Two of Washington state’s largest independent home care agencies are merging.
The move, according to agency leadership, serves as the first step in a broader strategic plan to become a regional powerhouse capable of catching the attention of Medicare Advantage plans.
Announced Thursday, the merger is between Seattle-based Family Resource Home Care and Spokane-based Family Home Care. The “combination of equals” will result in a company with more than 750 employees and a base of roughly 1,000 clients, Family Home Care CEO Jeff Wiberg told Home Health Care News.
“Combining our resources really allows us to take advantage of scale (to) take advantage of some additional opportunities,” Wiberg said. “It’s an indicator of some of the trends that are happening in the home care space. The industry is definitely in a place in its maturation curve where we’re seeing more consolidation.”
The newly merged enterprise will operate under the Family Resource Home Care name, providing personal care, meal preparation, companionship and light housekeeping services across Washington and parts of Idaho. Additional services provided by Family Resource Home Care include dementia, end-of-life, respite and transitional care.
Wiberg declined to provide an exact combined revenue figure, but said both Family Resource Home Care and Family Home Care are within the top 5% of U.S. home care agencies in terms of size. There are several thousand home care agencies that currently make up the highly fragmented market.
The next “revenue threshold” that the merged companies will be looking to hit will be $50 million, Wiberg said. For comparison, home care franchise company Assisting Hands Home Care has global sales of about $46.7 million across its 110 total franchise locations, according to a recent industry ranking.
Additionally, after fine-tuning operations in Washington and Idaho, Family Resource Home Care plans to push into the nearby states of Arizona, Colorado, Nevada, New Mexico, Oregon, Utah.
“We’re already a powerhouse for the Pacific Northwest,” Wiberg said. “But there hasn’t been a lot of, from my viewpoint, consolidation in the Mountain West that has already taken place.”
The two home care agencies had little to no market overlap before merging.
Seizing Medicare Advantage opportunities
The merger — which brings together two home care agencies with more than 70 combined years of experience — came together after years of ongoing discussions.
Moving forward, plans call for Wiberg to lead the merged company as CEO. David Lawrence, who previously served as CEO of Family Resource Home Care, will transition into a new advisory role as Chairman of the Board.
“(Lawrence) is at a time in his life where he is ready to take a smaller role in day-to-day management of the company,” Wiberg said.
Besides Lawrence’s desire to step away from day-to-day responsibilities, there were several macro and payment-related reasons that made the timing of the merger opportune. For example, by scaling now, Family Resource Home Care will be better prepared for the wave of aging baby boomers looking to remain in their homes.
There are currently more than 42 million Americans age 65 or older, a number that is expected to double by 2050, per census projections. Likewise, there are currently about 9 million individuals 85 years of age and older, a number expected to nearly triple over the same period.
“There is a rapidly-growing number of older adults in the United States, and 90% of them want to live at home for as long as they can,” Wiberg said. “This merger provides us with the collective resources to help a larger number of people realize that goal and to scale in ways that meet the industry’s growing demand for quality home care.”
Scaling up also has advantages when it comes to recruiting and retaining caregivers, he said.
Moreover, the merger between Family Resource Home Care and Family Home Care comes a few months before expanded Medicare Advantage (MA) opportunities kick in. The Centers for Medicare & Medicaid Services (CMS) announced in April that certain non-skilled in-home care services will be allowed as supplemental benefits under the MA program starting in 2019.
“I think it’s going to be slow because, for Medicare Advantage plans, this opportunity for them to offer supplemental benefits such as home care is new,” Wiberg, who also serves on the Home Care Association of America board of directors, said. “I want to position our company so that when that does occur, we’re ready to go.”
A substantial regional footprint will likely help Family Resource Home Care in forging relationships with MA plans, he said, adding that proven abilities to positively impact health outcomes and reduce health care spending will also be important.
“We’ve got to be able to save MA plans money, and we’ve got to be able to show them empirical data associated with that,” Wiberg said. “Our opportunity there is huge because all of their money-users — all their heavy claimants — are all the functionally limited individuals. They’re our bread and butter and the people who we serve.”
MA driving industry consolidation
Family Resource Home Care isn’t the only home care company to pursue merger-and-acquisition opportunities with an eye toward MA partnerships. In fact, expanded MA opportunities have been a driving force throughout the overarching wave of consolidation the home care industry has seen of late, Cory Mertz, managing partner of M&A advisory firm Mertz Taggart, told HHCN.
It’s a trend that’s likely to continue, he said.
“We do expect to see more consolidation in this sector, some of which is aimed at capturing the attention of Medicare Advantage plans,” Mertz said. “Without scale, it will be difficult for providers to get to the table with these payors, let alone negotiate favorable rates.”
Of the three sub-sectors Mertz Taggart tracks — home care, home health and hospice — home care saw the greatest jump in transactions from 2017 to 2018 on a percentage basis. There have been at least 44 home care transactions in 2018 through October, according to Mertz Taggart data, compared to 32 in all of 2017.
Jim Moskal — who leads the health care practice of M&A advisory firm Livingstone Partners, with a focus on home health and hospice care — also supported the idea that prospective Medicare Advantage opportunities is driving home care consolidation.
“Why? Because non-medical home-focused agencies do not have experience billing MA plans, so they need to build out this competency, which means they need to invest in back-office personnel,” he told HHCN in an email. “One way to ease the burden of this investment is to build scale via acquisitions and spread these costs over a larger revenue base (and) infrastructure.”
Moving forward, Family Resource Home Care will pursue acquisitions in the $3 million to $5 million range, Wiberg said.
The company will mainly pursue acquisitions in line with its service mix, though it may be open to expanding into other post-acute care spaces if the fit is right, he said. Family Home Care used to have a hospice division, but sold it to Gentiva in 2020.
“I would certainly consider breaking into that market again,” Wiberg said.
Written by Robert Holly