Home Health Business: Are You In or Out?

home health businessPublished by Becker's Hospital Review A frequently cited solution to reducing rising healthcare costs is to place patients in the lowest cost setting of care. Accordingly, the home health business has become at the forefront of many discussions within the healthcare industry. Health systems contemplate better ways to integrate home health services into their continuum of care offerings while home health operators are positioning themselves to financially benefit from increasing demand and interest in the space. Meanwhile, many health systems are exiting this business. In FYE 2016, there were approximately 55 announced home health transactions with an estimated value of $1.2 billion.1 Overall, there is a surge in market consolidation and / or strategic positioning in the home health space.


The home health services industry can be characterized as highly fragmented, where above-average growth potential is challenged by profit margin pressures. As broadly defined, the $88.8 billion home care industry is estimated to be growing 6.7% per annum2. With over 12,400 Medicare – certified home health agencies3, the top ten operators represent less than 21% of the market and the largest operator (Kindred Healthcare4) has a 5.8% market share5.


As with any major decision in the healthcare industry, financial trends and regulatory considerations for a home health business are critical. Whether the decision is to own/operate, JV, divest, or enter into a management agreement, there are important financial and regulatory considerations to each strategy. From a financial perspective, understanding reimbursement, competition and current multiples are important first steps. Subsequently, conducting thorough due diligence on the operations and any proposed partner is time consuming, but crucial. At the same time, the regulatory framework of healthcare must always be integral to a transaction decision. Numerous regulations surround healthcare covering everything from licensure to the price paid in a transaction or compensation arrangement. As it relates to the financial decision making process, one of the first metrics typically considered in the context of a transaction are current market multiples. The multiples for home health agencies continue to be strong, and trending upwards. Most industry participants analyze revenue and / or EBITDA multiples when evaluating potential acquisitions or joint ventures. Click here to view the full article.