Tenet Acquisition Links Amedisys with Big Hospital Player

One of the nation’s largest home health care providers has moved on from a sometimes tough 2016 and is taking steps to expand through an acquisition of a major hospital company’s home health and hospice facilities.

Baton Rouge, Louisiana-based Amedisys (Nasdaq: AMED) signed a definitive agreement to acquire six home health and hospice care centers from Tenet Healthcare (NYSE: THC), Amedisys revealed prior to Wednesday morning’s fourth quarter 2016 earnings call.

Once the transaction is completed, Amedisys will take over home health and hospice operations from Tenet Healthcare in Arizona, Illinois, Massachusetts and Texas. Currently, Dallas-based Tenet operates 80 hospitals, 20 short stay hospitals and approximately 470 outpatient centers.


Amedisys is not releasing the purchase price for the Tenet acquisition, but it is estimated to be about $20 million, according to analysts’ calculations at Jefferies.

“Tenet had announced it was getting out of the home health and hospice business and was divesting, so we have been in conversation with them for a while now,” Paul Kusserow, CEO of Amedisys, said during the earnings call Wednesday morning. “Tenet’s star ratings are good right now, they have good basics and are profitable. But we’ve got to get them on a common tech platform.”

One of the many reasons why Amedisys was drawn to Tenet Healthcare was due to the company’s mix of acute care hospitals as well as its presence in the ambulatory market.


“We think it makes a lot of sense because Amedisys sees an expansion with Tenet over time. A couple years ago, Tenet acquired one of the largest ambulatory surgery centers (ASCs) in the country, and we are starting to see people more and more going for surgeries and procedures to ASCs,” Jefferies Analyst Jason Plagman told Home Health Care News. “You usually need to have home care ready to engage and start an episode immediately after someone is done in surgery.”

Another perk of acquiring Tenet locations in Arizona, Illinois, Massachusetts, and Texas is that those areas already have a large number of people on Medicare, Kusserow added.

AMED wanted to establish itself with Tenet and is eyeing a deeper relationship with the organization.

“We just want a seat at the table and this acquisition gets us in there,” Kusserow said. “Now we have the opportunity to show what we can do, and then we can move forward to build a bigger partnership.”

The trend of hospitals and home health providers teaming up, through acquisitions or joint ventures or other transactions, is likely to continue in the next five years, Plagman explained.

“For publicly-traded hospitals, I think most of the largest deals have been announced over the last few months, with Almost Family partnering with Community Health, LHC Group partnering with LifePoint Health, and now Amedisys acquiring assets from Tenet,” he said. “LHC Group has a long history of partnering with nonprofit hospital operators as well, and we expect that trend to continue.”

Comeback After Implementing HCHB 

Amedisys also made strides at the end of 2016 following the completion of its implementation of Homecare Homebase (HCHB), in the form of improved clinical productivity and reduced overhead spending, Kusserow and other execs revealed during the earnings call.

“AMED’s early success and the on-time realization of fourth quarter efficiency goals boost our confidence in the expected acceleration of HCHB benefits throughout 2017,” Jefferies analysts wrote in a note Wednesday. “Based on our analysis of other HCHB implementations, we expect AMED to see both margins and volumes ramp, which should translate to strengthening earnings power and possible EPS upside surprises.”

With the implementation process behind them, Amedisys executives are hoping to banish words like implementation and disruption from their vocabulary, Kusserow added.

Rough Waters Still Ahead

There are still some struggles in Amedisys’ future though, including a ZPIC audit and the much-debated Pre-Claim Review Demonstration (PCRD). ZPIC, or Zone Program Integrity Contractors, are tasked with performing an audit, without warning, on a provider after analyzing a number of different factors like data analysis’, complaints or referrals of the provider.

“We received notification of a ZPIC in four care centers in Florida that we acquired from the Infinity transaction,” an Amedisys executive said. “The inquiries have escalated somewhat, that’s why we felt it appropriate to share with investors.”

The four care centers in Florida represent about 20% of Amedisys’ Florida market. Its overall Florida market represents 7% of Amedisys’ total home health revenues, the company added.

Annoyances continue to surround Amedisys executives when it comes to the PCRD as well. The company was required to implement the PCRD in its facilities in Illinois last year as part of a federal mandate, and Florida is next on the docket for April 1.

Similar to recently appointed Department of Health and Human Services (HHS) Secretary Tom Price, Amedisys executives are not fans of the regulation.

“We have been spending a lot of time in Washington and we’ve been forthright in believing PCRD is incredibly burdensome from an administrative perspective,” Kusserow said. “It assumes you’re guilty from the start instead of the old idea of innocent until proven guilty.”

Amedisys, along with LHC Group (Nasdaq: LHCG), Kindred Healthcare (NYSE: KND) and Encompass Home Health and Hospice, have been in support of a delay of the PCRD or a total kill of the program altogether.

“We figured out pre-claim and we get it. We will roll it out if we absolutely have to, but it’s not helping anybody,” Kusserow added. “We have gone to CMS to say we would build a fraud detection tool because we believe we could do it very efficiently. We don’t like fraud but we think it’s relatively easy to detect. You don’t need nuclear weapons destroying everything that’s easily detectable.”

Amedisys is feeling a bit optimistic that the PCRD could be killed under the new Trump administration, executives added.

The company beat analysts’ earnings per share expectations for the fourth quarter of 2016 by $0.05, but missed their revenue expectations by $4.33 million.

As of market close Wednesday following the company’s earnings, Amedisys’ stock was up 2.98% to $51.20.

Written by Alana Stramowski

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