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How Are Medicare Cuts Affecting Your Agency?

By Stephen Tweed

Last week I was speaking at the NAHC annual conference in Orlando on the subject of “Serving More Patients.”  We had a terrific audience and engaged in some great conversations.

One of the questions I was asking home health agency leaders as well as some of our colleagues who provide financial services for home health agencies is about the financial performance of home health in general.  The responses I received indicated to me that many agencies are feeling the pinch more this year than last year from the Medicare cuts in reimbursement.

This message was reinforced as looked at the third quarter 2012 financial results from the Big Four publicly traded home health companies.

Almost Family reported third-quarter net income of $4.1 million, down from $4.8 million or 17% from a year earlier. Revenue for the quarter fell to $85.1 million from $86.2 million or 12%.

Amedisys reported that revenue from services increased by 1.4% to $375.6 million while net profit by 19.2% compared to the third quarter of 2011.

Gentiva reported total net revenues of $424.4 million, a decrease of 6% compared to $449.7 million for the quarter ended September 30, 2011.

LHC Group reported

  • Net service revenue for the third quarter of 2012 was $158.9 million, compared with $153.4 million for the same period in 2011… an increase of 4.2%
  • Net income attributable to LHC Group for the third quarter of 2012 was $6.3 million, compared with a net loss attributable to LHC Group for the third quarter of 2011 of $38.0 million, which included a $45.0 million after tax charge related to the company’s settlement with the Department of Justice. 

 As a result of the downturn in their home health business, these companies have added other services that show more revenue growth or better margins.

Almost family has put renewed emphasis on their personal care business (private duty) with revenue rising to $19 million after their acquisition of Cambridge Home Health Care in Akron Ohio.

Amadisys CEO Bill Bourne commented on his company’s performance in areas beyond home health.   “Overall, we were pleased with bottom line results for the quarter and remain on pace to meet our earnings plans for the year. Job and investment tax credits benefitted quarterly results. Operationally, we displayed our second consecutive quarter of positive year-over-year episodic admissions growth, continued to grow our managed care business and our hospice average census was up considerably.

During the quarter, Gentiva acquired three agencies to expand the Company’s geographic coverage and leverage its existing home health and hospice capabilities in given markets.  In July 2012, the Company acquired Advocate Hospice based in Danville, Indiana.  In August 2012, the Company acquired Spokane, Washington based Family Home Care, which provides both home health, hospice, and private duty services, and North Mississippi Hospice which is based in Oxford, Mississippi

LHC Group provides  home health, hospice and private duty locations in its home-based division and long-term acute care hospitals in its facility-based division.

These results and financial reports indicate that many home health agencies have recognized the need to diversify their revenue streams, adding hospice, private duty home care, and other related services.

In 2012, we have seen significant increases in requests for assistance in developing business growth strategies for hospice and private duty arms of successful home health agencies.   In fact, we’ve done more work in the hospice sector in 2012 than we have in a number of years.

So what does this all mean?

Home Health Care has always been a challenging business with financial ups and downs on a seven year cycle.  This downturn has been on a slightly shorter cycle that in the past – 4 years – and is mostly due to the political upheaval in Washington and the early effects of the Affordable Care Act. 

Looking forward, it appears that home health care will continue to be negatively affected for the next couple of years, and companies will continue to seek other revenue streams in hospice and private duty. Meanwhile, the private duty marketplace has slowed its growth because of the general economy, the volatility of the stock market, and the dramatically increasing competition. 

The good news is that we are an amazingly resilient industry sector, and we will recover.  I’ve been speaking, writing, and consulting in home health, hospice, and private duty home care since 1982.  I’ve seen four major economic challenges in 1989, 1997, 2008, and now 2012.  After each one of these disruptions, the industry came back stronger, growing faster than before.  We’ll come back from this one as well.  The question is, “How many agencies will go out of business this time?”

Three Things You Can Do

1.  Serve More Patients.

Now is the time to shore up your market share by developing and implementing new strategies for sales, marketing, and public relations.  The competition is hungrier than ever, and you can’t grow by doing the same old same old.

2.  Refocus Your Leadership Team

Leading is easy when business is good and cash is flowing.  Leadership becomes more difficult when competition increases, growth slows, and margins erode. Now’s the time to refocus your team, assess your strengths, and make sure you have the right people on the bus.

3.  Put More Focus on Other Revenue Streams

I’ve worked with hundreds of home health agencies that have hospice and private duty home care.  Most home health agencies do a lousy job in the private duty sector.  I’ve written many times about “The Four Big Barriers to Success.”  But the big thing is to pay attention to your private duty business.  Put the right person in charge, give them some autonomy, and invest in growing the business.   

 

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