Home Health Care Agencies Threatened as Wages Rise, Reimbursements Lag

As more states push to raise the minimum wage, home-based care companies must work harder than ever to attract and retain workers as competition among employers grows.

In home health care, agencies’ success often depends on Medicaid reimbursement, which is not keeping up with wage inflation in some states. And in private-pay home care, increased competition for workers is putting pressure on wages that is sometimes not sustainable, forcing providers to consider other options for attracting and retaining workers.

In 2019 alone, 18 states started the year with higher minimum wages than the year before. In places like California and Washington, D.C., the minimum wage is set to rise as high as $15 in the years to come.


Many have praised the increasing rates as a win for low-income workers such as caregivers, one in four of whom lives below the federal poverty line.

But the move could be problematic for home health care agencies in states that don’t pair minimum wage legislation with proportionate Medicaid reimbursement increases, according to Darby Anderson, chief development officer at Addus HomeCare Corporation (Nasdaq: ADUS).

“We are absolutely supportive of raising wages, whether it’s minimum wage or otherwise,” Anderson told Home Health Care News. “The problem is they have to be funded.”


Medicaid reimbursement

Frisco, Texas-based Addus provides personal care, hospice and home health care services to nearly 40,000 consumers in 24 states, with much of its revenue coming from Medicaid. In 2017, about 65% of Addus’s net service revenues came from state and local governmental agencies, primarily through Medicaid and Medicaid waiver programs, according to a recent SEC filing.

Medicare- and Medicaid-certified home health agencies depend on those reimbursements to operate. If states fail to increase rates with minimum wage, providers will be forced to absorb the difference, hurting margins and threatening the industry, Anderson said.

“Providers may say, ‘I’m just not going to do Medicaid anymore because the rates aren’t sustainable,’” he said. “‘I’ll provide private pay or work more primarily in other sources of funding and not work in Medicaid,’ which is going to leave a gap in the provider pool.”

For others, it could mean going out of business, Susan Misiorski, vice president of workforce innovations at research and consulting organization PHI, told HHCN.

“It is a field where many of the agencies have very slim margins,” she said. “There’s no question that employers who are heavily dependent on public reimbursement for their business revenue are more vulnerable, particularly in states that are not adjusting their reimbursement as they increase minimum wage requirements.”

Right now, that’s the case in states such as Arizona and Illinois, where reimbursement rates don’t match actual or proposed minimum wage increases. Addus has offices in both of locations.

By funding reimbursements proportionately and supporting home health operators, states will save money in the long run, Anderson argued. Home health is much less expensive than alternatives, such as hospitals and nursing homes.

States like New York and New Mexico are investing in that value as they raise wages. In New Mexico, where a minimum wage increase is proposed, the fiscal note accompanying the proposal says that Medicaid providers will be impacted and allocates funding toward making up for it. Similarly in New York, where minimum wage is increasing to $15, state government has appropriated proportional money for minimum wage funding to providers every year.

Now, it’s up to home health providers to make sure other states follow their lead, Anderson said.

“The industry has to really take responsibility and really take an active role in advocacy,” Anderson said. “We need to come together and explain to folks, ‘This is the impact.’ [In] states that are considering or looking at increasing minimum wage, the time to act is now, not when the legislation is introduced or passed.”

Private pay

Meanwhile, private pay home care companies face a different set of challenges as minimum wages increase. Rather than worry about reimbursement, agencies in this space must address wage compaction.

As less demanding jobs — at fast food companies and retail leaders such as Amazon — begin to pay higher rates compared to those caregivers receive, home care agencies could struggle to remain competitive employers.

“We’re seeing a significant number of employers who have increased their wages, McDonald’s is one, Walmart, Target, Costco and Amazon,” Misiorski said. “That’s there whether the states increase minimum wage or not.”

In some cases, that could require paying more to beat out competition for workers, Anderson said.

“These workers have demonstrated their value in helping states keep people out of way more expensive institutional care and I think there needs to be an investment beyond minimum wage,” he said.

If that’s not an option, home care companies should focus on what they can control: adding value to the caregiving profession, which in turn can improve operations and reduce turnover within the company.

For example, creating a peer mentorship role has reduced costs and improved caregiver retention by 30% to 92%, according to data from PHI. While peer mentors get paid more than caregivers, such a program more than pays for itself, Misiorski said.

“When you’re bringing new employees in, they’re supported with a mentor and have the opportunity to be much more successful and feel less isolated out in people’s homes by themselves,” she said. “[It creates] an opportunity for an advanced aid role that’s really supporting care transitions, ultimately impacting a reduction in rehospitalizations.”

Additionally, home care agencies can offer caregivers consistency by way of allowing them to build relationships with clients.

“If you have a home care agency where today Susan is the person assigned to Mrs. Jones, and tomorrow Amy is the person assigned to Mrs. Jones, then the next day, Donna is assigned to Mrs. Jones, that’s not leveraging those relationships,” Misiorski said. ”Consistently assigning people and being sure your workplace practices allow for that relationship to flourish is really important.”

Other important factors include training caregivers for communication and conflict resolution, Misiorski said.

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