In Dynamic Industry, At-Home Care Providers See Scale as a Leg Up

In the dynamic home health, hospice and personal care industries, scale is sometimes a serious leg up, as well as a driving force behind record-setting M&A activity.

That’s especially true when it comes to keeping up with potential Medicare Advantage (MA) opportunities, collecting actionable data and experimenting with new business models that solve nationwide problems, according to industry insiders, who shared their views during an April 10 M&A panel discussion at Home Health Care News’ Capital + Strategy Forum in Washington, D.C.

“The thesis for why we want to continue to grow is to be able to get deep penetration within our markets,” Jeff Wiberg, CEO of Family Resource Home Care, told forum attendees. “That makes us a more attractive partner for accountable care organizations (ACOs) and more appealing service provider for payers. The personal care market, in particular, is so highly fragmented in the United States.”

With more than 750 employees and a base of roughly 1,000 clients, Liberty Lake, Washington-based Family Resource Home Care is one of the largest independent providers of home care services in the Pacific Northwest.

Addus HomeCare Corporation (Nasdaq: ADUS) Chief Development Officer Darby Anderson joined Wiberg on the panel. Frisco, Texas-based Addus provides primarily personal care services to about 39,000 clients across two dozen states, though it also offers more home health and hospice services after completing a series of transactions over the past few years.

“We want to be very balanced between organic growth, revenue and acquisitions,” Anderson told forum attendees.

Adam Blumenthal — founder and managing partner of Blue Wolf Capital Partners LLC, one of two private equity groups that spearheaded the merger of Great Lakes Caring, National Home Health Care and Jordan Health Services in 2018 — also participated in the M&A discussion.

Headquartered in New York, Blue Wolf manages more than $1.2 billion in capital with a focus on health care and energy, among other sectors.

Stoneridge Partners CEO and President Rich Tinsley moderated the panel.

MA and the power of scale

On the Medicare-certified home health side, having scale helps providers adapt to industry-shaping regulatory change, including the Patient-Driven Groupings Model (PDGM). Among its benefits, for example, scale can help providers implement new technologies related to intake and patient classification.

Meanwhile, when it comes to non-medical home care, providers point to scale as added leverage when working with MA plans, which typically seek out partners with regional footprints that match their own coverage areas.

That’s exactly what Jeff Wiberg had in mind when he led efforts to merge Family Home Care with Family Resource Home Care in November of last year.

“In a fee-for-service industry, the way I think about this as a CEO is that I’ve got to start thinking along the lines of what shared risk might look like,” Wiberg said. “If I’m going to be able to experiment with an MA plan or large system … I’ve got to be able to have those kinds of conversations. We’re creating scale so we can do some of those experimental, creative approaches related to working with payers.”

Non-medical home care services officially became allowable as supplemental benefits under Medicare Advantage plans at the beginning of 2019. The Centers for Medicare & Medicaid Services (CMS) has since broadened those allowances for the 2020 year.

Although bullish on MA opportunities and achieving scale through M&A to pursue them, Wiberg noted that the actual pace of adoption will likely be more gradual.

Anderson voiced similar sentiments.

“I’m usually the wet blanket on the MA opportunity,” he said. “It is a tremendous opportunity and a tremendous recognition of the value that personal care or home- and community-based services can contribute in better outcomes while caring for chronically ill people. But it’s going to be slow to materialize.”

Plans for Elara Caring

Today, the combined enterprise of Great Lakes Caring, National Home Health Care and Jordan Health Services operates under the brand Elara Caring, with annual revenue in excess of $1 billion.

More than a year after first announcing merger plans in tandem with fellow PE firm Kelso & Company, Blue Wolf has turned its attention to finalizing the integration of all three companies. M&A is still on Blue Wolf’s radar, but it’s not attempting to acquire new companies at quite the same pace, Blumenthal told forum attendees.

“We obviously bit off a lot in terms of putting these three companies together,” he said. “We’re excited about what we’re doing. The onus is on us in terms of completing the integration.”

Blue Wolf is specifically excited about the direction the home-based care giant is taking in regard to treating opioid addiction.

Every day, more than 130 people in the United States die as a result of overdosing on opioids, according to the National Institute on Drug Abuse. The Centers for Disease Control and Prevention estimates that the total economic burden of U.S. prescription opioid misuse is $78.5 billion a year, including the costs of health care, lost productivity, addiction treatment and criminal justice involvement.

“I happen to really think the opioid addiction side of what we’re doing is the most interesting and the fastest growing — though still a small — piece of the business,” Blumenthal said. “It’s a good example of the benefits of scale. We have a piece of a solution to a national problem.”

About 40% of Elara Caring’s behavioral health patients are being seen for some sort of drug dependency, company executives have previously told HHCN.

“We’re able to go out to a state where we have a decent market share in personal care and hospice … sit down with a state Medicaid director and say, ‘Hey, look. Here’s something we know how to do.’ We can roll this out for you,’” Blumenthal said.

Hospice ‘a sacred cow’

Overall, there were more than 125 home health and hospice deals in 2018, with several led by private equity interests, according to the latest industry M&A statistics. That M&A activity is set to continue throughout 2019 and future years, the Capital + Strategy Forum panelists said.

In-line with its typical objectives and strategies, Addus will look to add $75 million to $100 million in acquired revenue in 2019, according to Anderson.

Hospice dealmaking will likely remain particularly hot as buyers could shy away from home health deals in light of PDGM, Wiberg said. Unlike other post-acute segments, hospice is a relatively steady investment because “nobody wants to touch it,” he said.

“Hospice is the sacred cow,” Wiberg said. “From an investment standpoint, it’s a more sure bet because it’s not changing as frequently or as rapidly as some of the other segments.”