The change in agreement with
Humana Inc.
(
HUM
) led to a decline in the share prices of
Amedisys
(
AMED
) - the leading U.S. player in the home health and hospice segment
- by 9.38%, to $12.08 yesterday. As per the new contract with
Humana, one of the largest health care plan providers in the U.S.,
Amedisys' revenue level will be trimmed by approximately half of
the original amount generated. Amedisys expects this revenue cut to
impact its fourth quarter 2012 sales performance. However, the full
impact will take place in fiscal 2013.
The earlier agreement with Humana was used to pay back Amedisys
on a per-episode basis and contributed about $65 million to $70
million in annual revenue for the company, representing 4%−5% of
its total revenue. As per the new agreement, Amedisys will be
reimbursed by Humana on a per-visit basis. According to Amedisys,
the original contract had greater scope compared to the recent one
as it used to cover more markets.
Earlier in July, Amedisys received a notice of termination for
its episodic-based national home health services provider agreement
with Humana. Notably, revenue from patients admitted under the
existing Humana agreement was 5% of total net service revenue in
the last reported quarter. Although the process of renegotiation
fetched an entire new contract, we consider this to act unfavorably
for Amedisys and expect it to create further bottom-line pressure
in 2013.
Amedisys is already suffering from near-term pressure associated
with substantial reimbursement headwinds with a Medicare home
health reimbursement cut for 2013. In July 2012, Centers for
Medicare and Medicaid Services (CMS) issued a proposed rule to
update and revise Medicare home health reimbursement rates for the
calendar year 2013. The proposed rule includes a 2.5% market basket
increase, a 1% reduction mandated by the PPACA, and a negative
1.32% case-mix adjustment.
Amedisys competes in a fragmented industry with a number of
small local providers. Further, the company has a strong reputation
for high-quality service and positive patient outcomes. In most
cases, the company leverages this reputation by branding both new
and acquired offices with the Amedisys name. Since the home
healthcare business relies heavily on referrals, name recognition
and reputation are invaluable.
Although reputation takes time to build up at the local level,
management hopes that its disease management programs and quality
of care will differentiate the company from its peers and yield
more referrals in the long run. We believe that the ongoing
reimbursement uncertainty could force Amedisys to refrain from
acquisitions leading to further deteriorating growth trends.
Moreover, Amedisys faces stiff competition from the home health
agencies and bigger companies like
National HealthCare Corporation
(
NHC
) and
Gentiva Health Services
(
GTIV
). Currently, Amedisys retains a short-term Zacks #3 Rank
(Hold).
AMEDISYS INC (AMED): Free Stock Analysis Report
GENTIVA HEALTH (GTIV): Free Stock Analysis
Report
HUMANA INC NEW (HUM): Free Stock Analysis
Report
NATL HEALTHCARE (NHC): Free Stock Analysis
Report
To read this article on Zacks.com click here.
Zacks Investment
Research