The hospice mergers and acquisitions market has seen a host of changes in recent years, with buyers and sellers examining a range of risks and opportunities in the field this year.

The industry saw a flurry of M&A activity in 2019 and 2020, with record high valuations and deal volume. Subsequent years saw cooling periods that left many operators wondering what’s next in store as 2025 unfolds.

The previous “buy, buy, buy” mentality among hospice investors has morphed into a more disciplined strategic approach, according to New Day Healthcare LLC CEO G. Scott Herman. Certain lessons learned are driving future hospice investment decisions, particularly those around valuations and keys to sustainable growth, Herman said during a recent Hospice News Elevate podcast.

“There’s still very strong interest in looking at available hospice assets, but we’ve now returned to sanity when it comes to pricing,” Herman told Hospice News during the podcast. “Buyers want hospice, and they seem to realize that overpaying in 2021 and 2022 burned investors. But more importantly, it burned out operators. Buyers were too aggressive on the organic growth potential of hospice [and] they believed they could rapidly grow census in these hospices. The reality is … this is a slow process that’s due to heavy compliance and dependency on strong relationships.”

Texas-based New Day offers hospice, home health and personal care through several brands.

Forces shaping hospice M&A

The next year of hospice deal making could reflect various perspectives around successful strategic growth, according to Andrew Molosky, president and CEO of Chapters Health System, a large nonprofit hospice provider.

Hospice investors should be carefully considering how and where to build up the geographic scale of their assets, Molosky stated. Success in the hospice space is a constant balance of clinical capacity and sustainable census growth, he said.

“[A] focal point for hospice leaders to consider is that part of strategic growth is having a targeted definition of what constitutes success,” Molosky told Hospice News in an email. “You can admit 500 patients, but if they are patients in the wrong geography where you serve, or if they have clinical diagnoses that your staff is not prepared to handle, then not all growth is good. If you have these two things — a distinctive value proposition and a specific target for what successful growth looks like — there are myriad paths to growth.”

A key consideration for 2025 is how a change in presidential administration could impact hospice M&A activity nationwide, according to Herman.

The hospice market is ripe with opportunities for growth with more research providing evidence that these services can help improve outcomes and reduce high health care spending at the end of life, Herman said. But the space has garnered unfavorable attention in light of fraudulent activity among some operators, particularly in four hotbed states of Arizona, California, Nevada and Texas.

The next presidential administration will need to consider potential avenues that help curb fraud, waste and abuse in the space without compromising competitive growth during a time of tremendous demand among swelling aging populations, Herman stated.

“If cost effectiveness and efficiency are truly the route this administration will take … then we’re the model for that,” Herman said. “There’s not a more cost-effective or higher quality of care that can be delivered than end-of-life hospice care, as well as home health. We’re in the right seat that should spur investment and opportunities for buyers and sellers, coupled with inflation coming down and interest [rates] settling, all are good signs for [hospice] M&A. I’m hopeful that we’re viewed favorably with expansion in mind as it relates to investment. What impacts cost and efficiency driven by the federal government could have on our industry will drive mergers and acquisitions under the current administration.”

Another aspect of hospice M&A to watch in 2025 is the direction of private equity. These firms have been prevalent buyers in the hospice space for several years, though many took a step back in 2023 and 2024.

These buyers will continue to flock to the hospice market regardless of increased regulatory scrutiny, with legitimate investors welcoming the oversight to help ensure they’re picking up quality assets, according to Tom Lillis, partner at Stoneridge Partners Strategic Consulting.

Though some in the industry have speculated that heightened regulatory oversight may dampen M&A in the space, others contend that it has had positive impacts.

Hospices have faced increased auditing and surveying activity in recent years as well as oversight around transactions. Also, the U.S. Centers for Medicare & Medicaid Services (CMS) in its final 2024 home health rule included a “36-month”rule for hospice providers. The rule prohibited any change in majority ownership during the 36 months after initial Medicare enrollment, including acquisitions, stock transactions or mergers.

The regulatory evolutions taking shape will make the next year a time of reckoning for poor-performing hospice operators, regardless of whether they’re a nonprofit or for-profit entity, according to Lillis. Some organizations may have difficulty thriving in 2025’s regulatory climate, which could change the scope of available assets, he stated.

“Regardless of tax status, poor performing organizations are probably at some point going to have to think about what their future looks like,” Lillis told Hospice News. “You may have this amazingly long life as a hospice but without good results. So we’re going to see what happens to some of those operators in future deals.”

‘It’s about balance’

Many larger hospices have joined forces through mergers, acquisitions and joint ventures in recent years, leaving a landscape of smaller assets on the market. This trend of smaller hospice investments was anticipated to continue in 2025, though some large companies may be poised to come to market, according to Lillis.

Recent years have seen several hospices scaling back on large-scale M&A activity, with investors waiting for higher valuations and interest rates to come down. Some of the larger hospice transactions have also been impacted by a range of economic and workforce pressures alongside pandemic-related issues, Lillis said.

“There are several large hospice organizations that are losing money. They’re calling card was M&A, but they belatedly realized that it’s got to be good M&A. It’s always about balance,” Lillis said. “There are some large organizations with leadership teams that are on strike six or seven. We could see some of those change ownership without good results, whatever that definition of success is. Typically for investors its profits but there are also other components.”

On the seller side, investors have increasingly been attracted to hospices with innovative care delivery approaches, including those that are branching out with new service lines, Lillis indicated.

Home health care is among the services that hospices are delving further into. More joint ventures have taken place between hospices and home health providers, particularly in rural regions with difficult to reach underserved patient populations, a trend that may continue in 2025, Lillis said.

“Doing home health and hospice has an impact on driving up valuation, with both home health and hospice as a target of interest,” he told Hospice News. “You want to have the spectrum of services, but also the balance of margins.”

Palliative care programs represent another area attracting investors’ interest in particular hospice providers, according to Herman. Offering palliative services has aided in the ability to reach patients sooner in their illness trajectories, leading to improved outcomes and better coordinated, cost-effective care, he stated.

Hospices with palliative care programs could see a stronger appetite from investors increasingly recognizing the value proposition of having a wider range of services that help address unmet needs among patients and families, Herman stated.

“The most obvious [factors] driving interest is the long-term outlook of senior populations and increasing awareness for hospice, the awareness around the need for palliative care,” Herman said. “The most interest we’re seeing in the market right now is in running a full-service line, diversified platform. We’ve seen tremendous market interest in our ability to identify patients.”