Volume 7, Issue 25, December 29, 2020
As 2020 races to a close (or grinds slowly to the bitter end, depending on your viewpoint), the world is ready to turn the calendar page to new a year and, hopefully, a brighter season for all of us. Radical and sudden change is rarely greeted with open arms, and this has been a year of struggle and "new normals" for everyone. The VERTESS team would like to share some closing thoughts on the indelible mark 2020 has left on the healthcare market and what we might look toward in 2021.
And, "Bye, Felicia!"
Despite the challenging year that 2020 was for all, it turned out there was some significant upside for durable medical equipment (DME) companies. Surprisingly, many of these positive developments came courtesy of the federal government and advanced DME years into the future. These included the following:
Mergers and acquisitions within DME remained very active despite fewer suppliers coming to market. This ultimately caused a shortage of supply. As a result, prices went up not only from strategic buyers but financial buyers as well that were seeking safe places for their money.
For 2021, we are expecting more of the same. It should be a banner year for DME transactions, fueled, in part, by a growing number of baby boomer company owners proceeding with retirement plans.
The pandemic had a tremendous impact on human services in 2020. While some autism spectrum disorders (ASD) supports and case management services were put on hold until agencies could receive approval for virtual delivery, home care providers, staff, and families were asked to creatively provide day program supports to minimize exposure to the novel coronavirus. This caused great distress for many day program providers and even some residential providers. Many provider agencies that I have spoken with have sung the praises of the entire human services community for buckling down when they had to and providing innovative and imaginative services to help maintain the best support services that they could. We learned that our fields are "essential" businesses in times of crisis, and we are resilient.
2021 looks like it will be a strong year for the human services industry as we apply lessons learned about emergency planning, the use of technology, and the importance of a cash reserve, among others. This should continue to drive consolidation, recapitalizations, and private equity investment in the space.
The last year has certainly presented new struggles as we navigated what we are now referring to as the "new normal" in healthcare.
In the pharmacy space, there has been a dramatic shift from traditional retail pharmacy to mail order and delivery. Vaccines are now administered in the retail setting by pharmacists and pharmacy technicians. Nutraceutical business has grown significantly during the pandemic, making 2020 its best year in history. Primary care delivered by physicians dropped 21% during the second quarter of 2020 compared with the average quarterly visit volume of the second quarters of 2018 and 2019 and more than 40% of the population avoided accessing care. This significantly affected the revenue at all primary care physician practices. In addition, we were reminded this year that Amazon is quickly cementing itself as a major player and becoming a company that pharmacies will compete with. Amazon's emerging position will undoubtedly change the pharmacy landscape over the next few years. Finally, 2020 brought greater recognition of the role that pharmacists can and should play in providing direct patient care — so much so that Rite Aid recently announced it was increasing their visibility within the center of the pharmacy.
The pandemic did little to slow the home care and hospice industry as it continues to display impressive growth. The home healthcare market in North America is expected to achieve a compound annual growth rate (CAGR) of about 8%. This has caused a lot of merger and acquisition activity and consolidation within the industry. Changes in reimbursement from government payors have caused smaller independent operators to need more capital to continue operating under the revised payment model. The growing number of Medicare beneficiaries will continue to affect this industry. Finally, with the pandemic shifting care away from inpatient setting to save beds for more critical patients, non-skilled and skilled care in the home is in tremendous demand.
A record number of business owners in the intellectual and developmental disabilities (IDD)/behavioral health space will attempt to sell their companies in 2021. Many of these owners have either reached or are nearing retirement age. They helped build the home- and community-based industry as we know it. They made sacrifices to build their business and care for their clients and employees. We went through a lot in 2020 and it highlighted the growing risk of business ownership. The closer you get to retirement age, the less financial risk you can afford.
My goal in 2021 is to help these business owners with the sale of their company and fund a long and secure retirement. It will be our way of thanking them for their contribution to others.
For over 20 years, Brad has held a number of significant executive positions including founding Lone Star Scooters, which offered medical equipment and franchise opportunities across the country, Lone Star Bio Medical, a diversified DME, pharmacy, health IT, and home health care company, and BMS Consulting, where he has provided strategic analysis and M+A intermediary services to executives in the healthcare industry. In addition, he is a regular columnist for HomeCare magazine and HME News, where he focuses on healthcare marketplace trends and innovative business strategies for the principals of healthcare companies. At VERTESS, Brad is a Managing Director and Partner with considerable expertise in HME/DME, home health care, hospice, pharmacy, medical devices, health IT, and related healthcare verticals in the US and internationally.