CMS Releases Final Payment Rule; Post-Acute Care Shows Signs of Improvement

After a surge in COVID-19 cases led to consecutive monthly losses for post-acute care stocks, providers are slowly starting to show signs of recovery. And with a reimbursement rate increase on tap for 2022, home health companies have reason to be optimistic.

The U.S. Centers for Medicare & Medicaid Services (CMS) released the final home health payment rule on Nov. 2, which includes a 3.2% payment boost for next year and finalizes the nationwide expansion of the Home Health Value-Based Purchasing (HHVBP) Model.

“This is the largest rate increase for the home health industry since 2002, which will help providers overcome the eventual return of Medicare sequestration,” said Rich Tinsley, President and CEO of Stoneridge Partners. “Value-based purchasing will also likely drive some consolidation among more advanced, high-performing home health companies.”

Home Health and Post-Acute Care Indices

The Stoneridge Partners Home Health (HHI) and Post-Acute Care Indices (PAI) were both down throughout most of the third quarter, but each started to show signs of life in October.

With the effects of the COVID-19 Delta variant waning, the HHI improved its recent performance, ending down less than 1% in October as compared to the previous month. In contrast, the PAI still struggled, down by 8% on a month-over-month basis. Both indices substantially underperformed the S&P 500, which was up nearly 7% in October.

One factor to watch in the coming months? The impact of the federal vaccine mandate on post-acute staffing levels. CMS and the U.S. Department of Labor (DOL) both released vaccination rules on Nov. 4, with vaccine requirements planned to take effect in January.

Home Health Index

The HHI from Stoneridge Partners follows the stock values of Amedisys, Inc. (Nasdaq: AMED) and LHC Group, Inc. (Nasdaq: LHCG). October saw varying results for the HHI companies, with Baton Rouge, Louisiana-based Amedisys’ stock rising almost 14% while Lafayette, Louisiana-based LHC Group saw its stock dip by more than 14% last month.

Both companies released their third-quarter financial results the week of Nov. 1 and detailed the pandemic-related headwinds they continue to face. But Amedisys, LHC Group and other home health providers will surely benefit from the 3.2% payment boost next year, and may also gain some stability around the Patient-Driven Groupings Model (PDGM) since CMS is keeping the payment model’s overall framework the same for 2022 apart from some minor recalibrations.

“On a more long-term basis, each could likewise see benefits from the Choose Home legislation currently making its way through Congress,” Tinsley added.

Post-Acute Care Index

In addition to Amedisys and LHC Group, Stoneridge tracks the stock performance of Addus HomeCare Corporation (Nasdaq: ADUS), Brookdale Senior Living Inc. (NYSE: BKD), Encompass Health Corp. (NYSE: EHC) and The Pennant Group, Inc. (Nasdaq: PNTG) in its PAI.

October ended in a split decision for the four additional PAI companies. Frisco, Texas-based Addus was up more than 17%, and Brentwood, Tennessee-based Brookdale was up more than 3% last month. Meanwhile, Pennant was down nearly 9%, while Encompass was down more than 15%.

During its Oct. 28 earnings call, Encompass confirmed plans to do a public spinoff of its home health and hospice business. The company expects the spinoff to take place in the first half of 2022.

Quote of the Month

“It could be very beneficial for people to consider hospice as an option as soon as they get news of a terminal illness. Often people wait too long, and miss out on the benefits and support the patient and the family could have received.” – Ginger Marshall, Nurse Practitioner and CEO of the Hospice and Palliative Nurses Association

Read the Full Article Here: 5 Common Questions About Hospice Care, Answered

Articles Featuring Stoneridge

The Last Stoneridge Partners Speakers Series of 2021 is December 14th at 1:30pm ET. Stoneridge Partners President and CEO Rich Tinsley will moderate a virtual panel discussion about the current state of the markets, valuation trends in 2021 and industry expectations for the new year. Featured speakers will include David Baiada, CEO of Bayada Home Health Care; Brian Bruenderman, Partner and Executive Vice President, Stoneridge Partners; and Tom Lillis, Partner and leader of Stoneridge Partners Strategic Consulting. Register here!

View our quarterly M&A webinars on current valuation trends, deal flow, and pertinent regulatory changes in home health, home care, hospice, ID/DD and behavioral health industries. Visit the Speaker Series Webinar Library on our website.

See It To Believe It!

The Stoneridge Partners Home Health Index (HH Index) is updated monthly and measures the performance of these two publicly traded home health companies, all listed on the NASDAQ:

  • LHC Group (LHCG)
  • Amedisys (AMED)
(Home Health Index November 2021 | Stoneridge Partners)

Here are the results of the stock prices for the past two years:

Company 10/31/21 1 mos change YTD change 10/31/20 10/31/19
Amedisys 169.34 +13.57% -42.27% 259.00 128.52
LHC Group 134.59 -14.22% -36.91% 216.55 110.97
HH Index* 151.97 -0.68% -40.01% 237.78 119.75
S&P 4605.38 +6.91% +22.61% 3269.96 3037.56
Addus 93.50 +17.24% -20.15% 97.57 84.21

Although we track the performance of Addus, they are not included in our HH Index because very little of their revenue comes from Medicare.

Enterprise Value (EV)

EV (in M) 10/31/21 10/31/20 10/31/19
Amedisys 5720 8520 4570
LHC Group 4610 6800 3970
HH Index Total 10330 15320 8540
Addus 1400 1460 1110

Enterprise Value (EV), aka Selling Price, as Percent of Revenue

Company 10/31/21 10/31/20 10/31/19
Amedisys 260% 422% 242%
LHC Group 216% 330% 195%
HH Index Average* 238% 376% 219%
Addus 173% 198% 197%

Multiples of EV/EBITDA

Think of this as selling price as a multiple of EBITDA.

Company 10/31/21 10/31/20 10/31/19
Amedisys 14.96 32.29 24.12
LHC Group 19.39 28.10 19.53
HH Index Average* 17.18 30.20 21.83
Addus 20.94 26.17 26.87

The Stoneridge Partners Post-Acute Care Index is updated monthly and measures the performance of these six publicly traded post-acute care companies, all listed on the NASDAQ:

  • LHC Group (LHCG)
  • Amedisys (AMED)
  • Addus (ADUS)
  • The Pennant Group, Inc. (PNTG)
  • Encompass Health (EHC)
  • Brookdale Senior Living Inc. (BKD)

This graph displays Post-Acute Care Index performance starting late 2019.

The above calculations are based on selling price being defined as Enterprise Value (EV), with data provided by Capital IQ. Enterprise value is defined as market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents. EBITDA is calculated using methodology which may differ from that used by a company for its reporting. (Home Health Index November 2021 | Stoneridge Partners)

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Non-medical home care franchisee.  $9.6+M in revenue.  50% Medicaid/30% Private Pay/ 14% VA/ 6% Misc.  Experienced management team to stay post-transition.

 Home Care /  Multi-State

Hospice.  45+ ADC.  Rio Grande Valley.  No CAP or regulatory issues.

 Hospice /  Texas

$2M revenue home care agency.  100% private pay.  Primarily non-medical.  Skilled designation, not Medicare-certified.  W-2 caregivers.  Region 8.  Accredited.

 Home Care /  Florida

Profitable private-duty home health agency in Northern Virginia.  $1.5M in revenue.  20+ years in the community.

 Home Health /  Virginia

Profitable home care franchise with consistent sales growth.  Revenue of $1.3M.  Great reputation within the community.

 Home Care /  Iowa

$40M+ home care agency with 20+% AEBITDA.  Primarily private-duty, non-medical (90%).  Medicaid waiver programs.  40% family caregivers.  Multiple locations.

 Home Care /  Pennsylvania

Colorado Springs and surrounding areas.  Opportunity to grow existing small hospice.  Motivated Seller

 Hospice /  Colorado

Medicare-certified home health agency.  Houston/Kingwood area.  Approximately $600k in revenue.  Accredited.

 Home Health /  Texas

I/DD provider offering SCL & FHP services.  $3M in revenue.  Recent rate increase.

 I/DD /  Kentucky

Hospice.  30+ADC.  No CAP or regulatory issues.

 Hospice /  Illinois

Behavioral Health/Suboxone Clinic.  $900k in revenue.  21 years in business with stellar reputation.  Single office, great opportunities for expansion.  All cash paying patient base.

 Behavioral Health /  Kentucky

I/DD residential services.  $11M in revenue.  Highly profitable agency with long-standing reputation.  Community Residential Services (CRS) 4-bed model & Integrated Community Supports (ICS) apartment settings.

 I/DD /  Minnesota

Well established home health agency.  $4M in revenue.  Fully staffed.  Profitable.  Good history of compliance.

 Home Health /  Missouri

Home Health CON in Montgomery County.  Profitable agency generating over $1.3M in revenue.  95%+ Medicare.  Built in marketing relationship and growth potential.

 Home Health /  Maryland

Skilled Home Health & Private Duty. $4.4 million in revenue. 22% census increase over last year. Established over 23 years.

 Home Health /  Florida

Medicare/Medicaid Home Health agency. $8 million in revenue. Long history in the community.

 Home Health /  Oklahoma

86 patient hospice located Northeast of Houston, TX. $4M+ in revenue with 20% + adjusted EBITDA. Full staff in place. Excellent record of compliance.

 Hospice /  Texas

Medicare-certified home health agency. District 7. Census of approximately 30 patients. Accredited.

 Home Health /  Florida

Hospice. 150 ADC. Strong growth. Expertly run with administrative team willing to stay involved. No CAP or regulatory issues.

 Hospice /  Southwest

Mental Health Treatment Center. $1.1M in revenue. Long-established, profitable practice. Full spectrum of medical treatment and therapy services.

 Behavioral Health /  Indiana

Medical Staffing Agency. $4.6M in revenue. Established over 25 years. Excellent rapport with regional hospital network.

 Other /  Kentucky

Medicare home health agency.  Health system relationship.  Rare KY CON opportunity, multiple counties

 Home Health /  Kentucky / Popular

Home health with $8M in revenue.  Medicare/Medicaid-certified.  90+% traditional Medicare/episodic.  Services central Texas and licensed for entire state.  Strong management team in place.

 Home Health /  Texas

Medicare-certified home health agency.  Houston-area.  Minimal census.

 Home Health /  Texas

Medicare-certified home health agency.  $1M+ in revenue.  Long-established agency with excellent community rapport.

 Home Health /  Texas

$19.5M large home care franchisee.  89% Medicaid.  Well-established company operating more than 20 years.  Phenomenal year-over-year revenue growth.

 Home Care /  Illinois / Popular

Home Health Index November 2021 | Stoneridge Partners

From Rich Tinsley, Publisher of “Home Health Index.” Rich can be reached at [email protected] or (239) 561-0826, and toll-free at 800-218-3944. Previous editions of this monthly newsletter can be searched for at the bottom of the home page of the Home Health Index. Links to Google Finance: Amedisys | LHC Group