Confessions of a Home Health Financial Expert: PDGM-Related Bankruptcies, Buyouts Will Abound in 2020

Despite all the uncertainty swirling around the Patient-Driven Groupings Model (PDGM), at least one thing is clear: The home health industry is going to look very different a year from now.

Come October 2020, the home health space will likely have witnessed a noticeable consolidation from the roughly 11,000 or so freestanding agencies that exist today. That consolidation wildfire will be fueled by home health providers’ inability to weather PDGM’s “perfect storm” and veteran owners looking to exit a long-stable industry at a turbulent time.

The Centers for Medicare & Medicaid Services (CMS) will likely help fan the flames, too, one industry insider recently told Home Health Care News.

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In this latest installment of its Confessions series, HHCN spoke with an experienced home health consultant to get a candid financial forecast for the industry post-PDGM. During the conversation, the source also touched on several ongoing regulatory initiatives, including the Requests for Anticipated Payment (RAP) phaseout and the Review Choice Demonstration (RCD) expansion. 

The home health financial expert’s responses are below, edited for length and clarity. The subject of this interview — a person with several years of post-acute care experience in a variety of roles — is kept anonymous so he or she can speak without fear of retribution.

You can find HHCN’s previous Confessions conversation here.

HHCN: What are you hearing from the home health providers you talk to when it comes to PDGM preparation?

Home health financial expert: I’m hearing a lot of fear and worry about what the changes are going to mean. The first fear is that Medicare and CMS are not going to be ready. I think that’s a valid, true fear that’s out there.

A second fear: How are you going to get your workforce to the point where they can seamlessly make all the changes that are necessary? CMS is looking at an 8.01% behavioral adjustment. They’re asking you to make big changes with a workforce that doesn’t usually change quickly. 

Ultimately, that’s going to be an ongoing concern. You can know exactly what you need to do for PDGM, have your software ready to go, have all the pieces in place. But can you actually pivot quick enough throughout all parts of your business?

Has CMS done anything to suggest it won’t be ready?

You can look toward the implementation of the Patient-Driven Payment Model (PDPM) in skilled nursing and see places where CMS had some speedbumps. You can imagine the same sort of speedbumps would play out with PDGM.

Additionally, you have things like the Review Choice Demonstration (RCD) going on in places like Illinois and Ohio. Eventually, that’s going to expand into Texas, Florida and North Carolina.

It was actually just delayed in Texas, fortunately. 

Industry colleagues and I have met with CMS to try to figure out their thought process for rolling out RCD and PDGM at roughly the same time. I wanted to know who’s pulling the strings for each. I heard it’s different groups within CMS spearheading each effort, and they’re not really interacting.

The fact that RCD was going to go live in Texas in December — the last month you have as a provider to get ready for PDGM — isn’t ideal. 

What’s your personal take on all this regulatory change happening at once? Beyond PDGM and RCD, there’s the possible RAP phaseout and dwindling rural add-on as well.

I think CMS broadly understands what its doing, but doesn’t understand all of the nuances.

There’s a huge change-management challenge that comes with a largely decentralized workforce. Change is tough in home health care.

If you think about a hospital dealing with something similar, they could theoretically bring everybody into a room and do education, training. Everybody can be within the same four walls.

When you think about a decentralized workforce in a home health market, you have clinicians out seeing patients. There are travel demands. There are socioeconomic issues going on in patients’ homes. That all makes it harder to pull everyone together.

When the Prospective Payment System (PPS) went into place, that’s partly why the industry didn’t do a great job educating field staff. The industry has certainly done better now, but I still have a fear there hasn’t been enough education.

We’ve done as much education and preparation as you can do, but you probably can never do enough for something like PDGM.

We’ve heard people say CMS actively seeks consolidation. Do you agree with that?

I think that’s probably right. But I don’t think you’ll ever hear CMS say that.

CMS will talk about access to care. If you ask questions about consolidation — or anything, really — to CMS, their response is usually about that. As long as CMS believes access to care won’t suffer, it probably will lean toward there being fewer agencies out there.

It’s easier for them to deal with less. And there’s a case to be made that there probably are too many agencies. The barrier to entry was almost too easy in certain states. It wasn’t too hard for somebody with an entrepreneurial spirit to get a home health business going, especially when you’re getting 60% of your payment upfront through a RAP.

The phaseout of RAPs and installment of a notice of admission (NOA) is probably the lynchpin for CMS to say, “We’re going to take fewer agencies. You shouldn’t be able to operate if you don’t have enough capital to work through [startup].”

Speaking of NOA, CMS has recently been touting Medicare program integrity a lot. NOA fits into that, so I wouldn’t expect that plan to go away. In the past, it was easy for somebody to open up, get a bunch of RAP money and then leave the country. It’s a legitimate issue.

Do you think that NOA aspect is going to be burdensome for providers?

The key will be making sure it’s an easy, automated process. How do you get it so it’s not an onerous process to do an NOA?

It’s not exactly clear right now what the NOA process will look like. We want to see something where the system could automatically spit out and lock the episode down where you don’t need any other pieces coming together.

We’ve been seeing a lot of therapy layoffs after PDPM went live on Oct. 1. Think we’ll see that after PDGM starts on Jan. 1?

You have to make distinctions when you look at PDPM in the SNF world and PDGM in the home health world.

Only about 30% of the volume in SNFs is paid by Medicare. There are many more patients being paid by Medicaid and commercial insurers there. It’s inherently different.

I’ve seen the therapy layoff articles. I get that it’s a reaction to PDPM. People are going to move toward the money. It’s not about providers cheating or doing something wrong. If you create a model that doesn’t reimbursement strongly for therapy, you’re forcing them down that path away from it.

The home health industry is so heavily driven by Medicare. It’s so driven by therapy. So you’re going to see even more therapy layoffs. People are going to have that initial reaction.

The question is: How will the new model self-correct (if there needs to be self-correction)?

Personally, I think there could be fewer therapy visits done with the same patient outcomes.

I’ve always advocated the use of home health aides and therapists. You can use a home health aide to do some basic items in the home in between therapy visits at lower costs while keeping on the plan of care.

What’s the home health industry look like in October 2021?

This time next year, you’re going to see scenarios where you see bankruptcies of agencies that weren’t prepared, weren’t ready to handle the significant cash flow issues coming.

You’re going to see some people looking to get out quickly.

What you’re also going to see this time next year is people looking to get into the home health industry quickly. There’s been a lot of money on the sidelines, sitting there waiting to see what happens with PDGM.

As long as the capital markets stay where they are right now, you’ll see people with money that they want to deploy into this space.

The dust won’t be completely settled on PDGM next October, but it will bee much clearer compared to now.

What else do you want to add? What else is important to talk about?

My perspective on [PDGM] is that people absolutely need to understand that there are so many differing opinions on what the right directions are. Organizations need to look at their [patient] mix and be careful about changing too quickly. You shouldn’t jump to make changes without understanding exactly what it will do to your patient base.

If I had to give one piece of advice to the industry, it’s to make sure you understand your data and your market. It’s important to know what’s taking place within your geographic area that you’re operating in. If you’re on the East Coast, don’t worry about what the West Coast is doing.

You might find out you have competitors in your market with very similar patients but that you’re doing things very differently. So sometimes it’s helpful to talk through those differing strategies.

If you don’t understand your business well enough under PDGM, that’s a big risk.

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