A hospice resident dresses in his room.
A hospice resident dresses in his room. - 
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Kai Ryssdal: When you think about health care, small mom-and-pop shops probably don't come immediately to mind. It's more like giant insurers and huge hospitals that you think of. There is a slice of that market where small is still significant -- home health care and hospice services. But a billion-dollar deal that was announced today could change that.

Gregory Warner reports from the Marketplace Health Desk in Philadelphia.

GREGORY WARNER: The deal between Gentiva Health Services and Odyssey Healthcare creates the largest home health and hospice provider in the nation.

Karen Kulp is president of Home Care Associates in Philadelphia. She says combining services makes sense. When people move from home care to hospice care, they're at the end of their lives.

KAREN KULP: You really want to have consistent care, you don't want to have to then be faced with having to go to another agency or another caregiver.

Kulp is a small player in a business of small players. But other big home care agencies like Gentiva are said to be shopping around for mergers of their own.

Shawn Bloom is CEO of the National PACE Association. He says health care reform encourages consolidation by increasing bundled payments.

SHAWN BLOOM: When you bundle payment, you're effectively forcing the hospital to work with the doctor, to work with the home care company, to work with the hospice. In essence they are sharing in that pool of money.

Changes in Medicare reimbursement rules have driven a series of booms and busts in the home care industry.

In the year 2000, a change in Medicare rules set off an explosion. The industry doubled in size to $17 billion. There are some 500 new health care agencies registered every year, mostly clustered in Texas, California and Florida, which have the loosest regulations.

Changes to Medicare payments this year could put thousands of those mom-and-pops out of business, just as the industry as a whole is set to grow.

MARK BAIADA: There's gonna be a lot of baby boomers out there that are going to be needing help.

Mark Baiada runs Bayada Nurses, which provides home care in some 18 states. He says more older people are living alone. And technology allows more people to get care at home.

BAIADA: The revolution is moving care from the hospital to the home, and generally people that are home like it!

With profit margins higher than most health care industries, home care businesses like it too.

In Philadelphia, I'm Gregory Warner for Marketplace.

Follow Gregory Warner at @radiogrego