Though uncertainties abound through the rest of the year, hospice operations at LHC Group (NASDAQ: LHCG) are trending upwards despite a mid-March dip due to the fallout of the COVID-19 pandemic.
As the crisis pits headwinds against many of the organization’s future projections, LHC Group remains optimistic, anticipating recovery stemming from federal funding relief, acquisitions and an increased demand for home-based health care, including hospice.
“This has been the start to a year unlike any other that any of us could honestly have predicted,” said LHC Group’s CFO, Joshua Proffitt in an earnings call. “Many factors are beyond our control and difficult to predict, such as whether or not there will be a further flattening of the curve throughout the markets we serve, the pace at which shelter-in-place orders are lifted and whether or not there will be another spike in coronavirus cases in the year [ahead]. There is still uncertainty about the timing of recovery and reopening, but the trends we have seen since mid-April paint an encouraging picture.”
Net revenue for the company’s hospice segment for Q1 2020 was $60.5 million, up from $51.7 million in Q1 2019, showing growth at a slower rate than anticipated. LHC Group’s first quarter performance continues an industry-wide trend shaped by the progression of the COVID-19 pandemic. Common contributing factors have included declining referrals, increased supply costs and other pandemic-related considerations.
“[LHC Group’s] release essentially confirmed much of what we have already heard from many post-acute providers this earnings season,” said Frank Morgan, analyst for RBC Capital Markets, indicated in a note shared with Hospice News. “The quarter started off strong (including the best organic growth in the sector), but once shelter-in-place orders and restrictions on elective procedures took effect in mid-March, the level of business activity dropped off. When combined with higher costs related to protecting staff and treating COVID-positive patients, this led to earnings headwinds that worsened in April and, like other providers have noted, have now stabilized or begun to show signs of improvement.”
Prior to COVID-19, the company experienced a 2.4% increase in hospice admissions compared to the same period in 2019, according to Proffitt. While hospice admission levels remained steady, COVID-19-related headwinds challenged this growth, including fallout from restricted direct access to patients and reduced referrals. However, admission rates began to rise with an 8.6% improvement during the week of April 13.
Federal dollars helped the company through the early phases of the pandemic. LHC Group received $7.5 million in federal funds through the CARES Act in addition to $87.5 million from the Provider Relief Fund, also established by the CARES Act. The company also received $307.6 million via the Medicare Accelerated and Advance Payment Program. LHC Group estimates their positive cash benefit from these funds to be approximately $50 million in 2020, according to Proffitt.
The company also benefited from new telehealth flexibilities announced by the U.S. Centers for Medicare & Medicaid Services (CMS), expected to last for the duration of the COVID-19 national emergency, including the ability to recertify patients for hospice care via telehealth.
“These provisions, along with other regulatory flexibilities realized from the CMS in recent weeks, we think will lead to greater benefits over time to our patients in the home and inform future policies,” said LHC Group’s Chairman and CEO, Keith Myers.
LHC Group’s acquisitions earlier this year have also encouraged the company’s future projections. While some anticipated acquisition transactions have been delayed, the company is pushing forward with deals in both the home health and hospice arenas.
Last December, the company unveiled plans to double its hospice footprint within 12 to 18 months, largely through acquisitions through its joint venture partnerships with hospitals and health systems. Myers suggested that increased engagement with hospital partners during the pandemic may actually generate additional interest among potential joint venture partners.
“With regard to M&A, understandably, we’ve experienced delays and [letter of intent (LOI)] executions and closings in our hospital [joint venture] pipeline over the last couple of months,” said Myers. “On the other hand, during COVID-19, we’ve experienced our existing joint venture partners more fully leveraging our capabilities as an integral part of their health care delivery team than ever before. As a result, we fully expect even greater joint ventures’ interest from hospitals and health systems in the future. That said, our pipeline of potential M&A growth opportunities remains robust and is well-balanced between home health and hospice.”
Cost-saving efforts have also contributed to the company’s bottom line amid the crisis, with the implementation of several cost-reduction initiatives to help offset the pandemic’s impact.
“In March, we began eliminating all non-essential travel and discretionary spending,” said Proffitt. “We enacted select employee furloughs while also moving to increase flex time. Additionally, our executive team, all other members of our leadership team and all home office leaders are flexing a minimum of 10% and up to 30% of their salary during this time. In total, we estimate all of these cost-containment initiatives will be able to save us approximately $15 million for the balance of the year.”
The company expects robust tailwinds to bolster LHC Group’s recovery from the pandemic, including rising demand from the aging population and the shift to providing more health care in the home.
“There’s been a dramatic recognition that the home is the site of the safest and most preferred care to get,” said Bruce Greenstein, LHC Group’s chief strategy officer. “[This is] a combination of preferring not to go to other institutions after the hospital, as well as the increased use of telemedicine from other caregivers. We’ve designed programs to divert patients to the home that would have otherwise gone to the [skilled nursing facility (SNF)]. Home is the preferred place to go, and we see home as the site of care rather than think about it as a place that you go after getting other health care. Instead, we think about it now as the place to get your health care, and home health is really that central quarterback being able to run a myriad of plays that involve many other parts of the health care economy.”
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