Amedisys Adjusts to Home Health Labor Pressures, Expresses Confidence in Contessa

Since Amedisys Inc. (Nasdaq: AMED) announced its $250 million acquisition of the hospital-at-home enabler Contessa Health in late June, it has had to answer several questions about the deal’s merit.

On Wednesday, Amedisys leaders again expressed unabashed enthusiasm over the deal, further explaining why Contessa makes sense for the company’s strategy moving forward.

“Our goal has always been to drive innovation into care in the home, and Amedisys now sits poised to change the game,” Amedisys CEO Paul Kusserow said on the company’s Q3 earnings call Wednesday. “We will continue to take steps toward higher-acuity, in-home, risk-taking care models and comprehensive care platforms to drive innovation in both how we provide care and how we are reimbursed for it. Where there’s change, there’s opportunity.”

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Kusserow said that demand for home-based acute services remains high across Contessa’s existing joint ventures, noting that results post-acquisition are “very promising.”

Overall, there were 234 admissions for Contessa during the two months after the acquisition closed — over 8% above Amedisys’ original forecast.

“In addition to a partnership with the Henry Ford Health System, Contessa just inked another substantial deal that we’ll be announcing in a week or so and is actively evaluating partnerships with 13 additional health systems,” Kusserow said. “This will create an opportunity to more than double its footprint. In terms of partnerships in operation, we’re way ahead of our growth goals for 2021 and 2022, which is very encouraging.”

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Contessa also continues to add payer sources, according to Kusserow, through the Medicare fee-for-service waiver in two markets as well as managed care and palliative model contracts in other markets.

So, despite what could be seen as a near-term drag from an EBITDA perspective, Amedisys is still bullish on what Contessa brings to the table.

Overall, Amedisys posted total revenue of about $553.5 million during the third quarter, a nearly 2% increase compared to $544 million in Q3 2020.

While its home health segment revenue was up nearly 4% to $338.6 million in Q3, both the hospice and personal care services segments took a step back. The hospice segment posted $197.5 million in revenue compared to $199.7 million last year, while personal care netted just $15.9 million compared to Q3 2020’s $18.4 million.

A quarter can change a lot

In the third quarter, Amedisys saw a drastic change to both its internal operations environment as well as the external, a sentiment that has been echoed by other home health organizations.

Exiting the second quarter, elective procedures – as a percentage of total episodes – had recovered to 7.5% for the company, close to its 9% pre-COVID-19 mark. In Q3, that number went back down to 6.5% as the Delta variant surged across the country.

Where staff quarantines were at about 0.7% in Q2, that number increased and peaked at 3% in Q3, and deaths on the company’s patient census increased as well.

Those numbers resulted in a loss of 3,700 home health admissions, according to the company, which impacted EBITDA by about $2 million.

Labor pressures also increased, as the Biden administration released a plan for vaccination mandates across the health care system.

“There was also no conversation about a vaccine mandate, and we were only seeing labor pressures in certain pockets of our footprint,” Amedisys President and COO Chris Gerard said on the earnings call. “The proposed vaccine mandate was released, and we started to see some system-wide labor and wage pressures.”

Those pressures, however, are “not as bad as others are seeing,” according to Gerard. Other issues related to admissions and quarantines are now on the mend in Q4, he added.

“Electives are now starting to come back slightly, which is encouraging,” he said. “The number of clinicians on quarantine has peaked. And entering Q4, we’re seeing the [quarantine] number decline rapidly to less than 1%, which is also encouraging.”

Now, as Amedisys heads toward “a calmer” couple of months, it is focused on growth and mitigating labor issues on the way.

But its executives were very clear about what they believe they can and cannot control in today’s environment.

“We are acutely focused on driving consistent growth,” Kusserow said. “We recognize we cannot control the death and discharge rates in hospice, nor can we control the pressures on the U.S. nursing workforce from the ‘great resignation,’ as well as clinicians who choose not to be vaccinated. What we can do is to think differently, act definitively and continue to innovate to maximize our clinical capacity, attract new nurses to home health and hospice, and retain our hard-to-find clinical staff.”

Driving growth

While the company didn’t get into certain specifics, Amedisys was generally happy with the final rule from the Centers for Medicare & Medicaid Services (CMS), which was published yesterday. Among its provisions, the rule finalized the expansion of the Home Health Value-Based Purchasing (HHVBP) Model and recalibrated parts of the Patient-Driven Groupings Model (PDGM).

“We have positive rate updates in both home health and hospice,” Kusserow said. “This is a trend that we see continuing for the next five-plus years.”

Meanwhile, the company remains cautiously optimistic that it will be able to grow inorganically through M&A as pressures tied to the COVID-19 pandemic subside.

“We remain confident in our ability to deliver on our M&A strategy,” Amedisys CFO Scott Ginn said on the call. “However, we do not believe that current street consensus for 2022 properly reflects the impact of the resurgence of COVID-19 in Q3, which brought additional uncertainty to the timing of hospice length-of-stay recovery and the real-time changing labor demand dynamics.”

And though consolidation has been slow to occur, Kusserow believes that Amedisys is uniquely positioned to capitalize off that trend as it continues over the course of the next few years.

He also believes that its capabilities across the continuum of care – especially with Contessa – separates Amedisys from the rest of its peers.

“Our annual cash flow, low leverage and scale put us in a better position than any company in our space to consolidate our highly fragmented industries,” Kusserow said. “And we expect to continue to capture and grow our market share inorganically in 2022 and beyond, as the effects of PDGM and regulatory reform kick in for real.”

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