Addus HomeCare Corporation (Nasdaq: ADUS) has reduced turnover and delivered on important acquisitions over the past few months. Still, a home- and community-based services (HCBS) proposed rule is hanging over its head.
That rule, of course, includes the 80/20 provision, which would see the Centers for Medicare & Medicaid Services (CMS) mandate that 80% of HCBS reimbursement go toward caregiver wages.
Addus has advocated against that provision since it was proposed in April, arguing that HCBS markets in each state vary too much to apply a blanket rule. The company’s leaders have also suggested that, if the provision was finalized, Addus may exit certain markets and other mom-and-pop providers would be forced out of business.
“I want to take a moment and bring you up to date on the status of the CMS proposed Medicaid access rule,” Addus CEO Dirk Allison said Tuesday on the company’s third-quarter earnings call. “At this time, CMS continues to review the more than 2,000 comments submitted to the proposal before issuing a final rule. The comments submitted to CMS, including those from a broader array of state Medicaid agencies, overwhelmingly call for the administration to rescind the part of the proposed rule requiring that 80% of the Medicaid payment providers go to direct caregiver wages.”
The Frisco, Texas-based Addus currently provides home care, home health and hospice services via 220 locations across 22 states.
Providers are expecting a final rule to be published late in the first quarter of next year or early in the second quarter, according to Allison.
“States, along with others who submitted comments to the proposed rule, generally cite both the inherent challenges to a one-size-fits-all approach and a lack of data to support the likelihood of the 80% mandate increasing access to care for Medicaid beneficiaries as the reasons for the call to rescind it,” he said. “Similar calls to rescind the 80% mandate are coming from Congress, including in the House’s Energy and Commerce Health Subcommittee hearing held on Wednesday of last week.”
Addus is not currently clear on whether the proposed rule will be “materially changed” prior to being finalized. The company does expect, however, that if the rule is finalized as proposed, there will be “legal challenges from one of more states.”
Meanwhile, Addus performed well in the third quarter. Its net service revenue totaled $270.7 million, a 12.6% year-over-year increase. Personal care revenue grew from $179.2 million to $201.9 million. Home health revenue increased from just under $10 million to $15.7 million, while hospice revenue increased from $51.4 million to $53.1 million.
Great hiring signs
Addus’ quarter was highlighted by improved hiring numbers across the board. The company averaged 84 hires per business day – up from 81 in the second quarter – and continued to improve the number of workers starting per business day.
“In addition to our strong hiring numbers, we continue to see improvement in our starts per business day,” Allison said. “While it’s important to increase our hires, making sure these hires actually start caring for consumers is a key contributor in the past few quarters to our growth in personal care.”
Hiring in the clinical segments also improved.
But, as is generally the case with Addus’ hiring numbers, those segments lagged behind personal care.
“Hiring in our clinical care segment has also improved, but does remain more challenging than in our personal care segments, with certain or difficult urban markets impacting our home health and hospice growth rates in those markets,” Allison said.
The personal care segment’s same store revenue growth was 13.9% compared to the third quarter of 2022. Same store hospice revenue growth checked in at 3.1%, while home health decreased by 8.8%.
On the home health front, that decrease was expected. Addus has been declining referrals from certain payer sources that aren’t paying what it considers fair rates for services.
“We continue to reduce admissions from payers that do not currently reimburse us adequate rates to cover our cost,” Allison said. “While we did see lower admissions primarily due to intentionally limiting admissions from these non-strategic Medicare Advantage plans, we did see a sequential increase in home health volume of 5.5% as a result of some incremental contract pricing success and improvements in clinical staffing.”
Overall, Addus leaders expressed optimism over the rate increases it was seeing for HCBS in the markets it operates in.
The M&A trail
In August, Addus finalized its $106 million deal for the home-based care provider Tennessee Quality Care.
That acquisition was in line with the company’s longstanding M&A strategy to build out all three legs of the stool in its markets, increasing its value-based care capabilities on the way.
“This is an example of the type of acquisition that is squarely within our strategy of providing all three levels of home care and building density in strategically important states,” Allison said.
In regards to value-based care, Addus has been gathering data to prove its worth to payers.
That data is becoming mature, and is helping build up Addus’ value proposition.
“We have been able to demonstrate a material reduction in emergency room visits, as well as the percentage of patients which were readmitted to the hospital at both 30- and 90-day intervals,” Allison said. “In addition, we have been able to help with the improvement of HEDIS scores and the closure of care gaps relating to these patients.”
Moving forward, Addus plans to continue looking for assets like Tennessee Quality Care, which can bolster its value-based care efforts across the country.
It currently has three states where it can provide all three levels of care – home health, hospice and home care – effectively, according to the company.
“Over the past few months, we have continued to see limited strategic opportunities in both personal care and home health due to the reimbursement uncertainty that exists in each of these segments,” Allison said. “As we have more clarity around these particular issues, we believe that we will start to see increased acquisition opportunities in these segments that will meet our strategic objectives.”