Competition heats up in home healthcare and services

by Jeff Shaw

In pursuit of alternative revenue streams, more companies are entering a burgeoning sector fraught with challenges.

By Jane Adler

Seeking ways to boost revenue and diversify, seniors housing owners and operators have long been intrigued by the idea of offering home health and care-type services to residents who need extra assistance. 

Ancillary services have the added benefit of providing a way to expand outside the building into the broader community, reaching seniors who might eventually become residents.

Although seniors housing companies have had mixed success providing extra services — and scheduled cuts in reimbursements for home health could hurt the industry — interest in the market has gained momentum lately. 

Today’s seniors are living longer and are frailer than those of past generations, requiring added assistance. Most elders would prefer to receive help where they live, rather than make a move. 

In-home nursing is becoming an accepted practice amid changes in the healthcare system, which aims to lower costs by keeping ailing elders out of the hospital and expensive nursing facilities. 

The timing could be right for a renewed push into home health and care. In October 2014, Kindred Healthcare Inc. (NYSE: KND), a healthcare services company that operates 98 nursing homes, announced plans to acquire Gentiva Health Services Inc. (NASDAQ: GTIV), a home health and hospice provider. 

Expected to close in the first quarter of 2015, the $1.8 billion deal will make Kindred’s home health and hospice division the largest such organization in the country, serving more than 1 million patients a year across 47 states. 

On the heels of that announcement, HealthSouth Corp. (NYSE: HLS), a home health provider that also operates 107 rehabilitation hospitals, agreed in November to acquire privately held EHHI Holdings Inc.,
the owner of Encompass Home Health and Hospice, for approximately $750 million.

Brookdale Senior Living (NYSE: BKD), the country’s largest seniors housing operator with 1,147 communities after its acquisition of Emeritus Corp., another publicly traded giant, reported plans during its November 2014 earnings call to expand ancillary services, including home health. 

New services are being rolled out to former Emeritus communities and initial planning is under way to provide home health to seniors who don’t live in Brookdale buildings. (Brookdale declined to be interviewed by Seniors Housing Business.)

In December 2014, the Ensign Group (NASDAQ: ENSG), an owner of skilled nursing and assisted living facilities as well as home health and care services, acquired a group of nursing and assisted living buildings along with a home health and care business from Shea Family Care, the largest provider of post-acute healthcare in the San Diego area. California-based Ensign also acquired a hospice agency located in San Diego.

Also in December, privately held CareSouth increased its stake in Health at Home, the home health and care business that was formed in 2013 by CareSouth and LCS, the Des Moines, Iowa-based company which runs about 125 communities. CareSouth now owns 70 percent of Health at Home, while LCS owns 30 percent of the business. CareSouth services are currently available in about 25 LCS communities.

“We see this as a huge opportunity,” says Rick Griffin, president and CEO at CareSouth, a $100 million company based in Augusta, Ga. “Our goal is to provide services to as many LCS communities as possible.”

Industry growth

The home health and care industry, which includes both medical and caregiver-type services, represents a $75 billion market, according to a September 2014 report by IBISWorld, a Los Angeles-based research firm. 

The report pegs the industry’s annual growth rate at about 3.6 percent, fostered by an aging population and the push to provide cost-efficient treatments outside of hospital and nursing home settings. 

The industry remains highly fragmented with many small players. Operators seeking to expand face a patchwork of regulations that vary from state to state. 

Also, the Centers for Medicare and Medicaid Services announced in November that it will cut payments to home healthcare providers by 0.3 percent in 2015 as part of a four-year process to lower home health costs. 

Reimbursement reductions have helped spur some of the recent mergers, sources say.

Despite the challenges, home health and care represents an opportunity for seniors housing companies looking to expand, though the business lines are often difficult to integrate. Running a building and operating a home health and care agency are different types of enterprises, requiring distinctive approaches, seasoned industry professionals emphasize.

“You need an expert who knows how to do home health and services,” says J. Benjamin Unkle Jr., president and CEO at Westminster-Canterbury on Chesapeake Bay, a continuing care retirement community (CCRC) in Virginia Beach, Va. “But it can be a lucrative business.”

Among seniors housing companies, CCRCs have been the most active providers of home health and care, often referred to as home and community-based services. Many CCRCs offer a mix of services, according to Steve Maag, director of residential communities at Leading Age, an industry association based in Washington, D.C. 

Minimal services for seniors in independent living units, such as reminders, are paid for by the resident. Full-fledged nursing care administered in the unit is typically reimbursed by Medicare. 

A number of CCRCs offer home health and care services to seniors outside the community. In fact, about half of the largest non-profit CCRC systems provide services to non-residents, according to a recent 2014 report by Leading Age and Ziegler, a Chicago-based investment bank.

Generally, CCRCs view home health and care services as an extension of the community’s mission and are happy to just break even, says Maag at Leading Age. Most CCRCs don’t have enough internal volume to generate a lot of revenue. And CCRCs offering services to the wider community are most likely large operations with in-depth experience, says Maag. “They make a commitment to it.”

Home health and care is a complex business, operators are quick to point out. Quality of service is difficult to control. Recognizing a need, the National Quality Forum announced in October 2014 that it would develop a framework to measure the quality of ancillary services. 

That could eventually help guide residents who are free to choose whatever service provider they want for extra help. They’re not obligated to select the in-house agency. As a result, building operators must be prepared to manage outside services. 

The biggest problems occur when residents hire unlicensed workers. “There are cottage industries of home care workers who might take care of three or four people in a community,” says Maag. “You don’t even know (the workers) are there.”

But many communities are establishing policies to protect residents and limit the potential liability of the community. Common sense rules include making sure the agency is licensed and that it provides the residents with a contract. “We recommend that communities have policies around what is allowed,” says Maag. 

Baltimore, Md.-based Erickson Living manages 16 communities and operates nine certified home health agencies and 14 home care service agencies. Two Erickson communities provide hospice care. The agencies provide services for most Erickson communities, though several locations do not offer home care type assistance. 

“People are staying longer in independent living,” says Jeanne Potter, vice president of ancillary health operations at Erickson. “Our objective is to keep people in their apartments.”

One of the biggest benefits of offering Medicare-certified healthcare services is the ability to reduce hospitalizations, says Potter. Erickson’s readmission rate over a 60-day period averages about 11 percent compared to 16 percent nationally. She adds that the biggest challenge is recruiting certified aides to provide home healthcare. “We are very careful about the quality of our workers,” says Potter. 

Beyond the walls

Erickson is currently focused on serving existing residents and completing the continuum of services provided at each community, says Potter, but offering healthcare and home services to seniors living outside the Erickson communities represents a future opportunity. 

However, not all states allow communities to provide home health outside of their buildings, she adds. 

Erickson’s Detroit-area community, Fox Run, already provides services to residents living outside the community. Potter notes, however, that competition from other home health and care providers is a challenge for senior living providers hoping to service elders outside the walls of the community. 

At Erickson’s Fox Run community, for example, contacts and referral sources were established to maintain a steady flow of customers.  

Five years ago, Westminster-Canterbury’s on-campus home health agency was losing $400,000 a year. As the community’s newly installed director, Unkle decided to revamp the service. “It’s an absolute myth that CCRC-anchored home health and hospice agencies cannot produce solid double-digit margins,” says Unkle. “But if you run a home health agency the same way you run a CCRC, you will go broke.”

Westminster-Canter-bury includes 442 independent living units, 96 assisted living units and 95 skilled nursing beds. Entrance fees range from about $128,000 to $600,000.

Unkle hired experts to run the home health operation in order to avoid the four big mistakes often made by communities that delve into the ancillary services market. He also opened the service to the wider community.

In 2013, the service handled 300 cases. It doubled that number in 2014. About one-third of the cases involve campus residents, while the others are from the wider community. The service has about a 5 percent share of the area’s home health market, according to Unkle. 

The community recently launched a “Wellness Beyond the Gates” initiative — exercise and health classes for those who don’t live on campus. The community also now offers advisory assistance to other communities contemplating a push into ancillary services. 

“There are some surprise benefits,” says Unkle.  Home health can provide services to residents in their units, freeing up beds for non-residents in the skilled nursing unit who may eventually decide to move to the community. 

Home health also offers a competitive advantage as the evolving Medicare reimbursement system relies more and more on quality and efficiency, Unkle points out. “Any thinking person can foresee that we’ll have outcomes-based payments.”

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