Fresh off a strong ending to 2016, a major post-acute care provider is looking at 2017 with acquisitive eyes—to the tune of up to a $100-million home heath and hospice pipeline.
HealthSouth Corporation (NYSE: HLS), one of the nation’s largest post-acute care providers, is continuing to ramp up its home health and hospice division two years after acquiring and integrating Encompass Home Health and Hospice.
HealthSouth will invest between $50 million and $100 million in home health and hospice acquisitions in 2017, executives revealed during a fourth quarter earnings call on Wednesday.
The Birmingham, Alabama-based company plans to continue opening new home health and hospice locations where it already has an acute care presence through its rehabilitation facilities.
The ramp up comes after HealthSouth reported strong end-of-year earnings across both its inpatient rehabilitation and home health and hospice segments. Net operating income (NOI) in the home health segment grew 14.4% from the fourth quarter in 2015 to the same period in 2016, and a whopping 90% in hospice. For the combined home health and hospice segment, NOI grew 18.8% year over year, largely driven by strong volume growth and higher admissions.
Scaling Up Home Health
Of HealthSouth’s ambitious pipeline for 2017, approximately two-thirds of the capital will target home health. The remaining balance will be in hospice, according to Mark Tarr, president and CEO of HealthSouth. In 2016, the company invested $49 million in home health and hospice acquisitions.
In 2017, across all its divisions, HealthSouth anticipates spending between $175 million to $265 million. The money will be put toward bed expansions in its inpatient facilities; new hospitals and remodels; and home health and hospice acquisitions with the significant projected pipeline on home health and hospice acquisitions.
The company’s investment strategy involves continuing to expand services and growing business through “clinical collaboration” between home-based services and HealthSouth’s inpatient facilities, executives said. Namely, HealthSouth will continue opening up Encompass-brand home health and hospice locations in markets where they already have a hospital presence.
“We believe we can accelerate acquisition in 2017 and prioritize opportunities in new, overlap markets with HealthSouth inpatient rehabilitation facilities (IRFs),” Tarr said Wednesday.
HealthSouth has been aggressive in becoming a partner with acute care providers and laid out its intention to take on more risk-sharing as a clinical collaborator in previous quarterly earnings calls. Last year, executives cited the implications of shifting payment models across the health care system, inducing bundled initiatives.
Recent executive orders from President Trump have temporarily paused the expansion of bundled payments, but HealthSouth executives remained bullish on its current strategy and the long-term trajectory of the health care payment system.
“In 2017, we will continue to develop risk-sharing and bundling initiatives,” Tarr said. “Despite the changeover in Washington, [we think] CMS will continue value-based purchasing.”
In the first quarter of 2017, the company is looking to secure between four and six agreements with acute care hospitals within CJR markets. Executives stated they expect to approach between 20 and 25 hospitals for potential collaboration.
However, executives have found that since the changeover with the Trump administration, conversations about partnering with hospitals for clinical collaborations in bundled payments has changed, tempered by the leniency and record of the new Department of Human and Health Services (HHS) Secretary Tom Price. Price has indicated in statements and legislation as a former Congressman that he does not support mandatory participation in bundles and the Pre-Claim Review Demonstration (PCRD).
“We are discovering skepticism,” Doug Coltharp, executive vice president and chief financial officer of HealthSouth, said of the current conversations with acute care partners as the company seeks more collaborative partnerships. “[The potential switch] from mandatory to voluntary has decreased the urgency of acute care hospitals to enter into collaborative agreements. …We are using the meetings to bust the myth that SNFs are cheaper than IRFs and that the outcomes between them do not differ.”
In the long term, HealthSouth is still betting on bundles.
“In short, we believe the story remains unchanged, despite uncertainty around the future of bundling under the new administration, as management grows market overlap, gains future benefit from value-based initiatives and continues to deploy capital,” reads a report from financial services company Raymond James.
When it comes to PCRD, Encompass is preparing for the scheduled rollout date in Florida on April 1, 2017. The company anticipates compliance with PCRD will cost between $1 million and $1.5 million in 2017, and is also seeking a more streamlined approach to the documentation requirements through a new interface with its current software partner, Homecare Homebase.
“We remain hopeful that Tom Price could intervene and delay implementation in Florida,” Encompass CEO April Anthony said during the earnings call. “At this point, we are preparing for the April 1 kickoff date.”
Written by Amy Baxter