Why Care Collaborations Could Shake Up the Home Health Food Chain

In the animal kingdom, there’s strength in numbers, especially among creatures that find themselves toward the bottom of the food chain. This concept is also true in today’s hyper-competitive health care sector.

Increasingly, smaller providers with relatively limited resources and reach are teaming up in the form of “collaboratives,” “alliances,” “networks” or “partnerships.” Nowhere is this trend more prevalent than in hospice, where at least a dozen high-profile collaboratives have launched over the past five years.

“Many nonprofits are standalone operations covering a relatively small service area,” one hospice CFO from the San Francisco area told Hospice News in 2019. “When you are going up against a regional or national chain, you have to band together.”

An enhanced ability to contract with payers, more bargaining power with vendors and greater economies of scale are a few of the strategic advantages of “the care collaborative model.” In addition to those benefits, participating organizations can freely share – and improve upon – best practices and protocols.

“One of the things that really served us well as far as these collaborations was the responsiveness to the COVID pandemic,” Eric Tetzlaff, administrator of Sharon S. Richardson Community Hospice, told Hospice News.

Despite a history of success in hospice, the home health market has seen relatively few care collaboratives. But as agencies face mounting challenges and fiercer competition while simultaneously transitioning away from fee-for-service Medicare, the strategy could very likely pick up steam, I believe.

In this week’s exclusive, members-only HHCN+ Update, I explore how care collaborations have impacted the hospice industry and detail how such a trend could benefit home health providers in the future.

Care collaboration activity

There are a number of collaboratives or alliances in the hospice space. In part, the popularity of the concept is due to the industry’s nonprofit roots.

In the 1980s and 90s, nonprofits provided effectively all hospice care in the U.S. There has been a more than decade-long trend of substantial market entry by for-profit providers, but nonprofits – organizations that often have to think more creatively to get by – still make up about a quarter of the market.

To a large degree, the care collaboration trend is simply a way for nonprofits to remain competitive in this changing ecosystem, according to Barbara Hansen, CEO of the Oregon Hospice and Palliative Care Association.

“Many nonprofits have very slim margins – sometimes 1% or 2% – and are just trying to make ends meet,” Hansen said a few years ago. “Nonprofit hospices need to be creative and look at how they can stay in business and compete with for-profits that may be better funded or better supported, especially in the back office.”

Some industry insiders credit Ohio’s Hospice as the first major hospice collaborative. The statewide alliance of nonprofits formed in 2013 and, as of May 26, it included at least 10 locations.

Another prominent example is the California Hospice Network, formed in 2019 by founding members Elizabeth Hospice in San Diego, Mission Hospice & Home Care in San Mateo and Hospice of Santa Cruz County. Other collaboratives formed in recent years include:

– ​​Wisconsin Hospice & Palliative Care Collaborative

– Synthase Collaborative

– Oregon Non-Profit Hospice Alliance

– Care Synergy

– Advanced Illness Partners

In another recent example, two existing hospice collaboratives – Teleios Collaborative Network and the National Hospice Cooperative (NHC) – created a bigger joint venture in 2020.

“We were looking to form a partnership that will allow NHC to reach and assist not-for-profit hospices around the country,” NHC President Jeff Lycan said in a statement.

Yet it’s not just the hospice industry that has seen care collaboration activity.

Even prior to the COVID-19 crisis, nonprofit senior living providers had increasingly looked to mergers and affiliations as a way to gain scale and thrive in the face of industry headwinds. But in these more formal arrangements, participants can sometimes lose autonomy.

To gain the perks of a merger without the potential downsides, a group of senior living veterans created Novare. The organization – made up of 17 single-site and small-system life plan community providers, totaling about 7,200 units located in non-competitive markets – allows members to share benefits of scale while keeping control of their identity and finances.

“Novare provides more autonomy than affiliations in that, with affiliations, an organization gives up control,” Mary Leary, the CEO of Evanston, Illinois-based Mather and the chair of Novare, told Senior Housing News. “With Novare, members retain control over their own boards, their financial statements and their tax returns.”

In my view, the stars are aligned for more collaboratives to pop up in home health care.

Even more so than in hospice, home health nonprofits are becoming outnumbered by for-profit agencies. Of the nearly 11,500 home health agencies participating in Medicare in 2020, for example, just 12.6% were categorized as nonprofits, according to the Medicare Payment Advisory Commission (MedPAC).

Nonprofits can consider banding together to better compete with for-profit peers, but so too can the industry’s collection of smaller, mom-and-pop operators. M&A experts project that operational costs, regulatory pressures and staffing shortages will push many small agencies out of the consolidating market, but a collaborative approach can offer a lifeline to some.

And again, a greater ability to compete is just one advantage of this model.

Community contracting

Home health providers still lean on fee-for-service (FFS) Medicare as a core part of their revenue mix. But with Medicare Advantage (MA) enrollment projected to swell over the next decade, many are looking at ways to beef up their contracting with private insurers.

Historically, MA rates have paled in comparison to FFS Medicare. Not only that, but some MA plans have even been unwilling to merely consider rate-increase negotiations, knowing that there’s likely always a home health provider out there open to bottom-of-the-barrel terms.

“We know what the penetration of Medicare Advantage is in the senior population, and that’s accelerating,” Amedisys CEO Chris Gerard said on his company’s first quarter earnings call. “We’ve also stated many times that we’ve got to be able to change the relationship between providers and Medicare Advantage in order to really extract the good value out of the care that we drive – and get paid fairly for it.”

In hospice, end-of-life care providers are just recently starting to work with MA via the Value-Based Insurance Design (VBID) demonstration, which took effect Jan. 1, 2021. In 2021, 53 MA plans participated in VBID’s hospice component, with 115 plans doing so this year.

While many of the same MA-provider challenges exist, some operators are gaining ground by joining forces, including Ohio’s Hospice. CVS Health Corporation (NYSE: CVS) subsidiary Aetna selected the network as a preferred provider under VBID in May.

This idea was a driving force behind the Care Synergy collaborative in Colorado. When launched, the alliance consisted of The Denver Hospice, Pathways Hospice, and Pikes Peak Hospice and Palliative Care, along with home health provider The Colorado Visiting Nurse Association.

“The Medicare carve-in is something that hospices have been thinking about, planning for and talking about for years,” Nate Lamkin, president of the Fort Collins, Colorado-based Pathways Hospice, told Hospice News. “There was a rush not just in hospice and home health, but really in all sectors of health care to scale up. Our collective scale puts us on the radar of payers in a way that smaller, individual nonprofits wouldn’t be.”

On their end, payers are attracted to collaboratives because they prefer to work with one entity across their geographic markets, when possible, instead of contracting with multiple providers to fill out that footprint.

To change the MA-home health narrative, I foresee more operators teaming up prior to their contracting approach.

Bargaining power with vendors

Similar to how “strength in numbers” appeals to payers, it can also appeal to vendors.

In hospice, collaboratives have increased bargaining power with back-end vendors, with emergency health record (EHR) companies, revenue cycle management (RCM) firms, telehealth supplies and others more willing to lower pricing for a larger group that offers more business. 

“Community-based nonprofit hospice providers are often small to mid-sized businesses with limited purchasing power and access to specialized professional resources,” Kelly Beard, CEO of the Oregon Non-Profit Hospice Alliance, explained in 2019. “Through the alliance, we hope to negotiate better contracts with payers and vendors, to increase access to specialized expertise by sharing personnel across the alliance, and to increase career opportunities for our employees.”

This is an advantage that home health providers could find appealing as internal operations and care delivery models have become far more complex.

Due to COVID-19, home health agencies had to invest in virtual care tools to complement in-person visits, for instance. Even before the pandemic, providers started investing in predictive analytics technology to enable more efficient care.

Looking ahead, home health agencies will need to continue adding to their “tech stack” to improve scheduling and provide virtual training to clinicians. The long-term trend of high-acuity care shifting into the home likewise means operators must arm themselves with more clinically complex capabilities, whether that’s a smarter wound care solution or something else.

“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,” LHC Group Inc. (Nasdaq: LHCG) President and COO Josh Proffitt told me in January. “That’s a force for not just 2022, but for the foreseeable future.”

With inflationary pressures and the cost of doing business going up, home health executives need to consider all avenues for lowering their expenses.

Economies of scale and shared resources

One of the reasons why there are more large home health providers today compared to a decade ago is “economies of scale.”

Broadly, economies of scale are the advantages that can sometimes occur as a result of increasing the size of a business. The aforementioned bulk purchasing with vendors is just one example of economies of scale.

“By consolidating, combining and integrating all of the back-office functions that were historically done by each individual affiliate, it has dramatically improved the cost efficiencies and economies of scale that these providers cannot achieve on their own,” explained Tim Bowen, CEO of Care Synergy. “When you add in the group purchasing and group contracting opportunities that scale offers, it has materially improved financial performance and cost control for each affiliate.”

Economies of scale also can provide a workforce boost by giving clinicians more options.

Along with compensation and workplace culture, scheduling is one of the most important factors in home health worker retention. Nurses and therapists want consistent hours – and they want the assignments that best fit their schedules.

At times, a smaller, standalone provider may not have the ability to find “best-fit patients” for nurses, or be able to offer consistent hours. With more patients, larger providers have less of a challenge optimizing schedules, which could include efforts to ensure clinicians aren’t routinely traveling long distances as part of the job.

In an online survey of home-based care professionals conducted earlier this year by Home Health Care News and AlayaCare, 18% of respondents said “inconsistent schedules” was the top reason for employee churn at their company.

“Without them having good schedules that give them enough hours or give them the hours that they want, at the time of day and the frequency that they need, they won’t be happy,” AlayaCare’s Naomi Goldapple, who serves as vice president of the technology company’s AlayaLabs division, noted during a February webinar.

Economies of scale can also apply to the sharing of best practices, such as how to handle staff quarantine or source personal protective equipment (PPE) during an emergency. Indeed, a huge benefit of the hospice collaborations has been the ability of participants to share what works and what doesn’t, executives say.

The Care Synergy network, for example, helped participating providers in their efforts to secure Provider Relief Funds made available through the federal Coronavirus Aid, Relief and Economic Security (CARES) Act.

“It was very helpful to have a group of folks really looking at those opportunities for businesses during COVID-19,” Dawn Darvalics, president of the Colorado Springs, Colorado-based Pikes Peak Hospice and Palliative Care, said. “As relief funds for businesses were released, we were becoming intimately aware of all of the guidelines and rules surrounding the use of those dollars so that we could have meaningful conversations at an accelerated rate, because we had someone in our network devoted to looking at that across the board.”

Only time will tell if home health agencies decide to band together like some of their hospice peers. But as the market continues to change and new hurdles emerge, I view this as, at minimum, an intriguing option that more operators should consider.