There are particular headwinds which can be affecting all house care suppliers proper now, whether or not it’s pay, staffing, or one thing else. Within the midst of these challenges, the biggest firms are all taking barely completely different approaches to progress.

For instance, Enhabit Inc. (NYSE: EHAB) caught the eye of house well being care suppliers in all places final week when it introduced it had terminated its contract with UnitedHealthcare of UnitedHealth Group (NYSE: UNH). The transfer was a part of its overarching technique of “payer innovation.”

Aveanna Healthcare Holdings Inc. (Nasdaq: AVAH) can be specializing in its preferred-payer technique, which incorporates setting a tough cap on charges — as Enhabit does — but additionally advocating for honest reimbursement by states for home- and community-based providers (HCBS).

Leaders at Amedisys Inc. (Nasdaq: AMED) have been quiet over the previous yr, given its pending acquisition of UnitedHealth Group. However in relation to payer technique, the corporate’s numbers inform a narrative value watching.

Elsewhere, Addus Homecare Corp. (Nasdaq: ADUS) is benefiting from headwinds. Excessive rates of interest and cost uncertainty within the house care business have led to a sluggish M&A market, permitting the corporate to pursue acquisition targets with little competitors.

The Pennant Group (Nasdaq: PNTG) has finished the identical.

The methods of the businesses talked about above differ barely, however they’re all able to reaching progress in a turbulent time for house care.

What’s behind these methods is the topic of this week’s unique, members-only HHCN+ Replace.

Discovering the correct payers

Aveanna and Enhabit are each making an attempt to get their companies again on observe. Each noticed their inventory costs plummet after their IPOs, and each have addressed that drawback—at the least partly—by rethinking their cost methods.

Enhabit’s technique for payer innovation is effectively documented. In final week’s HHCN+ Replace, I mentioned the choice to divest from UnitedHealthcare.

“After greater than 9 months of failed negotiations with UnitedHealthcare, we submitted our termination letter on August 1,” Enhabit CEO Barb Jacobsmeyer stated final week. “We’ll reallocate our scientific assets to Medicare sufferers who pay for his or her providers and to members of the 68 favorable contracts. We stay dedicated to offering our robust high quality of care to UnitedHealthcare members, ought to they in some unspecified time in the future resolve to enter right into a contract with acceptable charges.”

Like Enhabit, Aveanna is reclaiming its most essential useful resource: frontline staff.

“By focusing our scientific capabilities on our most popular payers, we’re delivering stable year-over-year income and adjusted EBITDA progress,” Aveanna CEO Jeff Shaner stated in the course of the firm’s second-quarter earnings name. “We additionally skilled enchancment in our supplier hiring and retention traits by aligning our efforts with these payers prepared to work with us on improved reimbursement charges and value-based agreements. Whereas we proceed to function in a difficult labor and inflation surroundings, our most popular payer technique is enabling us to return to a extra normalized progress fee throughout our enterprise segments.”

Aveanna posted stable year-over-year progress within the second quarter throughout all three of its segments: client providers, house well being and hospice care, and medical options.

Enhabit has touted its 68 “favorable” non-Medicare agreements. Aveanna additionally lists payers and states prepared to pay a good fee for house well being care providers.

Aveanna stated no single payer represents greater than 10% of its enterprise, which lends itself to a wholesome enterprise. On the similar time, it means the corporate has work to do in relation to renegotiating larger charges for providers.

As seen above, Aveanna will triple and almost triple the variety of most popular payers and value-based care plans by the tip of 2024.

Historically, house care includes at the least one supplier being prepared to simply accept decrease charges, making negotiations with the remainder of the suppliers harder.

However now it’s the bigger firms which can be setting an excellent instance.

“As we proceed to develop, we’re accelerating our Most popular Payer and Medical Options technique by aligning our capability with these payers who worth our providers and reimburse us appropriately for the care we offer,” Aveanna CFO Matt Buckhalter stated on the decision. “We proceed to battle via a difficult working surroundings whereas placing affected person care on the heart of every little thing we do. We’re clear that shifting supplier capability to these most popular payers who worth our partnership is a path ahead.”

Amedisys will doubtless signal a payer by the tip of the yr. Nevertheless it has clearly centered on successful higher enterprise in MA lately. Within the second quarter, non-Medicare house well being income grew 24% year-over-year.

One other research launched this week advised that MA members use house well being care lower than their conventional Medicare counterparts. Whereas there are doubtless many causes for this, slicing again on house well being care, a important and more cost effective service, might be not an excellent long-term technique for MA plans.

'Daring' mergers and acquisitions

One of many different most illuminating admissions of the current earnings season got here from Addus, which advised that current M&A exercise was enabled partly by much less competitors – significantly of the non-public fairness selection.

Final yr, Addus acquired Tennessee High quality Look after $106 million, increasing its value-based care capabilities within the state. This yr, it agreed to accumulate Gentiva’s private care belongings for $350 million, opening up a number of new states.

Over the previous two to 3 years, M&A has hit historic lows within the house care sector. Exercise in house care, house healthcare and hospice has plummeted from the height of 2020 and 2021.

“Realistically, we haven't seen loads of competitors over the past 12 to 18 months,” Addus CEO Dirk Allison stated in the course of the firm's second-quarter earnings name. “There's been the occasional smaller strategic participant that's purchased a number of offers on a neighborhood foundation. From a PE standpoint, it's been actually sluggish when it comes to competitors recently. Now, if charges come down in September, as everybody expects, there's clearly going to be a degree the place PE comes again and that's tremendous. It's a market the place we've at all times been competing with these folks up till the final yr or so.”

Pennant Group (Nasdaq: PNTG) has joined Addus in a bid to buck the downward M&A pattern. It has executed a collection of transactions lately, together with a serious deal for Signature Healthcare belongings in its present footprint, in addition to a deal that places it on the East Coast for the primary time.

“This era of enlargement offers perception into our potential as a supplier of alternative in our native communities, a best-in-class operator in our industries, and a disciplined – but daring – progress firm with the sophistication and adaptableness to develop into a key answer throughout the healthcare continuum,” Pennant Group CEO Brent Guerisoli stated in the course of the firm’s second-quarter earnings name. “Because the starting of the yr, we’ve got entered into the Muir House Well being three way partnership; closed two extra house well being and two hospice transactions; entered right into a administration settlement with Hartford HealthCare; introduced the biggest acquisition in our historical past with the Signature transaction; and accomplished three senior housing offers.”

Most giant house well being care suppliers notice that two issues are wanted on this market: higher contracts with all companions in managed care and a scale that permits them to stay profitable regardless of the dangers of a pen stroke.