The hospice market is fragmented with many small independent players that are not associated with health systems, say speakers on a recent BVR webinar. Roughly 90% of hospice revenue (reimbursements) comes from Medicare, which has been a steady, increasing income stream, say healthcare valuation experts Darcy Devine (Buckhead FMV) and Will Hamilton (Veralon). That, plus healthy operating margins of 8% to 9% (which look “exciting” to most other healthcare entities that operate on smaller margins), makes hospices attractive M&A targets, they say. Here a few more takeaways from their session:

• Most hospice businesses are not capital-intensive, and their biggest operating expense is staff salaries (which represents two-thirds of total expense); a very small percentage has a brick-and-mortar inpatient facility;
• Management integrity is key because hospices (as all healthcare entities) are subject to a huge amount of federal and state regulations, such as anti-kickback rules, which the appraiser needs to understand;
• While home hospice firms operate much like other home healthcare businesses, nuances set them apart;
• Hospice care kicks in for anyone certified as having six months or less to live; a major area of fraud is failing to comply with the requirements for recertifying patients who pass the six-month mark; this can trigger stiff penalties;
• All hospices must have a medical director, and all hospice patients must have 24/7 access to physician services; the fair market valuation and commercial reasonableness of the physicians’ services are important;
• Average transaction multiples for hospice operations are 1.2 (revenue multiple) and 8.0 (EBITDA multiple), based on recent transactions with publicly available pricing data; and
• The size of the agency can have a significant impact on the valuation multiple, as smaller hospices typically sell for implied multiples of 4 to 6 times EBITDA, while regional and national hospice platform companies typically sell for 7 to 11 times.

A great deal more material was presented during the webinar, Hospice Valuation: Trends, Value Drivers and Physician Compensation, which is available in BVR’s on-demand training archive.