Upstate Adds AHP Infusion Pharmacy

CLINTON, N.Y. — In a strategic move to blunt the effects
of competitive bidding,
Upstate HomeCare announced May 9 it has purchased the American
HomePatient infusion pharmacy in Rochester, N.Y. The deal is
expected to close within 30 days.

The addition expands Upstate’s presence in upstate New York, and
will add 18 to 20 jobs, or about 15 percent, to the provider’s
current work force of 125. The company’s Rochester location, which
houses
two pharmacies, will be expanding to accommodate the
acquisition.

“We need to increase the bottom line because competitive bidding
is not going to go away,” Greg LoPresti, vice president and COO,
told HomeCare. “This acquisition follows our plans to grow
strategically and, in a scalable way, to provide needed
efficiencies.”

The acquisition was a strategic move for AHP, as well.

“We chose to exit our home infusion pharmacy business in
Rochester in order to continue our strategy of focusing on our core
business of providing in-home respiratory services and [DME],” said
Rena Powers, general manager of the AHP Rochester branch, in a
release.

Acquiring AHP’s infusion pharmacy is the latest expansion for
Upstate. Headquartered in Clinton, N.Y., with locations in Utica,
Syracuse, Rochester, Canandaigua and Buffalo, the company provides
pharmacy and home infusion, specialty medications, respiratory and
DME. Eight months ago, the provider expanded its Clinton business
and has also broadened its Buffalo location to offer complete
infusion services, LoPresti said.

Last fall, Upstate completed
the acquisition of Mohawk Valley Home Care in Utica, a
respiratory and DME provider.

“It’s all part of our strategic plan so we can have economies of
scale to compete,” LoPresti said, noting that Upstate will be in
Round 2 of competitive bidding. “We wanted to be ahead of the
curve.”

LoPresti said the infusion business has been a good niche for
Upstate, a 26-year-old company that first entered the sector in
1997. It offers some synergies with the company’s respiratory
therapy arm and its DME business, as well as its home health
agency, and over the years, the infusion sector has helped the
company to grow, he said.

“We are well positioned. We are a mid-level company and we have
buying power that some moms-and-pops do not have,” LoPresti said.
Adding the AHP pharmacy made sense, he said, because Upstate had an
infusion business and “we are already established.”

Upstate hasn’t been the only company that sees infusion as an
attractive sector.

“We’ve seen quite a bit of activity in the infusion space, more
from people who do infusion as opposed to those [only] in home
medical equipment,” said Rich Glass, president of Tarpon Springs,
Fla.-based Steven Richards & Assoc.

Why the interest?

“There are a couple of factors,” said Reg Blackburn, managing
director for Pittsburgh, Pa.-based The Braff Group. “It’s a very
stable merger-and-acquisition sector … and that makes it
attractive. And infusion has to be delivered locally.”

It makes sense for companies that want to grow to purchase other
infusion companies in a targeted geographic area, Blackburn said,
noting that most buyers are regional or national companies that
have already established home infusion platforms.

Private equity firms are also interested in the sector.

Private equity firms “are somewhat opportunistic to … what
happens with reimbursement,” said Jonathan Sadock, managing partner
of Paragon Ventures, Philadelphia. “They still see [infusion] as a
good, solid business with a very strong increase in demand, which
is an expansion opportunity for them.”

So is infusion a good sector for an HME company looking to
bolster its bottom line in preparation for reimbursement cuts or
loss of other business under competitive bidding?

Not necessarily, say the experts.

“You have to have a certain amount of scale — somewhere in
the neighborhood of $5 million a year,” said Glass. “It’s a totally
different type of business from HME. You have to hire a pharmacist
and it’s a different group of payer contracts, as well …
Generally, if you’re making the jump from HME, it is not so
easy.”

“You do have to have a [compliant] clean room,” added Blackburn,
referring to the sterile rooms for compounding of medication. “You
have to have the right equipment to do that. You have to have
access to the right managed care contracts. Those are things that
are somewhat the barrier to entry. They are not insurmountable, but
they make it less appealing.”

Sadock agreed there are barriers to entry for HME companies that
have no infusion business. However, he believes there are also some
advantages that providers might want to consider.

“The home infusion business model can offer HME companies
synergistic value by expanding utilization of existing
infrastructure and diversification of both products and payers,” he
said. “The home infusion sector and HME share some commonality in
terms of the back office function and some of the sales functions.”
In addition, he said, HME companies “can really use the
diversification and payer mix that home infusion affords them.”

Home infusion — and other niche markets — are worth
exploring for HME companies, according to Sadock.

“The ones that are doing it are the ones that are proactive in
making something happen. The ones sitting idly by and seeing
competitive bidding erode their business to nothing I hope are the
minority in this situation,” he said.

“With what’s going on in the HME industry, if you’re not looking
to diversify and to expand your market and increase the use of the
infrastructure that you have developed — the people, the
systems, the back office — if you’re not absolutely maxing it
out or looking for ways to max it out in the current environment,
I’m not sure how you will survive.”