Home Health, Personal Care Reimbursement Guiding Addus’ M&A Strategy

As Addus HomeCare Corporation (NASDAQ: ADUS) sinks teeth into acquisitions, the company will be taking smaller bites when it comes to hospice deals.

Addus has indicated for roughly the last year that it will orient its M&A strategy towards its home health and personal care services, with hospice becoming less of a priority.

But this doesn’t mean that hospice is entirely out of the mix of acquisition targets, according to Brian Poff, Addus CFO and executive vice president.


“In M&A, I think there’s opportunities to continue to be acquisitive,” Poff said at the Bank of America (BofA) Securities 2023 Healthcare Conference in Las Vegas. “So [for] hospice, we would not say ‘no’ to it, but it needs to be the right valuation if it was a future market — so probably less of a priority for us right now.”

Addus provides hospice, home health and personal care to an estimated 47,500 patients annually across 203 locations in 22 states.

High valuations in the hospice market have been among the deterrents for seeking acquisitions in the hospice space, Addus executives previously indicated. Hospice multiples broke records in 2020, 2021 and 2022, reaching as high as 29x. Though some observers say that hospice price tags are starting to come down during the first two quarters of this year.


Potential shifts in home health reimbursement are also driving the company’s M&A decisions, Poff stated during an earnings call earlier this year. Proposed changes could make home health deals more attractive, he indicated.

The U.S. Centers for Medicare & Medicaid Services (CMS) recently unveiled several Medicaid-related proposals that the agency believes would bolster access, accountability and transparency in home- and community-based services (HCBS). Proposed changes, for example, include requiring 80% of Medicaid payments to be spent on compensation for personal care workers and those who provide similar services.

However, home health care providers are concerned that due to the wide variance in state waiver programs, any changes that become finalized could increase the burden on providers certain regions, according to Addus CEO and Chairman Dirk Allison.

The company is waiting for the dust to settle in personal care reimbursement as well, Poff indicated.

“We’ll probably pause briefly to kind of see which direction CMS is going to head with personal care, but I think we’ll still be looking at selected markets there” he said. “And then obviously trying to pair skilled home health and markets where we have strong personal care is still a focus of ours.”

Addus’ growth trajectory will in part hinge on wherever the chips fall on the final rules, with reimbursement having a heavy influence on the company’s focus, according to Jeffries equity analysts Brian Tanquilut and Kristen Shuman.

“Specifically for [Addus], which had segment-level gross margins of 26.4% in 4Q22, the finalization of this rule as proposed would lead to significant margin compression and the limitation of earnings potential for the business,” the pair noted in a recent report. “Given this ruling essentially proposes a 20% margin cap on personal care providers, this triggered a considerable sell-off in [Addus] and other personal care/home-based care players.”

Ultimately, Addus is taking a layered approach across its trio of services that will balance out any evolutions in home health and personal care payment, according to Chairman and CEO Dirk Allison.

“I don’t think the fact that the [home health] rule is not finalized bothers us, as we do believe this year there’ll be very little increase, probably flat to just slightly down or up,” Allison said at the BofA conference. “That doesn’t really impact us. We can find a home health asset that fits on top of our personal care market or network and is strategic. We would be involved with that, we would be happy to go ahead and spend our money for that.”

The company has had a strong cash flow in the last couple of years, a trend expected to continue to generate momentum towards its future M&A activity, Poff said.

Addus’ overall revenue reached $251.6 million during the first quarter, an 11% year-over-year rise. Its hospice segment raked in $49.08 million in Q1, or 19.5%, of that revenue. Addus’ home health segment brought in $12.49 million that period, while personal care services represented 75.5% of its bottom line at $190.03 million.

Acquisitions contributed about $65 million to Addus’ bottom line in 2022. The company purchased Illinois-based hospice provider JourneyCare Inc. for $85 million in October that year and picked up Chicago-based Apple Home Health Ltd. for an undisclosed sum the following month.

Companies featured in this article:

, , ,