‘Nothing Is Recession-Proof’: What an Economic Downturn Means for Home-Based Care Providers

While the U.S. economy has sunk into its first official recession since 2008, home-based care experts are largely confident in the industry’s ability to withstand emerging economic hardships.

In fact, “recession-proof” is the term many often use.

Soaring demand, an evolving payment landscape and shifting consumer demographics may protect home-based care providers from too much disruption. But there are a slew of additional factors related to this specific recession — caused by the COVID-19 virus — that could hurt home-based care providers moving forward.

“I think it’s just a widely thrown-around moniker that these businesses are recession-proof,” Eugene Goldenberg, a managing director at Edgemont Partners, told Home Health Care News. “Nothing is recession-proof. Even though health care is much more of a defensive industry — and kind of continues to grow through the ups and the downs — what we’ve seen with COVID-19 is that there are certain pockets of sub-sectors within health care that obviously fared much better than others.”

New York-based Edgemont Partners is an independent, health care-focused investment banking firm.

Generally, a recession is a period of time marred by economic decline. A good indicator of one is normally a fall in gross domestic product (GDP) in two consecutive quarters. Other indicators are more people out of work and fewer business deals.

A recession’s length depends on many factors. They can sometimes last for months — or, at times, years.

On June 8, the National Bureau of Economic Research declared that the U.S. had officially entered into a recession after 128 straight months of economic growth. Prior to 2020, the last financial crisis came in 2007 and 2008 — a crash mostly caused by the bursting of the housing bubble.

Recession tailwinds

In most cases, with a recession comes a rise in national unemployment levels.

Since a public health emergency was declared in mid-March, more than 40 million people have lost their jobs — the largest spike in unemployment since the Great Depression. In the week ending June 6, the U.S. unemployment rate hit 14.1%.

While rising unemployment strains the U.S. economy, it could favor home-based care operators. Fewer jobs in restaurant, retail and other industries, in theory, mean a larger pool of potential caregivers for providers to source from.

“There are good and bad sides to a down economy for [home care],” John Bradshaw, CEO of Georgetown Home Care, told HHCN. “In a bad economy, you’re going to lose some clients who can’t afford your services. You’re also going to add some good employees who have lost jobs in other places.”

Washington, D.C.-based Georgetown Home Care is a Mid-Atlantic home care provider that offers personal care, respite care, senior companionship services and senior transportation services to patients in D.C., as well as Montgomery County, Prince George’s County and northern Virginia.

If a bad economy results in home-based care businesses stacking up on better employees, Georgetown and similar home care agencies may be in better shape when things do begin to turn around.

Meanwhile, for Medicare-certified home health agencies, a recession might mean further regulatory support and flexibility from federal policymakers.

“Concerning tailwinds, there are a couple that might materialize,” Viral Patel, a credit analyst at S&P Global Ratings, told HHCN. “[There’s already been] some of the loosening of the reins from the Centers for Medicare & Medicaid Services (CMS) in terms who could certify for home health, the homebound requirement and all of those kinds of discussions. I think there could be more of a tailwind in the long term if CMS starts relying on home health as a more efficient setting of care.”

S&P Global Ratings — a part of S&P Global Inc. (NYSE: SPGI) — is an American credit rating agency that publishes financial research and analysis.

Additionally, recessions hurt businesses because clients or customers are no longer able to afford their goods or services. Services such as home care or home health care, however, are steadier during recessions because they are usually some of the very last things to get cut out of a family’s budget.

“You won’t see the same volatility or pressure as you would in other markets or other services that are more discretionary,” David Kaplan, a director at S&P Global Ratings, told HHCN. “If you have an elderly parent who has Alzheimer’s or dementia needs — even if you’re paying out of pocket — that probably would be one of the later things to cut.”

Families are unlikely to cut private-pay home care services during a recession. History shows that the federal government follows a similar pattern with Medicare-reimbursed home health care services.

From 2008 to 2010, Medicare spending on home health care was actually up 15%, according to Goldenberg.

“The number of beneficiaries who were receiving home health services increased by 7%,” he said. “The utilization of the benefit has continued to grow. And I think that it is an undeniable tailwind in home- and community-based services that more volume is going to be pushed into the home setting … driven by patient preference, safety and also the continuation of the graying of America.”

Bradshaw started Georgetown Home Care at the tail end of the last recession. Anecdotally, he can remember his private-pay peers talking about the hit they took to their respective businesses at the time.

While home care generally has been on an upward trajectory over the last five years, median revenue was actually down in 2019 compared to 2018, according to market research and education firm Home Care Pulse. Specifically, median revenue dropped from $1.84 million to $1.82 million.

Recession headwinds

Despite home-based care’s comparatively good performance during the 2008 crisis, there is always a chance that COVID-19’s dynamic could completely flip the “recession-proof” conventional wisdom on its head.

While reimbursement rates continued to go up during the last recession, this one has been characterized by the government spending a massive amount of money in a very short period of time.

A lot of that — tens of billions of dollars worth — has gone to health care providers.

“There’s been a lot of stimulus [provided], and government budgets are pressured,” Kaplan said. “Whether it’s at the federal level for Medicare or at the state level for Medicaid, [if the] government is looking for ways to to save costs, they could reduce reimbursement or change the access to care in a way that reduces it — like making the threshold for care a little bit higher,

increasing co-pays or making renewables more difficult.”

A decrease in reimbursement would be a massive hit for home health providers, who are currently vying for increased reimbursement rates and additional reimbursement avenues, such as telehealth.

It would be even more devastating for those serving the Medicaid population, as Medicaid rates have already been flat or diminishing in many states.

“That’s something that would not necessarily be immediate, but it could be a follow-up effect. … It’s hard to predict,” Kaplan said. “Companies like to assert that their services are needed, which is true, but that doesn’t insulate them from pricing pressure.”

Some providers will have to hike their own costs — amid a recession nonetheless — to keep their heads above water.

Additionally, unforeseen costs of doing business, such as personal protective equipment (PPE) procurement and additional screening measures, are a lot to handle for industries that generally operate on razor-thin margins.

For Georgetown Home Care, it has to deal with that on top of an annual minimum-wage hikes on July 1 in the D.C. area.

“Every July 1, we’re forced to raise prices on clients, and now we have to factor in PPE,” Bradshaw said. “And what we’re being very careful to do is not to appear that we’re gouging clients during a pandemic.”

The national average cost of care for home care services is nearly $4,300 per month, according to the most recent Cost of Care Survey conducted by Genworth Financial.

Raising the price of necessary services during the COVID-19 crisis and a recession is hard to thrust upon clients, so Bradshaw has made sure his agency’s actions are not only explainable, but moral.

“We’ve actually consciously shrunk our margins so we can tell clients, legitimately, that we are not raising prices as much as our costs are going up,” Brashaw said. “We just don’t want them to think that we’re trying to gouge them, and we’ve been having individual conversations with them to make sure that they understand.”