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Five Reasons Why Investors Love Home and Community Based Services (HCBS) Providers

Updated: Apr 11, 2023


White Mertz Taggart logo on a blue background with a headline that reads Five Reasons Why Investors Love Home- and Community-Based Services (HCBS)

When it comes to non-medical home care, the U.S. continues to put its money, and its legislation, where its mouth is. And investors are taking notice.


In March, the Senate Special Committee on Aging introduced the HCBS Access Act, co-sponsored by 17 U.S. Senators. The act is a complementary bill to the Better Care Better Jobs Act, and establishes “a permanent funding stream to keep (home-based care) infrastructure strong,” the bill’s lead sponsor Sen. Bob Casey said.


“(The bill will) make sure we’re able to continue to pay direct care professionals at a rate that ensures qualified, reliable services and a qualified, reliable workforce into the future,” he added.


That increased government spending is one of five reasons investors are ramping up their positions in home and community based care services (HCBS). Here is a closer look at all five.

1. Increased Government Spending


Today’s healthcare investors know that HCBS delivers essential outcomes for patients — provided, of course, that there are enough people to deliver those care services. As Sen. Casey noted, that’s too often not the case. Among the numbers that tell the tale of the industry’s staffing crisis:

  • 63% of home care providers have discontinued services or programs

  • 83% of service providers reported turning away families

  • 92% of service providers struggle to meet quality standards

Thus as part of its efforts to provide access to long-term care services and support for individuals with disabilities, as well as for older adults who wish to remain in their homes and communities rather than in institutional settings, the U.S. government is spending a significant amount on Medicaid HCBS.


Just how significant? In FY 2020, according to data from Kaiser Family Foundation, the federal government and individual states combined for $116 billion on HCBS.


“We are seeing much stronger interest in home and community based services today than at any time pre-pandemic,” says Mertz Taggart Managing Partner Cory Mertz. “It’s coming from private equity groups seeking platform opportunities and strategic buyers executing on their care continuum strategies.”


The Medicaid HCBS program provides a range of services and supports, such as personal care assistance, skilled nursing care, respite care, and home modifications to help individuals live independently in their homes and communities. By investing in these services, the government aims to improve the quality of life while reducing the overall cost of health care by preventing unnecessary hospitalizations and nursing home placements.


Furthermore, Medicaid HCBS programs align with the principles of the Americans with Disabilities Act (ADA) and the Olmstead decision, which uphold the right of individuals with disabilities to live in the most integrated setting possible. HCBS programs boost quality of life by providing an alternative to institutional care, thus allowing individuals to live in their communities and participate in daily life activities.


Overall, the investment in Medicaid HCBS is aimed at improving the health and well-being of individuals with disabilities and older adults while also promoting cost-effective care delivery models.


2. Potential for Innovation


The HCBS market presents opportunities for innovation and the development of new care delivery models and technologies. This is leading to interest from investors in companies that are at the forefront of these developments.


Of note recently is CareBridge, a value-based solutions platform for HCBS, receiving $140 million in VC and PE financing to expand its HCBS model to Medicaid and dual-eligible patients.


“CareBridge is revolutionizing care for individuals on Medicaid receiving home and community-based services,” Brad Smith, the former director of the Center for Medicare and Medicaid Innovation (CMMI) and executive chairman of CareBridge, said in a press release. “By helping coordinate care and provide 24/7 access to a clinician, CareBridge is helping individuals live healthier, more independent lives while remaining at home.”


Texas-based New Day Healthcare has developed its own proprietary software that integrates and examines data from all major home health EMR’s and EVV systems, then aggregates that data into a common working file. Using a complex system of people, process and technology, New Day Continuum teams are able to process thousands of potential incidents per month and identify specific patients with specific indicators, that are “about to have an incident”. Continuum teams, specially trained in identification, make patient contact and coordinate clinical interventions with local care teams.


3. Evolving Payor Landscape


Value-based care is all the buzz nowadays. At scale, HCBS providers are well-positioned to take on risk with the payors in the evolving healthcare payor landscape. Here’s why:

  • They have established relationships and trust with their clients, their families, and other community partners and stakeholders. As a result, they can coordinate care across the continuum and leverage existing resources and networks to address the social determinants of health that affect their clients’ well-being.

  • They can access rich data and insights from their clients’ daily lives and interactions. They can use this data to monitor their clients’ health status, identify risks and opportunities for improvement, and measure the impact of their interventions on quality and cost.

  • As a result, they can develop a deep understanding of the needs and preferences of their clients/patients, who often have complex medical and social conditions. They can then tailor their services to meet each client’s goals and outcomes while reducing unnecessary hospitalizations and emergency visits.

According to a report by the AARP Public Policy Institute, the average annual cost of HCBS per person was $43,539 in 2018, while the average annual cost of nursing home care was $102,200. By investing in HCBS, investors can help reduce the overall spending on Medicaid, which is one of the largest budget items for states and the federal government. For Managed Care Organizations paid on a per member, per month (PMPM) basis, these numbers can be compelling. Payors are taking notice.


4. Aging Population


Of course, the interest of CVS Health and other investors is fueled by the baby boomer generation, whose dominance in the U.S. population has led to an increased demand for long-term care services, including Medicaid HCBS. As a result, the market for these services is growing rapidly, making it an attractive investment opportunity for companies looking to expand their presence in the healthcare sector.


"Chronically ill seniors with multiple medical problems drives ~75% of the total Medicare spend. In our view, this is THE healthcare crisis in America, posing significant financial and clinical delivery burdens on the healthcare system," New Day President/CEO Scott Herman shared with us recently. "HCBS programs that provide low acuity activities of daily living, designed to deliver "bridge care" or a "little help" for patients so they can remain at home, rather than in an institution, is a critical element of Medicare program solvency and positive clinical outcomes"


Lorient Capital-backed PurposeCare shares a similar strategy. "PurposeCare was founded on the idea that a personal caregiver's presence in the client’s home and the relationship they have with their client give them a unique perspective and understanding of the client’s well being," PurposeCare CEO Rich Keller said. "That information when shared with others on the care team can help to avoid unnecessary hospitalizations, visits to the ER or worse. HCBS is the largest funder of these services and as such it's a key component to our strategy"


Private equity firms are also attracted to the relatively stable and predictable revenue streams generated by Medicaid HCBS providers.


5. Market Fragmentation


The Medicaid HCBS market is highly fragmented, with many small providers serving local communities. This fragmentation can make it difficult for providers to achieve economies of scale and can limit their ability to invest in new technologies and care delivery models. Further consolidation will allow large organizations to collect meaningful data to give them a seat at the table with the payors, who seek narrower networks to manage.


HCBS is a program that benefits several stakeholders: the beneficiaries and their families, CMS, and investors. It is a smart and sustainable way to address the long-term care needs of millions of Americans who want to live independently and with dignity in their own homes and communities.


“We are bullish on home and community based services at the moment,” Mertz added. “We are getting more calls than ever from private equity groups looking for these opportunities. It’s driven by a combination of positive reimbursement tailwinds, access to the elderly and disabled patient population, the ability to collect meaningful data, and to run point on clinical interventions, when necessary.”

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