Throughout the years, Kenyon HomeCare Consulting has had the privilege of assisting successful start-up home health agencies across the country. Although many thoughtful questions are asked, we have noticed that only 10% of those individuals requesting assistance have projected out the assumed cost of starting up. The remaining 90% have given little consideration to the cost of starting a home health agency. If they have thought about it, they tend to grossly underestimate the revenues needed for the first year of operation.
Costs of a start-up home care agency vary by state, as well as by the type of home care agency that an individual may wish to start. The least expensive is the non-skilled home care agency, followed by the licensed skilled home care non-Medicare. The most expensive start-up is Medicare/Medicaid home health and hospice.
One of the major reasons new home care businesses fail is because of lack of working capital for the start-up phase of the business. The estimated cost to start-up a non-skilled private-pay home care agency runs about $40,000 to $80,000, Licensed home health non-Medicare $60,000 to $100,000, and Medicare-certified agencies $150,000 to $350,000, depending on the state in which you start your home health agency. Much of the cost is incurred around licensing issues and regulations requiring licensed personnel, computer software, and hardware; patient care costs that are paid out of the owner’s pocket and are not recoverable; commercial space for the office; and the length of time the state is out until initial review or survey. Additionally, many states now require that all Medicare start-up agencies go through an accreditation organization, which also adds cost and time to the start-up phase.
Anyone thinking about starting up a home care/health agency must first develop a working budget for the first year. There are some basic costs that all home care start-ups share depending on the type of agency and the state and federal rules: name and logo development, policy and procedure development if in a licensed state or going for Medicare, computer software and hardware, sales and marketing, recruitment and retention, office furniture, supplies, and equipment, office space rental, plus telephones, and personnel costs. For the Medicare agency start-up costs, the requirement of paid clinical staff to care for a minimum of 10 patients has to be added into the start-up budget cost. Those monies, considered part of the start-up costs, are not recoverable from the Medicare. In addition, Medicare and the states will require a specified amount of money in a bank account to prove the financial viability of the new organization. All of these elements must be included in the start-up budget.
There is one last budget element that must be added: payment to the new owner. This is the most commonly missed budget line. Starting a business is a full time job! The time and energy invested in starting up a home care agency is considerable and requires a line item for reimbursement. Some of the estimated start-up costs stated above are the reimbursement that the owner will need to survive financially while the agency is getting started. Failure to include this expenditure leads many aspiring home care agency owners to work outside the start-up to generate income while they simultaneously try to start the business. This is a sure recipe for failure.
Are you starting up a health/home care agency, have the working capital, and need some assistance in developing your budget? Visit our online system at Kenyon HomeCare Consulting to schedule a consultation now.
- Getting Your Home Care Agency Off to a Successful Start, Part 5: Home Care Financial and Analytics
- Differentiate Your Agency for Greater Success
- Home Health, Home Care, Hospice: Get Your Agency Off to a Successful Start
Category: Agency Startups & Diversification