The outlook for the hospice M&A market is equal parts promising and potentially turbulent, with regulatory and reimbursement pressures among the challenges on investors’ radar.

Hospice merger and acquisition activity has seen a slump compared to previous record-breaking years.

Interest in the space isn’t anticipated to abate anytime soon, but hospice transactions are facing greater obstacles related to regulatory oversight and profitability, according to Mark Kulik, senior managing director at The Braff Group. Kulik is responsible for the M&A firm’s hospice, home health, home care, pediatric and private duty markets across the Eastern United States.

“The level of scrutiny that hospice transactions are undergoing now is high,” Kulik told Hospice News at the National Association for Home Care & Hospice’s (NAHC) Financial Management Conference in Las Vegas. “Buyers are more sensitive to that level of risk now than I’ve seen before in the last 20 years.”

Program integrity concerns have come to the forefront of hospice investment. Oversight has heightened in the industry as regulators crack down on eliminating fraud, waste and abuse in the space.

Regulatory factors have an integral role in shaping the hospice M&A environment, according to Kulik. More hospices are coming up under regulatory microscopes through increased auditing and survey activity. Red flags uncovered in these audits can serve as deterrents for investors or can complicate deals already in progress, he added.

“There’s this heightened awareness of not allowing yourself to be exposed to a level of risk,” Kulik told Hospice News. “Compliance is a big piece. Buyers are not looking for a ‘fixer upper.’ They’re looking to buy operations that are running well, are highly compliant and have minimal risk. I think they get fearful of buying a hospice and then extrapolating that compliance risk that could go from being something small to something large.”

Transactions in the space have seen an evolution since the Medicare Hospice Benefit was established nearly 40 years ago, but the payment structure for these services has not kept pace, Kulik added. Recent years have seen a number of trends shaping the market, including increased private equity investment, more nonprofit provider affiliations and large-scale purchases among large insurance companies.

Hospice News photo by Merz Photography

Investors of all walks are more closely examining the growth potential of hospice assets with reimbursement and compliance factors in mind, said Kulik.

“As the hospice industry matures, it’s getting more mature relative to oversight, relative to regulations and certainly to reimbursement,” Kulik told Hospice News at the conference. “The unknowns in those things make it a more difficult environment, whether you’re a for-profit or nonprofit operator.”

Rising demand, quality and cost-savings potential are among hospice’s greatest value propositions, but operational expenses represent a significant headwind dampening M&A activity, he stated.

Concern has mounted over lagging annual reimbursement increases. Providers and industry groups have indicated the 2.9% hike in the 2025 final hospice payment rule is insufficient amid inflation, economic and wage pressures.

“This care is a major expense for Medicare, they’re taking closer oversight of it and it’s harder to run a business and maintain profitability,” Kulik said. “The old cliche is, ‘No margin, no mission.’ You have to have profitability to sustain the operations. Anytime you make changes on the payment side, that impacts behavioral changes in the market.”