Apr 30, 2013
Executives
Thomas J. Dolan - Senior Vice President of Finance William F.
Borne - Founder, Chairman, Chief Executive Officer, Chief Executive Officer of Amedisys Specialized Medical Services Inc and President of Amedisys Specialized Medical Services Inc Ronald A. LaBorde - President, Chief Financial Officer and Director
Analysts
Kevin Campbell - Avondale Partners, LLC, Research Division Dana Nentin John W. Ransom - Raymond James & Associates, Inc., Research Division Brian Tanquilut - Jefferies & Company, Inc., Research Division Sheryl R.
Skolnick - CRT Capital Group LLC, Research Division
Operator
Good morning. My name is Tiffany, and I will be your conference operator today.
At this time, I would like to welcome everyone to the Amedisys First Quarter Earnings Call. [Operator Instructions] Tom Dolan, Senior Vice President of Finance and Treasurer, you may begin your conference.
Thomas J. Dolan
Thank you, Tiffany. Good morning, and welcome to the Amedisys Investor Conference Call to discuss the results of the first quarter ended March 31, 2013.
A copy of our press release is accessible on the Investor Relations page on our website. Speaking on today's call from Amedisys will be Bill Borne, Chairman and Chief Executive Officer; and Ronnie LaBorde, President and Chief Financial Officer.
Before we get started with our call, I would like to remind everyone that any statements made on this conference call today or in our press releases that express a belief, estimation, projection, expectation, anticipation, intent or similar expression, as well as those that are not limited to historical facts are considered 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 and the company assumes no obligation to update these statements as circumstances change.
These forward-looking statements may involve a number of risks and uncertainties, which may cause the company's results or actual outcomes to differ materially from such statements. These risks and uncertainties include factors detailed in our SEC filings, including our Form 10-K, 10-Q and 8-K.
The company disclaims any obligation to update information provided during this call other than as required under applicable securities law. Our company website address is amedisys.com.
We use our website as a channel of distribution for important information including press releases, analyst presentations and financial information regarding the company. We may use our website to expedite public access to time-critical information regarding the company in advance of or in lieu of distributing a press release or a filing with the SEC disclosing the same information.
In addition, as required by SEC Regulation G, a reconciliation of any non-GAAP measures mentioned during our call today to the most comparable GAAP measures will be available on our website on the Investor Relations page under the tab Financial Reports, Non-GAAP. Thank you, and now I'll turn the call over to Bill Borne.
William F. Borne
Thanks, Tom. Good morning, and welcome to our first quarter earnings call.
For the quarter, Amedisys earned $0.09 per share on a GAAP basis. While we don't provide quarterly guidance, we anticipated better performance in the first quarter and improving performance throughout the year to offset sequestration.
Instead, by impression, both our business units drove lower results than expected. In our home health division, our drop in our recert rate negatively impacted volume while our hospice division saw a drop in our average daily census.
Our growth metrics were more positive with total home health Medicare admissions up 2% compared to the prior year's first quarter and up 3% when adjusted for the additional leap day in 2012. Hospice total admissions were up 2% on a year-over-year basis and 3% leap year-adjusted.
Costs for the quarter were more generally in line with our expectations as Ronnie will discuss in more detail. While pleased with our cost control, clearly, our efforts have not been enough in the face of declining overall volume and the impact of sequestration.
Therefore, we are moving forward rapidly on 3 initiatives to improve results on a short-term basis and better position the company for long-term success. The first initiative is to reduce the number of nonperforming care centers.
While we have gone through similar prunings in the past with additional reimbursement cuts and volume pressures, we find ourselves continuing to carry too many unprofitable care centers in our portfolio. Therefore, we have made the decision to consolidate or divest 50 care centers.
In the first quarter on an annualized basis, these care centers generated $50 million in revenue and negatively impacted our results by $10 million. We expect to realize some of this improvement in earnings in the second quarter and most of the improvement by the end of the third quarter.
The second initiative is a reduction in our corporate infrastructure. This action, which has already occurred, will generate $5 million in annualized savings.
We will realize about half of these savings in the second quarter and achieve the full run rate in the third quarter. The third initiative is to accelerate our strategy of patient care management, which is directed as yielding positive clinical results and consistency of care at lower cost.
We are focused on delivering the optimum level of care to drive improved clinical outcome and consistently deliver that across all of our operations. We have been refining our care protocols to satisfy utilization criteria in some of our managed care markets and to position the company to participate in bundles and ACO initiatives.
We have implemented these new patient care oversight processes in certain markets. The results of these efforts have shown that greater oversight and consistency in care can deliver both better outcomes and greater efficiency.
Patient care management is an ongoing process and will continue to change as we gain experience from our managed care portfolio, bundles and ACO initiatives. This process will continue to evolve as we make operational changes associated with the rollout of our shared service center model as mentioned in our last earnings call and migrates our next-generation operating system.
While we are not providing specific efficiency targets associated with improved patient care management, we are confident that they will be meaningful over time. To conclude my prepared remarks, I'd like to shift my comments to our employees.
Many of them will be directly impacted by the initiatives we have announced today. I'd like to thank all of our employees for their hard work and commitment to Amedisys.
But most of all, to the service they provide to our patients and the passion in which they do it. We are a company of caregivers and providing care is what drives us.
I will now turn the call over to Ronnie for his comments.
Ronald A. LaBorde
Thanks, Bill. In my comment to follow, I'll be comparing first quarter results both year-over-year and sequentially on an adjusted basis.
For the first quarter of 2013, we generated revenue of $339 million. This was a decrease of $32 million over the prior year and $24 million sequentially on revenue declines in both our home health and hospice divisions.
Adjusted net income for the quarter was $4 million, or $0.13 per share, compared to $8.6 million or $0.29 per share the prior year and $7.2 million or $0.23 per share sequentially. Home health revenue declined $29 million year-over-year.
While same-store Medicare admissions were up 2%, our recert rate dropped almost 6 percentage points to 38%. Sequestration negatively impacted home health revenue with a 2% cut to episodes in progress at quarter end.
Medicare revenue per episode at $2,782 was down 3.5% from last year. Non-Medicare revenue at $51 million was down $8 million.
Hospice revenue declined $2.5 million year-over-year or 3.6% mainly on lower average daily census. On a same-store basis, hospice admissions were down 1% on a year-over-year basis or flat when adjusting for leap year.
Our total gross margin for the quarter was 43.2%, only slightly reduced from the 43.8% earned in the prior year. As I mentioned previously, revenue per episode dropped $100 from last year.
However, this decline in revenue was substantially offset by lower cost per episode. All other operating expenses decreased approximately $7 million compared to the prior year.
However, this was not enough to offset the decline in revenue resulting in an overall decrease in operating profit margins. Adjusted EBITDA for the quarter was $17 million or 5.1% of revenue compared to $27 million or 7.3% in the prior year.
Home health revenue declined $18 million sequentially. In addition to the impact from our recert rate, which was down 2 percentage points, sequestration and revenue per episode negatively impacted the sequential comparison.
Additionally, non-Medicare revenue was down $6 million. Sequentially, our total gross margin was unchanged at 43.2%.
Other operating expenses declined approximately $4 million. However, similar to year-over-year results, our overall operating profit margin compressed on lower revenue.
Our adjusted EBITDA margin for the quarter was 5.1% compared to 6.4% in the fourth quarter. Now turning to our balance sheet and liquidity.
We generated cash from operations for the quarter of $32 million. We reduced accounts receivable outstanding by almost $25 million and DSO came down over 4 days to 37 days.
Capital expenditures for the quarter were $10 million and we paid down $24 million in debt. We ended the quarter with debt of $79 million and a leverage ratio of 0.95x EBITDA.
Finally, I'll turn to guidance. With the decline in revenue we experienced in the first quarter and our initiative to exit certain markets, we now expect revenue for the year from continuing operations to be in the range of $1,280,000,000 to $1,320,000,000.
We expect earnings from continuing ops to be in the range of $0.45 to $0.55 per share on an estimated $31.5 million fully diluted shares outstanding. This guidance does not include any one-time cost that we may incur associated with our announced market exit activity or corporate expense initiatives.
We continue to project capital expenditures to be approximately $50 million during 2013. And finally, this guidance includes an estimate of legal costs associated with our ongoing investigations at a similar level to the $8.5 million incurred in 2012.
This concludes our prepared remarks. Operator, please open up the call for questions.
Operator
[Operator Instructions] Your first question comes from the line of Kevin Campbell with Avondale Partners.
Kevin Campbell - Avondale Partners, LLC, Research Division
I was hoping maybe you guys could start with some additional commentary in your recert rate and maybe what the trends were like during the quarter. Did it continue decline over the course of the quarter, and therefore, maybe you have an even worse run rate for Q2?
Or was it pretty stable throughout the period? And then secondly, how do your numbers compare with industry averages?
William F. Borne
Again, in our recert rates are specific to patients and we are seeing some volatility in that. We talked about patient care and management earlier.
We have several markets that are under patient care management most of our Humana heavy markets, as well as other managed care that we're implementing this process on a company-wide basis. In those markets we see a little less volatility so we can't give you a prediction on what they're going to look like.
In reference to the other markets and the averages, we think our case mix is slightly higher than what we see on the national basis. And our recerts are probably at this point slightly below average.
So hopefully, there's 1 point or 2 many if we get some consistency across all of our markets throughout patient management process.
Kevin Campbell - Avondale Partners, LLC, Research Division
And what was the trend like during the quarter? Did it -- was it pretty consistent?
William F. Borne
It bounced up and down, quarter by quarter, by point -- or month by month, by point.
Kevin Campbell - Avondale Partners, LLC, Research Division
Yes. And I wanted to just get a little bit more color on this accelerating your strategy of patient care management.
Can you maybe just give us more details on what that means and how that will impact you financially?
Ronald A. LaBorde
Well, again, we started with patient care management probably about 9 months ago and also, we indicated in the last earnings call that we're rolling out our shared service centers and we've kind of aligned that with the initiatives of bundles that we're looking at. And we're aggregating multiple agencies in markets that are close together on a single unit and we call that kind of regional oversight.
So patient care management is really working on a market-by-market level, working in markets where we have regional oversight, where we have the shared service centers. Advances [ph] by the end of June, we'll have a 50% of our markets into these shared service centers.
And as a reminder, by the end of the year, we would have between 70 and 72 shared service centers nationwide. And in those centers, what we do is we centralize things like intake, some of the coding that we use our managers to provide which takes some of the burden of the individual care centers.
And it helps us with the oversight of patient care management, which is really reviewing every patient that we care for and putting another set of eyes that's not in the operations to better provide care for these patients. And what we've seen in the markets that we've put it in, which have been a significant amount of the markets, that the consistency across the markets has been kind of the same, the cost is actually going down and the outcomes have improved.
So we're using a combination of the regional oversight. Some central oversight to make sure we get a look at every patient by section on a central basis and that we educate the individual care centers to be more consistent in the way they provide care.
We think this is important one to not only manage the managed care portfolio of business, but more importantly, to manage the bundles in the ACO. Because remember, as we move forward in those initiatives have become partners with hospitals who bundles an ACO's they're going to want to see more effective, efficient utilization, but in the first place, to make sure that our outcomes are improving.
And we're seeing that across the board. So we're excited about that initiative and we're accelerating it as we roll out our shared service centers, and of course, our new system AMS3 when that begins to be deployed at the end of the fourth quarter, we'll provide an additional ability of capabilities to give us a much earlier view into the patient care or actually before the episode has started versus to waiting until after the episode begins.
So we're excited about that as well.
Kevin Campbell - Avondale Partners, LLC, Research Division
Okay. And then lastly on the guidance.
Does that include the impact of these 50 care centers at all? Or are they taken out starting April 1 and there's no impact from those 50 care centers?
Will there be closures? Or will they be reduced sort of rapidly over to period of the actual closures happening?
Ronald A. LaBorde
Kevin, this is Ronnie. We have a certainly divesture plans that we'll continue to work on.
So we expect to see it over the course of the year and our guidance does reflect some anticipation of success in our divestiture plan at some level.
Kevin Campbell - Avondale Partners, LLC, Research Division
Okay. So in other words, it assumes the revenues and EBITDA is in the numbers until they're actually divested in your guidance?
Ronald A. LaBorde
Yes.
William F. Borne
And Kevin, of the 50, 11 are going to be consolidated and the other 39 will be positioned for divestiture.
Operator
Your next question comes from the line of Darren Lehrich with Deutsche Bank.
Dana Nentin
This is Dana Nentin in for Darren. Just on your debt covenants, do those allow for restructuring add backs and would there be any need to seek waivers?
William F. Borne
There is some provision for, and structurally, to accommodate this. But I'd say, generally speaking, we certainly are carrying and have plans to spend a relatively high level of CapEx, which the facility contemplated, but the performance will help that before we'll have to ask for any waivers, of course.
Dana Nentin
Okay. Great.
And then can you talk to how many discharges you had in hospice?
William F. Borne
How many discharges? We had -- well, our net census declined by 160 in the quarter.
We had 4,992 add nets and 5,152 discharges.
Dana Nentin
Okay. Great.
And then could you talk to what your live discharge rate was in hospice?
William F. Borne
It was a little bit lower this quarter. We're still in the low 20s, which is it's kind of been there and just a bit lower in the first quarter of this '13.
Operator
Your next question comes from the line of John Ransom with Raymond James.
John W. Ransom - Raymond James & Associates, Inc., Research Division
What are you guys hearing about rebasing, if anything from CMS? And what do you think the industry's position is on that?
Just given that MedPAC still thinks that their double-digit margins, although, current financials from the public companies would indicate probably some financial deterioration and the MedPAC report would have shown.
William F. Borne
John, as you know, through the partnership, there's been a lot of activities there. [indiscernible] The policymakers, as well as the regulators, and we've shown some comparisons to the public companies against MedPAC reports.
We've also shown an impact analysis if they do no further cuts in the industry and you have several states that are actually underwater in 2017 with actually no cuts. Just due to the lack of market basket in the productivity, decreases that we'll see.
So from the policymakers, I can tell you, I was there last week and Medco, Genesis and representatives on both sides and there's a concern, there's a gridlock. And we get attention of several of them are listening and paying attention to the impact that a significant rebasing will make on the industry.
As far as CMS is concerned, it's kind of been close-lipped. The partnership met with them about 3 weeks ago.
They didn't share a lot of information but the industry is clearly taking a position that hospital agencies should obviously be included. We should use a GAAP method of accounting versus the cost base that MedPAC uses from the cost reports.
That we need to release a positive margin into versus 0 margin. And we also need to include other expenses that we don't think they're considering like face-to-face and NFA.
So we're having meaningful dialogue across the board. We think that even when the proposed rule comes out, we will have an opportunity to make some comments in and possibly influence that.
But as you said earlier, when you compare what MedPAC anticipates the 2012 margins are for the industry and with the public company analysis show that there's huge disparity, about 9% to 10% could be actual. So we think we're getting the attention but it's going to be a battle to the finish line.
John W. Ransom - Raymond James & Associates, Inc., Research Division
And I guess my the other question is if you step back and look at your revenue performance and your volume performance, after years of leading in the industry, you've been lagging in the industry. Why do you think that is?
And how long -- do you have any crystal ball as to when you might cycle through that kind of the negative revenue comparisons?
Ronald A. LaBorde
Yes, I think that we're going to cycle through by year end. I feel pretty good about that.
And I think the reason why we became first to last, couple of 3 reasons: One, we've been a little bumpy with management and just general operational oversight and we have that in place now, we feel really good about our team. As a matter of fact, I feel the best that I've ever felt, not only from the core business but from the strategy moving forward and moving into new relationships with many hospitals as it relates to care transitions and the bundled initiatives.
The other thing, I think, it was just the DNA of the company to start with. At one point we are out there buying everything, anywhere for what we thought was a reasonable price.
But if you're really taking a look at the return on investment in the years, 7, 8, and 9, we didn't do as well with acquisition that we did in the early years. And then we had the pressure of all the cuts and reimbursement and our strategy was more diverse.
I think currently, we identified 70, 72 markets that we want to be deep in. We're identifying anchors, which is either going be a large hospital or health system, large position of portfolios as well as managed care place that we can align ourselves with to move into some kind of risk, no matter what that looks like and what form that looks like.
And we feel that our portfolio is just naturally pruning to give us a go deep strategy and less markets of markets that we've consolidated. So part of it is that we arrived, buying anything, anywhere, distributed all over.
A lot of startups which used to have 6 months to a couple of year return on investment that got stretched out with the reductions and reimbursements much longer than that. And as with this last pruning, we finally got to the realization that we can't grow past these cuts in those certain markets so we're going to divest those, and then we're going to put more resources in the markets that we do really well in.
So I think that the company will emerge much stronger towards the end of the year and with the strategy that's best positioned to take advantage of the trends with the ACA.
John W. Ransom - Raymond James & Associates, Inc., Research Division
Now, I realize you've made some comments about acquisitions. Maybe the strategy has changed.
Is there anything in hindsight looking back on that maybe you wish you had done differently? I mean, in hindsight, did you react maybe too aggressively to the rule change and some of the change in certification is just a correction and maybe pushing that a little bit?
Or how do you feel about that?
William F. Borne
Well, I think, John, in hindsight, you could always do things better. And I think what we're looking at is the proper way to really manage these care centers, to create that consistency.
And what we realized is that we can't be top-down, or bottoms up. You really have to have a combination of ongoing education and training in the field, because that's where it really happens.
And you got to have the right structure to make sure that you can provide all the care that's needed for the patients, but only the care that's needed and make sure you get the right outcome, which we've seen with our patient care management. The other piece is that our regional oversight is going to provide tremendous efficiencies and the ability to provide a lot of resources more locally and allow also to provide that additional oversight, as well as education.
And it kind of -- from the corporate perspective, what we're making sure is we catch the outliers. So they slip through the local and regional, we catch a outlier and we sent it back to the regional.
That's an opportunity to educate the care centers. That's why I'm telling you, at the end of the year, we feel really comfortable about that because that whole network will be fully in place by June 1 of this year.
And I think we'll benefit from having more consistency and better care for our patients who just so happen to have side effects of lowering our cost, as well.
Operator
[Operator Instructions] Your next question comes from the line of Brian Tanquilut from Jefferies.
Brian Tanquilut - Jefferies & Company, Inc., Research Division
Bill, I hate to go back to the recert but I just want to ask you. Now that your prior to the low end of the spectrum for the industry in recert, is there anything you can proactively do to try to arrest this slide?
William F. Borne
Yes, Brian. Actually, as I mentioned earlier, we see less volatility in patient care management agencies.
And again, we started that about 9 months ago to take care of some of the volume concerns that Humana had. And what we noticed is that we got much better consistency.
We saw that throughout everything, not only utilization, but recertifications. We also saw better outcomes.
And so what we've done is we've accelerated this process of which we were doing already for the bundles that we have in many markets that we'll come to the market with as soon as we sign off on those. But we need the same process we did managed care as we need for the bundles as we need it for the ACOs.
And we think that greater oversight, both on a local basis, regional, as well as looking at it on an outlier basis from the corporate side, will create less volatility in that recertification measurements. And we're hoping, because of where we sit as compared to the average, that we'll move more into the average and it will be a positive for the company and a positive for the patients that we're caring for.
Brian Tanquilut - Jefferies & Company, Inc., Research Division
Got it. And then, Bill, I just noticed in one of your comments about DC [ph] you said something about talking to CMS and making the argument to not rebase to 0 and rebase to positive margin.
Is your expectation that the rebase will be to 0 without your efforts?
William F. Borne
Brian, we don't really have an expectation at this time. I think the process is unpredictable.
I think what's happening is that everybody, the regulators and the policymakers alike -- are dealing in snapshots and they really need to look at the whole industry from kind of a panoramic perspective. The bottom line is that there's a lot of information and the industry is getting cut in a bunch of different ways and I think our mission is to make sure the policymakers and regulators are educated exactly what the reality in today's time is.
And not talking about '11 numbers or '10, but fast volume to '13 and aligning the impact of all the industry initiatives. On top of that, I think also educating them that we can surgically really address some of the outliers and some of the fraud and abuse issues.
As we know, most of that activity is in 5 states, a significant portion of it is in several counties. We've already addressed that with the outliers and we think that the amount of recertifications that are going on in some markets and the amount of providers that are in some markets are beyond a level that really positions us to provide the right care.
And so we think that the fight fought of its first message, don't use a blunt instrument, let it show you the full impact in today's real-time. And let's also underscore the fact that the home health industry is where we need to move towards to drive the cost down of this chronic complex patients that spend far too much time towards the end of their life in facilities that cost a lot more care.
So you don't want to destroy the industry that is perfectly positioned to really help with the fiscal challenges that the country is faced. So we're giving all that message together and there's a pretty significant effort in Washington, both on policy and regulatory side, to do that through ourselves and our partners in the partnership.
Brian Tanquilut - Jefferies & Company, Inc., Research Division
Bill, last question. I just wanted to hear your thought on the President's budget proposal, specifically on bundling.
And as you look down the road, how do you think you need to change your business or change the way you do things or the structure of your business as we prepare for the eventuality that, that will happen?
William F. Borne
I think the budget proposal is going to be a challenge to get through. I think that again, being on the hill last week, you can tell that everything is on gridlock.
By the way, you have a great deal of frustration on both sides. My thoughts are the Democrat would like to open up the ACA mix from the refinements to it.
But if they do that, the Republicans will get in and try to kill it. So they're kind of at a stalemate.
I don't think the budget itself as presented by the President will probably get passed. There's some issues about copayments there.
MedPAC has some issues about copayments. If you take MedPAC's proposal, it would affect about 1/3 of our patients that would have copayments so we're looking at that closely.
But more than anything, I think it's very clear where healthcare has to go and it's moving outside the facilities for these complex patients. And you have a lot of hospitals right now that are starting to get sensitized to the readmissions.
We're having that dialogue every day with hospitals across the nations. And our care transition program has taken and produced a lot of value for us.
The bundles, we have 40 hospitals that want to partner with us in our bundled initiatives. And as a reminder, we're looking at doing that in about 60 markets, not final.
We still have to see the final numbers from Medicare. CMS has postponed the bundle initiative, I think to October this year, which will give us a little more time to prepare, more time to get our Shared Service Center standing, more time to get PCM in place.
And we feel very comfortable once we put that in place, that we'll be successful on bundles. But remember, if you're an HCA partner, or a bundle partner, what your partners want to see is you're providing as little care as possible to achieve the best outcomes and our outcomes have to improve at a the lowest cost.
So it's not the same way we are moving forward with the industry historically and I think Amedisys is well-positioned to take advantage of a lot of the initiatives in the HCA.
Operator
Your next question comes from the line of Sheryl Skolnick with CRT capital.
Sheryl R. Skolnick - CRT Capital Group LLC, Research Division
I'm forced to ask this. Bill, there have been a number of times when the company has faced challenges with respect to its results in which you have given a very optimistic outlook.
And unfortunately, that optimism has not resulted in better performance, but instead, the performance continued to deteriorate, and I'd argue, pretty dangerously with a 17% decline in recerts year-over-year with an increase in cost per visit. And with the shift to the lower margin business, I'm very concerned that perhaps we might the hearing more of the optimism and not enough of the caution in the company's approach to the future.
Especially at as it seems that it's been reactive to these changes in reimbursements which really have been external and not of your own making, and with more to come. So my question is this: I hear you when you say you now have confidence in the management and operating team you have in place.
It sounds a little bit like blaming the past but these people were, with all due respect, the choice of you and the board. At what point does senior management become responsive in the sense to the board, to the shareholders and actually begin to make the necessary changes in this business, which I would argue might be very difficult to make and might result in the kind of cost reductions that would perhaps lead to much more than $5 million cost savings, maybe even as much as 20% or 30% of the infrastructure might have to come out of this.
At what point do you all bite this bullet rather than taking small bites, shrinking the business and then finding when you wake up 9 months from now that rates are down again and your business is still oversight for the volume that you are receiving?
William F. Borne
Sheryl, I'll start I think with reactive. We're not reactive.
I asked my team not to even use that word. We use the word responsive.
We think that we've responded well to what the ACA will bring and how we're positioning our portfolio to take advantage of the new trend, which is absolutely going to happen. And as I mentioned, 40 hospitals have stepped up to the plate and want to have different relationship with the Amedisys and our bundled program alone.
In addition, we have about 500 care transition coordinators that are distributed all over our market and we're working closely inside of hospitals to transition patients to prevent that readmission. So those relationships are established on a different way.
And I know the admission increases that we've seen in the fourth quarter and the first quarter in-home care, while not impressive are in the positive direction. Also, if you look at recertification, it eliminates some of the variation that's there.
And you look at as we move forward, making sure the patients get the right care is important. So we're working on making sure the clinical care is also provided.
The cut that we've made recently in reference to the share centers, I think is significant. We wanted to keep as many of them open as possible to be able to service as many markets, but we recognize that we can't be deep in every market.
Now, we still have underperforming care centers, but we think that these care centers, whether it's a revenue issue or an expense issue, have absolutely an opportunity to be very successful and they're also in markets that we intend to be deep in association with many partners and continuing to provide care in. So we're going to prune this tree a couple of 3 or 4 branches at a time.
And I think as I mentioned to John earlier, we're going to see a pretty positive trend by the end of the year. If we don't see that, then we have to take another hard look at the company and the infrastructure that's there.
We've been criticized and I think by you, Sheryl, in reference to the capital cost that we have put forward in this organization. As a reminder, we have a proprietary system now.
We have now opportunity to upgrade that system over the last 3 years. This new system will absolutely put us at the forefront of technology in point care technology and managing care information in being able to analyze data of any post-acute care system that's there.
Amedisys is expecting to move beyond just home care and hospice. We're looking at being a portal of post-acute care.
So any hospitals that are at the forefront, as well as managed care, of managing a population less expensive, we would hope that we would have the opportunity to manage that post-acute care space using our technology to do that. Continuing to provide services to hospice or to home care, but also seeing patients in a much longer trajectory.
Said another way, Sheryl, my expectation is that in the future, when patients are admitted to us, we literally keep oversight on them for years and not an episodal care or not less than 6 months to the point of the end of life. And we think that there'll be a real valuable partner that any hospital health system managed care pair or physician ACOs that want to move in the business.
And I don't know if you've noticed but the physician ACOs in the country have surpassed the hospitals for the first time in the recent couple of months. So I think the company's strategically well-positioned.
We don't want to prune more than we have to. At the end of year, if we're not where we think we should be, we'll take another look at it.
Sheryl R. Skolnick - CRT Capital Group LLC, Research Division
Well, I appreciate all of that insight into your thinking about the business. I guess I would clarify one thing, that one thing I've not criticized you for is the capital investments in the business and the system.
Perhaps that's another opportunity for analysis, especially given the fact that the basic scale of the business, at this point, seems to be having of trouble keeping up with the cost structure. But beyond that, I guess where I am concerned here is, and it's a very real question, I appreciate the value that your vision would bring to the healthcare business.
But who's going to pay for that? Is the hospital going to pay for that?
Is the ACO going to pay for that? Is the managed care payer going to pay for that?
I mean, this gets to a classic question, but a very specific one. Because while you may be bringing value that's absolutely needed, I'm very concerned that with the compression of revenue on your base business, coupled with all of the other issues that Amedisys seems to be having in finding its footing since the first collapse of the recerts in June of 2010, that this new business endeavor may be ideally appealing, but in practice, not very remunerative.
William F. Borne
Well, Sheryl, I think if you take a look at the market trends and to answer your question in reference to who's paying for it, it's to providers that are stepping out there and willing to look at providing care, not in OP for service system, but in some type of global system. And I think the payers will be the managed care advantage companies, as well as the commercial plans that we have contracted with.
There will be hospitals who want to step to the plate and take risk. It'll be physicians.
So I think a lot of people are willing to pay for value and it's pretty clear that we have to move away from volume to value. And that's what the company is doing.
So Amedisys believes that we will continue to grow our core business. We believe that we will see tremendous opportunities, not only in the future acquisitions but with partnerships of hospitals and health systems, as well as physicians.
And we think our hospice will grow as well as a result of our home care footprint. We think that when we admit patients, we'll keep them for long periods of time, not for direct care but oversighted care to be needed and we think we're moving right along with the inventions of the new ACA.
And we're going to keep our eye on the core business and our expectations, and if we're not where we're at by the year end, we'll take another hard look at the portfolio, but I feel pretty comfortable that everything will be moving in the right direction at that point in time. I think that was the last call.
I thank everybody for calling in today. We look forward to sharing the results of our next earnings call for the second quarter.
Everybody, have a great day.
Operator
This concludes today's conference call. You may now disconnect.