If you followed the home health, hospice and home care M&A in 2020, you saw a little bit of everything.
For the very early part of this year, most buyers and sellers hit the pause button on dealmaking to observe how the COVID-19 pandemic would impact post-acute care and aging services providers. There were some smaller tuck-in transactions, but hardly any market-moving blockbusters.
That changed toward the end of 2020.
“This year really had it all,” Mertz Taggart Managing Partner Cory Mertz says. “And after a slow start, things began picking up in late summer. I now believe we’re on a record-setting pace for home health, hospice, and home care M&A activity headed into 2021.”
Overall, there were at least 75 home health, hospice, and home care transactions during the first three quarters of 2020, Mertz Taggart data shows. While the fourth quarter is still underway, early indications show it should be a record quarter, ultimately putting 2020 in line with 2019 and 2018, despite a once-in-a-century public health emergency.
“At the risk of playing the spoiler, Q4 will be a record quarter for M&A,” Mertz says. “And I would expect this momentum will carry well into 2021.” Cory Mertz, Managing Partner, Mertz Taggart
‘Hitting pause’ on Medicare certified home health
Going into 2020, most industry insiders believed that the Patient-Driven Groupings Model (PDGM) would lead to a wave of consolidation, similar to the aftermath of the Prospective Payment System (PPS) in the 1990s.
That didn’t happen.
In response to the COVID-19 crisis and severe volume swings, the U.S. government tossed out a series of lifelines to support all varieties of health care providers. Those lifelines included the 2% Medicare sequestration suspension, the expansion of advanced payment from the U.S. Centers for Medicare & Medicaid Services (CMS), grants under the Provider Relief Fund and more.
Thousands of smaller mom-and-pop home health agencies also utilized the Paycheck Protection Program (PPP) to stay afloat during this difficult time.
Combined, all of those resources gave some potential sellers feeling the pressure from PDGM a financial boost. Other potential sellers didn’t end up selling because they didn’t want to disrupt patient care.
“We didn’t feel the true impact of PDGM this year,” Mertz says. Cory Mertz, Managing Partner, Mertz Taggart
That’s not to say home health dealmaking was nonexistent. Yes, there were fewer deals than in 2018 and 2019, but the first three quarters of 2020 saw at least 27 different transactions.
In September, The Pennant Group Inc. (Nasdaq: PNTG) announced it had acquired CMS Home Health Care, a Texas agency with locations in Brownwood and Coleman. In August, Actinium Healthcare Holdings announced its acquisition of Central Home Health Services of Texas Inc.
Earlier in the year, BrightSpring Health Services made a deal for Advanced Home Care’s home health and home infusion businesses. LHC Group Inc. (Nasdaq: LHCG) announced several new or expanded home health joint ventures throughout 2020.
In riding out PDGM and COVID-19’s impact, many home health operators said they hit pause on all M&A action. Most reversed course toward the end of summer.
“I’ve been selling home health agencies since 2006,” Mertz says. “I can’t remember a time when demand has been higher than it is now. Since July, we have received an incredible amount of calls from both strategic and financial buyers looking for home health assets.”
The constant in a sea of change
While home health M&A activity had its ups and downs, hospice never really cooled off. In fact, by the end of 2020’s third quarter, there were almost as many hospice transactions — 46 — as all of 2019.
Despite the public health emergency, hospice multiples remained high as well.
“If you are a hospice operator looking for an exit, there has never been a better time to consider a sale,” Mertz says. “Demand is much higher than supply right now, especially for larger hospices.” Cory Mertz, Managing Partner, Mertz Taggart
The biggest hospice news to come out of 2020? That would assuredly be the industry-shaping mega-merger between AccentCare Inc. and Seasons Hospice & Palliative care.
Currently, AccentCare is the fifth-largest home health provider in the nation, according to data from LexisNexis. Seasons is the fifth-largest hospice provider. In combining the two, the companies hope to create a diversified post-acute care powerhouse with more than $1.5 billion in annual revenues.
“With these two organizations together, we have a rare opportunity to shape the future of skilled home-based care,” Steve Rodgers, CEO of AccentCare, said when the deal was first announced. “The new organization will bring together the expertise and vision needed to re-think patient-centered care in the home, and offer innovative solutions to the health systems and physician groups we serve.”
That wasn’t the only major hospice deal, however. In November, Addus HomeCare Corporation (Nasdaq: ADUS) announced that it was buying Queen City Hospice and its affiliate, Miracle City Hospice, for about $192 million.
“The Addus deal clearly reflects just how much companies are willing to pay for high-quality hospice assets,” Mertz says. “Queen City Hospice has an average daily census of about 900 and annualized revenues of about $56 million.”
Hospice is likely to remain hot moving forward, thanks in part to new reimbursement opportunities the hospice Medicare Advantage carve-in and new direct-contracting models from CMS.
Home care primed to take off
Home care may soon become the new hospice.
Over the past couple of years, health systems and payers have increasingly begun to recognize the important role non-medical in-home care service providers play in keeping people healthy, with study after study highlighting the impact social determinants of health have on overall wellness.
Now, home care is being driven to the forefront even faster by emerging hospital-at-home and SNF-at-home programs, both of which require the kind of high-touch, low-cost support home care offers. Soon, there may even be additional payment models to support both models.
“Traditional home health care payment will not be sufficient given these individuals will require a mix of both skilled home health care services and also home care assistance with activities of daily living,” David Grabowski, a professor in the department of health care policy at Harvard Medical School, told Home Health Care News in August. “The model will have to recognize these enhanced service needs.”
Among the largest home care deals this year came in September, when the Providence Service Corporation (Nasdaq: PRSC) announced it had entered into a definitive agreement to purchase home-based care company Simplura Health Group for an enterprise value of $575 million.
Another significant deal that included non-medical home care assets was the acquisition of Help at Home by Centerbridge Partners and The Vistria Group, two large PE firms. Prior to an official announcement, reports surfaced the Help at Home’s price tag was around $1.4 billion.
Although home care is primed to take off in 2021, it did lag behind home health and hospice from an M&A perspective throughout 2020. That’s not linked to a lack of interest, but rather a shortage of scalable home care assets coming to market.
Get ready for a big year ahead
Even with the COVID-19 pandemic, it was an exciting year for home health, hospice and home care M&A. Next year has the potential to be a historic one in terms of deal volume, with the entire health care system looking to shift more