Navigating Mergers and Acquisitions in Post-Acute Care
Author: Harper Dion
Posted: February 13, 2024
Entering the first part of 2024, the landscape of mergers and acquisitions (M&A) within the realm of post-acute care has witnessed a significant evolution. Traditionally driven by the quick growing environment of post-acute care, M&A activity was mainly influenced by rapid acquisition to grow the geographic size of an agency. As the industry has continued to change, undergoing regulatory uncertainty and overall turmoil, the nature of transactions has also evolved, becoming multifaceted, and subject to rapid change much like the rest of the industry. Coming out of the headwinds from the pandemic, the market continues to adapt, most notably with changes in valuation, consideration, and transaction volume. These trends are mainly due to regulatory changes, economic conditions, employment availability, and a fundamental shift in strategic priorities. Understanding the trends of the market is key as activity is poised to resume in this fundamental sector of care.
Regulatory Changes and M&A Activity
A main force guiding the course of these transactions is the consistent regulatory updates from CMS. In past years, increased audits and scrutiny have slowed transactions as buyers must perform deeper analysis prior to an acquisition to ensure the new asset will avoid unwanted audits. The latest industry regulation from CMS is the recent CY24 Final Rule which went into effect January 1st. The ruling brings forth changes for the whole industry, most notably payment updates for home health providers. Amidst the update, an overall +0.8 percent increase was calculated, although it accompanies an overarching -2.89 percent reduction, the increase is a good sign. This ruling creates a unique position where providers must navigate a future marked by both growth potential and financial recalibration. Coming out of an elongated standstill in transactions, this recent increase may serve to loosen up the market and increase deal frequency and volume.
Employment Crisis and Clinician Burnout
Historically, financial metrics and growth aspirations were the sole influence in driving post-acute M&A transactions. However, as the industry continues to grow in complexity, due diligence is essential to ensure processes are compliant and staff are properly equipped. The ongoing employment crisis and clinician burnout are a significant roadblock in the transactional landscape. The scarcity of skilled professionals and the burden of burnout have compelled stakeholders to reassess not only the monetary aspects but also the human factor in these deals. Agencies must consider where they are able to grow, analyzing the possible side-effects of acquiring an already understaffed asset. In an ongoing employment shortage, acquiring an understaffed agency would lead to further burnout and waste, staggering growth and resulting in negative loss for the entire organization. The focus on sustainable operations and staff well-being has emerged as a critical consideration in the pursuit of these strategic moves; this consideration is becoming increasingly relevant as the employment crisis continues to grow alongside the demand for post-acute care.
Strategic Shift: Quality Assets Over Geographic Size
Considering regulatory shifts and the ongoing employment shortage, the overall approach of buyers has changed moving forward. In the past, acquisitions often leaned towards a “land grab” strategy, primarily aimed at expanding the geographic reach and size of an organization. However, a shift in factors of consideration will be essential as market activity begins to pick up. With growing overall risk, a shift towards a more strategic approach is necessary to ensure an asset will benefit the organization’s growth. Comprehensive due diligence audits have become the cornerstone prior to transactions, marking a move towards a quality-centric consideration. The emphasis has shifted from quantity to quality, from merely acquiring to acquiring with precision. Fully understanding the health of an asset provides essential clarity while determining the ease of integration and success.
Embracing the Future of M&A – The MHA Difference
In this evolving landscape, the role of due diligence cannot be overstated. It's not merely about sealing the deal but ensuring that what’s acquired fulfils quality benchmarks and overall agency goals. This new wave of strategic M&A illustrates the need for thorough assessments, ensuring that assets align not only with financial ambitions but also with the commitment to deliver exceptional care.
At Maxwell Healthcare Associates, we recognize the complexities in this ever-evolving landscape. Our experts come from all angles of the industry and bring the strategic knowledge to guide you forward. Our goal isn’t to simply solve an issue, it’s about equipping your agency with the proper adaptive strategy to eliminate root causes and thrive. We understand the need for comprehensive assessments and strategic guidance, ensuring that your journey to success aligns with a vision of sustained excellence. To learn more about how MHA can support your journey, visit www.maxwellhca.com or contact us at [email protected].