As more types of care move into residential settings, an increasing number of hospitals and health systems are turning to outside home health agencies to either replace, reinforce or manage their own operations. Workforce challenges and financial struggles are often the catalysts behind their decisions to outsource home health offerings, M&A experts say.
“It’s a definite trend,” Mark Kulik, managing director at mergers-and-acquisitions advisory firm The Braff Group, told Home Health Care News. “The theme is [that] it’s hard to be great at everything. Your core competency as a hospital is acute care. Home care is very different.”
From 2016 to 2018, 177 hospitals or health systems acquired home health agencies, according to proprietary data from The Braff Group. Additionally, during the same period, there were at least 25 joint venture announcements between home health companies and hospitals or health systems.
Already in 2019, at least four more large health systems have followed suit, with the most recent being Geisinger Health System, which announced a joint venture agreement with LHC Group (Nasdaq: LHCG) in February.
When the deal is finalized, Lafayette, Louisiana-based LHC Group will take majority ownership and management responsibility of Pennsylvania-based Geisinger’s home health and hospice services, as well as Geisinger affiliate AtlantiCare’s New Jersey locations.
LHC Group will take over both of the health system’s home health locations, which employ about 50 full-time workers who care for nearly 300 patients.
While many hospitals and health systems have chosen to augment their home health businesses by acquiring or partnering with home health agencies, several others have also opted to sell their businesses to up-and-coming providers outright.
Reimbursement struggles and financial hardship
On Jan. 1, Beaumont Health — one of Michigan’s largest health systems — teamed up with Kettering, Ohio-based Alternate Solutions Health Network to form a new JV to take over its home health and hospice offerings. Alternate Solutions Health Network is a national provider of post-acute solutions.
With a net revenue of about $4.5 billion, Southfield, Michigan-based Beaumont had more than 175,600 inpatient discharges in 2017. Alternate Solutions, which will manage the JV’s daily operations, has more than 20 JVs under its belt in Florida, Ohio, Virginia, West Virginia and — now — Michigan.
The goal of the joint venture is to deliver care at a reduced cost to roughly 16,000 patients in southeast Michigan, John Kerndl, executive vice president & CFO of Beaumont, told HHCN in January.
“Working with a specialized provider with home health and hospice expertise improves our ability to serve current and future patients,” Kerndl said, noting that Michigan has a “challenging commercial reimbursement market.”
One way the JV will presumably tackle those challenges is by cutting payroll costs. Under the new model, employee compensation will be structured “more like a home health company” than a health system, Kerndl said.
While most hospitals pay employees hourly, home health agencies commonly compensate workers based on visits per day, with varying compensation rates for travel and mileage, Kulik said.
“[Home health agencies] have engineered the economics differently to accommodate reimbursement so that they can stay in business,” he said. “A lot of the hospitals have kept the symmetry inside and outside the hospital the same, and that makes for a very difficult time trying to keep your head above water.”
Financial struggles also contributed to Oregon-based Samaritan Health Services’ decision to outsource its home health offerings earlier this year, according to President and CEO Doug Boysen.
In February, the nonprofit healthcare system — which operates five hospitals throughout Oregon — sold its home health division, which served patients in the state’s Benton, Lincoln and Linn counties.
Wilsonville, Oregon-based Signature Healthcare at Home — which provides home health, hospice, personal home care, palliative care and rehabilitation therapy to patients in the Pacific Northwest — took over March 1.
Ultimately, workforce challenges made Samaritan’s business model difficult to sustain, Boysen said when the news was announced.
“It is a challenge to recruit and retain the specialized workforce needed,” Boysen said. “In addition, the size and scope of our three-county service area requires significant staff travel time and prevents us from leveraging economies of scale. The result of all these factors is annual financial losses over multiple years, with no indication that the situation will improve.”
Meanwhile, home health agencies build their around businesses around those economies.
Outsourcing from the start
University of Maryland St. Joseph’s Medical Center (UMSJMC) was an early adopter of the home-based care outsourcing trend.
Rather than attempt to tackle workforce and reimbursement challenges alone, UMSJMC chose to outsource its home-based services from the start four years ago.
The decision came after the state of Maryland created a readmission reduction incentive program in an attempt to lower the state’s historically high readmission rates and, in turn, cut Medicare costs.
UMSJMC turned to Maryland-based Maxim Healthcare Services — a nationwide provider of home health, medical staffing and other services — for help.
As part of the partnership, Maxim pairs recently discharged high-risk patients with community health workers who provide personal care and help clients tackle social determinants of health.
“For us to have done this initially on our own with no experience with regard to what’s really going on in the home, we wouldn’t have anticipated the workforce challenges — how to go about creating the workforce, the issues with licensing in the home, the rules and regulations around that [or] the healthcare needs of patients in their homes,” Dr. Gail Cunningham, chief medical officer at the UMSJMC, told HHCN. “This allowed us to pretty quickly stand up a program that provided immediate benefit to a lot of patients.”
So far, the program has cut high-risk patient readmissions in half and reduced hospital spending for the same group by 35%.
As the health care system shifts toward value and the home-based care landscape becomes more complicated due to the caregiver shortage persisting and reimbursement models changing, the outsourcing trend will likely continue, Kulik predicts.
“Don’t be surprised if you see more announcements coming this year,” Kulik said. “I think you’ll see those [hospital and health system] CEOs more and more seeking partnerships or at least evaluating the benefits of those partnerships today in 2019 and 2020.”