The consolidation in the post-acute market is for real!! What does this mean for you? There was an agreement just signed between a large catholic health care system and a company that has tremendous expertise and resources in managing the elements of the post-acute care system. This company will be managing the hospice and home elements of this System’s post-acute programming. This is ground breaking for the simple fact that most hospital based hospices and home care companies under-perform when compared to best practice industry standards. This move will enhance their quality and service abilities and strengthen their competitive nature.
Further, there are many hospice companies being bought and sold. The interesting thing here is that those hospice companies with larger censuses command a higher multiple as compared to those who do not. Case in point. The recent Kindred deal with Gentiva was projected to have completed at a multiple of 12. A much smaller hospice (census of 200) went for a multiple of 6.5. So consolidation can have a significant financial impact. The shake out in the home care market will see 25% less home care providers in 5-years. This will enhance the value of these remaining home care companies.
Recent changes in healthcare regulation mean that, although the market for some types of post-acute care is growing, it is also consolidating. Over time, there will be fewer agencies with bigger market shares. It is important to understand some of the environmental factors driving consolidation.
Readmission penalties imposed under the Affordable Care Act mean that hospital executives are more invested than ever in caring about what happens to the patient post discharge. In some markets, economically incentivized programs, such as Accountable Care Organizations (ACO’s) and bundled payment initiatives will add to this pressure. The level of complexity in identifying, implementing and maintaining this network means that there will be little tolerance for innumerable post-acute “partners.” By necessity, hospital executives will have to consolidate its post-acute referrals into a manageable few “best of the best” providers, thereby creating a network.
I wrote a post here back on December 16, 2014 that gives an example of consolidation on the part of a “super-SNF” in readiness to be a better asset to the local hospitals. This “super-SNF” was pro-active. Large health systems in defined market places will drive consolidation.
Here are a few steps to help you better understand your readiness and develop a strategic position. One simple, yet solid, step is to know your market share and that of your competitors, within each hospital and health system and for your service area. While market share may seem like an antiquated measure, it actually becomes very important, because of the visibility to your competitors’ share, its footholds, and its vacancies.
Like it or not, your market share affects what people think of your business. If you are trying to get into a C-Suite discussion at a hospital, the larger your market share, the more likely you will get that meeting. Small players simply won’t be worth looking at, from a hospital administration’s perspective.
Professional referral perspective, a physician or PA is more likely to put their name on the line when they are referring to a larger home health and hospice business. Based on their size alone, larger businesses are perceived as being more capable of providing better services since larger firms can typically make adjustments for influxes in patients.
These are a few things for your organization can consider and look at building your strategy!
The Best!!