4 Pillars Underlying the Amedisys, Option Care Health Transaction

The rationale behind Option Care Health’s (NASDAQ: OPCH) $3.6 billion acquisition of Amedisys Inc. (NASDAQ: AMED) is built on four pillars — vastly expanded scale, value-based payment, data collection capabilities and a desire to outpace a rapidly evolving health care environment.

As Amedisys Chairman Paul Kusserow said in a February earnings call, “Change creates opportunities.” And throughout health care, change is certainly in the air, with value-based payment models as key drivers.

For one, care coordination is a watchword within the value-based programs. Providers who can leverage an arsenal of data to demonstrate above-the-line coordination across multiple complementary services will likely attract the interest of payers and referral sources.


“My belief is that — as the health care system has continued to evolve, and as we look at many of the services that are required, as care moved into the home and in outside of the hospital into the alternate [care site] — the ability for us to coordinate care more effectively and efficiently is going to be a big part of that,” Option Care CEO John Rademacher said in an investors’ conference call. “That equation allows a much broader ability for us to execute that strategy to be able to build on the strengths that those organizations have and to come up with new models as we’re looking at the opportunities moving forward.”

Expanded access to payer sources

Among those opportunities is a diversified payer mix. The combined company will be able to leverage each legacy organization’s existing payer relationships, including health plans, Accountable Care Organizations and government sources.

This too is a hallmark of a value-based reimbursement environment. Historically, home-based care and hospice providers have worked primarily within Medicare fee-for-service models. Now, health care companies will have to work with a broader range of entities in order to thrive, including private insurance plans, Medicare Advantage Organizations and Medicaid managed care.


For Amedisys and Option Care Health, this transaction will open some of these doors a lot wider. When combined, about 65% of their revenue base will be with commercial payers and only 35% with government sources.

“Change creates opportunities.”

– Amedisys Chairman Paul Kusserow

Pre-acquisition, government payers represented only 12% of Option Care’s payer mix, whereas Amedisys has relied heavily on Medicare in both their home health and hospice segments.

“We believe the combined company’s capabilities and scale will position us to capture a significant share of the market. This transaction will enhance our relationships with payers, health systems and providers, as well as biopharma, which will in turn benefit patients,” Rademacher said. “Both companies have track records of working closely with payers and will expand those relationships across both government and commercial. Notably, the transaction is expected to result in a more diversified revenue through improving the company’s access to private payers and government-managed health plans.”

Source: Option Care Health

The structure of the combined company seems tailor-made for attracting private payers, including managed care organizations.

For those firms, less is often more. Many like to contract with one organization that covers a large geographic region and offers a wide range of services as opposed to numerous smaller companies that rest on one or two points in the care continuum.

This puts Option Care Health in a strong position. Post-merger, the combined organization will operate 674 locations across 46 states.

The breadth of services that Amedisys offers certainly caught the attention of Option Care Health. In addition to its legacy home health and hospice business, its high-acuity services arm Contessa Health has been a major engine for growth. Contessa has also spearheaded the company’s efforts to expand its palliative care business.

“Option Care Health’s proposed acquisition of [Amedisys] in an all-stock deal creates a highly diversified provider of home-based care that will offer services across a broad spectrum of the care continuum,” Brian Tanquilut, equity analyst for the investment banking firm Jefferies Financial Group, indicated in a research note. “By acquiring Amedisys we believe OPCH brings in a leading home-based care asset with a compelling normalized growth outlook, while the combination of both assets enhances scale and negotiating power with managed care plans.”

Data as a growth engine

Moreover, both payers and referral sources are hungry for data. They want verifiable evidence of strong performance on quality and cost reductions, particularly reduced hospitalizations, nursing home admissions and emergency department visits.

When negotiating for payment or referral contracts, providers need to bring these numbers to the table, and an ability to better anticipate patients’ needs and the course of their illness trajectory is an increasingly important aspect of improving those outcomes.

The ability for Amedisys and Option Care to pool their data resources was another big selling point as they considered the merger. The combined company will be able to aggregate data across its population, drawing from more than 720,000 patient experiences.

“These insights include clinical trial management capabilities and real-time feedback to coordinate and optimize care, the ability to enable value-based care models and other payer insights and to utilize data to streamline patient care pathways as well as drive clinical efficiency with robust analytics,” Rademacher said. “The results will improve the patient experience by lowering the total cost of care and delivering quality outcomes.”

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