How Quality, Utilization Will Shape Hospice M&A in 2024

Investment trends in the hospice industry have meandered in recent years, impacting providers’ approaches to growth in 2024.

The mix of hospice buyers has become more diverse during the past five years to include more private equity investors, large health and hospital systems and home health companies, along with payers.

These trends will have lasting impacts on how hospices orient their strategies for remaining competitive, according to Leslie Friedel, CEO of Indiana-based Stillwater Hospice.

“The private equity involvement in hospice has impacted how others may view our industry and services. Many hospice providers have either joined up with a health system or there have been many mergers and acquisitions,” Friedel told Hospice News in an email. “We have seen insurance companies enter into the hospice provider space. This will fundamentally change the industry as we look to form contracts with these same insurance companies. We must remain agile and focus on sustainability.”

Quality, utilization driving interest in hospice

Interest in hospice has heated up among insurance companies in the last couple of years.

Two of the largest home health and hospice operators nationwide were recently scooped up by UnitedHealth Group (NYSE: UNH) subsidiary Optum. The insurance giant acquired Lousianna-based LHC Group for $5.4 billion in 2022 and went on to make a bid to purchase Amedisys (NASDAQ: AMED) for $3.3 billion this year, currently pending customary approvals.

These large and lucrative transactions spurred in part AREX Capital Management, a minority investor of Enhabit Inc. (NYSE: EHAB), to urge that company to sell. Enhabit is currently mulling a potential sale or other alternatives amid a strategic review process.

A notable trend driving interest from payers and other buyers are data that provide a window into the value proposition of hospice services when it comes to cost-savings and quality, according to Nick Westfall, CEO of VITAS Healthcare, subsidiary of Chemed Corp. (NYSE: CHE).

Demonstrating both quality outcomes and reduced health care costs will be an important part of hospices’ competitive edge – regardless of a provider’s size, geographic reach, patient census and staffing volumes, Westfall said.

“No matter how many patients you’re serving in a community, what you’re trying to accomplish and the common understanding of earlier access being a testament to the value of hospice over time is universal — irrespective of overall provider size,” Westfall told Hospice News. “Studies have done a really good job of helping to illustrate that. It doesn’t matter how larger or small you are, everything about hospice is serving the local community. It’s all about how you go about servicing the community.”

It doesn’t matter how larger or small you are, everything about hospice is serving the local community. It’s all about how you go about servicing the community.

— Nick Westfall, CEO, VITAS Healthcare

Earlier access and longer hospice stays can reduce health care costs in the last year of life by as much as 11%, a recent joint report found from the National Hospice and Palliative Care Organization (NHPCO), the National Association for Home Care & Hospice (NAHC) and NORC at the University of Chicago. In total hospice care saves Medicare roughly $3.5 billion for patients in their final year of life, the findings showed.

Having good quality data and forming strategic partnerships are two of the largest levers driving sustainable growth in hospice, according to Friedel. Demonstrating quality outcomes is a key to gaining a leg up on competitors in an increasingly diverse mix of hospice providers, she said.

“Today’s investment trends have really changed the hospice landscape,” Friedel said. “In order to stay growth focused, hospices should be aware of the local landscape and form partnerships that enhance the quality of life for the patients and also improve the quality measures for the specialist who has been managing the life-limiting illness.”

What M&A trends mean for 2024

Aside from rising payer interest, private equity buyers have increasingly stepped into the hospice space.

The last five years saw record-breaking multiples in the industry, and private equity-backed platform deals were among the most common types of transactions. A pattern of large hospice deals occurring in 2021 and 2022 set a high bar for transaction valuations and volumes, which contributed to this year’s slump by comparison.

This year smaller deals have made up the bulk of M&A activity, falling in line with industry expectations. Many of these transactions have come in the form of mergers, affiliations and joint ventures among smaller nonprofit hospices.

Among 2023’s significant nonprofit hospice transactions are Hosparus Health’s acquisition of Baptist Health Deaconess Hospice in June and the affiliation of Capital Caring Health with Chapters Health System in May.

Virginia-based Blue Ridge Hospice announced plans to affiliate with Montgomery Hospice & Prince George’s Hospice in October. Also coming down the pike is the forthcoming merger of St. Francis Reflections Lifestage Care and Treasure Coast Hospice, both Florida-based nonprofit organizations.

Stillwater Hospice’s merger with Kosciusko Home Care & Hospice (KHCH) in March marked another significant move. Established in 1888 as Visiting Nurse League, the organization rebranded last year as Stillwater Hospice. The Indiana-based nonprofit hospice and palliative provider serves more than 4,000 patients across 12 counties in the state. It has merged with two nonprofit hospices in its home state during the past three years.

Today’s investment trends have really changed the hospice landscape. In order to stay growth focused, hospices should be aware of the local landscape and form partnerships that enhance the quality of life for the patients and also improve the quality measures …

— Leslie Friedel, CEO, Stillwater Hospice

Joining forces with KHCH was in part driven by financial pressures related to rising staffing costs. The hospices merged to leverage their combined financial and staffing resources to ensure access among rural Indiana communities in their combined service regions, according to Friedel.

Partnerships such as these are growing increasingly common in the hospice space.

Case in point, nonprofit post-acute providers Empath Health and Trustbridge in September launched forward with plans to affiliate.

The combination represents an opportunity to build out the range of each organizations’ services including hospice and palliative care, among others, according to Empath Health President and CEO Jonathan Fleece.

Empath’s current business lines include hospice, adult day services, home health, primary and palliative care, as well as PACE, AIDS and sexual wellness care, to a combined total of more than 23,000 individuals. The organization is the parent company of 17 affiliates and two philanthropic foundations.

Navigating the hospice M&A landscape in coming years will include a focus on geographic expansion in underserved areas alongside service diversification, Fleece stated.

In addition to competing in a crowded hospice space, providers could see continued pandemic-related impacts on admissions, as well as inflation and reimbursement headwinds pressuring margins, he said.

“Growth in the future will likely require entering new markets through mergers and acquisitions or other collaborations,” Fleece told Hospice News in an email. “Hospices are faced with reducing indirect overhead costs to ensure that direct patient care missions remain strong. This paradigm shift will force continued consolidation and collaborations across the industry [and] will require growth through expansion into non-hospice services such as home health, geriatric medical services and other senior care programs. The pressures will demand continued innovation to improve quality and outcomes for reduced costs.”

Growth in the future will likely require entering new markets through mergers and acquisitions or other collaborations.

— Jonathan Fleece, president and CEO, Empath Health