4 Stocks to Watch in a Resilient Outpatient Home Health Industry

Debanjana Dey

February 15, 2024 9 min read

The Zacks Medical - Outpatient and Home Healthcare industry has gradually digitalized its healthcare solutions in the post-pandemic period, which altered the nature and dynamics of the industry. In the past few years, there has been a significant rise in demand for telemedicine-focused online medical and artificial intelligence (AI)-powered technology services. Owing to the pandemic, many healthcare companies that were traditionally not technology-based transformed to survive in the market. Per a report by Precedence Research, the global healthcare analytics market was valued at $37.15 billion in 2022 and is expected to exceed $121.1 billion by 2030 at a CAGR of 15.9%. Another factor prompting these MedTech players to embrace digital healthcare is skyrocketing healthcare costs.

On a positive note, rising dependence on telehealth and AI is likely to help the industry thrive in the near term. DaVita Inc. DVA, Encompass Health Corporation EHC, Option Care Health, Inc. OPCH and Addus HomeCare Corporation ADUS are likely to gain from the prospects.

Industry Description

The industry comprises companies that offer ambulatory care in an outpatient setting or at home. They use advanced medical technologies for diagnosis, treatment and rehabilitation services. The players include operators of HMO medical centers, kidney dialysis centers and other outpatient care centers. After navigating a tough pandemic era, the payers and providers have been seeing steady growth on the back of innovation in services. This buoys optimism about prospects over the next few years, although persistent inflation in consumer prices could dent the outlook. The potential for scaling up innovation is an added plus. Also, the acceleration of value-based care models and the increasing application of technology across the healthcare industry are likely to continue in the long run.

Major Trends Shaping the Future of the Outpatient and Home Healthcare Industry

Cost Effectiveness: The primary advantage of outpatient clinics is cost-effectiveness. Outpatient medical care clinics do not retain patients for long hours (overnight) or charge exorbitantly. Modern-day outpatient clinics offer a broad spectrum of treatment and diagnostic options and even conduct minor surgical procedures. Financial incentives like health plans and government program payment policies supporting services in lower-cost care settings have also been driving outpatient care.

Additionally, with value-based models of care steadily emerging as the future of healthcare, the shift from fee-for-service (FFS) to alternative payment models (APM) is an ongoing parallel trend. FFS will be crucial to care organizations as a benchmark through which providers can assess APM.

AI’s Dominant Role: AI has been a roaring success in healthcare, taking the outpatient and home healthcare space by storm. Outpatient companies prefer bots and automated techniques for managing health information. With the help of AI, hospitals have been achieving better outcomes, with patients receiving more efficient and personalized care. The outpatient industry has been generating huge profits from Electronic Health Records and ePrescriptions.

The most visible area where AI can make a significant difference is in mental healthcare at home. Addressing the most prevalent mental health conditions among home care patients —depression, anxiety and dementia — is essential to improving overall patient well-being. In recent years, complex machine learning algorithms have become capable of analyzing large datasets of patient information, including clinical and social diagnoses. These systems can alert caregivers regarding potential triggers or warning signs of mental health deterioration.

Dependence on Telehealth: The pandemic caused a decline in outpatient clinic visits where home healthcare providers struggled to offer quality care due to the risk of exposure to the virus. Though the impact of the pandemic has been far-reaching, it has accelerated healthcare innovation. Home healthcare can gain from benefits provided by Medicare (and several other payers), comprising a broad range of services that can be delivered in a patient’s home, including post-operative and chronic wound care. Home healthcare has seen a surge in the utilization of the telehealth platform in response to the pandemic. With a rise in the elderly population and increasing costs of in-person health care, the demand for home-based health care will rise. People with chronic illnesses and disabilities also require home-based care.

The rising demand for remote patient monitoring (RPM) has considerably driven the demand for wearable technology to monitor patient’s health. Although wearables have been popular for several years, their integration with AI has recently increased their popularity. Wearables have become a powerful home healthcare tool. AI technology-powered RPM enables healthcare firms to provide consistent patient care without occupying space in their hospitals and facilities, thus reducing overcrowding.

Staffing Shortages: The U.S. healthcare industry has been experiencing a severe shortage of workers at every level, worsened by the COVID-19 pandemic. Among support personnel, there is a laxity of home health aides. Increasing international migration of health workers may aggravate the health workforce shortfall, especially in low-income and lower-middle-income countries. Another reason for the acute staffing shortage is high burnout due to physical, emotional and mental exhaustion. Overworked employees are leaving the profession at an accelerating rate.

Healthcare staffing shortages lead to poor patient outcomes that can include hospital-acquired infections, patient falls and increased probabilities of death. With a lesser number of staff available in hospital settings for patient care, there has been a gradual shift toward home healthcare for non-critical patients who can be monitored remotely.

Zacks Industry Rank

The Zacks Medical - Outpatient and Home Healthcare industry falls within the broader Zacks Medical sector. It carries a Zacks Industry Rank #69, which places it in the top 28% of nearly 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Before we present a few outpatient home health stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry's Stock Market Performance

The industry has outperformed its sector but underperformed the Zacks S&P 500 composite in the past year.

The industry has risen 8.3% over this period compared with the S&P 500’s rise of 22.6%. The broader sector has also inched up 6% in the same time frame.