Osborne HomeCare Group

We are pleased to announce an acquisition opportunity in Southeast Louisiana. Our client, the owner-operator of a nationally branded In-Home Elderly Care firm, seeks a successor to assume his role. The business produces owner cash flow of approximately $100,000 annually and can be acquired for less than $300,000. If you or someone you know (we pay referral fees) would be interested in learning more about this opportunity, please contact us through our web site at www.osbornehomecare.com.

Osborne HomeCare Group, LLC

Osborne HomeCare Group is a mergers and acquisitions firm exclusively dedicated to home health and non-medical home care buy and sell transactions.

The Shifting “Employer of Choice” Landscape

By: Scott Osborne

When we take private duty home care firms to market as part of our confidential sale process, we get to know the competitive dynamics well. The “80/20 Rule” often applies in that 80% of the particular market is served by 20% of home care firms. This benchmarking study refers to them as “leaders.”  How did these firms get there and how can they stay there amid an ever-shrinking labor pool and the ever-increasing cost of care?

Getting There: Most of the leaders we assist in preparing for and executing a sale transaction benefited from a “first mover advantage.” That is, while the industry in general was still in its infancy or a market in particular was underdeveloped, these firms were on the ground floor and had a laser focus on non-medical home care services. They established loyal, recurring referral sources by being highly accessible and dependable around the clock.

Ask the clients or families why they chose these firms and they are likely to say they were referred by a trusted adviser. Ask why they stayed with these firms and they are likely to say because of the quality, dependability and supervision of the caregiver. Said another way, these leaders provided a relatively new service uncommonly well by becoming an Employer of Choice among prospective caregivers.

Many did so by offering predictable but flexible hours with competitive pay and benefits as well as ongoing training and support. Or by creating a “family culture” headed up by a highly involved owner-operator that understood the power of recognition. Or by drawing from a robust caregiver pool from which many were attracted as much to making a difference in the lives of the elderly as making a dollar.

That was then. This is now. Leaders and others know the landscape is rapidly shifting in large part due to increased competition for a shrinking caregiver pool amid regulatory headwinds that threaten to increase costs and squeeze profit margins.

But make no mistake about it. There will be inevitable losers and big winners. The best will get bigger and others will get crowded out. To state the obvious, firms that can consistently attract and retain the best caregivers will not just survive the fallout but thrive while emerging stronger. The rising tide of demand will lift the Employers of Choice boats disproportionately.

Staying There:  The oldest of the 78M baby boomers are seven years from age 75, the beginning of the care cycle for much of the elderly population. As such, the unprecedented demand for in-home care known as the “Silver Tsunami” will be reaching shore during the decade of 2020 – 2030.

Meantime, the combination of unprecedented retirements (10,000 US citizens per day join the Medicare ranks and will for the next 18 years) and government policies that create disincentives to work means an ever-shrinking labor pool to care for the ever-increasing elderly population. In fact, today the labor participation rate (employment to population) of less than 65% is the lowest since the Carter administration in the late 70s. Absent a robust economic rebound and new incentives to work, it’s expected to get even worse.

Work versus Welfare: The current welfare system provides such a high level of benefits that it acts as a disincentive for work. This year, the number of Americans that are not part of the US labor force surpassed 90 million.  According to a study commissioned by the Cato Institute, welfare currently pays more than minimum wage on a tax adjusted basis in 35 states. In 13 states, it pays more than $15 an hour. Employers of Choice will have to create new incentives to attract caregivers including appealing to their desire to be part of a mission that changes lives for the better. Said another way, Employers of Choice must not only appeal to those looking for work but those that aren’t. 

The Affordable Care Act: At this point, who can predict the outcome of this law? Former Obama Press Secretary Robert Gibbs recently predicted that the employer mandate would not survive. Uncertainty prevails. What we know now is that firms with less than 50 full time equivalent employees are not caught by the net and firms with 50 – 99 full-time equivalent employees have a reprieve until 2016. Home care firms with 100 or more full time equivalent employees, leaders no doubt, are impacted by this law beginning next year. However, the results of this year’s mid-term battle to control congress as well as the presidential election the year after next will determine if the employer mandate survives.

I’m in the camp with those that believe it’s unlikely. Nonetheless, if the employer mandate survives, I’ve heard from many home care owners that they plan to avoid the fine by employing mainly “29ers” (the maximum weekly hours for a part-time worker under the law.) If quality caregivers want to work full-time for one firm but are forced to work for two because of the 29 hour workweek limit, this risks undermining the firm’s standing as Employer of Choice. Perhaps leaders and other firms should be focused on how they could leverage the availability of health insurance and, hence, a full-time workweek, as a competitive point of difference in an ever-challenging recruiting environment.

Overtime Exemption Repeal: New overtime requirements go into effect next year. This primarily impacts firms that have a high concentration of around the clock care and operate in states that don’t have overtime requirements.  I’ve heard from many home care owners that they plan to avoid incremental overtime pay by increasing their around the clock caregiver shifts. This will pose another recruiting challenge and place more emphasis on the importance of home care firms achieving Employer of Choice status.

Minimum Wage Increase: The push is on. In January, 13 states increased the minimum wage beyond the $7.25 federal rate. President Obama and key democrats are proposing a three-year pathway to a $10.10 minimum wage rate. While most home care firms pay above the minimum wage rate, an increase threatens to reduce if not eliminate the premium wage these firms can pay versus other minimum wage alternatives. Maintaining Employer of Choice status may require maintaining this premium likely putting pressure on profit margins. But, of course, there are no margin dollars from a client served by a competitor so Employers of Choice may well bite the bullet.

Some have referred to these headwinds as The Perfect Storm. Yet these headwinds are dwarfed by the powerful tailwinds of the coming Silver Tsunami consisting of an elderly population that has the desire and resources to age at home for as long as practical if not forever. The Employers of Choice that can attract and retain top quality caregivers in an ever-shifting landscape will be the big winners while creating valuable competitive barriers.

Why do your best and longest caregivers stay with you? Why do they leave? What differentiates your firm from the rest as a great place to work? How can you build upon this as firms look to offset new caregiver costs? The answers to these questions lie with the caregivers. Fully tapping the power of this knowledge is the key to becoming or maintaining Employer of Choice status.