Humana Executives Get Candid About PDGM, Medicare Advantage

Top executives from Humana Inc. (NYSE: HUM) on Wednesday got candid about their home health operations and the expected impact of the Patient-Driven Groupings Model (PDGM). In addition to its long-standing Humana At Home business, the Louisville, Kentucky-based insurance company owns a 40% stake in Kindred at Home, one of the largest home health providers in the country.

Humana — working with private equity firms TPG Capital and Welsh, Carson, Anderson & Stowe — closed its $4.1 billion acquisition of Kindred at Home in July.

“Our home business — including both Kindred at Home and Humana At Home — is outperforming our initial expectations, primarily reflecting higher-than-anticipated volume and increased deal synergies relative to expectations,” CFO Brian Kane said during a Wednesday morning call with investors highlighting the company’s Q1 2019 financial results.

Beating Wall Street expectations, Humana recorded a net income of $566 million in the quarter ended March 31, a 15.3% increase compared to Q1 2018.

The solid quarter was largely due to strong Medicare Advantage (MA) enrollment. The insurer is now projecting full-year expected individual MA membership growth of between 415,000 to 440,000 members.

Humana captured roughly 17% of the national MA market in 2018, according to Kaiser Family Foundation statistics.

Total revenue in the first quarter checked in at $16.12 billion, a rise of 13% compared to the same quarter a year ago.

Humana ‘embracing’ PDGM

Humana’s health care services segment, which includes its home health operations, reported revenues of about $6.1 billion during the quarter. Tha’s an increase of about 8% from the $5.66 billion the segment brought in during Q1 2018.

Similar to other large home health providers, Humana is currently gearing up for PDGM’s Jan. 1, 2020, implementation. Overall, the company and its home health leaders are supportive of the payment overhaul, which federal policymakers designed to tie reimbursements more closely to patient characteristics and needs.

“As we’ve said from the get-go, we’re supportive of PDGM,” Kane said. “We believe [it] better aligns our clinical focus and focus on health outcomes with the [home health] model and how the payment model works. That will encourage home health providers to run toward the more complicated and chronic members or patients. We’re very supportive of that.”

The Kindred team, in particular, has “embraced” PDGM, according to Kane, noting that Humana had already taken into consideration near-term financial impacts when the insurer was putting a deal together last year.

“We knew some form of this was going to happen, so we anticipated the 2020 impact,” he said. “We feel good about the assumptions we made.”

Once launched, PDGM will categorize patients based on admissions source, timing, clinical groupings, functional impairment level and co-morbidity adjustment. When it comes to admission source, home health providers will generally see higher reimbursement for patients coming from institutional settings — such as hospitals — compared to the community referrals.

Last week, Encompass Health (NYSE: EHC) President and CEO Mark Tarr told investors that the company’s home health segment is receiving more acute-care referrals than in the past, making its PDGM outlook less negative than anticipated.

When asked about Humana’s home health patient mix and corresponding PDGM impact, Kane said Humana typically doesn’t provide that level of detail publicly.

“[But] I would tell you that Humana’s mix will be … weighted toward more acute settings, and that’s where our focus is as we think about our discharges and where the opportunities are, versus some of the community-based settings that some of the home health companies have,” he said.

More MA flexibilities

Humana Medicare Advantage members in value-based care settings are 7% less likely to end up in the emergency room and 5% less likely to be readmitted to the hospital, according to the company’s internal statistics.

In part, those positive outcomes are linked to the in-home care coordination services Humana is able to provide.

The Centers for Medicare & Medicaid Services (CMS) began allowing for certain in-home services and supports as supplemental benefits under MA plans this year, with additional flexibilities on tap for next year.

“As we look ahead to 2020, we are pleased that CMS enabled plans to offer greater flexibility and benefits so we may continue to focus on areas to improve the health of seniors and people with disabilities we serve,” Humana President and CEO Bruce Broussard said during Wednesday’s investor call.

About 34% of Medicare beneficiaries are currently enrolled in MA plans. A decade ago, MA participation was closer to 22%.

“The Medicare Advantage program drives quality and improved health outcomes, lowering the cost to the health care system by effectively managing a member’s care, saving the system millions and helping seniors achieve their best health,” Broussard said.

While Humana is optimistic about added flexibility for 2020, Broussard also noted insurers’ hands may be somewhat tied next year because of the likely return of the health insurance tax (HIT). In place for 2018, HIT was suspended in 2019.

If HIT is in the cards for next year, older adults nationwide should expect to see a decline in available benefits, the CEO said.

Recently, top execs from other major insurers have vocally criticized the various forms of Medicare-for-all proposals coming from a bevy of democratic presidential candidates. Earlier in April, for example, UnitedHealth Group CEO David Wichmann said Medicare for all would “destabilize the nation’s health system.”

Broadly, Humana is against any Medicare-for-all plan that would eliminate Medicare Advantage or make private insurance illegal, Broussard said.

Humana stock was down 3.32% mid-day Wednesday, trading at $246.92 per share.