Consolidation in the home health market has been forecasted for years.
While the number of home health agencies has declined over the last couple, greater consolidation has yet to hit the industry.
But the fragmented and growing home health space could finally begin to experience it in the near-term future, likely due to declining traditional Medicare payment rates and a growing Medicare Advantage (MA) population.
Those factors are troublesome for almost all home health providers, but they also offer M&A opportunity.
“I think the the rate environment that we’re experiencing, whether it’s through Medicare or Medicare Advantage, is going to put some pressure on small players,” VitalCaring CEO April Anthony said on a panel at Home Health Care News’ FUTURE conference. “I think if you don’t have some of those Medicare Advantage relationships, at a point, that becomes a limiting factor to your ability to grow. I anticipate a fair amount of consolidation, in spite of the fact that this might not be the the highest multiple era that we’ve experienced in our last few years.”
The Dallas-based VitalCaring is a growing home health and hospice provider with over 65 locations across Texas, Oklahoma, Louisiana, Mississippi, Alabama and Florida.
Anthony has been a leader in the home health industry for over 30 years. She’s experienced the ups and downs – the constant uncertainty – in the rate environment over that time. And she believes this turbulent period will at least last until around 2026.
Being able to weather the down periods is an advantage, and VitalCaring will be able to do so because of its scale and financial backing. Anthony owns one-third of the business, while The Vistria Group and Nautic Partners own the other two-thirds.
“There can be opportunities for quality companies like us to grow through acquisition, and that’ll be a huge part of our plan over the next five years,” Anthony said. “And then, through de novo as well. This year, we have done three de novos, and we have three more that are on the slate for the back half of the year.”
Even though consolidation could come through payment rate pressure, Anthony said that the M&A market is different than what she’s been historically used to.
For instance, more potential deals have been “flaming out” during the due diligence process, she said. There’s a lack of quality home health targets out there, an issue other home health leaders have corroborated over the last couple of years.
“But, again, I’ve been hanging around this industry for a long time,” Anthony said. “Transactions happen in good cycles and transactions happen in bad cycles. And they’re going to continue to happen through this down period.”
The balancing act
When it comes to poor payment rates, Anthony chose to focus on MA plans’ rates for home health services, as opposed to the Centers for Medicare & Medicaid Services’ (CMS) fee-for-service payments.
“It’s frustrating to see where Medicare is going with their rates, and what they’re trying to do with clawbacks,” Anthony said. “But, if one of our managed care partners came to us with those [traditional Medicare] rates, we would be jumping for joy. We’d be saying, ‘This is the greatest contract we could possibly hope for.’”
Healing Hands Healthcare CEO Summer Napier – while recognizing that MA’s presence is growing quickly – warned other home health providers in the room about getting “into network” with an MA plan.
Being within a network can be beneficial for some providers from a referral perspective, but the risk-reward needs to be calculated on an individual basis.
“You can be so eager to get into network or go after a contract that it ends up worse for you than you were without it,” Napier said on the panel. “I think some of the smaller organizations here want to be like the bigger organizations. And so you go after a contract, and then you get into the network. And then, you’re making a third of what you were making being out of network.”
Healing Hands provides home health, hospice and private-duty home care services across 22 counties in North Central Texas.
Napier mentioned that Healing Hands has done some internal forecasting and modeling to better understand which contracts it can take on, and which contracts it cannot. The company is currently trying to coerce some of its plan partners to convert to a more value-based payment model for home health care.
“We’re very risk tolerant,” she said. “We’re very eager to go after every risk contract that we can, but we’re looking for the partners that are going to be in it 50/50 with us. If they win, we win. If we lose, they lose.”
Charter Healthcare CEO Cheryl Lovell is seeing some of that kind of success in the company’s home state of California.
A provider of home health, hospice, complex care management and palliative care services, Charter has 18 locations across eight states.
“We have a big presence in California, and we’re working with the payers on per-patient, per-month modeling to see how we can more effectively reduce hospitalizations, and manage [care] from a bigger-picture approach,” Lovell said on the panel. “That includes home health, palliative and hospice together. And so they’re more amenable to some of those blended, at-risk models. That doesn’t seem to be the case with all managed Medicare [payers]. But we have found some success.”
Lovell, Napier and Anthony all agreed that the running a successful home health business in the future will require a “balancing act.”
It may be hard to build a successful financial model around lower MA rates solely, but finding a happy medium is plausible.
“Trying to build a model for financial success solely around an episodic Medicare rate is probably a fairly short-sighted approach,” Anthony said. “You’ve need an effective blend of revenue. … But how am I going to service that differently? How am I going to handle all the back office administration differently? How can we create efficiencies in the system? We’re going to try to land somewhere between that $170 to $180 blended revenue on a per visit basis between all of our different payer sources combined.”