How the 2023 Home Health Rule Could Change the Game in Hospice M&A

The pendulum of investor interest has swung hard into the hospice market in recent years, but shifts in reimbursement could steer buyers towards home health.

Uncertainty earlier this year around Medicare’s proposed 2023 home health payment rates led some stakeholders to expect a swerve towards hospice. The U.S. Centers for Medicare & Medicaid Services (CMS) in August proposed a 4.2% aggregate cut in the home health base rate, reported Hospice News sister publication Home Health Care News. But amid widespread outcry from providers, the agency in its recently announced final rule abandoned the cuts and included a 0.7% increase.

While many in the space contend that the 2023 rates are still too low, providers now have a clearer picture of what to expect in the coming year. This has relieved some of the anxiety around home health investments going forward.


Addus HomeCare Corporation (NASDAQ: ADUS) is among the companies reorienting its M&A strategy away from hospice deals and into home health.

“We have clarity on the home health rule now, and how that will impact next year,” said Addus CFO and Executive Vice President Brian Poff in a Q3 earnings call. “With the announcement of the final home health rule, we anticipate the overhang this has caused on the home health M&A landscape to dissipate and allow acceleration of this portion of our pipeline.”

Home health and hospice providers LHC Group (NASDAQ: LHCG) and Amedisys (NASDAQ: AMED) also indicated a pivot in M&A strategy towards home health this year.


LHC Group itself has signed an agreement to sell to the UnitedHealth Group (NYSE: UNH) subsidiary Optum in a $5.5 billion deal expected to close by the end of this year, pending customary regulatory approvals.

“You’ll see us going forward really looking at how we can build out a continuum in markets where we exist in, and how can we co-locate with home health and community-based services,” Davis told Hospice News during the ELEVATE conference. “You’ll see an evolution of that over the next little bit.”

Changing payment models help shape M&A

The initially proposed 4.2% reduction would have made a significant dent in home health operators’ bottom lines.

“When you’re looking at a 4% reduction, that’s obviously a material factor that most sellers are going to want to make sure they understand before they consider whether they’re going to go through the process,” Allison said.

For example, that reduction rate would have represented a $30 million headwind to Humana Inc.’s (NYSE: HUM) overall revenue, and a large hit on its home health business, according to CFO Susan Diamond. The 0.7% issued in the final rule’s release has mitigated this issue, she stated in a recent earnings call.

Humana operates home health businesses through its CenterWell subsidiary, and earlier this year purchased Kindred at Home for $5.7 billion, later divesting the company’s hospice segment.

Both hospice and home health M&A continue to outpace other health care sectors in deal volume, propelled by favorable demographics, rising demand for care in the home, and the promise of cost savings.

But for the past few years, hospice market has been king in terms of deal volume and valuations. That market will most likely remain strong, but home health has been picking up steam.

Case in point, the 2020 introduction of the Patient-Driven Groupings Model’s (PDGM) for home health led many buyers to focus more on hospice in anticipation of potential disruption. Now that the dust has settled, they have taken up renewed interest in home health.

Transaction activity in home health and hospice tends to move in opposite directions, according to Dexter Braff, president of M&A advisory firm The Braff Group. When interest runs high in one market, it draws away from the other, he explained. Reimbursement plays a large role in these decisions, including the advent of alternative payment models, said Braff.

“Home health and hospice have an interesting dynamic we’ve recognized for several years,” Braff told Hospice News at the ELEVATE conference in Chicago. “Alternative payment systems changed the dynamic of health care M&A. [These] reflect the innate value of the income stream that [buyers] believe they can generate from that business going forward.”

Reimbursement structures can be indicators of where long-term return on investment can turn, meaning payment wields a heavy influence on decisions to buy or sell, according to Braff.

In the coming years, hospice may see its own version of the PDGM-jitter depending on the outcomes of the Value-Based Insurance Design (VBID) demonstration. The potential for hospice coverage in Medicare Advantage “created sector concerns regarding reimbursement,” Braff said at ELEVATE.

The ‘door re-opens’ on home health

The final home health rule “re-opens” the door to M&A in that sector, according to Brian Tanquilut, equity analyst at Jefferies Group.

Recent rate uncertainty in home health “put a pause” on deal flows for Addus, but the rule provides “much-needed regulatory visibility” that have restarted the company’s “acquisition machine,” Tanquilut indicated in a research note shared with Hospice News.

Addus was among the companies that delayed some of the larger home health deals in its sights, as it awaited word on the 2023 rates, according to Addus CEO Dirk Allison. The rule’s finalization clears the way for more investment in home health and personal care, with a smaller emphasis on hospice, Allison said.

“We expect to be able to take advantage of more home health care acquisition opportunities that should occur now that the final rule has been published,” said Allison during an earnings call. “Now that the rule is out, that will encourage some folks to go ahead with the process, and we think it’s very important as we look at these larger deals included that we build out our markets in personal care and home health, particularly, while we will continue to look in the hospice market for small deals.”

Dallas-headquartered AccentCare is taking a similar approach. The company will be on the hunt for home health opportunities alongside its hospice and palliative care pipeline, according to Dr. Balu Natarajan, chief medical officer for hospice at the post-acute care company.

“We were constantly looking for who was going to be the home health [operator] in any given community, … with whom we could partner to administer [services] beyond what our providers could do,” Natarajan previously told Hospice News during the ELEVATE conference.

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