Rising Admissions, M&A Bolster LHC Group as UnitedHealth Group Deal Proceeds

As LHC Group’s (NASDAQ: LHCG) pending $5.5 billion acquisition by UnitedHealth Group (NYSE: UNH) unfolds, the home health and hospice provider is seeing resurgent admissions growth despite persistent workforce pressures.

LHC Group saw a contraction in the nursing labor market across its business segments during the second half of last year, President Joshua Proffitt previously indicated. This coincided with a surge in COVID-19 infections that pushed more full-time staff into quarantine, necessitating high utilization of contract nurses.

For the company’s hospice segment alone, the number of contract nursing visits rose to 4.9% in Q1, compared to 1% during the prior year’s period.

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“Higher labor costs and capacity constraints caused by the lingering impact of clinicians on quarantine caused significant headwinds for Q1 2022,” the company reported in recent earnings results.

Among those headwinds were salary and wage increases. For the hospice segment, these costs were up 3.5% in Q1 compared to the same period last year.

The Lafayette, Louisiana-based provider’s 30,000 employees deliver hospice, home health, home- and community-based services, and facility-based care to seniors in 37 states and the District of Columbia. 

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What’s next on the horizon for LHC Group’s strategic plans has yet to unravel on the heels of the UnitedHealth Group announcement. A lingering question remains around where hospice will fit into the post-acquisition plan. 

The company has been bearing fruit from growing its hospice business in recent years. The segment brought in a sizable revenue stream at the start of this year, though it also added to financial hits from lingering pandemic-related labor pressures.

LHC Group earned  nearly $571.5 million in net service revenue during the first quarter, up from $524.8 million during Q1 last year. Of that amount, the hospice segment generated a little more than $101.9 million. This represents a $39.4 million gain for the hospice segment from Q1 2021. 

Two key factors contributed to the hospice revenue growth: rising admissions and recent acquisitions. 

LHC Group saw an average daily census of 7,065 hospice patients in the first quarter, compared to 4,411 during the same period a year ago. Hospice admissions also rose by 4% in the first quarter over last year’s. 

Revenue acquired through transactions totaled $38.5 million in Q1, spurred by the record number of deals the company completed during 2021. In its hospice segment alone, LHC Group operates 169 locations nationwide. This is up from 120 locations at the start of last year.

The most significant 2021 deal for LHC Group was the purchase of home health and hospice locations in 28 states from the joint venture between Brookdale Senior Living (NYSE: BKD) and hospital system HCA Healthcare (NYSE: HCA). The joint venture divested all of the former Brookdale locations that fell outside of the HCA service region.

Other major 2021 transactions included the acquisition of South Carolina-headquartered Heart of Hospice and the purchase of Virginia-based Generations Home Health and Freda H. Gordon Hospice and Palliative Care.

To date, the company’s M&A strategy has focused on co-locating hospice locations in markets in which it already has a home health care presence.

LHC Group slowed on acquisitions in the first quarter of this year as it devoted its resources towards integrating the assets it picked up in 2021. The company will likely return to the M&A market later in the year.

LHC Group reported that the company had “remaining untapped opportunities” in its sights for 2022 during fourth quarter earnings.

But the outcomes of the forthcoming acquisition by the UnitedHealth Group subsidiary Optum Health will be the primary determinant of LHC Group’s future. The deal is expected to go forward following customary regulatory approvals.

Thus far, both companies have kept their plans close to their vests as far as post-acquisition plans This includes the question of whether Optum would consider divesting the hospice segment as Humana Inc. (NYSE: HUM) is doing following its Kindred at Home acquisition.

What’s known, however, is that UnitedHealth is making substantial investments to build out its home-based clinical services, particularly through Optum. The LHC Group deal will be a huge step forward towards this goal, considering the company’s size and scale.

“We’re really moving at speed to bring together our home and community capabilities,” UnitedHealth CEO Andrew Witty said in a Q1 earnings call. “And if you look at what’s really driving alongside our value-based strategy for the clinics, … it’s an extraordinary set of capabilities. And it’s positioning us very well to, for example, serve the D-SNP population in a way which historically would not have been possible.”

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