LHC Group Expects $1 Billion from ‘Unprecedented’ Pipeline
Following a 2015 that boasted increases in revenue and growth in admissions, national home health and hospice provider LHC Group Inc. (Nasdaq: LHCG) announced what it’s calling an “unprecedented pipeline” in the year ahead.
Lafayette, Louisiana-based LHC Group is actively discussing 20 potential acquisitions in 2016 that could produce approximately $1 billion in revenue, the company announced Thursday during its call with analysts to report fourth-quarter earnings. The pipeline consists of 90% home health and hospice and 10% home and community-based services. All deals are those that LHC Group would close within the next 12 months.
Within the pipeline, half are health system joint ventures and the rest are freestanding assets. Eleven are considered smaller, more local companies like the recently announced acquisition of Heartlite Hospice, while seven are considered regional in nature. Two are larger deals that alone would generate revenue in excess of $100 million.
“The transition to value-based payment is driving consolidation pressure in our industry, contributing to our having an unprecedented pipeline of potential acquisition opportunities,” LHC Group Chairman and CEO Keith Myers said during the call. “…The point is we expect that our current pipeline will produce a record year of acquisitions in 2016.”
Myers hinted at the large pipeline in recent comments to Home Health Care News, noting that the pipeline isn’t getting any smaller after LHC Group had reviewed more than 264 acquisition or hospital JV opportunities as of the third quarter of 2015.
LHC Group’s earnings for the fourth quarter and 2015 overall depicted significant improvements. Net service revenue increased by 13.2% from the prior quarter to $219 million, and by 11.3% to $816.4 million for 2015. Earnings per diluted share (EPDS) jumped 37% from $0.32 in the third quarter to $0.44 in the final three months of 2015. Year over year, EPDS grew 46% from $1.27 in 2014 to $1.86 in 2015.
Organic growth in home health admissions was 4% in the fourth quarter, and 3.4% in 2015 as compared with 2014. Across all services, admissions grew by 7.7% for the quarter and 8.3% for the year.
Another area highlighted during the call was LHC Group’s execution of quality improvement initiatives, growth initiatives and provider business plans, specifically their influence on home health star ratings. Across its portfolio, LHC Group reported its home health assets now maintain an average of 4.4 stars, as compared to the national average of 4.03 stars.
In July 2015, 42% of its home health providers were above the national average in star ratings. That percentage had jumped to 62% in January, and is expected to reach 80% by April.
“That’s unparalleled movement,” LHC Group’s President and COO Don Stelly said.
LHC Group also discussed the Centers for Medicare & Medicaid Services’ (CMS) latest attempt to combat fraud and abuse through a program requiring preauthorization before patient visits. The program, which is proposed as a pilot for Florida, Texas, Illinois, Michigan and Massachusetts, could bear the risk of backing patients up in hospitals, Myers said.
“We think there will be a lot of modifications before it ever gets rolled out beyond these five states,” he said.
Written by Kourtney Liepelt