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June 13, 2019

Long-Term Demographic Trends Impacting Home Health Care

MHT Partners  | Healthcare Investment Bank

There are currently 1.3 million Americans in long-term nursing facilities, but despite increases in demand for long-term nursing care, that number is shrinking. Between 2000 and 2009, the number of nursing facilities in the U.S. decreased by 9%, and in the years since, new construction of nursing home units has decreased by 33%. This decrease in nursing homes largely stems from modern reimbursement paradigms: on average, 90% of nursing home revenues come from Medicare and Medicaid, but at the current federal reimbursement rates for nursing home care, it is not profitable for nursing facilities to continue to operate. So what other option do senior citizens have when they need full-time care?

For 4.5 million people in the U.S., the answer is in-home nursing care. In 2015, U.S. spending on home health care exceeded spending on nursing home care for the first time, and that trend is expected to continue. According to recent projections from the Centers for Medicare & Medicaid Services’ Office of the Actuary, annual home health spending is expected to outpace all other types of care in the near term, growing at an annual rate of 7% from $102 billion in 2018 to $187 billion in 2027. In addition to the dwindling supply of alternative forms of care, an aging, less active population will drive significant demand in home health in the near future.

The average American is getting older and less healthy. According to a 2018 U.S. Census Bureau report, by 2035 the number of people over age 65 will exceed the number of people under age 18 for the first time in history. Additionally, the U.S. population is bearing the adverse health effects of a less active lifestyle. Adult obesity rates in the U.S. have risen from 30.5% of the population in 2000 to 39.6% in 2015. Correspondingly, diabetes rates have risen from 4.4% of the population, or 12.1 million people, in 2000, to 7.4% of the population, or 23.4 million people, in 2015.

These negative health trends will cause people to seek full-time care from a home health provider or from a nursing facility at a younger age than in prior generations. Moreover, in-home care is often significantly more affordable than a live-in facility: the average annual cost of a semi-private room at a nursing home is $78,110, compared to only $21,840 for a full-time home health aide. While Medicare and Medicaid will cover limited portions of the costs of either option, the majority of the costs of both are paid by the patient’s family. Collectively, these trends point to a massive increase in the demand for home health care in the coming years.

Private equity investment in home health has ramped up recently as well. Deals such as Advent International’s acquisition of AccentCare from Oak Hill Capital Partners in May 2019, Tailwind Capital Group’s acquisition of Abode Healthcare from Frazier Healthcare Partners in May 2018, and Kelso & Company and Blue Wolf Capital Partners’ acquisition of Jordan Health Services from Palladium Equity Partners in May 2018 are indicative of a growing interest in the space. The imminent surge in demand for home health providers will require a large infusion of capital from the private equity community, and those who enter the market early stand to benefit from the demographic tides.

MHT Partners believes that innovative, niche solutions that decrease the cost of care while improving outcomes will shape the future state of healthcare. If you would like to learn more about MHT’s healthcare services advisory practice, please e-mail Taylor Curtis (tcurtis@mhtpartners.com), Patrick Krause (pkrause@mhtpartners.com), or Alex Sauter (asauter@mhtpartners.com).

Further Reading:

Discovering the True Cost of At-Home Caregiving,” NPR

Home Health Spending Projected to Outpace All Other Types of Care,” Home Health Care News

Long-term Trends in Diabetes,” CDC’s Division of Diabetes Translation

National Obesity Rates & Trends,” The State of Obesity

Nursing Homes Fade Even as Baby Boomers Age,” STAT

Older People Projected to Outnumber Children for First Time in U.S. History,” U.S. Census Bureau

There Aren’t Enough Nursing Home Beds to Meet Demand,” CNBC

Vital and Health Statistics, Series 3 Number 43,” National Center for Health Statistics

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