Given Reimbursement Challenges In Home Health Care, Investors Are Beginning To Look Elsewhere

Amid reimbursement uncertainty in Medicare-certified home health, investors are slowly shifting focus to other home-based care types.

This shift, while not a radical departure, is something stakeholders are keeping an eye on heading into 2024.

“I think we’re already seeing a little bit of that,” Rebecca Springer, lead health care analyst at PitchBook, told Home Health Care News. “It’s not a full pivot, but we’ve definitely seen private-duty deals come through. Home- and community-based services deals have had a slow uptick in interest for a little while now. I think that’s because it’s an alternative to home health and hospice, but also because there’s a lot of green space there.”


Meanwhile, the reimbursement dynamics in HCBS have been mostly positive, Springer said.

HCBS often includes personal care, respite care, home modifications and other support services. In that service line, there are typically lower overhead costs as well.

Private equity firms may stick to what they know.


But the regulatory dynamics could end up forcing a shift in M&A throughout home-based care.

“I think, traditionally, private equity firms in health care have been conditioned to search for commercial pay,” Springer said. “I think part of this is learning a new muscle for some firms. You can look at these Medicaid models and you can make them work. It just may be more of a piece meal than they’re used to and you have to do your homework.”

The Vistria Group, a Chicago-based private equity firm, is a good example of an investor with a diversified strategy.

Over the past few years, the company has built a portfolio that includes home health care, home care, HCBS, home-focused vendors and more.

In October 2020, the Vistria Group and Centerbridge Partners backed the Chicago-based HCBS provider Help at Home.

The firm’s other home-based care investments include Mission Healthcare, Medalogix, Tango and VitalCaring, among others.

With portfolio companies like Sevita, Beacon and Behavioral Health Group, Vistria has also invested heavily into behavioral health as an extension to its home health offerings.

“Not every company can do everything, so having partners that are willing to help you pilot, or do things that are not always natural, we found is immensely valuable,” David Schuppan, senior partner and co-head of health care at The Vistria Group, recently told HHCN. “The building blocks to value are not just medical and non-medical in-home care, but they’re also behavioral, they’re social, they’re pharma-related. Having partners, or best-in-class platforms, helps us collaborate towards a common solution where we can also leverage or capitalize on our relationships with those risk-bearing entities.”

Another reason why there has been a steady uptick in HCBS investment is because stakeholders are figuring out that more HCBS could reduce the demand for home health care.

“There has been an uptick in interest levels in home- and community-based services,” Mark Kulik, managing director at M&A advisory firm The Braff Group, told HHCN. “I think it has been growing because people are saying, ‘Gosh, if we did more HCBS services, that would [theoretically] reduce the demand for home health care services.’ Because then providers would be able identify things a lot sooner, avoid ER visits, etcetera.”

According to Kulik, over the last 10 years, there has been an average of about 70 to 80 transactions in certified home health on an annual basis. For hospice, that number ranges between 40 to 60.

For context, in HCBS, there have recently been between 10 to 14 transactions per year.

Not panicking yet

Despite the uncertainties associated with venturing into Medicare home health care in 2023, demand is still relatively strong.

“I think broad-based buyers, meaning those that aren’t just in one vertical, are always looking for opportunities,” Les Levinson, co-chair of the transactional health care practice Robinson & Cole LLP, told HHCN. “Certainly the turmoil recently in Washington D.C., adds another layer of uncertainty to the market generally, but I don’t necessarily see certain firms going after other areas looking for stability because I think the stability [in home health] is fine.”

Kulik called it “guaranteed demand” when taking into consideration the macro trends in the aging U.S. population.

“It’s overwhelming,” Kulik said. “If that wasn’t there, we’d have a big question mark. However, for the next 30 to 40 years, as the boomers get older, there’s an enormous demand for these home health care services.”

It’s easy to forget, Levinson said, that the home health market is still so fragmented. Major headline-grabbing deals like the ones made by UnitedHealth Group (NYSE: UNH) and Humana Inc. (NYSE: HUM) can sometimes cloud that reality.

Most of the M&A activity in home-based care is still in the mid- to lower-mid market.

Investors in the home-based care space are calloused to some of the headwinds by now, too. Labor shortages aren’t new. Reimbursement uncertainty and inflation are real, but will always be there.

“For people in the space, I expect that if they’ve been doing it for a while then they’ll be in it for the foreseeable future,” Levinson said. “They’re always keeping an eye on reimbursement pressures but they know that that’s going to be an ongoing factor. That just forces these investors to keep their eye on the ball and make sure they batten down the hatches.”

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