ADUS - NASDAQ

Good day, and welcome to the Addus HomeCare First Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Dru Anderson. Please go ahead.

Thank you. Good morning, and welcome to the Addus HomeCare Corporation first quarter 2025 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 on 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 and including statements, among others, regarding Addus' expected quarterly and annual financial performance for 2025 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 first quarter 2025 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.

Thank you, Dru. Good morning, and welcome to our 2025 first quarter earnings call. With me today are Brian Poff, our Chief Financial Officer; and Brad Bickham, our President & and Operating Officer. As we do on each of our quarterly earnings calls, I will begin with a few overall comments, and then Brian will discuss the first quarter results in more detail. Following our comments, the three of us would be happy to respond to any questions. As we announced yesterday afternoon, our total revenue for the first quarter of 2025 was $337.7 million, an increase of 20.3% as compared to the $280.7 million for the first quarter of 2024. This revenue growth resulted in adjusted earnings per share of $1.42 as compared to adjusted earnings per share for the first quarter of 2024 of $1.21, an increase of 17.4%. Our adjusted EBITDA was $40.6 million compared to $32.4 million for the first quarter of 2024, an increase of 25.1%. During the first quarter of 2025, we continue to experience consistent cash flows. As of March 31, 2025, we had cash on hand of approximately $97 million. During the first quarter, we reduced our bank debt by $20 million, leaving a balance of $203 million at the end of the quarter. This gives us a conservative net leverage position had under one time of adjusted EBITDA, allowing us the flexibility to continue to evaluate and pursue strategic acquisition opportunities. Now let me discuss certain areas of our operation. During the first quarter of 2025, we continued to experience solid caregiver hiring success, especially in our Personal Care segment. During the first quarter of 2025, we saw Personal Care hiring at 79 hires per day, up one hire per business day compared to the first quarter of 2024 and up three hires per day sequentially. Please note that the hiring numbers exclude our divested New York operations as well as the recently acquired Gentiva PCS operations, which had its first full quarter of operation as a part of Addus. In addition to our strong hiring numbers, we continued our momentum in starts per business day, which we have seen over the past few quarters. With respect to our clinical service lines, Addus has been consistent over the past few quarters, we continue to see improvements in the overall clinical labor environment, although we do believe that for the foreseeable future, clinical hiring will remain more challenging and geographically variable than what we see in our PCS segment. As we have over the past few quarters, we continue to utilize the funding we received from the American Rescue Plan Act or ARPA. During the first quarter of 2025, we utilized over $2.5 million, leaving approximately $8.8 million remaining in accessible funds. These funds are continuing to be used to help with caregiver recruitment and retention efforts as well as other opportunities to enhance our caregivers experience and training, primarily in our New Mexico market. In our Personal Care segment, our services continue to receive favorable reimbursement support from many of the states in which we operate. We are confident that Personal Care services continue to deliver real value to state Medicare programs as well as our managed care partners through a reduction and the overall cost of care and put us in a favorable position as changes to the funding and other aspects of various Medicaid programs are considered. As we previously disclosed, effective January 1, 2025, Illinois, our largest state for Personal Care services enacted a 5.5% rate increase for Personal Care services, bringing the rate per hour to $29.63. We continue to appreciate the strong support that home and community-based care services received from the leadership of that state. Now let me discuss our same-store revenue growth for the first quarter of 2025. For our Personal Care segment, our same-store revenue growth was 7.4% compared to the first quarter of 2024. During the first quarter of 2025, we also saw Personal Care same-store hours increased by 2% as compared to the same period in 2024, our largest year-over-year volume growth over the past few quarters. As we have stated over the past several quarters, we expect volume growth to comprise a greater percentage of our Personal Care same-store revenue growth going forward. It is also encouraging that we continue to see improvement in our percentage of hours served compared to authorized hours as we showed nice improvement over the first quarter of 2024. This continued improvement along with the completion of the state-led Medicaid redetermination process should help us achieve and maintain our goal of same-store personal care hour growth of at least 2% per year. Turning to our clinical operations. Our hospice same-store revenue increased 9.9% when compared to the first quarter of 2024. Our total average daily census increased to 3,515 for the first quarter, up from 3,359 for the same period last year, an increase of 4.6%. Our first quarter 2025 same-store admissions were up slightly year-over-year and were up 12.5% sequentially. For the first quarter of 2025, our hospice medium length of stay was 25 days as compared to 26 days for the fourth quarter of 2024. Our stated target for this metric is mid to high 20s. Overall, we are pleased by the continued improvement in our hospice segment over the past several quarters. Our home health segment same-store revenue increased 1.3% when compared to the same quarter of 2024. We are pleased to see this segment of our business return to positive same-store revenue growth. As we've previously discussed, our home health operation provide an important clinical partner to our hospice and personal care segments in the markets where we have these overlapping services, which allow us to provide our patients with access to the right care at the right time. As demonstrated by the Gentiva personal care transaction, acquisitions continue to be an important part of our growth strategy at Addus. Our targeted minimum annual revenue growth of 10% remains our goal, even with the larger size of our revenue base. Specifically for home health opportunities, we are primarily seeing small transactions coming to market at this point in time. We don't believe this dynamic will change until the industry sees how the new CMS administration will handle both annual home health rate setting and the potential revenue clawback. Despite this uncertainty, we will continue to source and evaluate potential accretive home health transactions that fit our strategy of selectively adding clinical services in our existing personal care markets. Now that we have a strong presence in Texas following our Gentiva personal care acquisition, our team has started looking for both clinical and non-clinical acquisition opportunities to increase both the density and geographic scope of our personal care service offerings in Texas and to add complementary clinical services to achieve our goal of broad coverage across the state for all three levels of home care. We are currently looking at certain smaller transactions, which fit well with this strategy. While there are indications that a number of larger clinical service acquisition opportunities may be coming to market later in 2025, we remain committed to maintaining a conservative approach to valuation and overall due diligence, which we feel has proven to be strategically advantageous over the past several years. Before I turn the call over to Brian, I want to thank the Addus team for the call they are providing to our elderly and disabled consumers and patients. We all have come to understand that the majority of the elderly and disabled clients and patients want to receive care at-home, which remains one of the safest and most cost-effective places to receive this care. We believe that 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 our other employees, who work so hard providing outstanding care and support to our clients, patients and their families. With that, let me turn the call over to Brian.

Thank you, Dirk, and good morning, everyone. Our first quarter financial results marked a strong start to 2025 as we continue to achieve consistent organic growth and drive additional value from our recent acquisitions. We achieved 20.3% top line growth and a 25.1% increase in adjusted EBITDA compared with the first quarter last year. These results include the first full quarter of the Gentiva personal care operations, our largest acquisition to-date, which we completed on December 2, 2024. Our Personal Care Services segment was the key driver of our business with a solid 7.4% organic revenue growth rate over the same period last year, above our normal expected range of 3% to 5%. Strong hiring trends and favorable rate support for personal care services in certain of our larger markets were both important to creating this organic growth. Rate support included a statewide reimbursement increase in Illinois, our largest market, which was effective January 1, 2025. We also saw a 2% increase in same-store volume in our Personal Care division, in line with our long-term expectations. We saw a steady improvement in our hospice segment in the first quarter, supported by the 2025 hospice reimbursement update that was effective October 1, 2024, and a 4.6% increase in our average daily census compared with the first quarter of 2024. We achieved 9.9% organic revenue growth and higher average daily census, patient days and revenue per patient day compared with the first quarter last year. Hospice care accounted for 18.2% of our revenue. For our home health services, which accounted for 5.3% of our business, we achieved organic revenue growth of 1.3% over the first quarter of last year. While this is our smallest segment, we believe home health is complementary to our personal care and hospice services, and we continue to look for opportunities to support and expand the service line. In addition to organic growth, we have benefited from our recently acquired operations, and we remain focused on identifying acquisitions that will be accretive and support our ability to expand our market reach. The Gentiva acquisition was the largest in our history, adding approximately $280 million in annualized revenues and significantly expanding our market coverage. For 2025, we continue to actively look for additional acquisition opportunities with our primary objective to add density in our existing personal care markets and add clinical services where we have a strong personal care presence. We will also look for opportunities to add select new personal care markets where we can enter at scale. With our size and scale and the support of a strong balance sheet, we are well positioned to execute our acquisition strategy. As Dirk noted, total net service revenues for the first quarter were $337.7 million. The revenue breakdown is as follows: Personal care revenues were $258.3 million or 76.5% of revenue. Hospice care revenues were $61.4 million or 18.2% of revenue and home health revenues were $18 million or 5.3% of revenue. Other financial results for the first quarter of 2025 include the following. Our gross margin percentage was 31.9% compared with 31.4% for the first quarter of 2024. As expected, our gross margin was affected in the first quarter by our annual merit increases and the annual reset of payroll taxes, as well as the mix shift toward personal care from our first full quarter of Gentiva operations. Looking forward, we expect our gross margin to remain relatively stable and consistent with our historical annual pattern. G&A expense was 21.7% of revenue compared with 21.8% of revenue for the first quarter a year ago and a decline sequentially from 24% of revenue in the fourth quarter of 2024. Adjusted G&A expenses for the first quarter were 19.9%, a slight increase from 19.8% in the comparable prior year quarter, but a decline sequentially from 20.5% in the fourth quarter of 2024. The company's adjusted EBITDA increased to $40.6 million compared with $32.4 million a year ago. Adjusted EBITDA margin was 12% compared with 11.6% for the first quarter of 2024. For the solid start to 2025, we continue to expect our adjusted EBITDA margin percentage for the full year to remain above 12%. Adjusted net income per diluted share was $1.42 compared with $1.21 for the first quarter of 2024. The adjusted per share results for the first quarter of 2025 exclude the following: acquisition expenses of $0.13 and non-cash stock-based compensation expense of $0.13. The adjusted per share results for the first quarter of 2024 exclude the following: acquisition expenses of $0.12 and non-cash stock-based compensation expense of $0.12. Our effective tax rate for the first quarter of 2025 was 21.4% and benefited from the excess tax benefit related to our stock compensation. For calendar 2025, we expect our tax rate to be in the mid-20% range. DSOs were 36.9 days at the end of the first quarter of 2025 compared with 38.8 days at the end of the fourth quarter of 2024 or 34.9 days when excluding Gentiva. We continue to experience consistent cash collections for the majority of our payers. Our DSOs for the Illinois Department of Aging for the first quarter were 47.6 days compared with 40 days at the end of the fourth quarter last year, primarily as a result of payment timing. To date, in the second quarter of 2025, we have already received $31.3 million in payments from the IDOA. Our net cash flow from operations was $18.9 million for the first quarter of 2025. As expected, we saw some negative working capital changes impact our cash flow in the first quarter, primarily due to the normal timing of our annual bonus payments. For the full year 2025, we continue to expect consistent cash flow conversion in line with our historical average. We utilized approximately $2.5 million in ARPU funding during the first quarter, and we have approximately $8.8 million in ARPU funds remaining to be utilized. As of March 31, 2025, the company had cash of $97 million with capacity and availability under our revolving credit facility of $632.9 million and $421.9 million, respectively. We finished the quarter with $203 million in bank debt, a reduction of $20 million from the end of the fourth quarter of 2024, and have subsequently reduced our revolver balance by an additional $20 million to date in the second quarter. We have a capital structure that supports our ability to continue to invest in our business and pursue our strategic growth initiatives including acquisitions. As mentioned, we will continue to selectively pursue acquisitions in 2025 that complement our organic growth and align with our strategy. At the same time, we will maintain our disciplined capital allocation strategy and continue to diligently manage our net leverage ratio through ongoing debt reduction. 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.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Ben Hendrix with RBC Capital Markets. Please go ahead.

Great. Thank you very much. Just wanted to start-off this morning actually on the hospice side, given all the attention around cap cushions and Medicare Cap limitations this quarter with some of your peers. I just wondered if you could just start us off with just a little bit of commentary about what you're seeing from a capital limitation perspective in hospice?

Yes, Ben, this is Brad. We really haven't seen -- it really hasn't been very material for us. We had a little bit of cap last year. This year going forward, is a very immaterial amount. I mean it really boils down to making sure you've got a balanced referral mix in each of your markets. And so one of the things I think that's really benefited us is we brought in new sales leadership late last year. We've really done some targeted assessments of markets to make sure that we've got that balanced mix. So we're actually managing cap pretty well.

Great. Yes, the mix was going to be my next question. Also just along those same lines, wage index regions. Just if you could maybe talk about are there any particular regions that you guys have to manage particularly carefully due to higher wage index levels. Thanks.

Yes. I mean, I think really not from a cap standpoint, we match up pretty well there just with our kind of length of stay in those regions. So really, it has not impacted us in those markets.

Great. Thank you very much.

The next question is from Joanna Gajuk with Bank of America. Please go ahead.

Hi. Good morning. Thanks so much taking the question. So maybe on the main business line, personal care services. So you said that the hours actually grew nicely 2%. That was same-store. And I want to say that two months ago, so on the Q4 call, you talked about some weather headwinds early in the quarter. So I guess, was that actually the case? And -- was there some material impact from that? Because it sounds like if that was the case then the core actually is growing faster than that because my actual question is, how should we think about the growth for the rest of this year? Because it sounds like you're starting on the pretty strong growth in Q1.

Yes, Joanna, we did have some weather events that hit us in early part of January. We rebounded nicely in February and March. I still expect kind of the hours to be in that 2%, 2.5% range going forward.

All right. That's great. And also staying on volumes, but different segment on hospice by sensors grew very nicely. They're accelerated regarding growth almost 5%. So is this a good run rate going forward? And also, it sounds like maybe do things there differently because the last few quarters, the growth continues to accelerate. So kind of walk us through some of the efforts and the results of that and how we should think about the rest of the year?

Yes. When we think about hospice, I mean, we look for kind of a revenue on a revenue basis of 5% to 7% range. I think we'll be kind of at that higher end if maybe slightly above it. We have had good ADC growth. So, really pleased with how the first quarter shaped up for us, and we'll see how the rest of the year goes, but 5% to 7% on the revenue side with probably towards the upper end of that range.

And any update on -- it sounds like you were making some changes in your hospice region, you just said in a prior question around just going through the market. And so is there any additional changes you're making there in the hospice segment?

No, I think on the hospice side, we're actually in pretty good shape. We made some leadership changes on the sales side and then also on the upside at the regional level. And I think we're in a really good place. So, we've got a strong leadership team and they've been doing a very good job.

Thank you so much for taking the questions.

The next question is from Tao Qiu with Macquarie. Please go ahead.

Hey thank you. Good morning. Congrats, Brad on the retirement announcement. I wanted to ask about margin. I think our adjusted margin was -- EBITDA margin was 12% in the first quarter. And under normal seasonality, that will be the low point of the year. I think you mentioned in previous quarters that the Gentiva-related expenses were more front-loaded than typical transaction. I'm wondering if you could comment on the level and cadence of margin expansion we should expect through the rest of the year. Now, that you have a full quarter of Gentiva under the belt, any additional insight you could share as to the cost synergies relative to your expectation? Thanks.

This is Brian. I think what we expect to see this year is kind of in line with what we've seen historically. You're right. Usually, Q1 is our low watermark from a margin percentage perspective. We usually see 40 to 50 basis points of expansion into Q2, primarily from just hitting some of those payroll tax caps. Usually Q2 to Q3 is pretty level. No event is sure we don't have any kind of Illinois impacts like midyear their fiscal starts on July 1. So, it should be pretty level Q2 to Q3. You'll see another step up in Q4, both from a then we usually get a little bit of additional benefit from the payroll tax thresholds being hit, but we also get our hospice rate increase October 1 that kicks in and helps us as well. So that normal cadence should continue through this year.

Okay. My second question is on the Medicaid front. I think, Dirk, you mentioned the per capita caps and [indiscernible] floor work requirements, all these things in past calls. I think the latest discussion has been on rolling back ACA expansion. I think there's some Medicaid figure out in Illinois and New Mexico. I think I read somewhere that the states are revisiting those trigger rules as well. I mean, could you just comment in general about the impact of potential ACA expansion rolling back and your exposure there? Thanks.

When the ACA was expanded, we really didn't benefit as a company from that, if you think about our -- the type of patients we serve, it's an elderly patient. It's a disabled patient. Those are the folks that have qualified for Medicaid for years. It was not an expansion population that we just added at that point in time. And so now when you look at even some of the things going on, if some of the matching of that population base is reduced, it really has no direct effect on us. And I would say that about most of the Medicaid changes that they're talking about. If you run through most of those, you see that from a standpoint of our patient base, again, remember, they're elderly, they're disabled. We're not going to see much direct effect from the changes, if any of those changes actually get through. And by the fact that we talked about before, why we think we're in such a good position is because we're a low-cost provider of Medicaid services to this very expensive patient base. So anything we can do to help the states keep folks out of longer-term facilities, keep them out of hospitals, emergency rooms. We think those play very well into the fact that if states are looking to try to make sure that they're Medicaid programs are very efficient. We can be a player with that. So from this standpoint in time, the ACA expansion, most of the others, we don't believe will be a direct impact to us.

Appreciate it. Thank you.

The next question is from Andrew Mok with Barclays. Please go ahead.

Hi. Good morning. This is Evan [ph] on for Andrew. Can you help us understand the components of the 7.4% same-store revenue growth in the context of same-store average billable census being down. 4% year-over-year? And is there anything driving what looks to be a particularly strong rate in the quarter? Thanks.

Yeah. I think when you look at just -- we're doing a better job of scheduling and assigning caregivers. So fundamentally, a lot of the things that we've done some initiatives that we had in place, providing additional tools to our schedulers, giving them greater insight also providing more visibility, frankly, to our caregivers where they might be underserving somebody, I think, has paid dividends. And so we've seen -- we're doing a better job of increasing our service percentage or fill rate against the authorization. When you look at the census piece, I think we've mentioned this on a couple of previous calls, we went through the -- state went through the redetermination process last year. What we have found is that it takes almost six months for states to kind of rebound after they've gone through that process. I mean some of the early states that have gone through it, if I'm thinking about a New Mexico, which was probably about midyear last year, we're starting to see admission trends outpace discharges in Q1 in that market. Illinois by kind of on the opposite end of the spectrum, it was late in the year that they went through the redetermination process, really kind of November, December. We started to see kind of discharge numbers have steadily come down, and they're at kind of a more manageable rate. We're still looking for admission volume. It's picking up. It hasn't quite crossed that threshold where it's outpacing discharges. But I'm optimistic as we get further through the year, the state of Illinois and their case managers kind of complete their pivot to kind of normal operations that we'll see those numbers pick up. But that's really the kind of driver on the census side is really recovering from the redetermination process, which you can see it in the states that went through it earlier. And then just on the service percentage, the hours is really about some of the things that we've done from an operational perspective.

Thanks. And if I can just do a quick follow-up. On a same-store basis, excluding the operations of New York and Gentiva added gross margins compare?

I mean, as we talked about before, the Texas market is going to be a little bit lower on gross margin, but taking New York out, it was actually probably fairly equal. So I think to our expectation, we're probably slightly ahead of our expectation for this year from a gross margin perspective in PCS.

Great. Thanks for the color.

The next question is from Jared Haase with William Blair. Please go ahead.

Yeah. Good morning, and thanks for taking the questions. I appreciate all the color thus far. Maybe I'll take a step back and I'm just curious, obviously, Addus experienced some improvement on the workforce retention and hiring over the last couple of years sort of benefiting from the states. If you take a step back and think about the data you're looking at across the industry, do you see that improvement sort of industry-wide from a retention perspective. Just curious to hear any color you'd share there?

Yes. I think when you look at industry-wide, I think certainly from COVID time frame, we have seen improvement, I think, industry-wide as well as ourselves internally on the personal care front. I think you're also seeing it on the skill side. I mean it certainly is a -- the environment has improved. There are pockets still that are challenging, and I think we'll -- it's going to be, as Dirk mentioned in his comments, the clinical side is going to be where we will see the most kind of headwinds, if you will. That being said, it's much better than it was 1.5 years, 2 years ago. And I think that's what I'm reading kind of in the industry publications is very similar. I think most people have said the clinical side, still challenging, but certainly has improved and continues to improve.

Got it. That's helpful. And then maybe just as a quick follow-up. Obviously, on the home health side, a small portion of the overall mix here. But just curious, there's been a lot of focus on sort of the broader churn with Medicare Advantage plans at the start of this year given the disruption you've experienced the last couple of years. do that churn and patients kind of moving between products, did that have any impact at all on the volume trends in the quarter?

No, not really. I mean one thing that we have been tracking for us is just our episodic versus non-episodic volume and it's been very consistent. We're sitting at kind of 55%, 45%, and I think we might have been at 56%, 44% a year ago. So we really haven't seen much movement there. I think our challenge is on the home health side. Honestly, we have one market that we're struggling with the leadership to find the right leader in. The other kind of two big states that we're in New Mexico and Tennessee, I think, have stabilized, and I'm optimistic that we'll see some nice improvement there. We just have one market that we're still focused on to try to find the right leader and I think turn that one around.

Perfect. That's very helpful. Thank you.

The next question is from Matthew Gillmor with KeyBanc. Please go ahead.

Hey, guys. Thanks for the question. I thought I might ask how the Gentiva business has been performing against your expectations. Obviously, great to see the same-store metrics strong on the Addus side. But if you had any comments either kind of qualitative or quantitative on how the Gentiva business has been growing in the last couple of months.

Yes, it continues to move forward. We're still, I'd say, in the development/pilot phase. We're steadily adding states to it and part of it is just discovery of things that for the system, we still working very closely with Homecare Homebase on the development of it. We're not quite to where we're ready to push go on an enterprise-wide rollout, but I think with some of the development features they have they're working on currently. We'll be kind of closer to really working to maybe launch an enterprise-wide rollout maybe later this year, latter part of this year, early next year.

The next question is from Ryan Langston with TD Cowen. Please go ahead.

Thanks. Dirk, I appreciate the updates on the hiring trends, but can you give us a sense on the turnover between the three service lines and maybe the turnover metric at Gentiva before the acquisition closed?

Yes. I don't have the Gentiva number in front of me. But if you look at our Personal Care, the largest segment, we're running around at between 50% and 55% turnover rate on the personal care aids. We were kind of give you kind of an idea of where the -- where we were and where the industry was. I think during COVID, we were probably at 70%, 75%, and the industry was at close to 90%. On the skilled side, we haven't given those numbers out in the past. I mean, we're doing better than we were. It kind of varies by geographies where you may have some challenges with a little more challenging labor market, but we have seen improvement in the turnover numbers on the skilled side. But really where the skill side is coming in is really the hiring has improved significantly.

Got it. And then I know, obviously, the focus has been on Gentiva, but can you give us any updates on how Tennessee Quality Care and Journey Care are progressing? Thanks.

Yes, happy to. Very pleased with that. Let's start with the one that we acquired first was Journey Care. Really, it just performed very well. I think better than expectations, honestly, in that -- with that turnaround because it was a challenging one from the standpoint that you're acquiring a nonprofit that kind of took that seriously. They literally were nonprofit. But instituting some of our processes, and really working with the team there, they've done a very good job of building census and really kind of broadening out their referral mix. So very pleased with how Journey Care has performed. Tennessee Quality Care. The interesting thing there is we recently put in our bridge program from home health to hospice this year, and we've really seen some really nice traction there. The numbers have picked up kind of the percentage of admissions coming from our home health into hospice there has improved significantly and is now tracking almost where we are at New Mexico where 25%, 30% of the admission volume is coming from our home health.

[Operator Instructions] The next question is from John Ransom with Raymond James. Please go ahead.

Good morning, everybody. A couple for me. If we step back and look at hospice over the last 5 years or so, it was a little slower to come out of the COVID slump than maybe some of us thought. So can you just kind of go back in time and help us understand why that business was challenged for maybe a bit longer than it should have been? And what's happened specifically recently to signal a turnaround?

Yes. John, that's an interesting question. I think a lot of it had to do with during COVID, there was this dynamic. I mean, the elderly population is the population again is the hardest. And I think you had what some people would consider or call excess deaths for that demographic that would have either been current hospice patients are more importantly, ones that would be transitioning -- would have transitioned into hospice in that kind of 5-year period. I think that dynamic is over with. And now you're looking at just kind of the demographics of an aging population is really providing, I think, the tailwind there. I think you're also seeing your back up to as far as the percentage of Medicare beneficiaries that are electing and dying on hospice has actually started getting back to pre-COVID numbers, because that had actually dropped as well. So I think you're seeing kind of adoption get back to normal. And then you've just got the tailwind of just an aging population.

Well, I think I seem to remember, too, there was an issue with referrals from, I think, the SNF channel due to some COVID rules that finally got changed that part.

That total is -- I mean that was about 1.5 years ago, 2 years ago, when the PAG ended the rules that allow SNF to basically skill patients longer and skills in patients otherwise are qualified.

I got you. And then just going to home health, two questions there, number one, kind of where are we with the challenge of that industry? One of them has obviously been the Medicare Advantage. So I'm just curious, I know this is a huge, not a business for you, but just in your contracting with the MA plans, what's the gap now between an MA rate and a Medicare fee-for-service rate, if we just look at it on a per visit basis? And then secondly, I mean, do we think the regulatory backdrop now is stable enough to index a little harder on M&A here? Or is it still going to be something that's less of a priority?

Yeah. I'll answer the first part of that. When you look at the kind of progress, I think, one, on the mix shift -- I think it's stabilized a little bit, and we're not seeing the movement that we did two, three years ago. And so, at least in our book of business, it's fairly stable, Medicare or episodic rates versus non-episodic volume. With respect to rates in general, I think Medicare Advantage plans have started over the past year, year and a half have started coming to the table in increasing rates, even if it's on a per visit basis. And I think you're now where you -- we're at probably almost like a 40% discount, it's probably more in that 15% to 20% discount rate versus Medicare fee-for-service. There's still room to go there, but it has improved pretty significantly.

Yeah. I think just on the M&A side, I think, as Dirk kind of alluded to in his comments, we're seeing probably more on the smaller side, things coming to market. It feels like there's probably still a little bit of overhang, and so, we get some clarity on kind of where things are headed. I think maybe we'll get a good indication of that here in a month or two when the proposed rule comes out. I think that will be maybe telling a little bit to see which way maybe this administration is viewing home health. But we'll wait and see how that shakes out.

I mean, is the claw-back still a big consideration when you're looking at M&A? Or can you structure transactions to wall that off?

I mean, I think from our end, I think we're -- obviously, with our business, we're not too concerned about the claw-back. We're not as big as some others. I think we think we have ways that we could deal with that, if there were willing participants -- something that could be boxed on.

Okay. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Dirk Allison, for any closing remarks.

Thank you, Operator. We want to again thank each of you for taking the time to join with us today on our earnings call. We hope that you have a great week.