Facing The Future: Home Health Providers Gear Up For 2024’s Value-Based Care, M&A Landscapes

Home-based care providers have faced many headwinds over the past few years. They’ll continue to do so in 2024.

But uncertainty has also plagued providers, and there may be less of that this year.

Providers know the threat of fee-for-service Medicare cuts. They know Medicare Advantage (MA) penetration is an unstoppable force. They know staffing woes will be a mainstay, even if the labor market nominally improves.

Last week, at Home Care 100 in Scottsdale, Arizona, I had the chance to catch up with over a dozen home-based care executives. I listened to panels. I had on- and off-the-record conversations.

What follows won’t be a complete emptying of my notebook from the conference, but it will be a good summation of most of the reporting I’ll publish on Home Health Care News over the next month or so.

These thoughts pertain to value-based care, M&A, a big-name turnaround and more. They’re the topic of this week’s exclusive, members-only HHCN+ Update.

Ordinary issues

Home health providers have faced extraordinary issues for so long that they’ve rendered those challenges ordinary.

My “What are your biggest challenges?” questions were frequently met with, “Well, you know” responses.

“A lot of headwinds,” Visiting Nurse Health System CEO Dorothy Davis told me at the event. “It would be nice to talk about the wins rather than the headwinds, but that’s become pretty common.”

Based in Georgia, Visiting Nurse Health System provides home health and hospice to more than 7,000 patients across the greater Atlanta area.

Because those headwinds have been so constant and prolonged, providers are beginning to make strides against them. Like the process of grieving, they’re not getting over the issues necessarily, but they are learning to survive despite them.

“We’re really focused on standing up value-based care,” Alivia Care CEO Susan Ponder-Stansel told me. “We really believe that that’s going to be the way that you succeed financially, and also succeed in being able to deliver better outcomes to seriously ill patients.”

Jacksonville, Florida-based Alivia Care provides home health, hospice and palliative care services across North Florida and Southeast Georgia. The company also operates its own Program of All-Inclusive Care for the Elderly (PACE), which is one of the more proven value-based care models in senior care.

In 2022, Ponder-Stansel told HHCN that her organization was embracing the “learning curve” of getting into value-based care. This was right around the time the Centers for Medicare & Medicaid Services (CMS) first proposed a significant rate cut for home health providers.

But, eventually, that learning curve bears fruit. And it has done so for Alivia Care in PACE, but also in all of its service lines.

While certain providers have offloaded certain service lines to hone in on core competencies, Ponder-Stansel believes that all of those different types of care are necessary to truly go at risk, including primary care – through partnerships or otherwise.

“I think that when you’re in any kind of value-based situation, you need all the components: private duty, Medicare-certified home health, hospice, adult day care, etc. We have all of these parts of care,” she said.

Outside of the services lines, both Ponder-Stansel and Andrew Molosky, the CEO of Chapters Health System, believe that a top-down understanding of value-based care is non-negotiable.

In other words, it’s not just about “moving to value-based care”; it’s about ingraining a culture and understanding around value-based care – and determining what exactly that means for each organization.

“I think the first relationship that you must establish – and this sounds a little hokey – is a pretty good internal harmony with your employee base, your stakeholders, your board, your governance, structure, whatever that might be,” Molosky told me. “Because nothing will waylay an organization faster than when you have people viewing the priorities differently.”

The Tampa, Florida-based Chapters Health System is a community-based nonprofit organization. It provides types of home-based care services to nearly 120,000 patients.

Buyers and sellers

As providers come to grips with their operating realities, their leaders seem to believe that the M&A market will open up, too.

While some offered caveats, nearly every leader I talked to believed that transactions would increase in 2024. To be fair, 2023 had quarters with historically low activity. But, at some point in the near-term future, consolidation is likely to become even more of a feature of the home health landscape.

“I do think you’re going to see some more activity with the bigger companies this year than we saw last year,” Elara Caring CEO Scott Powers told me. “I think interest rates are going to help with that. And I think private equity is going to get a little more involved in some of these deals.”

One of the largest home health providers in the country, Elara Caring provides care to more than 60,000 patients across about 200 locations. It offers home health care, hospice, personal care, palliative care and behavioral health care.

Outside of interest rates, one of the micro trends that has been holding home health M&A back over the last two years is the disconnect between peak multiples in 2020 and 2021, and what buyers are willing to offer now.

“The big question mark right now is what multiples are going to look like,” VitalCaring President Luke James told me. “I think we’re going to see a couple of deals that reset the market, especially for sizable transactions.”

VitalCaring, also based in Dallas, will likely be a part of that resetting. The company, led by April Anthony, is growing steadily. It has dozens of home health and hospice locations in six Southeastern states.

James believes that hospice valuations will remain at bay, but that home health multiples will continue to come down until buyers gain a greater appetite for seller targets.

At the same time, those 2020 and 2021 multiples are already baked in. Financial backers looking to offload an asset in 2024 or 2025 could have a hard time making a desired return on investment.

“Even if those businesses doubled in size, if they’re only able to sell for 11 or 12 times, you’ve got to make up a lot of ground versus where they enter those businesses,” James said. “It’ll create pressure. Where are those sellers? How low are the sellers willing to go to get a deal? Or how high are those buyers willing to go to satisfy their return metrics?”

An Aveanna turnaround

Aveanna Healthcare Holdings (Nasdaq: AVAH) went public right before the markets came tumbling down, in April of 2021.

It has undergone extreme staffing headwinds and also leadership changes. And yet, almost three years later, it’s still standing.

That led to a seemingly chipper Jeff Shaner – the CEO of Aveanna – in Scottsdale last week.

Based in Atlanta, Aveanna provides Medicare-certified home health care, personal care and pediatric care across 33 states. Through acquisition, the company went from being a primarily pediatric care provider to a senior care provider in just a matter of years.

Though it is not near its initial stock price of close to $12 per share – it sits at about $2.50 per share right now – it has climbed significantly over the last year. In January 2023, the company’s stock price was sitting around $1. That led to speculation that it would not even make it on the public market for another year.

Shaner is now around to tell the turnaround story.

“We took a very detailed, strong, honest look at ourselves about 15 months ago,” Shaner said. “We didn’t necessarily like everything we saw. I had to make some very honest assessments of where we were as a company, and where we wanted to be. But, 15 months later, we can exhale now as an organization. Because we know where we’re going.”

That’s significant. Aveanna boasts one of the strongest home-based care footprints in the country. Historically acquisitive, it has been quiet during recent years. Perhaps that could change in 2024.

The obstacles remain. But providers, such as Aveanna, could be starting to find their way.