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Agency Start-Up Costs

Agency Start-Up Costs

What does it take to start your own home health agency or hospice agency?

The first question I will ask you if you call me is about capitalization. Medicare requires 3 months of operating expenses on deposit at the bank in the name of the agency and less than 50% of that can be borrowed.

Most folks that call don’t really know what that number is and calculating it can be a little tricky. Some areas cost more to operate in than others. Rents can be high, salaries can be high, contracted services can be high. These factors are calculated in your operating budget.

For the most part, in a state that does not require certificate of public need a monthly operating budget can be as low as $5000 (in Texas, where you can work out of your dining room for instance) to $30,000 per month. That would mean a letter from your bank stating you have $90000 on deposit and less than half of it is borrowed.

An average monthly budget for our clients is around $15,000.
Great! You have 40-60 thousand dollars to start an agency.
No, you have 40-60 thousand dollars to demonstrate required capital. There are other expenses to consider.
1. You will need application fees for your state license (varies).

2. You will need application and accreditation fees for an accrediting body to do your Medicare certification survey ($500 application fee for CHAP, followed by around $8000 for a 3-year accreditation).

3. You will need a policy and procedure manual appropriate for your business ( a private duty manual does not translate to a skilled home health manual) manuals range from $270.00 Decision Health to around $900.00 The Corridor Group and even higher.

4. You will need that policy and procedure manual customized for your state regulations. Most folks hire us (or someone like us) to do that. We can do it in a matter of hours, where it might take you a number of weeks. The reason for this step is your state licensure survey (the very first survey) is going to scour your manual to ensure that your state’s regs are represented. And they are ALL different. Some states require additional policies than what is in your manual.

5. You may need consulting services to help you set up employee records, employee handbooks, patient records, patient handbooks, infection control program, quality assessment/performance improvement programs, facilitiate your mandatory meetings (Governing Body, Professional Advisory Committee, Clinical Record Review Committee) to ensure that the minutes reflect the required tasks and representation required of those committees, and many other services that can smooth the way to a quicker billing date–and that is the goal. Consulting fees vary widely (from $5000 to $50000) depending on what you can do yourself.
Let’s say technically you can do it all yourself. Many people can. The question then is how long will it take you? Calcualte those carrying expenses and compare to a consultant and you will probably find that the consultant is much cheaper.

And if you are waiting for the state to do your survey instead of paying the $8000 or so to get accreditation, you are losing money. Most states take up to a year or more to do initial surveys (CMS put it on the lowest priority) multiply your monthly budget by 9 to 12 months and you’ll find CHAP much cheaper.

6. You are going to have to pay for care of at least 10 patients while you wait for survey. You will never be compensated for that care. It’s charity. So select patients that don’t require alot of resources (monthly foley change, B12 shot?)

When you figure you have the money to start a home health agency check out the next blog post on the experience you will need to pass a survey and be successful!



  1. Thanks for putting together Agency Start-Up Costs – AT Home Health and Hospice Consulting I am enjoying your posts. Would you consider a guest post? You can see my post style at http://education-bookstore.com and certainly I would be interested in having you post an article or two on my blog, what do you think?

  2. Thank you for your informative post. I would strongly suggest that anyone that needs more concrete numbers CALL THEIR STATE DEPT OF HEALTH and see what is mandatory

  3. Irma medina says:

    Currently Consulting for Medical Billing in Texas…..Certified Coder, Certified Insurance Specialist, have been in the business 10 yrs., I have over 80% Collection Rate, References available….325-725-3360

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