LHC Group’s Hospice M&A Activity in 2021 Hits an All-Time High

LHC Group Inc. (NASDAQ: LHCG) leadership revealed in an earnings call Thursday morning that its merger-and-acquisition activity has hit an all-time high this year.

Additionally, hospice deals currently make up just above 60% of the $400 million the company currently has set aside to further boost its M&A pipeline as 2021 unfolds. Hospice will remain a heavy focus heading into next year as well, according to LHC Group executives.

LHC Group stated last quarter that it would be doubling down on hospice deals heading into the second quarter of 2021, echoing its continued strategy to remain bullish on the segment. Hospice acquisitions are a key strategic focus for the company as it aims to grow its footprint in markets where it already has a home health presence, as well as expanding into new markets.

“Our M&A activity is at an all-time high,” said LHC Group President Joshua Proffitt during the earnings call. “[This] will lead to further accelerated growth momentum heading into 2022. Our value proposition for our partners has never been more compelling.”

While LHC Group was largely positive in regard to its hospice line, one of its major public competitors, Amedisys Inc. (NASDAQ: AMED), detailed multiple hospice-related headwinds on a Thursday earnings call of its own.

LHC Group’s M&A pipeline has boasted heavy activity as the company acquired a number of hospices in the first half of 2021. It entered the Oklahoma hospice market in January when it finalized the acquisition of Grace Hospice. LHC Group then went on in May to acquire two Casa de la Luz locations in the Arizona market, purchasing Heart ’n Home Hospice in Idaho later that month for an undisclosed amount. 

Most recently, the provider expanded into three states, entering an agreement in July to acquire hospice, home health and palliative care companies MSA Hospice in Indiana, Ashley County Medical Center Home Health in Arkansas, and Virginia-based Cavalier Healthcare Services. Though the transaction deals remained confidential, LHC Group indicated that it anticipates the assets to swell their bottom line by $8 million each year.

“Based on our success thus far, our strong M&A pipeline and the exclusive nature of the majority of opportunities in our current pipeline, we have more than doubled our previous acquired revenue target for 2021,” said LHC Group CEO and Chairman Keith Myers.

As of Wednesday, the company’s guidance for acquired annual revenue for 2021 increased from $350 million to $500 million, compared to a previous target range of $150 million to $200 million.

A national hospice, home health and facility- and community-based care provider, LHC Group has locations across 35 states and the District of Columbia, reaching 60% of the country’s 65 and older population. Demographic tailwinds have been pushing hospice deal-making activity ahead of other sectors in the marketspace, with hospice leading the health care sector in terms of investor interest and valuations.

Despite growing demand driving up interest in hospice, COVID-19’s headwinds progress on many companies’ aspirations to close on anticipated deals. Hospice deals slowed during 2020, taking a sharp dive as companies shifted focus to battle against economic fallout resulting from the coronavirus pandemic.

The first half of 2021 brought a flurry of acquisition year in the hospice industry as pandemic’s spread slowed nationwide. The new B.1.617.2 (Delta) variant circulating throughout the country has hospice providers increasingly concerned about potential ramifications to finances and operations as many have been pummeled by COVID-19 since its onset.

While COVID-19’s prevalence lessened in the second quarter, the virus’s presence and impact has certainly not gone away, according to Dale Mackel, executive vice president, chief financial officer and treasurer.

“COVID-related spend in the second quarter decreased to $10.8 million compared with $12 million in the first quarter,” said Mackel. “We noted last quarter we would revisit our COVID spend. Based on what we saw in the second quarter, coupled with early indications of a possible COVID resurgence driven by the Delta variant, we are now expecting [that] we will incur $30 to $35 million in COVID-related expenditures in 2021.”

LHC Group reported that it would maintain a “disciplined capital allocation with new joint ventures and other M&A activity” as a continued focus for the duration of 2021 in its supplemental earnings statement. The company has added a new target for its annual revenue as the year closes and heads into the next, growing its range from $35 in 2021 up to $50 million in 2022.

Developing alternative reimbursement models, revising contracts and developing processes with major payors to optimize administrative efficiencies is part of the company’s strategic value-based strategy when it comes to long-term earnings growth.