2024 Home Health Trends – Inflation’s Ripple Effect Through the Industry
Understanding the impact of inflation on the home care and home health industry
THE VBP Blog
February 22, 2024 – Among the most pressing issues the home health and home care industry will see in 2024 is the continued impact of inflation. Inflation not only affects the cost of delivering care but also has broader implications for the financial sustainability of home health and home care agencies.
In this blog, we will delve into how ongoing inflation is impacting home health and home care services, particularly in an industry where margins are already tight and the demand for services is growing. Understanding these dynamics is crucial for stakeholders across the board, from healthcare providers to policymakers, as they navigate the evolving economic landscape of home health and home care.
The Ripple Effect of Inflation on Home Health Care – Shorter Stays and Increased Costs
In 2024, the continuing impact of inflation is going to be a problem for the home health and home care industry. One of the biggest impacts we will see is its effect on the length of stay for patients. Rising costs are making home health care increasingly unaffordable for many, especially those relying on private pay.
National health spending, which encompasses the costs of medical supplies, equipment, and labor, has significantly increased and continues to rise. This can impact the industry differently, depending on how consumers are paying for services—those through plans or those through private pay. First, we will take a look at the impact on private pay clients.
Higher out-of-pocket expenses for home health care services and causing families to face tougher financial decisions regarding the care of their loved ones. Many are opting for shorter durations of professional care to manage these escalating costs and having care shift to family members. This is not ideal and can impact the quality of care that individuals are receiving.
Optimal patient care, particularly for those with chronic or complex conditions, often requires extended support and monitoring. Shorter lengths of stay may not provide sufficient time for patients to fully benefit from the care, potentially leading to inadequate management of their conditions. This situation can increase the risk of hospital readmissions and compromise the overall health outcomes for patients. Financial pressure to reduce the length of home health care stays can shift the burden of care to family members or informal caregivers. While this might offer a temporary financial reprieve, it can lead to a lack of professional care necessary for certain medical conditions and exacerbate health issues that can potentially lead to more costly medical interventions in the long run.
So, what do home health and home care agencies do about these rising costs? There is only so much that can be done, but agencies can actively seek ways to mitigate the impact of inflation. One strategy is to optimize operational efficiency and reduce overhead costs. This can be done by leveraging technology such as telehealth and remote patient monitoring systems, as they can provide effective care at a lower cost. These technologies enable continuous monitoring and care management while reducing the need for frequent in-person visits so costs can be better controlled.
Another approach involves exploring alternative payment models and insurance options to help offset the rising costs for clients. While the Expanded Home Health VBP Model only covers Medicare beneficiaries there are other options, such as opting for Medicare Advantage programs. By negotiating better rates with insurance providers and advocating for more comprehensive coverage plans, agencies can help make home health care more accessible and affordable for a broader range of patients.
Whatever way they choose to address inflation, agencies must continue to innovate and adapt their services to meet the changing economic landscape while ensuring that they do not compromise on the quality of care. This balancing act is going to require strategic planning, technological integration, and advocacy to ensure that home health care remains a viable and effective option for those in need, despite inflationary pressures.
The Shift Towards Larger Home Care Providers Amidst Inflationary Pressures
As the industry grapples with the ongoing challenges of inflation, there is going to be increased pressure on smaller agencies who are not able to become more efficient and streamline costs. This is where we might see larger franchises and payviders like United Healthcare and Humana gain prominence at the expense of smaller, independent agencies.
When you look at it, the impact of inflation is particularly a problem for smaller providers. As national health spending increases and inflation remains high, these agencies face escalating operational costs, from employee wages to medical supplies and administrative expenses. Unlike larger franchises or payviders that can take advantage of operational efficiencies spread out across an entire organization, small independent agencies often lack the financial buffer and economies of scale to absorb rising costs. This causes them to struggle to compete in a market where pricing pressures are intensifying. The challenge is not just in managing operational costs but also in maintaining service quality and affordability for clients.
On the other hand, larger home care franchises and home health providers are better positioned to navigate the inflationary landscape. These entities can leverage bulk purchasing for supplies, invest in cost-saving technologies, and their larger scale often allows for more efficient operational structures. In addition, larger providers and payviders generally have a broader reach and a more diverse service portfolio that makes them more resilient to economic fluctuations.
How is this going to impact the market? This shift towards larger providers may lead to industry consolidation, where smaller agencies may find themselves either merging with larger entities or exiting the market. Or it will lead to them diversifying and looking for alternative payment models or payers to boost their bottom line. While consolidation can lead to increased efficiency and potentially better service offerings, it also raises concerns about reduced competition and its impact on consumer choice and care customization.
When it comes down to it, for smaller agencies, adapting to this changing landscape will require strategic planning and innovative approaches. This might include forming alliances or networks to achieve economies of scale, exploring niche markets, or specializing in particular care areas to differentiate themselves.
The Surge of Mergers and Acquisitions in Home Health Care due to Inflation
Another thing we expect to see in 2024, driven in part by inflation is the continuation of mergers and acquisitions (M&A). The economic pressures brought on by rising costs are reshaping the strategic landscape and causing many companies to consider consolidation as a viable solution to maintain competitiveness and sustainability.
From salaries and benefits for caregivers to the costs of medical supplies and equipment, agencies are facing increased financial burdens across the board. As we noted in the earlier section, smaller and independently run providers, in particular, are finding it increasingly difficult to operate viably under these conditions. Merging with larger entities or being acquired offers a path to survival. It allows these smaller agencies access to greater resources, better bargaining power for supplies, and more efficient operational systems, but is it good for consumers?
We’ve written an entire blog about payviders and increased consolidation in the market, which you can read here, but the short answer is that while it can lead to greater standardization of care practices and operational efficiencies across merged entities, consolidation can also raise concerns about reduced competition and the impact that has on the variety of care options available to consumers.
While M&A activity in the home health care and home care industry is expected to be a prominent trend in 2024 as companies respond to the challenges of inflation, it is important to keep an eye on how organizations design a consumer-centric care delivery model that’s technology-enabled and focused on access to care, convenience and patient-defined outcomes.
Advocates Perspective
As we venture into 2024, the persistent rise of inflation is pushing significant changes across the home health and home care industry. From the increasing reliance on large franchises and payviders to M&A activities, these shifts are responses to the economic pressures. As smaller agencies either learn to adapt or merge with larger entities, we need to ensure that the quality of care and accessibility of care is maintained and that care plans still cater to the unique needs of a diverse patient population. While inflation is a challenge that the entire industry is facing, it represents an opportunity to build a more robust, efficient, and sustainable at-home care industry that can continue to serve the growing and changing needs of patients across the country.
Onward!
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About the Author
Fady Sahhar brings over 30 years of senior management experience working with major multinational companies including Sara Lee, Mobil Oil, Tenneco Packaging, Pactiv, Progressive Insurance, Transitions Optical, PPG Industries and Essilor (France).
His corporate responsibilities included new product development, strategic planning, marketing management, and global sales. He has developed a number of global communications networks, launched products in over 45 countries, and managed a number of branded patented products.
About the Co-Author
Mandy Sahhar provides experience in digital marketing, event management, and business development. Her background has allowed her to get in on the ground floor of marketing efforts including website design, content marketing, and trade show planning. Through her modern approach, she focuses on bringing businesses into the new digital age of marketing through unique approaches and focused content creation. With a passion for communications, she can bring a fresh perspective to an ever-changing industry. Mandy has an MBA with a marketing concentration from Canisius College.