Chemed (Cincinnati) reported that its subsidiary Vitas Healthcare (Scottsdale, Arizona), a provider of hospice services, is exiting the Phoenix, Arizona market.
The program in Phoenix currently provides hospice care to about 200 patients daily, but Chemed said that revenue and operating losses for Phoenix in the first six months of 2006 were $3 million and $900,000, respectively, including $1.7 million of revenue reduction for Medicare billing limitations, or Medicare Cap. Full-year revenue and operating loss projections for Phoenix are estimated at $3.7 million and $4.3 million, including $6.3 million in revenue reductions for Medicare Cap. The after-tax cost to exit the Phoenix market, excluding the operating losses noted above, is estimated at from $4.5 to $5.5 million.
Chemed also reported that it has reached a preliminary agreement in regard to litigation related to the divestiture of its Patient Care business segment. The company will convert $2.6 million of the current receivable due from Patient Care into a promissory note, due October 2007. This note will bear interest quarterly at a 9.5% annual interest rate. The company will take an after-tax charge of $1.7 million representing a write-off of the remaining receivable balance, as well as costs associated with certain contingent insurance claims and other items related to the Patient Care business.
Chemed received Patient Care warrants with a value of $1.4 million at the time of the divestiture. The company has determined the valuation of these warrants is impaired. This impairment will result in a 3Q06 after-tax charge of $900,000.
Full-year Medicare contractual billing limitations, excluding Phoenix, to be classified as a discontinued operation in 2006, are estimated at $5.7 million to $8.6 million, equating to revenue reduction of 80 to 120 basis points.
Vitas provides daily hospice services to more than 11,000 patients with severe, life-limiting illnesses.