February 1st Update

[pl_alertbox type=”info”] This Home Health Index (HH Index) measures the performance of four publicly traded home health companies, all listed on the NASDAQ — Almost Family (AFAM), LHC Group (LHCG), Gentiva (GTIV) and Amedisys (AMED). This index is updated monthly. [/pl_alertbox]

Quote of the Month:

“As a result of cuts in Medicare reimbursement, 70% of home health providers will be underwater.”  Bill Dombi, Vice President of Legal Affairs, NAHC

The Stoneridge Partners Home Health Index (HH Index) drops 4.3%

After ending the year at a 2 1/2 year high, our HH Index dropped 4.3% in January,  a little worse than the S&P 500 which was down 3.6%.

Even Almost Family, after a three month tear following their SunCrest acquisition, was down.  Amedisys was the only stock that was up.

Our Stoneridge Partners Home Health Index (HH Index) now sits at 19.95.  The high for our HH Index was set in September, 2008 at 41.75.   By December of 2011 it had fallen to 11.77.

On a positive note…..our HH Index is up 27.8% from one year ago, beating the S&P 500, up 19%.

Here are the results:

Company

1/31/14

% Month

1/31/13

% Year Ago

Almost Family 30.41 -5.94% 20.02 51.90%
Amedisys 15.09 3.14% 11.12 35.70%
Gentiva 11.36 -8.46% 9.91 14.63%
LHC Group 22.94 -4.58% 21.36 7.40%
Home Health Index 19.95 -4.33% 15.60 27.86%
S&P 500 1782.59 -3.56% 1498.11 18.99%
Addus 23.64 5.30% 8.28 185.51%

For those stocks in our HH Index, clearly the winner over this past year  is Almost Family with an increase of close to 52%……and all of that increase took place over just the last few months following their acquisition of Suncrest.

Addus however is clearly the winner with a 185% increase over the past year.   In March of this year they completed the sale of their Medicare business to LHC Group.  At that time their stock was selling for about $9.   It is now over $23.

We continue to track Addus; however, because they have very little Medicare revenue, they are not included in our index.

 GRAPHS:  This first graph shows the HH Index compared to the actual prices of the individual companies that make up the chart through January, 2014.

(Note that by hovering your pointer over a spot, you will get the price at that point.  For the past decade, it’s been quite a ride) [iframe_loader src=”http://stoneridgepartners.com/hhi/hhi.html” width=”604″ height=”450″ scrolling=”no”]

Stoneridge Partners Home Health Index vs. S&P 500 Index

This second chart compares the percentage change of the HH index to the percentage change in the S&P 500 index for over 11 years,  going back to November, 2002.  It has been quite a ride. [iframe_loader src=”http://stoneridgepartners.com/hhi/hhi-vs-sp.html” height=”450″ scrolling=”no”]

Stoneridge Partners Home Health Index 12 Months Trailing

This third graph is a 12 month trailing chart of the HH Index compared to the actual prices of the individual companies that make up the chart, through January, 2014. [iframe_loader src=”http://stoneridgepartners.com/hhi/hhi-12.html” height=”450″ scrolling=”no”]

[iframe_loader src=”http://stoneridgepartners.com/hhi/hhi-addus.html” width=”604″ height=”450″ scrolling=”no”]

NAHC Planning Session:  This past week we were again honored to have been invited to the annual NAHC Planning Session in Boca Raton Florida.  Both Val Halamandaris, President and Bill Dombi, Vice President of Law were on hand to give their thoughts on both the present and future for home care & hospice.

Val said that he has been watching what is going on in Washington with their attitude toward home care and in his words “It is not a pretty picture”.

Bill Dombi made the comment that he thinks MedPAC is trying to break home care, and then they will take a look at the results.

Dombi made the comment that “entitlement is now a dirty word in Washington”.

(And on a side note I have to ask why and when the word entitlement was first used to describe Medicare and Social Security programs….programs that just about every working person in America has paid into.  Entitlement….I think not….its just Washington speak used by politicians for an excuse to make cuts).

Dombi went on to say that there is a perception in Washington that Medicare home care was too profitable, with profit margins that were too high, and further that the well publicized issues of fraud and abuse gave MedPAC an excuse to cut reimbursement.

On a positive note, Dombi does not feel that co-pay will go forward, and that there is a good chance we will get through the present and coming morass without further damage.

In thinking about this, and if it is true that 70% of providers will be underwater as NAHC states, then it is clear that many home care agencies will be either closing their doors or selling, especially the smaller ones, those that cannot afford the expenses necessary to run an agency, handle the increasingly complex face-to-face issues, and battle the difficult RAC audits.

Taking a quick look at Miami-Dade, in year 2012 there were 750 Medicare home care agencies in that county alone….and over 500 of those had annual revenue of less than $1 million.  It makes one wonder what those numbers will look like in three years.

Yet in spite of these problematic issues there continues to be a very good market for quality privately held home care agencies.  Senior housing, hospitals, public companies, large platform companies of private equity, physician practices and others continue to compete for well run local agencies, and prices, although not what they were a couple of years ago, continue to remain strong.  And speaking of selling….

SELLING PRICE AS A PERCENT OF REVENUE:  For many years the selling price of good Medicare agencies was generalized at about 100% of revenue.  Clearly that is no longer the case.   Selling Price = Enterprise Value = EV
Company EV as % of Revenue
Almost Family 73%
Amedisys 39%
Gentiva 68%
LHC Group 67%
Addus 87%

MULTIPLES OF EBITDA 

Company Multiple of EV/EBITDA
Almost Family 11.28
Amedisys 9.79
Gentiva 7.06
LHC Group 7.38
Addus 11.57

The above calculations are based on Enterprise Value (EV), with data provided by Capital IQ.  EV has been calculated based on stock prices January 31.  EBITDA is calculated using methodology that may differ from that used by a company it is reporting.

FRAUD & ABUSE:  Seth Gillman, Passages Hospice, located in Lisle, Illinois:   Federal prosecutors charged that Gillman orchestrated an extensive scheme to fraudulently bill Medicare and Medicaid for millions of dollars by falsifying the level of hospice care provided for patients at nursing homes he controlled throughout the state.  To read the entire article go to the following link:

Passages Hospice Fraud

MERGER & ACQUISITION ACTIVITY

LHC Group in the news:

  • LHC Group acquired two home health providers and entered into an agreement to acquire one hospice. The transactions include a home health provider in Tompkinsville, Ky, a home health provider in Valley, Alabama, and a hospice provider located in New Orleans.  Combined annual revenue for these providers is approximately $1.5 million.  To read the entire article go to the following link:  LHC Group Acquisition
  • LHC Group announces that they have entered into an agreement to purchase Deaconess HomeCare and Elk Valley Health Services for $60 million.  Annual revenues are approximately $72.6 million.  To read the entire article go to the following link:  LHC Group – Deaconess

Another Stoneridge Sale:

  • The Domestic Agency, a San Antonio private duty agency was sold to a national health care provider.  Kevin Taggart, a Stoneridge Partner, provided sell-side advisory services.

Other Sales in the News:

  • Visiting Nurse Association: signed an agreement to sell its operations to Cape Cod Health Care…a large consortium with over 450 physicians and 4,600 employees.  If the agreement is completed, it will leave the Vineyard with no Island-owned home health care agency for the first time since visiting nurse services began in the 1940s.
  • SCL Health System & Univita Health announced the acquisition of Denver-based All Care Home Health, LLC.  SLC is introducing their new integrated acute and post acute care delivery model.
  • Holy Redeemer finalized their acquisition of VNA Home Care and Hospice of Mercer County in New Jersey.

NEW COMPANIES EXCLUSIVELY LISTED FOR SALE BY STONERIDGE:

  • Home Care & Hospice – Medicare certified & accredited, located in a southern CON state with large urban population.  Over $9 million in revenue.  Call Rhonda Gronberg and refer to file # S-5265.
  • Medicare certified and accredited home care agency with CONs covering nine Georgia counties.  Current run rate approximately $4 million.  Call Brian Bruenderman and refer to file # S-5270.
  • Medicare & accredited home care agency located in urban area on west coast of Florida.   Over $8 million in revenue.  Call Rhonda Gronberg and refer to file #S-5278
  • Medicare home care agency in CON state West Virginia.  $3 million in revenue, growing with new CON territories being developed.  Strong management team, call Cory Mertz and refer to file # S-5261.
  • Medicaid Home Care Agency in Midwest with over $10 million in revenue. Call Kevin Taggart and refer to file # S-5257
  • Hospice for sale in Central Indiana.  $3.2 million in revenue servicing 26 counties.  Professional management team in place.  Call Cory Mertz and refer to file # S-5277
  •  Medicaid home care agency located in Southeast USA with over $4 million in revenue and approx. $800K in EBITDA.  Call Kevin Taggart and refer to file #S-5263
  • Medicare certified Florida home care agency with $4 million in revenue serving five counties.  Profitable with strong growth.  Call Cory Mertz and refer to File # S-5272.

To see more home care agencies and hospices exclusively list for sale by Stoneridge Partners go to our home page then click tab “Agencies for Sale”

Do you know of any acquisitions that have taken place?  We would be interested in your comments.  At the top of this column is a “Contact Tab” with a section for comments.  These can be sent anonymously.  The return email address can be left blank.  We are interested in what you have to say, or acquisitions that you know about.

MORE:  And for additional musings on the state of homecare and what’s going on at Stoneridge Partners, visit our blog, which is updated regularly: stoneridgepartners.com/blog 

From Don Cummins, Publisher of “The Home Health Index”  don@stoneridgepartners.com

Previous editions of this monthly newsletter can be searched for at the bottom of this page.

 Happy Valentine’s Day from The New Yorker

Iexist

 Pizzatopping

Links to Google Finance: Almost Family | Amedisys | Gentiva | LHC Group