The mantra at last year’s AAHCP conference in Grapevine, Texas, seemed loud and clear: if a house call practice hopes to survive going forward, they must do one of two things – 1) become part of a larger health system through acquisition, or 2) accelerate growth through expansion or acquisition of other practices. The conventional wisdom was that the economics of house calls can only work if they’re complemented by other services or utilize economies of scale. After working with a variety of house call practices, this is a view with which I tend to agree.
However, in the rush to create stability and market domination, we’re seeing a lot of aggressive growth whose potential is being hampered by two key areas (detailed below). And no matter how many “burn outs" we’re witnessing, it seems that everyone thinks it can’t happen to them. Here are a couple of tidbits I’d like to share, based on the struggles that I’ve seen within house call practices. If you’re looking at acquisition or (more likely) expansion, please keep the following two things in mind:
SWOT Analysis. For those not in the know, SWOT stands for “Strengths, Weaknesses, Opportunities, Threats”. It seems obvious, but I’ve seen/heard about a number of operations that went into a new territory based off elderly population census and existing competition alone. For any new territory you’re looking to develop, to start I would recommend reviewing the Local Coverage Determination of their MAC. Do they reimburse for the same services you’re providing in another state? Depending on the MAC, they may not. How easy is it to recruit providers? Just because Philadelphia was a barnburner doesn’t mean Kansas City will be the same. (I love you, KC. Great BBQ – just using you as an example.) What are the office space rents? Can you get the same deal you’re getting now? Will the talent pool go for the same rates? Make a call to the home health agencies to see if they’re happy with the current options. There may be six visiting physician groups there, but if they’re all terrible, hello opportunity!
Start-Up Investment. It’s shocking how many groups go into a new territory lacking a sober view of capital requirements. Depending on the territory, office factors, etc., it could take up to six years to earn back your initial investment. That’s fine if you’re working with two or three offices, but if you’re talking about 8-10 offices regionally or nationally, do you have the reserves to meet those obligations? Also, what is your plan for underperforming operations? If an office is missing goal for a year or more, do you stop the hemorrhaging and shut that location down? How long do you take the loss before making a decision? It’s probably a good idea to formalize that process before opening in additional markets.
If you’re reading this blog, you’re either in house calls or want to be. And I encourage it; I sincerely believe this delivery model will be a larger part of American healthcare going forward. That said, most of the players in this sphere are still trying to figure it out, especially on the reimbursement side. I strongly recommend that you spend at least 3-6 months building out a formal growth plan. That way, we can celebrate your success in a future blog post, rather than lament another of these much-needed practices shutting its doors.