Historically, a growing geographic footprint has been a key indicator of success for home-based care providers. Now, that metric is giving way to a new priority: operational density.

Strengthening operations within current markets now drives census growth more effectively than geographic expansion via M&A or de novo growth – a shift that is expected to gain even more momentum in the coming years.

“Every new state you enter is essentially creating a new business, and having to manage the dynamics state by state is a struggle in terms of business scalability, certainly,” Joe Widmar, director at West Monroe, told Home Health Care News. “If a platform is expanding acquisitively into new states, that presents even more challenges. Not only do they have to learn the dynamics of that state from a payer, regulatory and labor standpoint, they have to then determine how to integrate acquisitions in new states.”

Chicago-based West Monroe is a business and technology consulting firm.

When the average home-based care enterprise acquires businesses in new states, it faces “hefty” integration challenges, according to Widmar.

“Not only are they likely assuming new operational systems … if they wanted to standardize in any way, they’re having to take into account all of those nuances that vary state by state from a reimbursement and regulatory standpoint, which becomes very cumbersome when it comes to configuring technology that supports day to day operations,” Widmar said.

The trend toward deeper penetration, rather than greater breadth, began in the last two to three years, according to Widmar. Larger companies have even divested assets to leave states with unfavorable labor dynamics or regulatory environments, and instead doubled down on states where they have a strong foothold.

Home-based care is not the only industry evolving toward a density-first mindset. In recent years, senior housing providers have increasingly focused on building regional density with favored operating partners. 

Reaching a “critical mass” in a specific geographic area allows companies to operate more efficiently, according to senior housing providers, and therefore more profitably.

A case study in geographic expansion

An example of such a move, Widmar said, is Addus HomeCare Corporation’s (Nasdaq: ADUS) sale of its New York personal care business in May 2024. 

The company decided to leave New York due to minimum wage, wage parity and reimbursement pressures.

“New York authorizes about four times as many hours, per month, as any other state in which we operate,” Addus CEO Dirk Allison said in June 2024. “So normally, where we’d get about 50 hours a month, we’re seeing 200 hours a month in New York. It was a program that was very expensive to run. Their answer was to continue to reduce pricing. For us, while it’s $100 million in revenue, it’s really zero on the bottom line — we were making nothing.”

Frisco, Texas-based Addus provides home care services, including assistance with activities of daily living (ADLs) as well as hospice and home health care. The company provides care to approximately 62,000 people from 260 locations in 23 states.

Another home care provider, HCS-Girling, purchased Addus’ New York business in a deal worth “up to” $23 million for Addus.

“It wasn’t a stable environment … we felt we could take our capital and move it to other states that were more appropriate for our programs,” Allison said. “When we were approached to look at selling it, we decided to make that move.”

After divesting its New York business, Addus acquired Gentiva’s personal care assets for about $350 million. The deal expanded Addus’ footprint in five states, though it also allowed the company to enter two new states, Texas and Missouri.

Texas proved to be a worthwhile geographic expansion for Addus. Earlier this month, the company announced that Texas’ 9.9% increase in the base hourly reimbursement rate for in-home care providers would likely lead to a $17.7 million increase in annual revenue.

A strong M&A approach like Addus’ must be paired with the prioritization of density in existing markets, which Widmar said Addus has done successfully.

“Addus is another great example of an enterprise that has a long-standing M&A playbook,” Widmar said. “They stick to that playbook, and they couple that with a focus on density, a focus on states where they have very tight relationships with state authorities, which is another important aspect.”

The future

The historically pro-business Trump administration has introduced regulations that could ease certain restrictions on home-based care operations, prompting questions about the broader impact of its policies on the industry.

In May, leaders from the Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ) Antitrust Division instructed all federal agencies to identify any anticompetitive regulations, including those related to health care. The direction could implicate the 80/20 rule, which requires that 80% of Medicaid reimbursement dollars go to worker compensation.

The Trump administration is unlikely to reverse the changing tide in home-based care expansion, however.

Providers do have a general feeling of uncertainty regarding the Trump administration, but feel assured that states will not dramatically change programs related to home- and community-based services, Widmar said.

“The Trump administration has only, I think, influenced enterprises to think in this density mindset even more, and place bets where they know the market dynamics,” Widmar said. “I think the moves [the Trump administration has been] making and what they’re proposing have only accentuated the strategy and approach that we’ve already seen start to be propagated across mid-size and larger businesses in this space.”

Looking to the next five years, a “premium” will be placed on multiple service lines, Widmar predicted. Home health businesses will therefore acquire hospice and personal care businesses more frequently, driving the development of coordinated care systems. The rise of alternative payment arrangements will also contribute to the focus on interdisciplinary care, Widmar said.

Regional and national players are likely to continue the density-first trend in the years to come.

“We’re gonna see regional players who are in five to 10 states … have really high density of exposure in those states,” Widmar said. “I think we’re going to continue to see regional consolidation. The national platforms are probably going to make some more strategic divestments, and we’re going to see this regional dynamic play out.”