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."