Size is starting to matter in the home health care business especially for the non-profit sector.
The acquisition this summer of the Visiting Nurse Association of Los Angeles by a for-profit company is another example of how vulnerable small players have become in the rapidly consolidating industry.
In August, Regency Health Services Inc., a Tustin-based for-profit operator of nursing homes, purchased the VNA of Los Angeles. Then in October, Regency itself was purchased by Sun Healthcare Group Inc. of Albuquerque, N.M.
“There’s a lot of growth in for-profits, including those that are publicly traded. They’re buying up others,” said Steve Valentine, president of the Camden Group in El Segundo.
In most cases, the acquirers are large for-profit entities, and those being acquired are primarily independent non-profits and smaller for-profit entities.
One factor driving the consolidation is that both governments and health plans have been reducing their rates of reimbursement for providers of home health care services. Those lower reimbursements mean that cost cutting becomes especially important, and consolidation is a good way to cut overhead.
“Everybody still anticipates that the market will grow at a very good clip, but they anticipate that revenue per unit will decline,” Valentine said.
The most lucrative opportunities today are not in private duty nursing, Valentine added, but in sophisticated areas such as physical therapy or infusion therapy. With infusion therapy, for example, home care companies can buy drugs cheaply in large batches and then administer them in home care settings at healthy markups.
Regardless of a company’s focus, the key to survival appears to be size.
“A lot of home health companies that are small are going to be bought up, especially the mom-and-pop organizations. They can’t compete; they don’t cover enough of the market,” said Trish Anderson, one of the owners of Phoenix Healthcare Consulting in Manhattan Beach.
“The regionalization of health care does work somewhat. If you go to payers and want a contract, they don’t want somebody who only covers half of Torrance or a piece of L.A. they want someone who covers it all and maybe part of Orange County too. Any small player is at a disadvantage,” she said.
At this point, all eight remaining visiting nurse associations in Southern California are healthy from an operational standpoint, according to John Puryear, president of the California Coalition, a group representing local VNAs.
The coalition strengthens each individual VNA’s position by allowing it to join other VNAs to bid collectively for contracts, said Puryear, who is also executive director of the Visiting Nurse Association of Santa Maria.
Valentine and Anderson agreed that there will always be a market for non-profit home health care, especially agencies run by non-profit hospitals.
Because so many non-profit hospitals also run hospice programs or home health care specific to children, they can use their fund-raising infrastructure to generate funding for their home health services, Valentine said.
“Generally they have a captured market. They can steer volume into home health. Everybody’s comfortable with it. Hospitals and doctors want to support efforts to reduce the length of stay in the hospital,” he said.
Non-profits closely aligned with hospitals and hospital systems “certainly will survive. Stand-alones probably won’t; they won’t find funding,” Anderson said.
That realization is what convinced the remaining Southern California visiting nurse associations to come together in a coalition. Even as a coalition, they are likely to face severe financial pressures from for-profit and hospital-affiliated companies.
But Puryear and Carolyn Markey, president and CEO of the Visiting Nurse Association of America, said recent federal actions to tighten up the regulatory requirements of home health care services could provide some protection for VNAs.
And legislation introduced by Rep. Fortney H. (Pete) Stark, D-Calif., that was included in the 1997 budget act will require hospitals to give discharged patients more information about where to go for home health care. Home health care agencies will be covered by a new flat-fee reimbursement procedure starting in October 1999.
“The tide is really turning the other way again,” Markey said. “Legislative and regulatory activity will have a great impact on all home health organizations. (Clinton’s moratorium) puts us squarely and clearly out in front in efforts to ensure that patients have confidence in home health care.”
Puryear suspects that the recent federal actions could stem the number of non-profits being sold.
“There’s a big groundswell to stop the conversion of not-for-profits (to for-profits),” Puryear said. “With Stark’s bill, it’s going to be more difficult for hospitals to do self-referrals. I see a good place for stand-alones.”
(The Stark bill requires hospitals to provide full disclosure of home health care alternatives available to patients, rather than just referring them to the hospital’s home health company.)
But Anderson doubted that the visiting nurse associations could count on legislation to prevent additional competition.
And Linda Smith, executive vice president of home care services for Little Company of Mary Health Services, sees visiting nurse associations in a difficult position “because they are free-standing when a majority of their customers are hospitals that have entered into the home health area.”
The Little Company of Mary, an order of Catholic nuns, runs three non-profit hospitals, including the Little Company of Mary Hospital in Torrance, and three non-profit home health agencies.
The 20-year-old Little Company of Mary home health system is healthy because of its links to the hospitals, Smith said. “We have done well with home health and we think home health belongs in the system because it offers the full continuum of care for patients. We monitor hospital patients’ care that is extended into the home setting. There is continuity of care.”
Non-profit agencies also give a sense of security to users, Smith said.
“Because of our values, our mission, they know we are looking at providing care before looking at reimbursement,” she said.