The Administration on Aging projects the number of Americans aged 65 and older will rise to 80.8 million by 2040, creating significant demand for home health delivery models in the US.
To meet this demand, strategics, payors, and private equity are relying on mergers and acquisitions to build economies of scale. These efficiencies can solve chronic problems like staffing shortages, meet Medicare and Medicaid value-based care reimbursement requirements, and satisfy patient appetite to receive care at home.
Focus on Results
The shift towards value-based care reimbursement models by the Centers for Medicare and Medicaid Services will continue to drive investment in the home health sector. To understand this trend, it is important to consider several investing themes strategics are deploying to expand their value-based care capabilities.
Generally, these themes turn on producing specific results, such as improving health-care outcomes, managing costs, and improving patient experiences.
To achieve these objectives, payors are relying on M&A activity to build economies of scale that offer breadth and depth of integrated capabilities, including home health-care delivery models, telehealth, remote wearable devices, and others.
As M&A activity turns on certain themes such as improving health-care outcomes, payors and strategics need to solve chronic problems like staffing shortages. The sector is approaching a projected global shortage of 10 million health workers by 2030, according to the World Health Organization.
In this environment, consolidation and strategic investment are being driven by the need to fill staffing gaps, fund and develop new technologies, and create a range of services within core markets.
Consolidate for Efficiencies
Disparate health-care providers struggle to develop economies of scale that can properly leverage their resources, institutional knowledge, and personnel. Many health-care leaders view consolidation and private investment as pragmatic responses to the problem. Solving staffing shortages necessarily drives M&A activity as a prerequisite for growth.
Under similar investing themes, health systems are looking to partner with home health agencies through joint ventures and strategic home health-care partnerships. The reasons for forming joint ventures and strategic partnerships vary, but they often include gaining access to new technologies, expanding the continuum of care, and diminishing readmissions among patients.
The latter point is particularly important for hospitals that understand how value-based care measurements will factor in avoidable hospital readmissions. As such, health systems view the expansion of the continuum of care as pathway to manage a broad spectrum of health problems, both in traditional hospital settings or via at-home options, among others.
Appetite for Home Care
Moreover, Covid-19 has further shifted consumer appetite to home health delivery models. This increased preference coincides with two important factors creating tailwinds for continued growth—by 2030, all baby boomers will be older than 65, and home health delivery models will save CMS—the largest single payor in health care—billions of dollars by shifting care from hospitals to patients’ homes.
This trend means, among other things, that an aging population with increasingly complex health-care needs will sustain continued growth among home health and hospice providers. It is likely that strategics and payors are well-positioned to deploy their dry powder to respond to the lifestyle choices and preferences of an aging population that wants to receive complex care via home health delivery models.
Staffing shortages are likely to persist, and the aging population will continue to require novelty in health-care delivery models and receive care at home. And value-based care is still building momentum toward strategic consolidation and investment.
While the number of billion-dollar mega-deals like UnitedHealth Group’s acquisition of LHC Group and CVS Health’s purchase of Signify Health may taper in 2023, or return to pre-pandemic levels, market forces will continue to drive M&A activity in the home health sector.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Author Information
Ken Marlow is partner at K&L Gates, co-leader of the firm’s global health care and FDA practice, and member of the corporate practice.
Wells Beckett III is a partner at K&L Gates and member of the health care and FDA and corporate practices.
Dean J. Balaes is an associate at K&L Gates and member of the mergers and acquisitions and health care and FDA practices.