Home care providers are increasingly working to diversify their payer mix, in some cases aggressively shifting away from predominantly private-pay revenue structures.
Unlike most senior care providers working under Medicare, Medicaid or private insurance, home care agencies have typically operated within the private-pay model. In recent years, this has slowly begun to change.
Last year, only two-thirds of the home care industry’s revenue came from private pay, Erik Madsen, CEO of Home Care Pulse, previously told Home Health Care News. Madsen pulled that information from the most recent Home Care Pulse Benchmarking Study, which included insights from nearly 850 home care operators.
In 2018, in comparison, the operators that took part in the Benchmarking Study collectively said 72.1% of their annual revenue came from private pay.
Instead of exclusively leaning on private-pay sources, home care agencies have more frequently turned to Medicaid waiver programs, veterans assistance and managed care.
“You see that private pay is going down, but government-funded programs are going up,” Madsen said in May. “I think it’s an indication of what’s to come in the industry.”
For some providers that have cultivated a more diverse payer mix, private pay still makes up the bulk of their business. Such is the case for 24 Hour Home Care, which gets about 80% of its revenue from its private-pay clientele.
Los Angeles-based 24 Hour Home Care is an independent, non-medical home care provider with 20 locations across California, Arizona and Texas.
Aside from private pay, 24 Hour Home Care’s other payers include the U.S. Department of Veterans Affairs (VA) and Medicare Advantage (MA) health plans.
In the past five years, 24 Hour Home Care has seen its private-pay revenue percentage slightly decrease, Gavin Ward, director of strategic partnerships at the company, told HHCN.
“Five years ago, it was like 85% of our business,” Ward said. “Today, it’s more like 80% of our business. Of that private-pay percentage, we’re seeing a much higher amount come from competitors — meaning other home care agencies are referring clients to us because they are unable to take on the cases for whatever reason.”
At Family Resource Home Care, one of the largest independent personal care companies in the Pacific Northwest, private pay makes up 60% of its payer mix. The other 40% comes from institutional payers like Medicaid and the VA.
Prior to Family Resource Home Care’s recent acquisition of two independent home care providers based in Oregon, private pay made up 75% of the business, while institutional payers made up the remaining 25%.
Jeff Wiberg, CEO of Family Resource Home Care, stressed that the company isn’t moving away from the private-pay business. Instead, the company is being proactive about ensuring that private pay isn’t the entirety of its business.
This is largely due to the inflationary costs of providing care.
“At the end of the day, the private-pay population that we serve oftentimes has capitated income streams and may not be able to keep up with that inflationary cost,” Wiberg told HHCN. “Home care has always had this doughnut hole. On one side, you have the wealthy that can fund care no matter the cost. On the other side, you have those that cannot afford any care, and therefore, government programs will oftentimes pick up the cost.”
The national average monthly cost of in-home care was $4,481 in 2020, according to data from the annual Genworth Cost of Care Survey. That’s based on a weekly total of about 44 hours.
Wiberg noted that there is also a “middle” population of seniors who can’t afford private-pay costs but don’t qualify for government-funded care.
Due to the pressure of the ever-increasing cost of providing care — predominantly because of labor costs — it’s likely that home care providers will continue to seek out other ways to fund care.
“This might include institutional payers. It might include insurance payers and movement towards Medicare Advantage,” Wiberg said. “Certainly, Medicaid has always been a big piece of home care funding sources.”
Like Family Resource Home Care, 24 Hour Home Care is open to other payers, but isn’t aggressively moving away from private pay as its main strategy.
“One of the reasons we are not really pushing the gas or going full throttle on other payers is that, currently, the other payers are reimbursing at rates that don’t allow us to recruit and retain high-quality caregivers,” Ward said. “There are exceptions to that, but again, with the private-pay clientele, we are able to have a better opportunity to compensate our caregivers.”
Of course, there are other challenges associated with moving away from the private-pay model.
“Institutional payers, for example, have a lot of bureaucracy and red tape,” Wiberg said. “There are a lot of hoops to jump through, and from state to state it differs. The payment model can differ, and the way you do claims can be, sometimes, very onerous.”
Another factor: Providers operating within private pay have their own revenue stream, putting them in the position of being able to walk away from payers if they aren’t being offered good rates.
Since 2019, MA plans have been able to offer non-medical in-home care services as a benefit. While this has become an avenue for providers looking to expand their payer mix, providers sometimes come up short in MA negotiations.
Still, providers are often negotiating from a position of strength.
“What Medicare Advantage plans don’t appreciate is that, unlike home health or skilled nursing, private-pay home care agencies … don’t need you,” ATI Advisory founder and CEO Anne Tumlinson said earlier this month at the HHCN Medicare Advantage for Home Care Virtual Summit. “[They already have] a base of customers.”
Ultimately, having a diverse payer mix will benefit home care providers.
“While private pay is our main strategy, we do have a diverse payer mix,” Ward said. “It has allowed us to provide a constant clientele for our caregivers to serve.”
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