In 2019, LHC Group hit the 100,000 mark for its patient census, revved its M&A engine and doubled down on its joint venture strategy with hospitals and health systems. It did all that while aggressively preparing for the Patient-Driven Groupings Model (PDGM) and finalizing the integration of the industry-shaping Almost Family acquisition.
For all those reasons and more, last year was a memorable one for the Lafayette, Louisiana-based home health, hospice and personal care services provider. The company is now off to a good start this year, Chairman and CEO Keith Myers said during a Q4 and year-end earnings call Thursday.
Just two months under PDGM, everything is going according to plan, he said.
“To be able to make the statement that everything is going as planned and we are not seeing any surprises takes a lot of work ahead of time,” Myers said.
For LHC Group, PDGM preparation included cross-walking the Prospective Payment System’s (PPS) previous 153 resources groups to the new 432 groups created by the overhaul. It also meant testing the increased use of telephonic teaching and training visits while making sure the company’s clinical team is operating at the top of its license.
As a result of LHC Group’s focus on telephony, the percentage of Medicare patients receiving telephone teaching and training visits increased from 16% to 19% from August 2019 to February 2020.
Meanwhile, LHC Group also managed to improve care by increasing the amount of time spent on each visit, averaging five extra minutes of time spent at home with patients.
LHC Group believes there is room for improvement when it comes to the new payment model, but the company simultaneously thinks PDGM plays to its strengths as an organization.
“It reinforces the critical role in-home health care plays as the most appropriate, most efficient setting for delivering high-quality care in the privacy or comfort of the home or primary place of residence,” Myers said. “We are appreciative that Congress, in creating PDGM, and CMS, in implementing it, recognized the growing value of quality in-home services.”
So far, DSOs under PDGM have not been an issue for LHC Group, as the Centers for Medicare & Medicaid Services (CMS) is paying claims relatively quickly.
From 2018 to 2019, LHC Group’s net service revenue increased 14.9% to $2.08 billion. From Q3 to Q4, net service revenue increased by 4.2% to $531.3 million.
Excluding Almost Family locations, LHC Group’s home health admissions increased by 9.1% in 2019 compared to the previous year, with revenue increasing by 6.5% during that same time.
The company maintained momentum with hospice and personal care as well.
“The company as a whole is growing at a fairly healthy pace,” Brian Tanquilut, equity analyst at Jefferies, told Home Health Care News. “It’s not common to see 8% to 10% organic growth rates in health care, so when a company is putting up those kinds of numbers, they are clearly benefiting from a secular trend in home health, but it’s also evidence of market share gains.”
LHC Group’s growth will likely accelerate going forward, Tanquilut noted.
Including Almost Family, LHC Group recorded a 5% organic growth rate in the fourth quarter. Additionally, during Q1, it’s seeing a combined organic growth rate nearly double that amount, according to the company.
Spruce Point Management had previously called into question LHC Group’s integration of Almost Family in January. Q4 was the last quarter LHC Group will report on its and Almost Family’s growth metrics separately.
M&A activity, JV strategy
It’s still too early to know just how much consolidation the home health market can expect to see in the wake of PDGM, but early signs point to lots of action, Myers suggested.
In the months and weeks leading up to PDGM, many experts predicted that the new payment model could cause up to 30% of home health businesses to exit the market.
LHC Group is already receiving calls from smaller agencies hoping to sell or absorb into the company.
“As a result of this transition in Q4 and the first few months of 2020, we have seen an increase in the number of inbound calls from smaller agencies looking to exit the business,” Myers said. “Some of these opportunities could be good acquisition candidates, and others we can naturally roll into our organic growth through market share gains.”
The company expects to see accelerated and “historic” consolidation over the next several years.
Throughout its existence, LHC Group has positioned itself to lean into these opportunities, according to Myers.
“Change is nothing new to our team. We have successfully managed through numerous reimbursement changes over the past three decades, each time appropriately adapting to change in a timely manner and emerging a stronger organization,” he said. “As a result, we have greatly benefited from consolidation opportunities.”
During 2019 and to date in 2020, LHC Group has acquired 27 home health, 11 hospice, three home and community-based services locations and one long-term care hospital (LTCH) in 13 states and the District of Columbia, the majority of which are hospital joint ventures.
The acquisitions represent approximately $114.3 million in annualized revenue.