For hospice organizations looking to sell, the market has never been hotter. That is, of course, if a seller has all of its clinical records and compliance documentation in order.
Hospice deal volume increased substantially from 2017 to 2018, increasing from 28 deals in 2017 to nearly 40 last year, proprietary Mertz Taggart data shows. In many cases, these transactions have included double-digit EBITDA multiples and soaring price tags, heightened by hospice’s favorable reimbursement climate and emerging positions within the overall continuum of care.
Interest among private equity buyers — and sellers — has helped drive the hospice market as well. For proof, look no further than the recent rumors swirling around hospice giant Compassus’ reported sale interest.
“Audax Group and Formation Capital bought Compassus in late 2014, so they’re likely nearing the ideal time to sell,” Cory Mertz, managing partner of Mertz Taggart, says. “But there are several reasons why this is a great time for any size hospice provider to explore the M&A market and capitalize on some of the trends we’re seeing.”
Clean documentation demonstrating a history of Medicare compliance is paramount to the success of any hospice deal, as unkempt recordkeeping can leave both buyers and sellers exposed to potential risk. That’s especially true with federal watchdogs, such as the U.S. Department Health and Human Services Office of Inspector General, more closely scrutinizing the hospice industry.
“We’ve seen a record number of transactions announced, but we are also seeing a number of transactions not closing,” Mertz says. “Most operators assume that because they recently passed a state or accreditation survey, that they’re in good shape. But due diligence is very different from a survey. It’s an audit.”
Medicare regulations change on a regular basis, so sellers need to show they’re keeping up, McBee Associates Inc. President Mike Dordick says. Pennsylvania-based McBee delivers financial, operation and clinical consulting services to health care providers across the care continuum.
“A review of your records by a third-party prior to sale can add value to your company in two ways,” Dordick says. “First, it gives the buyer the knowledge that you take compliance very seriously and were willing to show the result of that. Secondly, it can enhance the number of potential buyers by showing why your agency is more valuable than another that may be on the market.”
Common Documentation Issues
One of the biggest hospice deals to take place in 2018: Baton Rouge, Louisiana-based Amedisys Inc.’s (Nasdaq: AMED) play for New Jersey-based Compassionate Care Hospice for a fixed price of $340 million, inclusive of $50 million in payments related to a tax asset and working capital.
The deal — which reflects the strong demand for hospice assets, particularly from home health companies — will effectively make Amedisys the third-largest hospice provider in the United States.
But a clean compliance history and quality clinical records are important regardless of size, Rachel Hawkins, senior manager for Simione Healthcare Consultants LLC, says. When there are red flags, hospices generally have the same persistent issues across the board.
Hospice agencies using outdated forms is a frequent issue according to Hawkins, who has worked on several hospice transactions in 2018. In some cases, that may mean hospice agencies using old language on notice-of-election forms.
Often, hospice agencies fail to provide proof that interdisciplinary meetings included attendance by all core team members as well.
Other common issues: not meeting all face-to-face documentation requirements, using inappropriate diagnosis coding and having certifications of terminal illness (CTIs) that are missing information.
While many of these are related to medical needs and hospice Conditions of Participation (CoPs), agencies can’t afford to drop the ball when it comes to billing either, Hawkins says.
“The intensity of the focus on hospice is only growing,” she says. “That said, our hospice leaders need to understand there is clinical compliance with the hospice CoPs, but also billing compliance. It is in this area of billing compliance and the technical requirements required to submit a claim that we see the largest knowledge gap.”
Ensuring Best-in-Class Hospice Performance
Hospice providers looking to sell can take several measures to ensure best-in-class performance and secure the most value for their business.
That starts with educating all levels of staff on the most current hospice CoPs and Medicare billing requirements, while also designating a dedicated person to staff up-to-date on the hospice regulatory agenda — from both a state and federal perspective.
Furthermore, sellers need to make sure they have established quality assurance programs in place that are simultaneously realistic and effective. These programs need to be able to monitor and measure key clinical outcomes, regulatory compliance and billing, while holding an agency accountable for performance.
Software solutions can likewise serve as valuable tools, experts maintain.
By and large, hospice providers that use software solutions to help with documentation and record-keeping report being more confident in their ability to survive audits and respond to formal additional documentation requests. And ultimately, it could make or break a deal when it comes to a potential acquisition down the road.
“Buyers will be looking at acquisitions from an audit risk standpoint, anticipating more industry audit activity going forward, and the potential for significant claw back due to items that may have been overlooked in a survey,” Mertz says. “These things are easily correctable, but it’s important for agencies to be proactive and consistent with respect to documentation should they ever want to pursue a sale.”