Investors Lean Towards Hospice Amid Disruption in Home Health Space

Investors and companies seeking strategic acquisitions are showing rising interest in an already booming hospice M&A market as they await the fallout from home health care’s transition to the Patient Driven Groupings Model (PDGM), according to an analysis by Provident Healthcare Partners, an investment bank focused on the middle market in the health care space.

Effective Jan. 1, 2020 Medicare began 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.

Home health care providers have been concerned about the transition amid predictions of increased bankruptcies, the use of behavioral assumptions in patient grouping methods, increased regulatory scrutiny, and potential payment cuts, leading some companies that provide both home health care and hospice to pivot towards the hospice side of their businesses.


But disruption in home health is only one of several factors that is pushing investors towards hospice.

“The interest is driven by a few factors; the demographic tailwinds, the fragmented nature of the industry, the increasing acceptance of palliative care services, and the transition towards a value-based care model. As health systems seek to reduce cost, we expect increased utilization of home health and hospice agencies over traditional, in-patient, post-acute care settings,” said Jake Vesely, senior analyst at Provident. “Additionally, there is a growing pressure on data analytics and monitoring outcomes. Private equity firms see an opportunity to embark on a roll-up strategy of smaller hospice companies that may be lacking the data capabilities and scale necessary to comply with the new regulatory changes.” 

These factors as well as rising private equity interest in hospice pushed valuations up to record levels during 2019, a trend that Provident predicts will continue during 2020. Hospice multiples rose higher than those of any other health care sector last year, hitting 26x EBITDA in some instances. 


While investors haven’t concentrated their purchasing in any particular geographic areas, location does play a role in rising prices.

“States that have higher barriers to entry, such as Certificate of Need states, will continue to realize higher valuations,” Kevin Palamara, managing director at Provident, said. “Most providers are looking to develop large market shares in tight geographic areas across the United States.” 

The M&A market is active at all levels of the industry, from large companies with national reach to the middle market and some small providers.

Among the most recent high-profile transactions is the purchase of Asana Hospice by Amedisys, Inc. (NASDAQ: AMED). Financial terms of the transaction were not disclosed.

Texas-based Traditions Healthcare in November acquired Pathways Hospice in Arizona and near the end of the year purchased Guiding Hospice

Mansfield, Texas-based home health provider AngMar Medical Holdings Inc., obtained its first hospice operation in October. Financial terms were not disclosed, and the name of the purchased hospice was kept confidential. The location will operate under AngMar’s new Angels Care Hospice brand.

“We continue to see a high level of M&A activity in the middle market and amongst smaller organizations. With the increasingly prevalent threat of regulatory changes and larger players entering the space, we continue to see smaller groups utilize M&A as a way to offset the burden of competing with data capabilities and scale,” Vesely told Hospice News. “Moreover, platform capable groups in the middle market are turning towards private equity to take advantage of acquisition opportunities through a roll-up strategy. With a number of new platforms established in 2019, private equity investors clearly remain bullish, which is translating into heightened valuation levels for groups of all sizes.”

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