Home health and hospice provider LHC Group (NASDAQ: LHCG) has stretched further into the hospice market with accelerated merger and acquisition activity through joint venture partnerships and organic growth during 2020’s third quarter.
Joint ventures form the cornerstone of LHC Group’s hospice mergers and acquisitions strategy, with an emphasis on co-locating hospices in markets where the company’s home health agencies are already operating. The company operates joint ventures with nearly 400 hospitals nationwide.
“Our recent activity will continue to gain momentum with increased M&A and continued strong organic growth trends in Q4 and 2021,” said LHC Group Chairman and CEO Keith Meyers in an earnings conference call. “We anticipate a historic consolidation opportunity in home health and seeing an increasing number of hospice opportunities in our pipeline. We believe we are well-positioned for a strong finish in 2020 and a strong start in 2021.”
A recent joint venture in October with University Health Care System expanded LHC Group’s home health and hospice footprint with an additional ten locations in eight cities throughout Georgia and South Carolina, with the company anticipating an annual increased revenue of approximately $8.3 million from the deal. LHC Group additionally purchased Santa Rosa Hospice in San Marcos Texas with its joint venture partner CHRISTUS Health. The transaction is expected to yield roughly a $2.1 million increase in annual revenue.
The recent acquisition of Santa Rita Hospice in Aurora, Colo., also marked LHC Group’s continued strategy of purchasing small hospice providers poised for growth, particularly within markets in which the company already has a home health care presence. The hospice will rebrand under the name At Home Hospice in a shared space with LHC Group’s home health provider in the area.
Currently operating 111 hospice service locations and providing care in 35 states, LHC Group reaches 60% of the U.S. senior population, the company reported. LHC Group has consistently indicated that hospice growth is a top strategic focus, and the company anticipates additional transactions in the coming year.
“The pipeline for M&A and joint ventures is very robust,” said recently appointed Chief Financial Officer Dale Michael. “We’ll continue to be very disciplined in our approach of deploying capital to where we see the best opportunities for that.”
M&A is not LHC Group’s only avenue for growth, as their same-store admissions continue to rise in both their hospice and home health business lines. Organic hospice growth rose 12.8% from the prior year’s quarter, and 4.3% sequentially from Q2. They saw a similar rise in their home health business, which was up 4.7% year-over-year and 11.6% from the second quarter.
Like many providers, LHC Group took on pandemic-related hits to their bottom line as the COVID-19 pandemic adversely impacted hospice admissions. The hospice segment also had more than $2 million in write-offs from some older periods that brought down the revenue. LHC Group’s net service revenue for its hospice segment was down to $59.8 million from $62 million during the same period in 2019. If not for the write-offs, revenues may have been up slightly.
Despite the reduction, the company has decided to return the entire $93 million in aid it received from the federal government’s Provider Relief Fund, established through the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
“There have been a little bit of moving parts in the hospice numbers this quarter,” said the company’s president, Joshua Proffitt. “The admissions trajectory was a little bit lower, as was the average length of stay throughout the quarter. Some of that is attributable to COVID patients, who inherently have a lower length of stay. As we expect the length of stay to get back to a normal level, those admissions will then translate into census growth that we normally experience in hospice.”