Despite Home Health’s Proposed Rule, M&A Action Within 10% Of 2021 Already

Until the final home health payment rule comes down from the Centers for Medicare & Medicaid Services (CMS), M&A is expected to stay relatively quiet.

However, some experts believe that if cuts are avoided through legislation or other means, M&A should see a massive boon.

“If we’re successful as an industry and it’s pushed off to 2026, that gives a level of consistency and predictability in the industry,” Mark Kulik, senior managing director of The Braff Group, said during Home Health Care News’ FUTURE event last week. “For M&A, the most important thing is predictability, reliability or the absence of risk. So if it does get pushed to 2026, we have a fertile environment for the next several years from an M&A perspective.”


Still, cuts being pushed back until 2026 seems somewhat unlikely. But either way, once the final rule is announced, it will allow buyers and sellers to move on with more certainty about where things stand.

For the time being, the proposed rule put a wrench in many transaction plans.

“It’s put a pause on [M&A] because obviously that was a surprise,” Kulik said. “I never saw it coming. I don’t think anyone in the industry saw it coming, especially after COVID.”


The proposed rule threw a cold bucket of water on a red-hot industry.

It’s also adding an element of risk, one that didn’t exist during a few years of rate increases.

Likewise, the Patient-Driven Groupings Model (PDGM) has added relative uncertainty to the home health market. Due to COVID-19 – and subsequently government aid – the fallout from PDGM may not be totally realized just yet.

“During [2020 and 2021], if you talk to owners, a lot of well-run home health agencies actually improved their EBITDA by a point or two,” Kulik said. “I was surprised when I talked to people across the country. People thought it was going to be this major cut, but the industry adjusted and the better-run agencies actually showed a 1% or 2% bump in their profitability.”

And even in a year where uncertainty was introduced halfway through with the proposed payment rule, 2022 is still a rosier M&A picture than many may think.

“2021 saw a record year with 83 home health transactions taking place nationwide,” Kulik said. “As we sit here today, if you annualize the first half of 2022, we’re at 74. So we’re close. We’re within about 10% of last year’s record activity.”

Moving forward, Kulik senses there is a possibility that more transactions will occur between smaller and larger providers without private equity involvement.

“Certainly the strategic buyers that are in the marketplace know the issues, they know where to look, they know the reality of the business,” Kulik said. “That due diligence process goes a bit more smoothly because there’s an understanding of, ‘I operate in this marketplace, I know what was going on.’”

On the other end with private equity, those firms come from very pragmatic and financially-motivated positions.

“It’s a return on investment for them,” Kulik said. “They’re looking at trying to buy an organization that is pristine. If they have the 20 most important things to them, they want to check off all 20 boxes if they’re going to pay a superlative price for that agency.”

There are market indications that PE activity in all sectors is slowing down in 2022 as well.

New data from capital marketing company PitchBook showed that middle-market PE firms fundraised $55.6 billion across 70 funds in the first half of 2022. Since 2019, middle-market firms have raised an average of more than $130 billion on an annual basis.

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