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