Investments in their workforce have spurred VITAS Healthcare forward on the road to pre-pandemic financial and clinical performance.
Like many providers, VITAS has traversed some rough terrain since the COVID-19 pandemic struck in 2020. A rash of industry-wide headwinds compressed margins and depressed revenue, including spiking supply and labor costs, reduced referrals and length of stay, as well as the pernicious workforce shortage.
More recently, staffing pressures have been the Chemed (NYSE: CHE) subsidiary’s tallest hurdle. But according to executives, the company is close to clearing it.
A bonus program implemented last year has accelerated hiring, which in turn has relieved some of the capacity constraints that have been a stumbling block for several quarters running.
“I’ll stick my neck out a little bit and just say that if the current rate of capacity expansion continues, and running more like 50 to 75 increase in licensed health care workers per month, in 2024 we’ll return to our pre-pandemic census,” CFO and Executive Vice President David Williams said in a Q1 earnings call. “But that’s a big ‘if’ — the rate of expansion of capacity continues at the same pace.”
VITAS hired 200 licensed clinicians during the first quarter of 2023, 60% of whom are nurses, the company reported. This brings its total of new clinician hires to 475 since the implementation of its bonus program in July of last year.
if the current rate of capacity expansion continues … in 2024 we’ll return to our pre-pandemic census.”– Chemed CFO and Executive Vice President David Williams
The bonus program includes a one-time retention payment that ranges from $2,000 to $15,000 per employee for nurses, nurse managers, home health aides and social workers.
The company expected the program to bring in roughly 25 new health care workers each month during 2023 at an estimated cost of $40 million, which VITAS hopes to offset with increased volume as staffing gains drive up capacity. To date, the pace of hiring has exceeded those expectations, according to VITAS CEO Nick Westfall.
The boosted capacity appears to be paying off in terms of average daily census (ADC) and admissions.
“We’ve now generated three quarters of sequential growth in licensed health care workers, two quarters of sequential growth in both admissions as well as ADC,” Westfall said in the earnings call. “We have developed what I believe is a very sustainable path to building back our capacity and patient base to pre-pandemic levels and beyond.”
In Q1, the company’s ADC rose 3% year-over-year to 17,830. Comparatively, this exceeds the census of 17,131 patients that VITAS reported pre-pandemic in Q3 2019.
In the first quarter of 2023, VITAS’ total admissions reached 16,179. This is down 2.1% from the first quarter of 2022 but represents a 9.1% sequential improvement from Q4 2022.
VITAS earned $310 million in net revenue during the first quarter of 2023, a 3.8% rise from the prior year’s period.
Nevertheless, the company continues to see some margin compression.
Its Q1 gross margin hit 22.5%, excluding the Medicare payment cap and costs of the hiring and retention bonus program. This is down 220 basis points from Q1 2022. VITAS attributes the decline to the reinstatement of Medicare sequestration as well as the hiring and onboarding costs for its incoming clinicians.
Time will tell what the ultimate impact of the company’s bonus program will be. VITAS will not be making those additional payments forever and currently has no plans to extend the program after its scheduled end date in July.
We do not anticipate re-instituting a different retention program, making it permanent. Our view was it was for one moment in time,” Chemed CEO Kevin McNamara said in the earnings call. “It’s had great success. But I think at a certain point, it becomes self-propagating to the extent that you have more staff, and everyone who’s on your staff is happier. To the extent that you have those forces working with you, we do not anticipate continuing it.”