Assessing Acquisition Potential: A Case Study

Filed under White Papers & Case Studies
Originally published in Market Research Letter: January/February 2008

The Challenge
A recent HMR client wanted to buy a home health agency that operated in a single county. Not knowing the county’s history, the challenge for this client was in determining a fair price to pay for the home health agency. This client needed to:

  • perform its due diligence,
  • to understand the existing home health referral business in the county and,
  • assess the target agency’s growth potential before determining their offering price.

HealthMR’s Expertise
In an effort to understand the county dynamics and thus set the price they were willing to pay, the client purchased HealthMR’s Home Health Market Report set for the specific county. From this report set, the client learned some compelling facts about the county’s home health market potential. It learned:

  • 97% of the home health market was being served by 5 agencies. The target agency accounted for 12% of the market, and the other 4 agencies were all hospital-based or affiliated.
  • The target agency’s final claim case weight of 1.14 was lower than the market norm of 1.21. The potential buyer saw this as an opportunity – proper training and systems could result in a higher case weight and increased revenues on the same patient activity level.

Additional HMR reports – Medicare Hospital and Skilled Nursing Facility Discharge Reports as well as the Medicare Hospital Home Care Discharges by DRG Reports – armed the client with additional data on the potential market.

The Outcome
From the data provided by HMR, the client was able to gain a clear understanding of the market dynamics of the county and the potential to grow referrals. Further, it was able to benchmark the target’s financial performance against its local competition and assess the opportunity to increase profits by improving operations. Most importantly, the information gave the client the ability to propose a purchase price which reflected the true value of the agency.