Home Health Cash Flow Has Yet to Recover from Post-PDGM Dip

Even before the coronavirus hit, cash flow was poised to be a problem for home health providers in 2020.

The Patient-Driven Groupings Model (PDGM) shortened home health billing periods from 60 days to 30, creating a cash flow crunch for agencies during their first few months under the new model, which took effect Jan. 1.

On top of that, the Centers for Medicare & Medicaid Services (CMS) began its phase out of pre-payments — or Requests for Anticipated Payments (RAPs) — this year. RAPs have historically been an important tool for smaller providers in managing their cash flows and payrolls.

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Then, just when agencies were expected to bounce back, the COVID-19 emergency hit in March.

The trio of unfortunate events has meant a negative cash flow trend for home health agencies all year — or at least for the first four months of 2020, according to BlackTree Healthcare Consulting data.

King of Prussia, Pennsylvania-based BlackTree shared those numbers on a recent webinar. They show the monthly cash flow trends of home health clients for which BlackTree completed billing and collections functions from January through April.

Overall, BlackTree’s findings suggest that home health care providers’ cash flow dips were less pronounced than the firm expected them to be for the first two months of 2020; However, the coronavirus prevented agencies’ cash flow from ever trending back up above December 2019 levels and normalizing in April, as BlackTree anticipated in a pre-coronavirus world.

“What actually happened was January and February were pretty close to what we expected,” BlackTree Managing Principal Nick Seabrook said during the webinar. “But — what the impact of COVID was — in March, we never saw that spike back above those January numbers. We got it back to right around even numbers to December, and then it started to climb back down in April.”

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In January, BlackTree clients saw their cash flows fall by 14% compared to December, with agencies faring better than the 22% dip BlackTree originally projected they would see.

In February, the firm’s predictions were more closely aligned with reality: Agencies’ average cash flow drop was 32% from December, while BlackTree predicted a 37% dip.

In a COVID-19-free world, March would have ushered in a home health care cash flow comeback, according to BlackTree.

“We were expecting a nice spike in March — an increase of about 12% [from December],” Seabrook said. “And then [for] it [to] start to normalize in April and beyond.”

Instead, the coronavirus hit. Providers saw elective surgeries cease nationwide, with a growing number of patients turning away care, LUPA rates rising and telehealth becoming a necessary yet non-reimbursable reality.

As a result, home health cash flow trended in line with December numbers in March — then fell 7% in April. While BlackTree did not share numbers from May during the June 30 webinar, it’s clear cash flow remains top of mind for agencies in the home health space.

“We asked in the poll [of webinar attendees]: What are currently your biggest operations concerns? 22% of you said cash flow,” Seabrook said. “There’s been a lot of relief funding come through for COVID … but cash flow is definitely something you still want to keep an eye on.”

With cash flow up in the air, some industry insiders expected ample M&A action in 2020. That has yet to pan out, largely due to the relief funding and other financial lifelines created by the federal government during the COVID-19 crisis.

As relief starts to disappear, many providers will feel PDGM’s cash flow crunch more acutely, perhaps opening up acquisition opportunities for buyers. If that happens, though, buyers will need to consider potential implications tied to the Paycheck Protection Program (PPP).

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