HMEs embrace home health

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Thursday, November 30, 2006

Rumor has it that several well-known players in the HME industry are "feverishly" looking to buy their way into the HHA industry. The main reason: While many HME companies have lost ground due to respiratory and rehab reimbursement cuts, HHA companies, overall, have gained momentum.
The rumor doesn't surprise M&A firms like The Braff Group. While the Pittsburgh, Pa.-based firm has always covered both industries, it recently decided to "throw more resources at the HHA industry," said Bob Leonard, associate. He and another associate, Jeff Freedman, now share their time between HME and HHA.
"(The Balanced Budget Act of 1997) almost killed HHA," Leonard said. "By most estimates, up to 40% of companies went out of business. But they've bounced back. It's a role reversal, for sure."
Through BBA '97, Congress cut the home health benefit by more than 50%, causing more than 4,500 HHAs to close their doors and leaving more than 1 million beneficiaries without coverage, said Ann Howard, AAHomecare's director of federal policy.
But slowly, over the past 10 years, the HHA industry has recovered. Why? Congress realized it cut the benefit too far, thanks to the industry's ability to "put a face on HHA" and demonstrate its value, industry sources said. (See related story.)
Besides better reimbursement, the HHA industry is attractive for other reasons: "It's a highly fragmented industry that's ripe for consolidation on a local, regional and national basis," Leonard said, and like the HME industry, it enjoys strong demographics.
Rick Glass, president of Steven Richards, a Tarpon Springs, Fla.-based M&A firm, agreed that the HHA industry has been "hot," but it "has cooled off some" this year.
"I think there's a realization that, yes, the HHA market has been much better off, but with CMS and Congress, the whole world could turn upside down on any given day," Glass said.
Indeed, few have given up on HME, including William Deary, president of the Jackson, Mich.-based Great Lakes Home Health, which provides HME, home care, hospice and private-duty care services.
"We're excited about all four of our product lines, but we believe our largest growth potential lies with HME," he said. "There has been a knee-jerk reaction to the 36-month cap (on Medicare oxygen reimbursement), but (the cap's) not going to fly. Once that's addressed, you'll see more M&A activity on the HME side."

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