Leaders with Addus HomeCare Corporation (Nasdaq: ADUS) are closely watching the potential changes to the Medicaid program being discussed by the new administration and Congress.

Addus CEO Dirk Allison pointed out a wide variety of potential areas that have been identified to reduce federal spending on Medicaid, including per capita caps lowering of the FMAP floor, penalties related to coverage of undocumented immigrants, limiting Medicaid provider taxes, and more.

“The aggregate federal savings of this list, if implemented, could be as high as $2.3 trillion over a 10-year period of time,” Allison said on Tuesday during Addus’ fourth quarter earnings call. “However, it is believed that a number of these items on the list cannot be implemented concurrently. Also, the most recent House of Representatives budget resolution includes a health spending reduction of $880 billion over 10 years, rather than the $2.3 trillion, but provides no details regarding specific spending reductions.”

Based in Frisco, Texas, Addus provides home care, home health and hospice services to over 62,000 consumers through 257 locations across 23 states.

In general, Allison believes that most of the areas that have been identified as ways to reduce federal spending won’t directly impact the population that Addus serves.

However, Allison noted that the lowering of the FMAP floor would impact a number of states with a relatively higher earning population, as they will receive less matching funds.

“The only states we serve that could be impacted by the lowering or removal of the FMAP floor would be California and Washington, [whose] combined Medicaid revenue represents approximately 2% of our total consolidated revenue,” he said. “While proposed changes to federal Medicaid funding [would] shift additional costs to the states, we are optimistic that there is sufficient bipartisan support for the services we provide to avoid significant reductions at the state level.”

While it’s tough to predict if any of these measures will be implemented, Allison referred to the likelihood of passage out of committee, and then the House, as “tall orders.”

“Our government relations team believes passage in the Senate will be daunting, even at this level of reduction,” Allison said. “In fact, the Senate is pursuing its own budget resolution that contemplates significantly lower spending cuts to the Medicaid program, again, with unknown results.”

Overall, Allison emphasized the importance of Medicaid and the role it plays in creating access to care for the population the company serves.

“Medicaid is a valuable state and federal lifeline to the extremely at-risk population that we serve, which, if cut, could lead to much higher total cost of care for both states and the federal government,” Allison said. “At Addus, we are focused on our strategy of expanding our services to this population as it relates to home care, which we believe remains valuable to both our states as well as Congress and this administration. We are encouraged by the bipartisan congressional comments opposing cuts to the Medicaid program.”

Furthermore, Addus believes it is well-positioned to minimize any impact resulting from the budget proposal presented by the House of Representatives.

Personal care drives growth

For Q4 2024, Addus’ net service revenues increased 7.5% to $297.1 million, compared to $276.4 million for the fourth quarter of 2023.

“Our personal care services segment was the key driver of our business with a solid 5.8% organic revenue growth rate over the same period last year,” Brian Poff, executive vice president and CFO at Addus, said during the call. “This growth trend has consistently tracked well above our normal expected range of 3% to 5% this year. These results were supported by strong hiring trends and favorable rate support for personal care services in some of our larger markets.”

Poff also noted that, going forward, the company will benefit from the statewide reimbursement increase in Illinois, which will contribute $23 million in annualized revenue.

Though Addus exited the New York market last spring — by offloading its local operations to HCS-Girling — it received $3.5 million in retroactive rate increases from the state, as a result of the company’s previous reimbursement rate appeal.

Overall, Addus’ adjusted fourth quarter EBITDA of $37.8 million beat analysts’ projections by about 1%, thanks to higher revenue, Stephens analysts noted. In terms of headwinds, labor pressures and costs continue to exert pressure.