So far, the transition to the Patient-Driven Groupings Model (PDGM) has gone smoothly for many home health agencies, with a majority successfully avoiding questionable encounters and achieving staffing efficiencies across their operations.
Eagle, Idaho-based The Pennant Group Inc. (Nasdaq: PNTG) has seen positive results on its end, too, especially when it comes to coding accurately and keeping its Low Utilization Payment Adjustment (LUPA) levels relatively low. For those and other reasons, Pennant feels “increasingly confident” in its ability to adapt and thrive in the reimbursement environment, though plenty of uncertainty remains, according to CEO Daniel Walker.
“We believe it’s too early to draw conclusions about the long-term effects of PDGM,” Walker said Wednesday during a conference call to discuss the company’s second quarter financial results. “So far, our current results are ahead of expectations.”
The Pennant Group is a holding company of independent operating subsidiaries that provide health care services through 71 home health and hospice agencies and 54 senior living communities. Since 2019, it has added 21 home health and hospice operations to its footprint, recently completing deals for six more in Arizona, Utah and Idaho.
Overall, Pennant has operations across 14 states and several major markets.
Apart from avoiding LUPAs and coding accurately, Pennant is bullish on PDGM because of the progress it has made in terms of delivering high-quality care and lowering its rehospitalization rates. Additionally, Pennant has been helped by PDGM’s relatively higher reimbursement rates for neurological care and wound care, which it routinely provides.
“Part of the rebalancing of the reimbursement structure kind of moves away from the high therapy utilization, which we never were chasing,” Walker said. “And so I think we’re seeing the favorable side of that.”
While dealmaking opportunities have been few and far between during the ongoing COVID-19 crisis, Pennant’s leadership team predicts ample M&A action in months to come.
“We are pleased with the current strength of our balance sheet and access to capital, even after executing multiple transactions during the quarter,” Derek Bunker, Pennant’s chief investment officer, said during the call. “We think there are many more opportunities this year and beyond for growth through acquisitions.”
Based on the 2021 proposed payment rule issued by the U.S. Centers for Medicare & Medicaid Services (CMS), Pennant expects a 2.1% Medicare rate increase next year.
Ups and downs
The Pennant Group’s total revenue was $92.7 million in Q2 2020, an increase of $10 million — or about 12% — compared to the prior year’s quarter. The company’s home health and hospice services segment revenue was $58 million, an increase of $7.8 million — or nearly 16% — compared to Q2 2019.
When it comes to volume disruption, Pennant’s hospice average daily census was largely unaffected by the COVID-19 emergency. Home health volumes were a different story.
Total home health admissions were 5,259 in Q2 2020, while total home health Medicare admissions were 2,459. Volumes hit a low point in May, but have since rebounded and are up roughly 1.5% compared to pre-COVID levels.
“Our home health volumes experienced a V-shaped pattern that was driven primarily by stay-at-home mandates and the delay of elective procedures,” Walker said.
Still, Pennant estimates that it has experienced a potential COVID-related revenue loss of $8.1 million since the start of the pandemic through the end of the quarter.
While the company was eligible for federal relief grants through the CARES Act, it opted to reject and return all funding.
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