Payers Can ‘Feed Their Own Machine’ With Hospice, Home Health Deals

Recent acquisitions of large hospice and home health providers by insurance companies suggest a drive among payers to reduce financial risk and improve cost outcomes in value-based care arrangements.

These deals include two of the largest in recent memory for the home-based care space. UnitedHealth Group (NYSE: UNH) recently agreed to purchase LHC Group (NASDAQ: LHCG) for a reported $5.5 billion. The insurance company will integrate LHC Group with its existing home health asset, Optum Health.

In a second massive transaction, Humana Inc. (NYSE: HUM) last year acquired a 100% stake in Kindred at Home for $5.8 billion.

For an insurance company, the ability to manage both the provider and payer sides of their health care networks is an attractive prospect and could lead to a proliferation of deals like these.

“A place like United and a place like Humana can’t resist having control and having visibility into all aspects of the network,” Bill Miller, CEO of the post-acute tech company WellSky, told Hospice News. “They can buy an asset like LHC for $5 billion and then start exercising that network systematically, managing their members through their primary care networks. They can feed their own machine, and so I suspect you’ll see more of this.”

A key factor in these decisions is the rising prominence of value-based payment models in Medicare and Medicaid. The largest of these being the Medicare Advantage (MA) program, which as of 2021 accounted for 42% of all Medicare beneficiaries, according to the Kaiser Family Foundation.

The influence of value-based models in health care will likely continue to grow in coming years. The Center for Medicare & Medicaid Innovation (CMMI), charged with developing and testing new payment models, has affirmed on multiple occasions its intent to align every beneficiary with an accountable care plan by 2030.

CMMI is currently testing the inclusion of hospice in Medicare Advantage through the value-based insurance design (VBID) demonstration, known as the Medicare Advantage hospice carve-in, which is nearing the start of its second year.

These actions, according to CMMI, will bring reduced health care costs and improved quality — but it also means that payers and providers will be taking on greater financial risk.

Risk-bearing programs generally operate on a total cost of care basis. They’re paid typically in some form of a capitated per-member, per-month payment. Then they’re responsible for the full cost of care and quality of all the members that are enrolled with them.

By controlling both the payer and the provider sides of that equation, companies like UnitedHealth and Humana likewise have more control over the risk.

“It goes to the heart of the issue of how do you best manage the risk of caring for a patient, and what’s the best way to do it,” Mark Kulik, managing director at mergers-and-acquisitions firm The Braff Group, told Hospice News. “Obviously, owning something gives you complete control over the delivery of the final product, and theoretically over the outcomes of the final product, which allows you to better manage the risk.”

In value-based arrangements, the provider could receive a percentage of any savings, called upside risk, or losses, known as downside risk. In downside risk, the provider may be required to cover the difference if actual costs of care exceed what was budgeted.

This means they must understand how to manage their anticipated utilization and related expenses, making efficiency and cost control essential. In terms of hospice and home health, the most prominent mechanism for generating these savings is reductions in hospitalizations and emergency department visits.

One mechanism for achieving those reductions within Medicare Advantage is the availability of supplemental benefits introduced in 2020. These benefits are also a growth engine for the MA program, according to Miller.

“I think they’re driving a lot of the growth of Medicare Advantage. [WellSky’s] network of providers are seeing an uptick in payer interest in figuring out who are the good providers now that this is a benefit that they’re starting to push out to their members,” Miller said. “Medicare Advantage enrollment keeps growing for each payer, so I think it makes a material difference.”

Historically these benefits were very limited, but the Creating High-Quality Results and Outcomes Necessary to Improve Chronic Care Act (CHRONIC), passed by Congress in 2018, expanded the range of those benefits to include programs to address some social determinants of health as well as home-based palliative care.

The palliative care benefits are of particular interest to hospice providers, as they are one of the few avenues for palliative care reimbursement.

Hospices provide about 50% of home-based palliative care in the United States according to the Center to Advance Palliative Care, and the number of providers that are diversifying their business lines to include those services continues to increase.

Fee-for-service Medicare does cover palliative care to some extent, but the reimbursement is limited to physician or licensed independent practitioner services rather than the full interdisciplinary spectrum.

More payers are embracing palliative care for its potential to generate the cost savings that value-based programs are designed to achieve. Home-based palliative care, for instance, could reduce societal health care costs by $103 billion nationwide within two decades, the nonprofit economic research group Florida TaxWatch reported in 2019.

“Generally speaking, the payers have gathered enough evidence to suggest that your average member is going to want to age gracefully at home,” Miller said. “You’re seeing consumer preference and the cost benefit coming out of the system. The nice thing is that often the two are tied together. If you can allow a world where you’re engaging in palliative care, you spend less money and make the consumer and their family happier.”

This recognition is leading more MA plans to offer palliative care. For 2022, 141 plans offer the benefit, up from 58 in 2020, according to a recent report from the consulting firm Milliman, commissioned by the Better Medicare Alliance.

Likewise, other supplemental benefits are designed to help beneficiaries age in place and reduce hospital and nursing home utilization, such as food and meal programs, transportation services and support for daily living.

One limitation for these benefits is that the U.S. Centers for Medicare & Medicaid Services (CMS) does not require plans to offer them. This creates gaps in that coverage in some markets.

But Miller expects that this too will change as consumer demand grows and cost savings are realized.

“Health plans tend to be as competitive against one another as you can fathom. Usually one will stick their neck out and carve-in an additional service line. Not much long after that, they’ll report an increase in membership year over year,” Miller said. “Like magic, most of their competitors follow suit, and then it becomes a combination of cost and benefit warfare to win the hearts and minds of the American consumer.”