A Perfect Storm: Amedisys, Encompass Health and LHC Group CEOs Brace for PDGM

The Patient-Driven Groupings Model (PDGM) is a perfect storm of regulatory and reimbursement changes, according to top executives from Amedisys Inc. (Nasdaq: AMED), Encompass Health Corporation (NYSE: EHC) and LHC Group Inc. (Nasdaq: LHCG).

For agencies, managing cash flow and making sure staff are operating at the top of their licenses will be keys to survival.

April Anthony, CEO of Encompass Health’s home health and hospice segment, discussed the two points Wednesday during a presentation at the 2019 Home Health Care News Summit in Chicago. She was joined by Amedisys President and CEO Paul Kusserow, in addition to LHC Group Chairman and CEO Keith Myers.

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“I can honestly say that I think the upcoming transition to [PDGM] will be one of the most complicated transitions that we’ve seen in the last 27 years of home care,” Anthony said.

Unlike past overhauls from the Centers for Medicare & Medicaid Services (CMS), the rapidly approaching PDGM touches upon nearly every aspect of running a home health business, the executives noted. The model’s new 432 case-mix groupings, therapy changes and focus on functional limitations affect clinicians, for example, while the model’s untraditional 30-day billing cycle impacts billing departments nationwide.

While PDGM will be particularly devastating for small- and mid-sized home health providers, even the largest home health providers — including Encompass Health, Amedisys and LHC Group — are battening down the hatches.

“I’m actually just coming off the last two days of working with 650 folks across our clinical operations and sales leadership [teams] … doing a deep dive into PDGM,” Anthony said. “The clock is going to move fast from this point forward until the end of the year, and I’m not sure you can really be in a good place to deploy this model by Jan. 1.”

‘There’s going to be carnage’

One of the main reasons PDGM is so challenging, industry leaders argue, is because it seems contrary to CMS’s publicly highlighted goals of improving quality of care for Medicare beneficiaries and reducing overall health care spending by moving care downstream.

In some ways, the model is also drastically different from what CMS tried to accomplish with the Prospective Payment System (PPS) put in place about two decades ago, especially when it comes to the delivery of therapy services in the home.

“I don’t have all the scars from [the PPS transition], but I just wish CMS would set the rules and let us run for a while,” said Kusserow, who joined Amedisys in 2014 after serving in leadership roles at Alignment Healthcare Inc. and Humana Inc. (NYSE: HUM). “It seems like CMS is always changing the goalpost — and next year’s goalpost change is quite extraordinary.”

As proposed, PDGM includes assumption-based behavioral adjustments that could pose a more than 8% cut to home health agencies.

Nationally, freestanding home health agencies had an aggregate margin of 15.2% in 2017, according to the most recent data from the Medicare Payment Advisory Commission (MedPAC). Many, however, have calculated home health margins as much closer to 2%.

That means an 8% cut would inevitably put a significant number of agencies out of business, which is exactly what happened when PPS came into play years ago. Myers saw those closures firsthand, he said, adding that they’re partly why LHC Group was able to quickly grow its business and go public during that time.

Myers started LHC Group with his wife — Ginger, a nurse — out of his kitchen in 1994.

“What drove consolidation … was cash flow,” he said. “People couldn’t make payroll. We would just make their payroll, and they’d give us the keys in some cases. It was really pretty sad.”

Already, some experts in the industry believe PDGM will put as much as 30% of home health agencies out of business. CMS finalizing its proposal to phase out Requests for Anticipated Payment (RAPs) would likely pour gasoline on that closure fire, McBee Associates Inc. President Mike Dordick previously told HHCN.

Any change to home health agency cash flow is troubling, according to Kusserow, because the typical owner doesn’t have access to capital to weather the storm. In fact, 70% of home health agencies don’t have access to adequate financing, he said.

“This really is the perfect storm,” Kusserow said. “If [PDGM] goes through in full force, there’s going to be carnage in this industry. We can’t allow that to happen.”

The good news

PDGM may have darkened home health skies for now, but there are still rays of sunshine, the execs reminded HHCN Summit attendees.

Baby boomers overwhelmingly want to age in place — a trend that’s not going away any time soon and that will keep demand for in-home care services high. Moreover, while PDGM is a big, complex, change, it’s not totally insurmountable for everyone.

“I think some of the good news for PDGM is that some of the old strategies will still work,” Anthony said. “It’s just perfecting and honing your investments [in some areas].”

Specifically, those areas include managing the productivity of full-time staff and making sure LPNs, PTAs and COTAs are being utilized whenever appropriate. Agencies that are focused on better care planning and breaking down care silos — such as the relationship between nursing and therapy — within their own operations will also have a leg up on PDGM, she said.

Perhaps the biggest piece of positive news: PDGM may eventually be downgraded from a category 4 hurricane to a more manageable tropical storm thanks to industry advocacy efforts and bipartisan support in Congress.

“Having been in this for 25 years now, I lived through a phase … when [advocacy] wouldn’t have mattered,” Myers said. “I would take this over where we were in the 90s.”

Congressional support comes in the form of the Home Health Payment Innovation Act — H.R. 2573 — in the House, plus companion legislation in the Senate. Widely supported, the legislation seeks to eliminate PDGM’s behavior adjustments and prohibit CMS from making assumption-based payment moves in the future.

Anthony, Kusserow and Myers have all helped to lead the advocacy charge.

“We’re working hard in Washington, D.C., to make sure some level of reason comes back into this process over the course of the next few months,” Anthony said.

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