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COVID Home Health Care Trend Here to Stay

by admin on May 17, 2021 No comments

With governments locking down communities to combat the COVID-19 pandemic, health care providers and practitioners scrambled to find ways to deliver care to patients at their homes or residences. CMS relaxed restrictions on providing health care via telehealth, allowing for all Medicare patients to receive care via two-way, audio and video communications, and even via telephone calls notwithstanding that patients may not reside in rural zip codes. Hospitals pivoted to providing services to patients in their homes, again using telehealth modalities or by deploying practitioners to a patient’s home. Skilled nursing facilities also adopted strategies of keeping patients in their homes, deploying needed skilled caregivers to the patient. And while home health services may have hit a lull in the first couple months of the pandemic, services provided by home health agencies soon started to soar. Home health agencies started to become busier than ever, with many providers reporting overall growth due to demand to receive services at home instead of hospitals, skilled nursing facilities or nursing homes.

Due to the increase in demand for care delivered to patients at home, the home health market has seen strategic and financial buyers looking for opportunities to get into the home health market either by way of a fresh start up or through acquisitions. Those looking to purchase a home health agency are looking at the potential for sustained use and growth of home care services and are often willing to pay 5 to 7 times EBITDA (or more) to purchase an existing home health agency. Those wanting to exit the home care market have a ripe opportunity to entertain multiple potential purchasers, selecting a potential buyer that meets their exit strategy goals and gives them the greatest return for their investment in their business.

Many of those wishing to enter the home health market seek to capitalize on patient demand and desire to receive services at home. While Medicare, Medicaid, and private health insurance will pay for home health care when it is necessary for a patient, many patients are willing to pay for non-reimbursable services out of their own pockets, remaining at home and maintaining a sense of independence and autonomy.

While the pandemic has been in play, anticipated reductions in Medicare reimbursements to home health agencies were also put on hold. While anticipated reductions were tolled, the final rule for home health reimbursements that went into effect January 1, 2021, was expected to increase Medicare reimbursements to home health agencies by 1.9 percent overall. Rising patient demand for home based health care services and an overall increase in Medicare reimbursement, makes the home health industry an attractive market for investors.  Demand to enter the home health market is the highest its been in over a decade. Not only are private equity companies interested in this market and looking to snap up home health agencies in strategic geographic markets, smaller investment groups are also focused on this market, looking to acquire mom and pop home health agencies in densely populated senior markets where growth is promising.

Due diligence remains highly important, perhaps even more so in a hot market. Buyer’s need to be evaluating the financial health of a target, as well as whether the target has valued and adhered to compliance with federal and state laws. Due diligence requires a review of a sample of patient records to make sure documentation is robust, leading to accurate reimbursement and minimal denials from payors, especially where the target’s stock or membership interest are being acquired since liability follows the ownership.

Those in acquisition mode should be making inquiry as to whether a target entity has received PPP loans and if forgiveness has already been afforded for those loans, or if any liability remains. A buyer should also look at a target’s status of Medicare funds received under the CARES Act. Has the target made proper reporting requirements? What obligations remain for funds received pursuant to the CARES Act whether such funds are PPP loans or Medicare payments.

Targets should be ready to report patient and payor mix to potential buyers and buyers should be looking at the geographic service area’s overall patient and payor mix – assessing the population for patients most likely to use home care services. Buyers will want to know and scrutinize the potential for growth in the market. With an aging American population, some states, such as Florida, Maine, New Hampshire, or Arizona, may be more attractive to potential buyers, allowing a target better opportunity for an optimum purchase price and favorable transactional structure.

Buyers should also be evaluating the target’s current workforce and whether the target has potential employee/contractor misclassification issues that could lead to a Department of Labor investigation, back payments due to workers, including penalties for misclassification, and whether misclassification would lead to DOL reporting the investigation and outcome to the Treasury department.

The tax classification of a target is also an important consideration, especially if the buyer is seeking to own the underlying stock or membership interest. Will the tax classification change when a buyer acquires a target? How can the tax impact be minimized prior or post acquisition? Should a stock purchase be treated as an asset purchase? Buyer and Seller will need to have careful consideration and discussion of these topics prior to finalizing the decision to enter into definitive agreements and proceed towards closing.

Targets will want to vet potential buyers for proof of financial ability to fund the acquisition. Further, state licensing laws may also require buyers to show proof of financial ability to operate for the first two years after acquisition to ensure patient care will not be hampered or disrupted.

Finally, ownership of the target should be thoroughly reviewed to make sure there are not any undisclosed owners that could complicate, stall, or terminate conveyance to a buyer.

The bottom line is to get to “yes” in a way that benefits the parties to the purchase/sale transaction. This requires careful consideration and due diligence as noted above. Sellers and buyers should engage legal counsel experienced in health care transactions, including licensing requirements, to make sure they are following the many laws that come into play for health care mergers and acquisitions.

The home health market is hot, and the Florida Health Care Law Firm is here to assist buyers and sellers in structuring the deal and getting to yes.

adminCOVID Home Health Care Trend Here to Stay

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