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AMEDISYS Inc (NASDAQ:AMED)
Q3 2019 Earnings Call
Oct 30, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings. Welcome to the Amedisys Third Quarter 2019 Earnings Conference Call. [Operator Instructions] At this time I'll turn the conference over to Nick Muscato Vice President of Strategic Finance.

Nick you may begin.

Nick Muscato -- Vice President of Strategic Finance

Thank you operator and welcome to the Amedisys investor conference call to discuss the results of our third quarter ended September 30 2019. A copy of our press release supplemental slides and related Form 8-K filings with the SEC are available on the Investor Relations page of our website. Speaking on today's call from Amedisys will be Paul Kusserow Chief Executive Officer; and Scott Ginn Chief Financial Officer. Also joining us is Chris Gerard Chief Operating Officer; and Dave Kemmerly General Counsel and Senior Vice President of Government Affairs. 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 measures mentioned during our call today to the most comparable GAAP measures will also be available in our Form 8-K. Thank you.

And now I'll turn the call over to Amedisys' CEO Paul Kusserow.

Paul Kusserow -- President and Chief Executive Officer

Thanks Nick and welcome to the Amedisys 2019 Third Quarter Earnings Call. I'm very proud of our performance this quarter as we have once again generated very strong financial results while continuing to deliver on our 4 strategic pillars as well as rigorously prepare for whatever the new world post PDGM will be in 2020. Again our strategic pillars define us as a company. Our success over the last four years is largely due to our focus and progress in these 4 areas. As long as our patients employees and referral sources continue to define success along these same lines we'll endeavor to make progress on our 4 pillars. So growth. Our organic growth in home health was particularly strong as we hit 5% Medicare fee-for-service growth. This is our highest quarterly growth rate since Q3 2010. On the inorganic front we continue to work a full hospice tuck-in pipeline while streamlining our internal acquisition integration and absorption process as we prepare for industry disruption in home health early next year.

We also have continued our de novo success with 7 de novos currently operating ahead of our initial projections and we have an additional 4 to 6 de novos targeted for the remainder of the year. We're continuing to look to build and buy in hospice buy opportunistically in home health once we see what PDGM looks like and build networks to expand our personal care coverage as well as innovate to allow more people to stay in their homes. Now to people. We drove total voluntary turnover to approximately 16% down from 17% in the second quarter and for the month of September we achieved a 14.9% turnover rate this is our best ever. Let's talk about operational efficiency. We had 41% of our visits completed by LPNs and 43% of our visits completed by PTAs by the end of the third quarter up from 39% and 42% respectively during Q3 of last year. This will help continue to drive margin improvement. And now to quality. We achieved a quality of patient care star score QPC of 4.27 and we had over 13% of our care centers at 5 stars while 90% of our care centers were over 4 stars.

Our hospice business once again outperformed the national average in all measurement categories and is at the top of the national players. Our performance this quarter has allowed us to increase our EBITDA guidance range from $213 million to $216 million to $220 million to $223 million the details of which Scott will cover in his remarks. None of these results would be possible without our over 21000 employees' unwavering commitment to providing outstanding care to our patients in their homes. I want to thank every one of you for helping to deliver such strong clinical, operational and financial results. Again, it all begins with our patients and our culture of caregiving, which puts them first. As you all know, this is the last earnings call prior to PDGM being implemented. As such, let's discuss the constantly evolving and challenging regulatory and legislative scene RPDGM preparedness and our 2020 areas of focus. Let's start on the regulatory front. The 2020 Home Health final rule should be released by CMS any day now. And until we see and review the actual language in the final rule it would not be useful or wise to speculate about possible strategies from the proposed rule. On the legislative front we continue to make great progress signing up cosponsors for our House and Senate bills.

As you will recall this legislation would prohibit CMS from making rate adjustments based on behavioral assumptions and allow only for adjustments based on observed evidence of a change in provider behavior. As of this call I'm pleased to announce we have 31 bipartisan cosponsors for the Senate bill representing 1/3 of the total Senate and 1/3 of the influential Senate finance committee members. In the House we have 130 bipartisan cosponsors representing almost 1/3 of the House and over half of the prestigious Ways and Means Committee members. As for next steps we fully expect to see continued and growing support for this legislation from Democrats and Republicans while we continue to push for a Congressional Budget Office or CBO score on the bill. As you all know policymaking in Washington is an ever-changing landscape and we must remain aggressive but flexible when seeking solutions. We and our industry colleagues remain both. Internally as we have discussed with many of you we have been practicing and drilling for PDGM since November of 2018 when CMS finalized the 2019 rule with the new payment model.

Since then we've had a cross-functional team of over 40 of our best working daily to prepare our business for these pending changes. As of November 60 care centers will be in PDGM test mode performing most of the functions required. Thus far the results we've seen have exceeded our expectations. We've dug into and dissected the barrel assumptions, trained up our centralized coding function, implemented paid practice changes that will allow us to better optimize our LPN and PTA utilization and have begun to roll out metal logics care so that we will have better analytics around individualized patient specific care plans, as well as optimizing utilization management. It has been truly inspiring to see the entire organization rally around our strategies to address the impact of PDGM. And I want to again emphasize our intense preparation, scale, financial resources, and clinical and operational expertise, position us to successfully transition to the new payment model. However, it manifests itself regardless of the regulatory or legislative outcome. Not surprisingly, successfully navigating the waters of PDGM is our biggest initiative in 2020.

That said we have a few other operational and strategic initiatives that we will be working on through the remainder of the year and all of next year. CCH integration and optimization and the ClearCare build-out and actualization. Thus far CCH integration has exceeded our internal modeling expectations and we look to continue that trend of staying ahead of projections entering 2020. As you will recall when we acquired the asset we laid out a margin improvement and growth plan that would require initial investment in the business and caused some initial disruption as we harvest synergies. Through thoughtful planning we've been able to mitigate some of the anticipated negative impact. 2020 will be a year of continued focus on ramping the business development staff within the CCH care centers and further margin optimization as we work to make the growth and margin profile of CCH mirror the Amedisys legacy hospice business.

Finally last quarter we announced an innovative partnership with ClearCare the personal care industry's leading software platform representing 4000 personal care agencies across... [Technical Issues]

Operator

Ladies and gentlemen please standby. We're experiencing technical difficulties. Nick your line is live. Please go ahead.

Paul Kusserow -- President and Chief Executive Officer

Finally I'm just going to start at the top. Finally last quarter we announced an innovative partnership with ClearCare the personal care industry's leading software platform representing 4000 personal care agencies across the U.S. Our agreement with ClearCare creates an opportunity to establish a partnership between Amedisys and personal care agencies using the ClearCare platform in order to better coordinate patient care. Long term and part of our 2020 focus we will be building a nationwide partnership of personal care agencies and the technology infrastructure needed to offer Medicare Advantage plans and others a true continuum of care by combining home health hospice and personal care services nationwide. It's very early days and there is a lot of work to do but we're very excited about the numerous opportunities this partnerships presents us with. Thus far early results have been extraordinary with 880 personal care agencies representing 90000 caregivers in every state we operate in having already signed up to participate in the partnership with Amedisys. As you can see we had another great quarter and have continued our outstanding performance in 2019. Again thank you to all the Amedisys employees for all you've done to drive this success. You continue to prove that no matter what the circumstances focusing on our patients drives outstanding results.

With that I'll turn it over to Scott who will take us through a more detailed review of our financial performance for the quarter. Scott?

Scott G. Ginn -- Chief Financial Officer

Thanks Paul. I'm very happy to report on another impressive quarter of results which once again was driven by excellent financial performance across all 3 of our segments. For the third quarter of 2019 on a GAAP basis we delivered net income of $1.03 per diluted share an increase of $0.07 on $495 million in revenue an increase of $77 million or 19% compared to 2018. For the quarter our GAAP results were impacted by income or expense items that we have characterized as non-core 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 quarter on an adjusted basis our results were as follows: revenue grew $77 million or 19% to $495 million; EBITDA increased $12 million or 25% to $57 million; EBITDA as a percentage of revenue increased 70 basis points; and EPS increased $0.20 or 21% to $1.15 per share. We're very pleased with our Q3 performance. There were a couple of items that I'd like to highlight that positively impacted our results. Our health insurance expense for the quarter was flat sequentially.

We typically experienced a 10% to 12% increase in Q2 to Q3. As such our health expense was approximately $2 million below our internal expectations. Additionally reductions in workers' compensation reserves benefited the quarter by approximately $2 million. Turning to our third quarter adjusted segment performance. In home health revenue was $312 million up $17 million or 6% compared to prior year driven by a 6% increase in same-store total volumes. On a same-store basis Medicare admissions were up 5% episodic admissions were up 8% and total admissions were up 9%. Medicare revenue was up 2% impacted by a Medicare recertification rate of 37.2% 180 basis points lower than prior year and further impacted by an increase in price concessions. Medicare revenue per episode was up 2%. Visiting commission cost per visit increased $0.90 compared to prior year driven mostly by planned salary increases. Overall cost of visit was up $0.81 compared to prior year on a 3% increase in total visits. Our gross margin improvement of 110 basis points was driven by volume and rate increases across all payers as well as a 2.8% improvement in utilization.

Additionally our planned shift in clinical mix resulted in a $600000 reduction in cost of revenue for the quarter. Segment EBITDA was $47 million up $3 million with an adjusted EBITDA margin of 15.1% representing a 10 basis point improvement. Other items impacting the third quarter results of our home health segment include non-Medicare revenue per visit increased 1.6% and G&A as a percentage of revenue was 24.3% for the quarter which is up 100 basis points compared to 2018. The shift in our staffing model and raises drove approximately 70 basis points of the increase. Now turning to our hospice segment results which include our CCH and RoseRock acquisitions. For the third quarter revenue was $162 million up $59 million over prior year an increase of 57%. Same-store average daily census was up 5% and same-store admissions were up 4%. Segment EBITDA was $42 million up nearly $14 million over prior year an increase of 47%. Net revenue per day was up $7.96 and cost of service per day was up $4.79 from prior year.

Our segment EBITDA margin and operating metrics were impacted by the inclusion of the CCH acquisition in our third quarter 2019 results. Excluding the impact of the CCH acquisition our hospice segment EBITDA margin was up from prior year. For the quarter the CCH acquisition added $46 million in revenue and $7 million in EBITDA in our hospice segment. The acquisition added $1.4 million in corporate costs which resulted in a net $5.7 million in consolidated EBITDA contribution. Year-to-date the CCH acquisition has added revenue of $123 million and $13.6 million in consolidated EBITDA. We're very pleased with our performance to date and are confident in our ability to grow top line and expand margin. A personal care segment generator proxy 21 made in revenue in the third quarter and grew billable hours by 2%. Hiring difficulties driven by the strong economy is limited our growth results are not comparable to prior year as they are inclusive acquisitions. We're pleased with our continued progress or even a margin of the segment improves on 410 basis points over prior years.

Turning to our total general and administrative expenses. On an adjusted basis total G&A was $150 million or 30.3% of total revenue. Total G&A was up 70 basis points as a percentage of revenue compared to prior year and sequentially. Our total G&A expense for the quarter includes approximately $13 million related to the CCH acquisition which is comprised of $1.4 million in corporate and $11.4 million in our hospice segment. Slightly over half of the 70 basis point increase in total G&A expense is related to a change in our home health staffing model and raise. As we've detailed we made purposeful G&A investments in 2019 to prepare the business for PDGM including pay practice redesign and staffing model changes added sales and support employees for continued growth in all lines of business added resources to pilot innovations and expanded our de novo process. We generated $47 million in cash flow from operations for the quarter which puts us at $127 million year-to-date. We're on track to deliver in the range of $180 million for the full year 2019. DSO was 44.5 days up approximately 4 days from prior year and 3.4 days sequentially and was impacted by approximately 3.5 days by the CCH acquisition.

We anticipate increase in DSO upon completion of the conversion of CCH care centers to HomeCare HomeBase. Excluding the CCH acquisition our DSO was 41 days which is flat from prior year. At the end of the third quarter our leverage ratio was approximately 1x and we've accessed over $470 million of liquidity. On the de novo front we are very pleased with our progress to date and currently have 17 de novos care center operating. We're targeting opening additional 4 to 6 by the end of the year. Finally as you can see on page 16 of our supplemental slide deck we're increasing our 2019 guidance ranges as follows: adjusted EBITDA of $220 million to $223 million and adjusted EPS of $4.32 to $4.39. As I mentioned Q3 benefited from approximately $4 million as a result of lower health and workers' compensation cost. However we have not reduced our total health cost expectations for the year and expect a shift in the timing of cost. This shift combined with our normal Q4 seasonality will result in approximately a $6 million sequential increase in health costs in Q4.

Our updated guidance ranges include this cost shift. Entering the fourth quarter our areas of focus that will ensure we continue our strong performance are as follows: continued Medicare admission volume growth trends hospice ADC growth minimizing CCH disruption and managing the impact of performance related to our ongoing preparation for PDGM. Related to PDGM in 2020 modeling as we continue to update our analysis with 2019 episode data the Amedisys specific impact of PDGM including the market basket update is a negative 6.8%. Of that 6.8% our current view is that we can offset approximately 50% of the impact via behavioral changes while mitigating the remainder via mix of cost levers including optimizing clinical mix and utilization. We'll continue to refine our view throughout the remainder of the year and we'll reassess the modeling on release of the final rule.

This will conclude our prepared remarks. Operator please open the line for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Brian Tanquilut with Jefferies. please proceed with your question.

Brian Tanquilut

Good Morning guys. My first question. As I think about your comments on organic growth obviously admissions look really strong 9% organic. But how is that translating into the Medicare revenue growth of 2%? We've got a lot of questions on that and I think investors would really want to see what the moving parts are in terms of your view on the delta between admissions and revenue growth.

Scott G. Ginn -- Chief Financial Officer

Thanks Brian. This is Scott. I'll kind of take that. Appreciate the question. Yes and I think that's a great question. And if you look at the numbers certainly we're excited about the top line admit growth of Medicare we're approximating 5% there. It's our best since 2010. So very pleased with that. So that's certainly helping our growth. We also did see increase in revenue perhaps at roughly 1.9% that's down slightly. We think that somewhat as we move through PDGM we were roughly running at about 2.8% in prior quarters. So those are things that are helping us on the good side. That was somewhat offset as I said in my comments we did see an increase in price concessions year-over-year about $2 million. Some of that's timing related. So that certainly has helped us but the rest is really driven by a decline in recert rate which we've experienced throughout the year roughly down 180 basis points year-over-year. So you're seeing that kind of pull down some of those volume numbers. Chris I don't know if you want to add some more clarity there?

Christopher T. Gerard -- Chief Operating Officer

Yes. Hey Brian it's Chris. So first some raw numbers on the recert rate in the total volume. If we look at our total Medicare volume for the quarter on admits our admits were up 1924 admits. But our recert decline as Scott mentioned was down. It was down 889. So we only had a net of 1035 new episodes in Q3 versus Q3 of last year. That's roughly a 1.4% year-over-year volume growth on the Medicare side. It's strictly a recert issue. What we noticed is we had a real strong recert year last year. So 39% was a recert rate in Q3 of last year 37.2% this year. We noticed this going into the year. Each of our 3 quarters so far this year have been lower year-over-year versus last year. So we're getting a little bit also of a cumulation effect of recerts that were light in Q2 that carry into Q3 and the revenue is recognized in Q3 is catching up. The good news is that we know what it is. It's internal it's nothing external that's driving it. It's more around clinician capacity and focus. We've been going a lot at our agencies this year in terms of staffing model redesign pay practice changes PDGM preparation. We're focused in on it. We're chipping away. We think we'll call back some more of that this quarter and we think we'll get to where the revenue topside is reflective of the total volume as well.

Paul Kusserow -- President and Chief Executive Officer

And then just Brian just from my perspective. I'll take admission growth any day of the year. We can fix the recert issue. And I think the whole idea of our being able to produce results which we haven't been able to produce since 2010 on the top line is extraordinary. I think the issue is often there is a seesaw effect when you drive admissions and have very strong admissions of what it does from the utilization of resources is it pushes your research down slightly. So I think as we balance this out we'll be able to push -- have more modulated growth on both sides.

Brian Tanquilut

And then I guess shifting to PDGM obviously the rule is coming out soon. I guess Chris if I may ask what exactly are you doing in terms of prep work? I don't know you said in the prepared remarks that it's hard to strategize but I know you guys have already been doing pilot programs on the ground. And then I guess kind of related to that for Scott how are you thinking about the starting rate? One of your competitors talked about their impact yesterday. So I just wanted to hear your perspective on how we should be thinking about the rate based on the current rule as proposed.

Scott G. Ginn -- Chief Financial Officer

Yes I'll start with the rate and let Chris dive more into our preparation for it. So yes as I said in my prepared comments we're -- our all-in rate which is net of the good guy we're getting on the market basket which is for us is roughly 1.5% and inclusive of behavioral assumptions that CMS has made where our starting point is at 6.8%. So that's a negative 6.8% impact. If you think about it on a 3000 average revenue per episode you're at roughly $200. So that's kind of how we're starting there. And as I said in the comments as well we think we can offset about half of that or about 3.4% through our behavioral changes which is a combination of coding comorbidity as well as LUPA. So that leaves us another 3.4% to overcome. And we're still feel very confident in the cost levers we have around visits per episode and then around LPN RN and PT-PTA conversions.

You saw that in this quarter that we took the half of visit out. We were really proud that were able to focus on that and get those numbers moving. So I think that bodes well for our future development around that. So I think it leaves us good opportunity. If you think about 1 visit just roughly and if you kind of weight that down from kind of what's true variable you're talking about $70 there. And then if you're talking about each move 1 move in LPN and RN and PT-PTA that's probably $20 each. So if you think of the $200 on the top side and we offset half of that behavioral and then you've got -- that's a combination but we have another $110 coming out of the cost side. So I can give you kind of a view of where we would expect to give that coverage from.

Christopher T. Gerard -- Chief Operating Officer

Yes. And so I'll add. From an operational perspective again we've been working on this since November of last year. We've had a group of about 40 professionals in the organization that are constantly meeting and working through this. What we've done specifically is we started off by tackling the coding side as well initially looking at our episodes and then identifying episodes that have an opportunity for coding. And we've been able to really kind of reconfigure kind of our coding process so that we're fully done on that. The comorbidity side we're fully collecting the information there. So there's really not much work to be done there as well. And then on the LUPA management we're working through that and we'll have that kind of fully laid out by the end of this year.

And then last piece would be on the questionable encounters which -- those are basically episodes that in today's environment don't have a grouping home in tomorrow's environment. We've been able to focus on that. We initially started off with around 13% of our episodes and we've that out down to 0.3% of our 2019 episodes and now are still -- we're looking for a home. So we've done a lot there made a lot of progress there. And then the 2 cost levers Scott mentioned our visits per episode. As you can see we're already down 1/2 a visit year-over-year in Q3 and are moving our mix of our prep professionals LPNs to -- and RNs and PTAs and PTs to closer to a 50-50 mix. Specifically what's happening to drive that is better scheduling on our far more focus there and we've talked a lot about a pay practice change that we're in the middle of today that will be done at the end of this year that we think will unlock the rest of the runway for us to be able to get to the 50-50 mix.

Paul Kusserow -- President and Chief Executive Officer

And I think the other piece Brian that's important is about 20% of our -- by the end of this year 20% of our care centers will be doing a lot of the PDGM. It will be like they're living in the PDGM world. So we're up to I think about 50 care centers that are going to be up and doing this. So we feel good about how that's working and we've learned a lot. We've been doing a fair amount of these since May. So we've learned a lot in the process particularly on how to refine the coding but we've also looked -- we've been able to drive our utilization down in this area as well as a lot of work has been done on the hiring of LPNs and PTAs that have been beneficial from a cost perspective. So we feel with 20% of our business already actually in the worst case PDGM world running effectively well we feel good where we're at. And we -- again I can't thank our 40 people enough for getting us there so early and rigorously putting us through the paces so that we've been able to deliver as we've been -- these really good results. So we feel good about it.

Brian Tanquilut

And last question for me Paul. As I think about CCH and the hospice business hospice is delivering good results driving upside. Is that mostly CCH? And how should we be thinking about your ability to continue delivering that kind of performance out of hospice?

Paul Kusserow -- President and Chief Executive Officer

I think CCH is on plan. So we feel good about it. I mean we're still sticking to -- we're ahead of plan on the synergies. I think as you saw we basically delivered our results. We're at I think overall $13.8 million in on -- at the end of the third quarter. So we beat already our projections for the year with CCH. So we feel good about it. We feel good about the synergy harvest that's coming in. So the $34 million to $36 million of next year we feel very good about. So we just want more hospice so we're -- we've had to walk away from a couple of big deals but we still have a really nice pipeline. The de novos are growing very well. So we continue to do that. We're particularly seeding our de novos around where Chris used to play in Texas. We feel -- we like that space. So we feel very good about that. And I think we feel good that -- remember that $34 million to $36 million is basically just synergized it's not at our margin it's not at our growth rate. So when you add all that together you've got a -- you've got significant growth there in 2021.

Scott G. Ginn -- Chief Financial Officer

Yes. Just a real quick on hospice performance. I'd say that certainly we want to continue to -- we have seen a little slow down. We guided to roughly 7% on admit growth. You see that's a little slower. We knew there were some tough comps there. But our legacy segment is still performing exceptionally well at the margin lines. Within our segment I talked about CCH delivering roughly $5.7 million. But at the segment level it really delivers about $7.1 million which on $46.5 million in revenue they're at about 15.6% of EBITDA contribution. So you could see when you look at that from a blend perspective our legacy did great. It actually increased both EBITDA margin and gross margin. So we're pleased with the -- from a cost side certainly working on the growth piece of it but we're happy with our performance.

Brian Tanquilut

Thank you, guys.

Scott G. Ginn -- Chief Financial Officer

Thanks, Brian.

Brian Tanquilut

Appreciate it.

Operator

Thank you. The next question is from the line of Matthew Larew of William Blair. Please proceed with your question.

Christopher T. Gerard -- Chief Operating Officer

Hey, Matt, how you doing?

Scott G. Ginn -- Chief Financial Officer

Hi, good morning, Chris. I wanted to follow up a little bit on the Medicare admit strength. Can you just wonder -- if you could just give us a sense for -- is there particular pockets of geographical regions you're seeing strength of or referral sources? What's driving that? It looks like non-Medicare revenue was still up 16%. So it didn't appear to come at the expense of growth in admit elsewhere. Just wondering if you could go a little bit more into that.

Christopher T. Gerard -- Chief Operating Officer

Yes yes. Thanks Matt. So we've obviously focused on our organic growth on the Medicare side for quite some time and we've been pretty clear about our strategy adding feet on the street getting our reps out there trained calling on the right accounts. We had the right frequency and also working through any kind of operational issues that we have in some of our locations. I'm real proud to say the way we're structured regionally. Historically we've had some overperformers outshine or overshadow some of our underperformers that get us to some total growth. Today we're really seeing -- we're seeing growth across all of our regions in the organization. So I don't think it's anything particular other than us just really being committed to our strategy us selling on quality us making sure that we have the best reps out there selling a great product which is our service. And I think it's starting to gain some traction for us. So we have 7 -- we now are looking at -- we're looking at 7 straight quarters of organic growth in the Medicare fee-for-service side. So we're really excited about that and we want to continue to push for that.

Matthew Gillmor

Okay. And then I just want to follow up on the ClearCare partnership. Paul you gave us some of the high-level statistics in terms of sign ups but could you give us a sense for how you expect this to influence and contribute to the business? And what kind of time line we might see for these sign-ups these principles and she is actually contributing to potentially top line growth for you?

Paul Kusserow -- President and Chief Executive Officer

Yes. I think -- I'm going to let -- I'm going to -- I'll give you the top line on that and then I'll turn it over to Chris because I -- it's reporting into him. I think the initial piece is what we hope for and what we're testing out. We still have to roll out our test piece of this. So we're still signing people up. And I think our simple philosophy there is the best way to be in this business is utilizing a network sort of approach. And so that's what we're trying to migrate toward. The idea of course is that we actually -- what we see every day is a desire to move back and forth between personal care and home health and personal care and hospice. And we want to establish those -- that ability to do that so we can provide continuous care for our patients. And that -- so initially we think we'll start to see that in cross referrals.

We've already seen referrals on both sides so we're encouraged by it. Very early days very small amounts but we're encouraged by that. The other thing we've been encouraged by is managed care has come to the table and are very interested obviously in an ability for us to have the full care continuum hopefully integrated. We haven't built the integration tool for that. So that's what we're working on now how to linking ClearCare with our HomeCare HomeBase data that we have so that we can have 1 full view of this and build out continuous care plan. So that's what we're focused on. I think once we do that we'll be in a very unique position to start to take risk and optimize caregiving and do it at the lowest cost with the best outcome. So managed care seems to be very interested in that. We've made a lot of calls thus far and have had some much more interesting conversations. I don't know if Chris want to...

Christopher T. Gerard -- Chief Operating Officer

I think you laid it out well. I think the important thing is what you all should seeing from us and hearing from us in the near term is really kind of how we are connecting with these ClearCare agencies in our local markets to improve the patient outcome. And it really comes down to these personal care patients who have some sort of a skilled need or end-of-life need and they have a preferred relationship with us to where we can make that transition very smooth and vice versa. We have patients that were discharging from our home health services or hospice services. They still have some needs and functional limitations in the home. We already are seeing the cross referrals happen. Again we haven't even really automated the system.

It's still on a manual process. But just by virtue of us being in the same markets and having the same kind of aligned goals we're seeing patients moving between us -- from us to them and them to us which -- that's step 1. Now as we got to turn that into a better patient outcome and utilize the data as well and then that's going to get us the traction in the audience with the plans on down the road. Near term it's really getting from a manual process to an automated process. We're working on that right now. We haven't done a formal rollout to all of our locations. So what we're getting today is actually just kind of organically happening based on the excitement but we will have everybody trained up and rolled out by the end of this year that have signed up in markets where we overlap with them.

Paul Kusserow -- President and Chief Executive Officer

I think from a bigger strategy perspective Matt what's interesting to us is we want to be able to not just buy and own everything out there but if we're going to be really an aging in place company we're going to need to partner we're going to need to be able to bring services that fundamentally potentially we won't own. So we're again trying to build in that infrastructure so that we can again as people want to age in place and as there's -- as the world moves toward aging in place and staying in the home we're going to need to bring in types of services that potentially will have to contract with and build networks around and not necessarily own.

Matthew Richard Larew -- William Blair & Company L.L.C.,

great. Thank you. Appreciate it.

Operator

Our next question comes from the line of Justin Bowers of Deutsche Bank. please proceed with your questions.

Justin Bowers -- Deutsche Bank -- Analyst

Hey, Justin. Hey, Paul, and team Good morning everyone. So you guys had a tough comp on Medicare same-store revenue. I mean you were 10% at this time last year and admissions are at record levels. So is it fair to -- just in terms of trajectory of same-store growth in next couple of quarters with what seems like recerts will maybe pick up a little bit. Is it fair to say maybe we've kind of hit the lows in terms of as comp sees and as kind of the volume pulls through? We've kind of maybe hit the trough in terms of Medicare same-store revenue. And then how should we be thinking about the recert rate over the next couple of quarters? And I do appreciate especially as PGM kicks in the admissions matter more. But the recert rate is picking up a little bit and just wondering if we should -- how we should be thinking about that?

Christopher T. Gerard -- Chief Operating Officer

Yes. Justin it's Chris. Thanks for the comments. Yes it was a tough comp. But what we're looking at is as we identify kind of a dip in our recerts in Q2 we've been focusing on that making sure that we have the capacity with our clinicians for the admissions and the recertifications. We saw it tick up as a percentage of completed episodes in Q3. We anticipate an additional kind of pickup in Q4. I think we'll get back to kind of what will be normalized state of our total growth. Total volume being in that -- Medicare volume being in that 5% to 6% range and that should reflect -- be reflected in revenue prior to any PDGM impact when I look at Q1 Q2 of next year. We don't anticipate PDGM to impact our recertification rates negatively or positively. So I think your question is should we see kind of Q3 as the trough and us kind of coming back to where our top line revenue is reflective of our total volume growth? I would say yes.

Justin Bowers -- Deutsche Bank -- Analyst

Okay. Got it. And then just one quick follow-up. I appreciate the additional disclosure on the net effect that you guys are seeing which -- versus kind of my older data looks like 140 basis point improvement. Scott it sounded like in your prepared comments that that's really just kind of looking at your current mix 2019. Is that a fair -- am I understanding that correctly?

Scott G. Ginn -- Chief Financial Officer

I think that's fair. I mean when the first data first came out around the modeling they were using 2017 data. So you continually have new episodes coming through. You had other changes to reimbursement coming through with the 2018 final rule the 2019 final rule. So that's what we're seeing there. I think it's -- this has been pretty close to our modeling kind of from early in the year some small movements but it's been pretty stable for us.

Justin Bowers -- Deutsche Bank -- Analyst

Okay, thank you and great execution this quarter. gratitude. I appreciate it.

Christopher T. Gerard -- Chief Operating Officer

Thank you.

Operator

The next question is from the line of Joanna Gajuk with Bank of America. Please proceed with your question.

Joanna Gajuk -- Bank of America

Good morning. Thank you. So just a couple of follow-ups. So first I guess just to stay on PDGM. So I appreciate the commentary of how you and vision offsetting the different pieces. So how should we think about how quickly it's going to go affect this? I guess when you start reporting in this quarter under PDGM it sounds like you're going to have everything in place essentially by the end of the year. So that once I guess 100% goes live 100% of agents are live on PDGM. So we kind of should just see how this plays out right away or you're kind of anticipating more of a ramp-up for Q1? There's still some things that will maybe not fully in place and then by say midyear everything in place. So any commentary on kind of the ramp up there?

Paul Kusserow -- President and Chief Executive Officer

I think you've got it Joanna. I'm going to let Chris go into the details. But I think the way you're thinking of it is that I think the coding piece will largely be under control. Chris has been and our excellent coders have been really getting this under control. But I think the migration from getting a full visit possibly visit the half out and then getting the LPN RN and the PTA PT ratios to an optimal place so we're able to pull those savings out at all care centers will probably be the first 2 quarters.

Christopher T. Gerard -- Chief Operating Officer

Yes. I think you're right. So I think if you're looking at all of our levers for PDGM I'd break it again into 2 buckets. One is the revenue lever which your behavioral adjustments -- related to the same behavioral adjustments the assumptions that CMS laid out. We will be done with any kind of material changes going into 1/1/20 with that. So that's coding that's comorbidities and that is your kind of LUPA management if you will. So that's about half of our mitigation strategy. The other 2 will actually ramp throughout the year which is the visits per episode. And I failed to mention earlier on is that the part of it is going to be around what's driving our management of that is our Medalogix care launch. Paul mentioned 20% of our locations will be on Medalogix care rolling into January. We don't have a full rollout plan until August so it's going to ramp throughout the year.

So when you look at a 1 visit per episode reduction in 2020 the best way to look at it is less than 1 in the first half of the year getting to 1 in the middle of the year and exiting next year at probably close to 1.5 and toward the whole year looks like a net 1 reduction. Same goes for the other cost lever which is our LPNs and pay practice is happening right now that is one of our biggest barriers to move to significant needle. That will be done this year. We should -- between January and July of next year an acceleration of us moving closer to that 50-50 ratio. And when we exit next year it should be even be more heavily weighted to PTAs and LPNs and it is to RNs and PTs. So behavioral adjustments day 1. Mid-year we get to our goal on cost levers. We exit next year with...

Paul Kusserow -- President and Chief Executive Officer

Well ahead of that.

Christopher T. Gerard -- Chief Operating Officer

Well ahead of that.

Joanna Gajuk -- Bank of America

All right. I guess on that front if CMS finalizes the rep payment reduction how is that going to impact your cash flow in Q1?

Scott G. Ginn -- Chief Financial Officer

Joanna this is Scott. We believe that's roughly a 20-day impact. So you're talking roughly on Medicare revenue. So we're in a $60 million range that's kind of where we permanently adjust there. So that's kind of where we -- our view of it is as of right now.

Paul Kusserow -- President and Chief Executive Officer

And we don't -- we haven't heard anything that's -- that means the wrap is under debate. We've felt very strong push back when we brought this up at CMS. So I would anticipate that the phaseout of the wrap it will be part of PDGM.

Joanna Gajuk -- Bank of America

Okay. And just to wrap it up so I guess what comes with that along with all these changes with PDGM? So how quickly should we see how the rest of the industry is faring on the PDGM? Because you mentioned you're going to wait to see how this plays out before you decide whether you want to buy or acquire other assets in home health. So how quickly you think you expect this to kind of show through?

Paul Kusserow -- President and Chief Executive Officer

We expect 2 waves. And I think initially with the wrap there as we're looking at we're trying to do some estimates to try to understand how much of the industry has actually access to financing. And we think it's very high portion of the industry does not have access to financing when you look at the average size of some of these players. So we think it's going to probably go into 2 phases. And I'll let Chris talk about it because I think he's been through this before 20 years ago.

Christopher T. Gerard -- Chief Operating Officer

Yes. I think the early on was just going to be the smaller agencies that don't have kind of the cash reserves to be able to make payroll -- a couple of payrolls into PDGM. And if you think about rough math there is -- it's an $18 billion industry there's probably -- roughly 12000 agencies out there the average agency size is $1.5 million. You're going to have a lot that are going to fall into that bucket. And it's going to be not an acquisition process it's going to be more of -- they're just going to -- they're going to unfortunately just go out of business and it's going to be where we exist there will be some opportunity for us to work through that. And then I think that as the year goes on you'll probably see some of those that are able to actually navigate through PDGM but really they just don't see kind of the long-term upside of just transforming the organization and we'll likely start seeing some opportunities come up with smaller regional players out there that we can look at. And I would also anticipate hospital-based systems that really have been working under a 20-year reimbursement program. We saw this in early 2000 some of them may not just really kind of have the intestinal fortitude to work through a whole new transition as well so that can create maybe some volume opportunities for us down the road.

Joanna Gajuk -- Bank of America

Thank you.

Operator

[Operator Instructions] Our next question comes from the line of John Ransom with Raymond James.

John Ransom -- Raymond James & Associates, Inc -- Analyst

Hey, john. Hey, good morning. So if I'm hearing you -- by the time we get to 4Q '20 you're -- if you take a $200 revenue hit as a starting point and you get to your cost reductions and let's say you offset half of that revenue so am I hearing you right that -- so revenue per episode would be down say $100 but your cost per visit could be down $180 to $200 by the time you get to 4Q. Is that fair or am I missing something?

Scott G. Ginn -- Chief Financial Officer

All right. We're looking at from a cost per visit perspective. We're looking potentially let's say the shift is one of each maybe $40 kind of a movement there and the rest is going to come out of the visit reduction which won't impact my cost per visit metric. Actually you may see that because the fixed move a little bit slightly but our total cost will go down because I'm doing 1 less -- on average 1 less visit with any episode.

Paul Kusserow -- President and Chief Executive Officer

And then the math of the -- once we get the staffing right we'll go through that math.

Scott G. Ginn -- Chief Financial Officer

Yes. So the staffing there's a $20 -- the difference was $20 for every shift you see.

Paul Kusserow -- President and Chief Executive Officer

Right.

Operator

Thank you. Our next question is from the line of Kevin Ellich with Craig-Hallum. Please proceed with your question.

Kevin Ellich -- Craig-Hallum -- Analyst

Hey, Paul, thanks. So just kind of a couple of more questions on PDGM. I know you guys have talked a lot about it already but under PDGM won't recertifications matter more since you're shifting the 30-day episodes? Just thinking about how that's going to affect some of the moving pieces on the financial side especially with how they're changing request for anticipated payment? And Scott can you kind of go into some detail as to what that's going to do to your receivables and DSO in 2020?

Scott G. Ginn -- Chief Financial Officer

Sure. So as we've talked about so we think that it's roughly a 20-day impact to DSO. So we think that's probably a $60 million hit there that kind of will disrupt our cash. So basically if you think about where we're running we're close to running a $50 million -- $59 million last quarter $47.5 million in cash flow. So you're talking about pretty much a 1 quarter disruption in cash flow that will moderate itself after the ones be kind of a permanent reset but we're confident in our plans will be ready for that working on our unbilled numbers to get those back down. But that will be just on the home health side of the business which is roughly $3 million is equivalent to a day.

Paul Kusserow -- President and Chief Executive Officer

Yes. And we thought through the recert.

Christopher T. Gerard -- Chief Operating Officer

Yes. Kevin so I wouldn't equate to 30-day billing periods to what's going to change with the patients in terms of episodes. I mean we're still going to have 60-day episodes and just have 30-day billing periods. And so the only thing that's going to -- should significantly or should change any recert rate would be a change in the type of patients that we're admitting. We don't really have any kind of plans around changing that materially. So if we're admitting the same types of patients next year that we're admitted this year then we should see recertification rates kind of stays consistent as well. The patient characteristics should be driving that. Obviously not reimbursement.

Kevin Ellich -- Craig-Hallum -- Analyst

Thank you.

Operator

Our next question is coming from the line of John Ransom with Raymond James.

John Ransom -- Raymond James & Associates, Inc -- Analyst

Sorry I just want to take one more. So if you reduce 2 visits per episode that's roughly $180 of costs that would come out and then you've got the LPN and PTA substitution. So...

Paul Kusserow -- President and Chief Executive Officer

Another $20.

John Ransom -- Raymond James & Associates, Inc -- Analyst

Yes. If you do all that so we're talking $200 of visit that would -- excuse me an episode -- I'm sorry that's not the last time. But I think what I heard you say is that the 6.7% revenue hit the gross revenue hit is really going to be something like half of that. So maybe it's $100 reduction in revenue per episode but $200 reduction in costs. I mean by the time all said and done am I missing something there?

Scott G. Ginn -- Chief Financial Officer

Yes. Depending on the -- if your math is right so I think you're dead on with the math. So just to recap that so on an episode basis let's -- because that's easier to kind of think through this. So certainly the original hit at 6.8% is the $200. If we offset that cut that in half so you're right so let's say at the end of the day episode hit is roughly $100. So the net of that. And then if you think about taking costs in my previous example I talked about $70 for 1 visit plus on the shift another $20 for each so that gets you to $110. So anyway we're able to move up those visits coming out then your math is right that that would certainly imply a higher reduction in that visit cost I mean the episode cost.

John Ransom -- Raymond James & Associates, Inc -- Analyst

Thank you.

Operator

Our next question is from Matthew Gillmor with Robert Baird.

Matthew Gillmor

Thanks. I just had one quick clarification. So I appreciate all the commentary on PDGM. And one of your peers had called out potential for some SWB delivering. And I just wanted to confirm when you're talking about some of these initiatives will that be enough to offset some of the natural growth in SWB? Or should we be thinking about that as a potential issue to be modeling next year?

Scott G. Ginn -- Chief Financial Officer

So if you're thinking about from a cost of revenue perspective we still plan to do raises at 2% to 3%. But you back out and think about staffing levels taking those kind of visits out because basically we could grow this without having significant total cost increase or people increase which you certainly have fixed cost to that. So we have some abilities there but I would expect some mild inflation into that number. Kind of think about modeling it kind of where you are today and then kind of adjust for what our kind of shift on the cost side of it with LPN and RN.

Matthew Gillmor

Thank you.

Operator

Our next question is coming from the line of Bill Sutherland with Benchmark Company. Please proceed with your question.

Bill Sutherland -- Benchmark Company -- Analyst

Hey, guys, A real quick one here on hospice. Your ADC growth trending here at a nice mid-single digit pace. Is that how we should think about your legacy business for the next many quarters? And then what -- I know you're not -- you've never said there's going to be CCH growth within this two-year accretion model but do you think -- I mean how should we think about blended ADC growth next year potentially from what you see now?

Christopher T. Gerard -- Chief Operating Officer

Yes. Hey Bill. This is Chris I'll take that one. So on the legacy side when we bring up legacy in same-store it's really the same 81 locations that we had for several years and I have mentioned this before. We've gone pretty deep in those markets. We had an average ADC of about 45 about four years ago to we're approaching average ADC of 100. So getting to mid-single digits 4% 5% 6% we think it's kind of really sustainable from here on out that's market expansion and us taking a little bit of share. But obviously the deeper the penetration harder is for us to continue to grow at a quick pace. So you're right. So we think this is going to get us to that 7 plus percent growth rate as a total as a division is going to be more around CCH and bringing their smaller care centers in line with kind of ours and also getting their growth rates in line with what we've historically seen plus our de novo strategy. Obviously 7 de novos this year 4 more coming online. Those are going to be some new opportunities for us to drive the growth and going from 0 to let's say 100 in those locations won't be a big contributor. But mid-single digits 5% I think is the way you should be thinking about our legacy business just because we've had several quarters of double-digit growth and this is becoming tougher and tougher to take market share in those but we're going to do what we can and then we have new avenues for growth.

Operator

Our next question is from the line of Kevin Ellich with Craig-Hallum.

Kevin Ellich -- Craig-Hallum -- Analyst

Had to sneak one more in. So PDGM I guess what's your preference? I mean given the potential changes we could see either from Medicare or legislatively would you rather have the impact all at once in 2020? Or would you ever have it spread out over a couple of years kind of phased in? What's best for the company and then what's best for the industry? And how do we think about that?

Paul Kusserow -- President and Chief Executive Officer

Yes. I mean that's a great academic question. I appreciate it. But I think the final decision on PDGM is going to be made by others. So it's going to be CMS and Congress. So I think as I said before when you see a fork in the road take it. And I think what we're -- either way for us is fine. Our preference would be for the rest of the industry we prefer a phase-in because we think it's -- we still think the wrap is going to be very damaging. But therefore for the larger players we do think it will provide some opportunity for M&A. But it's really 5 hits you're getting here. You're getting the 8% you're getting the rule add on elimination you're getting the wrap on elimination you're getting double billing you're getting questionable encounters that you have to code down to and fix that. So it's really not just a 2-whammy deal it's a 5-whammy deal and when you add all that together it's going to be devastating. And we just -- our belief is that we're -- we've prepped for this. So we feel really good about it all in if it's the perfect storm. But we think for the rest of the industry and for the chaos it'll sort of hurt people's health. We think the phase-in is going to be much better because they still have to contend with all the other things that's part of PDGM.

Kevin Ellich -- Craig-Hallum -- Analyst

Thank you.

Operator

We have time for 1 additional question today which is coming from the line of John Ransom with Raymond James.

John Ransom -- Raymond James & Associates, Inc -- Analyst

So just to avoid kind of what happened this today and this quarter can you help us a little bit with segment EBITDA modeling for 4Q? I know you had some seasonal cost in hospice but how are you thinking about segment EBITDA in 4Q versus 3Q?

Paul Kusserow -- President and Chief Executive Officer

Thanks for teeing us up on that. Scott?

Scott G. Ginn -- Chief Financial Officer

Yes. I think you got to think about still the normal -- we haven't done a lot of energy kind of from a -- as we give guidance around breaking down the segment performance as you think about what the normal seasonality deal with I've talked earlier about the $6 million increase in health. Over 50% of that probably goes through the home health line. So you'll see some pressures there. That's normal kind of -- other than the health side it's $2 million that kind of shifted on us. So you'll see that piece similar with workers' comp. So you see those kind of moves go along to the segment. We do generally see a little higher growth in Q4. If we can stabilize the recert rates I think that will bode well for us. So I think that you would kind of see a similar -- we kind of see it as kind of a flattish type view going in from Q3 to Q4 just with typical other cost issues facing us. And then we'll get -- with a full quarter raises which is our plan but that will hit us -- that's probably about $1.6 million additional into Q4. So kind of look like a normal patterning. If you look at our charts in the back we're kind of dead on that normal progression.

John Ransom -- Raymond James & Associates, Inc -- Analyst

Thank you.

Operator

At this time I'll now turn the call back over to Paul Kusserow for closing remarks.

Paul Kusserow -- President and Chief Executive Officer

Thanks Rob and I want to thank everybody who joined us on our technologically challenged call today. Thank you for that. I would also like to thank again all of our people who delivered incredibly good results so keep doing what you're doing keep taking care of the people who need us the most. We hope that everyone has a wonderful day and happy Halloween tomorrow and we look forward to updating you on our ever-evolving progress and purposeful work on the road or during our next quarterly earnings call early next year. Thank you everybody. Take care.

Operator

[Operator Closing Remarks]

Duration: 66 minutes

Call participants:

Nick Muscato -- Vice President of Strategic Finance

Paul Kusserow -- President and Chief Executive Officer

Scott G. Ginn -- Chief Financial Officer

Christopher T. Gerard -- Chief Operating Officer

Brian Tanquilut

Matthew Gillmor

Matthew Richard Larew -- William Blair & Company L.L.C.,

Justin Bowers -- Deutsche Bank -- Analyst

Joanna Gajuk -- Bank of America

John Ransom -- Raymond James & Associates, Inc -- Analyst

Kevin Ellich -- Craig-Hallum -- Analyst

Bill Sutherland -- Benchmark Company -- Analyst

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