Hospice M&A Market Going Strong in 2019

All signs point to a strong showing for hospice mergers and acquisitions through the year and into 2020 as companies and investors shy away from home health in anticipation of potential fallout from the forthcoming patient-driven groupings (PDGM) model.

Eight hospice acquisitions took place during the first quarter of 2019, up from seven transactions during Q1 2018 as well as Q4 2018, which also saw seven transactions, according to a new report from M&A advisory firm Mertz Taggart.

“I do expect hospice to remain hot through the end of 2019 and into 2020, barring any broader macroeconomic issues,” Cory Mertz, managing partner, Mertz Taggart, told Hospice News. “The industry outlook is strong.”


Significant transactions during the first quarter included Amedisys (NASDAQ: AMED) closing a $340 million acquisition of Compassionate Care Hospice, making the company the third-largest U.S. hospice provider, as well as LHC Group’s (NASDAQ: LHCG) joint venture agreements with Unity Health and Geisinger Home Health and Hospice.

Several major companies have said they will steer their 2019 M&A efforts towards growing their hospice segments, including LHC Group and Amedisys. Other players such as Jet Health and Advent International are entering the hospice space for the first time through recent acquisitions.

“We are really going to feed the beast in hospice. Right now from an M&A perspective, from where should we be focusing on de novos, on tuck-ins, on deals, on integrations—we are pushing hospice,” said CEO Paul Kusserow in a presentation at the RBC Capital Markets Global Healthcare Conference. “Then this time next year we will understand the effects of PDGM, and we believe we will have the potential to get back into the home health business.”


Hospice multiples have reached record highs during 2019, and private equity interest in hospice has spiked, trends that industry observers expect to continue.

“At the industry level, the biggest drivers of value are the valuations of the publicly traded hospice companies, as they are the ultimate consolidators, and a lot of excess cash for investment in an industry full of tailwinds,” Mertz told Hospice News. “Multiples for privately held companies are lower, but correlate with those of the public companies, and the public companies have healthy balance sheets and the private equity groups are approaching a trillion dollars in ‘dry powder,’ or cash available for investments.”

In the larger home health care, hospice and home care space, 18 transactions were completed during Q1, down from 30 in the same period of 2018. The drop is attributable to a slow down in the home health care and home care markets as hospice continues to gain steam, the report indicated.

The drop in home health care M&A activity is due to providers’ concerns about forthcoming changes to Medicare’s payment model for those services. Effective Jan. 1, 2020 Medicare will begin reimbursing home health care providers through PDGM, which classifies patients into payment categories based on clinical characteristics and other patient information, and shifts the home health payment model to a 30-day payment period rather than the current 60-day episode.

The Partnership for Quality Home Healthcare has estimated that PDGM could lead to a 6.42% Medicare base rate reduction for home health, amounting to $1 billion in lost revenue for home health providers in 2020 alone.

Meanwhile, large hospice players are optimistic about changes to Medicare Hospice Payments. The U.S. Centers for Medicare & Medicaid Services in April proposed a rule that if made final would raise per diem payment rates by 2.7% for continuous home care, general inpatient care, and inpatient respite care, as well as a corresponding 2.7% cut to routine home care payments.

“Although [the proposed rule] is not finalized, its impact will range from negligible to somewhat lucrative, depending on your level of [inpatient utilization],” Mertz said. “So, although the rule isn’t final, the prevailing thought is pretty smooth sailing in 2020.”

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