Healthcare Hot Topics••••

Adult: Home Care, Home Health, Hospice & Palliative, Day Health
Pediatric: Home Health, Therapy, Day HealthHome Behavioral HealthWorkers Comp Home Health

Catch-up Period: January–May 2024

Kroll’s View of Industry Dynamics and Factors• Medicare home health: potential rate reductions in 2024-2025 (however,potential access issues, inflation and lobbying could be meaningful counterfactors)• Amidst hopeful Medicaid beneficiary re-enrollments, substantial support fora variety of services and ongoing waiting lists, keep an eye on statebudgets and their positive (or potentially negative) impact on HCBS
• Kroll opinion: a lot could change regarding the “80/20” rule ahead of its
implementation in 6 years• Dually eligible spending and growth statistics are “staggering, suggestingunderlying potential for growth in both skilled home health and HCBS”• Surveys continue to highlight the patient and cost savings benefits ofhospice, which did, at least, get a rate increase for 2024. With VBID
cancelled and cost savings demonstrated, this segment has a more solid
reimbursement outlook vs. some other home-based services segments• M&A activity remains muted, with only moderate visibility for improvement
over the very near term
• Staffing challenges and need for process optimization and automation
remain among the highest operational concerns for all types of home healthand community-based service providers

2Home Care• Support for growth in home care and related social needs services. The reader
is reminded that in 2023, the Administration of Community Living released a final
rule to effect updates to the 1988 Older Americans Act (OAA). Among otherprovisions, all of which were designed to deepen the stability and sustainability ofthese social needs programs, this rule includes requirements for state and local
programs to assist and help elderly with aging in place. Some OAA programs
address needs that include transport to medical appointments, nutritious meals,
in-home care and support to family caregivers• 80 /20 Medicaid rule – positives amidst tough provision . The passing of thepolitically driven 80/20 rule has caused consternation among industry participants
and financial sponsors. However, we think a lot could change or otherwise
happen to this rule: (1) six years provides a long preparation time to adjust
operating models, potentially exit Medicaid services selectively, and/or diversify
revenue streams; (2) much could change from regulatory and legislative
perspectives that could modify the rule; and (3) consolidation opportunities could
accelerate, giving rise to potential synergies and scale benefits.

• Updated MACPAC views of HCBS services. Brief, relevant observations from theMedicaid and CHIP Payment and Access Commission’s (MACPAC) latest Medicaid
compendium piece focused on 1915c waiver programs. Key findings include:oAccording to the agency’s definitions, HCBS workers include: (1) direct careworkers (PCAs, HHAs and CNAs), (2) direct support professionals providing
a broader range of services vs PCAs and assisting IDD individuals, (3)independent providers employed directly by beneficiaries (consumer or
patient-directed HCBS careoAll states report shortages of HCBS works, leading to a mismatch between
the need for services and the quantity of services provided

oStates determine wages based on Bureau of Labor Statistics, state wage
statistics, average wages from providers, market rates, and provider inputoMany states (30) conduct formal rates studies every 1-5 years

Sources: CMS; McKnights Home Care, February 2024, “Final rule strengthenssocial needs programs for seniors aging in place”, MACPAC Policy in Brief(Compendium for HCBS services and 1915c waivers), January 2024

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Home Care (Cont.)• Key statistics on dually eligible beneficiaries (DEBs). Here are just a few
statistics key from MedPAC/MACPAC’s lengthy 2023 databook on dually eligibles:oSpending on full-service (73% of beneficiaries), FFS DEBs in CY2021
amounted to $52 billion from Medicare and $57 billion from MedicaidoLong-term benefits (full-service DEBs utilizing Long Term Services andSupport or LTSS) totaled $84 billion (any LTSS), $112 billion (institutionalLTSS), $78 billion (HCBS waivers), $49 billion (state plan HCBS),$27 billion(no LTSS)oSpending growth for DEBs grew 7.6% in 2021 (Medicare) and 6.9%(Medicaid). FFS annual spending growth for home care was 5.5% in the2018-2021 period

More profound statistics on Medicaid LTSS (for DEBs and Non-DEBs) basedon KFF research:o6 million people receive LTSS, 4.2 million of whom receive services in theirhome and in the community. 56% of beneficiaries are under the age of 65

o62% are DEBso

Beyond people who currently receive LTSS, there are 700,000 beneficiaries
on waiting listsoInterestingly, the rate of health conditions is only slightly higher among
beneficiaries using institutional LTSS compared to those who use HCBS

Kroll’s Observations:
The statistics on DEBs and non-DEB beneficiaries are simply staggering,
including the growing spend for HCBS waiver and state plan HCBS programs(totaling $127 billion). These findings provide a solid underpinning for potential
investments in HCBS areas, especially given the continued shift to home andcommunity based services.

Sources: MedPac/MACPAC, January 2024, “Beneficiaries Dually Eligible for
Medicare and Medicaid; KFF, December 2023, “Who Uses Medicaid Long-Term
Services and Supports”

4Medicare Home Health Survey highlights challenges, but also opportunities in “home-based care”. The2024 publication by Home Health Care newsletter and homecare homebasefocused more on skilled home health providers, highlights the following, excerpted
statistics:
oGreat challenges in 2024 for providers: 58% of providers noted staffing
and 31% stated changing payment dynamics as key issues. Amongstaffing challenges, recruiting and retention is highest on the list

oProviders ranked the most significant efficiency opportunities in 2024 as
follows: (1) staffing utilization (27% of those survey); agency processoptimization and automation (25%), referral management (15%),scheduling (12%), etc.

oFor 2024, 65% of providers believe that revenue will grow in 2024.
Among growth tactics, jv/partnership ranked first (40%), same store growth(34%), M&A(17%), and de-novo and 9%, respectively, via M&A and denovo openings

oValue-based care has catalyzed operational process changes among 70% ofproviders surveyed

o52% of providers offer personal care/HCBS• Nothing new with MedPAC. Unsurprisingly, MedPAC has again called for
reductions in home health payments (specifically 7% in 2025). Industry sources
note that MedPAC’s calculations are based on antiquated methodologies.
Further, access to care could be at risk.

Kroll’s Observations:
The Medicare home health reimbursement outlook remains uncertain. However,providers find ways to adjust their operating models and seek efficiencies.
Further, Congress and CMS, following industry input, can and probably will makechanges to any rate adjustments (in line with the past where some rate changes
were made to the positive)
Sources: Homecare Homebase and Home Health Care News, January 2024,“2024 Home-Based Care Outlook Survey and Report; HomeCare, January2024, “MedPAC Recommends Congress Reduce Home Health Payment Rates”5Medicare Home Health (Cont.) National home health survey: larger bonuses, less turnover. The 2023-2024
Home Care Salary and Benefits Report, with 1,018 home health agencies
surveyed, highlights the following trends for turnover:o(1) standard 20-25% turnover pre-Covid for RNs, LVNs and HHAs, (2) 37%
at Covid’s peak, (3) continual trending towards the norm since 2021

o80% of providers have been offering sign-on bonuses for new RNs. RN
hourly raises were 3.9% in this time period, lower than in the year before National survey: fewer RNs in home health and hospice. There were 174K RNs
in these 2 sectors in 2022 (5% of the workforce), compared to 180K in 2018,according to a survey of Health Resources & Services Administration and theCensus Bureau (with burnout, high risk and inadequate staffing seen as reasons).
However, 57% of RNs were utilizing telehealth as part of patient care in 2022, up
from 50% in 2018
Sources: McKnights Home Care 2024 Industry Directory, April 2024, “RNs are
moving away from home health and hospice, federal survey reveals”

6Hospice and Palliative Flat hospice enrollment. In 2021 (latest available data), 1.71 million Medicare
beneficiaries were enrolled in hospice care, compared to 1.72 million in 2020.
The downward trend was in line with the utilization experience in 2020. Certainly,
Covid-19 had an impact, particularly in 2020
 Hospice survey: challenges and opportunities. The 2024 Hospice News Outlook
Survey and Report highlights the following, key statistics related to the outlook for2024:
oTop 3 challenges for surveyed providers: staffing (36%), regulatorychanges and oversight (17%) and public awareness and education (15%)

oGrowth tactics among providers for 2024: JVs/partnerships (45% ofsurveyed), same store growth (36%), M&A(13%), and de-novos (6%)

oTop 3 opportunities for cost savings in 2024: process optimization andautomation (31%), staffing (16%) and RCM (13%)

oM&A outlook: 43% of providers believe M&A will increase this year, while
11% think it will stay the same

 Hospice survey: salary increases and bonuses. The 2023-2024 Home Care
Salary and Benefits Report, surveying 704 hospices, noted:
oRaises for hospice RNs were 4.5% in 2023, with the national average hourly
pay rate at over $45o

LPN and HCA (hospice care aides) pay raises were 4.3% and 6.6%,
respectivelyoAverage sign-on bonuses were $7,000 (RNs), $4,700 (LPNs) and $2,300(HCAs)

Sources: Hospice News, January 2024, “Why Hospice Utilization Rates Have Fallen”; HomeCare,January 2024, “MedPAC Recommends Congress Reduce Home Health Rates”; Hospice News andHomecare Homebase, January 2024, “2024 Hospice News Outlook Survey and Report”; McKnights
Home Care 2024 Industry Directory7

Hospice and Palliative (Cont.) VBID abandoned. CMS has decided to stop the hospice component of theValue-Based Insurance Design (VBID) model, in part because the agency hascome to view the program as burdensome, challenging and unsustainable forproviders and payers. Providers have said all along that given the uniqueness ofhospice with a multi-disciplinary, person-centered approach, hospice does not fit
into a VPID/Medicare Advantage model Interest in palliative services declining among hospice providers. In its latest,
2024 survey, Hospice News found that only 16% of hospice provider survey
respondents indicated plans to start palliative care programs, down from 56% in2023
 Reimbursement increase – albeit small. In March, CMS proposed a 2.6% rateincrease for hospices for FY2025. Notably, without submission of required quality
data, hospices would receive a -1.4% rate penalty. Finally, the hospice cap would
move to $33,494 (the implied 2.6% rate enhancement).
 Significant savings for Medicare. Prior to the above CMS rate update, MedPAC
had suggested to keep hospice reimbursement rates flat for 2025. Factors thatwere considered: (1) the commission projected that 2024 hospice margins would
be 9%, vs. 13.3% in 2021; and (2) a March 23, 2023 study indicated that hospiceservices generated $3.5 billion in savings during the patients’ last 12 months of
their lives

Kroll’s Observations:
Of course, the suggested rate freeze by MedPAC makes no sense, in our view, arising amidst labor and other costs for hospice providers. CMS’ preliminary
decision to provide for a 2025 increase of 2.6% improves this situation, but only
to a limited extent, especially given the above-mentioned cost savings to theMedicare system. That said, it appears that hospice is better positioned thansome other home-based services categories to receive some increases (also inlight of the VBID cancellation).
Sources: CMS; McKnights Home Care, March 2024, “End-of-life care stakeholders celebrate end ofhospice VBID carve-in; Hospice News, January 2024, “How Hospices are Diversifying Their Services in2024”; McKnights Home Care, March 2024, “CMS Proposes 2.6% hospice payment update for
FY2025”8

Spending and Other Statistics
 Aside from numerous statistics above in the various sector discussions,
CMS’ December 2023-released fact sheets highlights home healthcare
spending of $133 billion in 2022, representing only 3% of total healthspending in the U.S. This statistic includes skilled home health,
Medicaid home care and private insurance-based services. It does notinclude the approximate $25 billion in hospice spend and other HCBS

M&A Activity
 First quarter transaction volume remained near the low points of previous quarters
 Diversified/Home Health & HospiceoBroad-based home health, home care, home IV and IDD service provider
BrightSpring completed its IPO in January 2024oFortis Health (Grant Avenue) acquired IN-based Physiocare Home Healthand Hospice in January. Aside from its focus on Medicare home health andhospice, this company also comes with palliative and home care services FranchisorsoIn March 2024, Waud Capital acquired 400-location home care franchisor
Senior Helpers from surprising, previous owner Advocate Aurora Home CareoIn May 2024, Family Resource Home Care (Great Point Partners) acquired
Adeo Home Care and Helping Hands Home Care in OR Home Healtho

In January, BrightSpring acquired a small, MD-based home health agency

oPennant Group remains one of the more active acquirors in this segment

 HospiceoIn January, New Day Healthcare (Kaltroco) purchase TX-based Compassion
Hospice, its ninth acquisition
Sources: CMS Fact Sheet, Office of the Actuary, December 2023, “NationalHealth Expenditures 2022 Highlights”

9Nick Konstantinou
Managing Director
nick.konstantinou@kroll.com+1 (216) 543 7885

Michael WeberManaging Director
michael.weber@kroll.com+1 (804) 543 1438

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