Hiring caregivers remains the No. 1 challenge for in-home care providers, industry executives say. It’s only getting tougher, too, as low-skilled workers outside the industry are being offered progressively higher wages—particularly within retail and fast food.

Retail giant Target in March announced it was raising its minimum starting pay for workers for the second time in less than a year, both hikes part of a larger effort to eventually offer $15 an hour wages by 2020. More recently, a California Chick-fil-A owner announced he would start paying his fast-food employees a pay bump of up to $18 an hour. Walmart, Costco and McDonalds are also among the long list of companies that have eyed wage increases in recent months—and that’s in addition to the state-level efforts happening across the United States.

Addus HomeCare Corp. (Nasdaq: ADUS) CEO Dirk Allison discussed the hiring difficulties his and other the in-home care providers face Tuesday during the first day of the Jefferies 2018 Global Healthcare Conference in New York. Frisco, Texas-based Addus provides personal care, hospice and home health care services to nearly 40,000 consumers in 25 states, employing roughly 30,000 people in total.

“[Increasing wages are] really, probably, the biggest issue we face today in growth,” Allison said, adding that, two to three years ago, Addus consistently paid its workers 50 cents to $1 an hour above minimum wage. “It was just the way the industry was structured, which made it easier for us to hire folks, as opposed to, say, [them] going to Chick-fil-A or Walmart down the road and getting minimum wage.”

While workers’ wages have increased, payments from states to in-home care providers have largely not, meaning providers have had trouble keeping up in the competitive labor market, according to Allison.

More than a dozen states increased their minimum wages at the start of 2018, according to the Economy Policy Institute. Increases ranged from 35 cents in Michigan to $1 in Maine. The federal minimum wage, in comparison, has not been raised since 2009, however.

It is especially challenging for the home care industry to keep up when employers of low-skilled workers raise wages due to the demanding nature of the job, Allison said. In general, the sheer physical and emotional toll of providing care to an elderly individuals and helping them with activities of daily living is much more demanding than “flipping burgers” or “running a cash register,” he said.

Hiring workers has also become more challenging as the U.S. economy improves and fewer people become active job seekers. The jobless rate for the first time in nearly two decades fell to a seasonally adjusted 3.8% in May, according to the U.S. Department of Labor. Overall, the number of home health aides and personal care aides will need to grow more than 40% from 2016 to 2026 to keep up with job demand.

“Our ability to hire has become much more difficult,” Allison said. “There’s a lot of care and cases out there—for not just us, but others—that we could have if we could find the people.”

Private-pay opportunities 

Despite the caregiver shortage facing the industry, Addus has begun to expand its private-duty offerings and plans to build on that momentum with more acquisitions.

About 3% of Addus’ revenue is currently from private pay, up from about 2% in 2016. The company will look for opportunities to grow that share moving forward, likely through smaller or medium-sized acquisitions, Allison said.

“The problem with a big acquisitions is … it’s a franchise world, and we’re not franchise operators,” he said. “That’s a little bit of an issue for us.”

Addus has already taken some steps to boost its private pay offerings, including its May 2017 acquisition of Options Home Care, a wholly-owned subsidiary of HB Management Group and a provider of personal care services in more than 20 counties in New Mexico.

More than 400 companies and over 2,600 attendees are participating in the Jefferies 2018 Global Healcare Conference.

Written by Robert Holly