LHC Group Inc. (Nasdaq: LHCG) — one of the two largest, independent home health, hospice and personal care companies in the U.S. — has hit a major milestone in its 25-year history. The Lafayette, Louisiana-based company officially crossed the 100,000-patient mark.
In addition to being a personal achievement for Chairman and CEO Keith Myers — whose wife, Ginger, originally started LHC Group out of the couple’s kitchen — the milestone reflects the robust growth and increased recognition of the home health industry overall. LHC Group expects to carry its momentum forward into 2020, even in the midst of generational regulatory change and several unknowns.
Myers elaborated on the company’s Patient-Driven Groupings Model (PDGM) preparations, M&A plans and other priorities during a third-quarter earnings call Thursday. Apart from PDGM and future dealmaking, Myers also touched on lesser-known proposed changes to anti-kickback rules, which could mean big business for home health providers down the road.
“PDGM isn’t the only big change happening in the industry,” Myers said.
While it’s not the only change, PDGM will certainly be the most impactful in 2020. The Centers for Medicare & Medicaid Services (CMS) finalized the overhaul at the end of October, nearly halving the agency’s proposed behavioral adjustment from 8.01% to 4.36%.
Prior to the update, LHC Group anticipated offsetting half of the behavioral adjustment’s revenue impact through clinical and operational changes, mitigating the remainder through cost-reduction initiatives. Now that the adjustment is reduced, the company — which has 32,000 caregivers nationwide — believes it can handily manage the cut from a revenue standpoint and have EBITDA upside moving forward.
CMS’s move to slash the bloated behavioral adjustment was largely thanks to industry feedback and Congressional support, Myers noted.
“CMS has lessened the burden on the industry — and the risk to Medicare beneficiaries who depend on home health services — during the transition to a drastically new model that represents the most significant change in reimbursement methodology in more than 20 years,” the CEO said. “This successful achievement of such broad-based Congressional support demonstrates the appreciation and understanding of the value we provide to our health care system as a whole.”
LHC Group’s net service revenue totaled $528.5 million in 2019’s third quarter, a more than 4% increase over the $507 million the company reported in the same quarter last year.
Double-digit organic admissions growth in LHC Group’s home health segment helped drive that revenue increase, as did solid results across its hospice business.
Broadly, the quarterly gains are all part of LHC Group’s vision to one day become a $2 billion company.
For that to happen, LHC Group and fellow home health providers will need expanded insights into what federal health care policymakers are thinking. Additionally, the industry will need to persuade CMS to avoid making reimbursement changes on an assumptions-only basis in the future.
“We continue to see value in encouraging CMS to be more transparent in the calculations in payments to providers under the Medicare home health benefit and in our ongoing support for payment reform that is evidence-based,” Myers said during Thursday’s call.
Throughout 2019, home health stakeholders have worked to scrap PDGM’s assumption-based behavioral adjustment through legislative action. So far, roughly one-third of both the Senate and House have signed on to co-sponsor S. 433 and H.R. 2573, bills that accomplish that mission — if passed.
Although PDGM is priority No. 1, home health providers should also read up on other, less-publicized regulatory topics, Myers stressed.
They include proposed rules from CMS, the U.S. Department of Health and Human Services (HHS) and the Office of Inspector General (OIG) aimed at loosening anti-kickback statues.
Specifically, regulators are proposing changes that would give providers more flexibility under the Stark Law and existing safe-harbor provisions when working in value-based payment arrangements.
“This announcement wasn’t as widely covered or discussed … but the proposed rules are some of the most significant changes to [anti-kickback] laws in many years,” Myers said. “For LHC Group, they have the potential for positive changes on our joint venture strategy and, more specifically, to our participation in value-based arrangements.”
Internally, LHC Group has been preparing for PDGM for more than a year in several key ways.
The company went live with PDGM-pilot locations on July 15, for example, and has introduced a “clinical pathways” approach to help it thrive under the overhaul’s more complex framework.
From an efficiency perspective, LHC Group has likewise started using proprietary technology and telehealth tools to increase overall patient encounters, giving the company more touchpoints on a day-to-day basis.
By mitigating PDGM’s impact, LHC Group fully expects to remain acquisitive in 2020.
In 2019, the company has completed or announced acquired annualized-revenue of at least $86.7 million. That takes into account deals for 17 home health, eight hospice and two home- and community-based services locations in 10 states plus the District of Columbia.
Most recently, LHC Group agreed to purchase a single freestanding home health provider – Life Wellness Home Health – in Las Vegas. The agreement is expected to close by Dec. 1.
On top of PDGM and all the challenges that come with it, CMS will also begin phasing out Requests for Anticipated Payment (RAPs) next year. Historically, many mom-and-pop and mid-sized agencies have used RAPs to stay in business — or open up in the first place.
“Combined with the two 30-day payment periods under PDGM, the elimination of the RAP should lead to more consolidation within the industry than we’ve experienced in the last two decades,” Myers said. “It will hit cash flows hard for the smaller agencies, but for the larger agencies — such as LHC Group — we would expect a minimal impact.”
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