Volume 10, Issue 19, September 12, 2023
At VERTESS, we've seen our number of home health clients increasing throughout 2023. I thought it would be worthwhile to share what we're witnessing and anticipating for this sector as we move into the final quarter of the year and head toward the new year.
Here are nine of our observations.
We expect the demand for home health services to continue growing, with contributing factors including an aging population, rising healthcare costs, and the consumer preference for personalized care. With individuals seeking convenient and accessible healthcare options, this is an opportune time for home health providers to meet the escalating demand. Those that are successful here will make themselves more appealing to strategic partners.
The ever-increasing demand for home health services is creating a more robust buyer pool actively seeking acquisitions. This is leading to escalating competition among buyers looking to acquire established and successful home health businesses. Such high demand should lead to increased purchase prices and put sellers more in the driver's seat in terms of their bargaining position.
In our conversations with buyers, it's apparent that they are prioritizing home health agencies demonstrating operational excellence and efficiency. Other qualities high on buyers' priority lists include:
It's increasingly apparent that home health agencies investing in technology, integration, and data analytics will stand out against those that are not. Adoption of solutions such as remote patient monitoring, telehealth platforms, predictive analytics, and artificial intelligence (AI)-driven care coordination tools will enhance an agency's appeal to buyers.
Furthermore, the ability to leverage digital advancements to improve patient care, outcomes, operational efficiency, revenue, and cost-effectiveness will help set agencies apart and attract more potential buyers willing to offer higher multiples.
Sellers interested in piquing buyer interest should improve how they coordinate and manage care across the healthcare continuum. The ability to achieve seamless transitions and strong communication between healthcare providers is becoming increasingly crucial for home health agencies.
In highly competitive markets, buyers are favoring home health agencies with diversified service offerings and niche specialization. Providers offering comprehensive services such as palliative care, complex disease management, mental health support, rehabilitative therapies, and pediatric care will be more attractive. In addition, niche specialization will help differentiate agencies and position them as leaders within specific segments. This should help attract substantial interest from various buyers.
Proposed cuts to Medicare and Medicaid funding may pose potentially big challenges for home health providers considering whether to go to the market in the near future. If finalized, agencies would be facing a roughly 2% payment reduction in 2023 and an additional 1.25% in 2024. Assuming these cuts are finalized, it will be increasingly important for home health providers to prepare for Medicare cuts, prepare for a portion of Medicaid revenue to go to caregivers, and hope the final ruling is sustainable.
One of the contributing factors to the surging popularity of acquiring home health businesses is the increasing demand for both Medicare-certified skilled home health and non-skilled services. These have been driven by staffing shortages in the healthcare industry, which has led to the rise of the non-skilled "agency model" in the home health sector.
With this model, individuals can step in and provide much-needed care for their loved ones, while also getting paid for services rendered. Such an approach presents a win-win situation where families receive reliable caregivers and individuals seeking work can fill the gap in home health services.
The appeal of the agency model lies in its ability to provide flexible care options while giving greater control to families over who is providing home healthcare. Rather than relying solely on professional caregivers or nursing homes, families can choose someone they trust, such as a friend or family member. This can not only create a more personalized experience but also help alleviate the shortage of skilled home healthcare workers.
Home health agencies looking to maximize valuation should focus on ways to shore up and strengthen their bottom line and EBITDA (earnings before interest, taxes, depreciation, and amortization) as they prepare to come to the market. This includes adopting strategies to optimize financial performance, control costs, and improve efficiency. In addition, prospective sellers should meticulously assess their revenue streams and cost structures while identifying areas for improvement that can demonstrate their ability to maintain profitability despite potential reimbursement and other challenges.
The home health sector provides significant M+A opportunities going into 2024, driven by evolving buyer expectations. We're seeing buyers increasingly value operational excellence, technological integration, care continuity, and diversified service offerings. However, concerns surrounding proposed reimbursement cuts require careful consideration.
Despite these challenges, favorable market conditions and intense competition among buyers make it an opportune time for home health agencies to explore their options for strategic alliances or sales. With the help of an expert M+A advisor like VERTESS, home health agencies can navigate the complex market landscape and better position themselves for a successful transaction.
If you would like assistance with preparing your home health agency for a sale, please contact me using my information below. I'll be attending next month's 2023 Home Care and Hospice Conference and Expo with my colleagues, Bradley Smith and Blake Peart. If you will be in D.C. for the conference, send me an email and we'll find a time to meet up!