After perhaps the hottest year on record for mergers and acquisitions, the home care, home health and hospice industry could lose some firepower in 2022.
“The demand for home care hasn’t changed a whole lot, but what has changed has been the number of sellers heading for the exits,” Cory Mertz, managing partner at M&A advisory firm Mertz Taggart told McKnight’s Home Care Daily Pulse.
Mertz said M&A deals for the combined three segments topped 160 in 2021 compared to 152 in 2020, led by home care. Last year, COVID-19 burnout and fears of higher capital gains taxes motivated agencies to sell, but Mertz thinks those factors will have less influence in 2022. He also thinks private equity buyers could be discouraged from deals if the Federal Reserve Board raises interest rates.
“We’ve been in an ultra-low interest rate environment for some time now and the biggest beneficiary of that has been private equity,’ Mertz explained. “They leverage debt to juice their returns for their investors, so if interest rates go up, that will have an impact.”
BBB factor
However, Build Back Better remains a huge wild card that could spur sales in the home care industry. The $2 trillion reconciliation plan stalled in the U.S. Senate before Christmas. But if Democrats can push it through Congress with $150 billion earmarked for home-and-community-based services, home care agencies could benefit from higher Medicaid reimbursements. That could be attractive to buyers.
Mike Moran, partner at M&A Healthcare Advisors, told McKnight’s Home Care Daily Pulse increased federal funding could encourage private equity buyers to cut deals. He said the 10% increase in Federal Medical Assistance Percentages helped spur some deals last year.
“We had early success this year with two Medicaid-driven home care agencies in Texas,” Moran said. “I don’t know that there would have been as much interest if there wasn’t that push from a national level to support these companies and prop up these businesses.”
Reimbursement rate uncertainty
Both Moran and Mertz said more buyers could be on the hunt next year for home health agencies, but Mertz warned their interest could lessen if Medicare cuts home health reimbursement rates for 2023. The Centers for Medicare & Medicaid Services is considering possible rate cuts to offset a 6% increase in Medicare payments to HHAs as part of the new Patient-Driven Groupings Model reimbursement system.
“Sellers are still hopeful and optimistic that they are going to be able to adapt to whatever change comes their way, but buyers are going to be much more conservative,” Mertz said.
