4 Stocks to Watch Amid a Challenging Outpatient Home Health Industry

Zacks Equity Research December 29, 2022

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Industry Description

The industry comprises companies that offer ambulatory care in an outpatient setting or at home. These companies use advanced medical technologies for diagnosis, observation, consultation, treatment and rehabilitation services. The industry participants also include operators of HMO medical centers, kidney dialysis centers, freestanding ambulatory surgical units, emergency centers and other outpatient care centers. Some of the companies in this space have been at the forefront of the COVID-19 pandemic response since 2020 by expanding access to laboratory insights to enable people to lead healthier and safer lives through both molecular diagnostic and antibody serology tests, which help in the diagnosis of COVID-19 and the identification of immune response to the virus.

Major Trends Shaping the Future of the Outpatient and Home Healthcare Industry

Cost Effectiveness: The primary advantage of outpatient clinics is cost-effectiveness. Outpatient medical care clinics do not retain patients for long hours (overnight) or charge exorbitantly. Notably, modern-day outpatient clinics offer a broad spectrum of treatment and diagnostic options and even minor surgical procedures. Financial incentives like health plans and government program payment policies supporting services in lower-cost care settings have also been driving outpatient care. In fact, this is the primary reason why middle-class Americans, making up more than 62% of the total population, prefer outpatient clinic visits.

Participating in Alternative Payment Models: It only seems reasonable for outpatient clinics to shift from fee-for-service (FFS) to alternative payment models (APM) with shared savings, risk, bundled payments or population-based payments. With value-based models of care steadily emerging as the future of healthcare, this shift is an ongoing parallel trend. FFS will be crucial to care organizations as a benchmark by which providers can assess alternative payment models. By obtaining the payment schedule from payers and comparing it to the organization’s FFS reimbursements from the same payer, providers can ascertain APM that would be financially the most advantageous to its operation.

AI’s Dominant Role: AI has been a roaring success in healthcare. It’s no wonder that it has taken the outpatient and home healthcare space by storm. Outpatient companies prefer bots and automated techniques for managing health information. With the help of AI, hospitals have been achieving better outcomes, with patients receiving more efficient and personalized care. The outpatient industry has been generating huge profits from Electronic Health Records, Revenue Cycle Management, eLabs and ePrescriptions.

Increased Dependence on Telehealth: The pandemic resulted in a decline in outpatient clinic visits. Home healthcare providers struggled to offer quality care due to the risk of exposure to the virus. Though the impact of the pandemic has been far-reaching, it has accelerated healthcare innovation. Visits to outpatient clinics have been witnessing a noticeable rebound, with the majority of people being vaccinated. But there are patients who want to be cautious and are resorting to telehealth. Meanwhile, home healthcare can gain from the benefits provided by Medicare (and several other payers) that comprise a broad range of services that can be delivered in a patient’s home, including post-operative and chronic wound care, rehabilitation, and physical therapy. These services serve as lifelines for vulnerable patients, including the Medicare population, who can suffer from complications arising from COVID-19. Moreover, home healthcare has seen a surge in the utilization of the telehealth platform in response to the pandemic.

A notable trend that has been emerging in this respect is the increasing popularity of the hybrid mode of treatment. As there are certain chronic health conditions, which cannot be identified over a telephone or video call, patients are embracing the hybrid mode of seeking treatments from their physicians in those cases.

Prominent Role of Remote Patient Monitoring: Remote patient monitoring (RPM) has been gradually gaining ground since the pandemic. During that phase, it was difficult to keep a watch on non-COVID patients in the hospital care setting as hospital capacities were brimming with COVID-19 patients. Thus, non-critical patients were increasingly being provided with healthcare in the comfort of their homes while being remotely monitored by their care providers. Even with the gradual return to normalcy, patients are increasingly preferring to be monitored from their homes via RPM devices. This is also boosting home healthcare services as vulnerable patients can be safely and adequately cared from the home setting instead of hospital settings, where the risk of COVID-19 or other infections persists.

Zacks Industry Rank

The Zacks Medical - Outpatient and Home Healthcare industry falls within the broader Zacks Medical sector. It carries a Zacks Industry Rank #210, which places it in the bottom 15% of nearly 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Before we present a few outpatient home health stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry's Stock Market Performance

The industry has underperformed both its sector and the Zacks S&P 500 composite in the past year.

The industry has declined 32.2% over this period compared with the S&P 500’s decline of 22.3%. The broader sector has declined 20.9% in the same time frame.