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For those who have been following the U.S. Department of Justice’s (DOJ) legal battle against UnitedHealth Group (NYSE: UNH) and Amedisys Inc. (NASDAQ: AMED), the latest chapter was revealed last month. The DOJ and the two organizations will go to mediation in August.
And even more news has since broken, with the announcement last week that Pennant Group (Nasdaq: PNTG) and BrightSpring Health Services (Nasdaq: BTSG) will be acquiring locations from Amedisys.
These are the latest developments in a saga that began in 2023 when UnitedHealth Group made a $3.3 billion all-cash offer for Amedisys — coming out on top against acquisition competitor Option Care Health (Nasdaq: OPCH). This marked one of the largest deals to ever take place in the home-based care space.
When I spoke on Monday to Mark Kulik, senior managing director at The Braff Group, he said that the deal is indicative of the maturation process of the home-based care industry.
“Like any industry, as the industry ages, it gets more sophisticated, and there are certain providers, or players, in each industry that end up dominating that particular industry,” he told me. “I just think it’s a natural evolution and maturation of our industry. In this particular case, you have a situation where one entity would emerge as really the unquestionable leader, in terms of size. I think that’s really the crux of where the government stepped in.”
By fall 2024, reports began to surface that the DOJ was preparing a lawsuit to stop the acquisition in its tracks. Even before this, Amedisys began to look into divestment options, to strategically restructure its portfolio to address antitrust concerns.
In November, the DOJ officially sued to block the deal from going into effect. The DOJ categorized the transaction as “anticompetitive and illegal.” Overall, the DOJ wants to dismantle the deal because it believes it would have a negative impact on patients, payers and home health workers.
I spoke to Ken Racowski, a partner at Holland & Knight LLP, to learn what the upcoming mediation means for UnitedHealth Group and Amedisys’ future. I predict that we will see the companies spin off more assets in the near future – potentially allowing them to put an end to the DOJ’s antitrust challenges ahead of the scheduled mediation.
In this week’s exclusive, members-only HHCN+ Update, I draw from my interview with Racowski to explain the ins and outs of mediation and offer analysis and key takeaways, including:
- What the mediation will actually look like for UnitedHealth Group and Amedisys
- How the companies can put an end to the merger’s challenges before mediation even begins, aided by the Trump administration’s pro-business approach to dealmaking
- What the merger means for the home-based care industry overall, including the potential for more mega-deals
Inside the mediation process
In August, UnitedHealth Group and Amedisys will take part in a court-directed mediation. Typically, parties submit mediation statements, briefs, or packages that detail their positions and lay out evidence.
Following this, a series of meetings with the mediator will take place. During the process, the DOJ and the UnitedHealth Group and Amedisys teams are in different rooms.
“The mediator will sort of go back and forth [between both parties] with positions, with demands, with shifting offers and counteroffers,” Racowski told me. “This plays out until they either get a deal done, or they get to a point where it seems impractical to get a deal done.”
Other than abandoning the deal, one of the ways UnitedHealth Group and Amedisys could resolve this merger challenge would be to agree to divest assets in order to address the concerns raised by the DOJ.
“From what I’ve seen, UnitedHealth Group has been offering up at least one version, if not multiple versions, of suggested divestitures to try to address the DOJ concerns, and given where the case is procedurally in timing, the fact that there’s a mediation now suggests to me that the mediation is going to be all about talking about proposed spin-offs or divestitures that United may be willing to offer, and the DOJ might be willing to accept, to allow the merger to go through,” Racowski said.
Though earlier attempts at its divestment strategy were abandoned, Amedisys unveiled plans to offload its home health and hospice care centers to Pennant and BrightSpring last week. Eagle, Idaho-based Pennant is one of the most prolific acquirers in the home-based care space, and Louisville, Kentucky-based BrightSpring went public last year.
“We’re certainly excited to partner with UHG and Amedisys. We see these as high-quality assets, and it gives us an opportunity to expand in new and compelling markets,” Brent Guerisoli, CEO of Pennant, said Wednesday during the company’s Q1 earnings call.
Meanwhile, BrightSpring’s CEO Jon Rousseau explained during a Q1 earnings call last week that the deal falls in line with the company’s larger acquisition philosophy of pursuing tuck-in acquisitions.
In-person meetings between UnitedHealth Group and Amedisys and the magistrate judge have already taken place since the order to set the Aug. 18 mediation.
“I don’t know what those were about, but reading the tea leaves, it feels like the parties are already talking to the magistrate judge, and I assume they’re talking about the proposed divestitures, given the news that just came out,” Racowski said.
This suggests that challenges surrounding the merger could be resolved ahead of the Aug. 18 date.
However, questions remain as to just how much Amedisys must divest in order to satisfy the DOJ. The agency was not satisfied with Amedisys’ previous plans – ultimately halted – to divest locations to VitalCaring. It remains unclear whether the deals with Pennant and BrightSpring encompass all the same locations that were in play with the VitalCaring deal.
But I think it’s possible that the deal could go through without Amedisys drastically reducing its portfolio. That’s in part because the change in presidential administration could ease the merger’s challenges.The Biden administration’s position on merger challenges was to avoid settling or allowing mergers to go through in exchange for spin-offs or divestitures.
“Once they decided to litigate to block a merger, they were going to litigate it to the end,” Racowski said.
On the other hand, the Trump administration — with the DOJ antitrust division led by Gail Slater — has been more open to the idea of divestitures, spin-offs and consent decrees to allow mergers to go through. The UnitedHealth Group, Amedisys acquisition could become a high-profile example of how the administration plans to address similar cases in the future.
Racowski believes that the DOJ’s challenge will end in a settlement, rather than a dispositive motion. Given the Trump administration’s pro-business approach, I agree. We may see another transaction announcement before this occurs, however.
Unprecedented events
Aside from UnitedHealth Group’s 2023 purchase of LHC Group, the home-based care industry has yet to see a deal that reached the magnitude of the Amedisys acquisition.
The home-based care market is still extremely fragmented, and is made up of roughly 11,474 Medicare-certified home health agencies across the country, according to CMS data.
For perhaps the first time, the home-based care industry is now facing the question: “How big is too big?”
“At some point in time, if you don’t have somebody competing against the next person, then the standards can drop, because there’s no need to excel compared to my competitor,” Kulik said. “I think the government’s trying to say, let’s maintain a healthy level of competition in each marketplace. Let’s make certain that no one has a de facto advantage, or a monopoly, or an oligopoly.”
Baton Rouge, Louisiana-based Amedisys has a massive footprint. It operates in 38 states with a presence in most regions, and most density in states including Tennessee, Georgia and South Carolina. In total, Amedisys has 519 care centers.
Amedisys is among the largest home-based care companies in the industry, as is LHC Group, which UnitedHealth Group acquired in 2023. With both acquisitions, UnitedHealth Group would own roughly 10% of the home health market.
Though companies like LHC Group and Amedisys are some of the first home-based care companies to be part of such massive deals, it is unlikely that these organizations will be the last. We should expect continued consolidation to take place in the home-based care market.
Other public companies, including Addus HomeCare Corporation (Nasdaq: ADUS), Enhabit Inc. (NYSE: EHAB), Pennant, BrightSpring and Aveanna Healthcare Holdings Inc. (Nasdaq: AVAH), operate in the home-based care space and could be ripe for near-term dealmaking.
“Would I be surprised if you said Mark, there’s an announcement here about Aveanna buying so and so, or Enhabit merging with another company, or Addus making a move? It wouldn’t surprise me at all,” Kulik said. “If you go back to ‘65, that makes us 60 years old or so, in terms of time the industry has been providing services in the home. I think that’s a long enough time to expect things to get bigger.”
I also think we should keep in mind that the Amedisys divestments to Pennant and BrightSpring are making already-large companies even larger. Pennant has a market cap of about $950 million and operates a senior living segment in addition to home health. BrightSpring is a diversified enterprise operating across all 50 states, which reported 2024 net revenue in excess of $11 billion. In other words, while the DOJ is concerned about UHG controlling too much of the home health market, even the potential remedy for these concerns is just contributing to the trend toward at-home care being delivered by large corporations that operate across different parts of the care continuum.
The size of the Amedisys transaction isn’t the only unprecedented aspect of this deal. The home-based care industry has seen few mediations.
“We typically all play really well together in the sandbox. It is a collaborative industry, which I think is very indicative of the nature of the industry,” Kulik said.
Still, mediation is often viewed as a friendlier alternative to arbitration.
“This is where both sides are saying, ‘Hey, let’s both take a deep breath and put forth our concerns,’” Kulik said. “‘Let’s both come with our thinking or creative thinking caps on, and let’s try and come to a friendly resolution that’s acceptable to both sides.’”
A couple of years ago, I tried to predict what a combined LHC Group and Amedisys would look like under UnitedHealth Group. My conclusion was that, given the portfolios of both companies, the combination would create “a home health business unit with unrivaled scale.”
Now, my conclusion is that we should keep our eyes peeled for the next big home-based care deal – and while it might be difficult to rival the scale of UHG’s home health business, expect consolidation to create serious competitors.
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