How Does the Workforce Shortage Affect Hospice M&A?

The labor pressures in the hospice community are straining clinical operations, but the issue is also becoming a more pressing concern when it comes to mergers and acquisitions.

Buyers, in fact, are paying much closer attention to workplace culture and human resources as they select acquisition targets.

Hospice M&A has been exploding in recent years amid widespread industry consolidation and the flood of private equity firms entering the space. Deal volume in the hospice sector broke records in 2021, and while activity slowed in Q1 of 2022, most observers expect a rebound in the second half of the year.

As those forthcoming deals progress, recruitment and retention is becoming a higher priority.

“I think we in the home-based care industry have been under more pressure than any other industry for many years with regard to employment. COVID exacerbated the employment crisis now for home-based care agencies,” Bruce Vanderlaan, managing director for the M&A advisory firm Mertz Taggart, told Hospice News. “Some of the pressures — we do have inflation. We have significant price increases. Interest rates are going to continue to rise, and we don’t know what the full effect will be.”

Vanderlaan gave his remarks at the recent Hospice News/Home Health Care News VALUE conference in Chicago.

Due to the workforce shortages, demand for clinical care may be outpacing supply. In some cases, the dearth of workers has forced some hospices to shut down their programs.

When it comes to M&A, this struggle to fill their ranks is among the factors driving hospices to the sellers’ table.

Dare County Home Health & Hospice in North Carolina, for instance, sold its operations to BrightSpring Health Services for $2.9 million last September. The inability to maintain sufficient staff levels was the deciding factor to sell, Dare County officials told Hospice New.

BrightSpring, headquartered in Louisville, Kentucky, is a portfolio company of the global investment and private equity firm KKR & Co.

More and more, buyers are taking a closer look at the relationships between the employer and its staff, even as hospices pull out all the stops to bring in new people and keep their current employees under their wings.

As investors zero in on staffing, a hospice’s leadership team and workplace culture can either seal or kill a deal. An organizational culture in which staff feel supported can be a key differentiator for buyers as well as prospective employees.

“Culture is very important. It’s important that your staff, your employees, know that they’re valued. In this current economic or employee crisis, that is more critical than ever,” Freeman Smith, president of the northern region at Traditions Health, told Hospice News at the conference. “Those companies that have good cultures are going to have an increase in value.”

Texas-based Traditions Health, a portfolio company of Dorilton Capital Partners, is among the most acquisitive companies in the space, with well more than a dozen transactions under its belt during the past three years. The company completed six acquisitions in March alone.

One of the key metrics that buyers are watching is turnover, which has been on the rise for many providers since the onset of the pandemic.

Slightly more than 20% of health care workers have considered leaving the field due to stress brought on by the pandemic, and 30% have considered reducing their hours, according to a recent study publishing in JAMA Network Open today.

“I certainly think [staffing] is a consideration when you look at opportunities and could possibly be a cultural indicator as you learn more about how companies deal with turnover, establish operating expectations and strive to retain employees,” Agape Care Group CEO Troy Yarborough recently told Hospice News.

South Carolina-headquartered Agape Care is a portfolio company of the private equity firm Ridgemont Equity Partners. The company has been very active in the in M&A market.

Most recently, Agape Care Group expanded to North Carolina for the first time through the purchase of Hospice of the Carolina Foothills for an undisclosed sum.

Amid the staffing woes, some leaders in the space see a small pinprick of light.

Despite the hardships that inflation brings on providers, the need for additional income appears to be drawing some former hospice clinicians back to the field.

“All of a sudden, those little nest eggs they’ve had are disappearing. So now I’m seeing workers come back to work,” Smith said. “I’ve seen people that have left to go to be travel nurses for $100 an hour, now all of a sudden saying. ‘This is just no life to live. I just want to come back into a normal existence.’”

As of April, the rate of increase for inflation fell slightly to 8.3%, still close to a 40-year high, according to the U.S Department of Labor.

One of the key concerns for both hospices and the clinical workforce is the price of gasoline, which surged upwards following the Russian invasion of Ukraine.

Retail gas prices rose 19.3% a gallon as of March, the American Automobile Association reported. These increases pose difficulties for hospices, considering that most clinical staff routinely drive to conduct patient visits.

While the need to boost income in an age of rising expenses is doubtlessly a factor. Some industry leaders have suggested that a second prevalent factor is the mission of hospice itself.

Many consider working in the hospice field as a calling that represents their deeply held values. This too is drawing them back to the field, according to Nick Westfall, CEO of VITAS Healthcare, a subsidiary of Chemed Corp. (NYSE: CHEM).

“Some of our former colleagues are returning to the organization, and we’re welcoming them back with open arms,” Westfall said at the Jefferies 2022 Healthcare Conference. “They quickly realized the reason and the care delivery and the fulfillment that they were receiving by being in hospice, and being with VITAS, wasn’t being accomplished rounding the four walls of a facility-based setting.”