Current Market Conditions
The market continues to evolve in response to value-based compensation models that incentivize providers to assume risk. Strategic buyers are pursuing acquisitions that allow them to follow the patient and create value by delivering good outcomes while financial buyers are rolling-up smaller providers to achieve scale that will command a premium from strategic buyers.
Medicare
Although some buyers are waiting to see what will happen in 2020, PDGM changes nothing for operators who are in the process of building a Medicare platform because they still need to make acquisitions in strategic markets. Medicare referrals are still the toughest to get, Medicare patients still yield the highest margins, and Medicare agencies still trade at the highest premiums. Buyers are still in the hunt but being very selective as the market could become saturated with underperforming assets and good deals are hard to find.
Hospice
Hospice providers are starting to get a taste of the regulatory and compliance burdens that home health providers have lived with for years. However, since the space is a lot less crowded, has increasing pay rates, and is positioned for even greater growth, hospice valuations continue to skyrocket. There’s such an imbalance between the number of buyers and the number of sellers that many would-be buyers are opting to start from scratch instead.
Medicaid
The Medicaid environment has been improving in many states as the economy has been relatively strong, but rising wages are denting margins in some markets. The exciting news for many Medicaid providers who specialize in non-skilled care is the addition of a new payer: Medicare Advantage plans will now cover non-skilled care giving many Medicaid providers a significant new avenue for growth.
Private Pay
The private pay segment is very active again as we have a good economy (for now) at the same time as we have unprecedented need. Strong growth with strong margins translates to high valuations as several private equity sponsored platforms are striving to become national operators. Also, non-skilled care has become important to skilled providers banking on clinical outcomes which has stimulated more cross-continuum transactions and partnerships.
Conclusions
A market in transition is full of opportunities as operators execute a myriad of strategic combinations in pursuit of good clinical and financial outcomes. Valuations are simultaneously up and down as buyers pay unheard-of premiums for prized assets while some markets have become oversaturated. Most transactions are still somewhere in the middle, trading within historical valuation parameters.
If you’d like to discuss how all of this affects you, feel free to contact us any time.
We’re always happy to discuss market conditions, valuations, and the process we undertake to effect a successful transaction.