The Pennant Group (Nasdaq: PNTG) has had to adjust to Medicare Advantage (MA) penetration in home health care, just like its peers. Unlike its peers, however, its adjustments have been mostly smooth sailing.
For over a decade, the company has been building out relationships with MA plans and health systems in the communities it serves to establish sustainable MA business in its home health segment.
“It comes back to this idea that health care is local, and that those decisions are made on the local level,” Pennant President and COO John J. Gochnour said Wednesday at the RBC Global Healthcare Conference. “Our strategy for the last 12 years that we’ve been around as a company has been to meet the needs of the community. So even before some of these changes, we were taking and building a network of insurance contracts. That business is lower margin, but it meets the needs of the community. And if we meet the needs of the community, then we’re going to also receive those higher-margin patients.”
Based in Eagle, Idaho, Pennant is a holding company of independent operating subsidiaries, including 112 home health and hospice agencies and 52 senior living communities spanning 13 states.
Pennant’s local leaders understand the financial impact of taking on a given patient, but also the “community impact,” Gochnour said. That has allowed the company to maintain a healthy traditional Medicare-MA mix over the years, which has also eased the transition that has come with more MA penetration.
“When you balance the needs of the community with the financial impact tacked on to your business, then you can grow in such a way that you grow volume, but you do it in a healthy and balanced way,” he said. “And that’s what’s really preserved – the overall value creation, even as Medicare mix has slipped a little. It hasn’t slipped anywhere near what some other folks have struggled with.”
Some publicly traded home health companies have joined managed care companies, and others have struggled with financial performance as they adjust to MA penetration.
That hasn’t been the case for Pennant, however. As of Wednesday afternoon, Pennant’s stock price was up close to 90% year over year.
Around half of Pennant’s MA mix is episodic, with the other half being paid on a per-visit basis. On the latter front, the company has been rewarded with 10%-15% rate increases over the past two years, which has outpaced rate increases over the prior 10 years, Gochnour said.
“We have a really high quality product,” he said. “Payers are more and more recognizing that, and will pay a little more for the best clinical outcomes. We’re more in a position where we’ll say to the payer, ‘Look, we’re taking a lot of your volume right now, we can’t continue to do that at the rates you’re paying us. So either we’re going to back out and you’re going to lose the best clinical provider in your community, or you’ve got to pay us more.’”
Pennant CEO Brent Guerisoli added that payers are starting to view home health care less as a commodity, which has been a problem for home health providers in the past.
“I think the payers are recognizing that this is not a commodity business, there is a real need to partner with high-quality providers in the communities,” Guerisoli said. “That’s also why these discussions have gone favorably for us, because they recognize the value of [partnering with] a quality provider.”
Companies featured in this article:
