Good day ladies and gentlemen, and welcome to the Chemed Corporation Q4 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] I would like to introduce your host for today's conference, Sherri Warner from Chemed Investor Relations. Please go ahead.

Good morning. Our conference call this morning will review the financial results for the fourth quarter of 2016 ended December 31, 2016. 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. During the course of this call, the Company will make various remarks concerning Management's expectations, predictions, plans and prospects that constitute forward-looking statements. Actual results may differ materially from those projected by these forward-looking statements as a result of a variety of factors, including those identified in the company's news release of February 15 and in various other filings with the SEC. You are cautioned that any forward-looking statements reflect management's current view only and that the company undertakes no obligation to revise or update such statements in the future. 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. A reconciliation of these non-GAAP results is provided in the company's press release dated February 15 which is available on the company's website at chemed.com. I would now like to introduce our speakers for today; Kevin McNamara, President and Chief Executive Officer of Chemed Corporation; Dave Williams, Executive Vice President and Chief Financial Officer of Chemed; and Nick Westfall, Chief Executive Officer of Chemed's VITAS Healthcare Corporation subsidiary. I will now turn the call over to Kevin McNamara.

Thank you, Sherri. Good morning. Welcome to Chemed Corporation's fourth quarter 2016 conference call. I will begin with some of the highlights for the quarter, and David and Nick will follow with some additional operating detail. I will then open up the call for questions. In the quarter, Chemed generated $403 million of revenue, an increase of 1.2%. Consolidated net income in the quarter excluding certain discreet items generated adjusted earnings per share of $2.10, an increase of 6.6%. Our full year 2016, adjusted earnings per diluted share is $7.24, this is a 2.4% increase over the prior year. This earnings growth is below our historical growth rate and this volume relates primarily to a shifted Medicare reimbursement methodology. As most of you are aware, on January 1, 2016, CMS implemented a rebating to the Medicare hospice reimbursement per diem. This rebasing eliminated the single tier per diem for routine homecare and replaced it with a two-tiered rate with a higher rate for the first 60 days of a hospice patient's care and a lower rate for days 61 and thereafter. In addition, CMS provided a service intensity add-on payment, which provides for reimbursement of care provided by a registered nurse or a social worker for routine homecare patients within seven days prior to that. Rebasing is revenue neutral for routine homecare billings if 37.6% of routine days of care are provided to patients in their first 60 days of admission and 62.4% of total routine homecare days provided to patients after the 60 days. Basically this is a 38, 62 ratio. This change in reimbursement reduced our full year 2016 revenue growth and adjusted EBITDA by roughly $24 million. The revised hospice reimbursement rebasing was the topic of discussion throughout 2016, since our 2016 revenue and operating results were being compared to a more favorable Medicare reimbursement methodology in the calendar year 2015. This unfavorable comparison goes away in 2017, since both 2017 and 2016 hospice revenue will reflect the rebased Medicare hospice reimbursement. With that, I would like to turn this teleconference over to David Williams, our Chief Financial Officer.

Thanks, Kevin. The net revenue for VITAS was $284 million in the fourth quarter of 2016, which is a decrease of 0.1% when compared to the prior year period. This revenue decrease is comprised primarily of an average Medicare reimbursement rate increase of approximately 2.1%, a 2.9% increase in our average daily census and this is offset by an acuity mix shift which negatively impacted revenue 1.9% and the rebasing of Medicare hospice reimbursement that Kevin just mentioned negatively impact revenue an additional 2.3%. VITAS did not have any adjustments to revenue related to the Medicare Cap billing limitation in the current or prior-year quarter. As of December 31, 2016, VITAS had 31 Medicare provider numbers, none of which has an estimated 2017 Medicare Cap billing limitation. In all 31 of our provider numbers have a Cap cushion in excess of 10% for the trailing twelve month period. Average revenue per patient per day in the quarter was $191.15, which is 3.0% below the prior-year period. Routine home care reimbursement and high acuity care averaged $162.23 and $709.64, respectively. During the quarter, high acuity days of care were 5.3% of total days of care, 63 basis points less than the prior-year quarter. The fourth quarter of 2016 gross margin was 24.1%, which is essentially equal to the fourth quarter of 2015. Our routine homecare direct gross margin was 53.1% in the quarter, a decrease of 160 basis points when compared to the fourth quarter of 2015. This decline is attributed to lower 2015 Medicare reimbursement from the rebasing. Direct inpatient margins in the quarter were 1.2% and occupancy of our 32 dedicated inpatient units averaged 68.2% in the quarter and compares to 68.6% occupancy in the fourth quarter of 2015. Approximately 75% of our inpatient days of care are in…

Thanks, David. Total average daily census in the fourth quarter of 2016 was 16,160 patients, an increase of 3% over the prior year. Total admissions in the quarter were 15,889, an increase of 0.7% on a unit-per-unit basis. This admissions performance includes the significant disruption towards a further flow [ph] on the East Coast of Florida in October from the threat of hurricane Matthew. Excluding the October admissions in the Florida markets fourth quarter 2016 admissions increased 2.2%. Admissions have shown general strengthening starting in August of 2016, even with the October hurricane disruptions our admissions have increased 2.4% during this five month period. This improving trend is a result of our continued focus on enhancing all aspects of our admissions infrastructure regarding people, processes and accountability. This approach combined with our continued healthy referral trends will help to ensure we are admitting appropriate hospice patients in a timely, efficient manner. During the quarter, unit-per-unit admissions generated from hospital referrals which typically represents over 50% of our admissions increased 2.1%, home-based referrals declined 0.9%, nursing home admissions improved 2.1% and assisted living facility admissions declined 8.1% in the quarter. On a per patient per day ancillary costs which includes durable medical equipment, supplies and pharmaceutical costs averaged $14.99 in the quarter and are 6.8% favorable when compared to the $16.8 the cost that these items had in the prior year quarter. As we discussed in our third quarter call, margins in our high acuity continue to be an area of focus both within inpatient and continuous care margins that showed sequential improvement in the fourth quarter. Although the reimbursement for high acuity is relatively high compared to routine homecare, the cost associated with providing this care typically results in low margins. Our inpatient care currently consists of 32 dedicated inpatient…

Thank you, Nick. I will now open this teleconference to questions.

[Operator Instructions] And our first question comes from Frank Morgan with RBC. Your line is now open.

Good morning. You touched on this a little bit, but I was just - in terms of the referrals from hospital sources, I know in the past you’ve talked about how that got more competitive and you’ve made some technology changes to better capture of those referrals. So just a little bit color on to maybe what you have done there and obviously there is some success going on there but any color there would be appreciated.

I'm going to throw this over to Nick to answer, but let me start Frank by saying that the - just to emphasis one point we made during the course of the year. With the change in reimbursement we saw one thing. We saw more competition for patients who are very like to be a shorter stay. While those patients come from hospital - high acuity aspects of the hospital referral side. So that’s where a lot of competition came but let me start by saying with regard to referrals throughout the course of the year despite the some of the difficult we haven’t been predicting actual admissions referrals more right at our historical rate, but I just use that as because background but I am going to turn over to Nick as they have spent a lot of effort on just the issue that you are questioning.

And Frank what I allude inside the fourth quarter is what you are seeing the results of a multi-quarter strategic investment in a lot of different factors that encompass not only servicing our hospital referral sources better, but all of our referral sources better so that includes the ability to have focus on speed of response, irrespective of which setting that referral comes in as well as leveraging and integrating and some of the technological infrastructure than many of those hospital system use whether they are referring that patient out through traditional means, the phone call, whether they are tapping on the shoulder of one of our dedicated resources inside their facility or they are facilitating their referral through some of the electronic platforms that they have that we have now integrated into more efficiently to be able to respond more quickly, more effectively and address the needs of the patients and family at that time.

And Frank this is for - just to give you idea and I think we have talked to firstly about this, what the last point that Nick’s making is, to the extent that as soon as they input the referral information into their system, contemporaneously we get it. So you are cutting out two or three steps on the admission process with regard to initial contact confirmation of the information et cetera. There's some real changes going on as like comes more of complicated in the hospice area.

And we are breaking it down; it is not just the hospital setting Frank it is every step in the process to really make sure we are doing the best in which we can to really optimize that experience for our referral sources as well as those families.

Would you think, things will kind of settle down now, that we are starting to lap through this whole two tiered system focused, or do you think people will continue to be focused on the shorter stay patient as you wish we think that things maybe this competition through referrals that might pressure might ease off a little bit?

We have already seen that, I mean first of all, to answer your question, yes; we think we lapped that dynamic change that we saw in the market. I think there is we have observed the best explanation is that there were whole class of patients that a lot of the our competitors put forth very limited effort to get those patients who looked very likely to be in hospital for two weeks. They we just slow to respond, we were quick to respond, we got an outsized percentage of those patients; when the economic changed a little bit, we saw that changed. In those words they went from zero to 50% effort; during the course of the year we saw that those efforts flag a bit and as Nick said by the last four of the last five months of last year we already saw that lapping and kind of their efforts flagging a bit and kind of retreating to the mean. So yeah, to put this way at this point you can see that in our guidance we are looking for admissions to go back to their for last eleven years we basically said we expected admissions to go 3% to 5%, I mean we had to anticipate that’s what we were seeing. As Nick said he is hopefully optimistic with some of his efforts that we can move that expectation up a bit to the extent that his procedures start bearing the fruit that are behind the scene.

And I wouldn’t lose sight of the fact that remember half of our patients passed van about two weeks or less, and clearly we lost money on those patients. There is no way you can recapture the set up cost. In recent point that out is long term growing admissions have grown in census but admission has a very poor correlation to our growth and revenue in any given quarter or frankly in any given year both long term absolutely we need to grow admissions and we think we are back there.

One more and then I will hop back in the queue, just any kind of update on what you are seeing in terms of labor, the labor backdrop, obviously lot of other providers talk about that as an issue and then finally how much legal expenses in the quarter were related to the DOJ, I think it was like a million one last quarter, million two last quarter where was that and any new update can I have there? Thanks.

I would turn it over to Nick on labor.

On your labor question Frank I think we are, the competition for the right talent out in the market place we still, that’s a current, that’s occurred throughout 2016, we are still seeing there. What we have done similarly along the lines are made strategic decisions as well as investments around investing in our people, making VITAS a very attractive place to work, to come to and to stay at; and actively tracking the outcome of those things. We are very comfortable and optimistic that, the culture and company that we have created and been successful in retaining our folks through the long term; will still be able to do and we are actually starting to see a large influx of interested talent up and down the labor pool looking to join the organization. Because they are looking for stability, they are looking for an organization that does the right thing for patients and families and wanted they see career development and growth within.

One thing, to be candid Frank also, we are like everybody else. If I looked at the labor expenses over the last three months or so, there - few basis points higher rather than few basis points lower. I mean there is no question, this, it is a struggle out there and I mean if she get towards full employment I mean things like this just get little tougher. But then luckily that one aspect of our reimbursement that changes automatically based on hospital wage index and inflation. So that’s the one thing that historically VITAS has been able to very well manage and in short we always show is that basically over the last twelve years VITAS has been able to hold kind of field level expense dominate by the labor expense within one percentage point of with regard to total reimbursements. So, they continue to have pretty good hold on it but it is - get little tougher rather than what over these year.

And regarding the expenses related basically to DOJ Frank, for the quarter on a pretext basis VITAS we had $1.2 million in expenses and that compares to $1.1 million last year and for the full year we $5.3 million in 2016 and that compares to $5 million, roughly 5 million annualized run rate pretax and if anything about probably ramp up as we get deeper into theoretically close to a trial.

Any update on one that might be?

No updates, we are still in the mediation process which is an interesting process but that moves quite slowly and there are no set number of additional meetings in the future, we just respond accordingly to the request of the mediator. One thing you can't crack it all because it has an indirect impact on us, is the AseraCare litigation as you know they have received favorable summary judgment last year and I think that now actually the appeals process begins in March.

Except for oral argument is about in second week of March.

Okay, thank you.

I'm showing no further questions, I would now like turn the call back over to Kevin McNamara for any further remarks.

I've no further remarks, just thank everybody for their kind attention and we will be hearing about three, four months. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. You may all disconnect. Everyone, have a great day.