We may be nearing an inflection point in home medical equipment M&A. After 20 plus years of consistent and substantial cuts in reimbursement, acquisition demand and transaction volumes have clearly fallen. And with competitive bid-like pricing in place nationally, there are no longer islands of higher margin to target for acquisition. At the same time, it’s difficult to imagine the sector being exposed to much in the way of additional cuts in reimbursement. So HME may be entering its most stable period in years. A period where providers can more confidently invest in systems and strategies to wring out additional basis points in profitability and turn to acquisitions to realize greater economies of scale.
We are beginning to see a rise in deal activity in the HME sector. With little room left for further cuts in reimbursement and the possibility that revised competitive bidding rules might even yield some increases, HME’s investment risk profile is perhaps as favorable as it has ever been.
Per the graph above, with such an increasingly favorable investment profile, private equity is enthusiastically returning to home medical equipment. Notably, in 2018 the 10 platform investments in the sector equaled the decade high set in 2012.