The “sugar high” that some cash-strapped home health providers felt after receiving federal assistance linked to the COVID-19 pandemic is coming to an end, top executives from LHC Group Inc. (Nasdaq: LHCG) believe.
As a result, consolidation is beginning to ramp up again, setting the stage for a potentially record-setting year for dealmaking. Prior to the coronavirus, most industry insiders expected 2020 to be that historic year for M&A due to the Patient-Driven Groupings Model (PDGM).
“We have been anticipating this historic consolidation opportunity in our industry to materialize in home health as a result of PDGM,” LHC Group Chairman and CEO Keith Myers said Wednesday during a presentation at the annual JP Morgan Healthcare Conference. “While the pandemic and the stimulus funds forestalled it temporarily, the consolidation has unfolded in a multitude of positive ways that we didn’t originally anticipate.”
Headquartered in Lafayette, Louisiana, LHC Group provides home health, hospice and personal care services across 35 states and the District of Columbia. In addition to its wholly owned in-home care locations, the company is also a joint venture partner with nearly 400 hospitals and health systems.
Combined, the five largest home health providers — Kindred, Amedisys Inc. (Nasdaq: AMED), LHC Group, Encompass Health Corp. (NYSE: EHC) and AccentCare Inc. — still account for only 20% of the national market share.
On its end, LHC Group is working to carve out a bigger piece of that pie in 2021 by pulling multiple levers.
Those plans include launching de novos in new markets and maintaining organic growth across existing operations. The company also expects to continue negotiating better rates with payers outside of fee-for-service Medicare while adding new referral sources.
Overall, LHC Group saw a 22% increase in new physician referral sources in 2020 compared to the previous year.
“This is a highly fragmented industry,” Myers said. “And the market is ripe for consolidation.”
By the numbers: LHC Group’s ‘growth levers’
LHC Group has seen particularly strong growth across its JV operations. That’s partly due to the public health emergency, with hospital and health system partners leaning heavily on LHC Group as they shifted a wide variety of care into the home.
In the fourth quarter of 2020, for example, same-store admissions for LHC Group’s wholly owned home health business were down 0.7% on a year-over-year basis. JV same-store admissions were up 6.5%, in comparison.
Meanwhile, in the third quarter of last year, same-store admissions for the company’s wholly owned home health segment were up 2.8% on a year-over-year basis, with JV same-store admissions up 7.4%. Q1 and Q2 had a similar breakdown.
“We’ve never really presented data like this that breaks apart our organic growth between joint ventures and our wholly owned assets,” LHC Group President Joshua Proffitt said at the JP Morgan Healthcare Conference. “But I do think it really tells a pretty compelling story to further drive home that differentiated strategy we have with our JVs.”
When it comes to outside acquisitions, LHC Group’s M&A team has started to see more inbound calls, the executives noted.
That was the case in early 2020, too, until the market froze because of the COVID-19 virus.
“The pipeline was robust,” Myers said. “And we know by name many of those providers that should have consolidated this year.”
As for gains outside of traditional Medicare, LHC Group grew its non-Medicare episodic admissions by about 35% in 2020 over 2019. Additionally, the majority of those admissions were at Medicare-equivalent rates.
The company’s rate per visit on all non-Medicare payers improved by 8% in 2020 over 2019. It has improved almost 12% over the last three years, reflective of payers’ heightened recognition of home-based care.
“We have an unprecedented number of tailwinds ahead,” Myers said.
COVID-19 volume hits new high
After operating through COVID-19-related disruption last spring, LHC Group’s home health census has fully recovered, according to the company.
In the fourth quarter of 2020, LHC Group’s average daily home healthy census reached 83,686 patients, 6,700 more than in Q1. Hospice admissions were similarly up.
Although the company has recovered from coronavirus-related challenges, it can still feel the impact of the pandemic, which continues to take its toll on the U.S. A count from Johns Hopkins University shows that the country eclipsed 4,300 deaths on Tuesday alone — another single-day high.
In total, LHC Group admitted 7,046 COVID-positive home health patients during the first three quarters of last year. It then admitted 7,544 COVID-positive patients in Q4 alone.
“I think that really goes to drive home … the value proposition and what we’ve been able to prove throughout the [duration] of this pandemic of what the home health benefit can provide to the patients,” Proffitt said. “I think it also points to the spike that we’ve all seen and all the national numbers throughout the fourth quarter, even here starting into the first quarter. We’re really pleased and proud of our front-line workers for the work that they’ve been able to do, taking care of all of those patients who are struggling in their homes with the virus.”