In terms of financial results, Addus HomeCare Corporation (Nasdaq: ADUS) is coming off a record third quarter.
The Frisco, Texas-based home health, hospice and personal care services provider has plenty of challenges ahead, however, including the difficult labor landscape that’s about to become even more complex thanks to federal COVID-19 vaccination rules. Somewhat diminished M&A activity is also throwing a wrench into the company’s plans, executives say.
“Our team was able to produce record results in the quarter, despite certain pressures from the current operating environment,” Addus Chairman and CEO Dirk Allison said during a Tuesday morning conference call.
Addus was originally founded in 1979 as a company that helped Chicago residents with household chores and other tasks. It has continued to expand its service offerings since then, with a major focus on clinical in-home care over the past couple of years.
The provider currently delivers in-home care to about 44,500 people through 207 locations across 22 states, with personal care still the bulk of its business.
“We believe the pandemic has raised awareness about the value our industry provides and will continue to be a growth opportunity for our company,” Allison said. “But our operations and resulting growth are dependent on our dedicated caregivers, who work so hard providing outstanding care and support to our consumers, patients and their families.”
Overall, Addus reported net service revenues of $216.7 million in Q3 2021, an 11.7% increase compared to $194 million in the same period last year. Personal care accounted for 78.3% of total revenue.
Vaccination progress
The U.S. Occupational Safety and Health Administration (OSHA) is expected to release details around the government’s vaccination mandate for large employers this week. That language will reportedly include a testing option for workers who don’t get vaccinated.
The Centers for Medicare & Medicaid Services (CMS) is likewise getting close to dropping its vaccination requirements for health care providers participating in Medicare and Medicaid.
Addus is following both developments closely, though the company has already had to adapt to mandatory-vaccination policies in New York, Delaware and Philadelphia, Allison noted.
“As many of you know, the federal government has proposed that all health care employees whose businesses operate under a Condition of Participation with Medicare or Medicaid must be vaccinated,” he said on the call. “Companies like Addus are also operating under the potential of an OSHA requirement that all employers with 100 or more employees must mandate that their employees be vaccinated. These various city and state mandates, as well as the potential of federal mandates, make it imperative that we focus on getting as many of our employees vaccinated as possible.”
As of Tuesday, New York was Addus’ largest market with a vaccination mandate.
If that market is a test study of what’s to come, the company is in good shape.
“Our dispersed workforce makes this process more challenging,” Allison said. “But as of today, we have confirmed that roughly 93% of our New York caregivers have now been fully vaccinated or received their first dose of a two-shot regimen.”
Company-wide, about 79% of Addus home health workers are vaccinated, with 71% of hospice workers vaccinated. About 56% of Addus’ personal care employees are vaccinated, according to the company.
To improve those numbers, Addus is offering a stipend for getting vaccinated as well as prizes. The provider additionally continues to push vaccinations through a communication program centered around the theme of “being a hero.”
“We have not seen any material effect on our revenues due to these various mandates,” Allison continued. “And we continue our efforts to be well positioned to adhere to any future mandates implemented, as they occur.”
Addus’ third quarter was “modestly impacted” by an increase in the number of caregivers in quarantine due to the Delta variant, the CEO added. While that impact was not as significant as the surge toward the end of 2020, it did contribute to more missed visits linked to call-offs.
Coming up short
In July, Addus announced the planned acquisition of Armada Skilled Home Health and Hospice, a move which added to the company’s footprint in New Mexico. About three months later, Addus closed on the purchase of Summit Home Health in Illinois.
All told, Addus has added combined total annualized revenue of about $30 million in 2021. That figure is short of its typical target of $100 million, though the company still has some interesting deals in its pipeline, according to CFO Brian Poff.
“The year is not over just yet,” Poff said on the call. “It’s still November, but we’ve still got some things in our pipeline that we’re excited about.”
In part, Addus hasn’t hit its usual M&A goals because of its “stringent” diligence process, he said. The Paycheck Protect Program (PPP), Provider Relief Fund distributions and other COVID-19 relief efforts have generally made that process far murkier for all health care buyers.
Addus additionally considers itself a pretty strategic buyer, with most of its resources going toward market-specific opportunities that add home health or hospice to an existing personal care footprint.
“Since the beginning of 2021, our home health admissions have increased steadily, with this favorable trend continuing throughout the third quarter,” Allison said. “We are excited about our home health operation, and we’ll continue to focus our efforts on expanding this part of our company.”
On top of all that, though, there just aren’t as many brokered assets on the market compared to earlier this year.
“We’re not seeing the level of activity we saw probably over the summer,” Poff said. “It seemed like there were several things out in the market at the time.”
A waiting game
Apart from vaccine mandates and dealmaking, Addus is focused on the recruitment and retention of in-home care professionals. That has been especially troublesome on the personal care front, Allison said.
“A critical item for our personal care organic growth is the ability to hire new caregivers,” he said. “A tightening labor market had some effect on our growth in certain markets, particularly in Oregon, Idaho and Tennessee.”
Still, personal care hires for Addus were up in Q3 2021 compared to the same period last. Hires were also up 5.8% on a sequential basis.
More funding for Medicaid home- and community-based services (HCBS) can certainly help with workforce challenges.
Illinois, for example, recently requested to accelerate a scheduled reimbursement increase by two months. Other states are increasing HCBS payments, too, via the American Rescue Plan.
The American Rescue Plan gives states a temporary 10 percentage point increase in federal Medicaid funding for HCBS from April 1, 2021, through March 31, 2022, if they meet certain requirements.
“Several other states have requested approval from CMS for changes to their home- and community-based service programs utilizing the [American Rescue Plan funds],” Allison said. “Many of these requests include proposed reimbursement rate increases for our services.”
“We hope to see these requests approved by CMS in the near future and to learn more about the specific reimbursement rate increases included in those requests,” he added.
The American Rescue Plan offers a temporary Medicaid bump for HCBS, but providers may have a more permanent boost coming as well. The revised “Build Back Better” package from Democrats includes $150 billion for HCBS to shrink waiting lists and improve pay for workers.
It remains unclear if that package will make it out of Congress.
“Like everybody else, we’re sitting here waiting to see if the Democrats are going to get together and pass the reconciliation reconciliation bill,” Allison said.
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