Occupancy Gains Could Boost Brookdale’s Home Health Business with HCA Takeover Pending

When Brookdale Senior Living Inc. (NYSE: BKD) was looking at prospective buyers of its home health and hospice segment, it was in a vulnerable position.

Its home health business had been “disappointing” at times, in the words of Brookdale President and CEO Cindy Baier. Occupancy in its senior living segment was falling during the COVID-19 crisis to record lows.

But now that HCA Healthcare (NYSE: HCA) — one of the biggest health systems in the U.S. — has agreed to acquire 80% of its home health and hospice business, the forecast is generally positive for Brookdale.

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Not only will it gain the $400 million in capital from the transaction, but it will also maintain 20% of a segment that is likely going to benefit in a major way from HCA’s involvement.

In other words, even when the deal finally closes mid-year, Brookdale will still be a significant player in the home health sector.

“The most important thing is that our residents have access to high-quality services,” Baier said on the company’s Q1 earnings call Friday. “We will retain a 20% interest in the Brookdale health services business once we sell 80% of the business to HCA healthcare. But what has really changed over the last several years is the integration of health care and the ability to offer our residents a better integrated health care experience.”

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By being part of the HCA Healthcare network, Brookdale residents will eventually have improved access to physicians, hospital-level care and lab services, all of which should make their experience “even better than it is today,” she added.

Brentwood, Tennessee-based Brookdale’s health services segment operates 57 home health agencies and 22 hospice agencies across 26 states, along with 84 outpatient therapy locations. The company operates over 700 senior living and retirement communities in the U.S. as part of its main line of business as well.

Those 70-plus home health and hospice locations are what Nashville, Tennessee-based HCA Healthcare will receive, with Brookdale receiving the benefits of HCA’s network. Today, that includes 185 hospitals, surgery centers, freestanding ERs, urgent care centers and physician clinics in 20 states and the U.K.

“HCA’s pending acquisition of 80% of BKD’s home health and hospice assets remains on track for a mid-year close,” Frank Morgan, managing director of health care services equity Research at RBC Capital Markets, said in an investor’s note. “That deal will bring $300 million of added liquidity, along with a 20% minority interest, which should be well positioned for upside given the referral potential across HCA’s network.”

Brookdale’s vaccination efforts have been a real success, with 93% of its residents having been inoculated. So while it hasn’t studied whether home health services have ticked up thanks to that recently, it has put Brookdale in a position to make strides in that area before and after the HCA deal is finalized.

“We haven’t really taken the time to look for whether there’s a difference in the home health or hospice penetration rates among those that are vaccinated and unvaccinated just because it’s such a small percentage of our residents that are unvaccinated,” Baier said.

At $56.3 million for the first three months, home health revenue has declined each quarter since Q1 2020, decreasing over 14% year over year. The company’s average daily census went from 14,020 in Q1 2020 to 11,647 in Q1 2021. Overall, revenue for the quarter checked in at nearly $673 million for the company, down over 24% year over year.

But between the vaccination rate of its residents, presumed access to HCA’s network in the latter half of the year and improving move-in rates, things are unlikely to get worse.

Brookdale’s senior living occupancy is still far off from what it was pre-pandemic, but since the beginning of February, its occupancy rate has inched back up by almost 2% to 71.1% at the end of April. And more residents means more home health patients, theoretically.

In addition to those tailwinds, Brookdale’s pending deal with HCA also will bring together two companies with similar market coverage. That’ll be mutually beneficial for both, hence why HCA viewed Brookdale as a promising seller in the first place.

“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 in April. “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.”

Brookdale’s current home health numbers are also a bit misleading if the deal is finalized. What its health services segment looks like now will not be what it looks like in the latter half of the year.
“What that business would look like with HCA as a partner — and with HCA having control and diverting a lot of discharges to this joint venture — obviously, the financial profile of the business looks drastically different,” Eugene Goldenberg, a managing director at Edgemont Partners, previously told Home Health Care News.

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