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S&P Global: Home health agencies face defaults, consolidation

admin by admin
January 23, 2023
in Healthcare


The Centers for Medicare and Medicaid Services’ small pay bump for home health agencies in 2023 will not keep up with the rising expenses for some providers, potentially leading to credit defaults or consolidation, according to a new report.

In October, CMS authorized a 0.7% pay increase in the Medicare rate under the Home Health Prospective Payment System, amounting to $125 million. The final rule reversed a proposal to cut pay by $810 million after home health industry groups threatened to sue, and CMS decided to phase in payment reductions over a two-year period. CMS contends the cuts are necessary to correct $2 billion of overpayments made in 2020 and 2021 under the Patient-Driven Groupings Model, which was implemented in January 2020.

The nominal increase in Medicare reimbursement is substantially below home health providers’ rising labor and supply costs, acutely impacting for-profit home health chains like Amedisys and LHC Group that operate a large Medicare home health business, S&P Global Ratings analysts said in a report Thursday. Margin pressure could worsen in 2024, potentially leading to defaults and/or consolidation for home health agencies carrying a lot of debt on their balance sheets, including companies such as private equity-backed AccentCare and Elara Caring, said David Kaplan, director of corporate ratings at S&P Global Ratings.

“There could be consolidation of a company that is under distress of default. The question is, how much will an acquirer want to pay with that as a headwind,” he said.

Amedisys, LHC Group and AccentCare did not immediately respond to a request for comment on the report.

An Elara spokesperson said in a statement that the company is well positioned to weather financial cycles given its balanced payer mix and full-scale, multi-state home health offerings.

Elara restructured its debt in December. Ratings agencies considered the restructuring to be a distressed exchange, which they defined as a default.

Elara and other similarly situated providers may choose to invest more resources in their hospice business, Kaplan said. Hospice providers received a 3.8% Medicare rate increase in 2023.

Some home health agencies will try to reduce costs by limiting wage increases, although that scenario is unlikely given current labor shortages, analysts said. The nominal reimbursement increase, combined with rising labor costs and inflation, will dent profitability and cash flow.

“While technically a nominal increase, the reality is that our members are looking at a payment decrease this year and are staring down another reduction in calendar year 2024 if no change occurs,” Mollie Gurian, vice president of home- and community-based policy for LeadingAge, a trade group that represents nonprofit aging services providers, said in an email. “Nonprofit, mission driven providers are most vulnerable.”

If home health providers cut back services or close, CMS may withdraw its 2024 reimbursement cut, Kaplan said. Larger home-health providers are more insulated from the reimbursement changes, he noted.



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