Addus HomeCare Corporation (Nasdaq: ADUS) is not as worried about the future of home health care.
While home health providers across the country are scrambling to advocate against – and adjust to – payment rate cuts, Addus leaders are looking for more opportunities to broaden the company’s home health reach. They also believe the rate adjustment will normalize in the near-term future.
“While home health has only seen a proposed rate, hospice recently saw a slight improvement in the final rate for the coming year,” Addus CEO Dirk Allison said on the company’s second-quarter earnings call Tuesday. “We are hopeful that the final home health rule, when published, will more appropriately reflect our increased costs. However, we believe that these reimbursement pressures are likely to moderate over the next few years.”
The Frisco, Texas-based Addus provides personal care, home health and hospice services to approximately 47,500 consumers through 204 locations across 22 states.
“As such, we will continue to look for [home health] acquisition opportunities that are strategic to our overall growth,” Allison continued.
For context, home health care has traditionally been Addus’ smallest segment. Personal care makes up for over three quarters of the company’s revenue, with hospice making up the majority of that last quarter.
But that’s beginning to change as the company tries to lean further into value-based care efforts. To become more value-driven, Addus is layering home health and hospice on top of personal care capabilities in key markets.
A recent and prime example of that is the $106 million acquisition of the home health provider Tennessee Quality Care. The deal gives Addus all three legs of the stool in Tennessee, which is also of note because it is a certificate-of-need state for home health care. Addus can now provide all levels of care in three states, Allison said.
“This is a very strategic acquisition for as it allows us to offer all three levels of home-based care in an attractive market,” he said.
Moving forward, Addus plans to be on the lookout for other “highly strategic” acquisitions similar to its latest one.
In the quarter, home health revenues actually declined 10.9% on a same-store basis year over year, however. That’s due to another internal strategy, one most of the larger home health providers are deploying now.
“Our revenue decreased by 10.9% over the same quarter in 2022 as we continued to reduce admissions from payers that do not currently reimburse us adequate rates,” Allison said.
Conversely, personal care revenue soared. Addus saw 12.6% year-over-year organic growth in revenue on a same-store basis in the quarter. Hospice, meanwhile, decreased slightly year over year.
Overall, Addus’ revenues came in at just below $260 million in the second quarter, a 9.7% year-over-year increase.
“Addus’ Q2 results — that included good core growth, modest beat on top line and EBITDA — underscore the reason why investors should own the stock,” Jefferies wrote in an analyst note. “The company predictably and consistently delivers positive earnings surprises, driven by solid execution from management, as well as compelling sector fundamentals. As the labor market continues to improve, we expect Addus’ KPIs to firm up further and translate to better margins and earnings power/growth.”
Labor improvements
On top of everything else, Addus has also seen significant, positive trends in labor over recent months.
In the quarter, Addus averaged 81 new hires per business day.
Its new candidate management system has shortened the time between application and hire by as much as 10 days on average, according to Allison.
“Finding ways to continue reducing the timeframe between application and the first client visit is an area we will continue to focus on to help us meet our growth targets,” he said.
While personal care hiring is improving, clinical hiring in home health and hospice is still lagging behind.
“We have seen modest improvements compared to this time in 2022,” Allison said. “While hiring our clinical segment continues to improve overall, there are certain markets that have been more difficult, and that has impacted our growth in those markets.”
Personal care hiring could also be affected by a Medicaid proposed rule that would mandate that 80% of personal care reimbursement go directly to workers.
Addus has advocated against this blanket rule, both publicly and directly to the Centers for Medicare & Medicaid Services (CMS).
For now, the company is hoping CMS will change course before the rule becomes final. If it does become final – in similar form to how its proposed – Addus would consider leaving certain states, Allison said.
“Once we see what the final rule entails, there are things we can do,” he said. “We’ll look at states, which maybe due to the rule, limit your ability to properly operate in that state. And we will potentially look at moving out of those states if necessary. We don’t really want that to be the way the operations end up. But certainly, if the rule forces that, we will look at it.”
On the flip side, Addus would also look to gain a stronger footprint in the markets and states where the rule “works,” as Allison put it.
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