What We Hear: Agencies are Businesses

As the recent purchase of Encompass Home Health by HealthSouth shows, the value of well operated home health agencies is still there.  In fact, the notion of being able to sell just a provider number and expect to have an instant retirement fund is no longer a succession plan for agency owners.

Agencies must now be unique and have an underlying explanation for their success.  This success goes beyond referral sources, census and revenue.  Your profit margins must match those of other non-public, local, and regional based agencies.  As we found out with the sale of Encompass, profit margins- nation wide – averaged around 10% per year.  The company has estimated revenue of over $300 million per year with a 50% direct expense rate and an overhead rate of 40%.

The people that contribute to the success of the company also count for substantial value.   Agencies that continue to grow provide staff with benefits that are necessary to make them feel wanted and encouraged.  But they also provide these benefits wisely and in-line with budgets.

Free standing agencies are having a hard time creating that balance between operating a profitable business and providing care to patients.  As more national consolidation takes place, this balance is going to become increasingly hard to manage on top of reimbursement and regulatory factors.

The home health market is going to get bigger – but will your agency? Are you going to really look hard at how you operate and set targets that help you reach your goal of profitability and long term value? Or, are you going to let national companies slowly put your agency on an island without an escape route?

 

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