LHC Group Inc. (Nasdaq: LHCG) executives have spent the past several months preparing for 2022, which President and COO Josh Proffitt describes as a year of “great opportunity.”
“There are a lot of positive forces shaping home health care,” the industry veteran recently told Home Health Care News.
For the industry as a whole, that opportunity comes in the form of skyrocketing demand, renewed policy support and the migration toward value-based care. For the Lafayette, Louisiana-based LHC Group, it also comes in the form of the company’s evolving “advanced care at home” strategy and its growing joint venture portfolio.
HHCN connected with Proffitt to talk about those topics and more at the beginning of January. Highlights from the conversation are below, edited for length and clarity.
HHCN: What do you see as the main forces shaping home health care in 2022?
Proffitt: First and foremost, it’s hard to not start with the continued labor pressures and shortages. That has been so much the focus for the industry, especially over the back half of 2021. I would say, in connection with that, improvements in recruiting and retention will be a main force. Providers are focused on mitigating those pressures.
That has been — and will continue to be — a primary focus for LHC Group. It will remain a focus for our industry and the health care sector at large. I’m sure we’re going to spend more time on that subject, so I won’t go any deeper there.
Aside from that, we see 2022 as a year of great opportunity, honestly. We’re encouraged, for example, by the current administration’s plans and by some of the steps Congress is taking. While it got held up in the Senate, the House passed legislation proposing over $150 billion to expand home- and community-based services. We see that as directly supportive of our Choose Home legislation, which was introduced last year in the House and the Senate. Choose Home combines personal care services with the traditional Medicare in-home benefit, as I’m sure you’re extremely close to and familiar with.
The Choose Home bill was introduced on a bipartisan basis, with over 43 co-sponsors, including chairs of key committees of jurisdiction, including the chair of the Senate’s aging committee. We do hope to see this advance via a legislative vehicle this year.
And speaking of Congress, we also will realize, in Q1, further legislative relief from the delay on the 2% sequestration cut. That’s targeted relief due to the public health emergency.
So, there are a lot of positive forces shaping home health care. Another is the 3.1% rate increase, which factors into our ability to provide quality care in 2022.
What else? What about some of the newer payment or care delivery models we’re seeing?
There’s, of course, going to be a continued focus on both clinical and reimbursement innovations. We continue to put a lot of effort and energy into clinical-pathway innovation — and payment or reimbursement innovation. We’re talking about the old way of getting paid — the fee-for-service approach — versus newer concepts like value-based care.
The Home Health Value-Based Purchasing (HHVBP) Model and the nationwide rollout, that’s a real testament to home health care’s ability to deliver value. And that model creates cost savings for Medicare in areas other than just post-acute care. That’s going to continue to be a force that shapes this year for us and the industry. It’s a dominating theme.
Now, to be more competitive in alternative payment models such as value-based care, we’re going to have to continue improving efficiencies, streamlining costs and optimizing our clinical outcomes. We, as an industry, will need to further leverage technology in a way to facilitate greater connectivity. Real-time, 24/7 access between patients and their home health providers — that’s all part of this evolution, this migration toward value.
Shifting gears a little bit to wrap up this question, there’s more acuity coming into the home. That’s because more and more care is moving into the home. That’s, in part, because of SNF-at-home and hospital-at-home models. At LHC Group, we refer to it as “advanced care at home,” or “higher-acuity care at home.” We’ve proven throughout the pandemic that we’re now able to treat significantly higher-acuity patients in their homes at a fraction of the cost of in-patient care. That’s a force for not just 2022, but for the foreseeable future.
You mentioned 2022 being a year of opportunity. That’s particularly true if you’re able to solve for the staffing side of the equation, as demand far outweighs supply.
Absolutely. If you really get me going on this, you’re going to hear my bullishness. We’re making further improvements not only in recruiting and retention, but in tracking things like vacancy rate. We’re tracking things like net hires.
I’ve now been here with LHC Group dating back to 2008. I’ve been doing this for a long time. The growth in demand for our services has me extremely excited about the outlook and the potential. It really is, though, how do you solve for the labor situation? Despite the ongoing challenges of the pandemic, we are starting to see signs of improvement there. And we’re encouraged by what we’re seeing, whether you point to the macro data or numbers that are more unique to LHC Group, including our trends on net hires.
I’m also encouraged by our ability to reduce our reliance on contract labor, which reached an all-time high in the third quarter. Around 4% for our home health visits were being made by contract labor. As we can move that to a more normalized range and kind of migrate away from that dependency, that’s going to be another real lever for 2022.
I’m pleased that CMS recognized the labor challenges that we face in its 2022 home health final rule. When you look at the proposed rule to the final rule, they acknowledged the supportive data the industry submitted when it comes to labor and wage pressures. That’s a real positive sign for the long term, even when we get into the rulemaking cycle for this coming year.
So in the near term, I think we’ll continue to face staffing challenges. But as we move to more of a sense of either normalcy or new normalcy, you’ll see the market for labor trend back to where it was pre-pandemic — very competitive, but manageable. We’ve used this phrase a little bit: The market is a two-dimensional battle. On one hand, we see the need for more caregivers for the aging population. As a health care system, we just need more caregivers. We need more nurses and personal care workers, even caring family members who live with or close to their loved ones.
What’s the other part of the two-dimensional battle?
In home health care, we need to do more to make it a more attractive career path. We’re starting to see more and more of that. I think you’re going to see more migration of the workforce into the home, for all the reasons you can imagine — more flexible scheduling to “fill in the blank.”
As we do that, as we make home health care a more attractive career path, it’s going to allow our industry — and us — to take advantage of this site-of-care shift and this volume shift that’s coming our way.
The other thing I’ll say is there’s a lot of discussion out in the industry about the need to graduate more nurses. But we, as an industry, have got to continue to tap into and make alliances with the nursing schools as well. You’re familiar with what we’ve done with the University of Louisiana and some of the other schools we partner with. There’s great opportunity for providers to engage with nursing schools and their communities, to really make a difference.
How important is company culture really when it comes to the labor battle?
I think culture is incredibly important. We’ve proven for decades to always be among the lowest turnover rates. A lot of that is attributable to our culture, and that goes all the way back to our founding and the unwavering commitment we have to clinical excellence, to patient outcomes, quality of care and patient satisfaction.
So overall, it sounds like you feel that the challenges are going to remain. But perhaps you’re a little bit optimistic that the labor situation might improve?
I think that’s a good way to summarize it. I mean, the challenges are definitely still there. Just because the calendar flipped to January, it hasn’t magically alleviated a lot of the labor dynamics we’re faced with. But I do have optimism in our ability to be innovative as well.
Putting labor aside, a big theme of 2021 was obviously M&A activity. LHC Group had a blockbuster year as far as transaction volume and acquired revenue. For the industry overall, do you anticipate more dealmaking, less or about the same next year?
It’s hard to imagine 22 M&A activity being more than 21. But I believe it could be possible. The conditions are definitely right for that outcome. And I say that because we’ve been expecting consolidation in our industry, really, since coming into the Patient-Driven Groupings Model (PDGM).
And we’re getting a little bit further removed from some of the COVID-19 relief — the Medicare advanced payments and the Provider Relief Fund. You’ve had that the past couple years of the pandemic, but when you layer on some of that going away, what happens? PDGM is still there. You’ve got the staffing and recruitment issues that we just described. You’ve got other regulatory and operational challenges. You’ve got operators having to prepare for and operate within a world going more into value-based, data-driven, analytical ways of doing business.
I think that lends itself to an environment for further acceleration of consolidation. We were already heading down this pathway of consolidation, with everything now pointing more and more that way. Our industry is in very high demand by hospitals, by payers. With them, size and scale does come into play, so that lends itself to more consolidation, too.
And then again, for LHC Group we’re always very bullish on our JV-partner strategy with leading hospitals and health systems.
LHC Group had a record year for deals. Do you expect a similar year for the company in 2022?
Last year was a record year, for sure. When we started the year, I want to say our target was, $150 million to $200 million [in acquired revenue]. We ended up right around $300 million. Normally, we go into that level of a target in a year, then you see how things unfold. I think this year will be more focused on JVs. We’re engaging in more conversations there, because throughout the pandemic, a lot of hospitals and health systems saw the value emphasized even more in terms of care delivery in the home.
What’s a contrarian prediction you have about home health care in 2022, something where everybody says X is going to happen but you actually think Y is going to happen?
A lot of years, when somebody would ask me this, I may have had a better answer. But you know, maybe for the first time — at least in a long time — most of our industry is pretty aligned. That’s especially true with the larger players. We have a shared consensus with respect to the big-ticket items such as reimbursement, value-based care, accepting and caring for higher-acuity patients in the home. We’re all embracing and utilizing more technology and data to enhance patient care and improve outcomes. We’re all supporting various pieces of legislation that will further enable care for more seniors in their home.
So when I thought through any of those things in the past, maybe I would have had a couple contrarian views. But it feels like there’s more of a consensus being built around where home health care is going.
I don’t necessarily believe it to be contrarian, but I do think 2022 — because of a lot of the momentum we talked about — will be a year where lawmakers and CMS give unprecedented emphasis to the advantages of care at home. If you’re taking a contrarian view across health care, maybe that’s one of those where, you know, we in our space have a view that there’s more and more emphasis on the home. Maybe not everyone in other parts of health care sees it that way.
What are you looking forward to most in 2022 and why?
We very briefly touched on PDGM before. I’m really encouraged by the work of the industry, in particular the Partnership for Quality Home Healthcare’s (PQHH) regulatory team. They’re developing and sharing really insightful data. At the end of the day, PDGM has got to be supported by data, right?
Having that data may help in a favorable PDGM adjustment. As we begin the 2023 rule cycle later on this year and heading into the summer, that will be key. For example, in our comment on the 2022 rule, PQHH presented data that we think CMS actually acknowledged in its final rule as playing a role and pausing the behavioral adjustment for this calendar year. So as we continue to do more data analytics by our third-party partners, then present that through the partnership, this bodes well for possible future adjustments downward.
Moving past PDGM, there’s the Choose Home front. We’ve got an exciting opportunity there to see this included in a legislative vehicle this year. The first focus in early 2022 is for Choose Home to obtain a score from the Congressional Budget Office (CBO), which is expected to consider the bill in the coming weeks. Identifying a vehicle with our lead sponsors, then adding other co-sponsors would be the next steps after the CBO score. This would be arguably the most innovative reform to broaden access to home health care, perhaps since the inception of the benefit. And I know that’s a pretty big statement.
What do you see as the biggest disrupter to home health care in 2022? Apart from the pandemic itself, or maybe even apart from the ongoing labor shortages.
If you tie both of those arms behind my back — the pandemic and then labor — I would probably point us back to consolidation. Some might view that as a disruptor.
Then another disruptor I would give you, which we view as positive, is value-based purchasing, whether it’s the gradual implementation of the CMS HHVBP Model or other value-based constructs that are entered into with payers.
Lastly, I guess I’d say the shift of more and more higher-acuity patients into the home. If you are a provider that’s not ready from either a technology perspective or data/analytical perspective, then that might be tough. How do you triage and risk stratify some of those patients?
If we were doing this conversation a year from now, looking back on 2022, how would you define a successful year for LHC Group?
First and foremost, we have to continue to maintain our proactive posture in response to the pandemic. We see what’s going on with Omicron, what’s going on across our nation. I could not be more proud of our front-line workers and operational leaders.
If we’re at the end of this year and looking back, I’d expect us to have maintained the focus on being an industry leader in employee recruitment and retention, specifically around key metrics like vacancy rate, voluntary turnover, net hiring. I’d expect us to be less dependent on contract labor.
A successful year will also mean a continued acceleration of our efforts to operationalize advanced care in the home. A couple other measures of success for me would be, you know, maintaining our discipline, capital allocation, but being active in new hospital and health system joint ventures as well as other M&A opportunities.
In what ways do you think the 2022 LHC Group will be different from the 2021 LHC Group?
Our hospice segment is significantly larger. We brought on a lot last year.
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