As currently structured, the Patient-Driven Groupings Model (PDGM) will completely change how and when home health providers deliver therapy services.
It will do so in multiple ways, most notably by eliminating the use of therapy service thresholds as a factor in payment determinations. It’s a move the Medicare Payment Advisory Commission (MedPAC) has long recommended.
Ultimately, PDGM’s changes may turn into an overcorrection by the Center for Medicare & Medicaid Services (CMS), according to Encompass Health Corporation’s (NYSE: EHC) April Anthony, who serves as CEO of the company’s home health and hospice segment.
Anthony shared her thoughts on PDGM and Encompass Health’s preparation during a recent appearance on HHCN’s podcast, Disrupt.
Apart from the ins and outs of PDGM, Anthony spoke about the importance of change management and company culture to Encompass Health’s overall success. Additionally, the CEO discussed the Birmingham, Alabama-based organization’s plans to acquire Alacare Home Health & Hospice for $217.5 million, as well as its strategic priorities through the remainder of 2019.
Encompass Health offers facility-based and home-based patient care through its network of more than 130 hospitals, 221 home health agencies and 59 hospice locations in more than three dozen states, plus Puerto Rico.
Below are some highlights from HHCN’s conversation with Anthony, edited for length and clarity.
HHCN: We’re connecting on this conversation shortly after Encompass Health announced its Alacare acquisition, so definitely want to touch on that. But first, what would you cite as Encompass Health’s biggest highlight of 2018?
Anthony: It was a busy year for us at Encompass Health. I think the big event of the year was the rebranding of the former HealthSouth to Encompass Health.
In 2014, the Encompass Health Home Health and Hospice division sold a majority interest of our organization to HealthSouth. But in 2018, HealthSouth decided to officially jettison their former name and adopt the Encompass Health brand for the entire organization. So, the 133 or so in-patient rehab hospitals now go under the brand Encompass Health, as well as our now more than 280 home health and hospice locations.
That was probably the dominant event of the year — going through the brand transition for the entire company and bringing the family together with a sense of oneness.
For the home health and hospice division, it was a terrific year from a growth perspective. We finished 2018 with $930 million in revenue, about $160 million in total EBITDA. In addition to that, we were able to invest right over $150 million in growth through the combination of acquisitions, led by the Camilia Home Health deal.
Combine all that with the over 200,000 patients we were able to serve last year between our home health and hospice division — providing a little over 5.5 million visits in total — it was just an active year.
2019 is shaping up to be a busy year as well. Encompass Health already announced a pretty major acquisition in Alacare. What’s that do for your company?
Alacare is going to be a terrific addition to our family. We’ve known the team for over 15 years. They’ve been customers of Homecare Homebase, which is the company that I have served as CEO of since its founding in 2001.
When the opportunity came up to acquire that business, it was one that just fit all the important metrics for us. One thing that’s really important to us is, “Do they fit our culture? Will they be able to become part of the Encompass family?” Having known them for so many years, we were confident that was going to be a relatively easy transition.
Alacare met some other important strategic elements for us. First, being based in the state of Alabama, that’s going to allow us to add three new in-patient rehab hospitals we can create overlaps with.
Alacare also had great alignment between their home care and hospice divisions — that’s one of our other core strategic initiatives.
Third, Alacare is going to help us build out our scale and density in Alabama. When you can really dominate a market, when you can have significant scale, significant density in your patient population in a relatively tight geographic area, you can create great things from a reputational perspective. And great outcomes from a financial perspective by leveraging your investments, leveraging your economies of scale.
The Alacare deal is for $217.5 million. That’s a little bit more than what Encompass Health has said it’s looking to spend on acquisitions.
For the last few years, we have definitely signaled to the market that our intent is to spend somewhere between $50 and $100 million on home health and hospice acquisitions. That number is a number we feel comfortable we can achieve — even if a large-scale opportunity doesn’t come along. We think there are enough tuck-in opportunities out there in the market where we can hit that range regardless of a big transaction.
But it’s never intended to create a ceiling. We’re not afraid or incapable to reach out beyond that level.
I’ll also say we’re not ready to stop. We’ve got two other transactions we’ve already completed in 2019 that are more of that tuck-in variety, and we still have a pretty full pipeline of other tuck-in opportunities that are going to help us continue to hit on core strategic initiatives.
Encompass Health has consistently been ranked as one of the top U.S. companies to work for. What have you done as CEO of the home health and hospice segment to create a healthy culture?
In a services business like we’re in, there’s little that’s more important than taking care of your people. People are your asset. They’re your product. They’re all you have to sell. You don’t have any pretty hospitals with great cafeterias [in home health care].
We’ve always believed that building the kind of environment that allows us to attract the very best people in health care was essential to our ability to grow. We’ve been able to build on that commitment throughout the years.
In 2018, our home health and hospice division was recognized 27 distinct times as a best place to work — in everything from local contests here in our Dallas-Fort Worth market, where our home office is based, to state-level contests and national-level awards.
Building that kind of culture means you show genuine caring for your people. It means you provide them with the right kinds of tools, that you invest in them with ample resources to support their needs, that you acknowledge their contributions and the things they do every day with patients. It means you create the right kinds of compensation and benefits structures as well, so you’re financially taking care of and rewarding employees.
In my role as CEO, it’s, “How do I create the kind of environment that people want to be a part of? How do I make sure they have everything they need to be empowered?”
What we know about our patients is that when they receive that kind of distinctive care, they’re going to tell someone: friends, family and neighbors. And almost always, they’ll tell their doctors. When those physicians and referrals sources hear over and hear about the great care their patients received, it helps us build loyalty and growth, which fuels financial success.
Company culture also plays into change management, which is important as we’re leading up to PDGM. In your view, how are those two connected?
I think successful change management starts with a strong culture. If you create the kind of environment where people say, “You know what? We’re on the same team. I know my leadership cares about me. I believe in the mission we’re pursuing.” That aligns any organization to be prepared to deal with big, transformative change in processes.
I think all change starts with, “Am I going to be dragging my team along? Or are they going to be marching along?” I think our solid culture investments will ensure our team marches along through the change of PDGM instead of being dragged kicking and screaming.
Has Encompass Health figured out if PDGM is going to be a net positive or a net negative?
Overall for home health, when PDGM first came out, our quantification was that — in addition to the behavior adjustments — we thought we could see as much as a 5% negative change. Over the course of the months since the initial announcement, we think we’ve seen a little moderation in that.
We think it may get slightly better as we move closer and closer to that Jan. 1, 2020, date. We’ve seen some things already beginning to happen. We’ve seen our percentage of patients who come from facilities increasing, partially aided by the clinical collaboration rate we have with our own Encompass Health in-patient rehab hospitals.
We’ve also made some core investments at the end of 2017 that are coming into their own.
We’re seeing our care transition programs — which is our means of working with acute-care hospitals — drive more volume.
These shifts that are giving us more facility-based discharges are helping mitigate that negative a little bit. In addition, with that shift of more facility-based discharges, we’re seeing more clinically complex patients coming our way as well.
If you look at what’s happening with clinically complex nursing patients under PDGM, they’re one of the patient groups that are seeing positive adjustments from a reimbursement perspective.
But we still think there will be some negative influence under PDGM.
And that was the whole point of PDGM, right? To create incentives for providing care to more medically complex patient populations?
Certainly, I think that’s one of the things that CMS was attempting to do, to really kind of create a rebalancing of where patients are coming from. I will tell you that it is my strong opinion that they’ve overcorrected. In the case of therapy, CMS has really gone too far.
If you look at the average cuts that you’re seeing come to patients who have historically been recipients of six or more therapy visits … I think those cuts are too extreme. I think they could result in those types of patients actually ending up getting higher-cost care, rather than coming to home health.
I think some home health providers are simply not going to be able to support the financial cost of delivering that service. It’s going to be so misaligned with revenue for those patients.
I see the attempt CMS was making, but, again, I’m anxious they’ve overcorrected in the case of therapy. We’ll see how it all plays out in the final months here.
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