All right, good morning. Trying to wake everyone up. I know it's coffee time, so hopefully, yeah, we've got coffee outside and tea. If anyone needs a caffeine boost, Brian Tanquilut, Healthcare Services Analyst here at Jefferies. Welcome again to the 2025 Jefferies Healthcare Services Conference in Nashville. With us today is Addus HomeCare. They're one of the largest operators of personal care services across, how many states are we in right now?
22.
22 states, yeah. Joining us this morning are Dirk Allison, the company CEO, Brian Poff, the company CFO, Heather Dixon, the company COO, is sitting here in the audience with us. Thank you. Dirk, maybe a little bit of intro into Addus for those in the audience not familiar with the company and then just kind of like a state of the union.
Yeah, thank you, Brian. We appreciate being here. As Brian mentioned, Addus is one of the largest providers of personal care services across the United States. In addition to personal care, which represents about 75% of our business, we also have clinical services. About 20% of our business is hospice, and then 5% is home health. If you think about our strategy, why all three levels of care, we're a company that's been around since 1979. We started in personal care, so that is our main line of business.
Starting about seven or eight years ago, our belief was that as personal care started to be considered truly part of the home health care environment, being able to start as the first provider in the home, coming in on a non-clinical basis for two to three years with our consumers, those consumers who are probably in their mid 70s are going to need eventually home health. Certainly, in most cases, at some point in their life, they would need hospice services. Our belief was if we develop that relationship early, even though it would be a different set of caregivers, the name Addus would continue on. We really wanted to offer the full continuum of care in the home-based environment. As kind of a state of the union and where we are today, our company has grown fairly rapidly over the last 10 years.
Recently, last December, we acquired our largest acquisition to date, which was the personal care business of Gentiva. We entered into Texas. We're the number one provider in Texas now. We're the number one provider in Arkansas through that transaction. It brought us into seven states or strengthened our market in states we were already in. If you fast forward today, that transaction has really been a very strong one for us. The transition has gone very well. From what we expected, everything has been pretty much as we thought it would be coming on board. What it has done for us, if you really think about it, part of our strategy as a company is we've put a target out there of 10% growth each year, of which half is acquisition.
When you think about acquisition and personal care business, one of the biggest states out there for growth in personal care is Texas. We had not had any position in Texas prior to the Gentiva transaction. Today, while we're the largest provider, we're only 5% of the market. As we look forward to the next number of years, Texas is one of the states in which we will be looking to grow rapidly. It was a great transaction for the company and it's one that's brought us to where today we're in pretty good shape.
Thanks for that, Dirk. Brian, as Dirk was saying, right, we're looking at 10% growth as sort of the algorithm, but you've really been exceeding that over the past few years, right? When you think about the organic growth algorithm for the company, walk us through that thought process and why you think that's sustainable and what those drivers are.
Yeah, I mean, I think the way we look at it, and we've always talked about personal care, you know, being a 3%- 5% long-term growth, just top line. That's going to be obviously a component of rate increases and then just volume growth. I think we definitely have been outpacing that the last few years because we've gotten really nice rate support from some of our larger markets. Texas gave a, you know, almost 20% rate increase a couple of years ago. We've got a 10%, almost under 10% increase that kicked in September 1. Illinois, which is our largest market, has been very supportive as well. I think the way we look at it going forward is we'd like to see volume be 2%- 2.5% per year. We've been, you know, just right at or just below that the last couple of quarters.
I think we've got a lot of focus on doing things with technology, trying to enhance the number of hours that we provide to our existing clients, but also focus on hiring and caregivers and the number of new clients that we bring on board. I think we saw a little bit of pressure in the last year plus on redeterminations kind of impacting resources of some of the state agencies that have really kind of kept us fairly flat as we started to see some sequential increases in census the last couple of quarters. We'd like to see that trend continue. The way we think about it, you know, 3%- 5%, if we're hitting that 2%- 2.5% volume, the rest coming from kind of annual rate increases.
If we get continued support from some of our larger markets, we'll probably be at the high end or maybe above that 3%- 5% in personal care. On the clinical side, hospice has been very strong for us over the last year or so. I think coming out of COVID, we saw strong admission periods, but length of stay had dropped or vice versa. I think we've gotten ourselves in a really nice spot the last several quarters, made some changes in our sales leadership last year. We're growing, you know, close to 10% rate right now. I think long term we would see that being, you know, probably, you know, mid to upper single digits. So 2%- 2.5%, 3% rate, the rest coming out of ADC. Home health, our smallest segment, we think there's opportunities for volume growth.
Obviously, there's a lot going on on the rate side that will play into that. I think we would have said a couple of years ago, we would hope to see that kind of in that mid to upper single digit overall. I think with some of the rate pressure, probably mitigates that somewhat, but that's kind of the way I think about our segments and kind of long-term growth algorithm.
Dirk, as I think about rate growth, you've been supported very well by the states that you operate in, especially Illinois, right? How are you thinking about the sustainability of rate increases, especially as we think of state budgets and the squeezes in the Medicaid program that are coming up?
You know, historically, that's always been a concern of ours when you deal in Medicaid because half the budget comes from the state themselves. We were concerned, especially if you go back five or six, seven years ago when states were talking at that time about minimum wage increases, that that was going to be a pressure on their budgets. We saw great support through that leading up to today where now we got the big beautiful bill, and another potential bump in the road for state budgets. One of the things we, as an industry and certainly as a company, have tried to do is we tried to make sure over the last few years our states understand where we sit in the value proposition of their Medicaid program.
When you think about our client base, in personal care, you're talking about individuals that average about 75 years of age. They have already been pre-qualified for the state that if they don't have home-based care, they're qualified to go into nursing homes. These are our patients that have lost certain abilities to do some of the things that are needed for daily activity of living. From our standpoint, what we do is go into the state and make sure they understand that if you don't, if you're not able to support us and we're not able to keep these people at home with about 70 hours a month of paid support, the alternative is they're going to go into a nursing home that's covered by your Medicaid program and it's going to be 24 hours a day care, seven days a week.
Generally, depending on the states, two to three times more expensive than staying at home. Having been in Illinois since 1979, for a number of years, we have seen that state understand that thought process. Not only does Illinois provide coverage through their Medicaid program, but they're the one state we have that also has a state program 100% supported by the state that pays for people that don't quite qualify for Medicaid but need this care because the understanding is if they go into a nursing home, they're going to spend down their assets very quickly and be covered by the state.
We've had great success with that, but that is our responsibility as a company to continue in these states in which we operate, making sure we have good relationships with the state and they understand that this isn't an opportunity to say, "I'm not going to pay you and save that money," because if they don't keep them in the home, they're going to pay for care just in a different environment.
That's a really good segue into the next question I have, right, is there are some states that have not been very supportive of home care, right? I mean, whether it's New York, Pennsylvania hasn't given a raise, but you guys are in states that have been very good for personal care services. Is that a qualifying factor when you're looking at acquisition opportunities? I mean, Brian, you talked about Texas and the Gentiva entry there. Maybe if you can walk us through your key states and where things stand in terms of personal care perspectives from the state Medicaid programs.
Yeah, I mean, I think it definitely is something that we consider if we're looking at a new state. There are a number of factors that we take into consideration. Obviously, aging demographics is going to be number one. The state's fiscal position is always important to us. Are they in a spot where they're going to have budget issues, not have budget issues? If they're a managed Medicaid, we typically see that as also a positive for us, not necessarily a requirement, but most states we operate in today are an all-willing provider environment. The state is setting the rate. There are a couple of exceptions to that, but in the future, our position is if you're managed Medicaid, we have relationships with those guys at the national level. We've got good coverage and density.
Do we have the ability down the road at some point to be part of a narrowing network, or do we have the ability to negotiate rates directly with the managed care organizations? That's something that we take into consideration as well. All those things are things that we think about when we think about M&A and states and markets that we might want to enter.
Maybe if I can double click on that really quickly, just the managed Medicaid portion of the strategy, right? Kind of like your scale benefit that you bring to the table. If we could talk about, you know, what exactly does that look like?
Yeah, I mean, I think for us, if you're thinking about talking about how we get our clients or our patients in states and you're talking to folks at the agencies or if you're working through a managed Medicaid plan, you know, do you have, number one, a really high quality program there, but you also have scale and density where they don't have to worry about where does Addus operate? Can I take care of my clients here, but they're not in this area? I think that's always important for us. We can do some things with them. If we have the ability to do clinical services, we can lead with personal care. Maybe we can do some things on the value-based front for them as well. Some of the guys and some of the markets that we've been in in New Mexico is where we started.
Looking at doing some things in Texas now with our entry there, doing some things in Illinois and Tennessee. We have the ability to take some, but maybe they have some at-risk populations that they manage that we can be helpful with. I think the mature programs that we participated in there have really shown really good positive results for them. Think about reducing emergency room visits, rehospitalization rates. They want us to be able to come in and help with care gap closures. It saves the plan money. How can we be helpful to them? Those are conversations that our guys are having with a lot of the national guys and where we could be helpful.
Dirk, I think fairly recently you guys talked about how redeterminations have been a drag on admissions. I didn't think that a lot of your patients actually were redetermined, but if you can walk us through what happened there and then how you're thinking about where that stands and what the path forward is for kind of like the redeterminations headwind.
Yeah, if you look at redeterminations for us, we didn't have much direct impact. Most of our clients that we serve did not get affected by the redetermination, except for the fact that because they had to refill out paperwork, there might have been some delays where people got kicked off the service for a few months, had to redo the paperwork, get it filled out, and get back on board. What we really found was the drag was that the states, because, you know, generally you don't have to redetermine every one of your Medicaid beneficiaries at the same time, states weren't prepared for this particular issue that they had to address.
What we found in a number of our states, particularly the three largest states we operate, is that the people that would normally go out and do the in-home assessments for future Medicaid clients got pulled off of that particular aspect and put on the redetermination project for all Medicaid beneficiaries. We saw our admits drop for a period of time and how we judge the effect. If you look at your admits and new starts versus your discharges. Take all three of the states. We saw it first happen in New Mexico. If you fast forward to where we are today, our starts of care have now exceeded discharges for the last few quarters. We're basically through what we see in New Mexico. You go to Texas and within the last quarter or so, we've seen that same aspect occur. Now we're seeing new starts exceed discharges.
Now you should start seeing the growth again in Texas. What we've seen in Illinois, it was really somewhat of the last state to get through this process. Obviously, it's our largest state, so anything that occurs there is going to have a little greater magnitude to us. What we have seen this last quarter is we now have seen admits or authorizations, excuse me, authorizations have now exceeded discharges. We're still waiting to see new starts go across discharges, and that should occur. We're hoping it will occur, and we saw it getting close to occurring at the end of the third quarter. We believe that will flip in the fourth quarter so that by the time we get to 2026, we should be through the effect of the redetermination and all that.
What it did, if you really think about it, when people look at your census, it kept our census from growing. We have other programs that we've been able to take our current census and bring more hours of care out. You've seen our hours of care year over year grow the last two quarters. You should start seeing in 2026 our ADC growing year over year. It's a process that while we didn't see direct impact from clients being affected, we did see an overall impact on our growth.
Just to synthesize that, right? Basically what you're saying is once we get to 2026, we're back to normalized growth is the way we should be thinking about this.
Yes, that's what we believe today, that we should be there. We're starting to see it. We've seen it at the two big markets, and we're starting to see it now in Illinois. That should be the case.
Cool. Brian, maybe shifting gears, Gentiva acquisition, like you said, it's the biggest deal that you guys have done. How are we going through the integration process? What does that look like today? What are the areas of focus and areas of opportunity that you see with Gentiva?
Yeah, I mean, I think our integration has gone very smoothly there. I think that was obviously the largest acquisition that we've ever done. I think if you look at the way we typically integrate into our systems, usually we're looking to do that within the first 90 days or so. Gentiva was a little different, just the nature of that acquisition. We're required to put all of those caregivers and employees onto our payroll and benefits on day one, which is a pretty big lift and actually went extremely smoothly. Our teams did a really great job. I think the folks there are really adapting. I think they're very happy to be part of an organization that is personal care focused. They've obviously been through a number of transactions before, so they're seasoned veterans when it comes to that.
A lot of that activity you would normally say with coming into a new environment would maybe rattle some folks. They've actually handled it extremely well and have embraced it. We've been pretty happy with what we've seen so far. I think the one big piece for us still that remains on the integration side is moving them into our EMR. We made the decision to leave them where they are now. They went through a change about a year prior to the acquisition. I think, as you know, we're looking at moving to Homecare Homebase for our personal care division. We've got a couple of our states out there in pilots today, but we have not kind of pushed forward with a full enterprise-wide rollout as of this point. We're going to hold Gentiva on their system until we get to that point.
At that time, we'll move them over rather than moving them through two different integrations. That's still TBD. That'll probably be sometime, I would think, probably late 2026, probably the timing for that to happen. Thinking about just synergies, this was a division of a large organization. We didn't have a lot of the kind of corporate back office type synergies that you would typically see. Maybe some on the operational side, a little bit of overlap with offices that might provide some opportunity, but really the EMR, we're paying kind of duplicate cost at this point. When we move them over to Homecare Homebase end of next year, we would expect to see some additional cost savings at that time.
Maybe, Dirk, I'll use Brian's comments as a segue to this, right? Technology, clearly Homecare Homebase rollout is part of the strategy going forward. Brian, maybe we can touch on the cost opportunity, but how are you thinking about implementing technologies across your business and where the opportunities to, whether it's AI or any sort of automation that you can run in the business? I mean, obviously, this is a personal labor-intensive business at the end of the day, but every bit of technology helps in this day and age. I'm just curious how you're thinking about that.
Sure. Let me preface that answer with everybody understanding that as opposed to a Medicare business, you know, we're in the hospice side. When we make a change to technology in hospice, it goes across all of our business immediately. When you're talking about 75% of your business being Medicaid, every state is different. They have different rules and regulations, and states could have multiple waiver programs with different rules. Technology across a company is a little more challenging. One of the things that we've done in the last couple of years is we invested in what we call our caregiver app. That caregiver app, we started with Illinois being our largest market. The reason for that app is if we can get our caregivers to self-report, we can do things such as expand hours. Let me tell you how that works.
If somebody is doing 22 hours a week, which is our average caregiver load today, and they want to have more hours, by the way, requesting more hours is the number one reason for turnover in our company. If we want to try to give them hours, we have to know a number of things. We have to know, one, do they want more hours? Two, when can they have more hours? Because if they already have 22 hours, they may be working three days a week. What is the schedule they could work? Are there any qualifications such as I won't work with pets? I won't work on a smoker. I won't cross a river in Chicago. We need to know that. If we as a company try to take care of 50,000 caregivers and input those changes, that could change very rapidly.
You can see the difficulty with that. We needed the caregiver to have a way to tell us that immediately if something changes. They request additional hours. To do that, we put a number of things in the app, including their ability to monitor their payroll. Why is that important? This is a lower paid per hour caregiver working force. If they miss a few hours on their paycheck, that could be very critical to them. Waiting three, four, five days to get that corrected could mean the difference of filling their car with gas and not, which is a really important issue. For us, we want to make sure before we cut a paycheck, it's right and they know what to expect. The caregiver app gives them that ability. What we did, we set a goal in Illinois.
If we could get our caregivers to put this on their phone and interact with us at least once a week, which shows they're paying attention, that this could be a very successful program for us. Right now we had a target of 90% participation in the state of Illinois. Today we're at 86%. People are looking at the app. I would love to be able to report to you that it's allowed us to put more hours, our fill rate grow in that state. Still a little early for us to do that. That's part of what we're looking to do with technology. We're now moving that into New Mexico. It took, you know, again, as I said, you've got to change the program for the state laws in New Mexico. We're now in the process of starting to change that for Texas, which would be the third state.
If we get those three states under care with the app, that's about 70% of our business. That's our immediate focus. As far as AI, we're doing a little bit of AI on the payroll side. What's key to these caregivers is when they apply with a company, they're not just applying with Addus. They're probably applying with three or four companies because they need work quickly. The quicker we can get them to their first job, the better they offer. We're using AI to shrink the time between when they first apply and when we can get them in the house. We'll be looking at other ways to use it going forward, but we're still on the very front end of that.
Brian, I'll use Dirk's comments on labor as a segue to the next question. What does the labor environment look like today? How are you thinking about wage inflation? Obviously, your states have been helpful, but how are you thinking about that wage gap between reimbursement and the cost of labor today?
Yeah, I think just first on just the overall environment, I think for us in personal care, it continues to be pretty strong. I think, you know, you think about us traditionally, you know, times of high unemployment usually are positive for us. We haven't necessarily seen that. It is starting to tick up. I think what we've seen in the last couple of years, though, is really inflation has probably helped quite a bit. Everything's more expensive. People need more hours. To Dirk's point earlier, we're a pretty easy provider. We're pretty flexible with, you know, the ability to just grab some extra hours and make some money. I think that's contributed. I think, you know, our efforts on the recruiting side continue to see pretty positive impacts as well.
Exited, you know, at the end of Q2, I think with a pretty, pretty strong hires per business day metrics, continue to see that translate into Q3. I think we feel pretty good about that side. I think on the clinical side, just the labor environment overall, you know, still is pretty stable. I think, you know, might be some pockets in some urban areas where there's still a little bit of pressure for certain positions. I think overall our view, just thinking about, you know, just wage inflation, we're kind of back probably to our historical norm of, you know, probably 3% ish. That's probably what we'll see. A couple of years ago coming out of COVID with a lot of the, especially on the clinical side, you know, that was pushing 4%- 5% for us. We were pulling forward maybe some merit increases.
I think the one thing to keep in mind on the personal care side when it comes to caregivers, you know, you think about reimbursement rates and wage rates. Reimbursement rates, you know, are a factor of every state's budget process year to year, but wage rates are largely static. About half of our workforce there is unionized. We're in CBAs. It's not a situation where if you're not getting a rate increase from a state, you're seeing margin compression because wages are coming up. Those are usually kind of part and parcel.
Yeah, thanks for that. We've got six minutes to go. I'll open up to the audience for questions. If there's anyone, please raise your hand and we'll get a mic to you.
Maybe just once in terms of how much the quality of the cost of a member that's visiting to a personal care center versus more of a condo single home setting, like honestly, the cost in versus bench of a state. What about the actual clinical offering with quality care provided with personal care centers?
Yeah, quality care in personal care services. One of the aspects of this business that's really interesting to me, being in clinical services most of my career, is the fact that the state goes in and does the assessment of the patient or consumer if it's non-clinical and tells us how many hours of care they need. From that standpoint, they send in their responsible person that says, based on the activities of daily living that this individual needs help with, we can do it for 70 hours a week, a month. If you think in terms of that, that's what we operate to, is that plan of care for those 70 hours.
The real aspect is, as long as there's a belief and as long as you see the results that that patient, I use the word thriving, but if that patient's quality of life for both the patient and the family is being able to be taken care of in those 70 hours, then the quality of care in that home should be considered good. There are times, and we'll be the first to admit, that patients age to the point where they would need a lot more care than 70 hours. When that occurs, honestly, it's best to put them in a facility-based care where they have 24 hours, seven days a week coverage.
It's not so much that we're in competition with the nursing homes as much as there's a group of individuals that could go in the nursing home that don't need to be there based on still their level of ability. That's where we fit. The natural progression should occur would be to move into the nursing homes at that point in time. Does that make sense?
Thanks. The EVV, the electronic verification record, whatever, is that hard for you guys? Are the aides, the care providers compliant with that? Not compliant? How's the rollout? You never have a problem? It works well?
Yeah, I mean, I think when a lot of that mandate came through in certain of the markets, there definitely was an adjustment period for certain of our caregivers. Think about the demographics of who those folks are, kind of what they're used to. I think there obviously is always resistance to change, but I think that is largely behind us. We're over 90% electronic at this point. I think when Dirk and I came on board with the company, you know, going on 10 years ago, it was almost the inverse. A lot of paper timesheets, a lot of manual processes. I think we're actually in a very good spot. Now, CellTrak, who's our primary EVV vendor, certain states require you to use their vendor, but by and large, CellTrak does a great job.
We've integrated it into the caregiver app as well, so they have one spot to go. They don't have to go to multiple spots to clock in and out. I think where we are today, we're pretty comfortable that our folks are very well used to using that and are using it well.
Have you seen any change in managed care organizations focused on quality or looking at it for the strategic metrics that they use to pick which provider to go with?
Yeah, and that's a great question because as we see more states outsource to managed care organizations, I think there's a level of sophistication that comes with that. There's a level of expectation that comes with that. Now all of a sudden, you used to be dealing with a state that kind of looked at things in kind of a siloed manner. What does personal care cost me? They don't really consider what hospitalizations and emergency room visits and other Medicaid covered services might cost. You don't get that with a managed care organization. They're pretty sophisticated. Now all of a sudden, they're looking for opportunities to take the overall cost and say, I'm not just looking at what personal care costs, but what are my overall healthcare costs on this high-cost population base and who can help me control that?
We've actually entered into a number of contracts in New Mexico, Texas, Illinois, and Tennessee where we work on a value-based approach that says if we not only bring our personal care, non-clinical services to bear, but we put some clinical service on top of that with our home health, our clinicians, can we avoid some of those costs? We've been able to show large reductions in unnecessary emergency room visits. In this population base, if I'm at home, I'm 77 years old and I can't breathe, I'm calling 911 and I'm going to the emergency room. What we want them to do in the appropriate cases is know that if they call us, we can have somebody there to work with them. If they don't need to go, we can take care of them at that point in time. We've been able to reduce those emergency room visits.
Also, we've been able to reduce readmits. When this population goes in and has orthopedic surgeries, they come home at the 60, 90-day level. How many of those have been able to stay at home without having to go back into a hospital readmit? We've been able to prove that. As we've been able to do that, while that high-cost population may be a small percentage of our 60,000 people we take care of, it affects the payer to say, if you're doing it for this population, can you do it overall for all of our population? It's a great way for Addus to differentiate ourselves from other smaller providers in the market.
Dirk, we've got 25 seconds to go. Question for you is, what do you think is underappreciated by investors right now about the Addus story? Any closing remarks that you want to share with the audience?
Yeah, I have 13 seconds. I'll move quick.
We can go faster.
Okay. I think the one thing Brian and I, Heather, we talked about this. I think one of the things that people recently have had some questions about is how does this Medicaid, how do these Medicaid changes affect the company? We got work requirements. What's that going to do to you? Everybody talks about an $800 billion reduction in Medicaid. I think what people are starting to understand, we try to make sure is work requirements are neutral to positive for us. As budgets in the state potentially are tightened a bit, should things come through the Medicaid bill that causes them to look at where they're spending their Medicaid dollar, we think we're the answer to that. We think we can help them save money on this very high-cost population.
While I do believe it's been a little bit misunderstood this last year, I do think people are starting to hear us talk about that and starting to see the results.
Appreciate it. Thanks so much.
Thanks, Brian.
Thanks, Brian.