In late March, members of Congress argued fervently that private equity did not belong in health care, with senior care being a particularly egregious case of trespassing.
During a special House hearing, lawmakers addressed the dangers of PE firms digging their heels deeper into the long-term care space and how profit-driven motives can have an adverse impact on patients and the U.S. health care system at large. A general lack of transparency into PE-owned organizations was likewise a major focus.
“I worry private equity has moved on from toy stores to hospitals, physician practices and nursing homes, many of which rely on taxpayer-funded programs,” Rep. Bill Pascrell (D-N.J.), chairman of the House Ways and Means Subcommittee on Oversight, said during the hearing. “Understanding the web of transactions, it’s like a Russian nesting doll. A lack of transparency in private equity ownership makes proper oversight by regulators nearly impossible.”
In reality, private equity has been intrigued by and involved in home health and home care care for years, recognizing the respective fields as areas ripe for growth in the future. Today, a number of the country’s largest and most innovative in-home care providers are owned by private investor groups.
Yes, there are reasonable concerns about PE money in health care, with seemingly countless studies of late highlighting quality discrepancies between for-profit and nonprofit nursing homes, for example. But there are also plenty of ways in which an influx of PE money transforms care for the better, especially in the low-margin, high-turnover, financially volatile world of home-based care.
“I know there’s been some attention paid to private equity in the last 12 months or so that doesn’t exactly paint it in the best light when it comes to investments,” Eugene Goldenberg, a managing director at Edgemont Partners, told Home Health Care News. “And I think that’s because when it comes to health care, there’s probably just a little bit more sensitivity there — it involves peoples’ lives and health.”
New York City-based Edgemont Partners is a mergers-and-acquisitions advisory firm that works exclusively with health care companies.
Currently, health care accounts for around 20% of the country’s GDP, though preliminary data suggest spending was somewhat down during the pandemic-stricken 2020. With a chunk that large, PE is bound to be active, which has been the case in home-based care for a while.
In 2006, for instance, the investment firm Patriarch Partners backed Intrepid USA, a Carrollton, Texas-based full-service home health provider. Another big Texas-based provider — AccentCare Inc. — has similarly been backed by PE for years.
From 2016 on, a collection of PE firms have backed home health and hospice agencies around the country, including Edgewater Funds’ investment in Bradenton, Florida-based Family Home Health Services and Waud Capital’s investment in Concierge Home Care, also based in Florida. Several of the largest home care franchise organizations are also owned by PE groups, with the latest deal being RiverGlade Capital’s acquisition of H.H. Franchising Systems Inc., the Cincinnati-based company formerly owned by Linsalata Capital Partners that operates Home Helpers Home Care.
In her experience at Home Helpers, PE support has only been a good thing, CEO Emma Dickison previously told HHCN.
“The partners that I have worked with, Linsalata and now RiverGlade, they recognize that our mission matters,” Dickison said. “They’ve been able to provide investments for us that have been able to help us better take care of clients through technology. They’re made sure that we can advocate for appropriate regulatory measures at the state and federal levels to ensure clients are properly cared for and safe.”
PE firms accounted for a record number of deals in 2020. Through mid-November, PE investors announced nearly 4,100 deals, which was up 5% from all 12 months of 2019, according to PricewaterhouseCoopers data.
And it’s likely a new round of investors is around the corner in home-based care.
“It’s past time for a bright light to be shined on how private equity ownership in our health care system affects patient safety, costs and jobs,” Pascrell said at the hearing. “Private equity’s influence stretches like an octopus.”
Sen. Elizabeth Warren (D-Mass.) has also made clear plans to launch an investigation into for-profit and PE-backed nursing homes following the announced Genesis HealthCare (NYSE: GEN) restructuring.
Advocate Aurora Enterprises, a subsidiary of Advocate Aurora Health, recently made a splash when it acquired one of the biggest home care companies in the country in Senior Helpers.
That represented one of the bigger health system strategics buying into home-based care over recent years. But over the past couple decades — in home health — the M&A activity is tilted toward the PE firms over strategics, Goldenberg said.
That’s because of the massive opportunity these firms see in consolidating what is still a mom-and-pop dominated sector, with the largest of the large providers only controlling a 5% or 6% share of the total market. The average home health provider still generates just around $2 million per year, according to the U.S. Centers for Medicare & Medicaid Services (CMS).
“Those mom-and-pop providers that are doing $2.5 million or $3 million of revenue, chances are they’re not going to be able to keep up with a lot of the regulations and the billing requirements that were put in place over the last few years,” Goldenberg said, pointing to the Patent-Driven Groupings Model (PDGM) as one prime example. “Whether it has to do with the implementation of PDGM or the elimination of [home health pre-payments], which is definitely going to pressure their collections, they just lost a bit of the sophistication and the resources to invest in technology.”
Earlier in this century, many health systems and physician practices were gifted with grant money from the government to update their technology and digitize their information.
The home-based care providers were not granted the same opportunity, and therefore are laggards when it comes to technology. PE money has changed that, to some extent.
“Today, if you were to look at even some of the smaller, well-run operators, they’re most likely to be on an electronic health record system and [doing well],” Goldenberg said. “So I think the investment that PE firms have done has definitely put in better systems, better controls and just just digitized the industry, if you will.”
With the lack of government money to update systems, the PE firm came in handy. For providers who were backed, it enabled them to move their businesses forward and be ready for a crisis like the one they’ve faced over the last year.
The collection and deployment of data has also been accelerated by PE firms, and now data has become one of the largest buzz words for agencies looking to care for patients more holistically.
Nonetheless, lawmakers remain concerned over these firms’ interests.
“Private equity’s expansion to health care is troubling because private equity’s main focus on profits is often at odds with what is best for patient care,” Pascrell continued. “Private equity’s business model involves buying companies, saddling them with mountains of debt and then squeezing them like oranges for every dollar.”
Without a doubt, those are valid concerns. But while outside investors aiming to grow companies for their own benefit sounds — and can be — dangerous, there’s also a lot that they’ve done to advance home-based care.
“In general, [PE firms] have been one of the largest drivers of consolidation and professionalization of certain industries,” Goldenberg said. “There are certain industries that are known more to be highly fragmented and really dominated by mom-and-pop providers, and they lack the sophistication and the resources, quite frankly, to implement technology and grow the business. The PE firms, they’re accelerating change, and are accelerating consolidation, given the resources at their disposal.”