As a business, long term and post-acute care is clearly rising. It’s rising in part because of its convergence.
“You’re certainly seeing a consolidation in the industry, particularly in the major markets,” says Christian Mason, president and chief executive officer of Lake Oswego, Ore.-based Senior Housing Management.
“You’ve got so many of the equity funds and REITs—public and private—buying up these assets. You’re going to see a lot of consolidation in that respect.”
 
REITs are real estate investment trusts, commercial real estate portfolios that are publicly traded. Providers have already seen record mergers in a sector that just a few years ago was an economic backwater.

Big Deals, Bigger Companies

In 2013, there were 225 publicly announced mergers among seniors housing or elder care companies—a new record, according to analyst Irving Levin Associates. Analysts are still compiling 2014 data, but some say that whether it broke 2013’s record for aggregate mergers (and it might well do so), it will probably bust the charts for price tag and size.

In February, Brookdale Senior Living announced a $2.8 billion merger that created the largest-ever senior care provider in the United States.

While observers were catching their breaths from that deal, Kindred announced in October that it had finally won its hostile takeover bid of Gentiva. The deal was valued at $1.8 billion, but it created the nation’s largest long term and post-acute care provider and the nation’s fourth-largest health care employer. Nearly 80 percent of Americans now have the option of hiring Kindred for their elder care.
No sooner had the Gentiva deal been inked when Kindred announced that it was putting up $195 million in cash for Centerre Healthcare, an inpatient rehabilitation company.

The year closed with HealthSouth announcing a $750 million deal to buy Encompass Home Health & Hospice.

No Rest For The M&A Lawyers

Things do not appear to be slowing down, either. In January, Ensign Group, a Mission Viejo, Calif., provider, announced multiple acquisitions—in Colorado, Texas, and Arizona. Ensign acquired new services or companies 14 times alone last year.

Even reform advocates are trying to get better by getting bigger. In 2012, The Eden Alternative merged with Wellspring, and in 2013, the American Health Care Association (AHCA) announced that it was absorbing the Alliance for Quality Nursing Home Care.
I
f this is all great news for shareholders and company executives, it still has rattled a few nerves.
“There’s a lot of fear on the part of independent operators because they’re being told that they’re going to be muscled out of the business in 10 years,” says Robin Hillier, owner and operator of Lake Pointe Rehabilitation and Nursing Center in Conneaut, Ohio.

Real-Time Accountability

Hillier represents independent owners on the board of AHCA. She says that she thinks that small, rural providers actually have an advantage against mega-companies.

“I believe there are always going to be opportunities for the independent owner,” she says. “I have a better opportunity to respond to my community and their needs, and I can more quickly move into new care areas and niches.”

Part of the advantage stems from not having to worry about shareholder demands, Hillier adds.

“The kind of care that I’m giving, the profit margins are too low for the big guys,” she says.

Another advantage is that independent operators have to offer real-time accountability in the way that a massive corporation doesn’t. “When I go to the grocery store, people come up to talk about the care their mom got. A lot of providers are second-, third-generation businesses, and they have a commitment to the family legacy. They have a direct relationship with the people in their community, because everywhere you go, they know who you are.”

Donna CameronAlliances In Smaller Communities

Donna Cameron is a former nursing home administrator who is now an executive with Navigant Healthcare, a consulting firm. She says that in the smaller, more rural parts of the country, independent operators are integrating care with other health care providers; most of them are business alliances, Cameron says.

“Community hospitals are creating alliances with skilled nursing and hospice in their communities, but it’s not going to the level of an actual merger or acquisition,” Cameron says. “The common theme in all of the industry is more consolidation of post-acute care along the continuum of care.”

With the new political economy of value-based purchasing—essentially a demand for high-quality care at lowest possible cost—providers have a chance to become a kind of one-stop-shop for those recovering from injury or illness, Cameron says.

Mason agrees.

“In the mid-markets and small markets,” he says, “you’ll see these remarkable opportunities for independent owner-operators to go in there and make a real run.”

Antitrust Worries Overblown

Some have raised concerns that antitrust lawyers might start taking a harder look as the scale and scope of long term and post-acute care mergers grows, but Mason says he thinks those fears are overblown. As big as some providers have grown, none has a stranglehold on care, even in individual markets, Mason says.

“Regulators will want to know, ‘Is there a dominant player? And if so, what percentage of the market do they control? Do we have any one player that controls 10 percent or more of the market?’ And I think the answer is, no,” he says.

Hillier might well be a case study in nimble, independent operating. A few years ago, she saw the need for ventilator care in her community. She acquired a company, and now her buildings offer pediatric ventilators, too. Last year, her company branched into home health. She and her colleagues in rural Ohio are exploring whether to pool their money into a hospice service, she says.

“What we’re thinking about is expanding our services, not expanding our buildings,” she says.

Care Managers

The tech revolution has blown open doors for providers, Hillier says. Small, cheap gadgets—many of them downloaded on people’s smart phones—mean not only that rural providers can offer top-quality telemedicine, say, but also that providers’ caregiving skills don’t have to be left in bricks-and-mortar buildings.

Additionally, many baby boomers have already adopted the disruptive technology of their age, and so “it doesn’t have the stigma of getting old,” Hillier says.

She sees the day where she and her staff can monitor elders at home with basic phone apps and offer every level of care, from the occasionally delivered hot meal to end-of-life.

“Frankly, I’d like to reach people much earlier, because by the time many get to my facility now there’s a lot that has gone wrong,” Hillier says. “We can get into the role of care manager much earlier in the person’s trajectory.”