VITAS Margins Solid Despite Admissions Drop

VITAS Healthcare, the largest hospice provider in the United States, showed positive margins for the first quarter of 2019 despite a decline in admissions, according to a quarterly earnings report from its parent company, Chemed Corp. (NYSE: CME).

VITAS’ gross margins for routine home care services reached 52.7 percent during the first quarter, a 60 basis-point increase over Q1 of the previous year. The hospice provider admitted 17,758 patients during Q1, down 2.9 percent from Q1 2018.

One factor contributing to the decline from Q1 2018 is simply that VITAS did so well in that quarter.

“I should note that the first quarter of 2018 remains the highest admissions quarter in VITAS history,” VITAS CEO Nick Westfall said.

Admissions fell nearly across the board by setting of care and referral source. Year over year admissions from hospital referrals dropped 1.6 percent. These referrals comprise nearly half of the company’s admissions. Home-based admissions fell 3.9 percent, and admissions of patients who dwell in nursing homes or assisted living also saw small decreases.

Cost management, particularly labor costs, also contributed to VITAS’ marginal performance.

Per patient per day ancillary costs, which include durable medical equipment, supplies and pharmaceuticals averaged $13.08, down from $14.47 during the prior year quarter.

“We started the year solid from a labor management perspective and anticipate a continuation of really paying attention to that,” Westfall said. “[VITAS] also balanced out a host of other cost contributors to delivering care, whether its consolidated ancillary services or the back office, corporate infrastructure associated with it.”

In addition to strong routine home care margins, the company performed well on most levels of higher acuity care. Their continuous home care line had a direct gross margin of 18.2 percent, up from 17.7 in Q1 2018. The company billed for an average of 17.5 hours of continuous home care per day in Q1, up slightly from 17.2 in the prior year’s first quarter.

Looking ahead, VITAS and Chemed indicated they were not concerned about potential losses if the proposed Medicare hospice payment levels for 2020 were made final. The proposed rule called for a 2.7 percent cut in routine home care payment amounts and a corresponding 2.7 percent hike in payments for general inpatient care, continuous home care, and inpatient respite care.

“It seems to me that CMS has recognized the disincentive they inadvertently created for high-acuity care, and they are correcting for that,” Chemed CEO Kevin McNamara said, noting that the rule is proposed, rather than final. “We feel very confident that CMS is addressing the need for all hospices to provide all levels of care, and we view this as positive for all hospices that tend to provide the appropriate continuous care and inpatient care for their patients.”

All told, VITAS earned $307 million in net revenue in the first quarter of 2019, up 5.1% from the prior-year period. This revenue increase is comprised primarily of a geographically weighted average Medicare reimbursement rate increase of approximately 0.6%, as well as a 6.6% increase in days-of-care.

A number of factors offset the increase, including a Medicare Cap billing limitation that reduced revenue growth by 1.8%, in addition to acuity mix shift, fluctuations in net room and board and contractual adjustments. These considerations negatively impacted revenue growth 0.4%, compared to Q1 2018.

Companies featured in this article:

,