Strategies for Owning and Operating a Home Health Care Business
The home health care industry has tremendous growth opportunity. Our population is aging and a growing number of elderly patients suffering from illnesses or chronic diseases are expected to be in need of medical treatment or some other form of assistance. Now more than ever, with rising healthcare costs, both medical and non-medical home health care is seen as a cost-effective alternative to expensive inpatient hospital stays and treatment facilities.
What is required to operate a home health care business?
The home health care industry relies heavily on labor and capital intensity is generally low. While the level of personal care raises labor costs, home health care eliminates the need for institutionalized facilities and reduces capital costs.
- Capital requirements are low. Running a home health care business is primarily personnel management and appointment scheduling, patient data logging, equipment maintenance and insurance billing. Operations are highly local and large companies usually have branch offices.
- Finances and cash flow must be managed closely. Due to the large number of small transactions, cash must be managed closely and revenue depends heavily on reimbursement from Medicare and Medicaid. Accounts receivable taking 60 days is common in the industry.
- Licenses and certifications are required. State licenses are required and eligibility standards must be met for certification as Medicare and Medicaid providers. Plus, certain employees, such as nurses and pharmacists must maintain certain business licenses. Compliance with federal laws governing false billing or referral payment practices is also required.
- Staffing requires large numbers of part-time workers. Home health care businesses are primarily staffed with aides, nurses and various types of specialty therapists. While registered nurses are paid higher wages, aides who prepare meals, bath and feed patients are paid significantly lower wages. As a result, turnover can be fairly high.
Are home health care businesses very profitable?
The home health care industry as a whole is expected to grow, yet with recent cuts to Medicare and Medicaid reimbursements overall profit margins can be slim. To generate profit, many home health care businesses must monitor productivity and cost-effectiveness while providing high quality care and meeting compliance standards.
- Profits vary depending on company size and service offering. Respiratory businesses tend to have the highest profit margins, followed by infusion therapy and home health agencies. Profits are further affected by patient volume and payer reimbursement.
- Payment and billing practices can affect profit margins. Inaccurate or improper billing practices, such as lack of documentation or coding errors can result in significant loss of revenue. New technology and billing software can mitigate these losses.
- Higher quality care means more referrals. In order to receive a higher volume of patients, home health care businesses must increase referrals. Providing quality service and receiving positive reviews from patients, doctors and hospitals can have a strong impact on the reputation and success of a home health care business.
- Wages account for nearly half of revenue. Home health care is a very labor-oriented industry compared to inpatient hospital care. As Medicare reimbursement continues to be cut, operators will need to increase efficiency and keep labor costs down.
- Market share concentration is low. As demand for home health care has increased, many players have entered the market. The industry is dominated by non-employing establishments, with the majority of these being sole proprietorships.
- Barriers to entry are low. Businesses can be operated as an agency staffed with employees or independently out of a personal vehicle at a relatively low cost. Yet, licensing requirements and reimbursement regulations vary depending on geographic location.
- Competition can be high. Price, quality of services offered to patients and brand reputation are the primary ways in which home health care providers compete with each other. Professional accreditation can also be a competitive advantage.
Is the home health care industry very competitive?
The home health care industry is highly fragmented with many small players offering a wide variety of medical and non-medical services. According to LexisNexis Risk Solutions, as of 2017, the three largest home health care companies (Kindred Healthcare, Amedisys and Encompass Home Health & Hospice) account for only 13% of the market.
What are the keys to a successful home health care business?
Like any other business, a successful home health care business requires a solid understanding of the market and how to best deliver the right products and services. It also requires proper management, skilled employees and great service.
- Maintaining quality control. Businesses must effectively practice quality control by monitoring patient service, equipment and product offerings to achieve optimal patient outcomes, minimize medical liabilities, and maintain a favorable reputation.
- Attracting referrals and local support. Drawing support through local hospitals, physicians and insurers, as well as a steady stream of referrals is important to business growth.
- Take advantage of government subsidies and grants. The federal government provides grants to state and local agencies that can be used by businesses offering home health care services.
- Establish locations in key markets. The closer a business is to patients in need, the more likely those patients are to use their services. Close proximity to areas in need is a key success factor.
- Adjust services to meet market conditions. Revenue and profitability can be directly affected by a business being able to adjust to patient needs and rate of reimbursement among payers.
- Professional accreditation and recommendations. Accreditations from professional organizations, such as the Accreditation Commission for Health Care, establish credibility and access to reimbursement programs, as well as attract clients and qualified staff.
Owning a home health care business can be a challenge, yet the industry is growing rapidly and market concentration is low. Furthermore, the demand for home healthcare encompasses a wide variety of products and services. There are many opportunities for a savvy business owner to diversify and expand. With the right strategy and careful planning, buying a home health care business can be a smart move. Consider researching the advantages of buying a health and senior care franchise as well.
“Home Care Providers in the US”, IBISWorld Industry Report 62161, IBISWorld, August 2017 https://www.ibisworld.com
“Home Health Care Services”, First Research Industry Profile, First Research, 5 February 2018, https://www.firstresearch.com