Post-acute: M&A on the way
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.