‘These Funds Can Best Be Used Elsewhere’: LHC Group Returns $93.3M in Federal Relief

Rising demand for health care services delivered in the home and an increasingly favorable regulatory environment have set the stage for the nation’s top-tier home health operators. That idea has LHC Group Inc.’s (Nasdaq: LHCG) leadership team bullish about the company’s near- and long-term outlook.

LHC Group’s optimism is additionally supported by shifting referral patterns that suggest a new awareness of home-based care’s value. At the height of the COVID-19 public health emergency, for example, the Lafayette, Louisiana-based company saw a flood of primary care physician referrals.

“As we described in August, we continue to see a new normal in referral patterns,” LHC Group Chairman and CEO Keith Myers said during a Q3 earnings call on Thursday. “One where patients, families, physicians, discharge planners and other referral sources are increasingly choosing the safety, effectiveness and efficiency of in-home health care services over more costly — and potentially higher risk — congregant in-patient care settings.”

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During Q1 2020, LHC Group saw 3,915 new sources of home health referrals. That improved to 3,996 in the second quarter, then to 4,582 in Q3.

The company has also increasingly turned its attention to the diversion of post-acute care patients into the home and away from skilled nursing facilities (SNFs).

“SNF diversion, which was an increasing trend, has become a best practice,” Myers said. “We believe that, at a minimum, the lower acuity third of patients referred to SNFs are clinically appropriate to be cared for in the home, achieving equal to or more favorable outcomes and patient satisfaction.”

LHC Group is already gaining a greater share of hospital discharges relative to SNFs, according to Bruce Greenstein, the company’s chief strategy and innovation officer.

When looking at discharges to post-acute care providers from Q2 2019 through Q1 2020, 21.3% of patients went to SNFs, while 21.1% of patients were sent to a home health provider, according to a recent report from Trella Health.

“That’s an area where, despite lower discharges from the hospital in an absolute number, we’re picking up a higher percentage of those that are coming out for any kind of post-acute care, as we continue to take market share from patients that otherwise would have ended up in a SNF,” Greenstein said on Thursday’s call.

COVID-19’s bottom-line impact

All in all, LHC Group incurred $10.5 million in COVID-19 costs during Q3. These costs are attributable to personal protective equipment (PPE) and employee-compensation initiatives, including bonuses and increased pay for front-line caregivers.

That amount is nearly half of the company’s Q2 COVID-19-related expenses, which came out to $27.3 million.

Throughout the home health industry, some operators have opted to cover those COVID-19 costs via the Provider Relief Fund, created under the CARES Act. LHC Group, however, decided to return the entire $93.3 million in funds it received from the fund.

“We believe returning these taxpayer dollars is the right thing for us to do, and that these funds can best be used elsewhere and with assisting with the ongoing response to the pandemic,” LHC Group President and former CFO Joshua Proffitt said on the call. “As a result, for the third quarter, we reversed $44.4 million … in government stimulus income that we had recognized in the second quarter.”

LHC Group’s service lines include home health, hospice and personal care services. Currently, the company operates in 35 states and Washington, D.C.

Overall, it posted net revenues of $530.7 million for the third quarter of 2020, a 0.41% increase compared to $528.5 million from the same period a year ago.

As for volume, LHC Group’s home health average daily census jumped from a “low point” of 74,817 for the month of April to a high of 84,091 for the month of October, a 12.4% increase.

“This monthly improvement has come even though there are a number of states that were slow to lift the ban on elective procedures and reinstated them in some cases,” Proffitt said.

As of Thursday morning, LHC Group is sitting at 85,259 patients on census, according to the company.

In April, the company’s home health admissions were at a low of 27,948. Q3 saw between 34,400 and 35,200 admissions per month, resulting in a 4.7% increase in organic home health admissions.

LHC Group had 36,786 admissions in October.

The company also noted it has experienced a severe decline in COVID-19-related missed visits, going from 22,913 in April to 722 in October.

LHC Group’s pipeline ‘as active as ever’

During the third quarter, LHC Group also further solidified its reputation for being a leader in joint venture partnerships with hospitals and health systems.

“Our partners have experienced firsthand throughout the pandemic just how well we have been able to deliver for them through close integration and collaboration, with the highest level of quality, in the most cost-effective setting,” Proffitt said. “That’s having a positive impact, not only on organic growth but also on our M&A pipeline.”

In August, the company finalized a JV with not-for-profit health care organization Orlando Health.

In October, LHC Group finalized a JV with University Health Care System.

The company also finalized a JV with Northeast Georgia Health System in October.

In November, the company finalized its plans to expand an existing JV partnership with Christus Health.

“We expect we’ll have a few more transactions to announce by the end of the year,” Proffitt said. “All told, we’ve completed joint ventures representing approximately $14 million in annual revenues since early August. With our value proposition on display, our pipeline is as active as ever.”

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