Amedisys, Inc is a multi-regional provider of home health care nursing services operating in southern and southeastern states. Home health care is positioned to benefit from both favorable demographics and the trend towards shortened hospital stays. The federal government, through its Medicare program, is increasing its support for this sector of health care.
At the end of 1998, the company acquired Columbia/HCA's home health care operations in six states, tripling the company's revenues. Revenues this calendar year should exceed $108 million. During 1999, the Company changed its strategy from providing a variety of alternate site provider health care services to becoming a leader in home health care nursing services. Pursuant to this strategy, the Company launched a restructuring plan to divest its non-home health care nursing divisions. The Company sold five of its six surgery centers and sold or closed its four infusion locations during 1999 and 2000 divested the one remaining surgery center this year.
On October 1, 2000, Medicare changed its system of reimbursement to a prospective payment system (PPS). The new system favors larger, more efficent operators. Nearly 90% of Amedisys' revenues come from Medicare patients. Significant cost reduction measures undertaken by the Company included the consolidation/closure of offices which overlapped service areas, converting its method of nurse pay to a variable or per visit rate rather than a fixed or salary system, utilizing economies of scale, and reducing corporate overhead.
The Company has positioned its operations to be successful under PPS, systematically reducing its operating costs since 1998 in preparation for PPS. Management has implemented Disease State Management programs and clinical protocols as well as supporting technology to monitor and report outcome data, to standardize care, and to ensure quality outcomes. Using clinical managers to assess and track patient progress and highly skilled nurses to deliver care are also important components of the overall strategy.
Fold-in acquisitions have also been an important part of Amed's strategy. The company has been able to make outstanding purchases in key markets in Florida, Georgia and Louisiana, which are returning very rapid paybacks. The company has been able to make these buys from hospitals that have been unable to make money at the business and that cannot focus on adapting to changes in the Medicare reimbursement system. This aspect of AMED's strategy is crucial to understanding how the company will be able to generate explosive eps growth.
After a stumble coming out of the gate under the new PPS system (the company had to restate revenues and earnings for the March quarter) which caused the stock to drop from $10 to below $4 a share, AMED has regained its stride. Patient admissions, a key driver of eps growth, was at record levels in August - and growing rapidly. On October 1, 2001, Medicare granted the industry another increase in the reimbursement rate which will have a meaningfully positive impact on AMED's bottom line. Third quarter results will be announced on Nov. 5, 2001. Look for 15-16 cents a share for Q3, which equates to at least 25 cents a share for Q4 assuming no growth in admissions.
Therefore, entering 2002, AMED should be at a run rate of at least $1.20 a share (taxed at 38%, which is above the company's actual rate due to loss carryforwards). Based on the improving earnings, debt repayment, and a swing to a positive accounting net worth, management expects to be eligible for Nasdaq listing in the first quarter of 2002. Trading below $7 a share, with published estimates of $1.20-1.30 a share, in a rapidly growing market segment which is unaffected by the sluggish economy, shares of Amedisys represents real value.
Rapidly growing eps, stemming from a new Medicare payment system, layered on top of excellent demographics and a trend towards shortened hospital stays. Hightened visibility will result from AMED's gaining a Nasdaq listing. Few pure plays in the Medicare home health group.