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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 June 30, 2021
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 August 2, 2021: 31,669,540 shares.


Table of Contents
LHC GROUP, INC.
INDEX
 
Part I. Financial InformationPage
Item 1.
Condensed Consolidated Balance Sheets — June 30, 2021 and December 31, 2020
Condensed Consolidated Statements of Income — Three and six months ended June 30, 2021 and 2020
Condensed Consolidated Statements of Changes in Equity — Three and six months ended June 30, 2021 and 2020
Condensed Consolidated Statements of Cash Flows — Six months ended June 30, 2021 and 2020
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)
June 30, 2021December 31, 2020
ASSETS
Current assets:
Cash$112,108 $286,569 
Receivables:
Patient accounts receivable329,166 301,209 
Other receivables9,214 11,522 
Amounts due from governmental entities149  
Total receivables338,529 312,731 
Prepaid income taxes13,739  
Prepaid expenses26,542 22,058 
Other current assets18,749 25,664 
Total current assets509,667 647,022 
Property, building and equipment, net of accumulated depreciation of $90,652 and $82,721, respectively
145,314 138,366 
Goodwill1,259,726 1,259,147 
Intangible assets, net of accumulated amortization of $18,261 and $17,659, respectively
313,638 315,355 
Assets held for sale1,900 1,900 
Operating lease right of use asset105,201 100,046 
Other assets31,679 21,518 
Total assets$2,367,125 $2,483,354 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities$56,888 $64,864 
Salaries, wages, and benefits payable88,030 88,666 
Self-insurance reserves31,140 35,103 
Income tax payable 21,464 
Government stimulus advance 93,257 
Contract liabilities - deferred revenue252,936 317,962 
Current operating lease liabilities33,081 32,676 
Amounts due to governmental entities1,608 1,516 
Current liabilities - deferred employer payroll tax25,928 25,928 
Total current liabilities489,611 681,436 
Deferred income taxes66,726 47,237 
Income taxes payable6,625 6,203 
Revolving credit facility 20,000 
Other long term liabilities25,928 25,928 
Long-term operating lease liabilities74,993 70,275 
                                   Total liabilities663,883 851,079 
Noncontrolling interest — redeemable18,589 18,921 
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; 36,525,831 and 36,355,497 shares issued, and 31,252,929 and 31,139,840 shares outstanding, respectively
365 364 
Treasury stock — 5,272,902 and 5,215,657 shares at cost, respectively
(79,765)(69,011)
Additional paid-in capital969,897 962,120 
Retained earnings707,599 635,297 
Total LHC Group, Inc. stockholders’ equity1,598,096 1,528,770 
Noncontrolling interest — non-redeemable86,557 84,584 
Total stockholders' equity1,684,653 1,613,354 
Total liabilities and stockholders' equity$2,367,125 $2,483,354 
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
June 30,
Six Months Ended 
 June 30,
 2021202020212020
Net service revenue$545,907 $487,320 $1,070,742 $1,000,191 
Cost of service revenue (excluding depreciation and amortization)317,872 306,712 628,144 627,914 
Gross margin228,035 180,608 442,598 372,277 
General and administrative expenses167,061 150,574 330,310 308,440 
Impairment of intangibles and other760 600 937 600 
Government stimulus income (44,435) (44,435)
Operating income60,214 73,869 111,351 107,672 
Interest expense(143)(841)(406)(3,609)
Income before income taxes and noncontrolling interest60,071 73,028 110,945 104,063 
Income tax expense13,318 15,227 22,759 18,586 
Net income46,753 57,801 88,186 85,477 
Less net income attributable to noncontrolling interests9,110 13,109 15,884 18,761 
Net income attributable to LHC Group, Inc.’s common stockholders$37,643 $44,692 $72,302 $66,716 
Earnings per share:
Basic$1.21 $1.44 $2.32 $2.15 
Diluted$1.20 $1.43 $2.30 $2.13 
Weighted average shares outstanding:
Basic31,225 31,104 31,188 31,060 
Diluted31,430 31,324 31,423 31,301 
 











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)
 
Six Months Ended June 30, 2021
 Common StockAdditional
Paid-In
Capital
Retained
Earnings
Noncontrolling
Interest Non
Redeemable
Total
Equity
IssuedTreasury
AmountSharesAmountShares
Balance as of December 31, 2020$364 36,355,497 $(69,011)5,215,657 $962,120 $635,297 $84,584 $1,613,354 
Net income (1)— — — — — 34,659 4,469 39,128 
Noncontrolling interest distributions— — — — — — (2,417)(2,417)
Purchase of additional controlling interest— — — — (81)— (61)(142)
Sale of noncontrolling interest— — — — — — 138 138 
Nonvested stock compensation— — — — 3,513 — — 3,513 
Issuance of vested stock1 148,447 — — — — — 1 
Treasury shares redeemed to pay income tax— — (9,541)51,221 — — — (9,541)
Issuance of common stock under Employee Stock Purchase Plan— 3,204 — — 649 — — 649 
Balance as of March 31, 2021$365 36,507,148 $(78,552)5,266,878 $966,201 $669,956 $86,713 $1,644,683 
Net income (1)— — — — — 37,643 5,232 42,875 
Noncontrolling interest distributions— — — — — — (4,660)(4,660)
Purchase of additional controlling interest— — — — (870)— (728)(1,598)
Nonvested stock compensation— — — — 3,993 — — 3,993 
Issuance of vested stock— 15,531 — — — — — — 
Treasury shares redeemed to pay income tax— — (1,213)6,024 — — — (1,213)
Issuance of common stock under Employee Stock Purchase Plan— 3,152 — — 573 — — 573 
Balance as of June 30, 2021$365 36,525,831 $(79,765)5,272,902 $969,897 $707,599 $86,557 $1,684,653 

(1) Net income excludes net income attributable to noncontrolling interest-redeemable of $3.9 million and $6.2 million during the three and six months ended June 30, 2021. 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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 Six Months Ended June 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 
 
(1) Net income excludes net income attributable to noncontrolling interest-redeemable of $3.5 million and $9.6 million during the three and six months ended June 30, 2020. 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)
 Six Months Ended 
 June 30,
 20212020
Operating activities:
Net income$88,186 $85,477 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense9,541 10,385 
Amortization of operating lease right of use asset17,995 17,090 
Stock-based compensation expense7,506 6,943 
Deferred income taxes19,489 10,461 
Loss on disposal of assets19 154 
    Impairment of intangibles and other937 600 
Changes in operating assets and liabilities, net of acquisitions:
Receivables(25,649)(38,186)
Prepaid expenses(4,484)(2,436)
Other assets6,170 (4,169)
Prepaid income taxes(13,739)3,322 
Accounts payable and accrued expenses(9,148)(16,354)
Salaries, wages, and benefits payable(4,560)3,850 
Government stimulus advance 44,273 
Contract liabilities - deferred revenue(65,026)310,712 
Other long term liabilities 17,818 
Operating lease liabilities(17,962)(16,876)
Income taxes payable(21,042)2,506 
Net amounts due to/from governmental entities(57)306 
Net cash provided by (used in) operating activities(11,824)435,876 
Investing activities:
Purchases of property, building and equipment(15,619)(40,944)
Proceeds from sale of property, building and equipment150 7,142 
Cash received (paid) for acquisitions(649)3,125 
Proceeds from sale of an entity1,531  
Minority interest investments(10,100) 
Net cash used in investing activities(24,687)(30,677)
Financing activities:
Proceeds from line of credit 256,230 
Payments on line of credit(20,000)(479,230)
Government stimulus advance(93,257) 
Proceeds from employee stock purchase plan1,222 1,107 
Noncontrolling interest distributions(13,332)(10,267)
Withholding taxes paid on stock-based compensation(10,754)(8,602)
Purchase of additional controlling interest(2,113)(23,575)
Exercise of vested awards and stock options 218 
Sale of noncontrolling interest284  
Net cash used in financing activities(137,950)(264,119)
Change in cash(174,461)141,080 
Cash at beginning of period286,569 31,672 
Cash at end of period$112,108 $172,752 
Supplemental disclosures of cash flow information:
Interest paid$1,322 $4,083 
Income taxes paid$38,103 $2,375 
Non-Cash Operating Activity:
Operating right of use assets in exchange for lease obligations$25,656 $18,690 
Non-Cash Investing Activity:
Accrued capital expenditures$1,108 $2,348 
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 June 30, 2021, the Company, through its wholly- and majority-owned subsidiaries, equity joint ventures, controlled affiliates, and management agreements operated 833 service locations in 35 states within the continental United States and the District of Columbia.
COVID-19 Update
SARS-CoV-2 ("COVID-19") continues to spread and various responses related to stay-at-home restrictions, travel restrictions, and other public health and safety measures continue to evolve. We communicate with our clinicians and other employees all updated policies and procedures as we monitor changes related to the pandemic. Policies and procedures related to social distancing and cleaning procedures remain in place as the safety of our patients and employees are vital. The effects of COVID-19 continue to materially impact our business.  As a result, operating results for the three and six months ended June 30, 2021 may not be indicative of the results that may be expected for the year ending December 31, 2021, and operating results for the three and six months ended June 30, 2021 may not be directly comparable to operating results for the three and six months ended June 30, 2020.
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 ("CAAP").
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. On April 14, 2021, Congress passed legislation to continue the suspension of the 2% sequestration payment adjustments on Medicare patient claims with dates of service through December 31, 2021. On July 7, 2021, the U.S. Department of Health and Human Services extended the PHE until October 17, 2021.
Provider Relief Fund
During the twelve months ended December 31, 2020, the Company received $93.3 million in payments from the Provider Relief Fund, which was recorded as a short-term liability in government stimulus advance in our condensed consolidated balance sheets. The Company recognized $44.4 million of these funds during the six months ended June 30, 2020, which was recorded in government stimulus income in our condensed consolidated statements of income. The amount recognized of $44.4 million was subsequently reversed during the third quarter of 2020, such that the Company recognized no income from the Provider Relief Fund. The Company returned all Provider Relief Funds received of $93.3 million to the government during the six months ended June 30, 2021.
CAAP
As of December 31, 2020, the Company had $318.0 million of accelerated payments under the CAAP, which was recorded in contract liabilities - deferred revenue in our condensed consolidated balance sheets in accordance with Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers ("Topic 606"). On October 1, 2020, the repayment and
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recoupment terms for CAAP 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 CAAP funds were received. Under these revised terms, recoupment of CAAP will occur under a tiered approach. The repayment terms begin one year starting from the date the CAAP funds were issued and continues 11 months, with CMS recouping the initial 25% of Medicare payments otherwise owed to the Company. During the six months ended June 30, 2021, $65.0 million was recouped by CMS and $252.9 million of contract liabilities - deferred revenue remains on our condensed consolidated balance sheets as of June 30, 2021.
If any amount of CAAP 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 CAAP 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 six months ended June 30, 2021, the Company recognized $6.4 million and $12.9 million of net service revenue, respectively, due to the suspension of the 2% sequestration payment adjustment. During the three and six months ended June 30, 2021, the Company recognized $6.9 million and $12.5 million of net service revenue, respectively, due to the suspension of LTACH site-neutral payments. As of June 30, 2021, the Company deferred $51.8 million of employer social security taxes, $25.9 million of which was recorded in current liabilities - deferred employer payroll tax and $25.9 million of which was recorded in other long term liabilities on our condensed consolidated balance sheets.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020, the related unaudited condensed consolidated statements of income for the three and six months ended June 30, 2021 and 2020, the unaudited condensed consolidated statements of changes in equity for the three and six months ended June 30, 2021 and 2020, the unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2021 and 2020, 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 six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
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, 2020 (the "2020 Form 10-K"). The 2020 Form 10-K was filed with the Securities and Exchange Commission (the “SEC”) on February 26, 2021, and includes information and disclosures not included herein.
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").
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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 and six months ended June 30, 2021 and 2020:
 
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 Three Months Ended  
 June 30,
Six Months Ended 
 June 30,
2021202020212020
Home health:
Medicare62.2 %66.4 %63.1 %67.3 %
Managed Care, Commercial, and Other37.8 33.6 36.9 32.7 
100.0 %100.0 %100.0 %100.0 %
Hospice:
Medicare93.8 %92.9 %94.0 %92.4 %
Managed Care, Commercial, and Other6.2 7.1 6.0 7.6 
100.0 %100.0 %100.0 %100.0 %
Home and community-based services:
Medicaid32.1 %20.9 %30.7 %20.7 %
Managed Care, Commercial, and Other67.9 79.1 69.3 79.3 
100.0 %100.0 %100.0 %100.0 %
Facility-based services:
Medicare50.1 %56.6 %51.4 %55.8 %
Managed Care, Commercial, and Other49.9 43.4 48.6 44.2 
100.0 %100.0 %100.0 %100.0 %
HCI:
Medicare17.8 %30.7 %19.5 %27.3 %
Managed Care, Commercial, and Other82.2 69.3 80.5 72.7 
100.0 %100.0 %100.0 %100.0 %
Medicare
The following describes the payment models in effect during the six months ended June 30, 2021. 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. The 2% sequestration reduction adjustment was suspended for patient claims with dates of service that began May 1, 2020 through December 31, 2021.
Home Health Services
The Company records revenue as services are provided under the Patient Driven Groupings Model ("PDGM"). 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. 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
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.
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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 September 30 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 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 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.
    
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
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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 six months ended June 30, 2021 and 2020 (amounts in thousands):  
 Three Months Ended  
 June 30,
Six Months Ended 
 June 30,
 2021202020212020
Weighted average number of shares outstanding for basic per share calculation31,225 31,104 31,188 31,060 
Effect of dilutive potential shares:
Nonvested stock205 220 235 241 
Adjusted weighted average shares for diluted per share calculation31,430 31,324 31,423 31,301 
Anti-dilutive shares 5 119 122 

Assets Held for Sale

As of June 30, 2021, the Company's assets held for sale was $1.9 million, which consisted of one hospice facility in Knoxville, Tennessee. The sale of the property is expected to close during the latter part of 2021.

Investments

During the six months ended June 30, 2021, the Company invested $10.0 million and became a minority owner in a healthcare analytics company and invested $0.1 million in Jumpstart Nova Fund, LP, which was recorded in other assets in our condensed consolidated balance sheets. These investments were accounted for under the cost method of accounting as the Company does not have the ability to exercise significant influence in connection with its minority ownership positions.

Recently Adopted 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 Company adopted the new guidance effective January 1, 2021. The adoption of the new guidance did not have a material impact to the Company.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by the transition away from reference rates expected to be discontinued to alternative reference rates. The pronouncement is effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into on or before December 31, 2022. The Company is currently evaluating the impact of this standard on the Company's consolidated financial statements.
3. Acquisitions, Divestiture and Joint Venture Activities
Acquisitions
The Company acquired the majority-ownership of one home health agency and one home and community-based agency during the six months ended June 30, 2021. The total aggregate purchase price for these transactions was $0.7 million. The purchase prices were determined based on the Company's analysis of comparable acquisitions and the target market's potential future cash flows.
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 their acquisition dates, as well as their fair value at the acquisition dates and the noncontrolling interest acquired during the six months ended June 30, 2021
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(amounts in thousands):
Fair value of total consideration transferred
Recognized amounts of identifiable assets acquired and liabilities assumed:
Trade names$26 
Certificates of need/licenses129 
Other assets and (liabilities), net9 
Total identifiable assets$164 
Noncontrolling interest$113 
Goodwill, including noncontrolling interest of $78
$599 
Trade names and certificates of need/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.
Divestiture
During the six months ended June 30, 2021, the Company sold its controlling membership interests in a home health agency previously operated as an equity joint venture and sold its pharmacy location which was wholly-owned. The total consideration for these controlling interest sales was $1.5 million and resulted in a loss of $0.1 million, which was accounted for as a loss on the sale of entities and recorded in general and administrative expenses.
Joint Venture Activities
During the six months ended June 30, 2021, the Company purchased the noncontrolling membership interest in four of our equity joint venture partnerships, whereby the agencies became wholly-owned subsidiaries of the Company. The total consideration for these noncontrolling interest purchases was $2.1 million. The transactions were accounted for as equity transactions.
During the six months ended June 30, 2021, the Company sold noncontrolling membership interest in a home health agency previously operated as an equity joint venture. The total consideration for this noncontrolling interest sale was $0.3 million. The transactions were accounted for as equity transactions.

4. Goodwill and Intangibles
The changes in recorded goodwill and intangible assets by reporting unit for the six months ended June 30, 2021 were as follows (amounts in thousands):  
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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, 2020$884,000 $151,742 $166,773 $15,770 $40,862 $1,259,147 
Acquisitions267  254   521 
Noncontrolling interests78     78 
Disposals(20)    (20)
Balance as of June 30, 2021$884,325 $151,742 $167,027 $15,770 $40,862 $1,259,726 
Intangible assets:
Balance as of December 31, 2020$226,004 $44,732 $24,208 $5,311 $15,100 $315,355 
Acquisitions118  46   164 
Amortization(232)(72)(4)(4)(290)(602)
Disposals(1,279)    (1,279)
Balance as of June 30, 2021$224,611 $44,660 $24,250 $5,307 $14,810 $313,638 
The Company did record impairments of goodwill and intangible assets related to the closure of underperforming locations. Goodwill impairment of $0.02 million and Medicare licenses impairment of $0.9 million was recorded during the six months ended June 30, 2021. This was recorded in impairment of intangibles and other on the company's condensed consolidated statements of income. The amount of disposal of goodwill was determined using prices of comparable businesses in the market and the amount of disposal of the Medicare licenses was its carrying value at the time of closure. In addition, the Company divested a certificate of need of $0.4 million, which was accounted for as a loss on the sale of an entity and recorded in general and administrative expenses.
The following tables summarize the changes in intangible assets during the six months ended June 30, 2021 and December 31, 2020 (amounts in thousands): 
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20212020
Indefinite-lived intangible assets:
   Trade names$168,700 $168,700 
   Certificates of Need/Licenses133,863 135,013 
   Net total$302,563 $303,713 
Definite-lived intangible assets:
   Trade names
      Gross carrying amount$10,238 $10,212 
      Accumulated amortization(9,543)(9,480)
      Net total$695 $732 
   Non-compete agreements
      Gross carrying amount$7,276 $7,267 
      Accumulated amortization(6,634)(6,387)
      Net total$642 $880 
   Customer relationships
      Gross carrying amount$11,822 $11,822 
      Accumulated amortization(2,084)(1,792)
      Net total$9,738 $10,030 
   Total definite-lived intangible assets
      Gross carrying amount$29,336 $29,301 
      Accumulated amortization(18,261)(17,659)
      Net total$11,075 $11,642 
Total intangible assets:
   Gross carrying amount$331,899 $333,014 
   Accumulated amortization(18,261)(17,659)
   Net total$313,638 $315,355 
         
Remaining useful lives for trade names, customer relationships, and non-compete agreements were 8.3, 16.8, and 2.8 years, respectively, at June 30, 2021. Similar periods at December 31, 2020 were 8.8, 17.3, and 2.9 years for trade names, customer relationships, and non-compete agreements, respectively. Amortization expense was $0.3 million for three months ended June 30, 2021 and 2020 and $0.6 million for the six months ended June 30, 2021 and 2020. 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