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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 September 30, 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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value of $0.01LHCGNASDAQ 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 November 3, 2020: 31,592,259 shares.


Table of Contents
LHC GROUP, INC.
INDEX
 
Part I. Financial InformationPage
Item 1.
Condensed Consolidated Balance Sheets — September 30, 2020 and December 31, 2019
Condensed Consolidated Statements of Income — Three and nine months ended September 30, 2020 and 2019
Condensed Consolidated Statements of Changes in Equity — Three and nine months ended September 30, 2020 and 2019
Condensed Consolidated Statements of Cash Flows — Nine months ended September 30, 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)
September 30, 2020December 31, 2019
ASSETS
Current assets:
Cash$253,764 $31,672 
Receivables:
Patient accounts receivable313,325 284,962 
Other receivables19,858 10,832 
Total receivables333,183 295,794 
Prepaid income taxes19,687 9,652 
Prepaid expenses22,791 21,304 
Other current assets26,231 21,852 
Total current assets655,656 380,274 
Property, building and equipment, net of accumulated depreciation of $78,623 and $69,441, respectively
132,130 97,908 
Goodwill1,235,123 1,219,972 
Intangible assets, net of accumulated amortization of $17,372 and $16,431, respectively
310,967 305,556 
Assets held for sale1,900 2,500 
Operating lease right of use asset99,066 95,452 
Other assets21,494 38,633 
Total assets$2,456,336 $2,140,295 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities$73,508 $83,572 
Salaries, wages, and benefits payable111,108 85,631 
Self-insurance reserves31,856 31,188 
Government stimulus advance93,257  
Contract liabilities - deferred revenue317,938  
Current operating lease liabilities32,018 28,701 
Amounts due to governmental entities2,435 1,880 
Total current liabilities662,120 230,972 
Deferred income taxes75,536 60,498 
Income taxes payable6,588 3,867 
Revolving credit facility20,000 253,000 
Other long term liabilities33,632  
Operating lease payable69,977 69,556 
                                   Total liabilities867,853 617,893 
Noncontrolling interest — redeemable16,897 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; 36,351,416 and 36,129,280 shares issued, and 31,136,522 and 30,992,390 shares outstanding, respectively
364 361 
Treasury stock — 5,214,894 and 5,136,890 shares at cost, respectively
(68,845)(60,060)
Additional paid-in capital958,212 949,321 
Retained earnings604,917 523,701 
Total LHC Group, Inc. stockholders’ equity1,494,648 1,413,323 
Noncontrolling interest — non-redeemable76,938 93,928 
Total stockholders' equity1,571,586 1,507,251 
Total liabilities and stockholders' equity$2,456,336 $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
September 30,
Nine Months Ended 
 September 30,
 2020201920202019
Net service revenue$530,684 $528,499 $1,530,875 $1,548,926 
Cost of service revenue (excluding depreciation and amortization)305,246 334,768 933,160 981,620 
Gross margin225,438 193,731 597,715 567,306 
General and administrative expenses161,463 146,829 469,903 440,634 
Impairment of intangibles and other22 197 622 7,534 
Government stimulus (income) expense (Note 1)44,435    
Operating income19,518 46,705 127,190 119,138 
Interest expense(431)(2,596)(4,040)(8,533)
Income before income taxes and noncontrolling interest19,087 44,109 123,150 110,605 
Income tax expense4,595 9,508 23,181 22,665 
Net income14,492 34,601 99,969 87,940 
Less net income (loss) attributable to noncontrolling interests(8)4,534 18,753 14,017 
Net income attributable to LHC Group, Inc.’s common stockholders$14,500 $30,067 $81,216 $73,923 
Earnings per share:
Basic$0.47 $0.97 $2.61 $2.39 
Diluted$0.46 $0.96 $2.59 $2.37 
Weighted average shares outstanding:
Basic31,121 30,971 31,080 30,919 
Diluted31,411 31,247 31,334 31,203 
 




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 Nine Months Ended September 30, 2020
 Common StockAdditional
Paid-In
Capital
Retained
Earnings
Noncontrolling
Interest Non
Redeemable
Total
Equity
IssuedTreasury
AmountSharesAmountShares
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 (1)— — — — — 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 stock2 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 
Net income (1)— — — — — 44,692 7,058 51,750 
Noncontrolling interest distributions— — — — — — (1,909)(1,909)
Nonvested stock compensation— — — — 3,263 — — 3,263 
Issuance of vested stock— 19,846 — — — — — — 
Treasury shares redeemed to pay income tax— — (950)6,256 (189)— — (1,139)
Exercise of options— 7,137 (522)3,315 218 — — (304)
Issuance of common stock under Employee Stock Purchase Plan— 3,730 — — 497 — — 497 
Balance as of June 30, 2020$363 36,327,819 $(68,654)5,205,851 $955,119 $590,417 $80,858 $1,558,103 
Net income (loss) (1)— — — — — 14,500 (770)13,730 
Acquired noncontrolling interest— — — — — — 608 608 
Noncontrolling interest distributions— — — — — — (6,375)(6,375)
Sale of noncontrolling interest— — — — (293)— 2,617 2,324 
Nonvested stock compensation— — — — 4,190 — — 4,190 
Issuance of vested stock1 10,994 — — — — — 1 
Treasury shares redeemed to pay income tax— — (966)5,030 — — — (966)
Exercise of options— 9,149 775 4,013 (1,376)— — (601)
Issuance of common stock under Employee Stock Purchase Plan— 3,454 — — 572 — — 572 
Balance as of September 30, 2020$364 36,351,416 $(68,845)5,214,894 $958,212 $604,917 $76,938 $1,571,586 

(1) Net income excludes net income attributable to noncontrolling interest-redeemable of $0.7 million and $10.4 million during the three and nine months ended September 30, 2020, respectively. Noncontrolling interest-redeemable is reflected outside of permanent equity on the condensed consolidated balance sheets. See Note 8 of the Notes to Condensed Consolidated Financial Statements.
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For the Nine Months Ended September 30, 2019
 Common StockAdditional
Paid-In
Capital
Retained
Earnings
Noncontrolling
Interest Non
Redeemable
Total
Equity
IssuedTreasury
AmountSharesAmountShares
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 (1)— — — — — 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 stock2 174,562 — — — — — 2 
Treasury shares redeemed to pay income tax— — (6,726)61,465 (115)— — (6,841)
Exercise of options1 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 
Net income (1)— — — — — 25,000 1,897 26,897 
Acquired noncontrolling interest— — — — — — 6,170 6,170 
Noncontrolling interest distributions— — — — — — (2,026)(2,026)
Noncontrolling interest purchased, net of sales— — — — (1,283)— 531 (752)
Nonvested stock compensation— — — — 2,588 — — 2,588 
Issuance of vested stock— 17,145 — — — — — — 
Treasury shares redeemed to pay income tax— — (730)7,199 30 — — (700)
Exercise of options— 3,293 (212)1,866 — — — (212)
Issuance of common stock under Employee Stock Purchase Plan— 4,301 — — 453 — — 453 
Balance as of June 30, 2019$361 36,084,393 $(57,892)5,124,003 $941,920 $471,831 $91,828 $1,448,048 
Net income (1)— — — — — 30,067 1,479 31,546 
Acquired noncontrolling interest— — — — — — 1,868 1,868 
Noncontrolling interest distributions— — — — — — (2,162)(2,162)
Noncontrolling interest purchased, net of sales— — — — 819 — (119)700 
Nonvested stock compensation— — — — 1,990 — — 1,990 
Issuance of vested stock— 14,799 — — — — — — 
Treasury shares redeemed to pay income tax— — (374)3,032 234 — — (140)
Exercise of options— 9,058 (529)4,307 — — — (529)
Issuance of common stock under Employee Stock Purchase Plan— 5,360 — — 609 — — 609 
Balance as of September 30, 2019$361 36,113,610 $(58,795)5,131,342 $945,572 $501,898 $92,894 $1,481,930 
 (1) Net income excludes net income attributable to noncontrolling interest-redeemable of $3.1 million and $9.0 million during the three and nine months ended September 30, 2019, respectively. Noncontrolling interest-redeemable is reflected outside of permanent equity on the condensed consolidated balance sheets. See Note 8 of the Notes to Condensed Consolidated Financial Statements.

See accompanying Notes to Condensed Consolidated Financial Statements.

7


LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands) (Unaudited)
 Nine Months Ended 
 September 30,
 20202019
Operating activities:
Net income$99,969 $87,940 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense15,601 12,812 
Amortization of operating lease right of use asset25,799 22,952 
Stock-based compensation expense11,133 6,382 
Deferred income taxes15,038 8,102 
Loss on disposal of assets291 337 
    Impairment of intangibles and other622 7,534 
Changes in operating assets and liabilities, net of acquisitions:
Receivables(36,194)(42,928)
Prepaid expenses(1,487)4,828 
Other assets(3,183)(2,810)
Prepaid income taxes(10,035)8,258 
Accounts payable and accrued expenses(17,085)(4,241)
Salaries, wages, and benefits payable25,913 18,001 
Contract liabilities - deferred revenue317,938 — 
Other long term liabilities33,632  
Operating lease liabilities(25,485)(18,428)
Income taxes payable2,721 (715)
Net amounts due to/from governmental entities555 (3,234)
Net cash provided by operating activities455,743 104,790 
Investing activities:
Purchases of property, building and equipment(51,241)(15,401)
Proceeds from sale of property, building and equipment7,142  
Cash received (paid) for acquisitions2,326 (54,120)
Net cash used in investing activities(41,773)(69,521)
Financing activities:
Proceeds from line of credit276,229 84,000 
Payments on line of credit(509,229)(87,000)
Government stimulus advance93,257  
Proceeds from employee stock purchase plan1,679 1,540 
Payments on debt (7,650)
Noncontrolling interest distributions(22,505)(18,944)
Withholding taxes paid on stock-based compensation(9,854)(9,422)
Purchase of additional controlling interest(23,575)(18,763)
Exercise of vested awards and stock options 153 
Sale of noncontrolling interest2,120 756 
Net cash used in financing activities(191,878)(55,330)
Change in cash222,092 (20,061)
Cash at beginning of period31,672 49,363 
Cash at end of period$253,764 $29,302 








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Supplemental disclosures of cash flow information:
Interest paid$4,556 $8,549 
Income taxes paid$15,583 $8,015 
Non-Cash Operating Activity:
Operating right of use assets in exchange for lease obligations$25,633 $115,161 
Non-Cash Investing Activity:
Accrued capital expenditures$5,851 $1,514 
See accompanying Notes to Condensed Consolidated Financial Statements.
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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 September 30, 2020, the Company, through its wholly- and majority-owned subsidiaries, equity joint ventures, controlled affiliates, and management agreements operated 823 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 materially impacted our business. 
In response to the COVID-19 outbreak, we promptly convened a cross-functional COVID-19 task force comprised of the Company's leaders that continually communicates with our clinicians and other employees concerning best practices and changes in Company policies and procedures. We also implemented contingency planning policies, whereby most employees in our home offices located in Louisiana and Kentucky are continuing to work remotely in compliance with CDC recommendations. We continue to invest in technology and equipment that allows our remote work force to provide continued and seamless functionality to our clinicians who continue to care for patients on service.
We have undertaken numerous measures to promote the safety of our clinicians and other employees. For example, we have prepared and distributed to our clinicians across the country special kits of personal protective equipment and other supplies needed to properly treat our patients during the COVID-19 outbreak, adopted social distancing guidelines for our agencies and our home offices located in Louisiana and Kentucky and posted reminder signs and markers throughout our work spaces, adopted additional cleaning procedures at all locations, installed plexiglass shields at work spaces that require a physical protective barrier, and instituted temperature check points in our agencies and home office campuses. These and other measures have altered numerous clinical, operational and business processes and significantly increases our supplies and services costs.
In addition, we have implemented a number of programs to support our employees, including a pandemic grant program that supports employees experiencing financial hardships, retirement plan amendments, special cash-in opportunities for accumulated paid time off, expanded offerings in our employee assistance program, a wage supplement program designed to restore lost wages for front line patient care employees that qualified, and a paid time off replenishment program designed to restore certain hours of paid time off for front line patient care employees that qualified and for any employees who previously donated their paid time off hours to these front line patient care employees.
CARES Act
In response to COVID-19, the U.S. Government enacted the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") on March 27, 2020. The CARES Act was passed to provide $100 billion of Provider Relief Funds for distribution to eligible providers who provided diagnoses, testing, or care for individuals with a possible or actual case of COVID-19, specifically to reimburse providers for health care related expenses related to the prevention of the spread of COVID-19, preparations for treating cases of COVID-19 positive patients, and for lost revenues attributable to COVID-19. The CARES Act also provided financial hardship relief to Medicare providers impacted by the COVID-19 pandemic in order to provide necessary funds when there is a disruption in Medicare claims submission and/or Medicare claims processing by distributing funds through the Accelerated and Advanced Payments Program ("AAPP").
In addition, the CARES Act suspended the 2% sequestration payment adjustments on Medicare patient claims with dates of service from May 1 through December 31, 2020, suspended the application of site-neutral payment for LTACH admissions that were admitted during the Public Health Emergency ("PHE"), and delayed payment of the employer portion of social security tax.
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Provider Relief Fund
During the three and nine months ended September 30, 2020, the Company received $4.6 million and $93.3 million, respectively, in payments from the Provider Relief Fund. During the three months ended June 30, 2020, the Company recognized $44.4 million related to these funds in government stimulus income in our condensed consolidated statements of income. This was recorded in accordance with IAS 20, Accounting for Government Grants and Disclosure of Government Assistance. During the three months ended September 30, 2020, the Company reversed $44.4 million, such that the Company has recognized no funds from the Provider Relief Fund as of the nine months ended September 30, 2020. Based on the Company's improved and projected financial results, the Company intends to return these funds to the government and has recorded a short-term liability of $93.3 million in government stimulus advance in our condensed consolidated balance sheet.
AAPP
During the nine months ended September 30, 2020, the Company received $317.9 million of accelerated payments under the AAPP, which was recorded in contract liabilities - deferred revenue in our condensed consolidated balance sheet in accordance with Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers ("Topic 606"). When we received these AAPP funds in April 2020, the Centers for Medicare and Medicaid Services ("CMS") issued guidance that any AAPP funds that were not then repaid to CMS would be automatically recouped from Medicare amounts otherwise payable to us by CMS beginning 120 days after our receipt of such funds, until all AAPP funds have been completely repaid to or recouped by CMS. As of September 30, 2020, CMS had not recouped any of the advanced payments provided to the Company under AAPP.
On October 1, 2020, the repayment and recoupment terms for AAPP funds were amended by the Continuing Appropriations Act, 2021 and Other Extensions Act, which provides that recoupment will begin one year from the date the AAPP funds were received. Under these revised terms, recoupment of AAPP will occur under a tiered approach. Beginning in the second quarter of 2021 and continuing for 11 months, CMS will recoup 25% of Medicare payments otherwise owed to the Company. If any amount of AAPP funds that we received from CMS remain unpaid after the initial 11 month period, CMS will recoup 50% of Medicare payments otherwise owed to the Company during the following six months. Interest will begin accruing on any amount of the AAPP funds that we received from CMS that remain unpaid following those recoupment periods. CMS will issue a repayment letter to the Company for any such outstanding amounts, which must be paid in full within 30 days from the date of the letter. The Company intends to repay the full amount before any interest accrues.
Other
During the three and nine months ended September 30, 2020, the Company recognized $6.5 million and $11.5 million of net service revenue due to the suspension of the 2% sequestration payment adjustment. During the three and nine months ended September 30, 2020, the Company recognized $6.4 million and $11.1 million of net service revenue due to the suspension of LTACH site-neutral payments. As of September 30, 2020, the Company deferred $33.6 million of employer social security taxes, which was recorded in other long term liabilities on our condensed consolidated balance sheet.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019, the related unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2020 and 2019, the unaudited condensed consolidated statements of changes in equity for the three and nine months ended September 30, 2020 and 2019, the unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 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 and nine months ended September 30, 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.    

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Immaterial Correction of an Error
During the three and nine months ended September 30, 2019, the Company increased the reported number of common shares issued by 9,058 and 56,738, respectively, decreased the reported number of treasury shares by 368, and reclassified the reported number of treasury shares by 4,307 and 30,217 for the three and nine months ended September 30, 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 and nine months ended September 30, 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 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 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
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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 and nine months ended September 30, 2020 and 2019:
 
 Three Months Ended  
 September 30,
Nine Months Ended 
 September 30,
2020201920202019
Home health:
Medicare66.4 %69.7 %67.0 %70.6 %
Managed Care, Commercial, and Other33.6 30.3 33.0 29.4 
100.0 %100.0 %100.0 %100.0 %
Hospice:
Medicare93.8 %89.8 %92.9 %91.6 %
Managed Care, Commercial, and Other6.2 10.2 7.1 8.4 
100.0 %100.0 %100.0 %100.0 %
Home and Community-Based Services:
Medicaid21.5 %21.8 %21.0 %23.7 %
Managed Care, Commercial, and Other78.5 78.2 79.0 76.3 
100.0 %100.0 %100.0 %100.0 %
Facility-Based Services:
Medicare54.2 %59.3 %55.2 %56.6 %
Managed Care, Commercial, and Other45.8 40.7 44.8 43.4 
100.0 %100.0 %100.0 %100.0 %
HCI:
Medicare11.1 %17.1 %17.9 %20.7 %
Managed Care, Commercial, and Other88.9 82.9 82.1 79.3 
100.0 %100.0 %100.0 %100.0 %
Medicare
The following describes the payment models in effect during the nine months ended September 30, 2020. Such payment models have been subject to temporary adjustments made by CMS in response to COVID-19 pandemic as described elsewhere in 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 former 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 and geographic wage differences. All Medicare patient claims with dates of service from January 1, 2020 through April 30, 2020 reflected a 2% sequestration reduction. The 2% sequestration reduction adjustment was suspended for patient claims with dates of service that began May 1, 2020 through December 31, 2020. 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
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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
The Company records revenue 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 Accountable 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
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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 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 and nine months ended September 30, 2020 and 2019 (amounts in thousands):  
 Three Months Ended  
 September 30,
Nine Months Ended 
 September 30,
 2020201920202019
Weighted average number of shares outstanding for basic per share calculation31,121 30,971 31,080 30,919 
Effect of dilutive potential shares:
Nonvested stock290 276 254 284 
Adjusted weighted average shares for diluted per share calculation31,411 31,247 31,334 31,203 
Anti-dilutive shares 4 5 141 

Assets Held for Sale

As of September 30, 2020, the Company's assets held for sale consisted of property and fixed assets of one hospice facility in Knoxville, Tennessee. The Company has accepted a purchase offer from a buyer that indicated the fair market value of the property was $1.9 million. The Company performed an impairment analysis and recorded an impairment charge of $0.6 million during the nine months ended September 30, 2020, which was recorded in impairment of intangibles and other on our condensed consolidated statements of income.

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.
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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.
Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Simplifications to accounting for income taxes, which removes certain exceptions to the general principles of Topic 740 and adds guidance to reduce complexity in accounting for income taxes. The ASU is effective for annual and interim periods in fiscal years beginning December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on the Company's condensed consolidated financial statements.
3. Acquisitions and Joint Venture Activities
Acquisitions
The Company acquired the majority-ownership of eight home health agencies, three hospice agencies, and five home and community-based agencies during the nine months ended September 30, 2020. The total aggregate purchase price for these transactions was $14.9 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 three of these acquisitions in 2019 by paying cash consideration of $16.4 million. During the nine months ended September 30, 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. In addition, the Company received $1.3 million for consideration of an equity joint venture partnership, whereby the Company acquired home health and home and community-based agencies for $0.9 million and sold membership interests in three home health agencies for $2.1 million. The transaction for the sale of the membership interests was accounted for as an equity transaction. The total cash consideration includes adjustments for assets acquired and liabilities assumed.

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 nine months ended September 30, 2020:

Fair value of total consideration transferred
Recognized amounts of identifiable assets acquired and liabilities assumed:
Trade names$2,243 
Certificates of need/licenses3,824 
Other assets and (liabilities), net(508)
Total identifiable assets$5,559 
Noncontrolling interest$6,996 
Goodwill, including noncontrolling interest of $5,047
$15,583 

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.
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Joint Venture Activities

During the nine months ended September 30, 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 nine months ended September 30, 2020 were as follows (amounts in thousands):  
Home health reporting unitHospice
reporting
unit
Home and community-based services
reporting
 unit
Facility-based
reporting
 unit
HCI reporting unitTotal
Goodwill:
Balance as of December 31, 2019$867,924 $128,875 $166,629 $15,682 $40,862 $1,219,972 
Acquisitions7,725 2,677