What’s Next and Why Should You Care: The Future of Private Pay Home Care

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Home care leaders need to watch these trends, anticipate these changes, and find solutions in advance. 

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Do you wonder about the future of private pay home care?  Are you curious about the factors that will shape your future? Do you have a business worry list that keeps you awake at night?

One of our roles at Leading Home Care and the Home Care CEO Forum is to help our clients and members get ready for the future, and one way we do that is by tracking the forces and trends that are shaping our industry.   Let’s take a look at these forces and trends from our ongoing research.

May the Force be With You

Forces are those pressures that cause change. Here are the five forces that are shaping your future:

  1. Demographic Shift – The growing aging population and the shifting work force create huge opportunities and threats for the home care industry. The population we serve is exploding, and the workers we need are becoming harder to find and keep.
  2. Economic Pressures – The growing economy is creating tremendous growth potential for the home care industry. When the stock market is doing well, high net worth consumers feel like they can spend money on things like in-home care.
  3. Consumer Choice – Consumers, including clients and primary family caregivers, are more aware of in-home care than every before. Significant marketing efforts by home care companies of all sizes have created this increased awareness. Consumers are becoming more demanding than ever before.
  4. Technology – Advances in technology are creating change in many areas of the home care business, from scheduling and CRM to GPS and the Uberization of Home Care.
  5. Political Change – The huge disruption taking place in Washington DC and in State Capitols all across the country is creating business opportunity on one hand, and uncertainty on the other. Depending on which side of the aisle you face, your view of political change and the impact on the home care industry will vary.

Signs of the Times: The Top Ten Trends that are Leading the Way into 2019

Trends are the patterns of change that are created by the forces.  Here are the top trends we are watching that will affect what happens in home care in the coming year:

1. Home Care in Medicare Advantage – The Centers for Medicare and Medicaid Services have created a huge buzz in the private pay home care sector with their April 2018 announcement that Medicare Advantage Plans may add In-Home Support Service as a supplemental benefit beginning in January 2019.  A just-released report shows that 52 Medicare Advantage Plans from 10 companies will be offering In-Home Support Service as a benefit in 15 states in 2019.

2. Demise of the Digital Disruptors – Private equity capital poured into technology companies who planned to disrupt home care by the “Uberization” of our industry in 2016.  The growth of these “Digital Disruptors” caused a stir among home care leaders.  This past year, we watched as three of the big players in this Uberization attempt either closed up shop or significantly changed their business model.  We continue to see new companies with new investment capital looking for opportunities to apply technology to disrupt home care.

3. The Interoperability Barrier – One of the biggest frustrations of leaders of large private pay home care companies is the lack of automation software systems that talk with each other. While we’ve seen huge investment in home care scheduling software companies, none of these systems have effective Customer Relationship Management Modules or Applicant Tracking Systems.  Home Care companies are subscribing to stand-alone CRM and ATS systems that don’t talk to their scheduling software.  At some point, a leading company will offer a way to have effective scheduling, CRM, and ATS interconnected, and that will totally disrupt the software arena.

4. Corporate Consolidation – 2018 was a big year for company consolidation in the home care industry.  There are a number of very large private pay companies in the $40 to $70 million annual revenue range who continue to grow through acquisition and organic growth.  Many of the companies in the top 10% of the industry ($5 million or more) have made acquisitions this year.  We have seen several mergers of equal or similar sized companies take place. Another aspect of corporate consolidation is the fact that many senior living companies and home health agencies also offer in-home private pay home care.  These “affiliated” home care companies tend to be larger in revenue than the independents or franchises, but much less profitable.

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5. Invasion of Private Equity – The world of private equity capital is quite small, and word has gotten around that the in-home care industry is a great place to invest. They all want in.  Major announcements have been made this year about private equity groups buying or investing in home care companies, home care franchise organizations, and home care software companies.  A majority of the Top Ten home care franchise organizations are now owned by private equity groups and several of these companies have been bought and sold multiple times. The largest provider of in-home health care has become Humana, the giant Medicare Advantage Insurance company that now owns 40% of the country’s largest home health company, all of the country’s largest hospice, and is a significant provider of in-home private pay home care.   Humana has made those acquisitions by partnering with two large private equity groups.

6. Growing Bigger Companies – The median sized home care company in 2017 was $1,600,000 in revenue.  This is up only slightly from $1,544,000 in 2014.  However, we are seeing rapid growth of companies in the top 10% of the industry.  In 2012 we formed the $5 Million Mastermind Group with five companies.  Today, that group is known as the Top 5% Group with 13 companies between $7 million and $40 million.  Our Top 7% Group has 10 companies between $5 million and $12 million, and our Top 10% group has ten companies between $3 million and $6 million.  These are all independent companies. We are also meeting more and more franchise agencies that are in excess of $5 million in revenue.

7. Conquering the Caregiver Crisis – The caregiver shortage along with increasing caregiver turnover continues to be the biggest barrier to growing a home care company.  The larger companies in our industry are in a position where if they can get the caregivers, they can get the clients.  Caregiver turnover hit an all-time high of 82% in 2018 according to the 2019 Home Care Benchmarking Study.

8. Attention to Retention – While recruiting continues to be important, caregiver retention and creating a corporate culture that makes an attractive place to work are the two major points of focus this year. We’ve learned that caregivers stay when they are doing meaningful work, when they feel valued and appreciated, and when there is a culture of attraction and accomplishment in the agency.  Agencies are putting in place innovative strategies to reach out to caregivers and help them feel valued.  Over half of the agencies in our Top 5% are working on crafting their corporate culture.

9. The $15 Per Hour Minimum Wage Movement – States and municipalities across the country continue to legislate higher minimum wages and this directly affects home care agencies and their clients.  That, combined with the elimination of the Companionship Exemption for overtime means that most companies have been raising their rates to clients and still seeing gross margins being squeezed.

10. Readmission Reduction – Hospitals across the country are being penalized for unnecessary patient readmissions within 30 days of discharge.  They are working on improving their readmission rates, and they are passing the pressure on to skilled nursing facilities.  That pressure in turn is being passed on to home health agencies and private pay home care companies who receive referrals from Hospitals and SNFs.  A small handful of home care companies have figured out how to earn a seat at the table to work with hospitals and SNFs on reducing readmissions and providing the data to prove it.  We’ve discovered that the two biggest causes of hospital readmission are medication compliance and physician follow up … getting patients to take their meds and keep their doctor’s appointments. Who better to make sure those two things happen than a home care company?

What Does This Mean for You?

Data and information are valuable only if applied.  Track your own data and watch these trends and you can anticipate what is most likely to occur in the future.  While our crystal ball has some blurry spots, we can see some of the things that are coming for the future of home care.

  • The recognition by government and commercial payers that home care can have a positive effect on patient outcomes means that in the future there will be new revenue streams for in-home personal care companies. The opportunity for third party revenue streams will be limited in 2019, but you can expect these new revenue streams to grow over the next decade.

  • The continued application of technology to make home care more effective and more affordable means you will see economies of scale for larger home care companies. You’ll need to find new ways to automate your business to increase operational efficiency.

  • The growth of larger and larger home care companies and the eventual consolidation of the industry means the competition for smaller family owned home care businesses will be increasingly difficult. More and more home care companies, including franchisors, will be owned by private equity groups.

  • Capturing data and demonstrating measurable out comes for clients will enable home care companies to contract with government, insurers, and health systems. You’ll need to work on tracking every transaction in your agency and analyzing the data to prove that you get measurable outcomes.

  • The on-going caregiver recruiting and retention crisis that will continue to be the biggest barrier to agency growth. Agencies who can Conquer the Crisis and get the caregivers will be able to get the clients and grow their businesses.

  • Prices for private pay home care will continue to increase as the direct cost of care goes up with increases in minimum wage and increased employment regulations.  You’ll need to demonstrate the added value of your service to justify the additional cost to your customers.

If you as a home care leader will watch these trends, anticipate the changes, and find solutions in advance of the change, you will be on the leading edge of our industry, and positioned to drive the fastest growing segment of health care in America.

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