Staffing and reimbursement headwinds remain sticking points for Aveanna Healthcare Holdings Inc. (NASDAQ: AVAH) home health and hospice margins.
The company’s margins for that segment fell to 44.6% in Q1 from 48.7% during the same period in 2022. But payer relationships will be a key to thwarting these pressures, according to executives.
Though Aveanna’s home health and hospice segment has seen greater difficulty during the pandemic compared to its other business lines, the company remains optimistic about its long-term growth potential, according to CFO Dave Ashar.
“Although 2022 was a difficult year for our home health and hospice segment, we firmly believe in this business and its long-term value proposition,” Ashar said in an earnings call. “We have an established home health and hospice platform poised for growth focused on delivering value through sound operational management, and delivering excellence in patient care. We expect to see some sequential improvement throughout 2023 as our direct and indirect cost initiatives take hold.”
Atlanta-based Aveanna serves more than 40,000 patients annually across roughly 300 locations in 33 states. The company provides hospice, home health and private duty services. Aveanna also provides medical solutions and durable medical equipment, among other adult and pediatric health care services.
Aveanna’s revenue reached $466.4 million during the first quarter, a 3.5% rise year over year. The company’s private duty service brought in $372.9 million in Q1, a $22.8 million swell from the previous year.
While margins were up on the private duty side, revenues dipped in the company’s home health and hospice segment took a 15.8% dip to $56.1 million in Q1, compared to the prior year’s quarter. The segment saw improvement sequentially with a $1.4 million increase from Q4 2022.
The company is taking strides to reduce costs, including a focus on “enhanced payer partnerships,” which they expect to ease some of the margin compression, CEO Jeff Shaner indicated.
“We would not be surprised if Q2 is slightly negative, and even if potentially Q3 was slightly negative or break even,” he said during the earnings call. “The value proposition is straightforward. Preferred payers reimburse us a fair rate. We pay market competitive nurse wage rates, while also earning value based payments for achieving positive clinical outcomes and improve staff hours.”
Hospice and home health patient volumes saw a continued positive upswing. Aveanna had a total of 11,900 home health and hospice admissions during Q1, with a weekly average of 900 admissions compared to the low 800s during Q4 2022.
Staffing volumes saw progress as well, though slower than anticipated when it came to new nurse hires. This is in part due to reimbursement rates not keeping pace with inflation, a bane on the company’s ability to offer competitive wages that attract and keep clinical staff, Shaner said.
“We continue to experience staffing rates 15-to-20% greater with significantly higher patient admissions,” he said during the earnings call. “In March, we felt a little bit of a pop out of the first year coming into 2023 [through] some of our large recruitment platforms. That’s really settled in a steady state. We’re still in a slugfest. It’s why we’re so committed to this preferred payor strategy, because I think long term we’re going to continue to struggle with inflation eating up any current or steady [hiring] rate we have.”
The U.S. Centers for Medicare & Medicaid Services’ (CMS) recently proposed changes to several Medicaid-related reimbursement avenues may also stir up some headwinds, Shaner added.
This includes proposals that include requiring 80% of Medicaid payments to be spent on compensation for personal care workers and those who provide similar services.
If implemented, these rules could potentially create financial pain points for Aveanna’s payer and provider partners in terms of salary and compensation, according to Shannon Drake, chief legal officer.
Though the company doesn’t anticipate a direct impact on its own operations, this could have larger implications for other health care providers’ ability to recruit, retain and support clinical staff, he explained.
“The precedent that it would set for all of health care is just a dangerous precedent,” Drake said. “The idea that CMS would set an 80% threshold for direct care workers compensation is significantly concerning, and the precedent that it would create, we just don’t think is appropriate. The proposed rule significantly underestimates the oversight of training, onboarding, as well as the electronic visit verification expectation requirements that CMS mandates.”
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