Brookdale May Look to Cash In on Its Home Health and Hospice Segment

In the midst of its ongoing turnaround strategy, Brookdale Senior Living Inc.’s (NYSE: BKD) home health and hospice segment appears to be on an upswing. If the trend continues, analysts say, the large senior living provider may look to spin off its health care services line down the road — or sell it.

In many ways, a potential spinoff would be similar to the one that The Ensign Group Inc. (Nasdaq: ENSG) announced on Monday. Ensign’s plans call for the company to jettison its home health and hospice businesses into a completely separate publicly traded company to give investors more industry-specific investment options.

Brookdale can theoretically replicate the move.

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“Given the valuations in the home health and hospice industries, we believe Brookdale has explored strategic alternatives for the health care services segment,” Dana Hambly, an analyst with independent financial services firm Stephens, told Home Health Care News in an email. “With the home health business seemingly on the upswing and the steady growth in the hospice business, this is now a more attractive asset than it was 12 months ago.”

“It will be interesting to see if Brookdale looks to monetize the segment through a sale or maybe follow the Ensign playbook and spin it off,” Hambly added.

Brookdale’s health care services segment includes its home health and hospice business lines.

The Brentwood, Tennessee-based company’s additional segments are made up of its independent living and continuing care retirement community (CCRC) offerings, as well as its assisted living and memory care operations. Brookdale — one of the country’s largest owners and operators of private-pay senior living communities — also maintains a management services segment.

Overall, the health care services segment for Brookdale brought in $111.5 million in Q1 2019 revenue, a more than 4% increase over the $110.5 million the company posted in the same quarter a year ago.

The segment was up on the whole thanks largely to Brookdale’s growing hospice business. The company’s home health operations saw a slight decrease in first quarter revenue compared to Q1 2018, dropping by about 1.5% year-over-year to $84.2 million.

Brookdale saw its home health revenue decrease by more than 7% in 2018 compared to 2017. The comparatively minimal dip in the first quarter of this year bodes well for the company moving forward.

“Even though the home health business is a relatively small piece of Brookdale’s overall business, it has been problematic,” Hambly said. “And like Brookdale’s senior housing business, it is very much in turnaround mode. So we are pleased to see that the home health business stabilized at $81.5 million in quarterly revenue during the second half of 2018 and actually grew nicely off of that base to $84.2 million in 1Q19.”

Revenue gains linked to the senior living provider’s home health business were fueled by an increase in average daily census, according to the company.

“The hospice business continues to grow average daily census, and we recently expanded into a few more markets,” CFO Steve Swain told investors during a Tuesday conference call.

On the flip side, revenue was impacted negatively by changes in patient case-mix and community dispositions.

To prepare for the Patient-Driven Groupings Model (PDGM), Brookdale has shifted its nurse-to-therapy ratio to better align the company to the payment overhaul’s reimbursement structure.

“As we look forward to PDGM, we are closer to the industry now in terms of mix,” CEO Cindy Baier said in February. “We will need to adjust our business to affect the different lengths of care as well as the difference in payment between post-acute and community-based referrals.”

In addition to going over its quarterly results, Brookdale also named two new hires during its earnings call Tuesday.

Diane Johnson May, a former human resources leader from Kraft, is set to take the role of executive vice president of HR. Anna-Gene O’Neal, the former CEO of Alive Hospice, will join Brookdale as a vice president of hospice.

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