Given the disastrous changes in Medicare reimbursement rates, it won't surprise anybody that interest in buying or combining home-care companies is drying up.
A recent study shows that the number of mergers and acquisitions in home health crested more than a year ago and is sharply declining.
In the 12 months ended June 30, 1998, there were 111 publicly announced mergers and acquisitions of home healthcare companies, according to a new study from Irving Levin Associates.
This was a decline of 21% from the previous 12-month period, when a record 140 mergers took place.
New Canaan, Conn.-based Levin tracks healthcare merger activity. It attributed the decline to changes in Medicare reimbursement, the inability of some companies to remain solvent and continuing investigations into fraudulent home health billing practices.
"Although the number of transactions remained relatively high, the regulatory uncertainty in the home healthcare industry certainly had an impact on the volume of activity," says Stephen Monroe, a partner at Levin.
Monroe predicted that consolidation in the market will continue despite the uncertainty over reimbursement. More than 70% of publicly traded home health companies are selling at less than $5 per share, and five companies are at less than $1 per share.
"The companies with liquidity and adequate bank lines are the ones that are able to take advantage of some of the pricing weakness that is becoming more apparent in the market," Monroe says.
The home health acquisition leader was American HomePatient, which announced 21 transactions. Next was Integrated Health Services, which completed 19 deals, followed by Pediatric Services of America and Amedisys. The four companies together were involved in about half of all transactions in the 12-month period.
Integrated made twice as many acquisitions by June 30, 1998, as it had the year before.