Cain Brothers Industry Insights
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A Paradigm Shift – Can Home Be the Default Setting of Care?
September 20, 2022 - Banker Commentary by Garrett Colgan
One of the keys to running a successful value-based care delivery model is heading “upstream.” Meaning, engaging with patients to prevent illness. Well, it doesn’t get further upstream than home.
The three largest Medicare Advantage (MA) carriers now own three of the nation’s largest home care networks. UnitedHealthcare, Humana and CVS Health control over 16 million attributed MA lives, accounting for over half of all current MA enrollment. Last summer, Humana acquired full control of the largest home health provider, Kindred at Home, at an $8.1 billion valuation. In June 2022, United purchased the third largest home care provider, LHC Group for $5.4 billion. And two weeks ago, CVS joined the club when it outbid United and Amazon to acquire Signify Health for $8 billion, representing a staggering valuation of ~40x EBITDA.1
Signify is the nation’s largest home health risk assessment provider operating a network of over 10,000 clinicians in all 50 states who conduct in-home and virtual patient visits. Signify’s clinicians perform in-home patient evaluations collecting up to 240 data points to create a comprehensive record of the clinical, social, and behavioral needs of a patient to enable healthcare providers to better engage and fill gaps in care. This year Signify will conduct nearly 2.5 million patient home visits.
Signify’s valuation highlights the growth in demand for the sector, as well as the importance and unique value home health delivery provides in the continuum of care. The demand for home health services is a result of the convergence of the following macro trends: i) continued growth of MA enrollment, moving large populations into value-based models that incentivize organizations to deliver care in low-cost settings, ii) a shift in patient preference for home care services, catalyzed by the pandemic normalizing virtual and in-home care, iii) technological advancements, allowing for higher acuity in-home care, as well as enhanced remote patient monitoring capabilities, and, finally, iv) the need for greater patient access to high-quality care.
A recent report by McKinsey & Company estimated that up to $265 billion worth of care for Medicare fee-for-service and MA beneficiaries could shift from traditional healthcare facilities into the home setting by 2025. That figure represents about 25% of Medicare’s current total expenditure and would be a three to fourfold increase in the cost of care being delivered in-home today for this population (although, it’s unclear how reimbursement rates will be affected by the shift). This will cause large-scale disruption to traditional care delivery networks with the greatest impact occurring in the acute care setting (see Exhibit A below). According to the McKinsey report, approximately 20-30% of current acute services can be delivered safely and effectively in the home setting. In addition, CMS recently stated that treatment for more than 60 different acute conditions, such as asthma, congestive heart failure, pneumonia, and COPD, can be treated appropriately and safely in the home setting. Moreover, increased patient access for high-risk populations to preventative and routine care at-scale will improve population health outcomes and reduce traditional emergent and acute care utilization as a result.
As this paradigm shift continues, large-scale fee-for-service focused provider organizations and health systems are most at risk. It is imperative for these organizations to adopt a strategy to position for the evolution of care delivery.
Based on 2018 Medicare claim data (Medicare Limited Data Set), NHE-protected Medicare annual growth rates, and results of external physician survey to understand what percentage of care being delivered in an office or facility could be provided at home.
Categories have experienced substantial growth in telemedicine as a result of the COVID-19 pandemic.
Outpatient mental-health and behavioral-health visits.
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