Aveanna Healthcare Holdings Inc. (Nasdaq:AVAH) has maintained a disciplined approach to increasing wages since its IPO.
Its gross margins are determined by the difference between the hourly rate it pays and the wages it pays its caregivers, like many other home care providers. And a corporate policy has kept gross margins under scrutiny as wage rates have soared over the course of the pandemic.
The company’s CEO, Tony Strange, explained this policy at the Global Healthcare Conference 2022 on Tuesday.
“One of the things that we’ve been pretty disciplined about is making sure that when the rate comes in, we pass the wages on to the carers — and not get one before the other,” Strange said. “Because our direct expenses in the form of wages go to the caregivers. Once we get through that wage, there’s no such thing as temporary. We’ll never get it back.”
That’s how Aveanna has kept its gross margins consistent, Strange said, even when its peers have had higher volatility.
Although raising wages remains a key to attracting and retaining caregivers, the company avoids putting the cart before the horse.
Based in Atlanta, Aveanna provides home health care, private services, and hospice services to a broad spectrum of patients in 30 states. Although the company is now heavily invested in the home care business for the elderly, it started out as one of the largest pediatric home health providers in the country.
Strange mentioned on last week’s first-quarter earnings conference call that high reimbursement rates — in nearly half of the states in which the company operates — have been a welcome change of pace for the company so far this year.
On Tuesday, he reiterated that the company was optimistic that more reimbursement rates would rise again in the second half of the year. Because of this, he expects higher wages to be passed on to employees.
“What we’re going to do is we’re going to be a little bit more aggressive when we see price changes,” Strange said. “We will be passing those wages on to caregivers to try to consolidate them and even bring back some who may be working in environments where they can make more money today.”
Elsewhere in the company’s people strategy, Strange said a company-wide program that offered former employees a one-time bonus for returning to work for Aveanna had moderate success. However, after the Omicron surge and in hindsight, Strange said he wasn’t sure the juice was worth the squeeze.
“While we’ve had moderate success, I don’t think we would go back and implement the same program again,” he said. “We can do other things, though [after we just] After getting a pretty deep dive into our labor pool, we’ve learned that caregivers who have left the home care field — specifically private service — have left for more wages. [Even though] They like our job better, they like the flexibility our job gives them and they would love to come back, they won’t come back for less money.”
Aveanna’s growth in home health and hospices is due in part to the acquisition of Five Points in Georgia in 2020.
When asked about the company’s continued growth in the home health care space for seniors — which includes its recent $345 million deal with Comfort Care Home Health — Strange said timing of transactions is key of the company.
“If you remember the year 2020, that [Patient-Driven Groupings Model] has just been implemented,” he said. “We wanted to make sure we understood PDGM and how PDGM separates winners from losers. Once we understood this business, we understood exactly what to look for in terms of acquisitions. That’s when we made the decision to get back into business.”
Aveanna also announced this week that after implementing Homecare Homebase (HCHB) as its sole back office software system, it will also use the Medalogix home health software platform.
Nashville-based Medalogix is a predictive analytics company that works with some of the largest players in home health care and hospice.
Dallas-based HCHB works with over 200,000 users to serve more than 800,000 patients daily. It offers home care service providers cloud-based solutions that cater to the operations, compliance and financial parts of their business.
On Tuesday, Strange reflected on the importance of implementing Homebase Homecare into Aveanna’s portfolio.
“We truly believe that Homecare Homebase will help us drive efficiency on our journey,” Strange said. “Our gross profit margins in home health care and hospice are good today. However, I believe Homecare Homebase will give us some back-office efficiencies that will allow us to manage cases clinically and operationally, as well as billing and collections in a timely manner, so we’re pretty excited about that.”