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New Oregon Health Care Merger Law Gets First Test

A New York private equity firm wants state approval to buy two Oregon hospice facilities as part of $2.8 billion national health care transaction.
June 16, 2022

Oregon’s new program to vet major health care mergers and acquisitions has its first customer.

A New York-based investment firm has requested Oregon Health Authority approval to buy a majority stake in a nationwide chain of 441 hospice, community care and palliative facilities, and two of the hospice facilities are in Oregon: Kindred Hospice in Lake Oswego and Kindred Hospice in Salem.

The nationwide chain, called KAH Hospice, is currently wholly owned by Humana, a giant, publicly-traded Kentucky-based health care insurer and provider. Under the deal, Humana would sell a 60% stake in the business to the private investment firm, Falcon Hospice LP, for $2.8 billion, according to Falcon’s filing with Oregon’s Health Care Market Oversight Program.

Falcon said it won’t cut or change staffing or services at the two Oregon facilities, which together have a daily patient count of about 88 patients.

The state Legislature in 2021 passed a law to set up the Health Care Market Oversight Program because it wanted the public to learn about and have the chance to comment on major proposed deals in the state. Lawmakers hoped to restrict  health care entities from using mergers and purchases to cut essential services or raise prices.

Despite persistent criticism from Oregon hospital systems, the Oregon Health Authority approved rules for the program and launched it on March 1, saying it was urgent to get the review system in place.

The public can send comments on the Falcon deal to [email protected] by June 28, the state said.

The review rules require that a transaction won’t substantially reduce access to affordable care in Oregon and will either improve health outcomes for residents or will “benefit the public good” by achieving at least one of the following: cutting the growth in patient costs, increasing access to services in “medically underserved areas,” or “rectifying historical and contemporary factors contributing to health inequities or access to services.”

The two KAH Hospice facilities in Oregon are a tiny part of Oregon’s health care industry and jointly have less than $6 million a year in annual revenues, according to the filing. But because KAH and Falcon are both massive, the Oregon transaction falls under the Oregon program, which covers deals in which one side has annual revenues of at least $25 million and another has at least $10 million.

The Lake Oswego hospice facility, at 4500 Kruse Way, has an average daily count of 53 patients, while the Salem facility, 698 12th St. SE, has a daily count of 35 patients.

KAH has facilities in 36 states, according to the filing.

Falcon is part of the giant New York-based private equity firm Clayton, Dubilier & Rice, which has an interest in 34 companies with total annual revenues of $60 billion, according Falcon’s six-page filing with the state.

The deal under which Falcon will take a majority stake in KAH “will allow partnership with the (Clayton, Dubilier & Rice) entities to maintain patient care at the (Oregon) Kindred Hospices while optimizing the efficiency of shared operations,” the filing said.

In response to the state’s question of how the transaction would improve health outcomes for residents or would benefit the public good, Falcon provided scant detail.

The company asserted that deal would result “in corporate ownership structure and investments that ensure adequate resources” allowing “Kindred Hospices to continue operating with the same high quality staffing and services.”

It also said that once the deal is complete, the Kindred Hospices “will continue providing compassionate hospice care for Oregon residents in the same manner as prior to the transaction.”

Some 95% of the patients served by the two Oregon hospices are on Medicare, according to the company. The two hospices annually serve an average of 598 Medicare patients, 21 Medicaid patients and 9 charity-care patients.

Falcon doesn’t see its deal as controversial, according to the filing.

“The transaction, occurring solely between two out-of-state entities and 10 entity levels above (the Oregon facilities) is not expected to have any negative impact on patient costs, patient access, equity or quality of health care in Oregon,” the company wrote.

The Falcon deal is the second to come to the state review program. But it will be the first to actually go through the program. The earlier deal — involving Advantage Dental — was agreed to last fall and the state agreed it would not subject it to review. As a formality, Advantage on March 1 filed for review, which the state officially waived.

That deal involved Sun Life, a Massachusetts insurer, buying DentaQuest, a privately held entity that owns Advantage Dental in Oregon, for $2.5 billion, according to the filing. Advantage Dental is a major provider of dental services to Oregon Health Plan members.

DentaQuest provides dental services at more than 80 clinics in six states, and also manages dental and vision health care benefits, according to its website.

Oregon hospital systems had loudly objected to the review program, saying the state’s rules were riddled with fuzzy language making it unclear under what terms a deal would be approved or rejected.

But officials were eager to launch the program so the public could learn about and comment on proposed deals that typically would previously not have been announced publicly until after they were completed, if at all.

You can reach Christian Wihtol at [email protected].