Good morning, everyone, and welcome to Encompass Health Fourth Quarter 2020 Earnings Conference Call. At this time, I would like to inform all participants that their lines will be in a listen-only mode. After the speakers’ remarks, there will be a question-and-answer period. [Operator Instructions] Today’s conference call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Crissy Carlisle, Encompass Health's Chief Investor Relations Officer.

Thank you, operator and good morning, everyone. Thank you for joining Encompass Health Fourth Quarter 2020 Earnings Call. With me on the call today are, Mark Tarr, President and Chief Executive Officer; Doug Coltharp, Chief Financial Officer; Barb Jacobsmeyer, President, Inpatient Rehabilitation Hospitals; April Anthony, Chief Executive Officer of Encompass Home Health & Hospice; and Patrick Darby, General Counsel and Corporate Secretary. Before we begin, if you do not already have a copy, the fourth quarter earnings release, supplemental information and related Form 8-K filed with the SEC are available on our website at encompasshealth.com. On Page 2 of the supplemental information, you will find the Safe Harbor statements, which are also set forth in greater detail on the last page of the earnings release. During the call, we will make forward-looking statements, which are subject to risk and uncertainties, many of which are beyond our control. Certain risk and uncertainties, like those relating to our ongoing strategic review and its impact on our business and stockholder value as well as the magnitude and impact of COVID-19 that could cause actual results to differ materially from our projections, estimates and expectations are discussed in the Company's SEC filings, including the earnings release and related Form 8-K, and the Form 10-K for the year ended December 31, 2020 when filed. We encourage you to read them. You are cautioned not to place undue reliance on the estimates, projections, guidance and other forward-looking information presented which are based on current estimates of future events and speaks only as of today. We do not undertake a duty to update these forward-looking statements. Our supplemental information and discussion on this call will include certain non-GAAP financial measures. For such measures, reconciliation to the most directly comparable GAAP measure is available at the end of the supplemental information, and at the end of the earnings release and as part of the Form 8-K filed yesterday with the SEC, all of which are available on our website. I would like to remind everyone that we will adhere to the one question, one follow-up question rule to allow everyone to submit a question. If you have additional questions, please feel free to put yourself back in the queue. Before I turn it over to Mark, I want to reiterate that the strategic review for our Home Health and Hospice segment is ongoing. Our Board of Directors has made no decision. Accordingly, our 2021 guidance and our longer term growth targets assume the continuation of the current structure of our business [regardless] some growth targets mentioned depending on the ultimate outcome of the review. Additionally, the cause for strategic review is ongoing, we will not be able to comment further on it today. With that, I'll turn the call over to Mark.

Well, good morning everyone. And thank you, Crissy. We have a history of adapting to change and doing it well. Looking back on 2020, I am proud of our company and how we responded to the changes going on in the world around us. Both of our business segments quickly responded to meet the needs of our patients, our employees, and our business partners. The patient experience has always been at the center of what we do. This year in particular, the impact of our caring and compassionate teams has been on full display. As our hospitals were forced to close their doors to visitors and as our homebound seniors were isolated from family and friends often the only direct contact patient has for weeks at a time were their Encompass Health clinicians. I have heard countless stories of how our staff have patients connected to loved ones and showed them the kind hearted care they so deserved. COVID-19 shut most of the world down, our employees keen to work putting the well-being of our patients first. They truly our heroes. Turning to the performance of both of our segments in 2020, our Inpatient Rehabilitation segment opened four new hospitals and expanded existing hospitals by 117 beds. They successfully responded to regulatory changes impacting our reimbursement, achieving better than initially expected price and continue to demonstrate our value proposition to Medicare Advantage payers with Medicare Advantage discharges increasing 34% year-over-year. We also continue to develop and implement post acute solutions. We fully deployed our proprietary readmission prevention model. This program uses predictive analytics to determine the risk of a patient readmitting after they discharged from an Encompass Health Hospital. And our pilot market use of this tool lowers the 30-day readmission rate by 280 basis points. So we are excited…

Thanks, Mark, and good morning, everyone. As Mark stated, we are pleased with the performance of both of our segments. We actually did the year on positive note with fourth quarter consolidated net operating revenues of 2.5%, consolidated adjusted EBITDA up 0.7% and adjusted EPS of 9.4%. And we continue to generate high levels of free cash flow with adjusted free cash flow increasing 55.6% in the quarter and 12.3% for the year. In our inpatient rehabilitation segment, our revenue per discharge was higher in 2020 than initially expected primarily due to the higher acuity of our patients throughout the year, as well as the suspension of sequestration that began May 1. Inpatient rehabilitation volumes starting 2020 strong before being significantly impacted beginning in March. Patient census recovered substantially in the second half of 2020 returning to 2019 levels were higher. However, as we have discussed previously, we experienced an increase in our average length of stay, which resulted in a year-over-year decrease in discharges and EBITDA margin. Specific to the fourth quarter of 2020, revenue in our inpatient rehabilitation segment increased 4.1% compared to 2019 driven by pricing. Growth in revenue per discharge primarily resulted from a higher acuity patient mix and increase in reimbursement rates and the suspension of sequestration. Adjusted EBITDA decreased 3.2% in the fourth quarter of 2020 compared to 2019 primarily due to increases in bad debt expense, group medical expense and used in cost of PPE. In the fourth quarter of 2020, we perform a review of our accounts receivable balances and related reserves that resulted in a $4.5 million increase to bad debt primarily related to prior period denied claims. Our bad debt expense for full year 2020 was 1.6% within the initial guidance range we provided for the year and we expect…

Thank you. [Operator Instructions] Again, we do ask to limit yourself to one question and one follow-up. Our first question comes from the line of Whit Mayo of UBS.

Hello Whit.

Good morning Whit.

Hey, thanks. I really just have one question for right now. And when I look at the performance of the home health business in the fourth quarter and then it seems like EBITDA now is tracking above my pre-COVID forecasts for the fourth quarter growing up 11% year-over-year, and it feels like there is some momentum coming into 2021. When I look at the cost per visit, you are tracking significantly below first half levels, which would seem to imply some, some noticeable tailwinds coming into 2021. So how are you thinking about the direction of those trends? And then if you could maybe comment a little bit more on the visits per episode and some of the initiatives you may have in the field and how that could trend, it just feels like there perhaps is a little bit of a disconnect between the near-term performance versus what may be implied within the full year range. Thanks.

Could I ask April to give her insights on that.

Sure. So let certainly appreciate the perspectives. And we are pretty encouraged about what we are seeing on the -- on volume side, as Doug mentioned, if you look in this December trending, we continue to trend in the right direction from a volume perspective. And in spite of shifts, as we mentioned, in our snippets, and our senior living patients, as well as the [indiscernible] I think our team has done a really good job replacing that volume with other sources. And so we are obviously encouraged about that and believe that once the COVID pressure is released, that some of the historical sources will return to us, we think all of those impacts are, very COVID driven and relatively short lived. We are also encouraged, as Doug mentioned, about our cost per visit and feel like the compensation structure changes that we made back in May that served us well in the third and fourth quarter. And you see that continuing opportunity there. But we aren't concerned about costs per visit in the nursing discipline. And the shortage that exists, that has just been exacerbated by COVID of nurses in the community is just going to make cost per visit go up in that nursing discipline. So we are cautiously optimistic we feel good about the changes that we have made. But we also recognize the global pressure that we are seeing in the nursing discipline. And then, finally as it relates to volume, if you look at the data in the slide deck, we have provided, I think we have made nice progress this year incrementing, our visits per episode down over the course of the year from the second quarter being a bit of a not -- an anomaly, but over the [indiscernible] improvements there. But…

Can we -- is there any way maybe to circle a number that you have contemplated within the plan this year for the inflation across your nursing discipline, maybe what it costs per visit any -- anything directionally, they can kind of give us a marker to look for going forward?

Well, not specifically there. But obviously, if you look at the 2% to 3% wage increases that we reflected in our guidance, we think that it will be disproportionately allocated to the nursing discipline, you may see a lesser rate in some therapy disciplines where supply and demand imbalance are same higher proportion of those wage increases across the board like nursing [group].

Okay, thanks.

Your next question comes from the line of Brian Tanquilut of Jefferies.

Hey good morning Brian.

Good morning. So I guess, Dough my question for you, as you look at where your guidance is, and I am sure you have looked at where street numbers are, I mean how are you thinking about, what the delta is there? What do you think the street names and just any color that you can give in terms of the moving parts on the guidance that investors might have missed? And driving some of that disappointment today?

Yes. It's -- so most of the models aren't detailed enough, the analysts models aren't detailed enough for me to be able to point to the specific areas of differential. I will say that our guidance is driven-off of our budget. And our budgets are built in a painstaking brick-by-brick fashion from the bottoms up. So suffice to say there is substantial more detail that goes into the provision of our guidance. Having said that, some of the areas that I may think that I think the analysts may not have had complete visibility into relates to things like $15 million to $20 million in pre-opening and ramp up costs associated with our new hospital activity, the normalization of some of our employee benefits, particularly group medical expenses in the [indiscernible] side of the business. And just I think some of our expectations regarding the impact of COVID on both volumes and expenses in the first half of the year, those will be the areas I would point to as the primary differences.

Got you. And then Mark, I guess, your – you tweak the long-term guidance ranges? And so how are you thinking about, whether it's the progression back to the sort of the endpoint goal for 2025 in terms of revenues or earnings or is that an indication of your belief in the fundamentals of the business? And then what kind of recovery pace are you thinking about to get to these revised long-term growth targets?

Yes, Brian, I think our growth targets reflect our confidence in the long-term opportunity to continue to grow our business, the demand for services. I mean, we've come out this year, and we are experiencing now the typical seasonal rebound that the -- that we would have seen in the past and in both our operating segments, there are challenges. And in terms of meeting all that demand right now, given the numbers of quarantine staff and the capacity caps that Doug mentioned in terms of having semi private beds are hospitals that we are very bullish on the opportunities for us, we've got the very robust pipeline, we've got eight hospitals coming on this year, 10 already announced for next year, we will continue to look for opportunities for acquisitions in Home Health and Hospice. So the fundamentals are there to provide these growth targets that we have in our longer term outline here.

And Brian, if I could just add to that, what we've done is essentially set a reset to CAGRs of a lower 2020 base to arrive at the same station in 2025 that were implied with the growth targets that we laid out at our Investor Day last March. And that's reflective of the fact that our shortfall in 2020, that resulted in the lower base is solely related to COVID. And then we believe that the impact from COVID is temporary and doesn't reflect any fundamental change in the underlying business demand for either one of our two business segments. And then on top of that, our growth plans have not changed. We continue to invest, as Mark just said, heavily in capacity additions in the [indiscernible] space and we will continue to be in acquisition mode for Home Health and Hospice as well as pursuing the tract of organic growth opportunities that exist within that business segment.

Brian, any uncertainty that we have right now it's just near-term and it's all tied to COVID. And how quickly we will be able to respond with vaccines and get on the other side of this pandemic.

Awesome.

Your next question comes from the line of A.J. Rice of Credit Suisse.

Hey A. J.

Hi, A.J.

Hey everybody. Maybe just part -- follow-up on that previous discussion around the long-term targets. I appreciate you guys reinstating that. I think though, if you string out the midpoint out to 2025, you end up with an EBITDA targets, it's about at least we do maybe I am calculating wrong. That's 70 million below the midpoint of the March 2020 Investor Day outlook in the margins, about 90 basis points lower and about 18.5. Is there something that's changed in there because it sounds like from your previous comment just a minute ago, Doug, you thought it was sort of coming out to the same point that that's not actually what we get? And I wonder how you are factoring in this demonstration project that CMS has put forward? Do you think that's going to have any impact on the outlook, if that goes into place next year any thoughts on that?

A.J., I am actually getting mid points when I compare the two that are substantially closer than the delta that you just suggested. I am not going to say that it's exactly the same number, but they are closer. So I don't want to get into a math reconciliation exercise right here.

Okay.

With regard to review choice demonstration, there is more that is unknown about that than there is that is known about that. It's really in the very early stages. It could very well have a positive impact and it's going to reduce the amount of claims denials after the fact. What we've already demonstrated in our home health business is that because we are very process oriented through our company to begin with because we have great management information systems in place. We can adjust as well to new regulatory analytic process requirements as anybody that is out there. And I am confident that if we move forward with review choice demonstration, the [indiscernible] business, we will execute to it effectively, it will not be disruptive to our business.

A.J. it’s -- as Doug noted. But it certainly further substantiates the investment that we made in our electronic medical record a number of years ago, so that we see this as positioning ourselves through our documentation and standardization across the board to make sure the documentation is there and to this in a real good position, if RCD would move forward.

Okay, all right. Thanks a lot.

Your next question comes from the line of Matt Larew of William Blair.

Good morning Matt.

Good morning, Matt.

Hi, good morning, guys. Doug I wanted to follow up on Brian's question, but let's just maybe remove three models from discussion and instead focus on the second half of ‘20 versus 2021. So I think, even after adding back or excuse me removing those startup costs that you alluded to the EBITDA margin apply for ‘21 are about 100 basis points lower than second half of ‘20. And obviously, you have characterized today, a number of tailwinds on the home health side returning volumes on their side. And I think the frustration, but that's coming back into the picture that wasn't expected for the first quarter, certainly that that was an extension. So I guess I am just trying to think, what are the other things that we might have to take, visit acuity reversal COVID costs or maybe bad debt increases PPE, are there any numbers, you can maybe generally point us in the direction of that would help kind of bridge that gap?

So Matt I’m trying to reconcile the second half of 2020 to the second half of 2019?

No, sorry, second half of 2020, relative to what the EBITDA margins for 2021 are, right. And so the second half of 2020, EBITDA margins were about [19.7] and I think the guide for [21] and [18.5], and I am just trying to reconcile that, given the positive method you talked about?

Yes, and you move past the sequestration pretty quickly. But I think that that's at least half if not more than half. And then I think if you combine that with the likely timing of a lot of the pre-open and ramp up costs to the hospitals, that you have substantially closed the gap just between those two numbers.

Okay, we will look it again, I thought I already contemplated that my model. Fair enough. Maybe I will just ask then about the Medicare Advantage side, you have given some nice updates throughout the year about pricing and volume trends would be curious there. And then any additional color you can give on the United contract you alluded to, is it a preferred provider relationship to an extent is there any share involved that would be great.

April will cover the United contract first.

Yes, we are excited about joining the panel of national contract providers for the United Healthcare contract. But it's a little bit of a good guy, bad guy combination on that, I think in the long run, being part of that national contract is going to give us volume opportunities, it's going to give us better opportunities to serve patients coming out of our [indiscernible]. But historically, we have gotten some United business more of a one-off fashion. And we've been paid episodically for that business. And so when we shifted this national contract, as much as we are excited about it, and excited that it has a value based element, bonus based on quality performance, we also recognize that there could be some near-term margins pressure brought on by the shift from the episodic payments we had in 2020. And prior to beginning in February 2021, more of a fee for service payment was an after the fact [indiscernible]. So we think it's a good relationship we think it'll bring over time as we get all of our staff off of quarantine, we think it brings the ability to grow that relationship pretty significantly. But we also recognize that in the near-term, it will put a little bit of margin pressure on us in the early part of 2021. As we kind of rebase line that contract.

I’ll ask Barb Jacobsmeyer to give her insight to what we are seeing from MA plans with regard to our hospitals.

So as you see we have nice growth, obviously the relaxation between May and September of the pre-ops assisted in 2020. But as you know, we already have seen some nice growth in MA back in 2019 that continued in 2020. And we are continuing to be focused on that in 2021. I think the great thing for us is that we saw admissions [earth] here in 2020, that maybe in the past, they would not have sent to us. Some of that was to do to the waivers. Some was because snips were really unable to accept patients, maybe due to COVID outbreaks or other limitations in the snips. So we now have more data on the outcomes of those patients. And that's going to assist us as we continue our discussions, particularly with the Medical Directors of these MA plans. So that we can really talk about the value proposition directly as it related to their patients.

Okay, thank you.

Your next question comes from the line of Kevin Fischbeck of Bank of America.

Good morning Kevin.

Hey, good morning. Actually, this is Joanna Gajuk filling in for Kevin. Thanks so much for taking the questions. But it’s just -- I guess a follow-up on the discussion around the long-term growth targets. So I guess you were saying that the numbers are a little bit closer, but would you describe it as kind of those targets implying higher revenue, but maybe slightly lower EBITDA so that -- is that's what we are also getting at when we do our math? And then I guess if that's the case, is there any particular area where you would point to in terms of the, the lower margins and either segments related or something around PPE costs or the there so anything, in terms of these long-term growth targets?

I think you are all reading a degree of precision into a five year CAGR that simply doesn't exist. These CAGRs reflect the fact that the base for 2020 is lower than we had anticipated last March and the delta between those we attribute 100% to COVID, which we ascribe as a temporary impact that we anticipate will fully dissipate through the course of 2021. So in addition to the lower 2020 base, you have some residual impact in the first year of the transition. Beyond that, you have got 200 basis points spread on five year CAGRs so allow for some rounding.

Okay.

And I think what you will see is the base is lower, we have already talked about that our growth plans on top of that have not changed. And you see that reflected to me in the some of the assumptions that we have put out there. So we are going to arrive at essentially the same station in 2025. If the margin is 10 or 15 basis points lower or higher, so be there are multiple ways that we can get from here to there. But the targets that we are shooting for in 2025 are essentially unchanged from those that we discussed with you in March of last year.

Okay, great. That's what I was just trying to confirm, based on how you responded to the prior question. So thank you for that. And if I may, just, I guess, partially follow-up on something you mentioned in your introductory remarks around a Smith at Home, I guess the association is relatively optimistic that something could be actually legislation could be introduced to Congress, obviously, we don't know when it would be passed. But, can you just talk about this question for April, how income tax could participate in, in an extended benefits as such, Smith at Home, I guess you mentioned about contracts with personal care providers. So would that be adequate to be able to cover your markets within because I guess, you do not have actual presence in terms of personal care services? So kind of -- can you just frame for us how you think about this opportunity before accomplish? Thank you.

Yes, so I am happy to share about that. So as we don't have the personal care division as part of our organization. And that was why it was critical for us to be able to create some key partnerships with private duty focused companies that had national presence, so that we could ensure that we can respond in the same timely fashion that our -- some of our competitors who have that service line are responding. And so we feel like we have got those relationships in place, and are beginning even to kind of leverage those when we have family structures that can support that private duty service line. As you know, we are hopeful that there will be a version of Smith at Home that actually makes it into legislation and that there becomes a payer source for those private duty services acknowledging that we can likely provide that care to the certain cohort of patients at home less expensively than they would be cured for [indiscernible] facility, but it will take more than the average 50ish dollars we get today out of Medicare to do that. So we think that there's certainly lags to that program and that if it finds a funding source that we can care for those patients effectively that we have got those the technology tools to be able to support virtual care to plant that with our contractual relationships for private duty, and then really use our historically strong quality clinical performance on the skill side to keep the patient safe at home at a lower cost. So we look forward to that program evolving, and are looking for easy ways that we can execute and deploy on it before there is even a legislation that might fund it in certain instances.

Okay, thank you.

Your next question comes from the line of Frank Morgan of RBC Capital Markets.

Hello Frank.

Good morning Frank.

Good morning, I hopped on late to apologize. And I think April was just at the point of making some comment about volumes in December. So I guess I will ask you that I understand that correctly. And then, do you have any commentary around what you are seeing so far in the first quarter, both in the home healthcare side and in the [erg] side, and I apologize if you talked about it before I hopped on?

Frank I will just cover where we are, at least up to this point. As you know, we typically have a seasonal rebound after the holidays. And we have seen that there is a strong demand for services in both of our operating segments, which is testament to the confidence that we have going forward. We are challenged in certain markets with staff that are quarantined. The positive news on that is, both segments have seen a decrease in the number of quarantine staff over the last week and a half or so. So that is at least trending in a more positive manner. When we get more staff back, we will have fewer market that we have been kept on buying because of staffing restrictions. And then we also have certain marketplaces, where the hospitals have a higher number of semi private rooms where we've had to enforce isolation requirements that have temporarily kept us off in those hospitals, but demand is very strong, and supports our thoughts that any uncertainty we have is near-term uncertainty, all tied to COVID. And the opportunities that we have getting on the other side of this pandemic.

Got you. And where are you in terms of total amount of your staff that has been vaccinated down COVID.

So Frank, we have a total of [68,100] employees they have been vaccinated with a small portion of those who had their second doses. So getting out to the marketplaces, we've had been close to 70% of our total staff respond that they would like to have the vaccine. So we will continue with that distribution process. As you know, a lot of volatility from state-to-state in terms of the effectiveness of giving out to the marketplaces, but we continue to see progress with that.

Got you. And then just last one, I know April made the comment about the nursing shortage, but I am just curious, some of the pressure because the shortage is, was that limited, that’s the question, what about on the [indiscernible] side are you seeing something similar in event driven more by people being, having actually having COVID and can't go into the home and aren't available in the whirlpool or is there anything else is driving that?

I will ask Awhat we are seeing on the [herb] side.

On the [herb] side it's been really more about the -- our folks being out in quarantine and so again, as Mark mentioned, we see all those coming back. I would say that we did see early on some of our more experienced older nurses decide that maybe they just didn't want to be in the workforce at this point because of some fears and anxiety. The good news is, though, is we are hearing back from some of those saying that now that the vaccines out, they want to come back, they want to be able to get the vaccine and get back to work. So I think that we will see more about that as we get more of a vaccine.

Frank, I think just overall you have nursing in general, and all the clinicians are tedious COVID patients until there was a vaccine that was being rolled out. They really -- there was no end of the light of the tunnel. So they didn't know when we are going to get on the other side of this pandemic, and really caused a lot of stress in the workforce and that is not specific to our clinicians, but the industry as a whole. So I think the vaccine is brought some hope and some sense of an endpoint to look forward to for clinicians.

Your next question comes from the line of Andrew Mok of Barclays.

Good morning Andrew.

Hi, good morning. Wanted to follow-up on the home health volumes, your same store home health admissions remained moderately depressed due to the continued drag from assisted and independent living facilities and lower elective procedures. Can you comment on how admissions trended in the rest of the portfolio? And do you see a path back to mid single-digit organic volume growth in 2021 even with some of the lingering COVID headwinds? Thanks.

Yes, thanks. Thank you for that question. So we did see a meaningful decline from the three areas that we called out admissions to patients that are discharging from snips, like surgeries and the senior living communities combined, roughly about 3,800 admission decline came from those three sources. As you saw our overall organic growth was down about 2%. So if you add those 30 attenders back in there, we really had a strong performance in the other sectors to make up that difference. I think, had it not been for that 3,800 decline, you'd be at about a 7% improve. Now, I realize I am making a lot of assumptions and projections about what could have been. But I think that, when you look specifically at the cause of those, we do feel very encouraged. The getting back to a strong organic growth posture, as we see this virus subside in the second half of the year, there's something that that we believe is very possible. And we think that we have replaced the last referrals and last admission with new sources that are sustainable. And so actually think we can come out on the other side of this, recovering what we used to have, and maintaining what we got to develop and come out with really a win-win combination once we get past the COVID period.

Great, thanks. And secondly, looking at the 2021 EBITDA and EPS guidance compared to the initial 2020 guidance, EBITDA is about 1% lower and EPS is about 5% lower. Can you walk us through some of the assumptions below the EBITDA line that are driving the spread on EBITDA and EPS growth? Thanks.

I think the single biggest line is interest expense.

So that's driving the entire delta.

Yes, I mean, I don't have that right in front of me, but I believe that's the primary driver.

Okay, great. Thanks.

Your next question comes from the line of Pito Chickering of Deutsche Bank.

Hey, Pito.

Hey, Good morning guys. Thanks for putting me in. Asking questions for April, when I look at the payer mix in 2020, and where you've taken the cost per visit in the fourth quarter, and all the data that you've collected? How should we think about the new cost structure and leverage from analytics, converting into you guys getting more aggressive with MA and commercial contracts? I guess it definitely is this new contract with you know, like United is the tip of the iceberg if you guys signing the contracts?

Yes, I certainly think that we have a lot of momentum moving in that direction. And we have always been very discerning about the relationships that we want to enter into, we wanted to focus on those. And we felt very comfortable that the reimbursement levels supported the level of quality care that we wanted to deliver. And so we've historically lagged the industry in non Medicare relationships because of that. And I think that's begins to change as we continue to get more and more efficient and our operating model lowering our cost base. That creates opportunities, but we are also seeing those payers move in the right direction as well, and create contracts that not only have higher reimbursement associated with them, but also more efficiency relative to their authorization requirements or better said lack of requirements. We are really being very discerning about the contracts that we take. And if there is a pre-authorization requirement that's going to become both burdensome in time and effort, we are saying no to those. And so I think we are looking for those right relationships where we can be paid well, we can be a trusted partner who doesn't have to be nickeled and dimed on every visit allocation, but rather is trusted to deliver clinical outcomes, and then in turn, be rewarded for those outcomes. Those are the kinds of partnerships that we are looking to form and I think, when you get down to you can even look at star ratings, but when we talk to payers, they frankly don't ask us very much or property much about star rating. What they instead want to know about is emergent care and hospitalizations. And you look at our statistics in both of those categories we perform very, very well and as a result, become a very trusted partner to those sources and a partner that don't negotiate with a little bit of rates. So I think as the tide continues to move in that direction, you will see us expanding on those relationships in ways that continues to support our quality care delivery.

Okay, great. And then a follow up question for you April, again, on home nursing is that the huge demand for any employees or nurses who are helping patients in the home setting today. How should we think about wage inflation ahead of normal levels within home nursing during the next year or two? Thanks so much.

I don't necessarily think that that home based care will have a higher inflation rate than other healthcare sectors, I just think that we've seen as Barb mentioned, we've seen a lot of our older nurses, which tend to gravitate toward home care for a variety of reasons, leads the market early because of COVID. And then we've seen a lot of our younger nurses who are raising young families, leaves the market because of some of the childcare challenges that have existed during the COVID period, hopefully, as COVID subsides we will keep both of those cohorts potentially come back to the market. But in the meantime, we just see a recognition that hospitals are driving the cost up and then as a provider in the same market, even though we are providing a different type of service. We are having to chase some of those acute care hospitals and what they are having to do to recruit nurses to work their falls. And so I think it's just something that we are going to be sort of a byproduct, not that leader of the inflationary markets, but we are just going to change the it’s your hospital behavior, because that's our competitors in the workforce.

Okay. Thanks so much.

[Operator Instructions] Your next question comes from the line of Scott Fidel of Stephens.

Hello Scott.

Hi, thanks. Good morning. I had to hop on late to another earnings conference call conference. So hopefully, it hasn't been asked – I have two questions for you. The first is just if you can give us sort of an initial framework and thinking about the Home Health and Hospice M&A target that that you've included the $50 million to $100 million, just in terms of sort of [BIAS] in terms of home health, wellness and hospice markets and sort of pipeline in those and then also just obviously not expecting you to comment on the strategic review. But we are just interested in as relates to that specific M&A target that you have for the business, whether the strategic review would influence that in terms of the pacing of how we should think about, you executing on the M&A your plan for 2021?

Yes, Scott. It’s Mark Tarr. So as you know we can't comment right now on future preview and in a set timetable for that, but the process is ongoing, but it will ask April to weigh in on her thoughts on the acquisition.

Yes, we definitely saw a resurgence and acquisition activity in the back half of last year. And things that kind of the low that was experienced at the beginning of the year from both COVID and [indiscernible] transition is in the rearview mirror now. So we are seeing a lot of activity in the M&A pipeline. And they are encouraged that we are going to be able to find some good options. When we focus on really wearable deployment of that acquisition capital goal, we really continue to focus on our consistent three strategies. Job number one, is that we want to create more overlap markets with our [erbs] because we see that strong results and clinical collaboration. Job number two is, we like to build scale and density and markets because we see that having margin improvement opportunity. And in job number three, we'd like to also create that overlap between Home Health and Hospice, just like we're doing with Home Health and [erg]. And so realistically, if it hits one of those three core criterias for acquisition, we're not particularly focused on Home Health or Hospice more so one than one over the other, we really are looking at those three categories and saying, which one does this serve best and where can we get the knowledge deployed. Multiples are rising, obviously, particularly in the hospice sector. And so we continue to be a discerning buyer. We want to grow, but we also wanted to put our capital carefully and in the way that it can create the best yield for the organization. And so we're looking at an array of transactions that this meant three strong criteria.

Got it. And then I will just put my follow up question. I am just interested in an update on the clinician compensation model changes that you had implemented it does seem like that was supportive for the margin profile for home health and hospice in the back half and just interested in the ability that you have to flex that in 2021, just based on how emissions and volumes for the business end up sort of playing out here if they remain, depressed because of COVID does that model sort of stay in place but if you do you see volume start to accelerate? How would you adapt the model to ensure that you have adequate staffing? Thanks.

Yes, the good news is I think the model flexes itself, because what we've really done is sort of lower the base pay and in turn create an incentive in bonus compensation. But if you'll work over this lower threshold as it aligns with a lower base pay that you can earn back, to add or above your prior compensation level. So it's really been a win-win. And it's basically shifted the opportunity for excess productivity to the employee side of the equation. And really, as a result, people are really pushing and trying to get to the high end of what our previous 100% plan was, because they've got motivation to get there. I think we have the natural flex capacity. We didn't lower our number of headcount in therapy at all by making this change. As a matter of fact, that was the beauty of it is that we could keep our whole staff but really drive efficiency in our productivity realization. So I think we've got the capacity to grow in that service one in that discipline as we move into 2021.

Okay, thank you.

Thank you. I'll now turn the call to Crissy Carlisle for closing comments.

If anyone has additional questions, please call me at 205-970-5860. Thank you again for joining today's call.

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