LHC Group Bouncing Back from COVID-19 Lows, Eying Post-Coronavirus Growth Opportunities

Devastating events have a way of changing everything, dividing time periods into the “before” and the “after.” In light of the coronavirus, that’s very much how LHC Group Inc. (Nasdaq: LHCG) approached its first-quarter 2020 earnings call, with the national emergency turning the country and the company upside down in mid-March.

Before March 15, the Lafayette, Louisiana-based home health company was experiencing double-digit organic growth, strong earnings and performance trending above guidance for Q1. Plus, implementation of the Patient-Driven Groupings Model (PDGM) was going even better than expected.

But after the COVID-19 virus took hold, everything changed.

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In the week ended March 28 alone, the provider saw 8,585 missed visits. On top of that, admissions tumbled by more than 2,000 patients, low utilization payment adjustment (LUPA) rates spiked by several percentage points and M&A deals were delayed.

Still, despite the turmoil the coronavirus has caused, LHC Group leaders are optimistic about the future, saying the company is already on the rebound. In fact, the COVID-19 emergency could further accelerate LHC Group’s joint venture strategy and other growth opportunities going forward.

PDGM is set to be positive for the company, too.

“During COVID-19, we’ve experienced our existing joint venture partners more fully leveraging our capabilities as an integral part of the health care delivery team than ever before,” President and CEO Keith Myers said Friday on the company’s Q1 earnings call. “As a result, we fully expect even greater joint venture interest from hospitals and health systems in the future.”

While the coronavirus has delayed deal closings for LHC Group over the past couple months, Myers noted the company’s pipeline of opportunities remains robust, both in terms of home health and hospice.

“When we add that to the historic organic growth opportunity for market absorption that lies ahead in home health, these are very powerful sources of growth for the remainder of this year and into 2021 and beyond,” he said.

Bouncing back

Overall, LHC Group posted net revenues of $512.9 million for the quarter ended March 30, up about 2% from the same quarter last year.

The company’s home health revenue made up a little over $367.8 million — or just under 72% — of that total. That’s similar to what the company saw in Q1 2019, when LHC group’s home health service line accounted for just over 72% of the total net revenues for the quarter.

LHC Group’s Q1 home health average daily census grew year over year in Q1 to 76,978, an increase of about 1.7% compared to Q1 2019.

Despite those positives, LHC executives withdrew 2020 guidance and spent much of the Q1 call discussing COVID-19’s impact. Because the virus didn’t start to heavily affect the company until March 15, most of that conversation centered around the early weeks of Q2. 

Mid-April proved to be a coronavirus inflection point for the company, executives explained on the call. Since then, metrics have started to improve.

“As it relates to ADC, or average daily census, we saw a 5.6% decline from a high point of 100,030 on March 9 to a COVID-induced low of 94,476 on April 18,” Myers said. “Our ADC has already begun to rebound from that April 18 low point and, as of Wednesday, May 6, was back up to 96,182, which represents a 1.8% increase in ADC from the April 18 low.” 

Home health admission data shared on the call tells a similar story. Home health admissions were averaging about 18,800 per week from Jan. 1 to March 14. However, on April 13, home health admissions hit a low point of 6,169.

However, like ADC, that number is already on the up and up, CFO Josh Proffitt explained on the call. 

“I’m pleased to report that we are currently seeing that number rebound with week-over-week improvement and home health admissions of 6,634 the week of April 20,” Proffitt said. “And last week, we were back up to 6,700 for an 8.6% improvement over the week of April 13.”

As part of its ongoing effort to support Medicare providers, the U.S. Department of Health and Human Services (HHS) issued LHC Group $87.5 million in CARES Act relief funding. While the rules mandate such emergency payments must be used to prepare for and respond to the coronavirus, as well as to make up for COVID-19-related lost revues, it’s unclear exactly how and if LHC Group will deploy the money. 

“The ability of LHC Group to retain and utilize the full $87.5 million from this provider relief fund will depend on the magnitude, timing and nature of the economic impact of COVID-19 within LHC Group, as well as the guidelines and rules of the federal relief program itself,” Proffitt said, noting that some details of the program remain unclear.

Additionally, the company received $307.6 million in funding under the Medicare accelerated and advanced payment program. However, that money must be repaid.

PDGM update

While the further negative impacts of the coronavirus will likely be seen in LHC Group’s future earnings calls, executives are also predicting PDGM and M&A positives.

LHC Group’s successful preparation for PDGM is to thank for its largely positive pre-COVID first quarter.

“The pre-execution [PDGM] competence was one thing, but I’ve got to tell you, now, our confidence level is much higher than it even was back then,” Proffitt said. “If you take out the effect of the census disruption from COVID, we were marching well ahead of schedule under all of our key measures of success under our PDGM implementation model, and that led to kind of how good of a start we were having coming out of the gate in January and February in the first half of March.”

In other words, LHC Group is ahead of schedule in terms of PDGM implementation, with only COVID-19 throwing a wrench in the company’s year. On top of that, the payment reform helped the provider gain more than 5,000 new referral sources so far in 2020.

“We believe this is largely driven by improved execution of our growth strategies and market consolidation resulting from implementation of PDGM,” Myers said of the new referral sources. “We fully expect home health market consolidation, both organic and inorganic, to continue throughout 2020 and for the next several years.”

Some of that growth will come as a direct result of PDGM and the coronavirus — and it’ll come even faster than previously expected, Proffitt said. He expects volumes to accelerate as a result as soon as the second half of 2020 and into 2021.

That’s on top of a “much larger opportunity for joint ventures than we [had] even three months ago,” Proffitt said, attributing that opportunity to the company’s pandemic performance.

“We will … most likely experience delays in finalizing new joint ventures due to the justified focus of our future partners in having the pandemic in front of them, but suffice it to say we believe that momentum will accelerate after COVID-19.”

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