LHC Group’s Hospice Segment Faring Better Than Home Health Amid Labor Struggles

Labor pressures are bearing down on LHC Group’s (NASDAQ: LHCG) patient volumes and revenue, hitting its home health segment harder than its hospice business.

Workforce strains have put pressure on many providers’ capacity to accept patients, and Louisiana-based home health and hospice provider LHC Group is no exception. Labor costs are up across the board, and the volume constraints drove down home health admissions in Q2, according to a supplemental earnings report.

“The labor market continues to remain challenging driven by higher wages, sign-on and retention bonuses, increased new hire costs and elevated contract labor utilization and rates,” the company stated in the report. “These pressures have not only resulted in significant year-over-year cost increases, but have also created capacity constraints in certain markets.”

But LHC Group’s hospice segment is faring better than its home health business.

Labor challenges led to a 4.3% dip in home health patient admissions during the second quarter compared to the prior year’s period. Hospice admissions, however, jumped 5.5%. Average daily hospice census reached 7,123 during the quarter.

Higher labor costs and capacity constraints have become a bane throughout the year for LHC Group and other providers. The company in its first quarter earnings cited a “lingering impact” and “significant headwinds” as COVID-19 caused more full-time staff to quarantine.

LHC Group President Joshua Proffitt previously stated that a surge of COVID-19 infections among clinicians during the second half of last year led to a heavier lean on contract nurses, as well as a “contraction” in labor markets for both home health and hospice.

This trend returned in Q2, coupled with higher wages for in-house employees. The company’s hospice segment saw labor costs rise across the board, by 10.4% for staff salaries and wages per patient visit, while contract nursing costs rose 4.6%.

LHC Group operates 169 hospice locations and 543 home health locations. The company’s roughly 29,000 employees provide home health, home- and community-based services, and facility-based care across 37 states and the District of Columbia, covering an estimated 68% of the nation’s 65 and older population.

LHC Group also incurred costs related to its pending $5.5 billion acquisition by the UnitedHealth Group’s (NYSE: UNH) subsidiary Optum. Those expenses, along with additional costs for forthcoming de novos and other acquisitions, came to $9.2 million (pre-tax) in Q2 versus $4.7 million during the same period in 2021.

Questions linger around the potential for LHC Group to diverge these two segments following the Optum transaction, mirroring Humana’s (NYSE: HUM) forthcoming divestiture of Kindred at Home’s hospice business. Thus far, neither UnitedHealth Group nor LHC Group has given any indication of such a sale.

However, LHC Group’s own acquisitions has helped fuel the company’s bottom line this year. They completed a record number of deals during 2021 — with the scales again tipping in favor of hospice over its home health business.

The company’s most significant 2021 transaction 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).

Thus far 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 has been mum as to whether they will stay on that wavelength if the Optum deal proceeds as expected.

LHC Group has previously reported that it had “remaining untapped opportunities” on the horizon for 2022.

All told, recent acquisitions contributed $36.2 million to LHC Group’s hospice revenue growth in the second quarter. The segment brought in $102.6 million during Q2, a $38.8 million bump from the prior year’s quarter.

Meanwhile, the company’s home health segment saw a $3.7 million decline compared to Q2 2021, which they attributed to labor woes. This includes a 9.8% drop in “billable hours owing to ongoing staffing constraints,” LHC stated in its earnings report.

LHC Group’s net service revenue across all segments reached nearly $576.2 million in Q2, a roughly $5 million increase from Q1, and a $30.2 million upsurge from 2021’s second quarter.