Addus HomeCare Corporation (Nasdaq: ADUS) has entered a new,
“very attractive” state with its acquisition of Indiana-based
HomeCourt Home Care.
The company has also entered into a definitive purchase agreement
to acquire another personal care provider in Indiana, similar in
size to HomeCourt, with the deal expected to close in the coming
months, according to the company’s Q1 earnings call on Tuesday.
Addus leadership has been interested in expanding into Indiana
for three years due to the state’s rate increases and efforts to
eliminate client waitlists, CEO R. Dirk Allison said.
“These two acquisitions continue our strategy of entering new
markets with scale and where we have the ability to expand our
services,” Allison said on the call.
Frisco, Texas-based Addus primarily offers personal care
services, as well as hospice and home health services. The
company currently serves approximately 62,750 patients and
consumers through 263 locations across 24 states.
The HomeCourt Home Care deal closed on May 1. The personal care
provider currently serves approximately 240 clients and generates
approximately $9.8 million in annual revenue. The company expects
combined Indiana revenue to ring in just under $20 million,
between the HomeCourt acquisition and the unnamed second
acquisition.
Company leadership is considering larger transactions in the
future and is currently considering two or three deals similar in
size to the company’s $350 million acquisition of Gentiva’s
personal care assets.
“We continue to believe that size and scale are important to
health care services and have been the focus of our strategy for
the past ten years,” Allison said. “We continue to evaluate
opportunities which would increase both density and geographic
coverage, as well as seek to further strengthen our relationships
with states and managed care organizations. Recently, we have
begun to see an increasing number of personal care
opportunities.”
The state of Illinois increased Addus’ rates for personal care
services, effective on Jan. 1. Allison said he expects the rate
hike to add approximately $17.5 million to the company’s
annualized revenues.
On the regulatory front, Allison said the company continues to
predict that the 80/20 rule, which requires that 80% of Medicaid
dollars on some home-based care services be spent on worker
compensation, will be eliminated in 2026. Implementation of this
move would be years away and does not currently impact Addus’
performance, Allison said, but would be an encouraging
development for the company and the personal care industry
overall.
Leadership expressed measured optimism regarding the Medicare
home health rule due to the final rule for 2026 being much softer
than originally proposed.
“We saw some positivity in the final rule last year,” Brian Poff,
executive vice president and chief financial officer, said on the
call. “We are interested to see what the rule will look like this
year. It feels like there is more appreciation coming out of CMS
for what the industry has gone through the last few years. They
seem to be focusing on some of the areas where there might have
been issues that impacted how they looked at reimbursement in the
last few years. The industry has been lobbying for some time for
them to see that.”
Allison said the company is open to future home health
acquisitions, but will be diligent when evaluating these
opportunities.
Leadership also responded positively to the Centers for Medicare
& Medicaid Services’ (CMS) focus on fraud, waste and abuse in
Medicaid and Medicare. Allison said the company is glad to see
the second Trump administration focus on fraud and abuse, and
that Addus invests significant funds to maintain compliance in
the states where it operates.
“The fact that we are large and spend millions of dollars on
compliance bodes very well for what the administration is trying
to do, that is, take out the players, mostly smaller players,
that are not doing the right thing and are just billing and not
following through,” Allison said. “More importantly, the most
important thing is that the care is being given to the patient.
There is a reason that the patient has a plan of care that the
state approved. They need that care. We would rather regulators
call out home care broadly and address fraud and abuse in home
health and hospice as well.”
In Q1 overall, Addus’ net service revenues rang in at $363.6
million, a 7.7% increase year-over-year. The company increased
its adjusted EBITDA by 9.7% year-over-year, to $44.5 million.
The M&A market for healthcare companies continues to build on STRATEGIC opportunities and a fragmented market. Consolidations along with unprecedented demand are driving scale across the continuum of care. The strategic corporate buyers and private equity investors remain committed to acquiring strong businesses that are well prepared for a transaction. Across the continuum of care, these buyers and investors are looking for well established, profitable businesses and offering prime valuations and options for management.
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