Historically, the growing geographic footprint has been a key indicator of success for home care providers. Now, that metric has replaced a new priority: operational density.
Strengthening operations within the current market drives census growth more effectively than geographical expansion through M&A or de novo growth. This is a shift that is expected to gain even more momentum over the next few years.
“Every state you enter is essentially creating a new business, and having to manage dynamic states from state to state is certainly a struggle in terms of business scalability,” Joe Widmer, director of West Monroe, told Home Healthcare News. “If the platform is gaining new states, if they present more challenges. They need to learn the dynamics of that state from a payer, regulatory and labor perspective, as well as decide how to integrate new state acquisitions.”
Based in Chicago, West Monroe is a business and technology consulting company.
According to Widmar, when the average home care company acquires a company in a new state, it faces “large” consolidation challenges.
“They probably assume a new operating system, but if they want to standardize in some way, they have to consider all the nuances that differ from state to state in terms of redemption and regulation.
According to Widmar, there has been a trend towards deeper penetration, not greater widths, rather deeper widths. Large corporations sold assets and doubled in states with strong footing to leave the states in a disadvantaged workforce dynamic or regulatory environment.
Home care is not the only industry evolving towards a density-first mindset. In recent years, senior housing providers have been increasingly focused on building regional density with their favourable operating partners.
By reaching “critical mass” in a particular geographic area, senior housing providers say businesses can operate more efficiently and therefore more profitable.
Geographical expansion case studies
An example of such a move was the sale of New York personal care business Addus Homecare Corporation (NASDAQ: ADUS) in May 2024, Widmar said.
The company has decided to leave New York due to minimum wage, wage parity and redemption pressures.
“New York has approved about four times the amount of time, about four times the amount of the other states we operate in, or about four times the amount per month,” Addus CEO Dirk Allison said in June 2024.
Based in Frisco, Texas, ADDUS offers home care services, including daily living activities (ADL), hospice and home health assistance. The company provides care to approximately 62,000 people from 260 locations in 23 states.
Another home care provider, HCS-Girling, bought Addus's New York business in a deal worth Addus's $23 million.
“It wasn't a stable environment…we felt we could take our capital and move it to another state that was more appropriate for our program,” Allison said. “When we approached us to consider selling it, we decided to make the move.”
After selling its New York business, Adas acquired Gentiva's personal care assets for around $350 million. The deal expanded Addus footprint in five states, but also allowed the company to enter two new states: Texas and Missouri.
Texas proved to be a valuable geographical expansion for Adas. Earlier this month, the company announced that a 9.9% increase in the base hourly reimbursement rate for home care providers in Texas is likely to lead to an increase of $17.7 million in annual revenue.
A strong M&A approach like Addus should be combined with density prioritization in existing markets, which Widmar said Addus did well.
“Adas is another great example of a company that has a long-standing M&A playbook,” Widmar says. “They stick to that playbook and focus on it on density. It's focused on states that have very tough relationships with state authorities. This is another important aspect.”
future
Historically, the ProBusiness Trump administration has introduced regulations that can ease certain restrictions on home care operations, prompting questions about the broader impact of policy on the industry.
In May, leaders from the Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ) directed all federal agencies to identify anti-competitive regulations, including those related to healthcare. That direction could be related to the 80/20 rule. This requires 80% of Medicaid refund dollars to be spent on workers' compensation.
However, the Trump administration is unlikely to reverse the tide change in expanding home care.
Although providers have a general sense of uncertainty about the Trump administration, they are confident that the nation will not dramatically change programs related to home-based and community-based services, Widmar said.
“I think the Trump administration has only had an impact on companies that have betted that know the dynamics of the market, thinking further on this density mindset,” Widmar said. “I think we're making this move (the Trump administration has been doing), and what they're proposing is just highlighting the strategies and approaches that are already beginning to spread among large, medium and beyond companies in this area.”
Widmar will have “premium” positioned across multiple service lines over the next five years. Therefore, the home health business will acquire hospice and personal care businesses more frequently and drive the development of coordinated care systems. The rise in alternative payment arrangements will also contribute to a focus on multidisciplinary care, Widmar said.
Regional and national players may continue their density first trend in the coming years.
“You'll notice that there are players in the area in five to ten states. In these states, there's a very high density of exposure,” Widmar says. “I think we're continuing to see regional integration. The national platform will probably do a more strategic sale. We'll see dynamic play in the region.”
