Aging driving more than the AARP in the US market     

By Jim Moskal 

Home Health M&A continues to soar 

2018 was a banner year in the home healthcare sector with 82 record-breaking deals in the US.

Large agencies became even larger and the home is continuing to become an ever more important care setting. The increase in importance can be attributed to a couple driving factors, including boomers preferring to age in place and health systems looking to further implement and optimize the tenets of value-based care by turning to home healthcare and hospice agencies over traditional post-acute settings to drive down costs and improve outcomes.  

With the silver tsunami wave barely cresting, the annual growth rate for home health spending is predicted to be 6.7% by 2020, higher than any other category tracked. Nearly $103bn was spent on home health care in the United States in 2018, and that number will reach nearly $175bn by 2026 according to a newly released report from the Centers of Medicare & Medicaid Services (CMS) Office of the Actuary.  As a result, the sector is also slated to become a juggernaut for jobs.

With the youngest Boomer turning 65 in far-off 2030, the home healthcare sector’s long-term growth will continue at a robust pace and provide a attractive returns to investors.  

The outlook for 2019 is rosy; in a survey conducted by Capital One Healthcare, 30% of respondents identified home health and hospice as a growth segment for the year.  

Further, more than 60% of the same respondents said their transition to value-based care is just beginning - indicating we can anticipate more cross-collaboration and partnerships between health systems and home health agencies. The ongoing partnership between South Carolina based Lexington Medical Center and Right at Home agency proves just how valuable cross-collaboration can be.  In the two years since the program launched, the readmission rate has plummeted from 30% to just 17%.

Consolidation is the name of the game 
Home health companies backed by private equity (PE) groups and other investment firms were the most active buyers in 2018 and they're forecast to increase their stake and activity in the sector. Acquisition multiples will likely also increase as PE firms and national companies compete with each other to acquire the same targets, or as noted by Modern Healthcare, the high valuations might cause the sector to momentarily plateau as players retreat and wait for prices to come down.

“Consolidation is driving the recent activity in this market, despite reimbursement and regulatory headwinds,” stated Lisa Phillips, editor of The HealthCare M&A Report in an interview with Home Health Care News. She added, “As health systems seek to drive down costs, we expect more to turn to home health care and hospice agencies over traditional post-acute settings like skilled nursing facilities or long-term acute care facilities.”

Another concern that deserves mention is that the implementation of the Patient-Driven Groupings Model (PDGM) may lead to a spike in the number of small home health care providers exiting the market.

Regardless, the sector isn't likely to experience a slowdown while the silver tsunami continues to flow. Major deals in 2019 so far include the $217.5m play for Alacare Home Health & Hospice by Alabama-based Home Health & Hospice and there will be more where that came from.

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