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Home health providers edgy on potential $950M fed payment cut

August 1, 2017

Home health care providers are on edge after the Centers for Medicare & Medicaid Services (CMS) issued a proposal Tuesday to overhaul the Medicare payment system, with major restructuring changes that could result in a payment cut of $950 million to home health care agencies in 2019.

Stock values for Amedisys (Nasdaq: AMED), Almost Family (Nasdaq: AFAM), LHC Group (Nasdaq: LHCG), and Kindred Healthcare (NYSE: KND)—some of the largest publicly traded home health care companies—tanked in Wednesday trading in the wake of the proposal, which was released in the 2018 prospective payment update.

At market close Wednesday, AMED decreased more than 18%; AFAM was down more than 13.5%; LHCG dropped more than 8%; and KND was down nearly 15%.

The stock decrease is a big reaction to the changes outlined in the payment system proposal, but some investors and providers in the space may have been expecting an even bigger threat in the Home Health Groupings Model, which was introduced as part of the update. The model replaces the current 60-day episode of care unit of payment with a 30-day period, and places patients into a payment group based on where they fit in six categories, according to the proposal.

Some home health companies recently experienced share price declines in anticipation of the change in recent months, as some investors predicted the groupings model would be introduced despite not being officially announced until this week.

“The three-week delay in the home health proposal’s drove investor concerns about the potential inclusion of the HHGM in the proposal,” an analysis from Jefferies reads. “These concerns drove the three—[AMED, AFAM and LHCG]—stocks down, which leads us to believe that the HHGM was already somewhat baked into stock valuations.”

In addition to the stock reaction on Wednesday, industry leaders expressed disappointment with the proposal and renewed vows to work with CMS for regulation that will better serve home health companies and patients.

Groupings Model Impact

Perhaps the biggest impact of the proposal is the new groupings model, which some have called a “significant threat” to home health care providers. At this point, many providers are analyzing how the changes to the new payment unit and patient categories will affect their businesses.

“Despite repeated requests to fully understand the home health grouping model and related information, industry representatives have not been provided with a full model until the release yesterday of the proposed rule,” Joy Cameron, vice president of policy and innovation at ElevatingHome, said in an emailed statement.

The group is also concerned if the new model will limit patient access. CMS stated in the proposal it anticipates no disruption in access to services.

Industry Questions

Even so, industry groups slammed the proposal, even going so far as to question if CMS could in fact implement such a substantial change to the payment system without Congressional approval.

“CMS is proposing a major reform to home health reimbursement without having worked collaboratively with industry partners like the Partnership, and we expect to be included in payment reform development going forward,” Keith Myers, chairman of the Partnership for Quality Home Healthcare and CEO of LHC Group (Nasdaq: LHCG), said in a statement. “We question whether CMS has the unilateral authority to make such a proposed change without action by Congress.”

Others agreed there are unanswered questions regarding CMS’ ability to make such changes without the approval of Congress.

“Our concern is that the proposed rate cut does not seem to follow the typical requirement for the agency to put through budget-neutral changes, unless approved by Congress,” a Jefferies analysis reads.

Next Steps

In addition, industry backlash took aim at the lack of collaboration between CMS and providers and associations. As a proposal on the Federal Register, providers and industry groups will be able to comment on the new payment system changes.

“The Partnership anticipates CMS will use the year ahead to fix this proposed payment model or develop more broad based alternatives by working with experienced, high quality providers to ensure policies are put in place that protect both patients and compliant providers,” Myers said. “We strongly encourage a thoughtful and more transparent process in working more collaboratively with the provider community and other concerned stakeholders on Medicare payment reform.”

The Partnership, along with other groups, plan to submit comments on the proposal and make recommendations to CMS to protect access to home health care services.

The new home health care Conditions of Participation (CoPs) were recently delayed for six months after CMS received numerous comments from providers worried about the short timeline for implementation.

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