Wednesday, June 30, 2010

Gentiva-Odyssey - Who Will Be the Beneficiaries?

I've suggested in the past that the hospice industry is sub-scale (too many small providers) so I've been asked recently if the news about the Gentiva acquisition of Odyssey marks the beginning of a consolidation that will benefit the delivery of hospice services in the US.

The recent business transaction between Gentiva and Odyssey is a blockbuster deal (or as some analysts put it, a game-changer) not only because of the dollars involved (a billion of them) but also because it involves the combination of a for-profit home health provider with a for-profit hospice.

Several points struck me:

-Gentiva will be under great pressure to make this deal work because it expects to raise $1.1 billion in NEW DEBT financing to fund the purchase price and refinance existing debt. Such financial pressure encourages management decision-making where patient enrollment trumps patient service.
-Identifying synergies (not to be confused with economies of scale) between home health and hospice has been elusive. It's probably why there haven't been such large-scale combinations to date, and why even small-scale home health/hospice collaborations (either for-profit or not-for-profit) have been few and far between. That said, Gentiva's management has had a solid track record and may be up to the task of capitalizing on these elusive synergies.
-Health care (especially home and hospice care) is local, and after the transaction is completed, the key question will be: can a home health-hospice behemoth better advance (than other organizational delivery models) the provision of palliative care to those with chronic or advanced illness? To the extent that the new Gentiva/Odyssey entity may be able to develop accountable palliative care organizations (APCOs) within the communities it serves, then it may be worth the effort.

I'm curious to learn your thoughts.


Dave Tribble said...

From the not-for-profit hospice viewpoint, we share the concern in the intial bullet-point, that the pressure to admit may be greater than the pressure to serve, likely to the point also where the selection of those who will be so served may be driven by the presence or absence of a payer source.

We are not so naive as to believe that the not-for-profit model represents some form of moral high ground, and even a not-for-profit agency must have some margin or it has no mission. We see value, however, in being first accountable to the community we serve, which accountability may become obscured when there is also accountabilty to stockholders whose major interest is the return on investment.

With regard to the second point, it is possible for a hospice to maintain cordial and fruitful relationships with home health agencies, each respecting the other's role, without both being owned by a behemoth, and I suspect how well this works may depend more on the actual persons involved than it does on corporate directive.

This will be fascinating to follow.

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