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Amedisys Inc. (Nasdaq: AMED) announced two major news items Wednesday ahead of its Thursday morning earnings call.
First, there was the announcement that it would be divesting its personal care division – which did over $60 million in revenue in 2022 – to the Massachusetts-based HouseWorks. Additionally, the company announced it was partnering with BlueCross BlueShield of Tennessee to deliver home-based palliative care to its members.
“As one of our first arrangements of this kind, it accelerates Amedisys’ strategic goal of moving to mutually beneficial, risk-based models with payers,” Amedisys Chairman and CEO Paul Kusserow said in a statement about the palliative deal.
Both of the announcements, in my mind, are reflective of where the Baton Rouge, Louisiana-based provider has been of late – and where it’s going.
Meanwhile, also on Wednesday, Enhabit Inc. (NYSE: EHAB) leaders talked to analysts and investors through the company’s difficult fourth quarter, which saw admissions and revenue fall year over year.
Similar to Amedisys, there were two major takeaways from Enhabit’s fourth-quarter earnings call. And they are two demonstrable changes to how the business will have to operate on a going-forward basis – in staffing, and also in payer diversification and innovation.
In this week’s exclusive, members-only HHCN+ Update, I’ll dive into two major updates within two of the largest home health companies in the country.
Amedisys’ divestiture, new palliative care contract
Amedisys’ divestiture of its personal care division was to a familiar face. Michael Trigilio – the CEO of HouseWorks and eCaring – was the former president of the division.
Amedisys views this deal as a no-risk proposition, I believe. It already announced that it would have a “care coordination” partnership with HouseWorks and eCaring. The company won’t lose the value that personal care provides.
At the same time, it gets to reap the monetary benefits from the sale – reportedly $50 million – and the ability to become more focused on home health care, hospice and the higher-acuity services offered by its subsidiary, Contessa Health.
Kusserow returned to the CEO role at Amedisys in November, in large part because of the company’s inability to meet earnings expectations. In the fourth quarter, the company beat Street expectations. Amedisys also announced last week that it has authorized a $100 million stock buyback program through the end of this year.
Though on a smaller scale, the personal care divestiture is similar to the deal Humana Inc. (NYSE: HUM) completed in 2022.
After fully acquiring Kindred at Home, Humana divested 60% of the company’s personal care and hospice assets. Besides gaining $2.8 billion from that deal, Humana was also able to further hone in on home health operations and not completely let go of personal care capabilities.
The cost of providing personal care – as is the case with most personal care providers in the country – had risen by 17% for Amedisys. The billing complications besetting the home care industry were likely not issues Amedisys cared to work through.
Still, the division drove $286,000 to home health and hospice via care coordination in the fourth quarter, a perk it is unlikely to lose after handing off operations to HouseWorks.
Personal care represented 2.8% of revenue for Amedisys in the fourth quarter, a very small slice of the overall pie. Higher-acuity services represented just 1%. With in-house personal care capabilities in the rearview, I wouldn’t be surprised to see that high-acuity slice move closer to 5% by the end of 2023, and get closer to 10% in 2024.
High-acuity care admissions were up 69% year over year.
“We continue to believe in the need for – and the importance of – personal care services as a key piece of whole-person care,” Kusserow said on Amedisys’ fourth-quarter earnings call. “As such, we are committed to continuing to push to grow the utilization of our personal care network. As we continue to work on contract innovation with managed care, having access to personal care across our nationwide footprint will be a key value driver.”
On that note, Amedisys’ commitment to moving forward with more – and better – contracts with payers was demonstrated in its palliative care deal with BlueCross BlueShield of Tennessee.
Whether it be in home health, hospice, palliative or high-acuity care, Amedisys believes in its value proposition to payers and health systems, and wants it recognized in contracts with those partners.
“We signed a large palliative deal, and that’s risk-based palliative with a large payer, where we will be taking full risk on palliative care and then getting those palliative folks into hospices as soon as it’s appropriate,” Kusserow told me in January. “We’re very excited about our ability to do that. And that’s a very innovative deal. It’s risk-based care in the home.”
One final observation: It’s worth noting that Kusserow previously described to Home Health Care News how the company viewed personal care as its innovation hub.
“One of the things we use personal care for is innovation, as we believe very, very strongly in the mix of personal care alongside clinical care,” Kusserow told HHCN in 2021.
Enhabit’s unfortunate, necessary struggles
Yesterday, I wrote a recap of Enhabit’s earnings call, which offered a glimpse into a company that is making necessary adjustments that are dragging its financial results in the near term.
Part of that struggle is with shifting workforce dynamics. Enhabit has actually improved its hiring numbers considerably over the last year, but many more workers are preferring to work as part-time workers, or PRNs.
Enhabit CEO Barb Jacobsmeyer explained that struggle to HHCN in greater detail at the Home Care 100 conference in January.
“Obviously, everybody keeps talking about labor,” Jacobsmeyer said. “But I would say there’s a little bit of a different focus on that for us this year. And that is really getting a feel for what is the true clinician headcount we need to have.”
In December, 35% of Enhabit’s staff was PRNs. That number is now at 39%.
That muddies the waters on Enhabit’s “true clinician headcount,” as Jacobsmeyer put it. After all, PRNs work when they want to work, which creates scheduling complications.
“Historically, most of our staff was full time, and that created some scheduling ability, because you could count on them five days per week,” Jacobsmeyer said. “What we’re seeing is this shift of employees wanting more part-time and [becoming] PRNs. So, then, we have to change the local leaders’ mindset. How many people, then, do they need to be able to serve the same patient population? It’s about really making sure that everyone, in each of our local areas, understands the headcounts they need.”
In a similar vein, the company’s payer mix is shifting. MA enrollees have increased by 11% in Enhabit’s markets, while Medicare fee-for-service enrollees have decreased by 4%, Jacobsmeyer said on the company’s earnings call Wednesday.
Thus, like Amedisys, Enhabit needs more – and better – MA contracts to adjust to that reality. Now, it could already be getting that done. But the adjustment is not easy, nor is it quick in nature.
For instance, the company announced on its third-quarter earnings call that it had agreed to nine new managed care contracts. But the fruits of that labor are not yet apparent.
“The actual nine are not all fully in effect yet. It obviously takes a while for the credentialing, and then for everything to get executed,” Jacobsmeyer told HHCN. “Then, once all that happens, you start with your sales team out there being able to talk to referral sources about being on those plans. So I think it’s definitely going to take a couple of quarters before we actually have true information on what it means for growth.”
Enhabit has not even been on the public market for a year. And it was immediately faced with headwinds that threatened the core of its business.
Painting the company’s current struggles as failures would be shortsighted and a misrepresentation.
But those struggles are still a large part of its current reality.
“Similar to Amedisys, Enhabit continues to face labor challenges and payer mix pressures driven by the growing penetration of MA,” a Jefferies note read. “Given this view, we believe Enhabit will similarly have a tough time growing EBITDA meaningfully this year despite easy 2-year volume ‘comps,’ so we are modestly adjusting our CY23 estimates downward.”