Clinical Investments Help Pennant Renegotiate Better Rates, Strike New Managed Care Relationships

Despite regulatory headwinds, The Pennant Group Inc. (Nasdaq: PNTG) continues to build on successes in its home health and hospice segments.

It’s doing so by putting an emphasis on clinical outcomes, according to Pennant’s leadership team.

“Our focus on clinical outcomes continues to yield strong results with hospitalization rates, star ratings and hospice quality composite scores significantly above national and community averages,” Pennant COO John J. Gochnour said during the company’s second quarter earnings call Wednesday.


One example of that: In the second quarter, Pennant’s percentage of home health agencies with a star rating above 4 increased to 80%, compared to 77% in the prior quarter.

“Strong clinical outcomes drive growth by enhancing our ability to enter and deepen preferred provider relationships with acute care systems and other key referral sources,” Gochnour continued.

In turn, the improvements in key areas of Pennant’s business lines have positioned the provider to see positive adjustments to its home health revenue through the Home Health Value-Based Purchasing (HHVBP) Model.


Those improvements have also given Pennant the opportunity to go back to the negotiating table with some of its payer partners.

“Our clinical performance has resulted in opportunities to renegotiate contract rates with existing payer partners that more accurately reflect the cost of providing care, and to establish new relationships with managed care payers who see our excellent clinical outcomes, geographic diversity and effective and efficient care delivery as a necessary part of their provider networks,” Gochnour said.

To that point, he said, Pennant’s managed care visits are up 5.1%, with revenue per visit up 4.9%, on a year-over-year basis.

The Eagle, Idaho-based Pennant is a holding company of independent operating subsidiaries. Under its umbrella, Pennant has 101 home health and hospice agencies and 51 senior living communities located throughout 14 states.

Thriving ‘through periods of difficulty’

Earlier this year, Pennant closed on its acquisition of Bluebird Home Health, Bluebird Hospice and Bluebird Home Care — three agencies under the Bluebird brand — that offer home health, hospice and home care services in Idaho.

Pennant is still looking to grow, but its plans could be interrupted by the U.S. Centers for Medicare & Medicaid Services (CMS).

Despite a mostly rosy quarter for Pennant, its leaders have concerns when it comes to CMS’ proposed rule and what potential changes mean for the company’s bottom line.

The proposed cuts from CMS, combined with the “significant” increase in costs over the last several years, run the risk of reducing access to quality services for patients, Gochnour said. Cuts could also create uncertainty for providers in the industry.

“While another disruption to the industry is unwise and unwelcome, Pennant began in and has thrived through periods of difficulty much like today thanks to the scalability of our locally led operating model, strong and flexible balance sheet and opportunistic approach to acquisitive growth,” he added. “Even as we work closely with industry partners to change the rule, we will thoughtfully prepare for the potential impact should it be finalized.”

Pennant’s home health and hospice revenue during the second quarter was $95 million, an increase of $9.7 million — or 11.3% — year over year.

Total home health admissions for the second quarter were up 3.8% year over year, while Medicare home health admissions were up 3.6%.

The company reported $132.3 million in revenue in the second quarter, an increase of $16 million — or 13.7% — year over year.

Looking ahead, Pennant plans to stay aggressive in the acquisition space while staying true to its mission of growing at an efficient pace and scaling where it makes the most sense.

“With our cash flow from operations continuing to improve, plenty of dry powder in our revolver and a robust flow of meaningful acquisition opportunities in both segments, we see significant opportunity for growth,” Gochnour said. “Our growth is not the result of arbitrary goals for capital deployment. We focus first on the ‘who’ – making sure that we have the right operational and clinical leadership to make an impact on a new community or market.”

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