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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________________
FORM 10-Q
______________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 001-33989
LHC Group, Inc
(Exact name of registrant as specified in its charter)
Delaware
 
71-0918189
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
901 Hugh Wallis Road South
Lafayette, LA 70508
(Address of principal executive offices including zip code)
(337233-1307
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value of $0.01
 
LHCG
 
NASDAQ Global Select Market

 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Table of Contents

Large accelerated filer
  
ý
 
Accelerated filer
 
Non-accelerated filer
  
 
Smaller reporting company  
 
 
 
 
 
Emerging growth company
 


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ý
Number of shares of common stock, par value $0.01, outstanding as of May 5, 2020: 31,588,641 shares.


Table of Contents

LHC GROUP, INC.
INDEX
 
Part I. Financial Information
 
Page
Item 1.
 
 
Condensed Consolidated Balance Sheets — March 31, 2020 and December 31, 2019
 
Condensed Consolidated Statements of Income — Three ended March 31, 2020 and 2019
 
Condensed Consolidated Statements of Changes in Equity — Three months ended March 31, 2020 and 2019
 
Condensed Consolidated Statements of Cash Flows — Three months ended March 31, 2020 and 2019
 
 
Item 2.
 
Item 3.
 
Item 4.
 
Part II. Other Information
 
 
Item 1.
 
Item 1A.
 
Item 2.
 
Item 6.
 
 

3

Table of Contents

PART I — FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
(Unaudited)
 
March 31, 
 2020
 
December 31, 
 2019
ASSETS
 
 
 
Current assets:
 
 
 
Cash
$
8,308

 
$
31,672

Receivables:
 
 
 
Patient accounts receivable
351,763

 
284,962

Other receivables
11,984

 
10,832

Total receivables
363,747

 
295,794

Prepaid income taxes
14,189

 
9,652

Prepaid expenses
33,032

 
21,304

Other current assets
20,217

 
21,852

Total current assets
439,493

 
380,274

Property, building and equipment, net of accumulated depreciation of $73,963 and $69,441, respectively
107,622

 
97,908

Goodwill
1,234,191

 
1,219,972

Intangible assets, net of accumulated amortization of $16,748 and $16,431, respectively
310,870

 
305,556

Assets held for sale
2,500

 
2,500

Operating lease right of use asset
96,078

 
95,452

Other assets
21,528

 
38,633

Total assets
$
2,212,282

 
$
2,140,295

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and other accrued liabilities
$
75,215

 
$
83,572

Salaries, wages, and benefits payable
108,337

 
85,631

Self-insurance reserves
33,482

 
31,188

Current operating lease liabilities
33,444

 
28,701

Amounts due to governmental entities
1,931

 
1,880

Total current liabilities
252,409

 
230,972

Deferred income taxes
64,865

 
60,498

Income taxes payable
6,165

 
3,867

Revolving credit facility
298,071

 
253,000

Operating lease payable
65,396

 
69,556

                                   Total liabilities
686,906

 
617,893

Noncontrolling interest — redeemable
19,431

 
15,151

Commitments and contingencies
 
 
 
Stockholders’ equity:

 
 
LHC Group, Inc. stockholders’ equity:

 
 
Preferred stock – $0.01 par value; 5,000,000 shares authorized; none issued or outstanding

 

Common stock — $0.01 par value; 60,000,000 shares authorized; 36,297,106 and 36,129,280 shares issued, and 31,100,826 and 30,992,390 shares outstanding, respectively
363

 
361

Treasury stock — 5,196,280 and 5,136,890 shares at cost, respectively
(67,182
)
 
(60,060
)
Additional paid-in capital
951,330

 
949,321

Retained earnings
545,725

 
523,701

Total LHC Group, Inc. stockholders’ equity
1,430,236

 
1,413,323

Noncontrolling interest — non-redeemable
75,709

 
93,928

Total stockholders' equity
1,505,945

 
1,507,251

Total liabilities and stockholders' equity
$
2,212,282

 
$
2,140,295

See accompanying Notes to Condensed Consolidated Financial Statements.

4

Table of Contents

LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
 
 
Three Months Ended
March 31,
 
2020
 
2019
Net service revenue
$
512,871


$
502,585

Cost of service revenue (excluding depreciation and amortization)
321,202


320,992

Gross margin
191,669


181,593

General and administrative expenses
157,866


145,221

Impairment of intangibles and other


6,319

Operating income
33,803


30,053

Interest expense
(2,768
)

(3,052
)
Income before income taxes and noncontrolling interest
31,035


27,001

Income tax expense
3,359


3,600

Net income
27,676


23,401

Less net income attributable to noncontrolling interests
5,652


4,545

Net income attributable to LHC Group, Inc.’s common stockholders
$
22,024


$
18,856

 



Earnings per share:



Basic
$
0.71


$
0.61

Diluted
$
0.70


$
0.60

Weighted average shares outstanding:



Basic
31,020


30,837

Diluted
31,303


31,187

 




See accompanying Notes to the Condensed Consolidated Financial Statements.


5

Table of Contents

LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Amounts in thousands, except share data)
(Unaudited)
 
 
For the Three Months Ended March 31, 2020
 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Noncontrolling
Interest Non
Redeemable
 
Total
Equity
Issued
 
Treasury
 
Amount
 
Shares
 
Amount
 
Shares
 
Balance as of December 31, 2019
$
361

 
36,129,280

 
$
(60,060
)
 
5,136,890

 
$
949,321

 
$
523,701

 
$
93,928

 
$
1,507,251

Net income

 

 

 

 

 
22,024

 
2,099

 
24,123

Acquired noncontrolling interest

 

 

 

 

 

 
2,880

 
2,880

Noncontrolling interest distributions

 

 

 

 

 

 
(2,093
)
 
(2,093
)
Purchase of additional controlling interest

 

 

 

 
(2,470
)
 

 
(21,105
)
 
(23,575
)
Nonvested stock compensation

 

 

 

 
3,680

 

 

 
3,680

Issuance of vested stock
2

 
163,163

 

 

 

 

 

 
2

Treasury shares redeemed to pay income tax

 

 
(7,122
)
 
59,390

 
189

 

 

 
(6,933
)
Issuance of common stock under Employee Stock Purchase Plan

 
4,663

 

 

 
610

 

 

 
610

Balance as of March 31, 2020
$
363

 
36,297,106

 
$
(67,182
)
 
5,196,280

 
$
951,330

 
$
545,725

 
$
75,709

 
$
1,505,945


 
For the Three Months Ended March 31, 2019
 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Noncontrolling
Interest Non
Redeemable
 
Total
Equity
Issued
 
Treasury
 
Amount
 
Shares
 
Amount
 
Shares
 
Balance as of December 31, 2018
$
358

 
35,835,348

 
$
(49,373
)
 
5,029,429

 
$
937,965

 
$
427,975

 
$
107,549

 
$
1,424,474

Net income

 

 

 

 

 
18,856

 
1,686

 
20,542

Acquired noncontrolling interest

 

 

 

 

 

 
820

 
820

Noncontrolling interest distributions

 

 

 

 

 

 
(6,799
)
 
(6,799
)
Purchase of additional controlling interest

 

 

 

 

 

 
(18,000
)
 
(18,000
)
Nonvested stock compensation

 

 

 

 
1,804

 

 

 
1,804

Issuance of vested stock
2

 
174,562

 

 

 

 

 

 
2

Treasury shares redeemed to pay income tax

 

 
(6,726
)
 
61,465

 
(115
)
 

 

 
(6,841
)
Exercise of options
1

 
44,387

 
(851
)
 
24,044

 

 

 

 
(850
)
Issuance of common stock under Employee Stock Purchase Plan

 
5,357

 

 

 
478

 

 

 
478

Balance as of March 31, 2019
$
361

 
36,059,654

 
$
(56,950
)
 
5,114,938

 
$
940,132

 
$
446,831

 
$
85,256

 
$
1,415,630


 
See accompanying Notes to Condensed Consolidated Financial Statements.


6

Table of Contents

LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
 
Three Months Ended 
 March 31,
 
2020
 
2019
Operating activities:
 
 
 
Net income
$
27,676

 
$
23,401

Adjustments to reconcile net income to net cash provided by operating activities:


 
 
Depreciation and amortization expense
5,133

 
4,202

Amortization of operating lease right of use asset
8,512

 
7,399

Stock-based compensation expense
3,680

 
1,804

Deferred income taxes
4,367

 
1,578

Amortization of operating leases
(13
)
 

Loss on disposal of assets
47

 
56

    Impairment of intangibles and other

 
6,319

Changes in operating assets and liabilities, net of acquisitions:


 
 
Receivables
(67,470
)
 
(16,284
)
Prepaid expenses
(11,728
)
 
(1,069
)
Other assets
2,268

 
1,539

Prepaid income taxes
(4,537
)
 
1,883

Accounts payable and accrued expenses
(11,159
)
 
(10,413
)
Salaries, wages, and benefits payable
24,826

 
16,169

Operating lease liabilities
(8,415
)
 
(5,285
)
Income taxes payable
2,298

 
184

Net amounts due to/from governmental entities
51

 
(55
)
Net cash (used in) provided by operating activities
(24,464
)
 
31,428

Investing activities:


 
 
Purchases of property, building and equipment
(13,502
)
 
(2,801
)
Proceeds from sale of property, building and equipment
1,149

 

Cash received (paid) for acquisitions
3,125

 
(1,413
)
Net cash used in investing activities
(9,228
)
 
(4,214
)
Financing activities:


 
 
Proceeds from line of credit
188,728

 
17,000

Payments on line of credit
(143,657
)
 
(13,000
)
Proceeds from employee stock purchase plan
610

 
478

Payments on debt

 
(7,650
)
Noncontrolling interest distributions
(4,874
)
 
(9,194
)
Withholding taxes paid on stock-based compensation
(7,064
)
 
(7,577
)
Purchase of additional controlling interest
(23,575
)
 
(18,000
)
Exercise of vested awards and stock options
160

 
(114
)
Net cash provided by (used in) financing activities
10,328

 
(38,057
)
Change in cash
(23,364
)
 
(10,843
)
Cash at beginning of period
31,672

 
49,363

Cash at end of period
$
8,308

 
$
38,520

Supplemental disclosures of cash flow information:


 
 
Interest paid
$
2,830

 
$
2,855

Income taxes paid
$
1,269

 
$
318

Non-Cash Operating Activity:
 
 
 
Operating right of use assets in exchange for lease obligations
$
9,041

 
$
91,174

Non-Cash Investing Activity:
 
 
 
Accrued capital expenditures
$
2,226

 
$
4,600

See accompanying Notes to Condensed Consolidated Financial Statements.

7

Table of Contents

LHC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Significant Events
Organization
LHC Group, Inc. (the “Company”) is a health care provider specializing in the post-acute continuum of care. The Company provides services through five segments: home health, hospice, home and community-based services, facility-based services, the latter primarily through long-term acute care hospitals (“LTACHs”), and healthcare innovations services ("HCI").
As of March 31, 2020, the Company, through its wholly- and majority-owned subsidiaries, equity joint ventures, controlled affiliates, and management agreements operated 820 service locations in 35 states within the continental United States and the District of Columbia.
COVID-19
The effects of the worldwide pandemic caused by the outbreak of SARS-CoV-2 (“COVID-19”) have impacted our business.  For example, the Company has experienced increased costs associated with obtaining personal protective equipment and other medical supplies in an effort to protect the safety and well-being of the Company's clinicians and patients across the country.  Additionally, the emergence of stay-at-home and physical distancing orders and other restrictions on movement and economic activity intended to reduce the spread of COVID-19 during the second half of March 2020 have required us to alter our clinical, operational, and business processes. Taken together, however, as further described in this Quarterly Report on Form 10-Q, the net impact of COVID-19 was not material to the results of operations during the three months ended March 31, 2020.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019, and the related unaudited condensed consolidated statements of income for the three months ended March 31, 2020 and 2019, condensed consolidated statements of changes in equity for the three months ended March 31, 2020 and 2019, condensed consolidated statements of cash flows for the three months ended March 31, 2020 and 2019, and related notes (collectively, these financial statements are referred to as the "interim financial statements" and together with the related notes are referred to herein as the “interim financial information”) have been prepared by the Company. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been included. Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from the interim financial information presented. This report should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the "2019 Form 10-K"). The 2019 Form 10-K was filed with the Securities and Exchange Commission (the “SEC”) on February 27, 2020, and includes information and disclosures not included herein.    
Immaterial Correction of an Error
During the three months ended March 31, 2020, the Company increased the reported number of common shares issued by 44,387 and decreased the reported number of treasury shares by 24,044 for the three months ended March 31, 2019 due to the exclusion of reporting the number of common shares issued as a result of the exercise of certain outstanding stock options and the number of treasury shares redeemed to pay income tax associated with such stock option exercises. For further details of this noted item, see Note 2 of the Notes to Consolidated Financial Statements in the 2019 10K filed with the SEC on February 27, 2020.
The Company has evaluated the effects both qualitatively and quantitatively, and concluded that they did not have a material impact on previously issued financial statements for the three months ended March 31, 2019.
2. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of

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the financial statements, and the reported revenue and expenses during the reporting period. Actual results could differ from those estimates.
Critical Accounting Policies
The Company’s most critical accounting policies relate to revenue recognition.
Net Service Revenue
Net service revenue from contracts with customers is recognized in the period the performance obligations are satisfied under the Company's contracts by transferring the requested services to patients in amounts that reflect the consideration to which is expected to be received in exchange for providing patient care, which is the transaction price allocated to the services provided in accordance with Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606) and ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (collectively, "ASC 606").
Net service revenue is recognized as performance obligations are satisfied, which can vary depending on the type of services provided. The performance obligation is the delivery of patient care in accordance with the requested services outlined in physicians' orders, which are based on specific goals for each patient.
The performance obligations are associated with contracts in duration of less than one year; therefore, the optional exemption provided by ASC 606 was elected resulting in the Company not being required to disclose the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting period. The Company's unsatisfied or partially unsatisfied performance obligations are primarily completed when the patients are discharged and typically occur within days or weeks of the end of the period.
The Company determines the transaction price based on gross charges for services provided, reduced by estimates for explicit and implicit price concessions. Explicit price concessions include contractual adjustments provided to patients and third-party payors. Implicit price concessions include discounts provided to self-pay, uninsured patients or other payors, adjustments resulting from regulatory reviews, audits, billing reviews and other matters. Subsequent changes to the estimate of the transaction price are recorded as adjustments to net service revenue in the period of change. Subsequent changes that are determined to be the result of an adverse change in the patient's ability to pay (i.e. change in credit risk) are recorded as a provision for doubtful accounts within general and administrative expenses.
Explicit price concessions are recorded for the difference between our standard rates and the contracted rates to be realized from patients, third-party payors and others for services provided.
Implicit price concessions are recorded for self-pay, uninsured patients and other payors by major payor class based on historical collection experience and current economic conditions, representing the difference between amounts billed and amounts expected to be collected. The Company assesses the ability to collect for the healthcare services provided at the time of patient admission based on the verification of the patient's insurance coverage under Medicare, Medicaid, and other commercial or managed care insurance programs.
Amounts due from third-party payors, primarily commercial health insurers and government programs (Medicare and Medicaid), include variable consideration for retroactive revenue adjustments due to settlements of audits and reviews. The Company has determined estimates for price concessions related to regulatory reviews based on historical experience and success rates in the claim appeals and adjudication process. Revenue is recorded at amounts estimated to be realizable for services provided.
The following table sets forth the percentage of net service revenue earned by category of payor for the three months ended March 31, 2020 and 2019:
 

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Three Months Ended  
 March 31,
 
2020
 
2019
Home health:
 
 
 
Medicare
68.2
%
 
71.3
%
Managed Care, Commercial, and Other
31.8

 
28.7

 
100.0
%
 
100.0
%
Hospice:
 
 
 
Medicare
92.0
%
 
92.4
%
Managed Care, Commercial, and Other
8.0

 
7.6

 
100.0
%
 
100.0
%
Home and Community-Based Services:
 
 
 
Medicaid
20.6
%
 
25.1
%
Managed Care, Commercial, and Other
79.4

 
74.9

 
100.0
%
 
100.0
%
Facility-Based Services:
 
 
 
Medicare
54.8
%
 
57.4
%
Managed Care, Commercial, and Other
45.2

 
42.6

 
100.0
%
 
100.0
%
HCI:
 
 
 
Medicare
24.6
%
 
22.2
%
Managed Care, Commercial, and Other
75.4

 
77.8

 
100.0
%
 
100.0
%

Medicare
The following describes the payment models in effect during the three months ended March 31, 2020. Such payment models have been subject to temporary adjustments made by the Centers for Medicare and Medicaid Services ("CMS") in response to COVID-19 pandemic as described elsewhere by this Quarterly Report on Form 10-Q.
Home Health Services
Effective January 1, 2020, the Patient Driven Groupings Model ("PDGM") became the new payment model for services provided to Medicare patients with dates of service on or after the effective date, including certain Medicare Advantage patients. PDGM was implemented by CMS. Under PDGM, the initial certification of Medicare patient eligibility, plan of care, and comprehensive assessment is for a 60-day episode of care; however, unlike the former Medicare prospective payment system ("PPS"), where each 60-day episode of care could not be final billed until the episode was completed, PDGM provides for each 30-day period within the episode of care to be final billed upon completion.
As a result of PDGM, the Company now completes its final billing after each 30-day period instead of the form 60-day period under PPS. For each 30-day period, the patient is classified into one of 432 home health resource groups prior to receiving services. Each 30-day period is placed into a subgroup falling under the following categories: (i) timing being early or late, (ii) admission source being community or institutional, (iii) one of 12 clinical groupings based on the patient's principal diagnosis, (iv) functional impairment level of low, medium, or high, and (v) a co-morbidity adjustment of none, low, or high based on the patient's secondary diagnoses.
Each 30-day period payment from Medicare reflects base payment adjustments for case-mix, geographic wage differences, and a 2% sequestration reduction. In addition, payments may reflect one of three retroactive adjustments to the total reimbursement: (a) an outlier payment if the patient’s care was unusually costly; (b) a low utilization adjustment whereby the number of visits is dependent on the clinical grouping; and/or (c) a partial payment if the patient transferred to another provider or from another provider before completing the episode. The retroactive adjustments outlined above are recognized in net service revenue when the event causing the adjustment occurs and during the period in which the services are provided to the patient. The Company reviews these adjustments to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustments is subsequently resolved. Net service revenue and related patient accounts receivable are recorded at amounts estimated to be realized from Medicare for services rendered.
Hospice

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The Company records revenue on an accrual basis based upon the date of service at amounts equal to the estimated payment rates. The Company receives one of four predetermined daily rates based upon the level of care provided by the Company, which can be routine care, general inpatient care, continuous home care, and respite care. There are two separate payment rates for routine care: payment for the first 60 days of care and care beyond 60 days. In addition to the two routine rates, the Company may also receive a service intensity add-on ("SIA"). The SIA is based on visits made in the last seven days of life by a registered nurse or medical social worker for patients in a routine level of care.
The performance obligation is the delivery of hospice services to the patient, as determined by a physician, each day the patient is on hospice care.
Adjustments to Medicare revenue are made from regulatory reviews, audits, billing reviews and other matters. The Company estimates the impact of these adjustments based on our historical experience.
Hospice payments are subject to variable consideration through an inpatient cap and an overall Medicare payment cap. The inpatient cap relates to individual programs receiving more than 20% of their total Medicare reimbursement from inpatient care services, and the overall Medicare payment cap relates to individual programs receiving reimbursements in excess of a “cap amount,” determined by Medicare to be payment equal to 12 months of hospice care for the aggregate base of hospice patients, indexed for inflation. The determination for each cap is made annually based on the 12-month period ending on October 31 of each year. The Company monitors its limits on a provider-by-provider basis and records an estimate of its liability for reimbursements received in excess of the cap amount, if any, in the reporting period.
Facility-Based Services
Gross revenue is recorded as services are provided under the LTACH prospective payment system. Each patient is assigned a long-term care diagnosis-related group. The Company is paid a predetermined fixed amount intended to reflect the average cost of treating a Medicare LTACH patient classified in that particular long-term care diagnosis-related group. For selected LTACH patients, the amount may be further adjusted based on length-of-stay and facility-specific costs, as well as in instances where a patient is discharged and subsequently re-admitted, among other factors. The Company calculates the adjustment based on a historical average of these types of adjustments for LTACH claims paid. Similar to other Medicare prospective payment systems, the rate is also adjusted for geographic wage differences. Net service revenue adjustments resulting from reviews and audits of Medicare cost report settlements are considered implicit price concessions for LTACHs and are measured at expected value.
Non-Medicare Revenues
Other sources of net service revenue for all segments fall into Medicaid, managed care or other payors of the Company's services. Medicaid reimbursement is based on a predetermined fee schedule applied to each service provided. Therefore, revenue is recognized for Medicaid services as services are provided based on this fee schedule. The Company's managed care and other payors reimburse the Company based upon a predetermined fee schedule or an episodic basis, depending on the terms of the applicable contract. Accordingly, the Company recognizes revenue from managed care and other payors as services are provided, such costs are incurred, and estimates of expected payments are known for each different payor, thus the Company's revenue is recorded at the estimated transaction price.
Contingent Service Revenues
The HCI segment provides strategic health management services to Affordable Care Organizations ("ACOs") that have been approved to participate in the Medicare Shared Savings Program ("MSSP"). The HCI segment has service agreements with ACOs that provide for sharing of MSSP payments received by the ACO, if any. ACOs are legal entities that contract with CMS to provide services to the Medicare fee-for-service population for a specified annual period with the goal of providing better care for the individual, improving health for populations and lowering costs. ACOs share savings with CMS to the extent that the actual costs of serving assigned beneficiaries are below certain trended benchmarks of such beneficiaries and certain quality performance measures are achieved. The generation of shared savings is the performance obligation of each ACO, which only become certain upon the final issuance of unembargoed calculations by CMS, generally in the third quarter of each year.
Patient Accounts Receivable
The Company reports patient accounts receivable from services rendered at their estimated transaction price, which includes price concessions based on the amounts expected to be due from payors. The Company's patient accounts receivable is uncollateralized and primarily consist of amounts due from Medicare, Medicaid, other third-party payors, and to a lesser degree patients. The credit risk from other payors is limited due to the significance of Medicare as the primary payor. The Company believes the credit risk associated with its Medicare accounts is limited due to (i) the historical collection rate from Medicare

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and (ii) the fact that Medicare is a U.S. government payor. The Company does not believe that there are any other significant concentrations from any particular payor that would subject it to any significant credit risk in the collection of patient accounts receivable.
    
A portion of the estimated Medicare PDGM system reimbursement from each submitted home nursing episode is received in the form of a request for anticipated payment (“RAP”). For a standard 60-day episode of care, the Company will submit two RAPs, one for the first 30-day period and a second for the next 30-day period. The Company submits a RAP for 20% of the estimated reimbursement for each of the 30-day periods at the start of care. A final bill is submitted at the end of each 30-day period. If a final bill is not submitted within the greater of 120 days from the start of the 30-day period, or 60 days from the date the RAP was paid, any RAP received for that 30-day period will be recouped by Medicare from any other Medicare claims in process for that particular provider. The RAP and final claim must then be resubmitted.

Earnings Per Share
Basic per share information is computed by dividing the relevant amounts from the condensed consolidated statements of income by the weighted-average number of shares outstanding during the period, under the treasury stock method. Diluted per share information is also computed using the treasury stock method, by dividing the relevant amounts from the condensed consolidated statements of income by the weighted-average number of shares outstanding plus potentially dilutive shares.
The following table sets forth shares used in the computation of basic and diluted per share information and, with respect to the data provided for the three months ended March 31, 2020 and 2019 (amounts in thousands):  
 
Three Months Ended  
 March 31,
 
2020
 
2019
Weighted average number of shares outstanding for basic per share calculation
31,020

 
30,837

Effect of dilutive potential shares:
 
 
 
Nonvested stock
283

 
350

Adjusted weighted average shares for diluted per share calculation
31,303

 
31,187

Anti-dilutive shares
120

 
141



Recently Adopted Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment, which requires an entity to no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. This ASU was effective for annual and interim periods in fiscal years beginning after December 15, 2019, and did not have a significant impact to the Company.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments which amends Financial Instruments - Credit Losses ("Topic 326"). ASU 2016-13 provides guidance for measuring credit losses on financial instruments. Early adoption is permitted. The amendments in this ASU should be applied retrospectively. This ASU was effective for annual and interim periods in fiscal years beginning after December 15, 2019, and did not have a significant impact to the Company.
3. Acquisitions and Joint Venture Activities
Acquisitions
The Company acquired the majority-ownership of six home health agencies, three hospice agencies, and four home and community-based agencies during the three months ended March 31, 2020. The total aggregate purchase price for these transactions was $13.9 million. The purchase prices were determined based on the Company’s analysis of comparable acquisitions and the target market’s potential future cash flows.

The Company funded these acquisitions in 2019 by paying cash consideration of $16.4 million. During the three months ended March 31, 2020, the Company received $3.1 million from an equity joint venture partnership for the partner's noncontrolling interest for one of the Company's acquired home health and hospice agencies. The total cash consideration includes adjustments for assets acquired and liabilities assumed.

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Goodwill generated from the acquisitions was recognized based on the expected contributions of each acquisition to the overall corporate strategy. The Company expects its portion of goodwill to be fully tax deductible. The acquisitions were accounted for under the acquisition method of accounting. Accordingly, the accompanying interim financial information includes the results of operations of the acquired entities from the date of acquisition.

The following table summarizes the amounts of the assets acquired and liabilities assumed at the acquisition dates, as well as their fair value at the acquisition dates and the noncontrolling interest acquired during the three months ended March 31, 2020:

Fair value of total consideration transferred
 
 
Recognized amounts of identifiable assets acquired and liabilities assumed:
 
 
Trade name
 
$
1,944

Certificates of need/licenses
 
3,584

Other assets and (liabilities), net
 
(407
)
Total identifiable assets
 
$
5,121

 
 
 
Noncontrolling interest
 
$
6,388

Goodwill, including noncontrolling interest of $4,660
 
$
14,614



Trade names, certificates of need and licenses are indefinite-lived assets and, therefore, not subject to amortization. Acquired trade names that are not being used actively are amortized over the estimated useful life on the straight line basis. Trade names are valued using the relief from royalty method, a form of the income approach. Certificates of need are valued using the replacement cost approach based on registration fees and opportunity costs. Licenses are valued based on the estimated direct costs associated with recreating the asset, including opportunity costs based on an income approach. In the case of states with a moratorium in place, the licenses are valued using the multi-period excess earnings method. Noncontrolling interest is recorded at fair value.

Joint Venture Activities

During the three months ended March 31, 2020, the Company purchased a portion of the noncontrolling membership interest in one of our equity joint venture partnerships, which prior to the purchase was classified as a nonredeemable noncontrolling interest in permanent equity. As a result of the purchase, the Company retained its controlling financial interests in the joint venture partnership and the noncontrolling interest of our partner will continue to be classified as a nonredeemable noncontrolling interest in permanent equity. Total consideration for this noncontrolling interest purchase was $23.6 million.

4. Goodwill and Intangibles
The changes in recorded goodwill and intangible assets by reporting unit for the three months ended March 31, 2020 were as follows (amounts in thousands):

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Home health reporting unit
 
Hospice
reporting
unit
 
Home and community-based services
reporting
 unit
 
Facility-based
reporting
 unit
 
HCI reporting unit
 
Total
Goodwill:
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2019
$
867,924

 
$
128,875

 
$
166,629

 
$
15,682

 
$
40,862

 
$
1,219,972

Acquisitions
7,254

 
2,700

 

 

 

 
9,954

Noncontrolling interests
2,863

 
1,797

 

 

 

 
4,660

Adjustments and disposals
(79
)
 
(316
)
 

 

 

 
(395
)
Balance as of March 31, 2020
$
877,962

 
$
133,056

 
$
166,629

 
$
15,682

 
$
40,862

 
$
1,234,191

Intangible assets:
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2019
$
219,872

 
$
40,590

 
$
24,096

 
$
5,317

 
$
15,681

 
$
305,556

Acquisitions
4,700

 
930

 

 

 

 
5,630

Amortization
(137
)
 
(23
)
 
(10
)
 
(1
)
 
(145
)
 
(316
)
Balance as of March 31, 2020
$
224,435

 
$
41,497

 
$
24,086

 
$
5,316

 
$
15,536

 
$
310,870


The allocation of goodwill from acquisitions purchased during the three months ended March 31, 2020 for each reporting unit is preliminary and subject to change once the valuation analysis required by ASC 805, Business Combinations is finalized.
The following tables summarize the changes in intangible assets during the three months ended March 31, 2020 and December 31, 2019 (amounts in thousands): 

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2020
 
2019
Indefinite-lived intangible assets:
 
 
 
   Trade Names
$
165,417

 
$
163,499

   Certificates of Need/Licenses
133,273

 
129,689

   Net Total
$
298,690

 
$
293,188

 
 
 
 
Definite-lived intangible assets:
 
 
 
   Trade Names
 
 
 
      Gross carrying amount
$
10,209

 
$
10,182

      Accumulated amortization
(9,303
)
 
(9,229
)
      Net total
$
906

 
$
953

   Non-compete agreements
 
 
 
      Gross carrying amount
$
6,897

 
$
6,795

      Accumulated amortization
(6,089
)
 
(5,991
)
      Net total
$
808

 
$
804

   Customer relationships
 
 
 
      Gross carrying amount
$
11,822

 
$
11,822

      Accumulated amortization
(1,356
)
 
(1,211
)
      Net total
$
10,466

 
$
10,611

   Total definite-lived intangible assets
 
 
 
      Gross carrying amount
$
28,928

 
$
28,799

      Accumulated amortization
(16,748
)
 
(16,431
)
      Net total
$
12,180

 
$
12,368

 
 
 
 
Total intangible assets:
 
 
 
   Gross carrying amount
$
327,618

 
$
321,987

   Accumulated amortization
(16,748
)
 
(16,431
)
   Net total
$
310,870

 
$
305,556

     
Remaining useful lives for trade names, customer relationships, and non-compete agreements were 9.5, 18.0, and 2.7 years, respectively, at March 31, 2020. Similar periods at December 31, 2019 were 9.8, 18.2, and 2.8 years for trade names, customer relationships, and non-compete agreements, respectively. Amortization expense was $0.3 million and $0.4 million during the three months ended March 31, 2020 and 2019, respectively. Amortization expense was recorded in general and administrative expenses.

5. Debt
Credit Facility
On March 30, 2018, the Company entered into a Credit Agreement with JPMorgan Chase Bank, N.A., which was effective on April 2, 2018 (the "Credit Agreement"). The Credit Agreement provides a senior, secured revolving line of credit commitment with a maximum principal borrowing limit of $500.0 million, which includes an additional $200.0 million accordion expansion feature, and a letter of credit sub-limit equal to $50.0 million. The expiration date of the Credit Agreement is March 30, 2023. The Company’s obligations under the Credit Agreement are secured by substantially all of the assets of the Company and its wholly-owned subsidiaries (subject to customary exclusions), which assets include the Company’s equity ownership of its wholly-owned subsidiaries and its equity ownership in joint venture entities. The Company’s wholly-owned subsidiaries also guarantee the obligations of the Company under the Credit Agreement. 
Revolving loans under the Credit Agreement bear interest at, as selected by the Company, either a (a) Base Rate, which is defined as a fluctuating rate per annum equal to the highest of (1) the Federal Funds Rate in effect on such day plus 0.5% (2) the Prime Rate in effect on such day and (3) the Eurodollar Rate for a one month interest period on such day plus 1.5%, plus

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a margin ranging from 0.50% to 1.25% per annum or (b) Eurodollar rate plus a margin ranging from 1.50% to 2.25% per annum, with pricing varying based on the Company's quarterly consolidated Leverage Ratio. Swing line loans bear interest at the Base Rate. The Company is limited to 15 Eurodollar borrowings outstanding at any time. The Company is required to pay a commitment fee for the unused commitments at rates ranging from 0.20% to 0.35% per annum depending upon the Company’s quarterly consolidated Leverage Ratio. The Base Rate as of March 31, 2020 was 4.00% and the LIBOR rate was 2.69%. As of March 31, 2020, the effective interest rate on outstanding borrowings under the New Credit Agreement was 3.29%.
As of March 31, 2020, the Company had $298.1 million drawn, letters of credit issued in the amount of $24.9 million, and $177.0 million of remaining borrowing capacity available under the Credit Agreement. At December 31, 2019, the Company had $253.0 million drawn and letters of credit issued in the amount of $28.4 million under the Credit Facility.
Under the terms of the Credit Agreement, the Company is required to maintain certain financial ratios and comply with certain financial covenants. The Credit Agreement permits the Company to make certain restricted payments, such as purchasing shares of its stock, within certain parameters, provided the Company maintains compliance with those financial ratios and covenants after giving effect to such restricted payments. The Company was in compliance with its debt covenants under the Credit Agreement at March 31, 2020.
6. Stockholder’s Equity
Equity Based Awards
The 2018 Incentive Plan is administered by the Compensation Committee of the Company’s Board of Directors. The total number of shares of the Company's common stock originally reserved were 2,210,544 shares and a total of 1,879,169 shares are currently available for issuance. A variety of discretionary awards for employees, officers, directors, and consultants are authorized under the 2018 Incentive Plan, including incentive or non-qualified stock options and restricted stock, restricted stock units and performance-based awards. All awards must be evidenced by a written award certificate which will include the provisions specified by the Compensation Committee of the Board of Directors. The Compensation Committee determines the exercise price for stock options, which cannot be less than the fair market value of the Company’s common stock as of the date of grant.
Share Based Compensation
Nonvested Stock
During the three months ended March 31, 2020, the Company granted 9,900 nonvested shares of common stock to independent directors under the Second Amended and Restated 2005 Non-Employee Directors Compensation Plan. The shares vest 100% on the one year anniversary date. During the three months ended March 31, 2020, one retired director was granted 775 nonvested shares of common stock under the Second Amended and Restated 2005 Non-Employee Directors Compensation Plan, which shares vest 100% at the grant date.
During the three months ended March 31, 2020, employees and a consultant were granted 108,710 and 10,890 shares, respectively, of nonvested shares of common stock pursuant to the 2018 Incentive Plan. The shares vest over a period of five years, conditioned on continued employment and in accordance with consulting agreement. The fair value of nonvested shares of common stock is determined based on the closing trading price of the Company’s common stock on the grant date. The weighted average grant date fair value of nonvested shares of common stock granted during the three months ended March 31, 2020 was $123.01.
The following table represents the share grants activity for the three months ended March 31, 2020: 
 
Restricted stock
 
Options
 
Number of
shares
 
Weighted
average grant
date fair value
 
Number of shares
 
Weighted
average grant
date fair value
Share grants outstanding as of December 31, 2019
534,331

 
$
71.01

 
98,756

 
$
40.71

Granted
130,275

 
123.01

 

 

Vested or exercised
(163,923
)
 
121.65

 

 

Share grants outstanding as of March 31, 2020
500,683

 
$
87.67

 
98,756

 
$
40.71


As of March 31, 2020, there was $40.0 million of total unrecognized compensation cost related to nonvested shares of common stock granted. That cost is expected to be recognized over the weighted average period of 3.40 years. The Company records compensation expense related to nonvested stock awards at the grant date for shares of common stock that are awarded fully

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vested, and over the vesting term on a straight-line basis for shares of common stock that vest over time. The Company estimates forfeitures at the time of grant and revises the estimate in subsequent periods if actual forfeitures differ to ensure that total compensation expense recognized is at least equal to the value of vested awards. The Company recorded $3.7 million and $1.8 million of compensation expense related to nonvested stock grants for the three months ended March 31, 2020 and 2019, respectively.
Employee Stock Purchase Plan
In 2006, the Company adopted the Employee Stock Purchase Plan whereby eligible employees may purchase the Company’s common stock at 95% of the market price on the last day of the calendar quarter. There were 250,000 shares of common stock initially reserved for the plan. In 2013, the Company adopted the Amended and Restated Employee Stock Purchase Plan, which reserved an additional 250,000 shares of common stock to the plan.
The table below details the shares of common stock issued during 2020: 
 
Number of
shares
 
Per share
price
Shares available as of December 31, 2019
132,449

 
 
Shares issued during the three months ended March 31, 2020
4,663

 
$
130.87

Shares available as of March 31, 2020
127,786

 
 

Treasury Stock
In conjunction with the vesting of the nonvested shares of common stock or the exercise of stock options, recipients incur personal income tax obligations. The Company allows the recipients to turn in shares of common stock to satisfy minimum tax obligations. During the three months ended March 31, 2020, the Company redeemed 59,390 shares of common stock valued at $7.1 million, related to share vesting tax obligations. Such shares are held as treasury stock and are available for reissuance by the Company.

7. Commitments and Contingencies
Contingencies
The Company provides services in a highly regulated industry and is a party to various proceedings and regulatory and other governmental and internal audits and investigations in the ordinary course of business (including audits by Zone Program Integrity Contractors ("ZPICs") and Recovery Audit Contractors ("RACs") and investigations resulting from the Company's obligation to self-report suspected violations of law). Management cannot predict the ultimate outcome of any regulatory and other governmental and internal audits and investigations. While such audits and investigations are the subject of administrative appeals, the appeals process, even if successful, may take several years to resolve. The Department of Justice, CMS, or other federal and state enforcement and regulatory agencies may conduct additional investigations related to the Company's businesses. These audits and investigations have caused and could potentially continue to cause delays in collections, recoupments from governmental payors. Currently, the Company has recorded $16.9 million in other assets, which are due from government payors related to the disputed finding of pending appeals of ZPIC audits. Additionally, these audits may subject the Company to sanctions, damages, extrapolation of damage findings, additional recoupments, fines, and other penalties (some of which may not be covered by insurance), which may, either individually or in the aggregate, have a material adverse effect on the Company's business and financial condition.
On January 18, 2018, Jordan Rosenblatt, a purported shareholder of Almost Family filed a complaint for violations of the Securities Exchange Act of 1934 in the United States District Court for the Western District of Kentucky, styled Rosenblatt v. Almost Family, Inc., et al., Case No. 3:18-cv-40-TBR (the “Rosenblatt Action”). The Rosenblatt Action was filed against the Company, Almost Family, Almost Family’s board of directors, and Merger Sub. The complaint in the Rosenblatt Action (“Rosenblatt Complaint”) asserted, among other things, that the Form S-4 Registration Statement (“Registration Statement”) filed on December 21, 2017 in connection with the Merger contained false and misleading statements with respect to the Merger.
In addition to the Rosenblatt Action, two additional complaints were filed against Almost Family in the United States District Court for the District of Delaware (the "Delaware Actions") alleging similar violations as the Rosenblatt Action.

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On February 22, 2018, plaintiffs in the Delaware Actions moved for a preliminary injunction to enjoin the merger of Almost Family and Merger Sub. On March 22, 2018, the court denied plaintiffs’ motion for preliminary injunction.
The next day, on March 23, 2018, one of the plaintiffs in the Delaware Actions moved to consolidate the Delaware Actions with the Rosenblatt Action and for the appointment of a lead plaintiff. On December 19, 2018, the Court granted the motion to consolidate, appointed Leonard Stein, a purported Almost Family shareholder, as the Lead Plaintiff, and approved Stein's selection of Lead Counsel.
On February 1, 2019, Lead Plaintiff filed his Consolidated Amended Class Action Complaint (the "Consolidated Complaint"). The Consolidated Complaint asserted claims against Almost Family, the Company and Almost Family's board of directors for violations of Section 14(a) of the 1934 Act in connection with the dissemination of the Company's and Almost Family's Proxy Statement concerning the Merger, and asserted breach of fiduciary duty claims and claims for violations of Section 20(a) of the 1934 Act against Almost Family's former board of directors. On February 11, 2020, the court granted the Company's motion to dismiss and the Company's motion to strike and dismissed Lead Plaintiff's federal claims with prejudice and state law claims without prejudice.
On March 12, 2020, Lead Plaintiff appealed the court's decision to the United States Court of Appeals for the Sixth Circuit. On April 17, 2020, Lead Plaintiff moved to voluntarily dismiss his appeal, and on April 23, 2020, the United States Court of Appeals for the Sixth Circuit granted Lead Plaintiff's motion and dismissed the appeal, and thus the case is now terminated.
We are involved in various legal proceedings arising in the ordinary course of business. Although the results of litigation cannot be predicted with certainty, we believe the outcome of pending litigation will not have a material adverse effect, after considering the effect of our insurance coverage, on our consolidated financial information.
Legal fees related to all legal matters are expensed as incurred.
Joint Venture Buy/Sell Provisions
Most of the Company’s joint ventures include a buy/sell option that grants to the Company and its joint venture partners the right to require the other joint venture party to either purchase all of the exercising member’s membership interests or sell to the exercising member all of the non-exercising member’s membership interest, at the non-exercising member’s option, within 30 days of the receipt of notice of the exercise of the buy/sell option. In some instances, the purchase price is based on a multiple of the historical or future earnings before income taxes and depreciation and amortization of the equity joint venture at the time the buy/sell option is exercised. In other instances, the buy/sell purchase price will be negotiated by the partners and subject to a fair market valuation process. The Company has not received notice from any joint venture partners of their intent to exercise the terms of the buy/sell agreement nor has the Company notified any joint venture partners of its intent to exercise the terms of the buy/sell agreement.
Compliance
The laws and regulations governing the Company’s operations, along with the terms of participation in various government programs, regulate how the Company does business, the services offered and its interactions with patients and the public. These laws and regulations, and their interpretations, are subject to frequent change. Changes in existing laws or regulations, or their interpretations, or the enactment of new laws or regulations could materially and adversely affect the Company’s operations and financial condition.
The Company is subject to various routine and non-routine governmental reviews, audits and investigations. In recent years, federal and state civil and criminal enforcement agencies have heightened and coordinated their oversight efforts related to the health care industry, including referral practices, cost reporting, billing practices, joint ventures and other financial relationships among health care providers. Violation of the laws governing the Company’s operations, or changes in the interpretation of those laws, could result in the imposition of fines, civil or criminal penalties and/or termination of the Company’s rights to participate in federal and state-sponsored programs and suspension or revocation of the Company’s licenses. The Company believes that it is in material compliance with all applicable laws and regulations.
8. Noncontrolling interests
The Company classifies noncontrolling interests of its joint venture parties based upon a review of the legal provisions governing the redemption of such interests. In each of the Company’s joint ventures, those provisions are embodied within the joint venture’s operating agreement. For joint ventures with operating agreement provisions that establish an obligation for the Company to purchase the third-party partners’ noncontrolling interests other than as a result of events that lead to a liquidation of the joint venture, such noncontrolling interests are classified as redeemable noncontrolling interests in temporary equity.

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For joint ventures with operating agreement provisions that establish an obligation that the Company purchase the third party partners’ noncontrolling interests, but which obligation is triggered by events that lead to a liquidation of the joint venture, such noncontrolling interests are classified as nonredeemable noncontrolling interests in permanent equity. Additionally, for joint ventures with operating agreement provisions that do not establish an obligation for the Company to purchase the third-party partners’ noncontrolling interests (e.g., where the Company has the option, but not the obligation, to purchase the third-party partners’ noncontrolling interests), such noncontrolling interests are classified as nonredeemable noncontrolling interests in permanent equity.
The Company’s equity joint ventures that are classified as redeemable noncontrolling interests are subject to operating agreement provisions that require the Company to purchase the noncontrolling partner’s interest upon the occurrence of certain triggering events, which are defined as the bankruptcy of the partner or the partner’s exclusion from the Medicare or Medicaid programs. These triggering events and the related repurchase provisions are specific to each redeemable equity joint venture, since the triggering of a repurchase obligation for any one redeemable noncontrolling interest in an equity joint venture does not necessarily impact any of the other redeemable noncontrolling interests in other equity joint ventures. Upon the occurrence of a triggering event requiring the purchase of a redeemable noncontrolling interest, the Company would be required to purchase the noncontrolling partner’s interest based upon a valuation methodology set forth in the applicable joint venture agreement.
Redeemable noncontrolling interests and nonredeemable noncontrolling interests are initially recorded at their fair value as of the closing date of the transaction establishing the joint venture. Such fair values are determined using various accepted valuation methods, including the income approach, the market approach, the cost approach, and a combination of one or more of these approaches. A number of facts and circumstances concerning the operation of the joint venture are evaluated for each transaction, including (but not limited to) the ability to choose management, control over acquiring or liquidating assets, and controlling the joint venture’s strategy and direction, in order to determine the fair value of the noncontrolling interest.
Based upon the Company’s evaluation of the redemption provisions concerning redeemable noncontrolling interests as of March 31, 2020, the Company determined in accordance with authoritative accounting guidance that it was not probable that an event otherwise requiring redemption of any redeemable noncontrolling interest would occur (i.e., the date for such event was not set or such event is not certain to occur). Therefore, none of the redeemable noncontrolling interests were identified as mandatorily redeemable interests at such times, and the Company did not record any values in respect of any mandatorily redeemable interests.
Subsequent to the closing date of the transaction establishing the joint venture, the Company records adjustments to the carrying amounts of noncontrolling interests during each reporting period to reflect (a) comprehensive income (loss) attributed to each noncontrolling interest, which is calculated by multiplying the noncontrolling interest percentage by the comprehensive income (loss) of the joint venture’s operations, (b) dividends paid to the noncontrolling interest partner, and (c) any other transactions that increase or decrease the Company’s ownership interest in each joint venture, as a result of which the Company retains its controlling interest. If the Company determines that, based upon its analysis as of the end of each reporting period in accordance with authoritative accounting guidance, that it is not probable that an event would occur to otherwise require the redemption of a redeemable noncontrolling interest (i.e., the date for such event is not set or such event is not certain to occur), then the Company does not adjust the recorded amount of such redeemable noncontrolling interest.
The carrying amount of each redeemable equity instrument presented in temporary equity for the three months ended March 31, 2020 is not less than the initial amount reported for each instrument.
The following table summarizes the activity of noncontrolling interest-redeemable for the three months ended March 31, 2020 (amounts in thousands):
Balance as of December 31, 2019
$
15,151

Net income attributable to noncontrolling interest-redeemable
3,553

Noncontrolling interest-redeemable distributions
(2,781
)
Acquired noncontrolling interest-redeemable
3,508

Balance as of March 31, 2020
$
19,431



9. Leases

The Company determines if a contract contains a lease at inception date. The Company's leases are operating leases, primarily for office and office equipment, that expire at various dates over the next nine years. The office leases have renewal options for periods ranging from one to five years. As it is not reasonably certain these renewal options will be exercised, the options were not considered in the lease term, and payments associated with the option years are excluded from lease payments. The office leases also generally have termination options, which allow for early termination of the lease; however, as the exercise of such

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options is not reasonably certain, the options were not considered in determining the lease term; payments for the full lease term are included in the lease payments. Additionally, the leases do not contain any material residual value guarantees.

Payments due under operating leases include fixed and variable payments. These variable payments for the Company's office leases can include operating expenses, utilities, property taxes, insurance, common area maintenance, and other facility-related expense. Additionally, any leases with terms less than one year were not recognized as operating lease right of use assets or payables for short term leases in accordance with the election of ‘package of practical expedient’ under ASU 2016-02 and recognizes operating lease right of use assets and operating lease payable based on the present value of the future minimum lease payments at the lease commencement date. The Company's leases do not provide implicit rates. Therefore, the Company used an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments.
During the three months ended March 31, 2020 and 2019, the Company incurred operating lease costs of $12.1 million and $12.4 million, respectively. There were no costs associated with impairments of operating lease right of use assets.

Information related to the Company's operating lease right of use assets and related lease liabilities for the office leases were as follows (amounts in thousands):
 
 
For the Three Months Ended March 31,
 
 
2020
 
2019
Cash paid for operating lease liabilities
 
$
9,587

 
$
6,775

Right-of-use assets obtained in exchange for new operating lease liabilities
 
$
9,041

 
$
91,174

 
 
 
 
 
 
 
As of March 31,
 
 
2020
 
2019
Weighted-average remaining lease term
 
4.42

 
4.63

Weighted-average discount rate
 
4.69
%
 
4.75
%


Maturities of operating lease liabilities as of March 31, 2020 were as follows (amounts in thousands):

Month ending March 31,
 
 
2020
 
$
26,310

2021
 
29,523

2022
 
20,421

2023
 
13,209

2024
 
7,665

Thereafter
 
12,000

  Total future minimum lease payments
 
109,128

Less: Imputed interest
 
(10,288
)
  Total
 
$
98,840



10. Fair Value of Financial Instruments
The carrying amounts of the Company’s cash, receivables, accounts payable and accrued liabilities approximate their fair values because of their short maturity. The estimated fair value of intangible assets acquired was calculated using level 3 inputs based on the present value of anticipated future benefits. For the three months ended March 31, 2020, the carrying value of the Company’s long-term debt approximates fair value, as the interest rates approximate current rates.
11. Segment Information

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The Company's reporting segments include (1) home health services, (2) hospice services, (3) home and community-based services, (4) facility-based services, and (5) HCI.  The accounting policies of the segments are the same as those described in the summary of significant accounting policies, as described in Note 2 of the Notes to Condensed Consolidated Financial Statements.
Reportable segments have been identified based upon how management has organized the business by services provided to customers and how the chief operating decision maker manages the business and allocates resources, consistent with the criteria in ASC 280, Segment Reporting.
The following tables summarize the Company’s segment information for the three months ended March 31, 2020 and 2019 (amounts in thousands):
 
Three Months Ended March 31, 2020
 
Home health services
 
Hospice services
 
Home and community-based services
 
Facility-based services
 
HCI
 
Total
Net service revenue
$
367,821


$
60,531


$
48,464


$
29,681


$
6,374


$
512,871

Cost of service revenue
220,440


38,034


38,453


20,342


3,933


321,202

General and administrative expenses
116,023


16,626


11,459


10,380


3,378


157,866

Operating income (loss)
31,358


5,871


(1,448
)

(1,041
)

(937
)

33,803

Interest expense
(1,900
)
 
(303
)
 
(266
)
 
(219
)
 
(80
)
 
(2,768
)
Income (loss) before income taxes and noncontrolling interest
29,458

 
5,568

 
(1,714
)
 
(1,260
)
 
(1,017
)
 
31,035

Income tax expense (benefit)
3,289

 
608

 
(206
)
 
(199
)
 
(133
)
 
3,359

Net income (loss)
26,169

 
4,960

 
(1,508
)
 
(1,061
)
 
(884
)
 
27,676

Less net income (loss) attributable to non controlling interests
4,606

 
967

 
(155
)
 
243

 
(9
)
 
5,652

Net income (loss) attributable to LHC Group, Inc.'s common stockholder
$
21,563

 
$
3,993

 
$
(1,353
)
 
$
(1,304
)
 
$
(875
)
 
$
22,024

Total assets
$
1,548,224

 
$
251,354

 
$
252,846

 
$
90,791

 
$
69,067

 
$
2,212,282

 
 
Three Months Ended March 31, 2019
 
Home health services

Hospice services

Home and community-based services

Facility-based services

HCI

Total
Net service revenue
$
363,035

 
$
51,736

 
$
51,785

 
$
27,701

 
$
8,328

 
$
502,585

Cost of service revenue
226,123

 
33,176

 
39,855

 
17,732

 
4,106

 
320,992

General and administrative expenses
104,839

 
14,853

 
10,982

 
9,177

 
5,370

 
145,221

Other intangible impairment charge
6,318

 
1

 

 

 

 
6,319

Operating income (loss)
25,755

 
3,706

 
948

 
792

 
(1,148
)
 
30,053

Interest expense
(2,138
)
 
(343
)
 
(301
)
 
(180
)
 
(90
)
 
(3,052
)
Income (loss) before income taxes and noncontrolling interest
23,617

 
3,363

 
647

 
612

 
(1,238
)
 
27,001

Income tax expense (benefit)
3,208

 
446

 
151

 
5

 
(210
)
 
3,600

Net income (loss)
20,409

 
2,917

 
496

 
607

 
(1,028
)
 
23,401

Less net income (loss) attributable to noncontrolling interests
3,780

 
601

 
(310
)
 
481

 
(7
)
 
4,545

Net income (loss) attributable to LHC Group, Inc.'s common stockholders
$
16,629

 
$
2,316

 
$
806

 
$
126

 
$
(1,021
)
 
$
18,856

Total assets
$
1,421,000

 
$
220,347

 
$
226,991

 
$
79,257

 
$
66,262

 
$
2,013,857


 
 
 
 
 
 
 
 
 
 
 
 

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12. Income Taxes

The effective tax rate for the three months ended March 31, 2020 and 2019 benefited from $1.2 million of excess tax benefits associated with stock-based compensation arrangements and $2.2 million ($4.3 million and $2.1 million, as further described below) associated with increased tax benefits associated with the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). For the three months ended March 31, 2019, the effective tax rate benefited from $2.4 million of excess tax benefits associated with stock-based compensation arrangements.

In response to the COVID-19 pandemic, the CARES Act was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 ("2017 Tax Act"). Corporate taxpayers may carryback net operating losses ("NOLs") originating during 2018 through 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019, or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for tax years beginning January 1, 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act. In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The effective tax rate for the three months ended March 31, 2020 benefited from a $4.3 million impact from the enactment of the CARES Act. There was no material impact to our net deferred tax assets as of March 31, 2020.

U.S. GAAP prescribes a recognition threshold and measurement attribute for the accounting and financial statement disclosure of tax positions taken or expected to be taken in a tax return.  The evaluation of a tax position is a two-step process.  The first step requires the Company to determine whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position.  The second step requires the Company to recognize in the financial statements each tax position that meets the more likely than not criteria, measured at the amount of benefit that has a greater than 50% likelihood of being realized.  The Company’s unrecognized tax benefits would affect the tax rate, if recognized.  The Company includes the full amount of unrecognized tax benefits in other noncurrent liabilities in the Company's Condensed Consolidated Balance Sheets.  The Company anticipates it is reasonably possible an increase or decrease in the amount of unrecognized tax benefits could be made in the next twelve months. However, the Company does not presently anticipate that any increase or decrease in unrecognized tax benefits will be material to the consolidated financial statements. The impact of the CARES Act increased unrecognized tax benefits by $2.1 million, which also had an impact on the Company's effective tax rate for the three months ended March 31, 2020. As of March 31, 2020 and December 31, 2019, the Company recognized $6.2 million and $3.9 million, respectively, in unrecognized tax benefits.

13. Subsequent Event

The COVID-19 outbreak has adversely impacted economic activity and conditions worldwide, including workforces, liquidity, capital markets, consumer behavior, supply chains, and macroeconomic conditions.  After the declaration of a national emergency in the United States on March 13, 2020, Governors in most states in which the Company operates have instituted stay-at-home policies that remain in place. In response to COVID-19, the U.S. Government enacted the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") on March 27, 2020. 

At March 31, 2020, management was aware that under the CARES Act, the following portions of the CARES Act would provide additional cash to the Company; however, the terms and conditions of each were not know until April 2020. 

$100 billion Provider Relief Fund.  Provides funds to health care providers who provide or provided diagnoses, testing, or care for individuals with possible or actual cases of COVID-19, with payments to be used to prevent, prepare for, and respond to COVID-19, and shall reimburse us for health care related expense or lost revenues attributable to COVID-19.  As of May 5, 2020, the Company received $87.5 million of the Provider Relief Fund.
CMS's Accelerated and Advance Payments Program ("AAPP").  Provides financial hardship relief to Medicare providers impacted by the COVID-19 pandemic in order to provide necessary funds when there is a disruption in claims submission and/or claims processing. As of May 5, 2020, the Company received $307.6 million of accelerated and advance payments.