While some private equity investors have been sidelined by macro and micro headwinds, there are still plenty of PE firms invested in home-based care that like where they are.
On the Medicare-certified home health side, one factor that may have made investors hesitant to enter the space is the challenging payment landscape.
Despite this, Kaltroco — a family-owned private investment company — is attracted to home health care due to the firm’s belief in the fundamentals of the sector.
“It’s clear that the population is aging,” Kenneth Hammond, chief investment officer at Kaltroco, said during a panel discussion of Home Health Care News’ Capital + Strategy conference last month. “It is clear that treating patients in the home is an efficient and effective way to ensure good outcomes. It’s expensive to have people in hospitals who don’t need to be there. It’s expensive to have people in nursing homes who don’t need to be there. Treating people in the home is an imperative.”
Kaltroco is an investor in New Day Healthcare, a rapidly growing home health provider that serves patients in Texas, Missouri, Kansas and Illinois.
Hammond pointed out that, as a family backed investor, Kaltroco has the luxury to take a long-term view around the businesses that the firm builds.
“Our focus is on building the best scale platform we can to accommodate the way the market works,” he said. “We don’t use a ton of leverage. We think in a very long-term way, and we trust that, over time, the government will recognize the value home health brings.”
Indeed, The Halifax Group is making similar bets across the home-based care sector.
The Halifax Group is a Washington D.C.-based PE firm that focuses on lower middle-market businesses. The firm acquired the home care franchise company Comfort Keepers in 2023.
Like Medicare-certified home health, private-pay home care has its own challenges. One of the main pain points for potential investors is that billing rates continue to skyrocket.
Comfort Keepers is largely a private-pay company, but the franchise owners that are part of the network have a certain amount of autonomy when it comes to payer diversification. Allowing franchise owners – in states with favorable environments – to structure their businesses to address Medicaid or VA populations has helped ease some of the impact of this ongoing challenge.
“The government profile payer has become more attractive for many of our franchisees,” Scott Plumridge, managing partner at Halifax, said during the discussion.
Because Medicaid, for example, is still subject to the sway of policymakers, Plumridge stressed the importance of having a balanced book of business.
Aside from payment structure, The Halifax Group is focused on letting franchise owners run their business versus a more corporate-owned model.
“Over the course of our ownership period, we are already in the process of doing a U.S. re-franchising effort,” Plumridge said. “About $70 million of sales that were corporate-owned under previous ownership, we’re going to return those to both franchisees and we’ve got some employees who are buying locations from us. We’re [also] going to have new folks, new blood coming into our organization through acquisition to take on some of those locations. Hopefully, over the course of the next few years, you’re going to see Comfort Keepers returned to a 100% franchise business model.”
Plumridge also noted that M&A isn’t top of mind for Comfort Keepers. Instead, the company sees a huge opportunity for organic growth within its existing portfolio of assets.
On its end, Kaltroco believes that Medicare Advantage (MA) has become a big factor when it comes to investing in home health care.
“The way we’ve approached the skilled [home health] business is we have tried to acknowledge the reality that Medicare Advantage is a growing piece of the population,” Hammond said. “We need to have a solution that deals with that reality. We’re in a world where the businesses we see being sold are packaged around the idea that they have a very large FFS population as a credential. When I look at those businesses, I don’t tend to agree. I think you’ve built a business that can’t grow. Over the next 10 years, it’s going to be imperative that really good skilled home health businesses can execute in an MA landscape.”
For context, 30.8 million people are enrolled in a Medicare Advantage plan as of 2023. This is more than half of the eligible Medicare population, according to data from KFF.
Ultimately, Hammond is doubling down on home health as an area of continued investment for Kaltroco.
“Building a business that serves a population that needs to be served — that’s a big focus for us as a family-backed organization,” he said.
Companies featured in this article:
Comfort Keepers, Kaltroco, New Day Healthcare, The Halifax Group