HBI Deals+Insights / News

Nursing homes: Enter domiciliary care at your peril!

The opportunity for nursing home groups to move into domiciliary care looks obvious, and it is a sector many of the largest groups have entered, but is it always the right move? Domiciliary care (homecare) comes with a high level of inherent business and reputational risk, and there is a strong argument for saying it’s more trouble than it is worth, particularly for smaller groups.

Click here to see our HBI Intelligence Domiciliary Care report, and here to see the largest Domiciliary care players in Europe by revenue.

The attraction is clear. Nursing home operators have the skill set and the staff setup to run a homecare business, they know enough of the sector and crucially, it gives them a pipeline of familiar and friendly new residents for their homes, allowing them to cover almost the entire continuum of long-term care. Large European nursing home groups such as Orpea, Korian and DomusVi have all entered the sector and the temptation to vertically integrate is obvious, particularly at a time of falling average length of stay in nursing homes.

That said, going into homecare is not straightforward and there are key differences with nursing homes. Take quality control. This is a massive challenge compared to a nursing home. Homecare is by its nature decentralised, and you are relying on your staff to maintain professional standards – often unobserved – while dealing with vulnerable elderly residents many, of whom may have some kind of cognitive impairment.

Elder care operators survive on their reputations for providing professional and caring services to their residents. Time and again we have seen operators lose business and be forced to halt expansion due to scandal. Sweden’s Carema, now Vardaga of the Ambea group, faced municipalities terminating and refusing to renew its contracts when it was alleged in 2011 that some residents were severely malnourished. In 2019 the CEO of Esperi, Finland’s largest nursing home group by revenue, stood down after the Finnish healthcare watchdog temporarily shut down one of its facilities. Is homecare worth the extra risk?

On top of these reputational risks, homecare operators also face a more challenging business environment. Not all the competition play by the rules. In many countries family and informal carers provide the bulk of homecare. This is particularly the case in Southern Europe, in Italy for example informal carers called ‘badanti’ who have no formal qualifications and 95% of whom come in from abroad to provide homecare for approximately €1,200 a month in a grey workforce, undercutting formal operators.

Germany has one of the largest grey homecare markets. Informal care workers are the main competitor of formal homecare providers who account just 10% of living-in homecare, according to the Federal Association of Home care in Germany (VHBP). HBI is told that these caregivers can work for around €800-1,000 per month cheaper than legally active caregivers. So not only would an operator be taking on a large reputational risk in going into homecare, but they also face a kind of informal competition that does not exist in the nursing home sector of Western Europe.

Finally, a homecare operator faces all the same inherent challenges, such as staffing and local authority funding, as a nursing home operator – but with a weaker bargaining position. We are told that in Denmark each municipality sets hourly rates for homecare. These can vary between €43- 76 (DKK 320-569) across the 98 municipalities, making some municipalities effectively unviable for for-profit operators, which in turn makes it very difficult to grow and gain market share. Attendo have faced similar issues with homecare in Sweden having to divest from some municipalities due to fee cuts. And of course staffing remains a perennial challenge for homecare operators just as it is in the entire social care sector.

And yet, having said all that, it is clearly seen as an opportunity and for the larger groups, it is. People want to remain at home as long as possible and the large groups have the capital and experience to operate effectively in the sector. Korian is aiming to double homecare revenues in the next few years from 10% of its business today. It is also the preferred sector of most governments looking at dealing with an ageing population, in part as homecare is significantly cheaper than institutional care. In its Covid recovery plans Italy has heavily emphasised homecare, Prime Minister Mario Draghi promised €1bn extra funding to increase the proportion of over 65s receiving homecare from four to ten percent. He added that “the home as the main place of care” is now possible in part due to the growth of telemedicine.

The market at the moment includes specialist home care groups, some mixed assisted living and homecare groups, such as Advita in Germany, and the large nursing home groups. We have heard that some smaller nursing home operators have plans to expand into homecare too, Blocks Group, a long-term care operator in South East Europe recently told us they had plans to move into homecare in the coming years.

But we still think small operators looking to do this should think twice. Vertical integration may be tempting but the higher you climb the more difficult it is to see what’s happening on the ground (and in people’s houses).

We would welcome your thoughts on this story. Email your views to James Elliott or call 0207 183 3779.