4 Stocks to Buy in an Evolving Outpatient Home Health Industry

Debanjana Dey

Wed, Oct 23, 2024, 8:02 AM 8 min read

The Zacks Medical - Outpatient and Home Healthcare industry has been witnessing a rapid shift toward digital healthcare treatment. 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. Post-pandemic, many healthcare companies that were traditionally not technology-based transformed to survive in the market. Per a report by Precedence Research, the global home healthcare market was valued at $373.56 billion in 2023 and is anticipated to reach $1,469.92 billion by 2033 at a CAGR of approximately 14.8%. Another factor prompting these MedTech players to embrace digital healthcare is the skyrocketing healthcare costs.

On a positive note, rising dependence on telehealth and AI is likely to help the industry thrive in the near term. Quest Diagnostics Incorporated DGX, Encompass Health Corporation EHC, Amedisys, Inc. AMED 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, prompted by the pandemic’s pressure on the healthcare system, 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 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. 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 (EHRs) and ePrescriptions.

Virtual Healthcare Assistants: Virtual assistants and chatbots can help patients by answering questions about their care and connecting them with the information they need to make more informed decisions about their care. Increasingly, they will interface with EHR systems and be used to book and schedule appointments. They can also help patients stay compliant by reminding them to take medications or exercise.

Dependence on Telehealth: The pandemic has accelerated healthcare innovation. Home healthcare can gain from the benefits provided by Medicare (and several other payers) that comprise 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 the increasing costs of in-person health care, the demand for home-based health care is on the rise. People with chronic illnesses and disabilities also require home-based care.

Currently, Internet of Things (IoT)-powered virtual hospitals and telemedicine are quite popular. This trend includes both telemedicine and wearable devices connected to the global network, known as the IoT. By using connected devices to remotely monitor patients and provide communication channels for healthcare professionals, more elements of care can be delivered remotely.

Staffing Shortages: The U.S. healthcare industry has been experiencing a severe shortage of workers at every level. Among support personnel, there is a laxity of home health aides. The increasing international migration of health workers may aggravate health workforce shortfalls, 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. Thus, these overworked employees are leaving the profession at an accelerating rate.

Healthcare staffing shortages lead to poor patient outcomes, which 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 #28, which places it in the top 11% 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 promising 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 both its sector and the Zacks S&P 500 Composite in the past year.

The industry has gained 39.7% over this period compared with the S&P 500’s rise of 37.1% and the broader sector’s rise of 13.5%.