Analysts expect demand for home infusion to remain strong

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Friday, June 8, 2012

YARMOUTH, Maine – While the inclusion of home infusion therapy in the Round 1 re-compete of competitive bidding could send a chill over buyers and sellers, it's unlikely to completely cool enthusiasm for this red-hot market, say industry analysts.

"It's not going to send the industry over the deep end, but nobody's going to be popping bottles of champagne," said Dexter Braff, president of The Braff Group. "Anything that suggests a change to reimbursement gives people heartburn."

CMS in April announced plans to competitively bid infusion pumps and related supplies—a move that caught stakeholders off-guard, largely because home infusion therapy is a fraction of Medicare's total spend.

That's why stakeholders, including the National Home Infusion Association and AAHomecare, have asked CMS to exclude the category from the program.

"Medicare is such a small part of home infusion reimbursement, normally less than 30% (of provider revenues)," said Bruce Burns, president of Affinity Ventures. "Even if they are included in bidding, it's not a big hit on their earnings."

Over the last several years, there has been strong demand for infusion companies by private-equity firms, roll-ups and strategic players. That's not going to change, say analysts.

"People are actively searching for acquisitions in the home infusion sector," said Mike Patton, managing director for Provident Healthcare Partners. "The services will continue to be needed based on the amount of infusible drugs and the demographics of our population."

What might ultimately change, however, is the composition of the market. Right now, it is comprised of many smaller regionals and mom-and-pops, and competitive bidding, say analysts, is never good for the small guy.

"Small providers are going to have to run the risk of selling at a lower multiple if they are not awarded a bid," said Greg Wappett, an associate with Provident HealthCare Partners. "It's a catch-22."

The true impact on the valuations for home infusion providers won't be known until the bids are in, and the service intensive nature of the therapy makes it hard to gauge what those bids could come in at. Still, Braff points to one possible benchmark.

"I would say the default number that people would put in their minds is the same 30% cut in reimbursement that the HME side is exposed to," he said. "They are as different as night and day, in terms of cost, revenue and profit margin structures, but it's the way people think."