Often in the home-based care field, transactions are driven by companies seeking to expand their service lines to become one-stop shops for referral partners.
Sometimes, however, dealmaking is ignited by a desire to double down on existing expertise.
An example of the latter M&A tactic happened Wednesday, with 24 Hour Home Care buying the non-medical caregiving division of GrandCare Health Services. Financial terms of the acquisition, effective Sept. 1, were not disclosed.
“We thought it was a great opportunity,” Ryan Iwamoto, the president and co-founder of 24 Hour Home Care, told Home Health Care News. “They are a very reputable company. We’ve had a great relationship with them. It just made a ton of sense.”
GrandCare Health Services provides in-home medical care across Southern California. While it had a non-medical home care division prior to Wednesday’s news, the bulk of GrandCare’s business has historically been in skilled home health care, with a particular focus on orthopedic rehabilitation.
“We are unusual in that we specialize in a core area,” David A. Bell, chairman and CEO at GrandCare Health Services, told HHCN. “Most home health agencies are generalists, but we specifically cover orthopedic rehabilitation. We’re trying to be the best in that area.”
In contrast, Los Angeles-based 24 Hour Home Care exclusively provides non-medical home care services across its markets. The company currently has over 20 locations throughout California, Arizona and Texas, employing over 10,000 caregivers across its footprint.
While GrandCare’s goal is to be a top-of-the-line home health provider with a focus on “hip-and-knee patients,” 24 Hour Home Care is looking to become one of the largest independent home care providers in the nation.
Today, the company operates in the private-pay and disability services landscapes. In the not-too-distant future, the rapidly growing 24 Hour Home Care hopes to expand into the Medicaid world as well, Iwamoto said.
“We have a few opportunities that we’re looking at, to get into the Medicaid personal care services space,” he said. “If you look across the country, there’s not one organization that you can think of that does all three of those sectors very well across the board.”
Mutual goals
Iwamoto first learned of GrandCare Health Services and its strong reputation through his wife, a speech therapist by training who occasionally worked with the home health provider.
After 24 Hour Home Care and GrandCare both earned spots on Fortune’s Best Places to Work list one year, Iwamoto thought it’d be a good idea to reach out.
“I recognized the name, so I messaged David on LinkedIn and said, ‘Hey, congratulations. We’re on the list, too. Oh, by the way, my wife works for your company, and I’ve heard a lot of great things,’” Iwamoto said. “He responded back. We ended up in a lunch, since we’re pretty much in the same areas. We just talked about the future of GrandCare and what we both wanted to do.”
GrandCare wasn’t aggressively shopping its non-medical home care division at that time, but it had been internally debating the unit’s place in the overall business.
The COVID-19 pandemic forced GrandCare to reprioritize its strategic plans, Bell explained.
“I think, as with a lot of people and companies, the COVID outbreak caused us to reevaluate a lot of things,” he said. “We had been thinking about what to do with this business for a while, asking ourselves if it’s ‘non-core’ for a long time. With the outbreak, it really forced that issue to the front burner.”
One of the biggest challenges with GrandCare’s non-medical home care division was a large supply-and-demand imbalance. The provider was seeing a huge demand for services, but it lacked the staffing resources to accept those new cases.
That’s a problem that most home-based care operators face. In a recent survey of more than 750 in-home care professionals conducted by HHCN and Axxess, for example, nearly three-quarters of respondents said they’ve lost business due to staffing shortages.
“We really had a lot of difficulty over the last year, providing staffing on the private-duty side,” Bell continued. “This allows us to meet the demand. At the same time, we no longer need to be the ones running the operations to make that care happen. We can leave the operations to a partner who’s really, really good at it.”
‘There are always opportunities’
Since entering into the market in 2008, 24 Hour Home Care has mostly grown organically. But its M&A activity has picked up of late, with GrandCare Health Services capping off a handful of successful transactions.
Prior to GrandCare, 24 Hour Home Care purchased Grace Care Management in November 2020.
“There are always opportunities out there,” Iwamoto said. “What we’ve seen on the home care side, it’s very fragmented. There are a lot of smaller organizations, where you just have to find the right fit. There are some players out there that do this well and have professionalized services with scale, but there aren’t too many.”
On its side of the M&A equation, GrandCare offers a unique strategic benefit: its experience in bundled-payment models.
The Comprehensive Care for Joint Replacement (CJR) model from the U.S. Centers for Medicare & Medicaid Services (CMS) was designed to support better and more efficient care for patients undergoing the most common in-patient surgeries for Medicare beneficiaries: hip and knee replacements.
In the model’s first two performance years, CMS found that CJR episodic payments decreased by 3.7%, contributing to tens of millions of dollars in estimated savings. Armed with similar findings as well, CMS opted to extend the cost-cutting CJR program through December 2024 earlier this year.
CJR and other bundled-payment programs are the bread and butter of GrandCare, Bell said.
“We tend to work with bundlers and others who are kind of sophisticated buyers, who really are sensitive to value,” he said. “We like to be measured. And when we are measured, we do better than other providers.”
In the process of selling its non-medical home care division, GrandCare adds to its strong track record of cross-industry collaboration with 24 Hour Home Care.
“[This move] enables us to pursue new opportunities, new partnerships, new bundles,” Bell said. “A lot of those people, they obviously care about everything that all bundles care about — quality of patient care, lower cost and keeping people from being readmitted. Being able to provide that extra layer of care is a big deal.”
At the same time, 24 Hour Home Care could gain access to new value-based care opportunities through those connections.
“This opens up more opportunities for us,” Iwamoto said. “In the bundled-payment space or the value-based care space.”
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