Outpatient Home Health Industry: Navigating Macroeconomic Challenges

Economic Conditions and Patient Volumes

Economic conditions are impacting patient volumes in the outpatient home health industry, with higher inpatient volumes and lower observation stays noted by Humana. CVS highlights volume and mixed trends affecting their health services segment, while UnitedHealth points to macroeconomic conditions and regulatory changes as factors influencing market growth and operations.

"Susan Diamond: Hey, Sarah. Yes, so in terms of the second half MLR, as we said, it does anticipate that the higher inpatient volumes, which are partially offset by lower average unit costs and then those lower observation stays will continue into the third quarter and the back half of the year." --- (HUM, earning call, 2024/Q2)

"The remainder of the pressure is in our other businesses in the health services segment, primarily driven by volume and mixed trends and the associated impact on our ability to deliver on network and client guarantees." --- (CVS, earning call, 2024/Q1)

"The rate of market growth may be affected by a variety of factors, including macroeconomic conditions and regulatory changes, which could impact our results of operations, including our continued efforts to control health care costs." --- (UNH, sec filing, 2024/Q1)

"So some of those things are disproportionately impacting our first half MLR this year relative to some prior years and so, obviously won't repeat in the back half, which can create some differences in what we're expecting first half and second half. So within our second half assumptions, as we've said, we have assumed that the higher absolute level of inpatient volumes plus the naturally offsetting unit cost and observation stays that we've experienced, those are all assumed to continue for the balance of the back half of the year." --- (HUM, earning call, 2024/Q2)

"I mean the broader care management wrapper is on this. But this category alone is driving obviously significant costs for our clients, and it's also driving significant expense within our organization, just to support what is now one of our highest drivers of call volume around people trying to find access to the product and making sure that we get consistent supply in the market." --- (CVS, earning call, 2024/Q1)

Reimbursement Rates and Financial Impact

MA payors are increasingly negotiating higher reimbursement rates with large-scale providers, enhancing financial stability. However, pharmacy reimbursement pressures and TRICARE contract shortfalls highlight ongoing financial challenges. Additionally, lower Star Ratings and risk model revisions impact revenue, underscoring the complex financial landscape in the outpatient home health industry.

"MA payors appear increasingly willing to negotiate higher reimbursement rates with large-scale providers possessing the data to prove the value of home health in enhancing patient outcomes and reducing readmission rates.Demonstrated Regulatory Moderation." --- (HUM, press release, 2024/05/29)

"These increases were partially offset by the impact of recent generic introductions and continued pharmacy reimbursement pressure." --- (CVS, sec filing, 2024/Q1)

"Under our administrative services only TRICARE contracts, health care costs payments for which we do not assume risk exceeded reimbursements from the federal government by $70 million and $29 million in the 2024 and 2023 quarters, respectively." --- (HUM, sec filing, 2024/Q1)

"Our medical benefit ratio of 90.4% increased 580 basis points from the prior year quarter, primarily reflecting higher Medicare Advantage utilization, the premium impact of lower Star’s Ratings for payment year 2024 and unfavorable prior year development as compared to the prior year." --- (CVS, earning call, 2024/Q1)

"Intersegment Revenues CenterWell intersegment revenues increased $0.3 billion, or 7.6%, from $3.7 billion in the 2023 quarter to $4.0 billion in the 2024 quarter primarily due to greater intersegment revenues associated with the home solutions business in the 2024 quarter as compared to the 2023 quarter as a result of the expansion of the value-based care home model and higher intersegment revenues associated with growth in the primary care business, partially offset by the impact of the v28 risk model revision. Operating Costs" --- (HUM, sec filing, 2024/Q1)

Labor Costs and Operational Efficiency

Companies like UnitedHealth Group and CVS Health are focusing on cost management and operational efficiency through productivity initiatives, scaling businesses, and value-based care strategies. These efforts aim to streamline operations, align costs with business conditions, and improve customer experiences while maintaining affordability.

"So, as we pace through the balance of the year, we expect to continue to build on this momentum across engagement, affordability and operating cost management and are confident in the 7.7% to 8% target for the year." --- (UNH, earning call, 2024/Q2)

"In addition to those efforts, we are accelerating enterprise productivity initiatives to streamline and optimize our operations, ensuring our costs are aligned to the business operations, environment, and conditions." --- (CVS, earning call, 2024/Q1)

"And as our businesses begin to scale, our ability to produce efficiency accelerates while, at same time, we can improve those customer experiences and expand the best practice across the broader base." --- (UNH, earning call, 2024/Q2)

"Our differentiated long term strategy is built around 2 core complementary ambitions: helping accelerate the U. S. Health system's transition to value based care by aligning incentives across care providers, health plans and consumers to deliver the highest quality outcomes at the lowest cost, while at the same time bringing to bear the full resources of our enterprise capabilities, our technology, data and clinical expertise to fundamentally empower and transform the way American consumers engage with their health care.These twin ambitions are underpinned by 5 strategic growth priorities." --- (UNH, event transcript, 2024/06/03)

Regulatory Changes and Industry Adaptation

The outpatient home health industry is adapting to regulatory changes by implementing strategic plans and anticipating necessary adjustments. Companies like Humana and CVS Health expect to maintain growth and margins despite funding uncertainties and disruptions, while UnitedHealth Group has initiated a three-year plan to navigate these changes.

"Importantly, we believe that the industry will adjust to the current funding regulatory over time, continuing to deliver strong top line growth and normalizing at an appropriate margin of at least 3%." --- (HUM, earning call, 2024/Q1)

"Key Regulatory Trends and Uncertainties • The Company is exposed to funding and regulation of, and changes in government policy with respect to and/or funding or regulation of, the various Medicare programs in which the Company participates, including changes in the amounts payable to us under those programs and/or new reforms or surcharges on existing programs, including changes to applicable risk adjustment mechanisms." --- (CVS, sec filing, 2024/Q1)

"Here, in early 2024, we're at the beginning of our thoughtful responsible three-year plan we developed last year to adapt to those changes. Our strategy continues to focus on" --- (UNH, earning call, 2024/Q1)

"Susan Diamond: Josh, so as we think about the 3%, and as Justin had asked earlier, that even historically had been -- how the business has been performing and expectation that we would be able to continue to maintain that level of performance and believe that the industry will minimally require that level of margin, just recognizing the inherent sort of risk in the insurance business the regulatory capital that has to be established." --- (HUM, earning call, 2024/Q1)

"We do think there's going to be disruption. We do think it's going to necessitate premium increases, and that's why there's just some uncertainty about where the ultimate industry goes from an MA perspective in terms of membership." --- (CVS, earning call, 2024/Q1)

Strategic Responses to Economic Challenges

Companies like Humana, CVS Health, and UnitedHealth Group are strategically navigating economic challenges by prioritizing capital deployment, maintaining strong market shares, ensuring business resilience, and focusing on transparency. These actions aim to sustain growth, manage disruptions, and address earnings pressures effectively.

"Erin Wright: Great. Thanks for taking my question. In light of the disciplined approach that you're talking about in the ongoing strategic review, how are you thinking now about capital deployment from here, whether it's prioritizing the alignment with the Medicaid book and ability to service duals, or is it more on the care delivery assets, and what is your level of focus or thinking even on the organic opportunities, I guess, generally speaking at this point." --- (HUM, earning call, 2024/Q2)

"That's very helpful to understand. And as you're thinking about maybe everything being on the table from a strategic perspective, obviously, you've got a broad collection of businesses, really strong market share in a number of those." --- (CVS, conference, 2024/05/29)

"Turning to the performance of our businesses. The most important takeaway is they are growing and performing at a level, which allows us to maintain the adjusted earnings per share objectives we established last November, even while taking on the business disruption impacts of the Change Healthcare attack." --- (UNH, earning call, 2024/Q1)

"Advantage challenges. While recent results have been pressured, our actions will return our earnings to their appropriate levels and will result in a stronger CVS Health." --- (CVS, earning call, 2024/Q1)

"So I'll just start there. I think if anything happens, it will be on transparency, but you have seen time and time again that there's been some challenges." --- (CVS, conference, 2024/05/29)

Competitive Landscape and Market Positioning

Companies like Humana, UnitedHealth Group, and CVS Health are navigating the competitive landscape by focusing on pricing trends, benefit design, and localized market strategies. They are introducing market-differentiating products and services to strengthen their market positioning and drive growth in the outpatient home health industry.

"So assuming a reasonable rate environment that's reflective of trend and assuming a competitive environment where people are pricing to trend, then yes, you should have ample room in more room in 'twenty six and then even further in 'twenty seven to get back to those longer term margins, which we had said we think will minimally be 3% across the industry." --- (HUM, conference, 2024/05/14)

"In particular, the discussions have been productive around benefit design, funding, market level planning and we're confident in the position as we go into 2025." --- (UNH, earning call, 2024/Q2)

"We're filing bids and I think it's over 2,000 counties. And literally our teams are looking at each of the competitive dynamics associated with each of the products in each of those markets and coming to an individual decision on what it is that we need to do across the enterprise with those local market teams and the product teams, medical management teams all working together to recapture the margin that we're talking about." --- (CVS, conference, 2024/05/29)

"That will be very dependent on what the competitive landscape looks like and what changes people actually make." --- (HUM, conference, 2024/05/14)

"And we've brought a lot of products and services in the last year. Two or three new products this market that are leading differentiating in the marketplace that we are seeing our health plans and our employers take advantage of this year that are really market differentiating and we are seeing that drive not just growth with health plans, but growth in products and services." --- (UNH, earning call, 2024/Q2)

Future Outlook and Industry Evolution

Companies like Humana and UnitedHealth Group are driving growth through cost-saving initiatives, productivity improvements, and market transformation. They are focusing on expanding their healthcare services, attracting new clients, and leveraging growth in both Commercial and Medicare segments, indicating a positive future outlook and evolution for the outpatient home health industry.

"Value Creation Initiative s Beginning in 2022, in order to create capacity to fund growth and investment in our Medicare Advantage business and further expansion of our healthcare services capabilities, we committed to drive additional value for the enterprise through cost saving, productivity initiatives, and value acceleration from previous investments." --- (HUM, sec filing, 2024/Q1)

"We're not only trying to bring volume back into our current customers. We're also going to bring new clients in, and that's exciting because this event has really transformed the marketplace." --- (UNH, earning call, 2024/Q2)

"Again, early in the stages of evaluation of that, but how our growth has changed and what we've seen in those profiles from the growth that you're seeing in our Commercial business to the growth in our Medicare business as well, really feel good about all those elements." --- (UNH, earning call, 2024/Q1)