Home health consolidation is playing out among national and regional providers as companies look for ways to expand their footprint and gain leverage with Medicare Advantage plans.
Companies are stepping back into the market to snatch up smaller companies after taking a breather from buying in the first half of 2024, according to advisory firm Mertz Taggart, which tracks healthcare deals. Some home health organizations that have expanded through acquisitions are using scale to negotiate higher reimbursement rates from Medicare Advantage plans by up to 7% in return for greater patient access to services.
However, a growing number of home health providers that favor patients with higher-paying health plans over others could make make it more complicated for hospitals to discharge patients to post-acute care.
Related: CMS proposes 1.7% Medicare rate cut for home health providers
In mid-July, Pennant Group announced a deal to buy some home health and hospice assets from Tigard, Oregon-based Signature Healthcare at Home for $80 million. The acquisition, if completed, would expand Pennant’s footprint by 13 locations across Idaho, Oregon and Washington. Pennant President and Chief Operating Officer John Gochnour said the Eagle, Idaho-based company, which provides services in 14 mostly western states, will continue to look for acquisitions this year.
The expansion would help Pennant negotiate higher-paying contracts with Medicare Advantage plans. In markets where demand for home health services is high and staffing is tight, Gochnour said it only makes sense for the company to accept patients covered by plans that pay a better rate.
“You can’t afford to just accept the patient if the [insurer] won’t pay for the cost of care,” Gochnour said. “So, we have to at times go to payers and say, ‘if you can’t move the rate, we can’t continue to accept your volume.’ It’s not a hardball tactic, it’s just reality.”
But that strategy can make it harder for hospitals to move patients to home care and other post-acute settings if they have trouble finding a provider that will accept a patient with a lower-paying Medicare Advantage plan.
Building scale through acquisitions is proving to be an effective way to squeeze higher reimbursements from private insurers as more older adults opt for less expensive Medicare Advantage plans. But those plans typically reimburse providers between 20% and 40% less than fee-for-service Medicare, according to Scott Fidel, managing director of investment Bank Stephens.
Approximately 71% of the patients Enhabit Home Health and Hospice served in the first quarter of this year were covered under higher-paying Medicare Advantage contracts, versus 58% during the same period in 2023, Enhabit President and CEO Barb Jacobsmeyer said at the Goldman Sachs Global Healthcare Conference in Miami last month. She said those contracts helped the company increase average revenue per visit from $136 in 2022 to $145 this year. Dallas-based Enhabit offers home health services in more than 250 locations across 34 states.
The push for higher reimbursements could put additional financial pressure on private insurers already being squeezed by higher patient utilization costs, especially in Medicare Advantage plans. Aetna declined to comment about contracts it has with home health providers and how they might impact Medicare Advantage rates. Humana and UnitedHealth Group did not respond to requests for comment.
Consolidation among home health companies is likely to intensify as labor shortages continue and if the Centers for Medicare and Medicaid Services goes through with a proposed 1.7% Medicare rate cut that is projected to cost the home health industry $280 million next year.
More than 200 home health companies have exited the sector over the past five years through consolidation and closures, reducing the number of providers nationally by 2%, according to the Medicare Payment Advisory Commission. The trend has continued among large and small home health providers.
Dallas-based VitalCaring Group announced a deal in early July to buy some Amedisys home health and hospice locations for an undisclosed sum. The deal is contingent on Securities and Exchange Commission approval of UnitedHealth Group’s $3.3 billion planned acquisition of Amedisys. VitalCaring operates 60 locations across the South and is backed by the private equity firm Vistria Group.
Sioux Falls, South Dakota-based Good Samaritan Society is open to acquiring small home health businesses in mostly rural communities to increase scale after acquiring three rural operators in the past year, according to President and CEO Nate Schema. The nonprofit operates in 10 states, mostly in the Midwest.
“[Staffing] pressures, inflation and higher wages are pushing some of these smaller home health agencies, especially in rural communities, into unsustainable situations,” Schema said.
