It’s the interest rate, stupid.

Home health, home care and hospice industry voices – including myself – have regularly pointed toward internal factors affecting M&A over the last two and a half years. In the end, the overarching, main headwind was always the extremely high interest rates that were put forth by the Federal Reserve to combat inflation.

Those internal factors had an effect on the specific M&A that did occur, and they will have a major effect on the M&A activity that occurs moving forward.

But searching for internal reasons to find out why M&A had cooled since early 2022 was largely a fool’s errand.

In March of 2022, the Fed started moving historically low interest rates up a notch. Specifically, on March 17, 2022, the federal interest rate moved from near-zero to 0.50%. Then, those hikes continued on a consistent basis, up until July 26, 2023, when the federal interest rate hit 5.50%. 

On Wednesday, the Fed announced a half-percentage point cut to the interest rate, in what is expected to be the first of a few cuts as it now turns its eyes toward other problems outside of inflation.

Meanwhile, the trend line for home-based care M&A ran diametrically opposed to the interest rates. As interest rates rose, home-based care M&A fell, besides a few small spikes in a quarter or two.

“I believe the interest rate environment has really been more significant than perhaps people have acknowledged,” Les Levinson, partner and co-chair of the Transactional Health Law Group at Robinson + Cole, told me this week on a webinar. “When you were doing deals in 2021 and 2022 – at what was functionally equivalent to a zero interest rate environment – you needed a lot less equity to do a deal. And the risk in that transaction was being basically covered by debt coverage. That evaporated as interest rates shot up.”

In this week’s exclusive, HHCN+ Update, I’ll dive into the interest rate cut and what it will mean for the home-based care M&A market in the near-term future.

Rate cut kickstart

All signs point to Wednesday’s rate cut being the first of a few, as the Fed begins to focus more on unemployment and less on inflation.

Based on the last couple of years, that would suggest that we’ll see far more transactions in home-based care in the near-term future.

After that first hike in March 2022, things changed in the formerly robust M&A landscape.

In Q3 and Q4 of 2020 alone, there were 95 total transactions in home health, home care and hospice, according to the M&A firm Mertz Taggart. Over the same time period in 2021, there were 106 transactions.

Then, in 2022, after the first rate cut, Q3 and Q4 saw 50 total transactions, an over 50% decrease compared to the year prior.

Outside of a few quarters with modest spikes, M&A has stayed historically down, up until present day.

Private equity-sponsored deal counts, too, were historically low.

Now that the interest rate trend line is on the other side of the mountain, expect home-based care activity – and PE-backed activity – to pick up.

“We’re at the tail end of an almost five-year cycle that started with COVID and the Fed stimulating the economy,” Mertz Taggart Managing Partner Cory Mertz told me on the webinar. “Interest rates went to about zero. Sellers were burned out. They wanted to get out early before the election and a new administration increased the capital gains tax rate. It was really a perfect storm of activity, and it was, quite frankly, a bubble. The Fed raised fund rates at a pretty healthy clip starting in 2022, and that really slowed everything down for a couple of years. But now, we’re starting to see signs of life.”

The Fed was expected to lower rates Wednesday, and most were waiting to see whether it was by a quarter or half of a percentage. Its decision to go the latter route will open things up even further than previously expected.

Over the next year or two, it’s likely the rate will continue to tick down toward around 3%.

During the quiet period, demand for quality home-based care assets has not been down, according to Mertz. Instead, the market conditions have kept transaction levels down. Those market conditions also include the fact that, with near-zero interest rates and a rush toward home-based care during the pandemic, multiples climbed significantly.

Since then, buyers have waited for the multiple expectations to normalize.

“These same buyers have still been hungry for quality deals,” Mertz said. “They don’t want to, and they’re not willing to, pay a premium for deals that don’t warrant a premium [price]. Now, premiums today compared to premiums in 2021 or 2022 are down a little bit, but not a whole lot. For a quality agency, at least. That’s my experience.”

As multiple expectations are balanced out, though, it’s likely that demand finally rises up and brings deals to fruition.

But active, quality home health agencies – in particular – have become more scarce over the last few years.

“A quality home health asset, I think, is the premium in post-acute care,” Choice Health at Home CEO David Jackson told me on the webinar. “Hospices have a really nice base. Home care [agencies] have really steady valuations, much more steady than the others. They don’t go up and down as much as a premium home health care asset that is doing well from a compliance, quality and financial perspective. Those are becoming more and more rare every day, and that’s because it’s a very difficult industry.”

Based in Tyler, Texas, Choice Health at Home provides a wide range of services in the home, including home health care, home care and hospice. Backed by Coltala Holdings and Trive Capital, the company has executed over 20 transactions in the last four years. In addition to Texas, it has a presence in Nevada, Utah, Colorado, Arizona, Oklahoma and Kansas.

In home health care, buyers generally prefer executing deals in the back half of the year anyway, and particularly in Q4. That’s because, after the Centers for Medicare & Medicaid Services (CMS) releases the final home health rule in October or November, there’s generally more certainty around payment.

A lot has changed

While deals have been put on ice, a lot has changed under the surface.

As buyers and sellers get back to the table, they’ll be discussing home-based care sectors that don’t look like they did three to four years ago.

In home health care, CMS has proposed three cuts to payment, and finalized two. More than 50% of Medicare beneficiaries are now underneath a Medicare Advantage (MA) plan, too. MA plans tend to be far less for home health services than traditional Medicare.

Home health providers – even the quality ones – are struggling to adjust to a world with a less certain payer landscape. They are dealing with CMS cuts to traditional Medicare, while also vying for higher rates from MA plans. Some have even cut ties with MA plans to prove a point, and also to allocate their resources to better payers.

In home care, the finalized Medicaid Access Rule included the 80-20 provision, which would mandate that 80% of reimbursement for home- and community-based services (HCBS) go to workers. That provision won’t be implemented for another nearly six years, but it is still likely to affect M&A.

For instance, on one end, many providers believe that scale is necessary to sustain business performance under such a provision. Addus Homecare Corp. (Nasdaq: ADUS) has stated this regularly and has also been a very active acquirer of late.

Outside parties, however, may see the provision as a reason to avoid HCBS – for now.

Addus has also benefited from the M&A downturn itself. While interest rates have been high, Addus has significantly expanded its home health and home care footprints.

“Realistically, over the last 12 to 18 months, we’ve not seen a lot of competition out there,” Addus CEO Dirk Allison recently said. “There’s been the occasional smaller strategic player that’s bought a few deals on a localized basis. From a PE standpoint, it’s really been very slow as far as competition for the last bit. Now, obviously, if rates come down in September, as everybody’s expecting, there’ll be a point where PE will come back in and that’s fine. It’s been a market in which up until the last year or so, we’ve always operated with competition from those folks.”

VitalCaring President Luke James also told me earlier this year that there were advantages to growing during an M&A and payment downturn. His company also recently agreed to acquire divested assets of Amedisys (Nasdaq: AMED), but that deal is contingent on the Optum-Amedisys deal closing first.

Either way, if the Fed continues on the path it set out on this week, times are changing.

When M&A ticks back up, buyers will have different factors to consider. But the buyers – the formerly dormant strategics and private equity players – will be back.

The home health and home care sectors have been labeled as ripe for consolidation over the last decade. But consolidation has not come as quickly as many believed it would.

Now that the dust is settling, however, M&A has the chance – again – to reshape the face of home-based care.

The post ‘Signs Of Life’: With Interest Rates Ticking Downward, Home-Based Care M&A Is Looking Up appeared first on Home Health Care News.

The home health sector offers an attractive investment opportunity, but also comes with challenges. It is poised to benefit from an aging population and the shift toward value-based care, however, it is also influenced by factors such as rising interest rates, reimbursement difficulties and staffing shortages, all of which have affected the M&A market.

“I have observed several cycles in M&A volume and valuations,” Cory Mertz, managing partner at Mertz Taggart, told Home Health Care News. “Volume is still lower compared to the past few years, for various reasons, such as buyers’ limited access and higher cost of debt. Valuations are still historically strong, not reaching the peak levels of 2021, but stronger than any period prior. This is influenced by robust multiples of public companies and demand from private equity.”

Fort Myers, Florida-based Mertz Taggart is a health care M&A advisory firm focused on home health, home care, hospice and behavioral health.

With a valuation of $152.9 billion in 2024 and a projected growth of $253.4 billion by 2030, home health care presents significant growth potential, as indicated by research from Grand View Research.

“Private equity firms that understand health care services appreciate home health because it has the potential to save the health care system money,” Mertz said. “As the aging population grows and technology continues to advance, enabling elderly individuals to stay at home instead of in facilities, home health is seen as a key part of the solution.”

The COVID-19 pandemic raised expectations and led to an influx of capital. This resulted in a prolonged period of low interest rates, which persisted through 2022 and early 2023, significantly affecting valuations. As interest rates rose, the transactional value and number of transactions decreased.

“If companies have to borrow at higher costs, they may not want to take on the debt obligations that they were willing to incur earlier,” Les Levinson, co-chair at Robinson+Cole, told HHCN.

Robinson+Cole is a New York City-based law firm, serving eight states and the District of Columbia.

“If we do see a rate cut that portends to a softening in the interest rate environment, I think we’re going to see a strong pickup in the M&A market,” Levinson said. “If interest rates continue to improve, there’s a likelihood that we’ll start to see a cycle where capital is being returned to investors, allowing them to consider other transactions.”

Aside from interest rates, investors are also concerned about the uncertain regulatory environment.

In the final rule for 2024, the Centers for Medicare & Medicaid Services (CMS) increased reimbursement for home health agencies by 0.8%, which amounts to approximately $140 million more than in 2023. This increase was better than the originally proposed 2.2% cut, but still faced opposition due to concerns about inflation.

“Every year, the proposed new rule for home care comes out and creates uncertainty in the marketplace,” Levinson said. “And that is potentially a valuation ding.”

In addition to CMS reimbursement rates, some states have aggressively regulated transactions. California, Oregon and Indiana are three states that have been active in regulating transactions that they think may not be helpful in their states.

Staffing concerns impact values

In addition to rates, regulation and inflation, staffing shortages continue to plague the industry, causing even more uncertainty.

Levinson said that staffing shortages in the home health care sector affect valuations and raise questions about a company’s ability to grow.

When assessing a home health care agency, it’s essential to consider its capacity to attract and keep employees in a competitive labor market. Elevated labor costs affect profit margins by raising expenses and constraining the company’s ability to care for patients, limiting its growth potential.

“It’s the ability to staff cases and continue staffing those cases,” Levinson said. “[Companies are] competing with other providers in the marketplace, in some cases for the same workers, so that has driven up wages beyond the market norm in some areas.”

EBITDA and technological efficiencies make for unique situations

A company’s valuation is typically based on a multiple of earnings before interest, taxes and amortization (EBITDA). EBITDA removes the company’s cost of selling a product or service and shows how much money is made after deducting all expenses except taxes, interest or amortization. This indicates the quality of the profit that a company makes after expenses.

However, Levinson said valuation is not always strictly based on EBITDA because of adjustments that make companies unique.

“Investors often consider the components of the EBITDA number,” Levinson explained. “Factors such as staffing levels, borrowing costs, market rates and overall market conditions are frequently discussed. They evaluate whether there is an oversupply of providers in the market and if there is competition for staff. All of these factors contribute to dynamic valuations.”

When considering a company’s EBITDA, technology is becoming increasingly important.

Technology is playing a more significant role in M&A than ever before, especially in improving efficiency, according to Levinson. While staffing impacts home health care because it is a person-to-person industry, technology can help address some of the concerns caused by staffing shortages regarding growth and the ability to provide services to clients.

“Technology can be helpful, as some cases can be treated with a phone call or an intervention over Zoom,” Levinson said. “If that’s the case, then perhaps it means a worker doesn’t have to go to a home or spend more time there and can go to another patient in need of care.”

He explained that if caregivers spend less time on paperwork that can be done with AI, it creates efficiencies and allows for more time with patients.

“I believe that technology will continue to improve efficiency and reduce costs while addressing staffing shortages we’ve experienced over the past few years,” he said.

The post How Home Health Valuations Are Shaping Up In 2024 appeared first on Home Health Care News.

The home health sector saw at least 10 deals, while the hospice sector saw at least nine, according to the M&A firm Mertz Taggart. Home care dealmaking was a bit down, with only seven confirmed transactions in the quarter. Many of these transactions, of course, include more than one service line.

“We’re seeing optimism around a thaw in dealmaking,” Mertz Taggart Managing Partner Cory Mertz wrote.

It’s also worth noting that more confirmed deals from the second quarter will likely trickle in over the coming months.

While 20 deals is nothing to write home about, it’s up significantly from the 13 that Mertz Taggart reported in the first quarter.

The Pennant Group (Nasdaq: PNTG) remained one of the more active acquirers in the home-based care space. It announced deals for the Utah-based South Davis Home Health & Hospice and the Texas-based Nurses On Wheels.

In addition, it announced a partnership with Hartford HealthCare at Home, which will allow it to open up home health operations on the East Coast for the first time.

“We have the resources focused and dedicated to the East Coast, they’re all going to be focused and dedicated on this venture in the foreseeable future,” Pennant President and COO John Gochnour recently told Home Health Care News. “We can foresee a time when it makes sense to grow further on the East Coast, because we have a service center developed out there, we have a group of people who are part of those communities and are excited to continue to make a deeper impact.”

Vitas Healthcare’s acquisition of Covenant Care, for a reported $85 million, was also a highlight in the quarter.

As for the deals that were announced but not finalized, Amedisys Inc. (Nasdaq: AMED) agreed to divest locations to VitalCaring. That deal is contingent on the Amedisys-UnitedHealth Group (NYSE: UNH) deal closing, however.

The New York-based HCS-Girling agreed to acquire the personal care operations of Addus Homecare Corp. (Nasdaq: ADUS) in New York, as well as the Florida-based home health provider Pinnacle Home Care.

Home health cuts don’t appear to be going away, which could affect M&A for the rest of 2024. But, at the same time, National Association of Home Care & Hospice President William A. Dombi said Monday that he expects a less harsh final rule for 2025.

Meanwhile, interest rates – which have cooled M&A across industries for a couple of years now – are likely to come down in the near-term future.

That could also lead to private equity activity ticking back up. Mertz noted that, in the second quarter, PE was involved in a smaller proportion of deals than usual.

There’s likely another reason for that, too, however.

“We saw fewer private equity-backed strategic transactions hit the wire relative to the whole,” Mertz wrote. “This is primarily tied to the tightened credit markets, and an increasing number of smaller, in-market transactions that don’t get reported.”

The post ‘Dealmaking Optimism’ Surfaces As Home-Based Care Transactions Pick Up appeared first on Home Health Care News.

On April 23, the Federal Trade Commission (FTC) voted 3-2 to finalize a new rule largely prohibiting employers from enforcing non-competes against workers.

While the regulatory timeline on the non-compete ban is fairly immediate, the rule will face intense legal pressure from a variety of groups, mainly of which will come from health care. Regardless of what the courts eventually decide, home-based care employers need to understand the significance and ripple effects of Tuesday’s vote.

Chip Kahn, president and CEO of the Federation of American Hospitals, captured the ban’s impact on health care in a statement released shortly after the FTC voted. His remarks focus on hospitals, but the sentiments could apply to the home health, home care and hospice markets as well.

“This final rule is a double whammy,” Kahn said. “The ban makes it more difficult to recruit and retain caregivers, while at the same time creating an anti-competitive, unlevel playing field between tax-paying and tax-exempt hospitals – a result the FTC rule precisely intended to prevent.”

Some home-based care employers use non-compete agreements to discourage former executives from sharing company secrets or starting a new business of their own. Non-competes can be particularly important components in the M&A process, too, offering a certain level of competitive protection for the buyer.

Non-solicitations – another type of agreement used in home-based care preventing clients from hiring caregivers directly – are more frequently leveraged by provider employers. They’re not the same as non-competes, but FTC’s ban could create confusion around how they’re used.

“In our industry, you see non-solicitation agreements, which are designed to protect the business of the provider, but not to restrict the caregiver,” Angelo Spinola, the home health, home care and hospice chair at the law firm Polsinelli, previously told Home Health Care News. “They work where they want to work; it’s just about not taking an agency’s clients with them, because the only reason they know them is because of the agency. I think that’s a fair position to take.”

In this week’s exclusive, members-only HHCN+ Update, I highlight key provisions from FTC’s final rule and discuss what’s likely to happen next.

Unpacking the non-compete ban

From when the FTC proposed its non-compete ban through the end of that proposal’s comment window, it received more than 26,000 comments. About 25,000 of those comments were in support of the ban, with a majority of that feedback coming from people in health care, according to the commission.

FTC’s non-compete ban takes effect 120 days from the rule’s publication in the Federal Register. At that point, employers will need to stop enforcing existing non-compete agreements with certain workers while also letting employees know they’re no longer obligated to uphold previous commitments.

One point home-based care employers should be aware of is that their top executives may be exempt from the rule if an existing agreement is in place. Specifically, the final rule says senior executives making more than $151,164 and who are in a “policymaking position” aren’t covered by the ban.

Employers will be banned from entering into or attempting to enforce any new non-competes, even if they involve senior executives, however.

Less than 1% of workers are estimated to be senior executives under the final rule, according to an FTC fact sheet.

Another critical point in FTC’s rule is how it handles nonprofit employers, of which there are many across home health, home care and hospice.

Broadly, there’s a belief that the FTC’s jurisdiction does not capture entities claiming tax-exempt status as a nonprofit. In the 570-page final rule, the commission makes it clear that’s not always the case.

“Merely claiming tax-exempt status in tax filings is not dispositive,” the final rule clarifies.

If a nonprofit organization engages in business on behalf of for-profit members, for instance, it could still be held to the standards in the non-compete ban.

Another key exemption

Although home health, home care and hospice transaction activity has dropped recently, deals are still getting done.

And when it comes to M&A, FTC’s non-compete ban will include exemptions between the buyer and seller of a business. In other words, sellers won’t be able to cash in on their business, then turn around and open up a competing provider in the same market, perhaps even taking key employees in the process.

What’s more, the exemptions appear fairly broad and comprehensive.

Originally, FTC proposed to restrict non-compete agreements between buyers and sellers only when sellers had at least 25% ownership interest in the entity being sold. That language wasn’t included in the final rule, partly due to commenters successfully arguing against it.

“Most of the commenters who supported some form of exception for non-competes between the seller and the buyer of a business contended that they are necessary to protect the value of the sale by ensuring the effective transfer of the business’s goodwill,” the final rule states. “According to these commenters, a buyer will be less willing to pay for a business if they cannot obtain assurance that they will be protected from future competition by the seller, and so a failure to exempt related non-competes may chill acquisitions.”

FTC likewise declined to include provisions where a non-compete ban would only kick in at a certain valuation or dollar amount.

There were at least 12 home-based care deals that took place during 2024’s first quarter, according to data provided by M&A firm Mertz Taggart.

What about non-solicitation agreements?

During the public comment window on the proposed rule, many commenters asked FTC to revise its rulemaking to expressly cover non-solicitation agreements that prohibit workers from doing business with “prospective or actual customers” to an extent that would effectively preclude them from continuing to work in the same field.

Other comments also sought FTC to include language preventing workers from doing business with their former employers’ clients directly. In home care, this means clients “poaching” caregivers from their agency.

In its final rule, FTC clarified that it does not see non-competes as the same as non-solicitation agreements, leaving room for the latter.

“Non-solicitation agreements are generally not non-compete clauses under the final rule because, while they restrict who a worker may contact after they leave their job, they do not by their terms or necessarily in their effect prevent a worker from seeking or accepting other work or starting a business,” the commission wrote.

But non-solicitation agreements will remain somewhat of a gray area because, under the right conditions, they could function more like a non-compete.

“Whether a non-solicitation agreement – or a no-hire agreement or a no-business agreement, both of which were referenced by commenters, as discussed previously – meets this threshold is a fact-specific inquiry,” FTC noted.

Tuesday’s final rule does not impact trade secret laws and non-disclosure agreements (NDAs).

Other considerations, what’s next

The FTC’s non-compete ban arguably has the greatest impact on the health care sector.

As health care has consolidated, those consolidators have worked to gain more control over the clinicians that power the business. To illustrate that notion: Previous research has found that up to 45% of U.S. doctors are subject to non-competes.

In fact, in coming up with its proposal, the FTC considered a 2016 paper published in Management Science, titled “Screening Spinouts,” which evaluated the economic effects of health care non-competes.

By cutting non-competes out of health care, FTC estimates that health care costs may shrink by upwards of $194 billion over the next decade.

Looking at the total economic picture, the FTC estimates that its final rule will lead to new business growth of 2.7% per year, resulting in more than 8,500 additional new businesses annually.

Moving forward, the FTC ban is going to be challenged in court.

The U.S. Chamber of Commerce already announced its intention to sue.

“The Federal Trade Commission’s decision to ban employer non-compete agreements across the economy is not only unlawful but also a blatant power grab that will undermine American businesses’ ability to remain competitive,” Suzanne P. Clark, the organization’s president and CEO, said in a statement.

Even so, many states and cities already have non-compete bans of their own, with many focused on health care. FTC’s final rule could empower more states and cities to follow suit.

The post ‘This Final Rule Is A Double Whammy’: What Home-Based Care Providers Should Know About FTC’s Non-Compete Ban appeared first on Home Health Care News.

Overall, only 12 total home-based care deals have been reported from the first quarter, according to data provided by the M&A firm Mertz Taggart.

Cory Mertz, managing partner at Mertz Taggart, told Home Health Care News that this is not due to decreased demand in the space, however.

From a macro perspective, interest rates and geopolitical conflict have inhibited dealmaking. From a micro perspective, the Medicaid home- and community-based services industry has been waiting on the Medicaid Access rule, and the Medicare-certified home health industry has been hit by rate cuts and increased Medicare Advantage (MA) penetration.

But there are other factors involved, too. Mertz said that there is a lack of quality assets going to market, perhaps because sellers are waiting for multiples to return closer to 2020 and 2021 levels.

While Mertz doesn’t see multiples getting that high again any time soon, he does believe the market will continue recovering this year and further out into the future.

Plus, on the other end, buyers have become more disciplined. Deals have become harder to close.

In the first quarter, there were six home health deals, six home care deals and four hospice deals. Some of the 12 deals were across multiple service lines, which is why what looks like a 16-deal total is really just 12.

Mertz still expects deal activity to pick up toward the back end of the year.

PurposeCare stays busy

Of the 12 deals completed in the first quarter, the growing home-based care provider PurposeCare was responsible for three of them.

The Chicago-based company – like other providers that have stayed active during an M&A down period – has found ways to creatively get deals done.

It provides all three service lines – home care, home health and hospice – and plans to layer them on top of each other in all of its markets.

“Our goal is to create a continuum of care, primarily leading with home care on the non-skilled side, then supplementing with home health care,” Cameron Cordts, corporate development manager for PurposeCare, said at Home Health Care News’ Capital + Strategy Conference earlier this month.

In the quarter, PurposeCare acquired Michiana Home Care, A-Abiding Care and Queen City Skilled Care. Those providers spanned the three service lines.

“I do feel like that gap between expectation and what buyers are willing to pay has come closer – considerably,” Cordts said.

The post PurposeCare Bucks Historic Home-Based Care M&A Inactivity Trend In Q1 appeared first on Home Health Care News.

Thanks to impactful, large-scale transactions over the last decade, the collective face of home-based care has changed forever.

Traditional providers in both home health care and personal home care have merged. Payers became involved in the home-based care space like never before. Of late, retailers have too.

But it’s often easy to forget how the current landscape became what it is.

Below, Home Health Care News takes a look at some of the most important and impactful deals in home-based care over the last decade – deals that explain, in part, where the home health and home care industries are today.

‘Big time’ provider deals

This past decade’s first blockbuster remained one of the most impactful throughout the last 10 years.

In 2014, April Anthony’s Encompass Home Health & Hospice was acquired by HealthSouth Corporation for $750 million. HealthSouth took a swing at home health and hospice, merging an in-patient facility business with a post-acute care business.

Four years later, HealthSouth would rebrand completely, taking on the home health and hospice entity’s name. Encompass Health Corp. (NYSE: EHC) still exists today, but is again without post-acute care capabilities.

The HealthSouth-Encompass deal is like a few other deals in home health care, in that it set off a domino effect and a winding life cycle of a home health entity.

Anthony left Encompass Health in 2021, and after her home health and hospice company operated as a segment within the larger organization for nearly a decade, Encompass Home Health & Hospice was spun off into its own public company: Enhabit Inc. (NYSE: EHAB).

That happened in 2022, and two years later, Enhabit may land in the hands of a different owner after it concludes its own strategic review. Anthony now runs VitalCaring, which is backed by her, The Vistria Group and Nautic Partners.

Over the decade, larger health care organizations like Encompass Health have also bundled up services, and also unbundled them.

For instance, Brookdale Senior Living (NYSE: BKD) had one of the largest home health footprints for a long time. After COVID-19 woes, however, it offloaded that to a health system eager to get into home health care: HCA Healthcare (NYSE: HCA). LHC Group would later acquire some of the assets jointly owned by Brookdale and HCA Healthcare.

Ascension Health, too, teamed up with TowerBrook to buy the home health and hospice provider Compassus in 2019.

A theme that has been a mainstay, and will likely remain a mainstay, is health systems changing course on their strategic planning – and deciding whether to own home health care themselves or focus on core operations and partner with home health care instead.

“You’re seeing a lot of these facility-based providers divesting or spinning off assets,” Chaz Bauer, director at Fifth Third Securities, told Home Health Care News. “They realize they have fundamentally two different businesses. They’re very related and intertwined. But fundamentally, you have these facility-based businesses that are very centralized models, very capital intensive. Whereas home-based care businesses, they’re very decentralized; they’re very capital-light. Part of the motivation there – in unbundling – is they can unlock value for their shareholders by splitting those businesses.”

But then there’s the M&A that has come from within the home health sector itself.

For instance, “the merger of equals” that turned LHC Group into a true home-based care powerhouse.

In late 2017, LHC Group agreed to merge with Almost Family in a $2.4 billion transaction. A straight line can be drawn from that deal to UnitedHealth Group’s (NYSE: UNH) acquisition of LHC Group, which was finalized in 2023.

LHC Group and Almost Family’s merger is not an anomaly, either. Not long after, Great Lakes Caring, National Home Health Care and Jordan Health Services combined in a three-way merger to create another one of the largest home health companies in the U.S.: Elara Caring.

That deal was powered by the PE firms Blue Wolf Capital Partners and Kelso & Company.

PE money in home-based care has turned a lot of sizable providers into powerhouses. The aforementioned PE firms – Blue Wolf, Kelso, Vistria and Nautic – have all played a part in that, in the transactions mentioned already and otherwise.

That will also continue, particularly as some of the holding periods of the largest companies turn over. There’s also a chance, however, that PE firms direct more attention to other parts of home-based care – like personal care – given the uncertainty surrounding home health payment rates.

In home care, Vistria and Centerbridge Partners uplifted Help at Home, turning it into one of the largest providers of home- and community-based services (HCBS) in the country.

Waud Capital recently acquired the large home care franchise Senior Helpers. Wellspring Capital Management acquired Interim HealthCare’s parent company Caring Brands International in 2021. Last September, The Halifax Group acquired Comfort Keepers from Sodexo.

PE has always been involved in home care. Bain Capital’s 2018 creation of Arosa, one of the largest non-franchised home care companies in the country, is one past example.

In the future, it’ll be interesting to see if PE will drive more large-scale, impactful deals like it has in home health care over the last decade.

Payers enter the fold

Any commentary on the biggest deals in home-based care over the last decade needs to note increased payer involvement.

Enter Humana Inc. (NYSE: HUM).

When people think of the company’s home-based care investments, most go straight to its takeover of Kindred at Home.

But let’s take a step out of the last decade, just for a second.

In 2011, Humana acquired the home-based care provider SeniorBridge, which was doing just $72 million in annual revenue at the time. When that deal was announced, it was not exactly frontpage news. But one could argue that kickstarted a chain of investments that changed the M&A landscape in home-based care forever.

“SeniorBridge fills a growing market need and is consistent with Humana’s focus on delivering clinical care for seniors in their homes,” Michael B. McCallister, Humana’s chairman and CEO at the time, said in a statement. “Acquiring SeniorBridge will immediately expand Humana’s existing clinical capabilities with the addition of SeniorBridge’s national network of 1,500 care managers. The company does a terrific job of reducing hospital readmissions and emergency-room utilization, all while helping seniors achieve lifelong well-being.”

Humana’s home-based care thesis was already there, but the SeniorBridge deal was likely the deal that set the stage for what eventually became CenterWell.

“The deal was a game changer. I was initially surprised by the size of the transaction. It was pretty small by Humana standards,” Mertz Taggart Managing Partner Cory Mertz told HHCN. “It didn’t take long for Humana to tout the savings SeniorBridge created for their membership, saving it billions of dollars within the first couple years of the deal, by keeping their members at home and out of the hospital.”

Nearly 13 years later, Humana is one of the largest home health providers in the country through CenterWell Home Health.

The company, with the help of the PE firms TPG Capital and Welsh, Carson, Anderson & Stowe (WCAS), acquired and merged Kindred at Home and Curo Health Services. Yet another home health and hospice powerhouse was formed, this time under the watch of one of the largest payers in the country.

In 2021, Humana opted to take over a remaining 60% of the enterprise (it had previously owned 40%), which was worth over $8 billion at the time.

In 2022, it divested the hospice and home care operations of Kindred to Clayton, Dubilier & Rice (CD&R). Those divested assets became what is now known as Gentiva, led by David Causby, the former CEO of Kindred at Home.

The home health assets Humana held onto are now under CenterWell Home Health. CenterWell, overall, includes primary care, pharmacy and home health services.

In 2024, most large payers – namely the ones with large MA memberships – have some sort of home-based care capabilities. That was not the case when Humana acquired SeniorBridge way back when.

“This has been an ongoing development, and it’s really just vertical integration,” Bauer said. “The thought is: why not get into that downstream, and then be able to more directly control those costs and quality outcomes on the payer side?”

The other heavily involved payer is the only one that has a leg up on Humana in MA: UnitedHealth Group.

UnitedHealth Group’s Optum already had a variety of health care provider assets, but it decided to make its first big home-based care splash early in 2022 when it announced the $5.4 billion acquisition of LHC Group.

While payers liked the thought of vertical integration, large providers like LHC Group were also recognizing an existential threat to home health business: MA penetration. More MA beneficiaries meant fewer traditional Medicare beneficiaries, which meant a less sturdy financial leg to stand on.

UnitedHealth Group further cemented its interest not long after, when it made a $3.3 billion all-cash offer for Amedisys. That deal was agreed to in June of 2023, but is still pending.

Though UnitedHealth Group may have to divest some Amedisys assets to finalize the deal, the company will most likely have the largest home health market share when that deal closes. Estimates suggest Optum will have about 10% of the U.S. home health market under its belt.

Not only are payers now involved in the home health industry, but they are also creating scale.

“You can make an argument that Optum acquiring LHC group, and now Amedisys, is a scale transaction, like ones we’ve seen before,” Bauer said. “Because it puts together two of the largest providers to make an industry leader.”

New kids on the block

Like payers before them, another group of companies is now firmly involved in home-based care investment: retailers.

In fact, they’re so invested, they may not be labeled as just retailers five to 10 years from now.

CVS Health (NYSE: CVS) has a new health care services segment dubbed CVS Healthspire. Walgreens Boots Alliance (Nasdaq: WBA) has the same with its U.S. Healthcare segment.

Both of those segments are arguably the future of their respective parent organizations. And both include home-based care services.

Payers and retailers have different business models, but tend to want the same thing: pharmacy, primary care and home-based care services.

In 2020, Walgreens made an over $1 billion investment in VillageMD, a home- and community-focused primary care provider. After subsequent investments, it has backed VillageMD with over $6 billion.

After that, Walgreens found its next health care services asset in the health-at-home solutions platform CareCentrix. Though he is no longer in the position, CareCentrix’s former CEO, John Driscoll, was the initial leader of Walgreens new U.S. Healthcare segment.

“We continue to see strong results and potential for growth from our partnership with CareCentrix. Our full acquisition further accelerates our transformation to become a consumer-centric health care company, leveraging innovative platforms that extend our capabilities into fast-growing segments of health care,” former Walgreens CEO Roz Brewer said at the time. “CareCentrix is key to offering services to our patients at every stage of the care continuum, and to driving long-term, sustainable growth as part of our U.S. Healthcare strategy.”

Not to be outdone, CVS Health agreed to acquire the home- and value-based care enabler Signify Health in 2022 for $8 billion. Shortly after that, it got its primary care provider, too, with the over $10 billion acquisition of Oak Street Health.

While none of these assets are traditional home health or home care assets, this retailer involvement represents a seismic change in U.S. health care – and home-based care is a major part of it.

These companies could go after more assets in the future, or they could become major partners for those traditional providers.

Honorable mentions

It’s impossible to highlight every deal, but there are some that don’t fit perfectly into “themes” that are still worth mentioning.

The home care technology company Honor acquired the home care franchise brand Home Instead in 2021, for instance. In lieu of strictly partnering with providers to see its vision through, Honor opted to purchase Home Instead to speed up the process. The jury is still out on that deal, however.

Prior to agreeing to become a part of Optum, Amedisys also made plenty of deals that turned it into a multi-billion-dollar business.

It acquired the hospital-at-home platform Contessa Health in 2021 for $250 million.

It acquired Compassionate Care for $340 million in 2018, and AseraCare Hospice in 2020 for $235 million. Those two deals significantly bolstered its hospice arm.

Modivcare (Nasdaq: MODV) entered into the personal care game in a real way with its $575 million acquisition of Simplura Health Group in 2020 and its $340 million deal for CareFinders Total Care in 2021.

BrightSpring and PhaMerica completed a merger in 2019 that eventually led to today’s BrightSpring Health Services (Nasdaq: BTSG), which is now a public home-based care company.

Finally, Aveanna (Nasdaq: AVAH) – formerly a pediatric provider – entered into the home-based senior care world with its $345 million acquisition of Comfort Care Home Health in 2021 and its acquisition of Accredited Home Care for about $200 million later that year.

Addus Homecare Corporation (Nasdaq: ADUS) has executed several high-profile transactions of its own, most recently acquiring Tennessee Quality Care in a $106 million deal.

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However, the success in that endeavor hinges on three key factors: quality deal flow, capital markets and regulatory developments.

That’s according to a new survey conducted by M&A advisory firm Mertz Taggart, which interviewed 51 of the most active acquirers interested in home health, hospice, personal care and private-duty nursing.

Quality deal flow stands out as the primary determinant of M&A success in 2024.

In the interim, the number of deals is expected to be lower due to the number of companies entering the market for sale compared to the outlier year of 2021. Many potential sellers are still holding off and hoping for market improvements.

Despite that, there seems to be general optimism around the Federal Reserve easing interest rates in the next few months, which would have a massive impact on M&A in home-based care – and in other industries.

“So much of what we’re expecting to see from an activity standpoint is going to depend on whether or not the Fed adjusts interest rates,” Rebecca Springer, lead health care analyst at PitchBook, recently told Home Health Care News. “Higher interest rates could affect the value of future cash flows and exit valuations.”

In the meantime, many buyers are aggressively looking to acquire “quality cash-flow-positive companies” prior to those companies’ anticipated exits,” according to the report.

Of the 51 acquirers interviewed, 77% of them suggested they plan to be more acquisitive in 2024 compared to 2023.

It’s important to note that buyers’ definition of quality deal flow has changed over the last few years. Instead of buying assets that could use a fix-up, buyers now prioritize acquiring transition-proof, profitable businesses that align with their exit strategies.

“A premium, cash-flow positive agency will often still sell at or near the market peak multiples of
2021, but it needs to check all the boxes from a financial, clinical, compliance and leadership perspective,” Cory Mertz, managing partner at Mertz Taggart, wrote in the report. “The lesson here is to make sure you are prepared. Otherwise you will be going in at least somewhat blind.”

Areas of focus

Despite ongoing reimbursement challenges, home health care remains a significant focus for many buyers, particularly in private equity.

Experienced operators have shown resilience in the industry, the report details, and successful home health operators with strong outcomes and NPS scores are considered integral to buyers’ value-based care strategies. Recent moves by major payers like UnitedHealth Group (NYSE: UNH) and Humana Inc. (NYSE: HUM) validates this trend.

“Private equity is smart,” Mertz said. “They are drawn to industries and companies that ultimately save the health care system money, while achieving better patient outcomes.”

In recent years, the interest in either home health or hospice from buyers has fluctuated. When home health is up, hospice is down, and vice versa.

Reimbursement risk has recently been a concern for home health, which has caused interest to fall. However, the hospice sector is now facing increased scrutiny and audit activity in certain key states like Texas, Arizona, California and Nevada.

As a result, buyers are becoming more selective in their hospice acquisition targets.

More than half of respondents said they are either in value-based arrangements (47%) or are considering them for their overall strategy (25%). A smaller percentage — 19% — said they have no plans to inquire about value-based arrangements.

Even though 2023 was a down year, it’s encouraging to see interest levels rise in home health, personal care and hospice heading into Q2 of 2024, Mertz said.

Compared with 2023, M&A interest has increased by 38% for hospice, 32% for home health and 27% for home care.

“Equally as telling — although they have become more selective on which deal they pursue — very few buyers have narrowed their service line focus,” Mertz said. “In other words, if they were interested in home health in 2023, it’s clear they would remain interested in home health.”

The result? Pent-up buyer demand across all home-based care service lines, according to the report.

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Health care’s share of global private-equity (PE) deal count peaked at 13.7% in 2020. Three years later, that number fell to 10.8% — its lowest level since 2015.

Compared to the bustling activity of 2021, home-based care dealmaking was mostly sluggish in 2023 and has followed that same trend.

The slow year was largely due to PE firms’ reluctance to re-engage in the market. In 2024, those tides may shift ever so slightly, making it an intriguing year.

“So much of what we’re expecting to see from an activity standpoint is going to depend on whether or not the [Federal Reserve] adjusts interest rates,” Rebecca Springer, lead health care analyst at PitchBook, told Home Health Care News. “Higher interest rates could affect the value of future cash flows and exit valuations.”

Despite 2023 being a down year for home-based care dealmaking, it was a relatively strong year for PE health care specialists in terms of cumulative dollars closed, according to Pitchbook. However, that fundraising activity is not expected to translate into increased deal counts in 2024.

“Dry powder or available capital is not always indicative of future dealmaking,” Springer said. “The typical investment period for a 10-year fund is five years with some additional flexibility through a number of technicalities. In 2024, we anticipate that PE health care managers will focus on deploying capital into existing portfolio companies, lower-middle-market platforms and occasionally pursue opportunistic carve outs.”

Slow start expected

Home-based care is in a particularly interesting position when it comes to M&A and PE-involved deals, Cory Mertz, managing partner at Mertz Taggart, told HHCN.

There’s a contrast in financial strategies that exists between physician groups and home-based care companies.

Physician groups, Mertz explained, rely heavily on growth through acquisition and accumulating significant debt in the process.

“Once you buy a physician practice, it’s hard to grow that significantly organically,” Mertz said. “You just have to keep buying them so it’s almost entirely a roll-up strategy. They’re dealing with organic growth, so you’re piling on more debt deal after deal.”

In contrast, mature home-based care companies — especially those owned by established private equity groups — often have cash reserves due to early investments and successful organic growth.

This financial stability enables them to expand without relying heavily on debt financing, giving them a competitive edge in dealmaking.

“On the home-based care side, there are some buyers out there that are cash-strapped,” Mertz said. “Especially those that overpaid for platforms between 2020 and 2021. A lot of those guys are probably a little bit cash-strapped or a little bit more highly leveraged because they overpaid. They put debt on it and they haven’t had a chance to really grow organically and throw a bunch of cash on the balance sheet.”

Both Mertz and Springer mentioned that it’s not a matter of quantity, but quality.

“Not all of them, but the more recent portfolio platform deals that we’ve seen over the last year or two — they’re going to have a harder time being aggressive if they’re looking for quality companies,” Mertz said.

Macroeconomic factors will continue to play a huge role in PE’s involvement for home-based care in 2024, Springer said.

“The drop in provider add-on activity we saw last year happened for two reasons,” Springer said. “First, the industry has been hit hard by labor cost inflation. It’s improving slightly as macroeconomic conditions change, but it’s clear that the pandemic has only worsened the ongoing labor shortages across various sectors, from urology and dental hygiene to home health care. Second — and most importantly — high interest rates and roll-ups do not mix well.”

It’s becoming more risky for PE firms to rely on borrowing money to fuel rapid growth through acquisitions. As a result, the industry is shifting focus in different directions like, as Pitchbook has pointed out, behavioral health and aesthetics.

Others are moving away from traditional health care providers and investing more in tech and pharmaceutical services.

Year of two halves

Private equity investors told HHCN on background that despite some of the caution being taken by investors, the second half of the year could be a busier one.

Investors and analysts called it a “mixed bag” when projecting what 2024 will look like.

In speaking with other investors, Mertz has received a similar message.

“The ones that have been under the same ownership group or even some of the publicly traded companies have got plenty of cash and they are looking for quality opportunities,” Mertz said. “But then there are some that are saying, ‘Right now, we have to focus on organic growth and integrating these deals that we’ve done in the last 12 months.’ At least for the first half of the year. That’s the general sentiment I’m getting.”

As will be the case for 2024 and following years, one of the biggest obstacles PE investors face is a lack of high-quality deals available. The other — as Springer pointed out — is the capital markets.

“The first thing they all say is quality deal flow,” Mertz said. “They’ll say, ‘There’s just not enough quality opportunities out there for us to sink our teeth into.’ And, with the capital markets, the consensus is that the Fed will start cutting rates in the second quarter of 2024. Buyers, especially those that rely on debt, are waiting for things to ease up a bit before they get acquisitive.”

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Overall, the fourth quarter saw at least 25 transactions across all home-based care sub-sectors, according to a recent report from M&A advisory firm Mertz Taggart.

Of the 13 home care transactions that took place in the fourth quarter, nine involved home- and community-based services (HCBS) sellers. Sodexo also completed its sale of Comfort Keepers — one of the country’s largest home care franchises — to The Halifax Group.

“We just love the [home care] space and wanted to continue to be active there,” Halifax Managing Partner Scott Plumridge previously told Home Health Care News.

In 2023, there were at least 95 total home-based care transactions, a 14% decrease from 2022 and a significant drop from the robust market in 2021.

The recent slowdown, Mertz Taggart reports, can be partially attributed to the Federal Reserve’s efforts against inflation — leading to rising interest rates and tighter debt markets. The idea is reflected in the fact that nearly all other corners of health care also saw a slowdown, particularly in terms of private equity-driven M&A.

“We are seeing signs of a thaw in dealmaking,” Cory Mertz, managing partner at Mertz Taggart, said in the report. “We expect more companies to go to market in 2024 — reverting back to pre-COVID levels — but it will continue to be a bit more of a challenge to get deals across the finish line as buyers will continue to chant the ‘discipline’ mantra.’ But the first and second quarter of 2024 will be better indicators.”

Despite the overall decline, the fourth quarter saw an increase in deals across home health, home care and hospice with private equity driving 18 out of 25 transactions.

Home health care dealmaking ended the year on a high note with 13 transactions completed, up from just four transactions in Q3.

The headliner was Gentiva’s $710 million acquisition of ProMedica’s home health and hospice assets. It was Gentiva’s first major deal following its formation out of the divested assets of Kindred at Home.

While a massive surge in activity in 2024 is uncertain, the industry is poised for potential normalization in private equity-driven activity, Mertz wrote. The outcome largely hinges on the Federal Reserve’s decisions on interest rates and the consensus opinion on future meetings.

“Health care services M&A is hard to predict due to both economic and regulatory uncertainty — and 2024 presents its fair share of challenges on both fronts,” Mertz said in the report. “Health care-savvy investors who are used to navigating these obstacles are chomping at the bit for quality opportunities. Finding and closing those deals will be the bottleneck for activity in 2024.”

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In 2023, the decreasing influence of COVID-19 did not mitigate the overall operating pressures home health providers were forced to face. In the new year, there still remains plenty of opportunity, but much to work through to tap into that opportunity.

More proposed rate cuts to home health reimbursement are expected from the Centers for Medicare & Medicaid Services (CMS). All the while, Medicare Advantage (MA) penetration is likely to continue.

By midyear, three – or more – of the largest home health entities in the country could be owned by payers. That could impact the industry at large in a number of ways. Providers not owned by payers will still have to find better ways to work with them, whether that’s through higher-rate contracts or more value- and risk-based ones.

But the home is where care is headed. Longstanding providers stand to benefit from that, so long as they can get their ducks in a row operationally.

Below are all of the home health trends HHCN believes should be on providers’ radar in 2024, based on research, reporting and extensive industry knowledge.

Curious what we forecasted for last year? Revisit our 2023 predictions here.

HHCN’s home care trends predictions, published last week, can be revisited here.

The fee-for-service landscape of yesteryear will be no longer

For years, home health providers were able to rely on the sturdy support of traditional fee-for-service Medicare reimbursement. That will no longer be the case in 2024 – and beyond.

CMS, in a vacuum, provides a reasonable rate for home health services. If providers weren’t aware of that, the the Medicare Payment Advisory Commission (MedPAC) is happy to remind them. 

MA beneficiaries have been growing steadily for the past decade, but providers in certain markets were able to stave off poor rates. A healthy mix was achievable, with a heavy reliance on the fee-for-service dollar. 

But, in 2023, over 50% of Medicare beneficiaries were underneath an MA plan, according to the Kaiser Family Foundation. That number is expected to continue ticking up.

On the other end, CMS is seemingly hellbent on denying traditional Medicare rate increases in the future, despite inflationary pressures.

From a reimbursement perspective, the walls are caving in on home health providers from both sides.

“The trend in Medicare Advantage continues to just rapidly outpace preparation by the industry,” New Day Healthcare CEO Scott G. Herman told HHCN in December. “Unless you’re building something specifically for MA, the ability to hold the 50-plus percent of traditional Medicare episodic mix in home health – it’s really just gone.”

In 2024, with the fee-for-service model eroding, home health providers will have to invest in operational models that can withstand MA rates and stagnant traditional Medicare rates.

Risk- and value-based care represent an opportunity for providers to get closer to what they believe they’re owed, so long as they can find partners willing to enter into appropriate agreements with them.

“We’re focused on understanding exactly how those Medicare Advantage players work, building remote models that support them, that are driven with data and analytics,” Herman continued. “We need to sit down and understand how to work with patients longitudinally, how to do cross referrals internally, and then take the business that those players really need us to take in markets where they’re struggling with providers.”

It will become clear whether payers will be allies or foes in home health care 

UnitedHealth Group (NYSE: UNH) and Humana (Nasdaq: HUM) are two of the biggest health care companies in the country. They’re also both now heavily involved in home health care.

On UnitedHealth Group’s end, it owns LHC Group and is in the process of acquiring Amedisys Inc. (Nasdaq: AMED). Humana, of course, owns CenterWell Home Health, formerly Kindred at Home.

Legacy home health providers have mixed feelings about whether these companies being in the home health business will be a good or bad thing.

Some providers feel queasy about it, knowing that they’ve been at odds with these players before in MA negotiations. Others believe more eyes and more investment in home-based health care is always a good thing.

But advocacy efforts will offer a first glimpse at whether these players will be behind home health providers’ universal causes.

“We start processing all of this, thinking, ‘OK. Is this a good thing or a bad thing in the aggregate?’” National Association for Home Care & Hospice President William A. Dombi told HHCN last year. “And I think we start seeing some really positive elements to it. There may be a home care company who would disagree with that, for their own personal circumstances. I can respect that and understand it, but at the same time, how do we take the energy entering into this space and really turn it into something positive for everyone?”

CMS is likely to propose more rate cuts in June. When it does, it will become more clear whether the large payers are willing to fight alongside home health providers. Alternatively, it could show they’re more focused on MA policy, and view home health care as more of a side project.

More payers will lessen, remove prior-authorization requirements for home health services

Medicare Advantage penetration gives MA plans an inherent advantage. But more care shifting to the home, in part because of shifting patient preferences, gives home health providers an advantage in negotiations.

Home health referral rejection rates are at an all-time high, according to companies like WellSky that track such things.

Plans unable to work well with home health providers will lag behind. Their beneficiaries will need home health services as much as ever.

Outside of rates, providers have expressed prior authorization requirements as one of their top gripes with plans.

“The prior authorization process should be based upon the patient’s primary diagnosis and have a standard number of visit authorizations based upon evidence-based medicine,” Intrepid Healthcare CEO John Kunysz told HHCN in October. “Care delayed is care denied.”

In 2023, providers began to gain momentum in terms of lessened or removed prior authorization requirements. HHCN expects that momentum to continue in 2024. It makes sense for the providers and patients.

BCBS of Massachusetts removed prior authorization requirements for home care services last year, recognizing that patient care was being delayed.

“By removing prior authorization requirements for home care services, we’ll help hospitals to expedite discharges at a time when many are struggling with overcrowding,” BCBS of Massachusetts Chief Medical Officer Dr. Sandhya Rao told HHCN in November. “This change will also reduce delays for Blue Cross members ready to transition their care from hospital to home.”

Cigna (NYSE: CI) did, too. The company removed hundreds of prior authorization codes in 2023, and is in the process of doing the same for MA, specifically.

Expect ‘passive acquisitions’ and accelerated consolidation

Home health operators face a mountain of challenges, from the unrelenting labor crisis and skyrocketing demand, to the margin shrink tied to contracting fee-for-service rates. Simply put: The cost of doing business is higher than ever.

And that’s unlikely to change in 2024.

In light of that reality, HHCN anticipates further consolidation for the home health industry over the next 11 months. That consolidation will happen in the form of M&A activity, agency closures and “passive acquisitions,” or one provider agreeing to take on a distressed provider’s patient population.

There are signs that this accelerated consolidation has already started.

In August, St. Joseph’s Health revealed plans to close its home health care agency, citing economic challenges. Around the same time, a home health program in Alaska was forced to shut down “mainly due to federal regulations that make operating it challenging and inefficient.” A few months later, Boone Health announced it was closing its home care and hospice service lines.

On the M&A front, the fourth quarter of 2023 brought at least 13 home health-related transactions, according to data from M&A advisory firm Mertz Taggart. In terms of volume, that tied for the second-most deals since the end of 2021.

It’s important to underscore that consolidation alone isn’t HHCN’s prediction, as consolidation in the home health industry has been happening for years.

In fact, the home health industry has actually seen its number of active agencies decrease since at least 2014. According to data from the most recent Home Health Chartbook released by the Research Institute for Home Care (RIHC), there were 11,353 active home health agencies in 2022, 11,474 in 2021, 11,565 in 2020, and 11,569 in 2019.

HHCN’s forecast, more specifically, is that the pace of consolidation will speed up by a noticeable degree.

The public market will look different

Every new year brings new speculation in the home health space about which companies could go public and which publicly traded companies could change ownership.

In the years following the COVID-19 pandemic, many home-based care companies considered going public, but their tuned change when the economy took a downturn.

There are a few companies HHCN is keeping an eye on, starting with Enhabit Inc. (NYSE: EHAB).

The home health and hospice provider is possibly headed toward a sale. It’s not unrealistic to expect the company to end up in the hands of an already publicly traded company – that would be acquiring the company for strategic purposes – or a private equity firm. 

On the other side of things, BrightSpring Health Services has filed for an IPO and is eyeing a $3.1 billion valuation.

The home- and community-based services provider first planned to go public with a goal of raising $800 million in 2021. The company nixed that plan soon after, but is running it back.

Help at Home, another home- and community-based provider, is also reportedly gauging interest in a sale. The company, backed by The Vistria Group and Centerbridge Partners, has been rumored as a potential candidate for an IPO in the past.

Payer innovation teams will play an even greater role at their organizations

In a move to diversify payer sources and embrace value-based care, some of the largest home health companies in the industry have thrown their weight behind internal payer innovation teams.

In 2024, this will only intensify, as providers look to rely less on fee-for-services Medicare.

In this respect, companies like Enhabit, Bayada Home Health Care and VNS Health are already ahead of the pack.

As a result, Bayada has been able to increase the amount of managed care revenue tied to the company’s value-based contracts. VNS Health set its sights on taking on more risk, and has also achieved 68% managed care penetration in New York. Enhabit has negotiated agreements with 37 — and counting — MA and commercial payers.

Ultimately, providers that have put payer innovation front and center at their organizations believe that it has allowed their companies to operate more autonomously.

“It allows us not to be beholden to one individual payer, if we’re having a difficult negotiation,” Devin Woodley, vice president of managed care contracting and B2B sales at VNS Health, previously told Home Health Care News. “It also helps us on the referral side. One of the reasons why referral sources love us is because we’re contracting with, essentially, every major payer.”

More home health providers will incorporate mental health care

It’s been well established that seniors prefer to age in their home, and receive care there.

Concurrently, the demand for behavioral health services in the U.S. has continued to skyrocket in recent years.

This, naturally, opens the door for home health providers to reach a patient population whose behavioral health needs are often underserved.

Specifically, fewer than 50% of seniors with mental and/or substance use disorders receive treatment, according to the National Academy of Medicine.

Some providers have already stepped into this opportunity to deliver care to this population of older adults. Innovive Health — a Medford, Massachusetts-based home health company — has made offering care to Medicaid-eligible seniors with severe mental illnesses a priority.

“They’re a very challenging population to treat and manage,” CEO Joe McDonough previously told HHCN. “They’re often resistant to care. There’s a lot of social determinants, as far as having adequate housing, adequate food supply, adequate access to medications. This is a population that continually has challenges, as far as access to care.”

Due to Innovive’s care delivery model, the company has seen positive outcomes among its patient population.

“We’ve seen a market decrease in hospitalizations as well as ED utilizations in this population,” McDonough said. “This is because we provide intensive case management. We also ensure medication compliance, and coordinate with all providers to make sure that they have a treatment plan that assures the most optimal outcomes.”

Additional contributions from HHCN reporter Joyce Famakinwa, HHCN reporter Patrick Filbin and HHCN Managing Editor Bob Holly.

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