As home care providers keep growing, what happens to local suppliers?
The demand for home care is growing, sparking a wave of consolidation by private equity firms, payers and big health systems. It’s a busy and challenging environment for local providers of home-based medical services as well as their suppliers.
“The pressure being applied by higher costs, difficulty finding qualified people, and stagnant reimbursement has resulted in many [providers of home-based medical care] looking for a way to survive or get out with minimal losses,” says Jay Butler, vice president of extended care, IMCO. “Integrated health systems can navigate the difficult market and realize savings that standalone providers simply can’t.
“I believe venture capitalists are looking to capitalize on the market disruption by acquiring providers at desperation prices with intention to spin them off for a quick profit. They’re very good at what they do. However, I question if this is in any way good for the patients or business overall. Many times, the focus on the bottom-line forces decisions to lower product quality, and the patient pays the price.”
“I understand why [consolidation] happens,” says Kevin Davis, corporate account manager, Concordance Healthcare Solutions. “If you look at it from the [perspective of] larger organizations doing the purchasing, it’s a streamlined process for patient care. They can follow the patient from the hospital into the home or vice versa. It helps with many facets of the continuum of care.
“Have I seen a drop in patient care? I can’t personally speak to that, but I do hear the corporate culture works its way into the communities and workforce. Is this a good or bad thing? That’s according to who you ask. I really try to look at it from both sides.”
Growing demand
For home health and hospice providers, the aging population provides significant tailwinds for patient volume and continuing growth, according to Precedence Research, which recently published a report on home care. “By 2030, all baby boomers will have reached the age of 65, causing one out of every five Americans to be categorized as retirees. The home health business is primed for expansion, thanks to the high frequency of disease, the need for assistance among the elderly, and the desire to receive care in the comfort of one’s own home.”
Based on a survey of physicians who serve predominantly Medicare fee-for-service (FFS) and Medicare Advantage (MA) patients, consulting firm McKinsey estimates that up to $265 billion worth of care services (representing up to 25% of the total cost of care) for Medicare FFS and MA beneficiaries could shift from traditional facilities to the home by 2025 without a reduction in quality or access. “That number represents a three- to fourfold increase in the cost of care being delivered at home today for this population, although how the shift will affect reimbursement rates is not yet clear,” says the firm.
A variety of pandemic-related factors have contributed to the growth of what McKinsey refers to as Care at Home, including:
- Growth in virtual care: In February 2021, the use of telehealth was 38 times higher than pre-pandemic levels. The share of Medicare visits conducted through telehealth rose to 52.7 million in 2020, from approximately 840,000 in 2019, according to a December 2021 report from the U.S. Department of Health & Human Services.
- New technologies and capabilities: Remote patient-monitoring devices allow providers to monitor patient progress remotely and receive alerts if there is an issue.
- Growing investment in digital health: Venture funding for digital health companies was a record-breaking $29.1 billion in 2021. Comparatively, there was $14.9 billion invested in 2020 and $8.2 billion invested in 2019.
While the post-acute home-health segment remains the largest care-at-home segment, McKinsey reports that emerging subsegments – such as home infusion, home-based dialysis, primary home care, and hospital home care – are growing rapidly. Chronic-care patients make up about 75% of the healthcare spending in the United States, according to the firm.
Healthcare consulting firm Avalere reports that between 2012 and 2017, higher spending on in-home care led to significant decreases in overall spending on 10 chronic conditions:
- Quadriplegia.
- Traumatic amputations and complications.
- Multiple sclerosis.
- Atherosclerosis of the extremities with ulceration or gangrene.
- Lung and other severe cancers.
- Reactive and unspecified psychosis.
- Artificial openings for feeding or elimination.
- Bone, joint or muscle infections or necrosis.
- Seizure disorders and convulsions.
- Intestinal obstruction or perforation.
Private equity
Private equity firms and payers have their fingerprints all over home-based medical care today.
In June 2021, Humana signed a definitive agreement to acquire One Homecare Solutions (“onehome”) from WayPoint Capital Partners, the private equity affiliate of a New York-based family investment office. onehome manages a range of post-acute needs including infusion care, nursing, occupational therapy, physical therapy and durable medical equipment (DME) services at patients’ homes, as well as appropriate site of care placement through its skilled nursing facility (SNF) at home programs.
Two months later, in August 2021, Humana completed its $8 billion acquisition of Kindred at Home, a home health and hospice provider, from TPG Capital, the private equity platform of TPG, and Welsh, Carson, Anderson & Stowe. At the time, Kindred at Home employed 43,000 caregivers providing home health, hospice and community care services to over 550,000 patients annually. With locations in 40 states, the company had geographic coverage with approximately 65 percent overlap with Humana’s individual Medicare Advantage membership.
In March 2022, Optum – which is part of UnitedHealth Group and which works with more than 100 health plans – agreed to acquire LHC Group, a national provider of in-home health care services. LHC Group’s 30,000 employees, including frontline care providers and administrative and support personnel, provide more than 12 million annual in-home interventions.
Supply chain consolidation
Consolidation has a direct impact on distributors and dealers, says Davis, who lost two large home health agency accounts to buyouts in the last three years. “I can tell you not only did this affect my own territory, but it has affected home health agencies. I still get calls to this day because they can’t purchase a specific type of wound care product, urology product, etc., because their corporate agreements do not allow this on a formulary purchase. In the end, the effect is felt by the patient because the HHA has had to delay the care required to obtain a particular product.”
In March 2022, Owens & Minor strengthened its presence in the market by acquiring for $1.6 billion home healthcare equipment company Apria Inc. Apria offers products and services for in-home care and delivery across three core service lines: home respiratory therapy (including home oxygen and non-invasive ventilation services); obstructive sleep apnea treatment, including CPAP and bi-level positive airway pressure devices, and patient support services; and negative pressure wound therapy.
The Apria acquisition follows by five years Owens & Minor’s 2017 acquisition of White Plains, New York-based Byram Healthcare, a distributor of medical supplies to home patients and home health agencies, with principal product lines of ostomy, wound care, urology, diabetes, and incontinence supplies.
At the time of the Apria acquisition, Owens & Minor announced that Apria and Byram Healthcare would be combined to form the new Patient Direct segment. “The company will leverage its existing market reach and expertise in the hospital setting to create a more efficient, single-source home healthcare delivery and distribution model to support patients as their care transitions from the hospital into the home,” according to the company.
The home healthcare industry has traditionally been highly fragmented and decentralized, which has historically complicated the access, coordination, distribution and billing of durable medical equipment (DME) products and related services that support the work of home health agencies who directly provide care to patients in the home setting, Daniel Starck, executive vice president of Patient Direct, told Repertoire.
“In general, the industry is currently being driven by a desire for home healthcare services to be more integrated and accessible to rapidly growing patient populations, many of whom are living with one or more chronic health conditions requiring long-term care beyond the hospital and into the home. The combined strength and geographic reach of Owens & Minor’s existing Byram Healthcare business with Apria is able to more effectively meet the demands of larger national home health agencies that provide care for these patients.
“From an administrative perspective, our home healthcare delivery and distribution model will streamline supply management. From a patient care perspective, supply continuity and management help to improve adherence to care, which can in turn improve patient satisfaction and outcomes.”
Outlook for local suppliers
Given consolidation among home care providers and their suppliers, local home care/DME suppliers have some challenges ahead. But IMCO’s Jay Butler believes they can successfully meet them.
Most of the nationals have services to meet the pharmacy and medical supply needs, he says. “Consolidation has had a negative impact on the locals’ ability to service some of these patients. When an acquisition occurs, the supply source generally switches over to the purchaser’s system and distribution arrangement. With the cost of supplies, freight, and staffing on the rise, it makes it much more difficult for DME dealers to continue servicing patients after consolidation and/or acquisition.
“Having said this, many IMCO independent distributor members have been quite successful in maintaining and growing this business. Providers have learned bigger does not necessarily mean better when it comes to getting product to patients when needed. Independents tend to be more nimble and able to adjust quickly, allowing them to meet the ever-changing needs of the patients and providers. They have learned you can’t ‘boil the ocean,’ and have narrowed their coverage focus accordingly to the areas they can serve efficiently.”
Butler believes the era of consolidation will pass. “As prices come down, the labor market improves, and supplies return to normal availability, I believe we will see the resurgence of independent, local homecare providers, and IMCO members will be there to assist in the process.”