Home Health – Aging in Place
We take due diligence very seriously at Archetype; before we grow into a new arena, we make sure to understand that space in depth. By taking a holistic look at an industry, we build strong infrastructures for our partners and identify opportunities for growth that aren’t readily apparent.
Home health is one of the fastest growing industries in the US, and it is showing no signs of slowing down. Valued at $100B in 2016, the US home health market, which encompasses home healthcare, hospice, and personal care services, is projected to grow with a CAGR of more than 10%, developing into a $225B industry by 20241.
Currently, home health is an industry of smaller players, which is why, from our perspective, there is significant opportunity to leverage technology to enable consolidation and growth.
An Industry on the Verge of a Boom
The rise of the industry is inextricably tied to the geriatric community, and as this segment of the population continues to grow so will the market for home health. Lifespans are longer now than ever before, and with constant advancements in medicine that trend is unlikely to stop. Longer lives and the aging baby boomer generation have the US senior population poised to double in size over the next 25 years, an increase that will necessitate a greater supply of healthcare and personal services. Where in the past nursing homes and hospitals served as the primary settings for those in need of personal and post-acute care, home health has emerged as an alternative.
Home health is more convenient, less expensive, and just as effective as healthcare administered in traditional settings.
Whether a patient is recovering from surgery, requires specialized care, or needs assistance performing activities of daily life (ADLs), home health services offer them the opportunity to adjust to the changes in their life from the familiarity and comfort of their own home. The benefits of home health and the growing elderly population will drive steady growth of the industry for years to come.
Carving Out Your Piece of the Market
At present the home health industry is highly segmented. The 10 largest home health providers comprise less than 25% of the market2, and over 36,000 agencies (11,000 Medicare certified) make up the other 75%1. These companies provide a range of home health services; however, the smaller agencies typically focus on only one of the three segments of home health. The nature of this segmentation provides ample opportunities for growth through mergers and acquisitions. Specifically, in areas where large providers do not have a strong presence, rollup mergers among regional providers allow for the opportunity to carve out a larger niche in the market.
The most prevalent opportunity stems from a recent announcement by the Centers for Medicare & Medicaid Services (CMS). On November 1, 2018, the CMS issued a final rule in which they declared that non-skilled in-home care services will be covered as a supplemental benefit to Medicare Advantage plans starting in 2020. Under the previous CMS regulations, Medicare reimbursements were available only to recipients of skilled home healthcare services while those who needed assistance with ADLs primarily covered costs through long term care insurance and private pay. In terms of growth potential, the need for personal care and assistance with ADLs is on par with that of home healthcare, so the new areas of CMS coverage provide a great opportunity for expansion and development of personal care offerings.
Finding and Retaining Caregivers
According to the Bureau of Labor Statistics, home health market growth will be accompanied by the demand for 760,400 new jobs from 2014-2024, an increase of more than 60% in the industry3. While there is incredible potential for job growth, the workforce is unlikely to be able to keep up with the demand. Home health and personal care aides are usually paid just above minimum wage and often work in high stress environments, leaving many of them dissatisfied with their work conditions. These factors result in a median annual turnover rate of 67%, making it difficult for agencies to provide consistent, high-quality service to those in need4.
The easy answer to the problem is to pay caregivers more for their services, but agencies tend to avoid this solution in favor of higher profit margins. Even with such high turnover rates, it is more cost effective for agencies to find new caregivers than to raise their pay; however, as the gap in supply and demand grows, agencies will be under more pressure than ever to retain their employees. In order to keep up with the demand, set themselves apart from the vast competition, and keep their margins up, home health agencies will need to innovate.
Augmenting Service with Technology
At its core home health is a people business, but the key to innovation likely lies in technology.
Technology can be used to streamline business operations, augment the care that agencies currently provide, and expand the services agencies are capable of providing. Telehealth is one service that home health agencies should keep an eye on. Through remote patient monitoring, data can be sent and received in real time, enabling preventive care and reducing the number of hospital readmittances. While the CMS currently restricts MA reimbursement for telehealth services to agencies located in rural areas, a recent proposal recommended removing this market restriction. Even in the absence of CMS reimbursement, telehealth still augments the impact of care delivered by home health agencies and minimizes the need for in-person visits, helping alleviate the pressures of the growing demand for caregivers.
Technology can’t replace caregivers, but it can help make them more efficient. Many home health agencies are hesitant to adopt new technologies due to lacking IT infrastructure and the uncertainty of reimbursement policies, but in an increasingly technological world, those that prepare sooner will reap the benefits going forward.
Important Factors for the Future of Home Health
- Mergers and acquisitions among larger home health providers
- Further CMS announcements detailing the extent of personal care coverage by MA programs
- Development of new technologies to help coordinate and deliver care
- Changes in CMS funding and regulations