The Pennant Group, Inc., a leading provider of home health, hospice, home care and senior living services, has announced the successful acquisition of Southwestern Palliative Care and Hospice (Southwestern) in Yuma, Arizona. The deal reflects Pennant’s commitment to growth in Arizona and the expansion of its ability to provide essential hospice services to the residents of Yuma and surrounding communities.
Brent Guerisoli, Chief Executive Officer of Pennant, expressed enthusiasm about the acquisition, stating, “We are pleased to continue our growth in the state of Arizona, and complement our agencies in Southern Arizona. This acquisition further solidifies our commitment to these communities and expands our ability to provide life-changing hospice services.”
John Gochnour, President and Chief Operating Officer of Pennant, acknowledged the deep connection Southwestern has with its community, praising the skilled clinicians and compassionate caregivers who have touched countless lives. “We are honored to partner with the wonderful Southwestern team of skilled clinicians and compassionate caregivers in delivering life-changing hospice services to the residents of this community.” added Gochnour.
According to data captured in the LevinPro HC database, this acquisition marked the 87th Home Health & Hospice (HH&H) transaction of the year, and the 12th in the home hospice and palliative care subsector. This also marks Pennant’s fifth HH&H transaction of the year. The company has also announced acquisitions in Idaho, Colorado, Oklahoma and Texas.
Agenda Health, a healthcare-focused M&A advisory firm based in Austin, Texas, served as the advisor in the transaction and shed light on their involvement.
Stephen Sargent, Senior Director of Agenda Health, was involved in overseeing the transaction. He explained how the deal process unfolded:
Q: How did Agenda Health become involved in this particular transaction?
A: “Our advisory team built a relationship with the seller over a period of several months. One of our first engagements with the seller was providing a valuation of the business. After working through the valuation and reviewing the KPIs of the business, we felt confident the timing was right to go to market.”
Q: Were there any regulatory or licensing considerations specific to Arizona or the Southwest that needed to be taken into account during the acquisition process?
A: “As with any transaction in the hospice industry, there are a high number of regulatory issues that a buyer needs to consider and take into account. So yes, there were quite a few.”
Jason Harrison, the Director of Administration at Agenda Health, provided a look into the hospice market:
Q: What makes the hospice market different from other similar specialties, like home health?
A: “Over the past few years, hospices (unlike home health agencies) have received consistent reimbursement rate increases from CMS (although some argue these increases are insufficient). From a financial standpoint, profit margins tend to be higher on average for hospices versus home health agencies, which is one factor that has kept investor interest in hospice higher than in home health. What is interesting to note though is how regulations in the hospice realm are starting to become more similar to that of home health; for instance, the 36-month rule implemented this year by CMS, which forbids any change in majority ownership during the 36 months after initial Medicare enrollment, is similar to a regulation that has existed in home health for several years. It will be worth keeping an eye on how CMS’s increased regulations to decrease fraud, waste and abuse impact overall investor interest in hospice, which, until this year, had been a highly-active M&A market relative to home health.”
Q: What are the most common challenges that hospice providers face in the current market?
A: “As is well known at this point, the labor shortage continues to be a challenge. Additionally, while reimbursement rates are increasing, there are claims being made by providers and proponents of hospice care that these increases are not sufficient to keep up with inflation and truly help providers give the care needed to patients. Further, tighter regulations are being implemented to crack down on fraud, waste and abuse, such as rulings by CMS to implement the Special Focus Program, the 36-month rule for change in majority ownership, and, specifically in the states of Arizona, New Mexico, Texas and Nevada, the enhanced oversight for hospices newly enrolled in Medicare or having a change of ownership.”
Staci Beltran, a Senior Director at Agenda Health, discussed the current trends facing the hospice industry:
Q: What are the most significant trends (positive or negative) in the hospice market, and how are they affecting providers?
A: “As stated above, CMS’s implementation of regulations to decrease fraud, waste and abuse seem to be the most recent trend taking place in hospice. More than ever providers must be prepared for audits by investing in clinical compliance and technology to avoid paybacks to Medicare. The regulatory and audit environment may create a slowdown, at least temporarily, in investor activity, as those seeking to make an investment in the space wait to see what type of impact to operations and profitability these new rulings will have. For strategic buyers this poses an opportunity as regulatory and compliance programs are part of their core competencies and everyday operations.”
