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AMED


vinod1
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AMED is a home health care provider whose stock was hammered down by about 60% due to a recent senate finance committee and SEC investigation. Medicare is their primary payor accounting for around 90% of their revenue. AMED provides care at patients homes usually for those recovering from surgery as this is lower cost than if patients remain at hospital. Medicare used to reimburse about $2200 for 1-9 visits and then pay an additional $2200 if visits exceed 10. A WSJ analysis showed that there is a large abnormal jump in the number of visits at 10 compared to 9.

 

There is also a motivated short seller who has written up some fear mongering style articles on this company. The language and tactics remind somewhat of FFH.

 

The company has written a letter to shareholders providing data and explaining their position and is available on their website.

 

To me it looks like it is basically a poorly designed compensation structure by Medicare and there does not seem to be any evidance of  criminal behavior. The patient's doctor determines the number of visits so there has to be a vast conspiracy of several thousand doctors and nurse practiotioners. This does not seem credible as the number of visits are going to be very subjective. It could just be that AMED is taking more patients that need 10+ visits or just the incentive scheme makes it unconciously tend to make 10+ vists more likely. AMED's licensed nurse practitioners make the recommendation as to the number of visits and the patient's doctor signs off on this. So there is a possibility that nurse's are more likely to recommend 10 visits if it falls in the 8-9 range.

 

AMED is in a highly fragmented industry with 10,000 companies and it is the industry leader with just a 2% market share and it has been growing very rapidly by acquiring companies. Other companies in the industry have been accused as well but AMED has fallen the most as it is the industry leader with the highest profit margins in the industry and targeted by the short seller. Short interest is about 40%.

 

Risks

1. Medicare may bar AMED. Very unlikely but that would essentially bankrupt the company.

2. Large fines by SEC. More likely but should be manageable for the company.

 

Take a look, this might be a good opportunity.

 

Thanks

 

Vinod

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interesting post.  I have been following these guys for some time.  I don't know how they specifically business, but am  pretty well versed in their incentive structure.  The medicare numbers you quoted are very accurate.

 

I can tell you that the local smaller operators have in my experience been rather shady businesses.  Just as an example, there are many local home health businesses that give kick backs to the nurses in doctor's offices who provide referrals.  This is a cash system and does not typically implicate the physician (they have a lot more to lose if caught doing this kind of thing). 

 

With that said, I am very interested in AMED.  I am still trying to figure out the worst of the most realistic outcomes.

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There is also a motivated short seller who has written up some fear mongering style articles on this company. The language and tactics remind somewhat of FFH.

 

Citron Research (Andrew Left) has an impeccible track record finding great shorts since 2001.  His one major screw up was FFH but check out the other 99% of stocks he was bearish on, most dont exist anymore. 

 

I would advise to do massive DD before getting involved with anything Andrew is bearish on, IMO

 

Just look at VPRT today, getting smashed. 

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With that said, I am very interested in AMED.  I am still trying to figure out the worst of the most realistic outcomes.

 

My guess is a large fine ($100 million) is the most probable outcome. If they have done any intentional manipulation of patient visits I think they would be toast. So this is a probabilistic bet that there is no fraud.

 

Vinod

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Looks cheap, about 3x CF TTM. Also CF has gone up significantly each year, have they been rolling up companies? Any idea on when the case will end?

 

They have been  gobbling up companies like crazy.

 

I think as with any SEC case this would go for an year or more. I think the more immediate catalyst is their 2Q earnings on Aug 8 or 9th. If they reaffirm or give a revised estimate for 2010 earnings, we can expect some traction in the stock price.

 

Vinod

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There is also a motivated short seller who has written up some fear mongering style articles on this company. The language and tactics remind somewhat of FFH.

 

Citron Research (Andrew Left) has an impeccible track record finding great shorts since 2001.  His one major screw up was FFH but check out the other 99% of stocks he was bearish on, most dont exist anymore. 

 

I would advise to do massive DD before getting involved with anything Andrew is bearish on, IMO

 

Just look at VPRT today, getting smashed. 

 

Do not know all that much about them but reading a few of their posts they seem ok. In this case their arguments seem more like making a mountain out of a mole hill.

 

Thanks for the caution. I am planning on digging deeper into the company and industry.

 

Vinod

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I've been following AMED for several years. They have grown rapidly, primarily through acquisitions. Home healthcare stocks have become the poster children for funding health care reform. Medicare proposed a 4.75% reduction in reimbursements ~$900M for 2011. The Senate and SEC are investigating AMED and Almost Family for alleged Medicare billing fraud. As I understand it, the reviews stem from a WSJ article that may not have considered all the facts--Check out the shareholder letter from AMED on their website.

 

http://www.amedisys.com/pdf/Letter_to_Shareholders.pdf

 

I don't know if there's any fraud involved, but the review could take a long time.

 

I thought about jumping in, but after a second look I thought there were too many unknowns.

 

 

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Digging a little further on the company and the shorts, I found a little tidbit on the short seller, Andrew Left. He is found to have violated National Futures Association rules:

 

0253075 LEFT, ANDREW EDWARD • C.R.2-29(a)(1) - FRAUDULENT COMM. TO PUBLIC PROHIB.

                                        • C.R.2-2(a) - CHEAT,FRAUD DECEIVE CUSTOMERS

 

http://www.nfa.futures.org/basicnet/Case.aspx?entityid=0253075&case=95BCC00020&contrib=NFA

 

Vinod

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This seems like a great idea to research, take a 1% option position on, and to watch for the right catalyst. I dont like court cases though, not sure which way the Judges / Jury will go or what smoking gun they may have.

 

Thanks for the tip. I will dig in after earnings season if I have time.

 

 

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Interesting that the quarterly earning estimate has dropped. Looks like the article has definitely helped.

 

I think the odds of a large fine are good and the company may not be barred entirely. Especially that all companies in this segment are being inspected. That said - I don't think this story isn't done yet and it definitely is not like the american express problem of the sixities or the FFH case.

 

http://online.wsj.com/article/NA_WSJ_PUB:SB10001424052748703834604575365012065133250.html

 

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