This post is part of a series of business ideas that come to me in the course of everyday life. Some of them are in areas I have experience and expertise in, while others will be more off-the-wall. I will comment briefly on the skeleton structure, how to get started, overall viability, and projected payoff. If you like it, feel free to take it and run with it.
America is aging. During the last recession, health care remained a sanctuary from the oasis of layoffs in part because it was one of the few sectors of the economy that was growing. Even today, the mixture of jobs continues to shift. A whopping one out of every nine workers now works in health care. Is that necessarily such a bad thing to be demonized by politicians? Shouldn’t we celebrate that we have a growing sector providing good employment to many of our citizens?
In this realm there are opportunities for the bold. We focused on some solid career choices in health care in my book, but this post is about opportunity for entrepreneurs to make a difference – to innovate, make a difference in everyday people’s lives, and to make a profit at the same time.
As people naturally age, they acquire more chronic diseases that require more contact with the health care system. People can become weakened after a major surgery, fall, fracture, or even serious infection that they need significant time to rehab and acquire enough strength to perform basic life functions. At other times, especially in end-stage cases of chronic organ failure (such as heart/lung/kidney/liver disease), they can become so disabled that they require around the clock cares, administration of complex medications, or even become dependent on all sorts of machines (dialysis, ventilator) for life support. Their medical needs are so complex and debilitating that they are beyond the ability of most families to manage at home. This is where the nursing home steps in. In the short-term, nursing home provide places for residents to rehab from a major hospitalization or medical event, while they require increased support and supervision not available at home (skilled option). For others who can afford it, nursing homes can also be places where they live permanently (residential option).
We’ve already established that there is significant demand for nursing homes. In fact, there are not enough of them out there to provide for even the short-term needs of people needing to rehab. Consequently, many hospitals struggle to place their patients, even encouraging some of the borderline cases to rehab at home to avoid a prolonged wait in the hospital. Some of the nursing homes I’ve toured and worked in are quite dilapidated – shared rooms, moldy furniture, the smell of urine all over the floors. Such is the durability and intensity of the demand that these businesses are able to stay profitable despite how little effort they put in to entice and please their customers.
The revenue stream is extremely stable. Medicare (almost all nursing home customers are Medicare-eligible) and certainly most private insurance have benefits that cover the cost of short-term rehab stays after a major medical event. It’s easy to meet criteria. An elderly individual who isn’t very active and who doesn’t have enough support at home (e.g. an elderly spouse with his or her own medical needs and absent children who can’t or don’t want to serve as caregivers) can become deconditioned enough from a routine hospitalization to warrant a brief rehab stay for physical therapy. I emphasize again – most of the time, these benefits are 80-100% covered in a tapering fashion up to 180 days per year, with variation on the duration and degree of support depending on the exact medical plan.
There is a degree of wiggle room on payments as well. Normally, each nursing home can count on approximately $5,000-$12,000 per patient per month for care, depending on the payer. For a difficult patient (no family, drug abuse, history of confusion or violence), nursing homes can refuse to accept a transfer, holding out and negotiating with a hospital for a supplemental bonus payment, which I’ve seen as high as $20,000 extra per month. Depending on the size of the facility and the number of patients at any given time, that’s substantial and stable monthly revenue.
Expenses are higher than for my preferred small scale digital entrepreneurism given facility, equipment, and labour costs, but they’re still quite manageable. To be qualified as a nursing home, there needs to be a supervising physician, NPs or PAs to do the initial intake evaluation and overnight coverage, a team of nurses and LVNs, therapists to assist in rehab, and a pharmacy to dispense medications. Labour expenses will therefore form the bulk of one’s costs.
How can you make your own niche and stand out? Having a good payer mix is critical. It’s far better to have a Medicare patient at a SNF than a Medicaid one, given an almost doubling of payment per patient per day. This means basing the nursing home in a posh area where the demographics are favourable. If one is willing, there may be room in the market for ultra upscale residential (custodial, not skilled) nursing home facilities catering only to very wealthy completely private payers. Like in most industries, it pays to be on the higher end. Another important factor is keeping expenses low. California for example has higher wages for nurses, therapists, and pharmacists compared to other states, without a corresponding boost in pay.
Be careful about cutting expenses to the bone, as the federal government is attuned to how profitable nursing homes are and is targeting long-term care facilities with its scrutinizing gaze, appraising for quality, safety, and fraud.
In short, demographics are favourable. Profits are high and expenses are manageable. Upfront start up costs are high given the initial investment needed in the facility and personnel, but once up and running, a nursing home can be consistently profitable.