It’s a new year, and the in-home care industry is likely to see some changes over the coming months. While there are some aspects of 2018 that can be predicted, including the implementation of sweeping new regulations, that still leaves room for speculation on where home health, private duty and hospice will go next.
From new technology implications to broader acceptance by health and hospital systems, in-home care is embracing the latest advances. Not to mention, the sector ended 2017 with a few mega deals that will make 2018 a year to watch on the M&A front.
Here are some of the top trends to watch out for in 2018.
Medicare upheaval still looms
This past Turkey Day, home health professionals were giving thanks that CMS decided not to move ahead with the HHGM payment model as planned. However, the federal government is not giving up on large-scale changes to home health Medicare reimbursement, so expect 2018 to bring further developments.
Top of mind for many providers is an anticipated bill to roll back Medicare therapy caps. Though long desired by therapy companies and other stakeholders, repealing the caps would also drive up Medicare spending. To offset these increases, lawmakers might slash spending elsewhere—including by cutting reimbursements to home health agencies. While these cuts might be a straightforward reduction to the HHA payment rate, the bill potentially could change the payment framework in more comprehensive ways.
Providers and industry groups are not sitting idly by waiting to see what happens. Louisville-based Almost Family (Nasdaq: AFAM), which is set to merge with LHC Group (Nasdaq: LHCG), put forward an alternative to HHGM that could form the basis of the next version of payment reform.
The ongoing value-based purchasing initiative could serve as another possible basis for Medicare home health payment reform, NAHC President Bill Dombi has suggested. This coming year will be an important one for gauging the nine-state VBP program that began in 2016. Providers are in the early stages of seeing their reimbursements affected by their performance on various quality measures; 2018 will be the first year in which reimbursements could increase or decrease by up to 3%. CMS predicts that VBP will result in the Medicare program saving about $378 million between 2018 and 2022, as hospitalizations and skilled nursing admissions are anticipated to fall. The coming 12 months will provide important evidence as to the effect of VBP on providers’ bottom lines and the Medicare program as a whole.
Adding another reason for concern, Speaker of the House Paul Ryan ended 2017 making comments about the possibility of big cuts to Medicare and Medicaid in 2018. The Republican from Wisconsin has long pursued entitlement reform, and now there’s extra incentive to reduce spending on these programs: The recently passed comprehensive tax package could balloon the federal deficit, unless the government reduces expenditures.
Ryan tempered some of his original comments by reassuring beneficiaries that they will not be affected by changes in the coming year, but he intimated that providers might not be spared. Some are being “overpaid,” he said. This is a chilling statement for home health, considering the Medicare Payment Advisory Commission (MedPAC) has been saying for years that the sector can be targeted for cuts.
Home care gets even smarter
At the start of 2017, many people had just unwrapped an Amazon Echo device over the holidays and were getting to know Alexa. The implications for home care and home health seemed significant, and indeed, the year saw early successes. Providers like Libertana Home Health and Bayada Home Health Care began utilizing Echo technology in various ways; clients were able to self-report health metrics, for example, or interact with Alexa to reduce feelings of loneliness.
This trend is set to continue through 2018, with voice technology being harnessed to manage home environments that are becoming “smarter” by the day. For a glimpse at what is already possible, check out the model home created near San Diego, equipped with a full array of technologies to enable aging in place. Or head to Louisville, where a life-sized kitchen, bathroom, living room and bedroom have been outfitted with the latest tech to support seniors, at a newly opened innovation center. Or consider Minka, the tech-equipped tiny home created by Green House founder Bill Thomas, which might come with a specialized Alexa skill set.
Adding even more momentum to the development of smart homes, Congress and federal regulatory agencies are slowly but surely exploring ways to make telehealth more accessible. This traces back a few years, to legislation such as the 21st Century Cures Act, which called for more intensive investigation of Medicare populations that could benefit from telehealth. These reports are due in 2018.
Even as providers are seeking ways to harness the Internet of Things to provide better care at attractive price points, seniors and their families will find it increasingly easy to create environments conducive to aging in place. In Minneapolis and Denver, they can head to the local Best Buy (NYSE: BBY) to purchase a smart home suite from the retailer’s Assured Living program. Keep an eye on Best Buy’s earnings reports to see if they program is delivering on revenue expectations. If it is, a wider rollout should be on the way.
Blurring home care and home health lines
Home health care executives were amped on diversification throughout 2017, adding more personal care and private duty services to their businesses. It’s a trend that should only gain steam in 2018.
Baton Rouge-based Amedisys (Nasdaq: AMED) is a leader in this regard, recently becoming the largest personal care provider in the state of Massachusetts. Though one of the largest Medicare-certified home health providers in the nation, Amedisys only entered the personal care space in 2016. Other companies similarly added personal care services to fill gaps in the care continuum, and the trend is likely to continue into 2018 as health systems and integrated care models look to address other social determinants of health that will help reduce overall care costs.
Specifically, home care helps address needs at home that can prevent hospitalizations. Hospitals and health systems have added more private duty care alongside home health care for discharged patients, to safeguard against readmissions.
However, diversifying into private duty does come with risks. Almost Family (Nasdaq: AFAM) saw its personal care business impacted negatively in the third quarter of 2017 due to rising wage rates in certain states. At the same time, it could create a valuable new revenue stream of private-pay dollars, as Medicare and Medicaid reimbursements continue to get squeezed.
Moment of truth for startups
The failure of HomeHero was one of the big industry stories from 2017 and sets up some major questions for the coming year.
HomeHero was part of a new breed of tech-forward private duty companies, which have raised enormous amounts of capital in the last few years. The HomeHero model relied on 1099 contract workers, and it could not survive after being forced to transition its caregiver workforce to W-2 status.
Other home care “disrupters,” such as San Francisco-based Honor and New York-based Hometeam, are still operating and also directly employ their workers. They closely guard their numbers but say they have captured significant market share in the few metros where they operate, and they have given some indications of their strategies for growth. Honor, for example, might expand to new markets by partnering with senior living companies and other types of providers. Hometeam is also leveraging partnerships, such as a collaboration with therapy provider Fox Rehabilitation. It has also diversified its revenue by becoming Medicaid certified.
However, these companies are not immune to a caregiver shortage facing the whole industry, and Honor founder and CEO Seth Sternberg says that maintaining “Care Pro” stability and satisfaction is a major focus for 2018. The year will test whether these startups can handle a W-2 workforce more successfully than HomeHero, and will test the claims they have made in the past, that they can attract more caregivers than the competition by providing a superior work experience.
Beyond the question of whether these companies can survive and grow is a larger one. Namely, whether they will really disrupt the home care industry.
Coming out the gate with their big funding rounds, the leaders of these ventures put established players on notice. They said that the industry needed to be shaken up, becoming more consumer-friendly while offering a more meaningful and lucrative career path for workers. Technology held the key to accomplishing these goals, the startups said.
But so far, legacy private duty companies, including large franchise companies, appear to have taken the entry of the new players in stride. And they have their own technology—such as the ClearCare product—to offer similar services as the startups.
There are some signs that the startups are now positioning themselves to disrupt the industry by getting out ahead of the curve on another developing trend: the integration of health care and retail. The recent CVS-Aetna mega-merger is one example. The two companies envision CVS pharmacies as health care hubs, where people will have a one-stop shop to get health care management and clinical services at the same location where they buy paper towels and greeting cards. The theory is that this will help enable aging at home, by helping people better manage conditions and maintain wellness.
Honor has made a move into the retail space by opening storefronts in Texas Walmarts. Meanwhile, Hometeam recently hired Matt Marcotte as president. Formerly, Marcotte was an executive at Apple, where he helped double the tech giant’s North American retail presence. As usual, each company is keeping its cards close to the vest. But Marcotte says he is focused on making sure that Hometeam can be a “differentiator in the industry.” Needless to say, the industry is waiting to see what this means in 2018.
Insurers as allies
A popular story on Home Health Care News back in 2015 had this headline: Home Care Could Be Heart of U.S. Health System by 2024.
Home care might be the heart of U.S. health care even sooner than that, with an assist from some of the country’s biggest insurance companies. Late in 2017, two of these insurers engaged in mega-deals, both of which stand to move home care to a more prominent place in the health ecosystem.
The merger of pharmacy giant CVS with insurance behemoth Aetna is one example. As mentioned above, the companies want to turn CVS pharmacies into community health care hubs. This would have the effect of keeping seniors out of institutional settings such as skilled nursing facilities and hospitals, and living in their own homes. Shortly after this $69 billion transaction was announced, Aetna rival Humana dropped its own news: the purchase of a 40% stake in Kindred at Home for $800 million, in concert with private equity firms acquiring the remaining stake.
By acquiring the nation’s largest home health provider, Humana believes it can better manage its beneficiary population, particularly seniors on its Medicare Advantage plans. The goal is to transform post-acute care by extending more care into the home, and beefing up care coordination and support services.
Already, some of the largest home health provider companies were bullish on the opportunity to work more closely with Medicare Advantage plans. Baton Rouge-based Amedisys (Nasdaq: AMED), led by Humana alum Paul Kusserow, is chomping at the bit. With a better read on how much aging in place costs, the company is ready to put itself on the line with MA insurers, promising to hit certain metrics such as readmission rates in return for payment incentives. Lafayette, Louisiana-based LHC Group (Nasdaq: LHCG), which is gaining major scale by acquiring Almost Family (Nasdaq: AFAM), also sees an opportunity to grow its MA revenue.
While the rising importance of home care is good news for the sector overall, smaller agencies likely hold a dimmer view of this trend heading into 2018. Without the resources of the larger enterprises, they have a harder task ahead of them in negotiating with MA payors, which want sophisticated data as well as scale to serve their beneficiary populations. The smaller providers might go on the block for sale in 2018, and if not, will have to get creative in terms of partnerships and investments to keep pace with a rapidly changing and increasingly consolidated industry.
Hospice M&A heats up
In addition to adding more personal care services, major home health care providers, including LHC Group and Almost Family, boosted their hospice exposure in 2018. In addition, the sector saw increased interest from private equity. With higher margins and fewer threatening regulations compared to home health, hospice M&A is likely to continue heating up in 2018.
Texas-based Encompass Home Health & Hospice (NYSE: EHC) was bullish on hospice acquisitions in 2017, with executives predicting the sector will be hot in 2018, as well. Generally, the company plans to complement its large home health presence by adding home care and hospice in the same locations.
Across the sector, more consolidation is likely. Two major home health care companies—LHC Group (Nasdaq: LHCG) and Almost Family (Nasdaq: AFAM)—announced their merger before the end of the year. The deal, valued at $2.4 billion, will make the company the second largest home health care provider in the nation when complete. The move could lead to a flurry of other M&A activity in 2018 among smaller providers.
Meanwhile, private equity groups have taken aim at home care franchise companies, and this influx should continue in 2018. With large providers and even insurers on the hunt for private duty, this could be an exit for PE investors down the road.
Staffing struggles spur creativity—maybe desperation
Labor market pressures seen in 2017, including rising minimum wage rates and a tight labor market, are likely to continue. Though unwelcome, this is not news for home health providers, so expect to see more aggressive, and hopefully creative, recruitment and retainment efforts in 2018.
Already, Kindred Healthcare (NYSE: KND), the nation’s largest home health care provider, has begun offering $10,000 signing bonuses to nurses who become employed with the Louisville-based company. As the economy accelerates to a full employment level, competition for caregivers will heat up in 2018, as well, and not every company will be able to afford signing bonuses. Kindred’s walk-in Wednesdays could be emulated by a provider of any size. And more out-there options have been floated, like caregiver sharing.
Lobbying will have to be part of the strategy as well. Providers in certain states, such as Addus HomeCare (Nasdaq: ADUS), have had to contend with rising wages among Medicaid staff and worked with states to increase Medicaid reimbursement rates to keep up.
The stakes are high for succeeding in this challenging area. As Julie Smith, CEO of home care franchise company Homewatch CareGivers, told HHCN last year, “She who owns the caregiver owns the sector.”
The answer may not be in looking to younger workers, either, as millennials aren’t likely to fill all of the demand for nurses in the future, according to a 2017 study.
The growing integration of retail and home care is a thread running through several trends expected in 2018. From pharmacies doubling as health care hubs, to Best Buy selling a suite of products to support aging in place, to Gillette bringing an assisted shaving razor to the marketplace, the writing is on the wall—local malls, big-box stores and neighborhood commercial districts are starting to double as medical equipment suppliers and health care providers. The United States might soon enough resemble Japan, where 7-Elevens are de facto senior centers.
There’s good news in this for home care. For one, if it’s easier for seniors to remain home as they age, home care and home health providers have a larger base of potential clients. However, as this trend continues to develop in 2018, expect some industry angst as well.
For both private duty and skilled care providers, the new retail reality could give potential clients more options. If a senior can get more robust diabetes care at CVS, and a family member can easily give a shave with a new Gillette razor, and home sensors can ensure day-to-day safety, a few hours with an expensive personal care aide might seem superfluous.
Casting their long shadows over this trend are Amazon and Walmart. Home care startup Honor has its storefront locations in Texas Walmarts, while Amazon’s home services can bring handyman assistance into a senior’s home and its Echo product has become a promising aging-in-place technology. Not to mention, rumors last year that Amazon might become a pharmaceutical provider got people imagining drone-delivered meds to people’s doorsteps—and wondering just how far-reaching Jeff Bezos’ ambitions might be, in putting Amazon’s imprint on U.S. health care.