Industry Fragmentation Has Left Home Health Providers ‘Exploited’ by Medicare Advantage

The highly fragmented home health industry has turned providers into commodities, at least in the eyes of Medicare Advantage (MA) organizations.

Because there are so many providers looking to make managed care inroads, the rates home health operators receive from MA sources are typically far below what they get from fee-for-service Medicare. That sense of parity exists for small and large home health providers alike as well.

“I think home health, in the past, [it] has been a bit exploited because it’s been a very fragmented industry,” Encompass Health Corporation (NYSE: EHC) CEO and President Mark Tarr said Tuesday at the BofA Securities 2022 Healthcare Conference. “And so there’s been an element of treating it like a commodity by some of the payers, knowing that if one agency wouldn’t care for the patient, well, there’d be others that would be willing to step up.”


The idea of MA organizations taking advantage of home health providers isn’t new. But similar to Tarr and Encompass Health, a growing number of home health leaders are beginning to air their grievances in regard to the apparent power imbalance.

In February, LHC Group Inc. (Nasdaq: LHCG) Chief Strategy and Innovation Officer Bruce Greenstein described it as an issue that the industry has been “glossing over” for “far too long.”

We are getting our clocks cleaned,” Greenstein said. “And we just tend not to talk about it.”


Specifically, Tarr’s comment came in response to a question he was asked about home health providers’ ability to get the pricing needed to offset current labor pressures.

Encompass Health and most other providers across the U.S. have struggled to meet service demand because of severe workforce shortages, particularly among nurses. At one point in the first quarter, for example, Encompass Health’s home health and hospice segment had as many as 1,300 staff members out on COVID-19 quarantine.

To combat shortages, home health providers have tried to reinforce their ranks by making investments around recruitment and retention. Those investments – such as sign-on bonuses, new educational opportunities and extra time off – have, in turn, increased the cost of doing business.

If MA organizations want to secure quality home health services for their members, they’ll need to start recognizing that, Tarr suggested.

“Going forward, if the payers are looking for quality care, there are differences among the various agencies and providers out there,” he said. “To get the quality you’re looking for, you’re going to have to account for the labor increase. And so I think that the environment is better now than what has been in the past.”

Contextually, the rates Encompass Health receives from MA payers are about 40% below fee-for-service Medicare, according to Tarr.

Seeking improvements in that area, the Birmingham, Alabama-based company is dedicating more resources to the home health and hospice team focused on Accountable Care Organizations (ACOs) and value-based care payment methodologies, knowing that’s where managed care is looking to go. Encompass Health is additionally trying to separate itself from other providers in the marketplace through outcomes data.

“Historically, we’ve not done a lot with the MA plans,” Tarr said. “We certainly tried to focus in on Medicare fee-for-service, … really [targeting] our marketing and sales efforts there. But I think longer term, we certainly realized that it’s important to be involved with the MA plans.”

The conversation around MA rates is happening as Encompass Health nears the separation of its home health and hospice business. The company has already begun rebranding the business to “Enhabit Home Health & Hospice,” and it expects the spinoff to be completed by July 1.

The process has taken “a while” since Encompass Health first announced it was exploring strategic alternatives for its home health and hospice arm in December 2020. But that’s partly because of due diligence to ensure no stone was left unturned, Tarr explained.

Encompass Health is the biggest operator of in-patient rehabilitation facilities (IRFs) in the U.S. It has 147 IRFs, plus 252 home health locations and 99 hospice locations.

“This has been a very comprehensive process taken on by our board,” he said. “The board started this process with no preconceived notion in terms of what the outcomes would be. They didn’t go into this just [thinking about] an IPO, a spin or sale. We evaluated all the options that were out there.”

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