Post-acute: M&A on the way

Modern Healthcare - - Special Report - —Jes­sica Zig­mond

Post-acute-care deals late in 2009 could sig­nal ad­di­tional merger-an­dac­qui­si­tion ac­tiv­ity for this seg­ment in 2010, a year when post-acute providers can also ex­pect re­im­burse­ment pres­sures and un­cer­tainty about their place in the fi­nal health­care re­form de­bate.

The seg­ment—which in­cludes skilled­nurs­ing fa­cil­i­ties, long-term acute-care hos­pi­tals, in­pa­tient re­ha­bil­i­ta­tion fa­cil­i­ties, as­sisted liv­ing and home health—re­ceived a boost in Septem­ber 2009 when long-term-care provider Se­lect Med­i­cal Hold­ings Corp. an­nounced its ini­tial pub­lic of­fer­ing (Sept. 21, 2009, p. 13), for which the com­pany priced 30 mil­lion shares at $10 apiece, rais­ing gross pro­ceeds of $300 mil­lion.

In­dus­try ex­perts viewed the deal as a pos­i­tive move, say­ing it meant the in­vest­ment com­mu­nity saw longterm care as a needed ser­vice. And in Novem­ber 2009, Re­habCare Group com­pleted its $570 mil­lion pur­chase of Tri­umph Health­Care Hold­ings to be­come the third­largest LTAC com­pany.

Both of th­ese deals could be a sign of more to come, ac­cord­ing to Ja­son Greis, a lawyer who is an as­so­ciate with McGuireWoods who cov­ers the post-acute sec­tor.

“Tra­di­tional skilled-nurs­ing fa­cil­ity com­pa­nies will do more ac­qui­si­tion of re­ha­bil­i­ta­tion, LTACs, as­sisted-liv­ing and in­de­pen­dent-liv­ing fa­cil­i­ties,” Greis says. “I think the rea­son for that is there is con­cern that with the changes to the com­pen­sa­tion rates of the var­i­ous providers, no large com­pany wants its eggs in one bas­ket,” he says, adding, “There is a cas­cade ef­fect: If you do one deal, oth­ers come out of the wood­work. M&A begets M&A.”

Mean­while, post-acute providers will con­tinue to man­age re­im­burse­ment chal­lenges in 2010. Su­san Feeney, vice pres­i­dent of pub­lic af­fairs for the Amer­i­can Health Care As­so­ci­a­tion—which rep­re­sents skilled-nurs­ing fa­cil­i­ties—says th­ese providers will look for ways to stream­line their op­er­a­tions as they con­tinue to cope with pay­ment cuts that went into ef­fect in Oc­to­ber 2009.

Sim­i­larly, LTAC hos­pi­tals will have their share of pay­ment wor­ries, es­pe­cially as the Medi­care Pay­ment Ad­vi­sory Com­mis­sion on Dec. 11, 2009, re­leased a draft rec­om­men­da­tion to HHS Sec­re­tary Kath­leen Se­be­lius that sug­gested th­ese fa­cil­i­ties not re­ceive a re­im­burse­ment rate in­crease for the 2011 rate year.

And all post-acute providers are wait­ing to see how health­care re­form leg­is­la­tion will af­fect the seg­ment, es­pe­cially in the area of the so-called bun­dled pay­ments, which would group pay­ments for acute in­pa­tient, physi­cian, out­pa­tient hospi­tal, post-acute and other ser­vices that the HHS sec­re­tary deems ap­pro­pri­ate.

Ac­cord­ing to Feeney, the AHCA sup­ports a bundling demon­stra­tion pro­gram be­cause, she says, it is the best way to test if such pay­ments can help cre­ate ef­fi­cien­cies.

“The bundling ap­proach is a con­cept that is def­i­nitely sup­ported by both the House and Se­nate and by the ad­min­is­tra­tion,” Feeney says, “so it would not be a sur­prise if the demon­stra­tion were in­cluded in the fi­nal bill.”

Greis: “There is a cas­cade ef­fect” with M&A ac­tiv­ity.

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