Option Care Health, Inc. (OPCH) Q2 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Option Care Health's Second Quarter 2020 Earnings Call. [Operator Instructions]. I would now like to introduce you host for today's call, Mr. Mike Shapiro. You may begin.

Good morning, and thank you for joining us for the Option Care Health's second quarter earnings call. I'm joined this morning by John Rademacher, Chief Executive Officer. Before we begin, please note that during this call, we will make certain forward-looking statements that reflect our current views related to our future financial performance, future events and industry and market conditions. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from our comments. We encourage you to review the information in the reports we file with the SEC regarding the specific risks and uncertainties. You should also review the section entitled Forward-Looking Statements in this morning's press release. During the call, we will use non-GAAP financial measures when talking about the company's performance and financial condition. You can find additional information on these non-GAAP measures in this morning's press release posted on the Investor Relations portion of our website. With that, I'll turn the call over to John.

Thanks, Mike, and good morning, everyone, and thank you for joining us to review our second quarter. As we sit here today, 2 days ahead of the 1-year anniversary of the merger between Option Care and BioScrip to form Option Care Health, it is quite remarkable the amount of progress we have made in creating a truly unique enterprise. Reflecting on the amount of ground we have covered over the past year and the resilience of our organization during significant tests gives us confidence in our ability to seize the opportunities in front of us. Clearly, it has been an eventful period since we released our first quarter results on May 7, and the pandemic has had a meaningful impact on Option Care Health and our operations. This morning, I plan to focus on the current situation and how COVID-19 has affected us and, more importantly, how we have responded. Overall, our results reflect the value creation opportunity of the enterprise we have been building over the past year and resilience of the clinically differentiated services we offer our patients. Given the preannouncement, I will defer to Mike to review the financial results. But overall, I am very encouraged by the strong growth we delivered in the second quarter and the improved financial profile of the company during a very dynamic situation. I honestly cannot express the pride and gratitude I feel towards the thousands of dedicated Option Care Health team members who have endured the challenges of the past months to safely and effectively transition new patients on board and ensure the continuity of care for patients that we serve. On the heels of a very strong quarter and having accelerated much of the integration lift, we are now squarely focused on laying the framework for continued longer-term growth. As I articulated on our first quarter call, in response to the COVID crisis, we quickly established a command center to actively manage the pandemic situation and to focus on the safety of our team, ensure continuity of care for our patients and actively collaborate with referral sources to transition patients to the home or one of our infusion suites. Our efforts and proactive management have proven effective, as we have weathered the storm well despite many hurdles and unique challenges. Our proactive supply chain management and procurement efforts have ensured adequate levels of personal protection equipment and vital drugs to ensure continuity of care, and we did not turn away 1 referral or patient transfer in the quarter because of us being unable to supply. Our dependability in this turbulent period has only strengthened our relationships with payers and providers as a partner of choice. As expected, new patient referrals were negatively impacted by the COVID-19 pandemic. Early in the second quarter, we saw a double-digit decline in acute therapy referrals as a direct result of lower hospitalizations and the cancellation or postponement of scheduled procedures. While we saw modest recoveries in certain markets, overall, acute referrals remained below pre-COVID levels, and we continue to see varying degrees of recovery at the market level. We expect acute referrals to gradually improve over time but not uniformly across the country and not a V-shaped recovery. Our portfolio of chronic therapies continued to perform very well in the second quarter with strong payer collaboration, and patient transfers onto service with us from other sites of care drove low double-digit growth in the second quarter. We continue to actively work with referral sources and payers to identify patients who will benefit from receiving therapy in the home or infusion suite setting, which represents a lower cost site of care and frankly is preferred by patients given the current situation. In the second quarter, we also made considerable progress in our merger integration efforts. Given our focus on tightening the belt like every other organization, we accelerated a number of integration-related efforts to pull forward both the operational and financial benefits. Recall that we articulated a goal of at least $60 million in net cost synergies to be realized within 18 to 24 months postmerger. Sitting here today, 1 year from the merger, we have achieved our goal of at least $60 million in net run rate synergies. We will overachieve our synergy target. But as we get further from the merger date, quantifying synergies versus inherent cost leverage will become less apparent. Nonetheless, we will continue to drive cost savings. And given recent learnings from the COVID-19 situation, we will examine our business model for additional sources of efficiency. As we begin winding down integration efforts, this frees up my leadership team's time and resources to intensify our focus on accelerating organic growth. Underlying our integration efficiency and ability to quickly and effectively transfer patients over the past few months is our proprietary technology platform that we have built over the last several years, which leverages leading platforms, including Oracle, Workday, Wellsky, Salesforce.com and AlayaCare, amongst others. We have established a market-leading suite of tools that expedites patient registration and onboarding, discharge coordination, ensures best-in-class quality, maximizes patient support and engagement as well as provides timely clinical feedback to providers and payers. This integrated suite of applications is highly scalable and provides a solid platform that will enable future growth for years to come. Finally, we are making tremendous progress on our proactive engagement efforts with key payers to foster stronger partnerships and mutually beneficial relationships. We announced late last year that we entered into collaborative multiyear agreements as a preferred provider with both UnitedHealthcare and Aetna. Today, I'm very excited to announce that we have recently entered into a strategic multiyear agreement with Humana, an innovative payer with whom we have had the privilege to partner for several years, and we're excited about the road ahead with them. We take pride in our ability to collaborate with payers based on strategic focus on infusion therapy, our national scale, our clinical differentiation as well as our independence. We remain the only scaled provider that is in network with all national payers, and the new agreement with Humana reaffirms the value we can deliver in terms of better outcomes for patients, providers and payers. In closing, the second quarter was extraordinary on many fronts. We successfully managed through what is arguably one of the most challenging and disruptive periods for U.S. health care in memory while accelerating merger-related integration efforts, delivering exceptional growth and laying the groundwork for future growth through our expanded payer collaboration. I have never been more confident in the future of Option Care Health. Finally, I wanted to share a few thoughts regarding the sale of common shares 2 weeks ago. On July 24, we sold 10 million common shares under our recently established shelf registration with the explicit intent of using the net proceeds to pay down a portion of our second lien notes. At the same time, our primary shareholder also sold 8 million shares. Mike will walk through some of the specific impacts of the offering. But from the company's perspective, we are excited that we are making progress against our commitments to deleverage as well as increase the public float in our shares, both of which we believe will be quite beneficial to our shareholders in the long run. With that, I will turn the call over to Mike to review the financial results in a bit more detail. Mike?

Thanks, John. As we initially announced on July 20 and reiterated this morning, we delivered strong financial results in the second quarter and reinitiated full year earnings and cash flow guidance. Just a reminder that the reported growth in this morning's 8-K is as reported, and prior periods are comprised of only legacy Option Care financial results. I will try to provide comparable growth, where possible, based on our estimated combined prior year results and the impact of harmonized accounting policies. Revenue in the second quarter of over $740 million represents comparable infusion revenue growth of approximately 7%, driven by low double-digit chronic therapy growth, which offset a modest decline in acute relative to the prior year. Chronic benefited from the transfer of patients from hospital, HOPD and other sites of care to the home or one of our infusion suites. Going forward, we anticipate continued softness in acute referrals given current hospital activity levels and expect a modest uptick in referrals heading into the fall, given typical seasonality trends. Regarding our portfolio of chronic therapies. We also anticipate fewer new patient referrals as patient visits to specialists for the treatment of chronic conditions continue to lag. However, we continue to actively collaborate with health systems, physicians and payers to drive new patient referrals. Gross profit of $166 million represented 22.4% of net revenue. And while comparisons to prior year are challenging given the geography differences in the P&Ls of the legacy organizations, we still expanded gross margin by 200 basis points over reported legacy Option Care results despite higher growth in lower-margin chronic therapies. Our operations team continues to drive efficiencies in our cost to serve patients, and the realization of synergies also contributed to the margin expansion. Spending of $124.9 million represented 16.9% of revenue, and note that it includes approximately $9.8 million of integration-related expenses, which is detailed in the reconciliation of adjusted EBITDA in this morning's press release. We expect spending leverage to further improve as integrated-related expenses continue to decline and synergies take hold. As we have mentioned on many occasions, we are confident in the scalability of our infrastructure, and we expect spending leverage to continue to improve, especially as integration-related expenses decline. As we initially shared on July 20, we exited the second quarter having achieved our goal of at least $60 million in net cost synergies. The team has been laser-focused on accelerating integration efforts while minimizing any patient disruption, and we've made tremendous progress well ahead of our initial time line. Integration efforts continue behind the scenes to ensure that our technology platforms are harmonized and our clinical capabilities are optimized, and we anticipate those activities will continue into early 2021. But as we get further away from the merger date, it becomes muddy regarding what is a merger-related cost synergy and what is cost leverage as a result of us doing our job. Ultimately, we expect a modest overachievement of net cost synergies. And thereafter, we'll continue to actively drive spending leverage across our operations. Adjusted EBITDA of $54.6 million represented 7.4% of net revenue compared to an adjusted EBITDA margin of 4.8% in the second quarter of 2019. EBITDA margin is a vital metric we use to evaluate our ability to grow profitably, and the second quarter results are encouraging and reaffirm our profit trajectory. Shifting to cash flow. We generated $35 million in the quarter in cash flow from operations despite some strategic investments in drugs and medical supplies. Free cash flow, which we define as the net change in cash balances, was $40.9 million in the quarter, which, as we disclosed, does include $11.7 million in cash receipts from HHS related to the CARES Act grants. Excluding the grant receipt in the second quarter, free cash flow was still $29 million. We finished the quarter with more than $250 million in total liquidity with no outstanding borrowings on our revolver. Regarding the CARES Act grant receipts. After careful analysis and consideration of the program's intentions, we have decided to return the grant funds to HHS in their entirety. We appreciate the responsiveness of the federal government in proactively supporting health care service providers. However, we have determined that the grant money is best utilized for other purposes. The return of the grant funds will be reflected in our third quarter results as a financing outflow on our cash flow statement. Subsequent to the second quarter, we successfully issued 10 million shares of common stock at a price of $12.50 on July 24 for estimated net proceeds of $118 million after underwriting discount and fees. As disclosed, we will use the proceeds to retire a portion of our senior secured second lien PIK toggle floating rate notes due 2027. Despite having a flexible and patient debt maturity profile, we are excited about the positive modification to our capital structure as the offering enables us to deleverage quicker and will result in more than $1 million a month in reduced cash interest going forward. Our ultimate goal is to migrate to a leverage profile of below 4x, and we are well on our way. Finally, given the strength of our results in the second quarter, we reinstated full year guidance of $200 million to $210 million in adjusted EBITDA and expect to generate more than $50 million in free cash flow for the year. With that, we will open the call for Q&A. Operator?

[Operator Instructions]. Our first question comes from David MacDonald with SunTrust Securities.

Mike, can you just remind us in terms of 2020 free cash flow guidance, some of the cash payment headwinds that are reflected in that number? And then when we think about 2021 free cash flow, is cash interest expense around $100 million and CapEx around $30 million the right way to think about that?

Yes. Sure, Dave. Thanks for the question. Yes, original free cash flow guidance was to generate at least positive free cash flow. If you remember back on our year-end call, we talked about cash flow from ops of at least $50 million and positive free cash flow. And again, we define free cash flow as the net change in cash. As we sit here today through -- halfway through the year, we generated in excess of $53 million in cash flow from ops and obviously very strong free cash flow through the first half. And so a lot of that is effective working capital management and accelerating some of the synergy realization. So as we think about for the year, again, our guidance is at least free cash flow of $50 million, which is effectively where we are through midyear. We do have an outflow in the third quarter related to returning the grant funds, which we think we'll be able to more than cover. And again, we're going to be relentless around generating free cash, and I think you should view $50 million as the floor. As it relates to 2021, obviously, a lot of ground to cover between now and 2021. But we would expect a meaningful decline in cash interest. Not only are we going to retire a meaningful portion of the second lien, we have some rate locks that fix the underlying rate on the second lien at around 2%, and those mature at the end of the fourth quarter. So that will also help us. I would expect cash interest to be below $100 million. And as we've talked about this year of CapEx of around $30 million, I think that's probably the high watermark. But conservatively, I think consistent levels of investment for next year is a reasonable assumption.

Okay. And then just, Mike, can you quickly comment on the second lien paydown and the additional flexibility that, that provides in terms of potential further improvement in the capital structure, maybe anything or a commentary around the rating agencies and any help you could potentially get there? Just how you think broadly about the remaining capital structure in place and what paying down a portion of the second lien does for you in terms of additional flexibility.

Sure, Dave, you bet. Yes, I think, look, naturally taking out what's roughly half a turn of leverage, as John and I have consistently talked, we are very focused on deleveraging over time. Despite a very patient maturity profile, we thought we could opportunistically improve the capital structure. This just accelerates our journey to get below 4x, which we thought would be over the medium term. I think that accelerates it. And I think within a couple of years, we should be below 4x, which I think just gives us additional flexibility. And look, between the rate locks maturing and taking out a portion of the second lien, that's more than $1 million of cash in our pocket, which we can obviously strategically reinvest in the business. So it just adds to our overall flexibility. And I think with the rating agencies, I think it reaffirms our commitment. And the fact that we saw opportunity to utilize equity to improve the leverage profile, I think, just reaffirms actions speak louder than words.

Okay. Last couple, just back on Humana and more broadly, in terms of engagement with payers. When you're having these conversations, are you seeing payers increasingly looking at narrowing networks? And John, in your prepared comments, you mentioned better outcomes for patients, providers. Is there any conversation in some of these contractual chats about tying a portion of either upside or the contract to outcomes, a portion of kind of a risk-based outcome?

Yes. Dave, thanks for the question. So as we've said before, the work that we're doing with the payers and our ability to have these multiyear strategic relationships is an incredible foundation for us to be able to build from. And so when we embarked on this, making certain that we secure these large payers certainly on the national was extremely important for us to be able to do. We -- as an organization, as I said, we put that as the foundation. We're really thrilled about that. At this point in time, most of the work that we're doing is more around performance guarantees. We put our money where our mouth is. As an organization, we are willing to stand behind those outcomes and stand behind that partnership with the payer community. We expect that will evolve over time. Ultimately, everyone's talked about value-based reimbursement and things of that nature. We think that locking into these multiyear agreements with strategic partnerships as they're narrowing their networks and reassessing their network profile as well as the first steps of performance guarantee, we think that is a positive direction to tightening and building a stronger relationship.

I guess last question for me. Just given everything that's happened in the last handful of months, wanted to come back to the ambulatory infusion suites. And is that an area where maybe you guys think about some de novo spend and putting some additional dots on the map? Or is the footprint pretty adequate at this point? Just how you're thinking about that and the ability to leverage that channel in a more meaningful way.

Yes. Dave, look, we've continued to take a look at that within the CapEx profile that Mike outlined, is continued investments into the business. And so we are looking for those opportunities. We have a couple of things that we're doing certainly when we rebuild our facilities, just part of our normal build-out. We're looking for opportunities to embed infusion suites within them that are of the highest standard from that standpoint. So there's some natural expansion with that as well as we're looking at stand-alone de novo in key markets as we move ahead. We have found that through the pandemic, having a focused suite that only is focused on infusion adds a level of comfort and confidence to our patients to be able to receive that care in one of our infusion suites. So we're continuing to be very bullish on the value that it drives, and we're very, very confident that we're going to continue to expand our footprint as we identify demand and need in the market to be able to capitalize on that.

Our next question comes from Matt Larew with William Blair.

I wanted to ask a little bit about what volumes have looked like here in July as some parts of the country have seen rising case counts. And then you mentioned that the recovery has not been universal sort of across the country. But in markets that have had sustained low cases at this point for some time and actually returned to more normalized health care interactions, what are you seeing there from a trend standpoint relative to some of the parts of the country where there are still rising case counts?

Yes. So I would characterize it, as we said in kind of the prepared comments, of it is, as you said, a little bit erratic across the country. And certainly, where we're seeing flare-ups, we see corresponding tightening of hospitalizations and deferment of scheduled procedures from that standpoint. I'd say the positive trend is where we have seen markets reopen, where we have seen the COVID case counts be more in control, with that, we see an uptick in the number of referrals. Some of the major metros that were hit hardest in the early part of the quarter started to open up in the back half of the quarter and even into July. And so we expect that's going to be inconsistent across the country. We think that rural areas, we're seeing some increase in flow from those referral sources. We expect that as we move over time, we'll have two things that should be positive from that. One is we know that there is seasonality, and we see a normal seasonal uptick in the back half of the year. And we expect that as hospitals and health systems get back into the rhythm of being able to manage both COVID patients as well as manage the general population, that we will see some of the demand come back. As we said, we have not seen a V-shaped recovery. We think that it's going to be more gradual over time, and our goal is to make certain we are well positioned with our team of care transition specialists as well as our selling resources should be a partner of choice and to capture that demand as it returns to the market.

Okay. And then I wanted to ask, on the first quarter call, you highlighted some of the technology capabilities, including virtual onboarding, and also talked about the referral sources and how the footprint and the ability to take on patients quickly really led to an uptick in the referral sources. So I'm just wondering, I understand we're not out of the woods, but just from sort of a capability standpoint, things that you've taken away from COVID maybe that put Option Care in a better competitive position moving forward?

Yes. Matt, I think we've learned a lot. The old saying, "Necessity is the mother of invention." As John talked about, we've been investing in a very scalable sophisticated suite of tools. I think it's really uncovered a lot of opportunity and a lot of the horsepower under the hood, so to speak, through the COVID era. As John mentioned, a lot of our technology is around virtual onboarding. It's around the efficiency of making sure that patient in an acute care setting or in a physician's office is seamlessly and expeditiously transitioned through authorization, benefit verification, patients each scheduling, compounding and delivery of the therapy. And so a lot of the efficiency enablement tools that we have developed have really come to the front burner through being able to, especially in the Northeast, which we highlighted on our first quarter, is where we were able to really utilize our virtual technology and make sure that with a flood of patient transfers that we could efficiently process those. So a lot of that's encouraging because, again, we also highlighted on the first call that, that technology helped us reach into some of the rural and smaller metro areas, where, frankly, we didn't have the coverage from our clinical team on the ground. And so I think as we emerge, I think that gives us more confidence that we can maintain the efficiency and the span of reach that we've proven over the last couple of months.

Yes. Matt, the only other thing I would add is we -- as we had highlighted, we were forming new relationships and expanding the referral source through really the first half of the year. Part of that was just as we had reset the selling team, as we had talked about postmerger of realigning and resetting, we continue to see that trend being positive not only from the point of that reset of the team back in October, but continuing through really the first half of the year and into the second quarter. So we expect we'll hold the ground of those relationships that we're building. And our expectations are that recent frequency will be an important aspect for our selling resources. And we have the tools to be able to track their activities to make certain that we are providing our adequate cover -- coverage within those markets.

Okay. And the last one for me. Mike, I guess as we think about margins moving forward, you mentioned increasingly difficult to break out specific synergies. But given that you've already hit the target you set, and they have some upside there, and just delivered what has been the strongest EBITDA margins over the last 4 quarters, how should we think about the margin improvement moving forward in terms of that cadence? I understand it will be mix of both core operating improvement as well as potentially some additional synergies.

Yes. I mean, we've been very open that we see this as a high single-digit EBITDA margin business. And rest assured, we're not going to stop at high single digits. I think the last 90 days has reaffirmed the scalability and spending leverage. That's something we talk a lot about. And given the fact that we're confident that we can grow spending considerably lower than the margin -- the gross profit dollars, that's going to continue to drive EBITDA expansion. So again, we're encouraged that the primary thesis or one of the primary theses of the merger was unlocking the cost synergies. Here we are inside of 12 months, having achieved the cost leverage. Again, as John mentioned, we will overachieve. And again, we're relentless at looking at spending leverage. And I think the last 90 days has also uncovered some additional areas where we're going to go back and revisit the operating model and see where else we can shake loose some leverage. So again, we're not stopping. We're encouraged. You're right, we've expanded EBITDA margins by more than 200 basis points year-over-year. And it's only putting more wind in our sales.

Our next question comes from Kevin Fischbeck with Bank of America.

I wanted to ask about the guidance. Obviously, the guidance doesn't seem to be assuming very much improvement in the back half of the year, particularly when you think about the synergies being fully in that run rate in the back half of the year. It sounds like it was at first a seasonal uptick. It doesn't seem like we're going to be facing a quarter as difficult as Q2 operationally. So just wanted to see if there's something out that you would point to that would be kind of a headwind to the second half of the year. Or is it just conservative guidance?

Yes. Kevin, it's John. Thanks for the question. As we were looking forward and as we're trying to be thoughtful about the way that we're looking at the back half of the year, we do expect that there is going to be some inconsistency in the top line, right, as we see the flare-ups happen, as we're preparing for the inconsistency of the recovery within that process. That, I think, is something that we, as an organization, we're trying to factor in as there's just a level of uncertainty there from that standpoint. As Mike just said, we're relentlessly focusing around where we can squeeze costs, where we can use and leverage the infrastructure effectively, how we can take on the volume that comes in, in a very effective and efficient way. And so we're cautiously optimistic that we're on the right path, that we're continuing to build the solid foundation to really drive that forward and that as an organization, we're well positioned to capture demand. It's just not knowing how that demand is going to recover that I think has added a level of conservatism to the way that we're approaching it.

And the only thing I'd add, Kevin, is, look, we've obviously modeled a number of scenarios and shocked the top line across therapies and geographies, et cetera. And I think while it was important for us to reaffirm the floor of our original guidance at $200 million, we obviously have a high degree of confidence that given the levers and optionality that we have, that we'll be able to still deliver a very productive year. So I think we obviously want to go out with a conservative view and make sure that we're doing what we say we're going to do.

Okay. Great. And then I guess if you could talk a little bit about how maybe the competition has dealt with this. I guess in your prepared remarks, you commented about how you hadn't turned away a referral or a patient. I mean, is that something that you saw competitors do? Is there any -- I don't know if you can tell, but maybe at least an anecdotal evidence of gaining share from some of the smaller players during this period?

Yes, Kevin, so a couple of things. And again, it's hard to get clear visibility on the key competitors within that environment. What we can say is we do know that there were situations where given the strength of our procurement team and really strategic sourcing, we were ahead of the game in making certain that we had adequate supplies of personal protection equipment in the process. There were situations that we were aware of where some of our competitors, some of them in smaller sites of the competitive range, were unable to take patients on because of lack of adequate supply there. So we know that we had the ability to really lean in, given the position that we had, to be that partner of choice to help with those transitions of patients out of the hospital or out of the HOPD into one of our infusion suites and into the home. So our expectations are we will maintain and hold the ground that we've gained on that, and we believe that the stability and the reliability that we were able to demonstrate through a very difficult time will do -- be very positive in making us the partner of choice for referral sources moving forward.

Yes. And I think the only thing I'd add, Kevin, is I think it reaffirms that scale truly does matter in this industry. As John mentioned, given some of our procurement relationships, with our direct relationships with manufacturers and suppliers, I think we had a higher degree of confidence in our ability to maintain the supply chain. And another key strategic advantage that we believe we have is we employ more clinicians and infusion nurses than anyone else in the country. A lot of those infusion nurses have the same challenges that all of us have around kids at home and challenging situations outside of work. But that's allowed us with the flexibility and the staffing model that we have to ensure, again, that not one patient was compromised in terms of service continuity. And I think it's a testament to our clinical team. And I think, frankly speaking, relative to some of the smaller competitors, that's just a challenge that was difficult to overcome.

Got it. Great. And then I guess any thoughts on the CMS home infusion reg?

Yes. Look, we continue to work in close collaboration and partnership with NHIA in making certain that our voice is heard on the Hill. There's a two-pronged approach right now that continues to move forward. One is the litigation that NHIA has taken against CMS, and expectations are that we should hear about that shortly. As well as we're working in partnership with bipartisan support to gain additional support and legislative support for a better reimbursement mechanism and a fair reimbursement mechanism for home infusion, either as part of the COVID response as well as just the general improvements in the HEALS Act and some of the other aspects of that. So we're going to continue to be a loud voice. We're going to continue to push as both an industry as well as the industry leader on that. And our expectations are that there has been a high level of, I guess, embracing of the home for safety and effective delivery of care. And we're hoping that CMS wizens -- gets wiser to the prospects and really the value that home infusion can provide to really one of the most vulnerable patient populations, that being the elderly and those that are in the Medicare population.

Our next question comes from Brooks O'Neil with Lake Street Capital.

Congratulations on all you've accomplished in the first year, and I'm looking forward to the future. I wanted to start off by asking, John, you commented a little bit about your senior leadership team focused on accelerating organic growth. I'm hoping you might give us some of the areas you see the biggest opportunity. And maybe you could even suggest what rate you think you could grow the top line over time. 7% seems pretty consistent with industry growth, but maybe you could do a little better with your size and scale.

Yes. Brooks, again, appreciate the question. As the organization had focused around the integration, again, I want to call out what an incredible job the team has done in realizing the value of the integration, right? It starts with culture and really moves through all of the areas of both cost synergy realization and efficiency within the network, and we still have work ahead of us. So it's not as if that will stop. There's continued work to do to harmonize. But again, the heavy portion of that lift, I would say, is behind us. As Mike and I had talked about in previous conversations, we didn't build a lot of revenue synergy into the plan, knowing that those are harder to track and, in many instances, take a little bit longer to achieve through the process. But we have been relentless in our focus around repositioning our selling team to make certain that we had better coverage in the marketplace, that we were stronger in the way that we were building those relationships, and that we're well positioned to capture demand in the acute area and partner both upstream with manufacturers as well as downstream with referral sources to help make the market -- as market shifts happens in the chronic area. That, I think, is probably the biggest area of focus now as we move forward, with the leadership team having a little more bandwidth moving away from all of the integrated -- integration-related efforts to now being focused around clearly running the business and optimizing the value that we believe we can bring to patients, to referral sources and to payers. And I think that's going to be important over the long run. To the direct question, look, my goal is and what the team is aligned around is a strength of this organization should be our ability to really drive that top line, to focus around the organic growth we've seen. And I think I've communicated before that we think that the industry is growing at 5% to 6% on a per annum basis. And look, I'll push the team to grow better than that. I mean, that is the goal. We think we are well positioned in order to do that. We think now that we've got a year under our belt in working together, we are really excited about the potential of the business. And as I said in my opening comments, I have never been more confident in the future of Option Care Health and our ability to drive sustainable growth and create a really sustainable competitive advantage.

Great. Just following up on Kevin's questions on Medicare. I'm curious if you could highlight any differences that you see from the Medicare Advantage payers versus traditional Medicare. Is there a bigger utilization of home infusion from the commercial Medicare payers relative to our United States government's response to you guys?

Brooks, it's Mike. It's a great distinction because whereas we've been challenged to establish a direct Medicare reimbursement benefit, which is economical and logical, the amazing difference is that when we think about our portfolio of commercial payers, and again, more than 85% of our revenue is generated from commercial payers that includes Medicare Advantage plans, those commercial payers see the extraordinary value that migrating patients to the home can unlock, both from a patient satisfaction, better outcomes and obviously considerable cost savings. So we see an aggressive push by our commercial payer partners to ensure that Medicare Advantage utilization is as high as possible. They see the value and the benefits of it, which is why, back to John's earlier comments, that's why we have such collaborative relationships because the services we can bring to our commercial payer partners, whether it's a Medicare Advantage or commercialized or managed Medicaid plans, results in considerable savings for them.

Great. And then, Mike, just following up with you. Does that $1 million per month reduction in interest expense assume any effort to refinance the balance of your second lien notes that I think currently cover an interest rate of around 10% or the roll-off of the hedges? I'm just trying to clarify there.

Yes. You bet, Brooks. That does not assume any refinancing. Again, through simply taking out what is an expensive tranche of debt, retiring more than $100 million of the second lien and the expiration of the rate locks on the second lien will result in more than $1 million a month. So that's just the changes that we've talked about. That doesn't contemplate any further adjustments to our leverage profile.

[Operator Instructions]. Our next question comes from Richard Close with Canaccord Genuity.

This is Brian on for Richard. I wanted to drill down into the Humana agreement that you had announced. Is there anything else you can tell us about this agreement? Was this an expansion of coverage? Are you now considered a preferred provider? Any commentary you have would be helpful. And then as a secondary question to that, when we think back to the United and Aetna expansion, you had announced those back in January. So I'm curious if you have any data points that you can call out with respect to how you may have benefited from those expansions so far this year.

Yes. Brian, it's John. So I'll start with the Humana question. So we have had a long-standing relationship with Humana. And so the announced agreement really is an extension of that agreement in a multiyear program. Our expectations are -- and part of what we believe out of that is both as they're expanding their footprint and growing membership as well as our preferred position with them as being a partner of choice, that we will get benefits out of that. But there really is no expansion other than as they grow, we grow and continue to work with them around things like site-of-care initiatives and identification of patient cohorts that we could add additional value if we would serve them in the home or one of our infusion suites. So we're excited about the continued strong relationship there, and we think that there are benefits that will be derived out of that as we continue to work in partnership with them. As for the United and Aetna, don't have specific data that I will disclose on that. But I can say that we have seen a considerable uptick in the number of members that we have brought on service. Now there is some distortion, needless to say, with all of the puts and takes with the COVID effect and things moving around, especially in the acute area and some of the constraints that we saw in the referral parents there. But I can say in the chronic area and where we saw those transfers, the ability for us to be part of a preferred network really allowed us to be well positioned to capture those transfers and to be a partner for United and for Aetna members as they were seeking to transition out of the hospital into the home or out of a hospital outpatient into the home or one of our infusion suites.

And Brian, it's Mike. The only thing I'd add is, look, I mean, obviously, we're quite proud of the portfolio of forefront payers relationships that we've been able to establish. And again, we equate the payer agreements to the fishing license. It doesn't guarantee that you catch the trout. You still have to go out and provide the level of service to the physicians and the health systems to transition the patients, ensure the quality of service and deliver on your service promises. And so we're encouraged by the doors that it's opened to us, and it really allows us to then compete with the referral sources to deliver extraordinary care.

Great. And then one more for me on the gross margin. Mike, you touched on this a bit in the prepared remarks. But given the decline in acute and then the double-digit growth in chronic, I would have thought that maybe there would be -- would have been more of a negative impact to gross margin. But it was flat sequentially with the first quarter. So -- and I think you called out synergies as offsetting some of that mix shift. But any other commentary you have on that would be helpful.

You bet, Brian. Look, I think it's -- you're absolutely right. Our chronic portfolio of therapies, and again, we pride ourselves on the balance of both our therapies as well as the geographic dispersion of our commercial base, our commercial -- or our chronic therapies are growing at a faster pace. And those are the higher-cost therapy regimens. The dollars are considerably higher per patient start. But it's at a lower nominal gross margin rate because, again, most of those are branded, high-cost therapies. That will, over time, with chronic growing faster than acute, that will have downward pressure on our gross margin rate. But I think it's a testament to our procurement strategies as well as our extraordinary operations team who is driving for every dollar of efficiency. Again, the holy grail is absolutely no patient disruption and the quality will never be compromised. But behind the scenes, through our technology and our national footprint, we've been able to drive tremendous leverage in the cost to serve. And so again, we would expect that going forward, you're absolutely right, Brian, we will continue to see therapy mix headwinds as we grow chronic faster. But those are also patients that on a cost to serve are moderately more efficient. And so we're going to continue to drive for efficiencies. And I think the gross margin rate holding flat despite a mix shift is just an extraordinary achievement on our operations team part.

And I'm not showing any further questions at this time. I would like to turn the call back over to John.

Great. Thank you. In closing, we are very pleased with the progress we've made over the first year as Option Care Health, and we're just getting started. Based on the dedication and commitment of the more than 5,000 Option Care Health team members, we expect the back half of 2020 to be very productive as we build a truly unique platform poised for sustained growth going forward. Take care and stay safe, and thanks for attending this morning.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.