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Text: Before we begin, let me remind you that the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 apply to this conference call.
In addition, management may also discuss non-GAAP operating performance results during today's call, including earnings before interest, taxes, depreciation and amortization or EBITDA and adjusted EBITDA.
Kevin McNamara, President and Chief Executive Officer of Chemed Corporation; Dave Williams, Executive Vice President and Chief Financial Officer of Chemed; and Nick Westfall, President and Chief Executive Officer of Chemed's VITAS Healthcare Corporation subsidiary.
I will begin with highlights for the quarter, and Dave and Nick will follow-up with additional operating detail.
When we reported our second quarter 2020 operating results, I noted that the pandemic and related economic lockdown severely impacted our April 2020 operating results.
Since April, both VITAS and Roto-Rooter have reengineered their operating procedures to safely care for our patients and customers during the pandemic.
These operational changes have allowed Chemed to generate sequential operational improvement starting in May 2020, and this improvement has continued and has, in fact, accelerated throughout the third quarter and continued into October.
David will provide updated earning guidance later in the call.
Our hospice segment operations continued to be impacted by the pandemic.
Fortunately, the federal government, specifically HHS and CMS have been exceptionally supportive in terms of relaxing regulations, allowing the use of telehealth where appropriate and providing pragmatic flexibility in caring for our 19,000 patient census.
The severe initial disruption within our patient referral and admission patterns we noted in the second quarter has noticeably dissipated throughout the third quarter.
This improvement is reflected in our third quarter admissions.
Our July 2020 admissions increased 4.3%, August increased 5.9% and September admissions expanded 4%.
Overall, our third quarter 2020 admissions increased 4.7%.
Our average daily census did decline two-tenths of 1 percentage point in the quarter.
The slight decline in census is a result of soft admissions from the second quarter as well as supressed referrals from nursing homes and assisted-living facilities.
We anticipate admissions to normalize when these types of facilities return to their pre-COVID occupancy levels.
As I discussed last quarter, we made the strategic decision for Roto-Rooter to maintain full staffing and operating capacity early in the pandemic.
This strategic decision to maintain full capacity was designed to capitalize on any snapback in commercial and residential demand, both to protect existing market share as well as to maximize on opportunities to grow market share.
I believe this has proven to be the correct strategic course.
Roto-Rooter services demand began to show weekly improvement beginning in the later part of April and has strengthened unabated throughout the second and third quarters of 2020.
This is reflected in our monthly performance.
Roto-Rooter unit-for-unit commercial revenue declining 38.6% in April, improving to a 31.8% decline in May and a decline of 19.7% in June.
Third quarter 2020 unit-for-unit commercial demand did decline 11.6% when compared to the prior year quarter.
This third quarter commercial demand is a significant improvement when compared to the 29.1% decline in the second quarter 2020 commercial revenue.
On a sequential basis, third quarter 2020 unit-for-unit commercial revenue totaled $39.5 million, an increase of 26.8% when compared to the second quarter of 2020.
Our residential services have proven to be exceptionally resilient with our unit-for-unit residential revenue declining a modest 1.6% in April, increasing 11.7% in May and 18.7% in June.
The third quarter residential demand set all-time records with July 2020 unit-for-unit residential revenue expanding 22.8%, August revenue increased 24.1%, and September 2020 residential unit-for-unit revenue increased 26.6%.
This translated into Roto-Rooter on a unit-for-unit basis having third quarter 2020 commercial revenue declining 11.6% and residential revenue increasing 24.6%.
Total Roto-Rooter third quarter unit-for-unit revenue increased 12.9% when compared to the prior year.
Including acquisitions, Roto-Rooter generated consolidated third quarter 2020 revenue growth of 20.4%.
I anticipate continued strong operational and financial results for both VITAS and Roto-Rooter, as we operate during the pandemic.
With that, I would like to turn this teleconference over to David.
VITAS' net revenue was $337 million in the third quarter of 2020, which is an increase of 4.8% when compared to the prior year period.
This revenue increase is comprised primarily of a geographically weighted average Medicare reimbursement rate increase of approximately 5.7%, a 0.2% decline in days-of-care and acuity mix shift, which then reduced the blended average Medicare rate increase 242 basis points.
In addition, a favorable reduction in our Medicare Cap liability increased our third quarter 2020 revenue growth 162 basis points.
Our average revenue per patient per day in the third quarter of 2020 was $194.10, which, including acuity mix shift, is 3.2% above the prior year period.
Reimbursement for routine home care and high acuity care averaged $166.51 and $971.71, respectively.
During the quarter, high acuity days-of-care were 3.4% of our total days-of-care, 57 basis points less than the prior year quarter.
This 57 basis points mix shift in high acuity days-of-care reduced the increase in average revenue per patient per day from 5.7% to 3.2% in the quarter.
In the third quarter of 2020, VITAS reversed $4.1 million in Medicare Cap billing limitations recorded in earlier quarters.
This compares to the prior year third quarter Medicare Cap billing limitation of $1.3 million.
At September 30, 2020, VITAS had 30 Medicare provider numbers, 4 of which have an estimated fiscal 2020 Medicare Cap billing limitation liability that totaled $8.7 million.
This compares favorably to the full year fiscal 2019 Medicare Cap billing limitation liability of approximately $11.4 million.
VITAS' third quarter 2020 adjusted EBITDA, excluding Medicare Cap, totaled $68.2 million, which is an increase of 25.6%.
Adjusted EBITDA margin, excluding Medicare Cap, was 20.5% in the quarter, which is a 367 basis point improvement when compared to the prior year period.
Now let's take a look at Roto-Rooter.
Roto-Rooter generated quarterly revenue of $191 million in the third quarter of 2020, which is an increase of $32.3 million or 20.4% over the prior year.
On a unit-for-unit basis, which excludes the Oakland and HSW acquisitions completed in July of 2019 and September of 2019, respectively, Roto-Rooter generated quarterly revenue of $173 million, which is an increase of 11.4% over the prior year quarter.
Total commercial revenue, excluding acquisitions, did decline 11.6% in the quarter.
This aggregate unit-for-unit commercial revenue decline consisted of drain cleaning declining 13%, commercial plumbing and excavation declining 11.2% and commercial water restoration declining 1.6%.
This was more than offset by the residential activity.
Total residential revenue, excluding acquisitions, increased 24.6%.
This aggregate residential revenue growth consisted of residential drain cleaning increasing 22%, plumbing and excavation expanding 31.2% and residential water restoration increasing 16.1%.
Now let's talk about our 2020 guidance.
Over the past 7 months, our operating units have been able to successfully navigate within a rapidly changing environment and produce operating results that we believe provides us with the ability to issue guidance for the remainder of the calendar year.
However, this guidance should be taken with the recognition that pandemic will continue to materially disrupt all aspects of our healthcare system and general economy to such an extent that future rules, regulations and government mandates could have an immediate and material impact upon our ability to achieve this guidance.
Within this context, revenue growth for VITAS in 2020 prior to Medicare Cap is estimated to be 4%.
Our average daily census in 2020 is estimated to expand approximately 1.3%.
And VITAS' full year 2020 adjusted EBITDA margin prior to Medicare Cap is estimated to be 21%.
We are currently estimating $8.6 million for Medicare Cap billing limitations for calendar year 2020.
Roto-Rooter is forecasted to achieve full year 2020 revenue growth of 12.5% to 13%.
This full year revenue growth assumes 2.7% of seasonal sequential revenue growth from the third quarter to the fourth quarter of 2020.
Over the past 5 years, excluding water restoration and the impact from acquisitions, this Q3 to Q4 seasonal sequential revenue growth has averaged between 4% to 11%.
Based upon the above, Chemed's full year 2020 adjusted earnings per diluted share, excluding non-cash expense for stock options, tax benefits for stock options, costs related to litigation and other discrete items, is estimated to be in the range of $18 to $18.15.
This compares to our previous guidance of $16.20 to $16.40.
This 2020 guidance assumes an effective corporate tax rate of 25.8%.
And for comparison purposes, Chemed's 2019 reported adjusted earnings per diluted share was $13.95.
In the third quarter, our average daily census was 19,045 patients, a slight decline of 0.2% over the prior year.
This decline in average daily census is a direct result of the disruptions across the entire healthcare system, which started in March that impacted traditional admission patterns into hospice.
While certain healthcare sectors have shown improvement in admission patterns in the third quarter, the long-term care market, specifically nursing homes and assisted-living facilities continue to be impacted as they work to safely navigate serving their residents during the pandemic.
ADC growth is expected to normalize over the coming quarters as we return to pre-pandemic referral patterns across all sectors of the healthcare industry.
In the third quarter of 2020, total admissions were 17,943.
This is a 4.7% increase when compared to the third quarter of 2019.
In the third quarter, our admissions increased 18.3% for our home-based pre-admit patients.
Hospital directed admissions expanded a positive 6.2%, nursing home admits declined 22.6% and assisted-living facility admissions declined 13.5% when compared to the prior year quarter.
Our average length of stay in the quarter was 97.1 days.
This compares to 92.6 days in the third quarter of 2019 and 90.9 days in the second quarter of 2020.
Our median length of stay was 14 days in the quarter, which is 3 days less than the 17 day median in the third quarter of 2019 and equal to the second quarter of 2020.
Median length of stay continues to be a key indicator of our penetration into the high acuity sector of the market.
As we sit here today, we're confident in our ability to support all of our team members and their ability to deliver care by prioritizing their safety with sufficient PPE inventory, education and clinical protocols.
Additionally, we'll continue to utilize the resources and testing supplies we've acquired to comply with federal, state and local requirements to safely access the health facilities in our markets.
Lastly, our entire team will continue to be out in the communities we serve, collaborating safely with our local healthcare partners to successfully identify and navigate patients and their families onto the hospice benefit during this unprecedented time.
As we've internally discussed throughout the pandemic, we'll get through this by continuing to support one another and the patients and families we serve, all while focused on continuing to deliver the results we have thus far throughout the pandemic.
I will now open this teleconference to questions.

user
sees fy 2020 adjusted earnings per share $18.00 to $18.15 excluding items.
roto-rooter is forecasted to achieve full-year 2020 revenue growth of 12.5% to 13.0%.
qtrly vitas net patient revenue of $337 million, an increase of 4.8%.
qtrly roto-rooter revenue of $191 million, an increase of 20.4%.

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