COVID-19 headwinds continue to pose obstacles for hospice providers nationwide, including VITAS Healthcare, a subsidiary of Chemed Corp. (NYSE: CHEM). The company has recently seen drops in its patient census due to pandemic-related disruption, and maintaining staffing levels remains a top priority amid industry-wide shortages.
During the third quarter admissions exceeded discharges for the first time since the pandemic’s onset. Nevertheless, VITAS felt the impact of pandemic-related disruption in the senior housing space.
The company reported diminished levels of referrals from senior housing, assisted living and similar facilities in comparison to historic levels. This in turn negatively impacted length of patient stay, as patients referred by those types of communities tend to receive hospice earlier.
The workforce shortage across the economy is the most important issue VITAS currently faces, according to Chemed CEO Kevin MacNamara.
“[It] has been exceptionally challenging to ensure an adequate mix of licensed health care workers on a market-by-market basis, particularly challenging during the pandemic as we deal with dynamic fluctuations in patient census in every market,” said MacNamara during a third quarter earnings conference call. “Turnover within our licensed staff remains above our pre-pandemic rates, but we are seeing indications of normalization as we continue to expand our hiring and retention initiatives in many markets.”
In addition to recruitment and retention, VITAS has seen increasing pressure from rising salaries and wages, MacNamara stated. The company also began offering employees increased paid time off to help them cope with the strain of providing care in a pandemic.
Pressures from wage and price inflation have impacted the company’s financial results, but Medicare’s methodology for calculating hospice per diem payments could offer a buffer to rising labor costs in the long run. The U.S. Centers for Medicare & Medicaid Services (CMS) bases the labor share of annual hospice reimbursement rates on inflation data in the hospital wage index, as measured by the U.S. Bureau of Labor Statistics.
“We view it as inevitable that health care wages will increase if we continue to have a nationwide systemic imbalance in supply and demand for licensed health care professionals,” said MacNamara. “Fortunately for VITAS and the hospice industry, there is a natural hedge against the inflationary pressures on costs, specifically labor. This should give the hospice industry a reasonable stability in operating margins in an inflationary environment.”
VITAS brought in net patient revenues of $317 million during the third quarter, a 5.8% drop compared to the prior year’s quarter. This does show improvement from $312 million in Q2 of this year.
Average daily census (ADC) showed a similar trend. ADC reached 18,034 in Q3. This represents a slight increase from last quarter, but a 1.9% decline from Q3 last year.
Like many in the industry, VITAS continues to see a turnover rate that is higher than pre-pandemic levels and is working to build in efficiencies to maximize productivity and help to control rising costs.
“We’re being very intentional and focused on a market-by-market, community-by-community basis to respond appropriately for specific staffing levels,” VITAS CEO Nick Westfall said. “We’re also looking for opportunities for offsets to that inflationary cost — whether it’s becoming more efficient or thinking through how we want to structure the way in which we’re servicing that market.”
A looming threat to the bottom lines of many providers is the end of the sequestration moratorium that Congress implemented during the COVID-19 public health emergency. This suspension is currently set to end Jan. 1, 2022.
Lawmakers have the ability to extend the moratorium, but whether or not they actually will remains to be seen. The reinstatement of Medicare sequestration is an additional “significant headwind” on the horizon for next year, according to Chemed CFO David Williams.