Addus HomeCare Corporation’s (Nasdaq: ADUS) personal care segment is steadily growing, its labor situation is improving and its value-based care contracts are expanding.
All of those realities were temporarily overshadowed during the last week, however, as the Centers for Medicare & Medicaid Services (CMS) proposed a rule that would require at least 80% of Medicaid payments for personal care, homemaker and home health aide services be spent on compensation for direct care workers.
“This proposed rule has a stated goal of improving access to services for Medicaid beneficiaries, which we strongly support,” Addus CEO Dirk Allison said on the company’s first-quarter earnings call Tuesday. “But while we agree with the goal of broadening coverage, we question the specific approach proposed and the target threshold, as there are inherent challenges at setting a one-size-fits-all minimum percentage.”
The Frisco, Texas-based Addus provides home-based care services to approximately 47,500 consumers through 203 locations across 22 states.
The issue with the one-size-fits-all approach, which Addus explained to Home Health Care News previously, is that there is a wide variance in state waiver programs for home- and community-based services (HCBS).
A strict percentage would impact providers far differently based on size and the state they operate in. That’s especially true for small providers in rural areas of certain states, Addus leaders argued.
“These challenges, if not properly considered and addressed, may have the opposite effect intended by the proposed rule by inadvertently reducing access to services,” Allison said.
The 80% number is the first consideration. What is also a consideration, though, is what is included in that number. For instance, Addus wants to know whether investments that have a direct impact on workers – such as costs pertaining to training and electronic visit verification (EVV), for instance – will be considered a part of that 80%.
If implemented, the rule would be phased in over four years. Addus has plenty of experience with advocating efforts focused on better HCBS operating environments, but those have generally taken place at the state level.
This effort will take place on the federal level. But Addus will not go at at alone, as the forthcoming comment period will likely attract HCBS voices from across the country.
Allison said that Addus expects clarity on the final rule between October and December of this year.
“We are encouraged that HHS recognizes both the complexity of implementing any such provision by proposing a four-year timeframe before implementation is required, and the willingness of HHS to entertain comments regarding both the appropriate minimum percentage and the components to be included in the calculation of any such approved percentage,” he added.
The potential Medicaid changes come during a strong personal care growth period for Addus. In the first quarter, the company pulled in $190 million in personal care revenue, a 12% year-over-year increase.
One of the factors the company has been focused on as it grows the segment is the percentage of authorized hours served. That number decreased in the early days of the pandemic for Addus, both due to high hospitalization rates and an increase in call-offs.
The percent of authorized hours served has now increased over the past three months for the company, and Allison said it is “an important opportunity for growth” and a 2023 focus for the operations team.
Overall, Addus’ revenues totaled $251.6 million in the first quarter, a 11% year-over-year increase. Hospice revenue totaled $49 million, a 2.8% year-over-year increase. Home health revenue was $12.5 million, marking a 34.6% year-over-year increase.
M&A outlook across segments
Addus’ growth goals over the last few years have been clear. The company wants to continue to grow its largest segment – personal care – while layering on home health capabilities across its network to bolster value-based care abilities.
Now, there’s the aforementioned proposed rule in Medicaid to consider, as well as the looming proposed payment rule for Medicare-certified home health care.
“While our goal is to use our financial capacity to acquire strategic operations that align with our overall growth strategy, we will continue to be diligent with the use of our capital,” Allison said.
Specifically, Addus is pausing its M&A strategy in personal care until further notice.
“While we continue to believe strongly in our strategy of pairing home health care with personal care, we believe it is prudent to focus on modifying this proposed rule prior to our continuing development efforts in the personal care market,” Allison said.
He added that he does believe the personal care industry is ripe for consolidation.
Addus leaders also believe that there will be “larger opportunities” for acquisitions in the coming months in home health care, once the proposed rule is released and “seller pricing expectations are rationalized.”
“Don’t expect that we’re not going to do deals in the home health market just because of the pending issue related to the payment rates and potential clawbacks,” Allison said.
Encouraging labor metrics
Over the past few quarters, the labor environment has improved for Addus.
In the first quarter, the personal care segment averaged 84 hires per business day, a 9.1% increase from both Q1 and Q4 of 2022.
Clinical hiring has also improved, though more modestly.
“While hiring in our clinical segment has been more challenging than in personal care, we continue to see modest improvements as compared to this time in 2022,” Allison said. “While challenges do remain in certain American political markets, we expect this overall positive hiring trends to continue throughout the year.”
In addition to macro factors, Addus is crediting its new candidate management tracking system for its improved staffing results. That system will be fully implemented by mid-2023, but has already paid dividends, according to the company.
The system shortens the time between application and hire and allows Addus to “better engage” with potential employees.
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