Pennant ‘Encouraged’ by Vaccine News, But Not Assuming Near-Term Changes to Home Health Operating Environment

Home health providers across the board are slowly starting to bounce back from COVID-19-related disruption. One thing that now provides further hope is a potential vaccine, especially as the U.S. continues to break daily records around new infections.

The Pennant Group Inc. (Nasdaq: PNTG) is among the providers rallying around this week’s positive vaccine news, which is centered on Pfizer’s announcement that one of its experimental vaccines is more than 90% effective.

The company’s leadership team expressed cautious optimism during a Wednesday conference call to discuss its third-quarter financial results.

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“While we haven’t assumed a change in the operating environment stemming from the widespread adoption of a vaccine, we are encouraged by the initial reports on the efficacy and availability of potential vaccines,” Pennant CEO Daniel Walker said.

The Eagle, Idaho-based Pennant is a holding company of independent operating subsidiaries that provide health care services through 75 home health and hospice agencies, in addition to 54 senior living communities.

Pfizer’s progress is certainly promising, but home health providers and other long-term care operators will likely still have to deliver care without a widely available COVID-19 vaccine for months. The drug company still needs to explore how the trial vaccine works in different populations, and many health care organizations lack the freezers needed to actually store an effective vaccine.

For now, Pennant is taking a wait-and-see approach, Walker noted. But the company believes it could reap the benefits of the vaccine during the second half of 2021.

“The key there is the actual execution, finalizing it, making sure that communities are comfortable with it,” Walker said. “I think once it’s fully baked and available, distribution won’t be that big of a difficulty.”

Aside from keeping an eye out for COVID-19 vaccine updates, Pennant reported a continued successful transition to the Patient-Driven Groupings Model (PDGM), the Medicare payment overhaul that has been somewhat overshadowed by the pandemic. Pennant has benefitted from PDGM’s relatively favorable reimbursement rates for higher-nursing-acuity patients, according to Walker.

“Our strong performance is driven by the ability of our local leaders to adapt to the changing reimbursement and operating environment, and appropriate reimbursement for care provided to higher-nursing-acuity patients,” he said. “Since our inception, we have been committed to caring for patients based on individual patient and community needs. Often, this has resulted in serving underserved, higher-nursing-acuity patients, … now more appropriately reimbursed under PDGM.”

The third quarter also saw ample dealmaking opportunities. Between August and September, for example, Pennant announced the acquisitions of four home health agencies and two hospice agencies. Most recently, the company announced the purchase of Grants Pass, Oregon-based Riverside Home Health Care.

These transactions bring the total number of operations acquired or started since 2019 to 227.

During Q3, the company also closed on its home health joint venture with Scripps Health, a San Diego, California-based nonprofit integrated health system. The deal was first announced in March.

“Each transaction represents a unique opportunity for local leaders to drive outside multi-year growth, as they respond to local market conditions and take advantage of additional acquisition opportunities,” Derek Bunker, Pennant’s chief investment officer, said during the call. “As evidenced by the different structures of these transactions, our disciplined growth strategy takes many forms.”

As an organization, Pennant’s focus is on the “opportunistic” acquisition of existing operations, but startups and joint ventures are additional tools available to drive similar long term-results, according to Bunker.

In Q3, Pennant’s total revenue checked in at $98.4 million, an increase of $10 million, or 11.3%, compared to the prior year’s quarter. The company’s home health and hospice services segment revenue was $64.4 million, an increase of $9.2 million, or 16.7%, compared to Q3 2019.

Total home health admissions for Pennant in Q3 were 6,771, an increase of 21.9% over the prior year’s quarter.

The company’s quarterly results don’t include any funds from the Provider Relief Fund.

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