Rising Costs, PE Takeovers and Medicare Advantage: Top Trends in Home Care for 2020

A decade ago, home care was seen as a cottage industry. Today, it’s a multibillion-dollar market made up of thousands of individual businesses, several of which operate from coast to coast and have thousands of caregivers on staff.

The home care industry in 2020 will be defined by record-setting private equity activity and providers’ pursuit of Medicare Advantage business, Home Health Care News predicts. The supply and demand of caregivers will also continue to be a crisis, though creative solutions are underway.

HHCN recently forecasted what this year’s home health landscape will look like, and now we’re doing the same for home care. By “home care,” we broadly mean all types of non-medical, in-home care services, which could range from companionship and light housekeeping to specialized dementia care and transportation.

While we’re doubling down on a couple predictions from 2019, we’re also taking a chance on a few newer, slightly controversial trends we foresee happening in 2020.

Private equity will take over

Led by TPG Capital, KKR, Alpine Investors, RAB Ventures, BelHealth Investment partners and countless other groups, private equity is definitely no stranger to the world of home care. You should expect PE to take an even deeper dive into home-based care in 2020, however.

Currently, private equity firms are armed with a record level of cash that they’re hoping to put to work. In fact, according to some estimates, the PE space has roughly $1.5 trillion in unspent capital.

While 2019 saw about $450 billion worth of PE-driven deals, M&A activity in 2020 could be on a scale not seen for decades: Already this year, Arosa+LivHome — backed by Bain Capital Double Impact — announced a deal for Lifecare Innovations. Meanwhile, Care Advantage — backed by BelHealth — said it was buying Amaisa Home Care.

“We’re entering the year with people feeling much better about the economic and geopolitical outlook than was the case a year ago,” Jason Thomas, the global head of research at private equity giant Carlyle, recently told Bloomberg.

There were at least 229 deals in health care involving PE buyers or sellers in 2009. This year, that figure is projected to jump to 747, according to statistics from PricewaterhouseCoopers.

Although PE is likely to be interested in all segments of the senior care and post-acute markets, it’s our bet that the non-medical home care industry sees the most action. Persistent workforce challenges aren’t going away, but home care providers have far, far fewer headwinds than their peers in home health, skilled nursing or even hospice care.

Are there potential downsides to more PE power in home care? Perhaps, as some critics believe too much profit-driven influence could ultimately jeopardize quality of care, especially when PE firms are looking to cash out within a relatively short three- or five-year window.

Still, most home care companies backed by private equity owners have reported a positive experience. Additionally, many modern PE groups have adopted comprehensive social and environmental accountability standards.

Alpine Investors — a PE firm focused on software- and service-related investments with an enterprise value between $10 million and $300 million — is one such group.

“Our industry, probably deservedly so, has a somewhat tarnished reputation,” Dan Sanner, a partner at Alpine, told HHCN shortly after portfolio company TEAM Services Group acquired AmeriBest Home Care. “We wanted to be the anti-private equity firm.”

Medicare Advantage won’t be a cash cow — yet

When the U.S. Centers for Medicare & Medicaid Services (CMS) first expanded the definition of “primarily health related” in 2018 and gave Medicare Advantage (MA) plans more flexibility for how they shaped their supplemental benefits, a sense of excitement circulated among home care providers.

In 2019, that excitement picked up when CMS said it would allow MA plans to cover any benefits that “have a reasonable expectation of improving or maintaining the health or overall function” of beneficiaries with chronic conditions — home care providers’ bread and butter.

So far, though, actual MA opportunities have been relatively hard to come by. Even for home care providers that did score MA business in 2020, it’s likely the end result will be less lucrative than they initially planned due to relatively low utilization and reimbursement rates.

At least 364 plans will take advantage of CMS’s more flexible MA policies in 2020, according to a November study from actuarial consulting firm Milliman commissioned by the Better Medicare Alliance. That’s nearly 12% of the 3,148 plans that will be available to Medicare beneficiaries.

Just 148 plans will cover in-home support services.

Now, it’s important to note that the Milliman study numbers released in November don’t paint the entire picture. CMS still needs to release MA data related to supplemental benefits linked to the 2019 chronic condition expansion, meaning in-home care providers could have a more active role in MA than it appears.

Yet in conversations with providers and plans alike, HHCN has noticed a clear disconnect between what each party wants when working together. Furthermore, it will take plans time — maybe even years — to figure out how to best take advantage of their newfound MA flexibilities and bring home care partners into the fold.

FirstLight Home Care CEO Jeff Bevis said it best: “Go into [MA] with realistic expectations. It’s going to take quite a while to educate the plans themselves about the value of home care overall. It’s not going to be an instant home run.”

Another point: While CMS has made big MA moves related to in-home care in 2018 and 2019, HHCN doesn’t foresee similar steps being taken in 2020. Plans, providers and CMS alike will largely stand pat and obverse this year, with providers continuing to refine their outcomes data capabilities.

Leadership teams will evolve

As home care becomes more complex, leadership teams will need to evolve. That C-suite evolution will really start to ramp up in 2020.

Medicare Advantage is one factor. As more home care providers continue to position themselves for MA, they’ll need industry insiders with payer-side experience; most will likely import that talent.

In November, for example, LHC Group Inc. (Nasdaq: LHCG) announced that it was bringing in Cigna Inc. (NYSE: CI) veteran Mohammad Ali to help build out its technology strategy. While LHC Group operates across the home health, hospice and personal care services spaces, home care-only providers will make similar hires.

“We’ve spent 18 months beefing up this team. The management team looks quite different,” LHC Group CEO and Chairman Keith Myers told HHCN in December. “Ali, he comes from Cigna. He was head of IT internationally. His experience is way beyond what we do at LHC Group today. We really hired up in that position. … We want to think the way a Cigna or a United thinks.”

More home care providers will add to their leadership teams from a workforce perspective as well. At the end of 2019, for example, Interim HealthCare Inc. announced it had hired Carolina Lobo as its executive vice president of people and brand.

“Carolina is known for her unique blend of innovative, people-focused marketing insights. She has the skills and expertise to lead us in integrating strategy and resources that leverage the power of our collective brands and the commitment of our people,” Jennifer Sheets, president and CEO of Interim and Caring Brands International, said when Lobo’s hiring was announced.

PDGM will create more home care opportunities

The Patient-Driven Groupings Model (PDGM) — effective Jan. 1 — is a major overhaul to how Medicare-certified home health agencies are reimbursed for their services. But it has subtle implications for non-Medicare home care providers, too.

It’s impossible to completely dive into all of PDGM’s implications in one story, so let’s focus on one key point: Under the new overhaul, home health providers are more or less incentivized to chase referrals from institutional sources over community-based partners.

Put differently, home health providers that care for patients coming from skilled nursing facilities (SNFs) and hospitals will typically be reimbursed at higher rates than those that care for individuals coming from their homes. So, why does this matter for home care providers?

Well, some believe there will be community-based referral gaps for pre-acute patients that home care providers can pick up — if they know where to look. Moreover, PDGM and all of its therapy consequences may make the recruiting of therapy staff somewhat easier for home care agencies that offer those types of services.

“In general, Medicare rates will be lower for community-based referrals than health system referrals,” BrightStar founder and CEO Shelly Sun told HHCN in November. “I think home health agencies would gladly take both types of referrals if they had an abundance of labor. But the change in reimbursement under PDGM with the ongoing labor shortage is going to steer them to where reimbursement is higher.”

HHCN bets there’s going to be a huge uptick in home care business in the early part of 2020, with at least some of that increase rooted in PDGM.

Costs will rise at unsustainable rates

Home care has long been touted as one of the more affordable senior care options. But that’s changing — and costs will continue to rise in 2020.

The cost of non-medical home care spiked more than 7.1% in 2019 compared to 2018, bringing the median monthly cost of full-time home care up to $4,290, according to the most recent Genworth Cost of Care Survey.

Rising minimum wage laws and caregiver scarcity are partly why home care costs are skyrocketing.

“The cost of one-to-one care is increasing tremendously. Minimum wage increases around the country is one of the reasons why,” one home care executive told HHCN as part of our “Confessions” series. “And that’s something that’s rightfully happening because personal care workers have historically been exploited. As we compensate workers more fairly, the unit cost goes up and the hourly cost goes up.”

Twenty-one states — nearly half the country — began 2020 with higher minimum wages.

To deliver care more efficiently and for fewer dollars, more home care providers will embrace technology in 2020, including scheduling tools and devices for remote patient monitoring. Outside of technology, more providers will launch wellness programs for their workers to ensure they remain valuable team members.

As home care costs rise, group care will become more popular, too. To that extent, look for a healthy bump in the number of adult day health centers and PACE models in 2020.

“Cost is certainly a competitive advantage,” Centennial Adultcare Center CEO William Zagorski told HHCN during an October episode of Disrupt. “The average cost of adult day is $72 a day — and that’s usually for six to 10 hours of care.”

Home care providers will help drive that adult day bump, with Senior Helpers and its Town Square franchising business standing as the perfect example.

While home care is getting more expensive, it’s still far cheaper than nursing home care. A semi-private nursing home room can cost upwards of $7,513 per month, according to the Genworth survey.

Niche providers will become more common

With several thousand home care providers competing in the U.S. market, it has become critical for owners and operators to differentiate their businesses. For some, that has meant targeting niche or hyper-focused populations.

Asian Home Care, for example, launched in 2012 with the goal of specifically serving the Asian community around Des Moines, Iowa. Similarly, First Nations Home Health serves the culturally diverse Native American community in Minnesota.

HHCN expects that home care will see more niche home care agencies in 2020.