The coronavirus may have pressed pause on the home health industry consolidation some saw coming in 2020, but there’s a decent chance the stoppage will prove short-lived.
Currently, the home health market is made up of thousands of individual agencies, many of which are mom-and-pop shops with annual revenues around $1.5 million or less. The space is so broken up, that even the largest home health providers control just 4% to 6% of the overall market.
Largely because of the new Patient-Driven Groupings Model (PDGM), the phasing out of Requests for Anticipated Payment (RAPs) and changes to rural add-on policies, many believed 2020 would bring a sweeping downsizing of the home health industry. In fact, some high-level executives described the confluence of challenges as “a perfect storm” for smaller agencies.
But that hasn’t been the case.
Despite presenting its inherent challenges, the coronavirus has indirectly created “extraordinary” support systems for home health providers, according to Amedisys President and CEO Paul Kusserow. The Centers for Medicare & Medicaid Services (CMS) has helped distribute billions of dollars in financial relief, for example, with Congress calling for a temporary “holiday” on the 2% Medicare sequestration.
“We were starting to see some shakeout in the home health industry,” Kusserow said Tuesday during a presentation at the Bank of America Securities 2020 Virtual Health Care Conference. “We had about 50 deals in front of us. We were able to complete a couple of them, … but then that completely dried up with COVID-19.”
In most cases, those deals were of the “rescue” variety, according to Kusserow. They were instances where home health owners were looking to hand off patients and employees before potentially being forced out of the market.
“We believe that a lot of the support has stopped or postponed the shakeout that’s occurring in home health — or that we anticipated would be occurring around this time,” he said. “We don’t believe it’s over, though.”
Others who follow the home health industry have forecast upcoming exits, too, mainly in the form of bankruptcies.
“I have eight clients in the industry, and three of them have come to the point where they’ve had to consider some sort of [bankruptcy] filing,” S. James Boumil, senior partner and owner at Boston-area Boumil Law Office, recently told Home Health Care News.
With home health dealmaking on hold, Amedisys has doubled down on its hospice strategy, most recently announcing plans to acquire AseraCare Hospice for $235 million on April 27. The company plans to focus on “digesting” AseraCare and three other recent hospice acquisitions during the rest of 2020, while also waiting for patient volumes to return to normal across its services lines.
Although it’s difficult to say how well the overall home health market will recover in terms of size, Amedisys’s home health admissions have started to recover from initial coronavirus disruption, according to the company. Meanwhile, its hospice business is back to original patients volumes.
“Elective surgeries are coming back pretty well,” Kusserow said. “We’re starting to be able to get into other post-acute environments where we took care of people. Community physicians are starting to get back to their offices and make referrals, but certainly not at the rate they were pre-COVID-19.”
Moving forward, Amedisys leadership expects Q2 and Q3 to be focused on creating stability and putting the company in a position to grow its average daily census in Q4 and beyond. Even if broader economic uncertainty continues and the U.S. enters into a recession period, Amedisys remains bullish on its growth trajectory.
“We’re recession-proof,” Kusserow said at the Bank of America event. “We might actually be recession-positive.”
Specifically, if a recession does hit, Amedisys and other home health providers would likely be able to capitalize on high unemployment rates. Traditionally, home-based care providers’ growth trajectories have been limited by the availability of qualified labor.
Over the next three to five years, Amedisys sees its home health segment growing organically by about 4% to 6%, with hospice and personal care experiencing even bigger gains.
More action in the M&A department may be on the horizon as well, depending on which COVID-19 relief measures stick and which eventually fade away.
“When the tide goes out, that’s when you can see who’s swimming naked,” Kusserow said, paraphrasing a famous Warren Buffett quote.