Addus HomeCare (Nasdaq: ADUS) is at a turning point.
Two years ago, Dirk Allison took the role of CEO at the Frisco, Texas-based provider. Since then, there’s been a C-suite overhaul, the company headquarters has moved from Illinois to Texas, and a variety of cost-reduction and operational initiatives have been put in place to drive profitability and position Addus for growth.
Addus is already large, with 111 branches in 24 states offering a variety of heath care services, primarily Medicaid-reimbursed personal care. But heading into 2018, it’s time for Addus to go to the “next level,” Allison told Home Health Care News. Fresh off announcing strong fourth-quarter 2017 earnings, Allison spoke with HHCN about the strategy to make Addus a bigger hospice player, how the company has adjusted to the recent changes, and what lessons he’s bringing to the health care realm from the retail world, where he began his career at Walmart.
You joined the Addus board in 2010 and became CEO in 2016. What skill sets did you bring with you as CEO, that have helped you lead to the company through a period of change?
My career goes back a long way. I came out of the Big Four CPA firms years ago, and [moved into] retail and then into health care services, in 1987. Since ’87, I’ve been in a number of health care companies—dialysis, behavioral health, hospitals, and hospice most recently, with the company, Odyssey [Healthcare], we sold to Gentiva in 2010.
I think what I really bring to the company is a financial discipline, and the ability to strategize on how we can move the company forward profitably and from a service standpoint. Part of it is hiring really good people, and I’ve been able to bring the Odyssey team back together, with the goal of being a very solid and leading home care company centered around personal care.
It’s been a busy two years, can you sum up some of the key accomplishments?
When I first got here, I felt like the company had done a good job of building up to a certain size, but it was time to go to the next level. I think we had let our costs get a little high. We’ve cut about $4 million to $5 million of annual overhead costs and reinvested some of those dollars back into the company. We’ve strengthened our compliance and quality area.
We’ve hired a new leadership team. I think Darby [Executive Vice President and Chief Development Officer Darby Anderson] is the only leader around from the pre-2016 days. We’ve had five additional C-level hires, who all had a background in distributed health care.
We changed our payroll system to ADP, which was a big move for us. If you look at our history, we had stumbled on bringing on acquisitions prior to 2016, partly I think because our infrastructure wasn’t prepared and our people weren’t experienced enough.
That’s really what we did through mid-2017. Now, we’re ready to enter into the next phase of our plan to improve or increase our growth … we’ve been hitting 2% to 3% organic growth, and I think that’s basically where home health is at. So the next phase is to increase the size and number of acquisitions.
That’s a lot to change in a relatively short period of time, did it cause strain within the company culture? How’s morale?
I think any time you make significant changes in leadership, culture is challenged. At the same time, we moved the corporate office from Chicago to Frisco, Texas, largely because we had a team down here that was very experienced. In doing that, I know there were some challenges across the company, including with our Chicago folks, to make them understand that the Chicago support center is still a very, very important part of our business.
We’re supplementing the support center with executives and a team based [near] Dallas, so the two locations can continue to provide the necessary support to the locations across the country. People at first maybe didn’t quite understand it, but now we’re hiring new people in Chicago when the opportunity arises, and we’re not doing anything to move that away. Today, I would say morale is in pretty good shape, and profitability is up, so that helps.
Addus recently put its hat in the hospice ring by acquiring Ambercare, a New Mexico provider. Can you describe the strategy to make Addus a hospice player?
Almost all our C-level comes from Odyssey, which was one of the largest hospice providers, so bringing [these] clinical services into the home is not a stretch for us.
We’re talking about adding hospice to areas where we already operate personal care and have a strong presence, or to enter into hospice in areas where we believe we can develop strong personal care operations behind it. We’re trying to be a company that offers multiple services in the homes in our markets.
We see synergies … the majority of our patients are over 70 years old, and if you look at the hospice world, there’s a high percentage of people older than 70 who end up in hospice. With personal care, we spend 26 months on average with our consumers. If we then offer hospice, it would be a great benefit to the families to services their needs. We also believe it would be a good opportunity to work with our managed care partners, because more and more states are outsourcing Medicaid services to MCOs [managed care organizations]. As we’ve developed those relationships as it relates to personal care, we’re excited to go back to our partners and say, we’ve added hospice—or home health, in some instances—to say, we have a greater continuum of care to offer to you.
It would also diversify your payor base, correct? Since personal care is largely Medicaid and hospice is largely Medicare?
Yes, that picks up on another strategic desire … right now, we [operate in] 24 states, so we have 24 different payor bases. By adding Medicare, we can add services in certain markets. Let’s take Illinois, where we don’t want to grow our personal care business because we’re already pretty big, but we could come back with hospice, and it would not be paid by the state, but by the federal government.
We will need to bring in additional resources to address Medicare billing, but that’s something that the financial team here at Addus has done, at Odyssey.
How much focus is there on growing into Medicare-reimbursed home health?
Today, I would say hospice is more of a focus than home health. One opportunity with Ambercare is that we’re going to have a home health division, and we’re going to see how it fits with hospice and personal care, and does it make sense to think about it more than in the past.
How quickly do you plan to make acquisitions and what markets are you targeting?
We want minimum revenue growth of 10% annually now that we’ve started on our acquisition plan … that’s $25 million to $30 million a year on revenue [through acquisitions], and I think we should exceed that—we’ve already far exceeded it this year with Ambercare. We don’t have a stated goal on a number of transactions or dollars spent, but we’ll remain active in the acquisition market.
Our focus is mostly on strengthening the markets where we currently operate, but there are some states where we’d like to get bigger. We’d like to strengthen Arizona, Pennsylvania, and frankly, we have no operations in Texas, despite our corporate office being here. It’s a tough market to get into, but we’re interested in it.
There have been some big transactions in the home health sector recently, and in health care overall. And it seems like retail players such as Amazon are interested in the space, while retail pharmacies are transforming into care delivery hubs. With your background in retail, what do you make of these trends?
All I can tell you is, through my 30-plus years of experience, health care is always in transition. The one thing I have found is innovative, low-cost service providers always have an opportunity. I believe there will continue to be movement and change, and that’s why I’m so excited at a company like Addus. We’re the low-cost provider.
Walmart was the low-cost retail company, and when I was there, I was blessed to work with Mr. [Sam] Walton, and some of the things he said about cost still resonate with me today.
What did he say?
He talked about the fact that when you add $1 of revenue, there are costs associated with that, but when you save $1 of cost, that drops right to the bottom line. It’s been a long, long time since I was at Walmart, but he instilled in me the thought that cost is very important to the profitability of a company. Walton wasn’t just cutting costs for costs’ sake, but he said, be careful with what you spend and make sure you’re spending for the right reason.
At Addus, we believe that whatever transpires over the next three, four, five years, we should be in a position to take advantage, because whatever happens in health care, it’s focused on cost reduction.
This interview has been edited for length and clarity.
Written by Tim Mullaney