Hospice Regulation Slowing Down M&A Transactions

In case you missed it, Hospice News has launched a new specialty publication for palliative care professionals. You can subscribe to Palliative Care News here: Subscribe today!

Tightened regulation in the hospice space has led to longer, more stringent diligence processes when it comes to buying and selling provider companies.

The U.S. Centers for Medicare & Medicaid Services (CMS) has honed in on hospice program integrity through a number of new regulations, including some in the agency’s 2024 hospice final rule. The regulations focused on Medicare enrollment in an effort to stifle unethical or illegal activity in the space. Other provisions appeared in the 2024 home health final rule, which among other things prohibits the sale of a new hospice within 36 months.


Moreover, many hospices have been the subject of audits by various Medicare contractors, activity that shows no signs of slowing.

This means that potential buyers are looking hard at compliance before completing a deal, along with the seller’s financials, according to Jared Rhodes, partner at the M&A advisory firm Triavo Health.

“There’s no question due diligence is taking longer, and they’re going deeper. If you have a clean, good clean business in 2024 that’s making money, it’s going to be appealing to buyers,” Rhodes told Hospice News. “But back in 2020 and 2021, your business could have some issues — maybe that length of stay a little longer than the past or you had some [Medicare payment] cap issues — buyers would overlook that and say, ‘we can fix it.’ But now it’s getting scrutinized more, and it’s preventing some transactions from taking place.”


Transaction volume declined in the hospice and home-based care space in 2023, following the two record-breaking prior years. Only three hospice deals took place in the third quarter of this year compared to 11 in Q3 2022 and 18 in the same period in 2021, according to data from the M&A advisory firm The Braff Group.

A range of factors contributed to the decline, including the more intensive regulatory activity, as well as rising interest rates and inflation, macroeconomic issues and gaps between sellers’ valuations and the amounts that buyers were willing to pay. Also, after the flurry of deals that came in 2021 and 2022, many companies took the year to focus on integration and value creation for their newly acquired assets.

For 2024 however, projections from PriceWaterhouseCoopers (PwC) could signal an upward trend in the year.

However, the regulatory attention may slow deals down, Rhodes indicated.

“It’s really impacted the timeframe on transactions,” he told Hospice News. “The four-month due diligence, we don’t see that quite as much. It’s taking longer, and they’re really wanting to figure out if [a transaction] is going to work. And they are gaming it to see if five years down the road it’s gonna work out.”

Much of the regulatory actions have been spurred by a rash of new providers carrying out unethical or illegal activities in California, Arizona, Nevada and Texas.

Investigations have shown that potentially hundreds of newly licensed hospices have bilked Medicare of millions of dollars during the past several years, all while providing egregiously poor care or none at all. Some of these providers engaged in referral kickback schemes, enrolled patients who were not eligible for hospice and lied to them about being terminally ill.

In some instances, multiple hospices have been operating out of the same address without a corresponding increase in the population of eligible patients. Some individuals also hold management positions at several of these hospices simultaneously.

Thus far, California is the only state to take action on the issue, but that also may impact M&A in the state. Some buyers are refusing to even look at potential acquisitions in some of those markets, Justin Rhodes said.

Navigating the 36-month rule in particular may be having a chilling effect, and states like California have further action in the works that could be even more stringent, according to Joel Rhodes, also a partner at Triavo.

“Some of it has to do with the 36 month rule that came down federally on hospice. A lot of these states, like the state of California, for example, are putting in a five-year ownership rule,” he told Hospice News. “A lot of these private equity firms hold for three-to-five years and then they’ll look at packaging up and selling [an asset] at a much higher multiple than they bought it for. It’s an impediment on the hospice side to have to jump through those hoops.”