Brookdale Home Health Underperforms, Hospice a Bright Spot

Brookdale Senior Living (NYSE: BKD), the nation’s largest provider of private-pay senior housing, is in the midst of an operational turnaround—and the performance of its home health division did not help much in the first quarter of 2018.

However, the Brentwood, Tennessee-based organization’s hospice business is growing, executives said during the company’s first-quarter 2018 earnings call Tuesday.

The company’s first-quarter 2018 ancillary services operating income totaled $8.3 million, down 46.8% from the first quarter of 2017. The decline “was primarily driven by home health,” Brookdale interim CFO Teresa Sparks elaborated Tuesday.

“The home health sector continued to be a challenge and is below our expectations,” she said.

Specifically, there was pressure on home health visits during the first quarter, as well as a negative impact from lower Medicare reimbursement rates. To remedy the situation, the nation’s largest senior housing provider is focusing on reducing the use of higher-cost labor solutions, including contract labor, to improve its operating margins, President and CEO Cindy Baier said during the call.

Brookdale’s hospice business, on the other hand, is “fabulous,” Baier said. Hospice revenue increased 45% on a year-over-year basis in the first quarter of 2018, and the company intends to invest in expanding that business.

Home health and hospice businesses have been trading at high valuations, and Frank Morgan, managing director of healthcare services equity research at RBC Capital Markets, floated the idea that Brookdale might consider selling its home health business during the Tuesday call.

“If you’ve got a business where valuations are so attractive, unless it’s absolutely strategically critical, it certainly makes sense to consider [a sale],” Morgan told Home Health Care News.

In terms of what these businesses are commanding in the M&A market, hospice provider Curo Health Services was recently acquired for $1.4 billion by insurance giant Humana (NYSE: HUM) and two private equity firms. That pricetag represented roughly a 15x EBITDA multiple, according to RBC’s estimations. And home health and hospice provider Camellia Healthcare, which was acquired by Encompass (NYSE: EHC), commanded about a 13.5x multiple.

Baier, when asked during the call, did not specify whether Brookdale was considering selling its home health or hospice business. She also did not definitively rule it out.

“It seems strategically important enough, for now, to want to continue to own that business,” Morgan concluded.

As of market close on Tuesday, Brookdale’s share price had risen 6.96% to $7.68.

Written by Mary Kate Nelson

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Mary Kate Nelson
Assistant Editor at Aging Media Network
When not in the newsroom, Mary Kate can reliably be found reading on her back porch, marathoning TV shows she’s already seen or overspending at Trader Joe’s.

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