The Biden administration has shown time and again its commitment to home- and community-based services. And Addus HomeCare Corporation (Nasdaq: ADUS) is beginning to reap some of the benefits.
The Frisco, Texas-based in-home care services providers has begun to receive more substantial funding from the states it operates in through the American Rescue Plan.
“With respect to our three largest states, Illinois used the funding to accelerate last year’s rate increase by two months, as well as funding [an] upcoming statewide rate increase, which will be effective January 1, 2023,” Dirk Allison, chairman and CEO of Addus, said on a second quarter earnings call Tuesday. “New Mexico and New York provided funding for direct payments to providers to be used primarily to assist in recruitment and retention of caregivers.”
Allison also noted that several other states have given either temporary or permanent rate increases.
In Illinois — Addus’ largest state of operation — the company will receive a small per-hour statewide rate increase, effective January 1 2023.
In the meantime, the 40-cents-per-hour minimum wage increase for Chicago area caregivers will have a slight negative effect on Addus’ margins over the next two quarters until the rate increase occurs.
“Once we receive the statewide rate increase, we expect to be able to adjust wages for our remaining Illinois employees, which we believe will continue to help with caregiver recruitment,” Allison said.
Aside from detailing the impact of the American Rescue Plan funds, Addus’ leadership also mapped out its M&A plans.
“Over the past quarter, most of our deal flow has consisted of smaller acquisition opportunities across all three levels of care,” Allison said. “We continue to have conversations with brokers and other third parties, and based on the feedback we’ve received, we expect to see an increase in potentially larger transactions in late 2022 and early 2023.”
However, with the proposed payment rule’s 4.2% reduction to home health payment rates Addus is seeing an “overhang related to differing price expectations from buyers and sellers” in home health, according to Allison.
In some cases, Addus has seen home health deal processes being paused in order to wait for the publication of the final rule.
When it comes to dealmaking, the company predicts that there will be less activity around home health care until reimbursement is finalized.
“Once the final home health rule is published, we expect to see activity in this sector increase and believe we are well positioned to take advantage of these opportunities,” Allison said. “While skilled home health activity may be slower in the short term, we’re still very optimistic on our M&A outlook. We’ll continue to build a pipeline focusing primarily on personal care and home health. We continue to believe that acquisitions will remain an important part of achieving our 10% minimum annual revenue growth target, which we have exceeded for the past few years.”
During the call, Addus leaders also touched on the company’s efforts around value-based care. Currently, Addus has four value-based contracts in three of the states the company operates in.
“While the revenue generated from our value-based efforts are relatively immaterial today, we continue to expect them to grow to a more meaningful amount over the next few years,” Allison said.
The contracts are centered around aiding patients to avoid unnecessary emergency room visits and hospital admissions, as well as readmissions after a hospital discharge.
Addus also has plans to invest in software that will help the company with data collection and analysis of patient outcomes.
Overall, Addus’ revenue totaled $236.9 million for Q2 2022, an 8.7% increase compared with $217.9 million for the second quarter of 2021.
In terms of each segment, personal Care revenues were $174.3 million, or 73.6% of revenue. Hospice revenues were $52.1 million, or 22% of revenue. Home health revenues were $10.5 million, or 4.4% of revenue.