What ‘Leveling Off’ Medicare Advantage Penetration Would Mean For Home Health Providers

The Centers for Medicare & Medicaid Services (CMS) isn’t letting up on cuts to home health payments, but its recent rulemaking in Medicare Advantage (MA) may end up benefiting home health providers indirectly.

As MA plans become more scrutinized by regulators and lawmakers – and payment updates come with more meager increases – MA penetration is likely to plateau, or at least slow down in its rate of increase.

CMS finalized a 3.7%, or $16 billion, increase to payments for MA plans in 2025, in an update that will likely end up being a cut to “core” rates by 0.16%, according to the investment banking company Stephens.

That will be the second cut to core rates in a row for MA plans, a change in direction from the positive payment rulemaking they had previously been experiencing.

As a result, some of the largest MA plans have pulled back from expanding, and some have even exited markets. BCBS of Kansas City announced that it would be exiting the MA market in Kansas City by the end of 2024, for instance. Humana Inc. (NYSE: HUM) leaders said the company would exit certain markets in MA in 2025 and instead “prioritize profitability.”

Last year was the first year in which there were more MA beneficiaries than traditional Medicare beneficiaries, according to Kaiser Family Foundation. Just a decade prior, in 2013, only 29% of Medicare beneficiaries were underneath an MA plan.

Such trends resulted in the belief that MA penetration would continue unabated over the next decade. MA plans took over 50% of market share much quicker than most believed, so the theory held that penetration would continue at the same rapid pace moving forward.

Anecdotal signs suggest that may not be the case, however. In addition to the MA plans that have announced their departure from certain markets, home health providers have also suggested that MA share has been plateauing in their own markets, as far as they can tell.

“Anecdotally, we’re sort of seeing the limits of managed care penetration,” The Pennant Group President and COO John Gochnour recently told me. “I think we are seeing – and will see – some leveling off.”

MA’s headwinds, and how they will affect home health providers, is the topic of this week’s exclusive, members-only HHCN+ Update.

MA penetration

When it comes to factors that affect home health providers state by state, there are few that display more variability than Medicare Advantage penetration.

“That is probably the largest variability we see at a state level, of maybe any data point we have – MA penetration rates,” Research Institute for Home Care Executive Director Jennifer Schiller told me.

For instance, some states are far above a 50% penetration rate, and some states still have a penetration rate from 20% to 30%.

But that wouldn’t be a reason why some providers are seeing a slowed increase in penetration right now. Schiller explained that, no matter what penetration rates are currently in each state, they all follow a similar trend line.

“Despite where they start – with some states being much lower in terms of penetration – if you were to look at the year-over-year data, it has the same trajectory line,” Schiller said. “There’s a different starting and ending point, but the same curve from one point to the other.”

That makes the comments from The Pennant Group Inc. (Nasdaq: PNTG) and similar comments from Addus HomeCare Corp. (Nasdaq: ADUS) more interesting.

Earlier this year, on Addus’ first-quarter earnings call, CEO Dirk Allison said that he and his leadership team believe MA penetration is leveling off in the company’s markets.

“We continue to be affected by the movement of Medicare beneficiaries from Medicare fee-for-service to Medicare Advantage, but we feel we may be seeing a leveling off of this shift in the markets we currently serve,” Allison said. “We are continuing to work with our Medicare Advantage payers to obtain higher rates.”

It’s of note, too, that Pennant and Addus do not have similar footprints. Like Pennant, Addus has a presence up the West Coast. But it also has a very large footprint in the Midwest and the Rust Belt.

Because payment rates have only been unsatisfactory – from the MA plan perspective – for two years in a row, there could be lagging indicators, too.

If home health providers are noticing signs of a penetration stall now, and MA plans are announcing market departures here and there, it may take a couple of years for real data to prove out that reduced penetration rate.

What this means for home health care

It’d be hard to find a home health provider that’s fond of MA penetration. MA plans pay less than traditional Medicare does for home health services.

“It’s frustrating to see where Medicare is going with their rates, and what they’re trying to do with clawbacks,” VitalCaring CEO April Anthony said last year. “But, if one of our managed care partners came to us with those [traditional Medicare] rates, we would be jumping for joy. We’d be saying, ‘This is the greatest contract we could possibly hope for.’”

Given the more cumbersome back-office requirements MA payment requires, and the lower rates, it takes providers time to adjust. They need to adjust systems and drive efficiencies to make taking on MA patients viable.

Enhabit Inc. (NYSE: EHAB), for instance, has been in the process of adjusting its revenue mix for the last two years to adjust to shifting market trends. After it spun off of Encompass Health (NYSE: EHC), its revenue mix was dominated by traditional Medicare – at close to 80%. Now, it’s gotten that number down to closer to 60% – in order to be a better referral partner – but not without speed bumps.

Since it began on that initiative via its payer innovation team, it has financially underperformed. It underwent a strategic review, and now is in a battle with an activist investor – AREX Capital Management – which has been dissatisfied with its strategic course.

And that’s for a large, at-scale provider with a nationwide presence. Consider, then, what such an undertaking may do to a less resource-rich provider.

So, if penetration does wane, home health providers would likely welcome that. But it doesn’t mean that providers should stop fighting for higher rates from MA plans, or stop planning for a future dominated by MA plans.

“Our focus is on the things that we can control,” Gochnour said. “The things that we can control are delivering great care, being the solution for the community that we serve and for the referral sources who help patients get care. Then, we worry about whether we have the best contracted rates that are possible out there, so that we can take volume, in whatever form it comes. If we control the things that we can control, we feel confident we can be successful. Even in an environment where there’s dislocation or change.”