10/6/2015 1 HOW TO BE READY FOR MERGERS & ACQUISITIONS THE WAY WE WERE THE WAY WE ARE NOW A HOME HEALTH M&A TIMELINE Pre-PPS Pre-PPS IPS - PPS IPS - PPS Private Equity Private Equity Strategics Strategics Market Peak Market Peak Econ. Press Real cuts Econ. Press Real cuts Slow Return Slow Return Re- basing Re- basing Coordi- nated Care Coordi- nated Care 1
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10/6/2015
1
HOW TO BE READY FOR MERGERS & ACQUISITIONS
THE WAY WE WERETHE WAY WE ARE NOW
A HOME HEALTH M&A TIMELINE
Pre-PPSPre-PPS IPS -PPSIPS -PPS
Private EquityPrivate Equity
StrategicsStrategics Market Peak
Market Peak
Econ. Press Real cuts
Econ. Press Real cuts
Slow ReturnSlow
ReturnRe-
basingRe-
basing
Coordi-nated Care
Coordi-nated Care
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A HOSPICE M&A TIMELINE
IPOsIPOsHome Health
Distraction
Home Health
Distraction
MedPAC
U-Shaped Curve
MedPAC
U-Shaped Curve
Home Health
Alternative
Home Health
AlternativeBad PressBad Press
Payment Reform Looms
Payment Reform Looms
CMS Issues Final
Hospice Payment
Rule
CMS Issues Final
Hospice Payment
Rule
2PRE-PPS■ Cost based environment
■ Valuation loosely tied to opportunities to “cost-shift”
■ Predominate metrics
−Price per visit
−CON vs. Non-CON states
■ Vibrant market
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TRANSITION TO IPS AND PPS■ Period of extraordinary volatility
■ 4-5 thousand agencies shut down
■ M&A market freezes
■ Deal volume falls dramatically
4HOSPICE IPOS■ Odyssey – One of the most successful of 2001
■ VistaCare
■ Visibility, Valuation, Vibrancy
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PRIVATE EQUITY SEES AN OPENING■ Prospective payment system in-place
■ First opportunity to generate profits
■ Strategics slow to risk-return valuation metrics (EBITDAx)
■ Private equity moves in to fill the void
■ Acquisition demand rises
■ Valuation begins to rise
6STRATEGICS REACT■ Strategics see influx of PE competitors
■ More comfortable with PPS
■ Enter the M&A market
■ Demand rises further
■ Valuation rises further
■ Benchmark multiples of EBITDA form
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MARKET PEAK■ Extremely competitive – PE sponsors and strategic buyers
■ Simultaneously, access to cheap debt soars
■ Go forward reimbursement and regulatory risk deemed low
■ Valuations soar, particularly for large platform providers
8
HOME HEALTH DISTRACTS FROM HOSPICE■ M&A can be a “zero sum game”
■ Investment pool for services in the home
■ A dollar invested in home health is one less dollar in hospice
■ Home health peak draws interest from hospice
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ECONOMIC DOWNTURN■ Recession hits
■ Debt capital dries up
■ Market confidence sinks
■ Largest players sustain the greatest hit in valuation
10
MEDPAC DEBUTS U-SHAPED CURVE■ Potential radical change in hospice reimbursement
■ No earlier than 2013
■ Sets stage for rising risk-profile
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BAD PRESS, AND REAL CUTS■ Nationals face bad press, congress, and judiciary
−Overzealous OASIS scoring
−High episodes per patient
−Therapy above 10 visits
■ First real year-over-year cuts
■ Demand falls
■ Valuation falls
12
HOSPICE BECOMES THE HOME HEALTH ALTERNATIVE■ The zero sum game in reverse
■ Home health’s losses are hospice’s gains
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SLOW RETURN■ Downward dogs wash through the sector
■ Economy shows incremental improvement
■ Nationals embrace internal reforms
■ Providers adapt to price reductions
■ M&A market begins slow return
14REBASING■ Bad for reimbursement – Extraordinarily favorable for M&A
■ Four years of reimbursement clarity
■ Insulation from further cuts
■ Risk-profile at it’s lowest point since implementation of PPS
■ Opportunity to gain share as providers face reduced margins
■ A second peak evolves quickly
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HOSPICE PAYMENT REFORM LOOMS
16THE AGE OF COORDINATED CARE■ Health care reform survives
■ Multiple coordinated care initiatives begin to take shape
■ Sentiment swells – coordinated care will (must) happen
■ New buyers, new strategies, new opportunities
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CMS ISSUES FINAL HOSPICE PAYMENT RULE
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$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
10 40 70 100 130 160 190 220 250 280 310 340Number of Days on Service
Total Revenue per Hospice Patient by Payment Methodology
Current U-Shape Two Tier Plus SIA
Far more benign than anticipated
THE WAY WE ARE
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NEAR TERM ENVIRONMENT■ Rebasing ends
■ SGR update cap begins
■ Predictable reimbursement period extended
■ Hospice redresses scrutiny
■ C A L M
20THE NEW KIDS ON THE BLOCK■ Coordinated Care Buyers
−Skilled nursing providers
−Hospitals
− Insurance/Managed Care companies
−Coordinated Care Management Companies• Centene
• Envision
• Accelera Innovations
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NKOTB VALUE DRIVERS■ Overlapping market coverage
■ Proven “HTG” data regarding re-hospitalizations
■ Predictive analytics
−Almost Family acquires Ingenios Health Co.
■ Experience with capitation
■ Star Ratings?
22THE BOYS ARE BACK IN TOWN■ Private equity
−Private equity is again eyeing home health and hospice
−A new investment thesis• 4 years of rebasing will produce “opportunistic” acquisition options
• Size necessary to meet needs of coordinated care/narrow networks
• Technology will create competitive advantages and drive down costs
• Multi-pronged exit opportunities
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VALUE DRIVERS FOR THE MASTERS OF THE UNIVERSE■ Best in class management team
■ Tight local or regional footprint
■ Experience in acquisitions and integration
■ Effective deployment of technology; analytics
■ Hospital joint venture experience
■ Capitation
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THE VIEW FROM THE STRATEGICS■ Cautious
■ Lying in wait
■ Repeating the IPS to PPS lag?
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OUTLOOK: PUTTING IT ALL TOGETHER
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2001
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2014
2015
2016
2017
Near‐TermOutlook
Valuation Trends in Medicare Home Health and Hospice
Large Deals Less than $20M Hospice
Home Health Developments Hospice DevelopmentsHome Health Developments Hospice Developments
Odyssey IPO
Private Equity En
ters the Scene
Strategics
Market Peak
Economic Downturn
Reb
asing Announced
Bad
Press
Real Cuts In
itiated
Re‐basing Initiated
Co‐ordinated
Care
Bad
Press
Med
PAC Introduces U‐Shap
ed Curve
Concerns rise re: Paymen
t Reform
IPS to PPS
Vista
Care IPO
CMS Finalizes Paymen
t Reform
THE BRAFF GROUP
Reg Blackburn866-455-9198
Mark Kulik888-922-1838
The Braff Group is the leading merger and acquisition advisory firm specializing in health care services including home health care, hospice, behavioral health, infusion therapy, specialty pharmacy, urgent care, home medical equipment, and health care staffing.
Since being founded in 1998, The Braff Group has completed more than 270 health care service transactions.
According to Thomson Reuters, The Braff Group ranked #1 in health care mergers and acquisitions advisory services in 2009, 2011, 2012, and 2013, and for the seven year period from 2008 through 2014.
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