Addus HomeCare Corporation’s (NASDAQ: ADUS) hospice segment is seeing slow but steady improvement as pandemic headwinds ease. Meanwhile, the company’s near-term acquisition sights are set more on home health than in personal care amid potential payment shifts.
Like many hospice providers, Addus has faced COVID-19 challenges that include reduced patient volumes and shorter length of stays.
The pandemic’s impact on these two fronts is starting to dissipate, according to Addus CEO and Chairman Dirk Allison.
“Our hospice business has been slower to recover to pre-pandemic levels, but we saw a modest improvement this quarter compared to a year ago,” Allison said during a Tuesday conference call on Addus’ first quarter financial results. “We expect to see further gradual improvement in our hospice business, particularly in the second half of this year. We believe that hospice volumes will continue to steadily improve.”
Pandemic forces winding down in hospice
Addus provides home health, personal care and hospice to about 47,500 patients across roughly 203 locations in 22 states.
The close of last year had Addus facing “a little bit of bumpiness” in its hospice segment, which company leadership anticipated to trickle over into the first half of 2023.
In Q1 2023, Addus’ hospice segment brought in $49.08 million in revenue, a 2.6% increase compared to the same period last year. This also represented 19.5% of the company’s $251.6 million in overall revenue during the first quarter.
Hospice outperformed the company’s home health segment, which brought in $12.49 million in revenue in the first quarter. Its personal care services arm reached $190.03 million, which accounted for 75.5% of Addus’ bottom line.
Addus’ hospice average daily census reached 3,195 in Q1, a slight dip from 3,320 during the previous year’s period. Hospice length of stay reached an average of 87.7 days in the first quarter, a slight increase compared to 84.1 days during the same period in 2022.
The public health emergency is slated to end on May 11. In turn, the provider anticipates that related pain points on census and length of stay may ease, according to Addus Vice President and COO Brad Bickham.
“There are certain things that will go away with the public health emergency that should help with our average daily census,” Bickham said, specifically pointing to nursing home policies. ”We have seen an impact [from] those rules where our median length of stay is much lower during the pandemic. We expect that to start to rebound after the end of the PHE, which should help our census growth.”
Addus is striving for a 5% to 7% hospice census growth goal in the long term, pending any reimbursement changes on the horizon, Bickham added.
Home health a larger hunk of Addus’ M&A efforts
As far as Addus’ M&A strategy, hospice has taken up a smaller part of the mix.
The last major hospice transaction for Addus came early last year with its $85 million purchase of the Illinois-based nonprofit hospice provider JourneyCare Inc.
The company has taken a two-pronged growth approach as it expands in the personal care and home health spaces.
Addus is slowing its acquisitional efforts related to personal care targets at this time as the dust settles from a proposed rule from the U.S. Centers for Medicare & Medicaid Services (CMS) announced last week, according to Allison.
CMS unveiled several Medicaid-related proposals that the agency believes would bolster access, accountability and transparency in home- and community-based services (HCBS). Proposed changes, for example, include requiring 80% of Medicaid payments to be spent on compensation for personal care workers and those who provide similar services.
Due to the wide variance in state waiver programs, any changes that make their way into the final rule may directly impact and increase the burden on providers to offer HCBS in certain areas, according to Allison. Other provider leaders have echoed similar remarks.
As a result, M&A activity in the personal care services realm may be slower than anticipated this year, with home health assets potentially taking a larger focus for Addus.
“While we continue to believe strongly in our strategy of pairing home health care with personal care, we believe it is prudent to focus on modifying this proposed rule prior to our continuing development efforts in the personal care market,” Allison stated.
For now, Addus is pausing its efforts related to acquisitions in personal care services, he indicated. Once the final rule is released, the company will evaluate where to strike a balance in picking up home health and personal care assets, he added.
“We believe that the [personal care services] market is one that’s going to be ripe for consolidation,” Allison said. “That being said, don’t expect we’re not going to do deals in the home health market just because of the pending issue related to the payment rates and potential clawback. As for potential home health acquisitions, we believe larger opportunities will be more numerous in the coming months as pending CMS pricing updates and proposals are better understood, and as sellers pricing expectations rationalize.”
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