Industry Voices—How new CMS policies are changing the way investors view home health

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Policy changes are affecting how investors view the skilled home health market and paving the way for potential strategic acquisitions. (Jirapong Manustrong/Getty Images)

Patients have always had a preference for “aging in place;” being cared for in the comfort and familiarity of their homes and communities. But for providers, bringing consistent, high-quality care to a patient’s home—and getting paid for it—has presented challenges.

Recent changes at the Centers for Medicare & Medicaid Services (CMS), however, are making these solutions even more practical. Changes to reimbursement guidelines have shifted how skilled home care is valued and has breathed new life into unskilled home care and telehealth services.

With 10,000 Baby Boomers turning 65 each day in the U.S., the market for these services is growing rapidly, attracting new investments into the sector. Added capital is being leveraged to expand home care options and the availability of these services, benefiting patients alongside investors.

New priorities for skilled home health

As the healthcare industry continues to move toward value-based care, new CMS policies around the Patient-Driven Groupings Model (PDGM) going into effect in 2020 represent a major recalibration of the payment paradigm for the industry.

Historically, skilled home health agencies were compensated in a way that penalized certain providers for providing requisite services to patients with complex needs, while rewarded agencies that used higher volumes of therapy services. The new payment model will be based on each patients’ clinical condition, functional level and individual care needs, rather than the therapeutic intensity of the care provided.

These changes are affecting how investors view the skilled home health market and paving the way for potential strategic acquisitions.

Valuing non-medical home care

Evidence demonstrating the interplay between social determinants of health and health outcomes is shedding new light on the non-medical home care sector. Regulators, payers, providers and employers are rethinking the role that social programs, like personal assistance services, (i.e., non-medical home care delivered by an attendant or aide) play in cost containment, outcomes-based care and patient satisfaction.

Last April, CMS rolled out a disruptive and monumental change, announcing that beginning in the 2019 plan year it would allow private Medicare insurers to cover non-medical in-home care as a supplemental benefit for Medicare Advantage plans. For the first-time, aging Americans would be able purchase a Medicare Advantage policy that would cover bringing a home health aide to their house to help them with the support they may need for daily living—from getting dressed, to bathing, tidying up, cooking and combating senior loneliness.

This policy change created a new paradigm for the non-medical in-home care industry—expanding the addressable market by the more than 20 million seniors enrolled in Medicare Advantage plans.

However, with such a short runway between the announcement and insurance deadlines, few insurers managed to incorporate non-medical in-home care in time for the 2019 plan year. In fact, according to an AARP analysis, only a meager three percent of Medicare Advantage plans offered these services in 2019. There remains an enormous growth opportunity for non-medical care providers and their investors.

Telehealth finds its funding

For decades, telehealth services have helped keep employers’ and certain commercial plans’ healthcare costs lower, especially for underserved or rural populations. But Medicare, Medicaid and providers have faced challenges getting paid for these tech-enabled services, which include video consultations, Personal Emergency Response Systems (PERS), or remote vitals monitoring.

Much of this changed in April 2019 when CMS approved a final rule giving Medicare Advantage plans more flexibility to cover telehealth services in the home setting—even for patients in urban areas, where there is rarely a dearth of quality providers. Historically, CMS had only allowed telehealth reimbursement in situations where patients were managing a clinical condition without ready access to care.

The convenience and affordability of telehealth solutions resonates with many patients and their families. According to Deft Research’s 2019 Medicare Shopping and Switching Study, the majority of Medicare Advantage members would change plans in order to procure access to telehealth services. Physicians and other clinicians benefit from the enhanced visibility they gain into their patients in real-time, as well as the stronger patient engagement in care that results from these tech-enabled tools.

The addressable market for telehealth solutions is expanding rapidly as patients desire the convenience, providers appreciate the assistance, and health plans cover their use.

A boon for investors and patients

CMS’ policy changes are spurring investments in home care and telehealth solutions. Private equity firms and strategic corporations are shaking up the landscape—to patients’ benefit, encouraging flexible treatment solutions that are becoming more innovative and widespread.

Large private equity funds like Welsh, Carson, Anderson & Stowe and KKR have already made investments in home and community-based care in anticipation of the tremendous future growth opportunities.

Skilled and unskilled home care markets and companies like Amedisys, Kindred at Home and Elara Caring are likely to consolidate, building a continuum of care from post-acute to sub-acute home and community-based capabilities. In the telehealth space, already established players are being challenged by newcomer startups offering to place quality care in the palm of patients’ hands.

Ultimately, regulatory changes can be a strong indicator of what areas of the healthcare space will see growth in the years ahead. In addition to these recent CMS announcements, policy changes including Medicaid expansion and the ongoing debate in Washington around the future of Medicare have the power to further impact which parts of the healthcare ecosystem will grow or contract in the years to come. 

Lincoln International is a leading middle-market investment bank, a leading financial advisor to private equity firms with extensive expertise in healthcare.