At Addus HomeCare Corp. (Nasdaq: ADUS), Medicaid makes up almost all of the revenue in its personal care business. Instead of looking towards the private-pay market, Addus remains committed to its current business structure.
“Today 2%, or so, of our business is what would be called private-pay,” Addus CEO Dirk Allison said during a discussion at the Raymond James conference on Tuesday. “We think that’s a good business, but the problem is that’s just more of a franchise business. To grow from scratch organically would be very difficult.”
What’s more, Allison explained that it is challenging to grow a private-pay business through acquisitions, and because of that, Addus is mainly focused on the Medicaid business.
Based in Frisco, Texas, Addus provides personal care, home health care and hospice to more than 49,000 consumers via its 217 locations across 22 states.
In general, Allison has noticed there’s been a change in the way the health care sector views Medicaid.
“Quite frankly, I’ve been in health care a long time,” he said. “When I started at Addus, nobody really appreciated Medicaid, it was kind of an afterthought. Medicare was the big payer. What we’ve seen in the last eight years is a greater appreciation by individuals, investors. I think the states have really come around, and understand and appreciate the value of personal care.”
For Addus, the pending “80-20” rule has also been top of mind.
Last year, the U.S. Centers for Medicare & Medicaid Services (CMS) proposed a rule that would require at least 80% of Medicaid payments be earmarked for compensation for direct care workers.
Addus has been vocal in its opposition to the proposal, but has lately been more bullish on what the final rule may look like.
“We have spent the last 10 months … telling CMS, and giving our comments, on why this won’t work,” Allison said.
Allison believes that CMS’ intention is to increase access to care, by increasing pay, thus allowing the home care industry to be able to compete with the food and hospitality industry for qualified workers.
However, he disagrees with the agency’s approach to accomplishing this. Allison’s main objection is the negative impact he believes this would have on smaller home care companies.
“Certainly, the big companies would be fine,” Allison said. “We may have a lot of pressure on our margin, but our growth would offset that. But the small mom and pops, of which about 80 to 90% of this industry is, would struggle. In our discussions with CMS, I think they understand that. I think we’ve opened their eyes a bit.”
Allison was also critical of how the rule would apply to all Medicaid-funded home care providers, despite each state having its own unique Medicaid program.
“You can’t put one rate for the entire country,” he said. “With Medicare, if you change the rule one time, it affects every state equally, because there’s just one Medicare program. But if you go into Medicaid, and especially in personal care, we can have one, two or three waiver programs per state, each with different costs, responsibility and requirements.”
The potential finalization of the 80-20 has forced Addus to strategize about how to remain an industry-leading company.
“The conclusion is that you have to be big,” Allison said. “That’s not just big nationally, you have to be big in a state. If you look in the states where we are very large, we have a great deal of access to the state government, and can work with them on the reasons why we need increases in rates, which is what it will take for certain state programs to remain competitive, if this goes through. We’re working on that.”
This might also mean avoiding or leaving certain markets entirely, according to Allison.
“If you got the more western states that are more rural in population, trying to spread regional costs on a smaller amount of business would be very difficult,” he said. “The easiest place to operate are the big states with large urban marketplaces. There might be a few states [we] would either avoid, or consider what to do going forward. Our focus is to take the states where we are today, and drive them to being the No. 1 or 2 market share leader in each of our states.”
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