The industry-shaping mega merger between Almost Family and LHC Group (Nasdaq: LHCG) is ahead of schedule and exceeding expectations in a number of key categories, LHC Group executives said Thursday during the 37th Annual J.P. Morgan Healthcare Conference in San Francisco.
In addition to ramping up Almost Family admissions, quality scores and margins, Lafayette, Louisiana-based LHC Group has managed to secure several new agreements with payers resulting in multimillion-dollar rate increases projected for 2019.
“We are extremely confident and excited about the growth that our combined new company … affords ourselves — both from the core organic growth side as well as the acquisitive side and innovative front,” LHC Group CFO Josh Proffitt said.
LHC Group and Almost Family — two of the top-five largest home health providers in the United States — first announced their intent to merge in an all-stock transaction with an implied value of $2.4 billion in November 2017.
The merger officially closed in April 2018 with overwhelming shareholder approval.
With Almost Family in tow, LHC Group now delivers home health, hospice, home- and community-based services, and facility-based care from 780 locations in three dozen states. At the same time, LHC Group is also the preferred in-home health care partner for 330 hospitals across the U.S.
Assessing Almost Family integration
Overall, the merger between LHC Group and Almost Family is on pace to surpass the companies’ original $25 million target for synergies in 2018 and 2019, with the integration moving into the transformative phase roughly six months ahead of schedule.
As of Sept. 30 of this year, Almost Family admissions were up 4.5% compared to the same period in 2017. Meanwhile, Almost Family star ratings across agencies are also up post-merger.
“Health care, at an increasing rate, is moving further into the home,” Bruce Greenstein, executive vice president and chief strategy and innovation officer for LHC Group, said during the presentation. “That’s where LHC Group really excels.”
In terms of margin, Almost Family home health contribution margins were up 140 basis points from the second quarter of 2018 to the third quarter, while hospice contribution margins were up from 0.7% of revenue in Q2 to 11.7% in Q3.
To some extent, the success LHC group is seeing with Almost Family is tied to the broader tailwinds at the home health care industry’s back, including a heightened position in the U.S. health system and a projected $420 million payment bump for 2019.
“When you think about the headwinds that our industry had been facing, it’s not that far in the rearview mirror that we were getting cuts every year,” Proffitt said. “And it’s not that far in the rearview mirror when there were no quality scores or ways to truly differentiate yourself among your peer group.”
‘Jumping for joy’
Thanks to robust data collection and an ability to tactically identity payer pain points, LHC Group has renegotiated six Almost Family agreements, with payers covering 49 providers in 15 states. Those renegotiated agreements will account for a 17% rate increase for 2019, according to Proffitt.
“If you just hold volume static, that’s about $2.5 million to $3 million year-over-year of incremental revenue that will fall straight to the bottom, just from coming in and negotiating new rates with payers Almost Family already had,” he said.
LHC Group has similarly been able to negotiate payer agreements with its own legacy agencies, though not to the same level of results.
The company targeted six specific payers in 2018 and was able to negotiate a lift of about 7% in those instance, Proffitt said. That’s likely good for $1 million to $1.5 million in incremental revenue in 2019 on the LHC Group side of operations.
Being able to objectively and quantifiably show payers the value of home-based care is, among other factors, the driver behind those renegotiations.
“We want to get to the point where plans are jumping for joy to write us a check because it means they saved three- to four-times of what they’re going to pay us,” said Greenstein, who joined LHC group in June after previously serving as chief technology officer for the U.S. Department of Health and Human Service (HHS).
M&A was a big topic of conversation during the J.P. Morgan Healthcare Conference. LHC Group plans to remain “front and center” when it comes to M&A action, Proffitt said, including both freestanding opportunities and joint ventures.
Apart from M&A, there was also buzz about Amazon (Nasdaq: AMZN) and Apple (Nasdaq: AAPL) employees reportedly being in attendance, according to Business Insider.
Both technology giants have been rumored to be exploring health care endeavors focused on aging in place and care in the home.