Home health providers have felt the full force of the U.S. nursing shortage this year.
But it’s important to remember that some of those pressures are short term in nature and tied to the public health emergency, LHC Group Inc. (Nasdaq: LHCG) President and COO Joshua Proffitt said Monday. That’s especially true in regard to labor costs.
“When you’ve got upwards of 3% or 4% of your entire front-line workforce on quarantine, you’re now having to supplement that with contract labor and with much higher cost labor sources,” Proffitt explained during the BofA Securities Home Care Conference. “A lot of it, I believe, has been temporary and induced by some of the pandemic-related issues such as quarantine.”
Lafayette, Louisiana-based LHC Group provides home health, hospice, and home- and community-based services across the majority of the U.S. The company employs about 30,000 employees, so even small ripples in its workforce can sometimes feel like major waves.
“The biggest area of labor dynamics that we’re all facing as a health care industry is, I believe, with the qualified nurses,” Proffitt said. “The nursing pool of the workforce is one of the top challenges that … we’re seeing across all of health care.”
For home health providers like LHC Group, labor shortages come with two big bottom-line challenges.
First, when providers don’t have enough clinical resources internally, they’re forced to bring in costly contract labor. Since the Delta variant surfaced, the cost of contract nursing has skyrocketed – sometimes even above early-pandemic levels.
In the third quarter, about 4% of LHC Group home health visits were carried out by contract labor. Normally, that’s around 1%, according to CFO Dale Mackel.
“For about every 100 basis points that we can reduce our dependence on nursing contract labor, that would save us about $1.4 million per quarter,” Mackel said Monday. “And that’s a net-savings number.”
On top of that, when home health providers don’t have enough clinical boots on the ground, they often have to decline new referrals. Their ability to grow is severely restricted, in other words.
“The growth in home health demand has been running about 14% to 15% this year in our referral volume – and the growth in hospice is north of 20%,” Proffitt continued. “If you look at how we’re modeling, if we’re only putting 5% to 7% for organic growth, that would indicate that we’ve got some headwind to the growth potential baked in for labor dynamics.”
LHC Group is taking a three-pronged approach to offset labor-cost inflation.
In addition to reducing its dependence on contract labor, the company is working to improve its use of extenders, such as licensed practical nurses (LPNs) and physical-therapy assistants (PTAs). LHC Group has multiple sourcing initiatives in place as well, including for medical supplies and hospice pharmacy.
“Those three items are really the main initiatives for next year,” Mackel said, adding that LHC Group sees $10 million to $15 million in cost-improvement opportunities related to those efforts.
LHC Group has already felt “a big lift” in the fourth quarter from having more of its employees come off quarantine, allowing the company to use less contract labor, Proffitt said.
On a more long-term basis, the home health giant is working to both increase its nursing pipeline – and steer more early-career nurses toward the home health setting – through its academic investments.
“The nursing-shortage situation has to start at the front of the process, getting more qualified nurses coming out of nursing school,” Proffitt said. “And not only do we want to get more people applying in nursing school, but we want to start growing the pool of applicants for ‘in home,’ because, over over time, we would like to see more and more of those early nurses be able to come directly into the home environment.”
LHC Group announces stock buyback program
LHC Group announced on Monday that its board of directors approved a share-repurchase program, allowing the company to repurchase up to $250 million of its common stock. LHC Group expects to fund the repurchase initiative through a combination of cash on hand, future cash flow and borrowings.
The share-repurchase program underscores LHC Group’s “continued commitment to building shareholder value” and reflects the board’s confidence in the company, Chairman and CEO Keith Myers said in a statement.
“The strength of our balance sheet and cash flows enables us to allocate capital to these repurchases on an accretive basis while at the same time prioritizing continued investments in organic and inorganic growth as well as other long-term initiatives,” Myers said.
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