Less than two weeks after Option Care Health announced its proposed $3.6 billion acquisition of home health care provider Amedisys, Addus HomeCare President and CEO Dirk Allison said the company His is hunting home health care companies.
“We are looking at strategic acquisitions in states like Tennessee, Pennsylvania, Ohio and Georgia, where we already have a personal care platform that we can add clinical services on top of. there,” said Allison, who owns a Frisco, Texas-based company that provides hospice, home health care. and personal care services in 22 states, told investors at the RBC Global Healthcare Conference in New York on Tuesday.
In the highly fragmented home healthcare industry, the name of the game today is eat or be eaten. The day after Option Care announced the Amedisys acquisition, Eagle, Idaho-based Pennant Corporation, with operations in 14 states, announced plans to purchase Colorado Springs, Benefit Home Health Care and Benefit By Your Side based in Colorado for an undisclosed amount.
Medicare Advantage leads the way
The rapid growth of Medicare Advantage, which now includes more than half of all Medicare beneficiaries, has been one of the biggest drivers of home healthcare consolidation. Over the past three years, the biggest Medicare Advantage plans have swallowed up the biggest home health companies.
In 2021, Humana bought the remaining 60% stake in Kindred at Home for $8.1 billion and merged it into its CenterWell brand. In January, UnitedHealth Group completed the purchase of LHC Group for $5.4 billion. In March, CVS Health subsidiary Aetna completed the acquisition of technology-based home care company Signify Health for $8 billion.
All three insurers are building clinical platforms and see home health as a means to provide better access, improve outcomes, and save money. Scott Fidel, healthcare analyst at investment bank Stephens Inc, says access to home care can also boost patient satisfaction scores and help insurers stay sincere members for up to 7 years if they provide them with “successful services”.
Size problem
While many Medicare Advantage plans are increasing access to home health care, they are also putting pressure on the more than 11,500 independent home health care companies that operate. To negotiate profitability with Medicare Advantage providers, home health agencies need staff and size. They also need to have systems in place that can generate data on outcomes and readmissions. Many smaller home health agencies don’t have the capital or infrastructure to build those capabilities, Fidel said.
Furthermore, home health care providers are facing lower Medicare reimbursements. In January, the Centers for Medicare and Medicaid Services made a 3.9% behavioral cut, a $635 million reduction, to home health care companies for 2023. CMS could apply for a batch. another cut next year as it continues to roll out the Patient-Driven Group Model, a payment policy the agency initiated in 2020.
The continued uncertainty about Medicare reimbursements has temporarily put a damper on hot mergers and acquisitions in the family health sector. Between 2020 and 2022, home healthcare companies made 170 transactions. Only three such deals took place in the first quarter of this year, according to mergers and acquisitions consulting firm Mertz Taggart. However, Managing Partner Cory Mertz wrote last month that “home healthcare M&A is unlikely to stay quiet for long… and its value is becoming more apparent by the day” as demand for the product home care services increased.
The executives of both Addus HomeCare and Pennant Group told Wall Street analysts during first-quarter earnings calls that they plan to remain independent and are looking at service acquisition targets. home health care services. But they may end up being on the other end of future transactions. Morningstar healthcare analyst Julie Utterback said health insurers are still trying to expand door-to-door service.
