The United States is on the brink of another major shift that will change how, when and where Medicare beneficiaries access health care services.
The Lafayette, Louisiana-based LHC Group Inc. (Nasdaq: LHCG) is doing everything in its power to position itself for that coming shift, executives detailed during a Friday morning conference call on fourth quarter financial results. Those efforts include ramping up lobbying activity on Capitol Hill, fine-tuning a growing M&A pipeline and navigating ongoing COVID-19 challenges.
“We view 2021 as a year of great opportunity, in part due to the unprecedented flexibility afforded to home health in the wake of COVID,” LHC Group Chairman and CEO Keith Myers said on the call.
Across its 35-state footprint, LHC Group operates 537 home health locations and 120 hospice locations, plus 124 home- and community-based services locations. In addition to those core services, the company also runs a dozen long-term care hospitals (LTCHs).
In part, LHC Group executives remain so bullish on the company’s future because of its own steady performance amid the public health emergency.
Overall, net service revenue hit $2.06 billion in 2020, a less than 1% dip compared to $2.08 billion in 2019. While down slightly, much of the dip can be attributed to the COVID-19 pandemic and the extreme admissions swings that came with it early on.
With organic home health and hospice admissions rebounding in the second half of 2020, LHC Group’s net service revenue totaled $532.33 million in Q4, a 0.19% increase compared to $531.315 million in the previous year. Over three consecutive weeks in January, LHC Group even recorded home health admissions averaging 8,900 per week — its highest weekly mark since January 2019.
“We’re expecting [2021] home health organic admissions to increase 8% to 10%, and hospice organic admissions growth also to be 8% to 10%,” LHC Group President Joshua Proffitt said on the call. “This would represent continued sequential acceleration in both businesses that we built back through COVID, providing a very strong baseline for 2021 and beyond.”
Additionally, momentum from new physician referral sources continued in Q4, with nearly 4,191 new home health referral sources added. That brought 2020’s grand total to 16,684 new physician referral sources, a 22% increase over 2019.
It’s what’s happening outside of LHC Group that has the company so excited about its long-term outlook, too.
Advancing ‘Choose Home’
The COVID-19 crisis forced federal policymakers to take a hard look at the nation’s long-term care infrastructure and the historic over-reliance on skilled nursing facilities (SNFs). That critical review began under the Trump administration, but many expect it to continue under President Joe Biden’s watch.
“We are encouraged by the emphasis the Biden administration has announced for promoting more care in the home,” Myers said. “These proposals include over $450 billion to expand in-home health care services to seniors, including funds for innovative care models.”
This year may bring a key change to SNF-at-home discussions.
Behind the scenes, the Partnership for Quality Home Healthcare (PQHH), the National Association for Home Care & Hospice (NAHC), LHC Group and others have been working on an initiative known as “Choose Home,” Myers said.
Broadly, the initiative would create a new payment pathway built around 30-day episodes of care that tie together home health and personal care services to keep SNF-eligible patients at home for a reduced cost. Remote patient monitoring and services focused on social determinants of health would likewise be woven into Choose Home.
“2021 will also be a year in which we expect to advance Choose Home legislation, which we have begun to socialize with Congress,” Myers said. “For the first time, this important legislation will provide a time-limited, cost-effective benefit that would include Medicare-certified skilled home health services and personal care services.”
LHC Group originally piloted a similar SNF-at-home program years ago with Ochsner Health in Louisiana.
“Adding personal care and other [services like] food and transportation to the benefit is huge,” Myers said. “Because the social determinants were one of the challenges we face back in the early days of initiating the pilot with Ochsner.”
Apart from Choose Home, LHC Group’s leadership team is generally encouraged by language in a recent House budget report and national health care spending trends in 2020.
“What this demonstrates is that the pandemic has resulted in a shift in referral patterns, with more patients, families, physicians and discharge planners choosing home health over more costly and potentially higher-risk congregate care settings,” Myers said.
A ‘multifaceted’ M&A pipeline
Whether through acquisition or joint venture, LHC Group gained roughly $54.65 million in annual revenue last year, according to the company.
Some of those moves include the acquisitions of Grace Hospice of Oklahoma and Santa Rita Hospice in Colorado, as well as JV agreements with University Health Care System, Orlando Health System and others.
“As we have discussed in the past, our pipeline is multifaceted,” Proffitt said. “We have the separate JV pipeline, the tuck-in acquisitions and the larger, more strategic opportunities.”
LHC Group is targeting $150 million to $200 million in acquired annual revenue in 2021, he added. The company’s current M&A pipeline is over $420 million, with the vast majority of its focus falling on hospice.
“We have focused on capturing market share organically,” Proffitt said. “And we still believe the inevitable will occur, as smaller agencies will struggle with the continued transition to more value-based care models.”
LHC Group is currently estimating full-year COVID-19 related costs of $20 million to $25 million in 2021, of which $8 million to $12 million is expected to be incurred in the first quarter.
Despite those additional costs, the company still has plenty of dry powder for acquisitions, with nearly $530 million in total liquidity and a strong balance sheet.
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