Report: A Few Private Equity Firms in Home Health Command Large Portion of Medicare Payments
McKnight’s Home Care | By Liza Berger
An aging population and pressure on labor and costs makes home health an attractive target for private equity firms. Also, while private equity accounts for a relatively small proportion of ownership, a few players control a large proportion of Medicare payments. These are two key findings from a report published this week.
“Private equity ownership provides opportunities to maximize revenue by cutting costs, increasing control over prices by consolidating markets, and deploying financial engineering mechanisms such as fees and dividend recapitalization,” the report by the American Antitrust Institute and Americans for Financial Reform Education Fund stated. “This aligns closely with the private equity model of generating high short-term returns for investors.”
Small piece of home health pie
As of early 2023, private equity was behind 5.7%, or about 492, of 8,591 total home health providers. Moreover, a total of 37 private-equity-owned or backed “parent” companies was behind the 492 home healthcare providers. These parent companies have acquired about 330 individual, and frequently small, home healthcare companies and consolidated them into the three dozen firms.
The top five of the 37 are raking in a disproportionate amount of the home health private equity revenues, according to the report. They account for about 63% of total revenues and 57% of their locations. On average, they collected over $850 million in Medicare revenue and operated almost 280 locations in 2020. The largest home healthcare company, Accentcare, backed by private equity firm Advent International, collected just over twice as much as the average revenue for all five firms. The four other largest parent private equity-backed companies are Interim HealthCare, Aveanna Healthcare and Mission Healthcare.
Red flags for regulators
The report sounds alarm bells on the importance of government oversight of private equity, which has been associated with cutting costs at the expense of quality and operating under the radar of regulatory authorities.
“The incursion of private equity into healthcare, and home healthcare in particular, raises pressing questions,” the report said. “For example, are the economic incentives and strategies typical of private equity compatible with ensuring affordability, access and quality in healthcare? What do aggressive acquisition strategies, roll-up strategies and rapid market exits mean for market concentration and the stability of healthcare markets? Is private equity targeting or driving higher concentration in healthcare markets?”
Of particular concern is private equity firms are present in about half, or around 190, of highly concentrated home health markets. More concentrated markets feature fewer competitors and are associated with higher prices following “harmful” mergers and lower quality of care, according to the report. Large players also are operating in markets with and without private equity, the report points out…
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