Several years ago, National Church Residences saw a hole in what had historically looked like a complete continuum of seniors housing and health care. Residents at its affordable senior housing apartment complexes needed additional services, but didn’t need to move into NCR’s assisted living or nursing facilities.
So in 2008 NCR started InCare, a Medicare- and Medicaid- certified home health program that provides an array of in-home personal care services. About half of the consumers live in NCR’s affordable housing communities, while the rest receive InCare services in their own homes. And InCare is now initiating or expanding services in New Jersey, Wisconsin, New York, Ohio and Georgia with the aid of $11.9 million in HUD Service Coordination Grants.
“Now that it’s up and running and stable, it’s been a very healthy part of our financial picture,” NCR Chief Executive Officer Tom Slemmer says. The program is not a huge money-maker, but it is self-sustaining and does not require financial support from other service lines.
And as rare as new nonprofit home care agencies are now, nonprofits historically have been the providers of home and community-based services, and it’s not an unreasonable leap to see them taking on more of a role again.
Few nonprofits have entered the home health care space in the last five years, says William A. Dombi, vice president for law at the National Association for Home Care & Hospice (NAHC). In fact, the number of freestanding nonprofit and government home health care agencies has essentially stagnated: there were 2,322 in 1980, according to CMS data, and 2,542 in 2009.
Proprietary agencies, on the other hand, have taken off since home health became Medicare-eligible. Reimbursement caps were based on the average cost of care, so reimbursements often provided better margins to lean-operating for-profit providers than to nonprofits who operated at or above the average. There were only 186 freestanding proprietary home health agencies in 1980; in 2009, there were 6,585.
NCR’s drive to include home health in its continuum of care started several years ago. “We felt like we needed to rebalance our system because the long-term care system, the Medicare system, was going to change dramatically over the next decade,” Slemmer says. Governments are adjusting their Medicare and Medicaid reimbursements to reflect preferences for lower-cost care delivery methods at the same time that consumers are more frequently declaring their preferences to remain in their homes.
“The world of care has moved back into the community, and the origins of home care were all not-for-profits and public health agencies a long time ago, so it wouldn’t be a surprise to see that go full circle,” Dombi says. Families, churches, and existing community services such as Meals on Wheels will have to coordinate to provide comprehensive home- and community-based services, especially since, he added, home-based care is unlikely to be fully funded by any one source in the future.
“It’s a natural place for not-for-profits to plant some territory in there,” Dombi says, but whether nonprofits will be able to compete with for-profits depends on whether nonprofits succeed in overcoming startup costs and increasing operating efficiencies.
The Startup Challenge
Organizations can get into home health several different ways, including purchasing an existing agency or starting from scratch. NCR chose to build its services from the ground up. After two and a half years, the enterprise is profitable and has been expanded to multiple states, but getting into the business required an initial operating deficit that grew while licensure was delayed.
In Ohio, at least, home health agencies must be providing services to a small number of clients for a short duration when they apply for Medicaid reimbursement. NCR’s InCare initially sought three licenses to provide services in three separate areas of the state.
“You must be providing unreimbursed care while you’re waiting to get the license,” Slemmer says. While NCR had sized its initial operating deficit at about $400,000 based on the anticipated margin of returns and costs associated with carrying several patients for several months, the actual operating deficit ended up over $1 million because of licensure delays.
The delay was workable for National Church Residences, which happens to be the nation’s largest nonprofit developer and manager of affordable senior and family housing, but a smaller provider would have to stretch to pull it off, if the cost was even feasible. Providers must also consider what impact this initial operating deficit might have on any existing debt covenants or on the ability to access capital in the near term.
“It’s more than you think,” Dombi says. “There’s no bricks and mortar in this, by and large, but cashflow is always an issue.”
Additional Considerations
Home health is a highly regulated business, and potential providers must fully evaluate their competencies in that area. They also have to consider the human resource aspect. The workforce in home health is a combination of “highly dedicated people who don’t care how little they make” and people who just need a job, Dombi says. “You’ve got to have incredible caring to make it through that day, and there are people who do.”
And while Medicare reimbursement is one of the speediest payers, providers who seek to serve a low-income population dependent on Medicaid will run into a host of state-specific issues. For example, Dombi explains, Medicaid spending in California goes to individual home health providers who are quasi-employees of the county, so agency provision of Medicaid care isn’t really an option. In Texas and New York, some providers do only Medicaid home health care, and they have carved out specific territories in highly competitive areas that make it difficult for either for-profits or nonprofits to enter the market. Illinois providers have been waiting up to a year to receive Medicaid reimbursement.
The challenge of going into home health, even as a nonprofit, is not insurmountable, and even now Dombi says he is in discussions with a nonprofit Missouri provider that is considering adding an agency to its continuum of care.
Slemmer recommends that nonprofit providers consider home health, but go into it with their eyes open with regard to startup costs, competition, and state-specific Medicaid considerations.
“We believe that there’s going to be pressure on all Medicaid for the next decade. We also believe that home and community-based services are part of the solution and will be funded,” Slemmer said. “I think it’s been a really good experience for us and a major part of National Church Residences as you think of us in the coming decade.”
Written by Kass Matt
Reprinted with permission from Lancaster Pollard’s ‘The Capital Issue’ at www.lancasterpollard.com
