Addus HomeCare Corporation (Nasdaq: ADUS) has signed a definitive agreement to acquire Armada Skilled Home Health and Hospice, further building out its already sizable footprint in the state of New Mexico.
It’s yet another step for Addus in its quest to build out home health, hospice and personal care lines in specific markets and states, as it did in Ohio with its purchase of Queen City Hospice in 2020. It’s also a way for a company that historically has done most of its business in personal care services to continue diversifying its clinical and payer mix.
The deal will be completed through a cash purchase price of approximately $29 million. It is expected to close on Aug. 1.
“We want to continue to expand our footprint in home health and hospice to get a little bit more diversification from our primary personal care segment, for a couple of reasons,” Darby Anderson, the chief strategy officer at Addus, told Home Health Care News.
The first reason is that diversification is a good thing overall, Anderson said. The second reason has to do with intervention, specifically on the home health side.
As Addus enters into more value-based arrangements with payers, personal care aides can still be the eyes and ears in the home. But if they do encounter something that requires intervention — where home health services are needed — the company has that ability, too.
The Frisco, Texas-based Addus provides home health, hospice and personal care services to roughly 44,000 people across 208 locations in 22 states across the U.S.
On its end, Armada is based in Albuquerque, New Mexico, and has an average daily census of about 1,100 patients in home health and 100 in hospice. Its annualized revenues are approximately $23 million.
Addus expects the transaction to be immediately accretive to its financial results.
For context, in Q1 of 2021, Addus’ personal care segment brought $164 million in revenue, while it’s hospice and home health segments brought in $36 million and $4.34 million, respectively.
The hospice segment already made an $11 million jump year over year in Q1. It seems as if an increase there and with home health — especially with the Armada acquisition — could continue.
“We do want to increase our home health and hospice footprint,” Anderson said. “That doesn’t mean we’re not looking at personal care deals. We’re always looking at all kinds of deals, but strategically, we really focused on continuing to expand those clinical service offerings.”
Addus already had home health and hospice capabilities in New Mexico, which is an important market for the company. The acquisition will now add to its bench strength.
“Acquisitions continue to be an integral part of our growth strategy at Addus and complement our strong organic growth opportunities,” Dirk Allison, chairman and CEO of Addus, said in a press release. “We are focused on transactions that will allow us to enhance our service offerings in each of our operating segments in target markets. We are confident in our ability to drive value from our acquired operations and further strengthen our competitive position.”
While Ohio and New Mexico are two states where Addus has already demonstrated that strategy of building out the “three-legged stool” of home health, hospice and personal care, it has others in mind as well.
Those include Illinois and Tennessee, two states where Addus already has a strong personal care presence.
“Tennessee, for example, would be another state where I think this sort of integrated model could really work well for both patients and for us,” Anderson said. “But you know, with certificate of need, it’s more difficult to have home health within those markets.”
There are currently 18 Certificate of Need (CON) states for home health, plus Washington, D.C. Entering these states organically, or by way of acquisition, can be an arduous process.
Still, Addus is committed to building out a diverse range of services in the states that it has already entered.
“I think you’ll see us continue to push through that strategy of adding home health and hospice services where we already have a good footprint of personal care,” Anderson said.
Positives of diversification
The diversification of services bodes well for companies like Addus. It allows them to care for more patients and gain a greater market share in each of its segments in the markets that it serves.
But it is also significant from a payer perspective.
“In personal care, you’re very state focused and Medicaid focused, whereas in clinical services, you’re diversifying the payer mix to more Medicare fee-for-service or Medicare Advantage,” Anderson said. “While at the same time, you still have the ability to offer both services to managed care payers on the Medicaid side. So there’s geographic diversification, service segment diversification and payer diversification that we’re trying to achieve. And this acquisition fits in that strategy as well.”
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