Labor shortages, tighter access to capital and low reimbursements from some payers could force more healthcare providers to shed non-core operations, such as personal care and post-acute care, according to analysts.
The trend to refocus on core businesses is occurring across the healthcare industry, from hospitals to home health companies. The back-to-basics strategy comes at a time when investors are still uncertain over the direction of interest rates and are searching for quality businesses to buy, according to healthcare mergers and acquisitions consulting firm Mertz Taggart.
Related: Nursing homes, hospices, other businesses sold as hospitals refocus
More than three-quarters of 51 active buyers of home health, hospice and personal care companies said they planned to increase acquisitions in 2024, according to a survey released last week by Mertz Taggart. However, those buyers also said they were laser-focused on acquiring businesses that will generate strong profits, according to the survey.
Health systems have been among the most active sellers of those businesses. Many acquired post-acute and personal care operations over the past two decades to generate extra revenue and control care transitions. Now, some want to shed parts or all of those businesses as they face higher borrowing costs and what they consider unfavorable Medicare and Medicaid reimbursements, according to Scott Fidel, managing director at investment bank Stephens.
“Companies are evaluating which of their lines are must-have operations as compared to nice-to-have operations,” Fidel said in an email.
Advocate Health is the latest example of that approach. Last week, it sold personal care company Senior Helpers to private equity firm Waud Capital Partners for an undisclosed sum. Maryland-based Senior Helpers provides non-clinical home care such as meal preparation, bathing and grooming to clients in 44 states, Canada and Australia.
The sale came nearly three years after Advocate Aurora Enterprises acquired Senior Helpers to become a “destination health company,” and more than 15 months after it merged with North Carolina-based Atrium Health to form Advocate Health
Advocate did not say what motivated the sale of the business, but a spokesperson said in an email the health system is committed to investing in “health-related companies.”
“The ways in which we do so are evolving, and we’re focused on building strategic partnerships and pursuing strategic investments that enable us to remain nimble while strengthening our ability to provide the safest and highest-quality care,” the Advocate spokesperson said.
Other health systems, including Hackensack Meridian Health, ProMedica and Bon Secours Mercy have sold off nursing homes, home health and hospice businesses. None of those transactions involved the sale of personal care units.
Some home health providers have been shedding nonclinical personal care businesses due to challenges related to labor and reimbursement.
Last year, Amedisys sold its personal care business for $50 million to HouseWorks to focus on its home health, hospice and hospital-at-home business. Last June, Baton Rouge, Louisiana-based Amedisys agreed to be acquired by UnitedHealth Group for $3.3 billion.
In 2022, Humana sold a majority stake in Kindred at Home’s personal care and hospice businesses for $2.8 billion to private equity firm Clayton Dubilier & Rice. Humana still maintains the home health business, which now operates under CenterWell Home Health.
Rising labor costs are behind some of those sales, according to Richard Kes, healthcare senior industry analyst at accounting firm RSM. But he said differences in the way clinical and non-clinical businesses are staffed and reimbursed are also driving sales.
Home health and hospice care is provided by skilled clinical workers and reimbursed by Medicare and private insurance. Home care is mostly performed by unskilled workers and is typically reimbursed through Medicaid and private pay.
“The executive team might be thinking we can’t have our feet in two different canoes because they are eventually going to go in different directions, so let’s have both feet in one canoe,” Kes said.
