A home health or home care company of this size is usually bought with a senior term loan or unitranche from a lender that knows healthcare services, an asset-based revolver against payer receivables, and sponsor or buyer equity, often with a delayed-draw facility for later add-ons. The first underwriting question is regulatory: whether the state licenses and Medicare enrollment pass to the buyer. Then come payer mix and rate exposure, referral concentration, audit and recoupment history, and the depth of the administrator, clinical managers and caregiver workforce.
- Usual structure
- Senior term loan or unitranche, plus an asset-based revolver on payer receivables
- Cash-flow leverage
- Senior lenders commonly 2x to 3.5x EBITDA; unitranche stretches further
- First question
- Whether licenses and Medicare enrollment transfer to the buyer
- What moves the credit
- Payer mix, referral concentration, audit history, clinical staffing
- Receivables
- Government receivables are financed through accounts in the agency's name
First, which kind of agency is it?
Buyers use "home health" for two different businesses, and lenders underwrite them differently. A Medicare-certified home health agency provides skilled nursing and therapy under a practitioner's orders and is paid mostly by Medicare, Medicare Advantage plans and Medicaid. A private-duty or non-medical home care agency provides personal care and companionship, paid privately, through long-term care insurance, or through state Medicaid programs. Many companies at this size do both, sometimes alongside hospice, and lenders read each line on its own.
| Medicare-certified home health | Private-duty or non-medical home care | |
|---|---|---|
| What it sells | Skilled nursing, therapy and aide visits in episodes of care | Hours of personal care, often on long-running schedules |
| Who pays | Medicare, Medicare Advantage plans, Medicaid, some commercial insurance | Private pay, long-term care insurance, state Medicaid programs, veterans' programs |
| What must transfer | State license, Medicare enrollment and provider agreement, accreditation, and in some states a certificate of need | State license where required, payer contracts and client relationships |
| What lenders worry about most | Enrollment transfer, reimbursement changes, audit and recoupment exposure, referral concentration | Caregiver recruiting and turnover, wage costs, state rate changes |
| Receivables | Significant, much of it owed by government payers | Smaller where private pay dominates; larger with Medicaid contracts |
Buyers at this size are mostly sponsor-backed platforms adding agencies in new territories, regional operators growing by acquisition, and management teams buying out founders. See add-on acquisition financing and management buyout financing.
Keeping the licenses and the Medicare enrollment
A certified agency that loses its ability to bill Medicare is not the business the buyer paid for. How the purchase is structured decides how that ability carries over. In a purchase of the agency's shares or membership interests, the same legal entity keeps its enrollment, and the change of ownership is reported to Medicare and the state. In an asset purchase, the buyer can accept assignment of the seller's provider agreement, which keeps billing continuous but brings the agency's Medicare history with it, or decline assignment and seek new certification, which means a new survey and a gap in Medicare billing. See asset vs stock purchase.
Medicare also restricts transfers of home health agencies that change majority ownership too soon after their initial enrollment or their last change in majority ownership: in that window the buyer generally has to enroll as a new agency, with limited exceptions. Lenders check each agency's enrollment date and ownership history before anything else, because a recently sold or recently enrolled agency can be worth much less than it looks.
State licenses follow their own rules. Many states require approval of a change of ownership, and some limit new agencies through a certificate of need, which makes an existing license more valuable and its transfer more important. Accreditation has its own notice requirements. Each is a closing condition a lender will list; see change-of-control consents.
Check every agency's enrollment date and ownership history before the letter of intent. The answer can change what the business is worth.
Payer mix, referrals and the look-back
A home health agency's price is set by others. Medicare pays under a national system updated every year; Medicare Advantage plans pay what their contracts say, often less; Medicaid rates are set by each state. Lenders look at the payer mix, at how margin would change under a plausible rate cut, and at whether the Medicare Advantage and Medicaid managed care contracts stay with the buyer.
Referrals matter as much as rates. Most patients come from hospitals, physician practices, skilled nursing facilities and discharge planners. An agency that gets a large share of admissions from one hospital system carries concentration risk even though its payer is Medicare. Lenders ask for admissions by referral source over several years; see customer concentration in an acquisition.
Then there is the look-back. Medicare and its contractors review claims after payment and can recoup payments they decide were not supported. Lenders ask for the history of documentation requests, audits and recoupments, survey results and quality ratings, and whether the agency runs a working compliance program. Owners and key employees must be free of exclusion from federal health programs. Where the buyer takes on the agency's history, lenders expect the purchase agreement to protect against pre-closing liabilities, often with an escrow or holdback.
Receivables: collateral with a catch
A certified agency carries meaningful receivables, and an asset-based revolver is a natural partner to the term debt. Asset-based lenders typically advance 80% to 90% of eligible receivables and treat anything more than 90 days past invoice as ineligible; in healthcare, eligible receivables are measured at what each payer is expected to pay after contractual allowances, not at the gross amount billed.
Medicare and Medicaid payments are subject to anti-assignment rules: a lender cannot take a direct assignment of government payments. Lenders that finance healthcare receivables work around this with accounts in the agency's name, where government payments land and are then swept to the lender. See deposit account control agreements and how a borrowing base works.
Closing creates a cash gap. Billing systems, payer enrollments and bank accounts all have to be updated to the new owner, and payments can slow while that happens. Payroll is most of the cost in this business, so lenders expect working capital at close to carry it through the gap.
Leadership and the workforce
Medicare's conditions of participation require a certified agency to have a qualified administrator and clinical manager, and states add their own requirements. In founder-led agencies the founder often fills one of those roles, so the file needs qualified people in each from the day of closing. Beyond leadership, the agency's capacity is its nurses, therapists and aides. Lenders ask about turnover, reliance on contract staff, and whether clinicians are employees or contractors.
For non-medical home care, caregiver recruiting is the constraint, and wage rates, overtime and scheduling are the largest cost lines. Lenders test them in the projections rather than taking last year as given, and ask how state wage rules and Medicaid visit-verification requirements affect the agency's costs.
How the purchase is usually structured
- Senior term loan or unitranche. Senior cash-flow lenders to lower-middle-market companies commonly lend 2x to 3.5x EBITDA; healthcare-focused private credit funds offer unitranche that stretches further for agencies with broad referral bases and clean audit histories.
- Asset-based revolver. Against payer receivables, through accounts in the agency's name.
- Delayed-draw term loan. For platforms that plan to add agencies, committed at closing and drawn later subject to leverage tests. See delayed-draw term loans.
- Seller paper, earnouts and rollover. Common where the founder holds referral relationships; subordinated to the senior lenders.
- Equity. Sponsor or buyer equity beneath all of it.
Historical results carry the credit: lenders size on the agency's own reimbursement history, not a projection of better rates. A quality of earnings report will test revenue recognition on open episodes and the reserve for denials. A single small agency is usually financed with SBA 7(a), which caps at $5 million; a company this size has usually outgrown it.
What goes in the file
The term loan needs the P&L, balance sheet and debt schedule, with a year-to-date P&L and AP aging where available. The revolver needs an AR aging by payer with days outstanding, and the existing liens. The acquisition adds the latest full year of figures, never an older year, for every agency being bought, and the letter of intent. For a home health company, add:
- State licenses, Medicare enrollment records and ownership history, accreditation, and any certificate of need.
- Revenue and visits by payer, with the Medicare Advantage and Medicaid contracts.
- Admissions by referral source for several years.
- Survey reports, quality ratings, and the history of audits, documentation requests and recoupments.
- A staff roster with credentials, turnover, and the administrator and clinical managers after closing.
Senior bankers run every Midas Partners engagement. Once those are in, software builds the financing model, lender presentation, blind teaser and underwriting memo in a day, and a senior banker checks every page before the client approves it. Lenders that fit see the blind teaser first; the client approves each by name before it learns who the company is. Of the 1,800+ lenders in the book, 1,148 write term and private credit and 235 write asset-based loans and lines. See the package.
Common questions
- Does the Medicare enrollment transfer when I buy a home health agency?
- It can. In a stock or membership-interest purchase, the same entity keeps its enrollment and reports the change of ownership. In an asset purchase, the buyer can accept assignment of the provider agreement, taking on the agency's Medicare history, or decline it and seek new certification. Medicare's restriction on agencies that changed hands or enrolled recently can override both.
- Can a lender lend against Medicare receivables?
- Yes, but not by taking a direct assignment of the payments, which anti-assignment rules prevent. Lenders use accounts in the agency's name instead. Asset-based lenders typically advance 80% to 90% of eligible receivables, measured at the amount payers are expected to pay, and exclude those more than 90 days past invoice.
- How do lenders treat audit and recoupment exposure?
- As a liability that may follow the company. They review the audit history, and in a stock purchase or an assigned provider agreement they expect indemnities and often an escrow in the purchase agreement.
- Do lenders finance non-medical home care the same way?
- Largely, with less regulatory transfer risk and more focus on caregiver recruiting, wage costs and state Medicaid rates. Receivables are smaller where private pay dominates, so the revolver does less of the work.
- Do I need clinical experience to buy an agency?
- No, but the agency must have a qualified administrator and clinical manager from the day of closing, and lenders want to see who they are. Buyers without healthcare experience need a strong team in those roles.