Jones & Bartlett Learning Nursing Blog

    Author Speaks Out On Eldercare Business Plans

    Posted by admin on Sep 29, 2011 10:24:43 AM

    Check out this interesting blog post from Bob O’Toole, contributing author to Cathy Cress’s Handbook of Geriatric Care Management, Third Edition.

    Understanding the Difference between “Need” and “Demand”:Don’t Base Your Eldercare Business Plan on the Growing Number of Those in Need of Caregiver Support

    "America is rapidly moving to a two-tiered system of long-term care services. One provides a range of high quality services for those who can afford to pay; while the other offers very limited services and often poor quality care. This is, perhaps, the major domestic issue facing Americans today and will loom larger as the impact of caring for a rapidly aging population becomes more urgent.

    It is tempting to look at the research data and conclude that the market for services to an aging population is vast. The National Alliance for Caregiving in collaboration with AARP published a study in November 2009 that estimates there are at least 43.5 million caregivers age 18 and over, equivalent to 19 percent of all adults, who provide unpaid care to an adult family member or friend who is age 50 years or older."

    It’s an old cliché, often repeated in books aimed at budding entrepreneurs that, “... the basic formula for building a successful business is ‘find a need and fill it?’ While this simple bit of advice sounds like a logical approach to a prospective market niche, it is not a sound revenue model for an eldercare business. It's clear that the need for eldercare services is huge and growing rapidly. But to survive as independent business owners, eldercare entrepreneurs must look more closely at the data and embrace a more realistic philosophy.

    Many entrepreneurs open private pay elder service companies or buy home care franchises blinded by statistics such as "More than 65 million people, 29% of the U.S. population, provide care for a chronically ill, disabled or aged family member or friend during any given year and spend an average of 20 hours per week providing care for their loved one."

    That appears to be a very attractive customer base with lots of profit potential. I'm not challenging these statistics. If anything they may be on the conservative side. But if your revenue model is based on elders and/or caregivers that must pay you from their private funds, look before you leap.  Your business plan must put the fact that 30 percent of the population are caregivers into a larger context.

    The problem is that "need" doesn't pay the bills. "Demand" does.

    Just because a large and growing percentage of American families need caregiver services and support, only a very small percentage of those folks can afford to purchase these services.

    According to the most recent(2010) data from the census bureau the top-earning 20 percent of Americans — those making more than $100,000 each year — received 49.4 percent of all income generated in the U.S.,   That ratio of 14.5-to-1 is  nearly double the ratio of rich to poor-7.69- in 1968.

    The U.S. has the greatest disparity of wealth among Western industrialized nations.

    At the top, the wealthiest 5 percent of Americans, who earn more than $180,000, added slightly to their annual incomes in 2009, census data shows. Families at the $50,000 median level slipped lower. (Source: – September 28, 2010)

    According to the recently published "long-term care cost study" funded by insurance giant Genworth "Home care rates have remained flat in part because of increased competition.  If a person needs only 6 hours per day of care to stay at home the annual cost is about $41,000."

    A person needing round the clock care at home due to the limitations caused by Alzheimer's disease, Parkinson's disease and stroke. Will need $73,000 at $200 per day and $109,000 at $300 per day to pay for just 1 year of care in 2010.

    In other words by 2030, there will be about 72.1 million older persons, but less than 7 million of them will be able to pay for home or facility care if they should need it.

    The US home healthcare industry includes about 23,000 establishments (single-location companies and branches of multi-location companies) with combined annual revenue of $56 billion.

    The industry is highly fragmented: the 50 largest companies generate less than 25 percent of revenue.

    The mythology surrounding how long term care is paid for presents an obstacle to the independent, for-profit eldercare professional.

    The tradition of having most health care for older Americans paid for by third party insurers such as Medicare, Medicaid and retiree health plans, has created an expectation that has become firmly established in the American psyche.  Despite the fact that, except for the very poor, long-term custodial care costs must be paid for out of pocket; many Americans still believe that these costs are, or should be, paid for by government programs regardless of the family’s income and assets.

    Only those with substantial financial resources can afford to pay privately for care at home, assisted living facilities, continuing care retirement communities, and other expensive discretionary health and preventive services, not paid for with public funds.

    Because demand and not need determines the success of an elder care business, this fundamental fact of life must be taken into consideration when developing a business plan for a for-profit, fee based eldercare business. The target market for such a business is not the 39 million families who need geriatric care management services, but the much smaller subset of those families who can afford to hire a GCM, are willing to pay for the services GCMs and other for profit eldercare enterprises provide, and can actually find their way to the fee based provider. Raising awareness of the availability of private pay alternatives is a major challenge to bringing in new business, especially when most small business owners have very limited marketing budgets.

    Bob O'Toole, LICSW, is an experienced Professional Geriatric Care Specialist, and an expert in private alternatives to pay for the cost of long-term and chronic care. He is the author of “Private Revenue Sources for the Fee Based Care Manager: Need vs. Demand in the Private Eldercare Market” Which is chapter 17 in the Handbook of Geriatric Care Management, third edition, published by Jones and Bartlett.

    Read about the Third Edition of Handbook of Geriatric Care Management and more on author Cathy Cress’s website and blog.


    Topics: Author, Medicaid, elder care, geriatric, Government, medicare, Geriatric, Health care, health plans, retiree

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