Post Final Rule, Addus Sees Chance To Jump On Larger Home Health Deals

Addus HomeCare Corporation (Nasdaq: ADUS) is bullish on its M&A pipeline across all segments, its value-based care strategy and favorable rates across some of its markets.

Perhaps more important than anything, however, is its leaders’ belief that the company has turned the corner on hiring.

In the third quarter of this year, Addus’ hires per business day were up 3% compared to the second quarter, and up 14% year over year. This in stark contrast to what the company was experiencing earlier in 2022.


“We are seeing improved hiring trends in October, with hires per business day running ahead of our third quarter 2022 performance,” Addus CEO Dirk Allison said on the company’s third quarter earnings call Tuesday. “We are seeing improvement over the last few months with an increased ability to hire new clinicians, as well as a modest reduction in our clinical turnover numbers.”

The Frisco, Texas-based Addus is a provider of namely personal home, as well as home health and hospice services. It currently serves approximately 46,500 consumers through 207 locations across 22 states.

Net service revenue for Addus in the third quarter totaled $240.5 million, an 11% increase compared to the approximately $216.7 million it brought in over the same time period in 2021.


Addus continues to invest in technology that the company believes will help the company with sourcing, hiring and the onboarding process.

Allison also acknowledged that hiring was tougher within home health and hospice, but that trends were headed in the right direction for each segment of the business.

“During our third quarter, the funding we received from the American Rescue Plan Act has allowed us to begin to increase caregiver wages, pay sign-on and retention bonuses, or provide one-time bonuses to current caregivers, depending on the state program,” Allison said. “This has been helpful with our recruitment efforts over the past quarter, and should help our hiring and retention efforts as we have a significant portion of these dollars still to be utilized.”

Addus has been recently trying to bolster its home health footprint as it tries to build out home health, hospice and personal care capabilities in the markets it serves.

Therefore, the home health final payment rule – announced Monday – is also applicable to them.

“We were excited by the CMS announcement yesterday of a slight 0.7% increase for 2023,” Allison said. “While this increase is smaller than we would like to see, we are appreciative of the change by CMS, moving away from the proposed decrease of 4.2%.”

M&A plans

Throughout the call, Addus leaders remained lukewarm on the home health payment rule for 2023. While the largest cuts were avoided for now, stakeholders are still unhappy with looming behavioral adjustment cuts both in 2023 and past that.

Still, from Addus’ perspective, clarity allows them to move forward with more home health deals. Most recently, it announced that it had acquired the Chicago-based Apple Home Healthcare in early October.

“We expect to be able to take advantage of more home health care acquisition opportunities that should occur now that the final rule has been published, as we remain well capitalized,” Allison said.

While it has delivered on smaller deals across its segments year to date, the company could be on the brink of some larger deals.

“We are now starting to see a number of larger assets being brought to market and we expect to see more of these scale opportunities in the coming months,” Allison said.

Over the next 12 to 24 months, the focus will be mainly on larger home health and personal care deals. For hospice, the company will continue searching for smaller deals as they see fit in the markets where they already have hospice operations.

“Addus remains well positioned to leverage the growth opportunities ahead in home-based care, while being largely insulated from the most significant downside fundamental risks facing the sector in 2022-2023,” an analyst note from Stephens read. “More specifically, Addus’ home-based personal care business (~75% of 3Q revenue) should benefit from improving caregiver hiring trends and a strong Medicaid funding backdrop in the second half of 2022 and 2023.”

Value-based care and Medicare Advantage

Part of what Addus is excited about when it comes to home health care is its ability to complement personal care in markets where it has value-based contracts.

The company currently has four value-based contracts across three states.

“We have recently received positive feedback from our value-based care partners, as our personal care and home health teams have improved patient results,” Allison said. “In addition to our four current contracts, we are working on two new opportunities, which should start early in 2023.”

Though those contracts remain “relatively immaterial” today, Addus leaders are confident in them making a larger impact in the next few years.

The same goes for Medicare Advantage (MA) opportunities.

“Besides being able to provide good care under these contracts, [the goal was to] have the ability to take the information we learned over a period of a year or more, and be able to move that into other areas of the country where we have personal care and home health,” Allison said. “And as we move around the country in some of our strong markets, that’s where you’re going to see our ability to interface with Medicare Advantage payers.”

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