As enrollment in Medicare Advantage continues to surge, major players such as Amedisys (Nasdaq: AMED) and LHC Group (Nasdaq: LHCG) see a huge opportunity that could bring higher payments.
These home health providers see that Medicare Advantage (MA) rolls are large and growing.
Medicare Advantage enrollment has grown 71% since the Affordable Care Act was passed in 2010 according to the Kaiser Family foundation. As of 2017, one in three people with Medicare (33% or 19.0 million beneficiaries) is enrolled in a Medicare Advantage plan. And a new report from L.E.K. Consulting’s Healthcare Services practice estimates that the penetration rate for Medicare Advantage enrollment will hit 60% to 70% between 2030 and 2040.
So, even though Medicare Advantage rates typically are lower than Medicare fee-for-service, and contracting with private sector insurance companies can be complicated, home health companies are making moves to grow their MA revenue.
Baton Rouge, Louisiana-based Amedisys, which provides care to more than 376,000 patients a year, is one of these companies. While currently a small part of Amedisys’ overall business, admissions from episodic Medicare Advantage and managed care are up 24% year-over-year.
Typically, these rates are about 95% of traditional Medicare fee for service, said COO Chris Gerard.
But Amedisys CEO Paul Kusserow thinks their results could lead to higher MA reimbursement rates.
“We believe …there’s an opportunity to align with payers in certain marketplaces to get paid over fee-for-service. And in order to do so, we need to start to take risk,” Kusserow said while discussing the company’s third-quarter 2017 earnings.
The risk he is referring to has to do with hitting hospital readmission rate targets. He thinks that Amedisys can command higher MA rates by beating the competition, or industry averages, on metrics like readmissions.
Kusserow is comfortable that the company’s data has brought it to a point where they can calculate what aging in place is going to cost.
“We now know what admissions are going to look like by individual. So that’s the place we’re going to see us start to experiment,” he added.
Kusserow’s experience in health insurance, as Humana’s SVP and chief strategy officer until the end of 2013, would make it seem like Amedisys has an advantage in working with these types of payers.
UnitedHealthcare and Humana are the two largest insurance companies involved in Medicare Advantage, together accounting for 41% of enrollment in 2017, according to Kaiser.
“We do understand the payer world,” Kusserow said. “And we’re trying to go back to our payer colleagues and basically say home health is really important. We can do more, but we need to be paid more and we can start to — really start to take some risk on this.”
LHC gets comfortable
Other major players also are more bullish on Medicare Advantage.
On their third quarter earnings call, executives with Lafayette, Louisiana-based LHC Group said managed care contract negotiations are progressing nicely, with a 5% increase in margin year to date. LHC recently announced a merger with Almost Family in a $2.4 billion deal.
“We’re trying to move more towards value-based models, where we achieve a better rate based on our performance,“ said Joshua Proffitt, CFO of LHC Group, during the earnings call. The company is still in the “piloting phase” of these efforts, he added.
In order to participate in these types of payment arrangements, managed care payers want to make sure they are going to see the value, and therefore, LHC has been focusing on making sure they have a proof of concept before going all in.
“I think you’ll see that ramping up as we go into 2018, because we’re getting very comfortable with the value-based models we have in place,” Proffitt added.
The LHC Group and Amedisys models rely on resources that the large enterprises can bring to bear, such as sophisticated data tracking. They also have scale that’s attractive to MA payers.
For the smaller home health providers, approaching the insurers in the Medicare Advantage world can be a challenge.
“You really need to be doing at least $20 million in revenue a year and have the right technology and clinical protocols in place to approach the insurers,” said Christopher S. Joos, partner at national accounting and business advisory firm Plante Moran. “When you have a platform and the infrastructure, you can do really well.”
Written by John Yedinak