After a record-low start to the first quarter of 2023 that saw only 17 home health, hospice, and home care deals reported, home-based care dealmaking rebounded significantly in the second quarter with 29 transactions reported.
It wasn’t just one sub-industries with increased activity, either. Transactions were spread across all three -- with 16 home health, 11 home care, and 13 hospice deals reported. (Sub-industry totals sum to more than the total number of transactions, as many transactions include more than one sub-industry.)
“This volume is in line with pre-pandemic norms,” says Mertz Taggart Managing Partner, Cory Mertz. “I’m going to be curious to see what next quarter brings, but we are not ready to suggest it will be this strong. One quarter doesn’t make a trend, but it does signal a rebound in activity, which is positive.”
“Demand remains historically high for strong, cashflow-positive home-based care companies,” he added. “That’s driven by scarcity of supply and insatiable private equity demand for add-on acquisitions, caused by a substantial decline in PE exits.” To better understand why valuations remain historically high, click here.
In the biggest news of the quarter, though not yet counted toward the transaction tally, UnitedHealth Group’s Optum division beat out Option Care Health (Nasdaq: OPCH) with its bid for Amedisys Inc. (Nasdaq: AMED). The deal values Amedisys at about $3.7 billion (including the assumption of debt), but is still subject to regulatory scrutiny. Optum and Amedisys plan to close the deal later this year. If finalized, Optum would own about 10% of the home health market.
Home Health M&A
Home health M&A activity hit its highest level since Q4 2021, despite uncertainty around CMS’ proposed rule, which hit the wire in late June. Consensus belief that the proposed 2.2% net reimbursement reduction for 2024 sets the worst-case scenario is workable enough to pave the way for an active second half of 2023. This includes a permanent adjustment of 5.653% to offset the perceived overpayment as a result of the transition to PDGM. There are multiple efforts underway to reduce or eliminate this permanent adjustment, including a lawsuit filed by NAHC challenging the validity of the of the change, and The Preserving Access to Home Health Act of 2023, which was introduced to the senate by Debbie Stabenow (D-MI) and Susan Collins (R-ME) in June.
The industry still faces headwinds in the form of the ‘temporary adjustment’ due to the aforementioned overpayment from 2020-2022. This is an issue CMS decided to address later, allowing it to move forward with a somewhat moderate adjustment for 2024 as it gears up for a significant battle from industry advocates and Congress regarding the temporary adjustment. “You can’t ignore the $3.5 billion elephant in the room,” Mertz said. “But, to some extent, this is the nature of healthcare services. Stroke of the pen risk always exists for government payers. The general risk around reimbursement will always keep multiples somewhat grounded, despite overall home-based care industry growth, and its ever-growing role in the value-based ecosystem.”
Humana’s (NYSE: HUM) CenterWell Home Health landed a big deal in April when it acquired Trilogy Home Health.
Based in West Palm Beach, Florida, Trilogy has 11 locations across the state, providing home health care, personal care and care coordination services. With the deal, CenterWell Home Health added to both its national and statewide presence.
“While we have strategies in place to continue to take share in fee-for-service Medicare, we do acknowledge it is a shrinking market with the increasing penetration of Medicare Advantage,” said Humana CFO Susan Diamond earlier this year, in reference to home health care. “Accordingly, our projected admission growth for 2023 reflects a slight decline in fee-for-service Medicare admissions year over year, more than offset by strong growth in Medicare Advantage.”
Still, it appears that Humana and CenterWell are happy to take on more market share in home health care agnostically, whether assets like Trilogy are more fee-for-service based or not.
Addus Homecare Corporation (Nasdaq: ADUS), another publicly traded company, also completed a significant home health deal in the second quarter, acquiring Tennessee Quality Care for $106 million. While Addus valued Tennessee Quality Care’s home care and hospice services, and its approximately 1,800 patients, the biggest benefit was the opportunity to expand its home health footprint.
To further enable value-based care, Addus has been layering on home health care in its strongest home care markets. But that’s not the only aspect of this deal that makes it a valuable one.
“This fits Addus growth strategy perfectly, which is to build out the continuum, ideally by adding home health and hospice to their existing home care footprint,” says Mertz. “But it’s also about scarcity. Tennessee is a certificate-of-need state, and there are not many quality companies of this size on the market.”
Additionally, LHC Group acquired Delaware-based Summit Home Care, AccentCare forged a JV agreement with Memorial Hermann, and Mertz Taggart client Capital Health Home Care sold its West Virginia operations to Amedisys.
There were two pediatric private duty nursing transactions reported in the quarter: Tenex Capital Management sold Team Select Home Care to Court Square Capital, and Trivest Capital’s Family First Homecare acquired Texas-based One Accord Home Health.
Home Care M&A
Of the quarter’s 11 home care deals completed, some of which were part of transactions that included home health and hospice as well, perhaps the most significant is the Pennant Group’s (Nasdaq: PNTG) acquisition of Bluebird in its home state of Idaho, gaining Bluebird’s three agencies, each with its own service area: Bluebird Home Health, Bluebird Hospice, and Bluebird Home Care.
“Bluebird’s operations fit uniquely within the strong continuum of care we have successfully built in Idaho over the last 12 years,” Pennant President and COO John Gochnour said in a statement. “This transition brings with it a strong group of operational and clinical leaders and outstanding clinicians who have made a meaningful impact in Southwest Idaho’s health care continuum over the last few years.”
Illinois-based For Papa’s Sake’s, a private duty home care agency based in Chicago, sold to Avid Health at Home. Mertz Taggart provided exclusive M&A advisory services to this transaction, representing the seller. Other home care-focused transactions include, Hope Nursing Home Care’s acquisition of Home Care Services of Rhode Island, and Pillar Health Group’s purchase of Philadelphia-based Serving Spirit Home Care.
Agape Care Group has been a prolific hospice acquirer over the past few years, a trend they continued in the second quarter. Agape completed deals for two hospices in the Southeast, Georgia Hospice Care and Hope Hospice.
“I am thrilled to be joining Agape Care during this time of growth and expansion,” Alex Ferguson, Agape’s SVP of M&A, said when he joined the company last year. “There is tremendous opportunity in the hospice and palliative care landscape to add great organizations to the Agape Care portfolio, merging resources to enhance providers and reach more patients.”
Other strictly hospice deals in the quarter included Hosparus Health’s deal for Baptist Health Hospice and Arkansas Hospice’s deal for Life Touch Hospice.