HHCN+ Report: The Past, Present and Future of the Home Health Public Market – and Why It Matters

The home health market is made up of about 9,900 agencies, with businesses ranging in size, service mix and structure. The publicly traded home health companies, in particular, offer a snapshot of the industry in the present – and often a sneak peek at what’s to come.

While the names of the publicly traded home health giants over the past 15 years have changed, there has also been a mindset shift among the well-established companies that remain. The home health public market looks different in 2022, but it also acts differently.

That matters for a lot of reasons: the chief one being that, in many ways, the public market sets the stage for the rest of the industry. The public players lead from the front, and their successes – and shortcomings – tend to influence what the regulatory, dealmaking and workforce environments look like for their private peers.

In this new HHCN+ report, Home Health Care News breaks down the current public market and examines where it’s headed.

Key takeaways from the report

– New faces have emerged on the public market over this past year, and they’ve made splashes along the way. Their aggressiveness has been one of the biggest stories in home health care.

– Currently, the publicly traded companies are doing well, and outsiders are taking notice. Despite a few blips due to COVID-19 disruption, their steadfast success has set the market for private companies aiming to go public, along with others.

– The largest players in the industry are no longer conservative entities. As home-based care has become more popular and relevant in the overall health care ecosystem, their leaders have set their eyes on more aspirational goals.

– The M&A strategy has changed for public companies, which has had a trickle-down effect on smaller agencies across the country looking to grow. Where being a “national” company with locations in nearly – or all – 50 states used to hold much more weight, the focus now is more on building out strong presences in certain regions.

Overview

Amedisys Inc. (Nasdaq: AMED), LHC Group Inc. (Nasdaq: LHCG), Encompass Health (NYSE: EHC) and Humana Inc. (NYSE: HUM), which now fully owns the operations of Kindred at Home, are viewed as the “legacy” home health entities currently on the public market.

Other companies, however, include HCA Healthcare Inc. (NYSE: HCA), which acquired Brookdale Senior Living Inc.’s (NYSE: BKD) health care services segment in 2021. ModivCare Inc. (Nasdaq: MODV) is another home-based care services provider, ones that’s also heavily involved in the non-emergency medical transportation (NEMT) space.

There’s also Addus HomeCare Corporation (Nasdaq: ADUS), which primarily deals with Medicaid-based personal care, but is rapidly expanding its home health capabilities.

Some of the newer kids on the block are Aveanna Healthcare Holdings Inc. (Nasdaq: AVAH) as well as The Pennant Group Inc. (Nasdaq: PNTG), which spun off from The Ensign Group (Nasdaq: ENSG) in 2019.

“I think you’ll see us continue to acquire both on the home health and hospice side, but also opportunistically in private-duty services, both skilled and unskilled, moving forward.”

Jeff Shaner, COO, Aveanna Healthcare

Aveanna, which had traditionally been a pediatric home health provider until it went public in 2021, has been particularly aggressive on the M&A front lately. Toward the end of 2021, for example, it acquired Accredited Home Care for a purchase price of $180 million and Comfort Care Home Health for $345 million.

Ultimately, the company wants to replicate its pediatric business in senior home health care, with the goal of becoming one of the largest home health providers in the U.S. – if not the largest.

“We’re excited to close out the year with two material transactions kind of back to back, but our 2022 pipeline is robust,” Aveanna COO Jeff Shaner recently told HHCN. “And I think you’ll see us continue to acquire both on the home health and hospice side, but also opportunistically in private-duty services, both skilled and unskilled, moving forward.”

The company may not define its recent activity as a new public provider as making a “splash,” but it’s aware of the reputation it’s creating for itself.

“As a newer public company, I think the goal is to truly lay a long-term foundation of a very high-reputable, high-performing, clinically sophisticated company that is highly compliant,” Shaner said. “That was our goal out of the gate – to show investors that they could trust us and believe in us as a management team. And I think you’ll continue to see us do those things.”

A brief history of the home health public market

In 2006, there were more publicly traded companies specific to home health than there are today.

And there are many reasons why. Although the industry remains highly fragmented – the largest 10 Medicare-certified home health providers still only own around 25% of the market – it was even more so 15 years ago.

Companies like Odyssey, for instance, were their own entities. But then Gentiva – another home health company – bought Odyssey. Eventually, Kindred acquired Gentiva and became one of the few large home health companies in the country. Later, as previously mentioned, Humana fully acquired Kindred.

One of the primary reasons for that consolidation and the shrinking of the home health-specific public market was rate cuts.

“From about 2010 to 2019 or so, the skilled home health market experienced almost a decade of consecutive rate cuts,” Eugene Goldenberg, a managing director at Edgemont Partners, told HHCN. “And due to that, it spurred a lot of the consolidation, where the publicly traded operators were trying to plug the gap in their earnings as a result of the home health hit.”

The consolidation has continued, though maybe not at the same pace in 2020 and 2021. In 2015, there were around 10,500 home health agencies; in 2019, there were slightly more than 9,800.

Providers also began diversifying their service lines, concerned that relying just on home health care would not be sustainable moving forward. Forward-looking companies knew it would likewise be increasingly important to “own the patient’s care journey” as needs changed over time.

In turn, hospice became a hot market to enter into. That trend has continued until recently, with some providers finally beginning to taper off in hospice interest.

“[2021] was a great one for both the acquisitive side of hospice for us, as well as working on our internal operation for integration of the new assets,” Bruce Greenstein, the chief strategy and innovation officer for LHC Group, told HHCN. “We’re extremely pleased with the outcomes of those efforts. The way we look at our pipeline and our priorities for 2022, though, is going to be back to a more traditional set of home health activities.”

Consolidation is likely to continue over the long term. But it’s unlikely to reduce the amount of home health companies that are publicly traded at this point. Instead, the current success of the companies that have gone public is encouraging others to do the same.

Why the public market matters

The success of the public companies matters to their private peers often as much as it matters to them. Not only do they lead the way from an advocacy standpoint, but they also dictate what the perceived standing of the industry is as a whole.

For instance, private equity buyers made plenty of noteworthy acquisitions in 2020 and 2021 in home-based care, sometimes rolling up multiple independent providers into larger platforms. The multiples of the publicly traded companies – which have been high – indirectly help establish those valuations.

“As long as the public companies are doing well, private equity will continue to invest all the money that they’ve got.”

Cory Mertz, Managing Partner, Mertz Taggart

“When you look at some of the private company transactions, historically, the publicly traded companies were always well ahead of the multiples that we were seeing in the private market,” Goldenberg said. “The rise of the multiples in the post-acute care space is more than I’ve ever seen in the last 15 years.”

As long as that’s the case, private equity players will remain interested.

“They’ve all done very well over the last several years; we’ve seen the trading multiples of those companies in the 30s and the 20s,” Mertz Taggart Managing Partner Cory Mertz said at the Home Health Care News Home Care Conference in December. “So as long as the public companies are doing well, private equity will continue to invest all the money that they’ve got.”

Although multiples dropped in the health care sector almost universally during 2021, they remained the highest out of all the sub-sectors in home health care and hospice, according to a mid-year dealmaking report from PricewaterhouseCoopers (PwC).

Changing strategy

The public companies have also generally changed the way they operate over the last 15 years.

Where they used to be conservative in nature and more risk-averse, they’re now taking the spotlight on home-based care and using it to their advantage.

In other words, they are setting the path for private companies in ways they did not before; they’re willing to invest in new ideas or trends in order to keep their businesses ahead of the curve.

“These companies, they are becoming far more sophisticated,” Mark Kulik, the managing director of M&A advisory firm The Braff Group, told HHCN. “We’re seeing each company using a strategy to step outside of what would be considered their traditional scope of services.”

An example of that would be Amedisys acquiring Contessa Health, one of the leaders in “high-acuity care in the home,” for $250 million. The deal effectively takes Amedisys’ total addressable market for in-home care services from $44 billion to $73 billion, while propelling it into new territories like hospital at home, SNF at home, in-home palliative care and more.

“Today’s announcement is a strategic and promised milestone for Amedisys’ strategic growth and differentiation, as we expand our capabilities to reflect growing market demands and evolving patient preference for higher-acuity in-home settings,” Amedisys Chairman and CEO Paul Kusserow said at the time.

If those who follow the home health public market think back five or 10 years ago, such a move would have been unheard of, according to Kulik.

“It wouldn’t even have been on the table,” he said. “You see these companies becoming much more inventive, much more creative and responsive to the marketplace. That’s just good leadership. They’ve got their finger on the pulse of the marketplace. And that’s how it manifests with them adjusting, adapting and capturing different services to be more appealing to the marketplace at large.”

Not surprisingly, the non-public companies have looked to expand into higher-acuity care as well.

The other thing that has changed: M&A strategy in general.

Again using 15 years as a measurement – providers used to be much more concerned with the concept of being a “national” player. Now, their strategies are far different.

“Back then, I think most public companies were looking to expand their footprint everywhere and they were interested in virtually every opportunity to acquire a quality agency, regardless of location,” Kulik said. “In fact, there were some that wanted to have at least one location in every state to say that they were truly a national company. Today, their M&A strategy has been refined to be much more surgical. They are very specific on where they want to be, where they don’t want to be.”

Aveanna’s M&A efforts reflect that strategy. Instead of scattering itself across the country where it can, its veteran leaders find markets and states they like and move in quickly. Alabama market share, for instance, is one of the primary reasons it recently acquired Comfort Care.

“Alabama is one of the key states that we’ve been … in and out of for the last 25 or so years [with other enterprises],” Shaner said. “We’ve always liked the state of Alabama. We like the rurality, the geography of the patient base and referral sources. Home care is a very open business there, and people generally accept home care in the state and think very positively of it.”

What’s next?

Industry insiders are confident that there will be more private companies in the space turning public in the not-too-distant future. Specifically, those include the Dallas-based home health company AccentCare and the Chicago-based home care company Help At Home.

The Louisville, Kentucky-based BrightSpring Health Services’ motives no longer require speculation. The company filed an S-1 for a $100 million initial public offering in October.

In that paperwork, BrightSpring touted what it believes to be a “$1.5 trillion combined market opportunity,” citing “numerous positive industry trends and drivers” as part of the reason why it wants to go public.

In addition, Encompass Health is on the verge of spinning off its home health arm into its own publicly traded company to unlock value for its shareholders. That will likely take place at some point in the first quarter of 2022.

“We’re taking a step further today in saying that we now believe that separating [the home health and hospice segment] into a separate independent public company makes the most sense,” Encompass Health CFO Doug Coltharp said on the company’s Q3 earnings call in October.

With more capital headed toward the home health market in 2022 and beyond, players not yet known will likely enter into the picture as well. And together, the public legacy companies and these new entrants will continue setting the tone for the industry for years to come.