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Top home health franchises earn gross profit margins as high as 40 percent, making home care one of the five most profitable franchise ventures in the country, according to a report (pdf) by Franchise Business Review, a market research firm.

The report was highlighted in a recent USA Today article.

But despite these huge profits, the home health industry has spent hundreds of thousands of dollars fighting a proposed federal rule that would extend basic wage protections to home care workers.

Asked about this discrepancy by USA Today, PHI Policy Research Director Dorie Seavey said, “I find it really hard to reconcile that one of the most profitable sectors is pinching pennies when it comes to workers.”

Home health aides earned a median wage of $9.91 an hour (pdf) in 2011. Adjusting for inflation, that’s a 12 percent decline from their 2001 wages.

In December, President Obama proposed to end the “companionship exemption” in the federal Fair Labor Standards Act, which excludes home care workers from minimum-wage and overtime protections.

During a recent public-comment period, 26,000 comments on the proposal were submitted to the Department of Labor, of which three quarters were in support. Publication of a final rule could come as early as this summer.

– by Matthew Ozga

Nursing home and assisted living facility care costs continued to grow while home care costs remained flat in 2011, according to Genworth Financial‘s 2012 edition of its annual Cost of Care Survey (pdf).

The report used data from more than 15,000 long-term care providers throughout the country to determine the median rates for a range of long-term care services:

• Licensed Homemaker Services — $18 median hourly rate; no change from 2011; five-year annual growth rate of 1.15 percent
• Licensed Home Health Aide Services — $19 median hourly rate; no change from 2011; five-year annual growth rate of 1.1 percent
• Adult Day Health Care — $61 median day rate; up 1.67 percent from 2011; five-year growth rate unavailable
• Assisted Living Facility, One Bedroom, Single Occupancy — $3,300 median monthly rate; up 1.2 percent from 2011; five-year annual growth rate of 5.7 percent
• Nursing Home, Semi-Private Room — $200 median daily rate; up 3.63 percent from 2011; five-year annual growth rate of 4.5 percent
• Nursing Home, Private Room — $222 median daily rate; up 4.23 percent from 2011; five-year annual growth rate of 4.3 percent

While nursing home and assisted living facility costs have steadily increased in recent years, home care costs have remained fairly steady.

The report attributes the lack of growth in home care costs to “increased competition among agencies and the availability of unskilled labor,” as well as the fact that home care companies “do not incur the costs associated with maintaining stand-alone health care facilities.”

Declining Direct-Care Worker Wages Left Unmentioned

“What the report fails to mention is that the biggest component of home care costs is direct-care workers’ wages, which over the last 10 years have actually gone down when adjusted for inflation,” said PHI National Policy Director Steve Edelstein.

“One reason their wages remain artificially low is the ‘companionship exemption,’ which excludes home care workers from federal minimum wage and overtime protections,” Edelstein added. “We can’t continue to underwrite the cost of home care by undervaluing and underpaying those who provide the services and still expect that there will be a home care worker available when we need one.”

Genworth’s website includes a section allowing current or prospective consumers of long-term care to compare rates for various services on a state-by-state basis. The website also allows for comparisons between nearly 440 discrete regions throughout the U.S.

– by Matthew Ozga

Michigan is a step closer to establishing a permanent statewide home care registry, and a law to create a registry in West Virginia was just passed.

Michigan Petition Approved

The Citizens for Affordable Quality Home Care, which advocates for elders and people with disabilities in Michigan, has cleared the first hurdle in its efforts to create the Michigan Quality Home Care Council, a statewide registry that would help connect home care consumers with independent home care providers — and vice versa.

On March 19, the Michigan Board of State Canvassers approved the format and language of an initiative petition to amend the state’s constitution to establish the Quality Home Care Council. The question could appear on the November 6 ballot.

The next step in order to get the initiative placed on the ballot is for supporters to gather at least 322,609 signatures and submit them to the Michigan Secretary of State by July 9, according to Ballotpedia.

“The permanent establishment of a home care council will help to assure that Michigan’s citizens who have disabilities and those who are aging can connect with and choose from providers who have been screened, are compatible, and are looking for work,” said Dohn Hoyle, executive director of The Arc Michigan and treasurer of Citizens for Affordable Quality Home Care.

“We also support the training available for providers to address their safety and acquisition of skills, as well as the training offered to those who need supports and assistance regarding the selection and direction of their workers,” Holye said.

Should the Michigan Quality Home Care Council be established through an amendment to the state constitution, home care workers who register would be required to undergo background checks and have access to training. The workers would also have limited collective bargaining rights, according to a Michigan Department of State Ballot Proposal Status document (pdf).

The new registry would permanently replace the existing Michigan Quality Community Care Council, a pilot matching services registry program designed to help people with Medicaid locate personal care home care workers.

“Our previous efforts demonstrated how well a quality registry benefits those who provide these critical services so they can find enough work to make a living and stay in this field, and allows those who need the supports in order to remain in their own homes to find the right person to support them,” Hoyle said. “And, the trainings have shown the efficacy and value for the person who needed services as well as the person who provided them.”

West Virginia to Establish Home Care Registry

In West Virginia, Governor Earl Ray Tomblin (R) signed a bill [HB4062] into law on March 22 to establish a statewide home care registry through the state’s Bureau of Senior Services.

The West Virginia home care registry would be responsible for creating and maintaining a list of certified home care workers who meet the eligibility criteria established by the Bureau and approved by the legislature. Eligibility requirements would include educational and certification requirements and the completion of a criminal background check, according to the bill.

To learn more about home care registries, visit the PHI Matching Services Project site.

– by Deane Beebe

There is still time to register for “Quality Work, Quality Care: A State-of-the-Art, National Conference for Home Care Stakeholders,” to be hosted by FHI 360 on April 2 in Washington, DC.

For more information and to register, visit the conference website.

– by Deane Beebe

– by Dorie Seavey, Ph.D., PHI Policy Research Director

During the past two months, private-duty trade associations have produced three different studies designed to bolster their position that narrowing the overtime exemption would have serious negative consequences for home care companies, clients, and workers. Yet each of these studies presents serious flaws.

In two surveys of their membership, these associations had the opportunity to acquire solid industry data on the employment patterns of home care workers: how many work overtime, and how often; how many work part-time and would like to work more; and how much they are paid. This kind of information could have usefully complemented the U.S. Department of Labor‘s (DOL) analysis, which relied on all the nationally representative, statistically valid data available on these questions. So, what do the new studies tell us?

SURVEYS

The Companionship Services Exemption Survey, funded by the National Association for Home Care and Hospice–affiliated Private Duty Homecare Association (PDHA) and the National Private Duty Association (NPDA), includes a question about the percent of employees who work overtime. Yet regrettably the study fails to report respondents’ answers to this question. Rather, the survey emphasizes opinion questions that are phrased to lead respondents to answers that align with the associations’ opposition to the proposed regulations.

Not Nationally Representative or Statistically Valid

The second study, Economic Impact of Eliminating the FLSA Exemption for Companionship Services — prepared by IHS Global Insight and paid for by the International Franchise Association (IFA) — like the PDHA/NPDA survey, relies on what is known as a “convenience sample”: a sample confined to those members that returned a completed survey. This type of sample is not considered nationally representative or statistically valid and, at best, merely reflects the positions and experiences of the companies that actually completed the survey, leading to a strong likelihood of bias.

Dorie Seavey

Low Response Rates

IFA, an association dedicated to preserving and enhancing the regulatory climate for the growth of franchising, sampled nine of its 27 franchise home care companies to participate in the survey. These nine companies in turn represent 3,259 franchisees, of which only 17 percent actually participated in the survey, for a total of 554 franchisees. This is considered a very poor response rate, affecting the validity of the findings. The PDHA and NPDA survey received roughly twice as many responses (1,458 “home care companies” responded) but the report doesn’t provide a response rate, thereby leaving its validity in question.

To put these survey response numbers in perspective: according to the U.S. Bureau of Labor Statistics, in 2010 there were 55,929 establishments in “Services for the Elderly and Persons with Disabilities,” the industry that encompasses the vast majority of home care companies specializing in the provision of non-medical home care services. Furthermore, approximately 70 percent of these companies were non-profit organizations (see Chapter 3 of PHI’s Caring in America report). This means that the for-profit segment of the industry represented by the three trade associations sponsoring the surveys constitutes just a segment, and certainly not the majority, of the entire home care industry.

Unintentional Support for DOL’s Conclusion of Small Adjustment Costs

The most remarkable empirical finding of these two survey-based studies is inadvertent: fully 40 percent of respondent companies report that they already extend minimum wage and overtime to home care workers! Why? Because the companies are located in states that require them to do so or because they voluntarily elect to meet these basic standards. It’s hard to imagine stronger evidence in support of the DOL’s conclusion that the economic impact on the home care industry of the proposed revisions to the companionship services exemption is likely to be small. If providing these labor protections is so cost-prohibitive to the industry, how do these businesses continue to operate and even thrive?

ECONOMIC STUDY

The third industry-sponsored study, Estimating the Economic Impact of Repealing the FLSA Companion Care Exemption, paid for by the same private-duty associations that financed the first survey, was conducted by two economists at Navigant Economics who are complete newcomers to the field of home care labor market analysis. The study does little more than reiterate limitations in the available data used by DOL to assess the costs of narrowing the companionship exemption. The analysis asserts that the costs would be “substantial” but it does not provide an estimate of the costs.

The study’s most self-promoted achievement is an estimation — which they claim to be superior to that of DOL’s — of the decrease in demand for “companion care labor” caused by an increase in wages, known in economic theory as the “elasticity of demand.” The Navigant report overemphasizes the role of this elasticity in assessing the impact of proposed regulations and fails to acknowledge that the costs of the regulatory change will be driven more by how those agencies not already extending overtime protections to their aides respond to new payment requirements. As DOL notes, “those employers who adjust schedules and redistribute hours can be expected to decrease overtime costs significantly” (NPRM, p. 100).

Probably the most disturbing inference made in the Navigant study is that, since millions of employees, such as fisherman, movie theatre employees, and criminal investigators, are also exempt from minimum wage and overtime protection, continuing to exempt home care workers should not be such a big deal. This conclusion is clearly out of touch with the reality that home care occupations top the list of the country’s fastest-growing jobs and constitute one of the largest workforces ever produced by our economy.

Companionship Exemption Comment Period Extended through March 21

The U.S. Department of Labor (DOL) has extended the public comment period through March 21 on its proposed revisions to the companionship exemption. The revised rule would extend home care workers federal minimum wage and overtime protections under the Fair Labor Standards Act, if it becomes law.

To learn more about the companionship exemption, see sample comments, and make a comment on the official public comment website, visit the PHI Campaign for Fair Pay.

Hearing

The Subcommittee on Workforce Protections of the U.S. House of Representatives’ Committee on Education and the Work Force is holding a hearing on the companionship exemption proposal on March 20 at 10:00 at the Rayburn House Office Building in Room 2175. There will be a live webcast of the hearing.

A new PHI report examines how three home care companies have successfully managed to control their overtime costs while maintaining their reputation for high-quality care.

The report, Can Home Care Companies Manage Overtime Hours? Three Successful Models (pdf), discredits home care industry claims that the Obama Administration’s proposal to revise the companionship exemption to extend minimum wage and overtime protections to home care workers would dramatically increase agencies’ overtime costs, since any overtime worked by aides would have to be compensated at time and half.

“These real examples tell us that, once there is a financial incentive for home care companies to manage overtime hours, they won’t just stand still and let their businesses suffer but instead will adopt modern staffing and scheduling practices, just like the companies profiled in the report,” said PHI Director of Policy Research Dorie Seavey, co-author of the report.

Staffing and Scheduling Practices to Manage Overtime

The report reveals how three home care agencies with differing case loads, service areas, and business models — Community Care Systems in Illinois; Addus HealthCare, a nationwide company; and Cooperative Health Care Associates in New York City — have independently implemented similar staffing and scheduling practices to manage overtime.

The most notable practices for managing overtime by these companies are:

• Electronic timekeeping and scheduling that enable “real-time” monitoring of aide availability, workloads, and overtime.
• Designation of new aide positions specifically designed to pick up incidental hours due to call-outs, worker absences, or emergencies.
• Proactive scheduling to spread work hours more evenly across the agency’s available aides.
• Splitting high-hours cases into multiple shifts shared by two or three aides.

“Once one company figures out how to minimize its overtime costs by more efficient scheduling, the rest will either follow or go out of business. That’s how competitive markets work,” Seavey said.

Strong Evidence for Successful, Quality Home Care Businesses Despite Overtime Pay

The authors conclude that the experiences of these three home care companies offer strong evidence that it is possible to grow and run successful home care agencies that have reputations for high-quality care and pay overtime at time and a half. The three companies are operating in 20 states and pay overtime even when not required to do so.

By spreading hours more evenly across their workers, carefully monitoring their workforce data, and designating aide positions designed to pick up incidental hours, these companies manage their overtime so that it does not become a costly business expense that undermines business profitability.

The directors of two of the companies that had “high-hour” cases reported that they “believe that provider continuity that results in overtime work has drawbacks that can affect the quality of care received by the client, including aide fatigue and burn out.” These companies use scheduling guidelines to split high-hour cases between two consistent aides so that continuity of care for the client is maintained.

Nationally representative surveys show that less than 10 percent of aides report working more than 40 hours a week (pdf).

“The real problem for this workforce is not overtime but ‘involuntary’ part-time work, which means aides who are assigned part-time hours by their employers but would like to work more hours,” Seavey said.

Can Home Care Companies Manage Overtime Hours? Three Successful Models (pdf) was made possible with support from the Ford Foundation.

– by Deane Beebe