Senior Vice President and Associate Partner Talks About Challenges Facing ID/DD Providers and Effects of COVID-19 on Market Activity
You bring years of experience in working with Intellectual Disability/Developmental Disability (ID/DD) providers to Stoneridge. Tell us a little bit about your background.
I’ve spent more than a decade working in the ID/DD industry, most recently as the Vice President for Business Development at BrightSpring, formerly known as ResCare. I’ve done a little bit of everything – pipeline building, financial analysis, deal structuring, and integration. Deals I’ve helped to close range in revenue size from $500,000 to more than $40 million.
Obviously, the spread of coronavirus is on everyone’s minds. How do you see COVID-19 affecting ID/DD providers? Which of the changes they’re making in response to the virus are short-term vs. long-term? Are there any silver linings for ID/DD providers as the country grapples with the outcomes of this pandemic?
In the short-term, I think they’ll be dealing with the same problems facing all other healthcare providers – specifically, lack of PPE and figuring out how to provide their services in close confines while maintaining safety for staff and individuals. Additionally, they’ll have to contend with industry-specific issues, like lack of reimbursement for day supports and reduced availability (if at all) of non-medical transport and drop-in services.
Over the long-term we need to have a conversation about emergency preparedness. There needs to be a push for legislation providing alternative billing and funding mechanisms in the event of a pandemic. And we need to be thinking about cross-training staff to fill multiple roles, especially for residential/day supports.
I think if there’s a silver lining, it’s that in an industry where the biggest challenge for a long time has been recruiting and retaining Direct Support Professionals (DSPs), there has been a huge influx in employment applications from people with previous experience in food service, hospitality, manufacturing, etc. We have an opportunity to increase the workforce dramatically.
Beyond COVID-19 – what do you see as the biggest challenge facing the ID/DD field in 2020?
Just because we’re seeing an increase in employment applications today doesn’t mean we’re out of the woods. Retaining quality staff when the economy “opens back up” will still be a challenge. With stagnant reimbursement and ever-increasing fixed costs, it’s a challenge to pay staff what they’re truly worth in this industry. When Amazon can pay $3 to $5 more per hour than we can afford to pay DSPs who care for some of our most vulnerable citizens, there’s a problem.
Value-based care and coordination of care across a spectrum of services are hot topics among a variety of different healthcare industries – how do those conversations touch the ID/DD world?
We’ve seen several states go to managed care organization (MCO) models over the past five years, and I would expect to see that trend continue. Traditionally this leads to further consolidation and merger activity, and ultimately fewer providers in a state.
The market for ID/DD providers has been strong over the past few years – do you see that continuing in 2020, and if so, why?
With increasing state regulation, calls for more technology and reporting capabilities, the introduction of MCO models and stagnant reimbursement, I think the trend will only increase going forward. There has never been this much strategic interest, or so many financial/private equity buyers in the space.
If someone is thinking about selling an ID/DD agency right now, what do they need to know? What advice would you give them based on your knowledge of the market and understanding of the industry?
Right now, there are two main types of transactions occurring – “platform” acquisitions and “add-on” acquisitions. Platforms are typically $8-10 million in annual revenue, meaning most ID/DD providers are going to fall into the latter category. There are definitely different strategies for both of these kinds of companies when preparing for a sale, so sellers who turn to experienced advisors with a good understanding of those strategies will likely get better results. That’s our job – we’re here to help interested sellers get the information they need to start off on the right foot.