On Tuesday, EHC revised guidance for 2022 from a consolidated range of $5,380 - $5,500 to $5,330-$5,420. The presser made note of increased costs outrunning the company's primary source of revenue, Medicare. The immutable reality for providers heavily dependent on Medicare is that the payment system it is designed to lag on-the-ground reality, which is why it is called the "prospective payment system."
If there is no prospect of a pandemic or the crazy way public health responded, their effects won't make their way into the payment system.
CMS readily admits the payment system is not designed to accommodate price shocks and presumes providers have sufficient capital to weather a storm. During pandemic times, their presumption was challenged and Provider Relief Funds were sent as part of the rescue operation. That spigot of money is slowing and sentiment in Congress does not appear to support new funding. In fact, legitimate questions are being raised about the possibility of widespread fraud.
While the company seems optimistic about 2H, they may be overly so. Unlike hospitals with thousands of ways to insulate themselves to some degree, niche providers like inpatient rehabilitation facilities, home health and dialysis providers are not as flexible. We absolutely do anticipate that, with fewer federal dollars washing through the system, labor shortages and wage pressures will continue abate and 4Q 2021 will turn out to be peak. The question for the IRFs is whether it is enough and fast enough to align with the payment rate in 2022 and the finalized update in 2023, currently estimated at 2.0%.
Another open question is how much moving home health and hospice to discontinued operations will help. We think the answer is a lot. Home health and hospice rely on low wage, low skill workers and we are sorely wanting for those. Mortality pulled forward during COVID and ongoing for people with conditions like Alzheimer's may make the rebound in hospice admissions more precarious.
The advantage IRFs have in the post-acute system is efficiency. Many operate as J.V.s out of hospital system campuses, making them an ideal solution for post-acute care when home health and skilled nursing have limited capacity. If rules suspended under the Public Health Emergency that allowed IRFs to treat more acute patients are retained, their role in easing strains on throughput will be important.
A lot of TBD as of right now but we are biased against a rosy 2H outcome as we wait to see what PHE waivers are made permanent and how well the home health and hospice spin-out goes.
Emily Evans
Managing Director – Health Policy
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