Experts See Potential in Hospice M&A Market

Regulatory cutbacks might have cooled M&A activity for traditional Medicare home care businesses, but things might just be heating up on the hospice side.

Given the federal sequestration earlier this year and reimbursement cuts playing critical roles in the market’s recent lull, industry experts agree that the home health M&A market will experience smaller scale activity going forward.

A significant driver of this shift arises from a disproportionate share of funding stemming from the Affordable Care Act, says Gary Massey, a partner with CliftonLarsonAllen and home care and hospice expert.


With home health receiving a sizeable portion of Medicare cuts, margins that have been driving M&A activity in the past may be dissipating, Massey said during a March webinar hosted by Irving Levin Associates.

“A realization is sinking in that the heyday of that activity has passed,” says Massey, who believes that there will still be some home health acquisitions.

However, there is more optimism on the hospice side, he says, a main driver to this being Medicare payment reductions to home health companies.


“The regulatory environment is more benign for hospice compared to home health,” says Burk Lindsey, managing director of healthcare investment banking at Raymond James. “While we don’t have massive tailwinds for hospice, there are not as many pressures as the home care side.”

The reimbursement system in home nursing remains vulnerable to additional rate cuts, he says, given the perception that policymakers view the payment system as encouraging overpayment.

Medicare reimbursement cuts might also make it difficult for some companies to maintain their margins.

“We hit the point in the cycle where we really do expect to see, and are seeing, an acceleration in the number of smaller operators who have reached a point where they can’t manage business in this low-volume environment,” says Lindsey.

This is likely to lead to more consolidation among hospice providers, says Massey.

“We’ll see M&A activity going on, however, consolidation is going to drive the marketplace to have fewer providers.”

Hospice’s potential only grows looking at the big picture of healthcare reform, says Massey.

“A huge element in bending the curve in the Medicare world is going to be how to cut cost of service for end-of-life care,” says Massey. “Hospice is a huge element of that.”

Part of this will require considering whether or not agencies are spending the appropriate dollar amount for high-priced diagnostics on individuals with limited life expectancy, Massey adds.

“If we’re trying to be humane and comfort families and patients, then hospice is a hands down winner,” he says. “The need for hospice and the potential for it to become favorable is bright in that regard.”

Written by Jason Oliva 

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