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Catching Up, Part II: Home Health and Hospice

As the week concluded (sort of), I’m about half-way back in terms of cutting through the stacks of research and notes that I compiled through August and into early September.  While time away from work is necessary for my sanity, it certainly promotes insanity upon return.  Below is Part II of “catching up”, entirely focused on home health and hospice.

Home Health: The last few years have been rough for the home health industry and in particular, the major players such as Gentiva and Amedysis. A quick replay of “what” has transpired over the past few years is key to understanding why the industry is where it is today.  Beginning in 2009 and 2010, Medpac issued (in its annual report to Congress), unflattering findings regarding industry growth and profit margins.  Integral to its comments was a focus on the growth tied not only to rate but to utilization patterns – particularly therapy services.  Of course, Congress is somewhat to blame for a rapid increase in home therapy under Medicare as it believed that patients were denied adequate therapy services in their homes due to poor reimbursement rates.  In 2008, CMS altered a  “bonus” provision based on therapy visits to combat a perceived reduction in therapy services to home bound patients as the “stay” or coverage period elongated.  Previous, the bonus of a few thousand dollars kicked in after 10 visits.  The change incorporated bonuses for visits beyond six, and then beyond 14 and then beyond 20 – each incrementally higher.  As one would suspect, HHAs altered their service provisions to maximize visits and bonuses according to the new schedule.  Medpac sounded a subtle alarm.

In the summer of 2011, the Senate Finance Committee began an inquiry into the billing and utilization practices of the home health industry under the Medicare program.  Particular focus was paid to the biggest providers (Amedysis, Gentiva, Almost Family, LHC, etc.).  In October of 2011, the Wall Street Journal published an article foretelling the Senate Finance Committee’s findings.  Stopping just short of accusing Amedysis, Gentiva and LHC of fraud, the article indicated that these providers effectively “gamed” the reimbursement system and structured referrals and visits to maximize reimbursement under Medicare.  The irony (in the story) is that all providers in every segment, follow similar practices perhaps just a shade less overt.  The trigger to the inquiry was less the behavior suspected but more the profit margins the major companies were posting on Medicare book-business of plus 80%.  In short, 17 plus percent Medicare margins was the problem.

Fast forward to present, the industry has struggled since with the major players Amedysis, Gentiva, LHC,, all producing earnings reductions and corresponding lower share prices.  Amedysis stock price has dropped from a mid 2011 price of  $38 per share to $15.50.  It had sunk as low as $10 per share in January.  Gentiva went from the mid-twenty dollar range in early 2011 to under $3.00 in mid-fall of 2011.  Today, it has rebounded to $12,50, still more than $10 per share under its average price in early 2011. Almost Family fell from the upper $30’s in early 2011 to $10.50 in January.  It has since rebounded to $21.50, more than $15 dollars off the highs of 2011. LHC went from $30 per share in early 2011 to $18.50 today, falling to $13.00 in early 2012.  For Amedysis, the biggest Medicare provider of home health, earnings are off 65% compared to a year ago and revenue has shrunk by $17 million over the same time frame ($12 million of which is Medicare).  The sole reason for the changes in fortune for the “big” players and the industry?  Medicare payment reductions.  This stems from an overt attempt on the part of CMS to reign-in the industry growth and to lower the profitability of Medicare as a payer.  Conceptually, as reported by Medpac, Medicare is and has been, too generous in its payments.  The belief is that a reduction in payments to more normative profit levels (whatever that is in government speak) won’t limit access or reduce significantly, the number of providers in the industry.  So far, from my vantage point, this is accurate.

Across most (virtually all) business elements, the prospects for the Home Health industry as far as Medicare is concerned, remain bleak.  The primary reason is continued reimbursement cuts under Medicare.  On October 1, the 2013 Medicare rate reduces by .10%.  While this is almost good news, the possibility of sequestration cuts (the fiscal cliff, mandatory spending reductions from the budget impasse deal of 2011)  layering on an additional 2% reduction looms as more bad news.  For Amedysis, a valued agreement with Humana ended on September 1.  This contract evaporation will have a negative effect on go forward revenues and earnings.  For all of the industry, future guidance on market basket rebasing foreshadows more bad news than good news as rate rescission via rebasing is a continued certainty.  If this isn’t enough to chill growth and earnings prospects near term, the implications going forward of a Value Based Purchasing program under Medicare for home health ices the cake.  This pay-for-performance approach, mandated under the ACA, will require substantive changes for the industry in terms of mirroring utilization, cost, and quality data across a series of industry metrics.  Like hospitals, the proposed structure (as evolving) under a VBP approach provides withholds for poor performance and offers incentives for improvement.  The true net result of these types of programs is lower outlays – a clear initiative to reduce utilization and to target certain behaviors economically – pay for performance.  I have the report to Congress submitted by the DHHS regarding implementation of a VBP program if anyone would like a copy – e-mail me at or add a comment to this post with a valid e-mail and I will forward the PDF to you.

Home Health summary from me: Be prepared for some rocky roads ahead.  The best, good news for the industry is the continued development of ACOs and other integrated care models and networks.  Home Health is a key component in ACO models and thus, for those agencies heavily invested and infrastructure ready on the management of chronic diseases, the ground going forward is fertile, assuming supporting outcome and patient satisfaction data confirms the “agency case for support”. Alas, the Amedysis, Gentiva, high-flying, heydays are over but room still exists for growth and profitability for those than can culturally shift and revamp their revenue and profitability models to the “new” reality.

Hospice:  This is another industry segment that is struggling somewhat as census gains for most providers are flat and utilization trends bear no long-term “real” growth.  For the past eighteen months, I’ve watched the hospice industry rather closely and even closer, the fraud cases opening and ongoing.  As I have written in previous posts, there is a “core” simple reason so much fraud is occurring in the industry; too many providers chasing too few truly, organically terminal patients.  For ease of definitional purposes, organically terminal is a patient that presents with a condition or series of conditions that sans aggressive or interventionist treatment, will die within six months or less.  True, a few live a shade longer but in actuality, fully 90% should and would pass away inside of six months.  Using just this definition, the Medicare definition, a quick analysis of utilization data suggests that the industry is likely over-sized by nearly 33% (a third).  Essentially, one-third of the agencies could fold (although geographically, this may be problematic) and the patients that fit the Medicare definition would continue to be adequately served.

Some will no doubt ask (or holler at me), “how do you know”?  The answer: Simple math.  Looking at utilization data produced by Medicare by diagnosis and length of stay tells me that the fastest growing diagnoses are neurological disorders, debility/failure to thrive and dementia.  When I pull-out clear neurological diseases that are organically terminal, I’m left with a hodge-podge of “all other”.  Correlate the growth in these diagnoses with the accelerating trend in longer lengths of stay and a picture of questionable certification becomes visible.  Next, I look at length of stay by places of care to see “where” this trend is leading.  Oddly enough, there is no evidence of expanding lengths of stay occurring when the “place” of care is at “home” or within a hospice inpatient environment.  The visible expansion is occurring when the patient resides in a nursing home or an assisted living facility.  Finally, I circled back to the OIG report on the industry from 2011 and their findings that 82% of the claims reviewed for patients residing in nursing homes did not meet the Medicare coverage criteria.  While no doubt some of these claim errors are a result of poor documentation and clerical errors, the evidence seen almost daily in and across industry related fraud actions points to an inordinately high rate of “specious” certifications.  To the point one step further, the same report noted that “hundreds” of hospices had more than two-thirds of their case load coming from nursing home patients.

It is hard to conclude otherwise that the industry is not fraught with an over-supply of providers and thus, a underwave of potentially fraudulent claims.  What is evident from the cases involving Vitas, Gentiva/Odyssey, SouthernCare, HospiceCare of Kansas, and the Hospice of the Comforter (and I could go on) is that without stretching coverage criteria determinations and inducing referrals and kicking-back dollars for less than qualified patients, the industry would be a good amount smaller in provider numbers than where it is today. De Facto: If you have to cheat to survive, you have no real business stability.  As with home health, I suspect rocky roads ahead for the industry and increasing regulatory scrutiny industry-wide.  The good providers will survive but not without having to navigate some minefields.


September 18, 2012 - Posted by | Home Health, Hospice, Policy and Politics - Federal | , , , , , , , , ,

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