As of 2020, nearly 11,500 Medicare-certified home health agencies (HHAs) were operating in the U.S.¹ As the Baby Boomer cohort ages, competition among HHAs (and other entities that provide similar services) may increase due to a growing patient pool requiring chronic disease management.² This competition for patients, in addition to a shift in patient preference for home-based care over institutional care, may create a gap between the demand for home healthcare services and the supply of adequate personnel to meet that demand.³ The fourth installment of this home health valuation series will discuss the competitive environment in which HHAs operate by examining the supply of, and demand for, home health services, competitive forces, and the future outlook for the industry.

To qualify for the Medicare home healthcare benefit, beneficiaries must need “intermittent” or part-time skilled care, totaling fewer than eight hours per day.⁴ In 2020, approximately 3.1 million Medicare beneficiaries received home healthcare services, resulting in Medicare spending approximately $17.1 billion on these services (an average of $5,591 per patient).⁵

Demand for home healthcare services revolves around the need for five types of healthcare services: (1) skilled nursing; (2) therapy services such as physical therapy, occupational therapy, and speech language pathology; (3) home health aide services; (4) medical social services; and, (5) the use of medical supplies, such as wound dressings.⁶ In 2020, 50% of all (in-person) home healthcare visits included skilled nursing services; 42% of visits utilized various therapy services; 6% utilized home health aide services; and, 1% utilized medical social services.⁷ However, when the COVID-19 pandemic resulted in cancelled elective procedures and moving care out of the hospital and into patients’ homes, physicians (who must prescribe home health services in order to trigger an episode of care) and patients both became more comfortable with home healthcare, resulting in what one HHA executive characterized as “pent-up demand” for home health services.⁸ While demand is increasing, it started out fairly low, with “[o]nly about 15% of frail older adults receiv[ing] medical care at home.”⁹ This indicates that there is a large number of patients not currently receiving home health services that could receive them in the future. Further, the number of overall people who may need care is increasing, with the number of Americans over the age of 65 totaling approximately 81 million by 2040.¹⁰

While demand may increase for home health services, patient access to home healthcare is reportedly quite high currently. Over 99% of Medicare FFS beneficiaries live in a county served by at least one HHA, and 87.9% live in a county served by 5+ HHAs.¹¹ However, other anecdotal reports indicate that there is already a shortage of home healthcare services, with providers across the country turning away patients because of insufficient staff.¹² This shortage will only become more critical as the Baby Boomers continue to age, resulting in an estimated national workforce shortage of 151,000 by 2030 and 355,000 by 2040.¹³

The home healthcare industry is quite fragmented, with the three largest HHAs only generating 10% of total industry revenue in 2021.¹⁴ Further, the large majority of HHAs operate as sole proprietorships.¹⁵ The supply of HHAs has been steadily decreasing since 2013 (at a rate of approximately 1.7% per year), although the decrease in the number of HHAs was lower between 2019 and 2020 compared to other years. This indicates that the COVID-19 pandemic and the implementation of a new reimbursement model did not affect the overall HHA industry as predicted.¹⁶ The concentration of HHAs varies widely by state. For example, New Jersey had less than 1 HHA per 10,000 Medicare fee-for-service (FFS) beneficiaries, while Texas had 8.4 per 10,000, in 2020.¹⁷

Supply for home health services is also driven by the number of providers rendering those services, principally home health aides, personal care aides, and registered nurses (RNs). Consequently, an adequate supply of labor to provide home healthcare services, in particular home health aides, is essential to meet a growing preference for home healthcare services. Over the past 12 years, the size of the home health workforce more than doubled, with over 2.4 million home health workers in 2020.¹⁸ Home health aides are expected to be one of the fastest-growing professions over the next 10 years, with the number of job openings expected to grow nearly 33% between 2020 and 2030, with over 1.23 million jobs projected to be added to the industry.¹⁹  However, likely due to the relatively low annual wages for home health aides ($29,430 per year),²⁰ it is challenging to fill these roles and keep them filled. Evidence suggests that staffing shortages may be ameliorated by sidelined workers returning to work and/or travel nurses who are looking for a more permanent position.²¹

Competition among home healthcare providers is largely variable, due to the wide spectrum in the scope of services that may be provided by a given HHA. For example, HHAs may provide services that require a licensed provider, such as home infusion therapy; respiratory care; physical, occupational, and speech therapy; behavioral care; and, skilled nursing services, or may provide services that do not require a licensed provider, such as those provided by a home healthcare aide. In addition to competition from other HHAs, providers of home healthcare services face external competition from hospital outpatient departments (HOPDs), skilled nursing facilities (SNFs), and hospices.²² In 2020, approximately 3.1 million Medicare beneficiaries received care from an HHA, while approximately 1.2 million beneficiaries experienced a SNF stay.²³ However, patients utilizing home healthcare services may also utilize (concurrently or consecutively) institutional-based post-acute care services, such as SNFs, as both home healthcare services and institutional-based post-acute care services can assist patients with activities of daily living, such as bathing and dressing, while recovering from an injury or illness.²⁴

The competition among HHAs will continue to rise as the industry grows and the widespread adoption of telehealth allow for more potential patients and visits. The final installment in this home health valuation series will discuss: the technological environment in which HHAs operate.