Reimbursement cuts create opportunity, says investor

WALTHAM, Mass. - While many investors are afraid of what CMS has done to reimbursement, Great Elm Capital sees it as an opportunity, says John Ehlinger, managing director.

GEC is a publicly traded holding company that made its first homecare deal in September when it partnered with Mesa, Ariz.-based Valley Healthcare Group to acquire Portland, Ore.-based Northwest Medical and combine the two companies.

“CMS has catalyzed an interesting position where they cooled the sector to investment from financial buyers,” he said. “It also made it difficult for a company to be profitable, but those companies that were good operators showed their mettle.”

Ehlinger spoke with HME News recently about why GEC is bullish on HME.

HME News: What attracted GEC to the HME market?

John Ehlinger: We are in an environment where there's a lot of investment dollars chasing high gross opportunities that are new and innovative and easily sell a story. An industry where CMS has cut prices doesn't sell particularly well to investors as a story. As a result the competition for acquisitions in that space is less robust than other areas of health care.

HME: Are the HME providers that are still doing Medicare able to grow?

Ehlinger: The pricing changes over the past six years or so have created opportunities for folks like Valley Health Group. Ron Evans has been able to consolidate market share in his local markets and expand throughout some areas. Northwest Medical had a similar acquisition path, though with the interruption of competitive bidding they ended up focusing more on rural markets.

HME: CMS will suspend the bidding program starting Jan. 1. What impact do you expect that to have?

Ehlinger: CMS is in a position where they may have been a little too aggressive in encouraging such steep price cuts. That creates a segment that has headwinds but also tailwinds, and those tailwinds will provide for a period of stabilized pricing, possibly improving pricing.