The healthcare industry has to adjust to consolidation costs
At Home Health Care News, it seems like we’ve been writing about “the rapidly consolidating home health market” for years. For example, look at this story from 2015. There are also these newer pieces from 2018 and 2019.
In many ways, consolidation – either through agency shutdowns or through M&A activity – is a way of life in the home health industry. By 2020 and the introduction of the patient-controlled grouping model (PDGM), many executives in the home health system even forecast a new “historic” wave of consolidation, similar to the one 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 some calls from agencies wanting to close at this point,” Mike Dordick, president of McBee Associates, told HHCN at the time. “You were on the verge of asserting yourself organizationally under PPS, and that is the last straw.”
In March 2020, however, the tide turned. The COVID-19 crisis began, forcing some potential sellers to focus on their response to the pandemic and patient care. Additionally, some of the insolvent operators who were on the verge of exiting the market have survived thanks to money from the Provider Relief Fund and upfront payments from the U.S. Centers for Medicare & Medicaid Services (CMS).
Accelerated consolidation just didn’t happen.
“We started to see some changes in the home health industry,” said Paul Kusserow, CEO of Amedisys, during a presentation at an investor conference in 2020. “We had about 50 deals ahead of us. We were able to complete a few of them, … but then with COVID-19 that completely dried up. “
But now that the pandemic is getting more manageable and COVID-19 aid is waning, M&A activity is picking up. This spring and early summer there has been a deluge of home healthcare stores, with Mission Healthcare’s acquisition of Healthy Living Network being one of the most recent examples.
From my HHCN editor’s chair, it feels like we’ve finally got to the point where the home health industry is going to shrink significantly. In this case, home nursing operators need to prepare for the positive and negative aspects of consolidation.
A more efficient market
According to the Medicare Payment Advisory Commission (MedPAC), the number of home health agencies decreased by about 3.6% from 2018 to 2019. Since 2015, the home health subsector has shrunk by more than 8% and nearly 1,000 agencies have left the market.
Today there are more than 11,000 health departments in the United States
From a compliance and program integrity perspective, there are many potential benefits associated with a smaller home health industry. To start with, fewer individual agencies mean less ground for CMS and its contractors. A consolidated field also means that bad actors are easier to spot.
In the meantime, from an operational perspective, scaling can lead to important efficiency gains and improvements in the quality of care.
For example, if a regional health system works with just a few GPs instead of dozens, this network can perfect an optimized referral process and minimize gaps in care. The same applies to health insurers who hire their members to provide home health insurance.
“You can really do other things for your employees, too,” Mission CEO Paul VerHoeve told me earlier this week. “You can serve contiguous regions, which is very important for your community partners.”
In addition, consolidation often leads to innovation in any industry as the acquiring companies are able to merge their intellectual property with that of their competitors. Of course, some may debate this claim, arguing that it is competition that drives more innovation.
There are a few potential Benefits of home health consolidation, which recent data also suggests is happening at an accelerated pace.
In the second quarter of 2020, the height of the COVID-19 pandemic, there were only seven home health transactions, according to M&A advisory firm Mertz Taggart. That has been slightly exceeded in every quarter since then, with at least 15 home health contracts signed in the second quarter of 2021.
Consolidation Risk Factors
Consolidation could be good for the home health industry. It can also be very, very bad.
In other sectors, increased consolidation has resulted in higher service costs, although this is usually the case when companies bill consumers directly. At Medicare, payment policies in some way protect the system from price increases due to horizontal consolidation.
Hospitals are a good example of this problem. An analysis of 25 metropolitan areas with the highest rates of hospital consolidation from 2010 to 2013 showed that the price that private insurers paid for the average hospital stay rose almost consistently from 11% to 54% in the following years.
And while home nursing executives say that consolidation can increase efficiency and improve the quality of care, it has not always been the case in other areas of health care. A 2013 study found that larger hospital-based provider groups had higher Medicare spending and readmission rates per beneficiary than smaller groups.
The consolidation of hospitals and health systems has been so problematic that it was the focus for former California attorney general Xavier Becerra, who now heads the U.S. Department of Health (HHS).
“You have to be careful that these systems throw their weight around,” Becerra previously told the New York Times. “We are looking for cases in which consolidation does nothing for efficiency and leads to market distortions.”
There are also times when larger providers take a larger market share and prioritize operational efficiency at the expense of patient care. Many GPs are already concerned about this risk, and some even take the time to email HHCN to raise their concerns.
“Previous studies tend to refute the argument that acquisitions improve efficiency, reduce costs and improve coordination of care,” said a March Commonwealth Fund article. “Instead, they show that consolidation increases prices and does not improve the quality of care.”
Connect the dots
The purpose of this HHCN article is not to defend or attack consolidation. Rather, it is intended to remind home care leaders that consolidation must be done responsibly, with patient care always at the fore.
In all honesty, in my personal opinion, it probably requires some degree of consolidation. There were no more than 8,000 home health authorities in the US until 2005 – and that number grew every year until about 2013.
If the consolidation is done too quickly – or if it’s too for-profit – clinicians will leave, making current workforce challenges worse as demand increases.
In addition, the home health industry has worked incredibly hard, itself over the past decade, to improve its reputation. Home care is now on a pedestal, and anything at risk is just not worth it.