How Private Equity Is Buying Up Home Care Agencies

Lucas: There is a statistic that, once you hear it, you cannot unhear it. Forty-four percent of the largest home care agencies in the United States are now owned by private equity firms. Luna: Forty-four percent. That is not a niche anymore. That is structural. Lucas: It is structural. And it happened quietly because home care is such a fragmented industry - thousands of mom and pop agencies, each with maybe twenty to fifty caregivers. PE firms have been rolling them up at a pace that most people outside the industry simply haven't noticed. Luna: So what does that roll-up actually look like in practice? I mean, you're not buying a tech company with recurring SaaS revenue. You're buying a fleet of caregivers who drive to people's houses. Lucas: Right, and that's exactly the tension. The economics are very different from, say, the dental support organizations we covered last year. A home care agency's primary asset is its caregiver network and its relationships with local referral sources - hospitals, discharge planners, Area Agencies on Aging. The typical acquisition multiple has been running between eight and twelve times EBITDA. And the buyers are firms like Webster Equity Partners, which owns Help at Home, or Apax Partners, which owns a big stake in AccentCare. Luna: And Help at Home is now one of the largest home care providers in the country. That's a roll-up that started with regional buys and just kept consolidating. Lucas: Exactly. And the thesis is demographic and undeniable. The population over eighty is the fastest-growing age cohort in the country. The vast majority of older adults want to age in place rather than move to a facility. Medicaid is the primary payer for long-term home care, and Medicaid reimbursement has been rising - albeit unevenly by state. So you have a demand curve that is only going up, a fragmented supply base, and a government payer that is politically hard to cut. That is a recipe for PE interest. Luna: But there's a reason it stayed fragmented for so long. Margins are thin. Caregiver turnover can run sixty or seventy percent a year. And you're dealing with a labor-intensive service that's hard to scale without losing quality. Lucas: You've hit the central problem. The unit economics of a single home care visit are basically: revenue per hour from Medicaid or Medicare, minus the caregiver's wage, minus overhead. The caregiver wage is typically between thirteen and seventeen dollars an hour. The reimbursement rate varies by state but might be twenty to twenty-five dollars. So you're left with maybe three to five dollars per hour before corporate costs. It's a thin-margin business where scale can help with back-office efficiency and purchasing power, but it doesn't fundamentally change the labor-cost equation. Luna: So how do PE firms generate returns in that environment? They can't just cut wages further - they'd lose caregivers entirely. Lucas: They focus on a few levers. First, they consolidate the back office - billing, scheduling, HR, compliance. A solo agency might be paying a third-party billing company fifteen percent of collections. A pe owned platform can bring that in-house and cut the cost. Second, they push for higher-acuity patients - the ones who need skilled nursing or complex care management, which reimburse at higher rates. Third, and this is the big one, they try to move from fee for service to value-based arrangements, where the agency gets a fixed monthly payment per patient and profits if they keep them out of the hospital. Luna: That value-based shift is what every healthcare investor talks about. But is it actually happening in home care, or is it mostly aspiration? Lucas: It is happening more than you'd think, but from a low base. Some of the larger pe backed agencies have entered into Medicare Advantage contracts where they are essentially managing the full cost of care for a patient at home. If they can reduce hospital readmissions and ER visits, they keep the savings. That's a real margin driver. But it requires sophisticated data analytics and care coordination - things most small agencies don't have. So the PE firms are betting that their scale investments in technology will pay off as these contracts grow. Luna: I want to talk about the regulatory risk, because it's significant. In 2024, the Centers for Medicare and Medicaid Services - CMS - finalized a rule requiring that at least eighty percent of Medicaid payments for home care go directly to caregiver wages and benefits, not to overhead or profit. That directly squeezes the model you just described. Lucas: That rule - the eighty-twenty rule, as it's called - was a direct response to concerns that PE firms were extracting too much from the system without improving worker pay. And it has real teeth. States have to enforce it, and agencies that don't comply risk losing their Medicaid certification. For a pe owned agency buying up smaller ones, that means you can't simply pile on administrative costs and call it efficiency. You have to show that the money is flowing to caregivers. Luna: Right. And caregivers who are making fifteen dollars an hour are not exactly being overpaid. So it's a legitimate policy concern. But from an investor perspective, it caps the upside. Lucas: It caps the administrative margin, yes. But it doesn't cap the value-based care upside, because that revenue is often outside the Medicaid fee for service system. So the firms that can succeed in Medicare Advantage or managed Medicaid contracts can still generate attractive returns. The pure fee for service Medicaid model is becoming a lower-margin business, and PE is adjusting accordingly. Luna: So if I'm a limited partner - a pension fund or an endowment - looking at a PE fund that's focused on home care, what am I asking? Lucas: I'd ask two things. First, what percentage of your portfolio's revenue comes from value-based arrangements versus fee for service Medicaid? If it's under twenty percent, you're basically a labor-staffing company with a multiple expansion thesis, and that's riskier. Second, what is your caregiver turnover rate, and what are you doing about it? If you're losing seventy percent of your workforce every year, your training and recruiting costs are eating your returns. The best operators are investing in better scheduling software, career ladders, and even benefits like health insurance to retain caregivers. Luna: And what about the exit environment? Who buys a home care platform from a PE firm? Lucas: The most common exit is to another PE firm - a larger one that wants to roll it into a bigger platform. You've seen that with Help at Home, which went from one PE owner to another as it scaled. There have also been sales to strategic buyers like insurance companies - Humana, for instance, has been buying home care assets to build out its Medicare Advantage network. And occasionally a sale to a publicly traded home health company like Amedisys or LHC Group, though those are consolidating too. The IPO window for home care has been mostly closed - the public markets have been skeptical of the margin story. Luna: So the insiders are trading assets among themselves, and the ultimate owner is increasingly a large financial institution. That's concentration risk, but it's also a sign that the thesis is durable enough for long holds. Lucas: Exactly. And I think the long-hold approach is actually more suited to home care than to some other roll-up sectors. You can't flip a home care business in three years. It takes time to build the referral relationships, integrate the technology, and shift the payer mix. The funds that are willing to hold for seven to ten years are the ones that will probably do best. Luna: You know, Lucas, this conversation is a good reminder that a lot of our listeners are thinking about their own parents or their own future. And the question of who provides that care and how they're paid for it is not abstract. Lucas: Absolutely. And if this show has helped you think about a financial or policy question more clearly, we keep it going with no ads and no sponsors. The only reason we can do that is listeners who toss in a few dollars here and there. So if today's episode was worth a coffee to you, the link is buy me a coffee dot com slash fexingo. That's it. No pressure. And we get right back to it. Luna: Yeah. And speaking of the future, one trend I'm watching is the emergence of home care agencies that focus specifically on dementia and Alzheimer's care. That's a higher-acuity, higher-reimbursement niche that PE is starting to target. Lucas: It is. And it's a natural extension of the value-based play. Dementia patients have extremely high rates of hospitalization if they're not managed well at home. A specialist agency that can keep them stable and out of the ER can generate significant savings for a Medicare Advantage plan. So I expect we'll see more carve-out platforms focused on memory care. Luna: What about the geographic variation? Because home care reimbursement is set at the state level for Medicaid. Are PE firms clustering in certain states? Lucas: Very much so. The most attractive states are ones with higher Medicaid reimbursement rates and strong managed Medicaid programs - states like New York, California, Illinois, and Massachusetts. The less attractive states are those with low reimbursement and no managed care, like Mississippi or Alabama. So the roll-up is geographically uneven. A PE platform might have a strong presence in the Northeast and the West Coast but almost nothing in the Deep South. Luna: And that creates an interesting dynamic where the quality and availability of in-home care increasingly depend on whether your state has a favorable PE environment. Lucas: It does. And that's a policy question as much as an investment one. If PE pulls out of low-reimbursement states, those states' aging populations may face even greater difficulty accessing care. On the other hand, in high-reimbursement states, pe backed agencies might be able to offer better wages and more reliable service. The divergence is real. Luna: So what's the bottom line for someone considering investing in a PE fund that focuses on home care? Lucas: Look for funds that have a clear plan for payer mix transition, a track record of caregiver retention, and a realistic view of the regulatory landscape. The demographic tailwind is strong, but the execution risk is higher than in many other healthcare roll-ups because the labor is the product. If you can solve the labor problem - through technology, training, or better wages - you can build a very valuable business. If you can't, you're just buying a headache. Luna: And as we've seen in so many other PE roll-up sectors, the easy buys are done. The next phase is about operational skill. Lucas: Exactly. And that's what separates the firms that will compound returns over the next decade from the ones that will sell out at a mediocre multiple. Home care is a business where patience and operational focus matter more than financial engineering. Luna: Well said. Alright, that's a good place to leave it for today.