Aviana (AVAH) Q3 2025: Preferred Payer Agreements Hit 56% of PDS Volume, Fueling Margin Expansion
Aviana’s Q3 marked a step-change in operational discipline as preferred payer agreements now drive over half of Private Duty Services (PDS) managed care volume, supporting robust margin expansion and cash flow. The ThriveSkill Pediatrics integration and strategic payer alignment have structurally repositioned the business for durable growth, though state Medicaid headwinds and ongoing wage pass-throughs temper the forward outlook. Investors should watch for continued progress in Medical Solutions and evolving reimbursement dynamics as Aviana executes on its multi-year transformation.
Summary
- Preferred Payer Penetration Accelerates: Over half of PDS managed care volume now tied to enhanced payer agreements.
- Margin Stability Anchored by Rate Wins: Gross margin and spread per hour remain in target range despite wage inflation.
- Regulatory and State Funding Headwinds Loom: Medicaid budget uncertainty and smaller 2026 rate wins will test pricing power.
Performance Analysis
Aviana delivered 22% top-line growth in Q3 2025, with adjusted EBITDA up 67% year-over-year, reflecting the compounding impact of payer rate enhancements, volume growth, and cost discipline. Private Duty Services (PDS), which constitutes nearly 80% of total revenue, posted a 25.6% revenue increase, driven by both organic growth and the full-quarter contribution from the ThriveSkill Pediatrics acquisition. Average revenue per hour in PDS rose 12.7%, supported by preferred payer volume and legislative rate wins, while total hours delivered grew 12.9%.
Home Health and Hospice (HHH) advanced 15.3%, with 77% of admissions now episodic—well above the 70% target—enabling a 53.3% segment gross margin. Medical Solutions revenue was flat, but gross margin held at 45% as the preferred payer strategy is rolled out. Free cash flow generation reached $86 million year-to-date, and Aviana ended the quarter with $479 million in liquidity, aided by a recent refinancing that extended debt maturities and increased revolver capacity.
- PDS Margin Resilience: Spread per hour normalized at $12.62 as wage pass-throughs offset rate gains, but gross margin remains at 29%.
- HHH Mix Shift Drives Profitability: Episodic admissions and disciplined payer selection underpin sustained margin expansion.
- Medical Solutions Stabilizing: Flat revenue but steady margin as preferred payer rollout progresses, with volume and profitability expected to improve in 2026.
Aviana’s multi-segment model—anchored by PDS, complemented by HHH and Medical Solutions—demonstrates improving operating leverage as payer mix and rate discipline offset labor and regulatory cost pressures.
Executive Commentary
"By focusing our clinical capacity on our preferred payers, we achieved solid year-over-year growth in revenue and adjusted EBITDA. We also experienced improvement in our caregiver hiring and retention trends by aligning our efforts with those payers willing to engage with us on enhanced reimbursement rates and value-based agreements."
Jeff Shainer, Chief Executive Officer
"$86 million of free cash flow year to date, that's amazing expectations for our team and what we've been able to achieve. We'll add to that in Q4 as well, though Q3 is historically our best quarter for free cash flow generation as well. But looking ahead, we'll continue to do that. We'll bring in additional free cash flow in 2026, and we'll use that for potential M&A opportunities."
Matt Buckhalter, Chief Financial Officer
Strategic Positioning
1. Preferred Payer Model as Growth Engine
Aviana’s multi-year shift to a preferred payer model—partnering with payers that offer higher rates and value-based incentives—now covers 56% of PDS managed care volume, up from 22 agreements at the start of 2025 to 30 currently. This approach enables targeted wage increases, higher fill rates, and improved collections, while concentrating clinical capacity where reimbursement is most attractive. The company expects to push this penetration into the low to mid-80% range over the next few years, with further upside from new state entries and acquisitions like Thrive.
2. Episodic Focus in Home Health and Hospice
Home Health and Hospice admissions are now 77% episodic, surpassing the 70% goal and unlocking margin expansion. Management is committed to episodic reimbursement, which offers higher rates and better alignment with clinical outcomes, and expects this mix to remain elevated. This focus allows Aviana to selectively grow with payers who reward value and quality, rather than chasing volume with fee-for-service contracts.
3. Medical Solutions Turnaround Underway
The Medical Solutions segment is in the mid-stages of adopting the preferred payer strategy, with 18 agreements in place and a target operating model expected by early 2026. While current revenue is flat, management is prioritizing margin stability and operational efficiency, with the expectation that payer alignment will drive future growth and profitability as seen in PDS and HHH.
4. Legislative and Regulatory Advocacy
Aviana remains proactive in state and federal advocacy, pursuing rate enhancements in at least 10 states and defending Medicaid and Medicare home health benefits. While pediatric and adult complex care was largely insulated from recent federal cuts, state-level budget uncertainty and Medicaid funding pressures are mounting, likely resulting in smaller rate wins in 2026 and beyond.
5. Capital Allocation and Balance Sheet Strength
Recent refinancing extended debt maturities to 2032, increased revolver capacity, and left Aviana with $479 million in liquidity. Management is balancing M&A—particularly tuck-in acquisitions in new Medicaid states—with ongoing deleveraging, targeting a net leverage ratio below 4x in 2026-2027.
Key Considerations
Aviana’s Q3 marks a critical inflection point, with preferred payer strategies unlocking both margin and volume growth while setting the stage for further operational leverage. Investors should weigh the following:
Key Considerations:
- Preferred Payer Scale and Penetration: 56% of PDS managed care volume now under preferred agreements, with a path to 80%+ over time.
- Thrive Integration Complete: Full-quarter contribution and synergy realization from ThriveSkill Pediatrics, with integration wrapping up in November.
- Ongoing Wage Pass-Throughs: Wage increases continue to flow through Q4 and into 2026, partially offsetting rate gains and requiring vigilant margin management.
- State Medicaid Headwinds: Budget uncertainty and smaller rate increases in 2026 will test Aviana’s ability to sustain pricing power and volume growth.
- Capital Deployment Optionality: Free cash flow and liquidity position Aviana for disciplined M&A, particularly in underpenetrated Medicaid states.
Risks
State Medicaid funding uncertainty and evolving federal policy pose structural reimbursement risks, with several states already implementing temporary rate cuts to balance budgets. Labor market tightness persists, requiring continued wage increases that may pressure margins if not fully offset by rate wins. The full benefit of the preferred payer model depends on execution and payer willingness to expand upside-only value-based contracts, while integration risk remains for future acquisitions.
Forward Outlook
For Q4 2025, Aviana guided to:
- Revenue and earnings in line with Q3, with a boost from a 53rd week of operations.
- Continued volume growth in PDS and stable gross margins across segments.
For full-year 2025, management raised guidance:
- Revenue greater than $2.375 billion
- Adjusted EBITDA greater than $300 million
Management highlighted several factors that will shape the next quarters:
- Wage pass-throughs will continue to impact spread and margin normalization into 2026.
- Medicaid headwinds and smaller rate wins are expected, but payer diversification and new market entries will help offset risk.
Takeaways
Aviana’s structural pivot to preferred payer alignment has materially improved margin and growth visibility, with the Thrive acquisition accelerating scale and geographic reach.
- PDS and HHH Margin Expansion: Preferred payer and episodic mix strategies are driving sustainable profitability and operational leverage, even as labor costs rise.
- Execution on Integration and Advocacy: Thrive integration is on track, while legislative advocacy remains critical amidst Medicaid funding volatility.
- 2026 Watchpoints: Investors should monitor the pace of Medical Solutions turnaround, wage inflation impact, and the resilience of rate wins as state budgets tighten.
Conclusion
Aviana’s Q3 demonstrates the power of disciplined payer selection and operational execution, with preferred payer penetration now a clear growth and margin catalyst. While Medicaid and labor market risks remain, the company’s diversified payer base, strong cash flow, and scalable platform position it well for continued expansion and strategic M&A in the coming years.
Industry Read-Through
Aviana’s success in shifting to preferred payer and episodic models underscores the industry trend toward value-based reimbursement and payer-provider alignment, especially in home and community-based care. The company’s experience suggests that scale, advocacy, and disciplined payer selection are increasingly critical for margin protection as state and federal funding pressures mount. Competitors lacking payer leverage or geographic diversification may face greater margin compression, while those able to replicate Aviana’s model could see similar operational benefits. The ongoing integration of value-based agreements—upside only, with no downside risk—offers a template for other providers seeking to balance growth and risk in a volatile reimbursement environment.