Home health advocates continue to flood Washington D.C., making their case against the dramatic cuts suggested by the U.S. Centers for Medicare and Medicaid Services’ (CMS) in its new proposed payment rule released on June 17. And while we’re still months away from understanding where the final payment rule will end up, some prognosticators are predicting that no matter what, it may have a negative effect on the red-hot home health and post-acute transaction markets.

Not so, says Ben Bogan, Managing Partner of national health care mergers and acquisitions firm Stoneridge Partners.

“This is exactly when smart operators should be turning to their advisors to help them sharpen their acquisition strategy, not abandon it. There’s no better time to think about diversifying your payor sources to blunt the impact of cuts in any one area. And in a time when your competitors may be pulling back and playing it safe, this is an opportunity to set your business apart from the pack by adding new geographies and new service lines. Strategic acquisitions will bolster your position, no matter what the payment landscape looks like.”

In the short-term, the proposed rule has certainly caused more headaches for an industry that has seemed poised to take off – if only it could unburden itself from the effects of the pandemic and ensuing economic challenges. June was no different, according to the Stoneridge Partners Home Health Index (HHI); home health stock values dipped by just more than 18% last month, compared to a more than 2% drop in the S&P.

Home Health Index

Stocks for both of the home health giants that make up the HHI fell in June as compared to May. Amedisys, Inc. (Nasdaq: AMED) stocks dropped more than 9% last month, while stocks for LHC Group, Inc. (Nasdaq: LHCG) were down by more than 6%.

Last month, Amedisys suggested it was going all-in on its work with high-acuity care services provider Contessa Health, which it acquired in June 2021. While the acquisition always signaled Amedisys’s continued move into home-based higher-acuity care, its leaders last month expressed a closer bond, with Contessa becoming an integral part its business.

“I think it’s safe to say that Contessa [on its own] was going to have a good run on hospital joint ventures, particularly around more regional and smaller-market hospitals,” Amedisys CEO Chris Gerard said during William Blair’s 42nd Annual Growth Stock Conference in June. “And then Amedisys was going to probably have a handful of joint ventures added on a day-in-and-day-out basis, but not really as a part of our core business. But now, we have such an offering that the hospital systems are really wanting to form a deep relationship with us so that they can optimize their beds.”

In March, UnitedHealth Group (NYSE: UNH) agreed to buy LHC Group for a reported $5.4 billion. This month, both companies received a request from the Federal Trade Commission (FTC) for more information regarding the deal.

Post-Acute Care Index

After a strong performance in May, post-acute care company The Pennant Group, Inc. (Nasdaq: PNTG) gave back its gains and more in June, with its stock price dropping by 33%. Addus HomeCare Corporation (Nasdaq: ADUS) was relatively stable, dropping by less than a point in June.

Pennant will soon have a new CEO when Brent Guerisoli officially takes the helm on Aug. 1. Guerisoli indicates that he plans to execute Pennant’s strategy of buying community-driven agencies.

“A lot of what we’re doing now is creating more structure around the frameworks, around their systems, around their processes,” Guerisoli told Home Health Care News in June. “That foundation is so critical because that’s what we build from. If we can do that in the right way, we are going to create a significant opportunity for future partners that are going to join the organization, and future patients and residents.”

Elsewhere in the Post-Acute Care Index (PAI), stocks for Encompass Health Corporation (NYSE: EHC) dropped by more than 14% last month as it completed its spin-off of Enhabit Home Health & Hospice (NYSE: EHAB).

Quote of the Month

“Certainly, any reduction in revenues from home health will make it much harder to implement new programs such as palliative care, participate in innovations such as hospice [value-based insurance design demonstration], and impact the ability of the provider to recruit and retain staff for any of its programs as demands for higher compensation grow. In some circumstances, lower home health revenues may lead to the use of hospice revenues to subsidize other programs, rather than to continue to invest in hospice improvements such as technologies.” – Bill Dombi, President of the National Association for Home Care & Hospice.

Read the Full Article Here: Medicare Home Health Cuts Could Have Ripple Effect on Hospice, Palliative Care

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)

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

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)

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

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 July 2022 | Stoneridge Partners)

Recent Transactions From Around The Country

• Hospice provider Complete Oklahoma acquired a license from Houston-based Avenir Hospice Care
• CommuniCare Health Services took over operations of hospice and home health provider Stonerise

SOLD!!! By Stoneridge

• Stoneridge Partners is proud to announce that our Managing Partner Benjamin Bogan served as exclusive advisor to Hope Nursing Home Care in its successful acquisition by Community Based Care, LLC
• Stoneridge Partners is proud to announce the successful sale of a home health agency in Tennessee
• Stoneridge Partners is proud to announce the successful sale of a home care agency in Florida
• Stoneridge Partners is proud to announce the successful sale of a personal assistance/companion care agency in Florida
• Stoneridge Partners is proud to announce the successful sale of a home health agency in Arizona

View all of our closed transactions on our website

Home Health Index July 2022 | Stoneridge Partners

From Brian Bruenderman, Publisher of “Home Health Index.” Brian 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