LHC Group to Deepen ACO Ties — With Caution

Five years after the Affordable Care Act ushered in large-scale health system changes, one of the nation’s largest home health providers is achieving success through a relatively conservative approach to new models of payment and care delivery.

For the first quarter of 2015, home health and hospice provider LHC Group (NASDAQ: LHCG) reported $193.1 million in revenue and earnings per share of $0.39, beating analysts’ estimates.

The Lafayette, La.-based organization, which provides home health and hospice services in 29 states, achieved these numbers without moving too swiftly into accountable care organizations (ACOs) and managed care, company leaders explained during a call with analysts Thursday.

ACOs are networks of Medicare providers that have joined together to provide population health management; the general idea is that they share in any savings to the Medicare program that they achieve through greater coordination of care. There are various models with different levels of reward as well as risk, if cost and quality thresholds are not met.

There is a pipeline of 402 ACOs in the LHC portfolio states, President and COO Donald Stelly told analysts. LHC is participating in 10 and is pleased with how that is playing out, but also is cautious about increasing involvement.

“We kind of like how that toe feels in that water, but not all ACOs are equal in these markets,” Stelly said. “Some of them are much more loosely run, some of them have a much tighter provider network. We like the latter, and we intend to go ahead and bring those into the portfolio as the year goes.”

The company also is being selective about its exposure to managed care, an increasingly prevalent source of payments. In managed care, private-sector companies administer Medicare and Medicaid benefits.

About three-quarters of LHC’s total census consists of patients on traditional Medicare, and this has remained steady over the last two years, Stelly pointed out. While LHC views managed care as a “big opportunity,” its clinical teams are carefully modeling how to best work with these payors.

“We limit the … managed care business we’re taking in now,” added Co-Founder, Chairman and CEO Keith Myers. “So if we did not limit that, managed care would be equal to or maybe greater than our Medicare. So when I say we’re able to generate some small margin on managed care business, it’s because we’re being very selective with which ones we contract with.”

Despite its circumspect approach to ACOs and managed care, LHC is advocating for other changes to the post-acute care system, including site-neutral payments. In this model, post-acute providers would not be reimbursed by setting but by services.

This system would incentivize home health providers to offer more complex services, such as higher level wound care or in-home infusion. Currently, skilled nursing facilities and other providers receive higher payments for these services than home health agencies.

Home health providers have the capabilities to provide this type of more intensive care in less costly settings, producing savings for Medicare while achieving high-quality outcomes for patients, Myers asserted.

“I would argue that no one is better positioned than home health to create that value,” he said.

Written by Tim Mullaney