For an important clue into the future of senior care in the U.S., watch Kindred Healthcare, a $5 billion company that operates in 47 states. As recently as 2010, half of Kindred’s business was generated by its skilled nursing facilities. This year, only one-fifth of its revenues will come from its nursing and rehab centers. In a major strategic shift, Kindred is betting the company on in-home care, hospice, care management, and fully integrated care services.
In an aggressive effort to expand its homecare business, earlier this month Kindred moved to buy Gentiva Health Services for $1.6 billion. Gentiva, which is fighting the takeover, is a $2 billion home care provider with 47,000 employees in 40 states.
Whether Kindred’s acquisition of Gentiva succeeds or not, the firm’s strategy is clear. At an investor conference this spring, CEO Paul Diaz said his aim is to provide “services consumers want and payers will be willing to pay for.” And that is not in-patient care in hospitals or nursing facilities. And it is certainly not long-stay nursing homes.
In the past couple of years, Kindred has jettisoned or announced plans to ditch more than 130 nursing facilities and three dozen hospitals. At the same time, it now provides home care and hospice services at 159 locations in 13 states. Late last year, Kindred bought Senior Home Care, which operated home-based services in Florida and Louisiana.
Similarly, Kindred has redesigned much of its rehabilitation service, shifting its business model to provide contract services to 1800 unaffiliated hospitals and nursing homes.
But the key to Kindred’s future lies in its new care management division, which provides home health, hospice, and private duty services under the brand “Kindred at Home.” Revenues for this division grew from just $60 million in 2011 to $225 million in 2013. That’s still only about 5 percent of the firm’s revenue, but it has much bigger plans for this unit.
In the coming years it expects to expand the care management division to include physician visits at assisted living and independent living facilities, care transitions programs, seamless medical information sharing, patient placement tools, and condition-specific clinical programs.
The details of all of these plans are laid out in its annual report, which you can find here.
These moves fit into a broader Kindred strategy that it has branded as “Continue the Care.” The idea: In selected markets where it can build scale, the firm will provide the full continuum of care from in-patient hospitalization to post-acute and rehab services to home care and, at the end of life, hospice. In those markets, Kindred may retain nursing facilities, though its focus will increasingly be on home care. Where it cannot be a dominant market player, it will abandon bricks-and-mortar.
Kindred’s strategy is being driven in large part by government payment policy. In many states, Medicaid reimbursement for long-stay nursing home patients remains below the cost of providing care. For years, those low payments were more than offset by generous compensation from Medicare for post-acute and rehab services (typically, a state pays about $125-a-day for a Medicaid long-stay bed while Medicare pays $500-$600 for rehab).
But Medicare payments are being squeezed as well, and pressure to hold down costs will only grow in future years. In that environment, providers will seek the lowest cost settings to provide care.
In many ways, Kindred is following the bigger-is-better trend that is consuming the health care industry. With reimbursements shrinking, scale is all-important. It enhances purchasing power, making it cheaper to do everything from borrowing money to buying bedpans. And it will give organizations better negotiating clout as they seek partners in new financial models such as bundled payments or Accountable Care Organizations.
The big losers: small locally-owned home care agencies and not-for-profit hospices that will find it increasingly difficult to compete with these mega-firms.
What will it mean for consumers? That’s tougher to figure. Less competition in specific markets could drive up prices for private pay services, though there isn’t a lot of price competition now among, say, home care agencies. It will also limit the choice of service providers. On the other hand, more integrated care holds at least the promise of better care for people with chronic disease.
Kindred is part of a great experiment in medical and long-term service delivery. But keep an eye on the firm. It might prove to be a very big canary in the health care coal mine.