Addus HomeCare Corporation’s (Nasdaq: ADUS) purchase of Gentiva’s personal care segment is bearing fruit as the company drives forward on its acquisition strategy in 2025. But labor constraints and evolving reimbursement pressures could complicate the growth of its hospice and home-based services.

The Texas-headquartered personal care, home health and hospice provider is narrowing its strategic focus around acquiring smaller assets but has not ruled out larger-scale transactions, according to Addus Chairman and CEO Dirk Allison.

Addus is currently considering clinical and nonclinical acquisition opportunities that expand its home state geographic footprint across all three of its health service business lines, Allison said.

“We are currently looking at certain smaller transactions,” Allison said in an earnings call on Tuesday. “Acquisitions continue to be an important part of our growth strategy at Addus. While there are indications of a number of larger clinical service acquisition opportunities potentially coming to market later in 2025, we remain committed to maintaining our conservative approach to pricing and overall due diligence, which we feel has proven to be advantageous to us over the past several quarters.”

Addus’ hospice service line brought in nearly $59 million in revenue during the fourth quarter, a 7.8% increase from $54.7 million in the prior year’s period. The company reported a “steady improvement” in its hospice average daily census, which reached 3,472 in Q4, fueled in part by a 2.7% rise in organic growth. Hospice average length of stay reached 97.9 days during this period.

Positive trends in its hospice segment were in part driven by some recently implemented organizational changes, including recently hired new sales and operations staff to “further accelerate improvement,” Allison stated.

Propellants of growth

Addus provides home care services to roughly 61,500 individuals across 257 locations in 23 states.

The company’s total revenue reached $297.1 million in the Q4 of 2024, a 7.5% year-over-year increase. Its personal care revenues reached $220.3 million that period, with home health revenues at $17.8 million.

Addus’ fourth quarter adjusted EBITDA margin reached 12.7%, which was 1.9% above market projections, reported the investment banking and M&A advisory firm Stephens.

Addus attributed the growth in part to its recently completed $350 million acquisition of Gentiva’s personal care business, which is anticipated to bring in nearly $280 million in annualized revenue.

The home-based care provider’s acquisition strategy focuses on pairing its clinical services with its personal care business across its existing markets. The Gentiva deal marked one of the biggest purchases for Addus and “significantly expanded” the company’s market coverage in Texas while adding higher acquisition expenses during the fourth quarter, Executive Vice President and CFO Brian Poff indicated.

“The Gentiva acquisition was the largest in our history,” Poff said during the earnings call. “Even after the Gentiva acquisition, we are well-positioned to execute our acquisition strategy. We will continue to selectively pursue acquisitions in 2025 that complement our organic growth and align with our strategy. With Gentiva — and Texas being the largest piece [with] their gross margins in the low 20s — that’s definitely going to be impactful as part of the mix.”

In recent years, Addus has slowed progress on the merger and acquisition front, taking a more conservative approach to hospice growth amid high valuations in the industry. The company anticipates ramping up M&A activity toward the end of this year as it continues to absorb Gentiva’s personal care assets, with potentially larger deals coming to fruition.

Headwinds on the horizon

Workforce and reimbursement pressures are among the significant headwinds to Addus’ bottom line, Scott Fidel, analyst for Stephens, stated in a research note.

“The largest challenge facing ADUS’s targeted [same store] revenue growth of 3% to 5% is hiring caregivers in what has been a very tight labor market,” Fidel said. “Changes in government health care programs, and subsequently reimbursement, may adversely affect ADUS’s revenues given that a significant portion of its revenues are derived from government health care programs, principally Medicare and Medicaid.”

Addus has ramped up its sales training efforts to help boost patient referral streams, according to President and COO Brad Bickham. The company is also focused on reducing staff turnover by providing employees with greater opportunities for more hours, Bickman said.

“We’re in a pretty good spot [for] hiring, and where I really want to see our teams do better is actually getting more hours out of our existing workforces,” Bickman said. “It’s a lower cost way to do business that also should help with turnover rates, because that’s really the number one reason why caregivers leave us.”

Among the most pressing reimbursement concerns on the horizon for hospice and home health providers is the pending decision on a recently introduced Congressional budget that proposed roughly $884.4 billion in potential Medicaid funding cuts, Allison said. The bill is currently under review by the House Budget Committee and lacked clarity around specific spending reductions, leaving questions for home-based care providers that serve vulnerable and medically fragile patient populations, he indicated.

“Medicaid is a valuable state and federal lifeline to the extremely at-risk population that we serve, which, if cut, could lead to much higher total cost of care for both states and the federal government,” Allison said. “We cannot predict which, if any, of these measures will be implemented, or the net effect of any changes. We believe passage … will be daunting. The Senate is pursuing its own budget resolution that contemplates significantly lower spending cuts to the Medicaid program, with unknown results.”