Since 2014, there has been a steady increase in mergers and acquisitions in the Rehabilitation sector, with a total of 40 deals announced in 2016. This is almost double the number of deals in 2014 (a total of 21), and includes deals with both publicly traded corporations as well as privately held acquirers. Similarly, after seeing a sharp decline in M&A activity in 2015, the home health and hospice sectors saw an increase of 12% in M&A activity in 2016 with a total of 57 deals announced, including several deals involving private equity investors.
It is not surprising that the rehabilitation, home health and hospice sectors saw an increase in M&A activity in 2016. With payment increasingly tied to quality of care and outcomes, as opposed to volume of services provided, there has been a growing emphasis on care coordination and collaboration between providers. This would explain the increase in M&A activity across the rehabilitation, long-term care and hospice sectors, which stand to benefit significantly from collaborating with each other in that such collaboration may result in cost-savings, minimized risk, and higher quality of care. Indeed, CMS’s adoption of the Comprehensive Care for Joint Replacement (“CCJR”) program (a mandatory bundled payment model for hip and knee replacements) that began on April 1, 2016, is expressly designed to “encourage hospitals, physicians, and post-acute care providers to work together to improve the quality and coordination of care from the initial hospitalization through recovery.”
However, there remains uncertainty as to whether the Trump Administration will continue the march towards value-based care reimbursement, and what impact the Trump Administration’s approach will have on M&A activity in these sectors. Notably, Tom Price, Secretary of the Department of Health & Human Services, who would be responsible for implementing value-based care initiatives, has been a vocal critic of value-based care initiatives, including the Comprehensive Care for Joint Replacement bundled payment program, and the bipartisan Medicare Access and CHIP Reauthorization Act (“MACRA”). However, the Republican platform, as set forth in the June 22, 2016 “Better Way” policy paper, indicates overall support for value-based payments and care coordination. Moreover, the private health insurance market is increasingly recognizing value-based care reimbursement as an important mechanism to reduce wasteful healthcare spending. In that regard, there may be sufficient motivation for continued M&A activity in order to accomplish more efficient care coordination across providers. Regardless, in light of the uncertainty facing the healthcare industry today, companies may choose to consolidate in order to gain more leverage in the marketplace.
Whether the impetus is to establish collaborative care models, or to simply grow larger in order to better weather the storm, the increase in M&A activity in the rehabilitation, home health and hospice sectors seems well-positioned to continue in 2017.
 See, Healthcare Blog Post dated March 29, 2017, “CMS Delays Implementation of New Payment Models (Again)” by Kenneth Yood, Esq. and Rachel Landauer, Esq. for information regarding recent delays in the effectiveness of certain amendments to the CCJR program.