Workforce shortages and patient-census dips remained the most biting headwinds at the close of last year for Chemed Corporation’s (NYSE:CHE) VITAS Healthcare.
Despite those challenges, the company is optimistic in its acquisition pipeline and M&A plans “for the first time in a long time,” according to executives.
“We’ve been stuck in a trough for many months, and we’re just starting to see light at the end of the tunnel,” Chemed CEO Kevin MacNamara said Friday during his company’s fourth quarter earnings call.
Similar to the third quarter, staffing pressures continued to financially impact VITAS in 2021’s fourth quarter, placing doward pressure on the company’s margins, MacNamara explained. Staffing remains the most important issue VITAS is managing, the CEO noted, specifically citing challenges such as finding enough licensed health care workers amid an industry-wide labor exodus.
High turnover rates and increasing pressure from rising salaries and wages have also created operational difficulties.
“Turnover within our licensed staff remains well above our pre-pandemic rates,” MacNamara said. “It’s when, not if, our staff will return. We’re fighting that labor hiring and retention issue with one hand tied behind our back. The declining supply of health care workers continues to increase pressure on salaries and wages.”
The “amorphous issue” is knowing when people will come back to work and when health care workers will feel safe to “go back into the water,” he continued.
It isn’t just VITAS with those questions. Staffing issues have long plagued the hospice industry, with COVID-19 further exacerbating the issue for providers across health care.
Health care employment fell 2.3%, or by nearly half a million workers, since February 2020, according to estimates from the U.S. Bureau of Labor Statistics. Around one in five health care workers, or 18% of the workforce, have left the space since the pandemic’s onset, survey research company Morning Consult also reported.
Florida-based VITAS operates 49 hospice programs in 14 states, employing just under 9,900 workers.
VITAS brought in net patient revenues of $316 million during the fourth quarter, down 4.8% compared to the same quarter a year ago. The decline was primarily due to a 4.2% dip in days-of-care and a 9.5% drop in patient admissions.
Staffing will remain top of mind for the company as the mix of patient referrals and admissions continues to bear impacts from the spread of COVID-19 variants, according to VITAS CEO Nick Westfall.
“The year-over-year decline in average daily census is a direct result of pandemic-related disruptions across the entire health care system,” Westfall said on the call. “When you see health care system disruption, for example, inside of the omicron surge, you see a significant, swift change of more acute hospital discharges as compared to non-hospital discharges with it.”
Overall, it is an ongoing balance of ensuring VITAS has available clinical staff to respond to its referral partners’ needs, with the company constantly evaluating where and how it is deploying its available resources, he stated.
“We are laser focused on both the recruiting and retention aspect,” Westfall said.
The deal-making landscape
Acquisitions will also be on the horizon for VITAS.
The probability of health care acquisitions during the last several years has been low due to high valuations, but a shifting hospice landscape has bode well for dealmaking opportunities, according to Chemed CFO David Williams.
Among the factors is the financial and operational pressures pummeling some hospice entities to become so financially distressed that they have no choice but to sell their programs, Williams described.
“The last several years, you’ve heard me specifically state that the probability that we do any acquisitions in the health care arena [is] exceptionally low, based upon valuations,” he said. “Now that landscape is shifting — and shifting rapidly — it will create opportunity again. Whether that results in us doing any acquisitions is going to be dependent on those opportunities. For the first time in a long time, you’re going to hear us talking about [the] potential for us to pick well-positioned hospices to acquire them.
“We have absolute confidence that it’s going to be a hell of a ride in 2022, as health care right-sizes itself, as the labor force right-sizes itself,” Williams continued. “But we are well-positioned to take advantage of this.”
On the year, VITAS’ annual revenue dropped in 2021 to $1.26 billion compared to $1.33 billion in 2020.
The company anticipates COVID-19 to continue impacting patient and staffing volumes during the first half of 2022, with slow improvement to come during the second half of the year, largely in the area of senior housing referrals.
VITAS executives also believe the company’s care model, along with its geographic size and reach, pave the way for further expansion.
“We can go into markets and go deep, as opposed to many of our competitors that go into markets wide, narrow and shallow, basically from a size perspective,” Westfall said. “It’s also targeted strategic locations that we think fit very well into our service delivery model. If we don’t acquire assets, we’re going to look to acquire people.”