Amedisys, Inc. (NASDAQ:AMED) Q3 2022 Earnings Conference Call October 27, 2022 11:00 AM ET
Company Participants
Nick Muscato – Chief Strategy Officer
Chris Gerard – President and Chief Executive Officer
Scott Ginn – Executive Vice President and Chief Financial Officer
Conference Call Participants
Brian Tanquilut – Jefferies
Matt Larew – William Blair
Justin Bowers – Deutsche Bank
A.J. Rice – Credit Suisse
Sarah James – Barclays
Ben Hendrix – RBC Capital Markets
Bill Sutherland – Benchmark Company
John Ransom – Raymond James
Scott Fidel – Stephens
Whit Mayo – SVB Securities
Tao Qiu – Stifel
Andrew Mok – UBS
Joanna Gajuk – Bank of America
Operator
Greetings. Welcome to the Amedisys Third Quarter 2022 Earnings Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that today’s conference is being recorded.
At this time, I’ll turn the conference over to Nick Muscato, Chief Strategy Officer. Nick, you may now begin. And Nick, please go ahead. Mr. Muscato, you may begin your presentation. Ladies and gentlemen, please standby for one moment. We’re experiencing technical difficulties. Mr. Muscato, please go ahead. One moment, we’ll get that taken care of. Once again, Mr. Muscato, we’ll be good now.
Nick Muscato
Thank you, operator, and welcome to the Amedisys investor conference call to discuss the results of our third quarter ended September 30, 2022. A copy of our press release, supplemental slides and related Form 8-K filing with the SEC are available on the Investor Relations page on our website. Speaking on today’s call from Amedisys will be President and Chief Executive Officer, Chris Gerard; and Executive Vice President and Chief Financial Officer, Scott Ginn.
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, including factors detailed in our SEC filings, including our Form 10-K, 10-Q and 8-K. In addition, as required under SEC Regulation G, a reconciliation of any non-GAAP measure mentioned during our call today to the most comparable GAAP measure will be available in our Forms 10-Q, 10-K and 8-K.
Thank you. And now I’ll turn the call over to President and CEO, Chris Gerard.
Chris Gerard
Thanks, Nick, and thanks to everyone for joining us. Today, Amedisys announced our third quarter 2022 results. Before we get into the performance update, I want to give a heartfelt thank you to all of our Amedisys employees. The work you do and the care you provide on a daily basis are an inspiration, and I’m truly grateful for all that you do for those we serve. As we speak with you today, we are awaiting CMS’ release of the 2023 home health final rule. We expect that any day. There is a wide range of potential outcomes in the final rule. But if the rule carries forward the behavioral adjustment cuts as proposed, our bipartisan champions and Congress are fully committed to seeing this fight to the finish by aggressively pursuing the passage of legislation that pauses these cuts from going into effect.
We have spent the last six months working in Washington on this issue. And key lawmakers and staff fully understand the impact this fundamentally flawed budget neutrality methodology will have on patients’ access to care, the home health industry and the entire health care system. We know a lot happens in Washington here at the end of the year, and we are hopeful that if CMS final rule contains these onerous cuts, a policy fix to mitigate these cuts will be included in the year-end congressional legislation. We, along with the United industry, have a plan, a path and bipartisan congressional support to successfully address the proposed behavioral adjustment cuts if CMS fails to do so in the final rule. As I mentioned, we expect to roll any day now. And once we see it, we will update everyone on its impact to Amedisys.
Now that we’ve got the reimbursement discussion out of the way, let’s dive into what has become a transformative and exciting time here at Amedisys. As you will see here, we’ve been an important chapter of investing in our company, including our innovative service offerings, our people and our partnerships, all of which will result in strong momentum going into 2023 and a pride horizon ahead of us. While we’re not immune from certain economic conditions and the known difficulties of operating in today’s health care landscape, we have used this quarter to strategically position ourselves to be an even more powerful player on the national stage moving forward.
With that, I’d like to discuss some exciting developments across our business lines. For a number of quarters, we have been pointing to the increased penetration of Medicare Advantage as a catalyst to our – for our strong desire to innovate with payers with the goal of moving to a mutually beneficial value-based payment model. And today, I am very happy to announce that we have signed an innovative case rate contract with one of the largest Medicare Advantage health plans in the U.S., CVS/Aetna. We are excited about this new partnership and look forward to expanding these types of contracting relationships across more of our business in the future. I want to thank our partners at CVS/Aetna for their desire to do something new and innovative.
To summarize how case rate works, forward-thinking plans such as CVS/Aetna pay us a flat rate per admission. We then provide the highest quality, most optimal care to each patient from the time they are admitted until they are discharged from our service. In order to assure positive outcomes for CVS/Aetna members, we will tie a portion of our case rate to specific quality metrics such as rehospitalization rate and timely initiation of care. As we free up clinical capacity, we are then able to dedicate more capacity to these plans members, resulting in more plan members receiving care in the home, thus increasing access for CVS/Aetna while providing Amedisys with new organic admissions growth opportunity. I again want to thank our partners at CVS/Aetna and our internal teams for embarking on what will be one of the future growth levers for our organization.
As we have discussed in the past, we are in active discussion with other plans for similar contracts or other value-based models. The remaining plans that have been unwilling to engage on models like this should take note.
In a world where clinical capacity is at a premium, we will not work with payers who fail to see the value that we deliver and the quality outcomes we provide for their members.
I’d also like to acknowledge other organizations who are innovating alongside Amedisys to leverage the tremendous amount of value that our services offer their patients and plans. Professional health care network and CareCentrix have taken a holistic view to working with their provider partners, have been willing to pay us episodically and have shown a desire to innovate and expand their relationships with us. I’d also like to call out myNEXUS who pays us a strong per visit rate.
These organizations recognize that high-quality providers of scale are unique in home health and tie bonus dollars to quality results. These organizations are the types of conveners we strive to work with. As they grow, our capacity will be shifted to serve more of their patients as their reimbursement structure enables us to deliver the best care in the home. As opposed to the shortsighted conveners that simply want to take a fee, drive visits down and increase administrative burden, thus negatively impacting patient access to appropriate timely care.
We also feel the addition of Contessa will uniquely position us to spring ahead of the industry in developing innovative new ways to work with our patients and managed care partners. Speaking of Contessa, we recently announced a first-of-its-kind comprehensive care-at-home partnership with the University of Arkansas for Medical Sciences. This joint venture partnership will offer patients a full spectrum of Contessa and Amedisys services, including hospital at home, SNF at home, primary care at home and home health.
We’re extremely excited as this joint venture marks a key milestone since our acquisition of Contessa last year. This partnership provides a new standard of care delivery, spanning the full continuum at home care and represents the first partnership in which both Contessa and Amedisys services have been in scope at the outset. We will continue to seek out and invest in opportunities with similar health systems looking for an operational partner to build out a differentiated and integrated home care offering utilizing this full suite of services.
It has been an exciting quarter in home health from a partnership perspective. And though the operating environment in 2022 has been challenging, these new relationships differentiate Amedisys and set us up for future profitable growth. And we know the catalyst for this growth in new partnerships is our unwavering commitment to quality patient care.
I’m excited to announce for the January 2023 preview, our home health quality of patient care star scores is 4.49 stars, with 99% of our care centers reaching 4 stars or greater and 83% at 4.5 stars or greater. Quality has been and always will be core to all we do at Amedisys. And this continued improvement is really something all of us here at Amedisys are proud of.
In hospice, for the quarter, hospice same-store ADC grew 1%, which marks the second quarter in a row of ADC growth. Adding to the improvement in ADC has been the normalization of discharges as a percent of ADC and the leveling off of median length of stay.
As we have discussed during the last few quarters, our discharge rate peaked at 39% and our median length of stay dropped to 18 days in January and has sequentially improved compared to our internal modeling since that point. To quantify how impactful this experience has been to revenue, if discharge rates mirrored 2019 experience, year-to-date September revenue would have been approximately $51 million higher than our current year-to-date revenue.
Within our high acuity segment, total admissions in Q3 for hospital and SNF at home were 430, representing 25% growth over Q2. To further strengthen the positive trajectory of this segment, we’ve invested significantly in integrating the nursing function into the Amedisys home health operations and devoted resources to recruiting our own nurses to service our joint venture partnerships.
Nurse staffing continues to be a widespread challenge for our organizations across our health care system, accounting for 59% of our volume miss within our live joint venture partnerships in 2022.
With the largest factor in our ability to take these high acuity program referrals increasingly in our control, we expect to reap the benefits in the form of meeting our targeted emission metrics this year and beyond. Additionally, Contessa continues to have tremendous success in its newer palliative care at home model. Engaged members were up 57% quarter-over-quarter. We see a tremendous opportunity to capitalize on this initial success by building out additional infrastructure and risk-taking capabilities to enable new innovative palliative care at home programs.
On the business development front, Contessa is currently implementing programs with high value health systems, including Baylor Scott & White Health, Memorial Hermann and Virginia Mason Franciscan Health. We expect all of these programs to be live in early 2023.
Impressively, of our eight currently referring JV partners, four now have positive EBITDA at the JV level year-to-date in Q3. Since our acquisition of Contessa, the nature of the JV discussions in our pipeline have expanded to include home health and at times, hospice. Because these partnerships are more robust and more complex in nature, the selling cycle of the new JV has increased significantly, causing delays in getting deals done.
In fact, timing delays in new JV partnerships accounts for 61% of our revenue miss year-to-date. We continue to track towards closing these additional partnerships to eventually bring this additional volume on platform and we’ll look to execute more comprehensive partnerships in the near future. As we near the end of 2022, we expect our higher acuity segment to build upon its initial success and generate significant positive momentum into 2023.
In summary, although we continue to be impacted by a few industry headwinds, we are confident in our ability to outperform and accelerate growth. Most of the adverse conditions impacting the business will be short term in nature, and our enthusiasm for the outlook of Amedisys has never been stronger.
Longer-term value proposition of our lines of business remains as strong as it has ever been. As evidenced by the announcement of our partnership with UAMS, our innovative case rate contract with CVS/Aetna and our value-based negotiations with professional health care network, CareCentrix and myNEXUS. It has been a busy and exciting quarter for Amedisys, and the future we’ve built towards has us all very energized.
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 Ginn
Thanks, Chris. For the third quarter of 2022, on a GAAP basis, we delivered net income of $0.79 per diluted share on $558 million in revenue, a revenue increase of $4.5 million or 1% compared to the third quarter of 2021.
As I’ll discuss in my prepared comments, our operations have faced challenges in Q3, which have impacted our near-term results. Overall, legacy operations remain strong, and we’ll continue to find opportunities to increase our operational efficiencies. Despite delays in the closing of new JVs and other contracts have continued to invest in Contessa’s cost structure. We believe these investments are necessary to fully recognize the significant opportunities ahead.
Now on to the quarter. For the quarter, our results were impacted by income or expense items adjusting our GAAP results that we have characterized as noncore, 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 third quarter, on an adjusted basis, our results were as follows: revenue increased $5 million or 1% to $559 million. EBITDA decreased $11 million or 15% to $62 million. Our year-over-year comps are impacted by approximately $15 million unrelated to legacy performance. The significant drivers are the prior year benefit of sequestration leap of $9 million, $5 million additional losses from Contessa, which includes an additional month of operations and two new home health acquisitions in Q2, which added $12 million of revenue and $1 million in losses.
EBITDA as a percentage of revenue decreased 210 basis points to 11%. Normalizing for the items I referenced, EBITDA as a percentage of revenue improved approximately 90 basis points in our legacy operations. EPS decreased $0.38 or 25% to $1.15 per share. Sequentially, EBITDA decreased $13 million, in line with our expectations as described in our second quarter earnings call.
The return of sequestration had a negative impact of $4 million. Planned wage increases added $4 million to costs. And additional holiday, higher health and workers’ comp costs added another $4 million. While our EBITDA outperformance track with internal expectations, we continue to be behind from a volume perspective, and we’re experiencing a faster-than-anticipated growth in home health admissions from per visit payers, which has decreased our episodic percent of revenue.
Now turning to our third quarter adjusted segment performance. Keep in mind, segment level EBITDA is pre-corporate allocation. In home health, revenue was $338 million, flat from prior year, which includes $12 million from our recent acquisitions. Prior year results included a $5 million benefit from the suspension of sequestration. Revenue per episode was up $20 or 1%, which is a result of a 3.2% increase in reimbursement, partially offset by the reinstatement of sequestration at the full 2%.
Visiting commission cost per visit is up 7% year-over-year and 4% sequentially. Medicare business per episode declined 8%, which offset the cost per visit impact resulting in a Medicare cost per episode decrease of 2%. The increase in cost per visit was driven by planned wage increases, which were effective August 1, wage inflation and increase in salary commissions and lower visit volumes.
G&A increased approximately $5 million, mainly driven by our recent acquisitions, which added $3 million. The remainder of the increase was driven by planned wage increases and increased information technology fees.
Segment EBITDA was $59 million, represents a $10 million decline in EBITDA and a 200 basis point decline in EBITDA margin. The return of sequestration and Q2 acquisitions account for $6 million of the decline. Sequentially, segment EBITDA was down $12 million, mainly driven by planned wage increases, the impact of an additional holiday, return of sequestration and higher health insurance costs. Additionally, we have seen a decrease in our episodic revenue as a percentage of total revenue from 79.3% in Q2 to 78.1% in Q3. Our episodic payers accounted for 80.9% of revenue in Q3 of 2021.
As Chris mentioned in his comments, we’ve seen a significant increase in demand for our services for Medicare Advantage payers and conveners. We successfully increased our rates of some per visit payers, launched a case rate model and negotiated episodic reimbursement contracts with two innovative conveners. We’ll continue to negotiate with the innovative conveners and evaluate our MA contracts to ensure that our clinical capacity is utilized with payers that afford us the best opportunity to drive quality care to their members.
Now turning to our Hospice segment results. For the third quarter, revenue was $199 million, up $1 million over prior year, which is net of a $4 million benefit in the prior year from the suspension of sequestration. Net revenue per day was flat as the 2% hospice rate increase that went into effect October 1, 2021, was offset by the reinstatement of sequestration. Hospice cost per day increased $0.62 primarily due to raises, wage inflation and sign-on and retention bonuses.
EBITDA was $43 million, up approximately $1 million and up $5 million when normalized for the sequestration benefit in prior year. Sequentially, segment EBITDA increased $1 million. The sequential improvement in EBITDA was driven by a 1% sequential increase in ADC. The EBITDA increase is net of a $2 million sequestration benefit in the prior quarter.
Turning to our total general and administrative expenses. On an adjusted basis, total G&A was $182 million or 32.6% of total revenue, up 80 basis points, mainly due to Contessa and our recent home health acquisitions, which added $9 million of G&A. Excluding Contessa and our home health acquisitions, our G&A is down $3 million over prior year. Sequentially, G&A was flat.
Cost management has always been something that we have excelled at and we’re embarking on and have already rolled out initiative focus on centralizing and automating our processes and reorganizing our structures to make us a more efficient organization and help us to capture even more growth opportunities. In fact, the initiatives we have completed this year will create nearly a $20 million cost benefit in 2023 with the potential to expand beyond that as we centralize additional functions.
As detailed in Slide 14, our items adjusting our GAAP results include $4 million in expenses related to our centralization and reorganization efforts initiated during the quarter. For the quarter, we had negative cash flow from operations due to repayment of ZPIC audit assuming from a 2015 acquisition. Excluding the repayment cash flow from operations would’ve been $21 million. Our net leverage ratio was end of the quarter was 1.6 times. Despite the challenges we have faced, our cash flow and capital structure remains strong and position us to take advantage of strategic opportunities.
Turning to M&A. Our pipeline remains full with home health, hospice and comprehensive care joint venture opportunities and we continue to look for creative ways to deploy capital for inorganic growth.
Given, the current labor market dynamics, payer mix shifts in home health, the pressure on hospice admissions and length of stay in our continued investments in Contessa, we’re updating our 2022 guidance ranges for revenue, EBITDA and EPS, which can be found on Page 16 of our supplemental slide deck.
Our new guidance ranges are as follows: $2.224 billion to $2.23 billion in revenue, $253 million to $258 million in EBITDA and $4.82 to $4.93 in EPS. While we were able to reduce expenses to offset softness in top line, our level of census as we exit Q3 and our revised admit projections have impacted our ability to achieve our original Q4 EBITDA production.
Additionally, the glaze in the closing of deals and additional investments to prepare for sizeable future opportunities resulted in a $5 million reduction in EBITDA for Contessa. As we move from Q3 to Q4, we’ll see impacts from the normal seasonality items such as an increase in health cost of $5 million to $6 million, our annual rate cycle, which is effective August 1 with an expected impact of $2 million, an increase in compensation costs of $5 million and a drop in hospice ADC driven by higher discharge rates in Q4.
With that, I’ll turn it back over to Chris to wrap up our prepared remarks. Chris?
Chris Gerard
Thanks, Scott. The intentional steps we have taken to position ourselves for the future, including the partnerships with CVS/Aetna in professional healthcare network and our relationships with CareCentrix and myNEXUS are providing strategic advantages that will play out on a national scale over the coming months and years. The forward-looking roadmap we have undertaken gives us every reason to be optimistic about our future in this industry and more specifically our company.
We are seeing unprecedented demand for our services in home health. And though the mix of business has shifted to Medicare Advantage, we expect to continue growing our fee for service, while innovating with our payer partners, setting us up for strong value creation in the coming years. To confirm this, we recently commissioned an independent industry analysis performed by McKenzie, and their findings show that between enrollment and utilization recovery and rate, we can expect to see the total spend in home health grow by 6% to 8% annually through 2027 with fee-for-service market returning to a 3% to 5% year-over-year growth. As that growth returns, our position as the nation’s premier home health providers will only grow stronger.
In hospice, the impacts of the pandemic still linger. But we are seeing a return in length of stay and we will see an increase in utilization of benefit as we enter into 2023 and beyond. Hospice remains an underutilized benefit with less than 50% of Medicare decedents passing away on hospice services. And as the population continues to age and utilization increases, we conservatively expect the hospice market to grow by at least 5% annually.
In our high acuity segment, hospital system and payer interest remain strong. In the infrastructure and platform we acquired with Contessa will enable us to take risk and further differentiate our service offering from others in the space. The UAMS partnership is the exciting realization of the vision we set out for Contessa when we acquired the company last year.
We firmly believe that this is the first of many partnerships that will make available our full suite of services within the new comprehensive care at home model and will further strengthen Amedisys’ presence in the homes and communities across the country.
Our next frontier of growth will be productizing all of our services into a package that, one, allows patients to be cared for in their home regardless of their payer or their disease state. Two, significantly reduces the cost of care for our payer partners. And three, allows Amedisys to be fairly compensated for the outcomes we deliver. As we continue to become the industry standard easy button for our payer partners, we will see new types of growth in new types of contracts of which we will have only began to scratch the service on. Key to enabling us to tap into all the future growth that is coming our way will be our ability to manage our clinical capacity.
It is not new news that there is more demand than there are clinicians to service that demand. But I have all the confidence in the world that Amedisys will continue to be an employer of choice and when an outsized portion of the available clinical labor pool. We are rolling out a significantly enhanced benefit package that builds and expands on the offerings that are already place us among the top quartile of the industry employers for things like wages.
This package specifically focuses on components that our clinicians have said are most important to them. We are also working on initiatives to build in flexibility to our clinician schedules. And we have significantly upgraded our recruiting practices to ensure we are hiring the right people for the right roles. All of these things will positively impact our turnover metrics, allow us to grow our net clinical FTEs and, in turn, help us to grow our top line. We understand that many of the accomplishments and investments described here will materialize their first top line returns for us in the coming months and years ahead. We know what work must be done and we have already built and set out on the comprehensive road map that will take us into the bright future that awaits. In closing, I’m as energized, excited and confident as I’ve ever been in this space and in Amedisys.
This ends our prepared remarks. Operator, please open the line for questions.
Question-and-Answer Session
Operator
Thank you. At this time we will be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question today comes from the line of Brian Tanquilut with Jefferies. Please proceed with your question.
Brian Tanquilut
Hi. Good morning guys.
Chris Gerard
Good morning.
Brian Tanquilut
Good morning, yes. I’ll stick with the one question rule here, so I’ll give you a two-parter really quickly. So Chris, maybe just if you can give us some thoughts on how you think you can grow with the MA contracts that you’ve signed one with CVS, obviously, and I think you have a pipeline of a few more coming. And how do you anticipate that growing? And then maybe related to that for Scott. As we think about next year, right, I mean, you threw a few things here, whether it’s the improvement in Contessa, G&A cuts of $20 million, some benefit enhancement costs coming – kicking in 2023 and then MA contracts. Maybe if you can help us bridge a little bit, without giving guidance, into how we should be thinking about the quantification of those different moving parts into next year. Thanks.
Chris Gerard
Yes, great. Thanks, Brian. On the MA contract, I think that’s a great question. And just really kind of laying it out and first framing it up. If you look at our fastest growing part of our home health side of the business, it is in our MA per visit business mix. That’s about $300 million a year in revenue where we do about 2.4 million visits per year, but our average reimbursement is woefully low at $131 per visit. So there is where our fastest growing market is, but at the same time, the economics don’t look good. So that’s why I’m really excited about our deal with CVS/Aetna, and I’m hoping to be able to announce another contracts pretty soon that will actually move one half of that $300 million of business in the margin expanding business.
Just to give a little color on our deal with Aetna. 22 states and interesting enough 15 of those 22 states are new contracted states for us. So – and that encompasses 88 new care centers where we have not historically been admitting Aetna patients because we were not in network. So a lot of greenfield there for us to expand the size of this contract quickly. Also just a little color in our very first month – full month of the contract where we have – with Aetna, we saw our referrals from Aetna double, we saw our admissions from Aetna triple, and we saw our ADC on Aetna case rate double in the first month. So I’m really enthused by that. I see a great opportunity for us to move more contracts to a case rate model.
At the same time, with the other – with the rest of that business, we’re going to aggressively go after these plans. We’re going to take a firm stance. We cannot continue to dedicate our clinical capacity to treating these patients if we’re not going to get paid fairly and cover our cost at a minimum and get really paid more fairly for the services and quality and outcomes that we deliver. So we’re going to aggressively look at the rest of our portfolio and make some informed decisions on what we’re going to do with our capacity coming soon. And we expect that to be a big growth model for us over the next coming years. Scott?
Scott Ginn
Sure. Thanks, Brian, for that question. And yes, I think there’s a lot of clarity for me to get through, a lot of moving parts from Q3 to Q4 and as we exit. So implying somewhere around $55 million for Q4 EBITDA, I think you have to adjust a couple things of that from a starting point to take a Q4 times 4. I think that real number, when you consider Q4, having an extremely our highest health insurance month – quarter, I am sorry, additional holiday in that quarter than we run in the first two, you’re probably looking more of a $62 million starting point, annualized that you’re getting in that 2.48, 2.50 type of range.
And then you mentioned some of the centralization efforts were there. We’re talking about what we’re doing around case rate. We believe there is additional opportunity on our per visit business to expand that. We think as our palliative programs continue to develop, on the Contessa side, that’s going to feed into some hospice safety ADC growth. So that just bucket those, and before we really close out the year and really focus on 2023. That’s probably about $40 million there alone. So you’re talking – you’re looking in a 2.88, 2.90 type of a number right there from a starting point, and then you go we’ll see what happens to reimbursement, but I think between growth and other opportunities we have Contessa from a loss perspective, we believe we’ll get better, and you offset that with some wages. I think it kind of keeps you in that realm going to next year. So I think those are the high-level moving pieces, but I think that we’ve got some good plans in place. I think the centralization effort is going to be strong for us, and we’ll continue to update you guys as we go forward into 2023.
Operator
Thank you. Our next question is coming from the line of Matt Larew with William Blair. Please proceed with your question.
Matt Larew
Hi, good morning. I wanted to follow-up…
Chris Gerard
Good morning.
Matt Larew
Yes, hi, good morning. So I think you just mentioned, Chris, that about half that per visit business could be flipping in the case rate with this new contract you’re looking at. [Indiscernible], but maybe just directionally, could you help us understand what percentage of that book would you characterize as conveners or payers that you’re having productive conversations with or feel optimistic about versus you sort of referenced in your prepared comments, maybe areas you’re not making much progress. Just maybe give us a sense for where you stand relative to whole book of business. That’d be part one. And speaking to part two, which is if you hit the high end of performance expectations on those case rate contracts, maybe using that one as an example, how does both the rate and margin compare to your traditional Medicare business? Thanks for the two parts. All right.
Chris Gerard
Yes. Thanks, Matt. I think I got the first part of the question, right, in terms of kind of how to gauge out our conversations with the innovative conveners out there and what that is as – in terms of a percentage of our total book of our Medicare Advantage per visit business. So I would say it’s small today, but the encouraging thing is, is that the ones that I called out in my prepared remarks really are the ones that are more forward-thinking in terms of how do they value care in the home as a tool to drive down total cost of care.
So getting paid on an episodic basis by PAC and CareCentrix with the additional upside based on quality outcomes is something we really want to lean into with those as partners and really put – dedicate our capacity to doing more of that business as well as myNEXUS would be higher in volume, more of a traditional per visit rate, but much closer to the Medicare fee-for-service side. The gap is much narrower there than it is with the others that we’ve been working with and traditional plans directly as well. So we’re looking to have those kinds of relationships be a larger portion of our MA business quickly to be able to drive additional margin.
On the case rate, we will be able to – what the margin is today on the two contracts, one with CVS/Aetna, the other that we’re looking to get done relatively soon, I would say the gross margins in that 18% to 22% range on that business, fully optimized. It should get into the low 40s, 40% to 42% range, which is ideal for us. And it will significantly also close the gap on the per visit from Medicare fee-for-service versus those rates. Now the Medicare fee-for-service is at an all-time high on a per visit basis because our visits per episode are at an all-time low. I don’t expect our visits per episode to stay where they are. Some kind of labor constraints are driving down that total visits per episode today. And we’ve set all along we think it should be in that 13.2 to 13.4 range. We’re a little bit below that, but that’s kind of my math driving that visits – revenue per visit up quite a bit. So I’m encouraged by our ability to really kind of drive that margin expansion, get these contracts in place and then aggressively work with those forward-thinking conveners to expand that business and then us to really step away from plans out there that are not going to value what we do.
Operator
Our next question comes from the line of Justin Bowers with Deutsche Bank. Please proceed with your question.
Justin Bowers
Hi. Good morning everyone. So just wanted to talk about the labor market a bit. And you highlighted that that had sort of constrained growth and curious if that is just – if that’s isolated to home health or across hospice as well and did you experience net hires? And do you plan – are you pacing towards increasing or decreasing clinical capacity in this quarter? And then maybe just a follow-up to that would be on hospice. You talked about ADC being down sequentially. And do you anticipate that revenue will be down as well? And I’ll pause there.
Chris Gerard
Yes, I’ll take the second one first. Yes. Basically, ADC is – our revenue is a direct function of ADC versus admits like it is on the home health side. So yes, any tick up or tick down in ADC has a direct correlation to revenue. So we would expect that to be down. But also keep in mind, we did get a rate increase effective October 1. It should offset some of that decline in ADC.
On the labor side, it’s no secret out there that labor across all of health care is very challenged. And we’re not immune to it either. And we’ve been seeing some signs of softness, particularly through the summer months. I would say this has been the most atypical summer that we’ve really seen in terms of just time off, clinicians wanting to take a hiatus, just really trying to kind of reenergize around kind of their personal life goals and things like that. So we did see just our internal capacity a little bit constrained, plus the flow of new candidates was down significantly throughout the third quarter. But we are seeing now that we’re having some net increases happening so far in Q4.
In fact, October – from an offers made perspective, we’ve had four straight weeks of 200 offers made and accepted in the field, which is a record high for us, which is really encouraging as we close out this year. And our clinical capacity has expanded on both the home health and the hospice side.
The question about is it isolated to home health? No, it’s not. It’s – clinical capacity is going to be our secret for success on both lines of business over the coming years and we’re seeing it being challenged on both the home health and hospice side today. But I’m encouraged that we have a good plan in place. We will build from where we are and see some of those results show up in our ability to take more patients. And Scott had something you want to add?
Scott Ginn
Yes. I just want to add just as we think about labor and frame up relative to our take back – take down in guidance, if we look at the components of it, Contessa we’ve talked about, and you can hear in our prepared remarks it’s probably about 25% of the takedown. The rest is kind of still evenly between home health and hospice segments as we look at that. And if you kind of look at that further and tie labor into it, home health about 70% of that takedown is relative to labor constraints. And I’d say about 25% in terms of that in hospice. So we are definitely seeing on both sides of the business.
We did also see record PTO taken in Q3 even with a lower kind of labor force, so to speak. So that’s something we’re watching and hoping to see that get a little soften as we move to Q4.
Operator
Our next question is coming from the line of A.J. Rice with Credit Suisse. Please proceed with your question.
Chris Gerard
Good morning, A.J.
A.J. Rice
Hi, everybody. How are you? Maybe just to ask about – we’ve got the rate update for – in home health for next year coming any day now. Any updated thoughts there? We’ve seen some of these where they’ve stretched out the decision to have a cut into a couple of multiyears as opposed to doing all in one year. We’ve also seen some offset by increased market basket. I wonder if you have any updated thoughts.
And then to the extent there is a cut, I know you’re doing a lot to bring in costs now. You have the ability to – you think mitigate any of that if you had to absorb it. And then lastly, it sounds like the whole acquisition area in home health has been on hold until this rate notice gets finalized. How quick do you think M&A might open back up in home health once this is out?
Chris Gerard
Yes. Great. Thanks, A.J. I’ll take the first two, and I’ll let Scott talk about the acquisition side. Yes, we should see the rate come out any day now. Our kind of viewpoint hasn’t changed much. We do look at past actions from CMS, yes. We would expect to see a pretty significant market basket update to offset some of that 4.2% rate cut – net rate cut.
Additionally, there’s a high – there’s a decent probability that CMS would phase it in over multiple years. And I’ve also kind of heard the possibility maybe even delay implementing the cut for a year and then phasing it in from there. Either one of those scenarios are not ideal for us and they’re not acceptable for the industry. They don’t account for the fact that home health care is so much valued during this pandemic. We’re dealing with the highest inflationary period that we’ve ever seen. And cutting our rates at any level right now is absolutely capricious and the wrong thing to do and we will aggressively fight that.
But knowing how CMS has acted in the past, it’s highly – or it’s a decent probability that they stick with their guns on their methodology, which we think is fundamentally flawed. They do update the market basket and bring down the cut. It seems a little softer for us going into next year, of which we still will not – we will not stand behind and let that happen. We’re going to fight that very hard.
On the offset side, yes, I mean, we’ve already and we called out – Scott called out in his prepared remarks. We have been embarking on a centralization and automation kind of initiative for some time now, and we accelerated that when the cuts were announced in the proposed rule.
In fact, we’ve already identified and locked in about $20 million in G&A savings next year related to centralization functions that are in flight today. We think there’s much more available to us. Pacing will be kind of something that we’ll have to be very thoughtful about because it is impacting the business. As we do that, we want to make sure that we don’t create any harm. But we do think that there are additional efficiency offsets that we will get regardless of rate cut. But if the rate cut comes through, then that would probably accelerate some of the pacing. And then, Scott, on the M&A side.
Scott Ginn
Yes. That’s a good question. And I think our feel is that it’s certainly going to accelerate. There’s a lot of deals in our pipeline right now, really both home health and hospice, some pretty interesting ones. I think as we price things out in home health that we are pricing it at the rate cut, at this point and kind of show them what that would look like. So it’s certainly going to slow down. But we’re extremely active there and I do think it would accelerate rather quickly when we get some clarity there. There may be some big wait to see what happens back through Congress at the end of the year, see if you get a bill passed, but that’s just something that certainly the early beginning of 2023, you could see some significant movement there.
Operator
Our next question comes from the line of Sarah James with Barclays. Please proceed with your question.
Sarah James
Thank you.
Chris Gerard
Good morning, Sarah.
Sarah James
Good morning. So when you guys think about your staffing strategy and the shortage that sometimes leads to turning away revenue, does the higher margin potential on the value-based care contracts impact your decisions on staff allocation between the various payers? And does it impact the calculus or the decision to hire contract labor versus turn away volume given the pay to cost spread on those value-based care contracts could be really different with the higher margin?
Chris Gerard
Yes. Great question, Sarah. And I think that in terms of the – how we think about the contractor side first, absolutely, we evaluate – if we feel like our staffing shortage is more temporary and we have new clinicians that are kind of in training and soon to be getting into the field and we weigh that into – whether or not to commit to a staffing contract for a contractor.
In other markets where, absolutely, if we want to – if we have contractors that means that we’re going to be able to grow our business as well as meet our referral partners kind of request and filling those referrals into and turning them into admits, we look at that as well.
We do try to have discipline around our contractors, though, because we’ve seen it get out of hand – in terms of rate, we seem to get out of hand in terms of the demands from the contract organizations that we have to basically – and we saw a lot of that in the first quarter of this year and we’re maintaining better discipline around that.
But I would say we look at lost opportunity as a factor when we decided whether or not to use contractors. And then how we’re utilizing our staff, we cannot discriminate on patient census or admissions based on their payer source or how they – the payer that they have – who’s covering them. But at the same time, we do have to manage our capacity. And we prioritize around our referral sources that do have more volume from case rate type patients as well as some of our targeted payers that pay at a higher rate.
Eventually, we’re going to end up calling out a number of our contracts with organizations that absolutely refuse to budge on paying us fairly for services. And the time has come because capacity is not going to get better for the industry for quite some time. We feel very confident in our ability to win on the labor side and actually build our capacity, but there still is going to be, in aggregate, a shortage of clinicians available to meet the demand. So the time has come for some of these plans out there. They refused to get kind of realistic about what they pay for them to make some decisions or we’re going to make some decisions for them.
Operator
Thank you. Our next question is from the line of Ben Hendrix with RBC Capital Markets. Please proceed with your question.
Ben Hendrix
Thanks, guys. Within your fee-for-service volume, you noted a 1.1 visit decline in visits per episode. Have the labor constraints that you’ve seen added a greater frequency of low utilization adjustments within episodes? And if so, could that be a factor as we think about the Medicare revenue comp next year? Thanks.
Chris Gerard
Yes. Our lupus are up a little bit, but not to the extent the visits per episode are down. So we’ve always – for last, I think, three or four quarters have averaged a lupus rate of around 10.5%. It may be up to 11%, I think, for Q3, which is up slightly. But I think that we have not seen enough fluctuation in lupus in the last four quarters to change your modeling for next year. I don’t expect it to go up from where it is today.
Scott Ginn
Yes. No, I think that’s right. I think where we see – we feel it a lot, unfortunately, and it’s not good for the patients is you have – we had too much really extremely strong admissions kind of within the intra-quarter or larger numbers. And in that subsequent quarter, you see or subsequent month, you see somewhat of a drop down in research. So that’s kind of where I think we feel it from a staffing perspective unfortunately, earlier, which, like I said, isn’t good for the patient. So we’d like to see that rebound. I mean pretty happy with the efficiencies of our clinicians where if you look at our total census levels, we’re taking care of as many patients as we had year-over-year with less clinicians. We’ve got to solve that clinician number so we can continue to grow that census.
Operator
Our next question comes from the line of Bill Sutherland with Benchmark Company. Please proceed with your question.
Bill Sutherland
Hey everybody. Wanted to follow up on the bridge that you gave us, Scott, going into next year on EBITDA. And I’m just wondering kind of what your assumption is on the Medicare rate that you build into that thinking? Thanks.
Scott Ginn
Yes. When I gave you those numbers, I really didn’t – I assume flat pricing at that point. We’re just getting to point, didn’t consider growth or anything like that, getting to the numbers. So we’ll wait and see what comes out, and I don’t really want to speculate on where we think that number will be. We’ll kind of getting to that $288 million, $290 million, really was just getting to a baseline number, and then we’ll get growth. We’ll have to cover some raises, and then we’ll see what happens with the rate. So I mean that’s where we are. And within that $20 million on utilization and kind of our restructure, we’ll see where that number goes, but I think we feel good about kicking that off and continue to get some strong return on it.
Operator
Our next question comes from the line of John Ransom with Raymond James. Please proceed with your question.
Chris Gerard
Hey, John.
John Ransom
Hey there. Cost per visit, I mean, not surprisingly, is up from, say, $90 to around $110. I know it was exacerbated this quarter by the rate increases. As you think about that number next year, what do you think – where do you think that will land?
Scott Ginn
Yes. Right now, I mean, we have some noise in that number. Right now, I kind of look at the visiting piece of it, John, and still up with $6.45. So a good piece of that. Some of the impact of clinical managers are just because of visits. But I still think we’re going to run in that base in place around that kind of around 4-ish percent type of number. I think in it will settle. We’re seeing and settle. Even to this quarter, it actually was kind of pushed with last quarter, and that was because we gave raises. So we’re seeing some stabilization there.
The key is going to be to us really getting contractors under control and reducing our turnover. That’s the best way to impact that and continuing to grow. Frankly, there is fixed costs within our structure on home health. And when we take down visits and visits per episode drop, and we see some visits for admin drop in the non-Medicare, that helps us with clinical capacity. But because we have a less base of that, it can impact that number. So you’re probably – $1 or close to $1, that’s probably just the shift there. So I think it’s kind of 4% of pure wage line right now.
Operator
The next question is coming from the line of Scott Fidel with Stephens. Please proceed with your question.
Scott Fidel
Thanks. Good morning. Interested just on Contessa, if you could maybe give us just your updated thoughts on revenue now for 2022 versus that $56 million or so that you’ve been thinking about earlier in the year. And then maybe just sort of talking about the glide path as we look out to 2023, 2024. And then just on Contessa, I was just interested if – are there any Contessa services that are actually included in that new CVS/Aetna contract? Or is that just for sort of core home health services? Thanks.
Chris Gerard
Yes. Scott, I’ll take the last second question, and then I’ll let Nick give a little bit of kind of color around the Contessa kind of trajectory on revenue. The CVS/Aetna contract, the case rate contract does not include any hospital home or SNF at home services. So it’ll be strictly for the home health side.
But I will say this that in our discussions with Aetna through this whole process, Aetna express a strong desire to expand our discussions around value-based contracting to include more services. So I wouldn’t be surprised if in the near future, we didn’t have something out there that was kind of more in lines of bringing in additional services that Contessa offers to a contracting arrangement, but we don’t have anything imminent right now. And Nick, on the revenue trajectory.
Nick Muscato
Yes. Thanks, Scott. So Scott, no surprise, we are behind the $56 million revenue projection like we originally thought we had achieved this year, but quite honestly still remain very enthusiastic about the demand for the business. I think you’ve seen us announce a number of joint venture partnerships, and I would say kind of a new marquee one with UAMS this quarter, actually the last couple of weeks, which is really our first comprehensive JV, which is what we’ve been talking about since we acquired the asset, right? And so this joint venture will include hospital at home, SNF at home, home health and some additional services, which will really be the first time that the blended organization of Amedisys and Contessa has worked together to execute a joint venture.
We think that, that’s the profile of joint venture partner that we’ll be targeting and that we’ll be working with going forward, which is a very exciting thing. At the same time, when you start integrating all those lines of business, the complexity around contracting and papering that joint venture becomes harder, and the sales cycle has expanded. And so though we’re off from a revenue perspective this year, I do think you’re going to get a step up in revenue from Q3 to Q4. Today, we have eight currently referring joint venture partners to us, and then we have 11 total signed. You’ll continue to get some additional volume increases as the newer contracted JVs that we’re referring to us in Q3 kind of ramp up into Q4.
And then there’s a number of other kind of opportunities in flight, which, as you’ve seen us struggle to do this year, it’s hard to pinpoint exactly when those things are going to land. And so not going to give a 2023 number yet, but we will obviously do that as we kind of close out the year and guide towards 2023. And the main reason is we just need to see if we can have a better projection around timing around some of these bigger opportunities hit but do still feel very confident, very excited about the asset and all that that’s enabling us to do here in Amedisys.
Operator
Thank you. The next question is from the line of Whit Mayo with SVB Securities. Please proceed with your question.
Whit Mayo
Thanks. Good morning, guys. I was just looking at the slide deck, and there was a mention here around hospice and elevated BD turnover with tenured reps. Just any color around that. Was this isolated in any one market, more broad-based? I mean you’ve had a little bit of challenges here in the past. So just any help around the correction plan or color would be helpful.
Chris Gerard
Yes. That’s a good question. And yes, there was some challenges around that that popped up in the third quarter. And I think that we do have – I do – I know that we’ve got our arms around it. But one thing that snuck up on us a little bit to be totally transparent is, is that as staffing got tighter on our clinical side. It started to impact hospice, and it was something that we were monitoring that kind of came up late in the summer that we had in markets that we really were unable to take patients or we were slow rolling admissions because of staffing capacity and having to spin up some contractors as well.
And just self-inflicted here, what we did see happen was that we had high performing tenured reps that were negatively impacted based on their compensation model, and some frustrations laid – kind of surfaced up that we were just slow to react to. So it kind of caught us off guard a little bit, but we have our eyes on it now. We have plans around it. We’re doing a lot of tuck-ins with our reps, BD turnover and hospice. It’s no secret, we’ve talked about it in the past. It’s been elevated, particularly relative to our home health side. We got to cut that down significantly. We have a lot of things imply right now that are really kind of getting more personalized to each one of our individual BD reps out there.
So that we are kind of matching their skillset with our needs. But also recognizing challenging conditions out there. And I would expect that we’re going to see that come down significantly starting this quarter and then on for a while. So little bit a kind of – hit us kind of out of left field quickly. But I think that we’ve – now we’ve got our arms around and we should see that stabilize.
Operator
Thank you. Our next question is from the line of Tao Qiu with Stifel. Please proceed with your questions.
Tao Qiu
Hey, morning. So the first part of my question is on the care demand side. Some of the referral settings, including acute care hospitals and SNPs also have elevated labor supply issues in the third quarter and continue to manage their capacity. So based on the volume trend from your referral partners in home health and hospice, whether you expect any delay in demand your business? And when do you think that having at some point would turn into tailwind for you?
And the second part of my question is really a follow-up on the staffing commentary earlier. So we saw that voluntary turnover kind of ticked up a little bit. Are you seeing more competition from other healthcare providers settings, or is it just higher churn inside the home health and hospice industry? Thank you.
Chris Gerard
Yes. Thanks, Tao. And again, those are the right questions to be asking in terms of when do we expect volume to coming back as well as, what does the labor market could look like beyond our line of business? And on the volume side, without a question, hospitals having a slow recovery is impacting our business. And it’s impacting referral flow for us, because a significant portion of our missions in both home health and hospice do come from hospital settings. So the longer that their recovery is delayed it is going to be continue to be a little bit of a headwind from us on us, for us from a volume perspective.
That being said, it’s more impactful for the home health business than it is the hospice business because patients that transition out of a hospital on to hospice, from a key bed to a hospice. They’re traditionally going to be very, very low length to stay patients and they’re not going to be on service very long, and they’re not going to add to our average daily census, which is what drives our top line.
So for us, it’s not necessarily hurting us on the ADC side on hospice, but it is hurting us from the emission volume. But that’s secondary on the home health side. It’s having much more of an impact. And then on the staffing side, it’s competitive across well beyond just home health. We’re not trading clinicians with our competitors. Oftentimes, when we lose clinicians it is because it’s burnout or there is a more attractive offer in another setting.
And it’s also kind of clinicians that actually choose not to stay in the healthcare field. One data point that I think is interesting for us and it’s an opportunity for us to actually work through our retention strategy is that one in five hires that we have today of nurses are return employees. They’re boomerangs that come back to us. So they might have left either to take a hiatus or think that travel nursing was for them or the grass was greener somewhere else, but they end up coming back to our organization. So we see that as a great opportunity for us to get ahead of them leaving in the first place and build that retention. And that will build productivity and capacity for us.
Operator
Our next question comes from the line of Andrew Mok with UBS. Please proceed with your question.
Andrew Mok
Hi, good morning. At the end of the prepared remarks, Chris, I think you made a comment that you expect fee-for-service home health volumes to grow. One, did I hear that correctly? And two, can you elaborate on why you think fee-for-service volumes can grow next year, given expectations that industry membership, I think will be down again. What initiatives are you taking specifically to grow volumes there or take market share? Thanks.
Chris Gerard
Yes, thanks Andrew, and I appreciate you calling that out. It’s no question right now that Medicare fee-for-service volume in home health is down. And there’s a couple reasons. Number one, the actual – the market, the number of members Medicare fee-for-service members is declining slightly, and it has been for the last couple of years. But more importantly, the actual utilization of home health within that population has been declining and was 8.9% in 2020 and 8.1% in 2021.
But at the same time, the value of home healthcare has not diminished. It’s just the utilization has changed during this – during the pandemic, but we expect that actual utilization to start to return to kind of pre pandemic levels that will drive significant growth in the fee-for-service world. The 3% to 5% we’re talking about over the next five years. We do think that 2023 will still be a little bit of an impacted year from a fee-for-service volume perspective. So for us to be able to grow faster than the market, even if the market is slightly declining, for us to turn that into growth, it’s going to be a market share stealing strategy.
And that’s something that we are aggressively understanding and diving into all of our markets where we don’t have significant share in developing very unique strategies that again, our market specific to go out and to leverage our quality, our ratings, our service offerings, and to be able to drive a disproportionate to share the referral volume out of those markets. So I expect that even in a declining Medicare fee-for-service market for next year, again, we do think 3% to 5% part of that’s on rate as well. On the spend side, we do expect to be able to take market share from our competitors.
Operator
Thank you. Our final question is from the line of Joanna Gajuk with Bank of America. Please proceed with your question.
Joanna Gajuk
Thank you. Thanks for squeezing me in. So I guess just clarification questions on case rate contract. So it’s good progress there seeing this being done, but exciting in talking about volume – growing volumes or markets with inside a contract. But I want to clarify things around rates. So you said something that implied that you expect the rates to be actually higher versus the per visit rate. So are you referring to like the first year was going to be later because the way I’m thinking about it is that could be some discount that you might be offering to the payers and then you kind of catch up with bonus and whatnot. So kind of can you walk us through the timing of things as this contract matures? Thank you.
Chris Gerard
Yes, hey Joanna, a great question. And I think on case rate, I mean there is going to be a lot to be learned on this. I would say don’t factor in the upside to, kind of us getting true ups on the back end on quality metrics. There are some opportunities there, but that really the expansion of margin in revenue per visit is coming from us really optimizing our visits per admission, utilizing our metalogics tool. That helps us really get more precise around what the right level of care is for those patients, as well as utilizing other tools such as remote patient monitoring as well as tele visits to be able to have touchpoints with the patients, while we’re guaranteeing that they stay out of hospital. So yes, you’re right. Initially, it is at a slight discount versus historic rates on a per visit basis.
But to the speed at which we optimize our visits, which we expect will take us six months to a year to get fully optimized on the case rate that we have in place today. That’s when you get to where you get the full benefit and the margin gets into that 40% to 42% range. We’re already executing very well right now. We’ll give more color around that. Again, everyone in these case rate deals that we do end up negotiating will have some different nuances to it. We’re going to be somewhat selective of what we actually publicly discuss because we don’t want to negotiate against ourselves when we’re trying to plow this new territory for us and actually create these partnerships. But at the end of the day, the patient’s going to win because they’re going to get a better outcome.
We’re going to win because we’re going to expand our margin on that business. We’re also going to grow significantly organically through this and the plan’s going to win because they got guarantees around access and they got guarantees around a quality outcomes. So we will give more color on this as we go along. But I’m excited. I do think it’ll be up to about a year before we fully optimized on a plan. But it should not have a drag on us in performance in 2023 and we should see benefit by the second half of next year.
Operator
Thank you. At this time, we’ve reached the end of our question-and-answer session. I’ll turn the floor over to Chris Gerard for closing remarks.
Chris Gerard
Great. Thank you, Rob, and thanks to everyone who joined us on the call today. And once again, thank you to all the Amedisys employees who have helped to deliver another strong quarter of performance. I hope everyone stays well and I look forward to seeing you all soon. Thank you.
Operator
Thank you. This will conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation.
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