With an enormous pipeline in the works, one of the nation’s largest non-acute health care services providers is banking on having a “record” year in terms of revenue.
LHC Group Inc. (NASDAQ: LHCG), based in Lafayette, Louisiana, is already reaping some rewards from its most recent acquisitions, the company revealed in its first quarter earnings.
Net service revenue reached $22.6 million for the first quarter of 2016, up 15.3% from $193.1 million reported during the same quarter in 2015. The boost was positive despite reduced revenue of roughly $1.5 million from changes in Medicare reimbursements. The provider attributed its higher revenue to organic growth and acquisition activity.
The company shed more light on its previously announced “unprecedented” acquisition pipeline, which was estimated to have revenue potential of $1 billion. the company is still working on 23 acquisition opportunities this year, representing around $950 million in potential revenue. While the acquisition goals are aggressive, LHC Group is unlikely to close all the opportunities this year.
“When I look at the pipeline that’s in front of us right now, I can’t imagine us not being significantly past [our previous record revenue year],” Keith said during an earnings call with investors. “In terms of leverage, that’s [approximately $950 million in the pipeline today, and that’s 23 opportunities. I can’t imagine any scenario where we could close 100% of those in 2016.”
The company has ramped up its joint ventures (JVs) with hospitals and health systems as part of its acquisition strategy. Instead of acquiring standalone home health agencies, operations that are part of a larger health system offer greater patient volume and higher acuity needs, in line with the company’s goals of increasing its Medicare patient mix.
Its recent jump into Arizona with its partner Northern Arizona Healthcare (NAH) is a prime example of the joint ventures the provider is looking at in 2016. Approximately half of its 2016 acquisition opportunities are JVs. The opportunities are also missed, including some acquisitions ranging in the $2 million to $4 million range, among multi-state home health and hospice opportunities, according to executives.
“The pipeline consists of a little bit of everything,” Keith said Thursday.
With taking on patients with higher acuity needs, the gross margins in home health and hospice dipped slightly in the first quarter of 2016. Along with integration costs, LHC Group had higher expenses that affected margins from additional training related to a higher acuity patient group.
“The increase in patient acuity does require additional resources and thus expense,” Don said. “We expect this to continue and our Medicare patient mix to increase as well. We incurred additional costs in the quarter for ongoing OASIS training, which is necessary to ramp up our ability to serve.”
Written by Amy Baxter