Home Care Providers Are Embracing Medicaid, Turning Away From Private Pay As Costs Rise

The cost of out-of-pocket home care services in the U.S. has steadily risen. As a reaction to that, some providers are proactively relying less on their private-pay revenue streams.

While costs have gone up, so has revenue. Private-pay home care providers generally bill two times more than what they pay caregivers, meaning they can hand off rising costs to the client. But home care providers ultimately see that as an existential threat to their businesses.

While there may be more profits now, handing off those rising costs to clients could mean less market share later.

Some providers believe a completely different business model is in order, like Arosa CEO Ari Medoff.

“The reality is that two times that bill rate is too expensive for probably 95% of Americans, or American families,” he told Home Health Care News last month. “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. … I think there are a lot of structural issues with that business model.”

Anecdotally, provider leaders have told HHCN billing costs have risen anywhere from 20% to 40% over the last couple of years. They’ve also said that they’ve seen shorter lengths of stay from their clients. Most of them presumed that was due to rising costs.

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In an effort to provide services to a larger patient population – and to insulate themselves from that existential threat of rising billing costs – many providers are beginning to focus more on home- and community-based services (HCBS) through Medicaid.

“The cost of care is just continues to go up,” Ryan Iwamoto, the president and co-founder of 24 Hour Home Care, told HHCN. “That addressable market continues to shrink. I think you’re going to see it more on the coasts, and then I think it’s going to [converge] on the middle U.S. down the road. The length of stay of our clients is shortening, and we’re losing them to alternatives. We’re seeing a pattern of that as well.”

Based in Los Angeles, 24 Hour Home Care operates in California, Arizona, New Mexico and Oregon. In addition to home care, the company also provides IDD services.

In December, the company acquired Inteli-Care, an HCBS provider located in New Mexico. That was a sign of things to come, as 24 Hour Home Care is now more focused on growth in its Medicaid business than ever before.

Iwamoto said that more Medicaid-focused M&A is in the works, though he could not provide specifics.

“The market of people that can actually afford [home care] on a long-term basis has shrunk over the last couple of years,” Iwamoto said. “We haven’t given up on it, we’re still doing it. But a lot of our focus and our growth is projected toward the Medicaid space.”

A focus on HCBS has been accelerated by states expanding their programs and providing better reimbursement rates for those services.

That support – from the states 24 Hour Home Care operates in, as well as the Biden administration – gives Iwamoto confidence that his company is in “the right spot” with its future growth plans.

On the other side of the country, the same trend is taking shape. The Boston-based Best of Care has benefited from these Medicaid rate increases, too.

The rate for home health aide services in Massachusetts have increased by as much as 22%, according to Best of Care CEO Kevin Smith.

“Our approach is to have this holistic model, we’re trying not be too over-reliant on one stream or another,” Smith told HHCN. “But we find ourselves in this position now where our private-pay rates are not that far off from our Medicaid rates.”

Best of Care has eight locations across Massachusetts and over 400 employees. In total, the company serves about 1,500 clients. It also acquired a moving company – Moving Mentor – earlier this year as another way to both differentiate itself from competition and diversify revenue.

Whereas 24 Hour Home Care is a private-pay provider diversifying into the Medicaid space, Best of Care started as a primarily Medicaid-based provider trying to get more into private pay. Since Smith became CEO four years ago, the company has gone from being 95% Medicaid to just 70% Medicaid and 30% private pay. 

But, given the aforementioned trends in both private pay and Medicaid, the latter is also going to be Best of Care’s main focus moving forward.

“We are prioritizing Medicaid because of the unprecedented increases we’ve seen in the reimbursement,” Smith said. “We’re also trying to remember to keep the same focus on private pay. Because, again, when you think of this thing as a continuum, we know that there’s an opportunity whereby some folks who are currently on private pay could potentially transition into a Medicaid situation at some point.”

Staffing in HCBS

Part of what makes providers bullish on the Medicaid business is the ability to better staff there with reimbursement hikes.

“We finally, through this breakthrough, have some real meaningful leverage with pay rates on the provider side to start recruiting people that we never thought would find their way to home care,” Smith said. “So, we are really pouring a lot of dollars into job posting and recruitment initiatives.”

Iwamoto added that staffing on the Medicaid side has been easier because of the consistency of work compared to private pay. Workers have better scheduling consistency and are less likely to have their hours cut once a client stops service.

But the future of HCBS is not entirely rosy.

A Centers for Medicare & Medicaid Services (CMS) proposed rule, released in April, has the potential to upend HCBS tailwinds for providers. That rule – which would be phased in and is yet to be come final – would require 80% of all HCBS reimbursement to go to workers.

Providers believe a blanket rule could have adverse affects on HCBS access, if implemented.

“I am concerned about that,” Smith said. “I think that it’s this is an overly prescriptive approach that does not consider the state-by-state ramifications.”