March 7, 2021
InnovAge (Nasdaq: INNV), which serves about 6,600 older adults through the Program of All-Inclusive Care for the Elderly (PACE), executed a $350 million initial public offering (IPO) on March 4.
The Denver-based company is the largest PACE provider in the United States and has taken an out-of-the-box approach to the program through moves such as tapping actress Susan Sarandon as a spokesperson and converting from a non-profit to a for-profit entity. The company has high-profile board leadership, with members that include former Florida Governor Jeb Bush and former Centers for Medicare & Medicaid Services (CMS) Administrator Marilynn Tavenner.
InnovAge currently has a presence in Colorado, California, New Mexico, Pennsylvania and Virginia, providing coordinated care to older adults in their homes — including senior living communities — as well as in PACE centers. InnovAge also operates two affordable senior housing apartment communities in Denver, and is involved in a joint venture with senior housing and care provider Eskaton in Sacramento, California.
The PACE program was created as an alternative to institutional nursing home care for frail older adults. PACE providers receive monthly Medicare and Medicaid capitation payments per enrollee. Most PACE participants are dually eligible for Medicare and Medicaid; of InnovAge’s $567 million in 2020 revenue, more than 90% came from dual-eligible patients, according to its IPO documents.
However, PACE is available to people who are only eligible for Medicare; these individuals pay monthly premiums equal to the Medicaid capitation amount.
The idea behind PACE, and the foundation of InnovAge’s business model, is to provide more integrated, interdisciplinary services to older adults who are at particularly high risk of hospitalization and other costly health-related interventions. Through a more high-touch, managed model of care, PACE providers such as InnovAge can drive better patient outcomes at lower cost than traditional fee-for-service Medicaid or Medicare.
For each patient, InnovAge deploys care teams that cover at least 11 disciplines, and also leverages a sophisticated tech platform. The company touts its results in its S-1 filing:
“We estimate that across our mature markets, our participants on average have 16% fewer hospital admissions and 73% fewer low- to medium-severity emergency room visits relative to a comparable Medicare fee-for-service population with similar risk scores for which data is available. In addition, our participants have a 25% lower 30-day hospital readmission rate compared to a frail, dual-eligible or disabled waiver population from 2016 to 2019.”
Some senior living providers — nonprofits in particular — are looking to the PACE program as an area of expansion, as they seek to serve more low- and middle-income older adults. The opportunity may be particularly attractive in states where Medicaid reimburses for assisted living through waivers or other benefit structures.
Colorado is one such state, and InnovAge serves a sizable population of assisted living residents there, InnovAge CEO Maureen Hewitt told Senior Housing News.
Roughly 34% of the 3,500 PACE participants that InnovAge serves in the Denver metro area and the communities of Loveland and Pueblo reside in assisted living, she said. Overall, independent living and assisted living providers represent 17% of InnovAge’s pool of referral sources, according to the company’s S-1 filing.
InnovAge is open to partnerships with senior living providers that are interested in integrating PACE — for example, as a way of providing more wraparound services for older adults residing in their affordable housing buildings.
Innovage already has a joint venture with Adventist Health and Eskaton, a nonprofit that operates continuing care retirement communities (CCRCs) and offers a range of other services in California.
The JV with InnovAge provides access to the company’s largest PACE center. The 66,000-square-foot center in Sacramento includes areas for socialization and recreation, a full-service kitchen and dining room, a primary care clinic, dental suite and therapy gym.
PACE does have a big runway for growth, considering that more than 2 million people in the United States qualify for PACE, but only about 55,000 individuals are enrolled. InnovAge estimates its total addressable market to be $200 billion.
And the Covid-19 pandemic might have further bolstered the attractiveness of the PACE program. InnovAge, for instance, was able to pivot from providing services in PACE centers toward doing more telehealth and in-home visits, showing that the program can help maintain older adults’ wellbeing when it is dangerous for them to be in group settings.
“During the COVID-19 pandemic, we developed our telehealth capabilities to conduct more than 12,000 remote provider appointments, more than 62,500 telehealth visits, and more than 203,000 wellness phone calls as of November 22, 2020,” the company’s S-1 states. “ … Though the COVID-19 pandemic has altered the mix of settings where we deliver care, our multimodal approach ensures our participants continue to receive the care they need.”
Perhaps as an indication of InnovAge’s strong growth potential, its IPO outperformed expectations. The company originally expected an IPO price range of $17 to $19 per share, but ended up selling 16.7 million shares at $21 each. Shares were trading at $24.08 to end Friday.
In addition to its scale, InnovAge stands out from other PACE providers as a for-profit entity. Hewitt led the organization’s conversion from a nonprofit to a for-profit in 2016, following changes in regulation from CMS and the state of Colorado.
One goal of the conversion was to access capital more readily. Private equity giant Welsh, Carson, Anderson & Stowe (WCAS) invested in InnovAge in 2016 and sold a stake to Apax Partners in July 2020. WCAS will own roughly 86% to 87% of InnovAge common stock after the IPO.
The financial upside of InnovAge’s fully-capitated, at-risk model is on display in the S-1. For the fiscal year ended June 30, 2020, the company’s consolidated center-level contribution margin, expressed as a percentage of revenue, was 24.9%. For the six months ended Dec. 31, 2020, that margin was 27.3%. Its adjusted EBITDA margin for those six months was 14.8%.
Going forward, Hewitt believes that senior living providers could find creative ways to utilize PACE — and work with InnovAge — in their bid to serve seniors across various price points.
“The synergy between housing and PACE, for seniors, is really quite positive,” she told SHN. Senior Housing News