Amedisys building information technology system
The future of health care, as Amedisys Inc. CEO Bill Borne sees it, will be data-driven. Providers will harness enormous amounts of computer power to churn through massive datasets, wringing out the best algorithm of care based on the experiences of tens of thousands of patients. Computers will then collect the results of that care and analyze its effectiveness, tweaking treatments to further improve results.
Baton Rouge-based Amedisys has bet more than $50 million and spent four years creating an information technology system that will bring Borne’s vision to fruition.
“The question is … what in the future, even if Obamacare doesn’t materialize as legislated, will be the biggest value builder for Amedisys?”
The answer: the move from a fee-for-service payment system to global payment arrangements. In a global system, the provider or providers are paid for keeping the patient healthy. Instead of collecting a fee for each treatment, providers get one payment to cover everything. Providers only make money if a patient’s care costs less than the global payment.
The groups taking on the global payments — the hospitals and physician groups in Accountable Care Organizations, physician-led Patient-Centered Medical Homes, or health care systems in Bundled Payment initiatives — will need what Amedisys has to offer.
Borne believes that demand will add a third revenue source to Amedisys’ existing home health and hospice care services. He describes health care’s move to a global payment system as an inflection point, a Big Enough Market Initiative, or BEMI, that will change the health care industry’s business cycle. The two most-recent inflection points took place in 1997 and 2010, with the passage of the federal Balanced Budget and Affordable Care acts, respectively.
The Balanced Budget Act capped payments in an effort to control the explosion of home health companies. The cap allowed Amedisys, among others, to grow rapidly by buying up smaller home health companies struggling to deal with the newly imposed payment limits. The Affordable Care Act put the brakes on the industry’s consolidation by cutting payments for home health services.
Borne expects the shift to global payments will be complete around 2018. But the market will begin to realize how valuable the ability to make that shift is a couple of years before then.
Home care companies are going to need an information technology system that can manage all those variables.
But firms trying to make the jump now face an impossible task.
“I don’t want to talk about other companies … but if you’re a $500 million company and you’re not on technology, you’re not getting on technology,” Borne said. “Too late. There’s no funds. The government has taken it away from you.”
Medicare payments for home health services have been cut 10-12 percent since the Affordable Care Act passed. Similar cuts are expected to continue through 2017.
Amedisys began work on its new IT system four years ago. The company had outgrown its old system, and no off-the-shelf products were available for a company treating patients in more than 500 locations.
Amedisys expects to roll out AMS3 in late October. IT teams on two continents are working 24-7 to make that happen. The first 12-hour shift consists of 100 programmers in Baton Rouge. The second shift, 50 programmers in India, comes on when the first shift ends.
Amedisys cares for 60,000 patients a day in more than 500 locations. The company has already compiled a petabyte of data, or 1 million billion units of information. But it’s difficult to analyze that data with the current system. Programs have to be written to tease out the information.
AMS3 will allow Amedisys to aggregate these huge datasets and easily analyze them, Borne said. Employees will be able to make queries and generate reports from their desks.
The system will change Amedisys from a home care and hospice company to a post-acute care provider specializing in patient oversight. The company will manage the patient’s care from the time he or she leaves a hospital, using preventive plans to make sure the patient doesn’t have to return to the hospital.
CRT Capital Group LLC analyst Sheryl Skolnick said Amedisys’s move to partner with health care organizations that take on patient risk is interesting.
The global payment system Borne advocates makes a lot more sense than the current system and might result in substantial cost savings. But the market is not ready for the new model.
“Either Amedisys is trying to get a jump for a first-mover advantage, or they’re positioning the company for a business that doesn’t exist and spending money on something that won’t give them a positive investment return for quite some time,” Skolnick said. “I’m not sure of the wisdom of that.”
Amedisys might have a stronger argument as a partner for risk-bearing health care organizations if the company did a better job than its competitors of preventing patients from ending up back in the hospital, Skolnick said. But the latest figures from the federal Centers for Medicare & Medicaid Services don’t show that.
Hospital readmissions cost Medicare around $18 billion a year. Hospitals face Medicare payment cuts if they don’t meet federal standards for readmissions.
Borne said Amedisys has made changes in some markets that reduced readmission rates. He expects to implement those changes companywide with the new IT system.
Some stock analysts have grown impatient with Amedisys’s IT spending, which lowered earnings already hurt by Medicare payment cuts. Baird Equity Research’s July 31 report questioned whether Amedisys’s business model was even sustainable. CRT Capital Group has been equally skeptical.
But Oppenheimer & Co. said it expected Amedisys to outperform the market. In a July 31 report, Oppenheimer described Amedisys’ second-quarter earnings improvement as “remarkable” and praised the company for cutting $10 million in costs. Oppenheimer projected Amedisys shares would reach the $15 mark within 12 to 18 months.
Shares blew past that mark just a few days later when KKR Asset Management LLC revealed it had acquired 8.5 percent of Amedisys’ shares.
Borne said there has been a lot of talk about KKR’s Schedule 13D filing with the Securities and Exchange Commission. KKR identified itself as an active rather than a passive investor.
His understanding, from talking to KKR Asset Management, is that the investment fund usually invests in undervalued stocks. Borne said KKR executives have been very friendly in communications and in a meeting.
“We spent some good time with them. My belief is that they have a very long-term perspective on the company,” Borne said.
Borne said he couldn’t speak for KKR, but he believes the fund will maintain its position for five to seven years.
Skolnick has said she expects to see KKR push for new management and a new board of directors.
It will be interesting to see what happens, she said.
Meanwhile, Amedisys’ preparations for a new payment system are taking place against the backdrop of another unknown: the outcome of a U.S. Justice Department investigation into the company’s billing practices.
Amedisys has said it expects to spend $8 million to $9 million in 2013 on legal fees related to the Justice Department probe and a similar SEC inquiry.
Borne said the end of the Justice Department investigation, now closing in on the three-year mark, is in sight.
He blames the investigation on short sellers who lost their, well, shorts by betting Amedisys’ stock price would fall. Those investors’ complaints evolved into an investigation.
Skolnick, who has said Amedisys could face a fine of hundreds of millions of dollars, described Borne’s comments as self-serving.
If Amedisys was doing everything correctly, why did the company change the way it trained clinicians? And why did that training contribute to lower patient volumes?
Borne said Amedisys has cooperated with the investigation for three years, giving the Justice Department everything it has requested. The department has yet to file a complaint against Amedisys.
“Is the company really that bad of a company? Come on,” Borne said.