The shareholder value of three home health care providers, including Louisville-based Kindred Healthcare, has fallen by more than $1.3 billion in less than three weeks in the wake of a federal proposal to change how the companies will be reimbursed for services including physical therapy and home health aides.

Shares of Kindred have plunged by more than one-third, from $11.55 on July 20, to $7.65 at market close on Tuesday. With about 90 million outstanding shares, the company’s market capitalization has dropped from more than $1 billion to less than $700 million, down about $351 million. During the same span, Amedisys, a Kindred competitor, saw its market cap fall by $311 million. And Tenet Healthcare’s market cap plunged $639 million.

While the declines at least in part were a result of poor second-quarter earnings — Kindred suffered a $409 million loss, Amedisys said its income fell by 58 percent compared to a year earlier, and Tenet said it lost $55 million — the proposed federal reimbursement change has generated significant concerns in the industry — and among investors.

Kindred’s shares plunged 15 percent after the Centers for Medicare & Medicaid Services proposed a revision to its reimbursement model for the Medicare Home Health benefit for fiscal 2019, which would cut payments to providers by $950 million, or 4.3 percent.

The Medicare home health benefit provides needed care at home for people who are generally confined to their home and need intermittent skilled care for an illness or injury. Medicare home health services include intermittent skilled nursing care, physical therapy, continuing occupational therapy, speech-language pathology, home health aide services and medical social services.

CMS could not be reached to explain the mechanics of or rationale for the proposal, but said in a report to Congress that the current payment methodology, which has been in place since 2000, has some shortcomings, including that it may create financial incentives for health care providers to select certain patients over others. For example, CMS said that providers had a financial disincentive to help patients with traumatic wounds or ulcers or those who required substantial assistance in bathing, because the margins for those patients were lower.

Given those variables, CMS said, modifications to the current payment model may be needed.

In a presentation this year, CMS said that the proposed changes also would address other shortcomings in the current system, including that the Medicare Home Health benefit is ill-defined, and that payments should be based on patient characteristics, not on the number of therapy visits.

‘Flawed’ and ‘unwarranted’

However, executives of home health care companies sharply criticized the proposal, and an industry association said that CMS had provided too few details, which has caused confusion among providers.

Benjamin Breier

Kindred CEO Benjamin Breier said in the company’s most recent earnings call that the proposal was “unprecedented and unwarranted” and “based on outdated and flawed data.”

He said home health care providers “will form a united front in working with CMS and Congress to reach a resolution that is workable.”

Keith G. Myers, chairman and CEO of Kindred competitor LHC, said in the company’s earnings call on Aug. 3 that “this new model would do more harm than good … and result in patients being forced to remain in more costly institutional settings for longer periods.”

Spokesmen for Kindred and LHC referred Insider to the industry association and executives’ comments in earnings statements. Tenet and Amedisys could not be reached.

The Partnership for Quality Home Healthcare, an industry association, told Insider via email that the CMS proposal “dramatically alters Medicare payment for skilled home health services.” The PQHH is based in Washington, D.C., and represents about 3,000 community- and hospital-based home health care agencies.

The organization also said that despite its requests, CMS has “only provided vague details” on the proposal. Without getting more data and information about specific methodologies, the association said that it “cannot provide detailed and informed recommendations” on how to make improvements.

However, after an initial review, the organization had identified some reasons CMS should work with the industry to improve the proposal:

  • The new model would have wide-ranging effects and “base payments on patient characteristics rather than expected care needs.”
  • “There may be significant geographic disparity in the proposed changes … resulting in varying difference in the reimbursement rates between states and regions as well as between for-profits and not-for-profits. This will result in a payment model that doesn’t tie payments to quality or value.”
  • Significant variation in cuts across states and regions “means rural and underserved markets would experience the largest cuts, putting access to care for vulnerable seniors at risk.”
  • The new model “would redistribute payments away from home health services such as physical, occupational and speech therapy that are currently producing Medicare savings.”

Both Breier and Myers said that enough time remained for the industry and the government to come up with a workable solution.

“We’re confident that over the next 1.5 years, with a united home health industry and our constructive relationship with CMS, we’ll be able to shape the … proposal into a system that is workable for CMS as a payer, for patients and for home health providers,” Breier said.

CMS is accepting comments on the proposal until 5 p.m. Sept. 25.