National home health agencies have largely been focusing on swallowing as many agencies as possible to reduce the threat of competition. They have also been trying to close the continuum of care issue by operating both a home health agency and a hospice.
But now, national chains have set their sights on another type of provider: private duty home care agencies. Amedisys wants a part of the action and has recently completed the acquisition of Associated Home Care, located outside of Boston, MA. Associated has about 5,000 active clients (patients) and about 1,500 staff scattered throughout Massachusetts. The total purchase price paid for the family owned agency was $38 million with an additional $10 million payout for the CEO should he continue to grow the business over the next 5 years.
Amedisys is clearly diversifying its business lines as earnings are still under pressure with continued cuts to Medicare reimbursement. Amedisys expects a further 1.4% cut to revenue in 2016 because of declining Medicare revenue.
Private duty home care however can yield very positive results for companies. Most agencies see on average a profit margin of 15-20% with some agencies reaching 30 or 40% based on their operational model.
There is an important learning lesson: diversifying your business lines will allow you to provide complimentary services. Amedisys already provides hospice because of the high margins – if they weren’t there, you wouldn’t have patients on service for 6 months rather than two or three weeks. The natural progression towards private duty care was imminent…and it should be for your agency as well. If you are still only providing skilled services and not expanding into other product lines, you are missing out on lost revenue and very important cash flow.
Private duty care isn’t for every area as it can get expensive quick. But if you know your market, know who can afford the care and can price the care within a competitive model, you could generate decent business. Amedisys struck in Massachusetts with the first of this kind purchase for them because the agency was large, well run and producing solid profit and cash flow, year after year.
Geography and demographics also played a very large part. Associated is primarily focused on eastern Massachusetts where demographics are quite favorable to private duty care. Demographics such as Medicare eligibility, pensioners (elderly who worked for large companies or government that now receive a pension and not just Social Security), and large concentrations of wealth (high home values, investments, and retirement liquidity).
Amedisys knew where to look and we can likely see other acquisitions of this nature in other sectors where a concentration of aging populations and the right demographics collide. Using this type of planning, investigation and thorough understanding can help your agency plan for new services. Knowing the market you serve is important. Going in with an idea is great, but if you have no clue who will be able to actually pay for the service will likely not create desirable results.