Addus Homecare Corp

NASDAQ:ADUS

Earnings Call Analysis

Steady Admissions, Gross Margin Growth Boost Earnings

The company experienced a 2.7% increase in same-store admissions and anticipates this positive trend to continue into 2024. While overall, Home Health same-store revenue dropped 17.8%, development efforts focus on value-based care and Personal Care scale enhancement show promise. Fourth-quarter net service revenues hit $276.4 million, with a gross margin of 33.4%. However, anticipated Q1 2024 margin declines due to merit increases and other factors are expected to be offset by operational efficiencies and new technology in value-based care management. Adjusted EBITDA went up 21.6% to $34.3 million, and adjusted net income per diluted share increased from $1.11 to $1.32, marking a strong financial performance.

Revenue Growth and Profitability

The company's commitment to quality care is reflected in its financial performance, with total revenue for the fourth quarter of 2023 reaching $276.4 million, a significant jump of 11.9% compared to the $247.1 million in the corresponding quarter of 2022. This growth is an indicator of the company's ability to expand its services and capture market share. The team's dedication has also translated into an 18.9% increase in adjusted earnings per share, from $1.11 to $1.32 in the same quarters, and a noteworthy 21.3% boost in adjusted EBITDA to $34.3 million.

Annual Performance and Debt Management

On an annual scale, the company crossed the billion-dollar mark with approximately $1.1 billion in total revenue for 2023, marking an 11.3% rise year-over-year. Adjusted earnings per share for the year soared by 22.8% to $4.58, bolstered by a 19.3% increase in adjusted EBITDA of $121 million. Demonstrating strong financial control, the company reduced its debt to about $126 million while maintaining a healthy cash balance of approximately $65 million. The available credit facility of $335 million provides considerable leeway for strategic acquisitions and opportunistic investments.

Segment Performance: Personal Care and Home Health

Focusing on the specifics, the Personal Care segment of the business enjoyed an 11.2% rise in same-store revenue growth compared to the previous year, signifying robust demand and effective service delivery. The company's proactive hiring contributed to this result, with a 3.9% uptick in Personal Care hiring. In contrast, the Home Health segment faced a 17.8% decline in same-store revenue, influenced by the company's strategic decision to curtail admissions from lower-paying payers.

Financial Strength and Share Valuation

Excluding one-time acquisition expenses, restructure costs, and non-cash stock-based compensation, the company showed a solid financial base. The efficiency in collections led to a reduction in Days Sales Outstanding (DSOs) to 39.1 days at the end of the fourth quarter, down from 41.5 days in the third quarter. Net cash from operations presented a robust picture at $30 million for the quarter and $119.8 million for the year. The company's strategic use of cash flow to lower debt levels helps maintain the agility needed for ongoing investments and growth opportunities, including acquisitions.

Outlook on Medicaid Access Proposed Rule

The company is keeping a close eye on the Medicaid Access Proposed Rule, anticipating potential modifications that could impact the 80% compensation requirement. The company believes scale and advocacy within each state for personal care providers are crucial factors for success, regardless of the outcome. Additionally, new case management software and analytics enhancements solidify the company's value-based care initiatives, potentially leading to better outcomes and growth in their managed Medicaid and Medicare Advantage programs.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, everyone, and welcome to the Addus HomeCare's Fourth Quarter and Year-End 2023 Earnings Conference Call. [Operator Instructions] Please also note, today's event is being recorded. At this time, I'd like to turn the floor over to Dru Anderson. Ma'am, please go ahead.

[Dru Anderson]

Thank you. Good morning, and welcome to the Addus HomeCare Corporation Fourth Quarter and 2023 Earnings Conference Call. Today's call is being recorded.

To the extent any non-GAAP financial measure is discussed in today's call, you will also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP by going to the company's website and reviewing yesterday's news release.

This conference call may also contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements, among others, regarding Addus' expected quarterly and annual financial performance for 2024 or beyond. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, discussions of forecasts, estimates, targets, plans, beliefs, expectations and the like are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by important factors, among others, set forth in Addus' filings with the Securities and Exchange Commission and in its fourth quarter 2023 news release. Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

I would now like to turn the call over to the company's Chairman and Chief Executive Officer, Mr. Dirk Allison. Please go ahead, sir.

[R. Allison, executive]

Thank you, Dru. Good morning, and welcome to our 2023 fourth quarter earnings call. With me today are Brian Poff, our Chief Financial Officer; and Brad Bickham, our President and Chief Operating Officer.

As we do on each of our quarterly calls, I will begin with a few overall comments, and then Brian will discuss the fourth quarter results in more detail. Following our comments, the 3 of us would be happy to respond to any questions.

Yesterday, we announced our results for the fourth quarter and full year of 2023. These results highlight another strong year of financial performance by Addus. This performance is made possible by the hard work and dedication of all of our employees as they continue to provide quality care to our clients and patients by helping to fulfill our mission of taking care of people in their homes. I am both amazed and thankful for all of -- that our employees do for our company.

As we announced yesterday, our total revenue for the fourth quarter of 2023 was $276.4 million, an increase of 11.9% as compared to $247.1 million for the fourth quarter of 2022. This revenue growth resulted in adjusted earnings per share of $1.32 as compared to adjusted earnings per share for the fourth quarter of 2023 of $1.11, an increase of 18.9%. Our adjusted EBITDA of $34.3 million was an increase of 21.3% over the fourth quarter of 2022. Our total revenue for 2023 was approximately $1.1 billion, an increase of 11.3% as compared to the $951.1 million for 2022. This revenue growth resulted in adjusted earnings per share of $4.58 as compared to adjusted earnings per share for 2022 of $3.73, an increase of 22.8%. Our adjusted EBITDA of $121 million was an increase of 19.3% over 2022.

During 2023, we continued to experience strong cash flow from operations as our states and other payers have continued to pay in a timely manner. This allowed us to reduce our debt balance to approximately $126 million, inclusive of the funding of our acquisition of Tennessee Quality Care on August 1, 2023. At year-end, our cash balance was approximately $65 million, which together with $335 million of availability under our existing credit facility continues to give us the financial flexibility to be opportunistic as we anticipate seeing additional acquisition opportunities coming to market over the next several quarters.

It remains our primary focus to use our financial capacity to acquire strategic operations that align with our overall growth strategy of offering all 3 levels of home-based care in our Personal Care markets.

Let me provide you with some thoughts related to the Medicaid Access Proposed Rule that was introduced last year. Many comments were submitted expressing concern towards the proposed 80% compensation requirement to be implemented by states within a 4-year period. A final rule concerning this issue was sent to The Office of Management and Budget on January 26 for their review and clearance. Based on this timing, we feel that the rule is on track to be finalized in April of this year. The contents of the final rules are unknown at this time and could be significantly different than the proposed rule.

While we aren't sure whether this rule will contain the 80% requirement, a different percentage requirement or ultimately be implemented, we would not be surprised to see the 4-year implementation period extended. We do believe that a key for person care providers to be successful with any minimum requirement for direct wages is to have scale in each state in which they provide care. This will not only allow those providers to spread their costs over a larger revenue base, but also will provide more opportunity for meaningful patient advocacy within the state in which they operate.

As for Addus, we are currently in the process of looking at Personal Care opportunities, which would give us a larger presence in a number of our current states. We are also looking for opportunities where we can enter new states in a material way. Personal Care is a valuable service that is being provided to our elderly and disabled population, and we are optimistic that states will evolve their programs to be viable regardless of how this rule is finalized.

During the fourth quarter, we continued to experience solid results related to our ability to hire caregivers, especially in our Personal Care segment. During the fourth quarter of 2023, our Personal Care hiring was up 3.9% over the fourth quarter of last year at 80 hires per business day. Sequentially, our hires per day was slightly lower than the third quarter of this year, which was not unexpected due to the normal slowdown during the holiday season. In addition to our strong hiring numbers, we saw a 30-basis point improvement in our starts per business day as compared to the fourth quarter of 2022.

As we have mentioned on previous calls, making sure that hires actually start caring for consumers has been a key contributor in the past few quarters to our growth in Personal Care. As for our clinical segments, hiring has continued to improve over what we experienced in previous quarters.

As we have over the past couple of years, we continue to utilize the funding we received from the American Rescue Plan Act, or ARPA. To date, we have received approximately $28 million, of which we have $6 million remaining to utilize. These funds have been helpful with our caregiver recruitment and retention efforts to support the delivery of Personal Care services and should continue to help those efforts in the future as we deploy the remaining funds.

In addition to utilizing the ARPA funds for direct recruitment and retention of caregivers, we continue to utilize the funds to provide our caregivers -- to improve our caregiver's experience through the implementation of enhanced caregiver training and the continued development of a caregiver application that we believe will improve our retention and overall service delivery.

In our Personal Care segment, our services have continued to receive reimbursement support from the states in which we operate. We believe that states continue to see the value of Personal Care services we provide, especially with all the broader market disruption that has occurred across the country over the past 3 years in health care services. Although some of the federal financial support to states have been reduced, we feel confident that Personal Care services continue to show true value to the state's various state Medicaid programs as well as our managed care partners, and we expect the support for our services to continue.

As for our clinical segment, effective October 1, 2023, Medicare Hospice reimbursement was increased by approximately 3.1%. On January 1 of this year, home health Medicare reimbursement was increased by approximately 0.8%. Although this year's home health rate increase was below what is required to recover ongoing operating increases, we believe that traditional Medicare home health reimbursement pressures are likely to moderate over the next few years, and we will continue to look for home health acquisition opportunities that are strategic to our overall growth.

Now let me discuss our same-store revenue growth for the fourth quarter of 2023. For our Personal Care segment, our same-store revenue growth was 11.2% when compared to the fourth quarter of 2022. During the fourth quarter of '23, we saw Personal Care same-store hours per business day grow 2.7% over the same period in 2022 and also increased on a sequential basis. Importantly, over 75% of our Personal Care [ stays ] showed hourly volume growth over the same period in 2022. We are excited to see our investments in hiring and scheduling optimization initiatives taking hold and contributing to our strong sequential powers growth over the past several quarters.

Turning to our clinical operations. Our Hospice same-store revenue increased 3.5% when compared to the fourth quarter in 2022. While our same-store ADC was down 1% when compared to the same quarter last year, we did see a sequential quarterly increase in same-store admissions to -- up 2.7%. As of the end of the fourth quarter of 2023, our hospice median length of stay was 28 days exclusive of [ JourneyCare ] and our recently acquired Tennessee Quality Care operation.

For comparison purposes, we have historically excluded our JourneyCare operation as it is a higher proportion of shorter length of stay patients due to our inpatient units in the Chicago area. While median length of stay was lower than the third quarter, we were not surprised due to the expected seasonality from the holiday season. We are, however, encouraged by the steady sequential improvement in admissions volume in our Hospice segment and anticipate those favorable trends continuing into 2024.

Our Home Health segment same-store revenue decreased 17.8% over the same quarter in 2022 as we continued to reduce admissions from payers that do not currently reimburse us adequate rates to cover our cost. As most home health providers have experience, we continue to be affected by the movement of Medicare beneficiaries from Medicare Fee-For-Service to Medicare Advantage. We are continuing to work with our Medicare Advantage payers to obtain higher per visit rates as they work in parallel to transition to episodic or case rates, but this process takes time.

In the meantime, we have limited certain admissions due to the lower contract rates. Even with this payer shift and the reimbursement pressures in Home Health, we remain excited about our home health operation as it complements both our Personal Care services, particularly where we participate in value-based contracting models and our Hospice service by allowing us to provide the full continuum of home-based care.

As for our development efforts, we continue to focus on opportunities that help to further our strategy especially as it relates to value-based care and obtaining much-needed scale in our current Personal Care space. We are continuing to see small tuck-in acquisition opportunities, which offer us the ability to add to our service coverage in our current market and with the expected time line for the publishing of the Medicaid Access Rule approaching, we are hopeful that we will start to see more Personal Care acquisition opportunities develop, which should help us to continue adding scale in our current markets. As I have mentioned earlier, we believe that the large providers of Personal Care services in states will have a significant advantage to continue operating effectively at scale and expanding market share.

For value-based care efforts, I noted last quarter, we had gathered data over time to be able to demonstrate material reductions in both emergency room visits as well as the percentage of patients readmitted to the hospital at various post-discharge intervals. In addition, as I noted, we have been able to help with the improvement of HEDIS scores and the closure of care gaps relating to these patients. We continue to believe our success is due to our ability to provide both nonclinical Personal Care services to identify changes in condition and clinical resources as needed for specific skilled patient care interventions. We are now using this information as part of our conversations with various Medicare Advantage and commercial payers to demonstrate how Addus can be a part of providing quality cost-effective care to their members that can reduce the overall medical loss ratio while simultaneously improving overall quality of care.

During the first quarter of 2024, we also began to use our new value-based care management system. We are excited about this technology as it will allow us to increase both the scale and efficiency of our value-based programs, which we believe is important as we continue to further develop these type of relationships with our large payers.

Before I close my remarks, I want to once again say how proud I am of our team for the care they are providing to our elderly and disabled consumers and patients. There is no question that the majority of clients and patients want to receive care at home, which remains one of the safest and most cost-effective places to receive care. We believe the heightened awareness of the value of home-based care is favorable for our industry and will continue to be a growth opportunity for our company. We understand and appreciate that our operations and growth are dependent on both our dedicated caregivers and other employees who worked so incredibly hard providing outstanding care and support to our clients, patients and their families.

With that, let me turn the call over to Brian.

[Brian Poff, executive]

Thank you, Dirk, and good morning, everyone. Addus had a very strong financial and operating performance for the fourth quarter, marking a strong finish to a record year. Our results were driven by robust demand for our services, led by 11.2% year-over-year organic growth in Personal Care services revenue, well above our normal expected range of 3% to 5%. For the year, Personal Care revenues were up 12.1% compared with the prior year, a record annual rate of growth for Addus. This impressive growth reflects both higher volumes as well as the benefit of ongoing rate support for our Personal Care services.

Our fourth quarter results included a full 3 months' of operations of Tennessee Quality Care, a provider of home health, hospice and private duty nursing services, which we acquired on August 1, 2023. The integration process has gone as expected, and we are excited about the opportunities to serve more patients in this strategically important market. Acquisitions remain an important part of our growth strategy, especially situations with a profile similar to Tennessee Quality Care, where we have the ability to leverage our strong Personal Care presence and add clinical services. We are optimistic that we will see additional attractive acquisition opportunities in 2024 as we gain more clarity on pending reimbursement issues and other regulatory changes that could affect Addus in our industry.

We were pleased to see positive year-over-year trends in our Hospice business during the fourth quarter with increases in revenue, average daily census, length of stay, patient days and revenue per patient day, inclusive of our Tennessee Quality Care acquisition. While we did see sequential growth in same-store admissions of 2.7% between the third quarter and fourth quarter, our ADC declined slightly between the quarters on a higher number of discharges.

Same-store revenue for our Home Health services, which was 6.2% of our business, was down 17.8% from the same period a year ago. This volume trend reflects our strategy to intentionally limit admissions from payers with less favorable reimbursement rates as we have seen a 500-basis point shift in our same-store episodic/non-episodic mix from the prior year. We continue to look for ways to more effectively balance our mix of episodic cases versus non-episodic cases and are focused on opportunities to negotiate more favorable rates with certain payers.

As Dirk noted, total net service revenues for the fourth quarter were $276.4 million. The revenue breakdown is as follows: Personal Care revenues were $204.5 million or 74% of revenue; Hospice Care revenues were $54.7 million or 19.8% of revenue; Home Health revenues were $17.1 million or 6.2% of revenues. In addition to Tennessee Quality Care, these results include the operations of Apple Home Health, which we acquired in October of 2022, and is included in our same-store numbers for the first time.

Other financial results for the fourth quarter of 2023 include the following: our gross margin percentage was 33.4% compared with 31.9% for the fourth quarter of 2022 and a sequential improvement compared to 32% for the third quarter of 2023. As expected, the addition of the Tennessee Quality Care operations created a higher overall proportion of clinical services and had a resulting positive impact on gross margin. We also benefited from the 3.1% annual hospice rate increase effective October 1, 2023.

Exclusive of the retroactive positive impact from collective bargaining negotiations, our gross margin percentage was 33% for the fourth quarter of 2023, an increase of 100 basis points sequentially and slightly above expectations. As we continue to experience strong cash flows, particularly in our Personal Care segment, we have benefited from a lower implicit price concession requirement and saw this impact us positively in the fourth quarter, which contributed to our higher gross margin.

For the first quarter of 2024, we expect our gross margin percentage to be negatively impacted by our annual merit increases and the normal annual reset of payroll taxes as well as the expected compression we previously discussed from certain collective bargaining negotiations. Cumulatively, we expect these items to contribute a decline sequentially of approximately 140 basis points compared to the fourth quarter of 2023. Additionally, we anticipate our implicit price concession to return to a more normal level in the first quarter, resulting in an additional 30 basis points of compression from the fourth quarter of 2023.

G&A expense was 22% of revenue, consistent with 22% of revenue for the fourth quarter a year ago, but a decline sequentially from 22.3% in the third quarter of 2023. Adjusted G&A expense for the fourth quarter of 2023 was 21%, up slightly from 20.4% in the same period of the prior year. The company's adjusted EBITDA increased to $34.3 million compared with $28.2 million a year ago, an increase of 21.6%. Adjusted EBITDA margin was 12.4% compared with 11.4% for the fourth quarter of 2022 and an increase sequentially from 11.4% in the third quarter of 2023, primarily as a result of the expansion in our gross margin percentage.

Adjusted net income per diluted share was $1.32 compared with $1.11 for the fourth quarter of 2022. The adjusted per share results for the fourth quarter of 2023 exclude the following: the retroactive impact of collective bargaining negotiations of $0.07, acquisition expenses of $0.07 and noncash stock-based compensation expense of $0.12.

The adjusted per share results for the fourth quarter of 2022 exclude the following: acquisition expenses of $0.06, restructure and other nonrecurring costs of $0.01 and noncash stock-based compensation expense of $0.13. Our effective tax rate for the fourth quarter of 2023 was 22.8% in line with our expectations. For calendar 2024, we currently expect our tax rate to be in the mid-20% range.

DSOs were 39.1 days at the end of the fourth quarter of 2023 compared with 41.5 days at the end of the third quarter of 2023 as we have continued to experience consistent cash collections from the majority of our payers. Our DSOs for the Illinois Department of Aging for the fourth quarter were 49.5 days compared with 41.8 days at the end of the third quarter of 2023.

Our cash flows were very strong throughout 2023, with our fourth quarter net cash provided by operations at $30 million. For the year, net cash provided by operations was $119.8 million, exclusive of $7.6 million in ARPA net spending. As of the end of the fourth quarter, we still have approximately $6 million in ARPA funds outstanding to be utilized. As of December 31, 2023, the company had cash of $64.8 million, with capacity and availability under our revolver of $470 million and $335.6 million, respectively.

With our strong cash flow, we have continued to pay down debt in 2023 and reduced our revolver balance by an additional $40 million in the fourth quarter. Net of borrowings to fund our acquisitions during the year, we still lowered our revolver balance by $8.5 million from the end of 2022. We continue to have the financial flexibility to invest in our business and pursue our strategic growth initiatives, including acquisitions. As we mentioned, we will continue to selectively pursue strategic acquisitions in 2024 dependent on market conditions. At the same time, we will also continue to diligently manage our net leverage ratio, which is currently well under 1x net of cash on hand. With another record year in 2023, we look forward to our future opportunities and ability to increase shareholder value.

This concludes our prepared comments this morning, and thank you for being with us. I'll now ask the operator to please open the line for your questions.

[Operator]

[Operator Instructions] And our first question today comes from Joanna Gajuk from Bank of America.

[Joanna Gajuk, analyst]

So I guess first, maybe on the quarter results. And I guess as it relates to '24 which gives specific outlook, but just to get a sense of Q4 margins were above 12%, clearly outperformed here and up 100 basis points year-over-year. So this -- you outlined a couple of different things, I guess, the bad [ debt ] benefits seems like you don't assume it's going to persist. But I guess outside of that, how much of this margin improvement is sustainable? And when we think about '24, as the full year, I understand you talked about Q1 being a weaker quarter, [ associated ] sequentially. As we think about the full year, is the 11.4%, I guess, that you've reported in '23 as your adjusted EBITDA margin, is that a good starting point for the full year '24? Or how should we think about the full year?

[Brian Poff, executive]

Joanna, I think, obviously, I'd give a little bit of color on expectations sequentially from Q4 to Q1. You're right. On just typical seasonality with payroll, taxes and merits, we typically see our lowest margin in Q1. We typically see that kind of ease through the year. I think we would expect to see that again in 2024, but I think with -- not expecting, I guess, for the same cadence of rate increases on the Personal Care side in '24 that we've seen, we expect margins to be fairly consistent. But I think part of the wildcard there is how successful we are in acquisitions. If that mix of the clinical business continues to creep up, that's obviously going to be beneficial overall to margins. But otherwise, we would expect this to be a fairly standard year in '24.

[Joanna Gajuk, analyst]

And I guess a follow-up to that, when it comes to the rate increases in Personal Care, so previously, you talked about the rate increase you're expecting in January 1. Any other states with rate increases? And I guess what kind of average rate increase, excluding [ Illinois ], do you expect for the year and going forward?

[Brian Poff, executive]

Yes. I think currently right now, we don't see any other material rate increases from states that are currently scheduled. I think as we move through the year, obviously, that's always are subject to change. We did recently receive notice we're going to get another rate increase in our [ VA ] program, which is the federally-funded program, and that will impact us in a few of our markets, but nothing else really probably [indiscernible] note.

[R. Allison, executive]

Yes. I think one of the things that we have said for a number of years is we wanted to get back to where -- when you look at our Personal Care growth rate, you had about 1/2 to 2/3 in volume and the rest in price increases. And while during the pandemic, we saw that shift and mainly get price increases as far as our growth, we have seen that start to revert back to normal. So for 2024, we expect that to be the case. About 1/3 of our growth will be through rate increases, 50% to 2/3 of our growth should be through volume increases.

[Joanna Gajuk, analyst]

And I guess to that and since you mentioned it, so is it fair to assume you're kind of 3% to 5% organic growth for Personal Care that you've been talking about in the past. Is that a fair assumption for '24?

[Brian Poff, executive]

Yes. I think, obviously, getting another rate increase in Illinois, we talked about some of the margin profile that previously, not expecting a lot of pass-through, but it is still a nice rate increase, one of our largest markets. But I think our expectation this year -- 2023, we were obviously over double digits all year, not expecting to see that same rate in '24, but would expect to be toward the top end of that 3% to 5%, if not slightly above for '24.

[Joanna Gajuk, analyst]

And if I may just squeeze a very last one on the cash flow following up very strongly in Q4 and the year. So I guess if you adjust for the ARPA funds utilization, so it's almost like 100% EBITDA conversion for the full year. So how should we think about this cash flow conversion going forward? Is that sustainable? Or how should we think about operating cash flow for '24 and going forward?

[Brian Poff, executive]

It's not going to be at 100% rate. We got some very positive working capital tailwind, I think, on our cash flow in '23. We wouldn't expect that. Obviously, that's not sustainable long term. But I think we've talked about our cash flow conversion in the past of being 75% to 80% of kind of adjusted EBITDA, which I think is pretty consistent expectation for '24.

[Operator]

Our next question comes from Scott Fidel from Stephens.

[Scott Fidel, analyst]

Appreciate Dirk, all the comments you gave us just -- the final rule, and I thought your tone maybe sounds a little more positive as we're getting closer to the final rule here in terms of maybe some potential flexibilities that will be included in the final rule and then just tone around deploying -- continuing to deploy capital into the Personal Care market sort of as we move past this final rule.

First, I want to get a sense of whether that's accurate. And then I thought it might be helpful if you just wanted to talk about when you see the final rule, maybe what would be some of the key changes specifically that you'll be looking for that you would view as sort of milestones that would keep you confident in deploying capital for the long term in the Personal Care market.

[R. Allison, executive]

Yes, Scott, thanks. We are more positive about the Medicaid Access Rule. We think there's been a number of comments from various stakeholders, including a number of the states, a number of which we mentioned to you before were democratic states that are close to the Biden administration. I think the thing that we all understand about the Biden administration is that they're very supportive of the Personal Care industry. They want to make sure that our elderly and disabled population have greater access to care, not less care.

And so as we continue to work through the comments of the rule and look at our own situation of how we would operate if the rule that various aspects are put in, we've become very, very bullish on the fact that this industry is going to continue to grow. It is going to be one that we believe will be supported by the states. We believe state programs will look at any final rule. And again, realizing that just because the final rule is published, doesn't mean that it will ever get in. There'll be legal challenges and other things that we'll go through.

But as we prepare going forward, we're doing things such as creating more efficient ways of scheduling. We're putting dollars into our ability to take some of the cost out of scheduling and to be more effective in our cost basis so that whatever structure that comes through Addus will be one of the survivors of the industry and will grow as we did, as you kind of saw through the situation in Illinois, when that percent was put in and larger providers were able to operate very effectively and gain market share through the period.

So for us, we're doing things along, investments into scheduling, investments into recruitment and retaining our value-based investments and then also, we're really focused now on the -- both the backfill acquisition opportunities we're seeing as well as some of the larger opportunities we expect to see, which could take us into new markets for Addus, but in such a manner that would start in a material way because we believe the large providers -- as I stated in our script, we believe the large providers are going to have a tremendous benefit in the Personal Care side as this rule -- if this rule is ever put into place.

[Scott Fidel, analyst]

Okay. Got it. And just as my follow-up, just on the business. Just would be curious if you wanted to maybe drill a little bit into how you're thinking about Hospice segment margins for 2024. Obviously, you had the rate increase effective in 4/1. So maybe how you're thinking about sort of that rate against maybe how you're thinking about cost per visit for Hospice and then with some of the volume trends, how you're thinking that could translate into margins for Hospice. Do you think this could be a year for margin expansion in Hospice? Or are you targeting -- trying to hold margins relatively constant?

[Brian Poff, executive]

Yes, Scott, I can take the first part on the margins, and I'll let Brad talk a little bit about just some of the volume expectations. But I think, obviously, with a 3.1% increase, our typical merit is probably around that 3% range. Obviously, wages aren't 100% of our cost basis. So there's this probably a little bit of pull-through there. But I think our expectation overall is not really to see material margin expansion in Hospice, but to maintain maybe a little bit, like I said [indiscernible], Brad will talk a little bit about, kind of volume expectations for this year.

[W. Bickham, executive]

Yes, Scott. On the volume side, if you look at our year-over-year results, we were essentially kind of flattish on the volume side. Having said, a lot of that was due to some -- we had some pretty heavy discharges in Q4. We expect with the strong admission volumes that we've seen over the past couple of quarters, that will start translating into some ADC growth. I think we're kind of looking in that 5% to 7% revenue growth for the Hospice segment.

[Scott Fidel, analyst]

Okay. Got it. So it sounds at the top end of that, Brad, pretty evenly split between rate and volumes for -- with the 3% rate increase?

[W. Bickham, executive]

Yes, roughly.

[Operator]

Our next question comes from Brian Tanquilut from Jefferies.

[Brian Tanquilut, analyst]

Congrats on the quarter. Dirk, maybe as I think about your M&A philosophy, I understand, obviously, staying in the sidelines right now, given the regulatory uncertainty. But how are you thinking about -- if the rule comes out and the 80% rule goes through, is that the opportunity point given maybe distress or concerns among other players in the space? Or does that preclude you from getting more aggressive and as you wait for finality on the rule, how are you thinking about that?

[R. Allison, executive]

I think once we have a final rule, we're of a size and have financial flexibility enough that we're going to operate, I think, very effectively in whatever rule comes through. So what we'll do, we'll wait and see what the final rule is. We'll also have to understand the particular challenges that may occur with those rules. But once it comes out, we've started thinking through how do we grow our business in what particular markets. There will be certain states that will be more advantageous for us to look to grow in. There may be some states that we'll have to wait and see what the various Medicaid programs in those states try to do -- think to do in response to any particular rule.

So I think, for us, just the hack that we have a final rule, even though we know it will be challenged by various states will allow us to then refine our strategy and continue with what we're doing. And as I mentioned, we're already starting to do some of the things that we think will make us successful in whatever the rule is. And that is investment in technology as it relates to scheduling, trying to take cost out of the back office and our scheduling, looking at how we can more appropriately use the caregivers we have and give them more hours, which will help both with retaining them as well as recruitment costs for new folks.

So we're pretty excited. Obviously, we would rather us be able to have a little more flexibility, depending on the state in which you operate, and we hope that's where the final rule goes. But we're prepared to operate in any manner in which it is finalized.

[Brian Tanquilut, analyst]

I appreciate it. And then my one follow-up. As I think about your comments on value-based care and trying to get -- make inroads there, what does Addus need to do, whether it's investments in capacity or investments in capabilities or expansion in of service lines. I mean what will you, as a company, need to do to gain traction and really get the ball rolling there?

[W. Bickham, executive]

Well, I think if you look at our value-based programs, we've been in several for -- 2 years now, and we have collected a lot of favorable information that we believe will be useful in demonstrating value to manage Medicaid that has full risk, but then also potentially Medicare Advantage as well. I think Dirk alluded to in his comments that we have recently implemented a new case management software that's going to allow us to scale that program, I think, significantly. It will also allow us to do some analytics that we haven't had access to before that I think will help further improve the outcomes that we've already demonstrated.

So I think there's a real opportunity there. What we have found is kind of interesting is it really starts with Personal Care in the home and the information that we can collect from our caregivers regarding the clients that we're serving can really influence outcomes. So we're very positive on where the value-based program is going, and we'll continue to invest in.

[Operator]

Our next question comes from Ryan Langston from TD Cowen.

[Ryan Langston, analyst]

Just a couple of quick ones for me. I guess, maybe, Brian, how do we think about the progression just quarter-to-quarter seasonality from these union negotiations maybe outside of the first quarter? Any detail there. And then it looks like billable hours per employee in [ PCS ] just continues to kind of steadily move up a little bit sequentially. I understand certain markets have caps, unallowable hours and things. But how do we think that may be progressing over the next 1 to 2 years?

[Brian Poff, executive]

Yes. I'll take the first part. I'll let Brad talk about the hours for caregiver. But on the union side, I think, really, we've talked about the impact that's going to kind of come through with the Illinois rate increase, Jan 1. We made some concessions there of enhanced benefit packages for those employees. So we're not expecting to see much, if any, real margin kind of pull through in Q1, but there's really no other seasonality. I mean once that's kind of in, it's in, there's no kind of adjustment in Q2, Q3. So I wouldn't expect to see any other adjustments up or down kind of through the year. It [ should be ] whatever we kind of see in Q1, which we've kind of indicated what we think that will look like, should be pretty static for the year.

[W. Bickham, executive]

Yes. And then when you're looking at the hours piece, we have seen improvement in what we call our service percentage or fill rate. A lot of that is due, I think, to some of the initiatives that we've put in place this year to really refocus on scheduling clients and caregivers. We still have room to go as far as you alluded to kind of the cap, which is the authorized hours. We still have -- continue to have some opportunity there to improve those numbers.

[Operator]

[Operator Instructions] Our next question comes from John Ransom from Raymond James.

[John Ransom, analyst]

This is small part of your business, but this relentless mix shift and payer mix in the Home Health business. Dirk, do you think -- I mean the 2 of the big [ MA ] payers are digesting acquisitions of Home Health. And so they're going to [ push some ] stuff. But do you think once they've adjusted these mergers and have figured out how much they can allocate to their internal Home Health, is there any sort of they like, in your opinion, on rate release? And then secondly, does it help to have Personal Care and Hospice to trade when you have these discussions? Or should we just expect kind of this just continued relentless shift to keep going and the payers to kind of stick with a relatively low kind of per visit rate calculation?

[R. Allison, executive]

I think they'll continue just for Home Health companies. I think there'll continue to be pressures as the percent of Medicare beneficiaries move more toward Medicare Advantage and away from Fee-For-Service. I think we've seen that in the last couple of years. I think the great thing for us -- remember, Home Health is 6% of our business. It's not a business that -- when we look to what Home Health is for us, it's an important part of our business, but it really works with value-based care for us. It works to supplement what we do on our Personal Care side.

So for us, we're able to sit across in those markets where we have all 3 levels of care, specifically as it relates even just to Personal Care and Home Health. We're able to use our Personal Care coverage across the state as leverage with our payers to help us drive rates to a more appropriate level, much more so than in those markets where if we just would have Home Health by itself.

So while the big acquisitions by the big payer certainly going to continue to affect the market for a long period of time, it really doesn't affect Addus much at all just because of our locations and the size of our Home Health. And what we really are focused on, which is building our Personal Care business, our value-based business and using clinical services on top of that to help supplement that particular growth.

[John Ransom, analyst]

Great. And then my follow-up, and again, these are -- I recognize this is not Personal Care, but do you all think that the pandemic-induced changes in Hospice and also kind of the mortality, we lost too many seniors in 2021, 2022. But do you think Hospice will normalize and go back to the sole growth rates? Or is there something also structural there that just means that it's maybe a less [ growthy ] business [indiscernible].

[R. Allison, executive]

Well, I do think there was a lot of structural changes that happened to Hospice during the pandemic. You had the accelerated death rates of the elderly population that normally would be your clients in Hospice down the road. We have expected this to return to a more normalized level over the last couple of years, and we're still at times struggling to -- with some of the things that have occurred as far as trying to get back to that normal rate. But I will say this, I do believe it will get back. I believe Hospice is a much needed service. And I think as we continue down the road, you'll see the admissions rate level out and become back more to what we were expecting. I think you'll see the ADC growth start to be more consistent than what we've seen maybe in the last couple of years.

I mean even in our business, as we've seen it, while we've struggled with things such as making sure we could hire enough caregivers, that's been a challenge in the last couple of years. But we're starting to see on the Hospice side of our business, it really start to level out a bit. I mean we had 3.1% -- 3.5% growth. While our ADC was down, as Brad mentioned on one of his questions, we had an extraordinary number of discharges in the fourth quarter, above what we have seen historically in our company, and we don't expect that to continue. So once that comes back, we believe that Hospice will get back to where it was prior to pandemic levels.

[Operator]

And ladies and gentlemen, I'm showing no additional questions, we'll be ending today's question-and-answer session. And I'd like to turn the floor back over to Dirk Allison for any closing remarks.

[R. Allison, executive]

Thank you, operator. We want to thank everybody today for your interest in Addus and for being part of this call, and we hope that you have a great week.

[Operator]

And ladies and gentlemen, with that, we'll conclude today's conference call. We thank you for attending today's presentation. You may now disconnect your lines.