M&A for home care/hospice favors hospice

The merger and acquisition market for traditional Medicare home care businesses has stalled but the hospice segment is still hot, said a panel of home care and hospice investment experts during a webinar in March.

It is difficult to summarize generally the state of the M&A market for home care and hospice segments, said panelists participating in Irving Levin Associates’ “Home Health Care and Hospice: Buying, Selling and Valuing” webinar. Both are highly fragmented, made up of mostly small- and medium-sized operators and have highly variable environments.

[See also: Senior housing and care industry M&A driven by smaller operators.]

“That heyday is gone (for Medicare home health providers),” said Gary Massey, a home care and hospice partner at CliftonLarsonAllen, a professional services firm. “What we’re going to see going forward will be a much smaller scale, in some ways.”

The slow down in the traditional Medicare home care segment is mainly due to reimbursement cuts and potential regulatory burdens and uncertainty around the future of healthcare delivery model, Massey said. It’s possible that the therapy services in traditional Medicare home care will be pulled out of the business model and rolled into care coordination or bundled programs, like accountable care organizations, but the short-term future for the freestanding model currently in place is “bleak.”

While the surge days in the traditional Medicare home care segment may be waning, there is still tremendous acquisition opportunity in all home care market segments and in hospice, said Dexter Braff, president of the Braff Group, a healthcare M&A company.

These markets are highly relationship intensive, Braff said, which makes acquisitions rather than start ups more desirable. “These businesses tend to receive their referrals from social workers, case managers and other access points, and hospitals and physician offices, where relationships have developed over a long time,” he said. “It’s very difficult to steal those relationships – and I say that benignly – but steal those relationships. Probably the best and fastest way to do that is through an acquisition, and to carefully integrate the new acquisition into the acquirer’s business without destructing those relationships.”

Additionally, the investment environment for the home care and hospice segments is substantially more robust than it is in the non-healthcare markets, which are still sluggish after the economic decline period of the last few years, Braff said.

Private equity players are particularly interested in the hospice segment, said Burk Lindsey, managing director of healthcare investment banking at Raymond James. “We expect we’re going to see transactions in both sectors over the course of the next several years, but the transactions that are really going to move the needle and attract the press are going to be on the hospice side,” Lindsey said.

Investors are attracted to the hospice segment because while it faces some of the same regulatory and reimbursement challenges as the home care segment does, the impact on the hospice segment has not been as severe. Also, the potential for business growth is there as the population ages, and valuations tend to be high. “I think the view from investors is it’s really one of the most safe places to put money to work in healthcare services today,” he said.

[See also: Hospice proves less costly to Medicare.]

Despite the slow down in traditional Medicare home care businesses, the home care segment is not a loser, the panelists said. There is potential for growth in the Medicaid market and in private duty (franchises are showing a lot of activity) as more services are sought by the aging population and integrated care models become more the norm.

[See also: Home care franchises are hot, hot, hot.]