This article is sponsored by Stoneridge Partners. In this Voices interview, Home Health Care News sits down with Tom Lillis, associate partner at Stoneridge Partners and leader of the new Stoneridge Strategic Consulting Group. Tom tells us what impact he expects the Patient-Driven Groupings Model (PDGM) to have on the industry in 2020 and why Stoneridge launched its Strategic Consulting Group.

HHCN: 2019 was a year of change in the world of post-acute health care. What were the biggest trends you saw with regards to how health care companies were planning their business moves to prep for 2020?

Lillis: The obvious one in home health is PDGM — both preparing for it and understanding what it would really look like after CMS made its final changes. On the home health side for Medicare providers, PDGM was front and center.

But we also can’t overlook the impact PDPM made in the skilled nursing facility (SNF) space. Certainly, that industry segment is less dependent on Medicare as a percentage of revenue, but SNFs had plenty of challenges in preparing for that change and understanding the impact it would have on their Q4 results.

One issue I continue to see that affects all health care providers across the board is staffing. It’s a challenge to recruit and retain qualified personnel. Providers are still figuring out how to help their staff be as productive as possible while maintaining a positive, rewarding work environment. I think that will be an issue for years to come.

Obviously, those are topics that you’ll be handling in the Stoneridge Strategic Consulting Group. What does the group do?

It’s our job to help health care leadership get a clear view of the big picture so they can make the right plans for the future of their business. We use the term “strategic” intentionally. The focus of the group is not tactical. It’s not, “Let’s look at your case mix,” in the case of home health. We’re here to help decision-makers step back from the day-to-day and think about their next move. Maybe you need to look to expand to new markets. Maybe you need to think about adding lines of business in your existing footprint. Maybe it’s time to merge, consolidate, sell or buy. Those are the areas we’re really going to focus on.

Think about all the fires these folks are putting out on a daily basis. It’s like that old analogy about juggling a ball, a knife and a chainsaw. At times, that really applies to what providers are dealing with today. They’re worried about regulatory issues, clinical quality and financial reimbursement. So how do they have the bandwidth to focus on strategy? They know they should, and we can help them do that.

What did Stoneridge see in the market that led to the launch of this group? Why launch a strategic consulting arm?

I think the timing is absolutely right. I’ve known the folks at Stoneridge for more than a decade. In particular, I’ve known Rich [President and CEO Rich Tinsley] and Brian [Partner and Executive Vice President Brian Bruenderman] really well. We’ve worked on deals together, and we would see opportunities where we’d look at each other and say, “Well, if they had focused on this one thing six months or a year ago, this sale would have looked a lot different.” We’ve had those discussions often through the years.

We see what Stoneridge Strategic Consulting Group does as complementary to, not competitive with, the services provided by more operational consulting groups. Our services will address very different needs, but we think there’s a fantastic opportunity for us to work in tandem with them. We’re going to come across challenges that are better suited to their skillset, and they’re going to hear about folks who are looking for a new line of business or who are ready to position their business for sale. It’s all about what’s best suited to meet the client’s needs.

What are the top three areas where you see the consulting group having its greatest benefit to home-based care clients?

For starters, if a client is considering selling their health care business, we can tell them whether the market conditions are right for them and advise them on what they can do for the best results. You don’t typically put your house on the market without taking care of things you need to fix to attract the right buyer – this situation is no different. We can help guide you through what steps to take so that when your business hits the market, it’s ready to elicit top offers.

When you think about it, lots of the recognized leaders in the home health industry are really entrepreneurs. They founded their home health companies because they recognized a need in their communities, and they knew someone had to meet that need. But the industry looks a lot different now than it did when they got started. PDGM changes could be the catalyst for a segment of that population to decide it’s time to move onto new projects. These folks may have a disproportionate amount of their net worth connected to their agencies. We can help them through that transition.

And because there have been so many changes in the home health industry, staying ahead of your competitors may mean seeking out new opportunities. Organizations might be considering adding new lines of business like home infusion, or partnering with another agency on the private duty side. Some companies might just need help determining where their referrals are coming from and how to grow those relationships. Those are just a few things we can evaluate with a client.

What is your industry background as it relates to the new group, and what do you expect to focus on in 2020?

I’ve been consulting for more than 30 years now, working for large consulting groups like KPMG, small startups and everything in-between. I have a lot of experience in this industry, so it’s pretty rare for me to come across a situation I haven’t seen before.

That’s one of the things that attracted me to working with Stoneridge: the advisors on their team have in-depth industry experience and have been in their client’s shoes before. They’ve worked in leadership roles for some of the largest home health, hospice and skilled nursing providers in the country. They’ve been on the provider side in management positions. Their experience is not just on the broker side — they’ve been on both sides of that fence.

What are the biggest opportunities for home health providers in 2020? What are the areas where they can grow and become financially healthy?

There are going to be winners and losers. One thing to remember about PDGM is that not a single Medicare patient is going away, so if you’ve got an efficient back office and if you do things well clinically, you’re probably going to see an increase in your census in the aggregate. Folks who maybe haven’t had the commitment to home health or are looking to transition out — when we compare it to PPS, 25% to 30% of the providers are going to go away. That’s significant.

There are going to be opportunities for efficient operators — and efficient doesn’t automatically mean large — to do well. They will thrive in this environment. It’s not doomsday — it’s just the change of the landscape. The accelerator on that change is what’s going on with changes in the regulatory environment and with reimbursement. That’s going to clear out organizations that may have over-relied on the RAP payments to keep their business going.

What’s your sense of how prepared the industry is to capitalize on these opportunities to thrive?

That’s a really interesting question. I believe it really is a bell curve. There are some organizations that six or eight months ago said, “We want to be in X market. Let’s look at each of the providers.” They started doing research on organizations they may have wanted to approach after Q1 or during Q1 because they may be doing everything right, or maybe they’re going to falter. We’re already seeing some of that. We’re seeing folks that are saying, “All right. It’s time.”

Another scenario I saw recently was an operator who purchased a SNF that also provided home health that had been running at a loss. The new operator was able to look at the financials and determine where the problems were occurring. They made the necessary changes and on day one, they expected that service line to be minimally breakeven — and it’s trending that way.

Give me the one word that sums up PDGM’s influence in 2020.

Catalyst. It’s going to force that change that everybody’s been saying would eventually come.

Editor’s note: This interview has been edited for length and clarity.

Stoneridge Partners is a national health care mergers and acquisitions advisory firm specializing in the brokerage of home care, home health, hospice and behavioral health agencies. Established in 2001, Stoneridge and its team of experienced health care advisors provide complete, confidential representation throughout the course of a transaction to both potential buyers and sellers. For more information about their services, contact their corporate office at 800-218-3944 or via email at [email protected].

The Voices Series is a sponsored content program featuring leading executives discussing trends, topics and more shaping their industry in a question-and-answer format. For more information on Voices, please contact [email protected]