Amedisys Inc. (Nasdaq: AMED) executives are still coming down from the excitement around closing the company’s market-moving acquisition of Contessa Health, a home-based care innovator dedicated to shifting higher-acuity care into the home.
But along with big future plans for Contessa and its legacy segments, the Baton Rouge, Louisiana-based aging-in-place giant also continues to face operational challenges around the COVID-19 virus and the delta variant. Amedisys is working through the bulk of those headwinds within its hospice business, which has seen workforce difficulties with its business-development team and lower-than-anticipated average daily census (ADC) growth.
“Unlike home health, [which] saw a very short impact and steep rebound from COVID in 2020, the COVID impact and rebound in hospice has been slower to develop,” President and CEO Chris Gerard said during a Thursday conference call on the company’s Q2 2021 financial results. “And it has impacted the business into 2021 in multiple ways.”
Amedisys and its roughly 21,000 employees deliver home health, hospice and personal care services across 39 states and the District of Columbia. While the in-home care provider has historically been a home health-heavy organization, it has deployed hundreds of millions of dollars over the past few years to become one of the nation’s three largest hospice enterprises as well.
It completed its most recent major hospice deal last June, when it acquired AseraCare Hospice for $235 million.
“We feel good about what we’ve done in hospice,” Amedisys Chairman and CEO Paul Kusserow said on the call. “As you know, we went out about two years ago and started buying up hospice, going from the eighth-largest to the third-largest hospice and spending about $700 million to build up our presence.”
Overall, Amedisys posted total revenue of about $557.7 billion during the second quarter, a nearly 15% increase compared to $485 million in Q2 2020.
Its home health segment had a revenue of $349.3 million in Q2, a more than 20% increase compared to $290.2 million during the previous year’s quarter. Generally, the “extremely strong performance” was driven by both volume and admissions growth, as well as an increase in revenue per episode.
The Amedisys hospice segment recorded revenue of $191.4 million in Q2, a more than 8% increase compared to $177.1 million in the second quarter of 2020. The segment experienced admissions growth of 2%, but a 3% decline in ADC.
The company lowered its 2021 adjusted EBITDA guidance, partly due to the hospice challenges.
“The hospice segment is behind in both admission and average daily census growth,” the company noted in a Wednesday earnings release. “The COVID-19 pandemic has put pressure on our ability to hire and retain business-development employees at a level needed to achieve our internal growth targets.”
Closing on Contessa
Amedisys executives remain confident in their ability to grow hospice and fix the issues with the business-development team. The company faced similar sales-related troubles with its home health department around 2017, giving it plenty of experience to fall back on.
“It was a bigger sales force that we were trying to rebuild. We have, you know, almost twice the number of sales reps in home health as we do in hospice,” Gerard said. “But it’s the same strategy. It took about two quarters to start getting some traction on that, then starting to see the results come through.”
Amedisys leaders noted that many other industries are working through business-development issues as well.
“That said, the [hospice] business continues to deliver great care and generate strong margins,” Kusserow added. “We have isolated and identified the problem to two areas: BD turnover and hiring. We’ve developed action plans and assigned accountability to deliver these results.”
The aforementioned hospice headwinds that gave Thursday’s conference call a somewhat measured tone were balanced by very optimistic hopes for the newly acquired Contessa.
Amedisys closed its $250 million purchase of Contessa on Aug. 1.
Among its benefits, Amedisys believes the move will expand its total addressable market from $44 billion to $73 billion, while simultaneously opening up new doors with marquee health systems and payers looking for ways to shift higher-acuity care into the home.
“This allows us to deliver more care to a broader spectrum of people in their homes,” Kusserow said. “It also expands Amedisys’ home health and hospice M&A pipeline to include new or enhanced joint ventures and acquisitions with partner health systems.”
Amedisys is already working hard to capitalize on “new frontier opportunities,” he explained. The company plans to invest in Contessa, both to build out its existing model but also to expand into other areas of care, including palliative and primary care.
In terms of future M&A activity, Amedisys has a strong balance sheet and access to expanded borrowing capacity of up to $1 billion, which includes a $550 million revolving credit facility and a term loan facility worth a principal amount of up to $450 million.
Amedisys closed on its asset purchase with Visiting Nurse Association on July 7, allowing the company to expand home health and hospice operations in parts of Nebraska and Iowa. Shortly after that, Amedisys also closed a deal to acquire the regulatory rights to conduct home health operations in Westchester County, New York.
“In home health M&A, I think we’re going to continue to look for deals,” Kusserow said. “And we still have a good [pipeline].”
Keeping an eye on delta
Similar to all health care operators, Amedisys had to navigate an operating environment “unlike any other in history” over the past 16 months.
The public health emergency isn’t over yet, though.
“COVID has changed how we do business and impacted us all,” Kusserow said. “And it continues to threaten us with a surging delta variant. It has been — and still is — all hands on deck.”
The United States hit a six-month high for new COVID-19 cases, with over 100,000 infections reported on Wednesday, according to Reuters. Most of those cases are coming in areas where the delta variant is spreading rapidly due to low vaccination rates.
The U.S. is reporting over 94,819 cases on a seven-day average, a five-fold increase in less than a month.
So far, Amedisys hasn’t faced anything close to the COVID-19 surges of last year and early 2021. With that said, it has seen more of its own employees go on quarantine over the past four weeks, Gerard said.
“That’s something we’re keeping a close eye on, as the exposures are increasing a little bit,” he said.
Additionally, in states like Louisiana, Florida and Alabama, where the delta variant is spreading, Amedisys is starting to experience some access issues with referral sources.
“We’re starting to see some access shut down for our reps,” Kusserow said. “So it hasn’t affected us today, but it is concerning.”
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