Addus CEO: Medicare Advantage Plans Starting to See Personal Care’s Cost-Savings Potential

Similar to others throughout the home care industry, top executives from Addus HomeCare Corporation (Nasdaq: ADUS) remain excited about emerging Medicare Advantage opportunities.

The Frisco, Texas-based company currently has contracts with large MA Plans to provide personal care services to their members during 2019 and continues to receive referrals under these contracts, Addus President and CEO Dirk Allison said Tuesday during a conference call with investors.

While Addus was already optimistic about its MA inroads, the company became further encouraged by the April announcement from the Centers for Medicare & Medicaid Services (CMS) expanding supplemental benefits flexibility to better care for chronically ill individuals.

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“We are working with these partners to gather appropriate data that will allow Addus to help Medicare Advantage Plans as they continue to expand and refine their supplemental benefits offerings,” Allison said. “I believe this a positive step toward expanding the provisions of our services under a value-based payment system. We continue to believe that these opportunities will expand as MA plans begin to realize the cost-saving potential of personal care services through a more integrated care delivery model.”

Overall, Addus’s first quarter 2019 net service increased by 27.2%, jumping up to $139.3 million compared to the $109.5 million the company netted in Q1 2018.

Meanwhile, Addus’s Q1 net income checked in at $4.9 million, identical to the $4.9 million the company reported in the same period last year.

The company’s home health and hospice service lines added $10.6 million in revenue.

Addus is primarily a home care services company — with more than 33,000 employees — that currently provides home-based care services to tens of thousands of consumers across two dozen states, with particularly strong market presence in Illinois and New Mexico.

“We are proud of our solid financial results for the first quarter, marking a great start to 2019,” Allison said.

Q1 gains reflected a strong increase in same-store revenue of 5.6%, primarily driven by higher revenue in the New York market due to the ongoing narrowing of provider networks in the state.

Addus also saw referral volumes in the first quarter return to more normal levels in New Mexico and Illinois, according to Allison.

“We are pleasantly surprised by the Addus organic growth of 5.6%, which was well above their target of 3% to 5%,” Dana Hambly, an analyst with independent financial services firm Stephens, told Home Health Care News in an email. “While the personal care business is still widely viewed as a commodity-type business, we think the general shift to value-based care will begin to discover the possibilities of this service to hold down health care costs, particularly for our most vulnerable citizens.”

“As other states move to narrow networks and as Medicare Advantage plans offer the service more broadly, we see this as a big opportunity for companies like ADUS,” Hambly added

Acquisition plans

Addus is moving closer to the finish line on its deal to acquire the assets of Richmond Hill, New York-based VIP Health Care Services, a home care provider that serves about 1,250 consumers across all five New York City boroughs, Long Island and two additional counties.

The deal, which was first announced last November, is expected to close on June 1.

“Together with our South Shore operations in Long Island, we believe that VIP will allow us to offer full-market coverage to our MCO partners both on Long Island and the five boroughs,” Allison said.

VIP Health Care Services has annualized revenues of about $50 million and, upon completion of the deal, Addus and VIP Health Care Services will have combined revenues of more than $110 million in New York, which will become the company’s second largest market behind Illinois.

In addition to VIP, the company’s development team is also working with other acquisition targets, and making progress on a number of potential deals, according to Allison.

Illinois rate timing issues

The lack of an official rate increase in Illinois to offset the Chicago and South Shore minimum wage increase remains top of mind for Addus.

Addus saw their first quarter margins impacted by approximately 70 basis points compared to the margins in the first quarter of 2019.

“Our team has continued to work with the state association to educate the Illinois state leadership on the need to pass the rate increase, and we continue to believe their understanding and support already increased for our industry,” Allison said. “While we have no assurances that the upcoming state budget will include this rate increase, we believe we have been successful in demonstrating the importance of passing a reimbursement increase to offset the mandated minimum wage increase the industry experienced.”

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