Addus Fights Off Labor Headwinds to Grow Hospice Segment

As Addus Homecare (NASDAQ: ADUS) begins integration of its recent $85 million JourneyCare Hospice acquisition, the company is strategizing on how to absorb wage increases accompanying the ongoing labor shortage. 

The company’s clinical care segment, which includes home health and hospice, is seeing the most significant wage pressures among its business lines, Chairman and CEO Dirk Allison said in a Q4 2021 earnings call. Clinicians providing care through those business lines have seen wage hikes as high as 5% in recent months. 

Despite these obstacles, Allison struck a confident note on the company’s plans to counteract these headwinds.

“To help us meet these challenges, we have added additional resources to reduce the time it takes to fill open positions, while also accelerating our standard annual wage increases to meet these market challenges,” Allison said. “We are confident these investments will help with our labor issues.”

A key market in which Addus is seeing wage pressure is the Chicago area, where its new JourneyCare asset is headquartered. With this transaction, Addus now provides all three of its core business lines in that market, including a sizable personal care presence.

Last year, the City of Chicago raised its minimum wage to $15, which threatened to squeeze the company’s gross margins, though this should be alleviated somewhat in 2022 as new state-wide reimbursement rates take effect. 

Compounding the wage issue are the industry-wide labor trends such as increased turnover and the need for some staff to quarantine when exposed to COVID-19.

During the Omicron surge Addus saw the largest increase in the number of quarantined staff since the onset of the pandemic — three times higher than the rates that came with the Delta variant. The high rate of quarantined staff reduced clinicians’ hours served by 6% in January. 

Nevertheless, Addus saw company-wide revenue growth as well as improved results for its hospice business.

The company’s net service revenues rose 14.6% in Q4 to $224.6 million from $196.0 million in the prior year’s quarter. Hospice revenues rose to more than $40 million in Q4, compared with about $27.5 million during the fourth quarter of 2022. 

The company also saw sequential improvement in average daily census, median length of stay and patient days.

Contributing to these financial gains was revenue brought in through acquisitions, totaling nearly $30 million.

While Addus is only just starting to see revenue trickle in from the JourneyCare deal, the company completed seven personal care acquisitions and four home health and hospice transactions since 2019.

Most recently, Addus acquired Armada Hospice of New Mexico and Armada Hospice of Santa Fe for $29 million. The transaction also included the affiliated Armada Skilled Home Health of New Mexico.

Addus has its eyes out for further deals. The company is leaning its M&A strategy towards personal care and home health during 2022 but will continue to consider hospice transactions as opportunities arise. Among the key goals is to build hospice density in markets where they have a home health or personal care presence. 

As Addus hunts for new opportunities, the workforce shortages and wage hikes will continue to influence their buying decisions. 

“When we’re looking at potential deals, we are as part of our diligence processes to be cognizant of the trends in the labor market on the local and state level,” Allison said. “That is something that we evaluate as we’re looking at deals and take into consideration.”