Home health care’s 2022 was dimmed by the dark cloud of Medicare rate cuts. That cloud still hangs overhead in 2023.
To weather the storm, providers are scrambling to find answers to persistent problems, namely staffing shortages. At the same time, they’re renegotiating arrangements with Medicare Advantage (MA) plans and pivoting from certain service lines to others. They’re attempting to become more efficient – in any way possible.
Just like any new year in the home health industry, 2023 brings an onslaught of challenges, but also opportunities.
As January gets underway, the team at Home Health Care News took a stab at identifying top trends for 2023. The following are based on our research, reporting and extensive industry knowledge.
Curious what we forecasted for last year? Revisit our 2022 predictions here.
The number of home health agencies will continue to decline
Over the past few years, the number of existing home health agencies has steadily decreased.
In 2020, there were 9,378 agencies, compared to 9,893 in 2019 and 10,852 in 2014, according to the Research Institute for Home Care’s 2022 Home Care Chartbook.
There are a number of factors that suggest this will continue.
One of these is the ongoing staffing challenges providers are facing. While staffing has alway been a pain point, the impact of the pandemic has put a severe strain on recruitment and retention. Further compounding matters, nurses have left health care altogether due to burnout.
Even though the home health industry’s average turnover rate has gone down slightly, it hasn’t been a significant enough dent to improve staffing conditions for providers. There were signs of improvement in the back half of 2022, but perhaps not enough to keep up with mounting demand set forth by the country’s aging population.
In 2022, the turnover rate for LPNs was 30.25%, down from 36.54% 2021, and 31.19% for RNs, down from 32.35% in the previous year, according to data from the most recent Home Care Salary & Benefits report from Hospital & Healthcare Compensation Service.
Ultimately, not having enough labor has limited growth: Last year, David Totaro, chief government affairs officer at Bayada Home Health Care, said that the company had a nearly 67% referral decline rate. As an industry the home health decline rate was 58% last year, according to CarePort data.
Worsening referral-rejection rates in 2023 will likely take a toll on agencies’ bottom lines, and those that can’t sustain a business in this environment will be forced to close shop.
Another major factor that will contribute to a decrease in the number of existing agencies: home health rate cuts.
With the home health final payment rule, providers saw a 7.85% permanent adjustment to the 30-day payment rate. Plus, the U.S. Centers for Medicare & Medicaid Services (CMS) will usher in other cuts and permanent adjustments related to the rebalancing of the Patient-Driven Groupings Model.
“This 7.85% cut is worse than initially proposed and when fully implemented in 2024, will result in an immediate decline in access to home health,” Partnership for Quality Home Healthcare CEO Joanne Cunningham said in a statement in November. “This will have negative effects on the availability of care for the most chronically ill of the Medicare population and result in access to care problems. While this short-term phase-in blunts the immediate impact, the long-term consequences of this rule, unless mitigated, will devastate access to care in the home.”
Agencies will have to adapt to a more difficult fee-for-service Medicare environment
Once there were signs of COVID-19 finally letting up, home health providers were hit with a payment rule proposal from the CMS that ended up gripping much of their focus for the year.
Although CMS didn’t implement its proposed cuts in its final rule for 2023, the agency is moving forward with plans to claw back billions in perceived PDGM overpayments while instituting permanent rate adjustments.
Both CMS and the Medicare Payment Advisory Commission (MedPAC) believe home health agencies are overpaid. Providers disagree, pointing to inflationary costs, staffing constraints, poor MA reimbursement, among other bottom-line burdens.
Providers and CMS aren’t likely to come to a resolution, meaning providers need to gear up for what could be years of unsteady payment from their historically best payer, fee-for-service Medicare.
The omnibus spending bill passed in December will require CMS to be more transparent with its methodologies and numbers. That could be a step in the right direction. Industry advocates, such as Homecare Homebase, have already shared their own math.
The home health industry has plenty of friends in Congress who agree cuts are unfair. Even so, building enough momentum to get them to intervene in home health affairs is a tall task.
As a last resort, there could even be legal action against CMS.
HHCN sees this as being the defining fight of this generation of home health leaders and advocates, one that began in 2022 and will continue through 2023.
Big names will remain active in the home health M&A space
Last year saw players such as UnitedHealth Group (NYSE: UNH), CVS Health (NYSE: CVS) and others make major moves in the home-based care M&A space.
In 2022 alone, CVS Health inked an $8 billion deal to buy Signify Health (NYSE: SGFY), and UnitedHealth Group announced plans to acquire LHC Group Inc. for nearly $6 billion.
Home-based care has been heralded as the future of health care, so it should be no surprise that retailers, insurers and other large companies are vying for the opportunity to operate within the space.
Payers, in particular, are in a great position to buy into home health.
“The cash that they had set aside to spend on clinical utilization didn’t get spent during the pandemic,” Michael Abrams, managing partner of Numerof & Associates, told HHCN in December. “The pent-up demand that there was concern would materialize when the pandemic kind of faded never really materialized. They were left with, you could say, a windfall profit, which they have been using to buy their way into elements of the health care delivery system vertical integration.”
Additionally, now that the home health final rule has been released, buyers have a better idea of what the future of the sector holds and will be more keen to take a leap.
While America’s corporate giants will keep their attention on home-based care opportunities, there’s a good chance that 2023 passes without another monster, jaw-dropping mega deal that’s anywhere close to UnitedHealth Group’s LHC Group buy.
That’s true because, on one hand, the home health industry is still highly fragmented, with the largest companies only controlling single-digit market shares. While LHC Group is selling to UnitedHealth Group, HHCN doesn’t expect any of its near-size peers to take a similar route.
And on the other hand, executing mega deals will be difficult in 2023, with interest rates high and buyers’ borrowing-abilities limited.
SNF-to-home diversion will hit a speed bump
When skilled nursing facilities (SNFs) were struggling mightily with COVID-19 at the beginning stages of the pandemic, home health stakeholders jumped on what they saw as an opportunity.
SNF-at-home models and SNF diversion to home health in general became the talk of the town. But in 2023, HHCN sees that slowing down.
For one, SNF referrals have rebounded. In fact, they are at 104% of what they were prior to the pandemic, according to CarePort.
Meanwhile, the Choose Home Care Act of 2021 – which would create an add-on to the home health benefit, allowing for more SNF-type patients to be referred to the home – has lost momentum.
CMS also laid out a proposal on Dec. 15 that would ensure there’s not inappropriate SNF diversion to home health care in MA.
Companies, while dealing with the aforementioned and troublesome rate environment, will likely focus more on bread-and-butter challenges as opposed to investing in new service lines or SNF-at-home programs.
Public players will see a rebound
For most publicly traded home health companies, 2022 was not a banner year.
Instead of rebounding from two very difficult years due to the COVID-19 pandemic and all else that came with the public health emergency, several home health companies continued to struggle. That was the case for industry-leading companies and newcomers to the scene.
In August, Enhabit Inc. (NYSE: EHAB) became the newest player on the public market. In its first quarter, Enhabit struggled to find footing due to rising costs per visit, an increase in the use of PTO from employees, a decrease in admissions at acute care hospitals and several other factors.
Revenue for Enhabit barely saw an uptick in the following quarter as the company touted its agreements with managed care plans, which is becoming a trend around the industry.
Aveanna Healthcare Holdings Inc. (Nasdaq: AVAH) had similar struggles. After a year of being a publicly traded company, Aveanna had issues with labor, economic inflation, higher-than-expected adjustments in revenue reserves and several other business dealings.
For all of the optimism heading into 2022, several of the major home health players might have been a year too early in thinking that they would be able to settle into a new normal.
Now, with the final rule in place, the start of Home Health Value-Based Purchasing (HHVBP) model’s first performance year and other factors tied to the pandemic that might not be as big of an issue, 2023 looks to be a year of stabilization.
“We expect this business to grow in the high-single digits year after year and continue to produce gross margins in the high 40s to 50%,” former Aveanna CEO Tony Strange said in November.
Other providers like the Pennant Group Inc. (Nasdaq: PNTG) and Amedisys (Nasdaq: AMED), who also had up and down years, should expect stability in the year ahead.
HHVBP will trigger more value-based care arrangements outside of fee-for-service Medicare
Value-based care models have been long touted. Now, providers are having their hands forced with HHVBP. But that could be a good thing.
Now that the first performance year is here, there is a real possibility that value-based arrangements are here to stay and will become an even larger part of the way home health providers do business.
CVS Health, for instance, is one of the largest companies in the country. Before making the Signify deal, it had already been flirting with home-based care, but it still needed a company that drove value and had more capabilities in the home.
“This acquisition will enhance our connection to consumers in the home and enables providers to better address patient needs as we execute our vision to redefine the health care experience,” CVS Health CEO Karen Lynch said in a statement after the acquisition was announced. “In addition, this combination will strengthen our ability to expand and develop new product offerings in a multi-[payer] approach.”
Leaders in the industry believe that value-based care has passed the tipping point and 2023 should be the year where it becomes a more mainstream approach to care in the home.
Just in the past four months, Humana Inc. (NYSE: HUM) has said home health is key to its value-based care strategy, Aveanna has committed to value-based care in the long-term future, and Amedysis has told other plans to “take note” of their case-rate deal with CVS Health’s Aetna.
“I think it’s here to stay,” Signify Chief Medical Officer Dr. Marc Rothman told HHCN in December. “I think you’re seeing more providers just finally accepting that they have to take downside risk. And you’ve got lots more organizations forming to help enable those things.”
C-suite leadership shake-ups will prioritize payer executives
The home-based care space has seen significant turnover across the C-suite level over the past 18 months, with leadership changes at Amedisys, Encompass Health (NYSE: EHC)/Enhabit, EvergreenHealth Home Care, Help at Home and elsewhere standing as examples.
That trend was reflective of a sector-wide trend in 2022. Over 830 health care CEOs had left their roles as of August last year, with hospital chief executives departing at a record pace, according to data from business and executive coaching firm Challenger, Gray & Christmas.
From 2021 to 2022, home health C-suite leaders left their posts despite the fact salaries frequently climbed.
Looking ahead toward 2023, HHCN sees more C-suite changes coming, but not because of burnout, lackluster performance or negative reasons, necessarily. As home health providers attempt to expand outside of fee-for-service Medicare toward risk- and value-based payment models, they’ll increasingly turn to executives who are familiar with how payers think.
VNS Health is a good example of a provider that has already done so, with CEO Dan Savitt previously at UnitedHealth Group and Landmark, for instance. AccentCare’s leader, Steve Rodgers, previously led OptumHealth Collaborative Care, too.
With fee-for-service Medicare enrollment shrinking, MA and risk-based payment models will become the future of the industry. C-suite shake-ups will reflect that reality in 2023.
There will be more investment in training, technology in reaction to higher-acuity patients
The patients going into the hospital in 2023 will be sicker than usual. In turn, when they are referred out to home health agencies, they will still be sicker.
Average length of stay for patients inside the hospital was 11% longer in October 2022 than it was in October 2019, according to CarePort. Meanwhile, patients are far more likely to be suffering from muscular disorders, alcohol or drug abuse, and weight loss than they were in the past.
Dealing with sicker patients will require new ways of delivering home health services, whether bolstered by better training, better technology or both.
How to adapt to this change is what Lissy Hu, the president of connected networks at CarePort, recently called the “million-dollar question.”
“It’s the million dollar question, right?” she said. “And so as we think about home health and taking care of these higher-acuity patients, I think a lot of home health agencies are now investing in care coordination, analytics and training their workforce to service some of these higher-acuity patients. I think we’re going to see more of that than in the past.”
In 2023, HHCN predicts agencies will struggle dealing with higher-acuity post-acute patients – finding ways to evolve because of that challenge.
Contributions from Joyce Famakinwa, Patrick Filbin and Robert Holly.