Excluding 2018 — when it merged with Almost Family — LHC Group Inc. (Nasdaq: LHCG) has had its best year in terms of acquired revenue in its 27-year history during 2021, according to the company.
Thanks to a string of home health and hospice deals, LHC Group has doubled its previous goal for acquired revenue in 2021 to a new target of between $350 million and $500 million. The company hopes to carry that success into 2022 as well, buoyed by further industry consolidation, legislative tailwinds and other factors.
To fuel that goal, Lafayette, Louisiana-based LHC Group announced that it recently closed on an expanded revolving credit facility totaling $800 million, an increase from its previous borrowing capacity of $700 million.
“While 2021 is shaping up to be a record M&A year for us, we also remain confident in having another strong M&A year in 2022, with an expectation for more [joint ventures] and further home health consolidation,” Joshua Proffitt, the president of LHC Group, said on the company’s Q2 earnings call Thursday. “Our outlook is as bright as ever.”
LHC Group delivers home health, hospice, home- and community-based services (HCBS), and facility-based care in 35 states and the District of Columbia. Overall, it has 531 home health locations, 133 HCBS locations and 120 hospice locations across the country.
Most recently, it announced in early July a new strategic partnership with SCP Health that is aimed at bringing higher-acuity care in the home.
The main legislative tailwind the company is encouraged by is the Choose Home Care Act of 2021. The bill, introduced last week in the U.S. Senate, would enable certain Medicare beneficiaries to receive extended care services as an add-on to the existing home health benefit.
“We have bipartisan legislation that — for the first time — would provide clinically appropriate Medicare beneficiaries the option to safely recover in the privacy of their own homes following an acute in-patient stay as an alternative to more costly and restrictive in-patient post-acute care settings,” Keith Myers, LHC Group’s chairman and CEO, said on the call.
Secondary to that legislation is the recent home health proposed payment rule for 2022, which LHC Group is also encouraged by.
In addition to no home health cuts for 2020 and an average increase in payment rates of 1.7%, the proposed rule featured a nationwide expansion of the Home Health Value-Based Purchasing (HHVBP) Model.
“The national expansion of HHVBP is supportive of our recently announced advanced care at home service line expansion, which further leverages our existing post-acute capabilities to provide an efficient, low-overhead alternative to more restrictive and costly in-patient care settings,” Myers said. “The opportunity we have to bring our advanced care at home model to scale is substantial, as we have significant, direct experience in this area.”
LHC Group’s net service revenue was $545.9 million in Q2, a 12% increase from the $487.3 million it posted in Q2 of 2020. All three of its segments — home health, HCBS and hospice — increased year over year, by 16.7%, 1.5% and 4.5%, respectively.
“While revenue was a little lighter than what we had projected, it was spread nominally throughout all our service lines and, therefore, we are keeping our 2021 revenue guidance range impact,” LHC Group CFO Dale Mackel said on the call.
The path to further growth
LHC Group is honed in on further growth, both in what kind of patients it can treat in the home and in how many patients it can treat.
The partnership with SCP Health was a major investment that reflected the confidence that the company’s executives have in expanding its clinical capabilities.
“[With SCP], the receptivity so far from our hospital partners, I could say it has been overwhelming, but really, I expected it to be,” Myers said. “We’ve been doing so much diversion work, so this was just really dialing it up in acuity from the work we’re already doing.”
On the other end, one barrier to growing the company itself is the staffing environment in home-based care.
There are some areas and locations where staffing is not a problem, and others where it is, Proffitt said. To alleviate that pressure, the company has invested significantly in recruiting and retention efforts.
Specifically, it continues trying to pay its employees fair rates, Proffitt said, in addition to designing superior benefit packages.
“[We invest in] things like competitive pay packages, flexible scheduling, flexible pay structure, education, tuition reimbursement and our online continuing education program,” Proffitt said. “We are doing so many things that differentiate us to retain our staff.”
The company has also vamped up its employee assistance program during the pandemic. Overall, the company has had three straight strong quarters from a hiring perspective, but believes its best route to a non-volatile staffing situation is to retain its workers in the first place.
“Our retention has yielded low vacancy rates for us in the turnover area,” Proffitt said. “But we’ve also invested in our recruiting. Our headcount for our recruiters has gone from 33 in Q2 of last year up to 53, as of today.”
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