- Home health and hospice giant Amedisys has signed a definitive agreement to acquire Contessa Health, a hospital-at-home and skilled nursing company, in a bid to focus on higher acuity patients as care is increasingly delivered in the home.
- The $250 million buy of Nashville-based Contessa is expected to close August 1, according to financial filings with the SEC. Contessa is the largest U.S. operator of hospital-at-home models and operates a proprietary platform to coordinate in-home care, according to Jefferies.
- As part of the deal, Amedisys — which expects its total addressable market for in-home services to almost double due to the acquisition — intends to invest heavily in the growth of that platform, the company said.
Amedisys CEO Paul Kusserow said the acquisition aligns with its strategy to focus on higher acuity in-home care, as more players look at providing acute care outside of traditional medical settings.
Contessa partners with health systems to provide complex patients acute and post-acute care in their homes. Since its founding in 2014, the startup has lured a slew of big-name clients, including CommonSpirit Health, Highmark Health and Mount Sinai Health System with plans to expand to more than a hundred hospitals in 28 more states.
Contessa CEO Travis Messina said it was attracted to Amedisys because its national footprint can provide the scale and infrastructure to fuel Contessa's growth.
Under the agreement, Contessa will become a wholly-owned subsidiary of Baton Rouge, Louisiana-based Amedisys. Messina will continue to lead Contessa, which will operate as a separate division and retain its branding.
Home health has been ramping up even before the coronavirus slammed the U.S., as the population skews older and more care is delivered outside of acute settings. As competition heats up, hospitals have scrambled to snap up a share of the new market, with players like Intermountain and Kaiser recently ramping up their investments.
Hospital-at-home programs can generate savings on the direct costs of care, without the expenses associated with brick-and-mortar hospitals. Additionally, they can allow hospitals to keep beds open for higher margin patients, making them especially attractive for hospitals in highly populated areas or nonprofit systems, which usually operate at higher occupancy rates.
Widespread adoption of hospital-at-home has historically been hamstrung by a lack of existing reimbursement mechanisms. But that's shifting: in April, CMS issued a proposed rule that would up payments for hospices serving Medicare beneficiaries by an estimated 2.3%.
When the proposed rule is finalized, it'll boost Amedisys' annual revenue by $6 million, Kusserow told investors earlier this year.
Partially as a result of the more favorable regulatory and business trends, the home health behemoth has been embarking on a strategic effort to grow its hospice business.
In May, Amedisys acquired the home health and hospice operations in Omaha, Nebraska, and Council Bluffs, Iowa, from nonprofit Visiting Nurses Association. It was the fifth hospice acquisition for Amedisys since 2019: The company acquired New Jersey-based Compassionate Care Hospice for $328 million in February 2019; Oklahoma-based RoseRock Healthcare for $18 million in April 2019; Asana Hospice, a provider with locations in Pennsylvania, Ohio, Texas, Missouri and Kansas, for $67 million in January last year; and 14-state hospice provider AseraCare Hospice for $235 million last summer.
"M&A is an important tool for us to continue to expand our geographies and market share, and we are continuing to look for more significant ways to deploy capital to grow inorganically throughout 2021," Kusserow told investors on an early May earnings call.
In connection with the Contessa merger, Amedisys is talking with its lenders to expand its credit facility to include a $450 million term loan facility and a $550 million revolving credit facility for future home health and hospice acquisitions, according to its 8-K on the deal.
The home health operator, which already partners with more than 2,900 hospitals and 78,000 physicians nationwide for post-acute care, expects adding Contessa will expand its total addressable market for in-home services from $44 billion to $73 billion.