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Post-Acute Care Sector Consolidation: Are We Seeing Trends Emerge From Deals Announced in 2013?

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Transactions and business consolidations have been commonplace in the post-acute care market in recent years and 2013 was no exception.  A number of major players were active in the marketplace and the rationales behind their moves provide insights into key market themes and developments.

Four common themes behind transactions in 2013 include:

  • Mitigation of reimbursement risk
  • Expansion of post-acute service line offerings
  • Serving dual eligibles
  • Supporting EMR and workflow enablement technologies

 

Mitigation of Reimbursement Risk

Gentiva acquired Harden Healthcare for $408.8m in cash and stock on September 19th.  This acquisition strengthened Gentiva’s core home health and hospice offering by growing its footprint in the south-central United States.  Furthermore, the acquisition significantly diversified Gentiva’s payer mix away from Medicare and towards Medicaid and commercial payers.  A pro-forma analysis of Gentiva’s reimbursements indicated that Gentiva’s Medicare payer mix would have decreased from 86% to 72% in 2012, had the entities been combined then.  This transaction highlights the trend of providers attempting to mitigate payer risk, especially Medicare exposure, in the face of increased reimbursement pressures from CMS.  This is especially true in home health, where reimbursements will be cut by ~1.05% in 2014 (net of cuts from rebasing and increases from market basket adjustments).   This will reduce home health payments by $200m this year.  CMS also confirmed that it still plans to cut the base rate by 14%, or 3.5% per year, over the next three years.


Expansion of Post-Acute Service Line Offerings

Kindred Healthcare has pursued an aggressive acquisition strategy that has transformed it into the largest diversified provider of post-acute care services in the U.S.  Since 2010, Kindred has completed 17 acquisitions, including 7 in 2013 alone – notably the $95m acquisition of Senior Home Care.  Kindred’s expansive service line offerings in the post-acute sector shield it from specific risks associated with any single care setting.  The Company’s multi-line strategy allows it to take advantage of the growth of the entire post-acute care marketplace, with a particular focus on expanding its higher margin rehabilitation, home care, and care management businesses while reducing its skilled nursing business line.  Kindred’s M&A activity exemplifies a horizontal integration strategy that several large players are employing.  This strategy enables Kindred to benefit from increased scale and leverage, contrary to the many small players in the market that struggle to keep up with the burdens of increased overhead from regulatory and other pressures.


Serving Dual Eligibles

Payers are focusing on Medicare, Medicaid, and dual eligibles as top strategic priorities and are enhancing their capabilities to serve these chronic populations.  Comprehensive care coordination and in-home health services companies improve payers’ abilities to effectively manage these populations and have become highly desirable assets in the marketplace.  Examples of 2013 payer acquisitions of post-acute providers and care coordinators to help serve dual eligible populations include:

  • Centene’s $200m acquisition of U.S. Medical Management in December
  • CIGNA’s acquisition of Home Physicians Management (d/b/a Alegis Care) in September
  • Humana’s acquisition of American Eldercare in July

 

Supporting EMR and Workflow Enablement Technologies

As reporting and regulatory requirements for post-acute care providers continue to increase, the need for effective EMRs and workflow enablement technologies is paramount.  Care coordination technology platforms like Care Team Connect, which was acquired by The Advisory Board in October, are increasingly valuable as bundled payment initiatives and hospital readmission penalties gain traction.  Clinical intelligence platforms such as Humedica, which was acquired by Optum in January, enable payers and providers to aggregate and analyze patient data from numerous sources, which improves clinical decision making and can mitigate costs to the system.  EMRs and back office workflow enablement systems that allow real-time information exchange and communication between remote home care providers and the central office are also in high demand as providers look to streamline operations in an increasingly complex regulatory and clinical world.  The most relevant post-acute EMR transaction of 2013 was Hearst’s acquisition of Homecare Homebase in December.

Business combinations will continue to shape the marketplace and serve as tangible examples of the ever-changing pressures and opportunities.

We’re looking forward to 2014 and are interested to know what you think.

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Justin Fengler