Bolstered by healthy growth across all three of its business lines, Amedisys, Inc. (Nasdaq: AMED) achieved strong financial results in the third quarter of 2018. The Baton Rouge, Louisiana-based home health, hospice and personal care company expects that momentum to continue, even as it faces regulatory headwinds coming from the potential new payment overhaul known as the Patient-Driven Groupings Model (PDGM).
Amedisys President and CEO Paul Kusserow discussed his company’s third-quarter financials, its industry-shaping deal for Compassionate Care Hospice, PDGM, innovative new payment arrangements with insurers and other topics during a Tuesday conference call with investors.
“I want to stress that this year’s proposal provides ample time to transition to the new payment model in 2020 if the model remains unchanged,” Kusserow said. “We do have concerns, however, about the use, scope and impact of behavioral assumptions in the transition to the new payment model.”
With roughly 18,400 employees operating across 421 care centers in 34 states and Washington, D.C., Amedisys is one of the two largest independent and publicly traded home health companies in the United States. The Louisiana company — which maintains an executive office in Nashville, Tennessee — also partners nationally with more than 3,000 hospitals and 59,000 physicians.
Overall, net service revenue for Amedisys increased to $417.3 million during the third quarter of 2018, a nearly 10% spike over the same three-month period last year. The bulk of that revenue came from the company’s home health business line, which brought in slightly less than $295 million, up almost $25 million from 2017’s third quarter.
While its home health business led the way in regard to Amedisys’ raw revenue mix, the company’s personal care line achieved the most in terms of relative growth. Personal care revenue was $19 million in the third quarter of 2018, a nearly 39% jump compared to $13.7 million in the same period a year prior.
Some of that growth can be attributed to Amedisys’ personal care acquisitions over the past couple years, Kusserow said. Most recently, Amedisys announced it had closed on its acquisition of Bring Care Home, a Massachusetts personal care provider.
Personal care clients served by Amedisys increased by 55% in Q3, according to the company. Billable hours rose by 32%.
“We are very pleased with the progress our personal care team has made integrating the four assets we have acquired since 2016,” Kusserow said. “We plan to continue to scale, grow and expand the business both organically and inorganically across our footprint.”
Compassionate Care Hospice update
The third component of Amedisys’ business — hospice — was also in the spotlight on Tuesday, as Kusserow delved into the company’s recently announced acquisition of Compassionate Care Hospice.
At the beginning of October, Amedisys added fuel to the hospice industry’s M&A engine by announcing plans to buy Compassionate Care for $340 million. The acquisition — sourced internally at lower-than-usual multiples — will make Amedisys the nation’s third-largest hospice provider after it closes.
That closure will likely come sometime in February, according to Amedisys.
“We expect 2019 to be the year of investment into Compassionate Care locations, which may result in minor, planned disruption,” Kusserow said. “But we will see significant margin bounce-back and expansion throughout 2020 and beyond.”
Amedisys’ hospice revenue checked in at $103.4 million during the third quarter of 2018, up 7.8% from its $95.9 mark from the same quarter last year. Hospice admissions and average daily census both saw signifiant increases in Q3.
Given its substantial cash-flow generation, proven sourcing strategy and continued desire to acquire high-quality assets, Amedisys is positioned to remain on the hunt for reasonably priced hospice opportunities.
“For over a year, we have remained very disciplined in our M&A function and refused to engage in many overpriced auction processes — or pay private equity multiples,” Kusserow said. “Our deliberate, sole-sourcing strategy paid off with Compassionate Care, and we expect it to in other proprietary deals we are currently sourcing.”
Amedisys’ PDGM outlook
Amedisys’ ongoing “pre-PDGM” plan has been to add to its hospice business because of the more favorable reimbursement environment. Once Compassionate Care Hospice is “up and running,” Amedisys projects to eventually have more more than 50% of its EBITDA stemming from hospice, according to Kusserow.
That would somewhat insulate the company from looming regulatory challenges, he said.
PDGM was first introduced by the Centers for Medicare & Medicaid Services (CMS) in its proposed home health payment rule for calendar year 2019. Among its key aspects, PDGM seeks to halve the standard 60-day episode of care unit of payment to 30 days and drastically change how therapy services are reimbursed.
As mandated by the Bipartisan Budget Act, PDGM is designed to be budget neutral. As currently written, though, the payment model achieves that budget neutrality by assuming home health providers would modify their behavior in certain ways, including in how they code and handle Low Utilization Payment Adjustment claims.
The home health industry opposes those behavioral adjustments and has actively been working with a bipartisan group of federal lawmakers to fight them.
Although concerns exist, home health providers shouldn’t be too worried about PDGM just yet, Kusserow said, because plenty of time is left before the model would be implemented on Jan. 1, 2020.
“The CMS 2019 final rule will not be the final opportunity to impact PDGM,” he said. “Some people have badly misunderstood this as ‘game over.’ It’s far from that.”
Policy experts foresee CMS releasing the final payment rule sometime this week. The proposed rule, released in July, included an estimated $400 million annual rate increase for the home health industry.
Regardless of whether PDGM and its behavioral adjustments are modified, Amedisys leadership is confident in the company’s ability to grow and remain profitable.
“We are excited to not have to overcome another rate cut by CMS,” Kusserow said, noting that the Bipartisan Budget Act also mandated a 1.5% market basket update in 2020, which should result in two consecutive years of positive updates.
The future of Amedisys’ MA business, VBPM
Amedisys leadership also highlighted how the company is engaged in a handful of innovative payment arrangement and risk models.
Specifically, Amedisys is taking part in at least four pilot programs with payers. In general, the pilots are broken up into two categories: those that are pay-for-performance and upside only, and those pertaining to risk management, where Amedisys can earn upside but is likewise exposed to downside risk.
“We have talked at length about our desire to move into more innovative payment arrangements and eventually risk models with Medicare Advantage plans,” Kusserow said. “During the third quarter, we have started several pilots, operationalizing four different payment innovation models with three different payers across 15 different states.”
Early results from those pilots have “been very positive” and yielded increased rates from payer partners, Kusserow said.
On the value-based purchasing front, Amedisys received $275,000 in bonus payments from CMS during the third quarter of 2018, up from about $250,000 from the same quarter a year prior.
Amedisys’ stock was up 14.39% midday Tuesday, trading at $115.27.
Written by Robert Holly
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