The home health market has been a hotbed of M&A activity as of late, and there are a number of key factors sparking the dealmaking interest.
Since its implementation in 2020, the Patient-Driven Groupings Model (PDGM) has loomed large in the home health space.
Now, PDGM is a driving force behind much of the transaction activity taking place in this space, according to Linda Murphy, COO and founder of Concierge Home Care.
“Initially, there were some companies thinking, ‘Well, maybe I can possibly get through PDGM,’” Murphy said during a Wednesday WellSky webinar. “‘Let’s see what it looks like.’ We’re finding, unfortunately, some of those companies aren’t even the quality assets that they would’ve been at the beginning of PDGM. There are folks out there that have not been able to manage, and you’re trying to save them before they’re too far gone, so to speak.”
Concierge Home Care has 23 locations in north and central Florida that primarily provide Medicare-certified home health services.
For some struggling providers, COVID-19 relief measures delayed the desire to merge or sell their business.
“The impact of PDGM was largely muted last year because of the Provider Relief Funds or the [Medicare advanced payments],” Ross Sallade, a shareholder at law firm Polsinelli, said during the webinar. “It seems like that veil has been lifted and that comfort is starting to disappear as we stretch on through the pandemic.”
Sallade noted that, last year, a number of home health insiders and shareholders predicted that PDGM would force smaller providers out of the industry and lead to record-breaking consolidation. He believes that this will be the case moving forward.
The home health M&A space has become a “pressure-packed” and seller-friendly market, he added.
“The diligence pressure to get through it quickly seems to be even more so than usual,” Sallade said. “Sellers seem to be more willing to dump what they consider to be a problematic buyer, someone who really is going to dig in on the diligence and make it difficult to get to close.”
Another factor driving dealmaking activity in the home health space is the larger shift toward value-based care.
“Value-based care is coming, and there are a lot of different models being tested,” Preston Brice, a partner at Grant Avenue Capital, said during the webinar. “There are a lot of different people who are now focused on it — for example, hospital systems and direct contracting entities — and are looking for providers that can handle that. That’s where having scale matters.”
With this in mind, providers are preparing for the possible nationwide expansion of the Home Health Value-Based Purchasing (HHVBP) Model and how this would further accelerate this trend. In general, HHVBP is an effort to create financial incentives for better quality of care.
Concierge Home Care, in particular, is no stranger to HHVBP. The company’s large Florida footprint meant it operated in one of the nine states chosen to participate in the Medicare demonstration.
“We’re very comfortable in that world,” Murphy said. “I feel very positive about this. I’m excited that we’d be in a cohort that is more than just state-driven.”
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