CEO Baier: Brookdale ‘Disappointed’ with Home Health Business

Home health care has not been a bright spot for Brookdale Senior Living Inc. (NYSE: BKD), one of the country’s largest owners and operators of private-pay senior living communities.

Instead of helping to drive growth for the Brentwood, Tennessee-based company, home health services have actually been a major letdown, according to President and CEO Lucinda Baier. Brookdale’s top executive didn’t mince her words when providing an update into the business segment during the company’s third-quarter earnings call on Tuesday.

“We were disappointed with the third-quarter revenue performance of the home health business, which declined by 1% compared to the prior year,” Baier said during the call.

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Currently, Brookdale operates across a mix of nearly 800 owned, leased and managed senior living communities in 45 states.

In addition to its portfolio of independent living, assisted living, memory care and continuing care retirement communities (CCRCs), Brookdale also provides a range of home health, hospice and outpatient therapy services to more than 20,000 patients nationwide.

Revenue for the company’s health care services segment — which includes home health and hospice — totaled $111.8 million in Q3 2019. That’s a 3.2% increase over the $111.5 million Brookdale brought in during the same quarter last year, but gains were mostly driven by the continued momentum of the company’s expanding hospice business.

Within the health care services segment, Brookdale’s home health business saw third-quarter revenues of $80.6 million, down slightly from $81.7 million in Q3 2018.

Specifically, home health revenue was down because Brookdale experienced turnover within its home health-related sales organization, according to Baier.

Combined with disruptions linked to hurricanes in certain markets, those staffing challenges had a negative impact to Brookdale’s home health census.

On top of sales turnover, Brookdale similarly experience issues related to the time it took the sales organization to respond to “a centralized intake initiative,” Baier said.

“Also, when we got into some of the services, we realized we didn’t have all the documentation that was necessary to bill, so we lost some revenue,” she added.

Although the hurdles Brookdale experienced in Q3 were largely temporary in nature, the company will soon have to face the same regulatory headwinds that the rest of the home health industry is staring down come 2020.

Those headwinds include the Patient-Driven Groupings Model (PDGM), a huge piece of Medicare payment reform that exposes providers to a possible downward behavioral adjustment of 4.36%.

Brookdale leadership did not touch on PDGM or the company’s preparation plans during Tuesday’s call. Additionally, it’s important to note that home health care has been a pain point for Brookdale in other recent quarters as well. 

Despite the somewhat gloomy home health update, Brookdale leadership did touch on a handful of positives, including hospice growth. The company has opened three new agencies so far in 2019, bringing its U.S. hospice footprint to 22 locations in total.

Hospice Q3 2019 revenue checked in at $25.3 million, an increase of 22.8% compared to the $20.6 million Brookdale brought in during the same quarter a year ago.

“[Hospice] has a long runway for growth,” Baier said.

Apart from its hospice business, Brookdale also experienced some other operational victories related to occupancy on the senior living side.

“BKD’s 3Q19 results fell short of our estimates and Street’s due to continued wage inflation, higher-than-anticipated operating cost and disappointing results in health care services, while the company continued to outpace the industry in occupancy growth,” a note from Capital Markets analyst Frank Morgan stated. “Fortunately, management appears to be making good headway with its most pressing operational hurdle: achieving occupancy momentum and topline growth.”

Brookdale stock was down 4.97% and trading at $7.26 per share at market close Tuesday.

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