Hospice CEOs: Rising Regulatory Scrutiny Could Spur 2022 Acquisition Market

The hospice merger and acquisitions market has been running hot, with activity showing no signs of cooling as 2022 kicks off. Even so, intensifying regulatory pressure could lead a larger contingent of smaller providers to sell, further stimulating the market.

M&A activity in the home health and hospice spaces outpaced other health care service sectors in 2020, according to a report by PwC’s Health Research Institute. The report indicated that private equity and corporate capital was “plentiful and driving demand for assets” across these subsectors, as multiples in hospice and home care reached a record 26x that year.

Regulatory activity could add fuel to a fiery market, according to Heath Bartness, founder and CEO of St. Croix Hospice, a portfolio company of the private equity firm H.I.G. Capital. The costs and challenges of compliance could lead more providers to consider selling their business.


“The new regulatory environment does seem to be a bit more punitive in nature, and I think that inevitably we’re going to see more programs that are probably not divesting but may decide not to be in the space anymore,” said Bartness during the summit. “That’s something that may end up taking place. That’s a concern, because there are communities and pockets that simply don’t have enough hospice options — although we certainly could be the benefactor of it. Competition is always good, and it’s really important to have other programs that are in the market so that we can ensure our standards are continuing to be enhanced.”

Regulators have also been zeroing in on the matter of hospice eligibility and continue to be on the lookout for potential violations of the False Claims Act and the closely related anti-kickback statute. The U.S. Department of Health & Human Services Office of the Inspector General (OIG) recently announced plans in motion for a nationwide audit of hospice eligibility for calendar year 2023. The audit will focus on patients who did not have a hospitalization or emergency department visit prior to electing hospice.

The U.S. Centers for Medicare & Medicaid Services (CMS) has been ramping up hospice audits. During 2021, appropriate use of general inpatient care was a key focus, which is expected to continue in 2022. These audits can be expensive and time consuming processes for hospices.


CMS in 2021 also revamped its survey process, including surveyor training and rules to foster greater transparency for consumers. The agency did this in response to two 2019 OIG reports that shocked many in the industry and received widespread media coverage. The first report indicated that roughly 20% of hospices surveyed by regulators or accreditation agencies between 2012 and 2016 had a condition-level deficiency that posed a serious safety risk. The other detailed a dozen examples of these deficiencies in depth.

The hospice market is likely to remain robust in 2022, with rising demand, demographics, and the need to leverage scale in value-based payment contracts whetting the appetites of strategic, private equity and non-traditional buyers who are snatching up hospices.

This month alone has brought a plethora of deals to the hospice market, even as valuations continue to run high. January kicked off with the sale of JourneyCare Inc., for an anticipated $85 million to Addus HomeCare (NASDAQ: ADUS), while Jet Health expanded with the acquisition of Texas-based Blessing Hospice. The Care Team purchased Crossroads Hospice, also in Texas.

Androscoggin Home Health Care + Hospice acquired home and behavioral health company Care & Comfort. Encompass Health formed a new joint venture with Saint Alphonsus Health System while also announcing the company would be moving forward with the spin-off sale of its hospice and home health business.

Agape Care, a portfolio company of the private equity firm Ridgemont Equity Partners, purchased Lanier Hospice in Georgia for an undisclosed sum, adding to the mix of deals that launched forward with the start of 2022.

These deals paint a larger picture of a thriving hospice market where competition has been fierce. Being opportunistic amid these market pressures from an M&A standpoint will require hospices to be nimble in their approach to growth, according to Agape Care CEO Troy Yarborough.

“From a growth standpoint, you’re seeing a lot of consolidation in the space and you’re seeing a lot of new entrants. There is a tremendous amount of noise,” Yarborough told Hospice News during the recent GROWTH summit. “Sometimes it creates some market chatter or market dynamics that are tough for folks that are long tenured or more tenured in the space. Raising the noise level or the amplification is a good thing. We certainly have seen throughout the COVID pandemic some single operators that have raised their hand and begun to explore sales in an M&A world that previously have not been interested.”

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