The executives of Addus HomeCare Corp. (Nasdaq: ADUS) still believe the Medicaid Access Rule has missed its mark. But that doesn’t mean they won’t take advantage of it.
The company regularly expands its personal care presence, expanding it in some areas and strengthening it in others. If the consolidation is a result of the 80-20 provision of the Medicaid Access Rule, Addus would likely be a beneficiary.
“There are additional points about the rule and its implications that are worth addressing,” Addus CEO Dirk Allison said on Tuesday’s first-quarter earnings call. “We continue to believe that the regulation disproportionately impacts small providers and encourages their size, which will lead to further consolidation opportunities.”
Based in Frisco, Texas, Addus provides personal care, home health and hospice care to more than 49,000 consumers at 214 locations in 22 states.
Allison pointed out that exemptions for smaller providers – to pay caregivers less – would also give Addus the opportunity to capture a larger share of the labor market, a possible unintended consequence of the 80-20 rule and its exemptions.
The 80-20 provision, if implemented, will require scale, he noted.
For this reason, Addus will continue to expand its scale in each of its personal care markets, but also anticipates that small players will struggle to comply with regulations.
“Of course we and other providers are disappointed with the result,” he said. “Although we support the overall policy goal of ensuring higher wages and improving access to services in the home community.”
Allison also discussed some of the positives that emerged between the Medicaid Access Rule’s proposal and its finalization in late April.
On the one hand, the change in the time period from four to six years until implementation was seen as positive.
Certain costs such as mileage, PPE and training are also deducted before the 80-20 calculation, which is also beneficial for providers. “Direct care workers” now include clinical supervisors, and states have the freedom to adjust what goes where in the 80-20 calculation – at least to some extent.
“All of these changes combine to reduce the potential impact of the rule on our margin,” Allison said.
However, Addus is not yet convinced that the 80/20 rule will become mandatory in six years, given the administrative turnover that could occur over a six-year period.
“Realistically, we think so [the timeline] “The likelihood that the rule will not be implemented in its current form increases significantly,” Allison continued. “For a variety of reasons, including, but not limited to, legal or congressional action or possible administrative changes in one of the next two presidential election cycles.”
In the first quarter, Addus’ total net service revenue increased 11.6% year-over-year to $280.7 million.
Personal care sales rose 9.5% year-over-year in the fourth quarter. Home health care revenue increased over 35.2%, while hospice saw a 13.8% increase.
M&A, MA and recruitment
Addus’ approach to growth, particularly through acquisitions, has not changed.
“We are currently in the process of exploring in-person opportunities that would allow us to have a larger presence in our current states,” Allison said. “We are also looking for ways to penetrate new states in a material way. Personal care is a valuable service for our elderly and disabled population, and we are optimistic that states will continue to evolve their programs to remain viable regardless of the rule.”
Although home care continues to represent a small portion of Addus’ business – approximately 6% of revenue – the company plans to continue to expand this into its personal care markets to increase value-based care capabilities.
“Our primary focus continues to be leveraging our financial capacity to acquire strategic operations that are consistent with our overall growth strategy of adding clinical services where we have a strong personal care presence,” Allison said. “This acquisition strategy will further strengthen our ability to participate in value-based contracts with our payers and adapt to potential reimbursement changes.”
In terms of hiring, Addus’ first quarter mirrored the first quarter of 2023. The company records approximately 84 net new hires per business day. That’s also an increase of about 5% from the fourth quarter.
Allison also noted that while Medicare Advantage penetration continues to impact Addus in the home health insurance segment, he believes there has been some slowdown in this area.
“We continue to be impacted by the shift of Medicare beneficiaries from Medicare beneficiaries to Medicare Advantage, but we feel this shift may be moderating in the markets we currently serve,” he said. “We continue to work with our Medicare Advantage payers to obtain higher rates.”