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The Delineation of Home Healthcare: The Natural Evolution of a Healthy Industry Published: April 12, 2010 © Copyright 2010 Wyatt Matas &Associates, LLC The Delineation of Home Healthcare The Natural Evolution of a Healthy Industry INTRODUCTION The home healthcare industry faces many challenges, but one of the most significant issues is the delineation occurring between agencies. The division is happening between those agencies that are advancing towards becoming chronic care management companies and those agencies that are either choosing not to evolve or do not realize the shift that is happening in home healthcare industry and the overall healthcare continuum. In most industries this would be seen as a competitive win for those that are developing into a more complex model of care; however, the entire industry’s buy-in is necessary to take advantage of opportunities to push productive industry policies forward in order to become the center of the chronic care continuum. Because the industry is made up of mostly smaller providers, the industry’s national associations will likely waiver in their efforts to push home healthcare to the center of the chronic care management continuum, which many would agree is the best path for the industry and overall healthcare system. There are two certainties for home healthcare and hospice: 1) reimbursement cuts will continue to be a constant threat to industry margins and 2) the large publicly traded companies will continue to get larger. Neither of these threats means the demise of the industry, but they will continue to change the dynamics of how small and mid-size agencies compete. From a positive prospective, the industry is well positioned to care for a wave of baby boomers with chronic diseases that will tax an ill-prepared healthcare system. To take advantage of an opportunity to become the healthcare continuum’s leader in chronic care management, home healthcare will have to consider how it is currently perceived in the healthcare system, evolve from basic home health care to true chronic care management companies and find industry leadership to effect policy change before stronger competing industries can marginalize the industry’s role. The impact of chronic diseases on the U.S. healthcare system has been well documented. Over 130 million Americans are affected by a chronic disease, and this is expected to increase significantly as baby boomers reach an age where congested heart failure, chronic obstructive pulmonary disease and coronary artery disease are more likely to be diagnosed. The chronically ill account for 76% of all hospitalizations, which puts tremendous stress on an already burdened healthcare system. Specific to Medicare, 12% of the Medicare population accounts for 69% of the cost, with 96% of the Medicare expenditures spent on patients with more than one chronic disease. The purpose of this white paper is not to make the case of chronic care disease management. Fortunately, the statistics clearly demonstrate the need for a proactive care management role for those with a chronic disease(s). Neither is this paper’s role to make the case for home healthcare to become the chronic care disease managers. To a large degree, the industry has steadily progressed in this direction through the development of successful disease management programs. The purpose of this paper is to highlight the bifurcation that is happening between those agencies that have the resources to develop into chronic care management companies and those that do not. We will also highlight the consequences for the industry that is dominated by small agencies that make up the bulk of the membership of the national associations. This situation could cause the industry to become frozen with indecision if it does not accept delineation as part of a sign of healthy life cycle of an industry. 1776 I Street NW, 9th Floor • Washington, D.C. 20006 • 202‐661‐4691 • www.wyattmatas.com Mergers & Acquisitions • Capital Raising • Debt Restructuring • Business Valuations The Delineation of Home Healthcare: The Natural Evolution of a Healthy Industry HIGHER VOLUME/LOWER MARGINS WILL BE THE NEW PARADIGM D EMAND FOR SERVICES The acceptance of home healthcare as an alternative to lengthy hospital stays, nursing homes and other inpatient treatments has seen a steady compounded growth rate of over 8% since 2000. The growth rate is expected to increase to 10% through 2015 as baby boomers mature and government policies drive the use of home healthcare over higher cost inpatient care. 1 FIGURE 1.0 MEDICARE H OME H EALTH SPENDING (H ISTORICAL AND PROJECTED ),IN BILLIONS $ D EMAND FOR LABOR This demand is encouraging for home healthcare agency owners and stakeholders; however, with demand for services, there comes a demand for staff. One of the biggest challenges most home healthcare agency managers face, even today, is finding enough qualified nurses and physical therapists to meet current service demand. In some areas of the country, they resort to using “travel staffing” agencies or referring the patients to other home healthcare companies. As demand for services increases, the demand for qualified staff will be exacerbated. FIGURE 2.0 PROJECTED SUPPLY AND D EMAND FOR N URSES 2 1Source: CBO’s March 2009 Baseline: Medicare, MedPAC March 2009 Report to Congress 2Source: Department of E ucation 2 1776 I Street NW, 9th Floor • Washington, D.C. 20006 • 202-661-4691 • www.wyattmatas.com Mergers & Acquisitions • Capital Raising • Debt Restructuring • Business Valuations The Delineation of Home Healthcare: The Natural Evolution of a Healthy Industry th According to the Bureau of Labor and Statistics, home healthcare services are projected to be the 4 fastest growing industry employers through 2018. This demand for staff will increase leverage of nurses and physical therapists to command higher wages and benefits, which will put direct pressure on gross margins for all home healthcare agencies. C ONTINUED PRESSURE ON R EIMBURSEMENT While the national healthcare bill has passed and provided the home healthcare industry with more reimbursement clarity, the threat of reimbursement cuts is far from over. The state of the U.S. healthcare system will require the government to continue to reduce expenditures, and home healthcare is an easy target because of poor representation in the Halls’ of Congress. The form these cuts will take are difficult predict, but business owners and managers of home healthcare agencies should certainly prepare to live in an environment where Medicare reimbursement will be under a constant pressure of reduction. Likewise, Medicare Advantage Plans will also continue to reduce reimbursement rates, as the current White House Administration has made it clear that it will attempt to cap and even reduce Medicare Advantage Plans. In turn, Medicare Advantage Plans will look to recoup administrative costs, thus reducing reimbursement rates they are willing to pay to home healthcare agencies. Reimbursement cuts, coupled with staffing shortages, will inevitability mean declining margins. This will make it more difficult for the small agencies to survive in what is already a competitive market. However, many agency owners believe the wave of baby boomers needing home healthcare services will drive volumes higher, although margins will be substantially lower than what they are today. 3 F IGURE 3.0 EBITDA M ARGIN C OMPARISON : CURRENT VS . PROJECTED These reduced EBITDA margins obviously do not take into account tax obligations an owner or company would have to pay from remaining profits or working capital required sustain the business. After reduced margins, tax obligations and required working capital, very little capital remains to reinvest in innovative technologies or new efficiency initiatives. If the thesis that home healthcare is headed towards a high volume, low margin business is correct, those companies that are currently innovating and investing in their infrastructure that will make them more efficient when margins are lower will be the ultimate winners. Those that are not will ultimately be driven out of the business or acquired due to poor cash flow. 3 Source: Wyatt Matas & Associates 3 1776 I Street NW, 9th Floor • Washington, D.C. 20006 • 202-661-4691 • www.wyattmatas.com Mergers & Acquisitions • Capital Raising • Debt Restructuring • Business Valuations The Delineation of Home Healthcare: The Natural Evolution of a Healthy Industry OPPROTUNITY TO REVERSE THE LOWER MARGIN TREND T HE EVOLUTION OF C HRONIC CARE M ANAGEMENT IN H OME H EALTHCARE In reality, the evolution of chronic care management started when nurses first started visiting the sick in their homes in the early 1900’s. While it may not have been defined as such, home healthcare has been managing and coordinating the care of the chronically sick informally before most chronic illnesses were even defined. However, it wasn’t until the proliferation of new agencies in the mid 2000’s that home healthcare companies realized that they needed to find ways to differentiate the way they present their services to referral sources. Home healthcare agencies, in general, are difficult for referral sources to differentiate from one to another. For instance, it is a standard presentation for an agency marketing person to offer up to a referral sources the following: • We provide the highest quality of care • We care about our patients • We care about our staff • We take all insurances • We take referrals on the weekend • We take any referral source • We are financially stable However, these statements, while reassuring, are not differentiators. In an effort to separate from the pack, Gentiva Health Services, Inc. began to develop specialty programs in the mid 2000’s that achieved two primary objectives for the company: • Differentiated the company by offering identifiable “products” to referral sources • Gave the sales force a set of definable services/specialty program to sell to specific referral sources depending on the referral source’s patient base Gentiva has since taken these specialty programs, sometimes referred as disease management programs, and branded the programs, making it even more easy for the sales force to communicate the benefits of the programs. Some of these programs include: • Gentiva Orthopedics • Gentiva Safe Strides • Gentiva Cardiopulmonary • Rehab without Walls Since the mid 2000’s, Gentiva has introduced over 400 specialty programs and now generates over 40% of its revenue from these programs. 4 1776 I Street NW, 9th Floor • Washington, D.C. 20006 • 202-661-4691 • www.wyattmatas.com Mergers & Acquisitions • Capital Raising • Debt Restructuring • Business Valuations The Delineation of Home Healthcare: The Natural Evolution of a Healthy Industry FIGURE 4.0 GTIV: S PECIALTY PROGRAMS AND % OF M EDICARE HOME HEALTH R EVIEW FROM SPECIALTY PROGRAMS Q2’08 -Q4’094 PROLIFERATION OF SPECIALTY PROGRAMS /D ISEASEM ANAGEMENT PROGRAMS As Gentiva and other home healthcare agencies began having success with referral sources by discussing home healthcare in terms of disease management programs, other agencies began to develop their own programs. Publications such as the Remington Report began devoting industry magazines and conferences to the topic and became thought leaders in the concept of chronic care disease management in home healthcare. Consulting firms from across the industry based their entire practices on assisting agencies on developing specialty programs to market to physicians and other referral sources. This acceptance of chronic care disease management in home healthcare has led to some very positive results for those agencies with these types of specialty programs, including: • Improved quality scores, • Elevated reputation among many referral sources that partner with home healthcare agencies with specific specialty programs, and • Increased agency profitability due to increased patient acuity levels. However, these specialty programs are quickly become a commodity in many markets, as most of the mid-sized to large companies now have disease management programs that they are marketing to referral sources. A simple example of this is the specialty program that has been developed for Medicare patients with balance issues. FIGURE 5.0 PROLIFERATION OF SPECIALTY PROGRAMS 4 Source: Company reports and Wyatt Matas & Associates 5 1776 I Street NW, 9th Floor • Washington, D.C. 20006 • 202-661-4691 • www.wyattmatas.com Mergers & Acquisitions • Capital Raising • Debt Restructuring • Business Valuations The Delineation of Home Healthcare: The Natural Evolution of a Healthy Industry While the balance programs may not even be considered disease management programs by some, the point is that many of these programs are being marketed to referral sources by multiple agencies. The positive effect is elevating the conversation with referral sources that home healthcare is advancing towards managing the disease rather than just reacting to the episode; however, referral sources are starting to hear the same specialty program pitch as they did with the traditional story of home healthcare. SMALLER AGENCIES B LOCKED F ROM THE M ARKET Wyatt Matas & Associates defines small home healthcare agencies as those below $8 million in annual revenue. While there are exceptions to the rule, many smaller agencies have not invested in the development of specialty programs. In an informal survey of 35 agencies under $8 million in annual revenue, Wyatt Matas & Associates found that only four agencies had developed specialty programs. All four of those agencies admitted that they had seen little success in generating new referrals from marketing the programs. Because of the explosion of these specialty programs, the marketing message of the smaller agencies is rarely heard by referral sources. The referrals they get are deeply rooted in personal relationships, most likely with the owners of the agency. Otherwise, the message is the undifferentiated message as discussed above. If they do have specialty programs, it is likely they do not have a properly trained sales force, if they have a sales force at all, that can penetrate the appropriate referral sources to market their programs or do not have the resources to properly brand their programs. The result is an agency that is most likely achieving the following results: • Receiving the “undesirable” referrals • Low acuity patients • High rate of commercial insurance referrals • Low profit margins These issues tend to build on one another and lead to cash flow problems that limit their ability to invest in new technologies and develop their sales force and/or their infrastructure that would allow them pursue higher-level strategic initiatives. While many of these smaller agencies see the benefits of specialty programs and home healthcare’s evolution into chronic care disease management, most believe their ability to attain that level is unachievable. THE CONTINUED E VOLUTION OF C HRONIC CARE M ANAGEMENT IN H OME HEALTH CARE Wyatt Matas & Associates believes that Amedisys, Inc., now the largest home healthcare agency by market capitalization, realized the commoditization of these specialty programs as early as 2007-2008 and began exploring different business models that would ultimately revolutionize how home healthcare is perceived. Around the same time, Wyatt Matas & Associates began pushing a business model of home healthcare that would look beyond the episode and manage a patient’s disease process from the start of an episode through end-of-life, if necessary. In 2008, Amedisys CEO, Bill Borne, announced they had begun to evaluate a post-episode program called Encore. In the announcement, Mr. Borne commented: • Healthcare is likely to move away from symptom-based care into coordinated care management. • The Encore program is in development and allows Amedisys to provide care extension services to follow the patient post-discharge for a short period of time. • The care management program tracks critical issues to prevent exacerbation of illness for which the patient was treated. 6 1776 I Street NW, 9th Floor • Washington, D.C. 20006 • 202-661-4691 • www.wyattmatas.com Mergers & Acquisitions • Capital Raising • Debt Restructuring • Business Valuations The Delineation of Home Healthcare: The Natural Evolution of a Healthy Industry • Results in the reduction of emergency care in the follow-up period, which has been significant. 5 This was an early signal from the company that they believed the future of home healthcare responsibilities’ would not stop at the end of an episode. Since this time, the company has developed into what is probably the most comprehensive care management company. The idea of home healthcare as the center of chronic care management is not a difficult argument to make. First, in most cases, home healthcare agencies give away care management or care coordination services for free. It is quite common during an episode of care for the patient, the patient’s family and even the patient’s physician to call on the home healthcare company for services that are not provided by the agencies. This puts the burden on the home healthcare company to identify a provider of the required service. Or in many cases, if there is a related health situation, the home healthcare nurse or agency is the first call rather than 911 or their physician. This is care coordination that is unbillable and often goes untracked by an agency and certainly does not show up on a cost report. Second, there is a clear policy drive to reduce hospital readmits and hospitalizations. For instance, there are current pilot projects or legislative initiatives currently underway that include such projects as: • Community–based Care Transition Programs: • Hospital Readmission Reduction Programs • Medicare Medical Home Demonstration • Independence at Home—Relaxing of the Definition of Homebound • Payment Bundling There are publications that discuss these programs in-depth, so this white paper will not go into the validity of each program except to say that even the discussion of these programs brings closer the reality of a chronic care management program in the U.S. healthcare system. The question will be who will be at the center of the care coordination. 5 Source: Amedisys CEO, AMED 4Q 2008 company transcript. 7 1776 I Street NW, 9th Floor • Washington, D.C. 20006 • 202-661-4691 • www.wyattmatas.com Mergers & Acquisitions • Capital Raising • Debt Restructuring • Business Valuations The Delineation of Home Healthcare: The Natural Evolution of a Healthy Industry DESIGNING A CHRONIC CARE MANAGEMENT COMPANY It is Wyatt Matas & Associates’ belief that in order for home healthcare to become the center of chronic care management, the typical home healthcare agency will have to evolve into an actual chronic care management company instead of just providing specialty or disease management programs. The reason for evolving into a care management company is the government (Centers for Medicare and Medicaid Services, CMS), insurance companies and other payor sources have to see it as a comprehensive service rather than just a short-term episodic solution. To grasp this model, three concepts have to be considered: • First, one has to discard the current definition of home healthcare and look beyond just episodic care and the definition of “homebound.” • Second, it is also necessary to consider the entire disease processes that are most prevalent, such as DM, COPD, CAD and CHF. While there are certainly others that should be included, these four tend to be diagnosed because of other issues that may be treatable through the traditional episodic care model, but the major diagnosis needs to be managed past the episode. • Finally, a chronic care management company is the care coordinator, the educator and the caregiver. Traditional disease management companies have stopped at educating their patients/members, which many have argued has been the reason why these companies have seen poor patient compliance and outcomes. To fully understand chronic care companies, it is often better to examine each component of the model. We have provided a graphical model in “Appendix A” and discuss each component below. In order to completely understand the model, it is appropriate to discuss the foundation of the chronic care management model and work up through each component: • Foundation of Chronic Care Management o Technology Platform: It is Wyatt Matas & Associates’ opinion that the technology platform will be the hub of the operations. The platform will allow the organization to scale, communicate with various providers, manage costs and provide evidence-based outcomes and resource tools that the care managers will use to solve and manage the disease processes’ of their patients. The technology will also need to provide the following: Point of care data entry An EMR system that is accessible by the physician(s) A cost of care collection system to be used to demonstrate how the company is lowering the cost of care for a particular disease Eventually the technology will need to communicate across provider platforms as the patient’s disease progresses o Telehealth System: Wyatt Matas & Associates makes a distinction between telehealth and telemonitoring. We define telehealth as a device that provides direct communication between the patient and the healthcare provider through a video-feed, whether that provider is a care manager, nurse, or physician. Telemonitoring is when a healthcare professional is monitoring reports generated from an in-home device, such as a patient’s weight, glucose levels, blood pressure, etc. While a telehealth monitor may provide the same reports and medication reminders as a telemonitor, the distinct difference is telehealth allows the healthcare provider to make an assessment of the patient through a video-to-video interaction. Wyatt Matas & Associates believes that a robust telehealth system will be required as a patient’s disease progresses in order to add value to the overall care management system. While telemonitors have their place in the continuum of care, we believe the CMS and insurance companies are more likely to reimburse for the interaction 8 1776 I Street NW, 9th Floor • Washington, D.C. 20006 • 202-661-4691 • www.wyattmatas.com Mergers & Acquisitions • Capital Raising • Debt Restructuring • Business Valuations The Delineation of Home Healthcare: The Natural Evolution of a Healthy Industry or the service provided through telehealth than the equipment provided via telemonitoring. As part of the overall company, the telehealth system will need to allow: Accessibility by the patient’s physician(s) and the family Integrate with the EMR system of the company’s technology platform In the future, vitals will be monitored 24/7 by a mobile devices via body sensors • Physician Involvement o Specialist and Primary Care: Because of the changing reimbursement environment for physicians, promotions of pay-for-performance among all healthcare providers and the developing initiatives surrounding the Medical Home Model, physicians are likely to be more incentivized to monitor their patients’ care in the home and not just at the time of the visit. This will require: More direct interaction with the patient in the home (perhaps through telehealth) More interaction with the care coordinators and in-home providers Electronic access to their patients’ records in order to monitor care remotely o Physician-Driven Care Management: While the home healthcare company may be the center of chronic care management, the physician will still drive the care. For this reason, we will suggest later in this white paper that it is advisable for the industry to partner now with the more powerful physicians’ association (AMA) to push this model forward. • Care Coordinator/Chronic Care Provider o The Chronic Care Management Company: Wyatt Matas & Associates believes the more advanced home healthcare agencies are already performing as chronic care management companies but are not reimbursed fully for all the services they provide. We also believe the industry will have to prove its value in order to push down the walls of the traditional episode of care provided by a home healthcare agency and possibly modify the definition of homebound status. Every year it is suggested that evidence should be gathered to demonstrate how home healthcare prevents readmissions to the hospitals by providing post-episodic care. To our knowledge the only company that is proving this model is Amedisys via their new contract with Humana. While they are not likely to share the data with the rest of the industry, they seem to be providing full-service care management services to Humana’s chronically-ill patients both from an episodic standpoint and post-episode, where appropriate. Amedisys used data collected from their Encore program, mentioned above, and took it to Humana and asked to be reimbursed a reasonable rate for a full range of services. A lesson for the entire industry. o Care Coordinator and Care Provider: In this model, it is contemplated that the care coordinator will also be the care provider. The patient may initially need the traditional home healthcare episode that the care coordinator may provide; however, when the patient is discharged from the episode, the care coordinator is still providing services to the patient which may include: Disease monitoring Care coordination of services, which may or may not be owned by the chronic care management company, such as: • Home infusion therapy • HME • Diagnostic testing (possibly in-home, as ordered by physician) o Transitional Care: Transitional Care is a concept that has been discussed since the mid-2000’s where the patient has exhausted his/her home healthcare benefits, needs extensive medication management, but does not qualify for hospice. This is a natural extension of chronic care management and one where the patient has traditionally ended up in and out of the hospital or a nursing home. o Hospice: Many transitional care patients end up in hospice, and Wyatt Matas & Associates believes that many chronic care management companies own hospice care companies. While this may not 9 1776 I Street NW, 9th Floor • Washington, D.C. 20006 • 202-661-4691 • www.wyattmatas.com Mergers & Acquisitions • Capital Raising • Debt Restructuring • Business Valuations The Delineation of Home Healthcare: The Natural Evolution of a Healthy Industry be the case for all, the hospice industry faces similar challenges as the traditional home healthcare industry, increasing volumes and declining margins. However, the infrastructure of a hospice agency can be absorbed within this chronic care management model, therefore, insulating the margin erosion to some degree. The Chronic Care Management Model allows the industry to catapult itself up the ladder of the overall continuum of care and become the center of chronic care disease management. The model allows the industry to capture more of the total revenue of the patient’s disease rather than just the episodic care revenue. At the same time, it reduces the overall expense burden to insurance companies and the government because it keeps the patient in the lower cost in-home setting rather than a hospital or long-term care institution. 10 1776 I Street NW, 9th Floor • Washington, D.C. 20006 • 202-661-4691 • www.wyattmatas.com Mergers & Acquisitions • Capital Raising • Debt Restructuring • Business Valuations The Delineation of Home Healthcare: The Natural Evolution of a Healthy Industry THE DELINEATION OF HOME HEALTHCARE As mentioned above, Wyatt Matas & Associates has been discussing this model since 2007, and others have discussed similar models for much longer. The question becomes why hasn’t this model become reality or a priority for the industry’s associations. First, Wyatt Matas & Associates asked the industry providers if they were satisfied with their position in the healthcare continuum. This question, asked in a survey conducted by ChangingHomeCare.com sponsored by Wyatt Matas & Associates, was posed and the answers are provided in Figure 6.0 Figure 6.0 What Are the Biggest Threats to the Homecare Industry? 6 While the obvious threat is reimbursement cuts, it is also clear the industry is unsatisfied with its position in the overall healthcare continuum. This leads to the next question of whether home healthcare agencies really want to become more chronic care management oriented. In the same survey, we find the answer identified in Figure 7.0. Figure 7.0 Wha7 Are the Biggest Opportunities for Homecare to Elevate its Position within the Healthcare Continuum? 6Source: Changinghomecare.com survey, sponsored by Wyatt Matas & Associates, N=906, respondents could choose up to three answers 7Source: Changinghomecare.com survey, sponsored by Wyatt Matas & Associates N=908, Respondents could choose up to three answers 11 1776 I Street NW, 9th Floor • Washington, D.C. 20006 • 202-661-4691 • www.wyattmatas.com Mergers & Acquisitions • Capital Raising • Debt Restructuring • Business Valuations The Delineation of Home Healthcare: The Natural Evolution of a Healthy Industry Again, we clearly found that the industry is in favor of chronic care/disease management and programs that support a full service chronic care management model. So, why has the industry not progressed further down a path chronic care management? With all the supporting evidence from multiple publications, including Decision Health, Caring Magazine and The Remington Report, and the success several dozen home healthcare agencies are having with disease management programs, why hasn’t there been a concerted effort to push for home healthcare as the center of chronic care disease management? Wyatt Matas & Associates believes the lack of effort is caused by the make up of the industry, and we expect that it will continue to cause a further delineation between those home healthcare providers that have committed to chronic care management and those that do not. F IGURE 8.0 D ELINEATION OF H OMECARE While the industry as a whole may say they want to become more chronic care focused, when smaller companies start to dissect the investment and skill-sets required to execute a chronic care management model, they often reject the idea. Especially because, to date, they may not be feeling the full impact of the lower margins that will certainly come to the industries in the near future. Therefore, they prefer to retain the profits or carve out their own niche and remain a small provider. Certainly there is nothing wrong with this approach; however, many would argue, for the betterment of the industry, a majority of home healthcare agencies will have to buy into the idea of evolving into chronic care management companies. Considering the lobbying and public relations effort it will take to transform the industry’s reputation, it could be argued that a clear majority would be needed. Getting a majority of home healthcare agencies to buy in poses a significant problem. Consider the make up of the industry as demonstrated in Figure 9.0. 12 1776 I Street NW, 9th Floor • Washington, D.C. 20006 • 202-661-4691 • www.wyattmatas.com Mergers & Acquisitions • Capital Raising • Debt Restructuring • Business Valuations The Delineation of Home Healthcare: The Natural Evolution of a Healthy Industry FIGURE 8.0 M ARKET SHARE BY M EDICARE R EVENUE W HEN A NALYZED BY P ROVIDER N UMBERS O WNED With 66% of total agencies under $8 million in revenue, two issues should be considered: • It is likely that a majority of these agencies could not evolve into chronic care management companies and would go against an industry-wide effort to press for policy changes that might leave them with the lower margin home healthcare business. • If the industry is dependent on the national associations to lobby for these changes, and if Figure 9.0 is representative of their membership, the national associations would have to go against a majority of their membership to lobby for policy changes that would create home healthcare as the center of chronic care disease management. This second issue is most significant. Without a national association to support the efforts of a national lobbying campaign, one must ask how change will happen. Historically, home healthcare has had little to no national lobbying effort. It wasn’t until Gentiva, LHC Group, Amedisys, Bayada Nurses, HCR ManaorCare and Almost Family created the Alliance for Home Health Quality and Innovation (AHHQI) that the industry had any lobbying effort at all. While the Alliance has grown to include 10-15 companies, it far from represents the entire industry. Furthermore, home healthcare is not the only industry that is considering being the center of chronic care disease management. Certainly, disease management companies and even insurance companies have lobbied to have their solutions heard. But most significantly, hospitals represent the most direct threat. First, many hospital systems own all of the components necessary to effectively manage a patient’s entire disease. Second, they have a powerful lobbying machine that could minimize the homecare national associations and AHHQI. If this were to happen, and the home healthcare industry had no lobbying momentum in pushing to become the center of chronic care management, home healthcare would be relegated to a component of the continuum, as it is now, and the industry would meet its destiny of becoming a high volume, low margin business if it can get any referrals at all from the hospitals. The recent national healthcare legislation is a prime example of the reactive lobbying effort of the home healthcare industry. This should be a wake up call for each provider and the national associations. The future problems of moving the industry forward will be internal. Smaller providers will resist change because they may not be able to participate; however, it is likely, with margin erosion on its way, they will not be able to participate anyway. The delineation of home healthcare should be embraced, and those that can move forward should. This is an inevitable part of the life cycle of a healthy industry. 8Source: 2008 CMS data, analyzed by Wyatt Matas & Associates, Publicly traded companies include AMED, GTIV, LHCG, AFAM 13 1776 I Street NW, 9th Floor • Washington, D.C. 20006 • 202-661-4691 • www.wyattmatas.com Mergers & Acquisitions • Capital Raising • Debt Restructuring • Business Valuations The Delineation of Home Healthcare: The Natural Evolution of a Healthy Industry PROPOSED SOLUTIONS TO MOVING THE INDUSTRY FORWARD Wyatt Matas & Associates is an investment firm and does not have expertise in formulating legislative policies. However, we have extensive experience in strategy development and in the home healthcare and hospice industries. This base of knowledge has come from advising clients developing and executing growth strategies on behalf of large and mid-sized companies. In preparing this paper, we surveyed over 900 home healthcare stakeholders and personally interviewed dozens of agency owners and industry participants. While the solutions we provide below represent our own opinions, they are a compilation of results from the survey and interviews we sponsored and conducted. STRATEGIC INITIATIVES FOR THE H OME H EALTHCARE INDUSTRY TO B ECOME THE CENTER OF C HRONIC C ARE D ISEASE M ANAGEMENT : • Home healthcare agencies with the capital to do so should begin building a chronic care management model. • The National Association for Home Care and Hospice should start a post-episode data collection center for agencies to report specific data that can be used to for lobbying CMS and Congress. • Home healthcare agencies, as part of the above, should design post-episode follow-up calls/visits to their patients to collect data that will support the idea of chronic care management. • Smaller providers that cannot or choose not to participate as chronic care management companies will have to accept lower margins or be acquired. • The National Association for Home Care and Hospice will have to choose to do what is right for the long- term future of the industry, while that might mean going against a majority of its membership. • The National Association for Home Care and Hospice will have to decide whether it will lead the industry or be a follower of the Alliance of Home Health Quality and Innovation. We hope they will lead and hire an outside lobbying group to provide a consistent and comprehensive lobbying effort. • No matter who leads the lobbying effort, we believe an alliance will need to be made with other more powerful groups that may include American Medical Association. • Other alliances that might be considered could include the American Homecare Association, National Home Infusion Association and the American Association of Homes & Services for the Aging, all of which would benefit from the home healthcare industry being the center of chronic care disease management. To receive our research electronically, please email firstname.lastname@example.org 14 1776 I Street NW, 9th Floor • Washington, D.C. 20006 • 202-661-4691 • www.wyattmatas.com Mergers & Acquisitions • Capital Raising • Debt Restructuring • Business Valuations APPENDIX A 1776 I Street NW, 9th Floor • Washington, D.C. 20006 • 202‐661‐4691 • www.wyattmatas.com Mergers & Acquisitions • Capital Raising • Debt Restructuring • Business Valuations Relationships that bring access. Knowledge that brings value. Phone: 202.661.4691 Email: email@example.com www.wyattmatas.com 1776 I Street NW 9th Floor Washington, D.C. 20006
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