Home Care 100: Potential Changes Fueling Growth

James Clark, a managing director in Harris Williams & Co.’s Healthcare and Life Sciences (HCLS) Group, recently attended the Home Care 100 Leadership Conference. Clark spoke with a number of top executives from the home care and hospice industry, and came away with the following insights on this continually evolving market:

  • Industry consolidation and investments from adjacent healthcare sectors are driving strong deal activity.
  • The Centers for Medicare and Medicaid Services’ (CMS) shift from a 60-day to a 30-day episode has raised concerns, but should not be as disruptive as initially feared.
  • However, the agency’s recent proposal to include unskilled care in the Medicare Advantage benefit could transform the industry.

Deals Driven by Consolidation and Adjacent Investments

The industry has seen consolidation happening at three levels, explains Clark: “Small, founder-owned companies are being bought by mid-sized players. Then as the mid-sized private equity-backed companies gain enough scale, they are being acquired by strategics. Even with high levels of consolidation going on, new providers keep entering the market from the bottom.”

Conference attendees reported that this level of activity is increasingly attracting attention from adjacent sectors—most notably payors.

“These groups are starting to recognize the benefits of home care for their populations,” says Clark. “That’s especially true for insurers with sizable populations of Medicare Advantage customers, who must be over 65 and home-bound to qualify for the benefit today.”

Clark notes that stronger alignment between such payors and home care providers could drive better care and health outcomes at lower costs: “Home care is less expensive than facility-based care, is preferred by patients, and results in fewer secondary complications and faster recoveries.”

Proposed Medicare Shift Creates Concerns

One major topic of discussion at Home Care 100 was Medicare’s proposed shift from 60-day episodes to 30-day episodes. Essentially, the change would halve the amount of time during which Medicare participants could receive benefits for skilled services before requiring recertification.

While some in the industry were concerned that this change could amount to a dramatic cut in benefits, Clark notes that the more likely outcome is better alignment between the benefit and actual patient needs.

“This change is undoubtedly payment model reform, but it won’t be as disruptive as initially thought. The industry has done a nice job addressing it, and Congress has agreed that the shift needs to be budget neutral. That means the overall impact on reimbursement should be muted. And the industry has until 2020 to fully understand the change and prepare for it.”

Inclusion of Unskilled Care Could be Transformative

Another proposed Medicare change was generating more positive buzz in the industry. For the first time, CMS is considering covering unskilled care under the Medicare Advantage benefit, including activities of daily living such as cooking, bathing and dressing. Under current rules, these types of services are generally covered under state Medicaid programs, paid for out-of-pocket by recipients, or covered by insurance products like long-term care insurance.

“CMS is realizing that if those services are managed appropriately, they are ultimately the lowest-cost option, generating significant savings versus skilled or facility-based care. And most people would rather be at home than in a facility,” says Clark.

The shift could transform the home care industry.

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

Conclusion

The home care industry remains attractive to strategic acquirers and private equity groups, providing a wealth of opportunities to create innovative, in-demand service offerings. Proposed changes to Medicare rules should provide a sense of clarity to investors and reinforce this trend.

To learn more, please contact James Clark.

Published March 2018