Last week brought the news that UnitedHealth Group (NYSE: UNH) is acquiring home health care provider LHC Group (Nasdaq: LHCG) for $5.4 billion.
The deal is among the strongest signals yet that the ongoing shift to in-home senior care is accelerating — and that time is running out for senior living operators to adapt or be left behind.
The deal will combine LHC Group, one of the largest home health providers in the U.S., and Optum Health, the health care services arm of United. The transaction means that the nation’s current most-profitable payer will gain increased access to senior living communities across the country. That includes Brookdale Senior Living (NYSE: BKD), which began working with LHC Group last year, after the home health company acquired 47 Brookdale Health Services assets from the operator’s joint venture with HCA Healthcare.
In this week’s exclusive, members-only SHN+ Update, I analyze this news and offer key takeaways, including:
— Collaboration between Optum and Brookdale could result in new and forward-thinking arrangements
— Payers are increasingly focused on providing care directly to older adults, and senior living providers could be their next targets to acquire or more closely control
— Some senior living operators are already making inroads in home care, making them early leaders in the race
Alluring possibilities for UnitedHealth, Brookdale
Perhaps the most notable development in UnitedHealth’s deal to buy LHC is that it gives the payer a closer tie-in with Brookdale Senior Living, the nation’s largest operator.
The relationship traces back to last February, when the senior living operator agreed to sell an 80% stake in its home health, hospice and outpatient therapy service line to Nashville-based health system HCA Healthcare.
Later that same year, the Brookdale and HCA joint venture sold 47 home health, hospice and therapy agencies in 22 states to LHC Group, giving the home-based care company a new service line in 226 Brookdale communities.
Although Brookdale says the LHC-Optum deal won’t result in any massive or immediate changes to the services provided in its communities, the move will give the payer a window into how care is delivered to residents with the nation’s largest operator.
Optum already is plugged in to a cache of health care data and infrastructure, as the organization not only provides services to beneficiaries with UnitedHealth but works with over 100 health plans. Consider the effects of Brookdale’s sale of its home health division about a year ago: The company gained valuable liquidity while forging relationships with the nation’s largest hospital system in HCA, one of its largest home health providers in LHC Group — and now the largest health care insurance company.
That is significant, given where Baier has said she wants to take the company. In fact, she has spoken about her vision for years. In 2019, she said she saw a “real opportunity” to get upstream in residents’ health care journeys by working with health systems to provide them better nutrition, purpose and exercise to increase penetration rates and improve outcomes.
“Many of our residents are dealing with multiple chronic conditions, and we are committed to creating a setting in which health care needs are met in a home-like environment,” Baier told SHN in March.
Under the most basic thesis of how that might work, payers, hospital systems, and other members of the health care ecosystem would provide and coordinate services for residents in senior living communities to improve outcomes and drive down costs, presumably through better access to preventive care and checkups.
In turn, senior living communities would be able to tout care quality and coordination for their residents and offer services that help them stand out from their local competitors, and potentially pair them up with Medicare Advantage (MA) or other special needs plans to fund those services.
Given the reach of UnitedHealth and Optum, I can only assume Baier is thinking about the possibilities now.
Brookdale CEO Cindy Baier has not been shy about the fact that she sees better opportunities to help residents navigate an increasingly complex health care system. And, the company believes the best place to do that is where they live as opposed to sending them to other sites of care.
I think all of that portends deeper collaboration in the future with UnitedHealth and Optum, HCA and others, and will almost surely lead to innovation down the road.
Payers are making chess moves
In 2019, industry veteran and former Eclipse Senior Living CEO Kai Hsiao made a bold prediction that an insurance company would become the biggest owner of senior living communities in the U.S. within a decade.
Hsiao’s thesis was that such companies might acquire senior living providers as they seek to more effectively manage the health and wellness of their MA beneficiaries and keep costs in check.
Although that outcome has not yet come to pass, the UnitedHealth deal is a strong signal that such a development could happen sooner than the industry thinks.
Certainly, the transaction is part of a UnitedHealth strategy to more closely manage the care that beneficiaries receive across the entire continuum. In fact, just a week before the LHC Group deal was announced, Optum acquired mental health services company Refresh.
“LHC Group’s sophisticated care coordination capabilities and its warm, human touch is so important for home care, and will greatly enhance the reach of Optum’s value-based capabilities along the full continuum of care, including primary care, home and community care, virtual care, behavioral health and ambulatory surgery,” said Optum Health CEO Dr. Wyatt Decker, in a press release. “We greatly admire how the people of LHC Group have created a culture that enables them to be a trusted health care partner to patients and their families when they need it the most, and we look forward to working with and learning from them.”
And UnitedHealth is not the only insurance company becoming a “payvider” — that is, both a payer and provider.
Last year, Humana paid approximately $5.7 billion for a full acquisition of Kindred at Home, gaining a foothold deeper into the home while further integrating home-based services and value-based care.
Mark Kulik, managing director at M&A advisory firm The Braff Group, described the LHC-Optum combination as a “shrewd move” from UnitedHealth and one that answers Humana’s acquisition.
“I think it’s a chess move that they’re making, to go ahead and lock up one of the premier, largest providers of home care and hospice in the country,” Kulik told SHN sister publication Home Health Care News.
I would expect similar chess moves in the future from Humana, UnitedHealth and others — and consider that these payers will inevitably see some of their home health care patients making the move into senior living communities, while an increasing number of senior living residents are enrolling in Medicare Advantage plans as benefits expand to cover chronic conditions. I think it’s only a matter of time before a large payer acquires or invests in a senior living operator, following in the footsteps of UCare, which took a stake in provider Lifespark.
Additionally, UnitedHealth has already played in the senior living space. The insurer is behind some provider-led Medicare Advantage plans, including as a joint-venture partner in Erickson Advantage, an Erickson Senior Living plan.
Optum is involved in delivering services to senior living residents on MA plans, and also has an I-SNP model that serves more than 1,800 skilled nursing facilities and more than 70,000 members nationwide. The company has enlisted Former ProMedica Senior Care President David Parker to help build out its provider-led I-SNP services, including in assisted living communities.
Operators increasingly see importance of home-based services
Home-based care was already growing in popularity among older adults before Covid-19, and the pandemic has only given them more ways to age in the place where they live.
With new technology and new waivers with which to facilitate home care, “the home health industry thus solidified its position as an integral part of the continuum of care and the lowest-cost setting,” wrote Stifel Analyst Tao Qiu in a March 29 note to investors of The Pennant Group, Inc. (NASDAQ: PNTG)
The opportunity for operators is sizable. About $265 billion worth of health care services for older adults could shift from facilities to the home within three years, according to a Feb. 1 survey of physicians conducted by McKinsey & Co.
On the whole, I think the senior living industry still has ground to make up if it hopes to meet the growing demand for home-based care in the years to come. But more operators have woken up to the fact that they need to extend their services to outside their communities’ walls.
One such company is Bickford Senior Living, which in June launched its own home care service line with HomeCare Advocacy Network (HCAN). Another such operator is SALMON Health & Retirement, which launched a home health care division offering in March. And there are numerous operators in the nonprofit space that have long had home care lines as an extension of their services.
And I think it is an avenue more senior living operators will take in the future, either by partnering up with organizations such as HCAN or by launching their own in-house home care businesses. It’s not hard to imagine a future where senior living companies — driven by the imperatives of value-based care and the growing influence of insurers — are more proactive about meeting older adults’ needs before they move into a community.
Like Brookdale, Bickford is seeking to get upstream in residents’ care journeys and help integrate and coordinate their care with partners. For residents and their families, the benefit is an easier time getting necessary care; and for operators, the benefit is offering better care to residents and reaping the benefits of longer length of stay and better satisfaction.
Of course, home health care is a very different type of business than senior living, and the industry is full of cautionary tales about senior living operators failing to crack the home care code. So perhaps partnership is the smarter route for many providers.
But I think senior living is already being disrupted by the shift to home and value-based care.The only question in my mind now is who will adapt and even drive this disruption, and who will lag behind.