Rising Demand, Value-Based Payment Reshaping Hospice Landscape

While a growing demand for end-of-life care has been a major force pushing hospice to the forefront of the health care mergers and acquisitions marketplace, evolving payment models and COVID-19 headwinds have been hurdles to building up investor interest in 2020. Despite the unknowns ahead, hospice market is expected to burgeon.

Among the various sectors of the health care industry, hospice continues to be the one to watch as valuations soar and multiples continue to hit record highs. For example, Addus HomeCare Corporation (NASDAQ: ADUS) recently entered into an agreement to acquire Queen City Hospice, LLC, and its affiliate Miracle City Hospice for a cash purchase of $192 million. In June, Amedisys, Inc. (NASDAQ: AMED) completed its acquisition of Homecare Preferred Choice, Inc., doing business as AseraCare Hospice, for $235 million.

Hospice utilization reached slightly higher than 50% for the first time in 2018, according to the U.S. Centers for Medicare & Medicaid Services (CMS), with rates climbing. The rising demand as the aging population swells has helped to propel hospice ahead in a competitive health care marketplace.


“From an investor standpoint, hospice has really been extremely solid,” said Dexter Braff, president of The Braff Group, during the Hospice News Elevate conference. The Braff Group is a hospice merger and acquisitions advisory firm based in Pittsburgh. “Hospice right now is in an ‘up’ place, and that is continuing.”

Hospice has been in high demand in the acquisitions market, with a sharp rise in the number of transactions taking place in the second half of 2020. The home-based health care sector is among the strongest in health care causing swings, with hospice providers representing 70% of the bulk of acquisition targets in that sector, according to Braff.

“The relationship between home health and hospice is that when home health is down, hospice is up,” stated Braff. “If you were to look at valuations, M&A activity, over the course of the last 20 years, you can almost predict that when one sector is down, the other sector is going to be up.”


The novel coronavirus pandemic has been among the disruptive forces, with adverse impacts for both hospice and home health. Private equity interest in the hospice acquisitions market dipped as several transactions were delayed or postponed during the pandemic. Despite industry-wide projections that the market would rebound as the year came to a close, uncertainty remains with another surge of COVID-19 cases sweeping the United States.

Many in the industry have observed that investors are leaning in towards hospice due to disruption in the home health space stemming from the patient-driven groupings model (PDGM).

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 providers were wringing their hands early in the year as the model took effect, causing the M&A market to temporarily slow.

“Right now, hospice is up and home health is down, predominantly because of the new PDGM reimbursement methodology that went into effect,” Braff said. “On a comparative basis, home health is considered to be the area of greater amount of risk in the marketplace. That’s a result of hospice getting the lion’s share of attention from the investment market. Hospice is enjoying the comparative misfortune of the home health environment as it relates to some reimbursement instability.”

Beginning in 2021, it will be the hospice industry’s turn to absorb payment changes, beginning with the value-based insurance design (VBID) payment model demonstration project, commonly called the Medicare Advantage hospice carve-in, taking effect Jan. 1, 2021.

Medicare Advantage plans are offered by private insurance companies approved by U.S. Centers for Medicare & Medicaid Services (CMS), and include HMO, PPO, and fee-for-service plans among other options. The program represents an integrated care model that promotes coordination of services and provides incentives for quality and patient satisfaction. Beginning in 2020, the program is available in all 50 states as well as U.S. territories.

The movement towards value-based payment models is already changing the ways hospices do business, with many diversifying their service lines in order to engage with patients and families further upstream in the course of their illnesses.

“The entire way our health care services are provided changes dramatically in the next 12 to 36 months. If you’re a hospice provider today, you may look like an entirely different type of provider as we go forward,” said Braff. “There is great opportunity for there to be a significant change in the way that hospice and home care services are being delivered, and we’ll start peeling away the artificial barriers that have been set up by these payment models that are somewhat artificial. That’s something to think about over time, especially in your own specific markets, as you see more alternative payment models come into place.”

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