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In the middle of April, the U.S. Department of Health and Human Services (HHS) announced ownership data for all Medicare-certified home health and hospice agencies would be made publicly available.
Department officials described the move as an attempt to promote competition in the industry and protect consumers. But the changes could also have an effect on the way buyers and sellers navigate M&A in the home health space – particularly those with less experience.
“I don’t know if there’s going to be much benefit to active buyers because they’re in the business already,” Mark Kulik, senior managing director of The Braff Group, told Home Health Care News. “Certainly for bankers like myself, we may pick up a piece of information here and there, but we’re doing this as our daily focus and we have a pretty good idea as to who owns what. I think there will be opportunistic activity taking place with local or regional providers that maybe didn’t know who the competition was, or didn’t know who owned the competition.”
For those smaller providers, being able to review detailed information on the ownership of more than 6,000 hospices and 11,000 home health agencies can come in handy when the idea of expansion — no matter how big — starts to become a reality.
The ownership details that will now be publicly available include whether the owner of an agency is a company or an individual, as well as whether there’s a direct or indirect owner.
Data on M&A, consolidations and changes of ownership since 2016 for all home health and hospice agencies will also be made publicly available.
These specifics, at the very least, will increase communication in the industry, Kulik said.
“If I’m in an adjacent state and I want to expand across state lines, now I can look up and find out who owns the agency, which would be much easier than making a phone call [that could lead to roadblocks],” Kulik said. “I do think it will increase the chatter and increase conversations, especially at that level where people may not have actively engaged before or those who just have a passive interest in transactions.”
The transparency will also shed light on smaller deals that go down that may otherwise be afterthoughts in the marketplace.
Everyone hears and talks about the headline-grabbing deals in the billion-dollar ranges, Kulik said. Now that HHS will include data on M&A and consolidations of all sizes, smaller deals might get more shine.
“For the very small agencies, the ones that are doing $3 million in revenue buying another that does $1 million, I think those kinds of deals will get a lot of sunshine,” Kulik said.
Potential downsides
Despite the fact that transparency in most cases is a good thing, some M&A experts believe the move could have minor downsides as well.
Transparency will lead to accessibility. That may not always be a good thing depending on the timing of where providers are at in the negotiating and selling process.
“It will make owners more accessible to buyers and brokers trying to lure them into a deal without having proper sell-side representation,” Cory Mertz, managing partner at Mertz Taggart, told HHCN in an email.
Mertz added there could be a slight bump in transactions over the next year once this information becomes publicly available.
However, it’s important for potential sellers to be as prepared as possible once these changes are put in place.
“It will make things a little more challenging for us and some of the more established M&A advisors, as our prospective clients will need to weed through more riffraff,” Mertz said. “We may see a slight increase in transactions, say, 6-12 months from when the data is available, as those owners who have been successful at shielding their information from the public will be getting approached about selling for the first time.”
Other M&A experts agreed with that assessment.
Additionally, just because there will be more transparency doesn’t mean stakeholders won’t try to find a way to skirt around the lines.
“People involved in these deals might have to think a little bit differently about what further requirements are going to be placed upon you and how some of your information may get disclosed,” Les Levinson, co-chair of the transactional health care practice Robinson & Cole LLP, told HHCN. “This is a little bit of conjecture, but that may lead to some firms maybe setting up other entities to be a little less transparent when you go up the food chain.”
What’s more, it’s natural for investors to have certain sensitivities when it comes to these deals. There’s a confidentiality they are used to, Levinson said, and it’s not unusual for private equity firms to want to be a little less visible.
While some of the changes will affect the way sellers are approached and investors operate, buyers — for the most part — should keep it business as usual.
“Especially for people that have been out there for a while like ourselves,” Kulik said. “We’ve been combing and shaking the trees for a long time to find out who owns what and trying to connect the dots. We may find a few new things out here and there, but if you’re active and you’ve been active, this has been your full-time job anyway.”
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