Addus CEO: Value-based care will be an ‘essential’ part of the business in the next 5 years

Addus HomeCare Corporation (Nasdaq: ADUS) is doing well. But to do better, it wants to expand its home healthcare segment and be more fully involved in value-based healthcare contracting.

Now Chairman and CEO Dirk Ellison sees mergers and acquisitions as one of the key areas in the near future.

In addition, Ellison prioritizes maintaining the ability to maintain low employee turnover and payer diversification.

Home Health Care News recently caught up with Allison, who expanded on these and other topics during the conversation.

HHCN: Addus has been looking to expand into the personal care and home health segments for some time now. In what ways do you hope to achieve this?

Allison: Well, we talked to our investors about growth in two ways. Obviously there is organic growth. Particularly in the case of personal caregivers, it really depends on the possibility of adding caregivers. During the pandemic, it was a little hard because some of them were afraid to go into the house. Many of our employees were recipients of additional unemployment benefits. Of course they got discount checks. This made it difficult to hire.

Starting in 2022, after the January and February omicron wave, every month since then we have seen a significant increase in our ability to hire carers for our personal care business.

We are also looking for personal care service providers. It’s difficult because of the market, but we’re certainly trying to do it.

During the P&L calls, you spoke openly about the challenges Addus faces with M&A. Could you talk about some of these headwinds?

If you go back a year and a half or two years ago, it was an extraordinary time for evaluation. I think what happened is that people who had companies they wanted to sell got used to these higher prices. They are now back to a more normal range. Sellers have not yet grasped the fact that the value is falling. This is one of our biggest problems.

Another thing is that with the owners, who are basically little moms and dads, the difficulty is getting them to do their due diligence. Those are the main issues we’re talking about – evaluation and then due diligence.

Do you see this changing soon? Why or why not?

I think this will change over the next year or so because I don’t expect public company valuations to go back to where they used to be.

I think the longer we go down at lower valuations, the more likely it is that sellers and brokers will realize that this is exactly the way it is today. We’ve seen a lot of smaller deals that are starting to recognize the valuation change. We are waiting for bigger deals and for now they are still trying to sell the asset at a lower price than a year ago.

Turnover speed has been a big hit at Addus. Recently, Addus CFO Brian Poff said that it is likely that the company will not be able to improve this figure of 55%. Why is that, and are you confident that you can keep it at that level?

We will continue to try to bring it below 55%.

Our goal is not to say, “We’re here and we’re going to stop.” I think what Brian was trying to say is that everything is complicated in this world, especially in personal hygiene. People work about 20 hours a week, so it’s hard for those who need a full-time job to get one from one company.

In your opinion, has Medicaid benefited your business in the past year? Why or why not?

The Medicaid world has been really fruitful in the last six or seven years since I became CEO of Addus.

States have begun to recognize, even more so than before, the value of not only caring for the elderly in their home, which is the safest place, but also the value of paying more for caregivers. They acknowledged this by increasing the rates, which allows us to pay more to the guardians. This allows our caregivers to earn a living.

At the same time, it allows us to keep older people out of nursing homes, which can be more expensive. I was very pleased, I think the industry was pleased.

Are states with brighter financial prospects changing any short-term plans for Addus? In other words, has there been a change in M&A strategy because the payer source looks more viable in the long run?

Over the past seven years, we have never terminated our M&A transactions. We were indeed diligent buyers of companies because we saw the value of the programs. About five years ago we went through hard times in the financial situation in Illinois. Even during the pandemic, every state in which we operate has done its best to pay us on time.

Then, of course, the states received a lot of money from the federal government, which only strengthened their budgets. We feel very comfortable that the states are still in a pretty good position. We will continue our acquisition efforts during this time period because we see the personal care market as a great market.

How important is payer diversification for Addus? What are you doing to move towards this?

It is very important.

Probably almost 80% of our payments came from the state of Illinois, so our goal was to reduce them. Today we are less than 35% from Illinois. We also now have 25% of our business from the federal government. We believe that shareholders have understood the value of diversification.

Value-based contracts are becoming increasingly important to Addus. Where are you with this, and how important is it to create home health to help them?

We are becoming more and more involved in value-based care. We currently have five contracts covering about 800 people. We would like to see this continue to grow. We work with a variety of payers, mostly in pilot programs, to either share savings or receive bonuses for addressing certain care gaps.

To do this, you need additional training for your caregivers so that they can recognize changes in the condition. It’s also important that clinical assets are available so they can go into the house and do some of the things that might be needed, while making sure we report back to the case managers in a timely manner. We are determined, we are looking for some new software to keep collecting these changes in terms.

Value is something that is not essential today due to our size, but we believe that in the next five years or so it will continue to grow and be essential to our company.

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