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. During the nine months ended September 30, 2018, 72.2% 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 accounted for 90.5% of hospice services segment revenues during the nine months ended September 30, 2018.

The home and community-based segment provides 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 accounted for 23.4% of home and community-based services segment revenues during the nine months ended September 30, 2018.

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 accounted for 59.9% of facility-based services segment revenue during the nine months ended September 30, 2018.

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 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 nine months ended September 30, 2018 and 2017 (amounts in thousands):



	Three Months Ended September 30, 2018
	Home health services			Hospice services			Home and community-based services			Facility-based services			HCI			Total
Net service revenue	$	360,000		$	52,962		$	52,773		$	27,891		$	13,417		$	507,043
Cost of service revenue	222,765			34,540			39,860			20,146			4,885			322,196
General and administrative expenses	105,457			14,685			12,922			9,823			7,030			149,917
Operating income (loss)	31,778			3,737			(9		)	(2,078		)	1,502			34,930
Interest expense	(2,284		)	(491		)	(163		)	(163		)	(163		)	(3,264		)
Income (loss) before income taxes and noncontrolling interest	29,494			3,246			(172		)	(2,241		)	1,339			31,666
Income tax expense (benefit)	6,209			774			(74		)	(541		)	317			6,685
Net income (loss)	23,285			2,472			(98		)	(1,700		)	1,022			24,981
Less net income (loss) attributable to noncontrolling interests	3,425			386			(87		)	27			—			3,751
Net income (loss) attributable to LHC Group, Inc.’s common stockholders	$	19,860		$	2,086		$	(11	)	$	(1,727	)	$	1,022		$	21,230
Total assets	$	1,316,792		$	203,921		$	246,963		$	61,089		$	81,999		$	1,910,764



	Three Months Ended September 30, 2017
	(as adjusted)
	Home health services			Hospice services			Home and community-based services			Facility-based services			HCI		Total
Net service revenue	$	196,317		$	41,057		$	12,116		$	20,188		$	—	$	269,678
Cost of service revenue	123,204			27,441			8,971			13,240			—		172,856
General and administrative expenses	56,000			11,276			2,387			5,829			—		75,492
Operating income	17,113			2,340			758			1,119			—		21,330
Interest expense	(746		)	(149		)	(50		)	(50		)	—		(995		)
Income before income taxes and noncontrolling interest	16,367			2,191			708			1,069			—		20,335
Income tax expense	5,703			931			338			473			—		7,445
Net income	10,664			1,260			370			596			—		12,890
Less net income (loss) attributable to noncontrolling interests	1,759			273			(21		)	(27		)	—		1,984
Net income attributable to LHC Group, Inc.’s common stockholders	$	8,905		$	987		$	391		$	623		$	—	$	10,906
Total assets	$	515,562		$	156,296		$	44,621		$	48,574		$	—	$	765,053



	Nine Months Ended September 30, 2018
	Home health services			Hospice services			Home and community-based services			Facility-based services			HCI			Total
Net service revenue	$	924,463		$	146,142		$	119,617		$	86,345		$	23,554		$	1,300,121
Cost of service revenue	576,416			95,557			90,331			59,102			10,412			831,818
General and administrative expenses	277,711			43,090			28,664			30,058			12,417			391,940
Operating income (loss)	70,336			7,495			622			(2,815		)	725			76,363
Interest expense	(5,627		)	(1,181		)	(393		)	(395		)	(320		)	(7,916		)
Income (loss) before income taxes and noncontrolling interest	64,709			6,314			229			(3,210		)	405			68,447
Income tax expense (benefit)	14,022			1,368			50			(695		)	87			14,832
Net income (loss)	50,687			4,946			179			(2,515		)	318			53,615
Less net income (loss) attributable to noncontrolling interests	9,472			1,215			(157		)	129			(66		)	10,593
Net income (loss) attributable to LHC Group, Inc.’s common stockholders	$	41,215		$	3,731		$	336		$	(2,644	)	$	384		$	43,022



	Nine Months Ended September 30, 2017
	(as adjusted)
	Home health services			Hospice services			Home and community-based services			Facility-based services			HCI		Total
Net service revenue	$	569,384		$	114,856		$	33,403		$	53,819		$	—	$	771,462
Cost of service revenue	352,896			75,187			24,905			35,396			—		488,384
General and administrative expenses	165,192			32,425			6,957			16,480			—		221,054
Operating income	51,296			7,244			1,541			1,943			—		62,024
Interest expense	(1,961		)	(393		)	(130		)	(131		)	—		(2,615		)
Income before income taxes and noncontrolling interest	49,335			6,851			1,411			1,812			—		59,409
Income tax expense	16,712			2,439			602			657			—		20,410
Net income	32,623			4,412			809			1,155			—		38,999
Less net income (loss) attributable to noncontrolling interests	6,053			1,038			(7		)	237			—		7,321
Net income attributable to LHC Group, Inc.’s common stockholders	$	26,570		$	3,374		$	816		$	918		$	—	$	31,678