Amedisys aims to acquire Compassionate Care Hospice for $340 million

Home health giant Amedisys signed a definitive agreement to acquire Compassionate Care Hospice for $340 million, which would make it the third-largest hospice provider in the country, the publicly traded company announced Wednesday.

The deal, expected to close by Feb. 1 pending the customary regulatory approvals, would expand Baton Rouge, La.-based Amedisys' hospice footprint from 83 care centers in 22 states to 136 facilities in 34 states. It would boost its hospice patient population from 7,500 to 11,000 and add about 2,300 employees, bringing the combined entity's total to nearly 20,000.

The $340 million price tag includes $50 million in payments related to a tax asset and working capital, the company said in a news release. The price equates to about 11-times Compassionate Care's $27 million of adjusted earnings before interest, taxes and depreciation (excluding the $50 million payments), which is a good deal given that the most hospice transactions are going for about 16-times EBITDA, said Paul Kusserow, president and CEO of Amedisys. Amedisys expects to grow Parsippany, N.J.-based Compassionate Care's EBITDA to $37 million, which represents a multiple of 8.

"The home is emerging as the place where consumers would prefer to be," he said. "There will continue to be substantial growth in home health, hospice and personal care."

Amedisys' expanding portfolio will serve it well as the number of Medicare Advantage plans increase and the company takes on more risk, Kusserow said.

Amedisys has been steadily growing its home health operations over the past several years, bolstering its position as the largest home health provider in the country.

It acquired a large home health company in Sarasota, Fla., Infinity HomeCare in 2016, as well as the personal-care companies Associated Home Care and Professional Profiles. In 2017, it made some smaller acquisitions including three home health centers and two hospices from Tenet Healthcare and Intercity Home Care and Home Staff. In August, it made a minority equity investment in the home health and hospice predictive modeling and analytics firm Medalogix, which has helped Amedisys better coordinate care and expand its risk-based contracting, Kusserow said.

But with a revamped reimbursement model coming into play for home health operators in 2020, it made sense to diversify its portfolio, he said.

"When the sun is shining in one part of the field, we want to nourish that," Kusserow said. "We have been spending a lot of our time preparing for the changes coming in 2020, and it doesn't make sense to buy more home health assets."

Baton Rouge, La.-based Amedisys' operating income increased to $78.5 million on net revenue of $1.53 billion in 2017, up from $57.3 million of operating income on $1.44 billion of net revenue in 2016.

Net income attributable to the company dropped to $30.3 million in 2017, down from $37.3 million in 2016, primarily due to an increase in salary and benefit expenditures, Kusserow said. But notably, adjusted EBITDA improved to $142.2 million in 2017 compared to $109.9 million in 2016 while cash flow increased to $86.4 million, up from $30.2 million, he added.

More people are using hospice services, which has spurred consolidation and attracted private equity investment. About half of Medicare beneficiaries died in hospices in 2016, a significant increase from 22.9% in 2000, according to MedPAC.

Total Medicare spending on hospice utilization increased from $2.9 billion in 2000 to $16.8 billion in 2016 as utilization nearly tripled.

The number of hospices nearly doubled from 2000 to 2016, led by a 333.7% surge in for-profit hospitals from 672 to 2,938. Freestanding hospice providers more than tripled over that time.

Kusserow expects more consolidation in the hospice space.

"Some private-equity investors are getting involved in hospice, which is still largely a fragmented business," Kusserow said.

Amedisys restructured its Florida home health segment, closing four locations and consolidating three others. Its Florida operations are bouncing back and will continue to improve given that Amedisys has a more diverse portfolio in the state and Compassionate Care is one of the largest hospice providers there, Kusserow said.

The restructuring followed a Medicare audit that alleges it overpaid $34 million for services delivered at Amedisys' Infinity Home Care of Lakeland and another $4.8 million to its Infinity Home Care of Pinellas, which Amedisys acquired in late 2015.

Amedisys is appealing the audit and disputed the methodology of the findings.

Also last year, the company paid $43.7 million to settle a shareholder class-action securities lawsuit brought in 2010.

The settlement was the final chapter of a seven-year legal battle that also saw Amedisys pay $150 million in 2014 to the U.S. Justice Department for allegedly providing unnecessary care and upcoding, among other charges.

Amedisys stock was trading down 1.3% at market close. Its stock has nearly quintupled and its market cap has almost quadrupled over the last four years, the company said.