Buyers Snatch Up Unprofitable Hospices in Hot M&A Market

When it comes to mergers and acquisitions, hospice is hot—really hot. In fact, some new buyers entering the market are coming into the space purely because of the tailwinds and strong demographics, even if the operations they purchase aren’t profitable.

That’s according to Rich Tinsley, president and CEO of Stoneridge Partners, a health care merger and acquisitions advisory firm based in Louisville, Kentucky.

“Hospice is the hottest thing going,” Tinsely recently said at the 2018 Spring Investment Forum of the National Investment Center for Seniors Housing & Care (NIC). “Some of these companies don’t even have to be profitable, they don’t even have earnings (EBITDA). And buyers will still want to come in and buy it.”


The hospice sector has seen gradual Medicare reimbursement increases over the last few years, while home health care, in comparison, has seen cuts.

“The valuations are extremely high, and they keep going higher every month,” he said.

Investors are looking at the silver tsunami of aging baby boomers and want to have skin in the game.


Part of the driving interest is that the hospice market is “underserved,” according to Tinsley, who argues that payers love hospice because it costs significantly less than most other care typically provided in the last six months of life. Patients who opt to utilize hospice can have many of the services brought to them and are less likely to wind up in the emergency room.

Margins in hospice also could be within the 15% to 20% range, Tinsley said, though few in the industry are hitting that mark. Nonprofit hospice providers still make up a significant portion of the space, which may be one reason margins aren’t as high, as organizations aim to fulfill their missions rather than turn a profit.

Not all hospice acquisitions are being driven investors looking for a return; there are also strategic acquisitions taking place, involving some of the nation’s largest providers of in-home care. Both Louisville-based ResCare and Frisco, Texas-based Addus HomeCare (Nasdaq: ADUS) are building up their hospice businesses as they seek to create a complete continuum of care. This, they believe, will make them more attractive partners to Medicare Advantage and other managed care payors.

In another high-profile deal, an insurer is acquiring a hospice company, raising some questions.

With insurance giant Humana (NYSE: HUM) acquiring 40% of Kindred Healthcare’s (NYSE: KND) home health and hospice business, Humana will ultimately become one of the nation’s largest hospice providers. Being a payer and a provider of hospice can come with some misalignment, however, if a consumer perceives that a hospice referral is being made to convince them to give up costlier curative care and save the insurer money.

“Think about what hospice care is—you are going to a patient, educating them, and then saying please stop using all these expensive [services] and drugs,” Tinsley explained. “We’re going to make you comfortable for the last six months of life.”

For Humana, the cost of hospice care is typically significantly less than other types of end-of-life care, and getting patients into hospice sooner will likely be a huge cost saver.

“There is a lot of speculation in the market if they keep the hospice business,” Tinsley said of Humana.

In addition, the industry will need to continue focusing on improving the penetration rate.

The reality: the average hospice patient uses the services for only 14 days, when the benefit covers six months of care.

Written by Amy Baxter

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