The Patient-Driven Groupings Model (PDGM) is already starting to fuel the M&A engine of LHC Group Inc. (Nasdaq: LHCG), Chairman and CEO Keith Myers told Home Health Care News.
Any day now, the Lafayette-based home health, hospice and personal care services company will announce an agreement to purchase five Egan Home Health and Hospice locations in southeast Louisiana. The deal will be carried out in partnership with Ochsner Health, one of LHC Group’s many joint venture partners.
The purchase is expected to add about $16 million in annualized revenue once completed.
While the deal strengthens LHC Group’s presence in the home market of Louisiana, it’s also the perfect example of the type of acquisition the company expects to see more often in 2020, according to Myers. Egan is a high-performing agency, but somewhat ill-equipped to survive the enormous impact of PDGM.
HHCN recently caught up with Myers to discuss LHC Group’s operational outlook and plans for the year ahead, including an ambitious goal of doubling its hospice footprint. In addition to 2020 predictions and M&A, Myers touched on value-based payment relationships and taking LHC group’s leadership team to the next level.
Highlights from the conversation are below, edited for length and clarity.
HHCN: What are your bold predictions for 2020, whether we’re talking about home health, hospice or personal care services?
Myers: Let me start by saying I believe PDGM — the fundamentals of it, not its prospective cut — is a positive. But the idea of making reimbursement changes on assumptions rather than hard evidence, you know, we still disagree with.
We support the change to 30-day payment periods within a 60-day episode and most of the other changes within PDGM. That includes removing the number of therapy visits as a driver for reimbursement. Those are positive changes that take away questions and noise we sometimes get from policymakers about [home health program integrity].
Therapy, in particular, was always something people would bring up from a policy perspective. I think improving that will pave the way for more volume into the home.
I think we’re going to see more care moving into the home across our segments of home health, hospice and personal care. In the LHC Group model, they all tie together. We view those three as a continuum of care that allows us to own the home.
Tri-locating services was a key strategy for LHC Group in 2019. Sounds like it will remain so next year as well?
Yes. Increasing our activity in M&A in home health will naturally occur because of the changes next year. There will be an increase in M&A — and we intend to be at the front of that.
We have a separate team responsible for hospice growth. Their challenge is to double our hospice locations in the next 12 to 18 months. We have roughly 80 locations now, but we want to more aggressively move toward our goal of having hospice in every market we have home health.
With personal care, we have Maxine Hochhauser in the president role. She was formerly with Addus. Maxine is doing the same in personal care. We have three cohesive operating segments with leadership teams growing them in individual swim lanes.
That means there are no distractions with one lane impacting the others.
So, your hospice team is sitting there thinking, “Thank goodness we don’t have to worry about PDGM.”
Right. They’re really happy we turned them loose and have a dedicated team going out and growing hospice. The person who leads hospice M&A, to be specific, has no job other than hospice M&A.
We’ve heard growing personal care can be difficult due to a lack of available, scalable assets. Has that been the case at LHC Group?
No. A lot of our personal care growth comes in the form of startups. If we have the home health volume, in many markets, it just makes sense for us to take up space under the same roof. Where home health density is strong, we start personal care from the ground up — or buy a small agency that has a base in that geographic area.
Let’s take a step back and look at PDGM. What do you think the industry is going to look like a year from now?
I’ll give you an example of an acquisition related to PDGM that we’re just about to announce. There’s a home health agency in New Orleans. The name of it is Egan Home Health. It’s been around a really long time. I think it was founded in 1988.
The person who owns it is Peter Egan. He’s a gem of a guy. Just to give you some background, he was actually a Catholic priest who left the priesthood, got married. Egan is a 4.5-star agency and leads in key metrics. LHC Group and Egan are No. 1 and No. 2 in the New Orleans market. We operate the Ochsner brand there.
I don’t think anybody ever believed the Egan agency would change hands. It was assumed that Peter would pass it down to his children. But when PDGM came around, its magnitude [changed that]. He called me up, didn’t know if his kids could handle it. He reached out and wanted to know if we’d be interested in having discussions.
He wanted Egan to be part of LHC Group because he knew we’d keep the Egan brand the same, keep his kids involved and all the employees around. That high-quality agency changed hands in a negotiated transaction. We will operate two different brands in the New Orleans market as a result — one for Ochsner and one for all other referral sources.
For me, this is emblematic of the high-quality assets that are going to come to market — and we’re uniquely positioned to benefit. Our acquisition of Egan — done through an expansion of the Ochsner JV — will include five locations and close on Jan. 1, subject to customary closing conditions.
There are some agencies that are going to go out of business because they’re not well-managed. We’re focused on the high-quality ones. We’re focused on the ones with good reputations that just aren’t big enough to make it on their own.
We don’t brand, so we’re a good home for them, too. We’ll keep the name the same, keep the business intact.
What else is going on at LHC Group, thinking ahead toward 2020?
Let’s talk about value-based purchasing for a minute. For the first time, I see meaningful movement for us in the value-based arrangement conversation. And I’m talking about that broadly. Examples would be preferred-provider agreements in narrow networks with hospitals that are more than just a handshake.
You’ve had a lot of leadership updates in the past year or so, with Bruce Greenstein and Dr. Tricia Nguyen coming on board. Most recently, you named a new CIO, Mohammad Ali, formerly at Cigna Inc. and Anthem Inc.
We’ve spent 18 months beefing up this team. The management team looks quite different. Ali, he comes from Cigna. He was head of IT internationally. His experience is way beyond what we do at LHC Group today. We really hired up in that position.
This is all to take us to the next level in our ability to leverage micro-strategy and all things technology — call-center capabilities, for instance. We want to think the way a Cigna or a United thinks.
Outside of PDGM or securing value-based relationships, what are some other challenges you foresee next year? There’s a lot you can identify in home health care, including the RAP phaseout.
I couldn’t agree more. I think the elimination of RAP is going to create the greatest challenge for smaller providers. I think it’s even bigger than the switch to a 30-day payment period. I think that will cause a great deal of consolidation.
The Review Choice Demonstration (RCD) is also going to create a challenge. We’re thinking that’s going to be a way of life.
There is the rural add-on changes. My view on that is there might be relief coming. There’s discussion within our group in Washington, D.C., … Sen. Susan Collins (R-Maine), her staff is indicating she might like to introduce legislation for home health that would include a fix, a continuation of the rural add-on.
The legislation could include the ability for nurse practitioners to sign orders for home health. That would be huge for our industry. We have a lot of support on the Hill, so it would be nice to do something with it.
What issue or topic is falling under the radar right now?
I hope the industry is ready for the downstream volume we’re going to see next year. I hope we’re ready to handle that tailwind. As someone who has been at this so long, I’ve seen us go from a place where nobody wanted to meet with us in Washington to now, where home health is viewed as the place to be.
Every organization talks about wanting to own the home because that’s where care is moving.
Speaking of moving more care into the home, we’ve sometimes heard that SNF-to-home diversion has maxed out. Genesis CEO George Hager, for example, has made comments along those lines. Where do you stand on that?
I agree with George. But in [the Genesis] model, they operate what I would refer to as higher-acuity SNFs. I think it’s the lower-acuity SNFs that are continuing to see the decline [in utilization].
I think nursing home beds — the Genesis-type model — I could see them being repurposed for wound care. That’s a huge opportunity for them now. That’s very attractive. I can see in the future — if we were tasked with and incentivized for managing total cost of care — contracting with somebody like a Genesis to help care for home health patients that need to temporarily be in an in-patient setting. Why would we not move them to a facility like a Genesis instead of sending somebody back to the hospital at a much higher cost?
We don’t have any of those relationships now, but I can see them in the future. I think that’s going to be a new role for SNFs.
And still on the topic of SNFs, CMS had some hiccups rolling out the Patient-Driven Payment Model (PDPM). Think we’ll see the same with PDGM?
I would be naive not to have concerns. That’s one of the reasons we keep our balance sheet so strong and have so little debt. We’re preparing for the worst and hoping for the best.
I’m cautiously optimistic, though. I haven’t gotten any signals from CMS that they’re not prepared. But who knows — it’s a new system with lots of moving parts and changes.