Despite Humana Inc.’s (NYSE: HUM) dedication to value-based care models in its own network, it still finds a lot of value from a business perspective in the fee-for-service (FFS) model for home health care.
Now that the Louisville-based company is integrating Kindred at Home, it’s putting on a balancing act between what makes it money and where health care is going.
“What we’ve learned over the last number of years is that the home health industry does very much operate on a fee-for-service basis. Original Medicare is the largest customer,” Humana CFO Susan Diamond said at the BofA Securities Home Care Conference Monday. “We think that that business is significant and has the ability to grow significantly. So we will continue to support that core fee-for-service home health business that Kindred provides today.”
That sentiment offers clarification on past comments from other Humana leaders.
On a third quarter earnings call in November, for example, Humana President and CEO Bruce Broussard touted “substantial progress” in terms of scaling its value-based home health model.
“Our efforts to transform home health to a value-based model come at a pivotal time for the industry,” Broussard said at the time.
While Humana’s FFS and value-based care plans aren’t necessarily in contradiction with each other, they do offer a glimpse into the complex strategy a provider-payer like Humana has to abide by, especially now that it owns one of the largest home health organizations in the country.
Through Kindred, Humana owns about 7% of the home health market and provides care to around 550,000 patients annually in 40 states, according to Diamond.
“The ability to deliver home-based care solutions at scale, we thought, was going to require partnership with a nationally scaled home health company, which is what drew our interest to Kindred in the first place,” Diamond said.
Disconnect between Medicare Advantage and FFS
Humana acknowledges that the home health world is still very based on a fee-for-service model – one that it stands to benefit from. It’s using Medicare Advantage (MA) to introduce a value-based approach, however.
“What we aspire to do on the MA side is introduce an actual value-based home health model,” Diamond said. “The patients who benefit from home health tend to be some of our more complex ones. They’re five times more likely to experience a rehospitalization than those who don’t require the support of home health.”
On average, home health patients that are readmitted to the hospital cost Humana over $800 million per year.
One of the reasons why fee for service still has a stranglehold on the home health market is because it pays better. In some cases, fee-for-service Medicare pays 15% better than MA for home health agencies.
“Fee for service home health has been run as a rate game,” Diamond said. “Oftentimes, MA plans have been very successful in negotiating rates that are well-below fee for service. That creates some tension where the home health companies – all being equal – would rather take a fee-for-service patient than an MA patient because the margins are higher.”
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