Value-based payment, care in the home and technology are some of the pillars on which UnitedHealth Group (NYSE: UNH) and its subsidiary Optum Health are building their future. That’s evidenced by the forthcoming $5.5 billion acquisition of LHC Group (NASDAQ: LHCG).
One outstanding question, however, is where hospice will fit into this rubric.
Generally speaking, payers, providers and policymakers share a cost-cutting vision of reduced hospitalizations, risk-bearing models and processes streamlined by digital tools.
And more of those stakeholders are realizing that the pathway to those goals leads home, including UnitedHealth.
“We’re really moving at speed to bring together our home and community capabilities,” the company’s CEO, Andrew Witty, said on a Thursday earnings call. “And if you look at what’s really driving alongside our value-based strategy for the clinics, … it’s an extraordinary set of capabilities. And it’s positioning us very well to, for example, serve the D-SNP population in a way which historically would not have been possible.”
Optum, UnitedHealth’s population health-oriented subsidiary, is the spearhead of these home and community capabilities.
Optum acquired the value-based home care provider Landmark Health for $3.5 billion just a year before announcing its intent to purchase LHC Group. The LHC Group deal is pending customary regulatory approvals.
The Lafayette, Louisiana-based home health and hospice provider operates 964 locations in 37 states and the District of Columbia. It earned nearly $2.22 billion in 2021 revenue, up more than 7% from $2.06 billion the prior year.
One of the drivers of deals like these is the opportunity payers see in value-based payment models in Medicare and Medicaid. This includes Humana Inc.’s (NYSE: HUM) $5.8 billion purchase of Kindred at Home last year.
The most frequently invoked model is Medicare Advantage (MA), which in 2021 accounted for 42% of all Medicare beneficiaries, according to the Kaiser Family Foundation.
Medicare Advantage is certainly no stranger to UnitedHealth, whose numerous MA plans now cover more than 7.3 million members.
“In Medicare Advantage, our strategic balance of benefit stability and enhancements once again helped to deliver strong growth,” Witty said. “We remain well on-track to serve an additional 800,000 people in 2022, consistent with the expectations we set last November.”
Home health providers have a number of entry points to value-based programs, Medicare Advantage perhaps chief among them. But when it comes to reimbursement, hospice has been on an island, with payment coming almost exclusively from its dedicated Medicare benefit.
But now, for better or worse, hospices can see sails on the horizon.
The U.S. Centers for Medicare & Medicaid Services (CMS) is currently testing the inclusion of hospice in MA through the value-based insurance design (VBID) demonstration, known as the Medicare Advantage hospice carve-in, which recently entered its second year.
The outcome of this demonstration is uncertain, but it stands to reason that these first steps that hospice is taking into value-based payment won’t be its last. CMS has repeatedly affirmed its commitment to these types of models, even across changing presidential administrations.
But today, the MA opportunity in the lower-cost care setting lies with home health.
To find an example, one need look no further than Optum itself, which saw 18.9% year-over-year revenue growth in Q1, reaching $43.3 billion.
“This was driven primarily by the increasing number of patients served under value-based arrangements,” John Rex, executive vice president and CFO of UnitedHealth, said during the earnings call. “Continued augmentation of our value-based care offerings, such as expanding digital care and our services into the home, [presents an] opportunity to serve more people much more broadly and deeply. And we expect to grow strongly for years to come.”
With these factors in mind, the outstanding question around Optum’s latest in-home care deal is what will happen with the LHC Group’s hospice segment.
When Humana finalized its Kindred at Home acquisition, the company was quick to announce that it would retain the home health asset and divest the hospice business with a spin-off and sale.
Optum may or may not follow suit with its new hospice business. With the deal still pending, neither company is free to discuss what the future may hold post-closing.
But hospices can bank on continued nationwide strides towards in-home care, value-based payment and tech-enabled services.
“I’m more encouraged than ever on things like value-based care, consumer transparency, to navigate the system to get to the appropriate site of service, having the tools digitally to ensure we can enable that virtual engagement, and post acute and home innovation to really avoid those expensive hospital stays,” Rex said.
Companies featured in this article:
Humana, Kindred at Home, LHC Group, Optum Health, UnitedHealth Group
