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Amedisys Inc. (Nasdaq: AMED) and Option Care Health (Nasdaq: OPCH) announced Wednesday that they would be merging in a deal that valued the former at $3.6 billion.
There are many reasons why this deal makes strategic sense. The overlap in home-based services makes sense. The combined company will now be able to deliver home health care, hospice care, palliative care, high-acuity care and infusion services, providing a genuine full continuum in the home.
It makes sense from a payer diversification perspective. Option Care Health has historically been paid by commercial payers the vast majority of the time. Amedisys historically has been paid by government payers. Together, that mix will be slightly more commercial, but far more even.
It makes sense from a geographic perspective, too. Though Option Care Health is based in Bannockburn, Illinois – and Amedisys nearly 1,000 miles south in Baton Rouge, Louisiana – there are plenty of co-location opportunities to leverage given each company’s respective national footprints.
Of course, Amedisys stockholders will also appreciate the 26% premium they’ll receive in the deal.
Option Care Health leaders also believe there will be a $100 billion total addressable market with “additional whitespace opportunity” available to them after Amedisys is integrated.
There are risks involved as well, as there are with any deal of this size, especially in health care.
But for this week’s exclusive, members-only HHCN+ Update, we take a look at the factors that made this move sensical and opportunistic for both sides.
Home-based infusion services
Infusion therapy is a vital form of health care services. Over the course of the last few years, home-based infusion therapy has risen to prominence, with Option Care Health being one of the leaders.
Earlier this year, I wrote about how infusion services were an untapped opportunity for home-based care providers, that they could be the administers of the therapy themselves or part of the guardrail solutions that kept home infusion patients safe.
The new and improved Option Care Health will now be able to offer home-based infusion therapy to all kinds of patients that Amedisys and Contessa Health traditionally care for. On the other end, Amedisys will be able to integrate infusion therapy into care plans without having to refer out.
“In our home health and hospice business, we have a pretty good density of patients who need the services that Option Care provides,” Amedisys President and CEO Richard Ashworth said yesterday on a joint call with both companies’ leaders. “And, vice versa, with Option Care providing infused services for folks who consume home health and hospice. And then, of course, there’s the high-acuity patients as well.”
The combination of services is paramount. That does mean, however, that Option Care Health will need to ensure that it is able to offer home health, hospice and infusion therapy to the majority of the patients it cares for over time.
Contessa Health’s services – such as palliative care and high-acuity care at home – will likely take longer to layer on, as its footprint is not as large as Amedisys’ nor Option Care Health’s currently.
“We are going to have to optimize the footprint and make certain that we are able to serve patients where they want to be met,” Option Care Health President and CEO John C. Rademacher said on the call. “This will allow for an acceleration of that evaluation, and in taking a look to see where opportunities exist to expand into those community-based settings. This will give us additional opportunities to evaluate and understand where we can expand and where we can meet greater patient needs.”
At-home infusion therapy saves payers money, and it also ensures that patients are receiving the services they need, which drives value.
A recently released study in the American Journal of Infection Control did find that home infusion therapy is often administered – at least in part – by non-health care professionals.
This is not to say that is the case under Option Care Health’s watch. But, the study did not have black and white takeaways. Perhaps surprisingly so, even though there were higher instances of non-professionals administering these services, the home setting did not have a heightened complication rate compared to brick-and-mortar facilities.
“What’s really amazing is that the rates of complications are as low as they are [in the home],” Sara Keller, associate professor in the division of infectious diseases at Johns Hopkins University and a co-author of the aforementioned study, told me in January. “And it’s possible that home care may actually have some things it could teach hospitals about how to keep patients safe.”
National Home Infusion Association (NHIA) also recently released a set of recommendations for payers – specifically of the commercial variety – around these services.
Broadly, the NHIA argued that payers unwilling to invest in quality home-based infusion services have been leaving money on the table.
Payer mix strategy
Rademacher said on the call that health systems are increasingly looking for providers that can deliver the full continuum of care in the home. Seeing as though not many providers can do that, Option Care Health will have an instant advantage.
But the same goes for payers, namely the commercial ones. Payer-provider relationships are extremely complicated. Payer leaders are willing to sign onto larger contracts with providers, but only if those providers can solve serious problems for them – and at scale.
Option Care Health will be able to argue that it can keep down costs, readmissions and ER visits in the home. But it also has that scale alongside the service offerings. It will be able to make an actual dent in post-acute spend for payers in different markets across the country.
“This does allow a differentiation in being able to move into areas like Medicare Advantage and managed Medicaid and expand the reach from that perspective, in a much more coordinated way,” Rademacher said. “We know that there’s waste in the system as it exists in its current form. The ability for us to have a better coordination of care, and make certain that we are delivering superior clinical outcomes through the interventions of both of our clinical resources, we believe that will be of high value to payers.”
Option Care Health’s current commercial to government pay mix is 88% to 12%, respectively. Conversely, 76% of Amedisys’ mix is government pay.
Together, the mix evens out to a healthy 65% commercial, 35% government.
Analysts, for good reason, were curious of what Option Care Health thought about looming rate cuts in home health care from the Centers for Medicare & Medicaid Services (CMS). And, while the company obviously wants those pay rates to be higher than lower, the specific yearly rate is likely not a massive consideration.
Option Care Health is more interested in the capability than it is the fee-for-service Medicare rates that comes with it.
“I think there is an opportunity to take a pretty unique set of capabilities and collaborate with payers who are looking for more economical, risk-based programs,” Option Care Health CFO Mike Shapiro said. “It’s broader than just the capabilities that each organization has individually.”
With Medicare Advantage penetration accelerating, Amedisys gains instant access to a wider range of payer sources, which was already one of its individual long-term goals.
But, perhaps paradoxically, Medicare fee-for-service revenue – despite rate cut concerns – is still much more fruitful than other payer sources at this time.
“For Option Care, acquiring Amedisys diversifies its business by expanding its payer sources to include fee-for-service Medicare, an area that most investors viewed as an untapped opportunity given the lack of adequate reimbursement from CMS for infusion services,” an analyst note from Jefferies read. “Amedisys also helps diversify the company’s reliance of the administration of chronic therapies, which currently contributes ~70% of company revenues and typically carry relatively low gross margins.”
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