LHC Group (Nasdaq: LHCG) and Almost Family have now officially become the second-largest U.S. home health provider. The combined company is moving forward on a plan to be a “house of brands” offering a full continuum of home health, personal care and hospice services in hundreds of markets across the country.
In November 2017, the two companies announced their plans to merge in an all-stock transaction with an implied value of $2.4 billion. On April 1, that merger officially closed, following “overwhelming” approval by shareholders at two special meetings, Lafayette, Louisiana-based LHC Group announced in a press release.
“The entire platform covers over 60% of the population of the U.S. age 65 and older, with over 780 locations,” LHC Group CEO Keith Myers (pictured above) told Home Health Care News, following the deal closing.
Almost Family shares have stopped trading on the Nasdaq, with each share of common stock converted to 0.9150 share of LHC Group common stock. There were approximately 31.2 million total shares of common stock outstanding as of market close on March 29. Shares were up 2.58% as of mid-afternoon on Monday, trading at $63.15.
Learning from hospitals
While Almost Family has disappeared from the Nasdaq, the brand is not going away. Existing Almost Family locations will maintain that identity moving forward, as part of the “house of brands” strategy. This builds on established practices at both companies.
“It has been a deliberate strategy of LHC from our founding in the early 1990s, and of Almost Family [as well],” Myers told HHCN.
That is, as LHC Group has acquired businesses with strong local reputations, those companies have kept their names, such as “Lifeline” in various Kentucky locations or “Advanced Health Services” in Virginia. Processes have all been standardized and centralized, supported by the Lafayette headquarters, but Myers believes that consumers respond better to locally respected names rather than big national brands.
It’s a lesson he learned early in his career, watching the hospital world—as Columbia/HCA made acquisitions, they would take down the former signage and put up banners saying “Now Columbia/HCA.” This strategy did not work.
“I watched first-hand, [seeing] hospitals that had been the go-to in the community shrink and the volume go to competing hospitals,” he said. “They didn’t understand how health care was purchased by consumers.”
Having a house of brands also mitigates risk, he noted. If something goes awry at one location, it does not sully the whole enterprise.
LHC Group is highly attuned to the hospital world, considering that one of its primary growth strategies has been doing joint ventures with hospitals and health systems. That’s one reason the company turned to Berkeley Research Group (BRG) to help guide the integration.
“They’re not as well known in home health, but we know them very well from the work we’ve done in the hospital space,” Myers said. “There’s a whole division [at BRG] that specializes in hospital/health system integrations.”
BRG has set up integration management offices in Lafayette and Louisville, Kentucky, where Almost Family was based. The firm has been focused on 23 separate work streams that form the basis of its integration model, such as payroll and revenue cycle management, making sure processes are aligned. This work is slated to continue for another year to 18 months.
Almost Family’s Louisville office will remain open even after the integration is complete, with personal care services and the health care innovation segment supported from that location; home health and hospice will be supported out of Lafayette.
However, fewer people will be working out of the Louisville location going forward. LHC Group anticipates a total of $25 million in pre-tax synergies from the merger, with $8 million to $12 million realized in 2018; much of that savings can be attributed to reduced labor costs at the corporate level, as redundant positions have been eliminated, Myers said. There have been no workforce cuts in field offices as a result of the merger.
“The larger synergy opportunity, as we model it, is not in the cost synergy but the revenue synergy, to cross-sell the services lines and bring a larger offering to our customers, by which I mean hospital partners and payors,” Myers said.
While BRG has been working on more task-oriented details of the integration, executives with LHC Group and Almost Family have been focused on creating a shared culture and common operating metrics, as well as on continuing corporate development pipeline activities.
“We never skipped a beat on our customary growth pipeline,” Myers said.
LHC Group recorded about $114 million in acquired revenue growth last year and anticipates exceeding that in 2018, beyond the Almost Family merger. As in the past, the company is especially interested in acquiring the home health operations of hospitals and health systems, but it is also looking to expand in hospice and personal care.
One driver of personal care growth is the newly finalized addition of non-skilled in-home services as a supplemental benefit to Medicare Advantage (MA) plans starting in 2019. Even before this proposal was first floated last year, MA payors such as UnitedHealthcare, Humana and Aetna had been pressing for LHC Group to provide more personal care, in addition to its home health and hospice services, Myers said.
That’s a major benefit of the Almost Family acquisition, considering that it has a large personal care footprint and in fact started in that side of the business, he noted. The ultimate goal is to offer home health, personal care and hospice in every market where the company operates.
This should be attractive to managed care organizations, which can work with a single partner on all these related services to lower spending while driving quality outcomes for their patient populations, Myers believes.
He envisions running these different services out of a single physical plant with shared common spaces, so that teams from the different branches can confer to determine the appropriate level of care for patients. It’s a model that LHC Group already has had in place in the few locations where it has been offering all three services.
Almost Family was operating 75 personal care locations as of the end of 2017; however, there is relatively little overlap between Almost Family’s markets and LHC Group’s, with only 39 metro markets and 90 counties in common. So, a goal moving forward is to build out the continuum across the combined company.
“We want to be a one-stop shop for all health-related services in the home, whether private pay or anything that’s needed, that’s where we want to get,” Myers said.
Even if it will take a while to accomplish this goal, the company is already benefiting from its increased scale, according to Myers and Denis Fleming, vice president of government relations. Lawmakers on Capitol Hill, regulators with government agencies, and Medicare Advantage and managed care players have all been more receptive in the months since the merger was announced. The two leaders see this as an advantage, giving the industry more influence as payment reforms are debated, for example.
“Our level of access has increased significantly,” Fleming said. “People are more interested in what we have to say.”
Written by Tim Mullaney