LHC Group (LHCG) Q4 2021 Earnings Call Transcript

LHC Group (LHCG)
Q4 2021 Earnings Call
Feb 24, 2022, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to LHC Group's fourth quarter 2021 earnings conference call. [Operator instructions] Please note, this conference is being recorded. I would now like to turn the conference over to your host, Eric Elliott, senior vice president, finance and investor relations. Thank you.

You may begin.

Eric Elliott -- Senior Vice President, Finance and Investor Relations

Thank you, Rob, and good morning, everyone. I'd like to welcome you to LHC Group's earnings conference call for the fourth quarter and year ended December 31, 2021. Last night, we issued our earnings release and posted a copy of our prepared commentary and a supplemental deck on the quarterly results section of our investor relations page. In addition to the earnings release and supplemental information, a copy of the 10-K and ultimately, a transcript of this call, when available, can be found on this page.

Our supplemental deck includes our full year 2022 guidance assumptions and detail on breakdown among sector performance. All of our non-GAAP reconciliations and breakdown of adjustments are included as well. We will reference this information in our remarks today. Consistent with the approach we began last quarter, the majority of our time on this morning's call will be devoted to Q&A.

With me today is Keith Myers, chairman and chief executive officer, Josh Proffitt, president and chief operating officer, and Dale Mackel, chief financial officer. Before we start, I would like to point everyone to our forward-looking statements on page two of our supplemental presentation and encourage you to read them carefully. They apply to statements made in this call in our press release and our prepared commentary and in our supplemental financial information. I'll now turn the call over to Keith.

Keith Myers -- Chairman and Chief Executive Officer

Thank you, Eric, and good morning, everyone. Before we begin, I'd like to take just a moment to thank our LHC Group family of nurses and caregivers', physician extenders, allied health professionals and administrative and support staff. They worked tirelessly on behalf of the growing number of patients, families and communities we are privileged to serve. And we just -- I just can't thank them enough for their commitment to those entrusted to our care and for their commitment to continued improvement and excellence in all we do.

So to everyone on the team, thank you and know that you are valued and appreciated. I hope everyone had a chance to review the commentary and supplemental information we posted last night. We received a positive response from this practice last quarter and trust that we'll allow more time for Q&A today. When I try to summarize our year, what's ahead of us and the current state of the industry, there are a few things that come to mind that I'd like to share in just my brief opening comments.

The first is a clear policy consensus that patients want to be treated in the safety and comfort of their home. This is evidenced in part due to unprecedented regulatory flexibility in afforded home health in the wake of COVID, as well as important legislative initiatives from Congress. Innovative waivers from CMS regarding the homebound requirement, flexibilities for remote certification of home care, telehealth and continued legislative relief from the 2% sequestration cut were actions of targeted relief and sustained policy for our sector during the current public health emergency and beyond. Notably, CMS is giving consideration to making many of these waivers permanent reform.

Likewise, we saw the House pass and send to the Senate, the President's initiative to expand HCBS services by a proposed $150 billion, and we saw solid progress with our signature legislation, Choose Home. 48 members of Congress from both chambers -- from both parties and from committees of jurisdictions including committee chairs are now cosponsoring this ground-breaking legislation. Every month and at times weekly, we see Choose Home and other home-based reforms the subject of up ad articles in newspapers across the country, in social media and in discussion at national conferences. Congress likewise is considering additional opportunities to expand telehealth benefits, hospital at home program is gaining traction and CMS is poised to implement nationally value-based purchasing in 2023.

Never before have we seen such a sustained and significant emphasis from Congress and from CMS in expanding in-home healthcare services. More importantly, we can see this consensus also reflected in polling data. Third-party polling data shows that 86% of adults and 94% of Medicare beneficiaries prefer to recover at home after hospital stay. While 85% of all adults and 90% of those over age 65, say that expanding home healthcare options should be a government priority.

You can also see it in the increasing demand for our services, with new position referrals at an all-time high for us, along with an increasing number of existing and potential partners reaching out to manage their post-acute programs. Our challenge right now is certainly not demand. And that leads me to my second point, which is the difficult challenges we faced in the recent past have been short term in nature. We saw a large spike in the percentage of our clinicians on quarantine in late Q4 and early Q1 due to COVID variants, compounded by lower availability of labor overall as the industry struggled to fill open positions.

We have a number of initiatives that Josh will talk to later, underway that we've outlined and will review in more detail during Q&A. And finally, my last point is that even the growth we experienced in 2021, we expect another strong year in 2022 as we remain a long-standing industry leader in quality patient satisfaction and employee retention and our proven ability to deliver on the multiple levers we have for organic growth in each segment and continued M&A activity. So I'll stop there with opening comments. Thanks again for joining us this morning.

And now, I'd like to open the call up for questions for Josh, Dale or myself.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Scott Fidel with Stephens. Please proceed with your question.

Scott Fidel -- Stephens Inc. -- Analyst

Hi. Thanks, and good morning. First question, just wanted to sort of think about long-term adjusted EBITDA margins. And if we look at the 2022 guidance, that embeds an implied adjusted EBITDA margin of just a bit over 11%.

As we think about one, scaling the margins on all that acquired revenue in 2021, the $300 million that you acquired. And then, if we assume we can move past the pandemic at some point here into a more of a normalized environment, can you talk about what you think is more of an obtainable long-term target margin for the business?

Dale Mackel -- Chief Financial Officer

Yeah. Sure, Scott. This is Dale. I'll take that.

So you're correct. Our guidance for 2022 is about 11.1% EBITDA. As we think about kind of clearing 2022 and getting further removed from COVID, integrating our M&A business, right? We've been very deliberate and we're on about a 12- to 18-month program for institutionalizing our M&A to the corporate standard. So we get out into the '23, '24 time frame.

We're still very much of the opinion that on a consolidated basis, we're looking at that 13% to 15% EBITDA range for the business.

Scott Fidel -- Stephens Inc. -- Analyst

OK. Perfect. And then, on my follow-up question, just interested if you can talk a bit about what the operating cash flow expectations are for 2022. And then, how you're thinking about leverage? It looks like you exited 2021 at just around 2.5x.

Obviously, I know that sort of what you're going to do with M&A is going to probably drive that, but sort of separate from M&A, whether you've got sort of a year-end leverage target for 2020? And that's it for me. Thanks.

Dale Mackel -- Chief Financial Officer

Yeah. Absolutely, Scott. So if you think about cash flow for 2022, we have about roughly a 64% conversion from EBITDA to cash. So that puts us at about roughly $180 million of cash flow, operating cash flow.

From there, you have to remember, we're still kind of clearing ourselves of the CARES Act Medicare advanced payment recoveries and deferred payroll taxes. So I think it's worth mentioning that in 2021, we paid back about $212 million of the Medicare Advance payments or they were recouped from us, about $212 million. And then, we paid our first installment of deferred payroll tax, which is about $26 million. So a heavy year of CARES Act recovery there.

As we look at 2022, we've got about $106 million of Medicare advance payments to be recouped yet from CMS and one additional deferred payroll tax to be paid. So we're in the low $130 million for kind of closing out the CARES Act money, if you will. So if you take that off the cash flow, you're at about a $50 million cash flow. We expect roughly $20 million of capex, so that leaves us about $30 million.

And then, obviously, as you mentioned, depending on M&A, we go from there. So you take all those components into consideration, we think it's a pretty benign debt year for us, quite honestly, pretty flat year over year.

Scott Fidel -- Stephens Inc. -- Analyst

OK. Thank you.

Operator

Our next question comes from A.J. Rice with Credit Suisse. Please proceed with your question.

A.J. Rice -- Credit Suisse -- Analyst

Hi, everybody. Maybe just to ask about the hospice business for a second. I think the length of stay is now, at about 85.6 days, it looks like from the fourth quarter. Is that, in your mind, normalized? Or do you still think there's further to go there and generally, comment on the status of the hospice business relative to pre-pandemic levels.

And I know you highlight also that you've made some leadership realignment in the hospice business. Maybe, talk a little bit about what you guys have done there?

Josh Proffitt -- President and Chief Operating Officer

Yeah, A.J. Good morning. This is Josh, and good morning, everyone. So as you think about our hospice business, I'll try and hit it in the order that you just laid it out.

From a length of stay perspective, being up in that mid-80s. We've been tracking in the low 80s for the past couple of quarters, which we've been really pleased with. That got us back to what I'll call kind of pre-pandemic levels, if you will. And now, that we're seeing that more in the 85, 86-day range, I think that's very sustainable, No.

1. And with our current patient mix and kind of site of care mix, I wouldn't see that changing much. But our assumptions have that kind of hanging in right there in those mid-80s. And then, kind of stepping back and looking at just hospice performance, you mentioned our realignment.

So obviously, last year was a huge year of acquisition and really, kind of forming up and firming up our platform, if you will, for hospice. And we alluded to this kind of midway through the year, as we were building through our acquisitions. In the fourth quarter, we did do some realignment in both sales and operations. And I believe on our last call, I even alluded to really, kind of reorganizing some of the geography and looking at real growth-minded leadership, both operationally and from a sales perspective.

So we executed all of those changes in the fourth quarter to be effective January 1. So there was some disruption in the quarter due to some of those changes, as you might expect. But A.J., I'm extremely pleased with the results that we're already starting to see from that change. We're pacing to just over 10% organic admission growth in the quarter, right now, for Q1.

And that was over a Q1 of last year that was right around 8%. So we've met a decent hurdle for Q1 and have a lot of growth momentum going on in our hospice business right now, organically. And then, from a sequential standpoint, we're going to be way up in the high double digits, probably 18% or so of sequential growth in the quarter. So all in all, really pleased with the results we're getting from that change.

A.J. Rice -- Credit Suisse -- Analyst

OK, great. And maybe, just a follow-up on the guidance for '22. You've got a line item, cost improvement initiative, to contribute about $25 million in EBITDA. Can you maybe, expand on that? And does that come in evenly over the course of the year? Or is that going to be back-end loaded?

Josh Proffitt -- President and Chief Operating Officer

Yeah, A.J.. Maybe, I'll first take us back to some of our prepared remarks and what we described in November. Last year, when we were setting the stage for 2022 preliminarily. And we had talked then about a $10 million to $15 million cost initiative effort that we had scored at that time.

Back then, the majority of those savings were, I would say, in three categories. First was some of our strategic sourcing efforts, things like pharmacy costs, things like med supply costs. The second would be reduced dependency on contract labor utilization. And we've already seen a slight improvement there in Q4 over Q3 and feel pretty good with the lessening of quarantine employees of how that's continuing to trend here in the first quarter.

And then, the third area of cost improvement that we described back then was moving more of our extender utilization, LPNs, PTAs, and so forth. I would say, from then till now, we've also taken a deep look at our nonclinical G&A. And I'd say that's where the other $10 million to $15 million comes from. When you have as much acquisition activity as we've had, really, not just last year, but over the last three years, coming into this year.

Looking at the higher cost for direct labor, you know us being very disciplined from a G&A perspective. We looked at areas that we could be more efficient and make some very targeted savings opportunities in the nonclinical G&A area. So by doing that that's also going to help us as we grow our revenue this year, better leverage our G&A when you look at how we guided to our G&A as a percent of revenue, kind of in that 28% to 29% range. And then, I think you asked how it smooths out over the year.

In our supplemental deck, we broke down all three components of COVID spend, incremental acquisition improvement and at least, on the contract labor utilization, how we expect that to smooth over the year. Some of these other ones we did execute in Q4, and we're going to get some benefit in Q1. And some of the G&A, we're continuing to execute here in the first quarter.

Dale Mackel -- Chief Financial Officer

A.J., this is Dale. I'll just add a little more color on to that. If you look at -- and I think we should probably go back and say in 2017, the company was $1 billion in revenue. And now, in 2022, we're looking at $2.5 billion.

So to Josh's point, it's really a fresh and deep look at over that period of time in that growth, really, digging into our admin costs, right? So we have good opportunities there. But when you look at the cost savings, as Josh just mentioned, in the bridge on Page 40 of our supplemental deck, you'll see that in Q1, we've got about $4.9 million in there. So that would be -- suggest a run rate of 20. So there's a little bit of back-end -- a little bit back-end loaded, not a lot of back second half loading.

And that would really probably be more toward the, what I would call, the med supplies section, because right now, supply chains are tight. So the benefit from med supplies is going to probably come more in the second half.

Josh Proffitt -- President and Chief Operating Officer

OK, that's great. Thanks a lot

Operator

Our next question comes from Justin Bowers with Deutsche Bank. Please proceed with your question.

Justin Bowers -- Deutsche Bank -- Analyst

Hey, good morning, everyone. Just in terms -- can you characterize kind of labor environment and some of the ways that you're winning with regards to recruiting and retention? You hired a ton of staff last year, but also, just trying to better understand some of the dynamics where maybe, where you're sourcing some of your new hires? And if you're seeing any differences in terms of your ability to hire across the different categories, whether it's like RNs, LPNs, therapists, etc.

Josh Proffitt -- President and Chief Operating Officer

Sure. Justin, this is Josh. I'll start out with that one. And I'll break it, really, into the two key areas.

You alluded to both. There's recruiting and then there's retention of the staff you have. And if you look in our supplemental deck, I'm extremely pleased with our -- on the full-time clinical staff perspective, the net hiring momentum that we experienced all throughout 2021, even in a very tough labor market. So the net hiring that we track really balances the scales of both recruiting and retention.

On just the recruiting front, we've now had five consecutive quarters of the highest numbers of hires we've experienced in our company's history. And we're doing a lot of very specific things there. I'll touch on just a few before I pivot over to retention. But on recruiting, first, I mentioned this last quarter, and we've seen even more of an increase here.

And that's the growth in our talent acquisition team. As we've described in the past, we have a centralized talent acquisition model, but they are deployed in many ways out into the local markets that we serve, because recruiting is very localized along with your branding and other areas. So we've grown that from 34 when we entered last year to 62 when we exited. So we've had an 80% increase in our dedicated staff, just for recruiting efforts.

A couple of other things we've done. We did roll out last year, in January, our employee referral program that I talked about on the last call as well. We closed out the year right around 2,000 hires from that program alone. We've also made some real good process improvements in our velocity of hiring.

We've got very specific performance metrics, not only for our recruiting team, our talent acquisition team, but we've got very specific metrics for our hiring managers on time from application to get the candidate on speed to provide feedback and scheduled the interview and all of those types of process measures. And I've watched and continue to see really good sequential improvement every quarter in those areas. And then, the last one I'll mention under recruiting that I may even dovetail and use as my lead in for retention is really, all of our areas in DE&I under diversity, equity and inclusion. We have a chief diversity officer that leads that effort for us, but she is very engaged and integrated into all of our recruiting efforts.

And even at a local market level, a lot of those local targeted talent acquisition team members are also armed with -- and targeting to make sure from a DE&I perspective, that we're the employer of choice in those local markets for all of our team members. And then, shifting gears to retention, I'm pleased that we continue from all the data that we have access to, not only for the industry but across our peers, to be the leader in the industry when it comes to the voluntary turnover for our frontline staff. Although it has been up a little bit throughout the pandemic, it seems to have stabilized, and we're continuing to perform well there. The efforts around retention, I would point to our DE&I efforts there, also, have a retention element.

I would point you to our culture. We've recently been recognized as the best company to work for, for women, as well as the best company to work for from a company culture perspective. And then, in two specific areas I would highlight for retention. One is all things, employee engagement.

We have a program internal and third-party external partner on our employee engagement efforts. Internally, we call them engagement conversations, but we've embedded this into the process with all of our managers throughout the organization. And last year, we completed over 40,000 engagement sessions with our employees, and had an overall engagement score of four and a half out of five, which is extremely solid. If you look at that across other kind of reporting sources from an employment perspective.

And then, we've also engaged a third-party engagement partner, where we're doing consistent pulse surveys for employee satisfaction and engagement there. So I feel really good about the efforts on that front. And then, lastly, from a frontline perspective, I think anything you can do to streamline and improve your workflow processes, your scheduling practices to find ways to automate and make things more efficient for your frontline workforce in today's environment of employees really comparing a lot where they want to work, I think, is another big leg up for us that we've put a lot of effort into. So I know that was a long-winded answer, but I know this is such an important point right now in our industry.

And I just want to say kudos to all of our operations team members that are out there, leading this charge because they're doing a great job.

Justin Bowers -- Deutsche Bank -- Analyst

Yeah. I appreciate all the detail. And then, maybe, just a high-level one. We're -- there are some concerns about a potential cut for 2023 or PDGM.

And was just curious kind of what the conversations are in D.C., kind of what some of the partnership initiatives are and how we should be thinking about handicapping that, as the year progresses?

Keith Myers -- Chairman and Chief Executive Officer

Yeah. So good question. I mean, I'll take that one. I mean, we certainly hear that.

Naturally, we're pushing back on that with data to support our arguments. But other provider groups are facing the same thing. I know that the Hospital Association is very active in that as well on their own issues. So I mean, as it relates to home health and hospice, we're obviously very, very engaged in that.

And I don't see what's being proposed as being something that we'll ultimately get in the end. Worst case, we negotiate something that's lower than what's proposed. And best case is we -- our arguments are strong enough to have no cuts. And that's the way it works out most of the time.

The first thing that's proposed is very egregious and we have a long track record of being able to mitigate that to some degree.

Justin Bowers -- Deutsche Bank -- Analyst

Understood. Appreciate it. And the new format and all the detail in the supplemental deck. Thank you.

Operator

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

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

Hi, good morning. Thanks for taking my question. So just a couple of follow-ups on this latest topic on labor and recruiting. So clearly, positive trends there.

You're talking about the hiring produced over 20% more new hires compared to any other year, so it's a pretty strong number there. But just to keep things in the perspective, can you give us a sense of the net new hires that you disclosed of over 700 or 720 for the year 2021? What percent is that to your base? And also, just talking about where the shortages are? Is mostly nurses or should we assume these are mostly nurses? And I guess, when you think about that type of stuff, what does this number represent in terms of increase in the overall pool you have?

Josh Proffitt -- President and Chief Operating Officer

Sure, Joanna. This is Josh. The 722 home health, 53 hospice, so call it just shy of 800. I'd say that's about 5% increase in our full-time clinical staff, because this is a full-time metric.

We're not talking about PRN staff. So if you look at our full-time clinicians across those two service lines, that's about a 5% year-over-year increase, which is stronger than what we had been kind of running years previously. The other kind of point to capacity, and this lends itself to growth potential and really, taking advantage of a lot of the demand that we're seeing from our direction. So if we can continue a 5% or greater net increase in employee workforce while also maintaining our current very low level of employees on quarantine, to go from six -- north of 6% of employees on quarantine down to around 0.5%, that's another 5% influx of workforce and capacity for growth that we've experienced in the last month alone.

And if you correlate that to what we've seen in census, our census on January 15 was roughly 83,000. And earlier this week, we eclipsed 89,300. So we've had over a 7% increase in our census growth in home health in a five-week period due to this increased employee capacity. So you can imagine our top priority right now is continuing that momentum in net hires so that we can take on all this growth.

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

No, definitely. That's good to hear. The 5% is a good number to think about, I think, here. And I guess, just another follow-up on that topic.

Because on the prior call with third quarter, you talk about labor costs kind of overall growing 3% to 5% for the year. So is it still in the same ballpark when you think about this year?

Dale Mackel -- Chief Financial Officer

Hey, Joanna, this is Dale. I'll take that. Yes. So going back to that, we referred to historically, we were seeing 2% to 3%, and we felt like we were in an environment where 3% to 5% was more of the norm.

We still feel 3% to 5% is that range. I think we're anchoring ourselves now in 2022 as we've got three or four more months of empirical data around the labor market. We're anchoring ourselves to the higher end of that 5% range, obviously. That includes bonuses, right? So it's inclusive of base wage adjustments, as well as bonuses.

So I think we're still very much of the opinion that we're toward the higher end of that 3% to 5% range.

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

And to that point, how should we think about this in the future? Would this be a number to think about going forward? Or there's a way to think about it, that it should moderate maybe, toward the lower end of that 3% to 5%?

Dale Mackel -- Chief Financial Officer

Yeah. No, I think we very much feel that there's moderation to come, right? The further we can clear ourselves of COVID, right? I think that there's a very direct correlation, obviously, between COVID, the variants of COVID and in labor, supply and demand and availability and cost. So the further we can remove from COVID, the more normal way we can get back to that 2% to 3% range, obviously, we feel. So we're planning on 2022 like many others, still being a year of disruption around that.

But kind of getting into '23 moving forward, we feel that there should be some norm -- stability coming back in and getting back to more normalized wages.

Josh Proffitt -- President and Chief Operating Officer

Yeah. And Joanna, this is Josh. Maybe, a couple nuggets I would add to that. We talked about it earlier in our cost initiatives, but everything Dale just described on kind of the cost front of labor in general, if you just isolate our contract labor utilization, every 100 basis points, we can reduce our dependency there, gives us about $1.5 million of savings per quarter.

And then, as we shift to more LPN and PTA utilization, there's also some really strong savings. So to tie that back to what I just described on quarantine, now, with all of our workforce kind of back and not in quarantine, we can reduce our dependency. We can better leverage LPNs and start realizing some of those savings. So long term after COVID, Dale, I think some of those savings are more sticky.

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

No, that's a great color. If I would just squeeze a last one. You talk about PDGM, but I guess on the other end, there's also the Choose Home proposal that has a lot of support. Obviously, D.C.

is busy among other things. But any updates there in terms of the timeline for seeing the movement on Choose Home? Thank you.

Keith Myers -- Chairman and Chief Executive Officer

Yeah, Joanna, this is Keith. I'd be hesitant to try to put a time line on it because there's so much uncertainty in Washington right now. I mean, what we know is that we know of the strong support that I shared in my opening comments. We know that the deal is now being scored by CBO, and that score is expected in a matter of days.

That was at the direction of -- request of Senator Wyden. So those are all positive, but then, it will be about choosing -- it would be about what vehicle that Choose Home legislation would attach to.

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

Great. Thank you.

Operator

Our next question comes from Andrew Mok with UBS. Please proceed with your question.

Andrew Mok -- UBS -- Analyst

Hi, good morning. Your slides indicate that contract utilization will decrease in each Q2 and Q3 of 2022. First, what's the normalized level of contract labor utilization in the back half of 2022 if you deliver on that improvement? And second, what level of full-time net additions do you need to realize that improvement? Do you have the capacity and staff to execute on that today?

Dale Mackel -- Chief Financial Officer

So Andrew, this is Dale. I'll take the first half of that. And what we're referring to their, specifically is the nursing -- contract nursing utilization. And so, we were at 4% in Q3, in home health utilization, 3.8%, as we mentioned, about a 20 basis point improvement in Q4.

And to your point, further improvements in Q2 and Q3 of about 1% each quarter, right? So that gets us down to high 1s, 1.8% to 2% utilization. Our normal -- if you think about pre-pandemic normal utilization was probably in the 1.5% -- 1%, 1.5% range. So starting to get closer to that normalized utilization pattern as we get to the back half of the year. What was the second part of your question?

Andrew Mok -- UBS -- Analyst

Do you -- what level of full net additions do you need to realize that? Do you have the capacity to do that today? Is that simply just a function of quarantine rates coming down? Or do you need to hire more to execute on that?

Josh Proffitt -- President and Chief Operating Officer

It's primarily a function of quarantine rates stabilizing. And then, with the increase in the net hires, I don't want to be overly bullish here, but Dale and I have done a lot of modeling around this area, and we feel really confident in that 1% Q2, Q3 with the run rate we're on. And honestly, Andrew, that there could be some betterment and upside there that will just lend itself to more growth, if we can keep the hiring velocity going.

Andrew Mok -- UBS -- Analyst

Got it. That's helpful. And just a follow-up. Visits per episode ticked up almost half a point sequentially to 13% in 4Q '21.

What drove that sequential increase? And what are the expectations for VPE in 2022?

Josh Proffitt -- President and Chief Operating Officer

Yeah. I would say -- this is Josh. Our expectations for VPE still remain in that 12.5% to 13% range, which they've been in pretty consistently, a slight uptick in Q4, but nothing, I guess, it was like 0.4 visits or what have you. I would emphasize, as we continue this journey of higher acuity care in the home, you're likely going to see continued uptick to a certain extent.

But with that, will come higher reimbursement and higher revenue to offset any costs that go with it. So I continue to feel, throughout all of PDGM and even through the pandemic, very confident in our VPE consistency and the quality results that it is yielding.

Andrew Mok -- UBS -- Analyst

Great. Thanks for all the color.

Operator

Our next question is from Matt Larew with William Blair. Please proceed with your question.

Matt Larew -- William Blair -- Analyst

Hi, good morning. Just one more question around labor, which is, it sounds like your perspective is that with your employees largely now vaccinated and case counts coming down, that your shortages really are just related to quarantines. And obviously, there's been some discussion more broadly about the demographics of the nursing workforce and whether there might be longer-term shortages that have been pulled forward. Now, a couple of years into the pandemic, would just be curious whether you're seeing the pressures you think, on a go-forward basis strictly tied to quarantines or whether there is a broader shortage and issue that's going to be a problem for the industry?

Josh Proffitt -- President and Chief Operating Officer

Yeah, Matt, this is Josh. Great question. I would say the notion of nursing shortages isn't new and didn't arise just because of the pandemic. I think the pandemic exasperated it and really shined a light on it when you then start having large portions of your workforce that are unavailable because they're in quarantine.

So I think, that's a headwind that the overall healthcare ecosystem has been faced with for a while. For us, though, I do think in-home healthcare has so much momentum. And even in the workforce in general, due to the flexibility, due to a lot of positive attributes of being part of that particular segment of healthcare, if you will. So I think for us, over the next two, three, five years, we've got a real good path to sustainable employment growth as long as the quarantine stays sustained, which to your point, I think, you alluded to kind of the vaccination percentages.

We're in a really good spot when it comes to employee workforce that's both vaccinated as well. We track how many have had first dose, second dose, boosted. So I really think it's just the macro environment at this point, which I really like our chances in competing in that world.

Matt Larew -- William Blair -- Analyst

OK. And then, second one and a couple of different parts to it, but '22 was the first year that, at least, by some of my math, you had more non-Medicare home health admissions than Medicare admissions. And your non-Medicare business now has doubled over the last three years, but your segment margins have continued to improve. So just curious, first of all, what's driving this growth? Has it benefited from narrow or preferred networks? That would be piece one.

And then, the second piece is how do margins compare between Medicare and non-Medicare home health business today versus perhaps three to four years ago?

Josh Proffitt -- President and Chief Operating Officer

Yeah, Matt, this is Josh. I'll start there, and Dale, definitely, feel free to jump in and provide any additional color. I would say, yes, there is growth in MA and MA penetration. We're all seeing that across the industry.

But we've been talking about this for a handful of years, Matt, and you've been so close with us along that journey. We've talked a lot about our continued effort on the non-Medicare business to move more and more of that business to vehicles that reimburse in a mechanism outside of just per visit. That can be more episodic. That can be a case rate, that can be value-based.

So at a high level, the growth we have experienced in our non-Medicare episodic admissions, I want to say, it was around 18% in Q4, and it was north of 20% year over year, '21 over '20. That's fueling a lot of that growth. So you think about quality of your payer arrangements and quality of the admission you're taking in and balancing that in a prudent way across kind of how you manage your referral sources and whatnot for keeping a good healthy mix of those types of reimbursement vehicles. And in that regard, I'd say we're very kind of focused in two areas.

One is just our sales efforts, all the way to how we identify and target certain referral sources up through how do we incentivize on certain of that activity. And then, secondly, is our contract discussions and new arrangements. We've been, over the past few years, at the table and having more and more productive conversations with payers. And here, recently, we're sitting at the table having even more fruitful conversations around kind of the future of how we get reimbursed.

So I would point to that at a kind of high level. And then, I would say, like, when you boil it down to margins and rates, all in, when you take all of our non-Medicare, we've increased the reimbursement by almost 17% over the last five years which is really contributing to how we're able to balance the margin growth of the overall business, and we've not seen any margin compression with that growth in non-Medicare business.

Dale Mackel -- Chief Financial Officer

Josh, I think you covered it well. And just looking at it, I mean, you have to look at it holistically too, around how efficient do we operate in a consolidated basis at an agency level, with all the volumes together, right? So there's clearly operating leverage around all of that volume combined together. But when you look at our non-Medicare episodic, it's running about 97% of our Medicare per PDGM rate, right? So I mean, back to Josh's point, all of the efforts that have been going on around focus on increasing rates, focus on alternate reimbursement method, driving more value-based and risk-sharing componentry and dynamics into the arrangements, the greater focus on the non-Medicare episodic space, it's all -- that margin is very stable.

Matt Larew -- William Blair -- Analyst

OK. Appreciate all the detail. Thank you. 

Operator

Our next question is from Whit Mayo with SVB. Please proceed with your question.

Whit Mayo -- SVB Leerink -- Analyst

Hey, thanks. Good morning. As we think about the public health emergency, when this ultimately goes away, which it could be extended, I'm wondering how you guys are thinking about the impact from the relaxation on things like face-to-face and the homebound status, all of the telehealth rules. I mean, is this going to be an issue for you guys? I mean, I think that some of the LTAC changes around patient criteria could be a little bit of a challenge.

But I guess, I'm just trying to make sure I think through what the implications are, sort of internally, how you prepare for this? Or maybe, it's really going to be just a non-event?

Keith Myers -- Chairman and Chief Executive Officer

Yeah. Let me start with that and you guys can jump in. So what -- I mean, what -- here's how I think about it. I think that a number of these initiatives, I mean, like the flexibilities around telehealth, for example.

I think a number of these are likely to be permanent at some level. Maybe, some restrictions from how -- from the flexibilities we had during COVID. There were a lot of learnings during COVID that we routinely hear that these are good ideas and that we that should go forward. They have to be reimbursed appropriately, they have to be measured and regulated appropriately, of course.

But I do feel like a lot of that will stand -- a lot of that will stay in place to some degree. Was there another part of your question that -- I would just want to make sure I...

Whit Mayo -- SVB Leerink -- Analyst

Well, I guess -- yeah, I know. I'm just trying to think operationally in the field, and it -- take something like the face-to-face, right? Like, if we go back to the physical in-person documentation, getting all the support documentation in the hands of the clinicians, submit it back to you. I mean, is this operationally going to be a challenge to sort of pivot and get the physicians to go back to their normal workflow? Or is this something that you don't believe will be -- I'm just trying to make sure I'm checking the box of all the things that we should be thinking about.

Keith Myers -- Chairman and Chief Executive Officer

Right. So yeah, perfect. Let me give you a really good example of that. So prior to COVID, we know that there are a lot of things we did during COVID to adjust to the challenges that we've never thought of before COVID.

One of those is -- was around face-to-face with nurses going into a patient's home and scheduling an appointment with the physician at the same time. And when our home health nurse is in the home, the physician joined by telehealth. And so, patient, nurse and physician have a three-way conversation. And that's become a norm now for us, operationally, because of the value it provides.

So I think that capability is just good policy. I don't know why anyone would oppose that.

Whit Mayo -- SVB Leerink -- Analyst

OK. No, that's helpful. And maybe, just -- not exactly a follow-up, but sort of an extension of that question, is the audit contractors were kind of put on hold for a period of time, and we hear from calls with operators that we're seeing some activity, at least, today more so than prior quarter. This isn't really a reserve or a compliance question, but just can you maybe, comment on the level of activity that you're seeing with some of the audit contractors? Is this more prevalent in home health or hospice? Just any themes or things that you can share would be helpful.

Thanks.

Keith Myers -- Chairman and Chief Executive Officer

Josh, why don't you...

Josh Proffitt -- President and Chief Operating Officer

Yeah, this is Josh. I would say, we've seen it tick back up a little bit. In both home health and hospice, nothing unusual or outside the norm in either of those kind of service lines. And what we're seeing, you just see the activity picking back up.

And I know you said you didn't want this to be kind of a compliance audit type question or reserve question, so I won't go there. But you did afford me an opportunity to at least acknowledge and recognize kind of our industry-leading compliance program efforts here. And all of the governmental audit activity, whether it's ADRs, RAC, ZPIC, really kind of funnels through that portion of our organization. And we've got some very experienced home health and hospice clinicians that engage on all of those.

And our success rate continues to be really stellar. So other than just having to kind of manage through more volume, really, no concerns there on our end.

Whit Mayo -- SVB Leerink -- Analyst

OK. Thanks, guys.

Operator

Our next question is from Sarah James with Barclays. Please proceed with your question.

Sarah James -- Barclays -- Analyst

Thank you. I appreciate all the progress you guys are making on the skilled labor side for nurses and clinicians. But one area of weakness seems to still be on the personal care business staffing. And I'm just wondering, how you think about that affecting the timeline for SNF diversion or skilled nursing at home opportunities?

Josh Proffitt -- President and Chief Operating Officer

Yeah. This is Josh. I'll start there. I almost want to say, we're in our MORs two weeks ago when we had monthly operations reviews, because that is the No.

1 focus area for us as it relates to our HCBS business line. We definitely have pent-up demand and opportunity to grow our billable hours in that service line. And through the course of the pandemic, it has been, maybe, even more impacted. Honestly, on a scale perspective, it's not as large, but when you look at the underlying metrics, that workforce has been even more difficult throughout the pandemic.

So we've done some real specific things with our leadership all the way down through the local leadership and pairing them with some of these talent acquisition team members as well to get more innovative in how we solve for this in the local market. So I'm confident you're going to see us have some good results to report and discuss throughout the course of this year. And then, the piece to your question about how that ties to SNF diversion and higher acuity in the home, you're absolutely right. And in some of the markets where we're going to be doing more of the high acuity work, this workforce is going to be very important to driving that total cost of care savings.

So it impacts not only our HCBS service line, but for us to get some of that growth momentum and that employee workforce will also benefit our acute care in the home efforts.

Dale Mackel -- Chief Financial Officer

Yeah. And Sarah, this is Dale. I may just add on to Josh's comments, there is -- we've also committed some dedicated recruiters, specifically to home care or to a personal care business. And as you know, personal care is a very much a state-by-state business, right? Some states are better than other states.

And so, I think where we're deliberately focusing those recruiting efforts are where it makes sense to do so, where the rate environment supports the labor environment, because there are some states where the reimbursement environment does not support the rate environment. So we're being very deliberate about where we focus that.

Sarah James -- Barclays -- Analyst

That's very helpful. And just a follow-up on rates. As you think about just the mechanics of how home health rates are put together by CMS and the look back that they have for forecasting wage inflation, how do you think about how many years it takes in an inflationary environment to get that fully baked into the rates that CMS provides?

Keith Myers -- Chairman and Chief Executive Officer

So this is Keith. That is one of three top priorities that we're working on in the partnership for quality home health, which is a subset of the larger home health providers. But we've been doing that in coordination with the National Association because this affects everyone. But what we're providing is third-party data that's real time and current.

So we collect data from providers, and it's collected by our -- by the law firm that we use for the industry. And then, they provide it to an actuary that does the work, and then we provide that to CMS. And we have a, I think, a long track record of being accurate in data that we provide in that way. So we are having those conversations about that lag.

And the lag has always been problematic. But given what we've experienced in the last two years and then finding out where this new norm is going to be, it's going to be very important for us to -- for home health to be reimbursed adequately. And again, the feedback from CMS is that they welcome the data, and it's helpful to them and those things. And we don't have an adversarial relationship with CMS as an industry now.

It's very -- it's more like a partnership. And I would say, 20 years ago, it was adversarial. But through a long a steady drumbeat of third-party data that proves out to be reliable over 10 years, has changed that dynamic. So I know that's a lot, but that's what I think about and more importantly, why I have the confidence I have.

Dale Mackel -- Chief Financial Officer

And I think, Keith, we'd all say too, is we're optimistic on that front as well, because we saw them reflect some of the inflationary pressures in the current year increase, right? So that was a quick reaction on their part. We believe there's more to be recognized, but at least, they reacted quickly to that.

Sarah James -- Barclays -- Analyst

That's helpful. Thank you.

Operator

Our next question comes from Bill Sutherland with the Benchmark Company. Please proceed with your question.

Bill Sutherland -- The Benchmark Company -- Analyst

Hey, everybody. Just following up on Sarah's question about the personal care staffing challenges. Can you give us an update on how the program with SCP is going?

Josh Proffitt -- President and Chief Operating Officer

Yeah, Bill. This is Josh. It's quite well, honestly. You know us, we're not going to get out there and have a whole lot of public fanfare around it until we've really started rolling out some of the programs and have some tangible results to give you.

But I'll tell you, a lot of the work we're doing, we've got teams from our clinical executive team and revenue cycle management leadership that engages with them on a weekly basis. We've got this kind of work stream that's putting all of this together. And we're very active in our, I'll call it, the dev efforts around that. And in some ways, are having to moderate that because the volume and number of our JV partners that are asking us to help with those efforts, continues to grow.

So all in all, I'm really pleased with kind of the momentum we've got there. In some ways, some of that was -- the pace of it may have been moderated, some due to the pandemic, again. And when you've got some spikes, whether it was Delta and Omicron, so our hospital partners were really kind of focused there as they should have been. But real pleased with how we're improving that partnership and some of the plans we have, kind of, going into kind of Q2 into the back half of this year to start growing that.

Bill Sutherland -- The Benchmark Company -- Analyst

So you're going to stay kind of in stealth mode for the time being and not -- we won't have announcements in the intermediate future, you think?

Josh Proffitt -- President and Chief Operating Officer

I'd say, probably, Q2 is where you would see -- If I'm sitting here looking at where we're at in some of the development of them, with a few key JV partners, I'd say you'd see that start in Q2.

Bill Sutherland -- The Benchmark Company -- Analyst

OK. And then, just wondered if we could dig a little bit into the organic growth assumption that you have in your '22 guidance layout. Just a little color on what goes into that.

Josh Proffitt -- President and Chief Operating Officer

Yeah. So I mean, you see we've got a 5% to 7% for home health and a 6% to 8% for hospice. And what I would point to when you say what goes into that, obviously, we look at our current momentum as we were exiting the year. We try and kind of factor in all the things around the quarantine and the pandemic and project out where we're going to be.

But if anything, Bill, there's potential upside to that when you look at the demand. Our growth in new referral sources has eclipsed 20% each year, the past two years. So we've got a lot more -- specifically, in the area of physician referral sources, that continues to grow for us. And then, the demand for our services.

I'll just stick with home health for a moment, where we've got the 5% to 7% growth assumption. The referral demand was up 12% in '21 over 2020 and that's on top of 9% in 2020 over 2019. So you definitely see more momentum and shift in the demand for our services. So as long, I don't want to rehash everything I said earlier on the labor front, but as long as we moderate quarantine, keep that consistent and continue with the net hires, I think you've got some upside to the growth in what we're modeling.

Bill Sutherland -- The Benchmark Company -- Analyst

So you're -- that's kind of what I was getting at in my sort of back-end way of doing. So you're limiting your growth expectations based on simply, the supply issue, the clinicals. The clinical...

Josh Proffitt -- President and Chief Operating Officer

Absolutely. Absolutely.

Bill Sutherland -- The Benchmark Company -- Analyst

All right. Thanks, guys. Appreciate it.

Josh Proffitt -- President and Chief Operating Officer

Thanks.

Operator

Our next question comes from Brian Tanquilut with Jefferies. Please proceed with your question.

Brian Tanquilut -- Jefferies -- Analyst

Hey, good morning, guys. Thanks for squeezing me in. I just have one question. So you saw the buyback activity during the quarter.

And as I think about just the level of M&A that you did in 2021, how should we be thinking about your focus this year in capital deployment? And kind of like the integration efforts that you need to put in for a lot of the deals that you did last year? Thanks.

Keith Myers -- Chairman and Chief Executive Officer

Maybe Josh and I can tag team that. Maybe, you can take integration. Let me just start by saying, it's a great question. I appreciate it.

But where our focus is right now. So let's start with home health. So with home health, we're now in the neighborhood of 65% of the population that we're licensed to serve. So in corp dev, we're identifying the counties that have the population we're looking -- we're ranking them by population.

We're also looking at payers and how much volume payers who pay us episodically now have in those markets. So it's a by county. If you -- if I sum that up and give you a state overview, it probably wouldn't be a surprise. I mean, the states are New York, New Jersey, Michigan, Wisconsin, Iowa.

Virginia is one that we still have some open areas. And then, of course, Texas. I mean, Texas has -- in the early years, we stayed away from Texas, because there were so many providers per capita in Texas. But now, that's changed quite a bit because we can differentiate ourselves by our capabilities in general, but also, our consistent record as a high-quality provider and low employee turnover.

And those things allow us to contract differently with payers. It gives us an advantage. So that's our strategy, it's very targeted. On the hospice side, the acquisitions we made last year and especially, Heart of Hospice really beefed up our management and leadership team.

And so, hospice will be a combination of some small hospice acquisitions in markets we don't currently serve, mixed with de novo start-ups in markets where we -- all the markets where we already have home health and have relationships with referral sources. So it's pretty targeted and low risk, which fits us well. Josh?

Josh Proffitt -- President and Chief Operating Officer

Yeah. I'll be brief, Brian. On the integration front, I alluded to some of the things we implemented in Q4 to be effective January 1 that I'm extremely excited about in the area that will drive more growth for us. But in addition to the growth potential in our hospice segment, now, and the things Keith just mentioned, I also just want to kind of say, operationally from a strategic perspective, we're stepping back and really thinking about all things end-of-life care.

So whether it's palliative care, whether it's transitioning into hospice, whether it's supportive care, that we've really, to Keith's point, added a lot to our leadership and our management team, that's helping us to think fresh and new on all areas of end-of-life care, which honestly, is just so important to our healthcare system, but it's going to help us continue to grow that segment in a real more strategic way than I would say, maybe, we have in the past.

Brian Tanquilut -- Jefferies -- Analyst

Appreciate it.

Dale Mackel -- Chief Financial Officer

What I was just going to add on to Keith's comments, there's to your deployment question, that signals a much more capital-efficient deployment year for us in M&A, right? Those are very capital-efficient opportunities.

Brian Tanquilut -- Jefferies -- Analyst

Got it. I guess, Dale, just a follow-up on that. So is there any buyback contemplated in the guidance -- in the EPS guidance?

Dale Mackel -- Chief Financial Officer

No, there's no additional buyback in -- contemplated in the guidance aside from what's already occurred.

Brian Tanquilut -- Jefferies -- Analyst

All right. Awesome. Thank you.

Operator

We have reached the end of the question-and-answer session. I will now turn the call back over to Keith Myers for closing comments.

Keith Myers -- Chairman and Chief Executive Officer

OK. Thank you, operator. Thanks, everyone, for participating this morning, and thank you very much for the very good questions that you presented this morning. One of the best that I can recall, so I really appreciate that.

And we look forward to talking to you in the near future. Thanks again.

Operator

[Operator signoff]

Duration: 67 minutes

Call participants:

Eric Elliott -- Senior Vice President, Finance and Investor Relations

Keith Myers -- Chairman and Chief Executive Officer

Scott Fidel -- Stephens Inc. -- Analyst

Dale Mackel -- Chief Financial Officer

A.J. Rice -- Credit Suisse -- Analyst

Josh Proffitt -- President and Chief Operating Officer

Justin Bowers -- Deutsche Bank -- Analyst

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

Andrew Mok -- UBS -- Analyst

Matt Larew -- William Blair -- Analyst

Whit Mayo -- SVB Leerink -- Analyst

Sarah James -- Barclays -- Analyst

Bill Sutherland -- The Benchmark Company -- Analyst

Brian Tanquilut -- Jefferies -- Analyst

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