Amedisys Sees Opportunities In Competitors’ Mergers

If Amedisys Inc. (Nasdaq: AMED) has any concerns as its competitors merge, executives didn’t show it during the company’s end-of-year earnings call Wednesday.

Instead, the Baton Rouge-based company is looking forward to a year with few headwinds, and eyeing new opportunities amid industry consolidation and greater regulatory visibility.

The merger between LHC Group (Nasdaq: LHCG) and Almost Family (Nasdaq: AFAM), announced in November 2017, will create the second-largest home health care provider in the country. Kindred Healthcare’s (NYSE: KND) home health business, Kindred at Home, is also undergoing an acquisition by insurance giant Humana (NYSE: HUM) and two private equity groups—to the tune of $4.1 billion. Amedisys is currently the nation’s second largest home health care provider, according to LexixNexis.


“Now we have three of the big five companies in some sort of dating function, if you will,” Amedisys CEO Paul Kusserow told analysts Wednesday. “You’ve got Kindred being acquired, LHCG and AFAM getting together. We view this as an opportunity, while they are working on these things, to go out and get some share, and fight for our share.”

Beyond the consolidation across the market, the home health space is also entering 2018 in a significantly better position in terms of regulations. In February, a budget act was signed into law that ensured any new payment model for home health care would be budget neutral, in contrast to the 2017 home health groupings model (HHGM) proposal, which could have cut up to $950 million in payments to the industry.

Despite the regulatory threat, Amedisys ended the year on a strong note. Net service revenue increased $37.9 million for the fourth quarter of 2017, to $404.2 million, compared to $366.3 million in 2016. Net income fell from $37.3 million in 2016 to $30.3 million in 2017, inclusive of a $21.4 million reduction in net income as a result of the enactment of the Tax Cuts and Jobs Act, the company stated.


“On payment reform provisions, we feel these changes are positive considering what the industry was facing last summer with the HHGM proposal from the Centers for Medicare & Medicaid Services (CMS),” Kusserow said.

The clarity surrounding the regulatory environment is likely to lead to more home health care deals in 2018.

“I think you will see more activity in 2018 than 2017,” Jason Flagman, analyst with Jefferies, told Home Health Care News. “There was a six-month freeze almost last year when the HHGM proposal came out and stopped a lot of the activity from moving forward. Now that the market is unclogged, it’s a return to normalized levels.”

Hospice focus

Like other industry peers, including Encompass Health (NYSE: EHC), Amedisys executives re-emphasized their acquisition focus on the hospice space, followed by personal care and home health care, as priorities. Amedisys will continue to pursue these acquisitions in overlap markets where it already has home health care to improve patient capture rates throughout the continuum of care.

“From an M&A perspective, our hospice team is running really well, really clean,” Kusserow said. “We are growing the business, hitting the fundamentals, and the results are quite incredible.”

Net service revenue in Amedisys’ hospice segment rose to $98.2 million for the fourth quarter of 2017, compared to $85.2 million during the same time period in 2016. Hospice admissions grew 8% during the quarter, compared to 16% growth seen during the same three months in 2016.

The sector is also likely to have fewer headwinds compared to home health care once again in 2018.

“People see hospice gets a 1% consistent annual reimbursement increase and home health care generally doesn’t,” Flagman said. “There’s not a looming threat of regulatory reform in hospice either. People see that as more attractive than home health right now.”

While the bigger interest in hospice assets is peaking, so are valuations as the sector heats up. Added interest from private equity groups in addition to the major home health care players has pushed prices for hospice assets high.

“Private equity-backed companies are evaluating or running the sales process, and people have elevated valuation expectations,” Plagman said of the current hospice market. “The interest from private equity is in building both home health and hospice platforms. To see a highly fragmented market with demographic tailwinds is attractive to them.”

Amedisys’ stock price was down incrementally on Wednesday, around $59 per share.

Written by Amy Baxter

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