Home Care 100: A Healthy Industry and an Upbeat Future

James Clark, a managing director in Harris Williams’ Healthcare & Life Sciences (HCLS) Group, recently attended the Home Care 100 Leadership Conference. While there, he spoke with a number of top executives and left with three insights about the evolving home care industry:

  1. Major strategic buyers are performing well and are acquisitive.
  2. Medicare reimbursement changes are still a concern, but the growing consensus is that impacts are manageable.
  3. A number of sizable platforms are likely to seek new investors this year across the continuum of home-based care.

Strategic buyers active and increasingly focused

Large home care players within the hospice, skilled care and community-based care segments are all performing very well, with healthy balance sheets. Many are experiencing historically high stock prices and valuation multiples. 

“Significant, successful mergers have taken place within the last 12 to 18 months, which sets a precedent for continued consolidation,” says Clark. “However, acquisition drivers are shifting from building pure scale to identifying targets that will provide specific synergies, new capabilities or geographic expansion.” 

Medicare changes perceived as manageable

In 2018, there was significant focus on Medicare’s proposed shift from 60- to 30-day episodes, and the potential cut in benefits that could result. While the name of the rule has changed from Home Health Groupings Model (HHGM) to Patient-Driven Groupings Model (PDMG), it will, in fact, take effect in 2020. There is still concern about aspects of the legislative change, but as Clark observed, “Congress agreed that the shift needed to be budget-neutral and most of the larger players believe they will be fine under the new reimbursement construct.”

More positive news: The Centers for Medicare and Medicaid Services (CMS) will allow certain types of community-based services to be included in Medicare payments, and there is the potential to bring hospice into the Medicare Advantage benefit. “If services are managed appropriately,” says Clark, “home care is ultimately a lowest-cost option, generating significant savings versus facility-based care. And most people would rather be at home than in a facility.”

“This could spark a lot of innovation,” adds Clark. “I think we’ll see more companies combining skilled care and community-based care in unique ways. We see the potential for companies to deliver end-to-end services that address patient and market needs in a more integrated fashion.”

Sizable platforms are likely to seek investors this year across the home care continuum

Clark anticipates that a number of $60 to $100-plus million EBITDA platforms will come to market this year across hospice, skilled care and community-based care, creating substantive investment opportunities. The hospice segment is particularly attractive to investors because it is perceived as less complex and lower-risk from a reimbursement perspective. The Medicare Advantage change has bolstered interest in community-based care among some investors. Skilled care is also a priority for certain strategic acquirers and private equity groups.

“There will be opportunities for strategic buyers to continue to consolidate the market, create synergies and add capabilities,” notes Clark. “But I wouldn’t assume that all of the upcoming deals will trade to strategic buyers. Private equity groups are also active in the space and competitive against strategics, particularly when an acquisition lines up with their experience and investment approach.”

Conclusion

The home care industry remains attractive to both strategic acquirers and private equity groups, as there is a wealth of opportunities to create innovative offerings and integrated, end-to-end services.  And, as concerns over the impacts of Medicare rule changes subside, market attractiveness grows. “All in all,” says Clark, “this is going to be another year of strong performance, continued consolidation and innovation in home care.”

To learn more, please contact James Clark.

Published February 2019