Recent years have seen an uptick in consolidation activity among nonprofits in the hospice space. Increasingly, nonprofits are pursuing acquisitions and affiliations, as well as forming regional collaboratives.
To achieve these kinds of growth, hospices must consider whether they should affiliate or buy another company outright. Each approach comes with benefits and risks.
Rising operating costs and the need to build scale are key reasons that more nonprofits are banding together, according to Skelly Wingard, CEO of By the Bay Health. Another important factor is the need to prepare to compete with other providers within proliferating value-based payment systems.
“In business, scalability is so critical. If we’re going to have operating costs that allow us to provide this level of incredible care, it is the side of business that we have to pay attention to,” Wingard said. “We’re not-for-profit, so we’re not fighting for the deepest margin that we can get. However, we’re still a business, and so the ability to scale is really important as well.”
By the Bay Health is in the process of completing a triple merger with two other hospices — Mission Hospice & Home Care and Hope Hospice. The combined organization will become the largest nonprofit hospice network in northern California, according to Wingard.
By the Bay and Mission in September announced their plans to merge. In the intervening months, Hope Hospice also joined the transaction. The organizations indicated that joining forces would make them stronger competitors in the marketplace as well as improve access to care, Wingard said.
“You’ve got to have the revenues. If you don’t have the census, then you don’t have the revenue to be able to pay for those teams and services and all of the various costs that exist in that business …,” Wingard told Hospice News. “I would just encourage other organizations to think about what’s possible in combining and merging with other organizations and thinking about the communities that we can support in a different way.”
Other nonprofits, such as North Carolina-headquartered VIA Health Partners, have gone the acquisition route.
Formerly Hospice & Palliative Care Charlotte Region, VIA Health Partners currently serves 32 counties in North and South Carolina. The nonprofit was established in 1978 as Hospice at Charlotte.
In 2020, VIA Health completed a merger with Hospice Cleveland County in North Carolina, which expanded its service region into a second state. Later, VIA expanded further by purchasing another small hospice.
By buying a company outright, a hospice can implement consistent processes and tech systems, as well as simplify communication and collaboration, according to VIA Health CEO Pete Brunnick.
“That consistency of practice becomes really, really important. We’ve also got to push out new technologies. And if people are doing things differently in different areas, it becomes inefficient and ineffective,” Brunnick told Hospice News. “I question whether you can really achieve that in a collaborative model versus having ownership.”
When it comes to affiliations, hospices can combine under a variety of structures, and money doesn’t necessarily have to change hands.
For example, hospices can affiliate by centralizing certain back-office functions, realizing cost synergies, sharing best practices and other forms of mutual support, usually while maintaining their current brands.
In other affiliation models, the organizations become completely interdependent as parts of an interconnected system, sometimes, but not always, under the same brand. Thus, the combined organization can build scale, consolidate costs and bolster their workforce without necessarily deploying huge amounts of capital.
An example of this type of transaction is the pending affiliation between Virginia-based Blue Ridge Hospice and Montgomery Hospice & Prince George’s Hospice. The organizations signed a memorandum of understanding last October.
Combined, the two hospices will care for an average daily census of more than 900 patients in eight Virginia counties and the Washington, D.C., area. Montgomery Hospice & Prince George’s Hospice is headquartered in Maryland.
“We look first at the nexus of how we expand our services to the community in a way that positions us further in the value-based world. We can come together in ways that make the making stronger from a business perspective and from a negotiation perspective with payers,” Jason Parsons, chief strategy officer at Blue Ridge Hospice, told Hospice News. “The affiliation is the next step in our evolution. We have a fundamental belief that when we look at not-for-profit organizations with deep roots throughout the Mid Atlantic, we’re stronger together.”