On April 27th, shortly after we published this original post, CMS dropped a bombshell proposed rule, which stated, among several objectives, that "At least 80% of all Medicaid payments for specific HCBS — homemaker services, home health aide services, and personal care services — must be spent on compensation for direct care workers to help address the direct care workforce crisis." The intent, experts believe, was to send a message to the states that they need to address the workforce issues and access to care.
The markets panicked. With nearly 60% of its revenue comprised of home and community-based services, Addus HomeCare's share price dropped almost 30% on the news.
The company has since regained some of its initial losses, a sign that institutional investors believe things aren't quite as bad as they initially seemed. Most private equity-backed strategic acquirers have indicated it is business as usual. "We've spoken with several strategic acquirers since the news broke to gauge their general sentiment," Mertz Taggart Managing Partner Cory Mertz commented. "Most buyers with HCBS as central to their investment thesis continue to show strong interest. Valuations for add-ons in the $3M to $50M range remain robust. Several PE groups seeking platform opportunities at the higher end of the market continue to look for opportunities, although some have hit the pause button until more is known."
Do these strategic buyers know something we don't? Or worse, are they so married to their theses that they're convinced they'll 'figure it out'? The consensus among those 'in the know' regarding policy is that the final rule, currently slated to take effect four years after it is finalized, will not be nearly as onerous as it reads now…if it gets finalized at all. CMS welcomes comments through July 3, 2023.
"Industry advocates, including several of the big strategic acquirers, are actively feeding back to CMS and educating policymakers, so they're not ignoring the issue," added Mertz, "But they're not overreacting either. They still see the long-term value in HCBS for all stakeholders, including patients and payors. Companies with strong cash flow and a culture of compliance continue to draw strong interest in the marketplace.”