[UPDATED] LHC Group Buys Hospice, Home Health Assets in 22 States from HCA-Brookdale Venture

LHC Group (NASDAQ: LHCG) will acquire home health and hospice operations in 22 states from the joint venture between Brookdale Senior Living (NYSE: BKD) and hospital system HCA Healthcare (NYSE: HCA). Brookdale sold an 80% stake in its home health, hospice and outpatient therapy business to HCA earlier this year in a $400 million deal.

The transaction includes 11 hospice, 23 home health and 13 therapy locations. LHC Group expects these assets to generate nearly $146 million annually, but the sale price was not disclosed.

“We have a very good working relationship with HCA. It’s closer than most people realize,” said Keith Myers, LHC Group chairman and CEO. “We knew that their main interest was in the State of Florida, because they have such a concentration of hospitals, and a lot of the assets were in markets where HCA did not have any hospital presence. That was what led us to start having a conversation with them, soon after they announced [their transaction with Brookdale].”


In a research note shared with Hospice News, Johanna Gajuk, equity research analyst for Bank of America, projected that the transaction would add $8 million to $12 million to LHC Group’s EBITDA in 2022, or about 3% to the company’s adjusted EBITDA.

Brookdale will have no stake in the locations that LHC Group has purchased, but the senior living operator will retain its 20% ownership in agencies based in Florida, according to Myers.

COVID-19 headwinds contributed to Brookdale’s decision to sell last year. Senior living occupancy and move-ins declined precipitously industry-wide during the pandemic. Many seniors avoided or postponed moving into senior living due to fears of contracting the virus. The inability to see family members due to safety restrictions during the outbreak was also a factor. These considerations accelerated a gradual downward trend for Brookdale’s health care services business.


“Brookdale had been looking at a lot of different options for quite some time. I think that they were probably already in the process of this before COVID hit,” said RBC Capital Markets Equity Analyst Frank Morgan. “They were in a restructuring, downsizing mode already — restructuring leases, divesting centers, disapproving leases, and just shrinking down the portfolio. Divestiture was just one piece of that bigger strategy.”

Brookdale’s health care services segment brought in $86.6 million during the first quarter of 2021, an 8.4% decline from $94.8 million during the prior year’s period.

The company had seen drops in revenue throughout 2020 stemming from the outbreak. Overall health care services segment revenues were down in Q4 2020, reaching $91.9 million compared to $109.5 million the prior year. In the third quarter of last year, the pandemic cost Brookdale about $71 million.

It will likely take some time for LHC Group to rebuild the profitability of the former Brookdale-HCA agencies.

“When Brookdale owned 100% of these home health and hospice assets, it was a shrinking business over the last few years,” Brian Tanquilut, senior vice president, Healthcare Services Equity Research, at Jefferies & Co., told Hospice News. “There’s a lot of heavy lifting that will have to be done. I think it will take the remainder of this year, all the way up through next year before they can really get these to an LHC Group-level of performance.”

The transaction marks LHC Group’s entry into two new states, New Mexico and Minnesota, as well as expansion in markets it already serves. Hospice utilization in New Mexico reached 49.6% among Medicare decedents in 2018, compared to a national average of 50.3%, according to the National Hospice & Palliative Care Organization. Minnesota ranked 12th in the nation in hospice utilization during 2018 at 52.7%.

Hospice expansion is a cornerstone of LHC Group’s growth strategy. Among the company’s goals is to increase the number of hospice locations in markets where they already have home health care operations. This new transaction fits well into that strategy.

“We’re obviously bullish on hospice, but I want to qualify what bullish means. It doesn’t mean out of control,” Myers said. “We opened our first hospice to create the continuum of care with familiar faces for the patients we serve. That’s what we’re doing here. In all of the markets where we have home health, or our target markets, we’re looking to acquire quality hospice operations.”

HCA Healthcare takes a similar approach. Part of the impetus for the Brookdale transaction was to build up a home health and hospice presence in markets their hospitals already serve. Thus, it makes sense for them to sell the locations that are outside of their current service areas.

“HCA is selling this asset because it is located in geographical areas that they do not serve,” said Benjamin Fenton, partner with the Fenton Law Group, which frequently advises health care organizations on M&A. “This means that HCA purchased this asset mainly as an asset to improve, ultimately with the goal of selling for a profit.”

LHC Group’s M&A activity has hit an all-time high this year, with a heavy focus on hospice. The company has allocated $400 million for acquisitions during 2021, with 60% of the expected deals weighted toward hospice assets. To date this year the company has spent $308 million on M&A.

LHC’s most recent transaction was the purchase of South Carolina-headquartered Heart of Hospice from the family-owned investment firm Evening Post Industries (EPI) Group for a confidential amount.

“We will be able to serve more people in the comfort of their home or place of residence. LHC Group also looks forward to working with Brookdale Senior Living’s 226 senior living communities in these territories,” Myers said.

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