Tuesday, April 23 | Interoperability, Legislative/Policy, Thought Leadership, Post-Acute Care, Care Coordination

Experts Share What's to Come in Home Care and Hospice - Part 4

In this ongoing series, we asked home health and hospice experts their thoughts on how upcoming trends and changes will affect the industry in the next one, three and five years. Last time, we heard from executive director of Home Care Association of America (HCAOA), Phil Bongiorno, who spoke about how in-home technology and innovations can highly benefit homecare and hospice organizations moving forward.

We are now pleased to feature Mark Kulik, managing director of The Braff Group. Kulik has a wealth of knowledge with nearly 40 years of home health and home care industry experience.

If you look carefully at patterns of consolidation (from strategy to timelines to valuation), historical trends in reimbursement (and how the market is likely to react), issues regarding supply and demand, and more, you can begin to hone in on the directions the mergers and acquisitions (M&A) market in a given segment is likely headed.

Here, then, is what we anticipate in home health and hospice M&A, and equally important, why.

The value of Medicare-certified home health agencies is just begging for a correction

First, it was the phased-in cuts over four years and the go-forward clarity of payment it provided (even if negative) that propped up the mergers and acquisitions climate for home health agencies.    

Then it was the development, implementation and success of alternative payment models that reward “the right care, at the right time, in the right place,” which placed certified home health agencies squarely in the sights of new buyers seeking to build a continuum of care.

Together, these factors boosted demand for home health agencies, creating “market momentum” that has pushed valuations near the peak levels achieved around 2005-2008.

But now, enter PDGM payment reform as CMS looks to up the LUPA thresholds, upend the standard 60-day episode, and undo the therapy thresholds. 

While providers may be able to overlay the new payment model on their past business to predict its impact (and potential response), they cannot predict the behavioral changes referral sources and other providers will undergo. That, in turn, could reshape the market.

But to be sure, buyers will assume the worst. 

Sellers will assume the best.

And as a result of this uncertainty, valuations are a near lock to experience a slide.

Perhaps more importantly, much like we saw during the transition from cost-based to prospective pay reimbursement, the certified home health M&A market could very well be on ice for a year or more beginning July 1, 2019 during the run-up to these changes.

Home health’s loss will be hospice’s gain

Given similar clinical underpinnings of home health and hospice as well as a far more stable payment methodology (at least for now), buyers will likely pivot towards the comparative safety and predictability of hospice.  At least until a year or two from now when both buyers and sellers alike can begin worrying about the implications of the Medicare Advantage hospice carve-out being carved back in.

The time is nigh for private duty M&A

As personal care is increasingly being seen as a cost-effective way to monitor and manage patients, ensure medication compliance, head off unnecessary emergency room visits, and prevent hospitalizations and subsequent re-hospitalizations, the conditions are ripe for integrating personal care with other post-acute providers.

That’s why private duty activity has surged over the recent past – and will likely continue to do so over the near term.

Medicaid M&A yearns to break free

Due in no small part to Medicaid expansion under the Affordable Care Act, interest in and demand for providers targeting Medicaid beneficiaries has generally risen. 

That said, the sector hasn’t truly busted out, as the market dynamics might suggest.  Perhaps it’s due to the typically thinner margins or the variability in eligibility and rates from state-to-state.  Or maybe it’s simply institutional bias against the sector because of what it isn’t (that being Medicare).

Regardless, as states seek to divert more patients from skilled nursing facilities to home care, as they begin to realize that dollars spent on regular personal care may dwarf the costs of preventable (or delay-able) hospitalizations, and as more private equity groups realize successful investments and exits, Medicaid M&A may yet break out.

In the fifth part of this series, we will hear from the president of Remington Health Strategy Group, Lisa Remington. In addition, be sure to check out the previous post of the series to learn more about how upcoming industry trends and changes could affect home health and hospice.

 

 

Meet the Author

Mark Kulik · Managing Director, The Braff Group

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