Despite HHGM Threat, LHC Group Acquires At Rapid Pace in 2017

The third quarter of 2017 became a “banner quarter” of sorts for LHC Group (Nasdaq: LHCG).

The Lafayette, Louisiana-based provider of home health and hospice care saw record-setting performance, and it celebrated in an industry-wide victory in the Centers for Medicare and Medicaid Services’ (CMS) decision to not implement its Home Health Groupings Model (HHGM) as part of its final rule for the home health prospective payment system in 2018.

While HHGM may have cast a shadow of doubt over the industry in the third quarter, LHC Group was business as usual. It’s joint venture (JV) partnership with Texas-based Christus Health was finalized on September 1, marking the company’s 75th hospital/health system JV.

Excluding its LifePoint JV earlier this year, LHC Group has acquired 35 home health, hospice or community-based locations, as well as six long-term acute care hospital operations during the first nine months of the year, bringing the company to $108 million of acquired revenue to date in 2017.

This performance sets a new record for the company in the amount of annual revenue acquired in a year, LHC Group Chairman and CEO Keith Myers explained during the company’s third quarter earnings call.

An attractive partner

In a year-over-year analysis, LHC Group posted a net service revenue increase of 18.2% to $272.9 million in the third quarter of 2017, compared to $230.8 million in 2016. Earnings per diluted share increased 13% to 61 cents per diluted share, from 54 cents.

The company’s organic home health admissions saw similar positive performance—up 6.2% in the third quarter and 9.7% year-to-date, according to Donald Stelly, LHC Group president and COO.

“Quality drives our sales effectiveness, and along with our ability to provide a full and scaled continuum of post acute care, that has made us an attractive joint venture partner to a growing number of hospitals and health systems,” Stelly said during the earnings call.

LHC Group’s CMS Quality Ratings score is an indication of its focus on quality. Its average score of 4.5 in October is an improvement over its 4.30 score in the same report last year, and is higher than the national average of 3.24 to 3.26 in the last five quarters, according to Stelly.

Further, Stelly also highlighted during the call that more than 70% of the LHC Group home care locations are among the top-performing home health agencies, according to HomeCare Elite’s 2017 rankings.

“[Our] partners know we’re a demonstrated leader in home health,” Stelly said.

‘Never press pause’

The company’s momentum in creating its JV partnerships remains undeterred, even as the industry works alongside CMS in addressing an alternative to HHGM.

“We never press pause—we’re heavily focused on JVs,” Myers said. “If it’s possible to accelerate that with any additional efforts, we’ll certainly do that.”

Like many of his colleagues, Myers is encouraged by CMS’ willingness to take additional time to further engage stakeholders in creating a payment system that is more value-based and patient-centered.

“One thing that really resonated with CMS was the industry consensus, without dissent, in support of value-based purchasing,” he said. “They had never seen that from the industry before and I think it had a great deal to do with the decision to pull the rule and allow us to come back to the table.”

In terms of what reimbursement will look like for the industry moving forward, Myers is pushing for a value-driven model.

“What we believe a path forward looks like is a more well thought through model that would not result in higher cost by driving patients upstream into more costly settings,” Myers said.

As of mid-day, LHC Group’s stock took a slight dip, falling 1.9% per share, with a share price of $70.39.

Written by Carlo Calma

Carlo Calma
Business Reporter at Aging Media Network
Carlo enjoys running and taking indoor cycling and rowing classes. He tempers his active lifestyle by indulging in Chicago's diverse food scene.

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