Dive Brief:
- UnitedHealth has inked a deal to acquire home health and hospice provider LHC Group for $5.4 billion as payers continue to elbow into home health delivery and COVID-19 accelerates the trend of care being delivered outside of hospital settings.
- The combination of Louisiana-based LHC and Optum, the health services arm of Minnesota-based UnitedHealth, is aimed at helping UnitedHealth provide more integrated care, per a release on the deal. LHC manages a sizeable share of the home health market, with more than 960 locations in 37 states and revenue of $2.2 billion last year.
- The deal is expected to close in the second half of this year.
Dive Insight:
Interest in home health has been skyrocketing, as providing care at a lower cost has the potential to be quite lucrative as the population ages and reimbursement hikes. That's resulted in a growing number of health insurers, private equity companies and hospitals snapping up practices in the space.
Humana, an early mover in home health, finalized its multi-billion-dollar acquisition of Kindred and announced plans to buy post-acute care company OneHome for an undisclosed amount last year. Anthem acquired MyNexus, a care coordination company for Medicare beneficiaries, in April, while CVS Health-owned Aetna has made similar plays.
Part of the pull into home health is shifting population demographics resulting in a sharp increase in the number of older adults in the U.S. Starting in 2030, the elderly will make up 21% of the population, per Census projections, and eventually grow to outnumber those under 18 for the first time in U.S. history.
As the population ages, demand is expected to grow for care models that keep seniors out of more expensive care settings like hospitals and nursing homes.
"By the next decade, acute care will happen at home first for patients, hospital second and only when necessary," Forrester senior analyst Natalie Schibell said in comments on the UnitedHealth-LHC deal.
Hospital costs continue to rise, outpacing cost growth in other care settings, according to recent data from nonprofit Fair Health. Insurers are looking for ways to pivot as many medical services as possible into cheaper modalities, like outpatient, community and virtual care.
Insurers also keep more of the premium dollar for themselves, if their members receive care at sites they own.
According to a note from Cowen analyst Gary Taylor on the deal, snapping up home health assets makes the most sense for large Medicare Advantage insurers, as they ramp up their medical presence at home to track patients' health conditions and coordinate care. UnitedHealth's Optum branch is already conducting at-home assessments.
But these ancillary services have raised some eyebrows, and are fueling concerns that Medicare Advantage plans are using chart reviews and health risk assessments to get higher payments from the government by making their members seem as sick as possible. In the past few years, the government has increasingly cracked down on MA fraud and overpayments.
But MA payments continue to rise, with the average Medicare margin expected to be 17% this year, despite calls from congressional advisory group MedPAC to lower it. MedPAC has argued payments for home health services are too high, which watchdogs worry could incentivize practices to coax the government into higher reimbursement in the increasingly popular program.
Buying LHC should bolster UnitedHealth's home health and hospice business across more than 30 states, according to Cowen. LHC leadership will remain on after the acquisition.
UnitedHealth's purchase price of $170 per share for LHC represents a more than 8% premium over the provider's closing price on Monday.
The diversified healthcare behemoth expects the buy to be neutral to its outlook for adjusted net earnings per share in 2022, modestly accretitive next year and advance "strongly" annually after that.
UnitedHealth has been leaning on its Optum business for expansion and revenue diversification. Last year, the division — which already works with 100 health plans — added 100,000 medical practices, making it the biggest physician employer in the U.S.
Optum expected to close a $13 billion acquisition of data analytics firm Change Healthcare earlier this year, but the Department of Justice halted the deal over anticompetitive concerns last month. The parties have until April 5 to decide to walk from the deal, or continue to pursue a merger in court.
