Home health M&As rise while rest of industry dips

HHBR Staff Writer

While the number of mergers and acquisitions involving home health agencies rose during 1Q99, the number of transactions involving the industry as a whole has steadily declined since 1995.

Irving Levin Associates (New Canaan, CT) released last week its preliminary results of the 1Q99 report on the merger and acquisition market in the healthcare services industry. According to the report, there were 193 transactions publicly announced during 1Q99 ended March 31, a decrease of 11% from the previous quarter’s 216 deals. And compared to 1Q98, the number of transactions declined by 39%. The report found that there were 15 transactions in the home health arena, which had the highest increase in numbers of transactions among all sectors.

"This quarter witnessed the lowest level of healthcare merger and acquisition activity since the end of 1995 when 163 deals were announced," said Stephen Monroe, a partner at Irving Levin. "However, the landscape of the healthcare services industry has changed markedly. While for-profit healthcare companies once dominated the M&A market, nonprofit organizations have since risen to prominence."

The Health Care Merger & Acquisition Report showed the number of transactions for each sector and the percentage change over the previous quarter: physician medical groups, 38, down 12%; hospitals, 23, down 12%; long term care, 23, down 36%; HMOs, 18, level; home health, 15, up 25%; psychiatric, 13, down 19%; laboratories/MRI/dialysis, 12, down 25%; rehabilitation, 11, down 8%; and other sectors, 40, up 11%.

Consolidations among nonprofit HMOs command a larger share of the market, said Sanford Steever, editor of the report.

"The kind of deals companies pursue has also changed," Steever said. "Where buyers once sought to buy up a company lock, stock, and barrel, the emerging pattern of acquisition now favors looser forms of affiliation."

Even with financial challenges, such as the changes in Medicare reimbursements, Monroe expects there to be as many as 850 deals in 1999.

"Although these changes have already impacted the finances of the healthcare industry, providers and payors will continue to pursue mergers and acquisitions as a means of improving operations and further developing regional delivery systems," he said.

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