Joint Venture Focus Propels LHC Group Growth in 2017

Fresh off a newly announced joint venture with a major hospital system, one of the nation’s largest home health care providers is continuing its financial hot streak after raising its full-year guidance—despite a looming threat in the proposed Home Health Groupings Model (HHGM).

Lafayette, Louisiana-based LHC Group (NASDAQ: LHCG) is building on its momentum of growth, posting a 15.1% increase in net service revenue to $260.2 million in the second quarter, compared to $226.0 million in a year-over-year analysis. The company also reported a 10.4% increase in total comparable-quarter organic growth in home health admissions, as well as a 4.6% organic growth in hospice admissions, compared to the same quarter last year.

The financial results come days after the company announced it entered into a joint venture agreement with Irving, Texas-based Christus Health to take over the operators of 21 service locations.


Acquisition strategy

In addition to acknowledging the company’s success in organic home health and hospice growth for the quarter, Keith Meyers, LHC Group chairman and CEO, also recognized the group’s acquisition strategy as a driving force behind its continued growth.

“In the trailing 12 months ended June 30, 2017, we acquired 55 home health, hospice or community-based locations and began to manage 10 additional locations,” said Meyers in an issued press release.


Included in this lineup is the joint venture LHC entered into with Brentwood, Tennessee-based LifePoint Health (NASDAQ: LPNT), which was finalized at the start of the year. This partnership accounts for 31 of the total acquired locations and 10 managed locations LHC saw in the past year.

Not factored into this performance is LHC’s joint venture with Christus Health, an international Catholic, faith-based, not-for-profit health system operating more than 600 services and facilities, including 60 hospitals and long-term care facilities, inpatient hospice and long-term acute-care hospitals (LTACHs).

LHC’s partnership with Christus Health will bring various locations to the company, including seven home health agencies, five hospice programs, two community-based home care services, one inpatient hospice unit and six LTACHs, explained Meyers during LHC’s second quarter earnings call. And there is potential for the relationship to develop further with more locations down the road, Myers said.

“Christus today has 60 markets and, obviously, the vision is to build out home health and hospice, and community-based services, in every one of those markets,” said Myers.

The company plans to complete its deal with Christus Health by the end of the third quarter, according to Joshua Proffitt, executive vice president, CFO and treasurer at LHC Group.

“We continue to have great momentum, and I cannot be more excited about our robust pipeline of potential joint ventures and freestanding opportunities,” said Proffitt. “We currently have $133 million available on our line of credit, which leaves us well-positioned to fund future acquisitions and joint partnerships.”

Currently, LHC Group has two opportunities in the pipeline that are single-hospital ventures, out of roughly 20 deal that are in various stages, according to Meyers.

Excluding the deal with Christus Health, LHC Group raised its FY 2017 guidance for net service revenue to the expected range of $1.030 billion to $1.045 billion, up from its previous range of $1.02 billion to $1.04 billion. Diluted earnings per share also increased to a range of $2.30 to $2.40, up from the previous range of $2.23 to $2.33. The report marked the second time LHC raised its full-year guidance in 2017, executives stated during the earnings call Thursday.

LHC’s strategy with joint ventures and acquisitions provides a strong foothold for the company in the marketplace, according to Frank Morgan, analyst at RBC Capital Markets.

“The rest of 2017 looks good, but because of all these transactions, it’s really kind of setting them up to have another good year in 2018,” said Morgan.

All eyes on HHGM 

While the company reveled in its second-quarter performance during its earnings call, LHC leadership also focused their attention to the home health groupings model (HHGM) proposed by the Centers for Medicare & Medicaid Services (CMS), which could be implemented in 2019.

In 2018, home health agencies can expect to see 2018 payments slashed by 0.4%, or $80 million, under the prospective payment system update, which Meyers views as a serious threat to both agencies and patients alike. Under the groupings model, agencies could see a cut to the sector of $950 million. Such drastic financial changes could limit access to home health care services and push patients into institutional—and higher cost—settings, Myers noted.

“As currently drafted, [we] believe this new model would do more harm than good [and] result in patients staying in more costly institutions,” said Meyers, who explained that he is willing to work alongside other industry groups with CMS to develop a “better model implemented in a budget neutral manner.”

While this proposed payment plan may cast a shadow of doubt over the industry, Donald Stelly, president and COO at LHC Group, said the company “absolutely has no concerns going into the latter half of [2017].”

Myers was also supportive of the idea of eliminating incentives for agencies to bill for higher rates of therapy, as outlined in the proposal by CMS, but urged CMS to collaborate with the industry.

“It’s no secret that CMS wants to move away from therapy because it impacts reimbursements, the industry recognizes that,” added Meyers. “But, we want to do it in a collaborative fashion that is smart and doesn’t disrupt the industry, and slow the momentum we have in moving patients to home health.”

Fortunately, the industry has time on their side to iron out the details of the groupings model, explained Morgan.

“They’ve got, basically, the next 16 months or so to do it, so I think there is some growing comfort in the public markets that maybe this thing can [be] modified and maybe even phased over a longer period of time,” said Morgan.

LHC Group’s stock increased 4% by close of market Thursday, approaching a share price of $60.03.

Written by Carlo Calma

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