Why Almost Family’s $128 Million Joint Venture is a ‘Win-Win’
Last week, Almost Family Inc. (Nasdaq: AFAM) announced a major partnership by acquiring 80% of the home health operations of Community Health Systems (NYSE: CYH)* for $128 million.
The deal not only creates the largest public hospital-home health joint venture in the nation, but is also exemplary of how health providers are utilizing an emerging consolidation strategy. CHS, based in Franklin, Tennessee, is the largest general hospital provider in the country. CHS operates 158 hospitals in 22 states.
Hospital and home health providers are increasingly working together as new payment models, such as bundled payments and accountable care organizations (ACOs), reward increased coordination and moving care to less costly settings.
For home health care, the arrangements offer new markets, steady referral sources and higher patient volume. The joint venture deal, expected to close by the end of the year, brings Almost Family into 10 new states.
“One of the things we are seeing in health care is the shift to more of the bundled payment arrangements,” Brian Tanquilut, analyst with Jefferies & Co., told Home Health Care News. “Almost Family has made an investment in the ACO world and they’re in these alternative payment programs. …In this new world order [of payment models], the importance of the hospital partnership is growing. You want to be close to the hospital, especially as a home health provider.”
The deal between Almost Family and CHS enables Louisville, Kentucky-based Almost Family to become the third-largest home heath care provider in the country, and offers opportunities to continue growing with a partner in alternative payment models. Prior to the deal, Almost Family was the fourth largest home health care provider in the country, with 90 locations in 11 states. The company and its subsidiaries operate two segments—visiting nurse care and personal care.
As consolidation continues across the home health space, larger providers may have the most to gain as hospitals look for post-acute partners.
“Companies want to see winners, big companies, not some ‘Joe Schmo’ company,” Tanquilut said. “Almost Family is now the third largest provider. That will help and enhance their ability to do acquisitions. …It’s a win-win.”
While hospital partnerships are not new, a joint venture deal is not typical for Almost Family. By comparison, another home health care giant, Lafayette, Louisiana-based LHC Group (Nasdaq: LHCG), has engaged in joint ventures for some time. When presenting the transaction to investors, Almost Family called its joint venture deal an emerging “go-to market” strategy.
“For years, Almost Family has explored joint ventures, much like LHC Group has done, but, until recently, most independent hospitals, after some discussion, really preferred just to sell the home health operations and maintain a good relationship,” a source close to the deal told HHCN. “Some of Almost Family’s most successful operations have been acquired this way.”
In addition to taking on a joint venture partnership, Almost Family is also entering into the hospice field with the deal by taking on the operations of CHS’ division. The deal adds 15 hospice branches in seven states.
Going forward, Almost Family has the potential to scale its home health care services to as many as 63 CHS hospitals that have no home health services, the company said.
“The expanded footprint opens up many more potential follow-on acquisition opportunities, and with a strong financial position, look for them to be very active in the near future,” the source said.
Not only does Almost Family have a natural source of referrals for new markets with CHS, but it also can benefit from the management team at the health system as its joint venture partner.
“The risk profile is much lower,” Tanquilut added. “The benefit of structuring it as a joint venture as they did is that Almost Family has the agencies and will still have access to CHS’ management team in a way. As Almost Family tries to learn a market with no home health agency, they will wonder if it’s worth going to. Is it a bundled payment market? Can it support home health? That’s a very important factor, and it makes things easier and more profitable.”
As hospitals continue to see more financial risks associated with patients once they are discharged, home health care companies will continue to be a natural ally in improving outcomes and reducing costs.
“At the end of the day, home heath care agencies present the lowest cost opportunity in post-acute care for hospitals and other payers, and there are more incentives in place to monitor costs, especially in the fee-for-service world, where hospitals are on the hook,” Tanquilut said. “They’re being smarter about discharging. There is a financial and quality component that comes into the equation.”
Almost Family and CHS did not return a request for comment for this story. Since Almost Family announced the acquisition, the company’s stock surged above $40 per share, after reaching a recent low near $35 in September.
Written by Amy Baxter
*This article has been updated from a previous version that stated Community Health System’s trading symbol was (NYSE: CHS).