As home-based care providers seek to capture growing demand, they face a complex path to scale that requires the ability to grow without disrupting what already works.

Arosa, HomeWell Care Services, and The Pennant Group (Nasdaq: PNTG) have refined their strategies for growth, whether through acquisition or organic expansion. Demographic shifts, rising demand and innovative payment models have created new opportunities for growth. However, with scale comes a unique set of challenges, requiring a forward-thinking strategy.

“Scale breaks what is working well when you’re small, and so I think the challenge in scaling is to be able to think strategically and look at your current operation and say, ‘Okay, if we continue to grow, or if we reach our growth goals, where will the gaps be?’” Crystal Franz, CEO of HomeWell Care Services, said at Home Health Care News’ FUTURE conference.

Burkburnett, Texas-based HomeWell Care Services provides personal care, companionship and homemaker services from approximately 130 franchise locations nationwide. The company grows exclusively through de novo, and sees a lot of “white space” to grow.

Specifically, the company looks at several population factors when determining which territories to expand into. The provider considers a high density of older adults and the overall population, but also prioritizes proximity to referral partners and availability of caregivers. It also seeks to be close to public transportation to facilitate caregiver travel. When considering which state to enter, HomeWell also prioritizes states with fewer licensure requirements to expedite revenue realization.

Once it enters a large metropolitan area, growth surrounding that area moves quickly due to brand recognition, Franz said.

The Pennant Group’s geographic strategy is based on a peer accountability and cluster model, according to Brian Mills, vice president of acquisitions.

“What that means is that our executive directors at each of the locations hold each other accountable, rather than having sort of a corporate headquarters that’s holding them accountable,” Mills said. “They cluster with neighboring agencies, and are exchanging information to not only compete with one another, but also to help each other to grow and be held accountable. What that means is for us to grow, we’re looking at the strength of existing operations and where we can add to an existing cluster.”

Pennant occasionally edits its strategy to be opportunistic, Mills said, but primarily operates on its peer accountability model to grow incrementally. The provider currently sees the most opportunity in the hospice industry, rather than the home health industry, due to the evolving nature of home health regulations.

Eagle, Idaho-based Pennant is the parent company of independently operating home health, hospice and senior living companies, including over 120 home health and hospice agencies. It operates in 10 states.

When considering locations to expand into, density is also a key consideration. Both density within a specific geography and a broad geographic spread are priorities for Arosa, according to Chief Operating Officer Missy Blankenship.

“Density is incredibly important for us, making sure that where we have existing locations, that we have good financial health, we are following [standard operating procedures] (SOPs), we’re following the playbook, we’ve got good caregiver retention and we’ve got good brand recognition,” Blankenship said. “We absolutely want to focus in on that density and make sure that we’re harnessing those best practices. Then from there we can work on the scale.”

Los Angeles-based Arosa provides integrated care management and caregiving services in 13 states. Private equity firm HCAP Partners announced its exit from the company in May.

HomeWell also practices a density-first approach, which sometimes creates difficult conversations with franchisees who desire scale, according to Franz.

Acquisition strategies and red flags

For Pennant, culture and staffing can represent a critical challenge, according to Mills. Ensuring good alignment between cultures, especially at the caregiver level, prevents culture shock and supports retention.

Cultural mismatches can be a red flag for acquisition for both Arosa and Pennant. Of similar importance to Arosa is clinical quality and financial performance.

“The things that have stopped deals for us are financials,” Blankenship said. “Those have stopped deals for us and ballooning [accounts receivable] (AR), declining revenue performance after the [letter of intent] (LOI) – it has happened. Those are also potential red flags for us.”

Clinical quality is “hands down” Pennant’s top potential red flag.

“We can figure out operational challenges, and if there are financial challenges, we can figure out ways to adjust and pivot and correct some of those things,” Mills said. “But if there are historical challenges with clinical quality, those are really hard to overcome, and tend to have risk that carries a lot longer as well. So if there’s a place where we’ve had to pump the brakes, it’s almost with clinical quality.”

The trends creating new opportunities for expansion

As providers fine-tune their geographic strategies and overcome challenges associated with scale and mergers, they also must keep the evolving home-based care landscape in mind.

For Arosa, demographic shifts that have created a “sandwich generation” – adults who care for both their parents and their own children – are a top opportunity for growth.

“The industry has done a really nice job of normalizing the fact that it’s okay not to be the one that is taking care of your parents and trying to take care of your children and run your household as well,” Blankenship said. “That has created quite a bit of opportunity for us, where families are proactively reaching out, versus reaching out when they’re in crisis or reaching out when there’s something episodic.”

Lack of confidence in facility-based care has also created more desire for in-home care, according to Blankenship, in part due to the COVID-19 pandemic.

Along with shifting demographics, increased demand for aging services has created a significant opportunity for scale, Franz said. She is also paying close attention to the shift to value-based care, specifically in non-medical home care.

“Where we used to be on the sidelines of that and the sidelines of the health care continuum as a whole, we now have an opportunity to be a big part of the solution,” Franz said.

To find success when scaling, providers should ensure they have a playbook with explicit KPIs and SOPs, Blankenship said.

“A lot of times, organizations will have compliance with their SOPs and their playbooks – [but] there’s a difference between compliance and alignment and engagement,” she said. “When your teams truly understand and they’re aligned with what your processes are and your workflows, and they understand it, they buy into it. Then that’s when you can really scale quickly, because you’re all moving in the same direction.”