Scaling Health At Home

Over the past year, we’ve continued to dive deep into the home health space, supported by one of Primary’s Healthcare Advisors, David Baiada, CEO of BAYADA, one of the largest home health agencies in the country. Conversations with him and others have confirmed our belief home health is an integral part of the post-acute ecosystem that has been misunderstood, overshadowed — and potentially, ripe for disruption.

Home healthcare services have moved from ancillary to essential, driven largely by COVID-19 and technological trends toward automation and customization. Yet the future of investing in home healthcare remains an open question: Is it here to stay? And how will companies with a legacy of home health care adapt to, if not lead, the future of care?

This newsletter will combine insights from our work, intertwined with an interview with David, where we discussed the past of home healthcare, how COVID-19 changed his organization’s offerings, and his key insights on adapting Bayada’s mission to innovative technology.

Through our conversations we’ve identified a few notable dynamics:

1. HHA Fragmentation: The home healthcare market is large (3% of total healthcare spend or $133 billion in 2022, it is highly fragmented with nearly 12,000 agencies. Only 20% of agencies are part of a multi-agency chain with the four largest publicly traded agencies making up ~30% of revenue.
   
   
2. Persistent Declining FFS Reimbursement: Medicare FFS reimbursement has declined over the past decade and Medicare Advantage (representing ~40% patient panels) only pays 70% of Medicare rates. Our work suggests most HHAs run on 3-12% margins, indicating significant financial pressures.
   
   
3. New CMS Mandated VBC Program: There is interest and early success on the VBC side. In 2016, CMS piloted the Home Health Value-Based Purchasing model (HHVBP) which resulted in $1.38 billion in Medicare savings and a 4.6% improvement in home health agencies’ quality scores. In 2021, the HHVBP Model was expanded and is now mandatory for all Medicare certified HHAs nationally. For the first time in 2025, HHAs will be evaluated and paid +/- 5% towards their Medicare FFS payments.
   
   
4. Chronic Staffing Issues: With an industry turnover rate of ~30% and shortage of qualified staff, HHAs staffing challenges are acute. Nurses report working nights and weekends to finish necessary paperwork and cite this as a key reason they quit. They struggle to keep up with manual processes, lack clinical support, and seek higher pay.
   
   
5. Under-teched: We routinely heard about the challenges integrating into the leading EMRs, but more often, about the manual, time-intensive processes that are employed widely. Many HHAs leverage outsourced consultants to perform patient assessments, RCM tasks, but lack technology to streamline workflows more holistically.
   
   

We read the above with a glass half-full mindset—a large, growing TAM with SMB owners in need of new tech / operational solutions at the first innings of a transition to value-based care. In many ways, UHC’s $5.4 billion acquisition of LHC signals both the strategic value of HHAs and demonstrates the potential for a big financial outcome.

Innovation in this sector is underway, but no winners have been crowned—yet. We’ve spoken to both large incumbent EMRs, hoping to grow market share by offering new ancillary services (e.g. AI-based coding, new RCM bundles) and VC-backed entrants focusing on bringing tech to a piece of the manual workflow. To build a great business in this space, we’d consider thinking about:

1. Building a SMB GTM flywheel: With significant market fragmentation, it will be key for a new entrant to have a POV on SMB capture. Given the thin margins of HHAs, the most important attribute for entrants to demonstrate is the ability to embed within workflows to drive demonstrable ROI, quickly.
   
   
2. Behavior change at the point of care: Given staff capacity and turnover rates, there are tactical challenges to implementing any new technology at the point of care. Figuring out this challenge is key though since a lot of value lies within optimizing the clinical assessments and work. If a business can drive behavior change, support staff retention while improving operations to drive greater revenue—we think HHAs will respond.
   
   
3. A killer wedge to a larger platform: The two above points lead us to believe that a company will need to figure out a killer wedge to win in this market. Likely something that either increases revenue per agency or greatly reduces a workflow challenge. But, to build a venture scaled business, this wedge will NEED to be a jumping off point to building a much larger platform.
   
   
4. Payment structures: In arguably the first innings of a VBC transition, we anticipate some HHAs will “wait and see” how VBC’s impact unfolds. With HHVBP being mandated though and the thin margins, we think there are reasons to believe that there will be opportunities here. This could be a 3rd party taking risk, in an MSO-like model, incentive payments, or other solution.
   

With the framing above, we’ll now turn to David’s perspective on the industry.

So, David, let’s start with a quick overview of BAYADA and your time there.

BAYADA is the second-largest independent provider of home-based healthcare in the country. We’re on the verge of becoming the largest once the government allows UnitedHealthcare to acquire Medisys. I've been in the business as a second generation son of a founder for 22 years, having done a little bit of everything here over that time horizon, and now in the CEO job for the last six and a half years.

We have our roots here in Philadelphia as an entrepreneurial, value-based, founder-led healthcare services company that, over the course of 50 years, has grown and evolved to the place we are today. We now have eight different business units that deliver distinct, home-based healthcare services with unique regulatory reimbursement, labor, and operating models. They are all focused on building great teams of people who are drawn to the common purpose of helping people have a safe home life with comfort, independence, and dignity.

Four years ago, we converted to a 501(c) as one of several steps that institutionalize an ownership and governance model. Our goal is long-term sustainability, innovation, and success over a multi-generational horizon beyond the next 100 years.

How have you seen the home health world shift over that time as the CEO?

Preferred setting of care, lower-cost alternatives, demographic trends that drive demand—all of these things have come together to increase the relevance of home-based care.

COVID-19 was a black swan event, too. It shined a giant spotlight on all the things that BAYADA stands for. Everybody stared at their television every night, trying to figure out how to stay safe and independent at home, which is our mission. Because of this, we’re no longer the downstream, not-quite-understood ancillary service in the healthcare ecosystem. We’re now a strategic opportunity to shift and evolve the way the healthcare continuum is built to deliver better results and better experiences at lower costs.

As you think about continuing to scale, how does tech play into the broader organization? Home health care is still a service business. You can't yet send a robot into a home to do what you provide. How do technology and innovation intersect with BAYADA’s staff and labor?

That story is still unfolding for me. We're spending a lot of time trying to cut through the hype. Early-stage investment excitement for technology can affect service businesses like ours.

For innovation, we think about this in three buckets: alpha, beta, gamma. The first, alpha, is improving productivity. This includes a lot of the obvious stuff, like automation and productivity enhancements for transactional functions like help desk or revenue cycles. We can get leaner and more efficient there to reinvest wages for our caregivers. They’re in desperate need of more money for the amazing work that they do. We could also invest in new capabilities and innovation to support our growth.

Then there's the beta stuff, which creates new and augmented sources of existing revenue bases. How can we work with health plans to add virtual care to our interventions? This would open up new channels for reimbursement and services that are tied to the things we already do.

Then the gamma bucket is how we use technology to create new businesses for the future. Where are the places where tech-centered business models will emerge that enable people to stay safe and independent at home? One thing we’re continuing to wrestle with is our vision, which is to help millions of people worldwide have a safe home life with comfort, independence, and dignity. It doesn't say we have to be the service provider. Where are the ways where we see a market opportunity to use digital-first business models to deliver on our mission? They may end up not being a service or labor-dependent business model. This thinking is a very early framework we're using to figure out how to cut through and make sense of how technology could affect our ability to fulfill our mission.

If you fast forward 10 or 20 years, do you think BAYADA will be framed as a technology company or a services company? Does that gamma bucket end up growing?

I'm not sure if I would put it that way for the future, but I could see our impact from digital-first capabilities and products outgrowing our core service businesses of the first 50 years of our history.

How does the regulatory environment affect technology and daily work? How do you try to fit these larger visions into a world that is highly regulated?

We tend to be fast followers as opposed to innovators when it comes to new markets or new capabilities. That's predominantly because of the way things are regulated and reimbursed. We like to experiment, observe, and survey what's happening in the market. We look for themes, trends, and opportunities. Until something’s been demonstrably delivered with a little scale, profitability, and success, we're pretty reluctant to enter a market or deploy a new technology. In that way, we're waiting for the regulation to crystallize.

The one exception to that is direct-to-consumer. About 10% of our business, the original service we started with in 1975, is private pay, out-of-pocket personal care and support services for seniors. I do have a lot of curiosity about the role of direct-to-consumer, and consumerism in general in healthcare services. In all of our other businesses, and even in that business, it's a referral-based business. It's a business-to-business sale, or dealing with doctors, hospitals, and insurance companies who refer patients to our services. Direct-to-consumer works if you believe that the consumer will become a much more active decision-maker and coordinator of their own care over time — and that they'll be more educated and more capable of doing that thoughtfully.

It opens up new channels for us to innovate a little bit more than we have in the past. We have the scale to experiment, leverage, and invest with direct-to-consumer that isn’t the same across other areas we work in.

Any bold predictions for the next 10 years? Where does the world of home health go? From a market perspective, does it just become more important? Does it say where it is?

I think home health only becomes more important, but I do, on many days, feel like the labor and/or funding crises (i.e. reimbursement) will be the only thing that can adequately catalyze change and drive real change.