Labor shortages and other headwinds have battered hospices during 2022, including large companies. Some of these providers are making near-term investments that cut into revenue but are expected to pay off in the long run.
Providers are seeing troubles on multiple fronts, as reflected in third quarter earnings reports. This year brought the return of Medicare sequestration, and pandemic-driven disruption in referral streams are lingering.
The workforce pressures have had the greatest impact, including the associated wage increases, enhanced benefits and bonus programs. The shortages have reduced clinical capacity, which has contributed to drops in patient census and length of stay.
During Q3 in particular, several companies also saw the need to increase utilization of contract labor or reduce the number of patients served as a rising number of employees took time off to regroup. This includes the home health and hospice provider Amedisys (NASDAQ: AMED).
“On the labor side, it’s no secret out there that labor across all of health care is very challenged, and we’re not immune to it either,” Amedisys CEO Chris Gerard said in an earnings call. “We’ve been seeing some signs of softness, particularly through the summer months. I would say this has been the most atypical summer that we’ve really seen in terms of just time off, clinicians wanting to take a hiatus, just really trying to kind of reenergize around kind of their personal life goals and things like that.”
Generally, fewer clinicians has meant fewer patients have been receiving hospice care, according to industry observers and companies’ own reports.
In aggregate, pubicly traded operators saw negative growth rates in average daily census by as much as 1.9%, compared to a positive increase of 2.3% in the same period of 2021, according to research by Scott Fidel, analyst for Stephens.
Coupled with this downward trend were falling lengths of stay. This has been a longstanding problem since the start of the pandemic, but average length of stay among the publicly traded firms tumbled at a faster rate in Q3 2022 (3%) than they did in the third quarter of 2021 (2%).
The Pennant Group (NASDAQ: PNTG) experienced the largest decline with a 15.9% drop year-over-year.
Slight improvement did occur sequentially between quarters this year. Average length of stay among the publicly traded operators rose to 97 days in Q3, up from 96 in the second quarter, according to Fidel.
The standout on length of stay was VITAS Healthcare, a subsidary of Chemed Corp (NYSE: CHEM). The company saw a 10.6% increase in its average length of stay to 106.2 days in Q3, compared to 96 days in Q3 2021.
Executives attributed much of this growth to a community outreach program launched earlier this year, designed to educate clinician in other settings about the value of hospice care.
“This sequential performance illustrates the consistency with which our Community-Based Access Initiative is performing as we continue to be focused on incrementally admitting more appropriate patients each day across all pre-admits settings,” VITAS CEO Nick Westfall said in an earnings call. “Growth in our median length of stay is attributed to the successful execution of our Community Access Initiative.”
This initiative is one example of investments and programs that companies are implementing this year that leaders expect to bear fruit in Q4 or next year.
Another is the company-wide integration of Homecare Homebase at Aveanna Healthcare Holdings (NASDAQ: AVAH). Through this process, the company transitioned from using four operatiing systems to a single platform.
This expense and associated drops in patient volume put a dent in third quarter revenues, but CFO Jeff Shaner has indicated that enduring that disruption will set up Aveanna for a healthier 2023.
“In September, we eliminated approximately $6.5 million of annualized overhead,” Shaner said. “This important outcome was achieved, in large part, for the long-term benefit of Homecare Homebase and establishing one set of standard practices and policies. It’s been two years and four acquisitions since we re-entered the home health and hospice business, and I’m pleased to have all the company integrations and system implementations now behind us.”
Meanwhile, Enhabit Home Health & Hospice (NYSE: EHAB) is implementing a hospice-specific case management system that leaders expect will resolve some integration issues in acquired agencies and reduce turnover.
Early on, the company would implement a set of processes that were symmetrical with those in its home health business, but agencies in its hospice segment experienced some difficulties with those transitions. This contributed to a spike in turnover, which in turn slowed Enhabit’s rate of growth, CEO Barbara Jacobsmeyer said at the Credit Suisse Annual Healthcare Conference.
“Moving to this care management model is going to allow [nurses] to better manage a caseload of patients. We’re also going to have on-call and triage nurses to help them,” Jacobsmeyer said at the conference. “Running [this model] is going to really help us as we look forward to the future and how we’re going to manage costs.”
Like Enhabit’s case management system, a range of the plans and investments companies are aimed at moving the needle on staffing.
VITAS, for example, implemented a new retention bonus program using $44 million in unspent Provider Relief Funds, offering between $2,000 to $15,000 per licensed health care professional for 12-months of continuous employment.
These one-time retention bonuses are designed to fortify the company’s clinical teams, including licensed nurses, nurse managers, home health aides and social workers. A few months in, the initiative appears yielding positive results. The company hired 172 clinicians during Q3, coupled with significantly reduced turnover.
“[The bonus program] added fuel to the fire in terms of our ability, not only to continue retaining more of our clinicians, but attracting more to come into the workplace,” Westfall said at the Credit Suisse conference. “It’s exciting because — not only does it continue to build back our clinical capacity — but with that inside of the hospice benefit, we’ve seen some encouraging signs on week-over-week sequential days-of-care growth that, frankly, we haven’t experienced since the start of the pandemic.”
But the full benefit of these gains will take some time to materialize. It can take four-to-six weeks to onboard and train clinicians and to help those who came from other settings acclimate to the hospice environment. Bringing new employees up to speed also costs money, which in Q3 resulted in about $2 million in margin compression, according to Westfall.
Some companies are leveraging technology to streamline onboarding and enable new hires to hit the ground running more quickly. VITAS, Aveanna, and Addus Home Care Corp. (NASDAQ: ADUS) have implemented virtual orientation programs designed to speed the process.
Others, like Amedisys, have implemented predictive analytics systems designed to identity employees who may be likely to leave the company, enabling them to engage with the employee to help them stay.
Several of the large providers indicated that they were making headway in the early weeks of Q4.
In Q3, 11 of Enhabit’s hospice locations continiued to see diminished clincical capacity, down from 17 in Q2. Enhabit also demonstrated improvement in admissions and patient census.
Pennant Group CEO Brent Guerisoli indicated that referral trends were looking up in early Q4, particularly among its hospital referrals. Pennant is also starting to see occupancy rates improve among its skilled nursing and assisted living referral partners.
The company expects both of these trends to have a positive impact on its hospice census going forward, according to Guerisoli.
“We’re seeing notable progress as measured by revenue, admissions, occupancy, and cashflow. We’re seeing strength build in many of our markets and clusters,” Guerisoli said. “We are on track to make significant improvement in the second half of 2022 and are positioned to produce strong results going into 2023.”
Likewise, Westfall noted during the Chemed third quarter earnings call that VITAS is seeing referral and census growth thus far in Q4, in addition to its uptick in hiring.
Aveanna also reported signs of improvement that came too late for inclusion ins third quarter results.
“Through Q4, our home health and hospice revenue should rebound back into the $54 [million] to $56 million range,” CEO Tony Strange said during the earnings call. “With our home health and hospice significantly improving in our revenue reserve, getting back down below 5% our Q4 gross margin should normalize in the 45% to 47% range.”
Other types of investments are also driving growth — including acquisitions.
The clearest example is Addus. The company had the fastest year-over-year growth in average daily census during the third quarter, about 25%, according to Fidel’s research.
Addus’ $85 million acquisition of Journeycare Hospice earlier this year was a key driver behind those results. Last month it also acquired Chicago-based Apple Home Health, Ltd. for an undisclosed sum.
Acquisitions have contributed roughly $65 million to Addus’ bottom line thus far in 2022.
“Our disciplined approach has put us in a strong position to take advantage of future acquisition opportunities,” CEO Dirk Allison said. “We expect to see a larger number of assets and more of these scale opportunities in coming months.”