The evolution of Amedisys Inc. (Nasdaq: AMED) continues.
The Baton Rouge, Louisiana-based home health, hospice and personal care provider announced early Monday morning that it has a deal in place to acquire AseraCare Hospice for $235 million. As structured, the agreement includes a $32 million tax asset, effectively lowering the overall purchase price to $203 million.
“AseraCare is a great hospice company,” Amedisys CEO and President Paul Kusserow told Home Health Care News. “When we decided that hospice was a business line we wanted to move forward in back in 2016, we actually approached AseraCare. But they weren’t for sale.”
Strategically, landing AseraCare advances Amedisys’ goal of becoming an aging-in-place powerhouse that’s able to adapt to the health and wellness needs of its patients, shifting individuals from one in-house setting to the next over time.
Currently, Amedisys has more than 320 home health locations in its network, in addition to nearly 150 hospice locations. Following its acquisition of AseraCare, expected to close on or after June 1, Amedisys’ hospice operations will include 190 care centers in 35 states, caring for an average daily census of about 14,000 patients.
Amedisys likewise has a growing personal care footprint, thanks partly to the partnership it formed with technology company ClearCare toward the middle of 2019.
“We’re primarily in home health and hospice now, but we’re moving forward into personal care and expanding into palliative care, which we believe is becoming increasingly important,” said Kusserow, who also highlighted investments Amedisys has made in the data realm. “We’re trying to become a true aging-in-place company. But to do that really well, we need to continue to grow our hospice presence.”
Founded in 1994, AseraCare cares for about 2,100 patients daily, employing more than 1,200 hospice workers throughout 14 states.
The company generates roughly $117 million in annual revenues.
A three-pronged approach
Initially, it was AseraCare’s people and culture that attracted Amedisys four years ago. Strong referral sources and the fact that AseraCare is already on Homecare Homebase, which Amedisys also uses, raised interest levels as well.
“I got to know the company and its owner — a really good businessman — back in 2016,” Kusserow said. “Then I started to get to know the management team, trying to figure out some ways to work together. We started to have some initial conversations. We got to know them, and they got to know us a little.”
When AseraCare did decide the time was right to look for a buyer, it opted for a more intimate sales process with few players at the table.
“We don’t like big, open auction processes,” Kusserow said. “We felt fortunate that our relationship allowed us to have a smaller, intimate process, where we were able to show what we could do with the company and how we could take the wonderful assets there and make them even better.”
Broadly, Amedisys has grown its hospice segment through a three-pronged approach involving large acquisitions, smaller tuck-in deals and organic de novo opportunities.
Besides AseraCare, examples of bigger moves include Amedisys’ $340 million deal for Compassionate Care Hospice, which closed in February 2019. Tuck-in acquisitions include RoseRock Healthcare and Asana Hospice.
Meanwhile, Amedisys has done eight hospice de novus thus far, according to the company.
As Amedisys grows its hospice footprint, it’s keeping home health care M&A on the backburner. Down the road, though, it hopes to have strong crossover between all hospice and home health locations, Kusserow said.
“The home health market has been closed to us because we didn’t know what the Patient-Dirven Groupings Model (PDGM) was going to look like,” he said. “Now, there’s PDGM plus the coronavirus, which means a lot of the PDGM [clarity] has been pushed back. So, we still don’t know what the home health [market] looks like for us.”
Legal considerations
Those who follow the hospice industry are probably accustomed to seeing AseraCare in headlines over the past several years. Until recently, the end-of-life care company had been the subject of a back-and-forth legal battle with the U.S. Department of Justice (DOJ) that dates back to 2008.
At its core, the False Claims Act (FCA) case against AseraCare was built around the question of whether live discharges from hospice care are the result of deliberate fraud or the inherent difficulty in predicting a patient’s life expectancy.
Ultimately, a federal court ruled in September that differences in doctors’ medical opinions alone cannot constitute falsity under FCA.
Backed by that ruling and cleared of allegations it was taking on patients who were not terminally ill to boost profits, AseraCare settled with the DOJ in February for $1 million. AseraCare agreed to the relatively small settlement rather than risk further legal fees.
“AseraCare is grateful to have reached this settlement with the Department of Justice and is proud that perseverance produced a benefit to the hospice industry that provides more clarity under the False Claims Act,” the company noted in a press release at the time.
Once reached, the settlement cleared the way for Amedisys to strike a deal with AseraCare.
Although multiple buyers had interest in the hospice provider after it became available, the long-standing relationship Amedisys had cultivated with AseraCare gave it a clear edge during acquisition talks, Kusserow said.
Amedisys has no concerns about further legal hurdles moving forward.
“After the process of doing our due diligence, we feel that everything is settled,” Kusserow said. “They’re ready to move forward.”
Apart from that recent legal history, Amedisys also has to consider basic realities related to doing deals in the age of the coronavirus while buying AseraCare. Currently, health care organizations of all shapes and sizes have access to different pools of emergency funding to help offset COVID-19 costs.
Using emergency funds to make a splashy deal could get a buyer in trouble, so Amedisys has to be methodical in how it tracks and deploys any money.
In acquiring AseraCare, the company will not use any of the funds it received from the Public Health and Social Services Emergency Fund created via the CARES Act.
“All this cash for this acquisition is our cash,” Kusserow confirmed. “It comes out of our operations. It comes out of our revolvers. The government has distributed some cash to providers, but we’re keeping that very, very separate and only using it for losses that are associated with COVID-19.”
A little tension
Successfully acquiring and integrating the larger Compassionate Care Hospice gave Amedisys confidence it could do the same with AseraCare, which is technically a doing-business-as (DBA) moniker for Homecare Preferred Choice Inc.
Still, there was always going to be some degree of anxiety pursuing an acquisition during the ongoing public health emergency.
“I think it would be naive to say that COVID-19 didn’t add a little tension to this,” Kusserow said. “The rules have changed considerably in home health and hospice to allow for us to take care of more patients. Hospitals [and] the health system as a whole is getting stress-tested.”
Being able to secure a deal for AseraCare reflects how much Amedisys wanted it, he added.
“We felt it was imperative to move forward,” Kusserow said. “There was a lot of burning through the midnight oil — fighting COVID-19 by day and doing this deal at night.”
