Addus HomeCare Corporation (Nasdaq: ADUS) is performing well. But, to perform better, it wants to grow its home health segment and more fully engage in value-based care contracting.
Now, Chairman and CEO Dirk Allison sees M&A as one of the key focuses in the near-term future.
Also top of mind for Allison is the continuing ability to keep turnover rate down and payer diversification.
Home Health Care News recently caught up with Allison, who expanded on these topics and more during the course of the conversation.
HHCN: Addus has been looking to grow its personal care and home health segments for some time now. What are some of the ways you are hoping to achieve that?
Allison: Well, there’s two ways that we’ve talked to our investors about growing. Obviously, there’s organic growth. With personal care, specifically, that really depends on the ability to add caregivers. During the pandemic, it has been a little bit tough because some of them were scared to enter the home. A lot of our employees were the recipients of the extra unemployment benefits. Certainly they got the rebate checks. This made it difficult to hire.
Starting in 2022, after that January and February omicron wave, every month since then, we have seen strong growth in our ability to hire caregivers for our personal care business.
We’re also looking to acquire personal care providers. It’s difficult because of the market, but we’re certainly trying to do that.
During earnings calls, you’ve been open about the challenges Addus is seeing regarding M&A. Can you expand on some of these headwinds?
If you go back a year and half, or two years, it was an extraordinary time of valuation. I think what happened is individuals that had companies they wanted to sell got used to those higher prices. Now, they are back down to a more normal range. Sellers haven’t really come around just yet to the fact that the values are coming down. That is one of our biggest issues.
Another is that with owners, who are mainly small mom and pops, the difficulty there is getting their due diligence. Those are the main challenges we’re talking about — valuation and then due diligence.
Do you see this changing anytime soon? Why or why not?
I think it will change over the next year or so because I don’t expect the valuations of public companies to go back to where they were.
I think that the longer that we’re down at the lower valuations, the greater the chance that sellers and brokers will realize that this is just the way it is today. We’ve seen a lot of smaller deals that are starting to recognize valuation change. The larger deals are what we’re waiting on, and so far they’re still struggling with selling an asset at a lower rate than they could have a year ago.
Turnover rate has been a major success at Addus. Recently, Addus CFO Brian Poff said that likely the company could not improve on that 55% number, however. Why is that, and are you confident you can keep it down at that level?
We will continue to try to lower it below that 55%.
Our goal is not to say, ‘We’re there and we’re going to stop.’ I think what Brian was trying to say is that it’s difficult in this world, especially in personal care. People work for about 20 hours a week, so for those that need full-time work it’s difficult for them to get it with one company.
In your view, has the Medicaid landscape been fruitful to your business this past year? Why or why not?
The Medicaid world has really been fruitful the last six or seven years since I’ve come on board as the CEO of Addus.
States have started to recognize, even more so than before, the value of not only taking care of the elderly in their home, which is the safest place, but also the value of paying more to the caregivers. They’ve recognized this by giving us rate increases, which allows us to pay caregivers more. This allows our caregivers to be able to make a living.
At the same time, it allows us to try and keep the elderly population out of nursing homes that could prove to be more expensive. I have been very pleased, I think the industry has been pleased.
Does states having a rosier financial outlook change any near-term plans for Addus? In other words, is there a change in M&A Strategy or otherwise because a payer source looks more viable long term?
We’ve never stopped our M&A over the last seven years. We’ve really been a diligent buyer of companies, because we saw the value of the programs. We lived through the tougher days of the state of Illinois’ financial situation about five years ago. Even during the pandemic, every state in which we operate did their very best to pay us in a very timely manner.
Then, of course, the states got a lot of money from the federal government, which just solidified their budgets. We feel very comfortable that states are still in a pretty good spot. We will continue to try to acquire during that period of time because we think the personal care market is a great market.
How important is payer diversification to Addus? What are you doing to move towards this?
It’s very important.
Probably as much as almost 80% of our payments came from the state of Illinois , so it was our goal to reduce that. Today, we’re less than 35% from Illinois. We also now have 25% of our business from the federal government. We think shareholders understood the value of diversifying.
Value-based contracts have become increasingly important to Addus. Where are you at with these, and how integral is it to build out home health to aid those?
We’re getting more and more involved with value-based care. We currently have five contracts covering about 800 individuals. We’d like that to continue to grow. We’re working with various payers, mainly in pilot programs to either share savings or get bonuses for closing certain care gaps.
To do that, you need additional training for your personal care staff, so that they recognize changes in condition. It’s also important that clinical assets are available, so that they can go into the home and do some of the things that maybe are necessary while making sure that we’re reporting to the case managers in a timely manner. We’re committed, we’re looking at some new software to continue to help us gather these changes in conditions.
Value-based is something that is not material today because of our size, but we do believe in the next five years or so, it will continue its growth and its materiality for our company.