M&A activity in home health takes 56% tumble in 4Q98
M&A activity in home health takes 56% tumble in 4Q98
By MEREDITH BONNER
HHBR Editor
There were 56% fewer mergers and acquisitions reported in the home health sector in 4Q98 than in 4Q97, and industry experts attribute the decline to "unfavorable changes to the reimbursement protocols," which, they say, "have driven many potential acquisition candidates out of business."
According to the results of Irving Levin and Associates’ (New Canaan, CT) fourth quarter report on the M&A market in the healthcare services industry, there were 11 transactions publicly reported in home health in 4Q98. That number also dropped from 3Q98 by 26.7%.
"It’s plain and simple; with the new Medicare reimbursement for home health, all of a sudden it was not profitable to stay in Medicare business, which was a big portion of the industry," Stephen Monroe, a partner at Irving Levin, told HHBR. "It made a lot of companies go from the black to the red," which he said is one factor in the significant drop in the number of M&As in the industry. Monroe also said that a lot of companies did not want to make offers to buy other companies’ operations, when they could just go into the market and pick up patients being dropped.
Lenders were also nervous about how people were going to pay off loans, he said.
"A lot of people suddenly turned pessimistic in a industry that had recently showed a lot of promise."
Monroe also told HHBR that the industry, in such hard times, didn’t help itself.
"There has been a lot of true fraud and non-consistency," he said, "but that’s not the majority, I don’t think.
"All of this has impacted the mergers and acquisition market, as is plain to see in the numbers."
But Monroe told HHBR he is optimistic the industry will eventually bounce back.
"Congress is finally seeing that there is more to life than impeachment and that no one intended for home health to be put out of business from the Balanced Budget Act," he said.
But Monroe said that while President Clinton and Congress seem to be paying closer attention to the industry, the attention will not affect the M&A activity in the near term.
"It’s great; it needs to be done, but none of it will affect the M&A market for a while," he said. "It will take a while to filter into the M&A market if there are any economic changes. There will still be deals, people will still be buying and selling, but the volume will stay low for at least the first half of 1999."
Monroe calls Clinton’s recent long term care proposal "just the tip of the iceberg. It doesn’t accomplish anything other than it’s a tiny, tiny step in the right direction," he said.
In the healthcare industry as a whole, according to the report, there were 206 transactions that were publicly traded during 4Q98, down 23.1% from the 268 deals in 3Q98.
"This is the lowest level of healthcare merger and acquisition activity since the end of 1995 and the beginning of 1996, when an average of 200 deals were announced each quarter," said Monroe.
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