Across the U.S., hospital systems are bleeding money. The coronavirus is largely to blame, with most of the country suspending elective procedures and non-essential hospital services for the majority of spring.

The American Hospital Association (AHA), for example, estimates that COVID-19’s financial impact to hospitals and health systems over the four-month period from March 1 to June 30 will total $202.6 billion, with losses averaging over $50 billion per month.

In May, the chairman of the Department of Medicine at UC San Francisco, Dr. Bob Wachter, told CNBC that his hospitals were losing more than $5 million per day in April.

Meanwhile, admissions, surgeries and emergency department visits of HCA Healthcare, Tenet Healthcare Corporation, Community Health Systems Inc. and Universal Health Services Inc. all dropped 20% to 40% during the last two weeks of March, according to a Commonwealth Fund study released Friday. The situation for those large for-profit hospital systems was even bleaker in April, contributing to first-quarter aggregate operating profits dropping 13.5%.

“I think it’s fair to say that hospitals are facing perhaps the greatest challenge that they have ever faced in their history,” Rick Pollack, the CEO of AHA, said in May.

Unfortunately for them, the financial hardship is likely to continue, especially if new COVID-19 hotspots keep popping up in reopening states.

Medicare-certified home health providers have had to deal with their own financial struggles, though many agencies have recently seen a return to relative normalcy. As those providers gradually recover, they may see more opportunities to acquire hospital-based assets — or forge new joint venture partnerships.

And signs suggest that’s already happening.

In May, Margaret Mary Health in Indiana unloaded its home health department to an outside agency. Leadership wanted to get out from under the regulatory constraints of the field while dealing with COVID-19 financial pressures.

“Although Margaret Mary’s home health program has always had an excellent reputation for high-quality care, it has struggled financially due to the higher costs of operating as a hospital department,” Tim Putnam, president and CEO of the rural Indiana hospital, told the Greensburg Daily News.

Pushing partnerships

While some home health providers may see more hospital-affiliated acquisition opportunities in their markets, industry insiders don’t see that as a macro-level trend.

Instead of M&A, JVs and partnerships may become more common. It all depends on what a specific hospital wants to do, Chris Hendrickson, managing director and home health M&A expert at Ziegler Healthcare Investment Banking, told Home Health Care News.

“Do they want to own and operate [in home health care]? Do they want to do a joint venture? Do they divest? Do they enter into management agreements?” Hendrickson said. “They’re definitely starting to move at a more aggressive pace [on these decisions], which is great.”

So far, Hendrickson said he’s observed “many” hospitals going through strategic assessments of their home health and hospice businesses, weighing bottom-line potential and other critical considerations.

Chicago-based Ziegler is a privately held investment bank, capital markets and proprietary investments firm. Among its focus areas, Ziegler deals with hospitals and health systems as well as other health care organizations.

Another reason why hospitals may be unwilling to completely do away with their home health departments is that many of them — particularly the nonprofit ones — began those departments from a mission or community-outreach perspective.

“We are having pretty consistent phone calls across our organization … on how [hospitals] are sorting through how to harmonize their mission with their strategic plans, their patient needs,” Brian McGough, a hospital-focused managing director at Ziegler, told HHCN. “And what changes — if any — are going to be required related to their care model as it relates to the way they’re organized, where they’re situated, and whether it makes sense to potentially partner or consider some other alternatives that that they traditionally wouldn’t spend as much time considering.”

Similar to the Margaret Mary Health example, there are recent anecdotal signs to support the idea of partnerships picking up.

On June 24, Lafayette, Louisiana-based LHC Group Inc. (Nasdaq: LHCG) announced a new JV with Orlando Health in Florida.

The JV, expected to close on Aug. 1, includes six home health locations. LHC Group expects incremental annualized revenue from this joint venture of approximately $3.5 million.

Building mini-ACOs

Generally, hospitals have started thinking more strategically about home health assets compared to years past, Hendrickson noted.

“From the home- and community-base side of things, that segment has definitely moved up dramatically in the priority list,” he said. “It probably was always in the top 20, but it’s quickly moved into the top 10 — and sometimes into the top five.”

In part, payment reform has forced hospitals to be more strategic.

With a more complex regulatory environment under the Patient-Driven Groupings Model (PDGM), which was implemented on Jan. 1, extra guidance and expertise can go a long way, Jennifer Sheets, the CEO of Interim HealthCare Inc., told HHCN.

Founded in 1966, Interim HealthCare offers a wide variety of in-home care services and is part of parent company Caring Brands International. Caring Brands International oversees more than 530 locations across seven countries.

Before Sheets made the move to home health, she worked for years as an executive in the hospital setting.

“From my hospital perspective, when we [mostly] partnered to bring in home health and hospice agencies, the goal there was to increase throughput — getting people to transition to a lower level of care in a more timely manner,” Sheets said. “[Now], home health care has become more and more regulated, and it does create a challenge. The rules and regulations are very different than they are when you’re dealing with [patients] in a hospital setting. … That’s why I think hospitals are starting to feel some of that pressure managing home health and hospices, and are looking to sell or partner.”

If a home health organization does win a hospital partnership or reaches an acquisition agreement, the arrangement may come with built-in advantages.

“For one, if it’s in a state that has restricted the number of home health players … agencies gain the value of being able to provide services potentially in a new area,” Sheets said. “The other benefit is that you build a partnership — almost your own Accountable Care Organization (ACO), right within a health system.”

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