Post-Acute Care Market Overview

AUGUST 2023

The Post-Acute Care Market at a Glance

The U.S. post-acute care (PAC) market was valued at over $438 billion in 2022, and is expected to reach nearly $696 billion by 2032.

$438bn
2022 U.S. post-acute care market size
4.8%
Projected annual industry growth (2023 to 2032)
>27k
Number of U.S. post-acute care providers
35%
Of hospital discharges are admitted to PAC
>56mm
Americans ages 65 and older
~15.0%
Post-acute care as % of total Medicare spending

Sources: Publicly available information

Post-Acute Care Services

Post-acute care includes a number of services providing functional recovery for patients following hospitalization, and serves as a bridge for these patients to reach recovery and avoid unnecessary hospital readmission.

The number of post-acute care providers continued to decrease in 2022

Home Health Agencies (HHA)
Provide care for homebound beneficiaries who require skilled, intermittent nursing and therapy care

Inpatient Rehabilitation Facilities (IRF)
Patients who require a combination of hospital-level care and intensive rehabilitation in order to regain the level of function needed to return home

Long-Term Care Facilities (LTCF)
Treat patients with a high level of acuity who require an extended hospital stay

Skilled Nursing Facilities (SNF)
For patients who have received at least three days of inpatient services during the prior hospital stay

Post-acute care services provide a wide range of both medical and non-medical healthcare services.

Key Functions

Approximately 35% of patients discharged from a hospital are admitted to a post-acute setting to receive additional care, while 29% of those are shifted to a secondary post-acute setting

Average Cost of Care per Patient per Day

Average cost per patient per day within an acute-care hospital setting is far greater than that of a post-acute venue.

Patients Discharged to a Post-Acute Setting

Approximately 35% of patients discharged from a hospital are admitted to a post-acute setting to receive additional care, while 29% of those are shifted to a secondary post-acute setting

Sources: Publicly available information

State of the Post-Acute Care Market Today
Prevailing Themes and Key Considerations

Highly Fragmented – Ripe for
Consolidation
  • The sector is expected to grow to ~$696bn by 2032. The majority of the sector remains privately held and highly fragmented
  • M&A across PAC reached record levels not seen in decades during 2020, despite COVID-19 – PAC remains a highly attractive market for M&A given the steadily aging population in the U.S.
Prioritization of Lower Cost Care, Comfortable Settings
  • There continues to be a rising prevalence of chronic conditions in the U.S.
  • Patients seeking care are prioritizing two main factors; aging in the comfort of their home, and in a cost-effective environment
Emerging Operational Complexities
  • Difficulty around hiring and retaining capable employees across PAC was exacerbated by the pandemic, and has endured post-COVID
  • The implementation of the patient-driven groupings model (PDGM), an exhaustive set of reforms, has also been disruptive to operators
Shifting Payment Model
  • Rising Medicare Advantage (MA) penetration and utilization – enrollment in MA plans rose by 65% from 2016 to 2022, and are projected to cover over 50% of Medicare-eligible beneficiaries by 2025
  • The aforementioned trend should expedite the ongoing transition from the fee-for-service model to a value-based approach, where quality of care and patient outcomes are directly tethered to reimbursement

Post-acute care aims to reduce unnecessary healthcare spending, an objective facilitated by the ongoing transition from fee-for-service to value-based care.

Medicare fee-for-service (FFS) spending for post-acute care has remained relatively constant from 2010-2021

  • FFS spending on PAC has remained relatively unchanged since 2010, partially attributable to expanded managed care enrollment under MA
  • Overall COVID-19-driven reduced volume contributed to the decline in FFS spending on SNFs in 2021
  • Excluding a slight uptick in 2021, declining FFS spending on LTCFs since 2015 was driven by the implementation of a dual payment-rate system, which resulted in a reduction in payments for a number of LTCF cases
  • Steady increase in FFS spending on IRFs offset by decreased FFS spending on HHA

Sources: Publicly available information

Industry Headwinds and Tailwinds

Tailwinds

ACA Expanding Access to Medicare and Medicaid
 The ACA has improved home healthcare accessibility in the U.S., giving more people the option to utilize this form of care.
Aging Population
 The aging population in the US is projected to steadily grow, increasing chronic disease cases and opportunities for home care.
COVID-19 pandemic subsiding
 Elderly patients with underlying conditions are becoming more relaxed over virus fears and opening their doors to home care workers.
Emphasis on Value-Based Payment Models
 Payors are favoring value-driven reimbursement models that prioritize quality care.

Impact

  • The numerous industry tailwinds should afford capable operators the opportunity to expand and acquire additional market share in the years to come. These growth opportunities make the market prime for consolidation as more than 50% of home care providers generate less than $3M in revenue per year.

Headwinds

Potential Private Equity Regulation
 The SEC is proposing potential changes to tighten reporting regulations for private equity players.
Narrow Payor Mix
 The lack of diversity in the sector’s payor mix poses a direct threat to companies’ margins, which can be significantly impacted by a change in legislation.
Staffing
Demand
 The increased aging population in the US has increased demand for PAC care workers. PAC is also competing with hospitals for these aides, who offer better pay and benefits.
Wage Increases
 Industry wages have grown an annualized 3.9% to $55.9 billion over the five years prior to 2021.

Impact

  • Reimbursement remains closely tied to legislation, effectively posing a potential threat to margins should changes be implemented
  • Industry wage growth has contributed to difficulty in navigating the inflationary environment

Sources: Publicly available information

Investor Activity & Appetite

Aging U.S Population It’s estimated that by 2030, approximately 20% of Americans will be over the age of 65

Fragmented Market Investment in PAC has accelerated, however, the space remains highly fragmented

Rising Inpatient Discharges Referrals to PAC agencies continues to increase

Rising Inpatient Discharges Referrals to PAC agencies continues to increase

Medicare Advantage Enrollment Rapid growth in MA enrollment is poised to overtake Medicare coverage as a whole

Together, they are driving heightened investor interest in PAC amongst financial sponsors and strategic buyers alike...

...resulting in increased dealmaking.

2022 Post-Acute Care Transaction Type1

Post-Acute Care Transaction Volume1

1) PitchBook

Recent Activity Amongst Select Operators

Acquisition activity remains healthy as public and private operators continue to acquire and partner with regional players.

Select Post-Acute Care Operators

 

Long-Term Acute Care (LTAC)

Inpatient Rehabilitation Facilities (IRF)

Skilled Nursing Facility (SNF)

Home Health Agency (HHA)
Footprint
 

670+ locations

across 41 states

150+ locations

across 37 states and Puero Rico

270+ locations

across 12 states

38 locations

across 5states
Lead Sponsor(s)
  Publicly Traded
NYSE: BKD
Market Cap:
$792mm		 Publicly Traded
NYSE: EHC
Market Cap:
$7.12Bn		 Publicly Traded
NASDAQ: ENSG
Market Cap:
5.48Bn
Acquisition Count1
 

2

Add-ons /
JV Partnerships

12

Add-ons /
JV Partnerships

28

Add-ons /
JV Partnerships

6

Add-ons

1) Acquisition count period evaluated from FY2020-YTDJul2023

Notable Post-Acute Care M&A Valuations

Several key valuation factors influence whether a platform trades above or below the double-digit multiple threshold.

Drivers of a Higher Multiple

Larger and/or high growth smaller platforms
Meaningful continuum of care strategy
Leadership in multiple markets
Synergy potential
Strong organic growth and acquisition track record
Outstanding performance and metrics

Sources: AMB proprietary data

Post-Acute Care Regulatory Environment

Regulatory requirements are a major challenge faced within the post-acute care space, influencing reimbursement, revenue cycle management and more.

Implemented Reform

  • IMPACT Act of 2014 – requires post-acute providers to report standardized patient assessment data, data on quality measures, and data on resource use and other measures
  • Patient Driven Grouping Model (HH) – adjusted original 60-day to a 30-day period of care as basis for payment, creating an alternative case-mix adjustment
  • Request for Anticipated Payments (HH) – replaced with a one-time Notice of Admission (NOA) for agencies beginning on or after January 1st, 2022

Pending/Proposed Reform

  • PAC Prospective Payment System Rules – proposed update to payment rates by 3.0%, reflecting an IRF market basket update of 3.2% less 0.2% productivity adjustment.
  • Unified PAC Prospective Payment System – a set payment for PAC services on the basis of beneficiary clinical characteristics rather than type of provider detailed in a report to Congress sponsored by the CMS in July 2022
  • Nursing Home Improvement and Accountability Act of 2021 – The bill establishes reporting, staffing and other requirements for Medicare SNFs and Medicaid NFs

Federal Regulatory Physician Staffing Requirements by Setting

Service LTCFs IRFs SNFs HHAs
Physician Staffing Requirement

Supervise medical care of each patient

Daily patient examination

On duty / on call at all times

Supervise medical care of each patient

Patient examination, face-to-face visit 3x/week

On duty / on call at all time

Supervise medical care of each patient

Arrange provision of physician services 24hrs/day (emergency)

Patients must be seen at least once within 30 days following admission, once every subsequent 60-day period

Establish, review and revise each patient’s treatment plan

Medicare requires a face-to-face visit 90 days before or 30 days after initiation of home health care, by either a physician or nurse practitioner

Sources: Publicly available information

Post-Acute Care Cost & Reimbursement

Post-acute care cost and coverage varies considerably based on a multitude of factors including: level of care, acuity level and the public or private insurance coverage.

Lover Acuity Level Higher
  Home Health Agencies Skilled Nursing Facilities Inpatient Rehabilitation Facilities Long-Term Acute Care Facilities
Reimbursement 30-day episodic care Per diem Per discharge (varies based on patient condition) Per discharge (varies based on patient condition)
Primary Payors Medicare and Medicare Advantage Medicare and Medicare Advantage (beginning day 21 of stay, patient has co-payment) Medicare (FFS) Medicare, Medicare Advantage and Medicaid
Average Cost of Care Per Day $30 - $5641 $325 $500-$1,0001 $1,500
Average Length of Stay (Days) Stay based on number of visits; average number of in-person visits range from 11 to 161 251 13 30

Select Post-Acute Care Operators

Type: Long-Term Care
Ownership: Public (NYSE: SEM)
Net Revenue: $6.5bn
Facilities: 2,765
States: 46

Type: Inpatient Rehabilitation
Ownership: Public (NYSE: EHC)
Net Revenue: $4.6bn
Facilities: 150
States: 37

Type: Skilled Nursing
Ownership: Public (OTC: GENN)
Net Revenue: $3.9bn
Facilities: 341
States: 24

Type: Skilled Nursing
Ownership: Public (NYSE: BKD)
Net Revenue: $2.9bn
Facilities: 672
States: 41

Type: Long-Term Care
Ownership: Private (LifePoint)
Net Revenue: $7.1bn
Facilities: 79
States: 25

Type: Inpatient Rehabilitation
Ownership: Public (NYSE: EHC)
Net Revenue: $3.4bn
Facilities: 290
States: 13

Type: Home Health
Ownership: Public (NAS: AMED)
Net Revenue: $2.2bn
Facilities: 514
States: 39

Type: Home Health
Ownership: Private (United)
Net Revenue: $2.3bn
Facilities: 861
States: 38

Sustained Transaction Activity Post-COVID

Post-acute care deal velocity reached all-time highs in 2020, and has remained elevated despite the transition from pandemic to endemic.

Date Target Acquirer Description
August 2023 acquired by Berkshire Homecare and MyCare at Home provide home care and hospice services in theMidwestern U.S.
July 2023 acquired by PurposeCare is a portfolio company of Lorient Capital, providing home based care services to more than 3,000 clients a month.
May 2023 acquired by Benefit Health Care provides personal care, companionship, homemaking, and respite care services in Colorado.
April 2023 acquired by Summit Home Care offers orthopedics, neurology, infusion, summit care management, and hospice services in the Midwestern U.S.
March 2023 acquired by Home Sweet Home In-Home Care provides in-home senior care, Alzheimer’s and Dementia care, and safety and technology services in Michigan.
March 2023 acquired by Prosper Home Care serves clients eligible for services within the Elderly Cand Disabled Waiver Program, such as the CCSP and SOURCE programs.
February 2023 acquired by Prosper Home Care serves clients eligible for services within the Elderly Cand Disabled Waiver Program, such as the CCSP and SOURCE programs.
February 2023 acquired by Amedisys’ personal care footprint includes 13 care centers in three states – HouseWorks is backed by InTandem Capital Partners.
January 2023 received
investment from		 Founded in 2011, Family Tree Private Care provides quality private care experiences for long-term aging at home.
January 2023 received
investment from		 HouseWorks provides older adults and their families the highest standard of private, dependable in-home care.
December 2022 acquired by The Care Team offers hospice care and home health services in Michigan, Pennsylvania, Texas and Massachusetts.
December 2022 acquired by Geriatric Specialty Care provides high-quality, comprehensive in-home healthcare services to seniors all across Northern Nevada.
November 2022 acquired by PurposeCare is a portfolio company of Lorient Capital, providing home based care services to more than 3,000 clients a month.
November 2022 acquired by Kenosha Visiting Nurse Association provides home health care, private duty and community services throughout the Kenosha community.
Source: PitchBook

AMB Investment Banking Snapshot and Deal Team

AMB focuses on lower middle-market healthcare niches where consumerism and fragmentation meet to disrupt traditional healthcare channels. We typically advise companies with EBITDA of $5M to $20M and an average enterprise value of $100M, but will move up and down the spectrum. AMB’s research-oriented approach to business development has resulted in a vast network of strategic and financial sponsor relationships that yield industry leading intelligence and optimal outcomes for our clients.

Mikel Parker

Managing Director
843-501-2183 Direct
mikel.parker@ambadvisors.com

Ryan Loehr, CPA

Managing Director
843-405-1108 Direct
ryan.loehr@ambadvisors.com

Johnny Cross

Vice President
843-371-8596 Direct
johnny.cross@ambadvisors.com

Kevin Williams

Analyst
843-473-7981 Direct
kevin.williams@ambadvisors.com

Sully Hagood

Analyst
843-576-4709 Direct
sully.hagood@ambadvisors.com

Josh Hall

Analyst
317-750-8866 Direct
josh.hall@ambadvisors.com

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