Staffing improvements and reimbursement shifts are paving Addus HomeCare’s (NASDAQ: ADUS) growth path this year. That path will divert more toward home health and personal care – and less in the direction of hospice – as 2023 progresses.
Addus’ more than 33,000 employees serve around 46,500 patients across roughly 200 locations nationwide. The company added to its clinical workforce with 80 new hires during the fourth quarter, with hospice hiring especially strong.
Addus anticipates positive staffing trends to continue in 2023, partly fed by the company’s recruitment efforts, Addus CEO Dirk Allison said in an earnings call.
The company received roughly $24 million from the American Rescue Plan Act, utilizing the funding to raise wages while providing sign-on and retention bonuses in 2022.
“These funds have been helpful with our recruitment efforts to support patient care, and should continue to help our hiring and retention efforts in the future as we deploy our remaining funds,” Allison said in the call. “There are some geographical areas where both clinical and hiring pressures continue, but the overall hiring environment has certainly improved.”
Around $13.8 million in American Rescue Plan funds remain and will be deployed toward recruitment, he added.
Addus’ improved hiring results were also driven by investments the company made in a new candidate tracking system that allowed for better engagement and shortened time periods between application and onboarding, according to Allison.
Hospice continues to recover from pandemic challenges at a slower rate than Addus expected.
Addus’ hospice census rose along with the company’s staffing volumes. Hospice average daily census reached 3,213 in Q4, up from 2,651 during the previous year’s period. Hospice length of stay reached an average of 90.2 days in the fourth quarter, compared to 99.3 days during the same period in 2021.
“I still think you’re going to see a little bit of a bumpiness in hospice in probably the first half of the year and more of the growth is going to come through in the second half of the year,” Addus COO and Executive Vice President Brad Bickham said.
Addus’ hospice segment brought in $50.6 million in revenue during Q4. This represented 20.5% of the company’s $201.7 million in revenue for all of 2022.
Hospice outperformed the company’s home health segment, which at $13.1 million in Q4 accounted for 5.3% of overall revenue. Its personal care services reached $183.4 million that period, or nearly three-quarters (74.2%) of Addus’ bottom line.
Where growth is heading
Hospice will remain an important, but perhaps smaller, piece of the company’s acquisition pie. Addus last year began to reorient its strategic growth plans away from hospice and more towards home health and personal care.
The company elaborated on how its acquisition pipeline will unfold deeper into these segments, aiming to grow operations where Addus has existing locations, as well as branching into new geographic regions, according to Allison.
“Our prioritization as far as where we will use our acquisition dollars will be really around personal care, as well as home health,” Allison said. “At this point in time, we’re probably not as focused on hospice as we have been in the past. We’re really trying to grow home health, and we’re really also continuing to look for those strategic opportunities to grow personal care either strengthening the states in which we currently operate, or potentially entering into new states where we would like to go. That’ll be our focus that you’ll see over the next few quarters in 2023.”
Acquisitions contributed about $65 million to Addus’ bottom line in 2022, including a substantial hospice deal. The company purchased Illinois-based hospice provider JourneyCare Inc. in October for $85 million. The next month, Addus picked up Chicago-based Apple Home Health Ltd. for an undisclosed sum.
Now, the company is focused on smaller acquisition targets in personal care and home health in the first half of this year. Even so, it isn’t ruling out larger asset opportunities later in the back half of 2023, Allison said.
The focus on smaller deals is in part due to shifts in reimbursement as well as scarce availability of larger assets, according to Addus CFO Brian Poff. The company expects an active M&A year ahead, Poff indicated.
“We continue to evaluate and pursue other acquisition opportunities and believe we will see a more favorable market environment later this year as sellers, particularly in broker processes, have been slower than expected in coming to market. [That’s] in part due to significant Medicare reimbursement uncertainty for October of last year for home health services,” Poff said. “The final announcement of late 2022 on reimbursement changes for home health has provided more clarity and should lead to opportunities for future acquisitions in skilled home health.”