Key Takeaways
- This report profiles senior living companies that are incorporating home care, describes the risks and rewards in doing so, and identifies common pitfalls that stand in the way of success.
- Seniors have an overwhelming desire to age in their own homes, but the cost of home care to consumers limits the current market opportunity
- Senior living providers often struggle to make a healthy margin on home care services despite having larger client bases than most home care providers, due to operational inefficiencies that can be avoided
- The home care industry is beset by major staffing challenges
- The home care industry currently faces disruption from a major influx of new capital and providers
- Interest in adding home care has risen among senior living providers in the past five years, and some of the largest providers in the industry are currently considering or making home care plays
Executive Summary
As the baby boomer generation ages in the coming years, demand for private-pay senior living is expected to soar—but so too is demand for at-home care.
Recognizing this, many independent living and assisted living companies are taking a closer look than ever before at the opportunity and risks in expanding their services to include private-pay personal care in people’s homes. Some see tremendous upside, as this part of the care continuum could become a $25 billion market within three years.
These bullish providers have recently launched home care divisions, or are considering doing so in the near future. They are targeting profit margins as high as 15% or greater for their home care divisions, and believe that by offering home care, they can create new referral streams for their senior living communities and achieve staffing synergies to alleviate acute and growing workforce challenges.
But others are averse to the risks involved, and there are cautionary tales of senior living companies that have struggled to turn a profit on home care. These providers, as well as business consultants specializing in home care, warn that newcomers to the sector underestimate its challenges. Bloated overhead expenses and lack of strong, independent leadership are two common issues that erode margins, even for senior living providers that have more clients than their local home care competitors.
Meanwhile, the home care sector itself is being disrupted by surging private equity investment in growing home care franchise companies. At the same time, a number of tech-forward home care providers have burst on the scene with substantial venture capital behind them; there have been several $20 million-plus funding rounds announced in the past two years. With home care competition ratcheting up, senior living companies might not have the luxury of time: While it is never easy to enter a new line of business, the changing landscape could mean there will be more barriers to entry in the future.
The home care risk-reward equation for senior living providers is not simple, and as with any calculation of this sort, the answer rests in large part on an individual company’s business model and goals, and the dynamics of its particular markets. But any senior living enterprise that is thinking about home care should consider the substantial opportunities, including building up a referral stream and capturing additional revenue, as well as the serious operational challenges and other risks.
This report lays out the considerations around getting into home care, provides insight into how senior living providers already are incorporating home care, and describes evolving best practices as well as common pitfalls that stand in the way of success.
Home Care by the Numbers
Senior living providers see an opportunity in both home care, also known as private duty, and Medicare-reimbursed home health services such as rehab therapy and wound care.
However, the private-pay revenue model for home care is similar to the revenue model for independent living and assisted living, and is a service line that senior living providers can add without having to contend with Medicare certification and regulations. This report, therefore, focuses on the opportunity for senior living providers in private pay home care, and not Medicare-certified home health.
The Case for, and Against, Home Care
Home care presents distinct opportunities but also challenges for senior living providers, so the decision to enter home care requires careful consideration.
An increasing number of senior living companies in recent years have been weighing the pros and cons of adding home care.
“In the last five years, we’ve seen an increase in interest on the part of senior living providers to add private-pay home care,” says Stephen Tweed, CEO of Leading Home Care, a Louisville, Ky.-based consultancy firm specializing in the home care industry.
There are various reasons for this increased interest. One is an expected surge in consumer demand for home care, driven by seniors’ reluctance to move out of a long-time home, as well as concern over the cost of assisted living.
At the same time, senior living companies have been experiencing occupancy pressures related largely to oversupply. In the second quarter of 2017, the nationwide assisted living occupancy rate hit 86.5%, according to the National Investment Center for Seniors Housing & Care (NIC). This tied the second quarter of 2009 as the lowest rate ever recorded by Annapolis, Maryland-based NIC, which began tracking this data in 2004.
So, providers are under pressure to increase the length of stay, find new prospects, and generate additional revenue—all of which could potentially be achieved by adding home care services.
There is a growing list of senior living providers that have determined home care is a good bet. They have moved forward with new divisions created from scratch or through acquisitions, or they have undertaken initiatives to strengthen home care services that they have offered for years. They include large national providers like independent living giant Holiday Retirement, as well as small or mid-size regional players like Maplewood Senior Living.
However, there also are companies that have stayed on the sidelines or become cautionary voices on home care, including some that have built sustainable home care businesses but learned tough lessons along the way.
As the conversation turns to home care in senior living boardrooms and C-suites across the country, these are some of the topics that key decision-makers debate.
Demand: A $25 Billion Market
While they anticipate exploding demand for independent living, assisted living, and memory care due to the rapidly aging U.S. population, senior living providers also are aware that the vast majority of older adults would prefer not to move into one of these communities.
“There’s a big demand for home care, with something like 90% of seniors saying they’d prefer to age in their own homes,” says Bruce Mackey, president and CEO of Newton, Mass.-based Five Star Senior Living (Nasdaq: FVE), one of the largest providers of senior living in the nation.
Specifically, 80% of seniors believe that their current home will be where they always live, and 90% want to live at home as long as possible, according to data from the National Conference of State Legislatures (NCSL) and AARP Public Policy Institute.
Meanwhile, demand also is coming from another group: family caregivers taking care of older loved ones. That same NCSL/AARP survey shows only 32% of family members taking care of an older loved one currently also use some form of paid in-home care—yet family caregivers report they have a need for help.
About 60% of them are employed outside their caregiving duties, and a large proportion of these people must alter their hours, take leaves of absence, or seek other accommodations due to their caregiving responsibilities. And 70% report signs of depression, according to the American Psychological Association.
“Home care helps alleviate these burdens,” the Home Care Association of America (HCAOA) states in its 2016 report “The Value of Home Care.” Omaha, Neb.-based Home Instead, one of the largest private duty companies nationally and a member of HCAOA, conducted a study showing that home care does indeed help family members avoid lost wages and maintain their health.
All of this adds up to burgeoning demand that could mean big business for home care providers in the coming years.
Based on estimates that about 13.1 million seniors will need paid care within the next three years, there’s an emerging private duty market size of $25 billion by 2020, which can be expected to generate upward of $3.5 billion in pre-tax earnings, calculates Scott Osborne, founder and managing principal of Osborne HomeCare Group, a St. Louis, Mo.-based mergers and acquisitions practice focused on home care.
Affordability: Conventional Wisdom is Wrong
While the consumer preferences of an aging population suggest a huge potential market for home care, the cost of these services is a significant impediment for many consumers.
“I think the surveys say everyone wants to stay at home, and half to two-thirds of people with ADL [activities of daily living] limitations are living in the community, and senior living has captured a really small part of the market,” says Anne Tumlinson, an expert on the long-term care system who was a long-time post-acute specialist with Avalere Health, and currently serves as CEO of her own consulting firm, Anne Tumlinson Innovations. “The problem is, those people, you can offer them home care, but there aren’t that many who can really afford it.”
Conventional wisdom states that the home is the lowest-cost care setting, but the median annual cost of living at home with services is about $45,750 for a little more than 6 hours of care per day, while the annual cost of assisted living is about $43,500, according to the 2016 Cost of Care Survey from insurer Genworth.
The fact is, home care is not cheap. Average hourly rates range between $14 and $24, according to senior care referral service A Place for Mom. Median billing rates ranged between $19.50 and $30.00 in 2016, depending on region and length of visit, Home Care Pulse’s latest benchmarking data shows.
Using the A Place for Mom rates, four hours of home care a week could cost around $1,520 on average, calculates Jerry Doctrow, a consultant and formerly an equity analyst with investment bank Stifel. An average senior living in a $150,000 home, without a mortgage, probably would spend around $2,400 a month on living expenses and home maintenance. By choosing to live in that home, the senior theoretically is also losing an opportunity to rent out the house at $875 a month, which Doctrow believes is a “modest” rate in most markets.
Taking all these expenses and the lost rental income into account, the cost of home care is around $4,800 a month, or 90% of the average cost of an average independent living community, he wrote in his Robust Retirement blog.
As is the case with senior housing development, studying a potential home care market is crucial to ensure that there is a sizeable enough population with the means to afford care, as well as an available labor pool.
“I think there’s a play on the private pay [home care] side, but I think it’s an affordability issue for the client,” says Judi Buxo, senior vice president and director of special assets at Des Moines, Iowa-based Life Care Services (LCS). “From a financial point of view, as a single-site community, you likely don’t have enough volume to have your own home care agency and put together more of a continuum of care that meets the needs of the residents as they’re moving through the continuum.”
LCS, which is a major operator of continuing care retirement communities (CCRCs), has been able to support a home care business as part of the campus-based continuum of care offered to residents. LCS offers both private duty and Medicare-reimbursed home health through a joint venture partnership with US CareNet, previously CareSouth.
In some markets, LCS/US CareNet does offer home care outside the walls of its senior living campuses, but in other areas it does not—or cannot, due to local laws and regulations. There’s still value, in these cases, in providing on-campus private duty services, Buxo says. For example, individuals leaving an LCS skilled nursing setting and returning to an independent living or assisted living apartment might tap into home care as they recuperate.
Providing home care in a senior living community, either through the operator’s own home care division or in concert with a joint venture partner, can boost the bottom line by increasing residents’ length of stay. Affordability might also be less of an impediment, given that the home care client population already has been winnowed to individuals who can afford senior living.
Home Care Pulse founder and CEO Aaron Marcum can speak to this benefit from the years he spent running a home care agency.
His agency forged partnerships with senior living providers under which their residents would typically receive a 15% discount on standard home care rates. For Marcum’s company, the discount made sense given the access to sizeable populations of prospective clients. While the senior living provider might not have seen financial upside directly from the home care services, it did see upside from increased length of stay.
“One great example is a lady who was in an independent living community, who started getting early dementia and had challenges, but she loved this community and her friends were there,” Marcum says. “So, we provided two to three live-in companions during the week, and she stayed in this IL community from the time she was first diagnosed for five years … The caregivers were there full-time, all the time, and the family paid for it because they realized the importance of having their mom happy. There are people who will pay for that.”
The Solana Beach, Calif.-based Senior Resource Group (SRG) operates 32 senior living communities in six states, as well as InTouch at Home, a private-duty home care division. But after achieving “moderate success,” SRG scaled back its home care strategy. CEO Michael Grust speaks frankly about the financial and operational challenges of running a home care business—as well as the philosophical reservations he has about offering this type of care.
Describe the origin of InTouch at Home.
Grust: In terms of providing off-campus home care, it’s almost five years now since InTouch at Home came to be. We identified that home care was an opportunity, and we were not alone in seeing the opportunity. In the beginning, we felt that reaching off-campus was a great way to introduce our brand and culture. Ultimately, maybe, as [home care clients] think about a communal living solution down the road, they think of us.
Was that successful?
Grust:We found ourselves moderately successful. It was always a challenge from a marketing standpoint to get the word out there. We did very heavy web marketing, because that’s typically where people start [to research home care]. We didn’t think we were getting the volume to justify the marketing expense. [We also recognized] the challenge of hiring people and having them meandering through neighborhoods providing care. Who’s where, and for how long? From a risk standpoint, and management, it’s a challenge.
Affordability is an issue. I don’t want to say there are bad actors, but there are a lot of franchises that can put up their shingle quickly and hire caregivers, and they don’t have the [most rigorous] training or support system, but they throw them out there. They’re a lot cheaper than other people. The bar’s low, and it’s hard to compete against that, and I’m not sure I want to.
So you stopped providing home care outside of SRG senior living communities?
Grust: About two years ago, we moved back to on-campus care. On occasion we’ll provide off-campus service.
Did you get many home care referrals from prospects who decided they weren’t quite ready to move into an SRG community?
Grust: We weren’t really seeing referrals. We decided we were going to leverage off our existing website, and created a separate landing page and built a awareness of the range of services in-house and off-campus. That’s how we decided to market.
We rarely had someone who toured and said, “I’m not ready yet,” and we start them on home care.
Can you elaborate on the affordability issue for consumers, and how franchises can undercut you on price?
Grust: Frankly, you’re up against these franchises that don’t do near the training [we do], or provide the insurance—I’m talking about health insurance [for employees], not just risk insurance. We try to train people and make them part of our company. These are highly trained, vetted care providers who we’re sending off, and some care providers don’t do that. And adult children are sometimes looking for the lowest bidder. If [their rate] is 50% less than the name providers, [they’re] OK with that.
You said you’re not sure you even want to compete against that. It sounds like you have some reservations about home care.
Grust: Philosophically, truly, as senior living providers, we’re trying to give people a compelling reason to leave their home. And at the epicenter of the offering I think we have is moving into a communal setting and getting a level of engagement that is a powerful catalyst for quality of life.
While keeping people in the home is nice, and technology is making it more possible—whether through engagement add-ons for communication tools with the adult child, or medical awareness [devices]—if you’re alone and you’re at home, there’s something missing there.
We started recognizing there’s a bit of a contradiction. That doesn’t mean on the home care side we’re not providing a robust offering. We still do provide a lot on-campus.
So you’re not thinking of eliminating home care entirely.
Grust: We’re still dealing with the fastest-growing segment of the population, and there are always going to be people who want to stay at home. So, it draws you to that. But we’re going to focus primarily on our core business.
Referrals: Alignment a Must
It’s one of the strongest arguments in favor of senior living providers adding a home care component: creating a stream of customers who start out receiving care in the home, and then move into a facility as their needs increase.
“If the senior living community can say, if you’re not ready to move in now, we’ll provide in-home care, and then when you’re ready, you can move in, we’ve seen a couple examples where the home care business has just exploded because of that ready pool of qualified leads,” Stephen Tweed, of the consultancy Leading Home Care, says.
Senior living providers that have their own home care businesses confirm that cross-referrals are happening. Examples include two Oregon-based operators—Marquis Companies and Avamere—that have built full care continuums, including private-pay home care and senior living, as well as skilled nursing, rehab, and other ancillary services.
“We do see referrals from home care to assisted living,” says Erin Sprando, Marquis’ director of operations. “We’ll get a call that a client needs more assistance. The field supervisor will go out [and meet with that person], and it may get to the point where they move to a facility. And then they’re already familiar with Marquis, so it’s not so overwhelming.”
Marquis maintains its brand name across its divisions to promote that sense of continuity—its home care is offered through Marquis at Home, and its assisted living facilities bear names such as Marquis at Hope Village.
Avamere takes a different approach. It started providing home care in 2001 by launching a company called Signature Hospice, Home Health and Home Care. The most important thing is not that every part of the Avamere Group has the same name, but that they all have strong brand recognition in their markets and coordinate patient care and management through the company’s Care Connect platform, says John Morgan, who served as Avamere CEO through July 2017.
Also, because Marquis and Avamere offer skilled nursing and rehab in addition to private pay senior living, they have an opportunity to refer, say, short-term rehabilitation patients to Signature for follow-up home care.
“We’re seeing an increase in the number of referrals for our home care business from our facilities,” Morgan says. “But remember individuals have choice. So we provide information on the Signature opportunity, but there are other home care units that individuals are aware of.”
Morgan, Sprando, and Tweed agree that to achieve the referral benefits of home care, the whole enterprise needs to be on the same page. Otherwise, it’s easy to have misaligned incentives or ineffective sales and marketing efforts.
Tweed recommends being upfront about home care as an option for senior living prospects, not waiting until after they’ve declined to move in to mention home care for the first time.
“What I’ve found is, in many instances, the senior living people were hesitant about promoting home care upfront, and admission people getting an incentive for move-ins or keeping census high were nervous about referral,” he says. “There has to be an understanding of the bigger picture. Also, the home care people need to be willing to pass those referrals back to the senior living community.”
Revenue: Senior Living Whiffs on Margins
If senior living providers execute well, home care can become a profitable new revenue stream.
“If it’s a nonprofit, [home care proceeds] can help support the organization’s charitable mission,” Stephen Tweed says. “If it’s a for-profit, you can drop money to the bottom line to reinvest or otherwise use.”
In 2016, a private-duty company in the 50th percentile for revenue pulled in $1.62 million with a gross profit margin of about 39%, according to the 2017 Home Care Pulse Benchmarking Study.
The report, published annually, no longer includes net margin because Home Care Pulse did not feel it could accurately capture that number across the industry. However, based on the financial data that the company does gather, founder and CEO Aaron Marcum estimates that net margin is gravitating toward the 10% to 15% range on average.
“When you’re looking at a median-size company doing about $1.6 million, I’d put it closer to the 12% to 13% net profit that these companies are seeing,” he says.
At the same time, as a referral source, assisted living providers accounted for 22% of home care providers’ revenue last year, suggesting a significant financial opportunity for senior living providers to offer those services themselves.
However, it is by no means easy for a senior living provider to turn this side of the business into a cash cow.
In fact, Tweed has done research showing that home care providers affiliated with larger enterprises—such as a senior living company—tend to serve more clients yet be significantly less profitable than an independent home care agency or franchise.
The larger client base is due to the ready pool of qualified leads that a home care agency can get from the senior living side. There are a variety of reasons why these businesses fail to turn a profit, Tweed has found.
One is that the senior living company tends to tap an existing manager to run the home care business, and it becomes a middle-management type of position. But the home care business requires a fully empowered leader with an entrepreneurial mindset in order to be successful, Tweed says. Consider that a senior living-affiliated home care agency will be competing in the market with mom-and-pops run by just these types of highly motivated entrepreneurs.
Both Avamere and Marquis also emphasize how important it is for their home care businesses to have autonomy and empowered leadership.
“They need to stand on their own,” says Avamere’s Morgan. “You don’t know the true economics of the home care business if it’s captive inside a bigger unit. You have to understand the dynamics of each entity.”
Another pitfall is that larger organizations tend to assign more staff into the home care office than is needed. And they also put their corporate marketing, human resources, and IT departments in charge of supporting the new home care division, yet they don’t add staff in these areas, nor do they train them on the specific needs of the new business. As a result, home care lacks support and the bottom line suffers.
It is also necessary to constantly evaluate the home care business and ensure that resources are properly allocated given current market realities, stresses Marquis’ Sprando.
For example, Marquis recently recognized that Oregon’s Medicaid rates for home care were not sustainable and switched over to a more purely private-pay/long-term insurance revenue model. However, the business had not been reorganized from an administrative standpoint.
“We looked at every cost and figured out we had far more overhead than we needed,” Sprando says. “We hadn’t adjusted nurse working hours or overhead in the office.”
Changes were made, including reducing the home care agency’s registered nurse staff from more than four to just one. Other staffing changes also occurred, but one benefit of being part of a larger organization meant that these workers were not laid off but transferred to positions where they would add more value to the enterprise, says Sprando.
The home care business returned to a profitable state with a sustainable cost structure, but there is a constant need to monitor census, forecast future numbers, and keep overhead in check, she says. Marquis is a believer in the benefits of home care, but Sprando thinks that many new or prospective home care providers are not clear-eyed about the challenges involved, including financial challenges.
“I completely think people overestimate what the upside is on home care,” she says.
Avamere’s Morgan agrees.
“Home care is more challenging than they think,” he says. “It’s not for the faint of heart. In some markets, we’ve looked to expand, in others, based on market dynamics, patient populations, we’ve exited. We simply can’t make it work economically.”
Yet there are back-office and operational efficiencies and options that senior living providers can bring to the table to give them a leg up on the home care competition. For instance, they can potentially run home care out of unused or converted space in a senior living community or corporate headquarters, eliminating the need to pay rent on an office. Rent, payroll, and insurance are the three top expenses for independent home care agencies, according to ClearCare, which provides a cloud-based home care management platform used by several of the largest franchisors in the country.
If a senior living company can leverage these advantages while avoiding common mistakes, and if the market supports the business, it is possible to turn a healthy and in some cases very attractive profit on home care, Tweed says.
“They can hit that 15% margin,” he says.
Staffing: Home Care’s Workforce Crisis
Finding and retaining caregivers for senior living settings is far from easy. Those challenges are even steeper on the home care side.
The turnover rate for personal care aides in assisted living reached about 37% in 2016, according to the Assisted Living Salary & Benefits Report from the Hospital & Healthcare Compensation Service. That same year, the median turnover rate for home caregivers was nearly 66%.
Recruiting and retention are not the only workforce challenges.
Senior living providers entering home care for the first time also will have to learn how to manage a mobile workforce, which involves not only new scheduling practices but considerations such as how and when to reimburse employees’ mileage.
And then there are wage challenges.
For decades, most caregivers in home care were exempt from standard minimum wage and overtime rules. That changed in 2015, and now these caregivers must be paid the federal minimum wage and overtime. Many providers cut hours and/or raised their rates to avoid or cover the additional costs, while totally re-evaluating the feasibility of 24-hour live-in care.
In addition, home care workers have been a key part of the labor movement dubbed “Fight for $15.” In demonstrations around the country that have taken place over several years, protesters have pressed for $15-an-hour minimum wage laws—and they have achieved their goal in California, New York, and other cities and states. In 2016, the state of Oregon passed a law that will bring Portland’s minimum wage to $14.75 by 2022.
“With minimum wage [increases] in Oregon, it’s tough to raise our rates to cover costs,” says Sprando.
To achieve relative workforce stability, home care companies actually should think of caregivers as another important customer group, according to a report written by Chip Measells, founder and lead advisor at Washington, D.C.-based health care investment banking firm Wyatt Matas.
In other words, home care companies need to put as much energy and capital into attracting caregivers and keeping them satisfied as they do in attracting clients and keeping them satisfied. Worker engagement programs in home care tend to involve robust training, funding for continuing education, and similar initiatives.
“The idea is to allow the personal care aides to think of their position as a true profession rather than a stop over to their next job,” Measells writes.
This is why Maplewood at Home constructed its dedicated training facility. Marquis similarly uses a high-touch approach.
“Our best practice is to have as many touchpoints with our home care staff as possible,” says Sprando. “We’re required to have six hours a year of training, and we double that, seeing our staff every month [at the corporate office] for a discussion of hot topics, trends, training, et cetera.”
It’s possible that there are some staffing benefits from having both facility-based and home-based care under a single corporate owner. Marquis and Maplewood both say that if home care workers are not able to find enough available shifts, they can pick up hours in a facility.
This presents definite advantages over relying on agency workers to fill in gaps in staffing, LCS’ Buxo says. A company’s own home care employees stepping into shifts at a facility—or vice-versa—will already know the expectations and rules of the organization, which helps keep quality high. But there are overtime pitfalls to avoid.
“If you own the home care agency … if [employees are] working full time in community but then pick up private duty shifts, you would be on the hook for overtime,” Buxo warns.
Having facility-based care also creates more career development options, says Sprando, as a home care worker might progress to become an assisted living CNA and keep moving up the ladder.
However, others are adamant that senior living providers should not bank on these staffing synergies.
“It never works,” says Tweed. “Caregivers who are really good in facilities like that consistency of: I drive in, start at 7:00, go home at 3:00. People who work in the home like the flexibility of saying what days and hours they’re available and when they’re not. It’s one of the main attractions.”
Timing: New Competition Raises the Stakes
The private duty home care industry remains highly fragmented, with mom-and-pop ownership common. But this is changing, and a senior living organization would be mistaken in thinking that its resources and efficiencies of scale will automatically give it a unique and overwhelming leg up on the competition.
New players are trying to disrupt the market by harnessing technology, and have enormous sums of venture capital behind them. At the same time, private equity investment in the sector is reaching new highs, bolstering traditional players.
Reliable information is lacking as to the exact number of home care companies nationwide, according to Measells. There were between 11,000 and 17,000 agencies in 2011, based on findings published in the journal Medical Care Research and Review—and it’s likely that the industry has expanded notably since that time, Measells notes.
A significant proportion of the home care market operates on a franchise model. As of early 2016, there were 76 franchisors in operation nationally, according to Wyatt Matas data, with the number of individual franchise locations conceivably around 6,000.
Franchising makes sense in home care because the business is considered to be driven by a high level of engagement in a local market—a franchise owner knows his or her community and can thus forge and maintain strong referral networks, with the help of resources from the corporate parent.
“We think franchisors are best positioned to capture growth in this market,” says Steve Rice, principal with New York City-based private equity firm The Riverside Company. Riverside recently entered the home care space for the first time by acquiring ComForCare, a Michigan-based franchisor with a national footprint of around 200 locations.
Many PE firms share this belief that home care in general, and franchisors specifically, are a prime target given the aging population. In 2016, private equity investment in the space reached a new all-time high, according to proprietary data from M&A advisory firm The Braff Group.
More than 50 home care and hospice deals in 2016 involved a private equity buyer, compared with fewer than 30 the year before, The Braff Group found.
PE firms routinely say that they intend to put capital behind home care growth initiatives, new marketing channels and techniques, more robust recruitment and retention efforts, and more sophisticated technology. This could make franchise-based home care operators increasingly tough competitors for market share, considering that they already have brand recognition and solid referral networks in many areas.
Venture capital also is flowing into the home care space at an unprecedented level, as tech entrepreneurs have seized on home care as an industry that is ripe for disruption. They have created startups that put technology at the forefront of both the consumer experience and back office practices, saying this will create business efficiencies while improving customer satisfaction. Investors have embraced the idea, and in the past two years have committed eye-popping sums.
San Francisco-based Honor raised $20 million in a 2015 Round A and $42 million in a Round B series the next year, with investors including such big hitters as Andreessen Horowitz. Hometeam, HomeHero, and HomeCare.com are among the other new tech-forward entrants. Together these companies have raised more than $200 million within the last 36 months, Wyatt Matas calculates.
These startups have not disclosed how many clients they are serving, and most are operating in relatively few areas. They also are making some adjustments to their models—such as switching caregivers over from independent contractors to W-2 employees—in response to changing laws and regulations, and as they learn what works. One of these providers, HomeHero, closed down in early 2017, citing high costs after making the switch to W-2.
It remains to be seen whether the other startups can continue to scale and impact the industry in the long term, but they have opened the floodgates for venture capital in the space, which is now being allocated to other types of companies as well.
ClearCare—a comprehensive home care software platform used by many entrenched players, including franchises—raised $60 million in 2016. This was after respectable but much more modest $4.6 million and $11 million initial rounds in 2012 and 2014, respectively.
Increased competition might be a deterrent to getting into the industry, although it might also mean that now is a good time for a senior living company to enter the fray.
“I would say to senior living leaders, if you see this as something to explore and consider, now is the time to do that,” says Stephen Tweed. “It’s only going to get more competitive. Private pay home care is in its adolescence. The peak of growth has really come in the last 10 years and that growth is going to continue.”
On the other hand, growing PE-backed companies could be in the midst of creating more mature operations with higher revenue and broader geographic footprints than the industry has seen in the past. In addition, large, publicly traded companies that specialize in Medicare-reimbursed home health also are beginning to offer private duty for the first time or expand existing operations in this area.
So, a senior living company—particularly one of sizeable scale—might also consider waiting until the private duty industry consolidates further, and then look to acquire a well-run home care operation.
“If I owned a large assisted living facility company, that’s the way I’d enter this market,” says Riverside’s Rice.
Conclusion: Creating the Home Care of Tomorrow
Mastering the home care model of today is tough, though the rewards for senior living providers that can do so, in the form of revenue and referrals, is substantial.
The digital disruptors in home care, and the investors backing them, clearly believe that this is an industry ripe for innovation. As senior living providers increasingly turn toward this space, they are poised to transform it with innovations of their own.
Holiday Retirement, the nation’s largest independent living provider, might be one early example.
The company has launched a venture called “Milo,” which it is positioning as “a new way to thrive at home.” It offers companionship visits, chef-prepared meals, and communication and health monitoring technology to its clients, through a $550-a-month subscription model.
Bill Thomas, who pioneered the Green House model of long-term care, is driving the Milo initiative in his current role as Holiday’s chief wellness officer.
Currently, Milo is available in Charlotte, N.C., Portland, Ore., and Orlando, Fla.
Though in its earliest stages, Milo is differentiating itself through its subscription model and in its branding. While it offers many of the same services as traditional private duty agencies, is it described on its website as a way for seniors to proactively maintain their wellness rather than meet their increasing needs for assistance.
Tana Gall, CEO of Portland, Ore.-based Blue Harbor Senior Living, floats the idea of providing more services to seniors in their homes on a limited basis, rather than rolling out a full private duty offering. Senior living companies can focus specifically on meal delivery, for example, utilizing the kitchen and transportation infrastructure they already have.
This could theoretically keep costs and operational headaches to a minimum on the senior living side, while addressing some of the affordability issues on the consumer side.
“If we can get the services that are affordable to seniors in their home, that’s how we can serve that population that has money but maybe not as much as they need to live in a community,” Gall says.
Furthermore, Affordable Care Act policies have created Medicare incentives to promote more provider collaboration across the acute and post-acute continuum. So far, private-pay senior living has mostly been on the sidelines of this action, but many prognosticators believe that inevitably, large health systems and similar entities will want to work with providers that can maintain the health and well-being of their residents—keeping them out of the hospital, and reducing costs for the health care system overall.
To be the most attractive partners to these large health systems, senior living providers might want to be able to manage not only their resident populations, but larger groups of older adults, in other settings—including their homes.
Senior living companies are wise to evaluate the current private duty industry, and carefully weigh the pros and cons of getting in the game. It holds a strong allure given demographics and consumer preferences, but is not an easy operational model or a tame competitive landscape.
Mastering the home care model of today is tough, though the rewards for senior living providers that can do so, in the form of revenue and referrals, are substantial. But seeing where the industry is headed—and how to successfully break new ground—might be the ultimate test and bear the greatest reward for senior living companies expanding into home care.
