Addus More Bullish On Looming 80-20 Rule, Ready To Ramp Up M&A In 2024

Addus HomeCare Corp. (Nasdaq: ADUS) leaders expressed noteworthy optimism in two areas Tuesday: the pending “80-20” rule and their M&A forecast for the near-term future.

Those two items may be related, and they may not be. But Addus CEO Dirk Allison and COO Brian Poff reiterated time and again that the company would be actively searching for acquisition targets, whether in home health care or in personal care.

Though Addus has historically been a very disciplined provider in M&A, it appears that could manifest as disciplined aggression in 2024.


“We anticipate seeing additional acquisition opportunities coming to market over the next several quarters,” Allison said on the company’s fourth-quarter earnings call. “It remains our primary focus to use our financial capacity to acquire strategic operations that align with our overall growth strategy of offering all three levels of home based care in our personal care markets.”

Based in Frisco, Texas, Addus provides personal care, home health care and hospice to more than 49,000 consumers via its 217 locations across 22 states.

The company has been consistent with its strategy over the past year or two. That strategy is to layer home health and hospice capabilities on top of personal care in key markets. That, its leaders believe, will allow it to unlock value-based care contracts in those markets.


For context, personal care represents about 75% of its revenue, with home health and hospice making up 6% and 19%, respectively.

It already has ramped up home health M&A, namely through its acquisition of Tennessee Quality Care last summer and its acquisition of the Chicago-based Apple Home Healthcare in late 2022.

There’s seemingly a lot more where that came from. Specifically, the company is looking for companies with profiles “similar” to Tennessee Quality Care.

“We believe that traditional Medicare home health Reimbursement pressures are likely to moderate over the next few years,” Allison said. “And we will continue to look for home health acquisition opportunities that are strategic to our overall growth.”

Though Addus leaders’ tone around M&A was even more optimistic and pointed on Tuesday, the company also mentioned potential personal care deals in the pipeline more often.

“We are optimistic that we will see additional attractive acquisition opportunities in 2024,” Allison said. “We are currently in the process of looking at personal care opportunities, which would give us a larger presence in a number of our current states. We are also looking for opportunities where we can enter new states in a material way.”

In the fourth quarter, Addus’ overall net service revenues grew by 11.9% year over year, to $276.4 Million. For the full 2023, net service revenues were just over $1 billion, representing an over 11% increase compared to 2022.

Personal care revenues in the fourth quarter saw an 11.5% year-over-year increase. Home health revenue increased by over 31%, while hospice saw an 8% increase.

“We maintain our positive view on ADUS and point to its above-Street Q4 results as validation of management’s continued ability to execute and deliver healthy growth and modest positive earnings surprises,” an analyst note from Jefferies read. “We expect capital deployment to shift to M&A — which should boost growth and valuation and yield more meaningful EBITDA upside — once regulatory visibility emerges (possibly in the Spring).”

The 80-20 rule

Home- and community-based services (HCBS) providers like Addus have been waiting for final clarity on the “ensuring access to Medicaid services” proposed rule put forth by the Centers for Medicare & Medicaid Services (CMS) last year.

As proposed, the rule would mandate 80% of all the HCBS reimbursement providers receive go toward caregiver wages.

Allison said he expects that clarity in April, a year after the proposed rule was first introduced.

“The contents of a final rule are unknown at this time, and could be significantly different than the proposed rule,” he said. “While we aren’t sure whether this rule will contain the 80% requirement, a different percentage requirement, or ultimately be implemented, we would not be surprised to see the four-year implementation period extended.”

Though Addus argued against the proposal rule vehemently, its leaders feel like the company is mostly set up well to deal with wage mandates if they are implemented.

“We do believe that a key for personal care providers to be successful with any minimum requirements for direct wages is to have scale in each state in which they provide care,” Allison said. “This will not only allow those providers to spread their costs over a larger revenue base, but also will provide more opportunity for meaningful patient advocacy within the state in which they operate.”

The company is still preparing for potential ripple effects from the rule, however.

Allison specifically mentioned more efficient scheduling as an area of focus moving forward.

Later on, an analyst asked Addus leaders if they were more optimistic about the 80-20 rule than they had previously been.

“We are more positive about the Medicaid access rule,” Allison said in response. “There’s been a number of comments from various stakeholders, including a number of the states, which are democratic states that are close to the Biden administration. I think the thing that we all understand about the Biden administration is they’re very supportive of the personal care industry, they want to make sure that our elderly and disabled population have greater access to care and not less care. So we continue to work through the comments of the rule, and look at our own situation in terms of how we would operate if various aspects of the rule are put [forth].”

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