ModivCare Inc. (Nasdaq: MODV), previously known as The Providence Service Corporation, wants to claim the vast but highly fragmented U.S. supportive care space.
To do so, it’s in the process of becoming a one-stop shop for its payer partners, with home-based care at the core of its evolving business model, President and CEO Daniel Greenleaf told Home Health Care News.
The Denver-based ModivCare entered the personal care industry in November after closing its acquisition of Simplura Health Group, a home health and non-medical home care provider with roughly 14,000 caregivers in seven states. The transaction placed a $575 million enterprise value on Simplura, formerly owned by One Equity Partners.
By combining personal care with its large non-emergency medical transportation (NEMT) and growing nutritional services business lines, ModivCare will disrupt how, when and where vulnerable populations are cared for, Greenleaf believes. HHCN connected with the CEO earlier this month to learn more about those plans — and the challenges that lie ahead.
Highlights from that conversation are below, edited for length and clarity.
HHCN: Since this is the first time we’re connecting, could you go over the overall ModivCare business model?
Greenleaf: We have three service lines at this point in time. Those will continue to expand. The most prominent one is the NEMT business line, where we take predominantly Medicaid patients to and from their clinical visits, whether that’s to dialysis, a physician, or a substance abuse or mental health facility, for example. About 92% of that is Medicaid and 8% Medicare Advantage.
We do about 75 million rides in a normalized year. We’re by far the largest in this space, by a factor of four. In many respects, that’s the foundation of the business. We operate in 49 states. This part of the company has been around 25 years. It has been public for a significant amount of time as well.
Our second line of businesses is personal care. Our acquisition of Simplura brought us into the space back in November. From our standpoint, if the available market in transportation is $8 billion, then this is a $55 billion market that’s growing to $100 billion. Moreover, our customers have been very keen on us providing more holistic solutions, which includes personal care.
As it stands right now, we operate in seven states on the personal care side, mostly on the Eastern Seaboard: Florida, Pennsylvania, New York, New Jersey, Connecticut, Massachusetts and West Virginia.
The third line of business is our nutritional business. During COVID, we launched 30 pilots. We worked very closely with community-based organizations. We delivered over 2 million meals, up and down the Eastern Seaboard. Fundamentally, we believe — and our customers and our members are telling us the same — this is another area that is ready to be disrupted, very much like we’re doing on the NEMT side and what we’ll do in personal care. It’s a highly fragmented area, very much like the personal care space. There isn’t a clear market leader. We think there’s a significant opportunity here, and given the relationships we already have with states and payers, we’re in a pretty strong position to find partners to scale that business.
So those are the foundational business units, if you will, for the company. And we’re going to continue to build in that supportive care space. We’re going to look at opportunities to get into medication management. We’re going to look at opportunities to get into behavioral-social. We’re going to look at opportunities to move into remote monitoring. There is no company that has claimed the supportive care space. I think we’re in a very unique position to do some pretty extraordinary things on that front.
What else should HHCN readers know about ModivCare?
The company generates around $2 billion of revenue. We have about 19,000 employees. We’re public. The market cap is probably in the $2.5 billion range. When I started in December of 2019, it was around $500 million or $600 million. There’s been a lot of attention to what we’ve done. People are understanding more and more each day that there’s a huge unmet need here. The markets are massive. The food market is a $15 billion market. The personal care market, again, is a $55 billion market growing to $100 billion. The transportation space is somewhere in the $8 billion range.
How did the Simplura deal come together in the first place? At what point did you identify that as something ModivCare wanted to do?
I think it was within a month, where we saw an enormous opportunity. We met with One Equity, who had owned Simplura, in January 2020 at the J.P. Morgan Healthcare Conference. We sat down with two of their managing directors. I was with Scott Kern, our VP of corporate development. We were just like, “This makes all the sense in the world, bringing these two companies together.”
We recognized that the move would impact our ability to service our member population. And admittedly, I have lots of experience in the home, given the businesses I’ve run in the past. Of course, we know that care continues to move toward the home at an accelerated pace. That’s kind of how it happened.
As a result of COVID, things probably slowed down a bit. There was some disruption in the personal care space because of the public health emergency, from recruiting caregivers and hours of care delivered, to any number of things. In the summer, we got to talking in earnest again. It was a competitive process. There were other people that were bidding for the business. We really liked the One Equity guys, and I think the One Equity guys really liked us. There was a sense of certainty with us, particularly around being able to fund the deal.
And the interesting backstory is that we did this entire deal on video. We didn’t meet the Simplura team, including their CEO, in person for the first time until three weeks ago. Think about the complexity of buying an asset of this size, in the $500 million range, and then being able to integrate the business. It has been a total home run.
And, you know, we love the Simplura business. That was something else that was important to us. We bought something that had a degree of materiality to it. We didn’t want to do a $10 million company, then another $10 million company. We really wanted to get into this business in a big way. And Simplura is just an excellently run company. Dave Middleton is a world-class CEO. He’s got a world-class team. We felt like it was the best asset out there, in terms of the operating performance of the business.
We also looked at the overlap between our businesses. There was already built-in overlap, which is important when we think about becoming that one-stop shop for our payers and states.
Was there any trepidation in doing this 100% virtually? I’ve had to buy new furniture 100% virtually during COVID-19 — and even that made me feel uneasy.
That’s a good analogy. There really wasn’t. I never felt unsure about it. It was more, “No regrets. Let’s get it done.” Apart from being confident in Dave and comfortable with One Equity, I have an unbelievable internal team.
It’s an interesting question, but I didn’t have any hesitation about it.
So how does Simplura fit into the rest of Modivcare?
This dovetails very well with ModivCare’s broader vision of addressing social determinants of health. That’s the strategy, to build integrated supportive care solutions across multiple areas.
And then, really quick, it’s also important to note that Simplura is different due to its quality. They have high customer-retention rates and very low employee-turnover rates versus industry averages.
Why was now the right time to make a big splash?
There are several things to dig into here. One is that we had a new management team that came in with a new vision of the company. That’s even reflected in changing our name to ModivCare in January of this year. I came on in December 2019, and I have a history of transitioning companies pretty rapidly.
I think the new management team came in with new objectives. I mentioned my home care background. I have a conviction that care is moving to the home. You’re fully aware of the cost advantages, plus improvement to quality of life and to health outcomes. I’ve seen it with a number of companies I’ve run. This was something we needed to do, to better address social determinants of health and care for individuals with multiple chronic conditions.
And if there’s anything positive that came out of COVID, it’s the attention that has been placed on caring for vulnerable populations. They have been highlighted in a way that, historically, they probably wouldn’t have been. And beyond home care, people are talking more about food deserts, pharmacy deserts and more. There are pervasive broadband deserts, too, and that’s a problem that not everyone fully appreciates. The broadband deserts are real. This is stuff that has been ignored in the past.
This is why we fundamentally believe that a more evolved, integrated solution matters more than anything. Let’s play it out: We get a referral, right? The referral mode of care brings that patient home from the hospital. There’s a personal care aide there waiting for the patient. That aide schedules the next follow-on visit at a site that our mode of care then ends up taking the patient to. The aide also makes assessments on medication needs, and mode of care can play a role in helping there. Then they make assessments on nutritional needs. And mode of care can play a role in getting food to and from the patient.
I get so excited about this because it’s truly a holistic solution.
During your last earnings call, you described Simplura as the first building block in a bigger personal care push. What are your plans for growing that business segment? Do you have any particular growth targets you can share?
Broadly, we want to be at $1 billion in revenue and $100 million of EBITDA. That’s one milestone. Another milestone is to have personal care equivalent in size to the NEMT business. A third milestone would be having a national platform.
We’ve got a very healthy capital structure. We’ve got an incredibly sophisticated team. We’re going to be strategically acquisitive. The market is so fragmented. There are 18,000 agencies. Your top three players make up less than 5% of the market. We expect our personal care business to be a much bigger piece of the overall business going forward.
From an acquisition-consideration standpoint, we’re growing in existing geographical density and entering new geographies. We want to buy companies that have a strong reputation and strong service quality. Other considerations are reimbursement, state budgets and labor dynamics.
The personal care business is by and large a staffing business. It’s recruiting and hours, recruiting and hours, recruiting and hours.
What are some other opportunities you see around home-based care? And what are the biggest barriers to those opportunities?
We just listen to what our payers and states are saying, in particular, payers. Six major payers make up about 80% of our payer revenue. They’re telling us, “We want a one-stop shop.” We also think there’s still lots of opportunity in “the last mile,” whether that’s getting aides into the home or food into the home. We’ve done some really great work with a company in New Jersey called CareFinders. We’ve taken, I think, tens of thousands of their aides to their patient appointments. Finally, the other thing I would also point out from an opportunities perspective is the new administration’s advocacy for home care and addressing health care inequities.
If we think about challenges or barriers, the staffing constraints are real. We’re off by 15% [in terms of hours]. It’s not for lack of demand. It’s just the lack of staffing. That’s largely driven by the COVID environment, the stimulus and unemployment benefits. As those things taper off, we expect staffing to normalize and come back strong.
The business demand is massive. It’s just a matter of getting people back to work.
Even if it’s beyond personal care, what else is currently going on at ModivCare? What else is on your radar?
We’re going to modernize and automate our three business segments, including personal care. We think there’s a substantial opportunity for modernization and automation. Same with NEMT. We are driving toward a completely digitized network, at least 90%, by the end of this year.
We’re going to make ourselves easier to do business with. We’re going to enhance the flow of communication and information that’s being exchanged about the patient population.
Listen, we’ve got 30 million members. We manage 9% of the U.S. population. That’s a big number. We have a significant privilege and a significant responsibility to do the right thing. We’re focused on having the right people in the right seats, transformational growth and really innovating on the personal care side. We’re going to drive standardization and reduce waste to enhance the member experience. We’re going to continue to upgrade the talent of the team.
We’ve got an unbelievable company with an unbelievable mission, and we’re doing incredible things. It’s an incredible time to be where we are, with the resources we have.
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