DEATH AND TAXES

Pro­posed mar­riage of home-care and hospice giants may cre­ate cost ef­fi­cien­cies for chains, bet­ter co­or­di­na­tion of care for pa­tients

Modern Healthcare - - Front Page -

In its early days some 40 years ago, hospice en­tered the U.S. health­care sys­tem qui­etly, pro­vid­ing end-of-life care to pa­tients in­side church base­ments. No longer just a cot­tage in­dus­try, it has evolved into a lu­cra­tive busi­ness so at­trac­tive that home health com­pany Gen­tiva Health Ser­vices an­nounced last week its plans to ac­quire one of the nation’s largest hospice com- pa­nies for $1 bil­lion.

Cap­i­tal­iz­ing on an ag­ing pop­u­la­tion and a com­mon pa­tient base, Gen­tiva ex­panded its reach in the hospice seg­ment on May 24 with its planned pur­chase of Dal­las-based Odyssey Health­Care for $27 per share, a 40% pre­mium to the stock’s then pre­vi­ous clos­ing price. If the deal is com­pleted as ex­pected in the third quar­ter, Gen­tiva will have a com­bined av­er­age daily pa­tient cen­sus of 14,000 and op­er­ate in 30 states, mak­ing it one of the nation’s largest hospice providers. Mean­while, Gen­tiva said it ex­pects more than $1.8 bil­lion in an­nual rev­enue, based on 2009 fig­ures from both com­pa­nies. The size of the deal came as a sur­prise to some, in­clud­ing those who re­mem­ber when hospice started small.

But those days are gone af­ter hospice ex­pe­ri­enced ro­bust growth in the past decade, es­pe­cially in the past five to seven years. More than 1 mil­lion Medi­care ben­e­fi­cia­ries re­ceived hospice ser­vices from more than 3,300 providers while Medi­care ex­pen­di­tures ex­ceeded $11 bil­lion in 2008, ac­cord­ing to the Medi­care Pay­ment Ad­vi­sory Com­mis­sion. Af­ter Odyssey, the other big play­ers in the seg­ment in­clude Mi­amibased Vi­tas, a sub­sidiary of Chemed Corp.; Manor Care in Toledo, Ohio; South­ernCare in Birm­ing­ham, Ala.; Amedisys in Ba­ton Rouge, La.; and nurs­ing home provider Golden Liv­ing, based in Fort Smith, Ark.

“If you look at any of the MedPAC num­bers, it’s clear you’ve had an al­most four­fold in­crease in Medi­care ex­pen­di­ture,” said Dar­ren Lehrich, an an­a­lyst who cov­ers Gen­tiva for Deutsche Bank. “At the same time, there has been a gen­eral en­dorse­ment of the ben­e­fit it­self,” he said, adding that end-of-life care “can pre­vent hos­pi­tal­iza­tions or other, more ex­pen­sive in­sti­tu­tion­al­ized set­tings and al­low the pa­tient to progress in a ter­mi­nal dis­ease in the com­fort of their own home. There’s no ques­tion that the for-profit sec­tor has played a big role in the in­dus­try through­out the last 10 years.”

That’s what MedPAC re­ported to Congress in March, when the com­mis­sion said the num­ber of hos­pices has grown by 47% from 2000 to 2008, as for-profit providers ac­counted al­most en­tirely for the in­crease (See chart, p. 16). The Gen­tiva aims to ex­pand its reach in the hospice seg­ment by cap­i­tal­iz­ing on an ag­ing pop­u­la­tion and a com­mon pa­tient base in its deal with Odyssey.

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