This Is What’s Driving LHC’s ‘Unprecedented’ Growth

The third quarter for LHC Group, Inc. (Nasdaq: LHCG) was full of growth after the company has made great strides in the last year, and expects more to come in 2017.

As one of the largest home health care providers in America, LHC Group saw a double-digit organic home health admissions growth of 10.5% in the third quarter and a net service revenue increase of 13.1% to $230.8 million, company executives said Thursday on a call with analysts.

The company also raised its fiscal year 2016 guidance for net service revenue to be in an expected range of $910 to $920 million. Last quarter they raised it from $885 million to $900 million.

“We expect the current upward trend in same store organic growth to continue as a result of increasing market awareness of our differentiating capabilities and quality scores, market consolidation, and the continued shift to value-based care,” Keith Myers, LHC Group’s chairman and CEO, said in an earnings press release. “We also expect growth in hospital and health system joint ventures and freestanding acquisitions in certain markets to continue and look for 2017 to be another strong year overall for our company.”

Much success for LHC Group over the last year has come in the form of hospital partnerships, and most recently, the company announced a joint venture with hospital company, LifePoint Health (Nasdaq: LPNT).

Through the partnership, LHC Group will take over management operations of LifePoint’s home health and hospice locations.

In geographic areas in which LHC Group and LifePoint don’t overlap, the company plans to build those areas out by sourcing smaller providers in the targeted market to use them as a vehicle in order to cut down on the time it takes applying for a certificate of need for each new location, Josh Proffitt, executive vice president and CFO at LHC Group, said on the earnings call.

Right now, the goal is to integrate half of LifePoint’s hospitals and fully implement and roll out the rest of the hospitals within three years, Proffitt explained.

Continued growth

In addition to hospital partnerships, LHC Group uses market consolidation pressure to its advantage.

When a potential acquisition is presented, the company considers whether it has the potential to pick up some share of patients in that market even if it does not buy the agency for sale, Myers explained.

“It’s about the disruption in the market on an agency that’s been around for a long time and has been mom-and-pop, but changes hands. We position ourselves well with key employees and go out to the market with our differentiating quality scores and we can get more than our portion of the patient volume,” he said.

Another area of growth the company is noticing is the clear shift in patients moving “downstream” from higher cost settings to lower cost settings like home health.

“Everyone in health care is focusing on looking at patients individually and identifying when patients who are in a higher cost setting could be in a lower cost setting,” Myers said.

Looking forward, the company sees only good things in the future, even after putting some locations to the test this year, Don Stelly, president and COO of LHC Group explained.

“I’ve never been so verbose on the forward-looking organic growth that I see happening right now,” he said. “Even with the recent flood that we experienced here in Louisiana. To sustain and excel in what we did—you take that away and look toward where we’re going in ’17 and I think it’s going to be unprecedented, organically.”

Tackling pre-claim

Unlike many other home health agencies in the country, LHC Group seems to be relatively unfazed by the potential of the controversial Pre-Claim Review demonstration. The company is looking at pre-claim as more of a shift in process and are doing so in order to stay ahead in case the demonstration is implemented in other states, Stelly said.

LHC Group does not have many locations in the affected states, but they do agree with many other agencies and legislators, that the program does need some work, Myers shared.

“I do think there are a lot of people even at CMS who see they got this wrong,“ he said. “They are trying to go after bad behavior but this is just another one of those shotgun approaches. Rather than taking a targeted approach, they are doing something with unintended consequences.”

Looking forward to 2017, LHC Group is well-positioned to fund both new and joint ventures. The company had $16.5 million in cash at the end of the third quarter and $123.2 million of availability under its credit agreement.

As of press time, LHC Group’s stock price is up 14.85%.

Written by Alana Stramowski

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