In many ways, 2018 was a coming of age for the home care industry, as it steadily became recognized as a key part of the overall continuum of care due to its ability to keep older adults safely at home and out of the hospital.
Among the biggest changes to home care in 2018: the fact that federal policymakers will allow some non-skilled in-home care services under the Medicare Advantage (MA) program starting next year.
The shift toward MA is likely to continue in 2019, along with these overarching trends below. Home Health Care News will cover trends in Medicare-certified home health care in an upcoming story.
Medicare Advantage, a brave new world
The Centers for Medicare & Medicaid Services (CMS) shook the home care world in April 2018 when it announced that some non-skilled in-home care services would be allowable as supplemental benefits under the increasingly popular MA program. Home care providers have since been scrambling to form payer partnerships, strengthen their data-collection efforts and figure out how to best capitalize on the new opportunity.
Along those lines, Omaha, Nebraska-based home care franchise company Right at Home announced in August the formation of a preferred partnership agreement with Kindred at Home, owned by insurance giant Humana Inc. (NYSE: HUM) and two private equity groups. Michigan-based competitor ComForCare struck a similar agreement with Kindred at Home less than two months later.
Although providers are gearing up already, most experts don’t expect real MA opportunities to arrive until 2020 or 2021. Once they do arrive, companies with scale will likely have a natural advantage, as national and regional payers generally prefer to avoid working with a patchwork of smaller partners.
About 35% of all eligible Medicare beneficiaries are currently signed up for Medicare Advantage, according to Atlanta-based data firm Excel Health. With millions of new enrollees each quarter, MA growth far outpaces overall Medicare growth.
Expect health plans to detail how they plan to incorporate home care benefits in 2020 in the early part of next year. If home care is widely proven to lower health care spending, don’t be surprised to see a major payer acquire a home care company company of its own — maybe even Humana, at which point the insurer would have an ownership stake in personal home care, Medicare-certified home health and hospice providers.
Not all industry stakeholders are bullish on MA. National Association for Home Care & Hospice President Bill Dombi told Home Health Care News that he thinks MA insurers — with some exceptions — do not yet appreciate the value of home-based care.
HHCN’s prediction: HHCN predicts that at least one other major insurer will follow in Humana’s footsteps and attempt to become a home care ‘payvider,’ a mix of payer and provider.
Staffing wars get uglier
Recruiting and retaining qualified workers has long been a challenge in the home care industry, especially as demand rises with America’s aging population. Most estimates put the industry’s turnover rate somewhere between 40% and 67%, though some individual agencies have been able to avoid those high levels by creating career ladders for caregivers and offering stronger benefits packages.
The projected cost of hiring and training a new caregiver to fill a vacancy: about $2,600, according to research firm Home Care Pulse.
All signs point to the labor crunch persisting — or worsening — in 2019. Home care agencies should expect more aggressive poaching of workers and legal issues to crop up as agencies clamp down with noncompetes and other contract provisions.
“You’re going to have lots of companies [with] lots of clients and a great pipeline of work,” Angelo Spinola, a shareholder and attorney who represents home care companies at international labor and employment law firm Littler Mendelson, told HHCN in December. “The issue [they’ll] have is that they don’t have enough of a labor force to satisfy their client demands, so you’re going to see noncompetes, nonsolicits and direct hire provisions.”
Stricter immigration policies rolled out by the Trump administration are among the reasons staffing wars could get uglier, as a significant portion of home care workers are foreign-born individuals.
Wage pressure from companies competing for low-wage workers on the tight labor market is another reason. Online retail giant Amazon (Nasdaq: AMZN), for instance, increased its company-wide minimum wage to $15 an hour in 2018. That’s undoubtedly going to sway some home care workers away from their often demanding, stressful jobs.
At least 18 states began 2018 by raising their minimum wages, according to the National Conference of State Legislatures.
As one solutions to staffing troubles, home care agencies will specifically target retirees as potential employees, while also drawing from labor pools that have previously gone untapped. FirstLight Home Care has already targeted retirees as potential employees — between 18% to 20% of its workforce is currently over 65 years old.
HHCN’s prediction: State-level labor-related investigations and lawsuits will pick up in 2019, HHCN predicts. We might even see a resolution to New York’s ongoing 13-hour rule legal debate.
Care gets more clinical and specialized
Traditionally, many have viewed “home care” as more non-skilled, non-medical care, such as transportation, companionship or light housekeeping services. That perception started to shift in 2018, with several large agencies touting launches of specialized care programs for heart failure, COPD, dementia and other complex conditions.
Multiple drivers will prompt home care to become even more clinical and specialized in 2019.
Why? For starters, specialized care programs have been shown to be profitable. For Arizona-based home care provider Cypress HomeCare Solutions, its specialized dementia care service line accounts for about one-fifth its overall revenue mix, with margins typically hovering above its more standard offerings. Apart from the actual provision of care, specialized programs can also lead to new revenue streams as well, as some companies have launched programs and then opened them up to competitors for paid training purposes.
New Medicare Advantage opportunities will likely drive more specialized and clinical care, too. Health plans will turn to home care providers for their ability to keep older adults with multiple chronic and complex conditions out of the hospital. Providers that can point to specialized programs with demonstrated results will have an edge in securing those partnerships.
As if profitability and MA appeal aren’t reasons enough, specialized care programs, which may come with higher wages, can also help agencies attract and retain caregivers. Even if they don’t necessarily pay more, gaining clinical expertise in dementia, COPD or heart failure helps workers pad their resumes for future job hunts. Additionally, when agencies invest in specialized care programs, it shows that they value their workers and the quality of care they’re providing.
Michigan-based home-based care franchise company ComForCare is a good example of this overaching trend. The company announced in December a push to roll out private-duty nursing services across its entire franchise system of more than 200 locations.
HHCN’s prediction: More specialized home care programs coming in 2019 to help with substance abuse and opioid addiction.
The private equity whirlwind gains strength
Private equity has set its sights on home care in a big way.
For proof, look no further than Bain Capital Double Impact’s move to acquire — and combine — Arosa and LiveHome. There’s also Riverside’s play for ComForCare — or the quick turnover of HomeWatch Caregivers from one PE owner to another. One of the biggest PE moves from 2018 came from Blue Wolf Capital Partners and Kelso & Company in merging Great Lakes Caring, Jordan Health Services and National Home Health Care to form Elara Caring.
Of course, two large private equity firms — TPG Capital and Welsh, Carson, Anderson & Stowe — were also part of Humana’s acquisitions of both Kindred at Home and Curo Health Services. In the third quarter of 2018 alone, private equity firms or their portfolio companies accounted for 13 of 22 acquisitions, according to Irving Levin & Associates data.
It’s safe to say more platform deals with occur in 2019 — and that valuations will continue to rise. Additionally, expect rollups to start happening, as PE firms make bolt-on acquisitions to increase the scale of their home care portfolios.
HHCN’s prediction: Blue Wolf Capital Partners & Kelso & Company will look to further add to Elara Caring, adding even more scale to one of the largest U.S. home care, home health and hospice companies.
Referral patterns start to shift
Another important question looking ahead toward 2019: Will agencies start to find ways to gain more referrals through health care providers rather than consumer word-of-mouth? Today, word of mouth is — by far — still the best revenue-generating referral source for private-duty home care agencies, according to the latest annual industry survey from Home Care Pulse.
About one-fifth of survey participants reported past and current clients, along with their loved ones, as a top referral source.
A joint venture partnership — Homespire — between Minnesota-based Lifesprk and large Utah-based health system Intermountain was one of the more interesting home care collaborations in 2018. Look for more of these types of arrangements next year, especially ones that tout the value of person-centered care or whole-person care.
HHCN’s prediction: Word of mouth will stay the top referral source for home care agencies.
Consumer confusion worsens
Consumers still aren’t clear on the distinction between home health and home care. Can you blame them?
Lines have — and will continue to — blur. That’s especially true as personal care agencies beef up their clinical capabilities, as Medicare Advantage starts paying for home care, and as consolidation occurs to bring home care and home health under the same ownership.
To educate consumers on the value of home care, some companies will launch ambitious new advertising campaigns. Likewise, providers will also spend more time explaining their value to hospitals and health system partners.
Related to consumer confusion worsening, the home care industry will also devote more resources in terms of educating federal policymakers on how home care services are pre-acute and not just for when older adults develop conditions or return from hospital stays. This has been a major point for home health providers, but it applies to the home care world as well.
HHCN’s prediction: A top home care company will run an ad during the upcoming Super Bowl. Keep in mind, the average cost for one 30-second spot could be around $5 million.
Companies featured in this article:
Amazon, Arosa+LivHome, Centers for Medicare & Medicaid Services (CMS), ComForCare, Curo Health Services, Cypress HomeCare Solutions, Elara Caring, Excel Health, FirstLight Home Care, Home Care Pulse, Homespire, Humana, Intermountain Health, Kindred at Home, Lifesprk, Littler Mendelson, National Association for Home Care & Hospice, Right at Home