So that will add to it. I guess the only negative headwind to it wouldn’t be on a volume standpoint. It’ll actually be a positive because it would give us more opportunity if that states continue to migrate on a Medicaid system over to an MCO. We’ll work our best to see if we can get out in front of some of those conversations on those MCO payers, but I guess that could actually bring it down temporarily in nature, but open up the population for us to even drive that and have meaningful conversations as well.
Jeff Shaner: Yes. And Pito, I guess, think of the 40 — so separate the two, government affairs, primarily still focused on moving Medicaid fee-for-service rates, take Oklahoma last year. Obviously, we shifted our focus this year to specifically Georgia, Massachusetts and California. Think of those three primarily still government affairs oriented and then go back to that 40% indicator, that’s our preferred payer strategy team, right? That is 40% of the total opportunity for us to execute on MCO payer partners and national commercial partners on the Medicaid space. So think of us almost halfway there from a total opportunity standpoint on a preferred payer strategy. But I don’t — Matt said, I don’t want to take away from in Georgia, we still have a government affairs strategy in Massachusetts.
We sold a government affairs strategy. We talked about last year, Oklahoma and other states like that. So we’re doing both. And I’m proud to say we’re winning more than we’re losing on both sides of that equation. Our work is never done. California is a perfect example to remind us all our work is never done. We need to move the PDN right in California long term, just to help the families be able to get their children home and keep their children’s homes.
Pito Chickering: Okay. So just as for half way there if we take a 5-year plus view here. If you move 100% of your managed Medicaid into a preferred, that would be about 80% of our volumes are handled by managed Medicaid and 20% are handled by Medicare fee-for-services. Is that a ballpark number?
Jeff Shaner: That’s probably a bit strong. There’s still some large states that are still — I’ll use two examples. California and Colorado are still primarily fee-for-service states and both are very different. But I think Matt said it well. Over time, Pito, most states are — as you already know, most states are moving to an MCO strategy. So I think in our lifetime here, the last seven years and the next five years, the majority of the states through the PDM product, will move to a Medicaid MCO. Now as we’ve learned with states like Texas, it takes three or four years. I mean it’s a very thoughtful process. So it’s not a fast flip. It’s a very thoughtful process because of the fragility of our patient population. But think of us having great opportunity on both sides, different customers that we’re selling to and talking to, but both the government affairs and the preferred payer strategy, both can work depending on what the state is.
Pito Chickering: Okay. Fair enough. And then just looking at that sort of 40% number, I mean, that’s extraordinary and what an accomplishment for you guys. I guess, as you look at your hourly growth is pretty strong in the quarter, and obviously, you just comped to the year, but still pretty strong hourly growth rate. Any color on actually how much you’re growing organically in the provider in the preferred provider networks versus everyone else? Is there a — is there a structurally different ROE growth rate between those two?
Jeff Shaner: There really is, Pito. And I’ll relate it back to like hiring the actual nurse. It is still the haves and have nots, right? So the good news is over the last two years, we’ve eliminated a number of — we’ve reduced the number of states and payers that we work with who don’t have acceptable rates to higher nurses, right? So we’ve either stopped working with those payers and shifted our capacity and time attention to the payers who are willing to engage with us, or we’ve taken the states who had very low rates, and we’ve eliminated that by increasing the rate significantly. Again, primary focus this year, Georgia, Massachusetts and California because we need to move those rates. Those are still Medicaid rates that really are not attractive from a reimbursement to be able to hire RNs or LPNs but yes, if you saw within the business or if you said to one of our operators, non-preferred payers, how much volume are you generating?
In most cases, the answer would be negative. That in a non-preferred payer, we’re not even flat, we’re moving backwards and it’s not on accident. It is we are shifting our caregiver capacity. We’re putting all of our recruitment efforts in said market like Texas to our payer partners. And honestly, Pito, it’s what they’re paying us to do. I mean, they’re giving us accelerated rates and value-based agreements with the intent that we’re going to live through with that and give them our nurses and give them our capacity. So it’s your opportunity. Pito, I can’t believe you didn’t touch on Home Health and Home Health gross margins and how proud you are of our team.
Pito Chickering: Just to throw it out well, there’s so much to unpack here I guess. I guess going forward, just because sticking to PDS for one second. So because it’s such a huge strategy for you guys. Can you guys begin disclosing what the organic growth rate is on preferred just so as we look at our excel models, we actually help sort of model this as team is going forward. And then to point on Home Health, obviously, we saw strong episodic growth. Obviously, we commission as you’re sort of shifting away. I guess, is this the right gross margin level that you should think about going forward? Or — and as you roll into the back half of the year as we move past payroll taxes, are we actually expanding gross margins from these levels of 53%?
Jeff Shaner: So I think as Matt laid it out, 53% was a little hot for us and was helped by some onetime items. We think of it more in the 49% to 51%. I think based on where we are and the strength we’ve had with our episodic percentage being well north of 70%, we’re probably a 50% plus gross margin business in Home Health & Hospice for the majority of this year. And as you know, that’s 18 months of work by our Home Health & Hospice leadership team to get there. I think the thing that we’re most proud of in that is now we have finally overlapped our comps to where we’re actually generating positive — generating a positive year-over-year and sequential growth. Now Q1 is our season. We have a decent Florida business. So Q1 is a better season for us in our Florida business.
But being at that 1.7% positive growth, it’s the first time we had positive episodic year-over-year comps in almost three years. And I think our team is really set on the fact that they can generate somewhere between 1% and 3% organic growth moving forward at a roughly 50% gross margin. You know the industry well. It’s tough days in home health right now. The fact that we’re able to do this is just an incredible amount of diligence by our team. So we’re excited about that. And honestly, as we look forward, we think the AMS business will start to show similar trends as the Home Health & Hospice division has been as we continue to implement our preferred payer strategy throughout Medical Solutions. But yes, we’ll be in that 49% to 51% gross margin and I believe will be a positive year-over-year growth of total episodes from this point forward for the rest of the year.
Pito Chickering: Awesome. And then one last super quick question, just a follow-up on Scott’s question on cash flow from ops. You said 2Q be negative, back half, you’d be positive, getting positive cash flow from ops. Should we be modeling $24 million cash flow from ops in the same range as last year. Is that a good ballpark range? Or just any color on how we should be modeling that? Thanks so much.
Matt Buckhalter: Yes, Pito. I think I would I would hinder that a little bit. I would say, take it back a little bit. We had a really good year last year, but as I mentioned, we benefited from some timing-related items that came through. So I would just say, hey, positive is a good year for us on top of this one, if we’re a little bit north of that, awesome. But really in 2025 is when you see the big jump up. It’s really to the diligence of our teams of just good clean operations and growing our business organically.
Pito Chickering: Thanks guys.
Matt Buckhalter: Thanks Pito.
Operator: Our next question is from Brian Tanquilut with Jefferies.
Taji Phillips: Good morning. You’ve got Taji on for Brian. Thanks for taking my question. So looking at the margins, I know that you guys have provided some really great detail on the gross margin. But thinking about the OpEx in the business, obviously, even with gross margin stepping down sequentially, you were able to extract a good amount of cost out of the P&L. Just curious, is that the right jumping point that we should be thinking about for this year? How much more juice is there to squeeze within that line item?
