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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q







|þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2010

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from              to

Commission file number:0-8082





LHC GROUP, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 71-0918189                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)

420 West Pinhook Rd, Suite A

Lafayette, LA 70503

(Address of principal executive offices including zip code)

(337) 233-1307

(Registrants telephone number, including area code)





Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter periods that the registrant was
required to submit and post such files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                                              |  |   |  |                           |  |  
|--------------------------------------------- |  | - |  | ------------------------- |  | -
|Large accelerated filer                       |  |  ̈ |  | Accelerated filer         |  | þ
|                                              |  |   | 
|Non-accelerated filer                         |  |  ̈ |  | Smaller reporting company |  |  ̈
|(Do not check if a smaller reporting company) |  |  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
    Yes   ̈    No  þ

Number of shares of common stock, par value $0.01, outstanding as of November 1, 2010: 18,675,841 shares.









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LHC GROUP, INC.

INDEX



|                              |  |                                                                                                        |    |  |      | 
|----------------------------- |  | ------------------------------------------------------------------------------------------------------ | -- |  | ---- | 
|                              |  |                                                                                                        |    |  | Page | 
|Part I. Financial Information |  |                                                                                                        |    | 
|                              |  |                                                                                                       
|Item 1.                       |  | Condensed Consolidated Financial Statements (unaudited)                                                |    |  |      | 
|                              |  |                                                                                                       
|                              |  | Condensed Consolidated Balance Sheets  September 30, 2010 and December 31,
2009                       |    |  | 3    | 
|                              |  |                                                                                                       
|                              |  | Condensed Consolidated Statements of Income  Three and nine months ended September 
30, 2010 and 2009 |    |  | 4    | 
|                              |  |                                                                                                       
|                              |  | Condensed Consolidated Statement of Changes in Equity  Nine months ended September 30,
2010           |    |  | 5    | 
|                              |  |                                                                                                       
|                              |  | Condensed Consolidated Statements of Cash Flows  Nine months ended September 30, 2010 and
2009        |    |  | 6    | 
|                              |  |                                                                                                       
|                              |  | Notes to Condensed Consolidated Financial Statements                                                   |    |  | 7    | 
|                              |  |                                                                                                       
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations                  |    |  | 20   | 
|                              |  |                                                                                                       
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                             |    |  | 32   | 
|                              |  |                                                                                                       
|Item 4.                       |  | Controls and Procedures                                                                                |    |  | 32   | 
|                              | 
|Part II. Other Information    |  |                                                                                                        |    | 
|                              |  |                                                                                                       
|Item 1.                       |  | Legal Proceedings                                                                                      |    |  | 33   | 
|                              |  |                                                                                                       
|Item 1A.                      |  | Risk Factors                                                                                           |    |  | 33   | 
|                              |  |                                                                                                       
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                            |    |  | 34   | 
|                              |  |                                                                                                       
|Item 3.                       |  | Defaults Upon Senior Securities                                                                        |    |  | 34   | 
|                              |  |                                                                                                       
|Item 4.                       |  | Reserved                                                                                               |    |  | 34   | 
|                              |  |                                                                                                       
|Item 5.                       |  | Other Information                                                                                      |    |  | 34   | 
|                              |  |                                                                                                       
|Item 6.                       |  | Exhibits                                                                                               |    |  | 34   | 
|                              | 
|Signatures                    |  |                                                                                                        | 36 | 



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PART I  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

LHC GROUP, INC. AND SUBSIDIARIES

CONDENSED
CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

(Unaudited)



|                                                                                                                                                                     |  |                   |         |   |                  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                     |  | September 30,2010 |         |   | December 31,2009 |  
|ASSETS                                                                                                                                                               |  |                   |         |   |                  |   |         |  
|Current assets:                                                                                                                                                      |  |                   |         |   |                  |   |         |  
|Cash                                                                                                                                                                 |  | $                 | 7,207   |   |                  | $ | 394     |  
|Receivables:                                                                                                                                                         |  |                   |         |   |                  |   |         |  
|Patient accounts receivable, less allowance for uncollectible accounts of $10,013 and $8,262, respectively                                                           |  |                   | 77,604  |   |                  |   | 73,651  |  
|Other receivables                                                                                                                                                    |  |                   | 3,639   |   |                  |   | 3,850   |  
|Amounts due from governmental entities                                                                                                                               |  |                   | 686     |   |                  |   | 1,184   |  
|                                                                                                                                                                     |  |                   |         |   |                  |   |         |  
|Total receivables, net                                                                                                                                               |  |                   | 81,929  |   |                  |   | 78,685  |  
|Deferred income taxes                                                                                                                                                |  |                   | 5,782   |   |                  |   | 4,370   |  
|Prepaid income taxes                                                                                                                                                 |  |                   | 5,636   |   |                  |   | 3,131   |  
|Prepaid expenses and other current assets                                                                                                                            |  |                   | 8,194   |   |                  |   | 8,798   |  
|                                                                                                                                                                     |  |                   |         |   |                  |   |         |  
|Total current assets                                                                                                                                                 |  |                   | 108,748 |   |                  |   | 95,378  |  
|Property, building and equipment, net of accumulated depreciation of $13,549 and $15,030, respectively                                                               |  |                   | 28,259  |   |                  |   | 21,361  |  
|Goodwill                                                                                                                                                             |  |                   | 154,897 |   |                  |   | 139,474 |  
|Intangible assets, net of accumulated amortization of $1,298 and $747, respectively                                                                                  |  |                   | 53,343  |   |                  |   | 46,851  |  
|Other assets                                                                                                                                                         |  |                   | 2,168   |   |                  |   | 3,169   |  
|                                                                                                                                                                     |  |                   |         |   |                  |   |         |  
|Total assets                                                                                                                                                         |  | $                 | 347,415 |   |                  | $ | 306,233 |  
|                                                                                                                                                                     |  |                   |         |   |                  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                 |  |                   |         |   |                  |   |         |  
|Current liabilities:                                                                                                                                                 |  |                   |         |   |                  |   |         |  
|Accounts payable and other accrued liabilities                                                                                                                       |  | $                 | 17,174  |   |                  | $ | 20,873  |  
|Salaries, wages, and benefits payable                                                                                                                                |  |                   | 30,028  |   |                  |   | 22,521  |  
|Amounts due to governmental entities                                                                                                                                 |  |                   | 3,208   |   |                  |   | 3,208   |  
|Current portion of long-term debt                                                                                                                                    |  |                   | 362     |   |                  |   | 387     |  
|                                                                                                                                                                     |  |                   |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                            |  |                   | 50,772  |   |                  |   | 46,989  |  
|Deferred income taxes                                                                                                                                                |  |                   | 14,705  |   |                  |   | 12,475  |  
|Revolving credit facility                                                                                                                                            |  |                   |        |   |                  |   | 5,723   |  
|Long-term debt, less current portion                                                                                                                                 |  |                   | 3,818   |   |                  |   | 4,096   |  
|Other long-term obligations                                                                                                                                          |  |                   | 1,570   |   |                  |   | 1,567   |  
|                                                                                                                                                                     |  |                   |         |   |                  |   |         |  
|Total liabilities                                                                                                                                                    |  |                   | 70,865  |   |                  |   | 70,850  |  
|Noncontrolling interest  redeemable                                                                                                                                 |  |                   | 14,032  |   |                  |   | 13,823  |  
|Stockholders equity:                                                                                                                                                |  |                   |         |   |                  |   |         |  
|LHC Group, Inc. stockholders equity:                                                                                                                                |  |                   |         |   |                  |   |         |  
|Common stock  $0.01 par value; 40,000,000 shares authorized; 21,156,876 and 20,967,418 shares issued and 18,153,188 and
17,990,685 shares outstanding, respectively |  |                   | 181     |   |                  |   | 179     |  
|Treasury stock  3,003,688 and 2,976,733 shares at cost, respectively                                                                                                |  |                   | (4,329  | ) |                  |   | (3,513  | )
|Additional paid-in capital                                                                                                                                           |  |                   | 89,953  |   |                  |   | 86,310  |  
|Retained earnings                                                                                                                                                    |  |                   | 175,551 |   |                  |   | 138,196 |  
|                                                                                                                                                                     |  |                   |         |   |                  |   |         |  
|Total LHC Group, Inc. stockholders equity                                                                                                                           |  |                   | 261,356 |   |                  |   | 221,172 |  
|Noncontrolling interest  non-redeemable                                                                                                                             |  |                   | 1,162   |   |                  |   | 388     |  
|                                                                                                                                                                     |  |                   |         |   |                  |   |         |  
|Total equity                                                                                                                                                         |  |                   | 262,518 |   |                  |   | 221,560 |  
|                                                                                                                                                                     |  |                   |         |   |                  |   |         |  
|Total liabilities and equity                                                                                                                                         |  | $                 | 347,415 |   |                  | $ | 306,233 |  
|                                                                                                                                                                     |  |                   |         |   |                  |   |         |  

See accompanying notes to the condensed consolidated financial statements.



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LHC GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except share and per share data)

(Unaudited)



|                                                                                          |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|----------------------------------------------------------------------------------------- |  | ------------------------------- | ---------- | - | ------------------------------ | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                          |  | Three Months EndedSeptember 30, |            |   | Nine Months EndedSeptember 30, |  
|                                                                                          |  | 2010                            |            |   | 2009                           |   |            | 2010 |  |   | 2009       |  
|Net service revenue                                                                       |  | $                               | 166,632    |   |                                | $ | 132,856    |      |  | $ | 466,973    |   |  | $ | 390,488    |  
|Cost of service revenue                                                                   |  |                                 | 88,187     |   |                                |   | 69,525     |      |  |   | 242,450    |   |  |   | 198,659    |  
|                                                                                          |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Gross margin                                                                              |  |                                 | 78,445     |   |                                |   | 63,331     |      |  |   | 224,523    |   |  |   | 191,829    |  
|Provision for bad debts                                                                   |  |                                 | 1,699      |   |                                |   | 1,105      |      |  |   | 5,299      |   |  |   | 4,140      |  
|General and administrative expenses                                                       |  |                                 | 51,056     |   |                                |   | 43,908     |      |  |   | 146,509    |   |  |   | 126,393    |  
|                                                                                          |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Operating income                                                                          |  |                                 | 25,690     |   |                                |   | 18,318     |      |  |   | 72,715     |   |  |   | 61,296     |  
|Interest expense                                                                          |  |                                 | (33        | ) |                                |   | (20        | )    |  |   | (83        | ) |  |   | (115       | )
|Non-operating income (loss)                                                               |  |                                 | 90         |   |                                |   | 51         |      |  |   | 711        |   |  |   | (337       | )
|                                                                                          |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Income from continuing operations before income taxes and noncontrolling interest         |  |                                 | 25,747     |   |                                |   | 18,349     |      |  |   | 73,343     |   |  |   | 60,844     |  
|Income tax expense                                                                        |  |                                 | 8,631      |   |                                |   | 5,609      |      |  |   | 24,119     |   |  |   | 18,752     |  
|                                                                                          |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Income from continuing operations                                                         |  |                                 | 17,116     |   |                                |   | 12,740     |      |  |   | 49,224     |   |  |   | 42,092     |  
|Loss from discontinued operations (net of income tax expense of $9 and $48, respectively) |  |                                 |           |   |                                |   | (15        | )    |  |   |           |   |  |   | (76        | )
|                                                                                          |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Net income                                                                                |  |                                 | 17,116     |   |                                |   | 12,725     |      |  |   | 49,224     |   |  |   | 42,016     |  
|Less net income attributable to noncontrolling interests                                  |  |                                 | 3,818      |   |                                |   | 2,893      |      |  |   | 11,910     |   |  |   | 10,841     |  
|                                                                                          |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Net income attributable to LHC Group, Inc.                                                |  |                                 | 13,298     |   |                                |   | 9,832      |      |  |   | 37,314     |   |  |   | 31,175     |  
|Redeemable noncontrolling interest                                                        |  |                                 |           |   |                                |   | (3         | )    |  |   | 41         |   |  |   | 45         |  
|                                                                                          |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Net income available to LHC Group, Inc.s common stockholders                             |  | $                               | 13,298     |   |                                | $ | 9,829      |      |  | $ | 37,355     |   |  | $ | 31,220     |  
|                                                                                          |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Earnings per share  basic:                                                               |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Income from continuing operations attributable to LHC Group, Inc.                         |  | $                               | 0.73       |   |                                | $ | 0.55       |      |  | $ | 2.06       |   |  | $ | 1.74       |  
|Loss from discontinued operations, attributable to LHC Group, Inc.                        |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   |           |  
|                                                                                          |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Net income attributable to LHC Group, Inc.                                                |  |                                 | 0.73       |   |                                |   | 0.55       |      |  |   | 2.06       |   |  |   | 1.74       |  
|Redeemable noncontrolling interest                                                        |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   |           |  
|                                                                                          |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Net income available to LHC Group, Inc.s common stockholders                             |  | $                               | 0.73       |   |                                | $ | 0.55       |      |  | $ | 2.06       |   |  | $ | 1.74       |  
|                                                                                          |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Earnings per share  diluted:                                                             |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Income from continuing operations attributable to LHC Group, Inc.                         |  | $                               | 0.73       |   |                                | $ | 0.54       |      |  | $ | 2.05       |   |  | $ | 1.73       |  
|Loss from discontinued operations, attributable to LHC Group, Inc.                        |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   |           |  
|                                                                                          |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Net income attributable to LHC Group, Inc.                                                |  |                                 | 0.73       |   |                                |   | 0.54       |      |  |   | 2.05       |   |  |   | 1.73       |  
|Redeemable noncontrolling interest                                                        |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   |           |  
|                                                                                          |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Net income available to LHC Group, Inc.s common stockholders                             |  | $                               | 0.73       |   |                                | $ | 0.54       |      |  | $ | 2.05       |   |  | $ | 1.73       |  
|                                                                                          |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Weighted average shares outstanding:                                                      |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Basic                                                                                     |  |                                 | 18,148,678 |   |                                |   | 17,971,352 |      |  |   | 18,103,196 |   |  |   | 17,951,986 |  
|Diluted                                                                                   |  |                                 | 18,224,019 |   |                                |   | 18,116,984 |      |  |   | 18,208,445 |   |  |   | 18,040,918 |  

See accompanying notes
to the condensed consolidated financial statements.



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LHC GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Amounts in thousands except share data)

(Unaudited)



|                                                                       |  |                 |     |  |                                        |  |            |                  |  |   |                                   |   |  |           |            |   |  |   |        |   |  |   |         |  |  |   |        |   |  |   |         |   |  |   |         |   |  |  |        | 
|---------------------------------------------------------------------- |  | --------------- | --- |  | -------------------------------------- |  | ---------- | ---------------- |  | - | --------------------------------- | - |  | --------- | ---------- | - |  | - | ------ | - |  | - | ------- |  |  | - | ------ | - |  | - | ------- | - |  | - | ------- | - |  |  | ------ | 
|                                                                       |  | LHC Group, Inc. |     |  | Non-controllingInterest
 NonRedeemable |  |            | TotalEquity      |  |   | Non-controllingInterestRedeemable |   |  | NetIncome |           
|                                                                       |  | Common Stock    |     |  | AdditionalPaid-In
Capital              |  |            | RetainedEarnings |  |   |                                   |   | 
|                                                                       |  | Issued          |     |  | Treasury                               |  |            |                  |  |   |                                   |  
|                                                                       |  | Amount          |     |  | Shares                                 |  |            | Amount           |  |   | Shares                            |   |  |           |            |   |  |  
|Balances at December 31, 2009                                          |  | $               | 179 |  |                                        |  | 20,967,418 |                  |  | $ | (3,513                            | ) |  |           | (2,976,733 | ) |  | $ | 86,310 |   |  | $ | 138,196 |  |  | $ | 388    |   |  | $ | 221,560 |   |  | $ | 13,823  |   |  |  |        | 
|Net income                                                             |  |                 |    |  |                                        |  |           |                  |  |   |                                  |   |  |           |           |   |  |   |       |   |  |   | 37,314  |  |  |   | 1,373  |   |  |   | 38,687  |   |  |   | 10,537  |   |  |  | 49,224 | 
|                                                                       |  |                 |     |  |                                        |  |            |                  |  |   |                                   |   |  |           |            |   |  |   |        |   |  |   |         |  |  |   |        |   |  |   |         |   |  |   |         |   |  |  |        | 
|Transfer of noncontrolling interest                                    |  |                 |    |  |                                        |  |           |                  |  |   |                                  |   |  |           |           |   |  |   |       |   |  |   |        |  |  |   | 684    |   |  |   | 684     |   |  |   | (684    | ) |  |  |        | 
|Acquired noncontrolling interest                                       |  |                 |    |  |                                        |  |           |                  |  |   |                                  |   |  |           |           |   |  |   |       |   |  |   |        |  |  |   |       |   |  |   |        |   |  |   | 836     |   |  |  |        | 
|Purchase of additional controlling interest                            |  |                 |    |  |                                        |  |           |                  |  |   |                                  |   |  |           |           |   |  |   | (1,914 | ) |  |   |        |  |  |   |       |   |  |   | (1,914  | ) |  |   |        |   |  |  |        | 
|Noncontrolling interest distributions                                  |  |                 |    |  |                                        |  |           |                  |  |   |                                  |   |  |           |           |   |  |   |       |   |  |   |        |  |  |   | (1,283 | ) |  |   | (1,283  | ) |  |   | (10,480 | ) |  |  |        | 
|Stock issued for acquisition                                           |  |                 | 2   |  |                                        |  | 50,150     |                  |  |   |                                  |   |  |           |           |   |  |   | 1,548  |   |  |   |        |  |  |   |       |   |  |   | 1,550   |   |  |   |        |   |  |  |        | 
|Stock option exercise                                                  |  |                 |    |  |                                        |  | 4,000      |                  |  |   |                                  |   |  |           |           |   |  |   | 91     |   |  |   |        |  |  |   |       |   |  |   | 91      |   |  |   |        |   |  |  |        | 
|Nonvested stock compensation                                           |  |                 |    |  |                                        |  |           |                  |  |   |                                  |   |  |           |           |   |  |   | 2,791  |   |  |   |        |  |  |   |       |   |  |   | 2,791   |   |  |   |        |   |  |  |        | 
|Issuance of vested restricted stock                                    |  |                 |    |  |                                        |  | 115,215    |                  |  |   |                                  |   |  |           |           |   |  |   |       |   |  |   |        |  |  |   |       |   |  |   |        |   |  |   |        |   |  |  |        | 
|Treasury shares redeemed to pay income tax                             |  |                 |    |  |                                        |  |           |                  |  |   | (816                              | ) |  |           | (26,955    | ) |  |   |       |   |  |   |        |  |  |   |       |   |  |   | (816    | ) |  |   |        |   |  |  |        | 
|Excess tax benefits  vesting nonvested stock                          |  |                 |    |  |                                        |  |           |                  |  |   |                                  |   |  |           |           |   |  |   | 532    |   |  |   |        |  |  |   |       |   |  |   | 532     |   |  |   |        |   |  |  |        | 
|Issuance of common stock under Employee Stock Purchase Plan            |  |                 |    |  |                                        |  | 20,093     |                  |  |   |                                  |   |  |           |           |   |  |   | 595    |   |  |   |        |  |  |   |       |   |  |   | 595     |   |  |   |        |   |  |  |        | 
|Recording noncontrolling interest in joint venture at redemption value |  |                 |    |  |                                        |  |           |                  |  |   |                                  |   |  |           |           |   |  |   |       |   |  |   | 41      |  |  |   |       |   |  |   | 41      |   |  |   |        |   |  |  |        | 
|                                                                       |  |                 |     |  |                                        |  |            |                  |  |   |                                   |   |  |           |            |   |  |   |        |   |  |   |         |  |  |   |        |   |  |   |         |   |  |   |         |   |  |  |        | 
|Balances at September 30, 2010                                         |  | $               | 181 |  |                                        |  | 21,156,876 |                  |  | $ | (4,329                            | ) |  |           | (3,003,688 | ) |  | $ | 89,953 |   |  | $ | 175,551 |  |  | $ | 1,162  |   |  | $ | 262,518 |   |  | $ | 14,032  |   |  |  |        | 
|                                                                       |  |                 |     |  |                                        |  |            |                  |  |   |                                   |   |  |           |            |   |  |   |        |   |  |   |         |  |  |   |        |   |  |   |         |   |  |   |         |   |  |  |        | 

See accompanying notes to the condensed consolidated financial statements.



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LHC GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)



|                                                                                  |  |                                |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                  |  | Nine Months EndedSeptember 30, |        
|                                                                                  |  | 2010                           |         |   | 2009 |  
|Operating activities                                                              |  |                                |         |   |      |   |         |  
|Net income                                                                        |  | $                              | 49,224  |   |      | $ | 42,016  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                |         |   |      |   |         |  
|Depreciation and amortization expense                                             |  |                                | 5,354   |   |      |   | 3,494   |  
|Provision for bad debts                                                           |  |                                | 5,299   |   |      |   | 4,141   |  
|Stock-based compensation expense                                                  |  |                                | 2,791   |   |      |   | 1,755   |  
|Deferred income taxes                                                             |  |                                | 818     |   |      |   | 1,692   |  
|Loss on impairment of intangible assets                                           |  |                                |        |   |      |   | 542     |  
|Changes in operating assets and liabilities, net of acquisitions:                 |  |                                |         |   |      |   |         |  
|Receivables                                                                       |  |                                | (9,858  | ) |      |   | (12,208 | )
|Prepaid expenses and other assets                                                 |  |                                | (199    | ) |      |   | (3,613  | )
|Accounts payable and accrued expenses                                             |  |                                | 4,523   |   |      |   | (1,225  | )
|Net amounts due to/from governmental entities                                     |  |                                | 498     |   |      |   | (1,810  | )
|                                                                                  |  |                                |         |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                                | 58,450  |   |      |   | 34,784  |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Investing activities                                                              |  |                                |         |   |      |   |         |  
|Purchases of property, building and equipment                                     |  |                                | (11,145 | ) |      |   | (6,124  | )
|Cash paid for acquisitions, primarily goodwill, intangible assets                 |  |                                | (21,994 | ) |      |   | (18,481 | )
|                                                                                  |  |                                |         |   |      |   |         |  
|Net cash used in investing activities                                             |  |                                | (33,139 | ) |      |   | (24,605 | )
|                                                                                  |  |                                |         |   |      |   |         |  
|Financing activities                                                              |  |                                |         |   |      |   |         |  
|Proceeds from line of credit                                                      |  |                                | 9,023   |   |      |   | 20,605  |  
|Payments on line of credit                                                        |  |                                | (14,746 | ) |      |   | (20,605 | )
|Payment of deferred financing fees                                                |  |                                |        |   |      |   | (263    | )
|Principal payments on debt                                                        |  |                                | (303    | ) |      |   | (412    | )
|Payments on capital leases                                                        |  |                                | (24     | ) |      |   | (74     | )
|Excess tax benefits from vesting of restricted stock                              |  |                                | 634     |   |      |   | 98      |  
|Proceeds from employee stock purchase plan                                        |  |                                | 595     |   |      |   | 457     |  
|Purchase of additional controlling interest                                       |  |                                | (1,914  | ) |      |   |        |  
|Noncontrolling interest distributions                                             |  |                                | (11,763 | ) |      |   | (10,988 | )
|                                                                                  |  |                                |         |   |      |   |         |  
|Net cash used in financing activities                                             |  |                                | (18,498 | ) |      |   | (11,182 | )
|                                                                                  |  |                                |         |   |      |   |         |  
|Change in cash                                                                    |  |                                | 6,813   |   |      |   | (1,003  | )
|Cash at beginning of period                                                       |  |                                | 394     |   |      |   | 3,511   |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Cash at end of period                                                             |  | $                              | 7,207   |   |      | $ | 2,508   |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Supplemental disclosures of cash flow information                                 |  |                                |         |   |      |   |         |  
|Interest paid                                                                     |  | $                              | 33      |   |      | $ | 115     |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Income taxes paid                                                                 |  | $                              | 25,170  |   |      | $ | 31,828  |  
|                                                                                  |  |                                |         |   |      |   |         |  

Supplemental disclosure of non-cash transactions:

During the nine months ended September 30, 2010, the Company acquired a majority ownership in five entities and recorded $836,000 of
noncontrolling interest related to the acquisitions.

During the nine months ended September 30, 2010, the Company issued
29,988 shares of the Companys common stock, valued at $950,000, as settlement of contingent consideration on one of the Companys 2008 acquisitions. The shares were contingent upon the acquired company achieving certain financial
measurements in the year after acquisition. The acquired company achieved the financial measurements and, therefore, the Company remitted the remaining contingent consideration to the seller.

The Company also issued 20,162 shares, valued at $600,000, during the nine months ended September 30, 2010 as consideration for one
of the Companys acquisitions.

See accompanying notes to the condensed consolidated financial statements.



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LHC GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization

LHC Group, Inc. (the Company) is a health care provider specializing in the post-acute continuum of care primarily for
Medicare beneficiaries. The Company provides home-based services, primarily through home nursing agencies and hospices, and facility-based services, primarily through long-term acute care hospitals (LTACH). As of September 30, 2010,
the Company, through its wholly and majority-owned subsidiaries, equity joint ventures and controlled affiliates, operated in Louisiana, Mississippi, Arkansas, Alabama, Texas, Virginia, West Virginia, Kentucky, Florida, Georgia, Tennessee, Ohio,
Missouri, North Carolina, Maryland, Washington, Oregon, Oklahoma and Idaho. During the nine months ending September 30, 2010, the Company acquired nine home health agencies, two hospice agencies, and one LTACH and initiated operations at eight
home health agencies.

Unaudited Interim Financial Information

The condensed consolidated balance sheet as of September 30, 2010, the related condensed consolidated statements of income for the
three and nine months ended September 30, 2010 and 2009, condensed consolidated statement of changes in equity for the nine months ended September 30, 2010, condensed consolidated statements of cash flows for the nine months ended
September 30, 2010 and 2009 and related notes (collectively, these statements are referred to herein as the interim financial information) have been prepared by the Company. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation in accordance with U.S. generally accepted accounting principles (U.S. GAAP) have been included. Operating results for the three and nine months ended
September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from the interim financial information
presented. This report should be read in conjunction with the Companys consolidated financial statements and related notes included in the Companys Annual Report on Form 10-K for the year ended December 31, 2009 as filed with the
Securities and Exchange Commission (the SEC) on March 15, 2010, which includes information and disclosures not included herein.

Subsequent Events

On October 12, 2010, the Company entered into a
Second and Amended Restated Credit Agreement (Credit Agreement). The Credit Agreement added JP Morgan Chase Bank, N.A. as a lender and renewed the line of credit commitment in the maximum total aggregate principal amount of $75.0 million
(with a letter of credit sub-limit equal to $5.0 million). The Credit Agreement also removed the net receivable to senior debt covenant. The Credit Agreement has a term of three years and expires on October 12, 2013.

On October 29, 2010, the Credit Agreement was amended to permit the use of the proceeds of the line of credit to be used to
repurchase shares of the Companys common stock pursuant to the Stock Repurchase Program, defined below.

On
October 29, 2010, the Companys Board of Directors authorized a share repurchase program to repurchase shares of the Companys common stock, par value $.01 per share, from time to time, in an amount not to exceed $50.0 million
(Stock Repurchase Program). The Company anticipates that it will finance the Stock Repurchase Program with cash from general corporate funds, or draws under the Credit Agreement. The



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Company may repurchase shares of common stock in open market purchases or in privately negotiated transactions in accordance with applicable securities laws, rules and regulations. The timing and
extent to which the Company repurchases its shares will depend upon market conditions and other corporate considerations as may be considered by the Company. As of the date of this report, no amounts have been repurchased under the Stock Repurchase
Program.

2. Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity
with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenue and
expenses during the reporting period. Actual results could differ from those estimates.

Critical Accounting Policies

The most critical accounting policies relate to the principles of consolidation, revenue recognition and accounts receivable and
allowances for uncollectible accounts.

Principles of Consolidation

The condensed consolidated financial statements include all subsidiaries and entities controlled by the Company. Control is defined by
the Company as ownership of a majority of the voting interest of an entity. The condensed consolidated financial statements include entities in which the Company receives a majority of the entities expected residual returns, absorbs a majority
of the entities expected losses, or both, as a result of ownership, contractual or other financial interests in the entity. Third party equity interests in the consolidated joint ventures are reflected as noncontrolling interests in the
Companys condensed consolidated financial statements.

The following table summarizes the percentage of net service
revenue earned by type of ownership or relationship the Company had with the operating entity:



|                             |  |                                 |       |   |                                |  |       |      |  |  |       |   |  |  |       |  
|---------------------------- |  | ------------------------------- | ----- | - | ------------------------------ |  | ----- | ---- |  |  | ----- | - |  |  | ----- | -
|                             |  | Three Months EndedSeptember 30, |       |   | Nine Months EndedSeptember 30, | 
|                             |  | 2010                            |       |   | 2009                           |  |       | 2010 |  |  | 2009  |  
|Wholly-owned subsidiaries    |  |                                 | 50.1  | % |                                |  | 44.6  | %    |  |  | 48.9  | % |  |  | 44.8  | %
|Equity joint ventures        |  |                                 | 46.1  | % |                                |  | 51.1  | %    |  |  | 47.1  | % |  |  | 51.3  | %
|License leasing arrangements |  |                                 | 2.5   | % |                                |  | 2.5   | %    |  |  | 2.5   | % |  |  | 2.4   | %
|Management services          |  |                                 | 1.3   | % |                                |  | 1.8   | %    |  |  | 1.5   | % |  |  | 1.5   | %
|                             |  |                                 |       |   |                                |  |       |      |  |  |       |   |  |  |       |  
|                             |  |                                 | 100.0 | % |                                |  | 100.0 | %    |  |  | 100.0 | % |  |  | 100.0 | %
|                             |  |                                 |       |   |                                |  |       |      |  |  |       |   |  |  |       |  

All significant intercompany accounts and transactions have been eliminated in the Companys
accompanying condensed consolidated financial statements. Business combinations accounted for under the acquisition method have been included in the condensed consolidated financial statements from the respective dates of acquisition.

The following describes the Companys consolidation policy with respect to its various ventures excluding wholly-owned subsidiaries.



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Equity Joint
Ventures

The Companys joint ventures are structured as limited liability companies in which the Company typically
owns a majority equity interest ranging from 51% to 90%. The members of the Companys equity joint ventures participate in profits and losses in proportion to their equity interests. The Company consolidates these entities as the Company has
the obligation to absorb losses of the entities and the right to receive benefits from the entities and generally has voting control over the entities.

License Leasing Arrangements

The Company, through wholly-owned
subsidiaries, leases home health licenses necessary to operate certain of its home nursing agencies. As with its wholly-owned subsidiaries, the Company owns 100% of the equity of these entities and consolidates them based on such ownership, as well
as the Companys obligation to absorb losses of the entities and the right to receive benefits from the entities.

Management Services

The Company has various management services agreements under which the Company manages certain operations of agencies and facilities. The Company does not consolidate these agencies or facilities because
the Company does not have an ownership interest and does not have an obligation to absorb losses of the entities or the right to receive the benefits from the entities.

Revenue Recognition

The Company reports net service revenue at the
estimated net realizable amount due from Medicare, Medicaid, commercial insurance, managed care payors, patients and others for services rendered. All payors contribute to both the home-based services and facility-based services.

The following table sets forth the percentage of net service revenue earned by category of payor for the three months and nine months
ended September 30, 2010 and 2009:



|         |  |                                 |       |   |                                |  |       |      |  |  |       |   |  |  |       |  
|-------- |  | ------------------------------- | ----- | - | ------------------------------ |  | ----- | ---- |  |  | ----- | - |  |  | ----- | -
|         |  | Three Months EndedSeptember 30, |       |   | Nine Months EndedSeptember 30, | 
|         |  | 2010                            |       |   | 2009                           |  |       | 2010 |  |  | 2009  |  
|Payor:   |  |                                 |       |   |                                |  |       |      |  |  |       |   |  |  |       |  
|Medicare |  |                                 | 80.0  | % |                                |  | 82.4  | %    |  |  | 80.4  | % |  |  | 82.7  | %
|Medicaid |  |                                 | 3.3   | % |                                |  | 3.7   | %    |  |  | 3.3   | % |  |  | 3.5   | %
|Other    |  |                                 | 16.7  | % |                                |  | 13.9  | %    |  |  | 16.3  | % |  |  | 13.8  | %
|         |  |                                 |       |   |                                |  |       |      |  |  |       |   |  |  |       |  
|         |  |                                 | 100.0 | % |                                |  | 100.0 | %    |  |  | 100.0 | % |  |  | 100.0 | %
|         |  |                                 |       |   |                                |  |       |      |  |  |       |   |  |  |       |  

The percentage of net service revenue contributed from each reporting segment for the three months and nine
months ended September 30, 2010 and 2009 was as follows:



|                        |  |                                 |       |   |                                |  |       |      |  |  |       |   |  |  |       |  
|----------------------- |  | ------------------------------- | ----- | - | ------------------------------ |  | ----- | ---- |  |  | ----- | - |  |  | ----- | -
|                        |  | Three Months EndedSeptember 30, |       |   | Nine Months EndedSeptember 30, | 
|                        |  | 2010                            |       |   | 2009                           |  |       | 2010 |  |  | 2009  |  
|Home-based services     |  |                                 | 87.5  | % |                                |  | 88.1  | %    |  |  | 88.0  | % |  |  | 88.3  | %
|Facility-based services |  |                                 | 12.5  | % |                                |  | 11.9  | %    |  |  | 12.0  | % |  |  | 11.7  | %
|                        |  |                                 |       |   |                                |  |       |      |  |  |       |   |  |  |       |  
|                        |  |                                 | 100.0 | % |                                |  | 100.0 | %    |  |  | 100.0 | % |  |  | 100.0 | %
|                        |  |                                 |       |   |                                |  |       |      |  |  |       |   |  |  |       |  



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Medicare

Home-Based Services

Home Nursing Services. The Companys home nursing Medicare patients are classified into one of 153 home health resource groups prior to receiving services. Based on this home health resource
group, the Company is entitled to receive a standard prospective Medicare payment for delivering care over a 60-day period referred to as an episode. The Company recognizes revenue based on the number of days elapsed during an episode of care within
the reporting period.

Final payments from Medicare may reflect one of four retroactive adjustments to ensure the adequacy and
effectiveness of the total reimbursement: (a) an outlier payment if the patients care was unusually costly; (b) a low utilization adjustment if the number of visits was fewer than five; (c) a partial payment if the patient
transferred to another provider before completing the episode; or (d) a payment adjustment based upon the level of therapy services required in the population base. Management estimates the impact of these payment adjustments based on
historical experience and records this estimate during the period the services are rendered. The Companys payment is also adjusted for differences in local prices using the hospital wage index. In calculating the Companys reported net
service revenue from home nursing services, the Company adjusts the prospective Medicare payments by an estimate of the adjustments. The adjustments are calculated using a historical average of prior adjustments.

Hospice Services. The Company is paid by Medicare under a per diem payment system. The Company receives one of four
predetermined daily or hourly rates based upon the level of care the Company furnished. The Company records net service revenue from hospice services based on the daily or hourly rate and recognizes revenue as hospice services are provided.

Hospice payments are also subject to an inpatient cap and an overall payment cap. Inpatient cap relates to individual
programs receiving more than 20% of its total Medicare reimbursement from inpatient care services and the overall payment cap relates to individual programs receiving reimbursements in excess of a cap amount, calculated by multiplying
the number of beneficiaries during the period by a statutory amount that is indexed for inflation. The determination for each cap is made annually based on the 12-month period ending on October 31 of each year. The Company monitors our limits
on a program-by-program basis. The Company has not received notification that any of our hospices have exceeded the cap on inpatient care services or overall payments during 2009 or 2010 to date.

Facility-Based Services

Long-Term Acute Care Services. The Company is reimbursed by Medicare for services provided under the LTACH prospective
payment system, which was implemented on October 1, 2002. Each patient is assigned a long-term care diagnosis-related group. The Company is paid a predetermined fixed amount intended to reflect the average cost of treating a Medicare patient
classified in that particular long-term care diagnosis-related group. For selected patients, the amount may be further adjusted based on length of stay and facility-specific costs, as well as in instances where a patient is discharged and
subsequently re-admitted, among other factors. The Company calculates the adjustment based on a historical average of these types of adjustments for claims paid. Similar to other Medicare prospective payment systems, the rate is also adjusted for
geographic wage differences. Revenue is recognized for the Companys LTACHs as services are provided.

Medicaid, managed care and
other payors

The Companys Medicaid reimbursement is based on a predetermined fee schedule applied to each service
provided. Therefore, revenue is recognized for Medicaid services as services are provided based on this fee schedule. The Companys managed care payors reimburse the Company in a manner similar to either Medicare or Medicaid. Accordingly, the
Company recognizes revenue from managed care payors in the same manner as the Company recognizes revenue from Medicare or Medicaid.



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Management Services

The Company records management services revenue as services are provided in accordance with the various management services agreements to
which the Company is a party. As described in the agreements, the Company provides billing, management and other consulting services suited to and designed for the efficient operation of the applicable home nursing agency or inpatient rehabilitation
facility. The Company is responsible for the costs associated with the locations and personnel required for the provision of services. The Company is compensated based on a percentage of cash collections, a flat fee or is reimbursed for operating
expenses and compensated based on a percentage of operating net income.

Accounts Receivable and Allowances for Uncollectible Accounts

The Company reports accounts receivable net of estimated allowances for uncollectible accounts and adjustments.
Accounts receivable are uncollateralized and primarily consist of amounts due from Medicare, other third-party payors, and patients. To provide for accounts receivable that could become uncollectible in the future, the Company establishes an
allowance for uncollectible accounts to reduce the carrying amount of such receivables to their estimated net realizable value. The credit risk for other concentrations of receivables is limited due to the significance of Medicare as the primary
payor. We believe the credit risk associated with our Medicare accounts, which represent 66.4% and 70.5% of our patient accounts receivable at September 30, 2010 and December 31, 2009, respectively, is limited due to (i) the
historical collection rate of over 98% from Medicare and (ii) the fact that Medicare is a U.S. government payor. The Company does not believe that there are any other significant concentrations of receivables from any particular payor that
would subject it to any significant credit risk in the collection of accounts receivable.

The amount of the provision for bad
debts is based upon the Companys assessment of historical and expected net collections, business and economic conditions and trends in government reimbursement. Uncollectible accounts are written off when the Company has determined the account
will not be collected.

A portion of the estimated Medicare prospective payment system reimbursement from each submitted home
nursing episode is received in the form of a request for anticipated payment (RAP). The Company submits a RAP for 60% of the estimated reimbursement for the initial episode at the start of care. The full amount of the episode is billed
after the episode has been completed. The RAP received for that particular episode is deducted from the final payment. If a final bill is not submitted within the greater of 120 days from the start of the episode, or 60 days from the date
the RAP was paid, any RAPs received for that episode will be recouped by Medicare from any other Medicare claims in process for that particular provider. The RAP and final claim must then be resubmitted. For subsequent episodes of care contiguous
with the first episode for a particular patient, the Company submits a RAP for 50% instead of 60% of the estimated reimbursement.

Our Medicare population is paid at a prospectively set amount that can be determined at the time services are rendered. Our Medicaid reimbursement is based on a predetermined fee schedule applied to each
individual service we provide. Our managed care contracts are structured similar to either the Medicare or Medicaid payment methodologies. Because of our payor mix, we are able to calculate our actual amount due at the patient level and adjust the
gross charges down to the actual amount at the time of billing. This negates the need to record an estimated contractual allowance when reporting net service revenue for each reporting period.

Other Significant Accounting Policies

Earnings Per Share

Basic per share information is computed by dividing the relevant amounts from the condensed consolidated statements of income by the weighted-average number of shares outstanding during the period, under
the treasury stock method. Diluted per share information is also computed using the treasury stock method, by dividing the relevant amounts from the condensed consolidated statements of income by the weighted-average number of shares outstanding
plus dilutive potential shares.



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The following table
sets forth shares used in the computation of basic and diluted per share information:



|                                                                              |  |                                 |            |  |                                |  |            |      |  |  |            |  |  |  |            | 
|----------------------------------------------------------------------------- |  | ------------------------------- | ---------- |  | ------------------------------ |  | ---------- | ---- |  |  | ---------- |  |  |  | ---------- | 
|                                                                              |  | Three Months EndedSeptember 30, |            |  | Nine Months EndedSeptember 30, | 
|                                                                              |  | 2010                            |            |  | 2009                           |  |            | 2010 |  |  | 2009       | 
|Weighted average number of shares outstanding for basic per share calculation |  |                                 | 18,148,678 |  |                                |  | 17,971,352 |      |  |  | 18,103,196 |  |  |  | 17,951,986 | 
|Effect of dilutive potential shares:                                          |  |                                 |            |  |                                |  |            |      |  |  |            |  |  |  |            | 
|Options                                                                       |  |                                 | 4,051      |  |                                |  | 6,001      |      |  |  | 5,528      |  |  |  | 5,820      | 
|Nonvested stock                                                               |  |                                 | 71,290     |  |                                |  | 105,630    |      |  |  | 99,721     |  |  |  | 49,111     | 
|Contingent shares                                                             |  |                                 |           |  |                                |  | 34,001     |      |  |  |           |  |  |  | 34,001     | 
|                                                                              |  |                                 |            |  |                                |  |            |      |  |  |            |  |  |  |            | 
|Adjusted weighted average shares for diluted per share calculation            |  |                                 | 18,224,019 |  |                                |  | 18,116,984 |      |  |  | 18,208,445 |  |  |  | 18,040,918 | 
|                                                                              |  |                                 |            |  |                                |  |            |      |  |  |            |  |  |  |            | 
|Antidilutive shares                                                           |  |                                 | 164,289    |  |                                |  | 9,153      |      |  |  | 143,089    |  |  |  | 229,569    | 
|                                                                              |  |                                 |            |  |                                |  |            |      |  |  |            |  |  |  |            | 

Recent Accounting Pronouncements

In 2009, the Financial Accounting Standards Board issued new accounting guidance that amends the evaluation criteria used to identify the primary beneficiary of a variable interest entity
(VIE) and requires ongoing reassessment of whether an enterprise is the primary beneficiary of the VIE. The new guidance changes the consolidation rules for VIEs including the consolidation of common structures, such as joint ventures,
equity method investments and collaboration arrangements. The Company adopted the guidance as of January 1, 2010. The adoption of this guidance did not have a material impact on the Companys financial statements.

3. Acquisitions and Disposals

Pursuant to the Companys strategy for becoming the leading provider of post-acute health care services in the United States, the Company acquired nine home health entities, two hospices, one LTACH,
one private duty entity and one DME entity during the nine months ended September 30, 2010. As a result of the acquisitions, the Company maintains an ownership interest in the entities set forth below.



|                                       |  |                     |     |   |                     |               |                  |                  
|-------------------------------------- |  | ------------------- | --- | - | ------------------- | ------------- | ---------------- | -----------------
|Acquired Entity                        |  | OwnershipPercentage |     |   | State of Operations |               | Acquisition Date
|Preston Memorial HomeCare, LLC         |  |                     | 75  | % |                     | West Virginia |                  | January 1, 2010  
|Access Hospice, LLC                    |  |                     | 100 | % |                     | Missouri      |                  | January 1, 2010  
|HMC Home Health, LLC                   |  |                     | 75  | % |                     | Tennessee     |                  | February 1, 2010 
|Northwest Georgia Home Health, LLC     |  |                     | 100 | % |                     | Georgia       |                  | March 1, 2010    
|Salem Homecare, LLC                    |  |                     | 100 | % |                     | Oregon        |                  | April 1, 2010    
|Specialty Care Hospital of Monroe, LLC |  |                     | 100 | % |                     | Louisiana     |                  | June 25, 2010    
|LHCG XVII, LLC                         |  |                     | 100 | % |                     | Idaho         |                  | July 1, 2010     
|Baptist Home Health, LLC               |  |                     | 75  | % |                     | Alabama       |                  | July 1, 2010     
|Craig General Home Health, LLC         |  |                     | 75  | % |                     | Oklahoma      |                  | August 1, 2010   
|LHCG XVIII, LLC                        |  |                     | 75  | % |                     | Alabama       |                  | August 16, 2010  
|LHCG XX, LLC                           |  |                     | 100 | % |                     | Kentucky      |                  | September 1, 2010

Each of the acquisitions was accounted for under the acquisition method of accounting, and accordingly, the accompanying condensed
consolidated financial statements include the results of operations of each acquired entity from the date of acquisition.



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The Companys
home-based segment recognized goodwill of $8.8 million, including $564,000 of noncontrolling goodwill, and the Companys facility-based segment recognized goodwill of $6.0 million related to the acquisitions. The Company expects its portion of
goodwill to be fully tax deductible. The following table summarizes the consideration paid for the acquisitions and the amounts of the assets acquired and liabilities assumed at the acquisition dates, as well as the fair value at the acquisition
dates of the noncontrolling interest acquired (all amounts are in thousands).



|                                                                            |  |   |        | 
|--------------------------------------------------------------------------- |  | - | ------ | 
|Consideration                                                               |  |   |        | 
|Cash                                                                        |  | $ | 21,958 | 
|Stock issuance (20,162 shares)                                              |  |   | 600    | 
|Working capital                                                             |  |   | 216    | 
|                                                                            |  |   |        | 
|Fair value of total consideration transferred                               |  | $ | 22,774 | 
|                                                                            |  |   |        | 
|Acquisition-related costs (included in general and administrative expenses) |  | $ | 348    | 
|                                                                            |  |   |        | 
|Recognized amounts of identifiable assets acquired and liabilities assumed  |  |   |        | 
|Trade name                                                                  |  | $ | 4,429  | 
|Certificate of need/license                                                 |  |   | 1,438  | 
|Other identifiable intangible assets                                        |  |   | 1,176  | 
|Other assets                                                                |  |   | 1,186  | 
|                                                                            |  |   |        | 
|Total identifiable assets                                                   |  | $ | 8,229  | 
|                                                                            |  |   |        | 
|Noncontrolling interest                                                     |  | $ | 836    | 
|Goodwill, including noncontrolling interest of $564,000                     |  | $ | 15,381 | 

Trade names,
certificates of need and licenses are indefinite-lived assets and, therefore, not subject to amortization. The other identifiable assets include non-compete agreements that are amortized over the life of the agreements, ranging from two to five
years. The fair value of the acquired intangible assets is preliminary pending the final valuations of those assets.

One of
the Companys 2009 acquisitions provided for up to $2.5 million in contingent consideration to be paid to the seller if certain financial measurements are achieved. The fair value of the contingent consideration recognized on the acquisition
date was $1.7 million. The fair value of the contingent consideration was estimated using the income approach based on financial projections of the acquired company. The projected cash flows were discounted using a discount rate of LIBOR plus 100
basis points, which the Company believes is appropriate and is representative of a market participant assumption. During the nine months ended September 30, 2010, the Company revalued the contingent consideration using the same fair value
techniques, and increased its fair value to $1.8 million. The $100,000 additional expense is included in Operating income on Condensed Consolidated Statement of Income. The fair value measurement is based on significant inputs not observable in the
market and thus represents a Level 3 fair value measurement.

During the first quarter of 2010, certain noncontrolling
interest holders redeemed their interest in one of the Companys joint ventures, resulting in a cash payment of approximately $36,000. In connection with the partial redemption, the Company decreased noncontrolling interest redeemable by
approximately $41,000 and increased retained earnings by the same amount, representing the fair value at December 31, 2009 of the shares converted during the first quarter of 2010. Simultaneously, the Company recorded goodwill of $36,000, which
is not deductible for income tax purposes, to represent the value of the noncontrolling interest redeemed. As of September 30, 2010, all noncontrolling interest associated with this joint venture had been redeemed.

During the second quarter of 2010, the Company purchased certain noncontrolling interest holders assigned interests in one of the
Companys joint ventures, resulting in cash payments of $1.9 million. In connection with the sale, additional paid in capital was decreased by $1.9 million.



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In September 2009, the
Company sold its outpatient rehabilitation clinic, which was part of the Facility-Based services. The sale generated a loss of $22,000, which was recognized in the third quarter of 2009. The results of operations related to the clinic are included
in discontinued operations in the Companys condensed consolidated statement of income for the nine months ended September 30, 2009. There was no activity related to the outpatient rehabilitation clinic during the nine months ended
September 30, 2010.

The following table provides financial results of discontinued operations for the three and nine
months ended September 30, 2009 (amounts in thousands):



|                                                                                                |  |                                    |     |   |                                   |   |      |  
|----------------------------------------------------------------------------------------------- |  | ---------------------------------- | --- | - | --------------------------------- | - | ---- | -
|                                                                                                |  | Three Months EndedSeptember 302009 |     |   | Nine Months EndedSeptember 302009 |  
|Net service revenue                                                                             |  | $                                  | 88  |   |                                   | $ | 406  |  
|Costs of services and G&A expenses                                                              |  |                                    | 112 |   |                                   |   | 530  |  
|                                                                                                |  |                                    |     |   |                                   |   |      |  
|Income (Loss) from discontinued operations before income taxes                                  |  |                                    | (24 | ) |                                   |   | (124 | )
|Income tax benefit (expense)                                                                    |  |                                    | 9   |   |                                   |   | 48   |  
|                                                                                                |  |                                    |     |   |                                   |   |      |  
|Income (Loss) from discontinued operations attributable to LHC Group Inc.s common stockholders |  | $                                  | (15 | ) |                                   | $ | (76  | )
|                                                                                                |  |                                    |     |   |                                   |   |      |  

4. Goodwill and Intangibles

The changes in recorded goodwill by segment for the nine months ended September 30, 2010 were as follows (amounts in thousands):



|                                                             |  |                                    |         | 
|------------------------------------------------------------ |  | ---------------------------------- | ------- | 
|                                                             |  | Nine Months EndedSeptember
30,2010 |        
|Home-based services segment:                                 |  |                                    |         | 
|Balance at beginning of period                               |  | $                                  | 133,909 | 
|Goodwill from acquisitions                                   |  |                                    | 8,827   | 
|Goodwill related to noncontrolling interest                  |  |                                    | 564     | 
|Other adjustments                                            |  |                                    | 6       | 
|                                                             |  |                                    |         | 
|Balance at September 30, 2010                                |  | $                                  | 143,306 | 
|                                                             |  |                                    |         | 
|Facility-based services segment:                             |  |                                    |         | 
|Balance at beginning of period                               |  | $                                  | 5,565   | 
|Goodwill from Acquisitions                                   |  |                                    | 5,990   | 
|Goodwill acquired from redemption of noncontrolling interest |  |                                    | 36      | 
|                                                             |  |                                    |         | 
|Balance at September 30, 2010                                |  | $                                  | 11,591  | 
|                                                             |  |                                    |         | 
|Consolidated balance at September 30, 2010                   |  | $                                  | 154,897 | 
|                                                             |  |                                    |         | 

The following table summarizes the changes in intangible assets during the nine months ended
September 30, 2010 (amounts in thousands):



|                              |  |             |        |  |                             |   |       |                  |  |   |       |   |  |   |        |  
|----------------------------- |  | ----------- | ------ |  | --------------------------- | - | ----- | ---------------- |  | - | ----- | - |  | - | ------ | -
|                              |  | Trade Names |        |  | Certificate 
ofNeed/License |   |       | OtherIntangibles |  |   | Total |  
|Balance at December 31, 2009  |  | $           | 40,305 |  |                             | $ | 5,533 |                  |  | $ | 1,013 |   |  | $ | 46,851 |  
|Additions                     |  |             | 4,429  |  |                             |   | 1,438 |                  |  |   | 1,176 |   |  |   | 7,043  |  
|Amortization                  |  |             |       |  |                             |   |      |                  |  |   | (551  | ) |  |   | (551   | )
|                              |  |             |        |  |                             |   |       |                  |  |   |       |   |  |   |        |  
|Balance at September 30, 2010 |  | $           | 44,734 |  |                             | $ | 6,971 |                  |  | $ | 1,638 |   |  | $ | 53,343 |  
|                              |  |             |        |  |                             |   |       |                  |  |   |       |   |  |   |        |  

Other intangible assets of $51.3 million, net of accumulated amortization, related to the home-based
services segment and $2.0 million related to the facility-based services segment as of September 30, 2010.



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5. Stockholders Equity

During the nine months ended September 30, 2010, the Company issued 29,988 shares of the Companys common
stock, valued at $950,000, as settlement of contingent consideration on one of the Companys 2008 acquisitions. The shares were contingent upon the acquired company achieving certain financial measurements in the year after acquisition. The
acquired company achieved the financial measurements and, therefore, the Company remitted the remaining contingent consideration to the seller.

The Company also issued 20,162 shares, valued at $600,000 during the nine months ended September 30, 2010 as consideration for one of the Companys acquisitions.

Share Based Compensation

On January 20, 2005, the board of directors and stockholders of the Company approved the 2005 Long Term Incentive Plan (the
2005 Incentive Plan). The Incentive Plan provided for 1,000,000 shares of common stock that may be issued or transferred pursuant to awards made under the plan. At the 2010 Annual Meeting, the stockholders of the Company approved the
Companys 2010 Long Term Incentive Plan (the 2010 LTIP). A total of 1,500,000 shares of the Companys common stock are reserved and available for issuance pursuant to awards granted under the 2010 LTIP. All future
awards must be granted under the 2010 LTIP as no further awards are permitted to be granted under the 2005 Incentive Plan. A variety of discretionary awards for employees, officers, directors and consultants are authorized under the 2010 LTIP,
including incentive or non-qualified statutory stock options and nonvested stock. All awards must be evidenced by a written award certificate which will include the provisions specified by the compensation committee of the board of directors. The
compensation committee will determine the exercise price for non-statutory stock options. The exercise price for any option cannot be less than the fair market value of our common stock as of the date of grant.

Stock Options

As of
September 30, 2010, 15,000 options were issued and exercisable. During the nine months ended September 30, 2010, 4,000 options were exercised with an average exercise price of $18.40. No options were forfeited or granted during the nine
months ended September 30, 2010 and 2009.

Nonvested Stock

During the nine months ended September 30, 2010, 18,700 nonvested shares of stock were granted to our independent directors under
the 2005 Director Compensation Plan. Of these 18,700 shares, 15,200 shares vest one year from the grant date, while the remaining 3,500 shares vest one-third immediately, and the remaining two-thirds vest equally on the first and second
anniversaries of the grant date. During the nine months ended September 30, 2010, 140,755 nonvested shares were granted to employees pursuant to the 2005 Incentive Plan. All of these shares vest over a five year period. The fair value of
nonvested shares is determined based on the closing trading price of the Companys shares on the grant date. The weighted average grant date fair value of nonvested shares granted during the nine months ended September 30, 2010 was $30.04.

The following table represents the nonvested stock activity for the nine months ended September 30, 2010:



|                                                   |  |                 |          |   |                                       |   |       | 
|-------------------------------------------------- |  | --------------- | -------- | - | ------------------------------------- | - | ----- | 
|                                                   |  | Number ofShares |          |   | Weightedaverage 
grantdate fair value |  
|Nonvested shares outstanding at December 31, 2009  |  |                 | 466,133  |   |                                       | $ | 21.88 | 
|Granted                                            |  |                 | 159,455  |   |                                       |   | 30.04 | 
|Vested                                             |  |                 | (115,215 | ) |                                       |   | 22.00 | 
|Forfeited                                          |  |                 | (773     | ) |                                       |   | 17.00 | 
|                                                   |  |                 |          |   |                                       |   |       | 
|Nonvested shares outstanding at September 30, 2010 |  |                 | 509,600  |   |                                       |   | 23.61 | 
|                                                   |  |                 |          |   |                                       |   |       | 



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As of
September 30, 2010, there was $9.3 million of total unrecognized compensation cost related to nonvested shares granted. That cost is expected to be recognized over the weighted average period of 2.5 years. The total fair value of shares vested
in the nine months ended September 30, 2010 and 2009 was $2.5 million and $1.6 million, respectively. The Company records compensation expense related to nonvested share awards at the grant date for shares that are awarded fully vested, and
over the vesting term on a straight line basis for shares that vest over time. The Company has recorded $2.8 million and $1.8 million of compensation expense related to nonvested stock grants in the nine months ended September 30, 2010 and
2009, respectively.

Employee Stock Purchase Plan

The Company has a plan whereby eligible employees may purchase the Companys common stock at 95% of the market price on the last day of the calendar quarter. There are 250,000 shares reserved for the
plan. The Company issued 5,918 shares of common stock under the plan at a per share price of $31.93 during the three months ended March 31, 2010, 5,789 shares of common stock at a per share price of $31.85 during the three months ended
June 30, 2010 and 8, 386 shares of common stock at a per share price of $26.36 during the three months ended September 30, 2010. As of September 30, 2010, there were 158,148 shares available for future issuance.

6. Commitments and Contingencies

Contingencies

The Company is involved in various legal proceedings arising in the ordinary course of business. Although the results of litigation
cannot be predicted with certainty, management believes the outcome of pending litigation will not have a material adverse effect, after considering the effect of the Companys insurance coverage, on the Companys consolidated financial
statements.

On May 12, 2010, the Company received a letter from the United States Senate Finance Committee in response
to an April 26, 2010 article in The Wall Street Journal entitled Home Care Yields Medicare Bounty. The letter from the Senate Finance Committee asked the Company to provide documents and
data related to the issues referenced in The Wall Street Journalarticle. On June 25, 2010, the Company submitted its response to the Senate Finance Committees letter and intends to fully cooperate with their
inquiry. At this time, the Company is unable to predict the timing and outcome of this matter.

On July 16,
2010, the Company received a subpoena from the Securities and Exchange Commission (SEC) that included a request for documents related to the Companys participation in the Medicare Home Health Prospective Payment
System, as well as the documents and information produced in response to the Senate Finance Committees investigation set forth above. The Company has produced requested documents and will continue to be cooperative with the SECs requests
and its reviews. Because the investigation is at an early stage, the Company cannot predict its outcome or its effect, if any, on the Companys business.

As previously reported, the Company received an administrative subpoena from the Inspector General of the Office of Personnel Management (OPM). OPM is an administrative agency responsible for
overseeing the Federal Employees Health Benefit Program (FEHBP). Although the subpoena was issued by OPM, the Company learned on July 9, 2009 that the scope of the review is not limited to the FEHBP, but also extends to services
provided to Medicare beneficiaries. The focus of the review is on third-party quality improvement audits performed on the Companys behalf by a third party consultant from 2005 to 2009. The Company will continue to cooperate and provide
responsive information for the OPM review.

As previously reported, the Company defended a qui tam lawsuit filed in
Tennessee captioned United States of America ex rel Sally Christine Summers v. LHC Group, Inc.which alleged violation of the False Claims Act at a single agency. The district court dismissed the case. On October 4, 2010, the United
States Court of Appeals for



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##### Table of Contents

the Sixth Circuit issued an opinion upholding the district courts dismissal of the case. At this time, the Company does not know if the plaintiff intends to pursue further appellate
filings.

Except as discussed above, the Company is not aware of any pending or threatened investigations involving
allegations of potential wrongdoing.

Joint Venture Buy/Sell Provisions

Several of the Companys joint ventures include a buy/sell option that grants to the Company and its joint venture partners the
right to require the other joint venture party to either purchase all of the exercising members membership interests or sell to the exercising member all of the non-exercising members membership interest, at the non-exercising
members option, within 30 days of the receipt of notice of the exercise of the buy/sell option. In some instances, the purchase price is based on a multiple of the historical or future earnings before income taxes and depreciation and
amortization of the equity joint venture at the time the buy/sell option is exercised. In other instances, the buy/sell purchase price will be negotiated by the partners and subject to a fair market valuation process. The Company has not received
notice from any joint venture partners of their intent to exercise the terms of the buy/sell agreement nor has the Company notified any joint venture partners of its intent to exercise the terms of the buy/sell agreement.

Noncontrolling Interest-Redeemable

A majority of the Companys joint venture agreements include a provision that requires the Company to purchase the noncontrolling partners interest upon the occurrence of certain triggering
events, such as death or bankruptcy of the partner or the partners exclusion from the Medicare or Medicaid programs. These triggering events and the related repurchase provisions are specific to each individual joint venture; if the repurchase
provision is triggered in any one joint venture, the remaining joint ventures would not be impacted. Upon the occurrence of a triggering event, the Company would be required to purchase the noncontrolling partners interest at either the fair
value or the book value at the time of purchase as stated in the agreement. Historically, no triggering event has occurred, and the Company believes the likelihood of a triggering event occurring is remote. The Company has never been required to
purchase the noncontrolling interest of any of its joint venture partners. According to authoritative guidance, redeemable noncontrolling interests must be reported outside of permanent equity on the consolidated balance sheet in instances where
there is a repurchase provision with a triggering event that is outside the control of the Company. The Company had 53 joint venture agreements with these repurchase provisions resulting in a total noncontrolling interests  redeemable of $14.0
million and $13.8 million at September 30, 2010 and December 31, 2009, respectively.

Compliance

The laws and regulations governing the Companys operations, along with the terms of participation in various government programs,
regulate how the Company does business, the services offered and its interactions with patients and the public. These laws and regulations and their interpretations, are subject to frequent change. Changes in existing laws or regulations, or their
interpretations, or the enactment of new laws or regulations could materially and adversely affect the Companys operations and financial condition.

The Company is subject to various routine and non-routine governmental reviews, audits and investigations. In recent years, federal and state civil and criminal enforcement agencies have heightened and
coordinated their oversight efforts related to the health care industry, including referral practices, cost reporting, billing practices, joint ventures and other financial relationships among health care providers. Violation of the laws governing
the Companys operations, or changes in the interpretation of those laws, could result in the imposition of fines, civil or criminal penalties, and/or termination of the Companys rights to participate in federal and state-sponsored
programs and suspension or revocation of the Companys licenses. The Company believes that it is in material compliance with all applicable laws and regulations.



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7. Fair Value of Financial
Instruments

The carrying amounts of the Companys cash, receivables, accounts payable and accrued liabilities
approximate their fair values because of their short maturity. The carrying value of the Companys long-term debt equals its fair value based on a variable interest rate.

8. Segment Information

The Companys segments consist of home-based
services and facility-based services. Home-based services include home nursing services and hospice services. Facility-based services include long-term acute care services. The accounting policies of the segments are the same as those described in
the summary of significant accounting policies.



|                                                                                  |  |                                       |         |   |                        |   |        |       |  |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------------------- | ------- | - | ---------------------- | - | ------ | ----- |  | - | ------- | -
|                                                                                  |  | Three Months Ended September 30, 2010 |        
|                                                                                  |  | Home-BasedServices                    |         |   | Facility-BasedServices |   |        | Total | 
|                                                                                  |  | (in thousands)                        |        
|Net service revenue                                                               |  | $                                     | 145,789 |   |                        | $ | 20,843 |       |  | $ | 166,632 |  
|Cost of service revenue                                                           |  |                                       | 75,443  |   |                        |   | 12,744 |       |  |   | 88,187  |  
|Provision for bad debts                                                           |  |                                       | 1,848   |   |                        |   | (149   | )     |  |   | 1,699   |  
|General and administrative expenses                                               |  |                                       | 46,119  |   |                        |   | 4,937  |       |  |   | 51,056  |  
|                                                                                  |  |                                       |         |   |                        |   |        |       |  |   |         |  
|Operating income                                                                  |  |                                       | 22,379  |   |                        |   | 3,311  |       |  |   | 25,690  |  
|                                                                                  |  |                                       |         |   |                        |   |        |       |  |   |         |  
|Interest expense                                                                  |  |                                       | (30     | ) |                        |   | (3     | )     |  |   | (33     | )
|Non-operating income                                                              |  |                                       | 38      |   |                        |   | 52     |       |  |   | 90      |  
|                                                                                  |  |                                       |         |   |                        |   |        |       |  |   |         |  
|Income from continuing operations before income taxes and noncontrolling interest |  |                                       | 22,387  |   |                        |   | 3,360  |       |  |   | 25,747  |  
|Income tax expense                                                                |  |                                       | 7,793   |   |                        |   | 838    |       |  |   | 8,631   |  
|                                                                                  |  |                                       |         |   |                        |   |        |       |  |   |         |  
|Income from continuing operations                                                 |  |                                       | 14,594  |   |                        |   | 2,522  |       |  |   | 17,116  |  
|Noncontrolling interest                                                           |  |                                       | 3,440   |   |                        |   | 378    |       |  |   | 3,818   |  
|                                                                                  |  |                                       |         |   |                        |   |        |       |  |   |         |  
|Net Income attributable to LHC Group, Inc.                                        |  | $                                     | 11,154  |   |                        | $ | 2,144  |       |  | $ | 13,298  |  
|                                                                                  |  |                                       |         |   |                        |   |        |       |  |   |         |  
|Total assets                                                                      |  | $                                     | 310,380 |   |                        | $ | 37,035 |       |  | $ | 347,415 |  
|                                                                                  |  |                                       |         |   |                        |   |        |       |  |   |         |  



|                                                                                  |  |                                       |         |   |                        |   |        |       |  |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------------------- | ------- | - | ---------------------- | - | ------ | ----- |  | - | ------- | -
|                                                                                  |  | Three Months Ended September 30, 2009 |        
|                                                                                  |  | Home-BasedServices                    |         |   | Facility-BasedServices |   |        | Total | 
|                                                                                  |  | (in thousands)                        |        
|Net service revenue                                                               |  | $                                     | 117,111 |   |                        | $ | 15,745 |       |  | $ | 132,856 |  
|Cost of service revenue                                                           |  |                                       | 59,904  |   |                        |   | 9,621  |       |  |   | 69,525  |  
|Provision for bad debts                                                           |  |                                       | 1,265   |   |                        |   | (160   | )     |  |   | 1,105   |  
|General and administrative expenses                                               |  |                                       | 39,376  |   |                        |   | 4,532  |       |  |   | 43,908  |  
|                                                                                  |  |                                       |         |   |                        |   |        |       |  |   |         |  
|Operating income                                                                  |  |                                       | 16,566  |   |                        |   | 1,752  |       |  |   | 18,318  |  
|                                                                                  |  |                                       |         |   |                        |   |        |       |  |   |         |  
|Interest expense                                                                  |  |                                       | (18     | ) |                        |   | (2     | )     |  |   | (20     | )
|Non-operating income                                                              |  |                                       | 45      |   |                        |   | 6      |       |  |   | 51      |  
|                                                                                  |  |                                       |         |   |                        |   |        |       |  |   |         |  
|Income from continuing operations before income taxes and noncontrolling interest |  |                                       | 16,593  |   |                        |   | 1,756  |       |  |   | 18,349  |  
|Income tax expense                                                                |  |                                       | 5,041   |   |                        |   | 568    |       |  |   | 5,609   |  
|                                                                                  |  |                                       |         |   |                        |   |        |       |  |   |         |  
|Income from continuing operations                                                 |  |                                       | 11,552  |   |                        |   | 1,188  |       |  |   | 12,740  |  
|Noncontrolling interest                                                           |  |                                       | 2,719   |   |                        |   | 174    |       |  |   | 2,893   |  
|Loss from discontinued operations                                                 |  |                                       |        |   |                        |   | 15     |       |  |   | 15      |  
|                                                                                  |  |                                       |         |   |                        |   |        |       |  |   |         |  
|Net Income attributable to LHC Group, Inc.                                        |  | $                                     | 8,833   |   |                        | $ | 999    |       |  | $ | 9,832   |  
|                                                                                  |  |                                       |         |   |                        |   |        |       |  |   |         |  
|Total assets                                                                      |  | $                                     | 256,942 |   |                        | $ | 26,406 |       |  | $ | 283,348 |  
|                                                                                  |  |                                       |         |   |                        |   |        |       |  |   |         |  



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|                                                                                  |  |                                      |         |   |                        |   |        |       |  |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------------------ | ------- | - | ---------------------- | - | ------ | ----- |  | - | ------- | -
|                                                                                  |  | Nine Months Ended September 30, 2010 |        
|                                                                                  |  | Home-BasedServices                   |         |   | Facility-BasedServices |   |        | Total | 
|                                                                                  |  | (in thousands)                       |        
|Net service revenue                                                               |  | $                                    | 411,022 |   |                        | $ | 55,951 |       |  | $ | 466,973 |  
|Cost of service revenue                                                           |  |                                      | 209,567 |   |                        |   | 32,883 |       |  |   | 242,450 |  
|Provision for bad debts                                                           |  |                                      | 5,140   |   |                        |   | 159    |       |  |   | 5,299   |  
|General and administrative expenses                                               |  |                                      | 132,954 |   |                        |   | 13,555 |       |  |   | 146,509 |  
|                                                                                  |  |                                      |         |   |                        |   |        |       |  |   |         |  
|Operating income                                                                  |  |                                      | 63,361  |   |                        |   | 9,354  |       |  |   | 72,715  |  
|                                                                                  |  |                                      |         |   |                        |   |        |       |  |   |         |  
|Interest expense                                                                  |  |                                      | (75     | ) |                        |   | (8     | )     |  |   | (83     | )
|Non-operating income                                                              |  |                                      | 663     |   |                        |   | 48     |       |  |   | 711     |  
|                                                                                  |  |                                      |         |   |                        |   |        |       |  |   |         |  
|Income from continuing operations before income taxes and noncontrolling interest |  |                                      | 63,949  |   |                        |   | 9,394  |       |  |   | 73,343  |  
|Income tax expense                                                                |  |                                      | 21,772  |   |                        |   | 2,347  |       |  |   | 24,119  |  
|                                                                                  |  |                                      |         |   |                        |   |        |       |  |   |         |  
|Income from continuing operations                                                 |  |                                      | 42,177  |   |                        |   | 7,047  |       |  |   | 49,224  |  
|Noncontrolling interest                                                           |  |                                      | 10,624  |   |                        |   | 1,286  |       |  |   | 11,910  |  
|                                                                                  |  |                                      |         |   |                        |   |        |       |  |   |         |  
|Net Income attributable to LHC Group, Inc.                                        |  | $                                    | 31,553  |   |                        | $ | 5,761  |       |  | $ | 37,314  |  
|                                                                                  |  |                                      |         |   |                        |   |        |       |  |   |         |  
|Total assets                                                                      |  | $                                    | 310,380 |   |                        | $ | 37,035 |       |  | $ | 347,415 |  
|                                                                                  |  |                                      |         |   |                        |   |        |       |  |   |         |  



|                                                                                  |  |                                      |         |   |                        |   |        |       |  |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------------------ | ------- | - | ---------------------- | - | ------ | ----- |  | - | ------- | -
|                                                                                  |  | Nine Months Ended September 30, 2009 |        
|                                                                                  |  | Home-BasedServices                   |         |   | Facility-BasedServices |   |        | Total | 
|                                                                                  |  | (in thousands)                       |        
|Net service revenue                                                               |  | $                                    | 344,802 |   |                        | $ | 45,686 |       |  | $ | 390,488 |  
|Cost of service revenue                                                           |  |                                      | 171,447 |   |                        |   | 27,212 |       |  |   | 198,659 |  
|Provision for bad debts                                                           |  |                                      | 4,146   |   |                        |   | (6     | )     |  |   | 4,140   |  
|General and administrative expenses                                               |  |                                      | 114,481 |   |                        |   | 11,912 |       |  |   | 126,393 |  
|                                                                                  |  |                                      |         |   |                        |   |        |       |  |   |         |  
|Operating income                                                                  |  |                                      | 54,728  |   |                        |   | 6,568  |       |  |   | 61,296  |  
|                                                                                  |  |                                      |         |   |                        |   |        |       |  |   |         |  
|Interest expense                                                                  |  |                                      | (104    | ) |                        |   | (11    | )     |  |   | (115    | )
|Non-operating income (loss)                                                       |  |                                      | (365    | ) |                        |   | 28     |       |  |   | (337    | )
|                                                                                  |  |                                      |         |   |                        |   |        |       |  |   |         |  
|Income from continuing operations before income taxes and noncontrolling interest |  |                                      | 54,259  |   |                        |   | 6,585  |       |  |   | 60,844  |  
|Income tax expense                                                                |  |                                      | 16,835  |   |                        |   | 1,917  |       |  |   | 18,752  |  
|                                                                                  |  |                                      |         |   |                        |   |        |       |  |   |         |  
|Income from continuing operations                                                 |  |                                      | 37,424  |   |                        |   | 4,668  |       |  |   | 42,092  |  
|Noncontrolling interest                                                           |  |                                      | 9,820   |   |                        |   | 1,021  |       |  |   | 10,841  |  
|Loss from discontinued operations                                                 |  |                                      |        |   |                        |   | 76     |       |  |   | 76      |  
|                                                                                  |  |                                      |         |   |                        |   |        |       |  |   |         |  
|Net income available to LHC Group, Inc.                                           |  | $                                    | 27,604  |   |                        | $ | 3,571  |       |  | $ | 31,175  |  
|                                                                                  |  |                                      |         |   |                        |   |        |       |  |   |         |  
|Total assets                                                                      |  | $                                    | 256,942 |   |                        | $ | 26,406 |       |  | $ | 283,348 |  
|                                                                                  |  |                                      |         |   |                        |   |        |       |  |   |         |  



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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

This Managements Discussion and Analysis of Financial Condition and Results of Operations contains certain statements and information that may constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of 1993, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Forward-looking statements relate to future plans and
strategies, anticipated events or trends, future financial performance and expectations and beliefs concerning matters that are not historical facts or that necessarily depend upon future events. The words may, will,
should, could, would, expect, plan, intend, anticipate, believe, estimate, project, predict, potential or
other similar expressions are intended to identify forward-looking statements. Specifically, this report contains, among others, forward-looking statements about:



| |  |  | our expectations regarding financial condition or results of operations for periods after September 30, 2010;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | our critical accounting policies;
| | - |  | ---------------------------------



| |  |  | our participation in the Medicare and Medicaid programs;
| | - |  | --------------------------------------------------------



| |  |  | the impact of healthcare reform;
| | - |  | --------------------------------



| |  |  | the reimbursement levels of Medicare and other third-party payors;
| | - |  | ------------------------------------------------------------------



| |  |  | the prompt receipt of payments from Medicare and other third-party payors;
| | - |  | --------------------------------------------------------------------------



| |  |  | the outcomes of various routine and non-routine governmental reviews, audits and investigations;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | the impact of legal proceedings;
| | - |  | --------------------------------



| |  |  | our compliance with health care laws and regulations;
| | - |  | -----------------------------------------------------



| |  |  | our compliance with Securities and Exchange Commission laws and regulations and Sarbanes-Oxley requirements;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | the impact of federal and state government regulation on our business; and
| | - |  | --------------------------------------------------------------------------



| |  |  | the impact of changes in our future interpretations of fraud, anti-kickback or other laws.
| | - |  | ------------------------------------------------------------------------------------------

The forward-looking statements contained in this report reflect our current views about future events and are based on assumptions and
are subject to known and unknown risks and uncertainties. Many important factors could cause actual results or achievements to differ materially from any future results or achievements expressed in or implied by our forward-looking statements. Many
of the factors that will determine future events or achievements are beyond our ability to control or predict. Important factors that could cause actual results or achievements to differ materially from the results or achievements reflected in our
forward-looking statements include, among other things, the factors discussed in the Part II, Item 1A. Risk Factors, included in this report and in other of our filings with the SEC, including our annual report on Form 10-K for the
year ended December 31, 2009. This report should be read in conjunction with that annual report on Form 10-K, and all our other filings, including quarterly reports on Form 10-Q and current reports on Form 8-K made with the SEC through the date
of this report.

You should read this report, the information incorporated by reference into this report and the documents
filed as exhibits to this report completely and with the understanding that our actual future results or achievements may be materially different from what we expect or anticipate.

The forward-looking statements contained in this report reflect our views and assumptions only as of the date this report is signed.
Except as required by law, we assume no responsibility for updating any forward-looking statements.



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We qualify all of our
forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995.

Unless the context otherwise requires, we, us, our, and the
Company refer to LHC Group, Inc. and its consolidated subsidiaries.

OVERVIEW

We provide post-acute health care services through our home nursing agencies, hospices and long-term acute care hospitals. As of
September 30, 2010, we had 305 service providers in 19 states: Louisiana, Mississippi, Arkansas, Alabama, Texas, Virginia, West Virginia, Kentucky, Florida, Georgia, Tennessee, Ohio, Missouri, North Carolina, Maryland, Washington, Oregon,
Oklahoma and Idaho.

Segments

We operate in two segments for financial reporting purposes: home-based services and facility-based services. The percentage of net service revenue contributed from each reporting segment for the three
and nine months ended September 30, 2010 and 2009 was as follows:



|                        |  |                                 |       |   |                                 |  |       |      |  |  |       |   |  |  |       |  
|----------------------- |  | ------------------------------- | ----- | - | ------------------------------- |  | ----- | ---- |  |  | ----- | - |  |  | ----- | -
|                        |  | Three Months EndedSeptember
30, |       |   | Nine Months 
EndedSeptember 30, | 
|                        |  | 2010                            |       |   | 2009                            |  |       | 2010 |  |  | 2009  |  
|Home-based services     |  |                                 | 87.5  | % |                                 |  | 88.1  | %    |  |  | 88.0  | % |  |  | 88.3  | %
|Facility-based services |  |                                 | 12.5  | % |                                 |  | 11.9  | %    |  |  | 12.0  | % |  |  | 11.7  | %
|                        |  |                                 |       |   |                                 |  |       |      |  |  |       |   |  |  |       |  
|                        |  |                                 | 100.0 | % |                                 |  | 100.0 | %    |  |  | 100.0 | % |  |  | 100.0 | %
|                        |  |                                 |       |   |                                 |  |       |      |  |  |       |   |  |  |       |  

Through our home-based services segment we offer a wide range of services, including skilled nursing,
private duty nursing, medically-oriented social services, hospice care and physical, occupational and speech therapy. As of September 30, 2010, the home-based services segment was comprised of the following:



|                     |  |           |     | 
|-------------------- |  | --------- | --- | 
|Type of Service      |  | Locations |    
|Home Health          |  |           | 251 | 
|Hospice              |  |           | 26  | 
|Diabetes Management  |  |           | 2   | 
|Private Duty         |  |           | 5   | 
|Specialty Services   |  |           | 4   | 
|Management Companies |  |           | 4   | 
|                     |  |           |     | 
|                     |  |           | 292 | 
|                     |  |           |     | 

Of our 292 home-based services locations, 161 are wholly-owned by us, 119 are majority-owned by us through
joint ventures, eight are license lease arrangements and we manage the operations of the remaining four locations. We intend to increase the number of home nursing agencies and hospice locations that we operate through continued acquisitions and
development throughout the United States.

We provide facility-based services principally through our LTACHs. As of
September 30, 2010, we owned and operated six LTACHs with nine locations, of which all but one are located within host hospitals. We also owned and operated one medical equipment location, a health club, a pharmacy, and we manage the operations
of one inpatient rehabilitation facility, in which we have no ownership interest. Of these 13 facility-based services locations, seven are wholly-owned by us, five are majority-owned through joint ventures, and one is a managed facility.



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Recent Developments

Home-Based Services

Home Nursing. The base payment rate for Medicare home nursing in calendar year (CY) 2010 is $2,312.94 per 60-day episode. This is an increase of 1.8% over the CY 2009 base
payment rate of $2,271.92. The increase includes a 2.2% market basket increase, a 2.75% coding adjustment decrease, and a 2.5% increase resulting from a modification to the current outlier policy.

The standard federal rate is increased or decreased based on each Medicare patients case mix index which measures the severity of
the patients condition. Since the inception of the prospective payment system in October 2000, the base episode rate payment has varied due to both the impact of annual market basket based increases and Medicare-related legislation. Home
health payment rates are updated annually by either the full home health market basket percentage, or by the home health market basket percentage as adjusted by Congress. Centers for Medicare & Medicaid Services (CMS)
establishes the home health market basket index, which measures inflation in the prices of an appropriate mix of goods and services included in home health services.

In March 2010, the Patient Protection and Affordable Care Act was enacted and was amended shortly afterwards by the Health Care and Education Affordability Reconciliation Act of 2010 (collectively
referred to as the Affordable Care Act). The Affordable Care Act makes a number of changes to Medicare payment rates including the reinstatement of the 3% home health rural add-on which began on April 1, 2010 (expiring January 1, 2016).

Other changes from the Affordable Care Act that begin on or after January 1, 2011 are:



| |  |  | market basket adjustment for 2011, 2012 and 2013 to be determined by CMS, is reduced by 1%;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | revised outlier payment policy beginning in 2011 that we anticipate will result in a 2.5% reduction to the base rate;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | full productivity adjustment beginning in 2015; and
| | - |  | ---------------------------------------------------



| |  |  | rebasing of the base payment rate for Medicare beginning in 2014 and phasing in over a four year period. It is uncertain at this time the amount of the
rebasing.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

On November 2, 2010, CMS issued the CY 2011 final rule covering agency payment rates for home
health services. The final rule provides for the following adjustments to the base rate: a 2.1% market basket increase reduced by 1% as directed by the Affordable Care Act; a 3.79% case mix weight adjustment decrease; and a shift of the
outlier payment allowance beginning in 2011 that will result in a one-time 2.5% reduction to the base rate as directed by the Affordable Care Act. In 2011, this results in an aggregate adjustment decreasing the base rate by 5.19%. This decrease
is offset by a 3% increase to the base rate for those patients located in rural areas.

Hospice. The following
table shows the hospice Medicare payment rates for fiscal year (FY) 2010 which began on October 1, 2009 and ends September 30, 2010:



|                                                  |  |                      |        | 
|------------------------------------------------- |  | -------------------- | ------ | 
|Description                                       |  | Rate per patient day |       
|Routine Home Care                                 |  | $                    | 142.91 | 
|Continuous Home Care                              |  | $                    | 834.10 | 
|Full Rate = 24 hours of care
$34.75 = hourly rate |  |                      |        | 
|Inpatient Respite Care                            |  | $                    | 147.83 | 
|General Inpatient Care                            |  | $                    | 635.74 | 



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On August 6,
2009, CMS issued a final rule, effective October 1, 2009, to update the Medicare Hospice Wage Index for FY 2010. This rule revises the phase-out of the hospice wage index budget neutrality adjustment factor (BNAF), which was
finalized in the FY 2009 final rule, to now occur over 7 years. As a result of this final rule, the BNAF will be reduced by 10% in FY 2010 and 15% each year from FY 2011 through FY 2016. The combined effects of a 10% reduction to the BNAF
in the FY 2010 Hospice Wage Index and a 2.1% hospital market basket update are estimated to increase payment to hospices in FY 2010 by 1.4%. In addition, this final rule requires hospice physicians to provide a short narrative as part of
hospice certifications and recertifications of terminal illness. The final rule also set the FY 2009 hospice aggregate cap amount at $23,014.50.

A number of the provisions in the Affordable Care Act will also have an impact on Hospice reimbursement. These changes are:



| |  |  | Incorporates a productivity adjustment reduction into the market basket update beginning in FY 2013, as well as a market basket reduction of 0.3% for
hospice providers from FY 2013 to 2019. Note that these cuts will not take effect until FY 2013; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Requires hospice to report on quality measures or face a 2% reduction in the market basket update.
| | - |  | --------------------------------------------------------------------------------------------------

On July 23, 2010, CMS issued the FY 2011 notice covering agency payment rates for hospice services. The rule provides for an
estimated 1.8% increase in payments for fiscal year (FY) 2011. The hospice payment increase is the net result of a 2.6% increase in the hospital market basket, an indicator of input price increases. This is offset by a 0.8%
decrease in payments to hospices due to updated wage index data and the second year of CMS 7-year phase-out of its wage index budget neutrality adjustment factor (BNAF). The FY 2011 rule also set the FY 2010 hospice aggregate cap amount at
$23,874.98.

The following table shows the hospice Medicare payment rates for fiscal year (FY) 2011 which began on
October 1, 2010 and ends September 30, 2011:



|                                                  |  |                      |        | 
|------------------------------------------------- |  | -------------------- | ------ | 
|Description                                       |  | Rate per patient day |       
|Routine Home Care                                 |  | $                    | 146.63 | 
|Continuous Home Care                              |  | $                    | 855.79 | 
|Full Rate = 24 hours of care
$35.66 = hourly rate |  |                      |        | 
|Inpatient Respite Care                            |  | $                    | 151.67 | 
|General Inpatient Care                            |  | $                    | 652.27 | 

Facility-Based Services

LTACHs.The federal standard rate for 2010 LTACH-PPS rate year (RY) will be $39,896 per
Medicare discharge and the high cost outlier threshold will be $18,425. The standard federal rate for LTACH-PPS is increased or decreased based on each Medicare patients case mix index, which measures the severity of the patients
condition. The high cost outlier threshold is the limit that triggers additional high cost outlier payments to an LTACH.

On
July 30, 2009, CMS published its final rule updating payments to LTACHs for RY 2010. The July final rule adopted a 2.5% inflation update which applied to discharges and cost reporting periods beginning October 1, 2009 and ending
September 30, 2010.

To recap, the standard federal rate uses a 2.0% update factor based on a market basket update of
2.5% less an adjustment of 0.5% to account for changes in documentation and coding.



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##### Table of Contents



On July 30, 2010,
CMS issued a final rule establishing FY2011 policies and payment rates for inpatient services furnished to Medicare beneficiaries by acute care hospitals, LTACHs, and certain excluded hospitals. Due to the timing of the passage of the Patient
Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the Affordable Care Act), CMS issued a FY 2011 IPPS/LTACH proposed rule, as well as a supplemental proposed rule that
addressed certain changes made by the Affordable Care Act. The final rule responds to comments received by CMS on both the proposed rule and the supplemental proposed rule, which appeared in the May 4 and June 2 issues of the
Federal Register, respectively. CMS is updating LTACH rates by 2.5% for inflation, but reducing the inflation update by 0.5% as required by the Affordable Care Act. Further, CMS will apply an adjustment of negative 2.5% to the LTACH
standard Federal rate for the estimated increase in spending in FYs 2008 and 2009 due to documentation and coding that did not reflect increases in patients severity of illness. CMS estimates that aggregate payments to LTACHs would
increase by approximately 0.5% or $22 million taking into account all provisions in the final rule that would affect spending.

The standard Federal rate for FY 2011 is $39,599.95, which will apply to LTCH-PPS discharges occurring on or after October 1, 2010
through September 30, 2011 and the high cost outlier threshold will be $ $18,785.

Office of Inspector General

The Office of Inspector General (OIG) has a responsibility to report both to the Secretary of the Department
of Health and Human Services and to Congress any program and management problems related to programs such as Medicare. The OIGs duties are carried out through a nationwide network of audits, investigations and inspections. Each year, the OIG
outlines areas it intends to study relating to a wide range of providers. In its fiscal year 2010 workplans, the OIG indicated its intent to study topics relating to, among others, home health, hospice and long-term care hospitals. No estimate can
be made at this time regarding the impact, if any, of the OIGs findings.

Results of Operations

Accounts Receivable and Allowance for Uncollectible Accounts

At September 30, 2010, the Companys allowance for uncollectible accounts, as a percentage of patient accounts receivable, was approximately 11.4%, or $10.0 million, compared to 10.1% or $8.3
million at December 31, 2009.

The following table sets forth as of September 30, 2010, the aging of accounts
receivable (based on the end of episode date) and the total allowance for uncollectible accounts expressed as a percentage of the related aged accounts receivable (amounts in thousands):



|                                         |  |      |        |   |        |   |        |         |  |   |          |   |  |       |       |   |  |   |        |  
|---------------------------------------- |  | ---- | ------ | - | ------ | - | ------ | ------- |  | - | -------- | - |  | ----- | ----- | - |  | - | ------ | -
|                                         |  | 0-90 |        |   | 91-180 |   |        | 181-365 |  |   | Over 365 |   |  | Total |      
|Payor                                    |  |      |        |   |        |   |        |         |  |   |          |   |  |       |       |   |  |   |        |  
|Medicare                                 |  | $    | 46,011 |   |        | $ | 6,283  |         |  | $ | 3,950    |   |  | $     | 1,925 |   |  | $ | 58,169 |  
|Medicaid                                 |  |      | 2,791  |   |        |   | 722    |         |  |   | 965      |   |  |       | 1,215 |   |  |   | 5,693  |  
|Other                                    |  |      | 16,399 |   |        |   | 4,293  |         |  |   | 2,647    |   |  |       | 416   |   |  |   | 23,755 |  
|                                         |  |      |        |   |        |   |        |         |  |   |          |   |  |       |       |   |  |   |        |  
|Total                                    |  | $    | 65,201 |   |        | $ | 11,298 |         |  | $ | 7,562    |   |  | $     | 3,556 |   |  | $ | 87,617 |  
|                                         |  |      |        |   |        |   |        |         |  |   |          |   |  |       |       |   |  |   |        |  
|Allowance as a percentage of receivables |  |      | 3.9    | % |        |   | 13.5   | %       |  |   | 33.8     | % |  |       | 95.5  | % |  |   | 11.4   | %

For home-based services,
we calculate the allowance for uncollectible accounts as a percentage of total patient receivables. The percentage changes depending on the payor and increases as the patient receivables age. For facility-based services, we calculate the allowance
for uncollectible accounts based on a claim by claim review. As a result, the allowance percentages presented in the table above vary between the aging categories because of the mix of claims in each category.



24



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##### Table of Contents



The following table
sets forth as of December 31, 2009, the aging of accounts receivable (based on the end of episode date) and the total allowance for uncollectible accounts expressed as a percentage of the related aged accounts receivable (amounts in thousands):



|                                         |  |      |        |   |        |   |        |         |  |   |          |   |  |       |       |   |  |   |        |  
|---------------------------------------- |  | ---- | ------ | - | ------ | - | ------ | ------- |  | - | -------- | - |  | ----- | ----- | - |  | - | ------ | -
|                                         |  | 0-90 |        |   | 91-180 |   |        | 181-365 |  |   | Over 365 |   |  | Total |      
|Payor                                    |  |      |        |   |        |   |        |         |  |   |          |   |  |       |       |   |  |   |        |  
|Medicare                                 |  | $    | 39,100 |   |        | $ | 9,432  |         |  | $ | 7,424    |   |  | $     | 1,755 |   |  | $ | 57,711 |  
|Medicaid                                 |  |      | 2,781  |   |        |   | 691    |         |  |   | 1,009    |   |  |       | 256   |   |  |   | 4,737  |  
|Other                                    |  |      | 12,494 |   |        |   | 3,486  |         |  |   | 2,933    |   |  |       | 552   |   |  |   | 19,465 |  
|                                         |  |      |        |   |        |   |        |         |  |   |          |   |  |       |       |   |  |   |        |  
|Total                                    |  | $    | 54,375 |   |        | $ | 13,609 |         |  | $ | 11,366   |   |  | $     | 2,563 |   |  | $ | 81,913 |  
|                                         |  |      |        |   |        |   |        |         |  |   |          |   |  |       |       |   |  |   |        |  
|Allowance as a percentage of receivables |  |      | 3.6    | % |        |   | 9.7    | %       |  |   | 23.6     | % |  |       | 91.7  | % |  |   | 10.1   | %

Consolidated Net Service Revenue

Consolidated net service revenue for the three months ended September 30, 2010 was $166.6 million, an increase
of $33.7 million, or 25.4%, from $132.9 million for the three months ended September 30, 2009. Consolidated net service revenue for the nine months ended September 30, 2010 was $467.0 million, an increase of $76.5 million, or 19.6%, from
$390.5 million for the nine months ended September 30, 2009.

Home-Based Services.Net service revenue for
home-based services for the three months ended September 30, 2010 was $145.8 million, an increase of $28.7 million, or 24.5%, from $117.1 million for the three months ended September 30, 2009. Total admissions increased 21.6% to 23,807
during the current period, compared to 19,582 for the same period in 2009. Average home-based patient census for the three months ended September 30, 2010, increased 18.7% to 33,402 patients as compared to 28,150 patients for the three months
ended September 30, 2009.

Net service revenue for home-based services for the nine months ended
September 30, 2010 was $411.0 million, an increase of $66.2 million, or 19.2%, from $344.8 million for the nine months ended September 30, 2009. Total admissions increased 21.7% to 68,152 for the nine months ended September 30, 2010,
compared to 55,993 for the same period in 2009. Average home-based patient census for the nine months ended September 30, 2010, increased 12.0% to 31,823 patients as compared to 28,401 patients for the nine months ended September 30,
2009.

Organic growth includes growth on same store locations (those owned for greater than 12 months) and
growth from de novo locations. The Company calculates organic growth by dividing organic growth generated in a period by total revenue generated in the same period of the prior year. Revenue from acquired agencies contributes to organic
growth beginning with the thirteenth month after acquisition.

The following table details the Companys revenue growth
and percentages for organic and total growth:

Three Months Ended September 30, 2010 (in thousands except census and episode data)



|                        |  |               |         |  |            |   |     |            |  |   |                 |  |  |             |      |   |       |   |        |               |  |   |         |  |  |  |      |  
|----------------------- |  | ------------- | ------- |  | ---------- | - | --- | ---------- |  | - | --------------- |  |  | ----------- | ---- | - | ----- | - | ------ | ------------- |  | - | ------- |  |  |  | ---- | -
|                        |  | Same Store(1) |         |  | De Novo(2) |   |     | Organic(3) |  |   | OrganicGrowth % |  |  | Acquired(4) |      |   | Total |   |        | TotalGrowth % | 
|Revenue                 |  | $             | 134,493 |  |            | $ | 364 |            |  | $ | 134,857         |  |  |             | 15.2 | % |       | $ | 10,932 |               |  | $ | 145,789 |  |  |  | 24.5 | %
|Revenue Medicare        |  | $             | 109,915 |  |            | $ | 279 |            |  | $ | 110,194         |  |  |             | 13.2 | % |       | $ | 7,529  |               |  | $ | 117,723 |  |  |  | 21.0 | %
|New Admissions          |  |               | 21,388  |  |            |   | 82  |            |  |   | 21,470          |  |  |             | 9.6  | % |       |   | 2,337  |               |  |   | 23,807  |  |  |  | 21.6 | %
|New Medicare Admissions |  |               | 15,841  |  |            |   | 61  |            |  |   | 15,902          |  |  |             | 11.0 | % |       |   | 1,198  |               |  |   | 17,100  |  |  |  | 19.4 | %
|Average Census          |  |               | 30,675  |  |            |   | 85  |            |  |   | 30,760          |  |  |             | 9.3  | % |       |   | 2,642  |               |  |   | 33,402  |  |  |  | 18.7 | %
|Average Medicare Census |  |               | 24,487  |  |            |   | 64  |            |  |   | 24,551          |  |  |             | 9.2  | % |       |   | 1,685  |               |  |   | 26,236  |  |  |  | 16.7 | %
|Episodes                |  |               | 40,151  |  |            |   | 109 |            |  |   | 40,260          |  |  |             | 6.5  | % |       |   | 2,553  |               |  |   | 42,813  |  |  |  | 13.3 | %



|(1) | Same store  location that has been in service with the Company for greater than 12 months.
|--- | -------------------------------------------------------------------------------------------

|(2) | De Novo  internally developed location that has been in service with the Company for 12 months or less.
|--- | --------------------------------------------------------------------------------------------------------

|(3) | Organic  combination of same store and de novo.
|--- | ------------------------------------------------

|(4) | Acquired  purchased location that has been in service with the Company for 12 months or less.
|--- | ----------------------------------------------------------------------------------------------



25



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##### Table of Contents



Nine Months Ended
September 30, 2010 (in thousands except census and episode data)



|                        |  |               |         |  |            |   |     |            |  |   |                 |  |  |             |      |   |       |   |        |               |  |   |         |  |  |  |      |  
|----------------------- |  | ------------- | ------- |  | ---------- | - | --- | ---------- |  | - | --------------- |  |  | ----------- | ---- | - | ----- | - | ------ | ------------- |  | - | ------- |  |  |  | ---- | -
|                        |  | Same Store(1) |         |  | De Novo(2) |   |     | Organic(3) |  |   | OrganicGrowth % |  |  | Acquired(4) |      |   | Total |   |        | TotalGrowth % | 
|Revenue                 |  | $             | 384,470 |  |            | $ | 486 |            |  | $ | 384,956         |  |  |             | 11.6 | % |       | $ | 26,066 |               |  | $ | 411,022 |  |  |  | 19.2 | %
|Revenue Medicare        |  | $             | 316,885 |  |            | $ | 356 |            |  | $ | 317,241         |  |  |             | 10.6 | % |       | $ | 18,451 |               |  | $ | 335,692 |  |  |  | 17.0 | %
|New Admissions          |  |               | 62,310  |  |            |   | 143 |            |  |   | 62,453          |  |  |             | 11.5 | % |       |   | 5,699  |               |  |   | 68,152  |  |  |  | 21.7 | %
|New Medicare Admissions |  |               | 46,360  |  |            |   | 103 |            |  |   | 46,463          |  |  |             | 13.4 | % |       |   | 3,163  |               |  |   | 49,626  |  |  |  | 21.1 | %
|Average Census          |  |               | 29,212  |  |            |   | 74  |            |  |   | 29,286          |  |  |             | 3.1  | % |       |   | 2,537  |               |  |   | 31,823  |  |  |  | 12.0 | %
|Average Medicare Census |  |               | 23,579  |  |            |   | 56  |            |  |   | 23,635          |  |  |             | 3.5  | % |       |   | 1,641  |               |  |   | 25,276  |  |  |  | 10.7 | %
|Episodes                |  |               | 115,665 |  |            |   | 132 |            |  |   | 115,797         |  |  |             | 5.9  | % |       |   | 6,261  |               |  |   | 122,058 |  |  |  | 11.6 | %



|(1) | Same store  location that has been in service with the Company for greater than 12 months.
|--- | -------------------------------------------------------------------------------------------

|(2) | De Novo  internally developed location that has been in service with the Company for 12 months or less.
|--- | --------------------------------------------------------------------------------------------------------

|(3) | Organic  combination of same store and de novo.
|--- | ------------------------------------------------

|(4) | Acquired  purchased location that has been in service with the Company for 12 months or less.
|--- | ----------------------------------------------------------------------------------------------

Facility-Based Services. Net service revenue for facility-based services for the three months ended September 30, 2010, was
$20.8 million, an increase of $5.1 million, or 32.5%, from $15.7 million for the three months ended September 30, 2009.

Net service revenue for facility-based services for the nine months ended September 30, 2010, was $56.0 million, an increase of
$10.3 million, or 22.5%, from $45.7 million for the nine months ended September 30, 2009.

Cost of Service Revenue

Cost of service revenue for the three months ended September 30, 2010 was $88.2 million, an increase of $18.7
million, or 26.9%, from $69.5 million for the three months ended September 30, 2009. Cost of service revenue represented approximately 52.9% and 52.3% of net service revenue for the three months ended September 30, 2010 and 2009,
respectively.

Cost of service revenue for the nine months ended September 30, 2010 was $242.5 million, an increase of
$43.8 million, or 22.0%, from $198.7 million for the nine months ended September 30, 2009. Cost of service revenue represented approximately 51.9% and 50.9% of net service revenue for the nine months ended September 30, 2010 and 2009,
respectively.

Home-Based Services.Cost of home-based service revenue for the three months ended September 30,
2010 was $75.4 million, an increase of $15.5 million, or 25.9%, from $59.9 million for the three months ended September 30, 2009. Cost of home-based service revenue for the nine months ended September 30, 2010 was $209.6 million, an
increase of $38.2 million, or 22.3%, from $171.4 million for the nine months ended September 30, 2009.

The following
table summarizes Home-Based Services cost of service revenue (amounts in thousands):



|                             |  |                                 |        |  |                                |  |      |      |  |   |        |  |  |      |      |      |  |   |         |      |  |  |      |      |  |   |         |  |  |  |      |     
|---------------------------- |  | ------------------------------- | ------ |  | ------------------------------ |  | ---- | ---- |  | - | ------ |  |  | ---- | ---- | ---- |  | - | ------- | ---- |  |  | ---- | ---- |  | - | ------- |  |  |  | ---- | ----
|                             |  | Three Months EndedSeptember
30, |        |  | Nine Months EndedSeptember 30, | 
|                             |  | 2010                            |        |  |                                |  |      | 2009 |  |   |        |  |  | 2010 |      |      |  |   |         | 2009 |  |  |      |     
|Salaries, wages and benefits |  | $                               | 64,520 |  |                                |  | 44.3 | %(1) |  | $ | 51,524 |  |  |      | 44.0 | %(1) |  | $ | 179,588 |      |  |  | 43.7 | %(1) |  | $ | 147,081 |  |  |  | 42.7 | %(1)
|Transportation               |  |                                 | 5,256  |  |                                |  | 3.6  | %    |  |   | 3,912  |  |  |      | 3.4  | %    |  |   | 14,572  |      |  |  | 3.5  | %    |  |   | 11,408  |  |  |  | 3.3  | %   
|Supplies and services        |  |                                 | 5,667  |  |                                |  | 3.9  | %    |  |   | 4,468  |  |  |      | 3.8  | %    |  |   | 15,407  |      |  |  | 3.7  | %    |  |   | 12,958  |  |  |  | 3.8  | %   
|                             |  |                                 |        |  |                                |  |      |      |  |   |        |  |  |      |      |      |  |   |         |      |  |  |      |      |  |   |         |  |  |  |      |     
|                             |  | $                               | 75,443 |  |                                |  | 51.8 | %    |  | $ | 59,904 |  |  |      | 51.2 | %    |  | $ | 209,567 |      |  |  | 50.9 | %    |  | $ | 171,447 |  |  |  | 49.8 | %   
|                             |  |                                 |        |  |                                |  |      |      |  |   |        |  |  |      |      |      |  |   |         |      |  |  |      |      |  |   |         |  |  |  |      |     



|(1) | Percentage of home-based net service revenue
|--- | --------------------------------------------



26



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##### Table of Contents



Facility-Based
Services. Cost of facility-based service revenue for the three months ended September 30, 2010 was $12.7 million, an increase of $3.1 million, or 32.3%, from $9.6 million for the three months ended September 30, 2009. Cost of
facility-based service revenue for the nine months ended September 30, 2010 was $32.9 million, an increase of $5.7 million, or 21.0%, from $27.2 million for the nine months ended September 30, 2009.

The following table summarizes Facility-Based Services cost of service revenue (amounts in thousands):



|                             |  |                                 |        |  |                                |  |      |      |  |   |       |  |  |      |      |      |  |   |        |      |  |  |      |      |  |   |        |  |  |  |      |     
|---------------------------- |  | ------------------------------- | ------ |  | ------------------------------ |  | ---- | ---- |  | - | ----- |  |  | ---- | ---- | ---- |  | - | ------ | ---- |  |  | ---- | ---- |  | - | ------ |  |  |  | ---- | ----
|                             |  | Three Months EndedSeptember 30, |        |  | Nine Months EndedSeptember 30, | 
|                             |  | 2010                            |        |  |                                |  |      | 2009 |  |   |       |  |  | 2010 |      |      |  |   |        | 2009 |  |  |      |     
|Salaries, wages and benefits |  | $                               | 7,575  |  |                                |  | 36.3 | %(1) |  | $ | 5,850 |  |  |      | 37.2 | %(1) |  | $ | 19,865 |      |  |  | 35.5 | %(1) |  | $ | 16,673 |  |  |  | 36.5 | %(1)
|Transportation               |  |                                 | 40     |  |                                |  | 0.2  | %    |  |   | 35    |  |  |      | 0.2  | %    |  |   | 106    |      |  |  | 0.2  | %    |  |   | 115    |  |  |  | 0.3  | %   
|Supplies and services        |  |                                 | 5,129  |  |                                |  | 24.6 | %    |  |   | 3,736 |  |  |      | 23.7 | %    |  |   | 12,912 |      |  |  | 23.1 | %    |  |   | 10,424 |  |  |  | 22.8 | %   
|                             |  |                                 |        |  |                                |  |      |      |  |   |       |  |  |      |      |      |  |   |        |      |  |  |      |      |  |   |        |  |  |  |      |     
|                             |  | $                               | 12,744 |  |                                |  | 61.1 | %    |  | $ | 9,621 |  |  |      | 61.1 | %    |  | $ | 32,883 |      |  |  | 58.8 | %    |  | $ | 27,212 |  |  |  | 59.6 | %   
|                             |  |                                 |        |  |                                |  |      |      |  |   |       |  |  |      |      |      |  |   |        |      |  |  |      |      |  |   |        |  |  |  |      |     



|(1) | Percentage of facility-based net service revenue
|--- | ------------------------------------------------

Provision for Bad Debts

Provision for bad debts for the three months ended September 30, 2010 was $1.7 million, an increase of $600,000, from $1.1 million for the three months ended September 30, 2009. For the three
months ended September 30, 2010, the provision for bad debts was approximately 1.0% of net service revenue compared to 0.8% for the same period in 2009.

Provision for bad debts for the nine months ended September 30, 2010 was $5.3 million, an increase of $1.2 million, from $4.1 million for the nine months ended September 30, 2009. For the nine
months ended September 30, 2010 and 2009, the provision for bad debts was approximately 1.1% of net service revenue.

In
July 2007, the Company sold its critical access hospital. The recorded receivables were not sold in the transaction. Over the following twelve months certain payors, including Medicaid and Medicare paid the claims to the buyer, who failed to remit
those collections to the Company as called for under the terms of the sale agreement. The Company filed a lawsuit to recover those amounts paid to the buyer. Over that same period, the Company fully reserved those claims. In the September 2010,
quarter the Company was successful in its lawsuit and recovered the amounts in full. As a result of the collection of the settlement, the Company recorded a recovery as a $477,000 reduction to provision for bad debts in the periods ended
September 30, 2010.

General and Administrative Expenses

Our general and administrative expenses consist primarily of the following expenses incurred by our home office and administrative field
personnel:



| |  |  | Home office and field administration:
| | - |  | -------------------------------------



| |  |  | salaries and related benefits;
| | - |  | ------------------------------



| |  |  | insurance;
| | - |  | ----------



| |  |  | costs associated with advertising and other marketing activities; and
| | - |  | ---------------------------------------------------------------------



| |  |  | rent and utilities;
| | - |  | -------------------



| |  |  | Supplies and services:
| | - |  | ----------------------



| |  |  | accounting, legal and other professional services; and
| | - |  | ------------------------------------------------------



| |  |  | office supplies;
| | - |  | ----------------



27



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##### Table of Contents



| |  |  | Depreciation; and
| | - |  | -----------------



| |  |  | Other:
| | - |  | ------



| |  |  | advertising and marketing expenses;
| | - |  | -----------------------------------



| |  |  | recruitment;
| | - |  | ------------



| |  |  | operating locations rent; and
| | - |  | -----------------------------



| |  |  | taxes.
| | - |  | ------

General and administrative expenses for the three months ended September 30, 2010 were $51.1 million, an increase of $7.2 million or
16.4%, compared to $43.9 million for the three months ended September 30, 2009. General and administrative expenses as a percent of net service revenue was 30.6% and 33.0% for the three months ended September 30, 2010 and 2009.

General and administrative expenses for the nine months ended September 30, 2010 were $146.5 million, an increase of $20.1 million
or 15.9%, compared to $126.4 million for the nine months ended September 30, 2009. General and administrative expenses as a percent of net service revenue was 31.4% and 32.4% for the nine months ended September 30, 2010 and 2009.

Home-Based Services. General and administrative expenses in the home-based services for the three months ended
September 30, 2010 were $46.1 million, an increase of $6.7 million or 17.0% from $39.4 million for the three months ended September 30, 2009. General and administrative expenses in the home-based services segment represented approximately
31.6% and 33.6% of net service revenue for the three months ended September 30, 2010 and 2009, respectively.

General and
administrative expenses in the home-based services for the nine months ended September 30, 2010 were $133.0 million, an increase of $18.5 million or 16.2% from $114.5 million for the nine months ended September 30, 2009. General and
administrative expenses in the home-based services segment represented approximately 32.3% and 33.2% of net service revenue for the nine months ended September 30, 2010 and 2009, respectively.

Facility-Based Services. General and administrative expenses in the facility-based services for the three months ended
September 30, 2010 were $4.9 million, an increase of $400,000 or 8.9% from $4.5 million for the three months ended September 30, 2009. General and administrative expenses in the facility-based services segment as a percentage of net
service revenue were 23.7% and 28.8% for the three months ended September 30, 2010 and 2009, respectively.

General and
administrative expenses in the facility-based services for the nine months ended September 30, 2010 were $13.6 million, an increase of $1.7 million or 14.3% from $11.9 million for the nine months ended September 30, 2009. General and
administrative expenses in the facility-based services segment as a percentage of net service revenue were 24.2% and 26.1% for the nine months ended September 30, 2010 and 2009, respectively.

Income Tax Expense

The effective tax rates for the three months ended September 30, 2010 and 2009 were 39.4% and 36.3% of income from continuing operations attributable to LHC Group, Inc., respectively.

The effective tax rates for the nine months ended September 30, 2010 and 2009 were 39.3% and 37.5% of income from continuing
operations attributable to LHC Group, Inc., respectively.

During 2009, the Company realized a tax benefit by utilizing the
net operating loss, on one of the Companys joint ventures, which had previously been fully reserved. This tax benefit caused the effective tax rate to be lower during 2009.



28



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##### Table of Contents



Net Income Attributable to
Noncontrolling Interests

Net income attributable to noncontrolling interests was $3.8 million and $2.9 million for
the three months ended September 30, 2010 and 2009, respectively. Noncontrolling interests represented 2.3% and 2.2% of net service revenue for the three months ended September 30, 2010 and 2009, respectively.

Net income attributable to noncontrolling interests was $11.9 million and $10.8 million for the nine months ended September 30, 2010
and 2009, respectively. Noncontrolling interests represented 2.6% and 2.8% of net service revenue for the nine months ended September 30, 2010 and 2009, respectively.

Discontinued Operations

In September 2009, the Company sold its
outpatient rehabilitation clinic. The sale generated a loss of $22,000, which was recognized in the third quarter of 2009. The results of operations related to the clinic and the loss are included in discontinued operations in the Companys
condensed consolidated statements of income for the three and nine months ended September 30, 2009. There was no activity related to the outpatient rehabilitation clinic during the three and nine months ended September 30, 2010.

The following table provides financial results of discontinued operations for the three and nine months ended
September 30, 2009 (amounts in thousands):



|                                                                                                |  |                                    |     |   |                                   |   |      |  
|----------------------------------------------------------------------------------------------- |  | ---------------------------------- | --- | - | --------------------------------- | - | ---- | -
|                                                                                                |  | Three Months EndedSeptember 302009 |     |   | Nine Months EndedSeptember 302009 |  
|Net service revenue                                                                             |  | $                                  | 88  |   |                                   | $ | 406  |  
|Costs of services and G&A expenses                                                              |  |                                    | 112 |   |                                   |   | 530  |  
|                                                                                                |  |                                    |     |   |                                   |   |      |  
|Income (Loss) from discontinued operations before income taxes                                  |  |                                    | (24 | ) |                                   |   | (124 | )
|Income tax benefit (expense)                                                                    |  |                                    | 9   |   |                                   |   | 48   |  
|                                                                                                |  |                                    |     |   |                                   |   |      |  
|Income (Loss) from discontinued operations attributable to LHC Group Inc.s common stockholders |  | $                                  | (15 | ) |                                   | $ | (76  | )

Liquidity and Capital Resources

Our principal source of liquidity for operating activities is the collection of our revenues, most of which are collected
from governmental and third party commercial payors. Our reported cash flows from operating activities are affected by various external and internal factors, including the following:



| |  |  | Operating Results  Our net income has a significant effect on our operating cash flows. Any significant increase or decrease in our net
income could have a material effect on our operating cash flows.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Timing of Acquisitions We use our operating cash flows for acquisitions. When the acquisitions occur at or near the end of a period, our
cash outflows significantly increase.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Start-Up Costs  Following the completion of an acquisition, we suspend billing Medicare and Medicaid claims until we receive the change of
ownership and electronic funds transfer approvals. We also generally incur substantial start-up costs in order to implement our business strategy. There is generally a delay between our expenditure of these start-up costs and the increase in net
service revenue, and subsequent cash collections, which adversely affects our cash flows from operating activities.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Timing of Payroll  Our employees are paid bi-weekly on Fridays; therefore, operating cash flows decline in reporting periods that end on a
Friday.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Medical Insurance Plan Funding  We are self-funded for medical insurance purposes. Any significant changes in the amount of insurance
claims submitted could have a direct effect on our operating cash flows.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



29



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##### Table of Contents



| |  |  | Medical Supplies  A significant expense associated with our business is the cost of medical supplies. Any increase in the cost of medical
supplies, or in the use of medical supplies by our patients, could have a material effect on our operating cash flows.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table summarizes changes in cash (amounts in thousands):



|                                                 |  |                                |         |   |      |   |         |  
|------------------------------------------------ |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                 |  | Nine Months EndedSeptember 30, |        
|                                                 |  | 2010                           |         |   | 2009 |  
|Cash provided by operating activities            |  | $                              | 58,450  |   |      | $ | 34,784  |  
|Cash used in investing activities                |  |                                | (33,139 | ) |      |   | (24,605 | )
|Cash used in financing activities                |  |                                | (18,498 | ) |      |   | (11,182 | )
|                                                 |  |                                |         |   |      |   |         |  
|Change in cash                                   |  |                                | 6,813   |   |      |   | (1,003  | )
|Cash and cash equivalents at beginning of period |  |                                | 394     |   |      |   | 3,511   |  
|                                                 |  |                                |         |   |      |   |         |  
|Cash and cash equivalents at end of period       |  | $                              | 7,207   |   |      | $ | 2,508   |  
|                                                 |  |                                |         |   |      |   |         |  

Cash provided by operating activities increased $23.7 million during the nine months ended
September 30, 2010. The increase in operating cash flows relates higher net income, improved collections of receivables and $8.5 million of income tax payments made during the first quarter of 2009 which were deferred as a result of Hurricanes
Ike and Gustav.

Investing cash outflows increased $8.5 million during the nine months ended September 30, 2010.
Investing cash outflows for the nine months ended September 30, 2010 included $22.0 million for acquisitions compared to $18.5 million for the nine months ended September 30, 2009. Capital expenditures increased $5.0 million for the nine
months ended September 30, 2010 compared to the nine months ended September 30, 2009. The increase relates to expenditures for technology and information system software conversions.

Financing cash outflows increased $7.3 million during the nine months ended September 30, 2010. During the nine months ended
September 30, 2010, the Company paid the outstanding balance on the line of credit of $5.7 million. In the second quarter of 2010, the Company purchased certain noncontrolling interests in one of the Companys joint ventures, resulting in
cash payments of $1.9 million.

Indebtedness

Our total long-term indebtedness was $4.2 million and $4.5 million at September 30, 2010 and December 31, 2009, including the current portion of $362,000 and $387,000, respectively.

The Companys Credit Facility with Capital One, National Association provides for a maximum aggregate principal borrowing of $75.0
million. The Credit Facility, which is scheduled to expire on June 15, 2011, is unsecured and has a letter of credit sublimit of $2.5 million. In September 2009, the Company issued a letter of credit valued at $1.8 million as of
September 30, 2010, as collateral on the Companys workers compensation insurance. The annual facility fee is 0.25% of the total availability. The interest rate for borrowings under the Credit Facility is a function of the prime rate
(Base Rate) subject to a floor or the Eurodollar rate (Eurodollar) subject to a floor, as elected by the Company, plus the applicable margin set forth below, which is based on the Leverage Ratio as defined in the Credit Facility.



|                      |  |                  |      |   |                 |  |      |  
|--------------------- |  | ---------------- | ---- | - | --------------- |  | ---- | -
|Leverage Ratio        |  | EurodollarMargin |      |   | Base RateMargin | 
|<1.00:1.00            |  |                  | 2.25 | % |                 |  | 0.50 | %
|> 1.00:1.00<1.50:1.00 |  |                  | 2.50 | % |                 |  | 0.75 | %
|>1.50:1.00<2.00:1.00  |  |                  | 2.75 | % |                 |  | 1.00 | %
|>2.00:1.00            |  |                  | 3.00 | % |                 |  | 1.25 | %



30



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##### Table of Contents



The Companys
Credit Facility contains customary affirmative, negative and financial covenants. For example, the Company is restricted in incurring additional debt, disposing of assets, making investments, allowing fundamental changes to the Companys
business or organization, and making certain payments in respect of stock or other ownership interests, such as dividends and stock repurchases. Under the Credit Facility, the Company is also required to meet certain financial covenants with respect
to minimum fixed charge coverage, consolidated net worth, leverage and minimum asset coverage ratios. At September 30, 2010, the Company was in compliance with all covenants.

The Credit Facility also contains customary events of default, including bankruptcy and other insolvency events, cross-defaults to other
debt agreements, a change in control involving the Company or any subsidiary guarantor, and the failure to comply with certain covenants.

No amounts were outstanding on this facility as of September 30, 2010.

On
October 12, 2010, the Company entered into a Second and Amended Restated Credit Agreement (Credit Agreement). The Credit Agreement added JP Morgan Chase Bank, N.A. as a lender and renewed the line of credit commitment in the maximum
total aggregate principal amount of $75.0 million (with a letter of credit sub-limit equal to $5.0 million). The Credit Agreement also removed the net receivable to senior debt covenant. The Credit Agreement has a term of three years and expires on
October 12, 2013. The interest rate for the borrowings under the Credit Agreement, at the election of the Company, shall be either at the Base Rate (as defined in the Credit Agreement) as a function of the prime rate or the Eurodollar Rate (as
defined in the Credit Agreement). Borrowings accruing interest under the Credit Agreement at either the Base Rate or the Eurodollar Rate are subject to the applicable margins set forth below:



|                      |  |                  |      |   |                 |  |      |  
|--------------------- |  | ---------------- | ---- | - | --------------- |  | ---- | -
|Leverage Ratio        |  | EurodollarMargin |      |   | Base RateMargin | 
|<1.00:1.00            |  |                  | 2.25 | % |                 |  | 1.00 | %
|> 1.00:1.00<1.50:1.00 |  |                  | 2.50 | % |                 |  | 1.25 | %
|>1.50:1.00<2.00:1.00  |  |                  | 2.75 | % |                 |  | 1.50 | %

On October 29, 2010,
the Credit Agreement was amended to permit the Company to use proceeds drawn from the line of credit to repurchase shares of the Companys common stock pursuant to the Stock Repurchase Program, which was approved by the Companys Board of
Directors on October 29, 2010. For a discussion of the Stock Repurchase Program, see Item 1, Notes to Condensed Consolidated Financial Statements  Note 1- Subsequent Events of this Form 10-Q.

In February 2008, the Company entered into a loan agreement with Capital One, National Association (Capital One) for a term
note in the amount of $5.1 million for the purchase of a 1999 Cessna 560 aircraft. The aircraft is collateral for the term note, which is payable in 83 monthly installments of principal ($28,056) plus interest commencing in March 2008 followed by
one balloon installment in February 2015 of $2.7 million. The term note bears interest at the LIBOR Rate (adjusted monthly) plus the Applicable Margin of 1.9% (2.2% at September 30, 2010).

Contingencies

For a
discussion of contingencies, see Item 1, Notes to Condensed Consolidated Financial Statements  Note 6  Commitments and Contingencies of this Form 10-Q.

Off-Balance Sheet Arrangements

We do not currently have any off-balance
sheet arrangements with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or



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limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market or credit
risk that could arise if we had engaged in these relationships.

Critical Accounting Policies

For a discussion of critical accounting policies, see Item 1, Notes to Condensed Consolidated Financial Statements  Note
2  Significant Accounting Policies of this Form 10-Q.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

As of September 30, 2010, we had cash of $7.2 million. Cash in excess of requirements remains in the Companys non-interest bearing checking account. At times, cash in banks is in excess of the
Federal Insurance Deposit insurance limit. The Company has not experienced any loss as a result of those deposits and does not expect any in the future.

Our exposure to market risk relates to changes in interest rates for borrowings under the Companys Credit Facility. The Credit Facility is a revolving credit facility and, as such, the Company
borrows, repays and re-borrows amounts as needed, changing the average daily balance outstanding under the facility. A hypothetical 100 basis point increase in interest rates on the average daily amounts outstanding under the Credit Facility would
have increased interest expense $2,000 for the nine months ended September 30, 2010.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Evaluation
of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rule
13a-15(e) and 15d-15(e) promulgated under the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed in the Companys reports filed under the Exchange Act, is recorded, processed, summarized
and reported within the time periods specified in the SECs rules and forms. Such information is also accumulated and communicated to management, including the Companys Chief Executive Officer and Chief Financial Officer, as appropriate,
to allow timely decisions regarding required disclosure. Management of the Company, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation
of the Companys disclosure controls and procedures as of the end of the period covered by this report.

The
Companys Chief Executive Officer and Chief Financial Officer concluded that the Company maintained effective disclosure controls and procedures at the reasonable assurance level as of September 30, 2010.

Changes in Internal Controls Over Financial Reporting

There have not been any changes in the Companys internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act, during the period ending
September 30, 2010 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



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PART II  OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS.
|------- | ------------------

On
May 12, 2010, the Company received a letter from the United States Senate Finance Committee in response to an April 26, 2010 article in The Wall Street Journal entitled Home Care Yields Medicare
Bounty. The letter from the Senate Finance Committee asked the Company to provide documents and data related to the issues referenced in The Wall Street Journal article. On June 25, 2010, the Company
completed its response to the Senate Finance Committees letter and intends to fully cooperate with their inquiry. At this time, the Company is unable to predict the timing and outcome of this matter.

On July 16, 2010, the Company received a subpoena from the Securities and Exchange Commission (SEC) that
included a request for documents related to the Companys participation in the Medicare Home Health Prospective Payment System as well as the documents and information the Company produced in response to the Senate Finance Committees
investigation set forth above. The Company has produced requested documents and will continue to be cooperative with the SECs requests and its reviews. Because the investigation is at an early stage, the Company cannot predict its outcome
or its effect, if any, on the Companys business.

On July 13, 2009, the Company reported an administrative subpoena
from the Inspector General of the Office of Personnel Management (OPM). OPM is an administrative agency responsible for overseeing the Federal Employees Health Benefit Program (FEHBP). Although the subpoena was issued by OPM,
the Company learned on July 9, 2009 that the scope of the review is not limited to the FEHBP, but also extends to services provided to Medicare beneficiaries. The focus of the review is on third-party quality improvement audits performed on the
Companys behalf by a third party consultant from 2005 to 2009. The Company will continue to cooperate and provide responsive information for the OPM review.

On April 14, 2009, the Company filed a Current Report on Form 8-K regarding a qui tam lawsuit filed in Tennessee captioned United States of America ex rel Sally Christine Summers v. LHC
Group, Inc.which alleged violation of the False Claims Act at a single agency. On June 11, 2009, the Company filed a Current Report on Form 8-K, reporting the district courts order dismissing the case. As previously
reported, the plaintiff appealed the district courts dismissal, and the appeal was argued in June 2010. On October 4, 2010, the United States Court of Appeals for the Sixth Circuit issued an opinion upholding the district courts
dismissal of the case. At this time, the Company does not know if the plaintiff intends to pursue further appellate filings



|ITEM 1A. | RISK FACTORS.
|-------- | -------------

The
information set forth in this Form 10-Q, should be read in conjunction with the risk factors discussed in Part I, Item 1A. Risk Factors in the Companys 2009 Form 10-K, which could materially affect our business, financial condition
or future results. The risks described in the 2009 Form 10-K are not the only risks of the Company. Additional risks and uncertainties not currently known by the Company or that the Company currently deemed immaterial, also may materially adversely
affect the Company, including those described below.

We are the subject of a number of inquiries by the federal government, any of
which could have an adverse impact on our financial condition and operations.

We operate in a highly regulated
industry and are the subject of a number of inquiries by the federal government. We are cooperating with the applicable government agencies with respect to each of the inquiries and producing the requested records. Any negative findings
could have a material adverse impact on our operations and financial condition. Although we cannot predict when these matters may be resolved, it is not unusual for investigations such as these to continue for a considerable period of
time. Responding to these inquiries will continue to require managements attention and significant legal expense. See Part II, Item 1-Legal Proceedings in this 10Q for additional information regarding these inquiries.



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We cannot predict the effect
that health care reform and other changes in government programs may have on our business, financial condition or results of operations.

The Patient Protection and Affordable Care Act and the Health Care Education Reconciliation Act of 2010 (collectively, the Acts) were signed into law by President Obama on March 23, 2010,
and March 30, 2010, respectively. The Acts dramatically alter the United States health care system and are intended to decrease the number of uninsured Americans and reduce overall health care costs. The Acts attempt to achieve these goals by,
among other things, requiring most Americans to obtain health insurance, expanding Medicare and Medicaid eligibility, reducing Medicare and Medicaid payments, and tying reimbursement to the satisfaction of certain quality criteria. The Acts
also contain a number of measures that are intended to reduce fraud and abuse in the Medicare and Medicaid programs. Because a majority of the measures contained in the Acts have not yet taken effect, it is difficult to predict the impact the
Acts will have on our operations. However, depending on how they are ultimately interpreted and implemented, the Acts could have an adverse effect on our business, financial condition and results of operations.



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
|------- | ------------------------------------------------------------

None.



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES.
|------- | --------------------------------

None



|ITEM 4. | RESERVED
|------- | --------



|ITEM 5. | OTHER INFORMATION.
|------- | ------------------

None



|ITEM 6. | EXHIBITS.
|------- | ---------



|     |  |                                                                                                                                                                                                                                                    
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|3.1  |  | Certificate of Incorporation of LHC Group, Inc. (previously filed as an exhibit to the Form S-1/A (File No. 333-120792) on February 14, 2005).                                                                                                     
|     | 
|3.2  |  | Bylaws of LHC Group, Inc. as amended on December 31, 2007 (previously filed as Exhibit 3.1 to the Form 8-K on January 4, 2008).                                                                                                                    
|     | 
|4.1  |  | Specimen Stock Certificate of LHCs Common Stock, par value $0.01 per share (previously filed as an
exhibit to the Form S-1/ A (File No. 333-120792) on February 14, 2005).                                                                        
|     | 
|4.2  |  | Reference is made to Exhibits 3.1 and 3.2 (previously filed as an exhibit to the Form S-1/A (File No. 333-120792) on February 14, 2005 and May 9, 2005 and to the form 8-K
on January 4, 2008, respectively).                                      
|     | 
|4.3  |  | Form of Stockholder Protection Rights Agreement, between LHC Group, Inc. and Computershare Trust Company, N.A., as Rights Agent (previously filed as Exhibit 4.1 to the Form 8-K on
March 11, 2008).                                               
|     | 
|10.1 |  | Employment Agreement by and between LHC Group, Inc. and Don Stelly, dated August 27, 2010 (previously filed as Exhibit 10.1 to the Form 8-K on August 30, 2010).                                                                                   
|     | 
|10.2 |  | Second Amended and Restated Credit Agreement by and between LHC Group, Inc., Capital One, National Association, and JP Morgan Chase Bank, N.A. dated October 12, 2010 (previously
filed as Exhibit 10.1 to the Form 8-K filed on October 13, 2010).



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|      |  |                                                                                                                                                                                                                                                                
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.3  |  | First Amendment to the Second Amended and Restated Credit Agreement by and between LHC Group, Inc., Capital One, National Association and JP Morgan Chase Bank, N.A. dated October
29, 2010 (previously filed as Exhibit 10.1 to Form 8-K on November 1, 2010).
|      | 
|31.1  |  | Certification of Keith G. Myers, Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.                                                                                           
|      | 
|31.2  |  | Certification of Peter J. Roman, Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.                                                                                           
|      | 
|32.1* |  | Certification of Chief Executive Officer and Chief Financial Officer of LHC Group, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                              



|* | This exhibit is furnished to the SEC as an accompanying document and is not deemed to be filed for purposes of Section 18 of the Securities Exchange
Act of 1934 or otherwise subject to the liabilities of that Section, and the document will not be deemed incorporated by reference into any filing under the Securities Act of 1933.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                       |  |  |  |  |  |                                                                                   
|---------------------- |  |  |  |  |  | ----------------------------------------------------------------------------------
|                       |  |  |  |  |  | LHC GROUP, INC.                                                                   
|                       |  |  | 
|Date: November 3, 2010 |  |  |  |  |  | /s/    Peter J. Roman                                                             
|                       |  |  |  |  |  | Peter J. Roman                                                                    
|                       |  |  |  |  |  | Executive Vice President and Chief Financial Officer (Principal financial officer)



36