M&A: What will be impact of bid changes?

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Friday, September 7, 2018

YARMOUTH, Maine – It’s still early, but CMS’s proposed changes to the competitive bidding program could renew M&A activity, analysts say.

In the short term, the agency wants to implement an any willing provider provision when the current bid contracts expire, allowing any Medicare-enrolled provider to serve beneficiaries while it overhauls the program.

“Now that you don’t have these handcuffs on, you can go out and grow organically or through acquisitions,” said Brad Smith, managing director and partner at Vertess. “That will increase market competition and drive more demand.”

Unfortunately, there’s still the problem of low reimbursement. While providers who have been shut out of the Medicare program can get back in on Jan. 1, they will do so at the current fee schedule amounts.

Pat Clifford thinks there will be more of a wait-and-see approach, especially considering CMS still needs to finalize its plans for longer-term changes like using a clearing price to set payment amounts for the next round of bidding.

“Unless the paradigm really changes, the rates still aren’t great,” said Clifford, managing director, home medical equipment, for The Braff Group. “Wait and see—that’s the way the industry has rolled the last few years and through the iterations of competitive bidding.”

Reimbursement might be low, but at least with the bid program in place for years now, it’s also stable, Clifford says.

“Profit and loss statements have been somewhat predictable of late, so I think buyers would take a cautious look,” he said. “The private equity world really likes the demographics of the HME space. They like the long-term prospects.”

Smith agrees all these factors are at least raising the eyebrows of possible new entrants into the market.

“Cautiously, yes, there could be more people getting in,” he said. “There are always people looking at it from the outside. It’s a great market when you look at the baby boomers.”

On the flip side, for providers that may have been on the fence about exiting the business, the proposed changes offer some breathing space, says Don Davis.

“For those companies that did have a lot of Medicare business that were possibly contemplating selling after the next round, I do think it allows for decisions to be made now, rather than waiting around to find out what happens,” said Davis, president of Duckridge Advisors. “I think if you are looking to sell, you’re still looking to sell, and if you are not, then you are more complacent.”