Following Kindred Healthcare’s blockbuster $1.8 billion acquisition of home health and hospice provider Gentiva Health Services, other providers are following suit, eyeing home health companies as a way to improve their continuum of care.
The latest to make its move is HealthSouth Corporation (NYSE: HLS), which has agreed to acquire privately held EHHI Holdings, Inc., the owner of Encompass Home Health and Hospice, for approximately $750 million.
The transaction has been approved by both companies’ boards and is expected to close before the end of the year, HealthSouth announced Monday.
Last month, rumors suggested Cressey & Company, the current parent company of Encompass, was seeking a purchase price of $700 million for its home health arm.
But for HealthSouth, the acquisition — which will launch the owner and operator of inpatient rehab hospitals into the home health space — has been a long time coming.
“We’ve been following Encompass and [CEO] April Anthony and her team for four years,” says Jay Grinney, HealthSouth president and CEO. “So about four years ago is when we made the decision that at some point we would want to explore acquiring a home health business to complement our inpatient rehabilitation hospital business.”
Currently, HealthSouth operates 25 hospital-based home health agencies, but those will be integrated onto the Encompass operating platform.
Grinney says what impressed HealthSouth about Encompass, the fifth largest provider of Medicare-focused skilled home health services, was its management team and the “very scalable operational platform” the company offers.
As such, the company will maintain its management team, culture and operations, without a noticeable change in business.
“One of the most important requirements of this transaction for me and April was that Encompass would become a subsidiary of HealthSouth but would maintain its identity, its corporate headquarters, its senior management team, its corporate culture and its focus on quality,” Grinney says.
In this way, both companies will act as partners, sharing complementary services that provide a more robust continuum of care.
The acquisition of Encompass was part of HealthSouth’s overall strategy to build a post-acute continuum of care, according to James Clark, managing director of the Healthcare & Life Sciences Group at Harris Williams & Co., the investment bank that facilitated the sale.
“For us, HealthSouth, it’s a launch into this new service,” Grinney says, noting that this is HealthSouth’s first acquisition of a home health company. “For Encompass, which has a track record of successfully acquiring and integrating agencies, it will be a continuation for them, and we will be able to provide additional capital to actually accelerate the growth that they’ve realized in the past.”
The acquisition also fits in with Encompass’ strategy “to partner with best-in-class operators to lower the overall cost of care, while delivering industry-leading clinical outcomes,” Clark says.
For HealthSouth, the acquisition is designed to meet the opportunities and challenges of an evolving health care delivery system, marked by collaboration and scale.
“That new delivery system model is going to be characterized by larger, integrated health care providers offering a full range of services on a coordinated and comprehensive basis,” Grinney says. “In that new world order, having the ability to provide post-acute care in a facility — like a rehabilitation hospital — and at home, through Encompass, brings a higher level of coordination of post-acute services to the community.”
Written by Emily Study