Small and mid-sized home health providers likely face an uphill battle in 2020, thanks largely to the cuts included in the Patient-Driven Groupings Model (PDGM) and policymakers’ plans phase out pre-payments.
So far, multiple industry prognosticators are predicting that 30% or more of home health providers will close up shop next year, with rural agencies being hit especially hard as they also cope with dwindling add-on payments. If those predictions hold true, large home health companies will be ready to strike from a dealmaking perspective — and Amedisys Inc. (Nasdaq: AMED) will be first in line.
“Behavioral assumptions along with the phase out of RAPs could pose significant financial and operational hurdles for many small to mid-sized home health agencies,” Amedisys President and CEO Paul Kusserow said Thursday during the company’s Q2 earnings call. “We’re sad for what this is doing for the industry, but we think it puts the larger players like us in a much better situation should [PDGM] pass through in full.”
Baton Rouge, Louisiana-based Amedisys is one of the biggest home health companies in the United States, with more than 21,000 employees and 471 care centers spread across 38 states.
Its 2019 second-quarter total revenue checked in at $498.5 million, a nearly 21% increase from the same period a year ago.
Far removed from a turnaround campaign that kicked off in late 2014, Amedisys currently maintains a healthy balance sheet and a strong corporate infrastructure to supplement organic growth across its home health, hospice and personal care segments, according to a William Blair analysis.
“[Amedisys] is obviously going to be able to tolerate or withstand some of these changes coming compared to the smaller providers,” William Blair analyst Matt Larew told Home Health Care News.
A silver lining
Perhaps the most problematic aspect of PDGM is the model’s assumption-based behavioral adjustments, which could pose an 8.01% cut to providers in 2020 if the Centers for Medicare & Medicaid Services (CMS) finalizes its July 11 proposal.
An 8% cut would send scores of providers underwater, as many home health businesses operatee with margins hovering around the 2% mark.
Along with other industry stakeholders, Amedisys has actively lobbied against the potential cut being included in the theoretically budget-neutral PDGM, Kusserow said, mainly by pushing widely supported bipartisan legislation in both the U.S. House of Representative and Senate.
As of Amedisys’s Thursday earnings call, roughly 40 House lawmakers and 20 senators had signed on in support of that legislation, which generally seeks to limit CMS’s ability to make cuts that aren’t based on observed evidence.
Many of those members of Congress acted to back legislative efforts after the outcry that came following CMS’s proposal last month.
Internally, Amedisys isn’t waiting around for Congress to act, however. The company has taken various steps to refine how it delivers care with PDGM in mind, including working closely with predictive analytics firm Medalogix and making sure its RNs and LPNs are operating at the top of their licenses.
“The message here is, either way — should PDGM be implemented as is or if a bill prohibiting behavioral assumptions passed — we will be successful under the new payment model,” Kusserow said. “Amedisys will not only survive, but thrive.”
Executives from Encompass Health Corp. (NYSE: EHC) echoed similar remarks on a Tuesday earnings call, particularly regarding PDGM and 2020 M&A activity.
“We’re looking at markets where we think there’s going to be some geographic disruption across the industry, so we’re looking at opportunities for growth and expansion in those markets for our organization … ,” April Anthony, CEO of Encompass Health’s home health and hospice division, said. “We think we’ll fare better in those down markets than others will.”
On July 25, Amedisys and ClearCare Inc. announced the two were teaming up to establish a nationwide network of personal care agencies that work with Amedisys, allowing the home health giant to scale its personal care capabilities without direct acquisitions.
Already, more than 300 non-Amedisys agencies representing 32,000 caregivers in 39 states have joined the partnership, according to Kusserow.
“Our agreement with ClearCare creates an opportunity to establish a network partnership between Amedisys and personal care agencies using ClearCare in order to better coordinate patient care,” he said. “Long term, this allows us to build a nationwide network of personal care agencies and furthers our efforts to provide patients with a true care continuum in the home.”
Of Amedisys’s $498.5 million in Q2 2019 total revenue, just $21.1 million came from personal care services. In comparison, home health and hospice accounted for $318.6 million and $158.7 million, respectively.
Apart from its ClearCare partnership, Kusserow also provided color on emerging expansion efforts in New York.
The company announced earlier this week that it had signed a definitive agreement to acquire regulatory assets allowing Amedisys to conduct home health care operations in more counties in New York. Specifically, Amedisys is acquiring the right to operate certified home health care services from Permier Home Health Care Serevices Inc. in Westchester, Bronx and New York counties.
The move will allow Amedisys to ramp up its de novos in the area, Kusserow said.
Overall, Amedisys revenues came in 1.6% above consensus estimates, with EBITDA of $61.4 million more than 20% higher than Wall Street expectations, according to a Baird research note shared with HHCN.
“Relative to our model, the revenue upside was primarily driven by Home Health but underlying volume trends in both segments were good,” the note states. “Additionally, both segments beat our margin estimates, supported by various efficiency initiatives (labor mix in Home Health), good expense management, and perhaps higher contribution from the [Compassionate Care Hospice] acquisition (for Hospice).”