The labor shortage and capacity constraints are the prevailing headwinds facing Aveanna Healthcare Holdings (NASDAQ: AVAH).

A cornerstone of the company’s strategy is fostering growth through value-based contracts in its private duty and home health businesses. The company sees this approach as a pathway for improving hiring and building clinical capacity.

Aveanna added four value-based payer contracts during Q1 for a total of 18 and set a goal for increasing that number to 22 by year’s end.

“The labor environment represented the primary challenge that we needed to address to see Aveanna resume the growth trajectory that we believe our company could achieve,” CEO Jeff Shaner said in a Q2 earnings call. “It is important to note that our industry does not have a demand problem. The demand for home- and community-based care continues to be strong with both state and federal governments and managed care organizations.”

In an earnings call, Aveanna executives described four pillars of their strategy, instituted last year and continuing into 2024. These include enhancing private and government payer partnerships, expanding caregiver capacity, identifying cost efficiencies and synergies, managing its capital structure to produce positive free cash flow and “engaging leaders and employees on delivering our Aveanna mission.”

Aveanna’s service revenue reached $505 million for the three-month period ended June 29, up 7% year-over-year from $471.9 million. Fueling the growth was a $30.2 million bump in private duty revenue and a $3.6 million increase in medical solutions dollars. This was somewhat offset by a $0.8 million decline in the company’s home health and hospice segment compared to Q2 2023.

Home health and hospice revenue totaled $109.2 million the second quarter, down from $111.5 million in the prior year’s period. Total admissions for the segment dropped to 19,500 in Q2 compared to 21,600 in the second quarter of 2023.

Despite these declines, Shaner voiced optimism for the rest of the year, largely due to the company’s strategy of aligning hiring with preferred payer contracts.

“We will continue to remain focused on aligning our home health caregiver capacity with those payers willing to reimburse us on an episodic basis and focus on improved clinical and financial outcomes,” Shaner said. “We are encouraged by our 2024 rate increases, preferred payer agreements and subsequent recruiting results. Our business is demonstrating solid signs of recovery.”