Addus Eyes Strategic Acquisitions Ahead of Medicare Advantage Expansion

Coming off of a strong second quarter, Addus HomeCare Corporation (Nasdaq: ADUS) is looking at a busy pipeline for the remainder of the year, executives predicted on a Q2 earnings call Tuesday.

Such acquisitions will play an increasingly important role in better positioning the Frisco, Texas-based provider for Medicare Advantage (MA) partnership development in the years to come, CEO Dirk Allison said.

“We’re in the position to look at some larger acquisitions,” Allison told analysts and investors. “It’s not a bet-the-farm type strategy, but it’s certainly something that might be a little larger than we’ve looked at in the past — if it’s strategic, if it gives us coverage in the states in which we operate [or] if it adds clinical [or] nonclinical services.”

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In doing so, the goal is partially to continue to scale the company’s Medicaid-reimbursed personal care service in hopes of winning managed care provider partners while also having the power to negotiate rates, he said.

The other objective is to use strategic acquisitions to prepare for MA opportunities, which executives expect to take off in 2021.

“We believe it’s very important … we have the ability to offer some clinical services along with [personal care] to help our potential MA partners,” Allison said. “You’ll continue to see us look in those directions as it relates to M&A targets.”

Currently, Addus is contracted with a number of national MA plans to provide personal care services to their members. The company is also actively working to educate insurers and develop plans going forward, Allison said.

“Medicare Advantage, we believe, is a very important part of our future,” Allison said. “The way we’ve really started out this last year is where the benefit is more of a respite benefit. It’s probably a fifth of the hours that we normally see personal care patients receive from state Medicaid programs, but I think that’s partially by design.”

With the flexibility the Centers for Medicare & Medicaid Services (CMS) has given MA plans surrounding personal care services, one might assume Addus would make a natural partner for insurers. 

About 92% of the Addus’s revenues came from its personal care services in Q2 2019, with hospice and home health generating 6% and 2%, respectively.

Addus’s total revenue in the second quarter came in at $149.7 million, an increase of 14% over the $139.9 million the company recorded during the same period a year ago.

Same-store growth in Q2 exceeded executives’ expectations of 3% to 5%, coming in at 5.9%.

During Tuesday’s call, executives also lauded Illinois for passing a budget that increased Medicare and Medicaid reimbursement in the state to make up for increased minimum wage requirements, which were hurting Addus’s margins

Addus’s M&A pipeline

So far, Addus has made three acquisitions in 2019.

In New York, the company added VIP Health Care Services, which has annual revenues of about $50 million, according to SEC financial filings. Addus also added the operating assets of Foremost Home Care, Inc., which has annual revenues of about $6 million.

Additionally, the company acquired Alliance Home Health Care LLC and its affiliate, House Calls of New Mexico LLC, in New Mexico. Combined, the companies have annual revenues of about $19 million, 60% of which come from hospice care and 20% from home health and home care, according to SEC filings. 

“We continue to be looking at both clinical and non-clinical acquisitions,” Allison said. “Our belief is that we have enough in the pipeline right now … [that] we anticipate before the end of the year we’ll be able to talk to you about additional opportunities.”

Analysts from RBC Capital Markets believe the executives’ predictions are more than just fodder.

“With the VIP integration on track, management has its eye on additional targets, which should be easily actionable give the company’s strong capital and liquidity position,” RBC Capital Markets analysts wrote in an internal note shared with HHCN.

Brookdale’s Q2 highlights

Executives from Brentwood, Tennesee-based Brookdale Senior Living Inc. (NYSE: BKD) also discussed its Q2 2019 financial results Tuesday. In addition to being one of the country’s largest owners and operators of private-pay senior living communities, the company is also a major home health and hospice player.

Overall, Brookdale posted total revenues of about $1.02 billion in Q2, down from about $1.16 billion in the second quarter of 2018.

Home health resident fee revenue was about $85.2 million for the quarter, a 1.7% increase from $83.8 million in Q2 2018. Meanwhile, hospice revenue came in at about $23.2 million, a 17.8% increase on a year-over-year basis.

Home health and hospice revenue improved due to an increase in volume with a higher average daily census, according to the company.

“We are very focused on improving quality and improving our patient-centered care,” Brookdale CEO Lucinda Baier told Home Health Care News. “We believe that organizations that have the right quality will always be winners.”

Additional reporting by Robert Holly and Tim Regan

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