Amedisys Steps Up Hospice De Novo Activity

Amedisys, Inc.,(NYSE: AMED) is intensifying its de novo activity through 2019 and beyond.

The company expects to open seven to nine de novo operations nationwide during 2019, with the new locations heavily weighted towards hospice. At least five of this year’s de novos will be hospices, compared to three home health locations.

“We had one [de novo] last year to test it out, and it went well. So we are back in the business of building, mostly hospices but also some home health. The cost for that is quite low,” said CEO Paul Kusserow, speaking at the William Blair 2019 Growth Stock Conference in Chicago. “It takes us about 10 months and half a million dollars to build a hospice, but we believe that is something we should be continually focused on.”

Looking beyond 2019 the company anticipates opening about 10 de novos annually.

Kusserow said earlier this month at RBC Capital Markets Global Healthcare Conference that the nation’s third largest hospice provider would be focusing its growth efforts on its hospice segment amid concerns about Medicare’s forthcoming patient-driven groupings model for home health care.

The renewed focus on de novo activity does not mean that Amedisys will be backing off of its robust acquisitions program, as the company seeks to capitalize on demographic tailwinds to support growth in the hospice space.

“We are continuing to look for deals in hospice, which we continue to have strong margins on,” Kusserow said in the conference presentation. “We are focusing very heavily on finding new deals, and we have a very full pipeline.”

Amedisys’ hospice segment during the first quarter of 2019 saw a gross margin of $69.2 million, compared to $47.2 million in the first quarter of 2018.

So far this year the company completed two significant transactions, starting with the $340 million purchase of Compassionate Care Hospice, followed by the acquisition of Tulsa, Okla.-based hospice provider RoseRock Healthcare.

Due to tax benefits and anticipated synergy benefits, the company saw a 7.8x multiple on the Compassionate Care purchase at a time when many hospice company multiples are hitting the 13x to 15x range. Amedisys expects to pay off debt associated with the deal, leveraged at 1.5%, by summer 2020.

“There are very very strong demographic forces at work that add a lot of wind at our backs in hospice,” Kusserow said. “When you look at the baby boomer population, they are very much interested in passing away at home. We believe that we are evolving into an aging-in-place company in the home health, hospice, and personal care businesses.”

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