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. However, in order to do better, the company wants to expand its home health care segment and become more involved in value-based care contracts.

Now Chairman and CEO Dirk Allison sees M&A as one of the most important areas of focus in the near future.

Also a priority for Allison is the continued ability to keep turnover rates low and payer diversification.

Home Health Care News recently caught up with Allison, who expanded on these issues and more throughout the conversation.

HHCN: Addus has been looking to grow its personal care and home health segments for some time. What are some of the ways you hope to achieve this?

Alison: Well, there are two ways we’ve spoken to our investors about the growth. Obviously there is organic growth. With personal care in particular, it really depends on the ability to add caregivers. It was a bit difficult during the pandemic because some of them were afraid to enter the house. Many of our employees were recipients of additional unemployment benefits. Surely they got the rebate checks. That made recruitment difficult.

Starting in 2022, after that Omicron surge in January and February, we have seen strong growth in our ability to hire caregivers for our personal care business every month since.

We are also looking for personal care providers. It’s difficult because of the market, but we’re definitely trying.

During the earnings calls, you were candid about the challenges Addus sees in terms of mergers and acquisitions. Can you elaborate on some of these headwinds?

If you go back a year and a half or two, it was an exceptional period of review. I think what happened is that individuals whose businesses they were trying to sell got used to these higher prices. Now they are back in a more normal range. Sellers aren’t really aware yet that values ​​are falling. This is one of our biggest problems.

Another reason is that with owners who are mostly little moms and pops, it’s difficult to do their duty of care. Those are the biggest challenges we’re talking about – assessment and then due diligence.

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

I think it’s going to change over the next year or so because I don’t expect public company valuations to go back to where they were.

I think the longer we are at the lower ratings the more likely it is that sellers and brokers will realize that this is exactly how it is today. We’ve seen many smaller deals starting to see rating changes. We await the bigger deals and so far they are still struggling to sell an asset at a lower price than they could have done a year ago.

The turnover rate was a big hit at Addus. Addus CFO Brian Poff recently said that the company probably can’t improve on that 55% number. Why is that and are you confident that you can keep it at this level?

We will continue to try to bring it below that 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 it’s difficult in this world, especially in personal care. People work about 20 hours a week, so those who need full-time employment find it difficult to get it from a company.

Do you think the Medicaid landscape has been fruitful for your business over the past year? Why or why not?

The Medicaid world has been really fertile for the last six or seven years since I came on board as CEO of Addus.

States have begun to recognize even more than before the value of caring for the elderly in their own home, the safest place, but also the value of paying caregivers more. They have recognized this by giving us price increases that allow us to pay maintainers more. This allows our caregivers to make a living.

At the same time, we can try to keep the elderly population away from care homes, which could prove more expensive. I was very happy, I think the industry was happy.

With rosier financial prospects, will States change any near-term plans for Addus? In other words, is there a change in M&A strategy or something else because one payer source seems more viable in the long run?

We have never stopped our M&A in the last seven years. We’ve really been a keen buyer of companies because we saw the value of the programs. We lived through the tougher days of Illinois’ financial health about five years ago. Even during the pandemic, every state we operate in has done their best to pay us in a very timely manner.

Then, of course, the federal states got a lot of money from the federal government, which was just consolidating their budgets. We feel very comfortable that the States are still in a pretty good position. We will continue to try to acquire during this time because we think the personal care market is a great market.

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

It is very important.

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

Value-based contracts are becoming increasingly important for Addus. Where do you stand with these and how important is it to build health at home to help these?

We are increasingly concerned with value-based care. We currently have five contracts covering around 800 people. We want that to keep growing. We work with various payers, primarily in pilot programs, to either share savings or receive rewards for filling specific coverage gaps.

To do this, you need additional training for your personal care staff to recognize changes in their condition. It is also important that clinical resources are available so that they can go into the home and do some of the things that may be needed while we ensure we report to case managers in a timely manner. We are determined we are looking for new software that will continue to help us capture these changes to the Terms.

Value driven is something that is not material today given our size, but we believe it will continue to grow and be meaningful to our business over the next five years or so.