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Enhabit Inc. (NYSE: EHAB) CEO Barb Jacobsmeyer said Wednesday that the company would terminate its contract with the country’s largest Medicare Advantage (MA) payer, UnitedHealth Group’s (NYSE UNH) UnitedHealthcare.
UnitedHealthcare accounts for 9.4 million MA beneficiaries, or 29% of all enrollees, according to the Kaiser Family Foundation. Humana Inc. (NYSE: HUM), which is the second-largest MA payer, only owns 18% of the market, for context.
It’s hard to overstate how large of a strategic gamble this is for Enhabit. On one end, you can’t “negotiate” for better contracts if you’re unwilling to walk away from a bad one. On the other end, as Enhabit tries to build up its non-Medicare revenue (or MA revenue), reducing access to members of the country’s largest payer comes with inherent risks.
Broadly, Enhabit has been adjusting its revenue mix over the last couple of years to become a better partner to referral sources and set itself up for the future. When it spun off of Encompass Health (NYSE: EHC), close to 80% of its business was tied to traditional Medicare. Now, that number is closer to 60%.
As it takes on more MA – which now insures about 54% of Medicare beneficiaries – its goal is to mostly take care of patients under its improved (“payer innovation”) contracts. Over the last two years, Enhabit has been renegotiating contracts with MA plans, aiming to get higher rates, or at least higher-upside agreements.
UnitedHealthcare clearly fell short during negotiations.
“As we look to the future, the quickest way to get the majority of our non-Medicare business to the payer innovation contracts is to continue to focus on referrals within the payer innovation contracts, negotiate improved rates with non-payer innovation contracts, and, when necessary, terminate the lower reimbursing contracts,” Jacobsmeyer said Wednesday on the company’s second-quarter earnings call. “After over nine months of unsuccessful negotiations with UnitedHealthcare, we submitted our termination notice on August 1. We will dedicate our clinical resources to fee-for-service Medicare patients, and those members of the 68 favorable contracts. We remain committed to providing our strong quality of care to UnitedHealthcare members, if at some point they decide to contract with acceptable rates.”
Enhabit putting its foot down on UnitedHealthcare, and what it means for itself and the home health industry at large, is the topic of this week’s exclusive, members-only HHCN+ Update.
Putting a foot down
Enhabit said that moving away from UnitedHealthcare is squarely in line with its overall payer innovation strategy.
“In quarter one of 2023, 58% of admissions were in combined Medicare fee-for-service and payer innovation contracts, which left 42% of admissions in unfavorable contracts,” Jacobsmeyer explained. “In 2024, the percent of admissions in Medicare fee for service and payer innovation contracts has grown to 71%. This will continue to accelerate with the recent decision to terminate this national agreement.”
The Dallas-based Enhabit is one of the largest home health providers in the country. In total, it has 256 home health locations and 112 hospice locations across 34 states.
Capacity is the most cherished part of home health operations. Staffing is a barrier to growth, so what companies do with the staff they do have is of utmost importance.
It also happens to be providers’ best bargaining chip. Providers don’t want to leave home health-needy patients in the middle of contract wars, but MA members need home health access, and providers can take that away from plans.
With home health access dwindling – due to MA penetration and fee-for-service rate cuts – MA plans need reliable home health partners. They need to enable easy transitions from the hospital to the home, avoiding referral rejections when they can.
Enhabit’s termination of the UnitedHealthcare contract, and its coinciding public announcement of that, has drawn significant attention from Home Health Care News readers.
Providers have complained that, while UnitedHealth Group recognizes the value of home health care – considering its acquisition of LHC Group and its pending acquisition of Amedisys Inc. (Nasdaq: AMED) – it does not show it through UnitedHealthcare’s home health rates.
A move like this, from a provider as large as Enhabit, may serve as a wake up call to UnitedHealthcare. It will definitely serve as a point of reference and confidence for home health providers that are considering walking away from bad contracts themselves.
“As a regional provider of home health services, we had to look at those margins and how we best deploy our nurses and our therapists,” Jet Health’s then-CEO Stacie Bratcher said last January. “We were under water with one of our large providers. We had to decide, do we stay in-network with some really poor rates that were under what our per-visit rate was, or do we exit?”
Even if payers recognize the value of home health care, the departments that negotiate rates are sometimes incentivized to keep low rates in place. Jacobsmeyer has explained this dynamic on earnings calls before.
The current home health payment environment has providers turning every stone, looking for ways to keep a viable bottom line.
At some point, the juice is not worth the squeeze on bad MA contracts – both for struggling, smaller providers and for larger ones like Enhabit, which finally has better deals in place elsewhere.
“A year or so ago, we would not have been in the position to terminate that contract,” Jacobsmeyer said. “But now, with 68 agreements, including two national agreements, we feel confident that we’re going to be able to replace that census. Our current non-Medicare conversion rate is only at 48%, so we do have some non-Medicare that we don’t convert. So it’s really now going to be about replacing that census over this notice period.”
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