The Lever - Wall Street Is Making House Calls

The in-home care industry is booming — so of course corporate vultures are taking over, as today’s story reveals.

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Big insurers and private equity funds are snapping up the companies that provide in-home care for elderly and disabled Americans across the country. Their goal: To wring ever greater profits from a largely government-funded industry already at war with the Biden administration’s plan to raise wages for its notoriously underpaid home-care workforce.

In-home health care and personal care services provide an invaluable lifeline for millions of the nation’s most vulnerable citizens who want to remain in their own homes or with family — and the number of people in need is expected to keep growing as Baby Boomers age into elder-care services. 

As the industry booms, the nation’s largest health insurance companies and private equity firms are looking to cash in by buying up a growing share of what has historically been a highly fragmented and competitive field. The result of this consolidation is rapid price inflation, even as worker pay stagnates. The Bureau of Labor Statistics reported in early May that despite a slowing inflation rate nationwide, prices for in-home care rose nearly 14 percent over the past year, trailing only auto insurance prices among all major categories.

Alarmed by the Wall Street takeover of what only a few decades ago was largely a cottage industry, the Biden administration in early May issued a new rule requiring companies to pay out at least 80 percent of Medicaid money they receive in home-care payments to workers. The rule also called for greater transparency of company ownership and expenditures. 

Industry interests lobbied hard against the rule — even though such regulations could help workers and patients who depend on in-home care. Now that it’s passed, they’re threatening to exit some markets and warn of “legal challenges” to stop enforcement of a wage standard that will help attract more workers to a growing field already facing widespread labor shortages.

“This industry struggles with high levels of turnover because our home-care workers simply are not paid enough,” said Jessica Kopacz, a home-care worker from Benton, Illinois. “When caregivers leave the profession to search for higher paying careers, it leaves our senior citizens without access to care they rely on to continue living independently in their homes and in our communities.” 

Insurers’ In-Home Advantage

Care delivered in the home includes both medical care and meeting the needs of daily life that seniors and people with disabilities can’t provide for themselves. In-home health care includes medically necessary treatments like skilled nursing, physical and occupational therapy, and infusion treatments, which are covered by Medicare. In-home personal care includes services like mobility assistance, bathing, and household chores. These services are reimbursed by Medicaid or charged to the patient as out-of-pocket expenses.

Most people who qualify for nursing home care would prefer to remain at home. And it’s usually a better deal for those who foot the bill. 

The government is encouraging the shift because in-home care costs about 40 percent less than the cost of care in a nursing home, which can cost as much as $100,000 a year. The Centers for Medicare and Medicaid Services has incentivized more people to choose in-home care by allowing states to provide a wide range of home and community-based services to Medicaid beneficiaries who would otherwise require institutional care. 

Now the same giant health insurers that dominate the Medicare Advantage market are gobbling up the large national chains that provide in-home medical services. When a senior joins a Medicare Advantage plan, the insurer receives a capped annual payment from the federal government equal to the cost of the average amount of health care that seniors with similar health conditions consume each year. Medicare Advantage insurers earn profits by holding those expenditures below that average amount. 

People qualifying for in-home health care are especially juicy targets for Medicare Advantage insurers. These beneficiaries usually have three or more chronic conditions and are prone to brief but expensive hospitalizations. Since the Centers for Medicare and Medicaid Services, which oversees Medicare Advantage, pays the highest annual rates for these beneficiaries, owning the firms that deliver in-home care allows Medicare Advantage plans to control both the cash flow and profits that once flowed to hospitals or independent in-home providers.

The scheme also provides the biggest insurance industry holding companies, which in recent years have been buying up physician practices and pharmacy benefit managers, a way to hide their profits from regulators. 

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The government requires privatized Medicare plans to spend at least 85 percent of their revenue on actual health care, not overhead and profits (a requirement known in the industry as a medical-loss ratio). Insurers can get around that rule through internal transfer pricing — charging their closely held home health companies higher prices than they would charge independent home health providers in the private market. Their home health profits then show up as costs on the reports they send to the government. 

“Parent companies that own both health plans and related health care businesses can evade the medical-loss ratio regime by altering transfer prices, the prices that [Medicare Advantage] plans pay to related health care businesses owned by the same parent,” wrote Richard G. Frank, head of health care policy at the Brookings Institution, in a recent paper. “By charging higher transfer prices, a vertically integrated [Medicare Advantage] plan can move profits from the… plan to the related business.” 

Insurers can also use prior authorization and care denials to limit payments for services that are covered by traditional fee-for-service Medicare covers. 

“Traditional Medicare rarely requires so-called prior authorization for services,” the New York Times reported. “But virtually all Medicare Advantage plans invoke it before agreeing to cover certain services, particularly those carrying high price tags, such as chemotherapy, hospital stays, nursing home care, and home health.”

Big insurers are moving quickly to take advantage of these arrangements. 

Last year, UnitedHealth Group successfully bid $3.3 billion to acquire Amedisys, a home health provider with over 500 facilities in 39 states and the District of Columbia. The move came just six months after UnitedHealth paid $5.4 billion to buy LHC Group, the nation’s largest home health provider with over 900 locations in 37 states.

The Federal Trade Commission is currently investigating the Amedisys acquisition. If the agency allows the merger to move forward, UnitedHealth will become the nation’s largest provider of in-home medical services, dominating about 10 percent of the estimated $150 billion market. (UnitedHealth Group is already the nation’s largest employer of physicians after a decade of quietly buying up practices.) The group will surpass Humana, the nation’s largest Medicare Advantage insurer, which in 2021 paid $5.7 billion to acquire Kindred at Home, which has since been rebranded as CenterWell Health.

The Medicare Payment Advisory Commission, which advises Congress, has consistently advocated for reductions in Medicare reimbursement for in-home health care after finding that the companies receiving those payments posted profit margins of 22.2 percent, which “far exceed costs.” Traditional Medicare paid $16.1 billion in claims for in-home health care in 2022.

Neither the Medicare Payment Advisory Commission nor the Centers for Medicare and Medicaid Services have comprehensive data on how much Medicare Advantage plans pay for in-home health care to either their newly-acquired agencies or to the stand-alone companies or smaller chains that are still dominant in many markets. 

Medicare Advantage insurers have consistently failed to provide federal regulators with data revealing the number of in-home visits, what services they provide, and how much they pay for each service. Without this so-called encounter data, regulators cannot determine what is a fair reimbursement to the plans providing in-home health.

But insurers still must provide the government with annual cost reports, in which one finding stands out: Insurance companies appear to be shortchanging the independent in-home care providers, a strategy that is driving many small businesses into bankruptcy or forcing them to sell to the large chains or private equity firms. 

“Since home health agencies’ all-payer margins are significantly lower than fee-for-service Medicare margins, it is likely that other payers, including [Medicare Advantage] plans, pay less than fee-for-service Medicare,” the latest Medicare Payment Advisory Commission report noted. 

Private Equity Moves In

Private equity firms, meanwhile, are also trying to squeeze profit from the in-home care industry, even as their tactics differ. These Wall Street firms are buying up a growing share of the agencies that provide in-home help with daily living. These in-home help agencies, traditionally small and locally based, are reimbursed either by Medicaid or charged as out-of-pocket expenses to better-off families.

Private equity firms aim their acquisitions at areas where they can control a significant market share by buying up local provider agencies, eliminating local competition. That allows them to raise prices even as they battle to ward off higher wages for their workers. Some privatized Medicare Advantage plans are also beginning to offer home-care assistance not normally covered by Medicare as an add-on benefit to entice seniors.

A recent report from the American Antitrust Institute and Americans for Financial Reform Educational Fund calculated that by the end of 2022, 37 private equity firms owned nearly 6 percent of the nation’s 8,500-plus home-care agencies.

That share may now be closer to 10 percent. Since that report came out, InTandem Capital purchased HouseWorks, a Massachusetts-based home-care firm operating in three New England states and Pennsylvania. Waud Capital Partners purchased Senior Helpers, which operates in 44 states. And Centerbridge Partners and The Vistra Group, which purchased Help at Home in 2020, recently acquired Ohio-based Berkshire Homecare and Indiana-based My Care at Home, bringing its portfolio to 180 agencies in a dozen states.

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While the private equity-owned companies boast that they are better at coordinating care for their elderly and disabled clientele, Diana Moss, former president of the American Antitrust Institute, wrote that these firms are more interested in the industry’s rapid revenue growth, projected to rise by an average of 8.5 percent over the next decade. 

“Private equity ownership provides opportunities to maximize revenue by cutting costs, increasing control over prices by consolidating markets, and deploying financial engineering mechanisms such as fees and dividend recapitalization,” she wrote. “This aligns closely with the private equity model of generating high short-term returns for investors.”

A recent study in the Journal of the American Medical Association documented that private equity’s incursion into the hospital industry is harming patient health. Patients in hospitals owned by private equity firms experienced 25 percent more hospital-acquired infections and adverse medical events, compared to patients in hospitals without private equity ownership.

The same may be happening now in the home-care industry. Last fall, private equity-owned Help at Home abruptly left the state of Alabama, leaving nearly 800 home health workers unemployed and more than a thousand Medicaid beneficiaries without services. The firm blamed the state’s low reimbursement levels for in-home personal care.

“These companies don’t have to participate in every market,” said Mary Bugbee, senior researcher for health care for the Private Equity Stakeholder Project. “If there are regulations that make it less attractive to participate, vindictive behavior can occur.”

The Fight Against Regulation

The Service Employees International Union, which represents about a quarter of the more than 3 million workers in the in-home care field, pushed hard for the new rule requiring home-care companies pay at least 80 percent of Medicaid money they receive to workers. 

Union officials argued that higher worker pay would be key to attracting the estimated one million additional home-care workers needed to offset current worker shortages and meet rising demand. 

“Workers in this industry are 85 percent women and two-thirds people of color. Over half are on some form of public assistance,” said Leslie Frane, executive vice president of the union’s health care unit. “This describes the urgent need for change.”

“There are enough examples of companies that already meet the 80 percent standard that we know it can be provided affordably,” he continued. “It will make it possible for wages to rise and create the kind of jobs that people will not only take but keep.”

The union makes the same points when lobbying state-run Medicaid agencies to raise pay for home-care workers. 

In Illinois, for instance, which already has a rule requiring home-care contractors to pay 77 percent of their revenue to workers, hundreds rallied outside the state capital in March to call for a $20 minimum wage for home-care work. Nationally, the median wage for home-health and home-care workers is $16.12 an hour, according to the Bureau of Labor Statistics.

The Biden administration bent over backward to placate industry opponents by postponing the implementation of the new rule for six years, two years longer than when the rule was first proposed in mid-2023. The industry claimed the rule would drive many smaller, independent companies from the field. Industry interests also won concessions allowing the inclusion of work-related costs like job training, mileage reimbursement, and supervisor oversight within the 80 percent threshold. 

The insurance industry’s Medicare Advantage giants joined forces with trade groups representing home health and home-care providers to fight the rule. The National Association for Home Care & Hospice spent $1 million on lobbying last year, deploying at least 30 lobbyists on Capitol Hill. Several of its state affiliates spent hundreds of thousands more, according to the Senate Lobbying Disclosure database.

The American Association for Homecare, which represents companies providing in-home care services, spent nearly $1 million on lobbying expenditures in 2023. Last year, Addus Homecare hired the lobbying firm run by Bruce Mehlman, the former assistant secretary of commerce in the George W. Bush administration, to fight the rule. 

The week after the Centers for Medicare and Medicaid Services posted the final rule, Rep. Kat Cammack (R-Fla.) introduced legislation prohibiting the agency from implementing the 80 percent mandate. 

“The prospect of litigation has not been ruled out,” said Damon Terzaghi, director of Medicaid advocacy for the National Association for Home Care & Hospice, in an interview. “There are also state governments opposed who are likely to litigate.”

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