Although many expect hospice M&A to resume in 2024, the scales are tipping in favor of home health companies among buyers.
Overall, signs point to increased buyer activity this year, particularly among private equity, as interest rates begin to fall. After the 2023 downturn, PE firms have more than $800 million in dry powder, according to data shared with Hospice News by The Braff Group.
Interest in hospice remains high, but the profile of home health is growing faster in today’s market, according to Joel Rhodes, partner at M&A advisory firm Triavo Health.
“There is a much greater appetite for healthcare acquisitions everywhere. In the hospice and home health arena, what we’re seeing is that there’s a little bit of a tilt toward home health versus hospice now, but you still have private equity firms that have a very heavy case for hospice and they’re in their thought process. But there’s definitely more of a home health slant.”
Transaction volume declined in the hospice and home care space in 2023, after the two previous record years. Only three hospice deals closed in the third quarter of this year, compared with 11 in the third quarter of 2022 and 18 in the same period in 2021, according to The Braff Group.
But additional data points to a resurgence. A recent survey by M&A firm Mertz Taggart found that 77% of 51 home care buyers indicated they would be more active in the M&A market this year compared to 2023.
Interest rates remain a wild card. The Federal Reserve has kept interest rates steady at the start of the year, but many expect them to start falling by the summer and into the fall.
“So much of what we expect to see from an activity perspective will depend on whether or not the Fed adjusts interest rates,” Rebecca Springer, lead healthcare analyst at PitchBook, told Hospice News affiliate Home Health recently. Care News. “Higher interest rates may affect the value of future cash flows and exit estimates.”
A number of factors are influencing these trends, including increased regulation in the hospice space.
The U.S. Centers for Medicare and Medicaid Services (CMS) has advanced the integrity of the hospice program through a number of new regulations, including some in the agency’s 2024 hospice final rule. The regulations focused on Medicare enrollment in an attempt to stifle unethical or illegal activity in the space. Other provisions appeared in the 2024 final home health rule that, among other things, prohibits the sale of a new hospice within 36 months.
While a similar rule already exists in home health care, the fact that the hospice requirement is new for this year may cause some confusion. The home health version of the rule has been in place for more than a decade.
Potential reimbursement pressures also play a role, according to Triava CEO Jared Rhodes. The Medicare Payment Advisory Committee (MedPAC) recently called for a freeze on the base daily rate for hospice through 2025, for example.
A third major factor is the rise of Medicare Advantage and managed care, Rhodes pointed out.
“Managed care now goes far beyond typical Medicare reimbursement. The recovery is much lower per census, and so you’re doing more work for less money per census,” Rhodes said. “But I think the thought process is that you can really get some pretty big home health companies out there in the market because of the managed care side of the business. If they can land a good contract or multiple contracts with some of these managed care providers, it allows them to expand their census dramatically.