Avoid the “Goldilocks Syndrome” When Establishing Home Health Therapy Rates

If you’re a contract therapy provider, home health care represents an important opportunity to expand and diversify your business. After all, spending on home health care is projected to reach $186.8 billion by 2027, outpacing all other care categories. And many of the providers you already serve, such as skilled nursing facilities (SNFs) and outpatient therapy clinics, are also moving into home health.

Home health therapy can be a lucrative strategy, but you need to be aware of some of the unique challenges of this environment. How do you set yourself up for success?

In our new “Contract Therapy for Home Health—Closer Look” series, we’ll look at key factors to consider when partnering with a home health agency, and how to establish a mutually profitable relationship that meets your immediate and long-term goals.

Roadmap to Rates

First up, there’s the most basic, yet most important factor of them all. Your billing rate. Contract therapy rates vary widely from coast to coast, state to state, even agency to agency. So, if you’re looking to others for inspiration or validation, finding a consistent benchmark can be a challenge. For example, in Colorado, the therapy company may invoice the home health agency roughly $70-80 per visit, with the therapist pay rate at $45 per visit. Further to the west in California, the therapy company may invoice anywhere from $70-$120 per visit, with the therapist rate ranging from $60-$100 per visit. It’s all over the map, literally.

Without a clear roadmap, many contract therapy firms have no idea what to pay their therapists, which makes it difficult to know what to propose to a prospective home health agency. This leads to the classic “Goldilocks” dilemma—If you charge the agency too much, you price yourself out of the opportunity. But if you charge too little, there’s no profit left once you pay your staff.

Finding the Sweet Spot

Finding the sweet spot between pricing and payroll comes down to four main areas:

-Local rates – Understanding your local market is key, and requires you to do some homework. Talk to therapists working in home health to get an idea of what they’re being paid, and compare that to national averages for PTs, OTs and STs. That should help get you in the right ballpark. The more knowledgeable you are, the more on point your pricing will be.

-Payer rates – Does the home health agency have a high managed care population vs. traditional Medicare? Insurance rates vary significantly, so you need take into account payer variances to ensure you don’t undercut your own services.

-Agency community – This may seem obvious, it’s in the home! But many agencies also provide care within assisted living facilities (ALFs) and continuing care retirement communities (CCRCs). You may have an opportunity to earn higher revenue if you have a therapy contract with the CCRC/ALF and the home health agency is treating patients there. In this scenario, you wouldn’t have to pay your therapists more to travel to a home outside of that senior living community because your therapists are already providing therapy within the CCRC/ALF (as a Medicare Part B provider). You’d be able to pay the therapist the same hourly rate they’re currently getting. So, when you invoice the home health agency their per visit rate, it’s without the higher cost of the per visit rate for the therapist.

-Your costs – Once you’ve decided on your payment and billing model, you’ll need to establish margins that will cover your staffing and administrative costs… and then deliver profit. A rule of thumb suggests that you bill the home health agency at a rate that is 20-25% above what you pay your therapists. This will ensure you cover your costs with margin left over, giving you the cushion you need to cover unexpected expenses and grow the business at the same time.

While there is no one right answer when it comes to setting rates, there is a wrong answer—and that’s the one that prices you too high for the opportunity or too low that you can’t be profitable. The worst thing you can do is to jump into the home health market without having taken the time to evaluate the opportunity and understand your prospective partners—who they serve, where they serve, their patients and types of payers.

The good news is that if your main business is serving SNFs, then you have some flexibility to start small, test out the waters and learn from your mistakes. Also, talk to your therapy EMR provider to find out how they can help you with pricing support in the software. You’ll want to make sure you have the ability to tailor individual contracts to the needs of each agency and invoice accordingly, whether it’s by the hour, by visit type and/or employee type to ensure billing accuracy.

Stay tuned, as our next blog will dive into the murky waters of home health therapy staffing. In the meantime, read our tip sheet to learn about the five pros of outsourced home health therapy under PDGM.