Kindred Healthcare, Inc. (KND)

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Kindred Healthcare, Inc. (KND)

February 26, 2013 2:15 pm ET

Executives

Paul J. Diaz - Chief Executive Officer, Director and Chairman of Strategic Development Committee

Analysts

Gary P. Taylor - Citigroup Inc, Research Division

Presentation

Gary P. Taylor - Citigroup Inc, Research Division

Thank you. Good afternoon, and thanks for joining us for Kindred Healthcare. Kindred is the nation's largest post-acute provider, annual revenues of over $6 billion, in 46 states, 117 LTAC hospitals, over 200 nursing rehab centers, over 100 hospice and Home Health sites, 100 rehabilitation sites and then over 1,600 facilities serviced by the RehabCare rehabilitation business. So full continuum on the post-acute side.

And we have Chairman and CEO, Paul Diaz, with us this afternoon. So Paul, thanks for being here.

Paul J. Diaz

Thank you.

Question-and-Answer Session

Gary P. Taylor - Citigroup Inc, Research Division

Appreciate it. Kind of first just big picture question want to talk about a little bit the theme of our conference is value. A lot of discussion throughout the provider continuum about how long can you preserve this space? Over the next 5 to 10 years, how much movement do we see from private and government payers to trying to pay for value versus just paying for volume of service that's being delivered? So one, do you see that impacting Kindred in the next 2, 5, 10 years? And what parts of your strategy are addressing that?

Paul J. Diaz

Thank you. Well, we're clearly leaning into those changes. We are starting to see them amass at themselves at different rates with both speed and different marketplaces. Those markets where you have more position-driven managed care organizations, you see a lot more activity. I think the physicians are a critical part of it in terms of the speed at which change happens. And obviously, you see the payers leaning into the physician component as well, as well as the hospitals. So I think that the physicians play a big role. For us and it's part of -- it's sort of core to us, for the fifth year in a row, we publish the Quality and Social Responsibility Report that we issued Monday, and that full report is about value and our demonstrating value. That -- and where probably you and I have talked about is that one of the ways we create value is to get patients home faster with good clinical outcome, and the level of function and health whether or not bouncing back to the hospital in terms of rehospitalization. Well that kind of undercuts our days and bets, our senses. We are already sort of challenged and -- but believe at our core in terms of our mission that our job is to help patients recover and move through whatever delivery setting they need, get them to the most appropriate setting and get them home with the highest level of function. Now today, we're being rewarded with that with good organic growth and in an old-fashioned way. So we are being awarded that in terms of being more cost-efficient, in terms of how we care for those patients. But tomorrow, I think that there's a commitment among commercial payers and CMS and other to a more value-based payment system, whether it's a post-acute bundle or new pace for performance measures. I think companies that are preparing for that were all going to be successful as network tightened and the companies that don't prepare for that are putting themselves in a competitive disadvantage.

Gary P. Taylor - Citigroup Inc, Research Division

In some ways, I think the whole cluster market strategy you've and you've been focused on really sets us nicely for a future where either providers are taking risks down the continuum or post-acute is being carved out as a bundle in your managing all the way down the continuum. Do you see -- are you entering any risk-bearing arrangements today with either other providers or payers directly to take that post-acute patient? And then you're in charge of which part of your continuum may end up in managing that? Or is that still -- are you doing some demonstration projects?

Paul J. Diaz

It seems that we're -- we've been approved through one of the CMS bundled payment in us, in terms of post-acute care in Cleveland and we're working with the Cleveland Clinic on that. We're supporting each other's demonstration. There are 3 other markets where we are moving from discounted Medicare fee-for-service arrangements with pay-for-performance measures, with a goal of moving to a bundled payment type of arrangement or gain-sharing type of arrangement. So I would expect in the next 2 to 3 years, that we will be at risk to post-acute patients in 3 or 4 different marketplace. And prerequisite for us in that is to develop capabilities where we add value and to take advantage of the capabilities of our partners, whether it's on the physician side or with a payer partner in terms of understanding the actuarial process of managing risk. So what I think has to happen here for us to do this is historically, we all try to build the same capability, and for us, we're trying to say, buildout the Home Health, the Hospice capability, managing a patient through an episode of care, but do that in conjunction with our physician partners, hospital partners, the payer partners.

Gary P. Taylor - Citigroup Inc, Research Division

And what do you think from the major Hospital business, I guess in a view of the world where we actually care about the cost of consumption and less just about unit and volume? We've known -- everyone has known for years and years and years that a day in LTAC is cheaper than a day in ICU, and a day in patient rehab is cheaper than that, a day in hospital is cheaper than that, and that Home Health visit is cheaper than that. So as we've seen the hospitals, particularly the nonprofit hospitals, increasingly organizing their systems in an integrated way and in preparation of taking risk-bearing contracts, what are they doing with the post-acute piece? Are they saying in our market, you're the best guy clinically and cost-wise, and we're going to have a contractual relationship with you? Or are they saying we need to buy something or build something, have it inside the umbrella?

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