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Operator
Good morning everyone and welcome to the Add Us Home Care's fourth quarter in year end 2023 earnings conference call. All participants will be in a listen only mode. If you need assistance please send to a conference specialist by pressing the star key followed by zero. After today's presentation there will be an opportunity to ask questions. To ask a question you may press star and one using a touch-tone telephone. To withdraw your questions you may press star and two. As you'll to note today's event is being recorded. At this time I'd like to turn the floor over to Drew Anderson.
Drew Anderson
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Operator
'am please go ahead.
Drew Anderson
Thank you. Good morning and welcome to the Add Us Home Care Corporation fourth quarter in 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 Add Us 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 forecast, 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 Add Us 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.
Dirk Allison
Thank you Drew. Good morning and welcome to our 2023 fourth quarter earnings call. With me today are Brian Popp 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 Brian will discuss the fourth quarter results in more detail. Following our comments the three 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 Add Us. 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 them that our employees do for our company. As we announced yesterday our total revenue for the fourth quarter of 2023 was $276.4 million dollars an increase of .9% as compared to $247.1 million dollars 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 .3% over the fourth quarter of 2022. Our total revenue for 2023 was approximately $1.1 billion dollars an increase of .3% as compared to the $951.1 million dollars 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 dollars was an increase of .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 dollars 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 dollars 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 three 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 toward the proposed 80% compensation requirement to be implemented by states within a four-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 rule 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 four-year implementation period extended. We do believe that a key for personal 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 ATIS, 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 continue 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 .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. Today, 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 caregivers' 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 three years in health care services. Although some of the federal financial support to states has been reduced, we feel confident that personal care services continue to show true value to the 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 segments, 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 .2% when compared to the fourth quarter of 2022. During the fourth quarter of 2023, we saw personal care same store hours per business day grow .7% over the same period in 2022 and also increased on a sequential basis. Importantly, over 75% of our personal care states 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 hours growth over the past several quarters. Turning to our clinical operations, our hospice same store revenue increased .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 of 2.7%. As of the end of the fourth quarter of 2023, our hospice median length of stay was 28 days exclusive of Journey Care and our recently acquired Tennessee Quality Care operation. For comparison purposes, we have historically excluded our Journey Care 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 .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 experienced, we continue to be affected by the movement of Medicare beneficiaries from Medicare -per-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 states. 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 timeline 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 had 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 PETA 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 non-clinical 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 Addis 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 work 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
Thank you, Dirk, and good morning, everyone. Addis 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 .2% -over-year organic growth and personal care services revenue, well above our normal expected range of 3 to 5%. For the year, personal care revenues were at .1% compared with the prior year, a record annual rate of growth for Addis. This impressive growth reflects both higher volumes as well as the benefit of ongoing rates for our personal care services. Our fourth quarter results included a full three 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 profiles 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 Addis in our industry. We were pleased to see positive -over-year trends in our hospice business during the 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 .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 .2% of our business, was down .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, nonepisodic mix from the prior year. We continue to look for ways to more effectively balance our mix of episodic cases versus nonepisodic 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 .8% of revenue. Home health revenues were $17.1 million, or .2% of revenue. 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 .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 .1% annual hospice rate increase effective October 1, 2023. Exclusive of the retroactive positive impact from collective bargaining negotiations are the increase of the gross margin percentage of 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. GNA expense was 22% of revenue consistent with 22% of revenue for the fourth quarter a year ago, but it declined sequentially from .3% in the third quarter of 2023. Adjusted GNA expense for the fourth quarter of 2023 was 21%, up slightly from .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 .4% for the fourth quarter of 2022, and an increase sequentially from .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 non-cash 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 non-recurring costs of $0.01, and non-cash stock-based compensation expense of $0.13. Our effective tax rate for the fourth quarter of 2023 was 22.8%, in line with our expectation. For calendar 2024, we currently expect our tax rate to be in the -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 defunded 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, depending on market conditions. At the same time, we will also continue to diligently manage our net leverage ratio, which is currently well under one-times 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
Ladies and gentlemen, at this time, we'll begin that question and answer session. To ask a question, you may press star and 1 on your touch-tone phones. If you are using a speakerphone, we do ask you please pick up your handset before pressing the keys to ensure the best sound quality. To withdraw your questions, you may press star and 2. Once again, that is star and then 1 to join the question queue. We'll pause momentarily to assemble the roster. Our first question today comes from Joanna Gadju from Bank of America. Please go ahead with your question.
Joanna Gadju
Thank you. Good morning. Thanks for taking the question. First, maybe on the quarter results, and I guess as it relates to 2024, which gives a specific outlook, but just to get a sense of Q4 margins were about 12%. I'll perform here and up 100 basis points year over year. I guess you outlined a couple of different things. The benefit 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? When we think about 2024 as a full year, I understand you talk about Q1 being a week or quarter, especially sequentially. But as we think about the full year, is 11.4, I guess, that you reported in 22 years as you adjusted either down margin. Is that good starting point for the full year, 24? How should we think about the full year? Thank you.
Brian
Joanna, I think obviously give a little bit of color on expectation 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, part of the same cadence of rate increases on the personal care side in 2024 that we've seen, we expect margins to be fairly consistent. But I think part of the wild card there is how successful we are at acquisitions. If that mix of the clinical business continues to creep up, that's obviously going to be beneficial overall to margins. Otherwise, we would expect this to be a fairly standard year in 24.
Joanna Gadju
Thank you. I guess follow-up to that, when it comes to the rate increases in personal care, previously you talked about the rate increase you expected 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
Yeah, 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 kind of 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. That will impact us and a few of our markets, but nothing else really probably sets a note.
Dirk Allison
Yeah, 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 half to two-thirds 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 a third of our growth will be through rate increases. 50% to two-thirds of our growth should be through volume increases.
Joanna Gadju
And I guess to that end, since you mentioned it, is it fair to assume your 3% to 5% organic growth or personal care that you've been talking about in the past, is that a fair assumption for 2024?
Brian
Yeah, I think obviously getting another rate increase in Illinois. We talked about some of the margin profile that previously not expect 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 2024, but would expect to be toward the top end of that 3 to 5, if not slightly above
Brad
for 2024. And if I
Joanna Gadju
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 a 100% EBITDA conversion for the full year. So how should you think about this cash flow conversion going forward? Is that sustainable or how should we think about up and cash flow for 2024 and going forward? Thank you.
Brian
It's not going to be at 100% rate. We got some very positive working capital tailwind, I think on our cash flow in 2023, 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 adjusted EBITDA, which I think is pretty consistent expectation
Brad
for 2024. Thank you. Our next question comes from Scott
Operator
Fidel from Stevens. Please go ahead with your question.
Stevens
Thanks. Good morning. Appreciate, Dirk, all the comments you gave us just on the final rule. And I thought your tone maybe sounded 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, you know, continuing to deploy capital into the personal care market, you know, 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 know, you just wanted to talk about, you know, when you see the final rule, you know, maybe what would be some of the key changes specifically that you'll be looking for that you would view as sort of, you know, milestones that would, you know, keep you confident in deploying capital for the long term in the personal care market.
Dirk Allison
Yeah, 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 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 become 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 a final rule is published doesn't mean that will ever get in. There'll be legal challenges and other things that will 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, Addis 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. For us, we're doing things along investments into scheduling, investments into recruitment and retainage, our value-based investments. And then also, we're really focused now on 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 Addis, 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 person care side as this rule, if this rule is ever put into place.
Stevens
Okay, got it. And just as my follow-up, just on the business, just, you know, we'd be curious if you wanted to maybe drill a little bit into how you're thinking about hospice segment margins for 2024. You know, obviously, the rate increase effective in 4-1. So, you know, 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, you know, trying to hold margins relatively constant?
Brian
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, you know, obviously, with a .1% increase, you know, our typical merit is probably around that 3% range. Obviously, wages aren't 100% of our cost basis, so, you know, there's probably a little bit of pull through there, but I think our expectation overall is not to really see, you know, material margin expansion in hospice, but to maintain maybe a little bit like I said of full throubrette. Let Brad talk a little bit about kind of volume expectations for this year.
Brad
Yes, Scott, on the volume side, you know, if you look at our -over-year results, you know, we were essentially kind of flattish on the volume side. That being said, a lot of that was due to some, you know, we had some pretty heavy discharges in Q4. We expect, you know, with the strong admission volumes that we've seen over the past couple of quarters, that'll start translating into some ADC growth. So I think we're kind of looking in that, you know, 5% to 7% revenue growth
Stevens
for
Brad
the hospice
Stevens
segment. 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? Yeah, roughly.
Brad
Okay, thank you.
Operator
Our next question comes from Brian Treculet from Jeffreys. Please go ahead with your question.
Brian Treculet
Hey, good morning, guys, and congrats on the quarter. Derek, maybe as I think about your M&A philosophy, I understand, obviously, saying the sidelines right now given the regulatory uncertainty, but how are you thinking about, you know, if the rule comes out and the 80% rule goes through, is that the opportunity point, you know, given maybe the stress or concerns among other players in the space, or does that preclude you from getting more aggressive and, you know, as you wait for finality on the rule? How are you thinking about that?
Dirk Allison
You know, 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. 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'll be certain states that will be more advantageous for us to look to grow in. There may be some states that will have to wait and see what the various Medicaid programs in those states try to do, think to do and respond to any particular rule. So I think for us, just the fact 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 in 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. You know, obviously, we would rather us be able to have a little more flexibility depending on the state in which you operate. We hope that's where the final rule goes, but we're prepared to operate in any manner in which it is finalized.
Brian Treculet
I appreciate that. And my one follow-up, as I think about your comments on value-based care and trying to make inroads there, what does ADAS need to do, whether it's investment in capacity or investments in capabilities or expansion of service lines? What will you as a company need to do to gain traction and really get the ball rolling there?
Brad
Well, I think if you look at our value-based programs, we've been doing this for the past two years now and we've collected a lot of favorable information that we believe will be useful in demonstrating value to, you know, 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 before that I think will help further improve the outcomes that we've already demonstrated. So I think there's, you know, real opportunity there. You know, what we have found that's kind of interesting is, you know, 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 it.
Operator
Our next question comes from Ryan Langston from TD Cowan. Please go ahead with your question.
Ryan Langston
Hi, good morning. Just a couple quick ones for me. I guess, maybe, Brian, how do we think about the progression just -to-quarter seasonality from these union negotiations maybe outside of the first quarter? I don't know the detail there. And then it looks like billable hours per employee in PCS just continues to kind of steadily move up a little bit and then gradually, I understand certain markets have caps on allowable hours and things, but how do we think that may be progressing over the next, you know, one to two years?
Brian
Yeah, I'll take the first part. I'll let Brad talk about the hours per 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 rating for each Jan 1. We made some concessions there of enhanced benefit packages for those employees, so we're not expecting to see, you know, any adjustments in Q1, but there's really no other seasonality. Once that's kind of in, it's in. There's no kind of adjustment Q2, Q3, so I wouldn't expect to see any other, you know, 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.
Brad
Yeah, and then when you're looking at the hours piece, you know, we have seen improvement in what we call our time-sensitive 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.
Brad
Got it. Thank you. Once again, if you would like to ask
Operator
a question, please press star and then one. Press star and two. Our next question comes from John Ransom from Raymond James. Please go ahead with your question. Hey, good morning. You know, this small part of your business, but this relentless mix shift and, you know, payer mix in the home health business, Dirk, do you think, I mean, yeah, the two of the big MA payers are digesting, you know, acquisitions of home health, do you think once they've digested these mergers and have figured out how much they can allocate to their internal home health, is there any sort of daylight in your opinion on the rate, on rate relief? And then secondly, does it help to have, you know, 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?
Dirk Allison
I think they'll continue just for home health companies. I think they'll continue to be pressures as the percent of Medicare beneficiaries move more toward Medicare Advantage and away from -for-service. I think we've seen that the last couple 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, and it's a way for us 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 three 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. You know, why the big acquisitions by the big payer are certainly going to continue to affect the market for a long period of time. It really doesn't affect Addis 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
Operator
particular growth. Great. And then my follow-up, and again, these are recognized this is not personal care, but do you all think that the pandemic-induced changes in hospice and also kind of the mortality, you know, we lost too many seniors in 2021, 2022, but do you think hospice will normalize and go back to its old growth rates, or is there something also, you know, structural there that's maybe a less growthy business than it used to be?
Dirk Allison
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 the last couple of years, and we're still at times struggling 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 the last couple of years. We've seen it in the business as we've seen it. We've struggled with things such as making sure we could hire enough caregivers. That's been a challenge 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, .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, 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.
Brad
All right, thanks so much. Thank you, John.
Operator
And ladies and gentlemen, in 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 Derek Allison for any closing remarks.
Dirk Allison
Thank you, Operator. We want to thank everybody today for your interest in ADIS 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.
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