Compliance ‘Paramount’ to Hospice Investment, Growth Potential
Private equity and venture capital firms have been showing increasing interest in hospice care assets. This trend presents both opportunities and challenges for the industry.
Sustainability and Growth
According to David DeGumbia, senior vice president at Compassus, both nonprofit and for-profit investors are interested in the hospice sector. However, achieving growth in today’s competitive environment is tough.
“Investors aim to improve the health care business they invest in,” said DeGumbia at the Elevate conference in Washington D.C. “Many hospice agencies, both small and large, are hesitant to dive in due to high interest rates and unmet valuation expectations.”
Compassus: A Growth Story
Compassus, based in Nashville, offers a variety of home-based services including home health, palliative care, and hospice care. The company operates over 270 locations across 30 states.
Owned by TowerBrook Capital Partners and Ascension Health, Compassus was acquired in October 2019 for about $1 billion. Since then, they've expanded in states like Indiana, Texas, and Pennsylvania.
One key growth strategy is joint ventures (JVs). Last year, Compassus expanded in Tennessee through a JV with Ascension Saint Thomas. In February, they entered a JV with Bon Secours Mercy Health.
Investing in Quality
For potential investors, quality outcomes and staff are crucial. DeGumbia emphasized that sellers should understand an investor’s history, while buyers should evaluate a hospice’s clinical outcomes and workforce.
“We look for good agencies with strong clinical and operational teams,” said DeGumbia. “Teams and future growth are what matter most.”
Concerns and Trends
Private equity interest in hospices has surged, leading to high competition for acquisitions. In 2019 and 2020, hospice and home health valuations reached record highs of 29x and 26x earnings respectively.
Nonprofits and for-profits both play essential roles. Nonprofits were fundamental to the creation of the Medicare Hospice Benefit and provide vital community services like bereavement support. However, for-profits, often backed by private equity, also provide quality care and achieve financial returns.
Eugene Goldenberg of Edgemont Partners believes, “Private equity investment in hospice is necessary for the industry’s success. Quality private equity investment can yield growth.”
Strategic Guidance
Edgemont Partners and Stoneridge Partners provide advisory services in hospice deals. They guide companies through mergers and acquisitions, ensuring quality and compliance are top priorities.
“Clinical compliance is critical in any hospice transaction,” said Tom Lillis of Stoneridge Partners. “Buyers focus on compliance; any issues can affect the deal’s valuation and success.”
Future Outlook
With increasing demand and stable reimbursement rates, hospice care remains attractive to various investors. Quality and compliance will continue to be key factors in successful hospice investments and growth strategies.
Investors will scrutinize hospices for their quality reporting and compliance records, ensuring long-term sustainability and success in the industry.
By emphasizing compliance and quality, the hospice sector can ensure its growth and sustainability in an evolving investment landscape. Investors and hospice providers alike must navigate these factors to succeed.
