Addus Sets Sights on Hospice Growth, Medicare Advantage Contracts

Addus HomeCare Corporation (Nasdaq: ADUS) is zeroing in on new acquisition targets while continuing to make progress on recently closed deals. Company leadership provided an update on Addus’s M&A plans and other priorities during a third-quarter earnings call on Tuesday.

“Looking ahead, we remain confident in the ongoing strength of our acquisition pipeline,” President and CEO Dirk Allison said during the call.

So far, Frisco, Texas-based Addus has made four key acquisitions in 2019.

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In October, the company added Hospice Partners of America, an Alabama-based provider with additional locations across Idaho, Texas, Virginia, Kansas, Missouri and Oregon. Hospice Partners of America has an annual revenue of about $55 million.

Moving forward, Addus has identified hospice as an emerging growth opportunity, noting that the market provides stable revenue and payer diversity. The company has also noted how hospice services are complementary to personal care services, which add strength and density in overlap markets.

“This [Hospice Partners of America] acquisition allows us to provide hospice services to six additional states, including four states where we already have a strong personal care presence,” Allison said. “It also gives us entry into the Texas market, which has been a strategic goal of our company.”

Addus acquired Hospice Partners of America for $130 million, financial filings show.

In August, Addus added Alliance Home Health Care LLC and its affiliate, House Calls of New Mexico LLC. The companies have combined annual revenues of $19 million.

Also in August, the company acquired Foremost Home Care Inc., a New York-based personal care provider that has annual revenues of $6 million.

Meanwhile, in June, Addus finalized its purchase of the assets of VIP Health Care Services, a provider of home care services headquartered in Richmond Hill, New York.

“With all four acquisitions closing in the last five months, our team has been focused on ensuring that our integration plans are being followed and are on schedule,” Allison said.

In total, Addus’s third-quarter 2019 net service revenue checked in at $169.8 million, a 23.3% increase compared to the $137.7 million the company brought in during Q3 2018.

About 91% of the Addus’s Q3 revenues came from its personal care services segment, which increased by 20.6% compared to the same quarter last year.

Same-store growth for personal care services in Q3 exceeded executives’ growth expectations of 3% to 5%, coming in at 7.7%.

Home health contributed about $4.4 million in revenue, while Addus’s hospice segment contributed roughly $10.9 million in revenue for Q3.

Additionally, same-store growth for hospice and home health saw a 32.3% increase over the same period last year. Addus previously did not separate personal care same-store growth and clinical services same-store growth into distinct categories.

“With our increasing presence in clinical services, primarily hospice, we felt it was time to begin to break out our same-store growth between personal care services and clinical services,” Allison said.

Allison additionally provided an update on at least one legal issue during Tuesday’s call. Last month, Addus agreed to settle a lawsuit that alleged the company paid kickbacks for Medicare and Medicaid referrals.

Addus agreed to pay $400,000 as part of the settlement.

“While we viewed — and continue to view — the claim against Addus as meritless, our leadership believes that settling this suit at the amount we announced was a prudent business decision,” Allison said. “This settlement allowed us to move forward without the ongoing legal expenses that would be required to resolve the matter up to and including an actual trial.”

In terms of Medicare Advantage (MA) opportunities for Addus, Allison said the company is currently contracted with multiple national MA plans to provide personal care services for members.

It is also working with “several” MA plans on the development of future benefit offerings related to improving quality of care and reducing medical spend.

“We believe that these opportunities will expand as MA plans began to realize the cost savings potential of personal care services through a more integrated care delivery model,” Allison said. “While we anticipate additional MA plan participants with personal care offerings in 2020, we feel 2021 and later is still the true growth horizon for this additional opportunity for Addus.”

Even so, the company is experiencing increased referrals from its current MA partners, he said.

At least 364 plans will take advantage of more flexible MA policies in 2020 allowing for certain in-home services and supports, a new study from actuarial consulting firm Milliman found.

Addus’s stock was up 1.18% and trading at $85.92 at market close Tuesday.

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