If you’re thinking about entering the California home health or hospice market, you’ve likely asked yourself one big question: Should I buy an existing agency or start one from scratch?
On one hand, buying can feel like a fast track to operations and revenue. On the other, starting new gives you a clean slate and control over every detail. But both paths come with challenges: costs, timelines, and regulatory hurdles that can make or break your success.*This article was written in consultation with Larry Treystman & Mariam Treystman.
At The Home Health Consultant, we’ve helped hundreds of Medicare-certified agencies across California. We’ve seen the good, the bad, and the ugly of both approaches. As our co-founder Larry Treystman says:
“This is one of the most common questions I get, and unfortunately, it’s not a one-size-fits-all answer. The right choice depends entirely on your goals, finances, and tolerance for risk.”
In this article, we’ll walk you through the three main options, the pros and cons of each, and the key questions you should ask yourself before making a decision.
What Are the Main Options for Entering the California Home Health or Hospice Market?
If you want to own a Medicare-certified home health or hospice agency in California, you generally have three paths:
- Start a New Agency: Apply for a state license, then pursue accreditation and Medicare certification
- Buy a Licensed but Not Certified Agency: Purchase an agency that holds a license but hasn’t yet completed Medicare certification
- Buy an Existing Medicare-Certified Agency: *Purchase a fully operational business
Each path comes with its own mix of timelines, risks, and benefits.
*Before we dive in, this article is not legal, financial or professional advice. Always consult professionals on your specific situation before making major financial decisions.
What Are the Pros and Cons of Starting a New Agency?
Pros:
- Full control over your setup, staffing, and policies.
- No inherited liabilities from a prior owner.
- A “clean slate” compliance record from day one.
Cons:
- Timeline: In California, it typically takes 2.5–4 years to become Medicare-certified
- No revenue during those years, meaning you’ll need strong financial reserves.
- Heavy administrative work, including applications, surveys, and accreditation.
As Larry Treystman puts it:
“Realistically, if you’re starting from scratch in California right now, plan for about three years before you’re billing Medicare.”
What Are the Pros & Cons of Buying a Licensed but Not Medicare Certified Home Health or Hospice Agency?
Pros:
- You inherit the state license, so you skip the first stage of the process.
- Many new owners believe this path saves time.
Cons:
- Reality check: Change of ownership (CHOW) in California takes about two years
- You won’t save considerable time or money compared to starting fresh.
- Risk of overpaying for what amounts to just a license.
Larry calls this approach “probably the worst option” because you invest heavily but gain little real advantage.
What Are the Pros and Cons of Buying an Existing Medicare-Certified Agency?
Pros:
- You can operate immediately under the existing provider number
- Ownership transfer may take months, but you can usually continue operations during that time
- Seller financing is common, which means lower upfront costs
- If included, you may gain access to pre-existing hospital or insurance contracts
Cons:
- 36-Month Rule: CMS prohibits a change of ownership within the first 36 months of certification
- Liabilities: With a stock transfer, you inherit the agency’s debts, compliance risks, taxes, and potential ADRs.
- *ADRs can be requested up to a few years back. This could mean the agency you now own is on the hook for claims that were filed before you owned the agency.
- Costs Vary Widely: In California, license-only agencies often list for about $140,000–$150,000, while fully operational agencies sell at multiples of 3–4× annual earnings. The cost of an agency is going to depend on their size, relevant contracts, compliance standing, and much more.
- Due Diligence is Critical: It takes a lot of work and time to make sure the agency you want to buy is a good investment. You should audit charts, review ADR history, and verify there are no liens or unpaid taxes.
What Questions Should You Ask Yourself Before Buying or Starting a Home Health or Hospice Agency?
We know this is a lot of information to take in, so we put together a list of questions you should ask yourself and talk over with your team before making a decision.
About Your Timeline
- Do I need to be operational immediately?
- If Yes (I need to be operational right away): Buying an existing Medicare-certified agency may be your best path.
- If No (I can wait): Starting new allows you to build your agency exactly how you want, even if it takes 2–3 years.
- Am I prepared to wait up to 3 years if I start new?
- If Yes: Starting fresh could be a good fit.
- If No: Consider purchasing an existing certified agency to avoid delays.
- Do I have an existing team of staff, vendors, and referral sources?
- If Yes: Starting fresh could be a good fit.
- If No: You may be a better fit for purchasing an existing agency.
About Your Finances
- Do I have the capital to cover startup costs with no revenue?
- If Yes: Starting new is financially viable and may give you more control.
- If No: Buying an existing agency with cash flow or seller financing could be safer.
- Am I comfortable taking on seller financing or loans for an acquisition?
- If Yes: Buying an existing agency is a realistic option.
- If No: Building from scratch may better align with your comfort zone.
About Your Risk Tolerance
- Am I ready to inherit compliance liabilities when buying?
- If Yes: You’ll need strong due diligence, but buying can get you to revenue faster.
- If No: Starting new gives you a clean slate without inherited risks.
- Do I have experts to review ADRs, billing, and contracts?
- If Yes: Buying an existing agency becomes far less risky.
- If No: Starting fresh may be safer unless you hire external help.
About Your Goals
- Do I want the clean slate of starting fresh?
- If Yes: Building from scratch is worth the wait.
- If No: Buying may give you immediate access to systems and staff.
- ***Do I have immediate access to patients, referrals, and revenue streams? (This is one of the most important questions you should ask yourself.)
- If Yes: Purchasing an established agency is likely the best path.
- If No: Starting new gives you more time to design your ideal operation. If you don’t have access to patients now, it’s going to be that much harder to get a new agency up and running.
Ultimately, whatever decision you make should be based on a variety of factors and your specific situation.
What Regulatory Issues Should California Owners Keep in Mind?
- Licensing: The California Department of Public Health requires a separate license for home health or hospice, with specific administrator and DPCS qualifications
- Medicare Certification: Agencies must pass an initial Medicare accreditation survey by CHAP, ACHC, or The Joint Commission before CMS issues a provider number
- Change of Ownership (CHOW): CMS restricts ownership transfers within 36 months of initial certification.
*For hospice in California specifically, you cannot do a majority change of ownership for 5 years from your licensure.
If you’re looking to do a transfer of ownership and are seeking help, California members of our Administrative Compliance Program get 10% off CHOW applications as part of their membership.
For a more in-depth breakdown of the strict rules around ownership changes in home health & hospice, check out the article below.
What’s the Bottom Line on Buying vs. Starting an Agency?
Buying gets you to market faster but carries higher risk and cost variability. Starting new gives you complete control but demands patience and financial resilience. Buying a license-only agency rarely saves you time or money.
Both approaches can succeed if you prepare properly, understand the risks, and commit to compliance.
Ask yourself the tough questions about your timeline, finances, and risk tolerance before making a decision.
If you’re looking for more advice on managing home health or hospice agencies, check out our article breaking down the most common times agencies seek consultants below.
*Disclaimer: The content provided in this article is not intended to be, nor should it be construed as, legal, financial, or professional advice. No consultant-client relationship is established by engaging with this content. You should seek the advice of a qualified attorney, financial advisor, or other professional regarding any legal or business matters. The consultant assumes no liability for any actions taken based on the information provided.
