Hospital, Health System Activity a ‘Very Disruptive Point’ in Hospice M&A Landscape

More hospitals and health systems are stepping into the home-based hospice space, often seeing joint ventures as a promising route to a return on their investment.

While there are several factors driving facility-based health care organizations to eye home-based care, more than anything, hospices and other providers should simply be aware that the “normal” look of M&A activity in their spaces is changing.

“You’re seeing different types of transactions taking place in hospice and home health,” Mark Kulik, managing director at M&A advisory firm The Braff Group, told Hospice News. “And it’s indicative that business is not going as usual in the last decade.”


In part, the trend of more hospitals and health systems in hospice is a response to growing demand and strain on acute care services. More health systems are looking to expand into community-based hospice and palliative care to complement existing offerings while creating new care delivery channels.

The trend is also linked to a stark reality: A swelling aging population — one that’s generally sicker and more medically complex than ever before — is anticipated to put further pressure on hospitals and health systems in coming years.

The number of seniors in need of specialized, high-acuity inpatient care is anticipated to climb by 17% during the next decade, according to recent research from Vizient and subsidiary Sg2. Outpatient volumes will grow as well, by 16%, the research indicated.


Several others are seeing this trend into home-based hospice and palliative care play out firsthand.

“As hospitals are investing in [home-based care], I think that they’re naturally going to see that this is, in fact, an important service to have out there,” Aaron Stein, chief operating officer of Contessa Health, told Hospice News at the Palliative Care Conference in Chicago.

The Nashville, Tennessee-based Contessa Health is a subsidiary of hospice giant Amedisys Inc. (NASDAQ: AMED). Its business model centers entirely around helping health systems and other partners shift higher-acuity care into the home.

Interest in home hospice JVs on the rise

The lines of investor interest in the hospice industry have been blurring over the past decade, according to Kulik.

A total of 109 transactions in the hospice and home health space involved a hospital and health system from 2014 to 2021, according to market analysis data that The Braff Group shared with Hospice News. The number of deals in 2017 and 2018 hit 20 and 19, respectively, before slumping downward during the pandemic in recent years.

“We’re at a very disruptive point in the M&A landscape,” Kulk told Hospice News. “The traditional deal thought process and demarcation lines of service are blurring.

In some cases, that activity came in the form of a hospital or health system purchasing a hospice or home health asset, possibly to get into the field for the very first time. In others, however, it came in the form of bringing in a dedicated home health or hospice partner by sharing ownership stake in a traditionally in-house segment.

Overall, 69 of the 109 transactions were joint ventures rather than outright sales or acquisitions. The bulk of JVs indicates that joining forces to provide home-based hospice and palliative care is a more attractive investment strategy for hospitals and health systems, Kulik explained.

“By far and away, the strategy that hospitals or health systems have pursued during this window of time was joint ventures,” he said. “Indicating that they didn’t want to be out of that business, but also didn’t want to be 100% responsible for it.”

Larger health care systems made up the lion’s share of these joint ventures, Kulik noted. For example, Lafayette, Louisiana-based LHC Group (NASDAQ: LHCG) made up nearly half of the joint ventures, representing 30 out of the 69 JV transactions during the seven-year span.

Joint ventures have been a crux of LHC Group’s growth strategy, with the company experiencing a record-breaking year in 2021 when it came to acquisitions. Much of that activity was in hospice.

That year, for example, LHC Group acquired home health and hospice operations in 22 states from a joint venture between Brookdale Senior Living (NYSE: BKD) and hospital system HCA Healthcare (NYSE: HCA).

Baton Rouge, Louisiana.-based Amedisys has also placed hospital joint ventures at the forefront of its pipeline. Its acquisition of Contessa Health in June 2021 for $250 million added fuel to this fire, according to Amedisys CEO Chris Gerard.

At the time, Contessa had 17 joint ventures that generated $80 million annually, Gerard said at the William Blair Annual Growth Stock Conference. This made Contessa ripe for future JV arrangements.

“For Amedisys, being able to be standalone and focus on hospital health systems and our palliative care business ends up being really important to accelerate the growth that we’ve been able to be fortunate enough to have,” Contessa’s Stein said at the Hospice News Palliative Care Conference.

Health system investors come to the hospice table, but don’t always stay seated

The potential for an attractive return on investment may have hospitals and health systems eying home-based hospice assets, but the reality of integrating such businesses into their folds may be driving them to sell, according to Freeman Smith, president of the northern region at Traditions Health.

Some hospital system buyers enter these deals anticipating as much as a 20% profit margin, only to have revenue expectations dwindle under weight of an entirely different model of care and payment, Smith told Hospice News at the VALUE conference.

“They’ll see these increased margins, but what’ll they’ll sometimes see afterwards is that hospice is a unique animal itself,” Smith said. “You’ll see them dive out of it, because all of the sudden it just doesn’t work. You have to have that reverse engineer look at [hospice billing] in the financial model.”

Compared to other health care settings, hospices lack diversity in revenue streams such as private insurers and Medicaid funding. Through the hospice benefit, Medicare covers nearly 90% of a provider’s patient care revenue.

This makes hospice billing for patient care a different reimbursement beast for other health care providers to tackle.

Running hospice and home care services beyond the four walls of hospitals and health systems is very different from providing health care within them, according to Kulik. The value proposition for many hospital and health systems to enter JVs with hospices is bringing in providers with the experience to effectively and efficiently bill and run end-of-life and serious illness care services, he said.

Meanwhile, investors that are snatching up hospice acquisitions have increasingly seen value in selling them off, continued Kulik.

“Some are divesting to unlock the value of having a separate home health and hospice company,” Kulik said. “There were 12 total divestitures where hospitals and health care systems sold hospice and home health assets between 2014 and 2022.”

High price tags for hospice assets are sparking some to take a seat at the sellers’ table. Hospice and home care sector multiples have reached record highs in recent years. Valuations reached upwards of 29x in 2020, beating 2019’s record high of 26x, reported the PwC’s Health Research Institute.

“Mega deals” have pushed some hospice deals into the billions, largely due to backing by nontraditional buyers in the space, such as private equity, initial public offerings (IPOs) and special-purpose acquisition companies (SPACs), according to PwC.

Similar to hospital and health care systems, demographic tailwinds of the nation’s aging population are whetting these investor’s appetites.

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