More Profits, Less Market Share: The Home Care Industry’s Silent Killer Comes To Surface

For someone who covers both the home health and home care sectors, 2023 was a very interesting year.

Much of my time and energy was spent on covering potential home health payment cuts after the U.S. Centers for Medicare & Medicaid Services’ (CMS) release of the proposed payment rule. Even after the final rule was published, the threat of continued cuts persisted.

Time focused on that subject matter was well worth it. After all, the home health industry could look entirely different in five years if CMS does not back off its methodology that could lead to billions of dollars of cuts for agencies.

But all the while, the home care industry – non-medical home care, that is – was dealing with its own existential crisis.

Due to necessary wage hikes and extremely high inflation in the U.S., home care providers across the country are at an inflection point. The question is whether to stick to private pay and continue to care for the most well-off patients as prices rise, or to find another way to gain market share and care for more people in the home.

Most industries struggle when demand tapers off. For both the home health and home care industries, demand has arguably never been higher. That’s what makes each of their struggles so fascinating – and disappointing. Even unfair, frankly.

Regardless, providers will need to innovate to find a way to keep their heads above water. The country’s infrastructure depends on it.

In today’s exclusive, members-only HHCN+ Update, I break down the troubles in home care specifically, and observe how some providers plan to get through them.

Home care’s inflection point

The cost of home care has been steadily rising at an alarming rate. Inflation in 2022 made it even worse.

That has shrunk the serviceable market, particularly for those that deal primarily in private pay, despite the growing number of seniors who could benefit from home-based care services.

“Our strategy has really gone from trying to serve everybody to now focusing on this small population of people and doing it really well,” 24 Hour Home Care President Ryan Iwamoto told me in November at Home Health Care News’ Home Care Conference.

The Los Angeles-based 24 Hour Home Care offers home care as well as intellectual and developmental disability (IDD) services across California, Arizona and New Mexico.

Iwamoto said that the cost of care had risen anywhere from 20% to 40% for the company based on the market, “literally overnight.”

Margaret Haynes – the CEO of the Omaha, Nebraska-based Right at Home – said her company’s cost of care had risen by about 25%. Jeff Salter – CEO of the San Antonio-based Caring Senior Service – suggested he had seen about the same. While 24 Hour Home Care is not a franchise, both Right at Home and Caring Senior Service are.

But like a volcano bubbling just below the surface, the real issue with the rising cost of care may be that it’s not necessarily noticeable. Let me explain.

For most franchisees, for instance, their profits went up over the last year, despite the rising cost of care. Even if a smaller percentage of the population overall was able to pay for home care, that didn’t necessarily affect owners’ bottom lines.

Salter touched on this exactly, also at the Home Care Conference.

“I think more what I’m looking at is trying to understand how someone else in this industry that’s innovative is going to come in and undercut and provide a high level of service,” he said. “That’s what I worry more about and what I’m trying to talk to our owners about, and others in the industry about. We’re [focused] on keeping that 50% margin, trying to maintain that, which seems to be what everyone is still doing when the rates go up that much. I have conversations with our owners, like, ‘What does your margin need to be?’ It’s great having more profits pretty much across the board. All of our owners are more profitable this year than last year. And they’re doing less work.”

From the independent owner or franchisee perspective, it’s hard to understand why there’s a problem.

Weeks later, during HHCN’s virtual Franchise Forum, Griswold Home Care CEO Michael Slupecki brought up the same point.

“There are some folks that have reached their level of contentment with their income,” he said. “And I think sometimes they’ll go, ‘Look, it’s been an easier year for me. I can make my target income without working so hard. I love this.’ So, as an organization, we’ve got to try to keep pushing through that. Because while they could be doing better, they could be losing market share. And that’s not something we want to do in any market.”

The Blue Bell, Pennsylvania-based Griswold Home Care provides personal care services via more than 170 locations in 30 states.

Mitigation strategies

To some extent, the market is dictating this phenomenon. It’s hard to mitigate market forces. It’s also hard to convince business owners – franchisees or otherwise – that their business is in grave danger while their pockets overflow.

But for those looking with a bird’s-eye view, it’s worth paying attention to, and getting ahead of.

On Salter’s end, he started Caring Senior Service in 1991. Therefore, his level of concern certainly carries more weight than mine would.

There are a few ways that agencies could go, knowing what they know now. The first is to change their rate structure.

“Historically, you charge twice as much as you pay, but I think there’s a time where that’s got to evolve,” Slupecki said. “And we can’t see necessarily, without looking at [franchisees’] numbers, whether it’s a rate versus volume equation. With the wage inflation that we’ve seen, we have to be really cognizant of that hourly piece, because it’s all about market share. Are we growing our market share, not just growing our revenue? I think that’s really critical to keep an eye on.”

It’s also worth mentioning that many owners, operators and workers in the home care space are not in the business strictly as a means for profits. They understand the need for home-based care and want to help satisfy that.

That’s why some companies that have traditionally played in the private-pay space are diving into other payer sources, such as Medicare Advantage (MA) or Medicaid.

The aforementioned 24 Hour Home Care is an example of that. Just this week, the company announced that it would meaningfully enter into the Medicaid space for the first time with the acquisition of Inteli-Care, a home care provider with 500 clients in New Mexico.

“We’ve always been on the private-pay senior care side, but that population is getting smaller and smaller based on who can afford it on a long-term basis,” Iwamoto told me. “We’ve always wanted to get into the Medicaid world. … So now, being able to expand our footprint into New Mexico and serve this population, it really does [fit in] with our why of just impacting more lives at a greater scale. And not just on the private-pay side or the IDD side, but with people that really need it on the underserved Medicaid side.”

Others are looking at MA as a means to combat this structural change in the business.

For instance, I’ve chronicled BrightStar Care CEO Shelly Sun’s quest to engage with MA plans over the last few years, and her ongoing struggle to get more franchisees on board with the mission.

For now, meeting those MA beneficiaries where they are has even led to private-pay business down the line for BrightStar Care, at least about 5% to 10% of the time, according to Sun.

“Private-pay rates have had to increase just because of labor, PPE, and recruiting and retention costs, which have increased anywhere from 30% to 45%, on average,” Sun told me at the Home Care Conference. “And that makes home care far less affordable than it used to be a few years ago. We’re mission focused, and we want to make sure we can help more people stay in the home, and Medicare Advantage is a great way to do that.”

For franchisers, it may be hard to convince business owners a change needs to be made. For independent owners, it may be hard to change course.

But more than ever, home care providers are having to think deeply about that proposition, given the realities of cost of care in today’s world