Brookdale Senior Living Reportedly Exploring Sale of Home Health and Hospice Businesses

After falling short on Q3 projections and seeing revenue dip year over year, Brookdale Senior Living (NYSE: BKD) is reportedly considering divesting its home health and hospice segments.

COVID-19’s impact on the company has created financial pressures that it hopes to mitigate, PEHub Reported Monday. Those pressures could feasibly be made up, in part, through a home health and hospice business sale when valuations remain at jaw-dropping highs.

The Brentwood, Tennessee-based aging services operator — which offers home health, hospice and outpatient therapy services to over 17,000 patients nationwide — is reportedly being provided with guidance by Bank of America and exploring various options. Those options include finding a private equity buyer, a pure-play strategy buyer or even a combination of the two, according to PEHub.

The company declined to comment on the rumor when contacted by Home Health Care News, citing a standing policy not to engage in dealmaking speculation.

Brookdale is a leading operator of senior living communities in the U.S. The company operates and manages independent living, assisted living, memory care and continuing care retirement communities (CCRCs), totaling 726 communities spanning 44 states.

Overall, Brookdale’s total revenue totaled $706 million in Q3 2020, down 13.3% compared to $815 million in Q3 2019. The company estimated that $71 million was lost in revenue in Q3 due to COVID-19.

Likewise, its home health revenues had been down. In 2019, home health accounted for $327 million in revenue for Brookdale. Through Q3 of 2020, revenues had not yet hit $185 million.

Still, its home health and hospice business was strong enough to begin considering this sort of move. Brookdale is the largest senior living provider in the United States and also the sixth-largest home health provider, data from LexisNexis suggests.

“Brookdale has significant assets, [including] owned real estate, home health and hospice business,” investment banking company Jefferies wrote in a note after Brookdale’s Q3 earnings call. “Those are able to be monetized and could unlock shareholder value.”

But total home health revenue in Q3 2020 was just over $61 million, which was down 23.6% compared to Q3 2019. Its average daily census went from 15,357 in Q3 2019 to 13,146 in over the same time period this year.

In the same note, Jefferies also commented that “monetizing the [home health and hospice] assets would be an effective strategic decision” to counteract the cash burn due to COVID-19.

Brookdale isn’t alone, if the rumored reports hold true.

Encompass Health Corp. (NYSE: EHC) — the fourth-largest home health provider in the U.S., according to LexisNexis — announced last week that it was “exploring strategic alternatives” for its home health and hospice business.

Birmingham, Alabama-based Enccompass Health’s home health and hospice segments brought in $274.5 million in revenue over Q3 2020 and over $1 billion in all of 2019, according to company financial filings. Overall, its U.S. footprint includes 242 home health locations and 83 hospice locations.

“The strategy in terms of building a coordinated post-acute care provider — that is, with IRF, home health and hospice — I think has actually been successful,” William Blair analyst Matt Larew said during HHCN’s Capital+Strategy event. “I think Encompass Health has done a really nice job.”

Brookdale hasn’t gone public with any of its strategies yet, and there’s likely going to be some hurdles, if a sale is the goal.

For one, Brookdale’s home health and hospice line is tied to its senior living side of the business, and its revenues are affected by that built-in relationship.

The company has also been the beneficiary of over $100 million in federal and state relief since the beginning of the public health emergency, including a whopping $67.5 million from the U.S. Department of Health and Human Services (HHS) via the Provider Relief Fund.

Monday isn’t the first time rumors have swirled around a sale of Brookdale’s home health and hospice operations. In May 2019, Stephens analyst Dana Hambly also suggested a sale could make sense due to the demand for quality in-home care assets.

“Given the valuations in the home health and hospice industries, we believe Brookdale has explored strategic alternatives for the health care services segment,” Hambly told HHCN at the time. “With the home health business seemingly on the upswing and the steady growth in the hospice business, this is now a more attractive asset than it was 12 months ago.”

While home health has been an up-and-down business for Brookdale, the company’s hospice operations have consistently performed well.

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Recovering Home Health Business Remains a ‘Significant Asset’ for Brookdale

Brookdale Senior Living Inc. (NYSE: BKD) was focused on rebuilding its home health census during Q2 of this year. In Q3, its home health census began increasing again, but it remains down overall on a year-over-year basis.

The Brentwood, Tennessee-based company’s home health average daily census took a hit earlier in the year due to lower occupancy in its senior living communities and fewer elective medical procedures being performed because of the COVID-19 virus. That contributed to a 14.4% year-over-year decline in its daily census for Q3.

The Patient-Driven Grouping Model (PDGM) has also continued to contribute to a decrease in home health revenue in 2020. Still, Brookdale executives are bullish on the segment moving forward.

“Our home health revenues stabilized mid-year and sequentially improved slightly in the third quarter,” Cindy Baier, Brookdale’s president and CEO, said on the company’s Q3 earnings call Thursday. “Our quality has improved to an industry-leading overall star average at 4.7 out of 5, which we expect will drive future growth.”

Brookdale is a leading operator of senior living communities in the U.S. The company operates and manages independent living, assisted living, memory care and continuing care retirement communities (CCRCs), totaling 726 communities spanning 44 states. It also offers a range of home health, hospice and outpatient therapy services to over 17,000 patients.

The biggest impact to Brookdale’s home health business was linked to operations outside of its own facilities.

“While lower occupancy in our communities affected the health care services census, home health inside our communities continues to perform at a strong rate,” Baier said. “Outside of the COVID-19 hotspot of Florida, our non-Brookdale community home health business referral growth and new case starts increased faster than prior to COVID-19 and improved relative to last year. This is an early indicator of the home health business recovery.”

Falling short on projections

Overall, Brookdale’s total revenue checked in at $706 million in Q3 2020, down 13.3% compared to $815 million in Q3 2019. The company estimates that $71 million was lost in revenue in Q3 due to COVID-19.

Its home health census went from an average daily census of 15,357 in Q3 2019 to 13,146 in Q3 2020.

Ultimately, the Q3 results fell short of projections.

“Brookdale posted Q3 results short of our estimates and consensus, primarily reflecting continued pandemic-driven occupancy pressure,” RBC Capital Markets wrote in a note Thursday following the earnings call. “That said, the company appears to be on incrementally better footing, as evidenced by increasing move-ins and less severe occupancy degradation over the course of the quarter.”

Brookdale has been receiving point-of-care COVID-19 tests from the U.S. Department of Health and Human Services (HHS). It saw about a 1% positivity rate among its residents as of Oct. 31.

“Year to date, Brookdale has incurred roughly $95 million of direct COVID costs but has recognized only $37 million of Provider Relief support, thanks in large part to Medicare exposure in the home health and hospices businesses,” RBC’s note read.

Brookdale was happy to learn that assisted living facilities will be benefactors of the third round of funding from the Provider Relief Fund as well.

On its end, investment banking company Jefferies believes that Brookdale’s home health segment could be of significant value to them.

“Brookdale has significant assets, [including] owned real estate, home health and hospice business,” Jefferies wrote in a note of its own. “Those are able to be monetized and could unlock shareholder value.”

Total home health revenue from Q3 2020 was just over $61 million, down 23.6% compared to Q3 2019.

Brookdale’s full-year revenue for home health last year was over $327 million. Since January of this year, its revenue totals have yet to reach $185 million.

Resident analysis

Brookdale’s internal surveys suggest that seniors still feel comfortable in senior living settings. Home health companies that have senior living segments have noticed the same.

“The good news is that we’re seeing the majority of residents, and prospects still think that senior living is a safe solution,” Baier said.

It would be an even safer solution, of course, with a widely distributed vaccine. And Brookdale is already looking forward to distributing it when it’s available as a way to ensure the health of its residents.

It’s likely that senior living operators will be some of the first to receive vaccines from distributors based on the populations they look after.

“With regard to a vaccine, I think that what everyone is trying to figure out, or at least the vast majority of people are trying to figure out is how to reduce risk,” Baier said. “And so while we haven’t conducted consumer research on the vaccine, it is something that we’re watching the research that’s available to us.”

For home health providers, it’s worth keeping an eye on how senior living deals with the prospects of a vaccine. After all, they could be up next.

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Despite Ongoing Operational Challenges, Brookdale Rebuilding Home Health Census

Brookdale Senior Living Inc. (NYSE: BKD) has performed over 100,000 COVID-19 tests across 44 states since the public health emergency began. It has been doing that while rebuilding its home health patient census, which took a substantial hit due to elective surgeries shutting down in spring.

Brentwood, Tennessee-based Brookdale operates and manages more than 730 independent living, assisted living, memory care and continuing care retirement communities nationwide, serving over 65,000 residents. Along with its senior living segment, Brookdale offers a range of home health, hospice and outpatient therapy services to thousands of additional patients.

To protect itself against potential spread and identify possible COVID-19 exposure, Brookdale has proactively implemented a resident and associate baseline testing program. This has allowed the company to identify and quarantine individuals who may have been asymptomatic, according to leadership.

To date, its testing efforts have resulted in positive outcomes for the company. As of the end of July, less than 1% of Brookdale’s residents had COVID-19-positive results.

“Baseline testing at all our communities allows us to … minimize the duration and impact a community experiences with a COVID-19 exposure,” Brookdale President and CEO Cindy Baier said Tuesday during the company’s second-quarter earnings call. “One of the pleasant surprises we experienced was that all those residents who tested positive for COVID-19, many passed through the full exposure period without becoming symptomatic.”

On top of testing, Brookdale has also leaned on technology to allow prospective residents to tour its communities virtually.

“Virtual visits are not as effective as in-person visits, but they have been much more effective than not being able to do a visit at all,” Baier said.

Rebuilding home health volume

Similar to most home health companies, Brookdale’s average daily census began to decrease in March due to coronavirus complications, ultimately resulting in an 18.7% decline in census during the second quarter.

“Lower occupancy in our communities combined with the acute care health systems that shut down — or severely limited — all elective procedures and limited access to care had a negative impact on our home health revenue,” Baier said. “But we are starting to rebuild our census.”

Brookdale’s census began to show recovery in June 2020, returning to levels attained in January 2020, according to the company.

“Our associates started educating patients and referral sources about our strong screening [policies] and protocols in order to continue to provide vital services,” Baier said.

Overall, Brookdale posted revenues of $865.9 million for the quarter, down from $1.02 billion in Q2 2019. The company’s home health revenue checked in at $60.9 million for the quarter, down from $85.2 million in Q2 2019.

Brookdale’s Q2 home health average daily census fell to 12,980, compared to 15,966 in the second quarter of 2019.

Recovering lost revenue

Brookdale leadership estimates that COVID-19 resulted in $15 million in lost revenue for the second quarter, specifically looking at its health care services segment, which includes home health and hospice care.

Company-wide, Brookdale has spent $71 million fighting the COVID-19 virus year to date, with the bulk of that going to fund personal protective equipment (PPE) and medical supplies.

To help offset those and future coronavirus-related costs in its health care services segment, Brookdale recognized several million dollars of federal support.

“In the second quarter, we recognized $27 million of grants income,” Steve Swain, executive vice president and CFO, said during the call. “The majority of the grants were related to our Medicare business, which is largely in our health care services segment and a small skilled nursing section in senior housing.”

The company also received $85 million in Medicare advance payments, a Centers for Medicare & Medicaid Services (CMS) program that provides emergency funding in response to a disruption in claims submission or claims processing.

Nationally, federal aid for senior living providers has been an advocacy mission for industry groups. Brookdale has been active on this front.

“Brookdale played a leadership role in emphasizing to [the U.S. Department of Health and Human Services], the administration and Congressional members the importance of providing financial relief to the senior housing industry to help protect our nation’s seniors against COVID-19,” Baier said.

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