Healthcare Hot Topics
HMS Home Health / Home Care / Hospice

Second Quarter 2024

Sectors Covered by This Report:• Reminder that Kroll’s Healthcare Investment Banking Group and this report cover
the following segments of the labor-based home health and community-based
services (ranked by market size):o Adult Home Careo Adult Home Healtho Hospice and Palliativeo Pediatric Home Healtho Adult Day Healtho Pediatric Therapyo Home Behavioral Healtho Workers Comp Home Healtho PPEC (Pediatric Day Health)(Note that we issue a separate Hot Topic report on the home RT, HME, complex rehab, home medical
supplies and other home and community-based medical equipment and products sectors.)

2Kroll’s View of Industry Dynamics and Factors• Medicare home health: likely net rate reduction for 2025 is not totally unexpected,
but it is tough on this sectoro We believe this fact will accelerate industry consolidation, with larger
entities continuing to seek growth and some smaller providers looking toexit/sello We also think this dynamic will lead home health players to add or growhospice services, which are viewed as more stable in terms ofreimbursement and that may offer additional growth opportunities• Medicare Advantage home health: under the “right” operating model andassuming contracting/pricing discipline, we assert that MA-focused home healthproviders can achieve notable profitability. Important factors:o Potentially reduced sales and marketingo Opportunity to gain market share over otherso Other, potentially reducible back-office expenses
o Opportunities to outsource certain functions, leading to lower back-office
expenses• Medicaid home care: we think M&A activity will revive in the coming months andquarters. The “80/20” uncertainty is now moved back by six years and, according
to some industry observers and our view, there is a good chance for alteration tothe rule, in our view. HCBS initiatives and the low-cost nature of these services
will continue to be important drivers. In that regard, other HCBS services also
deserve attention: IDD, meals on wheels, adult day health, etc.

• Reminder on another Kroll home health-related Hot Topic report: The Kroll
Healthcare Group also publishes a separate quarterly Hot Topic report focused onhome, mobility and chronic care equipment, products and supplies used byindividuals and patients in home and community-based settings
3Home Care and HCBS
• GAO report citing insufficiencies in home-based care services andnutrition support for elderly. The May 2024 GAO analytical reportputs food insecurity among older Americans at an estimated 18%.
Citing data from the 2020 Health and Retirement Study, the GAO
highlights that 3.2 million elderly with difficulty with one or more
instrumental activities of daily living (ADL) do not receive any homebased care from any source, representing 27% of the 18.9 million
US elderly population that has at least 1 ADL

Source: U.S. General Accounting Office, May 17, 2024, “Older Americans
Act: Updated Information on Unmet Need for Services”

4Home Care and HCBS (cont.)• HCBS statistics of note. The following HCBS statistics are worth
your review:o HCBS Medicaid expenditures vs. institutional. As apercentage of MLTSS, 61% of expenditures were related toHCBS and 39% to institutional. In the mid-1990s, thesepercentages were 19% for HCBS and 81% institutional,
demonstrating the dramatic growth in HCBS. The crossover
point when HCBS expenditures became more than 50%
occurred in 2013o Medicaid enrollment. Some 82.8 million persons wereenrolled in the various Medicaid programs in March 2024
(down slightly from the prior month), of whom 7.1 million
were enrolled in CHIP.

o Medicaid dually eligible expenditures. Medicaid spending on
full-service (73% of beneficiaries), fee-for-services DEBs in
CY2021 amounted to $57 billion (plus $52 billion underMedicare). Medicaid spending growth for DEBs was 6.9% in
2021 (7.6% under Medicare). FFS annual spending growth forhome care for DEBs was 5.5% in the 2018-2021 period

Source: Health Management Associates, HMA Weekly Roundup, July 3, 2024;
MedPAC/MACPAC, January 2024, “Beneficiaries Dually Eligible for Medicare
and Medicaid”

5Medicare Home Health• Traditional Medicare home health statistics. The following statistics
related to Medicare home health are worth reviewing. Note that wealso cited a multitude of key Medicare home health statistics in prior
Hot Topic reports:o Discharges from hospital: 48% of Medicare patients receive
no referrals. Of the ones that required post-acute care, 24%
were referred into home health, 19% into SNF, 4% into IRFs
and 5% into other care settingso Medicare enrollment stood at 67.2 million in March 2024, up
119K from February 2024. This statistic includes the 33.9
million older Americans enrolled in Medicare Advantage planso The enrollment of dually eligible persons in MA plans stoodat 12.1 million in 2022 (these persons are included in both MA
figures shown above under each of Medicare and Medicaid.
The proportion of these persons in MA plans grew from 24%
in 2013 to 51% in 2021

Source: CMS, June 26, 20246Medicare Home Health (cont.)• Proposed net 1.7% rate reduction for 2025 home health rates.
The composition of this net reduction is as follows: (1) a proposed
2.5% home health payment update, (2) 3.6% statutory rate
reduction based primarily on the permanent behavior adjustment,and (3) 0.6% FDL-related decrease
Kroll’s Observations:
Unless there is legislative interference, it is likely that we will see
another (at minimum small) reduction in Medicare home healthrates for 2026. Between payment pressures in traditional Medicare
and Medicare Advantage, providers will need to find ways to adjust
their operating models and seek efficiencies. We expect acquisition
activity to ramp up in Medicare home health as larger providers will
look to grow further via acquisitions (with some scale benefits) andas smaller providers look for an exit in what has become a bit morechallenging-to-navigate sector.

Source: CMS, June 26, 2024

7

Medicare Advantage• More diagnoses. There is agreement among many sector
participants and observers that Medicare Advantage uses more
taxpayer money for its enrollees vs. traditional Medicare for itsenrolled beneficiaries. MA plans are paid based on submitted
diagnoses, in effect incentivizing providers to report as many
diagnoses as possible• Coding intensity. Research by Paul Jacobs (agency for Healthcare
Research and Quality) identifies two powerful factors that are
driving higher encounter-based risk scores (i.e., coding intensity that
effectively adds to diagnoses) for MA enrollees vs traditional
enrollees: in-home health risk assessments and chart reviews

Source: Health Affairs, July 2024, “In-Home Health Risk Assessments andChart Reviews Contribute to Coding Intensity in Medicare Advantage”

8CMS Home Healthcare Projections• CMS’ definition of home healthcare: providers primarily engaged inproviding skilled nursing services in the home, along with a range ofthe following: personal care services; homemaker and companionservices; physical therapy; medical social services; medications;medical equipment and supplies; counseling; 24-hour home care;occupational and vocational therapy; dietary and nutritional services;
speech therapy; audiology; and high-tech care, such as intravenoustherapy. (Hospital-based HHAs are classified with hospitals (NAICS622) and are, therefore, included with hospital care expenditures.)”• Home healthcare expenditures were projected to have reached$145 billion in 2023, up 8.2% from 2022. 2024 Home healthcare
expenditures are estimated to reach $155 billion, representing 6.6%
growth over 2023. For 2025-2026, projected annual growth isexpected to be 8.1%, rising to a growth rate of 8.1% in the 20272032 period. In 2023, home healthcare spending was estimated tohave been just 3.2% of total U.S. healthcare expenditures of $4.8trillionSource: Health Affairs, July 2024, “National Health Expenditure Projections,2023-32: Payer Trends Diverge as Pandemic-Related Policies Fade”; CMS

9Home Health Staff Turnover• High turnover. Based on Activated Insights’ 2024 Benchmarking
Report, annual turnover in home care – here defined to include homehealthcare, non-medical home care and hospice – has reached acurrent 79%, highlighting a 12 percentage point increase over thepast 2 years

Source: Home Health Care News, July 3, 2024; “Home Care’s Industry WideTurnover Rate Reaches Nearly 80%”

10In-Home Emergency Care
• Not reimbursed by government payers. This segment arose during
the Covid-19 pandemic. Traditional Medicare and Medicaid
programs do not reimburse for these services• Care facets. In-home emergency care “deploys paramedics ornurses to check vital signs, draw blood and take x-rays withportable imaging devices. Physicians supervise the visits via
telehealth, then refer patients to primary care providers for further
treatment or to hospital emergency departments if more complex
care is needed”• Cost savings via reduced hospitalizations. A collaborative
partnership between Medically Home and Atrius Health, a primarycare provider subsidiary of Optum, instituted such a program. Per
their study of the program’s effects, 83% of nearly 3,700 patients
served with at-home emergency care did not have a hospital visit
over a 2-year period, producing savings of $4.5 million for Atrius

Source: Modern Healthcare, June 27, 2024, “In-home emergency care cuts
costs, but needs more payer buy-in”

11Hospice• Spotlight on compliance in hospice. An array of articles in HospiceNews in Q2 highlights an increase in fraud and abuse pursuit andoverall compliance initiatives. These articles note a “mixed bag ofuncertainty”, program integrity oversight increasing significantly,
and “one of the most challenging regulatory environments”. Many
hospice providers themselves are asking for more pursuits of fraud
and abuse in their sector. In June, Democratic Representative
introduced the Hospice Care Accountability, Reform, andEnforcement (Hospice CARE) Act who stated that the sector had
lacked an overview since 1982
Kroll’s Observations:
We often maintain that these reform and/or increased oversightmeasures, on a net basis, are positives for any home health-based
sectors, including hospice. Technology and compliance-invested
providers with a keen focus on quality and strict operational
documentation processes and controls should benefit ascompliant-marginal providers may be impacted by any audits orinvestigations and may need to curtail their business or exit thespace.

Source: Hospice News, June 27, 2024, Hospices’ Compliance Outlook a‘Balancing Act’”; Hospice News, June 26, 2024, “End-of-Life Care Delivery‘Ripe for Reform’ in Rep Blumenauer’s Hospice CARE Act”; Hospice News,
June 27, 2024, “Hospices’ 2024 Public Policy Priorities”

12M&A Activity• First quarter M&A and other transactions remained near the low
points of the past few previous quarters, although there are signs of
re-awakening of transaction flow

• Diversified/Home Health & Hospice:o VitalCaring was announced as the acquiror of certain
Amedisys home health and hospice locations ahead of a saleof Amedisys to Optum (June 2024 announcement)• Medicaid and Other Non-Medical Home Care:o Elara acquired Caregivers Home Health, a home care providerin KS and IA (June 2024)

o Addus acquired Gentiva’s personal care business for $350
million, allowing it to expand its presence in 4 states and toenter 3 new states13

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

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

About KrollAs the leading independent provider of risk and financial advisory solutions, Kroll leverages our unique insights, data andtechnology to help clients stay ahead of complex demands. Kroll’s global team continues the firm’s nearly 100-year history oftrusted expertise spanning risk, governance, transactions and valuation. Our advanced solutions and intelligence provide clientsthe foresight they need to create an enduring competitive advantage. At Kroll, our values define who we are and how we partnerwith clients and communities. Learn more at Kroll.com.
M&A advisory, capital raising and secondary market advisory services in the United States are provided by Kroll Securities, LLC(member FINRA/SIPC). M&A advisory, capital raising and secondary market advisory services in the United Kingdom are provided
by Kroll Securities Ltd., which is authorized and regulated by the Financial Conduct Authority (FCA). Valuation Advisory Servicesin India are provided by Kroll Advisory Private Limited (formerly, Duff & Phelps India Private Limited), under a category 1
merchant banker license issued by the Securities and Exchange Board of India.
© 2024 Kroll, LLC. All rights reserved.

14