How proposed reductions in home care payments could impact palliative care mergers and acquisitions

Disruption in home care reimbursement is influencing the palliative care M&A market, especially among the growing number of companies offering both services.

The most recent example is the 2020 implementation of the Patient-Oriented Grouping Model (PDGM). Unsure of the impact of this new payment system on their business, a number of strategic buyers shifted their 2020-2021 M&A pipelines to their palliative care segments.

“At the time, nationally, no one knew how the 2020 reimbursement would shake out and, more specifically, what the behavioral adjustment would ultimately be. Then there was uncertainty at the agency level, with agencies doing heavy therapy expected to lose 10-20% of their reimbursement for the same work,” said Cory Mertz, managing partner at mergers and acquisitions advisory firm Mertz Taggart. , to Hospice News. “It created uncertainty over a somewhat extended period of time. So many industry consolidators have suspended all but the most strategic deals and turned to palliative care. “

This disruption contributed to the surge in palliative care transaction volume from 2019 to 2021, which reached record highs. This began to level off late last year and early 2022. Buyers began to regain their appetite for home healthcare assets as the dust began to settle around PDGM.

Companies like LHC Group (NASDAQ: LHCG), Amedisys Inc. (NASDAQ: AMED) and Addus Homecare (NASDAQ: ADUS) have indicated they will prioritize home health offerings this year.

But now, new disruptions are looming in home healthcare, raising questions about whether shoppers will turn to palliative care again as events unfold.

The U.S. Centers for Medicare & Medicaid Services (CMS) released its proposed 2023 home health care reimbursement rule in June, which included a 7.69% reduction in the base payment rate.

Through these cuts, the agency seeks to reconcile a total of nearly $2.02 billion in overpayments to home care providers in 2020 and 2021, as well as PDGM-related adjustments. Many home care providers have decried the proposal, with some calling it a “declaration of war” that threatens their sustainability.

Even if that changes before the proposed rule becomes final, home care providers are unlikely to see a large enough payment increase to offset rising wages, continued COVID headwinds and runaway inflation.

Some level of disruption is likely, but the impact on palliative care mergers and acquisitions remains uncertain.

“This will certainly affect the volume of home healthcare mergers and acquisitions in the third and fourth quarters, but I’m not sure the period of uncertainty is long enough for buyers to focus significantly on the palliative care,” Mertz said. “We will have to see how it will reconcile. I imagine we will have more clarity around the 2023-2025 refund by the end of this year or early next year. Depending on how drastic it looks at that time, buyer demand could certainly shift significantly towards hospice.

A few factors come into play here. On the one hand, CMS may make changes to the proposed payout rates when the rule is finalized. Additionally, lawmakers have introduced a bill in the U.S. Senate that would prevent CMS from reducing home healthcare prices until 2026.

Second, demographic tailwinds are keeping demand high and more healthcare continues to shift to homes, a trend that has accelerated during the pandemic.

Some stakeholders have suggested that if the cuts happen as proposed, it could lead to further consolidation as smaller providers struggle to absorb the financial left hook.

“One of the biggest impacts that could happen is that consolidation could continue to accelerate. You can look at all the things that home healthcare has faced, and then you add in wage inflation and the gasoline prices,” Barbara Jacobsmeyer, CEO of Enhabit Home Health and Hospice (NYSE:EHAB), told Hospice News. “If the proposed rule becomes final as it is written today, I just don’t know. not how some of these small agencies can stay in business.”

In this uncertain environment – ​​and with another big reimbursement change coming in 2023 via the Home Health Value-Based Purchase (HHVBP) model – operators who offer both home care and care palliatives may be best placed to weather the storm.

In terms of deals, the biggest impact is felt in smaller deals involving pure-play home health agencies, according to Al Veach, founder and CEO of mergers and acquisitions advisory firm Agenda Health.

“Where there’s a bigger deal, and especially where it has a palliative care component, it doesn’t hurt as much,” Veach told Hospice News. “Home healthcare is not just seen as a business in its own right. It’s also considered a go-to engine for hospice, so it tends to be less impactful. »