Why the $400M HCA Deal Is a ‘Win-Win Transaction’ for Brookdale

Brookdale Senior Living Inc. (NYSE: BKD) revealed Wednesday that it’s selling an 80% stake in its health care services business to HCA Healthcare (NYSE: HCA) for $400 million.

At first glance, the transaction could be interpreted as a savvy move that enables Brookdale to cash in on its sizable home health, hospice and outpatient therapy business amidst an incredibly difficult environment for senior living operators. But the sale is so much more than that, according to Brookdale President and CEO Cindy Baier.

“Our top priority is the health and well being of our residents,” Baier said during a Thursday morning conference call on Brookdale’s fourth quarter financial results. “Part of this commitment is to offer many services in our communities, with a keen focus on resident and patient needs.”


Since last spring, the Brentwood, Tennessee-based Brookdale has battled declining occupancy rates throughout its senior living portfolio of 726 independent living, assisted living, memory care and continuing care retirement communities (CCRCs).

The entire senior living industry has experienced similar declines due to the COVID-19 pandemic, with industry-wide occupancy figures dropping to a historic low of 80.7% in the fourth quarter of 2020, according to National Investment Center for Seniors Housing & Care (NIC) data.

“Clearly, occupancy was a significant issue in 2020,” Baier said. “And it will take a while to rebuild the census.”


In the immediate future, Brookdale expects its senior living occupancy rates to improve as COVID-19 vaccines become more readily available, both inside its buildings and across the general U.S. population.

As of Thursday’s call, every single one of Brookdale’s communities had held at least one vaccine clinic, with at least 600 having held two. Overall, roughly 90% of Brookdale’s residents have received their first vaccine shot, according to the company.

“The points of pride for me are that, in the first month of vaccine availability, we executed our vaccine clinics two-and-a-half times faster than the entire industry,” Baier said. “We have more residents vaccinated than anyone else.”

On a long-term basis, however, Brookdale leadership believes the company’s success in maintaining and growing occupancy is tied to its ability to provide a range of services throughout its communities. Once the pandemic subsides, prospective residents and their families will likely continue seeking options that they consider safe and well-positioned for any unforeseen difficulties that may surface.

That’s where the Nashville, Tennessee-based HCA Healthcare comes into play, Baier explained.

Helmed by CEO Sam Hazen, HCA Healthcare is comprised of more than 180 hospitals and 2,000 sites of care in 21 states, plus the U.K. Its locations include surgery centers, freestanding ERs, urgent care centers, walk-in clinics and more.

“As we pursued this business opportunity, it was extremely important to find the right strategic partner with the same dedication to care,” Baier said. “Our new partnership is designed to deliver value for our shareholders, and it ensures continuity of quality care for our residents and patients while improving access to additional health care services.”

Bottom-line benefits

Certain metrics rank Brookdale as one of the top-10 home health providers in the country, at least in terms of fee-for-service Medicare volumes. That scale brings significant value to Brookdale, as does the company’s hospice line.

Internally, Brookdale has somewhat struggled to grow its home health footprint, analysts have pointed out in the past. It has had better luck with hospice, partly due to a more stable regulatory and payment landscape.

Currently, the company operates 57 home health agencies and 22 hospice locations across 26 states.

Overall, Brookdale’s home health business posted full-year 2020 revenue of about $249.2 million, down 23.9% compared to all of 2019. Home health revenue fell to $60.7 million in the fourth quarter of last year, down 21.6% compared to the same period in 2019.

Meanwhile, Brookdale’s hospice business reported full-year 2020 revenue of about $95.5 million, down just 0.8% compared to 2019. Hospice revenue dipped to $25.4 million in Q4 2020, down 2.4% compared to the same period in the prior year.

Despite up-and-down figures, HCA Healthcare must see untapped upside in the two post-acute care service lines moving forward, Mertz Taggart Managing Partner Cory Mertz told Home Health Care News.

“Their home health line has really struggled financially over the past 12 months,” Mertz said in an email. “They took it on the chin with the Patient-Driven Groupings Model (PDGM) and haven’t recovered from early COVID census losses. Despite that, if you back out today’s market value for a nearly 1,700-patient hospice, it’s clear HCA saw significant value in the home health operation.”

PDGM has been a past challenge for the company’s health care services segment, but its financial results in Q4 were mostly affected by labor disruptions related to the coronavirus.

“Some associates were required to self-quarantine,” Brookdale CFO Steven Swain said on Thursday’s call. “While clearly the right thing to do, we believe [that] translated into lost opportunity for higher growth in the quarter.”

Brookdale also still sees upside in its health care services, reflected in the company maintaining a substantial stake in the segment. Instead of going it alone, it’s now betting on stronger growth in years to come with HCA Healthcare’s added resources and expertise.

“For Brookdale, this looks like a really nice deal,” Mertz said. “First, it gives them much-needed liquidity. Second, by holding a 20% stake, they remain connected to their home health, hospice and outpatient services. So they don’t lose that, but gain a key hospital partnership with HCA. It adds another key piece of the care continuum for their residents.”

Baier similarly described the sale structure as a “win-win transaction” and joint decision.

“This transaction is great for our shareholders,” she said. “It’s wonderful for our residents, for our patients, and it’s really good for our associates. We believe — both HCA Healthcare and us — this is a great alignment of interest. HCA needs to continue to ensure that the penetration rates in our communities are strong and that Brookdale has the services offered to residents.”

Under HCA Healthcare’s umbrella

The patient population within Brookdale’s health care services segment is about evenly split between residents and individuals living outside of the company’s communities. About 65% of Brookdale units are served by its home health business, with 25% and 20% served by hospice and outpatient therapy, respectively.

As Baier noted, that penetration stands as a big advantage for HCA Healthcare moving forward.

“HCA Healthcare’s objective is to be the health care system of choice in the communities we serve through the development of comprehensive services and by delivering high quality, convenient care to our patients,” Hazen said in a statement. “We believe this opportunity to partner with Brookdale will expand the services we offer and enhance our ability to deliver a better experience for our patients as well as for Brookdale residents.”

HCA Healthcare’s U.S. hospitals provide about 5% of all in-patient hospital services in the country, according to company statistics. It had over 35 million individual patient encounters in 2019.

Mertz said he has “wondered for years” why HCA hadn’t gotten into home health care prreviously.

“I guess they were looking for the right opportunity at the right time,” he said. “The service area overlap with Brookdale is significant. And I suspect that — in light of COVID and the continuing evolution of value-based and risk-sharing payment models — HCA looks at home-based care services as an essential piece of the evolving care continuum.”

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