HCA448 Case 2
Beginning in 2015, Aging Gracefully, a nonprofit agency that provides care to patients in need,
faced a series of cutbacks in state funding that led to a deficit in its budget. The CEO of the
agency, Don Arnold, was concerned that Aging Gracefully would be unable to continue its
mission of caring for older adults I need if the agency did not find a way to raise revenue.
In March 2016, Arnold set up the New Business Group to explore ways for the agency to
convert some of the services that it currently offered for free to a profit-based system for those
who could afford to pay. Included in the group, which met every Tuesday at 9:30 A.M., were
Arnold, Beverly Slater (chief operating officer), Roslyn Warner (director of marketing mid-
development), Gilda Newburgh (director of housing), Colleen Confit (marketing manager),
Pamela Tilden (housing manager), and Emily Furley (social services manager).
Number of new business areas were explored. It was critical for Aging Gracefully to
assess the potential of these areas of business, set goals and objectives, and implement a plan of
action. The expenses for the agency were divided among three basic areas; home care, housing,
and social services (see Table 1).
Table 1. Aging Gracefully agency budgeted revenue and expenses ($ in thousands).
Staff within the organization did not fully support top management’s efforts to require
clients to pay for services. This was particularly true of social workers. Social workers were
trained as advocates of people in need and did not recognize the difference between a client in
need and one who could pay for services. They often did not recommend Aging Gracefully to
their clients for home-care services; they would recommend lower-priced alternatives instead.
Aging Gracefully’s mission was to care for the needy in instances when they could not care for
themselves. The agency operated exclusively in the Boston metropolitan area and offered a
variety of services related to the mission. One main focus of the agency’s effort was caring for
the elderly, and this area was expected to grow because of the ageing population in the United
States (see Table 2). By 2040, more than 20% of the U.S. population will be 65 years of age or
The agency consisted of three divisions: Home Care, Housing, and Social Services. Each of the
divisions operated independently with its own budget. The director of home care was responsible
for both licensed and certified home-care programs as well as private-pay home care. The
housing director ran senior centers and residences for older adults, and the director of social
services managed the programs for the older adults in need.
Table.2 Population by age (in thousands)
Age 65-74 Age 75-84 Age 85+
Year Number % Number % Number %
2000 18,551 6.7 12,438 4.5 4,333 1.6
2010 20,978 7.0 13,157 4.4 5,969 2.0
2020 30,910 9.5 15,480 4.7 6,959 2.1
2030 37,984 10.9 23,348 6.7 8,843 2.5
2040 33,968 9.1 29,206 7.9 13,840 3.7
Source: U.S Bureau of census, 2000-2050 projected data, middle-series assumptions
The homecare division was a licensed home health care agency. It trained home health aides,
homemakers, and housekeepers and placed them in positions home health aides were specially
trained to assist older clients with personal care such as bathing, dressing and toileting. They also
served as companions for their older clients. Homemakers were trained to acts as care givers for
children in the homes of incapacitated parents. Housekeepers cleaned and performed other
household tasks for people incapable of doing so.
Within the homecare division, services were provided through government contracts and visiting
nurse services, which billed Medicare or Medicaid. Alternatively, Aging Gracefully billed the
client directly, a payment system known as “private pay”, which served about 10% of the
homecare business. Nationally, the private-pay home care market was smaller than the Medicare
and Medicaid home care markets (see table 3). Because Aging Gracefully was a licensed agency,
not a certified agency it could not bill Medicare or Medicaid directly for services. Therefore,
Aging Gracefully had to align itself with a certified home health care agency that could bill in
this manner (as did VNS).
In 2015, Aging Gracefully had entered in to a strategic alliance with VNS to provide home
health aides in eastern Massachusetts exclusively, and by 2016 the VNS business represented
90% of the home health aides patched. Because approximately 26% of the agency’s revenues
were generated by VNS contracts, the agency was highly committed to this business and was
very careful not to jeopardize it. One issue was whether, and to what extent, Aging Gracefully
could compete with VNS, particularly in Brookline, Massachusetts, where Aging Gracefully did
contract work for VNS. Some staff members of the agency were very concerned about
attempting to increase private-pay services while trying to maintain VNS contracts.
Table.3 national home-care market
Home-care market agency receipts 2015
Private pay* 7.0%
Private insurance 6.6%
HMOs, PPOs, state and local government, and
Bad debt 11.6%
*The National home care association places the private pay market at 30%.
Aging Gracefully operated 5 buildings in Framingham, Massachusetts, which altogether housed
1,000 older adults. Most of the buildings offered subsidized housing, and only in of the
buildings, known as F3, rented at market value. Residents were charged $800 for one bedroom
apartments that had a very basic décor. In addition, Aging Gracefully operated a senior center 2
blocks from F3 that served 7,000 older adults and provided many services, including a social
program and meals. As of July 2016, 14 units were vacant in F3, and Gilda Newburgh had
devised a plan to provide assisted living in those 14 units. Assisted living is a care plan for
elderly residents that includes 3 meals daily, day and evening social programs, personal care, and
medication management. The cost to the resident for assisted living was $3,000 a month.
Attempts to use promotional efforts to fill vacancies in F3 at market value had been limited prior
to the decision to provide assisted living.
The social services division was primarily responsible for the care of individuals in need. The
division managed a number of programs. The community guardian program assisted people who
did not have families to care for them. A caregiver’s social worker acted as the person’s guardian
in legal and care matters, there was also a case management program, which helped individuals
who needed assistance with their care but did not require total guardianship. Finally, the financial
management program assisted clients with paying their bills.
Social services also managed Elderlink, an information and referral database that contained
information a variety of eldercare services in the Boston area, including home health care, senior
centers, meal programs, assisted-living facilities, and nursing homes. Elderlink was part of
national network of information providers that was used by Staler Referral, a firm that provided
the employees of fortune 500 companies with a national system of information and referral on
aging. Employees of these firms could call a national number and be connected directly to Aging
Gracefully’s Elderlink services. A caregiver’s social worker would provide information to help
the employs care for an elderly relative in the Boston area. Referrals from Staler, however, had
been dwindling lately.
The New Business Group consisted of managers from each of the 3 divisions: Housing, Social
Services and Home Care. Through a series of brainstorming sessions, the New Business Group
identified a number of potential businesses that would build on Aging Gracefully’s skills in the
three divisional areas. However, the managers were unsure how to allocate resources among
their ideas and which businesses were the most viable. They chose three areas to explore more
fully: real estate development, real estate property management, and private-pay home care.
Real Estate Development
The new business group proposed the development of a 200- unit assisted- living facility
somewhere in the Boston area and determined the costs for providing services to such a facility
(see table 4). Though care-givers did not have any expertise in real estate development, top
management felt that its expertise in real estate development, top management felt that its
expertise in providing services and its nonprofit status would attract a developer who needed
Caregiver’s assistance with the particulars of providing assisted-living services to the elderly. As
of July 2016, top management had met with a few development had met with a few developers,
but Aging Gracefully was not happy with the quality of the sites and did not feel comfortable
lending the Aging Gracefully name to a poorly located facility.
Table.4 Service costs for assisted-living facilities of 100-200 units
Cost category 100 units 200 units
Food $547,500 $1,095,000
Linens 100,000 200,000
Household supplies 54,750 109,500
Recreational supplies 15,000 30,000
Office supplies 6,000 9,000
Printing, duplication 6,000 9,000
Postage 24,000 48,000
Telephone 15,000 30,000
Marketing materials 50,000 75,000
Contracts machine 10,000 10,000
Transportation 68,000 68,000
Emergency response system 100,000 200,000
Consultants 36,500 54,750
Insurance, professional 35,000 40,000
Legal 20,000 20,000
Audits 20,000 20,000
Information services 47,758 72,419
Human resources 95,517 144,839
Finance 98,928 150,012
Administration 98,929 150,912
Management 252,000 504,000
Total $1,700,881 $3,039,532
Source: Aging Gracefully internal documents, 2016.
Real Estate Property Management
The New Business Group determined that older inner-city residents would not be likely to leave
their apartments as they aged because many of the day to day maintenance issues in a rental unit,
co-op, or condominium were handled by the building management. Aging Gracefully’s
management, however, saw an opportunity to market eldercare services to building managers
who had large percentages of elderly residents in their buildings. The marketing department
began to identify buildings built prior to 1965 in the Boston area with 300 or more apartments.
Letters and brochures were sent to building managers emphasizing the dangers of leaving older
residents without care. For instance, an older person might leave the gas stove on and start a firm
hoard garbage in the car stages of dementia, or forget to pay maintenance fees. On the phone,
many managers expressed interest in the problem. They felt that they could use some assistance
with their older residents but did not see spending up front to avoid potential accidents. They felt
that caring for older adults was the responsibility of the family. A few meetings were set up with
larger complexes, but in such instances, co-op and condo bards were reluctant to spend money
on this matter.
The new business group developed the property management program, which consisted of 2
services an on-site model and consultation model. The on-site model was designed for large
buildings with at least 30% of elderly residents. Aging Gracefully would conduct a survey to
determine where the elderly residents lived and would the place on the premises a part-time
social worker who would provide social programs and assistance to the elderly residents. The
social worker would also intervene in difficult cases and assist building employs in identifying
problem situations. The price would be $2,800 per month for the building. The consultation
model provided many of the same services, but operated out of Aging Gracefully’s offices and
did not include a part-time social worker on the raises. The price would be $1,000 a month.
Private-Pay Home Care
Private-pay home care clients pay for their own home care rather than relying on Medicare or
Medicaid for payment. Aging Gracefully’s license allowed the agency to provide home health
aides to those who could afford to pay out of pocket for the service.
In July 2016, the exact size of the private-pay market in the Boston area was unknown, but
national information on older adults with disabilities was available (see table 5), as was
information on the older population in the Boston area (see table 6).
Competition was intense in the private-pay home care market. One important competitor was the
“gray market” for home care services. Since home care services for older adults were often an
ongoing expense, many adult children chose to hire home care workers who were untrained and
did not demand that their employers pay social security tax aside from the gray market, a number
of other agencies competed for the private-pay business (see table 7).
The New Business Group discussed their concerns regarding how to furnish home health aides
under a private-pay system, when Aging Gracefully also provided aides through VNS, as of July
2016, most of Aging Gracefully ’ aides were working under VNS contracts and could not be
switched to a private-pay case. Aging Gracefully’s management considered not pursuing the
private-pay market because of the fear of losing the VNS contract. They also considered
pursuing private-pay in areas that VNS did not serve.
The target market for home care services is the elderly population 75 years and older with one or
more difficulties in the activities of daily living and incomes higher than $35,000 per year.
Table.5 Percent of elderly with functional limitations
Functional Limitation Age 75-84 Age 85+
Walking 18.8 34.9
Getting outside 22.3 44.8
Bathing or showering 11.3 30.6
Transferring 11.6 21.9
Dressing 7.0 16.1
Toileting 5.7 14.2
Average 23.5 40.4
Source: U.S bureau of the census, survey of income and program participation, functional limitations and
disability file, non-institutional persons.
The New Business Group discovered some difficulties in marketing the private-pay home care
business. First, home health aides were paid $6.50 an hour, which did not provide much
incentive for them to deliver exceptional service. Second, there were no home health aides
available exclusively for private-pay cases, and sometimes an aide could not be found to service
a particular case. Finally, most of the clients wanted service in the morning from 9. AM to 12
noon, but aides were often already working on morning hobs and only had afternoon hours
available. Not only were clients not able to receive care when they wanted it, but aides did not
receive a full days’ worth of hours and often got only morning work.
Table.6 Older adults by income, selected Massachusetts counties
Income Age 75-84 Age 85+
Under $5,000 11,013 13,938
$5,000-$9,999 32,477 49,706
$10,000-$14,999 24,539 24,354
$15,000-$24,999 39,353 25,708
$25,000-$34,999 28,410 14,670
$35,000-$49,999 26,546 11,009
$50,000-$74,999 22,294 8,549
$75,000-$99,999 8,746 3,055
$ 100,000+ 8,286 2,823
Source: U.S Bureau of the census: Norfolk, Suffolk, Middlesex, Bristol, Essex, and Plymouth countries.
There were, however, some positive aspects of Aging Gracefully’s services that would appeal to
the target market. Aging Gracefully always sent a nurse to a clients’ home to assess the case
prior to dispatching an aide. Aging Gracefully also prided health and drug screening of aides,
background checks and training. If an aide was sick or unable to provide service on a particular
days, replacement was sent. A 24 hour telephone assistance line was available for home health
aides to call in emergencies. Aging Gracefully charged an individual client $2.75 an hour for
home care services during the week and $14 an hour for weekend service. The gray market rate
was between 9 and $11 an hour for care. The new business group determined that Aging
Gracefully earned 75 cents of profit on every hour of care they delivered. In other words, it cost
$12 an hour to provide service to clients during the week and Aging Gracefully charged $12.75.
The median number of hours per case was 20.
Table.7 competitor data
Home care agencies Number of Weekday rate/hr
U.S Home care 400 $15.00
All metro 150 $13.75
Caring hand 150 $9.50
Allen 100 $14.00
COHME 100 $14.00
Select 100 N/A
Partners in care 100+ $14.00
Source: 2016 caregiver’s competitor survey, completed in-house.
Aging Gracefully had also identified a number of possible niche markets within the larger
• Specialty disease: The nice of specialty diseases was considered because people with
certain diseases require a significant amount of care. Though aides were already trained
to provide Alzheimer’s care, other diseases would require additional training.
• Skilled nursing: Skilled nursing was another potential niche market pursuing this market
would require that Aging Gracefully hire more nurses and obtain a special license to offer
such services in order to be able to bill Medicare and Medicaid directly. The size of that
market was substantial, as shown in table 3.
• Difficult cases: over time, Aging Gracefully had developed a reputation for being able to
handle difficult cases. These cases, which had been rejected by other agencies because
the client was disruptive and disrespectful to the aide, often ended up at Aging
Gracefully. Aging Gracefully was better able to handle such cases because of the special
training that was provided by the agency and the support that the aides received from the
home office. However, it was more expensive to services a difficult case because it
required more managerial time to arrange for proper care.
• Long distance: another possible niche market was the long-distance market, which
consisted of adult children who lived more than an hour’s drive from Boston but who had
an elderly relative to care for in the Boston area. It was believed that adult children who
were not available to care for a parent would be a better target market because they would
need to purchase more home care hours to make sure that the parent was well care for.
They might also be willing to pay a premium for such services. Though the actual size of
the long-distance market was unknown, the number of adults over the age of 75 living in
the Boston area was more than 300,000.
With the fall approaching and a board meeting scheduled for early October, Don Arnold
needed to nail down the most viable solution for Aging Gracefully. He looked at the data on
the home care market, considered developing an assisted-living facility, and thought about
bringing services to existing buildings. Which would be the most profitable enterprise to
pursue, and how could that be done without alienating VNS or staff members?
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