The recent disclosure of the merger between home health and hospice provider Amedisys and infusion services provider Option Care Health has prompted questions in the financial community: How does Amedisys benefit from the merger? Was it truly a merger? What is the company’s long-term strategy?
Regarding the latter, Andre Ulloa, a partner and executive adviser for M&A Healthcare Advisors, has an answer. He believes the new larger, diversified company is setting itself up for a takeover by a large health insurance company.
McKnights Home Care
By Liza Berger
“This is a vertical partnership between Option Care [and Amedisys],” he told McKnight’s Home Care Daily Pulse in an email. “If it creates value, which we expect it will, then they are a much larger and valuable target for an insurer.”
The Amedisys board believes it will command a higher price per share if it becomes more of an integrated post-acute system, he added.
“I would agree, and I think that it won’t be too far down the road before we hear about an acquisition contemplated between Option Care/Amedisys and a nationwide insurance company,” he said.
Such a scenario would not be surprising given two other large home health firms have been the targets of health insurance companies. Specifically, Humana purchased Kindred at Home (and later divested its 60% stake in the hospice and personal care units). UnitedHealth Group bought LHC Group.
What Amedisys gets out of the deal is still a bit of a mystery for Tom Lillis, a partner with Stoneridge Strategic Consulting, however. He pointed out that Amedisys will only retain a 35.5% stake; Option Care Health, which is headquartered in Bannockburn, IL, will own 64.5% of the company. The all-stock transaction values Amedisys at $3.6 billion.
“Where are the synergies? It’s not immediately apparent from the Amedisys side,” Lillis commented to McKnight’s Home Care Daily Pulse. “It has more questions than answers.”
The chance to cross-sell seems the most likely reason for Amedisys’ interest, he added.
“When you pull back it’s got to be the opportunities to cross-sell, more patients, more touchpoints,” he said. “That’s my assumption from an Amedisys standpoint.”
Ulloa had a similar view. He called the merger “an excellent business move in terms of vertical integration.” He pointed out that infusion pharmacy is the only pharmacy area that has seen increased value in recent years.
“Infusion pharmacies can bill Medicare at higher rates, based on Part B,” he noted. “Also, the dispensing of these therapies is much more complicated, making an infusion pharmacy more like a healthcare provider than a dispensing hub.”
So merger or acquisition?
“At this point, it is an announcement to merge,” Ulloa said. “It is being framed as an ‘acquisition’ by Option Care, but considering that the Amedisys brand will continue, it will be conducted through stock allocations, and there will be an integration of senior management, it has to be considered a merger in my opinion.”