Aveanna Healthcare Holdings (Nasdaq: AVAH) is still facing headwinds brought on by a difficult labor environment. Its leaders said that has been one of the key challenges the company has faced on its road to growth.
“Our business model offers a preferred work setting that is mission driven, providing a deep sense of purpose for our teammates,” Aveanna CEO Jeff Shaner said during the company’s third-quarter earnings call Thursday. “However, our caregivers need to be able to provide for themselves and their families in this inflationary environment. We must offer a competitive wage.”
Based in Atlanta, Aveanna provides home health, hospice and pediatric care services across 42 states.
Shaner noted that Aveanna’s ability to recruit and retain the best talent is dependent on rates.
In this regard, Aveanna has seen progress around rate improvement initiatives with both government and managed care payers since Q2.
Specifically, Aveanna has obtained double-digit private-duty service rate increases in eight states. The company also saw wins in 11 other states that were in line with, or better than, their expectations. In total, the 19 states represent 55% of Aveanna’s private-duty service footprint.
“We should continue to see positive progress throughout 2023 and into 2024, as we continue to focus on the remaining states,” Shaner said. “As a point of reference, the majority of the rate increases are effective in the second half of 2023, which will result in a full year benefit as we head into 2024. While we are pleased that our [private-duty service] legislative messaging is being well received by state legislatures, we still have much work to do.”
Shaner pointed to two specific states in Aveanna’s market that will require more attention.
“We received a modest increase in Texas, effective September 1, and do not anticipate being included in the California budget until fiscal year 2025,” he said. “We believe that we made significant strides with both the Texas and California legislature demonstrating the importance of rate increases, and how they support an overall lower health care cost, improve patient satisfaction and quality outcomes. However, it is clear that we need to further accelerate our preferred payer strategy and continue to focus on opportunities within our current infrastructure to allow us to pass meaningful wages through to our caregivers.”
In Q3, Aveanna added two additional preferred payer agreements, which bumped up its total to 12. The company’s preferred payer volumes increased to 17% of its total private-duty service volumes.
“We are optimistic that we will continue to execute on this strategic initiative as we head into 2024,” Shaner said. “While we are taking a national approach to our [private-duty service] preferred payer strategy, we are placing particular focus on the state of Texas due to the moderate rate increase, and intensifying our ability to shift caregiver capacity to our preferred payers.”
When it comes to preferred payer progress on the home health side, Aveanna’s 2023 goal was to improve its episodic payer mix by 10%.
To date, the company has signed six new episodic agreements, and improved its episodic mix from 63% at the end of 2022 to 75% in Q3.
Aveanna spent the quarter continuing initiatives to shift its caregiver capacity to the company’s preferred payers, in an effort to relocate its current labor capacity to “payers that value” its services.
“Our preferred payer relationships benefited from accelerated caregiver hires of approximately three times more than our other payers, and we continue to experience staffing rates approximately 20% to 25% greater with significantly higher patient admissions,” Shaner said. “These positive labor trends have continued into the fourth quarter, and further validate our preferred payer strategy. Preferred payers reimburse us a fair rate, and we pay market competitive wage rates, while also earning value-based payments for achieving positive clinical outcomes and improved caregiver capacity.”
Aveanna’s revenue for Q3 was $478.0 million, a 7.9% increase compared to $443.0 million during the same period last year.
“We experienced revenue growth in all three operating divisions led by our private-duty services, medical solutions, and home health and hospice segments,” Matt Buckhalter, interim CFO at Aveanna, said during the call.
The company’s private-duty services segment brought in $385 million in Q3, an increase of 8.2% compared to $356 million in Q3 2022.
Revenue for Aveanna’s home health and hospice segment checked in at $53 million, a 6.3% increase compared to $50 million during the same period last year.