Tuesday, May 13, 2014 8:44:49 AM
$HLS call options on watch list..They had good result despite severe weather all across the country. At this time, the stock is only on watch list. Will be buying whenever it falls below the current price. Latest 10Q - Questions/Answers
Question-and-Answer Session
Operator
(Operator Instructions) Our first question comes from the line of Whit Mayo of Robert Baird.
Whit Mayo - Robert Baird
Hey, thanks. The first question, I just was wondering if you guys could maybe reflect for a minute on the recent denovo’s over the past two years or so, just wondering if you could frame up maybe returns that you’ve achieved versus expectations, margins, occupancy, just anyway to give us a sense of – sort of, what the returns have been versus your internal expectations?
Jay Grinney
Yes, I would say the returns have been quite impressive. We do have a page in our investor reference book that shows all of the recent denovo’s, I think there are, maybe 8 or 9 of them that we’ve highlighted there and we show not only how quickly did each hospital get to certain occupancy levels but we also then indicate when each of them are achieving positive sustained EBITDA. And so as you can see on that page – I’m sorry, I don’t have that reference right away but we will get it to you shortly. So those of you who have the investor reference book can look at that, but it is at page 73 in the IRB. You can see that virtually all of the hospitals achieve positive sustained EBITDA in months [indiscernible] and most of the hospitals achieved the average occupancy of the company which was just under 70% within the first year. As a reminder, all of the hospitals that we’re building are private room facilities, so the expectation would be that maximum occupancy in those hospitals would be much closer to the 95% level because we have much more flexibility in all private rooms. In terms of actual returns that we’ve said – I’d ask Doug to respond.
Douglas Coltharp
Yes, as we’ve stated previously we target for our denovo’s and acquisitions a pretax return of at least 15%, and we’ve been forced to note that the denovo’s that we have added to our portfolio over the last several years have exceeded their return metric.
Whit Mayo - Robert Baird
Great. And this is really segue to my second question too, and this relates to LTACs. And it just seems so clear that CMS is redefining the role of that particular sector and really pointing the industry towards the most medically complex cases out there. And given your JV strategy on the rehab side, the success with the denovo’s which seems like they make a lot of sense that many hospitals could benefit from dedicated ICU’s and facilities, and these seem to be so complimentary to what you’re doing on rehab. So, I’m just kind of curious how you’re thinking about that, maybe over the next two or three years?
Jay Grinney
Thinking about what?
Whit Mayo - Robert Baird
LTACs.
Jay Grinney
As a provider of healthcare services, we recognize the benefit that LTACs provide to patients who need those services. We are familiar with how to own and operate LTACs, we’ve done that previously as most of you know. I will say that the new patient criteria is welcomed because it now creates some certainty with respect to the next several years, but it is a little troubling to us as you look at the transition – we believe that the transition from current state to future state is going to be a little bumpy. We look at – we’ve done a pretty deep dive on LTACs throughout the country, we’ve done a heat map [ph] to show where are the compliant hospitals, where are the non-compliant hospitals, and well over half of the LTACs out there are currently not compliant. The fact that there is going to have to be such a large transformation is concerning – that doesn’t mean that we are not monitoring the LTAC environment, we are – but frankly, we think it’s a little early to be judging whether or not this is going to present huge upside for the LTAC segment. The biggest concern in our mind is the fact that the non-compliant patients will be paid at the lower – the IPPS monitoring to see how this transition is going to play out.
Operator
Our next question comes from the line of Sheryl Skolnick of CRT Capital.
Sheryl Skolnick - CRT Capital
Hi, thank you very much. I know you can’t comment terribly much about the situation with the OIT and the soppiness [ph] but I’m wondering if you could update us on your levels of compliance with the 60% rule as you have done in the past and your thoughts around the process that you’ve gone through to ensure that you have compliance with the updated parameters in 2009. And any other descriptions of your current operations and posture with respect to the lower acute patients specifically targeted and those that meet the criteria or excluded from normal patient criteria?
Jay Grinney
You’ve stated little bit at the end trouble, I think I caught the question. I’ll take the last part of the question first and then I’ll ask Mark to respond to where we are with respect to overall compliance. But I think as everybody knows, all of us who operate in the healthcare environment are subject to a lot of regulations, many of which come out with certain rules and regulations associated with it. It requires a fair amount of analysis to understand exactly what the new rules mean, then establishing training material, utilizing outside parties when necessary, going to CMS for clarification when necessary, and then attempting to get those new regulations out across the entire portfolio. I think we’ve done a pretty good job with that, we feel very confident that we’re on top of the regulations. At the proposed stage, we’re on top of it once they are actually promulgated, we pay a lot of attention to that and want to make sure that those rules and regulations are complied with and we put training materials together, we have onsite training, we have online training, and we really try to do the very best we can to ensure compliance. In terms of our overall, 60% compliance, and we’d ask Mark to address that.
Mark Tarr
Yes, sure. Our overall compliance of the company is 76%, that is, as you can imagine, a number of that we monitor very closely at each individual hospital to make sure that each hospital is in full compliance with the 60% guidelines and to the extent that hospital gets closer to the 60% then they will closely monitor those patients coming in and make sure that we had a higher percentage of compliant cases to make sure that we have a little bit of a buffer there.
Sheryl Skolnick - CRT Capital
Can you just clarify on that, the 76% overall, meaning that overall for the company as a whole you’re at 76% versus the 60% total rate or does it mean that 76% of your facilities are compliant with the 60%?
Mark Tarr
That 76% overall on the compliance percentage.
Sheryl Skolnick - CRT Capital
Okay.
Mark Tarr
All in.
Sheryl Skolnick - CRT Capital
Okay, that’s great. Thank you very much. And…
Mark Tarr
Sheryl?
Sheryl Skolnick - CRT Capital
Yes, I just wanted to say thank you for releasing that disclosure as soon as you got it, that’s really a best practice and it’s very much appreciated.
Mark Tarr
You’re welcome. Sorry there, it was on a Friday but we got it on Friday so we wanted to make sure that – today we wanted to make sure that everybody saw that.
Sheryl Skolnick - CRT Capital
Thank you.
Operator
Our next question comes from the line of Frank Morgan of RBC Capital Markets.
Frank Morgan - RBC Capital Markets
Good morning.
Jay Grinney
Good morning.
Frank Morgan - RBC Capital Markets
Within your guidance on the volume side, the 2.5% to 3.5%, how much of that would you say is implied to be same-store?
Jay Grinney
No, we haven’t broken that out but historically there has been a roughly 40%, 50% somewhere in that range new store and same-store, but that fluctuates Frank. And that – so it’s very hard for us to precisely say every single quarter same-store is going to be X percent and the new store is going to be Y percent. As you know, when we bring on new hospitals, and for instance this year we’re going to be bringing on new hospitals – three new hospitals in the fourth quarter. But clearly that will have a disproportionate impact on overall discharge growth as we go into 2015, and there will be a disproportionate impact on new stores. Similarly, in years gone by we’ve added hospitals more spread out throughout the year and so the impact is a little bit less. But if you think about it historically and again, we provide this information in the investor reference book on page 12, if you look at it overall, you can see there is a lot of variation in the new store, a new store can be as low as 0.4%, it can be as high as 2.5% or 2.8%, and same-store can be as low as 0.6% as it was in Q3 of 2010, as high as 5% in Q1 of 2012. So I think if you could look at the page 12 in our investor reference book, you’ll see that it’s very hard to say with any certainty or I shouldn’t – with any precision in some sort of formulaic way. If you look at the overall growth, it will consist of X percent same-store and Y percent new store, there is a lot of variability in those numbers.
Frank Morgan - RBC Capital Markets
I got you. Thanks. And in terms of just – in forth of generalization, I understand you’re having – you’re coming up against difficult times, 2.5% to 3%, would you say that’s a good – kind of normalized sustainable run rate on the company? And then – or is there anything else that you’re seeing out there, either new capacity coming around, a new competitor, any other shift that you’re seeing that might influence volume or do you think this 2.5% to 3.5% is a good long-term number that we should model off? Thanks.
Jay Grinney
Yes, we think that that’s a good long-term number that you can model off for the planning horizon that we outline in our business outlook which is found on page 22 of the supplemental slide and would take us out through 2016.
Frank Morgan - RBC Capital Markets
Okay, thanks.
Operator
Our next question comes from Josh Raskins of Barclays.
Unidentified Analyst
Jack, it’s Roth [ph]. So first question just – the update on the guidance where we touched the high end. I understand there was a couple of million dollar gain, I think the $2 million, but my guess is whether there was probably $1.5 million or $2 million as well. So maybe what’s driving the comfort towards the higher end of the range relative to what you guys knew a little more due two months ago?
Jay Grinney
No, just the fact that we’re two and a half months down the road and even though we did see the disruption to discharges in Q1 as a result of the winter storms, as I mentioned, we’re feeling pretty good about the discharge growth in April, it’s one month out of the quarter but we’re back on-track, and so we feel that now we have a little more visibility, little more confidence in the overall numbers and feel that guiding to the high end is the appropriate thing to do.
Unidentified Analyst
Got you. And hi guys, it’s Jack. I just wanted to follow-up operationally with the weather, how does that directly affect the business? Is it more on the admission side bringing people in because you’re downstream from acute care providers or is it more – have a length of stay issued, we can’t necessarily discharge someone with a weather [ph]. I’d imagine that the acute – just the type of population that you’re seeing, that’s not going to change much, you’re going to still – obviously, have the same sort of dramatic injury at each quarter, right?
Jay Grinney
Yes, let me begin, and I’m going to ask Mark to give you a little more color commentary. I mean that the easiest way to think about this because this is the way it happened is – these storms literally locked down on communities that they hit. It did made getting out on the roads virtually impossible. So in those communities and the markets that were hit by these storms and as I think all of us know, there were multiple storms, sometimes days apart. During the build up to and certainly during those storms, these communities shutdown, roads were closed, people couldn’t get in or out of their homes, they couldn’t get in or out of hospitals, be it acute cares and going in terms of admissions, acute cares in terms of discharges, we couldn’t get our lays on instead of the acute care hospitals, and we couldn’t get patients into our hospitals, there were facilities that had to keep patients longer than we would have otherwise wanted to or certainly longer than the patients would have wanted to. So the impact was multifaceted, there wasn’t any just one specific thing that happened, but what we did see was that it occurred in those hospitals, those markets that I mentioned, multiple times, particularly in late January and into February.
Mark Tarr
Yes, this is Mark. Operationally the biggest challenge is just getting the patients in, we can handle referral from acute care hospital but then the storm hit, and then having the ability to actually move to the patient from acute care hospital into our hospital is where the challenges really came into play. And as Jay alluded, it shuts down the entire marketplace, so we couldn’t discharge patients out although we didn’t see a huge increase and overall length of stay for the company as a whole, and those hospitals impacted – there was a bit of an impact there but the greatest challenge was getting patients into the hospital and get that conversion, we call it from the point of having a patient referral to the point of a patient admission.
Unidentified Analyst
Got it. Okay, thanks guys.
Operator
Our next question comes from Darren Lehrich of Deutsche Bank.
Darren Lehrich - Deutsche Bank
Thanks. Good morning, everybody.
Jay Grinney
Good morning.
Darren Lehrich - Deutsche Bank
I just wanted to ask a little bit more about the Mountain States JV and just the overall JV opportunity. It looks like based in your comments this was a freestanding facility and I guess I’d be curious to see your thoughts on the end market and the overall market opportunities for hospitals that are on these kind of freestanding [ph] or if this is something different that you’ll be converting it to that? And then just more broadly get your thoughts on other JVs with hospital based units of – or interested in your comments on the JV potential here.
Jay Grinney
I’m going to ask Mark in a minute to comment on the Mountain States opportunity which we do think is a terrific opportunity for us to partner with, an outstanding organization, and to enhance the overall rehabilitative services in that market. To answer the broader question, we do see that there are increased opportunities to joint venture with acute care hospitals that are providing rehab services today. Some of those services offered by the acute care hospitals are in the form of freestanding hospitals like Quillen. Most however are services that are offered in an HIH. What we are seeing is that many acute care hospitals are acknowledging that in today’s reimbursement environment of reduced Medicare, Medicaid and commercial payments, it’s hard for them to offer a consistently high quality level of rehab services, and at the same time meet all of their medical, surgical and core business needs. Accordingly, we’re seeing more increase and more responses to our increase about joint venturing those services to provide the full continuum of care but now doing it on a partnership basis. And so as I mentioned in my comments, that we were very pleased to announce this joint venture and we are looking forward to announcing additional additions to our portfolio in the balance of the year.
Mark Tarr
Yes, Darren, it’s Mark. We’re very excited about the Quillen opportunity, that kick off our hospital, the building itself was built to be a freestanding rehab hospital, over the years it has had couple of different transitions, it currently houses both, our inpatient rehab, hospital beds as low sniff-beds. The long-term prognosis is to continue to grow the rehab and sniff-beds will be transferred out but needless to say we’re very excited about working with the team there, working with Mountain States, and continuing to grow in that marketplace.
Darren Lehrich - Deutsche Bank
That’s great. And then, if I could just – I wanted to follow-up – Jay, you made a mention of the rule making process, and I’d be curious to know if the rule is coming soon. Are there any expectations for the upcoming PPS we’re making, anything that we should be on the lookout for – that’s any different this year? Thanks.
Jay Grinney
Darren, we are not hearing anything about the proposed rule, we’re not hearing positive, we’re not hearing anything negative. So – but we’re not expecting anything that would be coming from left field. But we’re going to be waiting expectedly just like everybody else to get the proposed rule, probably sometime in May.
Darren Lehrich - Deutsche Bank
Got it. Thank you very much.
Operator
Our next question comes from Robert Mains of Stifel.
Robert Mains - Stifel
Thanks, good morning.
Jay Grinney
Good morning.
Robert Mains - Stifel
The question on the outpatient – I know we’re talking 6% – even though that there are 10 fewer clinics than last year, was there a decline from the fourth quarter or the first quarter or some of that decline also weather related?
Jay Grinney
Well the weather related hit in this first quarter for sure. I mean, that was not something we’d put a number on Rob but it was certainly impacted a significant number of our outpatient business itself is located in those states of which Pennsylvania is one of the higher states that we definitely saw an impact there.
Robert Mains - Stifel
Okay, fair enough. And second, a follow-up to Darren’s question. We’ve got the latest Medicare [ph] behind us, in your mind what is that’s kind of legislative priorities that you’re looking at both for HealthSouth and for the industry?
Jay Grinney
The legislative priorities really are – the sustainable growth rate in 2015 and the debt-ceiling debate that will go along with that. Our assessment is that legislatively there is not going to be anything else occurring in 2014 because everybody’s focus is on the mid-term elections and each party wants to enhance their position in both, the House and the Senate, in terms of the number of representatives and centers that they have. So the next real priority is going to be – what happens to SGR in Q1 of 2015, and how does that fit within the overall debate of the debt-ceiling. That – those I should say will be informed by what kind of – what the House in the Senate looks like in terms of leadership, and which will be dictated by the mid-terms. So that’s the next sort of marker for us, and right now we’re just – when we go to Washington and we meet with members, we are trying to underscore the value proposition that inpatient rehabilitation services offers to their constituent, primarily the Medicare constituents. And we’re very pleased that that message is very well received. I think the members who represent our hospitals, many of whom come to our hospitals, they visit our hospitals, they see the services that we provide, they see the value that we’re offering to the patients who need and deserve inpatient rehabilitative care, and so they get that we’re an important part of the continuum. But to answer your question again, I think the next real milestone legislatively will be next year with SGR and debt-ceiling.
Robert Mains - Stifel
Right, thank you.
Operator
Our next question comes from Chris Rigg of Susquehanna Financial.
Chris Rigg - Susquehanna Financial
Thanks for taking my questions. Just hoping to get a quick refresher on the NOLs and whether there has been any change, quarter-to-quarter I know sometimes the changes at year end and whether – just updated from the timing of when you think you’ll be a full cash tax payer again. Thanks a lot.
Douglas Coltharp
It’s Doug. And the – obviously the NOL does change from quarter-to-quarter as we’re utilizing that to offset what otherwise would be the federal taxes due on our earnings. So we’ve included in the supplemental slides on page 18 with the balance clause at the end of the first quarter, and that was at $866 million. Again, you can then utilize the effective tax rate assumption of roughly 40% and then that will give you a sense as to how long we’ll continue to have the benefit of those NOLs. And as we’ve stated here on page 18 as well, for the near term, we continue to estimate that our annual cash taxes will be in that $10 million to $15 million range.
Chris Rigg - Susquehanna Financial
Okay. And then just one other question, I know you can’t say a lot about the DOJ investigations, but I just want to make sure I understand exactly what happens here and they just be legally if they want but it was OIG-HHS for a number of quarters in your disclosures, and then in the 10-Q it took the change to the DOJ and the disclosures from last week, the DOJ was in there. Has the DOJ always been involved, or did they get inserted into the process at some later date?
John Whittington
Good morning, this is John Whittington. They’ve always been involved and we’ve always disclosed their involvement from the beginning.
Chris Rigg - Susquehanna Financial
Okay. It just looked like it’s in the 10-K and OIG-HHS and then the DOJ came into the disclosures later, but we can follow-up offline. Thanks.
John Whittington
They represent the government, they represent the healthcare administration.
Jay Grinney
Yes, so it’s been in there.
Chris Rigg - Susquehanna Financial
Okay.
Jay Grinney
And Chris, what we’ll do is, we’ll send the excerpts from the Q’s and the 8-K’s just so you can confirm that.
Chris Rigg - Susquehanna Financial
Yes.
Operator
Our next question comes from the line of AJ Rice of UBS.
AJ Rice - UBS
Hello, everybody. Good morning. Two quick questions, first of all, maybe just – is there any further color on what you’re seeing with respect to your labor, particularly your therapist, I know you said EPOB was flat year-to-year but how about turnover rates, availability of people as it tightened it all with the economy getting a little better or not really?
Jay Grinney
The answer is not really. We are very pleased with our ability to recruit and importantly, retain really top talent, both in the nursing side as well as the therapy side. And our turnover in the therapy area has remained consistently in the single digits for – as long as I’ve been here. I mean it’s really been one of the things that I think makes this company unique, and we haven’t seen any volatility in that. On the nursing side, we also have very good retention rates, and part of that has been a push to ensure that as many of our registered nurses has possible seek and apply to become certified as a rehabilitation RN [ph] and that’s been a very successful program for us.
AJ Rice - UBS
Okay. And then the other follow-up I guess would be the – I think last quarter you guys mentioned that you were sort of waiting to see how the doc showcased [ph] and so forth, maybe with respect to in case of share buybacks and obviously, you’ve bought some in the first quarter, do you see that now that we have some clarity around the launch and it seems at least until next spring, do you see an acceleration in your pace on share repurchases or any commentary along there will be helpful.
Douglas Coltharp
AJ, its Doug. Obviously we continue to have capacity for further share repurchases, both in terms of the authorization that is in place from our Board of Directors, and in terms of our balance sheet capacity and specifically the amount of availability that we have on our revolving credit facility. And as we have stated I think pretty consistently here over the course of the last two years, shareholder distributions, both in the form of the dividends that we’re paying on our common stock and incremental share repurchase are going to continue to be an important component of our business model.
AJ Rice - UBS
Okay, thanks a lot.
Operator
Our next question comes from the line of Gary Lieberman of Wells Fargo.
Gary Lieberman - Wells Fargo
Good morning, thanks for taking my question.
Jay Grinney
Good morning.
Gary Lieberman - Wells Fargo
Just a follow-up on your conversations that you had in DC, did the idea or the concept of slight neutral payments corrupt when you’re having your discussions and sort of where are we on that front?
Jay Grinney
They have not come up on a regular basis, they do come up from time to time. I think as most everybody knows there was a bipartisan-bicameral discussion draft if you will that was issued earlier this year, the impact act, and that was to – really it was an effort by the finance committee on the Senate side ways and means on house side to begin looking at post acute payment reform and some options that might be part of that, side neutral payments would be included in that construct. But if you go in and you analyze what was said, basically the conclusion was, this was very complicated, there are a lot of additional steps that need to be followed, there needs to be the adoption of a common patient assessment tool. And in the impact outline, the draft goes outline, the work that it would have to be done on this occurs from now until I think 2020 or 2022. So, does it get some attention, yes; is it acknowledged that it is a very complicated transition to make, yes; are there any proposals that have been put on the table that say these would be the services or the CMGs that would be paid on a slight neutral, these would be the services that our CMG – that would not be, and the answer is no. So I think it’s very much in the – in its infancy, but it’s certainly a concept that’s out there and as we’ve said in the past, we don’t necessarily believe that moving to side neutral would be negative for HealthSouth because presumably in that calculation of what that side neutral payment would be, especially if the comparison is between a rehabilitation payment and a nursing home payment, factors beyond just what is the per day payment would be included, and those factors would include items such as length of stay, return rates or reignition rates to acute care hospitals, and more importantly outcomes. So it is something that gets talked about, it’s not something that is ready for prime time in our space. And as I’ve said, we’re not looking at it necessarily a big negative, it could be a real positive for us.
Gary Lieberman - Wells Fargo
Okay. And then as a follow-up, you said that you were expecting soppiness [ph] that you received – are there any other soppiness [ph] that you’re anticipating regarding investigation?
John Whittington
Again, this is John Whittington. At this time we don’t have any reason to expect any additional soppiness [ph] but as you know, the government is free to investigate in the way it deems appropriate but right now we’re not aware of any reason to expect new soppiness [ph] but I wouldn’t rule anything out.
Gary Lieberman - Wells Fargo
Thanks very much,
Operator
Thank you. Our final question comes from the line of Kevin Fischbeck of Bank of America.
Unidentified Analyst
Hey, this is Feebeck [ph] for Kevin. Just a question on the pay-mix. Our fee for service Medicare continue to tick up in managed care which includes Medicare advantage, continues to trend down a little bit. Given the growth in the MA program and the improving economy and the potential impact on commercial, that seems a little bit surprising to me. So any color you could give – just volume dynamic or is there something going on what pricing on the managed care side that we should be thinking about, any kind of uptick [ph]? Thanks.
Jay Grinney
Yes, sure. So if you look at Q1 of 2013 versus Q1 of 2014, there was about a 1.8% decline in the number of Medicare advantage discharges treated in our hospitals, and maybe that’s kind of the numbers that you’re focusing on. If you break that down however, there are two buckets underneath managed Medicare; one would be the traditional fee for service payment, the other would be on a contract that where we go out and we negotiate with an MA plan to be an inpatient rehabilitation provider. The fee for service is a very small component of the overall Medicare advantage numbers but that bucket has actually gone down 29% year-over-year, now it’s a small number to begin with, so from 375 discharges down to 265 discharges. On the other hand, the contracted bucket actually went up, 2.5%.
Unidentified Analyst
I appreciate the color.
Operator
And thank you, that was our final question. I will now turn the floor back over to Mary Ann Arico for any additional or closing remarks.
http://seekingalpha.com/article/2174013-healthsouths-ceo-discusses-q1-2014-results-earnings-call-transcript
Question-and-Answer Session
Operator
(Operator Instructions) Our first question comes from the line of Whit Mayo of Robert Baird.
Whit Mayo - Robert Baird
Hey, thanks. The first question, I just was wondering if you guys could maybe reflect for a minute on the recent denovo’s over the past two years or so, just wondering if you could frame up maybe returns that you’ve achieved versus expectations, margins, occupancy, just anyway to give us a sense of – sort of, what the returns have been versus your internal expectations?
Jay Grinney
Yes, I would say the returns have been quite impressive. We do have a page in our investor reference book that shows all of the recent denovo’s, I think there are, maybe 8 or 9 of them that we’ve highlighted there and we show not only how quickly did each hospital get to certain occupancy levels but we also then indicate when each of them are achieving positive sustained EBITDA. And so as you can see on that page – I’m sorry, I don’t have that reference right away but we will get it to you shortly. So those of you who have the investor reference book can look at that, but it is at page 73 in the IRB. You can see that virtually all of the hospitals achieve positive sustained EBITDA in months [indiscernible] and most of the hospitals achieved the average occupancy of the company which was just under 70% within the first year. As a reminder, all of the hospitals that we’re building are private room facilities, so the expectation would be that maximum occupancy in those hospitals would be much closer to the 95% level because we have much more flexibility in all private rooms. In terms of actual returns that we’ve said – I’d ask Doug to respond.
Douglas Coltharp
Yes, as we’ve stated previously we target for our denovo’s and acquisitions a pretax return of at least 15%, and we’ve been forced to note that the denovo’s that we have added to our portfolio over the last several years have exceeded their return metric.
Whit Mayo - Robert Baird
Great. And this is really segue to my second question too, and this relates to LTACs. And it just seems so clear that CMS is redefining the role of that particular sector and really pointing the industry towards the most medically complex cases out there. And given your JV strategy on the rehab side, the success with the denovo’s which seems like they make a lot of sense that many hospitals could benefit from dedicated ICU’s and facilities, and these seem to be so complimentary to what you’re doing on rehab. So, I’m just kind of curious how you’re thinking about that, maybe over the next two or three years?
Jay Grinney
Thinking about what?
Whit Mayo - Robert Baird
LTACs.
Jay Grinney
As a provider of healthcare services, we recognize the benefit that LTACs provide to patients who need those services. We are familiar with how to own and operate LTACs, we’ve done that previously as most of you know. I will say that the new patient criteria is welcomed because it now creates some certainty with respect to the next several years, but it is a little troubling to us as you look at the transition – we believe that the transition from current state to future state is going to be a little bumpy. We look at – we’ve done a pretty deep dive on LTACs throughout the country, we’ve done a heat map [ph] to show where are the compliant hospitals, where are the non-compliant hospitals, and well over half of the LTACs out there are currently not compliant. The fact that there is going to have to be such a large transformation is concerning – that doesn’t mean that we are not monitoring the LTAC environment, we are – but frankly, we think it’s a little early to be judging whether or not this is going to present huge upside for the LTAC segment. The biggest concern in our mind is the fact that the non-compliant patients will be paid at the lower – the IPPS monitoring to see how this transition is going to play out.
Operator
Our next question comes from the line of Sheryl Skolnick of CRT Capital.
Sheryl Skolnick - CRT Capital
Hi, thank you very much. I know you can’t comment terribly much about the situation with the OIT and the soppiness [ph] but I’m wondering if you could update us on your levels of compliance with the 60% rule as you have done in the past and your thoughts around the process that you’ve gone through to ensure that you have compliance with the updated parameters in 2009. And any other descriptions of your current operations and posture with respect to the lower acute patients specifically targeted and those that meet the criteria or excluded from normal patient criteria?
Jay Grinney
You’ve stated little bit at the end trouble, I think I caught the question. I’ll take the last part of the question first and then I’ll ask Mark to respond to where we are with respect to overall compliance. But I think as everybody knows, all of us who operate in the healthcare environment are subject to a lot of regulations, many of which come out with certain rules and regulations associated with it. It requires a fair amount of analysis to understand exactly what the new rules mean, then establishing training material, utilizing outside parties when necessary, going to CMS for clarification when necessary, and then attempting to get those new regulations out across the entire portfolio. I think we’ve done a pretty good job with that, we feel very confident that we’re on top of the regulations. At the proposed stage, we’re on top of it once they are actually promulgated, we pay a lot of attention to that and want to make sure that those rules and regulations are complied with and we put training materials together, we have onsite training, we have online training, and we really try to do the very best we can to ensure compliance. In terms of our overall, 60% compliance, and we’d ask Mark to address that.
Mark Tarr
Yes, sure. Our overall compliance of the company is 76%, that is, as you can imagine, a number of that we monitor very closely at each individual hospital to make sure that each hospital is in full compliance with the 60% guidelines and to the extent that hospital gets closer to the 60% then they will closely monitor those patients coming in and make sure that we had a higher percentage of compliant cases to make sure that we have a little bit of a buffer there.
Sheryl Skolnick - CRT Capital
Can you just clarify on that, the 76% overall, meaning that overall for the company as a whole you’re at 76% versus the 60% total rate or does it mean that 76% of your facilities are compliant with the 60%?
Mark Tarr
That 76% overall on the compliance percentage.
Sheryl Skolnick - CRT Capital
Okay.
Mark Tarr
All in.
Sheryl Skolnick - CRT Capital
Okay, that’s great. Thank you very much. And…
Mark Tarr
Sheryl?
Sheryl Skolnick - CRT Capital
Yes, I just wanted to say thank you for releasing that disclosure as soon as you got it, that’s really a best practice and it’s very much appreciated.
Mark Tarr
You’re welcome. Sorry there, it was on a Friday but we got it on Friday so we wanted to make sure that – today we wanted to make sure that everybody saw that.
Sheryl Skolnick - CRT Capital
Thank you.
Operator
Our next question comes from the line of Frank Morgan of RBC Capital Markets.
Frank Morgan - RBC Capital Markets
Good morning.
Jay Grinney
Good morning.
Frank Morgan - RBC Capital Markets
Within your guidance on the volume side, the 2.5% to 3.5%, how much of that would you say is implied to be same-store?
Jay Grinney
No, we haven’t broken that out but historically there has been a roughly 40%, 50% somewhere in that range new store and same-store, but that fluctuates Frank. And that – so it’s very hard for us to precisely say every single quarter same-store is going to be X percent and the new store is going to be Y percent. As you know, when we bring on new hospitals, and for instance this year we’re going to be bringing on new hospitals – three new hospitals in the fourth quarter. But clearly that will have a disproportionate impact on overall discharge growth as we go into 2015, and there will be a disproportionate impact on new stores. Similarly, in years gone by we’ve added hospitals more spread out throughout the year and so the impact is a little bit less. But if you think about it historically and again, we provide this information in the investor reference book on page 12, if you look at it overall, you can see there is a lot of variation in the new store, a new store can be as low as 0.4%, it can be as high as 2.5% or 2.8%, and same-store can be as low as 0.6% as it was in Q3 of 2010, as high as 5% in Q1 of 2012. So I think if you could look at the page 12 in our investor reference book, you’ll see that it’s very hard to say with any certainty or I shouldn’t – with any precision in some sort of formulaic way. If you look at the overall growth, it will consist of X percent same-store and Y percent new store, there is a lot of variability in those numbers.
Frank Morgan - RBC Capital Markets
I got you. Thanks. And in terms of just – in forth of generalization, I understand you’re having – you’re coming up against difficult times, 2.5% to 3%, would you say that’s a good – kind of normalized sustainable run rate on the company? And then – or is there anything else that you’re seeing out there, either new capacity coming around, a new competitor, any other shift that you’re seeing that might influence volume or do you think this 2.5% to 3.5% is a good long-term number that we should model off? Thanks.
Jay Grinney
Yes, we think that that’s a good long-term number that you can model off for the planning horizon that we outline in our business outlook which is found on page 22 of the supplemental slide and would take us out through 2016.
Frank Morgan - RBC Capital Markets
Okay, thanks.
Operator
Our next question comes from Josh Raskins of Barclays.
Unidentified Analyst
Jack, it’s Roth [ph]. So first question just – the update on the guidance where we touched the high end. I understand there was a couple of million dollar gain, I think the $2 million, but my guess is whether there was probably $1.5 million or $2 million as well. So maybe what’s driving the comfort towards the higher end of the range relative to what you guys knew a little more due two months ago?
Jay Grinney
No, just the fact that we’re two and a half months down the road and even though we did see the disruption to discharges in Q1 as a result of the winter storms, as I mentioned, we’re feeling pretty good about the discharge growth in April, it’s one month out of the quarter but we’re back on-track, and so we feel that now we have a little more visibility, little more confidence in the overall numbers and feel that guiding to the high end is the appropriate thing to do.
Unidentified Analyst
Got you. And hi guys, it’s Jack. I just wanted to follow-up operationally with the weather, how does that directly affect the business? Is it more on the admission side bringing people in because you’re downstream from acute care providers or is it more – have a length of stay issued, we can’t necessarily discharge someone with a weather [ph]. I’d imagine that the acute – just the type of population that you’re seeing, that’s not going to change much, you’re going to still – obviously, have the same sort of dramatic injury at each quarter, right?
Jay Grinney
Yes, let me begin, and I’m going to ask Mark to give you a little more color commentary. I mean that the easiest way to think about this because this is the way it happened is – these storms literally locked down on communities that they hit. It did made getting out on the roads virtually impossible. So in those communities and the markets that were hit by these storms and as I think all of us know, there were multiple storms, sometimes days apart. During the build up to and certainly during those storms, these communities shutdown, roads were closed, people couldn’t get in or out of their homes, they couldn’t get in or out of hospitals, be it acute cares and going in terms of admissions, acute cares in terms of discharges, we couldn’t get our lays on instead of the acute care hospitals, and we couldn’t get patients into our hospitals, there were facilities that had to keep patients longer than we would have otherwise wanted to or certainly longer than the patients would have wanted to. So the impact was multifaceted, there wasn’t any just one specific thing that happened, but what we did see was that it occurred in those hospitals, those markets that I mentioned, multiple times, particularly in late January and into February.
Mark Tarr
Yes, this is Mark. Operationally the biggest challenge is just getting the patients in, we can handle referral from acute care hospital but then the storm hit, and then having the ability to actually move to the patient from acute care hospital into our hospital is where the challenges really came into play. And as Jay alluded, it shuts down the entire marketplace, so we couldn’t discharge patients out although we didn’t see a huge increase and overall length of stay for the company as a whole, and those hospitals impacted – there was a bit of an impact there but the greatest challenge was getting patients into the hospital and get that conversion, we call it from the point of having a patient referral to the point of a patient admission.
Unidentified Analyst
Got it. Okay, thanks guys.
Operator
Our next question comes from Darren Lehrich of Deutsche Bank.
Darren Lehrich - Deutsche Bank
Thanks. Good morning, everybody.
Jay Grinney
Good morning.
Darren Lehrich - Deutsche Bank
I just wanted to ask a little bit more about the Mountain States JV and just the overall JV opportunity. It looks like based in your comments this was a freestanding facility and I guess I’d be curious to see your thoughts on the end market and the overall market opportunities for hospitals that are on these kind of freestanding [ph] or if this is something different that you’ll be converting it to that? And then just more broadly get your thoughts on other JVs with hospital based units of – or interested in your comments on the JV potential here.
Jay Grinney
I’m going to ask Mark in a minute to comment on the Mountain States opportunity which we do think is a terrific opportunity for us to partner with, an outstanding organization, and to enhance the overall rehabilitative services in that market. To answer the broader question, we do see that there are increased opportunities to joint venture with acute care hospitals that are providing rehab services today. Some of those services offered by the acute care hospitals are in the form of freestanding hospitals like Quillen. Most however are services that are offered in an HIH. What we are seeing is that many acute care hospitals are acknowledging that in today’s reimbursement environment of reduced Medicare, Medicaid and commercial payments, it’s hard for them to offer a consistently high quality level of rehab services, and at the same time meet all of their medical, surgical and core business needs. Accordingly, we’re seeing more increase and more responses to our increase about joint venturing those services to provide the full continuum of care but now doing it on a partnership basis. And so as I mentioned in my comments, that we were very pleased to announce this joint venture and we are looking forward to announcing additional additions to our portfolio in the balance of the year.
Mark Tarr
Yes, Darren, it’s Mark. We’re very excited about the Quillen opportunity, that kick off our hospital, the building itself was built to be a freestanding rehab hospital, over the years it has had couple of different transitions, it currently houses both, our inpatient rehab, hospital beds as low sniff-beds. The long-term prognosis is to continue to grow the rehab and sniff-beds will be transferred out but needless to say we’re very excited about working with the team there, working with Mountain States, and continuing to grow in that marketplace.
Darren Lehrich - Deutsche Bank
That’s great. And then, if I could just – I wanted to follow-up – Jay, you made a mention of the rule making process, and I’d be curious to know if the rule is coming soon. Are there any expectations for the upcoming PPS we’re making, anything that we should be on the lookout for – that’s any different this year? Thanks.
Jay Grinney
Darren, we are not hearing anything about the proposed rule, we’re not hearing positive, we’re not hearing anything negative. So – but we’re not expecting anything that would be coming from left field. But we’re going to be waiting expectedly just like everybody else to get the proposed rule, probably sometime in May.
Darren Lehrich - Deutsche Bank
Got it. Thank you very much.
Operator
Our next question comes from Robert Mains of Stifel.
Robert Mains - Stifel
Thanks, good morning.
Jay Grinney
Good morning.
Robert Mains - Stifel
The question on the outpatient – I know we’re talking 6% – even though that there are 10 fewer clinics than last year, was there a decline from the fourth quarter or the first quarter or some of that decline also weather related?
Jay Grinney
Well the weather related hit in this first quarter for sure. I mean, that was not something we’d put a number on Rob but it was certainly impacted a significant number of our outpatient business itself is located in those states of which Pennsylvania is one of the higher states that we definitely saw an impact there.
Robert Mains - Stifel
Okay, fair enough. And second, a follow-up to Darren’s question. We’ve got the latest Medicare [ph] behind us, in your mind what is that’s kind of legislative priorities that you’re looking at both for HealthSouth and for the industry?
Jay Grinney
The legislative priorities really are – the sustainable growth rate in 2015 and the debt-ceiling debate that will go along with that. Our assessment is that legislatively there is not going to be anything else occurring in 2014 because everybody’s focus is on the mid-term elections and each party wants to enhance their position in both, the House and the Senate, in terms of the number of representatives and centers that they have. So the next real priority is going to be – what happens to SGR in Q1 of 2015, and how does that fit within the overall debate of the debt-ceiling. That – those I should say will be informed by what kind of – what the House in the Senate looks like in terms of leadership, and which will be dictated by the mid-terms. So that’s the next sort of marker for us, and right now we’re just – when we go to Washington and we meet with members, we are trying to underscore the value proposition that inpatient rehabilitation services offers to their constituent, primarily the Medicare constituents. And we’re very pleased that that message is very well received. I think the members who represent our hospitals, many of whom come to our hospitals, they visit our hospitals, they see the services that we provide, they see the value that we’re offering to the patients who need and deserve inpatient rehabilitative care, and so they get that we’re an important part of the continuum. But to answer your question again, I think the next real milestone legislatively will be next year with SGR and debt-ceiling.
Robert Mains - Stifel
Right, thank you.
Operator
Our next question comes from Chris Rigg of Susquehanna Financial.
Chris Rigg - Susquehanna Financial
Thanks for taking my questions. Just hoping to get a quick refresher on the NOLs and whether there has been any change, quarter-to-quarter I know sometimes the changes at year end and whether – just updated from the timing of when you think you’ll be a full cash tax payer again. Thanks a lot.
Douglas Coltharp
It’s Doug. And the – obviously the NOL does change from quarter-to-quarter as we’re utilizing that to offset what otherwise would be the federal taxes due on our earnings. So we’ve included in the supplemental slides on page 18 with the balance clause at the end of the first quarter, and that was at $866 million. Again, you can then utilize the effective tax rate assumption of roughly 40% and then that will give you a sense as to how long we’ll continue to have the benefit of those NOLs. And as we’ve stated here on page 18 as well, for the near term, we continue to estimate that our annual cash taxes will be in that $10 million to $15 million range.
Chris Rigg - Susquehanna Financial
Okay. And then just one other question, I know you can’t say a lot about the DOJ investigations, but I just want to make sure I understand exactly what happens here and they just be legally if they want but it was OIG-HHS for a number of quarters in your disclosures, and then in the 10-Q it took the change to the DOJ and the disclosures from last week, the DOJ was in there. Has the DOJ always been involved, or did they get inserted into the process at some later date?
John Whittington
Good morning, this is John Whittington. They’ve always been involved and we’ve always disclosed their involvement from the beginning.
Chris Rigg - Susquehanna Financial
Okay. It just looked like it’s in the 10-K and OIG-HHS and then the DOJ came into the disclosures later, but we can follow-up offline. Thanks.
John Whittington
They represent the government, they represent the healthcare administration.
Jay Grinney
Yes, so it’s been in there.
Chris Rigg - Susquehanna Financial
Okay.
Jay Grinney
And Chris, what we’ll do is, we’ll send the excerpts from the Q’s and the 8-K’s just so you can confirm that.
Chris Rigg - Susquehanna Financial
Yes.
Operator
Our next question comes from the line of AJ Rice of UBS.
AJ Rice - UBS
Hello, everybody. Good morning. Two quick questions, first of all, maybe just – is there any further color on what you’re seeing with respect to your labor, particularly your therapist, I know you said EPOB was flat year-to-year but how about turnover rates, availability of people as it tightened it all with the economy getting a little better or not really?
Jay Grinney
The answer is not really. We are very pleased with our ability to recruit and importantly, retain really top talent, both in the nursing side as well as the therapy side. And our turnover in the therapy area has remained consistently in the single digits for – as long as I’ve been here. I mean it’s really been one of the things that I think makes this company unique, and we haven’t seen any volatility in that. On the nursing side, we also have very good retention rates, and part of that has been a push to ensure that as many of our registered nurses has possible seek and apply to become certified as a rehabilitation RN [ph] and that’s been a very successful program for us.
AJ Rice - UBS
Okay. And then the other follow-up I guess would be the – I think last quarter you guys mentioned that you were sort of waiting to see how the doc showcased [ph] and so forth, maybe with respect to in case of share buybacks and obviously, you’ve bought some in the first quarter, do you see that now that we have some clarity around the launch and it seems at least until next spring, do you see an acceleration in your pace on share repurchases or any commentary along there will be helpful.
Douglas Coltharp
AJ, its Doug. Obviously we continue to have capacity for further share repurchases, both in terms of the authorization that is in place from our Board of Directors, and in terms of our balance sheet capacity and specifically the amount of availability that we have on our revolving credit facility. And as we have stated I think pretty consistently here over the course of the last two years, shareholder distributions, both in the form of the dividends that we’re paying on our common stock and incremental share repurchase are going to continue to be an important component of our business model.
AJ Rice - UBS
Okay, thanks a lot.
Operator
Our next question comes from the line of Gary Lieberman of Wells Fargo.
Gary Lieberman - Wells Fargo
Good morning, thanks for taking my question.
Jay Grinney
Good morning.
Gary Lieberman - Wells Fargo
Just a follow-up on your conversations that you had in DC, did the idea or the concept of slight neutral payments corrupt when you’re having your discussions and sort of where are we on that front?
Jay Grinney
They have not come up on a regular basis, they do come up from time to time. I think as most everybody knows there was a bipartisan-bicameral discussion draft if you will that was issued earlier this year, the impact act, and that was to – really it was an effort by the finance committee on the Senate side ways and means on house side to begin looking at post acute payment reform and some options that might be part of that, side neutral payments would be included in that construct. But if you go in and you analyze what was said, basically the conclusion was, this was very complicated, there are a lot of additional steps that need to be followed, there needs to be the adoption of a common patient assessment tool. And in the impact outline, the draft goes outline, the work that it would have to be done on this occurs from now until I think 2020 or 2022. So, does it get some attention, yes; is it acknowledged that it is a very complicated transition to make, yes; are there any proposals that have been put on the table that say these would be the services or the CMGs that would be paid on a slight neutral, these would be the services that our CMG – that would not be, and the answer is no. So I think it’s very much in the – in its infancy, but it’s certainly a concept that’s out there and as we’ve said in the past, we don’t necessarily believe that moving to side neutral would be negative for HealthSouth because presumably in that calculation of what that side neutral payment would be, especially if the comparison is between a rehabilitation payment and a nursing home payment, factors beyond just what is the per day payment would be included, and those factors would include items such as length of stay, return rates or reignition rates to acute care hospitals, and more importantly outcomes. So it is something that gets talked about, it’s not something that is ready for prime time in our space. And as I’ve said, we’re not looking at it necessarily a big negative, it could be a real positive for us.
Gary Lieberman - Wells Fargo
Okay. And then as a follow-up, you said that you were expecting soppiness [ph] that you received – are there any other soppiness [ph] that you’re anticipating regarding investigation?
John Whittington
Again, this is John Whittington. At this time we don’t have any reason to expect any additional soppiness [ph] but as you know, the government is free to investigate in the way it deems appropriate but right now we’re not aware of any reason to expect new soppiness [ph] but I wouldn’t rule anything out.
Gary Lieberman - Wells Fargo
Thanks very much,
Operator
Thank you. Our final question comes from the line of Kevin Fischbeck of Bank of America.
Unidentified Analyst
Hey, this is Feebeck [ph] for Kevin. Just a question on the pay-mix. Our fee for service Medicare continue to tick up in managed care which includes Medicare advantage, continues to trend down a little bit. Given the growth in the MA program and the improving economy and the potential impact on commercial, that seems a little bit surprising to me. So any color you could give – just volume dynamic or is there something going on what pricing on the managed care side that we should be thinking about, any kind of uptick [ph]? Thanks.
Jay Grinney
Yes, sure. So if you look at Q1 of 2013 versus Q1 of 2014, there was about a 1.8% decline in the number of Medicare advantage discharges treated in our hospitals, and maybe that’s kind of the numbers that you’re focusing on. If you break that down however, there are two buckets underneath managed Medicare; one would be the traditional fee for service payment, the other would be on a contract that where we go out and we negotiate with an MA plan to be an inpatient rehabilitation provider. The fee for service is a very small component of the overall Medicare advantage numbers but that bucket has actually gone down 29% year-over-year, now it’s a small number to begin with, so from 375 discharges down to 265 discharges. On the other hand, the contracted bucket actually went up, 2.5%.
Unidentified Analyst
I appreciate the color.
Operator
And thank you, that was our final question. I will now turn the floor back over to Mary Ann Arico for any additional or closing remarks.
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