The Wait is Over for Home Health Proposed Payment Rule; Home Health and Post-Acute Stocks Slightly Down Overall
U.S. Centers for Medicare & Medicaid Services (CMS) released the long-awaited FY 2022 home health proposed payment rule at the end of June, and while it took no action on the controversial PDGM behavioral adjustment, home health operators were reassured – and perhaps cautiously optimistic – that the Biden administration included a 1.7% Medicare payment increase. The rule also seeks to push the shift to value-based care by proposing a nationwide expansion of the Home Health Value-Based Payment Program (HHVBP), which in its pilot phase has shown an almost 5% increase in quality scores while saving Medicare more than $140 million.
“I think this is a real opportunity for home health to take a firm leadership role in the world of value-based care,” said Rich Tinsley, CEO and President of national healthcare mergers and acquisitions firm Stoneridge Partners. “Home health showed its worth to patients and payers alike during the pandemic as providers successfully managed more care needs than ever before in the home. I think the expansion of value-based payment is another opportunity for home health to shine – and another reason buyers will want to remain active in the home health market.”
Home Health and Post-Acute Care Indices
Though the Home Health (HHI) and Post-Acute Care Indices (PAI) were steady in the early spring of 2021, late spring has proven to be a different story.
Both the HHI and PAI fell nearly 5% in May, followed by a decrease of more than 2% in June. Each underperformed the S&P 500 yet again last month, which was up 2% on a month-over-month basis. That may all change now that the new proposed payment rule has been released – and industry watchers will certainly be watching July’s results closely.
Home Health Index
The Stoneridge Partners HHI follows the stock values of Amedisys, Inc. (Nasdaq: AMED) and LHC Group, Inc. (Nasdaq: LHCG), two of the nation’s largest home health providers.
Amedisys saw its stock drop more than 5% in June compared to the previous month, but the Baton Rouge, Louisiana-based company is still outperforming last year’s results, up nearly 35% year-over-year. Stock for Lafayette, Louisiana-based LHC Group rose nearly 2% compared to May, up more than 21% year-over-year.
Post-Acute Care Index
For a more wide-ranging analysis of the post-acute care industry, the Stoneridge PAI follows Addus HomeCare Corporation (Nasdaq: ADUS), Brookdale Senior Living Inc. (NYSE: BKD), Encompass Health Corp. (NYSE: EHC) and The Pennant Group, Inc. (Nasdaq: PNTG) in addition to Amedisys and LHC Group.
Brentwood, Tennessee-based Brookdale and Eagle, Idaho-based Pennant Group were both up significantly in June, increasing their stock values by more than 17% and 19%, respectively.
Brookdale has been aided by rebounding occupancy rates in its senior living facilities, and recently closed on the $400 million sale of most of its Health Services segment to HCA Healthcare (NYSE: HCA), one of the largest hospital networks in the U.S.
The Pennant Group, meanwhile, is hoping to continue its growth in home health across the western and southern parts of the country, most recently acquiring Pasco Southwest Home Health of Colorado in early April.
Frisco, Texas-based Addus and Birmingham, Alabama-based Encompass Health were both down in June by more than 9%. Encompass’ stock is still up more than 25% year-over-year, but Addus is down nearly 6% over the same period.
Both companies are considering major moves in the coming months. Encompass Health is undergoing an organizational shift as it looks at strategically separating its home health and hospice segment. And while Addus has traditionally gained most of its revenue from personal care services, the provider is intent on building out more markets with personal care, home health and hospice capabilities.
“We are focused on transactions that will allow us to enhance our service offerings in each of our operating segments in target makets. We are confident in our ability to drive value from our acquired operations and further strengthen our competitive position,” Dirk Allison, chairman and CEO of Addus, said recently in a statement.
Quote of the Month
“Our country is at a critical point regarding this workforce. The pandemic reinforced the enormous value of these workers, the challenges they continue to face, and how those problems endanger the lives of both workers and the people they support.” – Robert Espinoza, Vice President of Policy at PHI.
Read the Full Article Here: Crisis in Direct Care “Will Explode” Without Immediate Government Support, PHI Warns
Articles Featuring Stoneridge
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)
This graph compares the percentage of the Home Health Index to the percentage change in the S&P 500 Index going back to 2010.
This is a 12 month trailing chart of the HH Index
compared to the actual prices of the individual companies that make up the chart.
This graph displays HH Index performance since 2002.
This graph compares the HH Index to the price of Addus stock
(Home Health Index July 2021 | Stoneridge Partners)
Here are the results of the stock prices for the past two years:
||1 mos change
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)
|HH Index Total
Enterprise Value (EV), aka Selling Price, as Percent of Revenue
|HH Index Average*
Multiples of EV/EBITDA
Think of this as selling price as a multiple of EBITDA.
|HH Index Average*
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 2021 | Stoneridge Partners)
Recent Transactions From Around The Country
- Mission Healthcare has purchased three hospice and home health agencies in its continuing push for multi-state expansion. The company’s newly acquired assets include Tender Care Home Health & Hospice and Sun Tree Hospice in Utah, as well as Hands of Hope Home Care & Hospice in Idaho.
- Help at Home acquired Illinois-based Community Care Systems.
- South Carolina-headquartered Agape Care Group has acquired Integrity Hospice in Dublin, GA.