Hospices that have palliative care service lines may be better poised for growth in the merger and acquisition landscape compared to others. But the ability to demonstrate sustainability and scalability of these services will be crucial to manifesting a return on investment.
Investors’ interest in palliative care has slowly mounted in recent years, with these services increasingly a topic in hospice M&A transactions, according to Mark Kulik, senior managing director at the M&A firm The Braff Group.
An important trend to note is that buyers have considered the finite details of hospices’ palliative care services such as patient census, care delivery models and overall infrastructures of these programs, Kulik said.
“In bringing a hospice to market, it is 100% of the time a question that comes from all potential suitors is do they have a palliative care program,” Kulik told Palliative Care News. “That’s dramatically different than even five years ago. It was more happenstance if they asked about palliative care 10 years ago. In that short timeline, there’s been a profound shift from a tangential level of interest to a core level of interest from the suitor perspective. It goes down to the level of sophistication or substantiation of the program, they’ll ask about profitability as a big question.”
Palliative care investment viewpoints
The elevated interest in palliative care typically gets drilled down by questions around the program’s size and how formalized care delivery policies and procedures are, Kulik stated. Investors are essentially looking to determine whether a hospice’s palliative care program has the potential for profitability, he said.
Investors most commonly see palliative care as a “referral funnel” for hospice, according to Kulik. These services have helped hospices to reach patients sooner in their illness trajectories and improve relationships with referral sources, he indicated.
They have increasingly recognized the value potential of palliative care services when it comes to driving quality and cost, according to G. Scott Herman, CEO of New Day Healthcare. Patient data have been a critical element to demonstrating palliative care’s potential, he added.
Offering palliative services enabled hospices to reach patients sooner in their illness trajectories, leading to improved outcomes and better coordinated, cost-effective care, Herman said. Hospices with these service lines stand to gain a leg up on competitors in the M&A market, he stated.
“The most interest we’re seeing in the market right now is in running a full service line, diversified platform,” Herman said during a recent Hospice News Elevate podcast. “With driving interest, the most obvious is the long-term outlook of senior populations and increasing access for hospice, the awareness around the need for palliative care. The general consensus is that hospice services need to be introduced to terminally ill patients sooner, that has a positive impact. We find tremendous market interest in our ability to identify patients on service.”
Palliative care’s potential to improve quality and symptom management has not gone unnoticed in the hospice M&A landscape, with research increasingly backing this theory, according to Kevin Kirkland, chief growth officer at Agrace. The Wisconsin-based organization offers hospice and palliative care, among other services.
Demographic trends of a swelling aging population will continue to push demand for palliative care in coming years, Kirkland stated. This trend, alongside growing policy support and referral recognition, has contributed to a broader adoption of palliative care, pushing these services to the forefront of hospice M&A, he added.
“Agrace sees tremendous value in palliative care as it relates to hospice transactions and our strategic growth plans,” Kirkland told Palliative Care News in an email. “We continue to see more hospitals and health systems value palliative care services offered by their care partners. Agrace believes that the value proposition for hospices offering palliative care is that it helps to expand our mission by extending the care continuum for patients and families and improving the quality of life for those being served under our umbrella of care.”
Challenges in palliative care’s prowess
A large challenge to operating a sustainable and growing palliative care program is that current reimbursement systems do not sufficiently cover the full range of these interdisciplinary services. The end of the value-based insurance design’s (VBID) payment demonstration, which included palliative care components, whittled down providers’ payment options even further.
Limited recourse for reimbursement has had many hospices operating palliative care programs fueled by philanthropic donations and fundraising efforts, with some also seeking partnerships with other health care providers.
The financial challenges associated with palliative care delivery have made these services a difficult selling point for some hospice investors, said Cory Mertz, managing partner of the M&A firm Mertz Taggart. But that may be shifting alongside payment evolutions, he said.
“Most of the time, palliative care is not profitable and is viewed as a ‘loss leader’ for many,” Mertz told Palliative Care News in an email. “As a result, and because it historically has not been a big part of most buyers’ overall strategy, it doesn’t usually move the needle much. There are exceptions, though.”
U.S. health care has been gradually moving toward value-based reimbursement, Mertz indicated. Having a robust palliative care program can help hospices ensure they are not left out of the M&A mix as value-based trends gain momentum, he stated.
Buyers are seeking versatility and growth of their assets, and hospices with palliative care services have a toe in both traditional and value-based reimbursement avenues, according to Mertz.
“As more buyers continue to execute on their value-based care strategies, many are seeing the value in offering palliative services, especially if it gives them an opportunity to negotiate with the payers away from a traditional fee-for-service model,” he said.
Navigating complexities
Hospices often operate palliative care programs at a financial loss, said Hakeem Bello, CEO of Illinois-based Oasis Hospice & Palliative Care. Growing these programs has come with a fair amount of referral outreach and community education, an effort that has increasingly paid off in terms of adding to a hospices’ value, Bello stated.
“We lost a lot of money when we first started palliative care,” Bello said. “But we’re now seeing that palliative care will continue to grow, with more facilities asking us, ‘Do you have palliative?’ It’s mainly because families don’t want to talk about hospice, they see it as giving up. Our goal is to educate on the differences between hospice and palliative care. I think palliative care will continue to grow because there’s value in how it improves quality of life and addresses physical, emotional and spiritual needs.”
An important part of placing value on a palliative program is having these services be clearly defined, said Heath Bartness, CEO and founder of St. Croix Hospice.
But definitions vary widely across programs nationwide, a point of contention and possible confusion in hospice deals involving these services, Bartness indicated.
“What I’m concerned about is that we’re interchanging the terms hospice and palliative care in ways that make it appear to be very different, almost using the term palliative as a waiting room for hospice,” Bartness told Palliative Care News. “There’s no payer structure for palliative care at this point and programs can utilize the term as almost a ‘soft hospice,’ terminology. But a lot of the care we do in hospice is palliative in nature. We are not trying to be anything other than a hospice, that is our sole focus as opposed to diversifying.”
Despite the challenges in palliative care delivery, these services may continue to be among the significant considerations in hospice transactions, as well as in other health care sectors, according to Kulik.
Reimbursement shifts will play a large role in how much weight palliative care services hold in the hospice space, he indicated.
“I think palliative care is here to stay,” Kulik said. “If and when the day comes that there is a fair level of reimbursement for palliative care, we’ll definitely see enormous growth in the offering of the service, because now providers can at least break even and maybe make a little bit of money. I foresee continued demand for viable palliative care programs.”