Hospice Operators Hunting for Non-Medical Home Care Deals

Hospice agencies have been in high demand in the health care mergers-and-acquisition market in recent years, particularly among private equity firms. As that trend continues, some hospices themselves are considering their own investments in businesses that can bolster their current services and bottom lines, including private-duty and non-medical home care care.

A few factors are driving this newfound consideration, including the need to diversify business lines to capitalize on value-based payment models, as well as the need to engage patients further upstream in their illness trajectory — a key priority for the hospice industry. The ability to offer a higher-touch service in which patients receive more frequent visits can also alert providers to changes in patients’ condition and head off potential hospitalizations. 

“Certainly there is a demand for higher-touch care and overall monitoring of ongoing patient status,” Mark Kulik, managing director of M&A advisory firm The Braff Group, told Hospice News. “When you have private duty, you’ve got someone that typically is going to be in that patient’s home every day, and there’s a whole host of benefits that go along with that.”

Once considered an afterthought in the care continuum, non-medical home care is a rising star in terms of M&A. Though this activity as of yet hasn’t reached the level of interest that hospice has experienced, non-medical services saw the most acceleration in deal volume of any post-acute sector during 2021.

At least 19 such deals occurred in the last quarter of the year, though not all of these transactions involved hospice buyers, according to data from the M&A advisory firm Mertz Taggart.

Major deals during 2021 that involved hospices and private-duty home care included the $500 million purchase of Caring Brands International (CBI) by the private equity firm Wellspring Capital Management. CBI is the parent company of Interim HealthCare in the United States, Bluebird Care in the United Kingdom and Just Better Care in Australia.

Aveanna Healthcare Holding Inc.’s (NASDAQ: AVAH) acquired the Medicaid-based home care agency Accredited Home Care during Q4 of last year for $180 million.

Additionally, in December, Fortis Home Health & Hospice acquired Indianapolis-based Select Home Health for an undisclosed sum. Fortis, a portfolio company of the private equity firm Grant Avenue Capital, now shares ownership with Select’s founders.

“Of the three sub-sectors, home care has gained the most steam over the past 12 months, with a record 70 transactions announced, which doesn’t include individual franchisee transactions,” Mertz Taggart Managing Partner Cory Mertz wrote in a recent report. “That’s an 84% increase compared to 38 transactions in 2020.”

A potential factor drawing buyers to non-medical home care is the emergence of more diversified avenues for reimbursement, according to David Jackson, CEO of Texas-based Choice Health at Home.

Historically, private pay was the main source of reimbursement for these services. But during the past three years or so, other payers, including Medicaid, veterans programs and managed care organizations, have become more involved in the space.

As of 2019, the U.S. Centers for Medicare & Medicaid Services (CMS) allowed Medicare Advantage (MA) plans to offer non-skilled home care services as a supplemental benefit. In 2022, close to 15% of all MA plans – about 1,000 in total – offer in-home support services, according to Washington, D.C.-based research and advisory firm ATI Advisory.

Choice Health at Home is poised to make additional investments in home care this year, including potential acquisitions. The home health and hospice company has a small private-duty business in Texas that accounts for $5 million of its annual revenue. In time, Jackson said he foresees private-duty services representing 15% to 20% of revenue.

“Speaking clinically, if you visit with clinicians in the field, they will tell you that if a patient had just a little bit more help, they would be safer in the home and we could keep them out of hospital,” Jackson told Hospice News. “Now we’re starting to see the managed care programs that are very cognizant of costs say they are going to pay for that, because there’s an opportunity for us to prevent an inpatient stay. That small adjunct of non-skilled care can be just as important to keep patients from needing inpatient care as a skilled piece.”

Valuations for home care companies can be a mixed bag, according to Kulik. So far, they have not yet reached the record highs seen in hospice transactions. Factors that affect multiples include company size, geography, profitability, corporate leadership, regulatory compliance and availability of payer sources, among others.

Home care M&A is becoming increasingly competitive, however, especially when there’s size and scale involved.

Generally speaking, a company reimbursed through private pay will generate higher valuations than a primarily Medicaid-funded agency, according to Kulik. That’s partly because agencies that can set their own pricing have more control over their margins and immediate future – a financial advantage that some prospective hospice buyers may find appealing.

But here again are some complex considerations.

Medicaid-funded agencies tend to be larger than those supported by private pay, not only in terms of geography and patient census, but in terms of infrastructure like IT systems, tiers of leadership and experience working at an expanded scale, Kulik said. These bigger agencies are also more likely to be located in urban centers where more opportunity exists for accessing a larger pool of Medicaid beneficiaries.

Meanwhile, private-pay agencies tend to be smaller and more difficult to scale. A company may have to complete multiple transactions to build up its presence in key markets.

“It’s hard to scale and those will tend to be smaller transactions, but more numerous, because you’re having to buy a lot more pieces to get the same scale,” Kulik said. “So to get to a certain critical mass, you’ve got to complete a lot of smaller transactions to get to a larger size.”