Increased Labor Costs Hinder LHC Group

For LHC Group Inc. (Nasdaq: LHCG), its plan to combine with UnitedHealth Group’s (NYSE: UNH) Optum is still the big headline.

All the while, the company is still navigating through the same home health care landscape that its peers are.

Back in March, UnitedHealth Group announced that it would acquire the Lafayette, Louisiana-based company for the price tag of $5.4 billion. The deal is valued at closer to $6 billion, including debt.

Upon completion of the deal, LHC Group would combine with Optum, a technology-enabled health services company.

LHC Group delivers home health, hospice, and home- and community-based services, as well as facility-based care, across 37 states and the District of Columbia. It employs about 30,000 individuals.

As far as the company’s performance this quarter, it experienced labor market headwinds. Higher wages, sign-on and retention bonuses and increased new hire costs are some of the factors that contributed to this.

Specifically, home health salaries and wages cost per visit — inclusive of sign-on and retention bonuses — spiked by 8.1% in Q2 compared to Q2 2021.

“These pressures have not only resulted in significant year-over-year cost increases, but have also created capacity constraints in certain markets,” LHC Group wrote in the supplemental information it made available for investors.

These challenges have also impacted organic growth in admissions for home health, which decreased 4.3% for Q2 compared to the same period last year.

However, organic growth in admissions for hospice grew 5.5% year over year in Q2.

Increasing the company’s episodic payer mix is top of mind at LHC Group. The company’s non-Medicare episodic average daily census increased by 16.7% in Q2 compared to Q2 2021.

Additionally, LHC Group joined forces with other home health stakeholders to address the unfavorable proposed payment rule.

“The home health industry, including LHC Group, acted quickly through its associations and other health care partners to propose legislation mitigating this adjustment and engaged CMS by challenging its methodologies proposed in this rule,” the company wrote. “These efforts resulted in the filing of legislation in Congress on July 25 and July 26 which would freeze for three years the ability of CMS to make behavioral adjustments in home health rates.”

Overall, the company’s net service revenue increased by 5.5% to $576.2 million. Last year during the same period, the company’s revenue checked in at $545.9 million.

In terms of segment results, home health net service revenue for Q2 was $392.7 million. Hospice net service revenue for the quarter was $102.6 million.

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