ATLANTA — A shocking 60 percent of the participants in HomeCare's March Web poll said they are trying to sell or close their HME businesses before Round 2 of competitive bidding.
Of 477 votes in the poll — which asked the question, "Will you bid in Round 2 of competitive bidding?" — here's how the responses broke out:
- Yes: 13%
- No: 10%
- Haven't decided: 4%
- Audits may put me out of business before Round 2 is implemented: 13%
- I'm trying to sell/close my business before I have to: 60%
But these days, selling out won't be so easy, say merger-and-acquisition experts. The very reason those in the home medical equipment sector want out — competitive bidding and the resulting reimbursement nosedive — is also the reason few buyers want in.
"Sadly, there is a rumble of people heading toward the exit. But the doors aren't as wide as they once were," said Bob Leonard of Pittsburgh, Pa.-based The Braff Group. "Supply and demand has certainly tilted in favor of the buyer. And the other thing is, it is all about risk and return. [Buyers] know the risk, and the returns are diminishing."
Richard Glass, president of Steven Richards & Assoc., Tarpon Springs, Fla., said he believes providers are getting worn down. While his company hasn't seen as much seller movement as in 2008 when the first Round 1 was implemented, he said, "I certainly sense every day in my work frustration on the part of many providers."
The market for sellers "is not as robust as it was years ago," Glass said. "We have buyers … we probably sold seven or eight HME companies last year and some this year, but there are certainly not as many buyers as there were."
Leonard said Braff also has completed sales in the HME sector and there are more in the works, but he is seeing few outside investors. "Most of what we are seeing is buyers who are already in the business, who already have an infrastructure in place so they can pick up a patient base without the cost of putting that in place," he said.
Provider Todd Tyson, president of HiTech Healthcare in Norcross, Ga. (a suburb of Atlanta, which is included in Round 2), said he has gotten calls from other providers who are closing their doors and are trying to find service for their patients. He recently heard from a neighboring provider looking for a company to take its 200 oxygen patients.
"We hear a lot of frustrated comments with people saying they wish they were out of the business," Tyson said.
There is little doubt that many providers are actively seeking buyers — and not only those in Round 2. Some in Round 1 areas are still trying to sell three months after implementation.
Chris Rice of Diamond Respiratory Care, a Riverside, Calif., company that was awarded multiple contracts in the Round 1 rebid, said his company routinely gets calls from other Round 1 providers. "Most of the calls are looking to subcontract," he said.
"However, there are several looking to sell. We've only made two acquisitions this year," Rice said. "Unfortunately, the ones we've talked to are just not worth much — they are essentially asset sales only."
Even with a buyer, getting out of the business is neither easy nor painless.
"Prices are a fraction of what they were at the peak," said Leonard, noting that providers successful in selling are those who have made a strategic decision to exit the business and "are willing to sell fairly cheap."
"The company that might have been [worth] around $2 million is now worth around $700 grand," Glass said. "I think there is an element of price disconnect. Sellers think the price of the company should be based on what it makes today."
But with reimbursements still likely to plummet as costs continue to rise, buyers generally are not willing to buy at the seller's price.
"If [sellers] are interested in selling at market value, we've been successful in getting some transactions done," Glass said.
"When the Round 1 competitive bidding contracts were first awarded, some winners felt that they had hit the jackpot," said attorney Jeff Baird of Amarillo, Texas-based Brown & Fortunato. "For example, if ABC Medical was issued a contract for four product lines in four [competitive bidding areas], then this essentially equates to 16 contracts. ABC might have initially thought that it could enter into 16 separate asset sales that would, in essence, allow it to sell all 16 contracts."
No such luck.
"The CBIC saw this coming and threw cold water on this type of approach," Baird said. "The CBIC issued a directive that said that if ABC plans to enter into an asset sale, then it must sell all of its assets associated with all 16 contracts. In other words, ABC can enter into one asset sale, not 16 asset sales. This CBIC directive has pushed many transactions to being stock acquisitions."
Leonard said for some providers, it might make sense to stay with the business.
"For some going into Round 2, they might be better off hanging on to it and taking a little money home every week," he said, noting owners would need to calculate when reimbursement is going to change, how much time they have before that happens and what other elements of their business can carry them forward.
Others, said Glass, need to "move sooner rather than later."
Baird noted the high number of providers in HomeCare's poll who said they want out surprised him. "Only a small percent of our clients in Round 2 have expressed a desire to sell," he said. Instead, most of his Round 2 clients are "taking aggressive steps to lessen their dependence on Medicare" as well as figuring out what their options are if they don't win bids.
"There is a hope among many suppliers in the Round 2 CBAs that Round 2 will not go through to its fruition," he said.
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