Roulette Wheel
Our annual state of the industry report
by Hannah Wolfson

As the public health emergency drags on and a new COVID-19 variant takes hold, it’s hard to try to predict what might happen in the year that’s just begun. After all, who could have guessed a year ago we’d be facing a scramble for manufacturing resources, months-long shipping delays, vaccine mandates, the threat of inflation—and also looking at a possible $150-billion boost for home- and community-based services?   

In some ways, looking ahead to the next 11 months is a bit like stepping up to the roulette table. Depending on how the ball falls (and how Congress and federal administrators act), 2022 could be a banner year for homecare, which has been boosted in the public eye by the role it continues to play in the health care continuum during the pandemic and by the public’s new awareness of the value of aging—and healing—in place. On the other hand, continued staffing and supply chain issues could stymie the industry’s opportunities for growth if they continue unchecked.

Let’s spin that wheel and see what’s coming.

A Weak Link in the (Supply & Shipping) Chain

We’ve all seen images of ships backed up in the harbor outside Los Angeles and stacks of containers in Asia. Between the shipping and transport crisis and shortages of raw materials like aluminum and computer chips, supply chain woes loom large for every industry.

The news coverage tends to center on car shortages and delayed holiday gifts, but durable medical equipment (DME) manufacturers are also struggling.

“Do we need another cellphone? Do we need another electric car? Do we need another cloud-connected refrigerator?” ResMed CEO Michael Farrell said in a video the company posted on YouTube in December. “Or do we need a device that gives somebody the gift of breath,
stops suffocation, keeps them out of the hospital and saves money for broken health care systems worldwide?”

Farrell told media that ResMed is producing less than 75% of what its customers need. (Some of that demand, of course, has been created by another DME woe, the recall of some Philips Respironics CPAPs and ventilators, which has caused an unexpected surge in demand for those devices.)

Economists are predicting that supply chain issues will continue well into 2022, with both limited product availability and increases in prices. Industry advocates have pushed for medical equipment and other life-saving devices to take priority—and insisted that Medicare should do a better job keeping up with real-life prices.

“Due to the global supply chain strain, providers are waiting months to receive parts to repair things like power wheelchairs. Prices for some parts have shot up 30% since early 2020 due to limited supply,” American Association for Homecare President and CEO Tom Ryan wrote in a widely distributed op-ed. “Over the same time frame, the cost of steel for wheelchairs and hospital beds has jumped over 60%, while the cost of polycarbonate plastics, used for oxygen tubing, nebulizers, canisters, oxygen and PAP masks, has increased by 100%.”

In other industries, makers and sellers can simply increase prices and pass it on to users. Not so with reimbursed items, or
when dealing with payers who model Medicare pricing.

“Congress and the administration must take action to ensure homecare remains viable and accessible for those who need it, now and into the future,” Ryan said.

Even without chip and material delays and increased costs, getting equipment shipped has proven problematic. According to the Health Industry Distributors Association (HIDA), it is taking an average of 38 additional days to transport medical products within the United States—meaning a wheelchair or personal protective equipment arriving at an American port on Christmas Eve wouldn’t be delivered until February or later.

“We as a country cannot allow cargo that is essential to treat patients and protect health care workers to wait in line during a public health emergency,” said HIDA President and CEO Matthew J. Rowan.

To fight the problem, HIDA has called for the creation of a “fast pass” system to speed up the movement of medical supplies and add space on containers and sea freight.

“Continued delays will have negative consequences for patient care and public health,” HIDA reported.

Help Really Really Really Wanted

Staffing problems also dominated the headlines in 2021 and aren’t expected to lessen in 2022.

“It remains unclear whether the industry is prepared for the volume of workers needed, both during and beyond the pandemic,” read a report produced by the Office of the Assistant Secretary for Planning and Evaluation at the Department of Health and Human Services. The report was titled “COVID-19 Intensifies Home Care Workforce Challenges,” which pretty much sums up the situation.

In just one example, the nonprofit in-home care provider BAYADA reported it denied service to an unprecedented number of new referrals due to staffing problems, including 64% in its largest coverage area.

And in a recent study from OnShift, 96% of 2,050 respondents in the senior care industry said they were facing a staffing shortage and two-thirds expected their challenges to remain the same or get worse in the next three years. In addition, 83% said employee engagement and retention was a “high priority” for them in the coming year.

Staffing pressures are expected to last for the long haul. According to PHI, the long-term care industry needs to fill 7.4 million job openings from 2019 to 2029.

“It’s difficult to imagine how the long-term care sector will meet demand for direct care workers without dramatically improving their jobs,” said Kezia Scales, director of policy research at PHI.

The Biden Administration gave homecare operators reason to get excited with its Build Back Better proposal to spend $150 billion toward reducing waitlists for on expanding home- and community-based health services and increasing wages for in-home caregivers. But at press time, that plan had stalled in the House.

“While we hope the pressures will reduce somewhat in 2022 as more people enter back into the labor force, we know staffing will continue to be the No. 1 issue for the homecare industry in 2022 and beyond,” said Jake Brown, CEO of Always Best Care.

Buy Buy Baby Boomers

Despite concerns about staffing and supply chains—and some worry that interest rates will increase more than once in 2022—mergers and acquisitions (M&A) are expected to continue unabated.

Health care M&A activity was robust in 2021—maybe even record-setting— with a more than 25% increase in transactions, according to the law firm Epstein Becker and Green.

Homecare has been part of that rush, said Bradley Smith, managing director and partner at VERTESS, an advisory firm specializing in health care. Smith said activity was seen as likely to slow at the end of 2021, in part because some mergers were thought to be driven by worries about an increase in capital gains taxes starting Jan. 1, but that didn’t happen.

At VERTESS, they’re seeing more new clients than ever before at the end of the fourth quarter, which usually isn’t a big time for new business.

“This year has been our best year ever, and I talked to other M&A advisors/firms and they’re saying the same,” Smith said.

Two main factors driving current M&A activity are expected to persist into 2022: liquidity in the market (estimated as around $2.5 trillion), and a continued retirement of baby boomers, who own most of the companies in the U.S. When investors are willing to pay eight to 10 times of a company’s annual earnings, it can make it easier for someone approaching retirement age to decide to sell, Smith said.

“I don’t see it slowing down anytime soon with that much money out there,” Smith said.  “People are realizing, ‘hey, there are more things to life than work;’ people are seeing that and saying let’s sell, let’s go on a new adventure.”

Telehealth, Competitive Bidding, Vaccines & More

Smith said that part of the appeal for investors buying homecare companies are new opportunities in technology. Indeed, the COVID-19 era has brought an intensification of technology use out of sheer necessity and the loosening of federal and state restrictions—and as a way to patch staffing problems. One thing to watch for in 2022, according to the National Association for Home Care & Hospice, is whether telehealth waivers are extended beyond the public health emergency.

One thing we’re unlikely to see coming out of Washington in 2022 is a new competitive bidding program, at least not on any grand scale. Round 2021 of the DME Prosthetics, Orthotics and Supplies (DMEPOS) Competitive Bidding Program was suspended for all product categories except off-the-shelf back and knee braces—and few believe the few program will be back online in 2022 or even 2023.

And, thanks to regulatory moves in 2021, there may be opportunities for growth in complex rehab technology and home infusion in 2022, plus the possibility of expansion efforts for palliative care. And at press time, providers are watching the courts ping-pong the health care worker vaccine mandate back and forth.

Whatever may be coming down the pike, home health, hospice and HME operators have shown that they can be ready. 

Hannah Wolfson is editor of HomeCare magazine.