Home healthcare service industry in the US

• How Balanced Budget Act affected the healthcare industry?
• Healthcare’s growth in phases and attributes
• ALF and SNF, the other healthcare service providers

The advent of home healthcare has comforted the lives of patients and elderly, they can now receive healthcare products such as medical supplies, appliances, equipment, etc. and also utilise the services like diagnostic and monitoring, skilled nursing, personal care, physical therapy, etc. round the clock at the luxury of their homes. These services are administered by registered nurses, occupational therapist and other skilled medical professionals.

The global home healthcare market is expected to reach USD 391.41 billion by 2021, at a CAGR of 9.4%, between 2016-21 (Source: Zion Market Research). The United States was the largest international market for home healthcare accounting for over 40% of the market share (2016).

The industry is mature in the United States and has been in existence for quite long. The nation saw home healthcare’s growth in three phases, these were; prior to 1997, from 1997 to 2000 and 2001 onward. The industry was booming up to 1996. But, the introduction of Balanced Budget Act (BBA) in 1997, brought in certain restrictive regulations. Thus, the industry experienced a sudden downturn, this impacted the sector for close to 3 years. However, from 2000 onward there has been a revival and the industry showed a continuous uptrend.

In August 1988, the Duggan vs. Bowen ruling broadened the scope of Medicare program for home healthcare (this included both short-term and intermittent care outside the hospital), the industry saw an exponential growth until 1996 as stated above, this was in-line with the substantial growth in the Medicare spending for home healthcare services, which increased from USD 3.9 billion to USD 18.3 billion at a CAGR of 29.0% (between 1990 to 1996). This increase was primarily attributable to a significant rise in the number of home healthcare agencies as well as medical professional visits per home healthcare patient, which more than doubled in the period.

The dramatic growth in the home healthcare industry and the rising Medicare reimbursements compelled the United States government to impose more restrictive and tougher operating guidelines for the agencies in the industry, this culminated in the Balanced Budget Act (BBA) 1997.

The BBA capped the Medicare reimbursements per beneficiary to home healthcare agencies (USD 1,500) and replaced the cost-based reimbursement for services with a Prospective Payment System (PPS). Hence, under this, the Medicare payment was made on the basis of a predetermined fixed amount rather than reimbursement of the actual cost incurred after the provision of the service. In addition, the act required home healthcare agencies to obtain a surety bond from the CMS (Centers for Medicare and Medicaid Services).

The above steps from the US administration negatively impacted the entire home healthcare industry and as a result decreased the number of centres as well as visits from medical professionals and the number of patients. There was also a steep decline in the number of Medicare home healthcare agencies from 10,000 (1996) to 7,099 (2000) owing to BBA restrictions. Likewise, the number of Medicare home healthcare beneficiaries decreased from 10.1% of the total Medicare beneficiary population (1997) to 7.9% (1999). Moreover, another factor, which contributed to this decrease was the decline in a number of medical professional visits per home healthcare patient from an average of 78.8 visits (1997, pre-BBA) to 48.1 home health visits (1998). 

Similarly, the number of patients attended to before and after the implementation of the BBA Act varied as there was a steep decline between 1996 to 2000. An identical trend was observed in visits by medical professionals per home healthcare patient.

Furthermore, since 2000, the industry has shown a healthy growth after an improvement in program integrity, refinement to coverage standard, diverse service offering, better quality of services and better payment system over the years along with other demographic changes as described below.

Firstly, in the United States, base episode rates were notified by the Medicare for home healthcare reimbursements. These rates were based on the severity of a patient’s condition or service needs and other factors relating to the cost of providing services and supplies, this was bundled into a 60-day episode of care. These rates can be adjusted for an extraordinary cost of care or other factors as defined in the Medicare rules.

Secondly, the ageing population in the US was the key driver for home healthcare industry’s growth. In the past 15 years, the share of population aged 65 and above grew continuously in the United States. According to the US Census Bureau, 10,000 baby boomers (people born between 1946 and 1964) turn 65 every day and people among these with health conditions prefer to live in their homes rather than moving to nursing homes or assisted living facilities.

Thus, as the demand for home healthcare rose, especially from the ageing population, the Medicare home health agencies grew to 12,149 (2015) from 7,099 (2000), at a CAGR of 5%. Additionally, from 2014 onward the CMS implemented a 4-year phased rebasing of the standardized 60-day home care episode rate, including case mix (Medicare reimburses predetermined base rate to Home Healthcare agencies which is then adjusted for case mix depending upon several factors like health condition, service need and geographic differences in purchasing power of the beneficiary). This resulted in low reimbursements for agencies. Presently, the number of Medicare home healthcare agencies in the United States stands at ~11,800.

This industry has also contributed to the economic growth through the creation of jobs, in addition to its contribution to better health services. According to the study by the US Bureau of Labor Statistics (2015), the home healthcare service is expected to grow from 2015-2024 at a CAGR of roughly 5%, this will be the highest among all the industries and will create nearly 760,400 new jobs. The projection is supported by the past growth in the number of home health care services employees from 629,000 (2000) to 1,385,000 (2016).

The home healthcare providers derive a majority of their revenue from the government regulated Medicare and Medicaid programs. Televisory evaluated the top 8 home healthcare service providers (Amedisys Inc., Chemed Corp., Kindred Healthcare Inc., Almost Family Inc., LHC Group Inc., Addus Homecare Corp., Civitas Solutions Inc., The Ensign Group Inc.) in the United States. It was found that more than 80% of the revenue was derived from the above-mentioned government programs.

The industry witnessed a healthy growth from 2000 to 2015, while there was a slight slowdown with the implementation of a 4-year phased case-mix rebasing from 2014 onward. This resulted in moderately lower reimbursements. However, Televisory believe that the home healthcare industry will grow in the near term owing to multiple factors, including positive growth in the healthcare expenditure and ageing population which is anticipated to more than double from 7% to 16% by 2050 (Source: World Health Organization).

On the other hand, overall the healthcare industry is highly competitive owing to different service providers offering similar kind of services. The industry also faces competition from other healthcare service providers, primarily from Assisted Living Facilities (ALF); catering to a community of senior citizens, which require certain assistance to enjoy their day-to-day activities, but does not require care in a nursing home and Skilled Nursing Facilities (SNF); where a high level of medical care is provided by the trained professionals.

Thus, multiple factors are considered by patients while selecting in-home healthcare services or ALF services or SNF services. These elements centre around two key determinants; the cost and the service. There is no single formula or method to compare the cost of a service in both the industries since the cost depends on the over level of care required and the time of that care. In the home healthcare segment, the cost primarily depends upon over type of service and time of care (generally on an hourly basis). While in ALF, the cost is determined by a number of factors like location of the facility, apartment size, level of care, etc. Further, as SNF provides a high level of medical care, therefore, its service cost depends on over medical facilities available along with the location of a facility and cost of skilled staff.

Although, in the home healthcare the benefits of one-to-one care and payments are made for the time and the care is given to a patient. But timely emergency services are unavailable as with ALF or SNF, where an individual is always provided with this service either at the front desk or at the nursing station in an event of an emergency.

Thus, while the cost is variable for each type of healthcare provider, however, for less complex medical care, which requires few hours or days in-home healthcare provides a more suitable option for patients or elderly. Comparatively, in case of a longer time of care, ALF or SNF provide a much better option than in-home healthcare as these facilities offer an overnight staff and 24-hour services costing lesser as compared to 24-hour service in-home.