Addus HomeCare (NASDAQ:ADUS) executives said a new federal moratorium on certain home health licenses should have little effect on the company’s growth plans, while highlighting continued improvement in personal care services trends and ongoing acquisition opportunities.
Speaking at an RBC healthcare services event, Chairman and Chief Executive Officer Dirk Allison said the moratorium does not apply to personal care services, or PCS, which has accounted for the company’s recent acquisition activity.
Moratorium and Regulation
Allison said the moratorium is more focused on de novo growth in clinical home health services, an area where Addus does not typically participate. He said the company’s clinical acquisitions would still be guided by the existing 36-month rule, and that the moratorium should not affect acquisitions where the seller qualifies under that standard.
On valuations in home health, Allison said there are competing views. Some sellers may argue that the moratorium creates scarcity among clinical providers that qualify for acquisition, while the pool of buyers is also limited. He added that some small providers may decide to exit the business amid continued federal scrutiny.
Allison said the broader regulatory push by CMS to address fraud and abuse is appropriate and supported by large providers. He said Addus has invested heavily in compliance for years and already conducts internal claim reviews in some areas, including reviews of long-stay hospice patients.
“The current crackdown on fraud should [not] change your way you do business at all,” Allison said, referring to Addus and other large providers with established compliance functions.
PCS Trends Improve in Key Markets
Addus executives said personal care services trends continued to improve after a stronger first quarter. Allison said the company has been focused on growing census, lowering discharges and increasing starts of care. He said Illinois showed progress in the first quarter, following earlier improvement in Texas and New Mexico.
Allison said census improved in February from January, continued to grow in March and April, and appeared to be continuing in May, though he cautioned that May data was still early because about 15% of the company’s business is processed through paper rather than electronically.
Brian Poff, executive vice president and chief financial officer, said Addus continues to target same-store PCS hours per business day growth in the 2% to 2.5% range. With rate support, he said that can translate into overall same-store growth of 3% to 5%.
Poff said first-quarter growth of 2.2% was affected by weather early in the quarter but remained within the company’s targeted range. He said Addus hopes to return toward the higher end of the range as census builds and weather-related disruption fades.
Caregiver App Rollout and State Rate Updates
Poff also discussed the company’s caregiver app, which has been deployed across its three largest states. In Illinois, he said the company’s fill rate rose from the low 80% range before the app to the high 80% range after adoption reached more than 90% of caregivers.
In Texas, where fill rates have historically been in the upper 70% to around 80% range, Poff said a similar improvement could potentially lift the state into at least the mid-80% range. He said about 10% of Texas caregivers downloaded the app quickly after launch, and broader adoption could take several months.
On state reimbursement, Allison said New Mexico has approved and signed into its budget $10 million of incremental funding for home- and community-based services, but the company is still waiting for details on how the funds will be passed through to providers.
In Illinois, Allison said the governor’s budget did not include a rate increase, and Addus is not currently expecting one. However, he noted that the union has requested an increase and is in discussions with state leaders. He said the company should know more around June 1.
Indiana Expansion and M&A
Poff said Addus sees Indiana as an attractive market because of its location near existing operations in Illinois, Michigan and Ohio, as well as the state’s recent rate support. He said two Indiana acquisitions are expected to give Addus just under $20 million in revenue in the state.
After the acquisitions were announced, Poff said large managed Medicaid plans in Indiana contacted the company to begin discussions about potential partnerships. He said Addus sees room for additional PCS expansion and possible clinical opportunities in the state.
Allison said there are several PCS-driven acquisition opportunities in the market, including some comparable in size to the Gentiva transaction. He said Addus has kept its balance sheet clean and could move quickly on another large acquisition using its line of credit.
Allison said valuations for such deals have come down. He said Gentiva was acquired at roughly 11 to 11.5 times before certain benefits, while current opportunities are likely below double-digit multiples.
Clinical Programs, Hospice and Costs
Allison said Addus’ Bridge Programs are helping move patients from home health into hospice, particularly in New Mexico and Tennessee. In those two markets, he said 20% to 30% of hospice admissions are coming from the company’s own home health operations.
Addus is also converting PCS operations to Homecare Homebase, the same electronic medical record platform used for its clinical services. Allison said the rollout is expected to be completed around the middle of next year and should make it easier to identify PCS patients who may need hospice or home health services.
In hospice, Poff said first-quarter same-store growth was just under 8%, below the stronger levels seen last year but still within the company’s longer-term expectation of upper-single-digit growth. He said average daily census trends improved in March and April.
Poff said Addus continues to manage hospice cap exposure by monitoring patient mix and referral sources closely. He said the company has had some programs move slightly into cap in recent years, but the impact has been minimal.
On general and administrative expenses, Poff said M&A activity does not add significant incremental cost because integration is part of the team’s normal work. He said Addus expects some G&A leverage as revenue grows, with no major increase in G&A costs planned for the year.
About Addus HomeCare (NASDAQ:ADUS)
Addus HomeCare (NASDAQ: ADUS) is a leading provider of home and community-based care services for elderly, disabled, and medically complex individuals across the United States. Through a network of company-owned and franchise locations, the company delivers a broad spectrum of non-medical personal care and licensed home health services designed to support clients’ independence and quality of life.
The company’s core offerings include personal care assistance—covering daily living activities, medication reminders, and light housekeeping—and skilled home health services delivered under the supervision of registered nurses and licensed therapists.
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