The Patient-Driven Groupings Model (PDGM) is overshadowing the rapid evolution of the industry’s largest home health providers.
Over the past several years, home health giants Amedisys Inc. (Nasdaq: AMED), Encompass Health Corp. (NYSE: EHC) and LHC Group (Nasdaq: LHCG) have each graduated from relatively one-dimensional enterprises into fully integrated aging-in-place companies that operate across the continuum of care. Although it’s not as big in the home health space, same holds true for Addus HomeCare Corporation (Nasdaq: ADUS) as well.
The fast-paced evolution was readily on display during 2019’s third-quarter earnings season, according to Matt Larew, an analyst at Chicago-based multinational investment bank and financial services company William Blair.
Home Health Care News recently caught up with Larew to learn more. Highlights from that conversation are below, edited for length and clarity.
In addition to the shifting home health landscape, HHCN and Larew also touched on PDGM mitigation strategies and each company’s approach to the 2020 payment overhaul.
With a 4.80% share of the home health market, Amedisys is the No. 2 biggest home health providers in the United States, according to newly released data from LexisNexis. LHC Group is ranked as the No. 3 largest provider, with a 4.27% market share.
Meanwhile, Encompass is listed as the No. 4 biggest home health provider. Addus mostly operates in the personal care services arena, though it also maintains a growing home health and hospice presence.
HHCN: What are your top takeaways from this round of earnings? What stood out in terms of big-picture trends?
Larew: It was interesting. The metrics we look at for home health, hospice and personal care around same-store growth remain quite strong for [Encompass Health, LHC Group, Ameedisys and Addus], primarily same-store admissions on the home health and hospice side. That piece was consistent with the trends we’ve seen, but, in general, this earnings season was a bit overshadowed by the final payment rule for 2020.
The underlying growth for these companies … remains very strong and reflects what we see as a longer-term opportunity for them to take share in growing markets. But the quarter itself was overshadowed by the update we got from CMS about PDGM.
Were there any surprises?
The only one I would point out is recertification rate, which has moved around a little bit for a few of the companies on the list.
Each company attributed this to something a little bit different. In some cases, [it was attributed] to patient selection. Amedisys alluded to simply not having enough capacity because their focus for their sales and clinical teams has been on driving admissions. I would say, thematically, that was an issue that came up a lot on the calls. I don’t know that it has lasting relevance to the companies because, frankly, recertification rates tend to move around quarter to quarter.
Maybe a second would be that Medicare Advantage (MA) growth remains quite strong. We are starting to see some increases in rates for home health and MA. Of course — historically and currently — there is a gap between what MA pays on a per-visit basis and what the per-visit rate works out to be from Medicare.
A third would be that the companies are all focused on preparing to succeed and thrive in the PDGM environment. All of these companies — because of their scale and sophistication — have been able to devote company resources to preparing for PDGM. That means preparing their coders to make any clinically appropriate behavioral adjustments, trying to optimize staffing and episode utilization, and piloting those activities throughout the year.
They’re preparing to hit the ground running Jan. 1, 2020. This is one of the sustainable advantages of larger companies in the space. Because it’s such a fragmented and unsophisticated market, the few companies that do have the scale and are well-funded really do have an advantage over the smaller players, particularly when it comes to large-step changes in the way the industry and reimbursement functions.
Looking at individual companies, are you bullish on one of them over the others?
I wouldn’t want to rank the companies. I’ll point out that the four companies you mentioned, Addus, Amedisys, Encompass and LHC Group, have an outperform-rating on those stocks.
I think within the context of “home is where the health is,” which has been a big theme, Amedisys, Addus and LHC Group have the most direct exposure.
You’ve become a PDGM expert over the past year-plus. Can you sum up the main PDGM-mitigation strategies you’re hearing about?
In terms of the behavioral adjustment, there are three buckets: coding, LUPAs and co-morbidities. In the case of co-morbidities, it’s relatively straightforward. You can get credit for recording co-morbidities where you couldn’t before.
In the case of coding, it’s a little bit more complex because sometimes it will be clinically appropriate to list a different and more highly reimbursed code — and in other cases that won’t be the case. That’s where I think the larger companies I cover have an advantage.
The final piece is related to LUPAs and that’s a bit of a tougher point because you have to clinically justify any movement or alteration of how you utilize visits. That one might take a little bit longer for them to offset.
Apart from the behavioral adjustment, there’s also a cost-savings aspect. There are two general categories with that. One would be clinical utilization. All of these providers employ a variety of skilled clinicians, meaning RNs, LPNs, PTs and PTAs. There are certain visits and certain clinical activities that are best suited for each of those categories.
Part of the focus of the companies this year, and then moving forward, is making sure that clinicians are practicing at the top of their license.
The second category is visit utilization. In other words, making sure that the number of visits per episode is efficient and gets clinical outcomes.
Do you think any of these big players are “winning the PDGM battle”?
I think on a relative basis, they’re all winning. Now, in the case of Addus, they obviously don’t have a lot of home health exposure today. So maybe the conversation is a little less relevant for them. For the other three, it may be different versions of a similar process.
I will say Amedisys, with respect to clinical mix, probably has the most opportunity relative to the others because their clinical mix was simply a little less efficient before. I think each of them is probably doing a nice job of preparing, but Amedisys probably has the most opportunities to offset any reimbursement issues.
Is there anything else HHCN readers should know?
I would just emphasize that the attention has been, rightly so, on PDGM for most of this year because it’s the largest reimbursement change in the industry in 20 years.
What has been overshadowed is the continued evolution of these companies from siloed post-acute care providers to multi-skilled, multi-capability, scaled, aging-in-place companies. They’re really building this network of clinicians, technology and data that enable them to partner with payers.
That process has continued to evolve this year despite the fact that most of the attention has been on PDGM.