Arosa is one of the largest non-franchised home care companies in the country. It has grown significantly over the years — and it’s banking on doing the same in the near-term future.
Still, its CEO, Ari Medoff, is concerned about the home care industry. He feels that serious innovation will be required for its legacy providers to remain sustainable.
As billing costs have risen, fewer Americans are able to afford home care. Profits remain solid. But, in the long term, Medoff believes that changes need to be made to the home care business model itself.
Medoff sat down with Home Health Care News to chat about that topic, in addition to staffing, growth and the biggest opportunities in the home care industry today for this month’s episode of Disrupt. Below are highlights of that conversation, edited for length and clarity.
HHCN: Ari, before we get into some of the specific questions I have for you, why don’t you introduce yourself to those listeners who might not be familiar with you and your history.
Medoff: Coming out of graduate school, I decided to buy a small business. I emailed 20,000 companies from Georgia to Pennsylvania in all sorts of industries. I looked at a company that manufactured underwater treadmills. I looked at a business that did motocross TV production — all sorts of different interesting opportunities.
But the one that spoke to me was a small home care company in Durham, North Carolina. Back in 2012, I acquired Nurse Care of North Carolina, which was a small, single-site home care business. And from 2012 to 2018, I grew that within North Carolina, opened up a number of new offices, did a few small acquisitions — bolt-ons, if you will. Then in 2018, I was approached by Bain Capital.
At the time, Bain Capital Double Impact Fund was its first fund on that platform. They really wanted to do something around the social impact theme of aging in place. I told them that job quality was our No. 1 priority, and they understood that and agreed with that. We went forward, and they identified a wonderful business out of California called LivHome. Together, we acquired LivHome. That combination of LivHome and Nurse Care of North Carolina in 2018 really formed the basis for what became Arosa, when we rebranded in 2021.
In those intervening years from 2018 to 2021, we had done a number of acquisitions, some in new geographies like Nashville, Tennessee, and Orlando, Florida. Some in existing geographies where we deepened our presence, like in Chicago. In late 2020, we had a bunch of different brands, though we were operating as one entity. We really felt the need to unify our brand, our values, and so we rebranded as Arosa.
Here we are in 2023. We operate in 32 markets across 10 states: California, Nevada, North Carolina, Tennessee, Florida, Texas, Illinois, Massachusetts and New Jersey.
What have been the biggest focuses for Arosa so far in 2023?
My biggest focus for the year has been building an executive team that is going to grow with the company for a long while. I have an extremely long horizon here myself. I like to say I’m 42 years old, and I suck at golf, so I see building Arosa for decades to come.
I have certainly come to appreciate over these past 10 years that building a really, really strong leadership team is my No. 1 priority. This year, we brought on a new CFO, Richmond McMurray, who’s actually a graduate school classmate of mine. We were thrilled to welcome him to the team in May. In June, we brought on our first-ever chief marketing officer. Katherine Locker is an experienced, dynamic leader who just joined us this month.
At the same time, we are really focused on a couple of things with the core business. One is opening up de novo offices. De novo offices for us means planting a flag in a new geography where we weren’t previously operating. We have several of those that are under a year old in Reno, Nevada; Jacksonville, Florida; Fort Lauderdale, Florida; Clarksville, Tennessee; and then we’ve got several more on the drawing board.
We’re going to open up in Atlanta, Georgia. We’re going to open up a couple of offices in our Los Angeles metropolitan area — which is one of our bigger markets that we’re currently in — and then we’re pushing forward from there.
Have you found the process of building a solid executive team to be a tough one?
It has been. I think a couple of factors have played into that. One is that within our industry — and specifically non-medical home care — most businesses are probably $1 million to $2 million in revenue.
When you think about the number of people who have run, $10 million, $20 million or even $100 million companies in our space, that is a really, really small pool. There isn’t a lot of industry expertise from which to pull when thinking about this executive pool. I would also point out that in a wildly competitive hiring environment over the past few years, it’s been difficult to find folks who are extraordinarily talented and buying into the mission that we have and are up for the challenge — which really is overcoming some very big obstacles in our space to scale and to find long-term success.
I feel extremely fortunate and energized to have the team that we do have at Arosa, and I think it’s a real differentiator for us as an organization.
You said last year at the Home Care Conference that the lack of innovation around business models in our space is devastating, obviously referring to non-medical home care. Can you explain that to our audience?
It’s no secret what our business model is in non-medical home care: It is “to bill 2X and pay X.” So for example, if in Chicago we are billing $36 an hour, then generally we’re paying about $18 to a caregiver. Maybe in San Francisco, we’ll bill $40 and we’ll pay $20. In a place like Durham, North Carolina, maybe it’s billing $30 or $32, and paying $15 or $16 an hour.
The reality is that two times that bill rate is too expensive for probably 95% of Americans, or American families. Yet the need for the service that we provide is universal. So 100% of the population needs what it is that we offer, and maybe 5% or 10% can afford to pay out of pocket. Maybe 10% or 20% are qualified and eligible for Medicaid services. That means that a vast majority – 75% to 85% of American families – are just struggling to provide that support that their loved one needs as they age, and that is where we see people go into assisted living or going into nursing facilities when that’s not their preferred place to age.
That’s where they’re forced to live out what should be some of the most fulfilling and happiest years of one’s life.
So the bill rate is too high at “2X.” Then we need to call a spade a spade: We are not paying our caregiver teammates a living wage. We need to face up to that fact, and we need to come up with models to do better. When it comes to job quality, it is in part the wage. There’s no ducking that. But it’s also the job structure.
Sometimes our caregivers might work 40 or 50 hours a week if they have a consistent client, but sometimes their hours might bounce around. It might be 40 or 50 hours one week and it might be 10 or 20 hours the next week. Sometimes we might be offering days, sometimes we might be offering nights. Sometimes a client might be three or four miles away and other times we may be asking a caregiver if he or she is willing to drive 20 miles or 30 miles and maybe that takes an hour.
I think there are a lot of structural issues with that business model, where we build too much for most clients to afford. We pay too little for our caregiver teammates to have a living wage without the job security that would be provided by a hospital or an assisted living or a retailer where there’d be that much more predictability in terms of earning. Then also, culturally, I would say that a lot of companies in our space don’t do a great job of making teammates feel like they are part of something bigger than themselves. We all want to be part of a team, we all want to know that what we’re doing is meaningful and is appreciated. Our teammates know that and I have a high degree of satisfaction from the actual work that they’re doing.
Because I do think that most of our clients are appreciative. I don’t know that, culturally, we’re at a place as an industry where we have figured out how to share that gratitude given the distributed nature of our workforce. That’s something that we have to continue to work on because we do have very, very hard operational challenges.
We are an around-the-clock operation. Every single one of our teammates, showing up on time with a smile, ready to get a great bit of work done is very hard. Oftentimes it’s an emotionally and physically tall order. It’s a simple business model but it’s tough to execute. Fundamentally, I think that we need innovation around that business model.
Because of some of those concerns and the fact that you’re describing the industry as ripe for disruption, what are some of the things you’re doing at Arosa to address that?
We are experimenting with new models. We do have pilots underway with different in-home technologies and thinking about how we can package that with the other hands-on services we are providing.
We are big believers in the importance of care management. As I mentioned at the outset, we are the largest provider of private-pay care management in the country. Many families could benefit from having an incredibly experienced guide through the aging journey. Our care managers come from a variety of backgrounds: social workers, nurses, occupational therapists, gerontologists. The value that they bring to families, whether that is an hour a week, a bunch of time around an acute episode like a hospital discharge or just checking in once a quarter with an otherwise healthy 83- or 85-year-old who’s a planner and wants that extra support, universally, our care management clients are thrilled with the value that they get from having an incredibly experienced professional on their team.
I do think there are a few different ways to think about innovation. One is new service lines, care management being one of those. Another one that we are looking at is luxury adult day. There are a few other service lines that we are evaluating.
Another way to think about changing the business model is to divorce the reality that what most families and clients care about is not necessarily the number of hours of care that a caregiver is in the home, but about the goals around safety, happiness and quality of life. To the extent Arosa or the industry can figure out how to package, deliver and sell our services that speak to different objectives besides just the sheer number of hours of care, I think that would be a huge, huge step forward for our industry.
You and I are not thinking about our retirement just yet, and we’re a long way off from probably needing or wanting non-medical home care. But when you think about retirement or when you think about 90 years old, you’re not counting down the days and saying, “Yes, I can’t wait to get 10, 12 or 24 hours of care a day.” That’s not a goal. A goal might be that you want to play golf well into your 80s.
It might be that in your 90s, you want to make it to a great-grandchild, a wedding or a birth. A goal might be that you want to live in your home until you pass. There are different goals that people have. We’re not framing and packaging our services structured around those goals. We are coming at it with a one-size-fits-all solution, which is just the number of hours of care you get. I look forward to in the years ahead, figuring out how to turn that on its head and to really better understand what it is that clients want and how we can deliver it.
I think you have a head start on a lot of other businesses, both in non-medical home care, but also just in home-based care at large who are recognizing that care management piece is something they need to be more focused on.
Absolutely. We’re focusing on what the client wants. This is a privilege that we have.
We made a very deliberate, strategic choice and that is our focus on the private-pay part of the market. The overwhelming majority of health care in our country today is paid for by some distant third party — whether that is UnitedHealthcare, Cigna, Aetna, the VA, Medicaid, Medicare, Medicare Advantage — the reality is that we get to stay laser-focused on what it is that our client’s families want. We have that immediate feedback loop every single day.
I get a lot of questions when I’m at conferences, talking to potential lenders or other financial partners, “Why don’t you want to go deeper into government programs? Why don’t you want to contract with health care insurance companies?” The reality is that I think we have a giant opportunity to innovate and to grow by serving clients and by treating them as the consumers that they are. I think so much of what is wrong with our health care system is the number of things that our health care system is willing to pay for that patients don’t really want.
Then there are other things that our health care system is not willing to pay for that people really do want. So that feedback loop around what clients desire is something that, in the private-pay world, with the flexibility we have, is something that we treasure.
For example — if starting a service where we visit clients with pets, where we bring a golden retriever to go brighten up a 90-year-old’s day and that client or family is willing to pay us $100 for that visit, great. If we can deliver that profitably, great. Then we should do it.
That’s something we don’t have to go to Washington D.C. to ask permission to make happen. Care management is the perfect epitome of that because our care managers get to solve our client’s problems. That is their job — to solve problems and enhance the quality of life. And they have such a carte blanche in terms of how they do that. Our care managers are incredible at understanding how to make our clients’ days that much better. That’s why we really believe there’s a huge space for growth for our care managers and for the whole care management industry.