Encompass Health Corporation (EHC) Earnings Call Transcript & Summary

We're good? Great. Well, thanks for sticking with us this afternoon on Day 6 of -- or whatever day this is -- Day 2. Day 2 of the JPMorgan conference, just feels that way. But we have plenty of energy left for Encompass Health. Encompass is one of the nation's largest provider of post-acute services, both facility and home-based. The company is the largest owner and operator of inpatient rehab facilities, fourth largest provider of home health services and a top 10 provider in hospice. The company will generate about $4.5 billion of revenue in 2019. And the presentation today will be President and CEO, Mark Tarr.

Thank you, Gary. Gary just did the first 4 slides of my presentation. But -- good afternoon, and thanks for joining us today. It's our pleasure to be back here at the conference and have a chance to tell the Encompass Health story. Start off with the disclosure language around our forward-looking statements. I'm sure you've seen these before. And then many of you may not be familiar with Encompass Health. As Gary said, we're a national leader of integrated post-acute care services. We provide these services in 2 different settings: one, in a facility-based setting with 133 IRFs and patient rehabilitation facilities or hospitals. We provide in the home setting with 245 home health locations, and then also in-home setting with 83 hospice locations. We have a very large geographic footprint with locations in 37 states and in Puerto Rico. And I would say the common thread that runs across all 3 of these service lines is that we have the ability to produce industry-leading outcomes but also do that in a very efficient manner. We report out on 2 operating segments from a financial standpoint, the first being inpatient rehabilitation, accounts for about 75% of our revenues. From a market share standpoint, we are the largest owner and operator. We have 23% of the licensed beds and almost 1 out of every 3 Medicare patients receiving care in an IRF facility this year will receive an Encompass Health IRF. You'll see 47 of our hospitals operate as joint ventures with acute care hospital systems. This is a strategy we've used now for almost 30 years. We know how to be a good partner, remains a big part of our strategy moving forward as we develop new hospitals. We also have very developed and refined clinical programs. And as you can see here, we have 123 hospitals that have one or more disease-specific certifications from our main accrediting agency, the Joint Commission. The second of our operating segments is home health and hospice, which accounts for the remainder of the 25% of the revenues. You can see that we're the fourth largest provider with 83 hospice locations. That puts us at the top 11th provider for hospice agencies in the United States. Similar to the hospitals, we have very refined and detailed clinical programs. We're very proud of the quality that we attain on our agencies. As you can see here, 98% achievement on both of these for agencies with 3 stars or greater for both quality as well as patient satisfaction. We've had a really strong year in 2019. We're very focused currently on the year 2020, but we bring a lot of momentum from 2019 into 2020. We're able to offer our updated guidance and increased our adjusted EBITDA range to $962 million to $967 million. That contains, as you may have seen yesterday on an 8-K that we released, that $962 million to $967 million contains $13 million worth of EBITDA outlined as individual items that may or may not repeat in 2020. We executed very strongly against our strategic plan last year and we've outlined a number of the areas, starting with growth. We opened up 3 new hospitals. We expanded our existing hospitals with capacity for 152 additional beds. Home health and hospice was also a big year. You can see we increased our home health locations, 27, opened up or acquired 25 hospice. A big chunk of those came through a major acquisition called Alacare that we closed on in July. That brought in 23, both home health and 23 hospice in the State of Alabama. It also created 3 additional, what we refer to as overlap markets as part of that. As part of our growth too, you can see the organic growth that we've had. We had strong same-store growth in both the IRF as well as hospice. We've also made nice traction in terms of increasing our Medicare Advantage exposure with growth of 18.7% on the hospital side of our business. We also continued on with operational initiatives, including preparation for the 2 major payment methodology changes that we see in 2020, which I'll discuss further here in just a few minutes. Clinical collaboration remains a very big part of our overall strategy as well as use of post-acute solutions, take advantage of the data that we've produced in our IT investments over the last several years. We also took advantage of favorable conditions relative to issuing $1 billion of senior notes to help us meet our financial obligations in 2020. As part of our guidance for 2020, where you can see the adjusted EBITDA range is $935 million to $965 million. As part of this guidance, we offer the guidance considerations relative to pricing for the IRF segment. We're flat to 75 basis points for Medicare. You'll see that this is for the first 3 quarters. And then the fourth quarter of 2020, we estimate -- anticipate 2.5% rate increase. On home health and hospice, we've got an estimated net Medicare, 2% to 3% pricing decrease for 2020. You'll see outlined here too for both segments, you'll see that we have salary increase approximately 3%, with benefits increase approximately 8% to 12%. And then down underneath the consolidated, you'll see that we continue a long-term approach to our business, and we'll make approximately $5 million investment in our strategic initiatives, including our post-acute innovation and advanced technology. Relative to 2020 priorities, it looks very similar to our initiatives and our strategic plan that we implemented and executed on in 2019. We'll continue to grow our business, meaning the increasing need for demand, for rehabilitation in both the IRF segments as well as home health and hospice, we'll do that through a number of different ways. We'll have our new development coming online, de novo [ gross ] and hospitals. We'll do mostly growth through acquisitions on home health and hospice as well as adding new bed capacity to our hospitals. Operational initiatives. You'll see here too that we'll continue with a major focus on transitioning to the Section GG on the hospital side of our business, the PDGM on the home health and hospice, and we'll continue to build market share in stroke. Clearly, for 2020, our operations teams are focused on the 2 major regulatory changes. We'll start first with the hospitals. You'll see here listed what we had historically referred to as the CARE Tool or Section GG. That is in effect, replacing the FIM tool, which was the primary means of assessing patients. The FIM tool existed for almost 30 years in the industry. So switching from the CARE Tool, which literally we had thousands of our clinicians, that's all they had known was the FIM Tool. So switching to this new GG took a significant amount of education, took a significant amount of clarification with CMS in terms of how to apply it, what they were looking for in terms of us rolling this new tool out. There's also a timing perspective that goes along with it. We converted to the new tool on October 1, but yet ran FIM with the new tool parallel up to that point. So as we made the switch leading up to October 1, timing was a big consideration. Relative to PDGM, we're only 2 weeks into PDGM, which started on January 1, but our team seems to be responding well to it. In terms of mitigating opportunities, we're focusing on staff optimization, making sure that our ability to care for the patients is optimized through the greatest efficiencies that we can get. Part of that involves utilizing information and data from MetaLogics, which has helped us to identify the optimum number of visits for a patient to achieve the optimal clinical outcomes. While we do have 2 major payment changes in 2020, it doesn't take away from the positive continued outlook we have for the fundamentals of our business. And the demographic tailwind is just one example of what is driving the ongoing need and demand for our business. Our average age patient is 76 in the hospitals, it's 77 in home health. And as we all age, the likelihood that we'll need rehabilitative services increases. You'll see here on the chart that there's a 3% CAGR for Medicare beneficiaries. But if you look over in the table on the right-hand side, you'll see that for our age cohort, that's 75 to 79, that CAGR growth goes up to 5% for the date range of 2018 through 2022 and then 4.9% on 2022 to 2026. So the ongoing need for our services in both of our segments, all 3 of our service lines, the hospice, home health and IRFs will be in significant demand as the baby boom generation ages out into our age cohort. We're excited about the continued multifaceted growth strategy we've implemented. For this year, 2020, we'll bring on 4 new additional hospitals. You see here, Murietta, Sioux Falls, Coralville and Toledo. Two of those hospitals are in brand-new states for us, which we're excited to be a part of. We'll continue to expand the capacity in our hospitals. We have a minimum of 100 to 120 beds that we'll be adding on to our existing portfolio of our facilities. And then we're excited about the repeal of the CON process in the State of Florida, where we already have a sizable footprint, and we think that the opportunity to go and add additional beds to our existing facilities or expand new de novos, starting in the year 2021, is a real opportunity for us in the State of Florida. Same with home health and hospice, we have earmarked $50 million to $100 million for acquisitions. We certainly think that there is a strong probability that there will be a disruption in the marketplace that will lead to our opportunities we're experiencing or have experienced in the past, real opportunities to go out and take advantage of a number of different players through acquisitions. We expect that to be the same this year, if not greater. And then there will continue to be, as you see here on the last bullet point, opportunistic to find those larger scale acquisitions, similar to what we did with Alacare this year. There may not be as many in 2020 as 2019 or 2018, but we do believe that those exist, and we'll continue to pursue those opportunistically. One other key point of our strategy over the past several years, you can see here, since 2015, we have instituted what we call our focus on our clinical collaboration, where we standardize the process of the transition of patients from our rehab hospitals at the time of discharge, those that had been identified or referred for home health. All the tasks that goes -- involved with that relative to patient education, drug reconciliation, working with the families, making sure that the transition process goes smooth. You can see that we've increased the clinical collaboration rates now consistently, starting out in the first year of 2015 when we first started tracking it, at 18.5%. And then 2019, finishing up at 35.6%. We still think that 40% goal -- near-term goal, is a good number for us with that. Longer term, we could see this getting as high as 60%. But you can see the real progress that we've made in increasing this clinical collaboration. We're also very encouraged by what we see in terms of the clinical quality indicators in our overlap market places where we've been able to coordinate this care. We're seeing an increased number of patients going home at the time of discharge with home health versus some of these patients being discharged to a skilled nursing facility. And we're also seeing an increase in the patient satisfaction scores in these overlap markets. So we're very encouraged and excited about what we're seeing from the clinical outcomes of this clinical collaboration. Over the past years, we've talked a lot about stroke and how we see it as being an opportunity. The bottom line is we have done a really good job. Our clinician's done a really good job treating stroke patients and our outcomes have proven as such. A matter of fact, a number of recent independent studies, most recently with the JAM and the VA, have talked about how -- if a patient has a stroke and needs inpatient care, that inpatient care should be provided in an IRF setting versus a skilled nursing facility. And we've seen that as we've gone along. A matter of fact, we have a partnership with the American Stroke Association that we started this year and will continue on for the next 2 years. It's a co-branding initiative, where we work collectively with them in our various marketplaces, gives us an opportunity to go out and educate others on our brand and our clinical expertise with stroke patients, reaching a population that we would rather not otherwise reach but have the capabilities of doing that through our co-branding with the American Heart -- American Stroke Association. So we anticipate continuing to take market share, continue to grow this program. You can see that our 3-year stroke CAGR is 6% so that continues to be an opportunity for us going forward. It's also an area that we've seen continued traction on with the Medicare Advantage plans, as they have been able to look at our value proposition and our clinical outcomes that we're able to achieve with their patients versus historically, they would send this to a skilled nursing facility. So we continue to see growth opportunities with our stroke programs and benefits of this partnership moving forward. Post-acute innovation is an area we've also talked a lot about. We've made significant investments in our IT platforms in both the operating segments over the years. Those investments are now creating a significant amount of data that we can use to our advantage to create clinical tools, whether that is identifying patients that are at risk of acute readmission from our hospitals or identify patients that may be having an onset of sepsis. All this data is helping us to put tools in place, whether that is using internal data or whether that is utilizing data that's been generated by MetaLogics or Cerner, another firm organization we have a partnership with. We think longer term, this is creating a clear competitive advantage for us. It is giving us an opportunity to do some of the navigating and helping acute care hospital systems to identify the best setting -- post-acute setting for their patients at the time of discharge and do that with data-driven analysis from, once again, some of this data that I've mentioned that we're generating either internally or externally. We've been piloting it now in a number of our different marketplaces, particularly in Texas with a large presence in Houston, and we're really starting to see some progress on this initiative. So with that being said, we are very optimistic on the fundamentals of our business. I think when you look at our growth trends, our quality indicators that we have been able to produce out there, if you think about our track record in facing historical times when there's been regulatory changes, we've been able to mitigate the negative impacts of those changes, embrace change and then come out on the other side of this time in a really strong fashion when other providers in the industry continue to struggle. So we look forward to 2020 and the future years of progress that we have ahead of us. So with that, I invite you all to join us for the Q&A in the Sussex room. Thank you.

Okay. Great. Thanks so much for joining the Encompass breakout session. I have a few questions I'm going to start with, and then I'll turn it over to the audience because I'm sure you guys don't want to hear me go through my whole list of things. But a couple of things jumped out at me from the presentation I thought were interesting. One was just on the inpatient rehab. Same-store discharge is up about 1.8% but MA discharges were up like 19%. I'm not sure that's the same store number but it's a huge number regardless. Can you talk a little bit about what's driving that? And why are these MA plans seeing -- finally, perhaps, seeing so much incremental value in that setting?

Yes. Well, that wasn't an overnight phenomenon. We've been working now for years in terms of what we refer to as our value proposition going -- taking our outcome data to MA plans and showing them that, describing how well we do at eliminating acute care transfers or getting patients back home at the time of discharge. What we've seen now for the past 3 or 4 years running is an increase in the MA plans that are approving patients that historically would have been referred to us but they would not have precerted the patient and then, historically, would have sent them to a skilled nursing facility. We're now starting to see a lot more progress and traction in getting the precert process where they've been able to identify that we do a better job with certain types of patients than in skilled nursing facilities. And one of those particular clinical areas is with the stroke patients. A matter of fact, 1 out of every 3 of those patients from the MA plans now is a stroke patient. So it's an area that we've been able to differentiate ourselves. We believe that too will have a halo effect in terms of the same types of phenomenon that we'll work with, other neurological categories that go hand-in-hand with stroke and those types of acute conditions. But we would expect that to continue going forward. We certainly try to exploit the relationships with the MA plans and show our quality, and it's starting to pay off.

Good. Another thing that jumped out to me just a little bit was you're laying out some of the labor cost growth, home health and hospice heading into 2020, 3% on salaries but 8% to 12% on benefits. So is that picking up, accelerating, as we head into '20? Some of the other -- seems higher than what some of the other providers have talked about. So is that larger market phenomenon? Or what are you thinking on that?

I'll ask April to weigh in on what she's seen on the home health, then I'll ask Doug to talk about what we put in the guidance.

Sure. Well, the -- our 8% to 12% for next year is really a result of a particularly strong year this year. So we feel like we've probably got a mean reverting situation where we had a really good year, very few very large claims in our self-insured base in the home health sector. And so it's not so much about a real rise as it is just getting over the anomaly of 2019 on the home health side.

It's really the same story for the expected benefits increase in both of our business segments. We headed into the third quarter -- or into the fourth quarter, excuse me, which is the start of our budgeting season for the ensuing year, anticipating the benefits increase in 2020 would be in the same range it's been for the last couple of years, which is really in that kind of 6% to 8% inflationary range, with most of that being on the group medical side. But the very favorable performance we had in both segments, not only in group medical but in some of the other categories of benefits as well, meant that 2019 came in with a lower base than we anticipated and yet because so many of the things related to medical inflation are really mean reverting, we just kept the same nominal dollar level of increase on a lower base, and that resulted in the higher percentage for 2020.

And the 3% on wages, is that consistent? Or is that picking up a little bit? Or...

That's a -- I would say 3% of wages is consistent. Both of our operating segments do quite well in the retention. When we look at it and we measure retention, it's primarily on nurses and then therapists for both categories. We have single-digit turnover on therapists in both of our segments. And we're right at the industry standard, just a little bit less on the hospitals and right at it for nursing and home health.

And one more for me and I'll turn it over. You're the second company [ here ] that sort of mentioned MetaLogics. You also mentioned Cerner and you talked a little bit in the presentation about predictive analytics and AI sort of stuff. Can you just describe that a little more? I guess my perception is in sort of the post-acute or the discharge planning process, whatever, clinicians are assessing these patients have a pretty good idea from their experience what they need and where they'll do best. So what is the data giving you that's beyond that, that's proving to be helpful?

Well, I'll take first on the hospital side. One of the things we've talked about is our -- what we call our ReACT program, and that is where working with Cerner, we've been able to go in and establish criteria and a set of alerts on our electronic medical records or clinicians can see this or physicians can see it and identify or be made aware of certain alerts that would indicate that a patient may be having certain areas of risk that could lead towards a need to transfer the patient back to acute care hospitals. So having this alert allows them to go and take a preemptive clinical intervention with the patient. Sometimes, it's something very simple. Sometimes, it's more involved. But it does tie our physicians and nurses together. And we've really seen nice progress as we've taken a higher acuity patient but have actually seen our acute care transfers reduce with time.

April, do you want to comment on MetaLogics?

Yes. On the MetaLogics equation, what we're really utilizing that tool for is for care planning and for utilization management. And I think there's a perception that really the tool is designed to cut visits, but the reality is that's not actually the case. The reality is what it's designed to do is come up with that truly just right care plan for every patient, addressing, in some situations, we're clearly seeing that it's recommending more visits than we have historically done. In other situations, it's recommending less. And we're really encouraged by the early data. We've got about 67% of our total locations utilizing the MetaLogics care tool at this point in time. We'll reach full deployment by the end of the second quarter. But what we're seeing in our early deployment results is that we're actually seeing not only a decline in the visits but we're actually seeing an improvement in the outcomes. And I have to tell you that even we were positively surprised by that. But the reality is we start looking at the details of why we're realizing that improvement, it is clearly because the system is using a very independent objective standard for determination of care. When the human was making that decision, there was a tendency to kind of become habitual and have a similar process for every patient for how care was delivered. Now that the system is discerning the best level of care, we're seeing that certain patients are getting well more care than they used to, as a result, well better outcomes from that care. Others who are getting less care aren't seeing any degrade of their outcomes because, frankly, they were receiving care that was not necessary in the old world. And so it's really helping us control, really, both the volume issue but driving better outcomes in the process. So we're very excited about the progress. We think it has nowhere to go but up from here as we complete the deployment phases in the first half of this year, really encouraged by the early news from that.

Building off that MetaLogics, is that also providing improvement and maybe labor utilization as well, and can you maybe talk about where you are in that process?

Yes. So when we think about labor utilization relative to MetaLogics, it actually kind of has the potential to go the other way. So we're a bit unique in that about 80% of our visit volume is performed by full-time staff members. So we have a really high proportion of full-time team members. So what MetaLogics is doing currently is bringing visit volume down. But if we don't rightsize our staffing almost immediately along with it, then we actually don't realize the savings because our staff are still being paid their salaries and full wages. So we've really got to be cautious to make sure that as volume is decreasing overall with patient care volume, that we're getting our staffing right-sized as well. So it's a little bit of a lagging indicator to get that staffing rightsized. In some instances, we don't want to cut those people, we want to instead grow into that new capacity because, as you know, staffing is a big issue in the home health world. In other instances, if we're seeing real significant declines in volumes, we may have to actually change our mix of full-time to PRN staff. But it's not necessarily making it better but it is certainly highlighting the opportunities to kind of readdress our capacity.

Other questions from the audience?

A couple of the other home health companies that presented today and yesterday seemed to indicate that as they've gotten more kind of work on PDGM, just kind of whether it's small centers before it really kicked off at junior rate, the ability to make up some of that gap has improved slightly. Now again, we'll see. Do you feel like you've iterated it all or from where you're viewing that 2, 3, 4 months, it's generally still -- the amount of the gap you think you can cover is still roughly the same?

Yes. I think we've been very consistent. And when we've looked at the impact of PDGM, I think we've been very consistent since the third quarter when we got the final rule coming out in our perception of what was there, we've done a lot of work to assess the proportion of the behavior assumptions that we can realize. That's remained pretty consistent to date. Obviously, we're only 2 weeks into PDGM so it's impossible to know if our assumptions are going to prove right about that. But ask me in another 3 or 4 months and I'll give you a better answer there. I think what we have been encouraged about is even though we are a leading provider from a margin perspective in the home health segment, we continue to find opportunities to add incremental cost controls and think we can mitigate some of the revenue impacts through continued improvement in productivity, in optimization of our lower-cost disciplines with LPNs and PTAs. So we're encouraged that even though we lead the industry in margins, that we still believe there's opportunity to continue to fine-tune and hone our behaviors in order to drive greater efficiency to offset and mitigate some of the rate challenges that we're going to experience this year.

Select has a -- they say that there's new value to having IRF in outpatient. You guys got rid of the outpatient business a while back. I think, actually, do they own it now?

Yes. They bought it from us several years ago.

Now that your balance sheet is in a much better place than it was when you had to sell it, is there value having outpatient? There are a bunch of assets out there that are for sale or might be for sale, probably expensive prices, but is there a reason to have an IRF and outpatient together?

We don't see that at this point. When our patient mix changed, actually, 10 or more years ago now, and you saw the orthopedic component of our patients drop significantly, that was replaced by neurological component we saw a pretty drastic reduction in our outpatient business because these patients, if they're orthopedic, they can go home, drive back to your outpatient center and get care. When they're 77, 76, they've had a stroke or some other neurological condition or they've had an acute circumstance, they're much more likely to get home health at the time of discharge. A matter of fact, over 60% of the discharges we have from our IRFs go home with home health. So if anything, we've been rationalizing our outpatient -- freestanding outpatient clinics over the years. We've also been rationalizing the hospital-based outpatient service line over the years and have really -- it's just been a very -- an area that we don't see a need for going forward, given our patient population.

I think less than 10% of the patients discharged from one of our IRFs go on to receive outpatient therapy. And it's largely a commoditized business.

And [ just remember ], if you could restate the question for the people on the webcast. Thank you.

Yes. Can you talk a little bit about reimbursement rates in the home health business from private insurance versus Medicare? And is -- are you seeing any change as insurance companies maybe see the benefits of the downturn?

Yes. So the question's in regard to the rate comparison between Medicare home health and the other Medicare Advantage payers as well as the commercial insurance payers. And unfortunately, what you heard Mark speak of earlier as it relates to the IRF and how they're beginning to find those non-Medicare payers getting closer and closer to the Medicare rates, we're not yet seeing that much traction in the home health space. We like the IRF division or trying to tell our story effectively about lowering costs and lowering readmissions. But we continue, I think, because of the fact that there are 12,000 home care providers out there nationwide, we continue to be commoditized as a rate-driven segment. And so we're working to really create a distinctive story in the marketplace, as are some of our other market-leading peers. But we're really all being cannibalized a bit by those small mom-and-pop agencies that'll take substandard rates. That being said, we have seen a little bit of improvement over the last 3 years. We've seen the rates in the home health sector for our business specifically go up by about 20% from a $98, $99 effective per-visit rate up to about $118 per visit. We are now really kind of setting a minimum threshold of $120 for any new contracts, and that's before we'll even talk to anyone. So we hope that over time, we can begin to move that up into the $125, $130 rate but that still is a pretty significant discount to about the $175 that we see being the effective per-visit rate for Medicare. So we're not quite where the IRF division is yet but continuing to try to tell our story distinctively to get there.

What percentage of the, I guess, stroke patients, are you seeing, I guess, nationally? And is there a natural ceiling to your ability to continue to grow that due to a geographic limitation to an IRF?

So the question was, what percentage of the overall stroke population in the U.S. are we currently treating in our facilities? And is there any kind of natural ceiling on our ability to continue to grow that at a level commensurate with the recent growth level just based on the location of our facilities or anything else geographically? And so our current market share for stroke in the U.S. is a little over 5%. Now not all of the patients who have a stroke in the U.S. are going to qualify for care in an IRF. There's a portion of those who've unfortunately passed away from the stroke. There are others who the stroke is not severe enough to meet the medical necessity criteria for admission to an IRF. But we can tell you that there is a substantial portion of the 800,000-plus strokes in the U.S. where patients would meet the medical necessity criteria for an IRF and instead, they're receiving that care in SNF. We've made very good inroads in that over the last several years, which is why our organization has had a 6% 3-year CAGR in IRF discharge. Mark referenced that during his comments. We think it can accelerate from here, and we don't see any barriers or limitations that would say it's going to cap out anytime soon. The incidence of stroke and survivability of stroke are likely to be relatively constant, the aging population for much of the next decade. And Mark cited 3 very credible external sources that had done independent studies that highly recommended utilizing IRF services instead of SNF services to recover from a stroke. And so that's certainly a part of our value proposition. And then as Mark mentioned, you take that 18-plus percent discharge growth that we had in Medicare Advantage in 2019. A full 1/3 of our Medicare Advantage volume is stroke. So clearly, that payer class also sees the value proposition that we bring to the table and the efficacy of our treatment for stroke patients.

There was a comment of CONs phasing away in Florida. And I think it -- you sounded like you were pleased or interested. Doesn't it kind of go against how we've all grown up, that CONs are a good thing and keeping more of a stable competitive environment? Could you just comment on that?

Yes. So whether or not CONs provide a stable environment or somewhat protect you, once you have the CON, and there is some side of that, that's true, but also limits your growth in a marketplace. We have a very nice platform of IRFs in the State of Florida. And we think with the -- repeal the CON, we'll be able to go in and add additional capacity to hospitals that are already running at high capacities. We think longer term, as early as 2021, we'll be able to start adding de novo hospitals in marketplaces that we have evaluated over the years. We are still waiting for some clarifications from the state on how this repeal process will work and what the dates will be. But we've been very proactive in setting our plan going forward. So once we get the green light, we'll be able to be, hopefully, first to market in many of these markets.

Not all IRFs are created equal, and so we believe that we have a superior competitive product. We've built more freestanding IRFs than anybody that's out there. We've got a 30% market share. The next largest market share in any single competitor is 4%, which means we've got a -- we've ascended a learning curve that many of our peers have not. We've got the clinical protocols. In Mark's presentation, he mentioned the 123 disease-specific certifications. We've got more stroke certifications than any other player that's out there. We've made the investments in technology, both clinical technologies and the electronic medical record. And we compete very well in non-CON states. The greatest example is our largest concentration of IRFs is 24 in the State of Texas, and there's no CON requirement there. So given the demographic characteristics and the underbedded nature of a market like Florida, we would much rather take our chances in a non-CON market and be able to deploy capital to add new IRFs to meet that demand regardless of whether or not somebody else is going to try to compete with us.

Just a small follow-up on that. Would you need any more hospital or partnerships or alliances, anything, in Florida? Or do you feel like you're aligned with who you need to, to get that filled up...

Yes, we look at that market by market, project by project. And in some markets, it -- we think it's strategically advantageous to have a partner. Other markets, we feel that we're comfortable going in and owning the facility 100%.

It's been a subtle change in our strategy but an important one, and that is we continue to value the JV relationships. And there are a number of markets that we look at where we think it's preferable to enter into that market with the JV relationship, whereas previously, we might have waited until the joint venture was agreed upon and formed before we would proceed with the development activity. Now we're inviting potential joint venture partners to the table, but we make it pretty clear to them that we're going to go ahead and enter that market, whether or not they choose to partner with us or not.

A question in the back. Please go ahead.

Yes. If PDGM was too far overreaching, and let's say it's not budget-neutral or disrupts certain states, how long would care -- how long would it take CMS to counteract and mitigate, if that's the case?

Yes. So the question was if PDGM has overreached and made too much of a cut, how long will it take Medicare to come back? My guess is that it will take, at the earliest, 2022. So I think that's a 2-pronged answer. On the one hand, I think that means that in 2021, they will not have enough evidence to provide any additional cuts. But I also think it means they will not have enough evidence to provide any relief. And so I think 2022 is the earliest that we might see a course correction, if, in fact, they have overreached. And I don't know that I would suggest that I think they've overreached globally. I think they have overreached in particular areas. And so for example, if you look at the cuts to the therapy service line, I think they've overreached in that area, and I've been consistent in my statements on that. And I think they may neutralize that and they can do it as simply by moving the case weights associated with those episode types. So we could very well see a little bit of shift in that just based on kind of the early results. But I really wouldn't expect a material correction either way until 2022 at the earliest.

Just on home health in general. Do you see -- anticipate really, really massive disruption of the smaller players, both with RAP payment being phased out and also with PDGM? I mean is this going to be just absolute chaos for the smaller players? Or what do you think about it?

I'm probably not going to -- I'm [ probably not ] going to say that it's going to be absolute chaos for the small players. I do think that what we are going to see is that those small players are going to be particularly disrupted by the cash flow changes. And if we go back to the last time there was a major reform in home health care, it was the '97 to 2000 period, at which time, 30% of the agencies were disintermediated and consolidated. We went from 10,000 to right at 7,000 as an industry. And I think we may see something along that similar magnitude coming from this. And if you look at what caused that, it wasn't so much the reimbursement change. It was the cash flow change that was the big driver to that 30% attrition that happened in that period. So I think it's going to be the RAP payments cutting from 60% to 20%, and in turn, going away altogether next year, that are going to be the drivers that'll particularly affect those small agencies, agencies with 100 or fewer patients, roughly, call it, $1.5 million. Those folks are really going to feel the pinch. And even those who go up to kind of $3 million of annualized revenue could also be impacted, but particularly linked to that particular small end. And you may think, well, how many are there? The reality is about 10,000 of the 12,000 home care providers have $3 million or less of annualized revenue, and the average home health provider is $1.5 million of revenue, the average. So that will give you a sense of just how many are on the small end. So we think there could be a pretty good fallout, but it's going to happen at the very lowest end of the market would be my anticipation.

With that, we'll wrap. Thank you very much.

Thank you, all.