Home Health Leaders See Future Cuts Driving More Consolidation

The ever-present and impending funding cuts to the home health industry have yet to signal that the sky is falling, but while some providers may be feeling the strain financially, others are more optimistic of the future to come—with short term consolidation in the meantime. 

Regulatory cuts to home health Medicare payment rates, such as the 3.5% rebasing cut each year until 2017 from the Centers for Medicare & Medicaid Services (CMS), may not be as dooming as they appear, according to panelists Monday during a National Association for Home Care & Hospice (NAHC) Financial Management Conference & Expo in Chicago.

“We don’t see panic in the streets just yet,” said Marcylle Combs, president of Denton, Texas-based Foundation Management Services.


A company that provides both home health care as well as consulting services, Foundation has been seeing the greatest impacts of the Medicare cuts happening to agencies in more rural areas.

“In rural areas, some people frankly have been closing their doors while others have been trying to sell,” Combs said. “There’s not a lot of panic, but it is still worrisome.”

Regulatory cuts, such as the 3.5% Medicare rebasing, have had a positive effect on the market for mergers and acquisitions in the greater home health and hospice industry, said Dexter Braff, president of The Braff Group.

The first quarter of 2014 was the highest number of deals The Braff Group has seen since it began tracking transaction volume in 2001.

“The M&A market is surging back,” Braff said. “Because buyers see CMS has plans to make reductions over the next four years—with two left now—it has given them measures of confidence.”

In a way, CMS has given buyers a blueprint for the foreseeable future, he added, since providers already know to expect 3.5% Medicare cuts each year until 2017, as outlined in the rebasing rule.

“When buyers see that uncertainty taken out of consideration, you see players rushing in to take advantage of the market,” Braff said.

To survive and thrive, companies will be forced to look internally to see where they might find additional opportunities for investment, said William Simione, Jr., founder of Simione Healthcare Consultants.

“We’re all starting to feel the crunch, but it hasn’t been what we’ve predicted,” Simione said. “CMS will continue to compress margins until there is a general collapse of the industry until a third of agencies that we have today are weeded out. You’ll need to reinvest dollars. You’re going to need capital.”

Reinvesting dollars into new technologies that standardize collection of data and the information those technologies track to make better decisions will be key strategies, said William Basset, chief market officer at Procura, a British Columbia, Canada-based company.

“You can’t manage what you can’t measure,” said Basset. “The bottom line is it’s metrics, metrics, metrics.”

With healthcare delivery centered on the concept of Accountable Care Organizations (ACOs), providers who can prove efficiencies with evidence-based care will be able to strengthen their positions in the healthcare ecosystem, and this is especially critical for hospices.

“There is a huge percentage of potential [hospice] patients out there and it’s only going to grow,” Basset said. “For those agencies looking for vertical integration, hospice is just another great way to diversify with all the cuts coming down.”

Home care providers looking to add hospice to their service offerings stand to benefit from similarities between the two care segments, at least from an ACO perspective, though additional scrutiny lurks in the future.

“Hospice is a lot like home care—hospitals want to get you there faster, but we’re going to see a lot more reforms,” said Arnie Cisneros, president of Home Health Strategic Management.

The Lansing, Michigan company provides a variety of home health tools and coaching services for home care clinicians, managers and administrators.

But a silver lining can be found in scrutiny, whether it’s from regulatory bodies like CMS or the Department of Health and Human Services or from mainstream press like the Washington Post, The New York Times or USA Today, said Braff.

“Scrutiny of the industry is really important,” Braff said. “If there was a way for the hospice industry to pull that back and protect their image in the marketplace, it would benefit the industry.”

Written by Jason Oliva