Five Ways Inflation Has Affected the Home Care Industry

And How To Reduce Operational Impacts in the Coming Year

According to the World Economic Forum, inflation is now the world’s biggest worry. Concerns over rising prices have persisted throughout 2022 — and will continue into next year. The level of unease Americans are feeling is the highest it’s been in decades.

Inflation, often measured by the consumer price index (CPI), has risen about 7.8% over 2022. As a result, consumers have seen higher prices for food, housing, and utilities. Seniors on fixed incomes are especially hit hard by inflation. Retirees spend more of their income on items highly affected by inflation, like food, medicines, and health care. As prices go up, many are cutting back.

Business owners and home health leaders, too, have felt the effects of inflation in the home care industry. This post looks at five ways inflation has affected those in the home health and hospice industry. Then it lays out action steps that agencies can take to reduce the impact on operations in the coming year.

The 5 Ways Inflation Has Affected the Home Care Industry Most

• Lower purchasing power
• Increased pressure to manage the cost of care
• More seniors are cutting back
• Persistent labor shortage
• Slower consolidation activity

Lower purchasing power

The cost of supplies, transportation, and marketing expenses have gone up. An agency’s dollar doesn’t go as far anymore. Increased overhead costs mean lower revenue.

Beyond profit margins, inflation in the home care industry has affected businesses’ buying power. Future budgets for staff incentives, quality improvement initiatives, supplies, and facility maintenance will be tighter.

Increased pressure to manage the cost of care

As operating expenses rise due to inflation and reimbursement rates decrease, it’s more important than ever to manage costs. Agencies are getting creative in finding ways to do more with less.

One example is telehealth. The Berry Dunn State of the Industry and Executive Summary Home Health and Hospice study found that 93% of agencies are using telehealth, despite a lack of reimbursement.

More seniors are cutting back

Inflationary pressures particularly affect seniors and families who depend on home health and hospice. Seniors spend about 12% more on healthcare than younger age groups. Inflation is top of mind for seniors.

A new report published this month found that people age 55 and older are cutting back on health care, meals, and even heat in their homes — to save money.

Many non-medical home care businesses have felt the repercussions of fewer referrals. Skilled home health agencies must grapple with their patient population’s increased financial and psychosocial needs.

Persistent labor shortage

Persistent demand for healthcare workers and rising inflation have put pressure on agencies to offer higher pay. In this environment, employees may be more motivated to chase wages, moving from one agency to another for better money or benefits.

Moreover, 2022’s rising gas prices were a concern in some regions. Home health nurses, therapists, and aides who travel per visit may have experienced a pay cut.

Slower consolidation activity

Another effect of inflation in the home care industry seems to be sluggish consolidation activity. As inflation and interest rates have risen, merger and acquisition (M&A) activity has gone down. That’s according to Mertz Taggert, the industry-leading healthcare services M&A firm specializing in home health, hospice, and home care.

The recently released insight report for Q3 said fewer companies went to market compared to 2021. Also, the announcement of the looming Final Rule slowed transactions. Personal care agencies were particularly affected.

The bottom line is, rising interest rates make borrowing more expensive. And that can derail M&A plans.

Next Steps for Agency Owners and Leaders

There are actions that home health and hospice business owners can take now to reduce the impact on operations in the coming year. Here are three goals for agency leaders:

• Optimize your workforce
• Encourage productivity
• Strengthen your infrastructure.

Here are a few steps that will help you accomplish these goals.

1. Consider how to reduce fixed, variable, and other costs.
2. Pursue strategic contracts, agreements, and partnerships that create value and reduce risk.
3. Cultivate a sustainable, thriving workforce through renewed engagement.
4. Deploy capital cautiously.

The Takeaway

Although inflation in the home care industry has enhanced some of the challenges agencies faced this year, it has provided an opportunity for growth. Consider these next steps to weather the inflation squeeze for agency owners and leaders.