PDGM Prompts Q4 Downturn in Home Health M&A Activity

The Patient-Driven Groupings Model (PDGM) likely contributed to a downturn in home health mergers-and-acquisitions activity during the fourth quarter of 2019, according to new data from M&A advisory firm Mertz Taggart. PDGM took effect on Jan. 1.

Dealmaking for non-medical home care assets largely remained steady.

All in all, 2019 saw at least 42 home health-related deals and 36 home care-related deals.

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Q4 2019 only saw five Medicare-certified home health-related transactions, however, compared to the 14 deals that took place in Q3. There were at least 16 home health-related deals in Q4 2018, for context.

As PDGM — a major industry disruption — drew closer, many industry insiders predicted that home health M&A activity would slow down while providers and other interested parties took a “wait-and-see” approach to purchase within the space.

At the same time, many experts also predict an upcoming slew of consolidation activity.

“We expect some opportunistic consolidation in Q1 for home health,” Cory Mertz, managing partner at Mertz Taggart, said in a report highlighting the new data. “But we’re not sure if that consolidation will take the form of actual acquisitions — or simply companies informally ‘merging.’ In some cases, you may see the dominant provider retaining the name and back-office capabilities while bringing on caregivers and marketers from the other entity.”

LHC Group Inc. (Nasdaq: LHCG) was a standout in terms of Q4 M&A activity in home health care.

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In November, Lafayette, Louisiana-based LHC Group and LifePoint Health continued their joint venture partnership with the purchase of CMH Home Health Care.

In another JV expansion, LHC Group along with Texas Health Resources and Methodist Health System agreed to acquire and share ownership of Healthcare Resources, an Arlington, Texas-based home health provider.

The home health segment of LHC Group’s business currently accounts for 72% of the company’s revenue, but the company has plans to give equal focus to hospice moving forward.

“For acquisitions going forward, home health is going to be natural for the next two to three years, but we are pushing our team to focus equally on hospice,” Keith Myers, chairman and CEO, said earlier this month at J.P. Morgan’s annual health care conference. “The goal in the next five years is to have at least 75% of our locations where we have home health, co-located with hospice.”

On the non-medical home care side, Q4 2019 saw nine deals — only a tiny dip from the previous quarter, which saw 10 deals, according to Mertz Taggart data.

The home care industry, unlike its Medicare-certified counterpart home health, was unencumbered by a major regulatory change, such as PDGM. This left room for continued buyer interest.

Among some of Q4’s most notable deals, Care Advantage acquired Team Nurse Inc., a provider of both non-medical and medical home health care services in December. Care Advantage made four acquisitions total in 2019, with the Team Nurse deal being one of its biggest.

“Whether it’s Medicare, Medicaid or private duty, we are essentially taking care of the entire swath of the population of the Mid-Atlantic area,” Care Advantage CEO Tim Hanold previously told Home Health Care News. “When we’re looking at acquisitions, we’re looking at other families joining ours, and whether they match up with the same type of passion in providing a great experience for our patients and a great experience for our caregivers.”

Additionally, the BelHealth-backed Care Advantage purchased Amaisa Home Care — a provider of in-home personal care, companionship and respite care services — in January.

The full Mertz Taggart M&A report is available here.

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