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The home health industry is at an inflection point.
As any year comes to a close – especially 2022 – it’s one of the most interesting times to hear what executives are saying about their own companies and the industry at large.
Luckily, earnings calls and investor presentations have allowed us insight into what is top of mind for them.
In October, Home Health Care News offered up the perspectives of what five home health companies were focused on heading into 2023.
While those comments are still valuable, so much has changed in the last month.
In today’s members-only, HHCN+ Update, I examine some of the most interesting comments made by home health executives in recent weeks, and explain why they matter.
Medicare Advantage sweepstakes heat up
Every year, there are a few quotes that will make it into three or more stories on HHCN – they’re that reflective of the industry, that thought-provoking or that powerful.
No doubt, Amedisys Inc. (Nasdaq: AMED) CEO Chris Gerard’s comments following his company’s innovative deal with CVS Health’s (NYSE: CVS) Aetna was one of them.
“We are in active discussion with other plans for similar contracts or other value-based models,” Gerard said during the company’s third-quarter earnings call. “The remaining plans that have been unwilling to engage in models like this should take note. In a world where clinical capacity is at a premium, we will not work with payers who fail to see the value that we deliver and the quality outcomes we provide for their members.”
But what really will be really interesting to follow now is not just what Amedisys does to build on that momentum – its case-rate structured deal with Aetna – but what other home health companies do in response.
Enhabit Inc. (NYSE: EHAB) CEO Barb Jacobsmeyer was the first to react on the record.
“We don’t have the details of the contract, but you can imagine that day, we’re calling out and saying, ‘Hey, can we come back to the table? Obviously you’ve figured out a case rate, so we’d like to sit and talk,’” she said at the Credit Suisse Healthcare Conference Tuesday. “Certainly, if they’re able to go the route of episodic or case rate, we want to be at the table talking to them.”
If Aetna struck a deal with Amedisys that pays the home health provider in a more advantageous way, others – especially the larger companies – will come back to the insurer and say, ‘We want that.”
On its own, Enhabit is making significant progress with MA plans. But Amedisys opened a door for itself that may have also opened doors for others.
This will be a trend that could affect the entire industry in the next year, and it could – as I said last week – form a group of “haves and have nots” in home health care when it comes to those that have good MA deals and those who don’t.
HHCN just covered the struggles of Aveanna Healthcare Holdings Inc. (Nasdaq: AVAH) since its IPO in April of last year.
The company’s home health admissions dipped in the quarter, it readjusted financial expectations moving forward and also missed Wall Street expectations.
The admission slide, at least, isn’t reflective of the industry’s Q3 trend overall, as shown by private investment banking company Stephens and data from the Centers for Medicare & Medicaid Services (CMS).
Converting all of its systems to Homecare Homebase was in part – according to the company’s leaders – to blame for third-quarter struggles, as well as second-quarter struggles.
“We saw it’s not a demand issue. I think it’s really just a focus issue,” COO Jeff Shaner said on the company’s third-quarter earnings call. “I don’t blame our lack of admissions in the summer on Homecare Homebase, it was just the distress of moving four companies to one [platform]. We’ve been heads down on the Homecare Homebase implementation for almost a year, and I think it’s just been a distraction for the clinicians, the branch teams and the sales teams.”
On top of that, Aveanna has been adjusting its business model. Once – and still – a leader in pediatric home health care, the company has been building out its senior home health and hospice capabilities.
It has also wanted to be a leader in value-based care since the outset of that mission.
“Aveanna is a leader in value-based care, and while we’re confident that these decisions are the right long-term strategy for the company, we can see a short-term effect within home health and hospice,” CEO Tony Strange said Thursday.
To be frank, I don’t think Aveanna’s leaders are wrong about anything they’re saying. Having to acquire and build out a home health and hospice business tailored to seniors, convert to Homecare Homebase and lay down groundwork for value-based care capabilities in a year and a half is a tall task.
There were always going to be struggles, and I think Aveanna’s leaders knew that. As a public company, however, the modus operandi is not generally to lay out worst-case scenarios in every earnings call post-IPO.
The company’s third-quarter adjusted EBITDA came in 34% below Street expectations, which prompted the company to cut 2022 adjusted EBITDA guidance by 15% – $128 million from prior guidance of at least $150 million, according to Stephens.
Struggles may continue in the near-term, but I believe Aveanna chose to rip three or four Band-Aids off all at once, knowing it could clear its runway for future success in late 2023 and early 2024.
M&A in Q4
Perhaps not considering other factors, I actually opined in the summer that Aveanna and Addus Homecare Corporation (Nasdaq: ADUS) may have an advantage given the Medicare cuts that are likely coming in future years. After all, they are two of the more diversified home health providers from a payment perspective.
Addus itself has been wanting to land more home health companies through M&A for a while now. With the final rule out, it’s now in a position to do so.
Its leaders’ recent comments suggest the next two quarters could be big for them from an acquisitive perspective, now that the dust is settled.
“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,” Addus CEO Dirk Allison said on the company’s third-quarter earnings call Tuesday.
Enhabit COO Crissy Carlisle said the same about her company’s strategy moving forward, also noting that an unstable rate environment would be factored into a deal’s dollar amount – something sellers would have to understand as a prerequisite.
“From our standpoint, we’re certainly still interested in being acquisitive,” Carlisle said, also at the Credit Suisse Healthcare Conference Tuesday. “We do have certain criteria in regards to the acquisitions that we want to consider and we’re going to make sure they check all of those boxes if it’s a home health opportunity. Right now, we still believe that the best use of our free cash flow is to be acquisitive. It’s a long-term growth strategy and a long-term growth story.”
At least the final rule for 2023 offers somewhat of a “reprieve,” as Jacobsmeyer called it.
In fact, that reprieve will be worth about $30 million to Humana’s (NYSE: HUM) CenterWell Home Health this year, according to Humana CFO Susan Diamond.
As for LHC Group Inc. (Nasdaq: LHCG), it is likely to become an official part of UnitedHealth Group’s (NYSE: UNH) Optum in the fourth quarter. Once that’s settled, we’ll finally get to hear what their plan is for the next year and beyond.
Hiring trends upward
More important than almost anything, home health companies may be getting a small taste of the silver bullet they all crave, which is an improved staffing landscape.
“We are seeing improved hiring trends in October, with hires per business day running ahead of our third-quarter 2022 performance,” Allison said. “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.”
Specifically, Addus’ hires per business day were up 3% compared to the second quarter, and up 14% year over year.
Aveanna, disappointed with the rest of its results, pointed to that as one of the silver linings of the past quarter, too.
“As difficult a year as 2022 has been for us, I think you’ll hear optimism in our voices related to our nursing hiring and retention in our PDS segment and in our home health and hospice segment,” Shaner said. “Over the last 90 days, we have finally seen some positive hiring and retention metrics in our core nursing trends — specifically in our private-duty services segment.”