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What’s Behind the M&A Spree in the Hospice Industry

While the top-level view of the growth in the hospice industry at 20-plus percent is impressive, it’s worth looking at a few prominent examples to gain further insight into this accelerating trend.

There’s been a whirlwind of dealmaking in the hospice industry in recent months. Hospice M&A deals will be up more than 20 percent between 2020 and the end of 2022, according to forecasts. To put that into perspective, it took the nine years leading up to 2020 to see the same level of increase.

What’s behind this sped-up growth, and what does it mean for the hospice industry?

Hospice mergers and acquisitions accelerating

While the top-level view of the growth at 20-plus percent is impressive, it’s worth looking at a few prominent examples to gain further insight into this accelerating trend.

One example is the Amedisys acquisition of Contessa for $250 million in June 2021. Amedisys’ 21,000 employees provide care to 445,000 patients each year in 548 care centers in 38 states. Those services include hospice, home health, and palliative care. With the Contessa acquisition, higher-acuity home-based care is added to that list. Amedisys CEO Chris Gerard believes that hospice is an underutilized benefit that will see strong growth into the future along with stable reimbursement.

Another example is UnitedHealth Group’s March 2022 agreement to buy LHC Group for an estimated $5.4 billion. The plan is to pair LHC Group—one of the largest home health providers in the U.S.—with Optum Health, which is already integrated into UnitedHealth’s network. The LHC Group provides home health, hospice, and community-based services from 964 locations across 37 states.

Reasons behind the M&A surge

The buyers in each of these cases are being driven by the quest to add more hospice capacity—to serve growing demand—and the garnered cost savings that more scale can sometimes provide.

Greater demand for hospice care is fueled by the steady aging of the population. For example, some 51% of all Medicare deaths in 2019 were enrolled in hospice at the time. That’s up from 48% in 2017 and 50% in 2018. That growth is expected to continue, as the U.S. Census Bureau projects that 25% of Americans will be 65 and older by 2060, up by 17% from 2020.

The increased appetite for hospice care is also a function of the cost savings that comes from discharging more hospital patients directly into hospice care. Roughly 20 years ago, hospice was primarily used for cancer patients. Now it’s being used for nearly every cause of death, including heart disease, dementia, and lung disease.

Both these factors are driving the accelerating M&A activity. Insurers, as an example, are seeking to add home-based services and capacity they don’t currently have. Healthcare providers are adding new services such as medical social services as well as various forms of therapy and scaling up existing services to compete. As this consolidation continues, organizations need to grow to remain relevant.

What consolidation means for the hospice industry

As larger organizations come to dominate the hospice care industry, local hospice care tied to the community will struggle to compete. Not only that, but the care itself will need to change.

Care will likely move from a world in which the needs of patients and families are paramount to one much more driven by data and costs. New metrics that will be tracked include cost of care for a disease, decreased hospital readmissions, and the overall reduced cost of care to a referral partner sending patients.

For executives who work in the hospice industry, effective change management will become an essential skillset as organizations merge and grow. Organizational growth will also change life for employees. Many staff members will become uncomfortable with the increasing need for efficiencies as well as the data-driven focus. They will see the change as moving away from the focus on the level of compassionate care the patient receives. In the end, some may be driven to other areas of work.

For patients, there will be fewer choices in service providers and potentially less local influence. That also means less vibrant services that a small, local, nonprofit, community-based organization traditionally provides versus what a sizable national organization offers.

For example, the large providers of hospice services attempt to minimize the frequency of nursing visits. Small community players may send someone out much more often. In addition, larger organizations have started to trim what could be called ancillary services such as music therapy, art therapy, and pet therapy. That also extends to the frequency of social work or chaplaincy. In contrast, smaller community-based organizations may provide more personalized services.

But there are positives to the M&A activity. Access to technical resources will increase substantially. That includes implanted telehealth and remote patient monitoring. These are things that a small company, or even a mid-sized company, may not be able to provide.

Change is here and is happening at lightning speed. Are you ready?

Photo: maxsattana, Getty Images

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Michael Lalor

Michael Lalor, MD, MBA, CPE, FACHE, HMDC, FAAHPM, FAAPL is the Chief Medical Officer of Trellis Supportive Care in Winston-Salem, NC., and is an Assistant Professor of Medicine at Wake Forest University. Dr. Lalor earned his medical degree from the University of Medicine and Dentistry of New Jersey, and his MBA with an emphasis in Healthcare Management from West Texas A&M University. He has an extensive background in hospice and palliative medicine, and lectures widely on regulatory topics affecting physicians. He serves on the Board of Directors for the Association of Home and Hospice Care of North Carolina, and is a Fellow of the American Academy of Hospice and Palliative Medicine. An alumnus of the Leadership College of the North Carolina Medical Society, Dr. Lalor is a Certified Physician Executive and Fellow of both the American College of Healthcare Executives and the American Association for Physician Leadership.

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