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Disclaimer
The Two Sided Growth Strategy of ADK
It’s AdCare’s spectacular revenue growth over the past few years, roughly doubling every year since 2009, that has caught the eye of investors, with much of the attention going to the company’s increasing number of acquisitions. AdCare, a healthcare services provider that owns and operates a growing number of skilled nursing homes, assisted living facilities, and other care facilities, has a strategy designed to take advantage of a fragmented industry that is weighted toward long-term low margin care. The company has been able to acquire these small privately-owned operations, and transform them to higher-margin short term care facilities for which there is an increasing demand-supply gap. These short-term facilities support patients recovering from strokes or other health crises, and can often tap into Medicare.
The acquisition side of the equation has promoted dramatic revenue growth, but equally important is the second key aspect to AdCare’s strategy. In addition to growing through acquisitions, the company has also been growing Medicare support and reimbursement rates at the acquired facilities by increasing facility acuity level. Emphasizing shorter term higher intensity care improves margins and per-facility revenue. The company also has a track record of improving margins at facilities through instituting a number of other operational efficiencies.
Profitably moving a care facility from a long-term care model to an optimized higher-acuity model is not a simple process. It requires ensuring the ability to adhere to the necessary government requirements, and also requires a strong familiarity with associated reimbursement policies and economic environment within each state. AdCare has gone to great lengths to avoid expanding into states that are experiencing significant economic problems.
The optimization process also takes time. It can take a year to realize the full potential of a given facility, but that also means that AdCare’s current portfolio represents considerable opportunity for financial growth over and above upcoming acquisitions.
