Hospice Buyers Taking Closer Looks at Sellers’ Leadership Teams

Companies seeking to acquire hospices are keenly attuned to the sellers’ leadership team dynamics when making buying decisions. Amid staffing shortages and heightened regulatory scrutiny, buyers want to work with leaders who have a similar approach to workplace culture, quality and compliance, as well as business operations like marketing and revenue cycle management. 

The hospice industry remains fragmented, helping to create an environment primed for M&A activity. In 2019, close to 4,840 hospices were operating in the United States, a 4.3% increase from the prior year, the Medicare Payment Advisory Committee (MEDPAC) reports.

Strategic buyers have been tucking in smaller providers to build market share and close geographic gaps in their footprints, while private equity firms move in to capitalize on demographic tailwinds. Mid-size companies are trying to build scale, particularly in light of emerging value-based payment initiatives. 

“They’re looking for leaders that are running a tight ship and making sure that they’re not sloppy. Clinical errors can really cost a tremendous amount of money as can cap repayments and audits from Medicare,” said Joel Rhoads, partner, business development at the M&A firm Triavo Health. “There’s the hunger of the management team. Do they have the ability to take it from a $5 million hospice to a $25 million hospice? They’re looking for a robust marketing apparatus.”

Triavo recently advised Lumicare Hospice on its sale to Traditions Health, a portfolio company of the family-owned investment firm Dorilton Capital Advisors.

The number of transactions involving a hospice or home health company rose 16% during a 12-month period ending May 15, 2021, according to a report from PricewaterhouseCoopers (PwC). Out of the roughly 1,300 health care transactions during that time frame, 95 were hospice acquisitions that totalled more than $11.8 billion collectively.

What a leadership team brings to the table in terms of experience and culture can be important pieces of the acquisition process. Staff recruitment and retention is an increasingly important consideration as hospices nationwide struggle to fill their ranks.

Demand may be outpacing supply as widespread workforce shortages have forced some hospices to shut down their programs or sell off their operations, unable to recruit or retain ample employees to care for a rising tide of patients.

COVID-19 hasn’t helped. More than 20% of health care workers have thought about leaving the field due to stress brought on by the pandemic, and 30% have considered reducing their hours, according to a JAMA Network Open study. Hospices have been growing increasingly concerned as emerging variants of the virus threaten their patients and their employees.

“[Buyers] are looking to make sure that the people that are working with that leadership team respect them and want to grow with them,” Jared Rhoads, partner, business strategy, at Triavo. “That plays into the likelihood that a buyer will want to move forward with a transaction.”

These considerations are often not one-sided. The sellers are also taking a sharp look at the entities that may buy the companies they worked hard to build. They often want to know that their patients and families will be in good hands, and that their employees will be retained and have a positive and safe work environment.

If the management team is staying on, such as when a private equity firm buys into a hospice, they also want to make sure that they can work effectively with their counterparts on the investment side.

Joel Rhoads told Hospice News that he saw this dynamic play outwhile working on the recent Lumicare sale. 

“Lumicare was coming to us and saying that we had to find the right partner. It had to have been the right deal for them to take a look at it,’ Rhoads said. “It was a combination of people that thought the same culturally and had similar feelings about how to run a hospice.”