Many families make home-based care decisions around a dining room table. So it may be fitting that the founders of New Day Healthcare crafted a vision for their company around the table in CEO Scott Herman’s Texas home.
Herman and the New Day team encapsulate that creative fire using the motto, “Burn the Ships,” a reference to a country song by the band For King and Country. For New Day, it meant a new way of thinking about home-based care delivery driven by technology, non-traditioal investment strategies and extension of those principles across the home-based care continuum.
Hospice News recently sat down with Herman to discuss the principles that underlie this approach as well as what’s coming for New Day in the new year.
In the past you’ve discussed your “burn the ships” strategy. Can you explain that strategy?
New Day Health Care started in mid-2020, the middle of COVID at what seemed to be a peak of uncertainty. Given that timing, we often rethink everything about home care when we’re facing a pandemic that is rapidly changing home care and hospice delivery dynamics.
At the time, facilities were closed. Assisted living facilities were restricted. Access was a major issue, when we all know touching patients is pretty critical to how we function. So a lot of my trusted colleagues sat down in my dining room table in late 2019. We agreed that we’re going to start a company without barriers and invest heavily in innovation to push past headwinds.
At that moment, we viewed our industry as under attack. Internally, we had the Patient-Driven Groupings Model (PDGM), increases in audit enforcement, activity in reimbursement and regulatory scrutiny on hospice.
Externally, we had the pandemic, labor crisis, inflation and then rising interest rates, causing a slowdown on acquisitions and even more additional carry-costs for operators. The skyrocketing increase in Medicare Advantage enrollees hit our home health business, causing costly, deeper disruptions. All home-based care business lines seemed to be under attack.
In our development, we chose the moniker “burn the ships.” We wanted to eliminate options, so there was one path forward. Now, we did not eliminate all our options, we kept them open. But we did set forth on a pretty narrow path to take on managed care, re-establish how hospice patients are sourced and how they’re managed and accessed. We committed to “burn the ships,” based on the song by For King and Country.
We had to establish a new way of providing home-based delivered care, which includes all elements from pediatrics to hospice. And we can’t do it in the typical investment models that existed around private equity for the past 10 years. Then in my dining room, we sat down and we penciled out our purpose statement.
We thought the way the system was headed was troublesome. In other words, we were all in on “burn the ships,” and we had to be able to implement on our terms, which we felt was limited by previous investment models and objectives.
In order to do that, we need an investment partner that was aligned and patient, that was willing to invest in innovation and take the time to let us build the systems to get there. That’s a little bit about how we got to “burn the ships.” But we went outside the traditional PE investment model that has been driving this space for the past decade plus, looking for a startup partner that would engage in our purpose statement. We found that partner in Kaltroco.
So “burn the ships” was our mantra, rethinking how we did things in home-based care, which included all aspects from pediatrics through hospice, creating the technology. The innovation requires significant investment and patience, and investment partners willing to take a measured risk, innovate and solve very tough problems.
Can you boil down how this strategy applies to your hospice business, specifically?
We use a system called CareAnalytics, our proprietary system. It’s complex, and it’s integrated through our provider network. Our database is our AI-driven segments in our integrated provider communication and our provider care networks.
In a nutshell, we gather, retain and process data from inbound and outbound data streams and calling centers as well as tech-enabled media and AI-driven care patterning. We look for adverse events and all aspects of the patients. Simply put, we develop patterns and care drivers and through our algorithms that identify patients that are having difficulties, and direct and provide care for them.
Understanding when patients are headed down a terminal path is usually pretty easy to identify. It’s the psychosocial issues that are often barriers. Our CareAnalytics program, the gathering of all that data, the integration of databases and pattern recognition, helps smooth the transition and provides the earliest indicators that patients are headed down a difficult clinical path, in this case, a terminal illness.
Using those data indicators that are trended from our databases and the sources I just laid out, we began pattern recognition sequences that stimulate a set of responses and interactions. Those patterns are recognized and alerts are launched in several formats, email, notifications to clinical callers, text messages and soon some AI-enabled format.
Teams then choose interventions, alerts to stimulate phone calls, email, patient contacts, case conferences and multidisciplinary interactions. A lot of that occurs for hospice through our chronic disease management program, our CDM program. We have in our organization about 2,500 patient-inbound interactions a week. We drop all of those into our CDM program where we start identifying the patients that are chronically ill, that are about to have issues, and we start working on our database.
Currently, we have about 1,700 active patients, and then we work the cases, because no matter how much data is injected, the level of human interactions must occur. Our patients need explanation, conversation and options. Technology will never eliminate human interaction in this world of hospice.
We’re not attempting to automate the hospice process; we’re identifying patients that are in need of hospice and creating another avenue for identification and acceptance.
You just completed the Compassion Hospice acquisition. What were some of the factors that made that organization an attractive target?
Our M&A strategy is pretty refined, and that’s one of the things we committed to in our purpose statement early on, that we were not going to work with short-sighted individuals in any aspect — investment, clinical outcomes, acquisitions.
So we look at a lot of companies. We’re just getting ready to complete our 10th acquisition, and we’ve looked at over 200 since we started. We really want to add quality to our organization.
With Compassion, we had an organization that was established 20 years ago, our CFO had a relationship with the owner. When we talked with them individually, we found that their objectives, their mission statement, their purpose aligned with ours, which is our very first priority.
We found that they were a good quality organization that had a fantastic reputation, good clinical outcomes, good hard work and clinical staff. And they had longevity. We look for good solid performance, which is what Compassion was and had been over a sustained period. They met at a geographic need that we chose to fill.
Do you anticipate more acquisitions this year? And if so, would that pipeline be weighted more towards home health or hospice or another business line?
We do anticipate significant M&A activity in the near future and into 2025. As we build our enterprise, we just broke 10,500 patients on average daily census (ADC), which means we touch about 110,000 people a year. Our hospice census broke records last year on ADC and continues to grow. Our personal care business continues to expand in Texas where we did a de novo that’s very successful.
We have a lot of Medicaid-based business in our Missouri, Kansas and Illinois entities. We’re looking to expand in the Southeast and the Southwest, and keep our footprint in this in the southern part of the United States.
As you look ahead through 2024, what are some of the issues or concerns that are top of mind for you?
Well, for 2024, I’m actually very encouraged; 2023 was tough for a lot of folks, because their leverage was high. Their interest went up. Their cost of capital was very expensive. Now we’re in a very good position at New Day, because we’ve got great investment partners.
We’ve kept our leverage very low. We’ve grown the organization well and are operating at a very high level. So we were actually in a position to buy organizations in 2023, and we did a few acquisitions in that tough year. But we’re really positioned for 2024, because we know that people need to come to market.
There are challenges for smaller companies. We offer things like full benefits for all of our part-time employees. We do that because we have a very low corporate overhead. Part of our “burn the ships” moniker is, as a very large company with 6,500 employees across five states, we do not have a corporate office. Everybody works remotely. We adapted to that in COVID, and that keeps our corporate overhead low. That means I could put more money into benefits for employees and to pay to be competitive.