Home Care Franchise
Industry Update 2012
FranchiseKnowHow,LLC
A report on franchising in the home care industry, its
growth and challenges.
Ed Teixeira
10/1/2012
©FranchiseKnowHow, LLC All Rights Reserved
Home Care Franchise Industry Update
By Ed Teixeira
FranchiseKnowHow, LLC
About this Report
This report analyzes and presents information and trends pertaining to the home care franchise industry.
It includes data and information from the following sources: U.S. Census Bureau Department of Aging,
U.S. Department of Health and Human Services, National Association of Home Healthcare and Hospice,
National Private Duty Association, Entrepreneur Magazine Franchise 500 2012, Individual Franchise
Websites and Franchise Advertising Portals. FKH has made every effort to provide accurate information.
Acknowledgments
FranchiseKnowHow would like to acknowledge the following individuals, organizations and franchisor
representatives who have voluntarily provided FKH with assistance and information: Special thanks to
Pat Drea, Chief Operating Officer, Visiting Angels.
Barbara D. Woolley, Director of Communications National Association for Home Care & Hospice, Roger
J. Murphy, President/CEO Murphy Business & Financial Corporation, Mitch Pinckney, Vice President,
Franchise Development, Carebuilders at Home, Emma Dickison, CEO Home Helpers, Jason Pearl, Chief
Brand Officer, BrightStar, Gary Kneller, President, Careminders, Hiram Torres, V.P. Operations, Angel
Companions, Michele A. Masucci, Practice Group Leader, Health Services Nixon Peabody.
About FranchiseKnowHow, LLC
FranchiseKnowHow, LLC, publishes newsletters and articles for the franchise industry. We consult home
care agencies and other businesses considering franchising their business and assist franchisors that look
to export their franchise to other countries. Ed Teixeira, President of FranchiseKnowHow and the
author of the report, has spent over 33 years in the franchise industry, including 15 years in the
franchised home healthcare sector. He served as a senior executive for a publicly traded home care
franchisor as well as franchisee of a multi-million dollar home care operation. He was also Chief
Operating Officer of a franchised medical staffing company. During his tenure Ed was directly
responsible for executing international licensing agreements to include the first home healthcare
franchise license in Japan and agreements in Spain, Indonesia and Brazil. Ed was also franchisee of a sixlocation multi-million dollar home healthcare franchise operation.
Ed can be contacted at franchiseknowhow@yahoo.com or 631-246-5782 The website is
www.franchiseknowhow.com
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Table of Contents
Subject
Page
Executive Summary
1
Home Health Care Overview
2-6
Profile of Home Care Franchises
7-9
The Drivers of Home Care Franchising
10-12
What Franchisors Have to Say
13-19
The Home Healthcare Regulatory Environment
20-23
Investment and M&A Activity
24-25
The Future of Home Care Franchising
26-29
Appendix and Resources
30-35
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Executive Summary
The franchised home care sector has been one of the fastest growing segments of the franchise
industry and shows no sign of abating. Despite a slowdown in the overall growth of new
franchises the home care franchise sector has remained vibrant. The overall growth of home
care has been a result of the continued aging of the U.S. population and the accompanying
demand for services. According to the 2012 Private Duty Benchmarking Study1 there are an
estimated 15,100-17,700 private duties agencies in the United States of which 4,100-4,700 are
franchised. The estimated number of Private Duty Agencies Licensed in the U.S. is 8,100-8,500.
The study estimates that 91% of private duty home care agencies provide unskilled home care
services only. Based upon this data, more than one out of every 4 home care agencies are
franchise operated. On the date of this report there were over 64 home care franchise
companies in the United States operating over 5,500 locations compared to 45 franchise
companies a year earlier. Approximately 90% of franchises offer and provide companion and
homemaker services only. The remaining franchises or 10% of the total provide skilled nursing
services. The result is that the majority of home care reimbursement for services is private pay
versus the Medicare, Medicaid and private insurance model.
Establishing a home care franchise that provides unskilled home care services can represent a
lower investment compared to other franchise concepts. There is minimal equipment required
and almost half of home care franchisors allow home based operations. These factors coupled
with an increased demand for services have continued to propel the growth of home care
franchises.
As new home care franchisors enter the scene, mature home care franchisors continue to grow
and an increased number offer skilled nursing services. This strategy provides franchisees the
opportunity to broaden their revenue base with a larger menu of services. At the Federal level
the implementation of The Affordable Care Act (which could be impacted by the upcoming
Presidential election) will affect the home healthcare industry by adding costs to those
franchisees that employ fifty or more employees. Proposed changes in the Fair Labor Standards
Act pertaining to unskilled home care providers would increase the cost of services for home
care agencies and franchisees. There are now thirty States that require licensure for home care
agencies. As more States require non-skilled home care licensure, the result will be to raise the
standards for home care agencies. Despite the emerging financial and regulatory changes, the
size of the market, demand for home care services and financial benefits will continue to fuel
the growth of the home care franchise industry.
1
2012 Private Duty Benchmarking Study
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Page | 1
Home Healthcare Industry Overview
Home healthcare services are an integral component of the United States healthcare system.
(The term home healthcare refers to all in-home services including skilled nursing services,
while home care typically refers to unskilled services only. We’ll use both terms in this report.)
As the cost of hospital and nursing homes has continued to increase, home healthcare has
become an effective and low cost alternative. At the same time, an aging U.S. population has
increased the demand for home healthcare services ranging from unskilled or companion care
services to skilled nursing care. According to the National Association of Home Care and
Hospice approximately 12 million individuals currently receive care from more than 33,000
home care providers. The impact of chronic diseases on the U.S. health care system has been
well documented. Over 130 million Americans are affected by a chronic disease, and this is
expected to increase significantly as baby boomers reach an age where congestive heart failure,
chronic obstructive pulmonary disease and coronary artery disease are more likely to be
diagnosed. This puts tremendous stress on an already burdened health care system. In terms of
Medicare, 12% of the Medicare population accounts for 69% of the cost, with 96% of the
Medicare expenditures spent on patients with more than one chronic disease. According to the
Bureau of Labor and Statistics, home care services are projected to be the 4th fastest growing
industry employers through 2018. This demand for staff will increase the leverage of nurses and
physical therapists to command higher wages and benefits, which will put direct pressure on
gross margins for all home care agencies. The Department of Health and Human Services
reports that personal home care aides provide an estimated 70 to 80 percent of the paid handson long-term care and personal assistance to Americans who are elderly living with disabilities
or other chronic conditions.2 Medicare may cover the cost of home healthcare services when a
doctor orders care but does not cover homemaker or personal care services if it’s the only care
required. In certain cases Medicaid may pay for some home care. However, the payment for
non-skilled nursing services is typically paid by individuals, families, long term care insurance
and trust funds. The following tables and charts depict the magnitude of the aging population in
the U.S. and the growing potential for home healthcare services.
2
US Dept of HHS
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Page | 2
$1,200,000
$1,180,000
$1,160,000
$1,140,000
$1,120,000
$1,100,000
$1,080,000
$1,060,000
$1,040,000
2008
2009
2010
2011
Median Revenue for Agencies in Business for at Least 1 full Year 3
3
2012 Private Duty Benchmarking Study
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Page | 3
Top 10 States Projected Age 65 and over by 20154
California
Florida
Texas
New York
Pennsylvania
Illinois
Ohio
Michigan
New Jersey
North Carolina
5,227,964
4,133,945
3,112,883
2,943,496
2,148,982
1,777,487
1,766,239
1,506,856
1,385,167
1,374,754
Projected Percent of State Populations
Age 65 and over by 20155
State
Florida
Pennsylvania
Ohio
New York
New Jersey
Michigan
North Carolina
Illinois
California
Texas
4
U.S Census Bureau Administration on Aging 2005
5
U.S Census Bureau Administration on Aging 2005
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Percent
19.5
16.9
15.2
15.1
15.0
14.2
13.7
13.6
13.0
11.7
Page | 4
Percent of United States Population over 656
25
20
15
10
5
0
2015
2020
2025
2030
Years
The U.S. Census Bureau
predicts that by 2020 16.3%
of the U.S. Population will be
65 years and over.
6
U.S Census Bureau Administration on Aging 2005
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The Cost of Home Care in the U.S.7
Type of Care
Nursing home: semi-private
room
Nursing home: private room
Assisted living
Home care: home health aide
Home care: homemaker
Adult day services
Cost
Annual
$214/day
$78,110
$239/day
$3,477/month
$21/hour
$19/hour
$70/day
$87,235
$41,724
$21,840
$19,760
$18,200
The reduced cost of home
care services is a significant
factor in its continuing
growth.
7
Source: MetLife 2011 Market Survey of Long-Term Care Costs
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Page | 6
Profile of Home Care Franchising
During the past several years the franchise industry has experienced negative fallout from the
U.S. recession and tight credit markets. According to a study released by IHS Global Insight for
the International Franchise Association's Education Foundation the number of franchise units is
forecast to grow 1.5 percent in 2012 after 3 years of a decline in growth. During this same
period the home care franchise segment has continued to exhibit strong growth. Over the past
3 years the top 20 franchises have grown by an average of 14% per year.
In a recent survey that included 558 home care agency responses, 55% of the owners were
women.8 Out of the sixty three franchises in the United States that offer home care services
there are seventeen home care franchises that have over 100 locations. These seventeen
franchisor account for over 5,200 locations
Percentage Growth in Locations Top 20 Franchisors 9
25
20
15
10
5
0
2008
Percent
2009
2010
2011
Years
The Franchise home care
sector continues its strong
growth despite the overall
slowdown in franchise
industry growth
8
9
2012 Private Duty Benchmarking Study
Entrepreneur 500 2012 and websites
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Page | 7
Number of Franchisors by Number of Locations
25
20
15
10
5
0
301+
101-300
Franchisors
26-100
0-25
Number of Locations
20 new home care
franchisor start-ups in past
18 months
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Franchisors with over 100 locations10
Franchisor
Home Instead
Comfort Keepers
Home Helpers
Visiting Angels
Interim Health Care
Senior Helpers
BrightStar
Right At Home
Home Watch Caregivers
The Senior choice
Always Best Care Senior Services
Seniors Helping Seniors
ComForCare
Griswold Special Care
Synergy Home Care
Companion Connection Senior
Care
Accessible Home Health Care
Total Number of Locations
10
Locations
955
701
650
410
332
294
259
244
192
180
180
205
160
152
125
130
105
5,274
Source direct calls to franchisors
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Page | 9
The Drivers of Home Care Franchising Growth
There are three key factors driving the growth of the home care franchising sector.



The Market for Home Care Services
The Franchise Business Model
The Appeal of a Home Care Franchise
The Market for Home Care Services
In order for a franchise to be successful there needs to be a sustainable market that franchisees
can tap into. The market ought to be large enough as to provide each franchisee the
opportunity for continued growth. Home care services fulfill this requirement. The market is
fueled by the continued aging of the U.S. population and the lower cost of home care compared
to institutional care. The population of those 65 and older is projected to represent 14.5% of
the total U.S. population by the year 2015 totaling almost 47 million people.11 Clearly the size
and growth of this market will attract more companies to franchise and more individuals will
invest in franchises. At least 70 percent of people older than 65 will require home care services
at some point in their lives. However, people of any age may need long-term care. Multiple
factors increase the risk of needing long-term care, however, age is a key factor since the longer
a person lives, the greater the risk. According to the Bureau of Labor Statistics, home care
services are projected to be the 4th fastest growing employers through 2018. Franchisors that
provide skilled nursing services will have the advantage of being able to tap into the entire
home care market in addition to those 65 and older.
The Franchise Business Model
As the franchise home care sector has continued to grow, franchisors have developed business
models including operational and financial software that enables their franchisees to operate
more effectively. Given the fact that the majority of home care franchisors limit their services to
companion and homemaker activities operational processes including client billing are rather
straightforward. The combination of a business model coupled with the non-skilled home care
service requires the franchisee to possess basic business skills. Most home care franchisors
provide proprietary software for their franchisees that includes caregiver scheduling,
11
U.S Census Bureau Administration on Aging 2005
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Page | 10
management and financial control systems. Some like Home Helpers utilize an Intranet program for
franchisee Q&A, tips and collaboration with other franchise owners. The structure and tools provided to
home care franchisees by a franchisor adds to the attractiveness of a home care franchise.
The Appeal of a Home Care Franchise
For individuals interested in owning a franchise, the home care sector offers a franchise opportunity for
a reasonable investment. Almost 50% of home care franchises allow the franchisee to operate from a
home based office. The site requirements for those home care franchises that do require a separate
business location are such that the rental costs are reasonable. The investment in a home care franchise
ranges from a low of $50,000 to a high of $180,000. The royalty fee for home care franchises, with a few
exceptions, is 5% or lower. A home care franchise is an attractive business for a broad universe of
people with the proper qualifications. In particular, women interested in owning their own business
often find a home care franchise a good business fit. Business people, retired executives, teachers and
seniors who are seeking a franchise with a straightforward business format find home care appealing.
For certain individuals the satisfaction gained from providing home care services to others is an
additional motivating factor.
There are a number of
home care franchises that
require an investment of
less than $50,000 including
the franchise fee
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What Franchisors Have to Say
In order to gain insight into how franchisors view certain issues in the home care industry we
asked a cross section of franchisors five questions.
Visiting Angels is one of the leading home care franchises operating 450 locations that provide
companion care and staffing services. Payers for these services include private pay, Medicaid
and insurance. Some Visiting Angel offices are accredited by JACHO, CHAPSs and ACHA.Pat Drea
is the Chief Operating Officer of Visiting Angels.
1. In terms of home care what changes have you observed in the past year, if any?
A number of States are increasing the supervisory visit requirement. Also adding inservice requirements for caregiver staff of usually 12 hours per year that is consistent
with the Medicare Conditions of Participation.
2. Given the growth in the number of home care franchises do you have any concerns
regarding slippage in overall standards or quality control among franchise home care
companies?
Yes the proper screening and background checks for caregiver staff and supervision of
cases.
3. Do you foresee changes in private duty services or activity as a result of the Affordable
Care Act?
Yes. Estimates of penalties could add $1.50 to $3.00 per hour of care to clients.
4. There will be reductions in Medicare reimbursement for home healthcare services.
Are you aware of any of the large HHC agencies moving into the private duty sector?
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Yes, a significant number. Each year speaking at the National Association of Healthcare
and Hospice (this group would consist of agencies that provide skilled home healthcare
services) usually 85% of the audience is already doing or planning to add private duty
staffing services.
5. Do you plan on adding new services within the next year or so?
Adding specialized care programs, Tele Health, and increasing partnerships with
hospitals, home healthcare and hospice agencies.
Home Helpers is one of the leading home care franchises operating 650 locations. Franchisees
provide skilled nursing and companion care services. Direct Link is a component of the company
that provides a suite of options for those that don’t require 24 hour care. Services include
personal emergency response and medication management system. Some offices have
exercised their choice to obtain JACHO accreditation. Emma Dickison is the President.
1. In terms of home care what changes have you observed in the past year, if any?
The biggest change or surprise in the past year is the continuous growth of franchise
home care companies.
2. Given the growth in the number of home care franchising do you have any concerns
regarding slippage in overall standards or quality control among franchise home care
companies?
As there are more increases in State licensure requirements this will help protect the
industry from unqualified and poor quality providers. As larger franchisors have less
territory to offer prospective franchisees the new entries will meet the continuing
demand for home care franchises and services.
3. Do you foresee changes in private duty services or activity as a result of the Affordable
Care Act?
There will be added costs for larger agencies that fall under the requirements of the Act.
We’ll know more after the Presidential election is over.
4. There will be reductions in Medicare reimbursement for home healthcare services.
Are you aware of any of the large HHC agencies moving into the private duty sector?
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Some have continued to migrate into the non-skilled service area.
5. Do you plan on adding new services within the next year or so?
Home Helpers will continue to pursue programs that can broaden the opportunity for
our franchisees.
BrightStar is a leading home care franchise that operates 259 locations. It’s one of the few
home care franchises that provide skilled nursing services in addition to companion care and
staffing. Payers for these services include private pay, Medicaid and insurance. BrightStar is
accredited by JACHO. Jayson Brand is the Chief Brand Officer.
1. In terms of home care what changes have you observed in the past year, if any?
With so many changes in healthcare legislation, it’s increasingly important that our
industry help the government and healthcare organizations recognize the important
role homecare companies can play in reducing hospital readmissions and keeping
people safe and healthy at home — the lowest cost for care setting. High-quality,
clinically based homecare can help ease the skyrocketing costs of healthcare.
2. Given the growth in the number of home care franchises do you have any concerns
regarding slippage in overall standards or quality control among franchise home care
companies?
Consumers are becoming more aware of and educated around what defines quality
within this industry. Ten years ago, consumers didn’t know about the range of services
available through home care. Consumers are more educated thanks to the increase in
demand for home care services, as well as review sites. That deeper understanding of
our business also elevates their expectations on service quality. Consumers ask more
questions and are learning that different homecare companies offer different ranges of
service. At BrightStar Care, we’ve looked to differentiate ourselves based on quality:
Each of our owners has completed or is pursuing Joint Commission Accreditation,
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provides RN oversight on every case, use client satisfaction surveys to assess/validate
quality and client satisfaction.
3. Do you foresee changes in private duty services or activity as a result of the Affordable
Care Act?
Absolutely. As hospitals face Medicare reimbursement penalties if their readmission
rates exceed and patient satisfaction scores fall below the national averages, they are
looking for community partners who can decrease negative outcomes.
4. There will be reductions in Medicare reimbursement for home healthcare services.
Are you aware of any of the large HHC agencies moving into the private duty sector?
We definitely see that in some markets. In fact, we are working in partnership with
those agencies to augment our private-pay services with what they get reimbursed from
Medicare. This shift gives us the ability to work in new ways with them as they adapt
and make changes to their business model.
5. Do you plan on adding new services within the next year or so?
BrightStar Care recently launched a condition-specific, evidence-based program called
BrightStar Clinical Pathways that is designed to reduce the likelihood of readmissions
and improve quality of life for patients with chronic diseases like heart failure, COPD,
and pneumonia through an RN-coordinated team of caregivers.
CareMinders Home Care operates 54 franchise locations. Franchisees provide skilled nursing,
companion and staffing services. Payers are private pay, insurance, Medicare and Medicaid
waiver. All franchisee operations are Joint commission accredited. Joint Commission
accreditation and certification is recognized nationwide as a symbol of quality that reflects an
organization’s commitment to meeting certain performance standards. Gary Kneller, is
President-CEO
1. In terms of home care what changes have you observed in the past year, if any?
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Much more demand for services especially from seniors.
2. Given the growth in the number of home care franchises do you have any concerns
regarding slippage in overall standards or quality control among franchise home care
companies?
With so many non-medical franchises in the U.S. my concern is that many don’t use RN’s
to do patient assessment and a plan of care. Also there could be problems when a
patient receives services from two different home care providers.
3. Do you foresee changes in private duty services or activity as a result of the Affordable
Care Act?
There will be added costs for some larger agencies due to the requirement to either
provide insurance or pay a penalty.
4. There will be reductions in Medicare reimbursement for home healthcare services.
Are you aware of any of the large HHC agencies moving into the private duty sector?
There appears to be more agencies looking to add more services.
5. Do you plan on adding new services within the next year or so?
We are considering adding more in-home services that can be provided to patients.
Angel Companions is an emerging home care franchise with 6 locations. The franchisees
provide companion care services and reimbursement is private pay and insurance.Hiram Torres
is Vice President Operations
1. In terms of home care what changes have you observed in the past year, if any?
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Increase regulation has and will continue to occur. Some of these regulations have
provided for a clearer picture of the types of services that non-licensed personnel can
perform. In some cases depending on appropriate circumstances and the training and
qualifications of the aide, specialized services such as assisting an insulin-dependent
client is permitted. The trend may very well be toward allowing more specialized
services to be delivered in the home by non-licensed personnel. With this trend comes
increased responsibility by the agencies to ensure quality standards are developed and
maintained.
2. Given the growth in the number of home care franchises do you have any concerns
regarding slippage in overall standards or quality control among franchise home care
companies?
There is always some concern that newly established agencies with no prior home care
experience may not have fully developed quality control measures in place. However,
more and more States are passing legislation and issuing licensing regulations that
address this concern. Governmental regulations are not always good but we believe that
appropriate regulations to ensure service quality and consumer protection actually
serves in the long run to protect the industry as a whole.
3. Do you foresee changes in private duty services or activity as a result of the Affordable
Care Act?
Proposed regulations regarding the Affordable Care Act are yet to be published so not
much is known of how it will impact home care. Based on what is known the greatest
concern will be the rising cost to employers that will be obligated to provide health
benefits to what is often a part time temporary pool of employees. Agencies will be
forced to increase their rates to cover the additional cost with the elderly consumer
ultimately bearing the cost.
4. There will be reductions in Medicare reimbursement for home healthcare services.
Are you aware of any of the large HHC agencies moving into the private duty sector?
New rules have recently been issued such as the requirement for patient to have a face
to face encounter with a physician before being eligible for home health services. This
requirement has increased the operational cost to home health agencies. As a result
the agencies providing Medicare reimbursed services are forced to tightly manage their
resources.
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5. Do you plan on adding new services within the next year or so?
We operated a State Licensed, Medicare Certified agency for several years before
making a corporate decision to channel our resources into the franchising of our nonmedical business. As a result we have discontinued admitting patients into that entity.
However, we are currently exploring the possibility of restarting this operation. In most
of the regions that we operate large home health agencies do provide private duty
services either directly or through contractual arrangements with other providers.
CareBuilders at Home has 3 development territories with 42 franchise units under development.
Unlike other home care franchisors the franchisor provides back office services for the
franchisees including payroll, billing and accounts receivable collections. This enables the
franchisees to focus on marketing and administering their franchise. David Savitsky, is the CEO
1. Given the growth in the number of franchise home care companies do you have any
concerns regarding slippage in overall standards or quality control among franchise
hone care companies? Caregiver credentialing is certainly an area of possible concern
for the industry. At CareBuilders all the caregivers are employed by the parent
corporation and not the franchisee. This ensures high standards are maintained
throughout all the franchised offices.
2. In terms of home care what changes have you observed in the past year, if any? Many
new companies are entering the field because they see the need for this type of care
expanding for the next thirty years.
3. Do you foresee changes in private duty services or activity as a result of the Affordable
Care Act? Strict penalties for unnecessary hospital re-admissions will further support
the growth of the home care industry.
4. There will be reductions in Medicare reimbursement for home healthcare services.
Are you aware of any of the large HHC agencies moving into the private duty sector?
No
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5. Do you plan on adding new services within the next year or so?
Yes, home health monitoring services, transition assistance services and caregivers
specially trained in Alzheimer care
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The Regulatory Environment for Home Healthcare
There are a number of changes at the National and State level that will affect home care
franchising. We asked Pat Drea, Chief Operations Officer of franchisor Visiting Angels Home
Care and a member of the Advisory Board of the National Association of Private Duty Home
Care to provide an overview of current and proposed regulations. Pat has over 23 years of
experience in the home healthcare industry.
Introduction:
There are a number of issues that will impact how we conduct the business of home care over
the next 5 years as we await clarification on those issues. The home care industry is likely to be
significantly affected by the Patient Protection and Affordable Health Care Act (PPACA),
changes to the FLSA Companionship Exemption and the introduction of licensure in states that
have not had licensure in the past.
The Affordable Care Act
Most Home Care employers are likely to be paying penalties under the PPACA. Under
clarifications issued August 30, 2012, employers with 50 or more full-time or full-time
equivalent employees will be required to provide “minimum essential” health care coverage for
their full-time employees or pay an annual penalty beginning in 2014. Although the statute
defines “full-time” employee as one who works an average of at least 30 hours per week in any
given month, much uncertainty remains in the calculations affecting variable-hour and seasonal
employees.
Fair Labor Standards Act (home care workers exemption)
Since early 2011 the Department of Labor has issued proposed rules that if adopted will
significantly change the regulations defining "companionship services" by eliminating the
exemption for home care aide/personal care attendant services. The proposed rule would also
eliminate the so-called "live in" exemption for caregivers employed by third-party employers. A
bill introduced in June by Senator Mike Johanns (R-NE) and 12 other Republican Senators, the
Companion Exemption Protection Act, would deny those classified as companions the wage
protections the Department of Labor is proposing. This issue will likely remain unresolved until
after the Presidential election. However, if the proposal by the DOL is enacted following are the
outcomes according to a study conducted by the Private Duty Home Care Association and
National Private Duty Association 12 of 1428 home care companies representing all 50 states:
12
Companionship Services Exemption Survey”, January 23, 2012, page 22.
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•
Moderate to significant increases in business costs
•
Agencies expecting to restrict overtime hours
•
Quality of care impact including loss of service continuity, and weakened staff
competencies
•
Costs would be passed onto the elderly, infirm, and special needs clients/patients in
private pay
•
Clients/patients will seek out services from underground economy through untrained,
unsupervised and unskilled workers….
EEOC Guidance
By a 4-1 vote, the Equal Employment Opportunity Commission (EEOC) on April 25, 2012,
approved a new guidance on criminal background checks.
Consolidating and superseding previous EEOC guidance on criminal background checks, the
guidance discourages blanket exclusions of individuals who have been convicted of crimes and
encourages the use of individualized assessments of whether an employer’s criminal conduct
exclusion is job related and consistent with business necessity. The guidance provides a “major
shift in interpreting the how employers handle employee screening and employers are likely to
conclude that they will never conduct a criminal background check unless it is required by
federal law or they will feel compelled to hire caregiver staff with criminal backgrounds because
of the fear of violating the new guidance on criminal background checks. This is problematic to
the home care industry and can hurt customers and clients if adequate screening and criminal
background checks are not conducted.
More States Require Licensure
Many of the states currently without private duty licensure are actively moving toward
mandated licensure in the near future. These states have studied the licensure frameworks
from other licensed states. Their proposals show evidence that they are incorporating more of
the features and language of licensed states that have gone before them. Oregon, Pennsylvania
and Maryland have increased licensure requirements significantly over the last year and South
Carolina, Michigan, Ohio and California are in the process of moving forward with licensure.
California Introduces Noteworthy Legislation
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New Laws in CA - most took effect 1/1/12. The following laws were listed and are likely to have
the greatest impact on franchisees.
a. Limits on Credit Checks in Employment Decisions (AB 22)
b. Mandatory Use of E-Verify Prohibited (AB 1236)
c. Wage Theft Prevention Act of 2011 (AB 469)
d. Independent Contractor Misclassification (SB 459)
Governor Brown vetoed Assembly Bill 889 on October 1st. The so-called "Domestic Workers’ Bill
of Rights," would have required the Department of Industrial Relations to create unnecessary
and duplicative regulations regarding overtime compensation, meal, rest and sleep periods, and
other issues related to home care aides and domestic workers.
SB 411 (Price) creates a licensure structure for home care aid agencies, requires certification of
caregivers, and allows the Department of Social Services to create an on-line registry listing the
names of caregivers, their certification status, and place of employment.
Responding to the Changes
Home Care managers and owners are advised to apply lean operating methods to their
business. With overarching regulatory changes to the industry that are likely to add moderate
to significant operating business costs, owners and managers must focus on running a leaner
operation. Franchisors should keep track of the regulations and clarifications as they are
issued. Attend home care association events at the national and State level and learn from
industry leaders. Participate in on line industry chat forums to hear the approaches being
considered by others in the industry. Engage your team in planning and preparation as
information unfolds. Continue to build a lean, well functioning organization.
Additional Comments by Franchisors
Jayson Pearl, Chief Brand Officer BrightStar: “There are a number of state bills and other
activity that we monitor closely. For example, in certain states, we see outdated regulations
that relate to Medicare business being governed under “certificate of need” that prevent our
ability to provide non-Medicare skilled services in states like Arkansas, Tennessee, Kentucky,
and Connecticut. We’d like to see these outdated laws amended so consumers can get better
access to quality care and services.”
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Hiram Torres, Angel Companions: “We recently opened a franchise location in South Carolina, a
State that does not have licensure requirements for non-medical home care services. However,
in May of 2011 the General Assembly passed the “In Home Care Providers Act” and proposed
regulations were issued in April of 2012. The expectation is that the final regulations will
published sometime in 2013. Because we opened our operation in South Carolina using the
proposed regulations we are confident that we will easily meet and exceed the final rules once
they are published.”
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Investment and M&A Activity
The franchise home care sector remains a target for investment and M&A opportunities.
Several private equity firms have investments in and currently own franchised home care
agencies. This includes franchises with and without skilled nursing services. The valuations for
skilled home care agencies peaked in 2005. According to a representative of Cain Brothers, a
leading investment banking firm, home care franchisors interested in inviting an acquisition
need to accept valuations in the range of 5 to 6 times EBITDA versus valuations of 6 to 7 times
of two years ago. According to Bain and Company: “For the most part, investors in 2011
distanced themselves even further from categories with significant direct reimbursement risk,
limiting deal activity in hospitals, home healthcare providers and payers.” This pertains to those
home healthcare agencies that have a heavy component of Medicare reimbursed revenue.
I recently attended a conference “Investing in Health Care” hosted by Nixon Peabody. The
conference included private equity and investment banking firms that focus on the health care
industry sector. Some key comments from the panelists:

Technology and specialized providers receive a good deal of attention from investors.

There is more activity in the area of hospitals outsourcing services. For example, some
hospitals are already outsourcing E.R. doctors.
As States move to control increasing costs of services the cost for home companions
reimbursed under Medicaid continues to increase. The use of technology and other
methods for reducing in home services will become more important. (Home care
franchisors should consider adding patient monitoring services to their product offering)
Look for more movement towards bundling payments for patients, which considers the
total cost of patient care. Any attempt to lower the cost of patient care will include home
care.
A high percentage of Medicaid services, especially home care are directed to single
males, who are unemployed and have behavioral problems that are mental and substance
abuse in nature.



In terms of individual franchisee transactions we asked Roger J Murphy, President/CEO Murphy
Business & Financial Corporation to comment on this component of the home care sector. Here
are comments from some of his offices: Richard Gadberry, BCI, CBI, CBBCEO/Partner Murphy
Business & Financial Corporation North and South Texas Regions: “ We are seeing a lot of
activity in this area… 1) Home Health Care Franchises, specifically Home Helpers Franchise, and
2) private homes, converted to private pay, home based assisted living and senior care facilities.
In the former, reselling a franchise, the territory, the amount of clients, the services provided by
the franchisor are of importance to the Buyer. Keys to running a successful business are
recruiting/hiring staff and being a good networker and building a nice referral base. Well run
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franchises generate a nice return for the owner. We sold a three year old franchise for
$400,000. “ Mark Tzalka, Regional Director - CEO- Broker- Member of CABB & SCBBN, Murphy
Business Brokers: “We sold two ATC franchise one a single unit and one was a master regional
developer. I believe one of the main reasons we were successful with this one was because of
their back office unique concept that frees up the franchisee from dealing with many of the day
to day operations that enables him/her to develop their business.”
Home care franchisors that are considering expanding patient services to include skilled nursing should
consider all options. Although a skilled nursing component provides access to added revenues there is a
potential price to be paid if Medicare reimbursement is part of the payer network. So long as the
funding comes from Washington D.C. strings will be attached. Witness the recent reductions in
Medicare reimbursement for certified Home healthcare agencies. Home care franchise networks that
are well managed and have a growing network of profitable franchisees provide less risk to investors
and acquirers. Also, a home care franchise can provide skilled nursing services without Medicare and
some do. This might be the best way to introduce skilled services in a non-skilled home care
environment.
When firms look to invest in a home care franchise company the determining factors are similar to other
investment decisions:





Rapidly Growing Market
Product or Service Need
Positive cash flows and stable operating margins
A strong growth story
Basic management team in place with minimal changes needed
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The Future of Home Care Franchising
Opportunities

Growing Market
The home care market will continue to grow and the demand for existing and new
services will continue. Medicare's New Readmission Penalties for Hospitals will
drive the demand for more home healthcare services. According to the Kaiser
Health News/Chicago Tribune more than 2,000 hospitals nationwide will lose
about $280 million in Medicare payments over the next year under an Affordable
Care Act provision intended to curb readmission rates.
The market for home care services will see the introduction and use of increased
technology such as Telemedicine monitoring. An excerpt from the Florida Hospital
Home Care website regarding their Telemedicine program states: “It helps your
caregivers to have daily information about your health. Using the small award-winning
system that is set up in your home, you will be asked to do one or more of these
activities each day: Answer a few questions about how you feel measure your weight,
blood pressure, heart rate, glucose level or blood oxygen level. It’s easy to do and can
contribute significantly to a healthy lifestyle. These results are then sent automatically
through your telephone line, toll-free, without interruption to your phone service.”
MyMedWall is a start-up of a community based health portal with PHR functions and
focused on Support Groups, health education etc. The provider groups include home
care agencies. MyWebWall enables users to retain their medical data and share it with
other users they authorize. Look for more home care agencies to take advantage of new
technology like Telemedicine.

Consumer Benefits
Since the introduction of home care services a number of years ago the industry has
uniqueness in that the services provide financial and social value for users. It’s less
costly to treat a person in the home compared to an institution. Clients and patients
remain in a comfortable environment and in many cases they retain a degree of
personal independence surrounded by family members.
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
Scalable Business Model

The nature of home care services enables the home care and business model to be
replicated throughout multiple locations. A contributing factor is the ability of the
franchisor to monitor and maintain control over the quality of services provided by its
franchisees. Economies of scale for marketing and operational functions will be a
benefit for franchisees that operate in a franchise system that is effectively and properly
administered.
Ability to Add Services
Franchise home care agencies have the potential to add more services including
skilled home care, medical staffing, disease specific programs, Telemedicine and
emergency monitoring services for home care clients. Franchises that limit their
services to non-skilled home care services can specialize in and offer specialty
programs such as services for Alzheimer's patients many of whom don’t require
skilled nursing.

International
Home care franchisors from the U.S. have licensed their franchise concept
throughout the world. Franchises have been licensed in Asia, Europe and Central
and South America. Canada, our neighbor to the north, is now home to a number
of U.S. based home care franchisors. Martin Greenspon, President of Canada
based M-FOUR International believes that a U.S. franchisor that does skilled and
non-skilled home care services would be welcomed by those in Canada seeking
master franchise opportunities.
Challenges


Competition
Some large home healthcare chains will try to grow the non-skilled or private pay
segment, while others will outsource these services to non-skilled nursing agencies. This
situation will be a double edged sword by presenting both a challenge and opportunity
to home care franchises.
New Franchise growth
As more franchisors enter the home care sector there will be more franchisees vying for
clients from the same market. Although the market and demand for home care services
continues to expand, the addition of new locations generated by the powerful engine of
franchising will continue to increase competition. Franchises unable to provide quality
home care services at a reasonable cost could be on the outside looking in...
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
More Intense Quality Control and Compliance Requirements
Proper background checks and random audits of caregivers will be critical as home care
and franchise systems grow. The healthcare industry has always faced the challenge of
preventing unscrupulous and fraudulent behavior by providers. As the home care
industry continues to grow, expect an increase in oversight by Federal and State
authorities in order to better protect vulnerable clients. Reports of patient abuse can be
a serious issue for any home care agency independent or franchised to deal with and
the impact on the brand can be devastating.

Recruitment and Turnover
The turnover rate in home care agencies has been found to be 60% on average. The
researchers found that this large difference was often due to factors based upon the
way these organizations were run. For-profit agencies were found to have higher
turnover rates because they offered lower wages and benefits, which were associated
with higher rates of involuntary separation. If home care providers want to take
advantage of increased home care opportunities, they must balance budget needs with
demands for better service and quality staff.13 The continuing need for caregivers will
continue to be a challenge for both franchised and independently owned home care
agencies.

Profitability
As the demand for home care services increases and the total number of agencies gets
larger home care services will become more price competitive and certain services could
be commoditized. Also, recruiting and retaining caregivers could become more costly.
These factors can put pressure on profit margins that could impact franchise networks.
There is also the possibility that large corporate owned home care agencies could
become more dominant in the market creating downward pressure on margins.
New Costs
The added expense of the Affordable Care Act and proposed changes to the FLSA
classification for home care staff will add to the cost of home care staff and services. A
byproduct of the ACA has Medicare reducing reimbursement to certified home
healthcare agencies. Those agencies that service Medicare patients will need to reduce
costs and/or increase their patient census in order to maintain margins. In addition, the
growth of home care services could make it more difficult for franchises and
independent agencies to differentiate services.

13
Dill, J. and Cagle, J. 2010. Care giving in a patients’ place of residence: Turnover of direct care workers in home
care and hospice agencies. Journal of Health and Aging
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Conclusion
Home care franchising remains healthy and poised for continued growth. in the number of seniors with
Alzheimer’s and other diseases that negatively impact activities of daily living coupled with the high cost
of institutional care make home care an attractive cost saving option. The private pay home care market
is free from the potential reimbursement issues associated with Medicare and Medicaid. Recruiting
caregivers will become somewhat challenging as home care services increase and more agencies recruit.
There is the possibility that some franchisors will consider the skilled nursing sector, however, without
Medicare Certification obtaining patient referrals from insurance providers can be difficult.
As recruitment, operating costs and reduced margins become more of a factor in the immediate future,
there should be some consolidation in the franchise home care sector. For small sized home care
franchises there will continue to be opportunities so long as they can effectively compete from a quality
and service standpoint. The Affordable Care Act has clouded the picture of what health care will look
like in the years ahead. Until the picture becomes clearer, home care franchisors should stick to what
they do best.
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Appendix and Resources
Licensure Requirements for Non-Medical Home Care by State
License Required
ALASKA, COLORADO, CONNECTICUT, DELAWARE, DISTRICT OF COLUMBIA, FLORIDA, GEORGIA,
ILLINOIS,INDIANA, LOUISIANA,MAINE,MARYLAND, MASSACHUSETTS , MINNESOTA,
NEBRASKA,NEVADA,NEW HAMPSHIRE,NEW JERSEY,NEW YORK,NORTH CAROLINA, ,
OKLAHOMA, OREGON, PENNSYLVANIA, RHODE ISLAND, SOUTH CAROLINA, TENNESSEE,
TEXAS,UTAH, VIRGINIA, WASHINGTON
No License Required
ALABAMA, ARIZONA, ARKANSAS, CALIFORNIA, HAWAII, IDAHO, IOWA, KANSAS, KENTUCKY, ,
MICHIGAN, MISSISSIPPI, MISSOURI, MONTANA, NEW MEXICO, NORTH DAKOTA ,OHIO, SOUTH
DAKOTA, VERMONT, WEST VIRGINIA, WISCONSIN, WYOMING
Resources
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HHS.gov
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Skilled
Home
Healthcare
NonSkilled
Home care
Private
Duty
Home care
Senior
care
The Type of Home Care Agency is based upon the Services it provides
The home care industry consists of agencies that provide both skilled and non-skilled
services. However, since the majority of franchised companies in the home care sector
provide companion or “sitter” services they are not considered as traditional home care
agencies. On the other hand, those franchises that provide medical or skilled nursing
services are often lumped into the category Senior Care which is a misnomer.
Categories of Home Care Services:

Skilled HC is provided by an agency that is licensed and usually Medicare certified. There
are few franchised home care agencies that provide skilled home care. To be Medicare
certified a home care agency must meet specific federal guidelines regarding patient
care. Home care professionals must strictly adhere to a physician approved plan of care
that is deemed medically necessary. These agencies operate under the oversight of
State and Federal regulators. Home care services include skilled nursing services,
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


physical and occupational therapy, social work, and home health aides while under
professional supervision. Individuals can have personal care needs even though skilled
services are no longer required, as a result, some home health agencies offer private
pay services so the agency can continue providing personal and custodial care.
Non-Skilled home care includes services provided by certified home health aides and
other non-medical caregivers. Home health aides typically work for certified home
health or hospice agencies that receive government funding and must comply with
regulations to receive their funding. They must work under the direct supervision of a
medical professional, usually a nurse. These aides keep records of services performed
and of clients' condition and progress. Aides also work with therapists and other medical
staff. Non-skilled home care services such as personal care assistance, cooking and
cleaning help is what most clients need in order to stay in their homes.
Private Duty home care services are provided by caregivers from a staffing agency or
nursing registry. Caregivers can include nurses, therapists, nursing aides, homemakers,
and companions. Payment is made by the family or trust attorney to the agency that
places the caregiver. These caregivers are privately employed and managed by those
who requested the services. The family or another party pays the caregiver; manages
payroll taxes and other required withholdings.
Senior Care represents the majority of home care services provided by franchised
locations, with services performed by homemakers and companions. Known as private
pay homecare or senior care, the services include housekeeping, companion care and
other non-medical services. Personal and home care aides—also called homemakers,
caregivers, companions, and personal attendants work independently, with only
periodic visits by their supervisors. These caregivers may work with one or more clients
per day.
Regulatory Environment
The home care industry is subject to strict Federal and State regulations. A number of
individual States limit the number of Medicare Certified agencies that can perform Medicare
reimbursed services under a process known as Certificates of Need. Managed care companies,
hospitals and other referral sources, with very few exceptions, require that a HC agency be
Medicare certified in order to receive patient referrals. Medicare certified agencies must also
comply with Safe Harbor regulations that are meant to prevent fraud and abuse. These
requirements under the administration of the OIG can result in severe penalties for noncompliance. An example of a violation is the payment for patient referrals either directly or
indirectly. This action violates the anti-kickback provisions of the Safe Harbor regulations.
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There is a significant amount of paper work and documentation that Medicare agencies are
required to maintain and submit. This documentation includes detailed questionnaires and
reports that must be completed and maintained for each patient subject to Medicare
reimbursement.
Under State licensure requirements and Medicare regulations a home care agency that
provides skilled home care services must comply with specific staffing requirements. An
example of the strict requirements for providing Medicare reimbursed home care services is
this excerpt from the Medicare Conditions of Participation. “The skilled nursing and other
therapeutic services furnished are under the supervision and direction of a physician or a
registered nurse (who preferably has at least 1 year of nursing experience and is a public health
nurse). This person, or similarly qualified alternate, is available at all times during operating
hours and participates in all activities relevant to the professional services furnished, including
the development of qualifications and the assignment of personnel.”14 These same
requirements for skilled home care services are usually followed by the individual States.
Licensing a Non-Skilled Private Pay Franchise is Simpler
Due to the complexity of regulations, administration and reimbursement pertaining to skilled
home care services; it’s not surprising that franchisors have chosen to adhere to the non-skilled
home care segment. A number of States require a simple business license in order to perform
this type of home care although some States require registration with a State health care
agency. For example, Florida requires Companion and Sitter Services to register with the Florida
Agency for Health Care Administration.
Home Care Agency Accreditation
JCAHO is an independent, not-for-profit organization; The Joint Commission accredits and
certifies more than 19,000 health care organizations and programs in the United States. Joint
Commission accreditation and certification is recognized nationwide as a symbol of quality that
reflects an organization’s commitment to meeting certain performance standards.
14
Sec. 484.14 Condition of participation: Organization, services, and administration
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CHAP is an independent, not-for-profit, accrediting body for community-based health care
organizations. Created in 1965, CHAP was the first to recognize the need and value for
accreditation in community-based care. CHAP is the oldest national, community-based
accrediting body with more than 5,000 agencies currently accredited nationwide.
ACHC, the Accreditation Commission for Health Care, Inc. (ACHC), is a national organization
developed by home care and alternate-site health care industry providers. Our board, advisors,
surveyors and staff are committed to providing the industry with an accreditation program that
helps organizations improve business operations, quality of patient care and services.
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