“Aging in place” is the mantra of Baby Boomers hoping to live out their senior years at home, and Amedisys (AMED) is looking to play a role in realizing that.
A home health care provider, Amedisys offers home nursing and rehab, life assistance and hospice services. And it’s growing organically and via acquisitions, while boosting its quality-of-care ratings. These ratings, put into place by Medicare last year, will have a dramatic impact on the health care services market in the next few years, according to Amedisys and market analysts.
“We think health care is really changing; home health is a lower-cost care option,” Brian Tanquilut, analyst with Jefferies LLC, told Investor’s Business Daily. “We’re very bullish on Amedisys; It’s the biggest in the space of the pure-play, publicly traded home health care companies.”
He’s rated Amedisys a buy.
“Home health care will be an ultimate winner” of the move to aging in place, Frank Morgan, an RBC Capital Markets analyst, told IBD.
Bigger Will Be Better
Bigger players can invest in the computer systems and overall size to gain efficiency and improve performance. Paul Kusserow, Amedisys’ chief executive, spoke with IBD and says home health care is a “highly fragmented market and it will continue to consolidate.”
The company has already closed two acquisitions this year — Associated Home Care for $28 million and Infinity HomeCare for $63 million.
“We have a phenomenal balance sheet,” Kusserow said. “We’ve been paying largely cash for our acquisitions.”
He says the company is in dialogues with “20 to 30” companies for possible acquisitions.
“They have a lot of firepower to do deals,” said Tanquilut. “Bigger providers have the ability to scale, to train and to invest in (information technology).”
“Star ratings and Medicare reimbursement dollars are being tied to outcomes and that favors the bigger, more sophisticated players,” David MacDonald, an analyst with Suntrust Robinson Humphrey, told IBD. He rates Amedisys a buy.
Two other companies specialize in home healthcare, LHC Group (LHCG) and Almost Family (AFAM). Large health care companies also have moved into the home health care space as well, including Kindred Healthcare (KND) and HealthSouth (HLS), which both acquired companies in the space.
Morgan said: “There’s a huge consolidation opportunity, as increasing regulatory and quality requirements will cause mom-and-pop companies to exit the business.”
He has a market perform rating on Amedisys.
The Importance Of Tech
Amedisys also is focused on gaining efficiencies through the adoption of a new patient care information technology system, called HomeCare Homebase. The software company of the same name is part of Hearst Corp.’s health network.
“We’re all in on this” tech project, said Kusserow, saying the whole company will be on it by the end of October.
“We’re going to do it in a little over a year,” even though the company initially predicted it would take two years, he said.
“We think we’ll be able to deliver $40 million to $50 million in savings with this system — we’ve said this to Wall Street,” he said. Kusserow added that Amedisys has been running its business on three different software systems, which he says is “very inefficient.”
Tanquilut is convinced: “The new (tech) system will improve quality.”
The company sees more than 35,000 patients a day. Kusserow says the new cloud computing software, which stores records remotely, will allow care providers to use tablets instead of expensive laptops. And he says it enables “better documentation, better reporting, and better, more-efficient staffing.” He says it’s also tightly coupled with billing and will improve the accounts receivable process.
That’s a plus, but Amedisys already is producing some enviable numbers. Its net income for its fourth quarter, ended Dec. 31, 2015, was $13.1 million, up 41% from $9.3 million in the year-ago period. Diluted earnings rose 36% to 38 cents per share from 28 cents in 2014’s fourth quarter.
Total service revenue for the fourth quarter grew roughly 13% to $338.4 million versus $300.5 million in the year-ago period. For the full year, total revenue grew 6.7% to $1.28 billion from $1.20 billion in 2014.
Zack’s puts Amedisys’ first-quarter 2016 earnings at 34 cents a share and full-year 2016 earnings at $1.75 per share.
Amedisys traded at around 13 back in June 2014, but closed above 30 by March 2015 and rose above 48 by August 2015. Amedisys hit a new intraday 52-week high of 49.50 on Monday.
Pay For Performance
And margins for high-quality providers should improve with the government’s move to ratings and pay-for-performance.
“In 2018, CMS (Centers for Medicare & Medicaid Services) will begin determining percentage bonuses and billing cuts for home health in nine states, based on a number of metrics,” said Tanquilut. “Providers in the top bucket in these states will get a bonus of plus 3% on their billing starting in 2018 — minus 3% for those with the worst performance — and by 2022 it goes to plus/minus 8%. So quality will matter.”
Kusserow said: “By moving to quality it creates differentiation. So we’re behind this change.”
CMS is also rating providers now, and Amedisys’ initial score from the government in 2015 was 3.49 out of 5 possible stars. But Kusserow says 30% of its centers achieved 4.0-plus stars.
“Our objective is by 2017 all our care centers will be at 4.0 and above,” he said.
That means making sure all of its roughly 14,000 employees are focused on providing high-quality care. Shortly after Kusserow joined Amedisys at the end of 2014, he brought over Larry Pernosky, a human resources executive from Humana (HUM), where Kusserow had been a senior executive.
One of Pernosky’s missions has been to drive down turnover rates. Amedisys’ rate dropped to 29.3% in 2015 from 32.2% in 2014.
“We hope to get to 25% by the end of 2016 and below 20% by the end of 2017,” said Kusserow.
Additionally, Amedisys tracks its own metric for patient care “with engagement scores.”
Even Kusserow’s pay package is partially determined by turnover rates and engagement scores.
“We take this very seriously and everyone is incentivized around quality,” he said.