Strategic Maneuvering Helps Addus Avoid COVID-19 Disruption

New York, Chicago, Detroit and the state of Washington are some of the cities and states that have been singled out as COVID-19 hotspots.

For Addus HomeCare Corporation (Nasdaq: ADUS), operating in these locations has meant lots of strategic maneuvering, especially when considering the amount of care service call-offs the Frisco, Texas-based provider has received over the past few weeks.

“In these markets, especially New York City, Long Island and Chicago, we have seen a number of patient call-offs,” Addus President and CEO Dirk Allison said during a first-quarter earnings call on Tuesday. “This is where a patient or their family decides to skip their normal personal care service visit due to their concern about having someone, even a caregiver, in their home.”

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Additionally, the company has seen caregiver call-offs for similar reasons, according to Allison.

Addus having to operate around caregiver and client call-offs should come as no surprise to those who have been following in-home COVID-19 news closely. In March, the Home Care Association of New York State (HCA-NYS), for example, found that nearly half of surveyed home care agencies in New York had experienced patients or family members refusing entry of home care personnel.

In response to the COVID-19 public health emergency, Addus quickly began sourcing personal protective equipment (PPE) for its team of caregivers.

As a business, Addus provides a mix of personal care, hospice and home health care services. It currently provides those services to about 43,000 individuals across 25 states.

“PPE procurement has been particularly challenging in our non-clinical segment, as compared to our hospice and home health, since, historically, it’s not a service in which widespread PPE usage is customary,” Allison said. “However, we understood the need to start providing masks and gloves to our personal care team, in order to help protect them and our patients from the spread of this virus.”

As part of its PPE approach, Addus created a “rapid procurement team,” whose primary focus has been to source, acquire and distribute PPE to both the company’s clinical and non-clinical teams.

“While PPE alone does not guarantee that our team will not contract the coronavirus, it does help to provide additional safety measures for our caregivers and patients,” Allison said. “Now that we have been able to acquire additional PPE for our team, we have started providing services to COVID-positive and presumed positive patients.”

Currently, Addus’s COVID-19 patient volume is low, but the company anticipates volume to increase moving forward. The company’s case volume is evenly split between its home health and personal care service lines.

Overcoming challenges

Despite some COVID-19 disruption, Addus recorded a solid first-quarter performance, experiencing revenue growth across its service lines, which reflect ongoing demand trends associated with in-home care.

“Even as most of the states where we operate have been under ‘shelter in place’ orders since mid-March, we have continued to provide the critical and essential home care services that allow individuals to remain in their homes,” Allison said in a Monday statement after Addus released its Q1 financial results. “We are proud of our financial results for the first quarter that we achieved while enduring significant operational challenges related to the COVID-19 pandemic that we began to see in March.”

Analysts were likewise bullish on the company’s Q1 performance.

“While COVID has caused some disruption to operations, ADUS’s Q1 beat despite COVID drag in [March] shows the impact is minimal and short-lived,” Brian Tanquilut and Jason Plagman, equity analysts at Jefferies, wrote in a note. “But more importantly, in the face of high unemployment, ADUS should see increased caregiver supply that should expand its capacity and enable it to meet growing demand for its services.”

In total, Addus’s first-quarter 2020 net service revenue checked in at $190.2 million, compared to the $139.3 million the company netted in Q1 2019.

About 84.5% of Addus’s Q1 revenues came from its personal care services segment; 13.2% of the company revenue came from its hospice segment, with 2.3% coming from its home health segment.

Personal care same-store growth checked in at 15%, mostly due to an Illinois rate increase. Home health same-store growth for Q1 was 19.5%, due to the momentum of Addus’s New Mexico home health services.

“Our first-quarter results demonstrate that we are continuing to execute on our organic growth strategy with favorable results prior to the impact of COVID, which impacted the last few weeks of the quarter — and will be more impactful in the second quarter,” Brian W. Poff, executive vice president and CFO of Addus, said during the call.

Addus plans to continue executing its growth strategy throughout the remainder of 2020. In addition to organic growth opportunities, Addus still has “a solid pipeline of potential acquisitions,” according to the company.

It will, however, approach any upcoming deal with a heightened sense of caution and diligence.

In other Addus news

During the call, Addus also touched the Illinois rate increase and New York budget developments.

Over the years, the company has faced its fair share of challenges surrounding the lack of an official rate increase to offset the minimum wage increases in some states.

In January, Addus received a rate increase from Illinois to cover the minimum wage increase that occurred in Cook County in July 2019.

“This increase allowed us to correspondingly increase the wages of our Illinois team located outside of the Chicago area,” Allison said. “We appreciate that the leadership of the state of Illinois recognized the need to make adjustments to cover the costs associated with the higher minimum wages.”

In New York, almost all Medicaid providers received a rate reduction of 1% effective Jan. 1, 2020. Addus estimated that this would result in an annual $1 million reduction to its earnings.

An additional reduction of 0.5% was implemented, effective April 1, 2020, for Medicaid providers.

“Without any mitigation, this would reduce our earnings by approximately $500,000,” Allison said. “We continue to work with our New York state associations to try and mitigate these rate reductions. Although the impact of COVID-19 on New York tax revenue is unknown at this time, it could further negatively impact the budget and increase pressure to implement further rate reductions.”  

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