Health care is not a one-size-fits-all solution, and the variables at play in each market require careful consideration from investors. While most people first think of seniors housing for older adults, there has been a tremendous push for home health-based supports and services.
We spoke with industry experts Eugene Goldenberg, Managing Director at Edgemont Partners, and Steve Monroe, Founding Editor of our sister publication, The SeniorCare Investor, to gain invaluable insights and help guide investors through the intricacies of two dynamic markets: Home Health & Hospice (HH&H) and seniors housing.
Navigating Care Options:
When considering a move to a seniors housing community, there are myriad factors that come into play. First, it’s usually the family making that decision on behalf of the older adult, and typically the eldest daughter, so what exactly are they looking for?
As families navigate these decisions, the considerations often extend beyond individual preferences. According to Monroe, “It’s all different for different people, but they’re looking at the cost, safety, good care, etc.”
Assisted living communities are the most common type of seniors housing, representing approximately 74% of all seniors housing transactions announced to date, according to data captured in the LevinPro LTC database. Assisted living communities allow adults typically over the age of 80 to continue living somewhat independently, even with chronic health conditions, minor memory loss or mobility issues.
There’s another option for seniors that has gained traction over the past few years: receiving their care at home. Seniors housing verticals like assisted living provide seniors with both housing and care, whereas home health delivers services and support in the seniors’ own homes or communities.
“Home is the biggest competitor to seniors housing,” emphasizes Monroe.
However, it’s important to note a significant distinction emphasized by Monroe: home health lacks tangible assets compared to the extensive infrastructure associated with seniors housing. Home health employees are often contracted, indicating a different operational model, whereas investors have a larger operational role in seniors housing. Understanding this distinction is crucial for investors navigating the complexities of these two markets.
Although it’s not necessarily a new form of health care, home health has experienced a significant surge in popularity recently, especially for older adults. There are many reasons for that spike, such as the perception that it offers a more cost-effective alternative (which we will delve into shortly), but one driving factor has been the government’s push for these services. In November 2023, the Centers for Medicare & Medicaid Services (CMS) released the home health Medicare final payment rule for calendar year (CY) 2024, which finalized payment updates with an estimated aggregate increase of 0.8%. This translates to an increase in payments to home health agencies of $140 million in CY 2024, as compared to CY 2023. This increase signals a positive trajectory for the home health market in 2024 and could fuel further growth and investment within the space. Especially if investors are paying careful attention to what the consumer, or patient, wants.
Nutrition and socialization can play significant roles in the decision between moving into a seniors housing community or receiving help at home. Often times, a full-time live-in home health aide becomes not just a caregiver but an integral part of the senior’s social life. This adds a layer of personalization and companionship, differentiating home-based care from more institutional seniors housing settings.
According to Monroe, “the big thing now is wellness… It’s not just about being healthy but being well, physically and mentally.”
While seniors housing provides access to structured wellness programs that address issues such as depression, reduced mobility and safety concerns, home health services are rapidly evolving to offer comparable alternatives. With advancements in technology, including telehealth options, home health will continue to improve its wellness offerings and become a viable option for older adults looking for a more personalized approach, blurring the lines between institutional care and the comforts of home.
Financial Dynamics:
When examining the pivotal role of cost considerations in choosing between home health and seniors housing, Monroe and Goldenberg offer differing perspectives.
Goldenberg sheds light on the systemic and consumer-centric advantages of home and community-based care. “The significant cost savings to the healthcare system (and oftentimes directly to the consumer) is a major advantage of home and community-based care,” emphasized Goldenberg. He continued, “instead of going and receiving treatment in an acute care hospital or facility-based setting, there are massive cost savings for providing care in the home regardless of whether it is skilled home health, non-medical home care or hospice care services.”
Monroe, however, provided a more nuanced perspective. He challenges the prevailing notion that home health is unequivocally cheaper, stating, “Everyone says home health is much cheaper, but that’s basically hogwash. That senior is also paying for their house, insurance, maintenance, electric bills and cable bills on top of health care. They’re paying for everything, and you have to include that if you look at the totality of the senior, how they’re living and what the cost is.”
These contrasting perspectives offer a look into the many financial considerations tied to the choice between home health and seniors housing. While Monroe emphasizes the need for a holistic evaluation, considering the many expenses seniors must pay, Goldenberg underscores the overarching benefits of cost savings that home-based care brings to both the healthcare system and individual consumers. The differing viewpoints of both experts just underscores the importance of tailoring the choice to the unique needs and preferences of each older adult.
Investment Trends in HH&H and Seniors Housing:
The HH&H market has taken off among investors in recent years, according to Goldenberg:
“Both strategic acquirers as well as private equity have been very active in this space, particularly since 2019,” said Goldenberg. “During COVID, we saw a massive uptick in activity and interest levels in post-acute care and home-based providers, but over the last 12-24 months, there has been a death of platform assets for folks to get excited about and most of the activity we observed has been more tuck-in oriented.”
The increased interest during the pandemic suggests a heightened awareness of the value of home-based care and post-acute services. However, Goldenberg’s commentary also suggests a change in the type of investments to more tuck-in acquisitions, which occur when a large entity completely absorbs a smaller one.
According to data captured in the LevinPro HC database, private equity companies and/or their portfolio companies made up about 40% of all acquirers in the HH&H market during 2023, making it the most active acquirer type in that vertical.
On the seniors housing side, the most common type of investors are operators, making up 73% of all acquirers during 2023. Other active investors in the space were real estate investment firms, REITs, private equity firms and health systems.
Monroe identifies a significant change in the seniors housing sector over the past 25 years. “There were up to 30 publicly traded companies 25 years ago, and now in the seniors housing side, we’re down to two,” Monroe said. This decline underscores a substantial shift in the financial landscape of seniors housing, which investors should be aware of.
While the seniors housing sector has experienced consolidation, the HH&H market presents a contrasting picture. During 2023, there were 15 publicly traded acquirers of HH&H companies, making up 15% of all acquirers in the space. This is a slight decline from 2022, when 23% of acquirers were publicly traded, yet still indicates continued interest and investments in the sector.
Future Synergies Between the Two Markets:
One advantage HH&H holds over seniors housing is the ability to receive care anywhere, including in seniors housing communities themselves. There are many HH&H companies focused exclusively on older adults, so the leap to providing in-home care within these communities is a natural extension of their services. Goldenberg underscored the slow evolution of collaboration between home health and seniors housing.
He commented, “the evolution of collaboration and integration between home health and seniors housing has been fairly slow to play out. Operators are trying to figure out how to provide value-add, ancillary care services within senior living.”
While the potential for synergy exists between the two markets, operators are still in the process of navigating how to seamlessly integrate the services. As these industries continue to evolve, finding innovative ways to bridge this gap will be crucial in providing holistic and flexible care options for older adults. This is an area we are excited to see grow over the years, as investors see the potential just waiting to take shape.
