Segment Information

In the second quarter of 2018, in recognition of the changes to the Company's business segments resulting from the addition of Almost Family and its subsidiaries through the Merger, the Company redefined its reporting segments to include (1) home health services, (2) hospice services, (3) home and community-based services, formerly referred to by the Company as community-based services, (4) facility-based services and (5) healthcare innovations (“HCI”). In management’s opinion, this approach provides investors clarity and best aligns with the Company’s internal decision-making processes as viewed by the chief operating decision maker. Reportable segments have been identified based upon how management has organized the business by services provided to customers and how the chief operating decision maker manages the business and allocates resources, consistent with the criteria in ASC 280, Segment Reporting.

The home health segment provides skilled medical services in patients’ homes largely to enable recipients to reduce or avoid periods of hospitalization and/or nursing home care. Approximately 72.9% of the home health services segment revenues were generated from the Medicare program, while the balance is generated from Medicaid and private insurance programs.

The hospice segment services are largely provided in patients’ homes and generally require specialized hospice nursing skills. Hospice services segment revenues are generated on a per diem basis and are primarily from Medicare, which account for approximately 91.1% of hospice services segment revenues.

The home and community-based segment services includes traditional home and community-based services (generally provided by paraprofessional staff such as home health aides) which are generally of a custodial rather than skilled nature. Home and community-based services segment revenues are generated on an hourly basis and are primarily from Medicaid, which account for approximately 24.7% of home and community-based services segment revenues.

The facility-based segment services includes services provided through LTACHs, a family health center, two pharmacies, a rural health clinic, and two physical therapy clinics. The facility-based services segment is reimbursed primarily by Medicare under the LTACH prospective payment system, which accounts for approximately 58.7% of facility-based services segment revenue.

The HCI segment combines reporting on the Company’s developmental activities outside its other business segments. The HCI segment includes (a) Imperium Health Management, LLC, an ACO enablement company, (b) Long Term Solutions, Inc., an in-home assessment company serving the long-term care insurance industry, and certain assets operated by Advanced Care House Calls, which provides primary medical care for home-bound or home-limited patients with chronic and acute illnesses who have difficulty traveling to a doctor’s office, (c) Ingenios Health Co., a Nurse-Practitioner-oriented and mobile technology-enabled health risk assessment company primarily serving managed care organizations, and (d) an investment in Care Journey (formerly NavHealth, Inc.), a population-health analytics company. These activities are intended ultimately, whether directly or indirectly, to benefit the Company’s patients and payors through the enhanced provision of services in the Company’s other segments. The activities all share a common goal of improving patient experiences and quality outcomes, while lowering costs. They include, but are not limited to, items such as: technology, information, population health management, risk-sharing, care-coordination and transitions, clinical advancements, enhanced patient engagement and informed clinical decision and technology enabled in-home clinical assessments.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies, as described in Note 2 of the Notes to Condensed Consolidated Financial Statements, including the adoption of ASU 2014-09.

The following tables summarize the Company’s segment information for the three and six months ended June 30, 2018 and 2017 (amounts in thousands):



	Three Months Ended June 30, 2018
	Home health services			Hospice services			Home and community-based services			Facility-based services			HCI			Total
Net service revenue	$	360,276		$	50,554		52,753			$	28,304		$	10,137		$	502,024
Cost of service revenue	230,293			33,493			40,349			19,307			6,204			329,646
General and administrative expenses	99,162			14,613			11,777			11,088			4,710			141,350
Operating income (loss)	30,821			2,448			627			(2,091		)	(777		)	31,028
Interest expense	(2,256		)	(473		)	(158		)	(159		)	(156		)	(3,202		)
Income (loss) before income taxes and noncontrolling interest	28,565			1,975			469			(2,250		)	(933		)	27,826
Income tax expense	7,091			483			139			(313		)	(230		)	7,170
Net income (loss)	21,474			1,492			330			(1,937		)	(703		)	20,656
Less net income (loss) attributable to noncontrolling interests	3,810			412			(90		)	(207		)	(66		)	3,859
Net income (loss) attributable to LHC Group, Inc.’s common stockholders	$	17,664		$	1,080		$	420		$	(1,730	)	$	(637	)	$	16,797
Total assets	$	1,306,773		$	189,447		$	255,456		$	66,665		$	63,329		$	1,881,670



	Three Months Ended June 30, 2017
	(as adjusted)
	Home health services			Hospice services			Home and community-based services			Facility-based services			HCI		Total
Net service revenue	$	192,409		$	37,851		$	10,746		$	16,529		$	—	$	257,535
Cost of service revenue	117,606			24,473			7,986			11,093			—		161,158
General and administrative expenses	55,268			10,743			2,261			5,280			—		73,552
Operating income	19,535			2,635			499			156			—		22,825
Interest expense	(630		)	(126		)	(42		)	(42		)	—		(840		)
Income before income taxes and noncontrolling interest	18,905			2,509			457			114			—		21,985
Income tax expense	6,757			849			180			6			—		7,792
Net income	12,148			1,660			277			108			—		14,193
Less net income attributable to noncontrolling interests	2,266			480			5			138			—		2,889
Net income (loss) attributable to LHC Group, Inc.’s common stockholders	$	9,882		$	1,180		$	272		$	(30	)	$	—	$	11,304
Total assets	$	466,308		$	138,519		$	33,292		$	34,547		$	—	$	672,666



	Six Months Ended June 30, 2018
	Home health services			Hospice services			Home and community-based services			Facility-based services			HCI			Total
Net service revenue	$	564,463		$	93,180		66,844			$	58,454		$	10,137		$	793,078
Cost of service revenue	360,453			61,512			51,139			38,956			6,204			518,264
General and administrative expenses	165,452			27,910			15,075			20,234			4,710			233,381
Operating income	38,558			3,758			630			(736		)	(777		)	41,433
Interest expense	(3,343		)	(690		)	(230		)	(232		)	(157		)	(4,652		)
Income (loss) before income taxes and noncontrolling interest	35,215			3,068			400			(968		)	(934		)	36,781
Income tax expense	7,813			594			124			(154		)	(230		)	8,147
Net income (loss)	27,402			2,474			276			(814		)	(704		)	28,634
Less net income (loss) attributable to noncontrolling interests	6,047			829			(70		)	102			(66		)	6,842
Net income (loss) attributable to LHC Group, Inc.’s common stockholders	$	21,355		$	1,645		$	346		$	(916	)	$	(638	)	$	21,792



	Six Months Ended June 30, 2017
	(as adjusted)
	Home health services			Hospice services			Home and community-based services			Facility-based services			HCI		Total
Net service revenue	$	373,067		$	73,799		$	21,287		$	33,631		$	—	$	501,784
Cost of service revenue	229,692			47,746			15,934			22,156			—		315,528
General and administrative expenses	109,190			21,149			4,572			10,652			—		145,563
Operating income	34,185			4,904			781			823			—		40,693
Interest expense	(1,215		)	(243		)	(81		)	(81		)	—		(1,620		)
Income before income taxes and noncontrolling interest	32,970			4,661			700			742			—		39,073
Income tax expense	11,010			1,508			263			184			—		12,965
Net income	21,960			3,153			437			558			—		26,108
Less net income attributable to noncontrolling interests	4,294			766			13			264			—		5,337
Net income attributable to LHC Group, Inc.’s common stockholders	$	17,666		$	2,387		$	424		$	294		$	—	$	20,771