Addus Generates $518M in 2018 Revenue, Begins Serving Medicare Advantage Partners

Despite wage pressures and referral setbacks, Addus HomeCare Corporation (Nasdaq: ADUS) had a markedly consistent fourth quarter and 2018 performance. With ample dry powder, the Frisco, Texas-based home health, hospice and personal care provider is well-positioned to deploy additional capital toward M&A, while simultaneously refining its relationships with Medicare Advantage (MA) partners.

Addus is primed to continue the consistent pace moving forward, partly because the diverse company is insulated from the Patient-Driven Groupings Model (PDGM), the biggest payment overall to the home health industry in nearly two decades.

In the fourth quarter of 2018, Addus’ net services revenues totaled $139.8 million, a roughly 25% increase compared to the same period a year prior. Addus’ net service revenues totaled $518.1 million overall on the year, up 21.6% compared to 2017.

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“There has been a lot of recent public discussion around PDGM and how it affects home health companies,” Addus President and CEO Dirk Allison said during a Tuesday morning conference call with investors and analysts. “Addus is certainly aligned with our home health industry participants concerning this issue. However, I want you to understand that our exposure to PDGM is extremely small and — based on our review — it will have no material effect on our financial results.”

Q4 gains were driven by 2.4% organic growth and acquisitions, according to the company.

Lower-than-anticipated same-store growth was partially tied to a lack of a minimum wage-related reimbursement increase in Illinois, along with lower referrals in New Mexico due to the transition of managed care organizations that manage the state’s Medicaid program. Lower referrals in Illinois related to the ramping up period for a major new coordinated care unit also contributed to lower referrals in that state.

“Our team is diligently working with Illinois state leaders to pass a rate increase,” Allison said. “At this time, there is a bill before the Illinois legislature, which would increase our reimbursement rate as we have requested.”

Referrals have returned to a more normal status in the first quarter of 2019 for both New Mexico and Illinois, according to Addus.

‘Significant dry power’

During the course of 2018, Addus completed the transition process for both its $18.5 million Arcadia acquisition and its $40 million Ambercare purchase. In November, the company also unveiled plans to buy New York-based VIP Health Care Services, a deal expected to close during the second quarter of 2019.

Addus’ development team is currently working on other targets as well, Allison said, adding that the company already has letters of intent in place with two potential mid-sized acquisitions. The company’s unofficial 2019 M&A goal is to bring in at least $100 million in revenue, he said.

“Our pipeline remains strong, allowing us to focus on opportunities in the strategic markets that we have previously discussed,” Allison said.

With $70 million cash and $143 million revolver capacity, Addus has “significant dry power to meaningfully boost EBITDA in the next few years through accretive acquisitions,” an equity research note from Jefferies states. Addus is also well-positioned because demand for personal care services continues to expand, according to the note.

Personal care accounted for about 93% of Addus’ Q4 2018 revenue, an increase of nearly 16% compared to the same period in 2017. Growth reflected a more than 15% increase in billable hours per business day and a less than 1% increase in revenue per billable hours.

On the year, Addus’ personal care line totaled about $492.4 million in net service revenues, compared to $18.9 million and $6.9 million for its hospice and home health businesses, respectively.

Medicare Advantage progress

Toward the beginning of last year, the U.S. Centers for Medicare & Medicaid Services (CMS) announced it would for the first time allow certain in-home services and supports as supplemental benefits under the Medicare Advantage program in 2019.

Home care providers have been figuring out how to capitalize on that new opportunity and build relationships with MA plans ever since.

That includes Addus, which is working to provide personal care services to members of two large, multi-state MA plans during 2019.

“While we feel that 2020 and 2021 will be a timeframe when the majority of Medicare Advantage providers consider this service, we are now beginning our service to some of these providers,” Allison said. “Recently, we started to receive our first patients under these contracts. We are excited to work with these partners to gather the appropriate data, which will allow addAddusus to help Medicare Advantage providers as they continue to expand their offering around personal care.”

Multiple industry analyses have made similar projections.

The real MA upside, Allison said, will come over a period of time as plans start to shift their mindset from seeing personal care as a benefit to sell and start thinking of it as a means to reduce their medical-loss ratios.

Addus stock was up 1.14% around mid-day Tuesday, trading at $65.54 per share.

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