Market Conditions Q4 2017
The headlines have been screaming “The ACA is Dead!” “The ACA is Alive!” “M&A is Down!” “M&A is Up!” but the real news is that the market continues to evolve in ways that reward economies of scale. …and it’s not just size but strategic scale -the ability to follow the patient and assume risk based compensation- that is driving consolidation in the healthcare services industry. That means that companies of any size and any type could be attractive acquisition candidates, so long as they help the buyer to solidify their strategic positioning.
Medicare Certified Home Health
The new federal government was supposed to make the home health industry great again by reducing and eliminating redundant and unnecessary regulation such as pre-claim review and face-to-face documentation, but instead we’re adjusting to revised CoPs in 2018 and the possibility of a new HHGM payment model that threatens massive cuts in 2019. Even so, many leading diversified healthcare providers credit home health with bolstering their margins and promising strong growth, thus healthy Medicare certified home health providers are attractive acquisition candidates for larger (many private equity sponsored) home health buyers who want to expand geographically as well as a diverse range of facility-based buyers who want to include home health within their continuum of services.
Hospice
Although hospice providers are enduring greater bureaucracy and greater program integrity scrutiny, they still enjoy a relatively favorable rate and regulatory environment and the best growth prospects in the healthcare industry. Also, the fact that there are relatively few hospice providers (and a large proportion of those are institutional or nonprofit) means that good opportunities are rare and valuations are high.
Medicaid
Medicaid providers were becoming more integral to the overall healthcare system as treatment of chronic conditions was thought to reduce costs of acute care (especially for dual eligible beneficiaries). However, lack of leadership at the federal level has accentuated the diverse approaches taken by individual states. The good news is that disaster was averted when the ACA repeals that would have drastically slashed Medicaid funding failed, leaving us right back where we began.
Non-Medical Home Care
With over 10,000 Americans turning 65 every day and the 85+ population projected to triple, the demand for non-medical homecare continues to increase and even skilled nursing providers are starting to offer non-medical care as part of a comprehensive approach to improve outcomes and minimize risk in value-based compensation models. While regulatory compliance has eroded margins over the last few years, prospects for significant growth without government payers has attracted buyers from across the continuum and preserved relatively strong valuations.
Conclusions
The trend toward strategic consolidation is exemplified by a recent Harvard University study revealing that common ownership between acute and post-acute providers has almost doubled since 2005. The trend is probably even more pronounced within the post-acute sector as many leading providers who built their name on a narrow range of services have made significant acquisitions to diversify their payer mix in order to yield the best outcome for the patient with the greatest degree of efficiency. Thus, the M&A market is very active but valuations vary greatly depending on the performance of the seller and the perspective of the buyer.
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.