a little bit lighter than we anticipated. So, is this anything you'd call out on that kind of business?

Keith G. Myers -- Chairman and Chief Executive Officer

Yeah, Matt, on the revenue per episode side, as you often do when you start the year, you come out of the gate in January and the beginning of February with payer changes and different attributes that not lead to a little bit lower case mix coming out. But we actually finished the quarter in a little bit stronger place from a case mix and a pricing perspective for Q1 than prior years. And as we're sitting here, let's call it almost the middle of May got some real good visibility on how that's continuing to trend. So, from a, just a pricing perspective, feel really good about, where we are on the Medicare side of the business. Don, you want to about admissions?

Donald D. Stelly -- President and Chief Operating Officer

Yeah, well I'll admit this. The first two weeks in January, we did not have great admissions runs, but I would also say that Medicare number right now, I mean, we all know what our comp is here. We had a phenomenal last year. And so we are up against every quarter, one of the highest comps in our history, and we're still turning that in. But I do want to caution, we are all, every company in home health is seeing the true shift to these payments that Josh talked about earlier to MA.

And so when you look at it a 2% and 3% number for LHC Group, with the comps we got, we're really pleased with that because I want to go back to the 5% to 7% is total. And although and Joanna hit this on her question that it may not be quite at the rates, we've done a much better job of proportionately drop in our cost on that. And so those are the two factors on growth that I really wanted to point out, so I appreciate the question.

Matt Larew -- William Blair & Company -- Analyst

Yeah, it make sense. Thanks, guys.

Operator

Thank you. Your next question comes from Matthew Gillmor with Robert Baird.

Matthew Gilmore -- Robert W. Baird & Company -- Analyst

Hi, thanks for the question. I wanted to follow-up on that last point. So, stronger non-fee for service volumes, but you still had great margin performance in the home health segment. What are the -- Don mentioned, able to control the cost better? Can you maybe just help us understand, where you're able to control the cost better? Is it from a revenue cycle perspective that they're just easier to deal with, or are you better utilizing your clinical resources to the rate that does plans offer?

Donald D. Stelly -- President and Chief Operating Officer

It's both.

Yeah, Matt, It is both, Matt. As I mentioned earlier, I want to tip my cap to the entire team upstairs. We're sitting on the second floor and on the third floor is our entire revenue cycle billing and collections team and they have really done a good job of realigning their infrastructure by payer. We've gotten smarter. We've gotten more lean and efficient in how we bill and collect our bad debt is improved. But also you hear us talk about extended utilization a lot. I think we are doing a much better job in the field of providing the right clinical resources for those patient populations.

Joshua L. Proffitt -- Chief Financial Officer

Yeah, I'll just out add stat that I would tag along is we look at the LTM usage and its 44.5% in this first quarter was a really good number for us. So, it's both of them. Yeah, the last thing is our team, with (inaudible) and that team did a great job of provider really illustrating what those contracts are asking. What those managed care payers are asking, because too many times admittedly we would just doing a broad brush in providing the same type of service regardless of what the actual term and condition of the agreement asked for. So, it's kind of all of that stuff kind of baked into one.

Matthew Gilmore -- Robert W. Baird & Company -- Analyst

Got it. That's really helpful. And then following up on the Almost Family organic growth, and Brian asked part of this earlier and I didn't hear that direct sort of answer to it. Can you give their organic growth number, and then as a sort of second part of the question, I know you all target 5% to 7% volume growth and Almost family will get there hopefully in 2020. But where should we think about that kind of shaking out over the next quarter or two, as they fold into the same-store base?

Donald D. Stelly -- President and Chief Operating Officer

Well, that's a great question. They are flat now and I would think the same thing going in to the next couple of quarters two-fold. One, Florida is a big part of that and I've got to push those up and I'm actually going personally there for a couple of meetings next month, but then we're not finished the conversion. And so with that and the PlayMaker, a still a lot of ingesting that we're pushing down the asset base. I would actually then flip around into 2020 and mode them very similarly on Medicare to us. I see no reason not to do that.

Matthew Gilmore -- Robert W. Baird & Company -- Analyst

Very helpful. Thank you.

Operator

Our next question comes from Dana Hambly with Stephens.

Dana Hambly -- Stephens Inc. -- Analyst

Hey, good morning. Don, you mentioned on the home and community-based care, the changes in Ohio. What were those changes in Ohio?

Donald D. Stelly -- President and Chief Operating Officer

I'll try to stay as high level as I can.But the bottom line is, that the way that some of those assets were structured were underneath home health providers and being operationalized poorly to be candid with you. So, we've actually busted that outcome, like you bust out the departments in a hospital to create better visibility. That's number one.

Number two, the operations leadership of that was under one and we busted that out too, say it gave a lot more time and attention to a higher level set of skill if you would. And both of those together are actually -- we stopped the bleeding because they were going down and down and down for two years in a row. So, our first goal was to do all of this, convert them, and then stop the downward slide, and we just finished that in actually April. So, we think May is going to be a lot better for them.

Dana Hambly -- Stephens Inc. -- Analyst

Okay. I think you mentioned margin improvement there, the rest of this year 150 maybe 200. But the longer term goal, I thought had been more like a 9%, maybe even 10% margin for that segment. Is that still the longer term thinking?

Joshua L. Proffitt -- Chief Financial Officer

Yeah, Dana, we're at adjusted EBITDA margin of about 4%, as Don alluded to. We've got a line of sight to get that up to about 6%. And I would say, somewhere between 6% and 8% is where I would peg home and community based for probably going into 2020 as well.

Dana Hambly -- Stephens Inc. -- Analyst

Okay. And then on the -- I know in the proposed legislation in the Senate, now the House focus -- the focus is more on the behavioral assumptions. But can you talk about the homebound requirement loosening the restrictions there, how influential will that is, or how big an opportunity that is for the home health industry?

Donald D. Stelly -- President and Chief Operating Officer

Yeah, I think it's a huge sign -- signal if you will of where we're going. This is not a new concept. I think I've shared that before on a call, probably a decade ago thereabout, a group of us were in a meeting with Mark Miller MedPAC, and he opened the conversation by saying that he supported lifting, he would support the lifting of the homebound criteria if a patients with multiple chronic conditions. What the challenge was how to guarantee the savings, and who is going to take the risk.

And that was prebundled and all of that, but I clearly see that, that's where we're going. And we see it in a very real way with referral sources, who routinely tell us about patients, who are elderly and are frequent flyers in and out of the hospital and desperately need home health services, and could home health could be leveraged and avoid those rehospitalization, but they don't qualify because they drive to church on the weekends or something like that. It's just an outdated policy. But I can understand they're reluctance to open it up because they worry about how to contain it and make sure this not just additional spend without saving, but as we move more to value-based purchasing, I think that's just given.

Dana Hambly -- Stephens Inc. -- Analyst

Thanks very much.

Operator

Our next question comes from Whit Mayo with UBS.

Whit Mayo -- UBS -- Analyst

Hey, thanks. Good morning. Maybe a question for Don or Keith. I'm just kind of curious the conversations you're having with your health system partners as it relates to PDGM. And maybe how they are preparing and how they're thinking about their discharge programs? And I guess as long as I've done this, I've heard you know getting an ICU nurse or a discharge planner to change their behavior is nearly impossible. So, I mean you're uniquely positioned to understand, I think a lot of that the strategies that will see evolve with hospitals. So, just any insight would be helpful.

Keith G. Myers -- Chairman and Chief Executive Officer

Yeah, I don't want to get into the specific strategies, but one thing that's different about us is, we are -- we are a joint venture partner, but we are branded with all of our hospital partners and we function more like a department of the hospital than an external home health agency. So, we're involved in the hospital and helping to develop models and transition to the home. So, there are lot of opportunities. That the each hospital has a little bit different strategy depending on their payer mix and what not.

But clearly they think of any change in home health reimbursement or regulations through our partnership, they're keenly aware and interested on top of it. And that's as opposed to hey did that sounds like I'm giving history that's here about a decade ago, hospitals largely will unaware of anything going on in the home health industry. So, that's much a different in hospital that we joint venture with.

Whit Mayo -- UBS -- Analyst

That's helpful. Yeah, I think just when we talk to various agencies and other providers, it seems like everyone sort of has a strategy on how we're going to get more stroke, how we are going to get more complex nursing and so I was just sort of trying to think from a hospital perspective, how they would be responding to some of the market changes and provider strategy?

Keith G. Myers -- Chairman and Chief Executive Officer

Yeah, I think that everyone is looking to for opportunities to move patients to the home more quickly. And from -- in a hospital setting, when the patient is discharged from the hospital, the first thought is, can this patient go to the home. And if they go to somewhere other than to the home, it's my exception. And it used to be exactly the other way around. There was a step down, if patients would go to the next highest cost setting and the next highest cost setting and step down through all the different settings, to get to home now.

Whit Mayo -- UBS -- Analyst

Okay. And maybe just one last one for me on PDGM. I'm just sort of curious that Don, as you travel around and talked to some of the acquisition targets and do your due diligence. And I've been a little surprised by the lack of knowledge with many in the market. So, I'm just sort of curious, how some of these changes are shaping the acquisition landscape and perhaps maybe your pro forma view on the earnings before for some of these targets?

Donald D. Stelly -- President and Chief Operating Officer

That's a really good question. And I think you're absolutely spot on the true understanding of the effects of this rule, for those of us that don't live in everyday is very minimal. And so that's, of course, like we always do, we spin that into an opportunity to educate them and in the case of Geisinger and other, show them why, we are the people that can come in and better that. But I got to tell you, we are not looking at the margins and the improvement trajectory of those any differently on the PDGM. I have no reason to believe that. It's a matter of fact, and I've said it in my prepared comments, although we're not going to go into detail. I mean, how can we not like a payment model that's in and around patient characteristics versus the type of service you provide. Yes, what we do.

So, it's just yet another reason that we are very fortunate now that hospitals are calling us because they know that we can mitigate this. They know that we can live within it. And be adjunctive to their strategy because Keith alluded to it, we are there, each one of our partners are so different. Some of them are running their own plans, and the way that we need to use home health is quite different than some of them, who are still very centric-to-fee for service.

But in any case, I want to reiterate what Keith said earlier, we are clearly known as the anchor service now. And first we have to have the box checked that we are not appropriate and that's not a position, we've always been in, as long as I've been here for 14 years. So, we really see while PDGM is not all good, we do not like the behavioral adjustment. We've embraced it and we're going to use it as an opportunity, when others are scrambling.

Joshua L. Proffitt -- Chief Financial Officer

Yeah, this is Josh. The only thing I would really tag on to that, and I'm thinking about certain ones that are actively being diligence and work that are within the pipeline not just joint ventures, but even freestanding opportunities that the lack of a smaller provider being able to have the dedicated resources that someone walk in LHC Group has and all the work streams that Don described earlier and the sophisticated systems to be able to prepare this many months ahead of a change like that, does provide a lot of opportunity for us, when we come in.

Whit Mayo -- UBS -- Analyst

Maybe just one last one, sorry, and I'll hop off. And I was just curious, and I know it's really early and there's a lot that can change between now and next year. But any changes in sort of like the workforce looking at nurses, just any new pain points, I guess I'm just trying to understand within that we're seeing providers down shift or change how they're looking at their clinical staffing model? And how maybe that's impacting any wages or just anything around like compensation would be sort of helpful. Thanks.

Keith G. Myers -- Chairman and Chief Executive Officer

You know I got to tell you, no, we have not seen that. Now, I will say that I alluded earlier to the Geisinger issue, the wage indices there in the market is higher than I've seen. And the supply and demand a little bit on the worst side than we've seen, but other than that, where I got to tell you, we're just not really encountering that as a problem right now. And we'd like to say it goes back to our culture. But well I can't attest to what other people are seeing. I really, I can't tell you that we've seen that.

Whit Mayo -- UBS -- Analyst

Okay. I think it's just me overthinking everything (ph) . I appreciate you guys.

Operator

I'm not showing any further questions at this time. I turn the call back to Eric.

Eric Elliott -- Senior Vice President of Finance

Yeah, thank you everyone for participating this morning, for all the great questions and the conversation as always. We will make ourselves available, whenever you need us. So, have a great day and great week. Thanks.

Operator

Ladies and gentleman, this does conclude today's presentation. You may now disconnect and have a wonderful day.

Duration: 60 minutes

Call participants:

Eric Elliott -- Senior Vice President of Finance

Keith G. Myers -- Chairman and Chief Executive Officer

Joshua L. Proffitt -- Chief Financial Officer

Donald D. Stelly -- President and Chief Operating Officer

Brian Tanquilut -- Jefferies -- Analyst

Joanna Gajuk -- Bank of America Securities-Merrill Lynch -- Analyst

Kevin Ellich -- Craig-Hallum Capital Group -- Analyst

Matt Larew -- William Blair & Company -- Analyst

Matthew Gilmore -- Robert W. Baird & Company -- Analyst

Dana Hambly -- Stephens Inc. -- Analyst

Whit Mayo -- UBS -- Analyst

More LHCG analysis

All earnings call transcripts

AlphaStreet Logo