HCA Healthcare (NYSE: HCA) is the largest health system in the U.S. That scale alone has made its entrance into the home health space worth paying attention to.
In February, HCA announced that it had entered into a definitive agreement to acquire a majority stake in Brookdale Senior Living’s (NYSE: BKD) up-and-down home health and hospice business.
Now, for the first time since, it is offering up significant commentary on why it made the move.
“This business provides us with a large platform that complements our local provider systems,” HCA Healthcare CEO Samuel Hazen said on the company’s Q1 earnings call Thursday. “It will expand the services we offer across our networks, and provide us with more enterprise capabilities to coordinate care for our patients and improve their experiences. We believe the home will become a more important setting for health care in the future, with continuing growth in demand.”
Demand is already at an all-time high for home health care services, so any future growth is a bonus. In fact, a study released earlier this month suggests the nation’s supply of in-home care providers is “small and inadequate” compared to the aging population’s increasing demand.
Under terms of the HCA-Brookdale transaction, Brookdale agreed to sell 80% of its equity in its home health and hospice segment to HCA Healthcare at a purchase price of $400 million. That figure implies a $500 million valuation for the segment.
The deal is expected to close toward the end of this year, according to HCA Healthcare.
“We look forward to our new partnership with Brookdale,” Hazen said.
Nashville, Tennessee-based HCA Healthcare’s network includes 186 hospitals, surgery centers, freestanding ERs, urgent care centers and physician clinics in 20 states and the U.K. Prior to the Brookdale play, many health care insiders predicted HCA would eventually expand into the home.
“For HCA, the deal makes a lot of sense,” Mertz Taggart Managing Partner Cory Mertz previously told Home Health Care News. “I’ve wondered why they haven’t been more integrated with home-based care in some way. I suspect they were looking for the right opportunity at the right time.”
As for Brentwood, Tennessee-based Brookdale, its health services segment operates 57 home health agencies, 22 hospice agencies and 84 outpatient therapy locations in 26 states. The company also has over 700 senior living and retirement communities in the U.S.
HCA Healthcare’s Q1 revenues amounted to nearly $14 billion, a more than 8% increase compared to $12.8 billion during the same quarter in the previous year. Its same-facility admissions declined 4.2%, with same-facility-equivalent admissions declining 6.5% year over year.
Like all facility-based health care operators, HCA had to overcome months of disruption related to the COVID-19 pandemic and the pause to elective procedures.
“There are still variables out there, but we’re reading the environment right now as generally positive,” HCA Healthcare CFO William Rutherford said on the call.
Being a larger system means more room for home-based care opportunities for HCA Healthcare. On a yearly basis, 250,000 patients are discharged from its network, according to the company.
“To us, the home care and hospice opportunities, we believe, are a significant expansion of the services we offer,” Hazen said. “It creates an opportunity for us to coordinate care better, to stay connected to the patient after they leave our facilities and ultimately integrate them more effectively in the HCA Healthcare system.”
It’s more than just discharged patients, too. At the end of the day, HCA believes it can take far better care of its patients with the more diverse set of services it will soon be offering.
“We see a nice, broad opportunity,” Hazen continued. “We believe home care provides multiple channels of value for us. Some of it is in the discharge, [some of it is] in better case management and discharge planning, and some of it is staying connected to the patient when they repurchase health care.”
Part of the reason that the entrance into home health care via Brookdale made sense was because 60% to 70% of its agencies overlap with areas that HCA Healthcare already serves.
“Obviously, that was an attractive strategic component of the acquisition,” Rutherford said. “And as we work through the acquisition integration, we’re going to explore that even further, relative to agencies that reside in non-HCA markets. We’ll still evaluate what is the appropriate course of action [there].”
The HCA executives also said that the company is open to more partnership opportunities in home health, particularly in markets that Brookdale’s home health and hospice segment doesn’t cover.
In addition to cashing in on its in-demand assets, the deal is similarly a win for Brookdale because it gets to expand the services offered to its residents.
“Our top priority is the health and well-being of our residents,” Brookdale President and CEO Cindy Baier said in February. “Part of this commitment is to offer many services in our communities, with a keen focus on resident and patient needs.”
For a behemoth health organization that has long abstained from home health, its tune certainly seems to have changed on the subject. For whatever the reason, it was Brookdale’s sale exploration that caught HCA’s Healthcare’s eye.
“Now, HCA will be the first, significant health-system-based buyer of a home-based care provider in a long time,” Mertz said in early April. “Is this part of the evolution of home-based care or a one-off transaction? I think it could depend on the ultimate success of this transaction and integration. I suspect we’ll continue to see an acceleration of joint venture models in the meantime, as it’s a more proven model.”
It’s clear HCA is bullish on home health and its potential moving forward post-pandemic.
That alone should be a signal of good news for the industry in general.
“HCA believes the home will become a more important setting for health care in the future with continuing growth in demand,” Stephens analyst Scott Fidel wrote in a research note. “Coming from the nation’s leading hospital management company, that sounds pretty good for home health.”
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