Warning to private duty agencies:
From Home Health Line Newsletter:
Here comes private duty franchise competition The role of franchisers in the market for private duty home support services is growing at a pace that owners of independent agencies can’t ignore. Between 2010 and 2016, the number of private duty agencies in franchise systems grew by 50%, to 6,875 U.S. locations — at a cost to private duty investors of $1.9 Home Health Line August 15, 2016 © 2016 DecisionHealth® | www.decisionhealth.com | 1-855-CALL-DH1 5 billion, according to an analysis of franchise disclosure documents by Ed Teixeira of FranchiseGrade.com, a London, Ontario, franchise consulting firm. Estimates of how many independent private duty agencies there are overall differ, partly because state classifications vary. But Leading Home Care, a Louisville, Ky., training and consulting firm care, puts the overall figure for agencies at 25,000. This includes 10,000 independents and about 9,000 affiliated with hospitals, Medicare agencies and other providers. Teixeira believes the growth of private duty franchising means small, independent agencies will have to consider purchasing franchises themselves “to avoid being left out in the cold.” Franchisee advantages include increased productivity made possible by access to the franchiser’s state-of-the-art software and the ability of franchisers to increase franchisee revenues and clients by advertising on national TV, Teixeira notes. Some investors who started a private duty agency as part of a franchise system already are using their franchises to leverage themselves into a bigger share of their local market for home support services. That includes three franchisees of Cincinnati-based FirstLight Home Care In the last 12 months, each of them has acquired three independent private duty providers in order to achieve “added market presence,” says Jeff Bevis, FirstLight’s CEO. FirstLight — which has 126 private duty franchisees in 31 states and is adding four to five a month — has anticipated such transactions by including with the core franchise disclosure documents it files in every state an “independent conversion addendum” that covers the role it can play in aiding its franchisees with acquisitions. One way FirstLight helps acquisitions by franchisees is to defer franchise royalty fees on the acquired home support business in order to assure banks, if necessary, that the franchisee is liquid enough to warrant a loan needed to finance the purchase. Franchisees normally pay FirstLight 5% monthly on revenues received. However, additional revenue of at least $500,000 from an acquired independent would entitle them to a six-month period of no royalty fees on that revenue. Similarly, an acquired independent agency that increases the franchisee’s revenues by at least $1 million would qualify for a one-year deferral of royalty fees on that revenue. FirstLight also offers a “technology platform” that helps franchisees convert the acquired agency’s caregivers to FirstLight franchise employees, who then may be eligible for health care and other benefits, based on worker backgrounds, care quality and client satisfaction, Bevis says. While small, private duty providers as a rule haven’t been purchasing franchises that focus on standard home support services, they have been buying them for two ancillary services often needed by their clients — “handyman” services, such as application of non-slip treatments for tubs and bathroom floors, and massage therapy. In fact, Teixeira counts four massage therapy franchisers with more than 150 locations and one with some 1,000 locations. Franchising rules require a therapy affiliate to be at a different location from the private duty agency. However, that could mean immediately next door in a shopping center, Teixeira notes. — Burt Schorr (burt.schorr@ verizon.net)
