Often in the field of home care, transactions are conducted by companies seeking to expand their ranges of services to become one-stop-shops for referral partners.
Sometimes, however, negotiation is triggered by the desire to duplicate existing expertise.
An example of this latest merger and acquisition tactic occurred on Wednesday, with 24 Hour Home Care purchasing the non-medical care division of GrandCare Health Services. Financial terms of the acquisition, effective September 1, were not disclosed.
“We thought this was a great opportunity,” Ryan Iwamoto, president and co-founder of 24 Hour Home Care, told Home Health Care News. “It’s a very reputable company. We had a great relationship with them. It just made a ton of sense.
GrandCare Health Services provides home medical care in Southern California. While it had a non-medical home care division before Wednesday’s news, the bulk of GrandCare’s business has always been in skilled home health care, with a particular focus on orthopedic rehabilitation.
“We are unusual in that we specialize in a central area,” David A. Bell, president and CEO of GrandCare Health Services, told HHCN. “Most home health agencies are generalists, but we specifically cover orthopedic rehabilitation. We try to be the best at it.
In contrast, Los Angeles-based 24 Hour Home Care exclusively provides non-medical home care services in its markets. The company currently has more than 20 locations in California, Arizona and Texas, employing more than 10,000 caregivers on its footprint.
While GrandCare’s goal is to be a premium home health care provider focused on ‘hip and knee patients’, 24 Hour Home Care seeks to become one of the largest providers. of independent home care in the country.
Today, the company operates mainly in the private compensation landscape, with some activities in the service of people with disabilities. In the not-so-distant future, the rapidly growing 24-hour home care also hopes to expand into the world of Medicaid, Iwamoto said.
“We have a few opportunities that we are looking at, to enter the Medicaid personal care services space,” he said. “If you look across the country, there isn’t a single organization you can think of that looks after these three areas very well at all levels. “
Iwamoto first heard about GrandCare Health Services and its solid reputation from his wife, a trained speech therapist who occasionally worked with the home care provider.
After 24 Hour Home Care and GrandCare both secured spots on Fortune’s Best Places to Work for a Year list, Iwamoto thought it would be a good idea to reach out.
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“I recognized the name, so I texted David on LinkedIn and said, ‘Hey, congratulations. We are also on the list. Oh by the way, my wife works for your company, and I’ve heard a lot of good things, ”Iwamoto said. ” He has answered. We ended up at a lunch, as we are pretty much in the same areas. We just talked about the future of GrandCare and what we both wanted to do.
GrandCare was not aggressively buying its non-medical home care division at the time, but was debating internally the unit’s place in the overall business.
The COVID-19 pandemic has forced GrandCare to redefine its strategic plans, Bell explained.
“I think like a lot of people and businesses, the COVID epidemic has caused us to re-evaluate a lot of things,” he said. “We had been thinking about what we were going to do with this business for a while, wondering if it hadn’t been ‘non-essential’ for a long time. Along with the epidemic, this has really pushed this issue to the fore. “
One of the biggest challenges for GrandCare’s non-medical home care division was a significant imbalance between supply and demand. The provider saw a huge demand for services, but lacked the staff resources to take on these new cases.
This is a problem that most home care operators face. In a recent survey of over 750 home care professionals conducted by HHCN and Axxess, for example, nearly three-quarters of respondents said they had lost business due to understaffing.
“We’ve really had a lot of trouble over the last year providing staff for the private sector,” Bell continued. “This allows us to meet demand. At the same time, we no longer need to be the ones running the operations for this care to happen. We can leave the operations to a partner who is really, really good at it.
“There are always opportunities”
Since entering the market in 2008, 24-hour home care has mainly experienced organic growth. But its M&A activity has recently picked up steam, with GrandCare Health Services closing a handful of successful deals.
Prior to GrandCare, 24 Hour Home Care purchased Grace Care Management in November 2020.
“There are always opportunities out there,” Iwamoto said. “What we’ve seen on the home care side is very fragmented. There are a lot of small organizations where you just have to find the right person. There are actors who do it well and who have professionalized services on a large scale, but there are not many. ”
For its part of the M&A equation, GrandCare offers a unique strategic advantage: its experience in bulk payment models.
The United States Centers for Medicare & Medicaid Services (CMS) Comprehensive Joint Replacement Care (CJR) model was designed to support better and more effective care for patients undergoing the most common surgeries in the community. hospital for Medicare beneficiaries: hip and knee replacements.
In the first two years of the model’s performance, CMS found that episodic CJR payments declined 3.7%, contributing to tens of millions of dollars in estimated savings. Armed with similar results as well, CMS chose to extend the CJR cost reduction program until December 2024 earlier this year.
CJR and other group payment programs are GrandCare Bread and Butter, Bell said.
“We tend to work with consolidators and others who are sophisticated buyers, who are really value sensitive,” he said. “We like to be measured. And when we’re measured, we do better than other vendors.
In the process of selling its non-medical home care division, GrandCare is adding to its strong track record of cross-industry collaboration with 24 Hour Home Care.
“[This move] allows us to pursue new opportunities, new partnerships, new packages, ”said Bell. “A lot of these people obviously care about everything that matters to any package – the quality of patient care, the reduced costs and the prevention of people from being readmitted. Being able to provide that extra layer of care is a big deal. “
At the same time, 24-hour home care could gain access to new value-based care opportunities through these connections.
“It opens up more opportunities for us,” said Iwamoto. “In the grouped payment space or the value-based care space.”