Home health care industry needs to prepare for the costs of consolidation


At Home Health Care News, it appears we’ve been writing about “the rapidly consolidating home health market” for years. Take a look at this story from 2015, for example. There are also these newer coins from 2018 and 2019, respectively.

In many ways, consolidation – either through branch closures or through mergers and acquisitions – has been a way of life in the home healthcare industry. Ahead of 2020 and the launch of the Patient-Driven Groupings Model (PDGM), many home health executives even predicted a new “historic” wave of consolidation, similar to what happened in the 1990s with the start. of the old prospective payment system (PPS).

At least based on the conversations I had in early 2020, that wave seemed to materialize.

“I’m getting calls from agencies looking to shut down at this point,” McBee Associates chairman Mike Dordick told HHCN at the time. “They were on the verge of organizational success under PPS and that’s the final straw.”

In March 2020, however, the tide turned. The COVID-19 crisis has begun, forcing some potential vendors to refocus on their pandemic response and patient care. Additionally, some of the cash-strapped and exiting operators were able to stay, thanks to money from the Provider Relief Fund and advance payments from the US Centers for Medicare & Medicaid Services (CMS). .

The accelerated consolidation simply did not happen.

“We were starting to see upheaval in the home healthcare industry,” Amedisys CEO Paul Kusserow said during a presentation at an investor conference in 2020. “We had around 50 offers in front of us. We were able to finish a few, … but it completely dried up with COVID-19. “

But now, as the pandemic becomes more manageable and relief from COVID-19 wanes, M&A activity is starting to pick up. This spring and early summer saw a flurry of home health care deals, with Mission Healthcare’s acquisition of Healthy Living Network being one of the latest examples.

From my chair as editor at HHCN, I feel like we’ve finally come to the point where the home health industry will contract significantly. If this happens, home care operators should prepare for the positive and negative aspects of consolidation.

A more efficient market

From 2018 to 2019, the number of home health agencies fell by about 3.6%, according to the Medicare Payment Advisory Commission (MedPAC). Since 2015, the home health sub-sector has contracted by more than 8%, with nearly 1,000 branches exiting the market.

Today there are over 11,000 home health agencies operating in the United States

From a program compliance and integrity perspective, there are many potential benefits associated with a smaller home health care industry. For starters, fewer individual agencies means less ground to cover for CMS and its contractors. A consolidated field also means that bad actors become easier to spot.

Meanwhile, the scale can lead to significant efficiency gains and improvements in the quality of care from an operational perspective.

If a regional health system only works with a few home care providers instead of dozens, for example, that network can perfect a streamlined referral process and minimize care gaps. The same goes for health insurers who contract with home care providers to care for their members at home.

“You can do really different things for your employees as well,” Mission CEO Paul VerHoeve told me earlier this week. “You can serve contiguous geographic areas, which is really important to your community partners. “

On top of all this, consolidation in any industry often leads to innovation, with the acquisition of companies capable of blending their intellectual property with that of their peers. Of course, some may argue this claim by saying that it is competition that triggers more innovation.

These are a few potential benefits of home health consolidation, which recent data also suggests is occurring at an accelerated rate, by the way.

In the second quarter of 2020, at the height of the COVID-19 pandemic, there were only seven home health care deals, according to mergers and acquisitions consulting firm Mertz Taggart. This has been easily surpassed every quarter since, with at least 15 home health deals coming in the second quarter of 2021.

Source: Mertz Taggart

Consolidation risk factors

Consolidation could be good for the home health industry. It can also be very, very bad.

In other industries, increased consolidation has resulted in higher service costs, although this is usually when companies bill consumers directly. In Medicare, payment policies somewhat protect the system against price increases due to horizontal consolidation.

Hospitals are a prime example of the problem. An analysis of 25 metropolitan areas with the highest hospital consolidation rates from 2010 to 2013 found that the price paid by private insurers for the average hospital stay increased almost everywhere, from 11% to 54% over the course of of the following years.

And while home health officials say consolidation can increase efficiency and improve the quality of care, it hasn’t always been the case in other areas of health care. A 2013 study found that large groups of hospital providers had higher Medicare spending and readmission rates per beneficiary than smaller groups.

Consolidation of hospitals and the healthcare system has been so problematic that it has been the center of attention of former California Attorney General Xavier Becerra, who now heads the US Department of Health and Human Services (HHS ).

“You have to watch these systems that are weighing their weight,” Becerra previously told The New York Times. “We are looking for cases where consolidation does nothing for efficiency and leads to market distortions.”

There are also times when large providers take a larger share of the market and place too much emphasis on operational efficiency at the expense of patient care. Many home clinicians are already concerned about this danger, some even taking the time to email HHCN to express their concerns.

“Studies to date tend to refute the argument that acquisitions improve efficiency, reduce costs and lead to better coordination of care,” states a March article from the Commonwealth Fund. “Instead, they show that consolidation increases prices and does not improve the quality of care.”

Join the dots

The purpose of this HHCN article is not to defend or attack consolidation. Rather, it is a reminder to home health officials that consolidation must be done responsibly, with patient care always at the center.

Frankly, I personally think that some degree of consolidation is probably required. There were no more than 8,000 home health agencies in the United States until 2005 – and that number increased every year until about 2013.

If consolidation is done too quickly – or if it’s too profit-driven – clinicians will leave, making current staffing issues even more serious as demand increases.

Additionally, the home health industry itself has worked incredibly hard over the past decade to improve its reputation. Home care is now on a pedestal, and anything that compromises it is not worth it.

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