Home Health Veterans Windley, Strange Hoping to Take Aveanna Above and Beyond $2 Billion

Rod Windley and Tony Strange have been in business with each other for decades. They continue to be partners today as the chairman and CEO, respectively, of Aveanna Healthcare (Nasdaq: AVAH).

From The Healthfield Group Inc. and Gentiva Health Services, Kindred at Home’s predecessor, to Aveanna, Windley and Strange have helped build a handful of companies together by this point. But their aspirations for Aveanna are higher than they’ve been for any organization they’ve previously been involved with, the executives told Home Health Care News.

“We’re going to continue to do what we’ve always done — and that is build a very successful home care company, one that is diversified and different from our peers,” Windley, Aveanna’s chairman, told HHCN. “And one that will be here for years to come. We don’t have our sights set on being a $2 billion company. Our appetite for growth is much, much larger than that, and we think that there’s plenty of runway going forward.”

The Atlanta-based Aveanna was formed in 2017 after a merger between Epic Health Services Inc. and Pediatric Services of America Inc. (PSA), the latter of which was managed by Windley and Strange. Historically a pediatric home health provider, Aveanna has grown significantly since, enough so that it went public via a $100 million IPO earlier this year.

Overall, Aveanna’s network includes 245 locations in 30 states and 42,000 caregivers. It brought in over $1.5 billion in revenue in 2020, a more than 380% increase compared to five years earlier.

The company’s next goal will be a massive undertaking: to take its successful pediatric home health business model and apply it to seniors across the country. While it won’t be easy, Windley and Strange’s prior success in home health — and current success in pediatric home health — gives them confidence.

In fact, it was their plan all along.

“We have had the vision for this since the day we sat down in our office and sketched out the vision for the company,” Windley said. “Matter of fact, we even went public 30 days ahead of schedule based on the timeline we originally put together. So we haven’t backed up on anything that we’ve done.”

The company financial filings document many of those goals.

“We believe that we have the opportunity to leverage our national home health infrastructure to develop an industry leading adult home health and hospice business similar in size and scale to our pediatric home health business,” the company noted.

Success in pediatric home health

Prior to Aveanna, Windley and Strange led The Healthfield Group, a home health and hospice provider that was acquired by Gentiva Health Services for $454 million. Gentiva then was acquired by Kindred Healthcare in 2015 for $1.8 billion, which created Kindred at Home, the largest home health provider in the country. Today, Kindred at Home is a fully owned entity of Humana Inc. (NYSE: HUM).

The two home health veterans found themselves as PSA after all that, eventually taking the helm of Aveanna.

“We retired for about 15 minutes,” Windley said. “And then Tony and I were approached by PSA Healthcare to become a part of its board, and we said yes.”

For the most part, pediatric home health is a very hard business to succeed in. Across the country, providers struggle with the recruitment and retention of workers, which makes it difficult to meet the needs of the medically fragile children who sit on waiting lists in order to receive care.

Aveanna has faced these and other struggles, but it has nonetheless built a successful business that has grown considerably over the years.

“There’s not a lot of companies out there that have been successful in building a pediatric-focused business in home health,” Strange told HHCN. “We really have built the company around a clinical delivery platform that has always put patient care first, and I think that benefited us in the long run.”

One of the reasons for the success, Strange and Windley believe, is the diversity in Aveanna’s payer sources.

“We have had the luxury of having diversity across 30-plus states in the U.S., and in that we have microcosms of different reimbursement platforms in each of those states,” Strange said. “So even if we are getting back into the traditional Medicare business where there’s really more of a single-focus payer, we have built out a highly diversified platform, which helps de-risk our story. And that’s pretty important.”

Even though many providers deal with payment environments that can be volatile, specifically as payment rules change, Aveanna hasn’t felt the effects of those changes as much thanks to that mix, he explained.

Still, though Aveanna’s leaders are happy with the workforce the company has been able to maintain, recruitment remains a challenge.

The people who the company serves aren’t run-of-the-mill patients. Due to their complex needs, they often require workers who are highly skilled. Pediatric home health is also an industry where workers are more likely to burn out, so while demand is always there, enough workers never are.

“Our demand for service outstrips our supply to be able to provide those services. … We could double our growth rate, if we had more nurses,” Strange said. “But there’s just not enough nurses to take all these patients. It’s just a struggle that all home care companies — especially in the pediatric space — are facing today and will continue to face in the future.”

There are at least 3 million medically fragile children across the country, according to U.S. News & World Report. Their families’ plights worsened considerably during COVID-19, when access to services worsened.

In order to change the supply-demand imbalance, provisions need to be put into place at the top, Strange and Windley argue.

To get more workers, their pay needs to be better. And to pay better, there needs to be better reimbursement from each of the states.

“The ability to increase wages for caregivers is directly proportional to the ability to get the recognized better reimbursement from each individual state system,” Strange said. “So I think as an industry, and not just as a company, we have to start making sure these states recognize the value of pediatric home care.”

A study published by Health Affairs in 2014 found, at the time, half of all hospital Medicaid spending for children was derived from children with complex medical needs, the kind of patients that could be cared for in the home to avoid those hospitalizations in the first place.

Spending for primary care and home care for children with medical complexity was only equal to about 8% of hospital care spending, highlighting the potential savings pediatric home-based care can offer.

If at-home pediatric care is not recognized, the children end up — as seniors do — in institutionalized settings, which ends up driving up the costs for each state.

Increasing the reimbursement for at-home pediatric care, then, would end up saving money for the states in the long run anyway.

Acquiring aggressively

Aveanna’s acquisition strategy is aggressive.

One of the chief reasons why is because Windley and Strange believe in buying other businesses as opposed to exclusively launching de novo locations.

As the publicly traded provider continues to diversify both its clinical capabilities and its payer sources, the focus will be primarily on Medicare home health. But pediatric acquisitions will remain on the radar.

“As we move forward, we are obviously looking more towards the traditional Medicare home health business,” Windley said. “But we are not giving up or forgetting about our pediatric business. Overall, it continues to be a target-rich environment for us.”

The gross margins in the medicare home health and hospice business are higher than they are on the pediatric side, according to Windley. But after regional and support costs are added, the net operating level of the two businesses are more or less in line with each other.

Originally, the goal was to complete two Medicare home health acquisitions for every pediatric one. But it hasn’t shaken out that way, at least not yet.

Right now, that is still at about a 50-50 split.

As for hospice, Aveanna is less interested, but it’s not against those acquisitions. It’s more likely that involvement in that space will come as an ancillary service for Aveanna, where it’s taking on businesses that work in both home health and hospice.

“But we’re going to continue to be an aggressive buyer in the space,” Windley said.

As home health veterans, Windley and Strange are well aware of the challenges in front of them. But they’re also aware of something else: that home-based care has never been as on the map as it is now.

“Tony and I have been playing in the same rock ‘n’ roll band for 30 years,” Windley said. “And now thanks to COVID, all of a sudden, it’s like we got a one-hit wonder, but we’re still doing the same thing we’ve always done.”

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