Lafayette, Louisiana-based LHC Group (Nasdaq: LHCG) is continuing to bet on a growth strategy that has long paid off for the home health care company—partnering with hospitals and health systems in joint ventures. And the opportunity for these joint ventures is gaining more momentum, according to LHC Group CEO Keith Myers, who spoke about the company’s first quarter 2017 earnings results Thursday.
For the quarter, LHC Group reported strong earnings, with net service revenue increasing 10.8% to $246.6 million, compared to the same period a year ago. The gains were due to strong organic growth in admissions and volume from its same store home health and hospice segments. Comparable quarter growth in home health admissions for the first quarter was 11.7%, while hospice admissions growth was 6.7%.
Growth with Hospital Partners
The confidence on the hospital opportunity comes during the same week LHC Group announced a joint venture with Baptist Memorial Health Care.
“Clearly the [momentum of] hospital joint venture relationships are unprecedented… meaning the actual active discussions with hospitals and the volume of business associated with that is unprecedented,” Myers said.
However, hospitals are not the only referral source adding significant growth for LHC Group. From the start of 2017 through April, LHC Group added 2,600 physicians to its referral list, bringing the total number of referring physicians to 11,000, executives said Thursday. Part of the company’s success has been diversifying its physician profile, Myers said.
“[LHC Group is] firing on all cylinders right now and a lot of that goes back to the fact that they have some of the best star ratings in the industry right now. It’s translating into increased referral flow from physicians and hospitals. They are gaining marketshare,” Brian Tanquilit, senior vice president of health care services equity research at Jefferies, told Home Health Care News. “Doing all these joint ventures is really paying off for them.”
Not only are there more opportunities to take over the home health operations from hospitals and health systems, but the deals are even bigger than just a few years ago, according to Josh Proffitt, executive vice president and chief financial officer at LHC Group. Instead of doing deals with one-off hospital locations, the pipeline is now crammed with more major, multi-site health systems.
“We are leaning toward the bigger systems now,” Proffitt said of the current pipeline. “If you go back two to three years, 90%-plus would’ve been the smaller systems.”
The momentum on the conversations with bigger health systems and hospitals picked up—“at least doubled”—since LHC Group announced a joint venture with hospital company LifePoint Health in late 2016.
The opportunity has been felt by other players in the space, as well, with Bayada Home Health Care announcing a joint venture with Bayhealth hospital system within the same week as LHC Group.
LHC Group did its first hospital joint venture back in 1998, executives said, and its track record, along with some of the highest home health quality star ratings in the industry, has helped the company become a recognized name in these deals.
“As the health care system has evolved, the company has evolved as well,” Tanquilit said. “Now hospitals are on the hook for readmissions, ACOs and bundles, and, as all these things are putting more financial risk on the hospitals, post-acute care has gotten more important.”
Co-Location Approach
LHC Group executives were also keen on expanding their service lines in existing markets, including adding hospice and personal care services to home health locations. By adding service lines and growing out business under the same location, LHC Group can save on expenses and share sales people. Executives call this approach “co-location.”
“Today we have 26 markets where we are co-located,” Donald Stelly, president and chief operating officer, said during the earnings call. “Those operations have given us confidence. Not all of our 300 locations are at market readiness for each of [our] services, but I would be appalled not to see half the portfolio in mid-2018 [co-located].”
Stelly also said he “totally expects” the company to have a co-located portfolio in five years.
In the year ahead, LHC Group will also seek to acquire hospice locations, and the company is “actively pursuing” acquisition opportunities that fit its model, Myers said.
Within its hospital deals, LHC Group plans to add hospice services to home health locations down the line to execute on the co-location strategy.
LHC Group’s stock jumped on Thursday, with the share price approaching $60—a nearly 10% jump by the end of day.
Written by Amy Baxter
