Private equity (PE) firms represent the strongest competitors for strategic buyers in the hospice mergers and acquisitions market.
Hospice M&A activity cooled off across the board during the first quarter of 2022. In part, this is because a range of buyers scrambled to complete deals during late 2021 and are now focused on integrating those assets.
But the volume of hospice deals for private equity firms rose 30% to 50% during the past two years, reaching a record high, according to the M&A advisory firm The Braff Group. And their interest is not abating.
Even aside from stiff competition for an attractive asset, deals can fall through for any number of reasons, according to Amedisys (NASDAQ: AMED) Executive Vice President and CFO Scott Ginn, speaking at the Bank of America Securities annual Healthcare Conference in Las Vegas.
“Private equity still was primary competition. We have some other nice size players out there … We’re always looking at deals, but we’ve kissed a lot of frogs [and] had a lot of deals we can’t get through,” said Ginn. “You may see some deals open up, or maybe some of the smaller deals don’t even come to market, if enough pressure is there around labor and reimbursement.”
Also complicating deals is the amount of time it can take to close a transaction according to Ginn. Some of Amedisys’ larger acquisitions have ripened more slowly than others.
For example, the company spent around three years working with AseraCare Hospice before purchasing it for $235 million in 2020, and spent a little more than two years developing a relationship with Compassionate Care Hospice (CCH) before acquiring the provider for $340 million in 2019.
Amedisys and several other large providers late last year signaled that they would shift their M&A focus more heavily towards home health during 2022. Many buyers were more aggressive on the hospice side as they waited for the dust to settle from the onset of the Patient-Driven Groupings Model (PDGM).
Despite the forces at play, Amedisys anticipates that hospice acquisitions will be a key driver of growth going forward. This includes deals emerging from the company’s resurgent joint venture strategy.
In terms of what’s next for its acquisition targets in the health care space, “anything’s on the table,” according to Ginn.
“We still have an active pipeline and we are pushing it pretty hard,” said Ginn. “We expect to see some more [deals] come through in the second half of the year. We’re still on the hunt for good deals.”
The company’s prior acquisitions may serve as a springboard for some future deals, including its $250 million acquisition of Tennessee-based Contessa Health last June.
Contessa Health provides a continuum of home-based care, including high-acuity services such as hospital-at-home and skilled-nursing-at-home services. The provider in January expanded its home-based palliative care program, which launched in partnership with Mount Sinai Health System in New York.
The Contessa deal has since opened doors to new mergers and acquisitions, as well joint venture opportunities for Amedisys. More players are coming to the table looking for a partner, CEO Chris Gerard indicated at the BofA conference.
“After the Amedisys acquisition of Contessa, we’ve been approached by some of these joint venture partnerships to expand a relationship to either add more of their home health or hospice service lines into the JV, or have us adding additional markets into the JV,” said Gerard. “That’s been a positive sign. There were a good number of systems out there that were not necessarily in dialogue before the acquisition, but based on our market presence have now come to the table and wanted to explore ways that we can partner together.”
The Baton Rouge, Louisiana-based provider has achieved hospice expansion through a mix of acquisitions and de novos. The company has sourced many of its hospice deals internally, aiding in its ability to strike attractive agreements in a competitive market.
The company’s roughly 21,000 employees deliver care to roughly 445,000 patients annually in 548 care centers across 38 states and the District of Columbia, including hospice, home health and palliative care, as well as higher-acuity home-based care through Contessa.
Like others in the industry, Amedisys has seen drops in hospice average daily census and length of stay during the pandemic as more people die at quicker rates due to COVID-19.
These industry-wide trends in discharge rates can also make potential deals difficult to gauge. All sides in a potential transaction are looking at the average daily census issue, according to Ginn.
Despite these headwinds, the company maintains a positive outlook for its hospice segment in 2022, Gerard indicated at the conference.
“Hospice as an underutilized benefit, where more and more people are starting to appreciate the value of hospice, from a consumer perspective, as well as from a payer perspective,” Gerard said. “We’re very optimistic that hospice will continue to see strong growth into the future and stable reimbursement around it as well.”