Home Care May Have Reached Its ‘Tipping Point’ With Billing Rates

As home care leaders begin to strategize for 2024, part of the process will be identifying the challenges they believe will be main characters next year.

Oftentimes, home care leaders will point to labor as the biggest challenge in the space.

While labor is and will continue to be an issue, there are also other obstacles that are top of mind for many home care leaders, such as regulatory challenges.

Though the majority of Home Helpers’ business is private-pay, the company has experience working with third-party payer sources as well. President and CEO Emma Dickison advises companies that are working in this space to prepare themselves for problems derived from regulation.

“[Regulatory challenges] are always existing, it doesn’t matter which administration,” she said during a recent Home Health Care News webinar. “There are always regulatory challenges, reimbursement discussions and considerations for anyone who is doing work with third-party payer sources.”

One 2023 challenge that industry insiders believe will follow providers into 2024 is client retention.

This is because of the cost of doing business. And, as a result, the price tag attached to care billing rates. Daniel Gottschalk, co-CEO of Family Tree Private Care, thinks that the home care industry has reached its tipping point.

“We’ve probably reached the tipping point of what consumers can actually bear, before they can just say, ‘Hey, enough’s enough, I can’t afford this option anymore,’” he said during the webinar.

Gottschalk noted that even clients that can still afford care services now have a low tolerance for errors or issues.

“If anything goes wrong in the home, they’re canceling services,” he said. “They’re going to find alternative options.”

Additionally, more providers are seeing length of stay shortening.

With this in mind, it will be crucial for home care providers to establish a strong sales funnel.

“If you lack a sales funnel, you’re going to really have a hard time keeping your hours up in 2024, as you did in 2023, you’ll only slide more and I’ve seen companies slide in 2023,” Gottschalk said. “They rely on word-of-mouth business, and [that] is just not enough to keep their level stable.”

Similarly, Jeff Wiberg, CEO of Family Resource Home Care, credits the company’s pursuit of an aggressive sales funnel for its success in achieving organic growth.

“As I look at 2024, I’m not looking for any of my top line revenue growth to come from rate increases,” he said. “We’re really focusing heavily on that continued strategy of keeping our sales pipeline full.”

Wiberg also agreed with Gottschalk’s assessment that home care may have reached its tipping point in terms of pricing.

“There’s only so much juice you can squeeze there,” Wiberg said.

Despite these challenges, Wiberg believes that macro-environmental inhibitors to growth seem to be in rearview for providers.

“In 2020, we had the pandemic, and that was something that we had to kind of figure out,” he said. “In 2021, we had the great resignation, and that was something we had to figure out. In 2022, we experienced high inflation, and we had to figure it out. [This year], it seemed like there was nothing that was wholly new from a macro-environmental standpoint, rather, we were able to take all the learnings and investments that we had made as a result … from the preceding three years to really have a banner year.”

2024 M&A Outlook

Dealmaking — and associated challenges — are also top of mind for providers.

“Is the first half of the year going to be markedly different from 2023? I don’t think so,” Gottschalk said. “The second half of the year, you might see strong improvements to the M&A markets.”

In 2023, home-based care dealmaking slowed down.

Overall, there were 95 home health and hospice transactions, compared to 114 during the same period last year, according to PwC data.

“It’s just not as busy as it used to be, and that drives the entire industry downward for the availability of buyers,” Gottschalk said.

Gottschalk noted that in the past he would’ve been in competition with 10 buyers for a home care company. This year, the number of potential buyers decreased by at least half.

This leads to the price of companies decreasing, and that leads to multiples going down.

“I’m not too worried about [companies] that have reached scale, but for your typical company out there, I think we are seeing that it’s not the greatest time to sell,” Gottschalk said.

Looking at M&A from the franchise standpoint, Dickison has also seen a downward trend.

“It’s all interest-rate driven,” she said. “I think that there’s capital that’s there and on the sidelines ready to deploy. I don’t think there were a lot of great assets in the market that were looking to sell, and if they were, they weren’t considered an A type of company.”