Birmingham, Alabama-based Encompass Health Corporation (NYSE: EHC) — already one of the largest home health providers in the country — is likely on its way to even more growth this year, thanks partly to the expected M&A opportunities linked to the Patient-Driven Groupings Model (PDGM).
Internally, coding changes and investments in predictive analytics have helped Encompass Health mitigate some of PDGM’s more challenging aspects. Even so, leadership is still planning for a 2% to 3% contraction to Medicare payment rates.
HHCN recently sat down with April Anthony, CEO of Encompass Health’s home health and hospice business, to discuss PDGM strategies and the overhaul’s market impact. During the conversation, Anthony also provided an update on Encompass Health’s ambitions for 2020, including a potential pivot toward hospice.
Highlights from the interview are below, edited for length and clarity. Anthony founded Encompass Home Health & Hospice in 1998 as her second home health venture.
HHCN: You shared some insights into your post-PDGM therapy strategy. It seems like concurrent visits have been important. Why?
Anthony: We began what we’re calling “team admissions,” gosh, actually almost two years ago. We began them in a beta-test fashion, but got so much positive response from the clinicians (once they got over the fact they had to do some logistical coordination to meet at the home at the same time).
Once they took on that challenge, clinicians found this huge value in, “Wow, if we’re in the patient’s home together, I can just listen to the health history. I don’t have to re-document all that or ask those questions again.” It made the initiation visit slightly longer in total time for the patient, but that’s so much better than having the therapist come back the next day and repeat half of what had already been done by the nurse.
It was better for the patient. The clinicians found they could be far more efficient. For example, the therapist can start thinking about the therapy care plan when the nurse is asking health-history questions. Then they can collaborate together to make sure there’s an appropriate functional assessment, which is obviously important in PDGM.
We need to make the right decisions about functional impairment related to how to score and grade the patient. But we also need to to think about care planning together to settle on the best way of delivering care to the patient.
Team admissions have been a real winning strategy. It’s driven employee satisfaction, patient satisfaction and better outcomes.
Can those team admissions be done virtually?
Our team admissions are two human beings in the home. We haven’t done them virtually. You can certainly try to coordinate from a standpoint of virtual communication, but it’s really the live, in-person interaction that has been the best part. So, we haven’t done much on virtual team admissions.
HHCN on a weekly, sometimes daily basis receives emails from physical therapists (PTs) or occupational therapists (OTs) who have seen their hours or pay cut. Do you think the home health industry is alienating a whole generation of therapy workers?
First, I would say that — at Encompass Health — we’ve had none of that. We’ve had zero layoffs of therapists. We’ve had zero changes in compensation to our therapy, our visit approach. Any of that.
We really feel like the whole therapy-behavior change is over-cooked. As I said [on stage at Home Care 100], we have seen a change in methodology driven by our analytics tools. Some patients are getting far more therapy visits while others are getting far fewer — but on balance.
We’re not changing our staffing needs. We’re reallocating among the patient population to drive better outcomes.
Frequently, I think what happens is there’s this knee-jerk reaction. People hear or see things, then over-correct. I’ve been on the record saying this, but I think the Centers for Medicare & Medicaid Services (CMS) over-corrected as it related to therapy reimbursement. Agencies are doing the same thing, and it’s resulting in this soundbite that keeps flying out there.
My guess is that there will quickly be mitigation. When you look at the real data in PDGM and reimbursement per episode, you’re still going to find that therapy episodes are one of the highest reimbursement categories. Patients who have neuro and musculoskeletal rehab … those are still some of the highest-reimbursed episodes in home health care.
Are they less than last year? Yep. But on an absolute-dollar basis, they’re still one of the best revenue sources in the industry that you can go to. I think that knee-jerk will correct itself pretty quickly. I don’t think we’ll see long-term displacement of therapists in home health care.
And they just add too much value for the patient. I think anybody who thinks they can just jettison that whole discipline is really going to do a disservice to patients.
Another very tangible tip you talked about was Encompass Health’s change to pre-coding — such a seemingly simple fix that a lot of agencies can adopt. Why is pre-coding so effective?
Bud Langham is the chief clinical officer at Encompass Health Home Health and Hospice. He was sort of the first to say, “Hey, we have to think about this coding thing differently. It’s unreasonable to think the clinician in the field is ever going to be a certified specialist.”
We do tons of coding training for the broad base of clinicians in the field. But the reality is that coding truly is a speciality. Understanding coding is a skill. When we started looking at the importance of coding under PDGM and where we were inserting coding review, it was almost like the clinician had dug into whatever they thought was right. When the coding team would come back and say, “Well, no. You should be thinking about it like this,” that started this battle.
When we began to beta test this pre-coding process, we found that, if we got a really complete referral, if we got good information from our sales team about what was in the physician’s record, what was in the hospital record, then the coding team can take that and look at why a patient is coming to us. Then we can create better alignment between the physician record, the hospital record and the home health record, which was an area we sometimes found challenging in audit. There’s sometimes a disconnect.
Now, we go to the clinician with, “Here’s what we believe. Validate it.” We’re not creating that fight with somebody saying, “I’m dug into X, and you’re digging in that it’s Y.” There’s more understanding and being on the same page.
There are certainly times, though, where a clinician gets into the home and sees something nobody knew about — the doctor or hospital. We may add codes that we weren’t aware of. But we’re finding the codes that are suggested are rarely excluded.
Our coding team is heavily clinician-driven. We’re probably two-thirds clinician and one-third non-clinician. As we scale the model, we’re starting to bring some non-clinician coders into the mix. They then work in partnership with the clinician coder. Not everyone in the industry does it that way. But we feel more comfortable with the clinician being in the coding team.
Would you say coding has been your biggest PDGM investment?
No, because our investment in the Medalogix Care tool is a big investment. Not only in just the cost of the tool, but also it’s a huge investment in the overall process restructuring that goes along with that.
For coding, we’ve added about a dozen new coders, which isn’t a cheap exercise. But, in total, I think using the care planning and the data analytics is the more significant investment from an overall opportunity cost and whole-dollar cost.
There’s been some debate as to how much consolidation there’s going to be this year because of PDGM and the simultaneous phasing out of RAPs. What do you think we’re actually going to see in 2020? Is it going to be “carnage” or calm?
I don’t think it’s going to be carnage. I do think the cash-flow component is very disruptive to small, under-capitalized agencies. If you don’t have a line of credit, if you don’t have some debt capacity, then all of sudden you may find yourself with 25 to 45 days of additional cash-flow needs, working-capital needs. That’s a big number for most home health agencies, relative to their debt capacity.
I think that is going to cause the main issue. Having played through the 1997 through 2000 period where we saw about a 30% national decline in home health agencies from a little over 10,000 to just under 7,000, I would guess we’re looking at something a bit more modest. I’d guess we’re looking at something more in the 15% to 20% range.
And we may not see consolidation this time so much in provider number. It was clear last time. There were 10,000 provider numbers nationally, then 7,000. This time, what you may see is that there may still be roughly the same total of provider numbers, but a reduction in the number of decision-making entities they’re a part of.
From 1997 to 2000, there were very few consolidators in the industry. There wasn’t a long list of large, multi-site, multi-state providers like there are now with LHC Group (Nasdaq: LHCG), Amedisys (Nasdaq: AMED), Encompass Health, AccentCare and others. There are all these consolidators that are well-capitalized, funded with private equity dollars or public-market dollars.That just didn’t exist before.
It’s a very different time. I think we will see some contraction in decision-making entities but, again, in that 15% to 20% range.
I don’t want to exclusively focus on PDGM. What else is going on with Encompass Health’s home health and hospice business in 2020?
We’re still bullish about home health and hospice care. We think that 2020 may be a bit of a baseline-resetting year, just due to the nature and magnitude of the cuts coming down. We think, for us, the net effect of PDGM is about a 2% to 3% contraction in rate.
That’s no fun, but that’s not insurmountable. We think we’ll continue to be an acquirer. The last couple of years we’ve bought large agencies, Camellia and Alacare being examples. I think it’s probably more likely this year that — in the home health space — we consolidate a lot of smaller providers for the very reasons we’ve been talking about.
I think you may see our acquisition dollars being a little lower than in the past for home health. We do think there are some interesting larger-sized acquisitions that may come on the market in hospice, so we may see some level of pivot to hospice — not because we’re jettisoning home health. I just don’t see a big home health deal on the horizon right now.
As soon as I say that, something will go on the market tomorrow I didn’t know about.