Home health and hospice are the most promising growth sectors in health care, but there are relatively few companies with the “blue-collar” mentality needed to seize that opportunity, Kindred Healthcare (NYSE: KND) CEO Benjamin Breier said Tuesday.
“From an organic growth perspective, I don’t think there’s a better story in the health care service marketplace than there is in both home health and hospice,” Breier said at the Barclays Global Healthcare Conference in Miami.
Already the largest home health provider in the nation, Kindred expects this part of its business, along with hospice, to potentially account for more than 60% of its earnings as it de-emphasizes other service lines—notably through a total exit of the skilled nursing facility industry that it plans to complete this year.
There are some unknowns and potential constraints on home health growth, however. One of these is the continued expansion of Medicare Advantage as a payor.
The growth of MA is challenging home health for several reasons, including the complexity of hammering out favorable contracts and issues in billing and collecting payments from the private insurers administering these plans.
“We all, in the home health space, need to figure out what we’re going to do with the growth into Medicare Advantage and what that total Medicare pie looks like,” Breier said Tuesday. “But certainly in the near-term, the next two years-plus, expect mid- to high-single digit growth rates with double-digit flow-through down to the bottom line.”
Further encouraging Kindred: Other companies are aware of the home health opportunity, but it is not easy to seize.
Major for-profit hospital companies such as Community Health Systems (NYSE: CYH) and Tenet Healthcare (NYSE: THC) have been divesting their home health arms in recent months, and major skilled nursing and post-acute provider Genesis HealthCare (NYSE: GEN) shed its home health and hospice business about a year ago.
“There are a couple companies out there that have, I would argue, a fairly meaningful presence in the home health space, but it’s not what their core strength is, and you can see that they’re struggling mightily to run that business effectively,” Breier said. “You’ve really got to have a blue-collar mentality of blocking and tackling and really getting after it to run those businesses like we do. It’s very hard to step into it and run it from scratch … I think people are going to think about it, but in the last six months, it seems like more are getting out of it than necessarily getting into it.”
Written by Tim Mullaney