As the Centers for Medicare & Medicaid Services (CMS) cuts fee-for-service Medicare rates and Medicare Advantage (MA) penetration continues, top-tier home health companies are looking for top-tier payers to work with.
Enhabit Inc. (NYSE: EHAB) considers itself a top-tier provider – regularly pointing toward its 30-day hospitalization rate, which was 20.5% below the national average in 2022 – and has spent the past couple of years looking for the right payers to work with.
When the company spun off of Encompass Health Corp. (NYSE: EHC) in 2022, it had a disproportionate amount of fee-for-service Medicare in its revenue mix. Since becoming a standalone company, Enhabit has had to adjust that to become a better partner to referral sources with a bevy of MA patients on their plates.
Since the spinoff, Enhabit has lowered its Medicare FFS mix from about 80% of revenue to about 60%.
“Our home health business historically had a really high mix of Medicare business,” Enhabit CEO Barb Jacobsmeyer said Tuesday at Goldman Sachs 45th Annual Global Healthcare Conference. “A lot of that was because of the collaboration efforts with the Encompass Health IRFs at the time. We do anticipate our mix to more follow industry levels going forward. That growth in Medicare Advantage elections really increased the relevance of a home health provider being seen as a full service provider to referral sources.”
The Dallas-based Enhabit has 255 home health locations and 112 hospice locations across 34 states.
As the company did lower its Medicare fee-for-service reliance, however, it had to take short-term hits on revenue. MA plans, in general, pay less for home health services than traditional Medicare does.
Thus, it has had to negotiate new contracts with payers willing to get back to the negotiating table.
In 2022, for instance, non-traditional Medicare rates at Enhabit were at about $136 per visit. In 2023, that number ticked up to $140. In the first quarter of 2024, that number ticked up to $145.
“More and more, we can move to those payer innovation contracts,” Jacobsmeyer said. “That also helps us offset any impact on that [drop] in fee-for-service Medicare. … We now have 64 new contracts since our spin, we still have a pipeline of 30 new agreements, and 28 historic agreements that we are working to renegotiate.”
Enhabit’s payer innovation team is the group that works on negotiating these new and improved contracts.
“We have structured it for our sales team where there’s tiers, and they get credit based on tiers of the types of the referrals that they receive, and the admissions that come in,” Jacobsmeyer said. “We will tier so that it’s not only about what the contract pays, but it’s also about the back end. So a contract can look great as far as what they’ll reimburse us. But if we find that it’s very cumbersome and we get denials on the back end, and there’s a lot of administrative work, a payer can move from being a tier one to a tier three or four, depending on that entire process.”
Despite cuts, traditional Medicare remains a top-tier or tier-one payer. But some MA plans are inching their way up as well.
“Fee for service is a top tier,” Jacobsmeyer continued. “We do have some of those regional agreements, though, that now pay us the same. And so they would be in that same top tier as fee-for-service Medicare.”
Enhabit leaders also briefly addressed the ongoing disagreement with the activist investor AREX Capital Management on Tuesday.
The company has urged shareholders to vote against AREX Capital’s new board nominations.
“We’re still relatively new,” Jacobsmeyer said. “We’re very confident in the strategy that we have established. Our board helps and pushes us. We have a lot of expertise and skills with our board, for example, in things with payer innovation, technology, HR, things that really help us think differently as we’re developing our strategies. We’ve had a couple of quarters here in a row where we’ve been able to show that those strategies do work. But they take time.”
