4 Big Questions For Home Health, Home Care In 2023

Home health and home care operators grappled with numerous challenges in 2022 that impacted their businesses, from COVID-19 cases spiking due to the Omicron variant in the first quarter to labor pressures persisting throughout the year.

For many providers, those headwinds turned their attention to maintaining growth, fine-tuning existing operations and avoiding loss, with service-line diversification, technology innovation and other forward-looking initiatives somewhat backburnered.

Aveanna Healthcare Holdings Inc. (Nasdaq: AVAH) is emblematic of 2022’s challenges. The Atlanta-based company had high hopes when entering the public market in 2021, but it has since seen its stock value fall to $0.75 per share and its founding CEO retire.

“As difficult a year as 2022 has been for us, I think you’ll hear optimism in our voices related to our nursing hiring and retention in our [private-duty services] segment, and in our home health and hospice segment,” current CEO Jeff Shaner, formerly Aveanna’s chief operating officer, said in November. “Over the last 90 days, we have finally seen some positive hiring and retention metrics in our core nursing trends — specifically in our private-duty services segment.”

Whether home health and home care providers thrive in 2023 largely depends on four questions, in my view. I explore those questions below in this week’s members-only, exclusive HHCN+ Update.

Will the labor market improve?

The most significant boon for both the home health and home care industries in 2023 will be an improved labor market. Already, signs suggest that’s happening.

Overall, the health care sector added 44,700 jobs in November, which was consistent with the average of 47,000 new health care jobs per month added in 2022, according to the most recent labor brief from research firm Altarum. That compares to an average of 9,000 new jobs added per month in 2021.

Nearly half of the job growth came in ambulatory care settings, which includes home health care.

Many home health providers have invested in internal recruitment and retention programs in the past 12 months, with some seeing a fairly quick payoff. Beyond operators’ control, economic factors will likely nudge more clinicians toward home health care in 2023 as well.

Former Federal Reserve Chair Alan Greenspan recently cautioned that an economic recession is a “most likely outcome” for the U.S. in 2023, with the feds tightening their monetary policy to combat inflation. And even if a full-blown recession is avoided, some economists foresee a “slowcession,” where economic growth comes to a near-stop.

“Under almost any scenario, the economy is set to have a difficult 2023,” Moody’s Analytics Chief Economist Mark Zandi wrote in a Tuesday report. “But inflation is quickly moderating, and the economy’s fundamentals are sound. With a bit of luck and some reasonably deft policymaking by the Fed, the economy should avoid an outright downturn.”

For home health providers, a recession could bring recently retired clinicians back to the workforce. Amedisys Inc. (Nasdaq: AMED) CEO and Chairman Paul Kusserow talked about that trend in December.

“What I’ve seen in my past lives – we haven’t really seen it here at Amedisys, because we haven’t been in [a recession] – but we see people returning to the workforce,” Kusserow said during a presentation at an investor conference. “I anticipate that’s going to be the case. … And some people say it’s here, some people say it’s coming.”

With reinforced labor internal ranks, a stronger job market would allow providers to depend less on costly contract labor. From Dec. 26 to Jan. 3, demand for travel nurses was down 4.9%, according to the Aya Index, which tracks certain staffing metrics.

While I’ve focused on home health care so far, the idea of a down economy being a labor boon equally applies to home care. If consumer spending drops, retailers and other major employers may not be able to hire as aggressively in 2023 – or pay their workers extremely competitive wages. Some big names, in fact, may even have to make job cuts.

Amazon has often been labeled as a top labor competitor for the types of individuals who may otherwise flock to caregiver roles. This week, the tech giant said it’s laying off 18,000 employees – its single-largest job cut since the company began downsizing last year.

“As I shared back in November, as part of our annual planning process for 2023, leaders across the company have been working with their teams and looking at their workforce levels, investments they want to make in the future, and prioritizing what matters most to customers and the long-term health of our businesses,” Amazon CEO Andy Jassy wrote in a blog post. “This year’s review has been more difficult given the uncertain economy and that we’ve hired rapidly over the last several years.”

What will happen to the dominant payment streams?

In addition to labor, reimbursement and pricing will play an important role for both home health and home care in 2023.

On the home health front, the U.S. Centers for Medicare & Medicaid Services (CMS) is moving forward with plans to institute a permanent 7.85% cut in fee-for-service Medicare. The agency also plans to apply additional “clawback cuts” of more than $2 billion for services provided to patients during the COVID-19 pandemic.

“Originally, the cut included in the proposed rule would have reached an alarming $18 billion over the next 10 years when combined with other cuts forecasted by CMS — but because the permanent rate cut in the final rule is larger than what was initially proposed, the cuts over the next 10 years will be even more serious,” the Partnership for Quality Home Healthcare noted in a press release.

While most of these cuts will occur after 2023, operators will have to prepare for their pending impact this year. But instead of learning to live with the more difficult reimbursement climate, as fee-for-service Medicare remains the dominant reimbursement stream in home health care, some are already waving a white flag and exiting the market.

“After months of working diligently to rework our operations to address rising costs, staffing challenges and adjustments in CMS regulations, we have come to the difficult conclusion to close Oahu Home Healthcare in January 2023, ” the agency’s CEO, Jen Eaton, said in a written statement.

To avoid Medicare cuts, industry advocates are appealing to Congress, asking lawmakers to intervene. Advocacy efforts have paid off in the past, with a not-too-distant example being the delay and revision of the Pre-Claim Review Demonstration (PCRD).

As of writing this HHCN+ Update, several U.S. senators and representatives have signed onto bipartisan legislation that would block the cuts. Additionally, Medicare home health transparency provisions – language requiring CMS to fully explain how it came to its conclusions regarding potential Patient-Driven Groupings Model (PDGM) overpayments – were included in the year-end omnibus bill.

“Having this data will allow for the comparison of behavior before and after the change to [PDGM], and enable providers to give CMS more accurate feedback on points of disagreement,” Mollie Gurian, vice president of home-based and HCBS policy for LeadingAge, previously told HHCN.

Meanwhile, home care agencies are facing questions of their own regarding the industry’s dominant form of payment: private pay.

To offset increased labor costs and other financial strains, home care companies across the U.S. raised prices on clients and their families. Sky-high demand for home care support has kept agencies’ client loads full, but, at some point, care recipients will likely be priced out.

“In territories like Los Angeles and Northern California, we’ve seen increases anywhere from 20% to 40%, literally overnight,” Ryan Iwamoto, president and co-founder of 24 Hour Home Care, said at the HHCN Home Care Conference. “This is because of the cost of labor, not just with the caregivers, but the cost of our staff and everything that goes along with it.”

To continue growing and gaining market share, home care leaders will have to find an answer for this cost-of-service question.

Will Medicare Advantage opportunities emerge?

While fee-for-service Medicare and private pay are the dominant payment streams in home health and home care, respectively, providers of both types have worked diligently to expand into Medicare Advantage (MA).

Starting with home health care again, multiple providers shared their progress in 2022 renegotiating contracting agreements with MA plans. Essentially, industry leaders said they were getting a sense that MA plans were viewing home health providers less as a high-parity commodity.

To some extent, the gap between MA and home health care closed in 2022 because plans continued to shift care into the home, which they view as a high-quality and low-cost setting compared to facility-based alternatives. The big question in 2023 is: Will that continue?

At the end of last year, CMS announced plans to better ensure Medicare patients aren’t being inappropriately denied coverage for the post-acute setting best for their needs. The agency specifically singled out skilled nursing facilities and home health agencies.

“For example, if an MA patient is being discharged from an acute care hospital and the attending physician orders post-acute care at a SNF because the patient requires skilled nursing care on a daily basis in an institutional setting, the MA organization cannot deny coverage for the SNF care and redirect the patient to home health care services unless the patient does not meet the coverage criteria required for SNF care in §§ 409.30-409.36 and proposed §422.101(b) and (c),” a Dec. 15 proposed rule states.

The American Hospital Association is among the organizations that support the proposed rule.

If MA plans are fearful of CMS questioning where their members recover, it could hinder home health-MA business moving forward.

On their end, home care agencies in 2023 face the same MA questions that have been circulating since CMS expanded supplemental benefits in 2018: Does it make sense to take low-hour, low-paying MA business as a long-term play?

In-home support services (IHSS) will be available across 1,091 MA plans in 2023 via the “primarily health-related pathway,” according to consulting firm ATI Advisory. That number is up 13% from 2022. Further information on plans offering home care-related benefits under the Special Supplemental Benefits for the Chronically Ill (SSBCI) pathway should soon be available.

In my conversations with home care executives, I’ve gotten a general sense of disinterest when it comes to MA. Nonetheless, some remain interested, such as home care franchise company BrightStar Care.

At the Home Care Conference, CEO and founder Shelly Sun explain how BrightStar Care views MA as a way to reach more clients, who may eventually convert to private pay.

“If we’re not with our seniors as they begin utilizing their Medicare Advantage benefit, we’re going to miss the opportunity to be with them when they exceed the hours Medicare Advantage pays for and they need private pay,” she explained.

Will dealmaking slow down?

While a recession or “slowcession” may be a boon for labor, it could hinder home health and home care dealmaking. Across the board, home health, home care and hospice transaction activity was already down in 2022 compared to 2021 levels.

I believe M&A activity will come down, with blockbuster deals in home health and home care few and far between. Private equity investors will operate with a more conservative outlook, while strategics will turn to de novo activity.

Yet, conversely, if the home health industry is facing cuts – and more owners are looking to sell their agencies – that could prompt a rise in smaller home health transactions in 2023.