Important Factors to Consider When Determining Where To Establish Or Expand Your Business
As an ABA consultant, I work with many start-ups who are ready to establish their practice as well as companies looking to grow their business through expansion. The first step in this process is to determine where you are going to plant your roots. I get asked multiple times a week “what are the top 5 states you recommend?” “We’re looking at X, Y and Z because their reimbursement rates are really good…” And I find myself repeatedly saying the same thing – reimbursement rates are not necessarily the most important factor to consider when deciding which geo location is best for you. Rates are definitely important; but they are not the end all be all deciding factor.
Which state is the “best” changes and each year, the top 3-5 states we recommend are usually different than those we recommended the prior year or likely will recommend next year. The reasons vary as to what triggers providers to set their sights on certain states but historically it has been driven by one or more of the following: Medicaid covering ABA and publishing favorable rates, commercial insurance carriers increasing their rates, a network opening that has long been closed, a change in policy that makes it easier for providers to be successful, etc.
Three years ago, Georgia was the state I must have recommended to at least 250 clients. But that recommendation was not based solely on rates, it was based on a combination of variables that when viewed together, suggested an ABA company could establish themselves and be successful.
When making recommendations regarding favorable geo areas I recommend the following factors be considered:
- Is there is a 30-mile radius within the state that has reasonable population density where you can carve out your service area?
- What does the competitive landscape look like in that 30-mile radius? Are you establishing your business in Proud Moments backyard where they or another large PE backed company can pay more than you can as a start-up?
- Are your closest competitors center-based or home-based service providers? This is an important consideration. If you are starting home-based but within your 30 mile carveout there are several center-based agencies, your struggle to find clinical employees may be even more challenging than usual. If you had a choice of working in a center where you don’t have to drive from house to house, can work with colleagues, have potlucks and birthday parties and just an overall stronger support network, why would you choose the home-based provider? Nine times out of ten, they will opt to work for the center.
- Do other providers in the area have a waitlist thereby indicating there are plenty of clients to be had?
- Are there enough 18–25-year-olds in the area for you to be able to recruit BT/RBT level staff? Are there colleges and universities close by? This is one of the most important considerations. In most geographies, obtaining clients is not the challenge, finding and retaining BT/RBTs and BCBAs is the biggest struggle. I recently had a client say she was going to have 60 clients within 6 months of opening her agency on Ventura Blvd in Los Angeles. I asked why she thought that, and her response was “everyone has a waitlist.” My response was, “Yes and that is because they are struggling finding employees because ABA agencies are like sushi restaurants, and they are on every corner.” For those who know Ventura Blvd. this example will resonate as there is an incredibly dense population of providers in a 3-mile geo area.
- What are the market pay rates for employees in the area you are considering?
- Does the reimbursement rate(s) allow for a min. 15% margin when you take into consideration employee pay rates and overhead? No mission without margin.
- Are there any state regulations that make it challenging to establish and grow your business e.g., Psychologist required, PLLC required, etc.
I know one of the hot states right now is Nebraska. Why? Because Nebraska is paying north of $100/hr for 97153. This is not just random. The rate is a reflection of the ratio of clients in need to providers. Yes, Nebraska is now the up-and-coming state as Georgia was about 3 years ago. The rates are on the high end, very high end BUT, who are you going to hire? Remember, your typical employee age range for 97153 is 18-25 years old. When thinking about Nebraska as an example, be sure to think about your talent pool and recruiting options BEFORE locking down on a state or geo region.
Struggling with determining where to start-up or expand to? Schedule a consultation. And, we have a research department that is here to help!
