Phones are apparently ringing off the hook at Amedisys Inc. (Nasdaq: AMED).
Although the home health industry has yet to complete month No. 2 under the Patient-Driven Groupings Model (PDGM), Amedisys has already fielded plenty of inquires from peers looking to exit the market or absorb into the Baton Rouge, Louisiana-based home health, hospice and personal care services company. Those conversations have quickly yielded returns, too, according to Amedisys President and CEO Paul Kusserow.
“We have already seen the early signs of the disruption caused by PDGM, having already absorbed one asset in Missouri, while more and more [agencies] have been calling,” Kusserow said Wednesday during a Q4 and year-end earnings call. “We will continue to grow share via absorption, but we’re also interested in strategic inorganic opportunities as they present themselves, particularly in CON states.”
CON stands for “certificate of need,” an endorsement health care providers must get in some states to begin delivering services.
PDGM’s immediate impact isn’t shocking, as most home health industry insiders predicted ample disruption during the first half of 2020 due to the pressure the overhaul puts on cash flow, coding teams and other operational areas.
Still, the fact Amedisys has already absorbed one asset suggests PDGM may move faster than anybody guessed.
“There’s a lot of people picking up the phone and calling us,” Kusserow said. “More than I thought.”
Taking stock
With 4.80% national market share, Amedisys entered 2020 as the second-largest home health provider in the nation, behind only Kindred at Home, according to LexisNexis research.
Overall, Amedisys has 321 home health locations in 34 states and Washington, D.C., according to company statistics. It pairs that home health footprint with 138 hospice locations and 12 personal care locations.
“We believe Amedisys is on its way to becoming a leading aging-in-place company, helping payers drive down costs and improve member health through its unique combination of clinical data, technology and feet on the street,” William Blair analyst Matt Larew wrote in a note shared with Home Health Care News.
For the fourth quarter of 2019, Amedisys’s total revenue came in at $500.7 million, up 15.3% from the same period a year ago. On the year, Amedisys’s total revenue was $1.96 billion, up nearly 18% compared to its 2018 fiscal year.
While those figures are strong, Q4 revenue fell short of Wall Street expectations and also missed William Blair’s $510.7 million target. Missed expectations contributed to Amedisys stock being down 10% after close-of-market Tuesday.
Amedisys leadership attributed the less-than-expected results to PDGM and the integration of Compassionate Care Hospice (CCH). Both points required full attention, Kusserow said.
“Q4 was an interesting time for both home health and hospice,” he said. “[With] home health, we were heads-down on PDGM prep. In hospice, we were heads-down on CCH integration, finally finishing the Homecare Homebase integration and then starting to build out the management teams. … I think the growth in Q4, due to the concentration in these areas, wasn’t what we desired.”
In his note, Larew similarly described PDGM as a “distraction,” specifically calling out how Amedisys reps had to spend more time with referral sources.
Even in what some may see as an underwhelming quarter, Amedisys grew same-store home health and hospice admissions by 4% and 1%, respectively.
Amedisys is confident that it’ll hit its growth numbers moving forward, particularly when it comes to hospice.
Larew is also bullish on the long-term outlook for Amedisys.
“We believe that Amedisys is well-positioned to take advantage of strong secular tailwinds that should support total volume growth in the company’s markets … [of] at least in the mid-single digits for the next decade-plus,” Larew wrote in his note. “In addition, the company’s focus on quality and its multifaceted approach to in-home care will allow Amedisys to be an outsized participant in that market growth, and the company is well-positioned to use its healthy balance sheet and corporate infrastructure to supplement organic growth in all three of its businesses.”
Amedisys delivered 12.3 million visits across its three business lines in 2019.
Absorption strategy
Generally, there are three things Amedisys considers when deciding whether to absorb home health business.
Primarily, Amedisys is seeking opportunities in overlap markets where it already has a working license. Absorbing assets in those markets is relatively hassle free, allowing Amedisys to potentially take on employees or patients in a more streamlined fashion.
Along those lines, Amedisys is looking to avoid making any moves that will trigger a six-year look-back, which could expose the company to financial risk from the U.S. Centers for Medicare & Medicaid Services (CMS).
“When we go outside our license area and acquire a provider number, we have to be very careful because then we’re liable for some of the things that occur in that six-year [window],” Kusserow said.
Lastly, Amedisys is particularly interested in any opportunities that come in CON states. Broadly, it’s more difficult to start and run a home health business in a CON state, meaning there’s often higher value associated with those assets.
In theory, the price tag on assets that Amedisys absorbs is zero.
“Thus far, if you tuck something in, it’s generally free,” Kusserow said. “The idea is you have some conditions there — if you hire certain people, [for example]. But when it’s in our license, we don’t expect to pay anything.”
Kusserow said he expects there to be competition for home health assets. However, he believes Amedisys’s quality scores and its ability to take on new business without disruption will help separate it from the pack.
“I think the key is, again, our quality wins,” he said. “I think our ability to absorb employees wins.”
The year ahead
PDGM will remain the top priority for Amedisys in 2020.
To control costs under the overhaul, Amedisys has ramped up its use of licensed practical nurses (LPNs) and physical therapy assistants (PTAs). During Q4 2019, LPN utilization increased to 42.3%, up from 38.6% in Q4 2018; similarly, PTA utilization increased to 44.4%, up from 41.7%.
The company has also leaned on Care and Touch, two predictive analytics tools from Medalogix. Touch focuses on re-hospitalizations, while Care focuses on building individualized care plans to optimize patient outcomes and utilization.
Currently, 60 Amedisys home health locations are using the Care tool, according to Kusserow. The company hopes to implement Care across all locations by the end of the second quarter — and Touch by the end of Q3.
“Care uses our [data] and others’ data to deliver robust analytics [for] a patient-specific, individualized care plan that helps ensure we’re optimizing visits per episode with the most appropriately skilled clinicians based on each patient’s individual needs,” Kusserow said.
Care helped Amedisys reduce visits per episode to 17 in Q4 2019, down from 17.7 in Q4 2018. While visits per episode were down, quality ratings largely remained the same, even improving in some instances, according to the CEO.
Apart from PDGM, Amedisys will look to further grow its personal care footprint, including the network it has built with ClearCare.
