Home Care U - 5 Macro Home Care Trends and How They Impact Providers (Stephen Tweed Pt 1.)

Episode Date: May 13, 2024

He's been called the "godfather of home care" but you may know him as Stephen Tweed, Founder and CEO of Leading Home Care. Join us as we unpack key trends that are shaping the future of home care—we'll discuss topics including: workforce, technology, consolidation, payers, and private caregivers.Enjoying the show? Send me a text and let me know!Learn more about Careswitch at: careswitch.comConnect with the host on LinkedIn: Miriam Allred This episode was produced by parkerkane.co

Welcome everyone to Home Care U. It's great to be back with you. I know we haven't had live sessions the last few weeks, but it feels really good to be back in good company with all of you owners and operators listening to us live. So thank you for being here. I hope everyone's having a great season, a great quarter, wherever you are. The weather might be doing a number of different things here. I think it's high of a 45 today. So we are still very much in winter approaching spring mode here, but I hope everyone's doing well. It's great to be back with you. Great to have you on live. Like we've done in the past, if you've got questions or comments while we go along today, we'd love to engage with you. We want to make this session as interesting and valuable to you as

possible. So for our live audience today, don't hesitate to jump in the chat and engage with us. Without further ado, we want to jump in. We know these hours go quick, so we're going to get right after it today. I am so thrilled to be joined by someone so renowned in the industry. I've got Steven Tweed here with me today. When I first got to know Steven and became acquainted with him, he was named the godfather of home care. I love to just kind of resurface that. I personally always loved that. It always stuck with me. So if you haven't heard that before, I'll make the public declaration that he is the godfather of home care. He's been doing this longer than I've been alive, which is also I love just the dynamic of these conversations. Stephen, thank you so much for being here. And thank you

for all that you've done for the industry. And I hope you're as excited about this conversation as I am. Well, thank you, Miriam. It is a joy to be with you. And yes, I'm excited about this conversation because we're talking about the future of home care and some of the trends that we see coming down the road. And I think these are topics of major interest to every owner of a home care company, particularly those who have a vision to scale their business and make it larger and more impactful than it is today. So we're going to have a good discussion. Absolutely.

And who better to kind of debrief on the history, you know, where we are today and where we're going, because you have been doing this for decades. And you haven't seen it all. I don't think anyone's seen it all in home care, but of all people, you've probably seen a lot. So before we jump into the home care trends and the future of home care, like Steven mentioned, I want to give you a couple of minutes to introduce yourself. I do think and hope most people are familiar with you and the companies that you've built, but give us a little bit of insight on your journey to home care, why you got into it, why you're still doing it, what motivates you,

drives you today. Give people some color on who you are and your passions. Well, thanks, Miriam. As you said, I'm Steven Tweed. I'm the CEO of Leading Home Care, a Tweed Jeffries company, and we are a consulting, publishing, and research company serving home care. And then I'm also the founder of the HomeCare CEO Forum. And the CEO Forum is a network of owners and CEOs of home care companies in the top tier of the industry. And we created the CEO Forum in 2012. We had our first home care mastermind meeting in February of 2013. And we grew that from five companies in the very first meeting to over 55 companies today that are members of five different mastermind groups. And in January of

2023, I sold the CEO forum to a company in Seattle, Washington called Jensen Morgan & Jones. And Jensen Jones is the CEO and new owner. And I'm still working with Jensen and his team to grow the forum. And I'm still facilitating what we call the Top 5% Mastermind Group. This is nine companies between $10 and $30 million in annual revenue. And each of our groups meets twice a year, face-to-face, in person, to share ideas, solve problems, support one another, and then we meet once a month by Zoom video. And so that's where we are today. You mentioned my decades of service, and I smiled, and you said, I've been doing this longer than you've been alive. In the fall of 1982, I received a

call from the pastor of my little church in a little town in Western Pennsylvania. And he had been elected to the chairman of the board of the local visiting nurse association, which was a not-for-profit home health and hospice organization and wanted to do some strategic planning. And I said, yes. And the CEO of the organization and I connected, and she liked what I did, and I really liked her. And I think that story is important, Miriam, because what attracted me to home care was the values and the sense of mission and purpose that these people demonstrated. And so here we are 42 years later, and I'm deeply embedded now in the personal care sector, what we call home care. Don't do much with home health and hospice anymore

because we've just been attracted to these thousands of small companies led by entrepreneurs who really believe in that in-home personal care and how it makes a difference in the lives of consumers and families. Well, I'll say it again. Thank you for your service. From data to advocacy to mentorship to these owners, you have done so much. And so young people like me just look up to you, admire you, respect you, and thank you for all that you've done. And I hope this conversation is just another demonstration of your vast knowledge and understanding of this industry and also your hope for the future. I think that's one of the things that I admire most about you is this industry is tough. It's not for the faint of heart.

We've seen a lot of people come and go and exit and enter. And I think people like you that have been in it for so long, there's just something to be said about your passion and your dedication to this industry. So thank you. Let's jump into it. We've got a lot to talk about and I know we're both prepared and excited. So we're going to cover five trends today. I think Steven mentioned that we're going to talk kind of like macro level here. I know a lot of these episodes, we get into the weeds, we talk about operations, we really dive in. Today's going to be a little bit different where we talk kind of about these macro trends. I'm going to ask Stephen to go kind of back in time and forward in time. So we're going to jump around a little bit, but we're going to talk about these trends and what they mean for you all as providers. Why do these trends matter? Why do you need to be

aware of them? What's happening? What is going to start happening and how that influences you? So Stephen, let's start with workforce. It's probably the biggest topic on the list, so let's just get started with it. You have been talking about the labor shortage, the workforce crisis. You've written a book on it. You're probably the best suited to talk about this. You've seen this evolution of the workforce. And so I want you to start there. Is it worse today? Is it going to get much worse? Talk to us about what you've seen and what you think for the future. Well, it's very interesting. We talk about the history of the workforce. And of course,

particularly in home care, our focus is the frontline caregiver. And we've been studying caregivers, caregiver recruiting, caregiver retention, really since the early 2000s. And in 2005, we did a caregiver recruiting study of the readers of our electronic newsletter and had a very good response to it. One of the things that came out of that study in 2005 was the recognition that while recruiting is important, selection is the key. And so we did a lot of digging into caregiver selection and how we can do a better job of attracting high quality applicants, but then making sure we're hiring the very best.

And so we were doing that 2006, 2007, then 2008, 2009 hit, the economy went in the tank and the marketplace changed. And you are familiar with home care policy, you know about the turnover data. And in 2009, turnover home care was like 39%. Well, it's been a steady uphill charge up until about six years ago. And then it leveled off in the mid60s. We saw a little spike in 2018, another little spike in 2022. And so caregiver retention has been an issue for two decades. Recruiting has been an issue, but it has really come to the forefront in the last three or four years. I was just looking at the Home Care Pulse benchmarking study before we came over. And we see that 75% of respondents to that survey said that they have turned down cases at some point in the previous

year, and 53% said they turned down cases regularly. And so this is a factor that has a huge impact on the workforce, and it's not going to get any better. And part of it is just looking at demographics. First of all, we see that the aging population is growing. The over 85 sector is the fastest growing population in America. Baby boomers are retiring. There's these huge numbers of people coming into the age period where they're going to need in-home care. And data from AARP shows that 75% of older Americans would prefer to receive care at home rather than in a facility. And so we need more caregiver. And yet we also see that we've reached the point where there are simply not enough workers working in home care. And so that means a couple of things. First of all, it means that the very best caregivers are already happily working for

someone else. They're not on indeed.com every weekend looking for work. And so if companies want to scale and grow, they have to figure out ways to attract those best caregivers that are already working. We did some research and concluded that there are three types of caregivers. There are full-time professional caregivers who this is their career and they want to work 40 or more hours a week. We have half-time professional caregivers. And these are people who are wanting to do this work, but they don't

want to work 40 hours. They have other things. They're retired school teachers who want to do something meaningful. They're moms with kids who want to put the kids on the bus and get them off the bus. There are other older adults, retired nurses, for example, that want to do something, but they don't want to have the level of exhaustion that comes with bedside nursing. And so there are a variety of folks like that. We have full-time professionals, half-time professionals, and then we have what I call part-time intermittent caregivers. And these are the ones that come and go. They're on Indeed looking for jobs. They're jumping agencies. They're going over to Amazon for two weeks and finding out that's really hard work.

They're coming back. They're going to McDonald's for a week. And so these are the folks that are coming and going and causing that attrition. And so I see the industry saying, okay, we need to attract more full-time professional and half-time professional people into our industry. We need to work with high schools and trade schools to let people know that there are wonderful careers in healthcare in general and home care in particular. So I see our eight member agencies in the home care CEO forum are working at their state level with their workforce development departments to help provide education and training for workers.

They're working at the local level. Several members have their own CNA schools where they're actually training and certifying CNAs at the local level. And then at the agency level, they're developing employee referral programs to attract workers that are not on Indeed or not reading newspaper ads or aren't in other places where you can reach them. And so for our listeners who are saying, what's my company going to look like five years from now and how do I scale this? Part of it is you're going to have to put in place processes and people to continually attract high quality applicants. It means creating a culture, a great place to work where people want to come and then when they do come, they want to stay. And then it's developing processes to retain those great people and make sure they stay longer. It is a part of the industry.

It's not going to go away. What we've seen is the top tier companies have found ways to attract higher quality applicants. They're getting more new hires than they're losing from turnover, which means retention is a big key. As you know, we've done this major study with AccessCare and the Home Care CEO Forum. And we ask a whole series of questions. We had 200, 204 to be exact, top tier home care CEOs. And we asked them a whole series of questions. So we have lots of data. And the biggest burning issues for these respondents to our survey have to do with caregivers, the caregiver shortage, caregiver recruiting, caregiver retention. The bigger the company, the more they're shifting

away from recruiting toward retention. And as I listened to the members of my top 5% group talking about this, while they're not giving up on recruiting or they fully don't have it mastered, they have processing place that are working, they're getting high quality applicants. Now the key is to keep them longer. And we got some data from Home Care Pulse that says 57% of turnover happens in the first 90 days. So we've been doing a lot of work around 90 day retention. So that's a long answer to a short question, but I think it sort of sets the stage for this whole workforce issue. That was great. Honestly, you're kind of answering follow-up questions. One of the ones that I had was about where are owners doubling down? And I think you just highlighted

some of those and you did reference how stage and tenure of the business does play a large part here. You know, if you're smaller starting up, you know, even mid-stage, you're really focused on recruitment. When you get larger and at scale and volume, you know, you're more focused on retention. And so, you know, I think that's a really important factor to consider, but I also think there's this underlying tone of retention is so important. I think for so long, we focused so much on recruitment, but there is a little bit of a tonal shift in the industry towards retention. How do we keep our best people? How do we maximize their schedules? How do we build a culture of where they, you know, it's a place that they want to stay, but also a place that they want

to refer their friends to come to. So I love that you kind of strung all that together and articulated the retention piece. One of the areas that I want to ask about is wages. I think we can't really talk about workforce without talking about wages. And I think that's where we're also spinning our wheels as an industry is how do we pay people more? How do we compete with the Amazon and the McDonald's? Margins are so thin. What are your thoughts and commentary around wages as it pertains to workforce? Wages have gone up dramatically in the last 10 years. There was a decade there where bill rates and pay rates were pretty flat. Companies were billing $20 an hour and paying $10 an hour, and that didn't change very much.

Of course, now, since COVID, those numbers have pretty much doubled. And so bill rates to clients have gone up. Medicaid waiver reimbursement rates have gone up. And therefore, wages to caregivers have gone up. In our research and in our conversations among our mastermind members, we've discovered two key factors. The first factor is money matters more in recruiting than in retention. One of our members was in a mastermind meeting and he was listening to the conversation. This little light bulb went on and he made some notes.

He went back and he tried something and he came back to us and shared the results. And he said, prior to this, all of my ads were around mission and purpose and great place to work and culture and make a difference in your life. And after listening to the discussion, he said, I went back and rearranged some of my job ads and put more reference to money, pay rates, annual earnings, benefits, the dollar value benefits, paid time off, vacation pay, some of those kinds. And he said, the more I mentioned those factors in my ads, he said, my number of applicants went up by 400%. I said, a lot of those people are people we

wouldn't even interview, let alone hire. So we had to be much more selective. And it meant we were churning through a lot more applications and resumes, and we were really working hard at being more selective. But he said, the total number of hires went up. And so when this question of pay and money comes up, that's what I go back to. And again, the full-time professional caregivers are going to do this work, and they understand the pay, and they're not going to get rich being a caregiver, but there's a purpose and a passion and values. And as long as I'm paid enough to meet my

weekly financial obligations. That leads us to another bit of research that we dug into when we were looking at 90-day retention. And it's about balancing the paycheck with the financial needs of the caregiver. And so we've done a lot of work around economic fragility of workers. Of course, most caregivers fall into that category of economically fragile. And so the more that we can talk to an individual caregiver and say, tell me how much you need to take home in your paycheck every Friday. And let's figure out how many hours you need to work to make that many dollars net after your FICA taxes and your other deductions. And then we'll work with you to build a schedule that gives you the dollars that you need to take home.

So it's not I'm going to hire more people by paying 25 cents more an hour. It's I'm going to keep more people if I make sure that they work enough hours to get the dollars and take home that they need to meet their needs. Now, the other thing we learned, second mantra is money matters more in recruiting than in retention. And what we've learned is professional caregivers, either full-time or half-time, don't leave for money. They leave because they're not treated well by their scheduler, by their supervisor, by their scheduling difficulties. They're not getting the hours they needer, by their supervisor, by their scheduling

difficulties. They're not getting the hours they need. They don't have a stable city schedule. Or they leave if their paycheck doesn't meet their financial needs because they're not getting the hours. So again, we go back to looking at the culture of the company and the marketing strategy. And what we're learning is that if home care companies can attract more clients who want high hours per week and long length of stay, then they can match that client with a caregiver who wants high hours per week and is willing to stay. And I don't know, Miriam, if you ever met my son, Jason, but I have a son, Jason, who's 52 years old, is physically disabled, lives in a wheelchair, and uses the services of home care on a daily basis. So Jason has been hiring and managing

his own caregivers for over 30 years. And one of the lessons we learned from Jason is that when the caregiver and the client have a good chemistry, when they care for each other, they both stay longer. And so as we look at all of these dynamics and look at the data, there are a number of pieces that come into play for home care companies to attract higher quality applicants, to give them a steady schedule, to make sure that their paycheck matches their financial needs, and then you increase the length of time that they'll stay with you. Long answer to a short question, but it's all connected. No, that was great. The one thing that I want to just put a finer point on was around that conversation with the caregiver about their financial needs. I don't hear enough agencies talking about that conversation. That goes such a long way. They

are economically fragile, like you said, and it's no secret to anyone, the agency, the employee, and everyone in between. So those conversations should be happening regularly and with every single employee. And so I just want to illustrate that I have, Jensen actually brought that up a couple of weeks ago when I talked to him and I just am not hearing enough companies talking about how transparently they're approaching those conversations with caregivers. And then it's just, you know, obviously it gets everyone on the same page,

but then it's just kind of like an equation. Like we work it backwards. This is where you need to be. This is how we schedule the hours. And this is how we meet that goal. I think it's just makes everything more transparent, but also more straightforward for the office and for the hours. And this is how we meet that goal. I think it's just makes everything more transparent, but also more straightforward for the office and for the employee. So glad you highlighted that amongst a lot of other great points. I want to keep going through these trends because

sometimes I feel like we get a little, a little doom and gloom with the recruitment and retention. I know you are very hopeful for the future and there are solutions out there. And I actually think we're going to address those through some of these other trends a big part of my company and what I'm a part of these days. But I want to just start there and ask you kind of what is your transparent take on AI today and what you think its influence is for home care right now? Well, that's a great question. And my first take is that AI is a bit of a buzzword and it's become popular very recently and everybody's talking about it. But AI has been around for a while. We just didn't call it that. Or maybe they were calling it, but those of us not in the depths of technology.

So my favorite example of AI is the GPS in your car or in your phone. You know, you say, I'm going to go from here to here. And it has learned how to get you there. And it still boggles my mind how that works. And so as we think about AI, there are several applications in home care. The first obvious application is in the home care operating system and the software being able to use machine learning to match clients and caregivers, to match geography, to schedule routing of caregivers. If a caregiver is going to see three clients in the same day, what's the best route to take?

All of those kinds of things that are sort of related to that GPS example. Then there is the piece in the home care operating system that looks at making scheduling easier and faster. And we know from our work with home care company owners that the position or the job of the scheduler is one with a high level of burnout, high level of frustration, a lot of pressure. And so I think AI in the software is going to make the job easier, less stressful, and it's going to reduce turnover schedule. So there's that piece. The second piece of AI, I think, is what owners can do to use AI for a variety of purposes. The easy one is chat GPT, where if you're writing blogs, you can pull together some information and say to chat GPT, write me a 750-word blog post on

the technology of home care. And I want you to include artificial intelligence, remote patient monitoring, telehealth, and cryptocurrency. And you're amazed in 30 seconds, there's this amazing article. I use it sparingly because I like to write, but I've gone into my chat GPT and said, develop this 750-word blog post, and then I go in and edit it and tweak it and add my own data and make it more personal. But there are things like that that will speed up. Using AI for caregiver training, we get into some of the other technologies around virtual reality. You know, AI is here, it's going to be here. And I think that as owners and leaders, we need to embrace the technology, yet also be cautious because anything that's overused can become a weakness or a threat. And so it will be interesting to see how that develops.

But great question. And clearly, AI is going to be part of technology. Yeah, just one kind of follow-up question on it. And then we'll talk about, obviously, other technologies that are having an impact right now. When it comes to this, maybe top 5% of these mastermind groups, are you seeing people actively using AI or are you seeing people, you know, maybe on the sidelines, you know, waiting for it to improve or waiting

for the first movers to make the move and then they'll get on board or where's just kind of like the landscape today of do you see a lot of people embracing it, using it, or do you see maybe more people kind of on the sidelines, you know, ready to engage once it's improved? Well, at the top tier of the industry, and our top 5% group's clearly at the top tier, the owners and leaders at that level are thinking very differently than the folks who are at the median of the industry. Remember that the median or the middle last year was a million seven in revenue. So there's 26,000 companies and 13,000 of them are under a million seven and 13,000 are over a million seven. And the company's 10 million up are at the 95th percentile.

So they're at the very upper end of the bell-shaped curve. So the things that they're thinking about and talking about are quite different than the things that the leaders in the middle of the bell curve are talking about. I was just talking with Jensen Jones today, and he just came back from a meeting of what we call our strategic growth mastermind group. And I think now we have 22 or 24 companies in there that are between a million and a half and 3 million. So they're just above the median and the topics they're thinking about and concerned about. And so back to your question, I see the do more with my blog and my website, or I want to do more with connecting with people on LinkedIn, or I'm going to use video

to send out little short email video messages. So they're looking at studying, learning how to use this technology and thinking about how does AI fit into this. And so they're asking, okay, how do the home care software companies use AI? Where does it fit? How are they promoting it? What are the advantages? What are the disadvantages? And so I think they're much more aware of things like AI than those people who are at the median of the business and they're in the business every day and not to the point where you as the owner can spend less

time working in the business and more time working on the business. And you can build a great team of people that run another day-to-day base. You know, what I'm learning is you don't need to be a $10 million company to do that. You know, I have a new coaching client who's at 2.2 million going to 2.6 million this year. And he's thinking like that and working on his business more so than other people in companies that size. Does that make sense? Yeah, I think that was a lot of great call-outs. And that's part of why I ask is, you know, it's a tool and a resource. For some, it may become a distraction or burdensome. And so that's why I think it's interesting that you call out like every, every stage of the business, there's kind of that,

that inflection point of working in the business to working on the business. Right. And there's a lot of tools and technology and resources in this industry right now. And so you just, owners need to be mindful of what can help or what can hinder, what can be a tool and a resource now, or what could be a distraction at this point in time. And so I think we're all on the edge of our seat to just see how AI continues to unfold. It's still, like you said, it's been around for a long time. Some of the more publicly available technology is relatively in the scheme of things very new. And so there's a long runway of just improvements and learning.

And I think we're all just anxious to see, you know, where it goes. But I also, you know, shamelessly will say we're shaping what that looks like in this industry right now. You know, let's work together, put our heads together to shape it to be something that can be valuable for home care agencies, for caregivers, for schedulers? How do we use it to our benefit? So enough on AI. I just wanted to start there. There's a lot of other technology that's come on the scene, remote patient monitoring, telehealth. What are some of the other technologies that you see being really impactful at this point in time and into the future? Well, we ask our respondents to our survey that very question. And the number one technology that people see making an impact in home care is remote patient monitoring. And next on the list is telehealth. Now, telehealth has

been around home health and hospice for decades, but it has not gained a lot of traction because there was no revenue stream to pay for it. And so the home health people sort of built telehealth into their episodal payment systems and they were using it, but the data are pretty clear that patients with certain diseases like congestive heart failure and COPD have much better outcomes and reduced re-hospitalizations as we monitor their condition with a telehealth. Remote patient monitoring is interesting because it's a way to provide the client and the family with a sense of safety and security, even when their caregiver is not there. But what we've seen is a big resistance to remote patient monitoring by clients because they don't want their privacy invaded.

And I get calls regularly from entrepreneurs that have some venture capital that want to invest in new technology. And many of them have to do with patient monitoring, whether it's cameras, motion detectors, audio, whatever it may be. And they're great ideas and they work, but the patients or the clients reject it because they don't want somebody knowing what they're doing every minute of the day. So we have to get past that hurdle. And part of getting past the hurdle goes back to the demographic question we talked about earlier. There's simply not going to be enough caregivers to meet the demand, which means we're going to have to find a way to help have technology help us with that process. And I think we're a long way away from seeing little R2D2 robots running around, but yet we do see the use of robotics and AI in that conversation. And so we will see that coming forward. So remote patient monitoring,

tablet-based computing, telehealth, virtual reality training. We have a couple of our members that are currently using virtual reality training for their caregivers. There's some great programs around Alzheimer's and dementia. And people put on the mask, the screen, and connect to the computer, and they're in this virtual reality of interacting with a person with Alzheimer's and dementia, or the role is reversed. They're the person with Alzheimer's looking at how people treat them and respond to them. So I think those are the kinds of things that we're already seeing on a small scale that we will see more of. And one of the technologies that popped up in our survey is smart homes. I don't even

understand all I know about smart homes, but the whole concept that we put features in place in homes that enable older folks to make things happen with minimal physical effort. You know, I've got Alexa and I say, Alexa, play some music. That's about my capability. But Alexa can turn on the lights, turn off lights, unlock the door, lock the door, turn on the security system. And as that technology grows, we were able to create internet connected smart homes that make it much easier for clients to stay at home and for the oldest daughter to be comfortable that mom is okay and so part of it is actual care and part of it is creating peace of mind and quality of life for both mom and the

daughter, who's the primary family caregiver. Yeah. I'm glad you brought up the smart homes. I think that's another more, maybe less talked about feature of technology, but that is very prevalent in our homes and has been for a lot of years. And now it's just how do we utilize it for things like home care and health care? I honestly am just excited. I think there's a lot of challenges in this industry and we all have to get creative to use technology to our benefit and think differently about how do we supplement the care. I think for the foreseeable future, technology will supplement, it will not replace. And so that's where, you know, we have to control that narrative. What do humans do really well? What do the caregivers do really well? And what will they always do better than

technology? But how do we supplement the care with a camera, a microphone, a smart home? How do we get creative and then find that balance of, you know, what, what can the technology do? Well, maybe 10% of the time, maybe 20% of the time, but then what do the caregivers do very well, you know, the socialization, you know, the bathing, the really important thing. So I think there's just this balance of technology and care. And it's up to all of us to kind of shape what that looks like and just take it kind of one step at a time as the clients, you know, and the caregivers and the businesses are prepared to take these steps. Exactly. Let's keep going. We could talk about technology all

day. Obviously, that's one that I'm passionate about, but I want to make sure we get through these. The third trend that I want to talk about is you can call it what you will, M&A activity, consolidation, outside entities coming into home care. It's been a pretty interesting, maybe decade of a lot of flux in the industry when it comes to mergers and acquisitions, when it comes to consolidation. You have stayed up to date probably with this trend as best as anyone. So just to kind of preface, it's all kind of heated up since the pandemic, I would say. There was a lot of activity during the pandemic. It's been a little bit more of a lull, I would say,

lately, the last maybe year, 18 months. What's your take on this trend? What would you like to share with everyone regarding this? Well, you're exactly right. Mergers and acquisitions has been a huge trend in the industry and will continue to be. And it's driven by a couple of factors. One is the entry of private equity and venture capital into home care. And we've seen a huge influx of private equity groups. And that's a relatively small community of companies and they know each other and talk to each other. So somebody said, I bought this home care company and somebody else said, that's a good idea. I'm going to buy a home care company. And pretty soon all these private equity groups are wanting to get into home care.

We saw it, I guess, earliest on the technology side with the software companies. And there were a couple of software companies that were acquired by private equity groups, put a huge investment in it, grew it, grabbed market share. And I know you're in that sector, so you understand some of those dynamics. The second big sector that saw the influx of private equity is the franchise sector. And we study the franchise sector regularly. I have a research and we update our list. We maintain a running list. And as of a year ago, there were 56 companies selling home care franchises. There were 7,668 franchise locations and 12 of the top 15 franchise companies are owned by private equity. Several of them have been bought and sold multiple times.

And so that will continue. But then we saw in 2020, the influx of private equity into the independent home care companies and the rollup of several companies. The first biggest one was Home Care Assistance, which was a franchise company based in California, and they were acquired by a private equity group who shifted the model and started buying back their own franchisees and then started buying independent home care companies and bringing them in as company-owned offices and then rebranding the whole thing as the key. And in a 24 month period from the middle of 2020 to the middle of 2022, we had 10 of our 50 mastermind members sell their businesses. And six of them went to home care assistance. Two of them went to our own members and two of them went to other companies. And so I think that's reflective of your question. M&A gets divided sort of into three buckets. One is the movement of private equity into the home care market and scaling up and growing home care businesses. The second is large,

independent home care companies that are acquiring smaller home care companies. And again, some of them, as a result of that effort, have taken in some private equity. And then we see the growth and expansion of small to medium-sized home care companies who see this going on and find that they can acquire either small competitors in their local market, or they can expand geographically to a neighboring market by acquiring a small company. And the term that they often use is a tuck-in. So if you have a $5 million company and they have a company down the street that's doing less than a million dollars and the owner is struggling or wants to get out or is ready to retire, they acquire that at a reasonable price and they tuck it in and it becomes part of the acquiring company. And so as we sort of

look at our crystal ball and look out five years, what I see is this industry continuing to consolidate. And so the franchise companies are going to continue to grow. They're adding franchise units. There are some new startup franchisors, but in reality, there are fewer franchisors today than there were three years ago. And so the number of franchisors has not been growing. I think that we have nine companies on our list that used to sell franchises that are still in business, but they've stopped selling them. And there's eight companies

that went out of business altogether. And so the whole franchise sector is an important one to be aware of. And then these private equity companies buying independents and growing big companies. The other part of this consolidation goes back to payer sources and looking at home care companies in terms of where does the majority of their revenue come from? We ran into this four or five years ago when we realized that some of our top 5% mastermind members get a majority of their revenue from Medicaid and Medicaid waiver,

and others get a majority from private pay. And then they have long-term care insurance and veterans, Department of Veterans Affairs benefits. And so we began to divide that out and look at the data for companies that are majority Medicaid or majority private pay. And in this research study we did, we asked companies, where do you get the majority? And we discovered that there's a growing number of companies, I think it's around 7% of our respondents, that a majority of the revenue is coming from the Veterans Administration. And so what we realize is that if you get a majority of your revenue from Medicaid, that's a very different business model. It's high volume, it's much more predictable revenue stream than private pay where your clients could walk out at any moment.

Looking at these different dynamics is going to help us get a picture of the shape of the industry five years from now? I know, again, that's a long answer to a short question, but understanding the consolidation of the industry and how it affects the local market, I think, is going to be important. Yeah, really valuable information. And you're going towards the third party payers, which is where we're headed next. But I do want to ask one kind of pointed question on private equity. It is a little bit controversial in the space, I would say. I'm curious on your take, are you concerned at all? These are outside influences with a lot of money and a pretty different mentality. Do you worry about what the industry may look like in five or 10 years because of the influence that they have now and will continue to have in the future? Or is there enough net positive that you're not too worried? I am very concerned and I'm concerned for a couple of reasons. One is that the whole

model of private equity is bring in really smart people, buy a company, apply some, let's call them Harvard Business School practices, grow the company, and in five years, flip it and take your profits and go do something else. And that's the model. Agree with it, disagree with it. That's typically what happens. And so that's what we're seeing in home care. We see companies come in, buy a franchise or grow it for five years and flip it. We've seen that happen in the technology sector. Come in, grow it and flip it. Here's my concern, is that the owner, we'll call it, has very little understanding of the home care business and very little commitment to the home care business. It's all about growing a company and flipping it. And there's this notion of, we're going to take this business and we're going to take it to the next level and we're

going to spread it all across post-acute care. So it's not going to be just the home care sector anymore. We're going to elevate it across post-acute care. And what we know from our experience over 40 years is that the different elements of post-acute care. And what we know from our experience over 40 years is that the different elements of post-acute care are very different businesses. Home care is different than home health, is different than hospice, is different than assisted living, is different than skilled nursing, is different than behavioral health. I've seen a couple of examples of companies, particularly technology companies, that were primarily focused on home care. They were acquired by a bigger company.

The bigger company wanted to spread across the post-acute care continuum. And so they quit investing into the software for home care, private pay. And now those software companies are out of the marketplace. And new companies are coming in that are focused and dedicated to home care. And I have some of those same concerns about individual companies and big conglomerates is that are the owners, do they really understand the home care business? Do they bring a sense of passion and purpose to serving home care? And will they stay with it? And of course, the trend or the answer from these other discussions, well, probably not.

Now, I'm not saying that there aren't people who can and will do that. It'll be interesting to see, but it's a great question. And I think something that we need to be aware of. And as a side note, we know that the Congress of the United States is already taking a look at the entrance of private equity into other areas of healthcare. I put you on the spot with that one, but I, amongst others, just appreciate and respect your opinion. And that is, like I said, a pretty controversial topic, but it is so relevant. And so that's why I wanted to get your take on that. And I, like you,

have seen the good, the bad, and the ugly of private equity, but I do want to call out there is some good. I have talked to some owners, operators, where it is a really good thing for their business. And they do have these investors or this board that does get behind home care and is invested in the mission and does see the long-term value. So by no means are you or I blatantly calling it out as a negative. There is good in it, but I think it is something for us all to be aware of and keep our eye on and do what we can to, you know, protect our own, but also be aware of what's happening across the industry. Well, and to your point, you know, we recognize that there are some significant advantages to scaling a

home care company. To do that takes capital. And that is where the private equity groups come into this market by bringing capital and bringing business acumen and expertise, bringing data analytics, bringing information systems. And so there are, as you said, there are lots of positive things about it. We have seen some of our member companies that have taken some private equity money and the original founders are still in the CEO chair and they're leading the business forward. And it gives them some resources to really grow their business and do more good, serve more clients, serve more families, serve their communities. You're absolutely right. Having the resources to do that is a positive. And then you mentioned some of the negatives and

yep, we accept that. And that is the real world out there. And I think as far as this discussion goes, we've got who knows how many people out there live and how many people listening to the recording of this podcast is for individual home care company owners to think about what is this whole question of mergers and acquisition and consolidation and private equity have to do with my local marketplace and my ability to compete, my ability to put together a team of people, my ability to attract caregivers, my ability to build relationships with referral sources. And so paying attention and understanding the dynamics is a benefit to everybody who's listening to us today. That was really, really well said. Let's transition. I'm throwing all the hot topics at you. The fourth trend that we want to talk about is third-party payers. Again, the past decade, diversification, Medicaid, there's just been kind of this compounding focus on third-party payers and diversification. I would like to start with obviously the most recent headline around the 80-20

CMS ruling. What's maybe your insight there and how concerned should providers be today or how concerned do you feel about this today? Well, I've been shocked at the level of pushback or the reduced level of pushback from the industry from very early on. When I first heard of this thing, I couldn't believe people were even considering it. And then I watched it go forward. And I think the best response is to quote our mutual friend, Aaron Markham, who was interviewed on another podcast, I think. I just saw the quote. And he said, this 80-20 rule is somewhere between bad and catastrophic. And I went and listened, and Aaron and I talk regularly. I have a call with him set up soon, so we'll dig into his perception a little bit more deeply.

But, you know, of course, Aaron has been doing the benchmarking study at Home Care Pulse for 15 years. We started benchmarking even before that. We threw in with them, so we've been good partners for the last 15 years doing the benchmarking. And within the Home Care CEO Forum, we do our own benchmarking of our members and then compare it to the Home Care Pulse numbers. And in our top 5% group, as I said, half the members are majority private pay, half the members are majority Medicaid waiver. So we know what the margins are.

And I was just talking with one of our members today so that we know that across the industry, the direct cost of care runs in the low 60s, 61, 62, 63% of total revenue. And that gives you a gross margin in the high 30s, 34, 35, 36. The Medicaid people are in the mid to high 60 direct cost of care, low 30s gross margin. And all of a sudden this law comes along and says, we're going to take your direct cost of care from 65% to 80% and your gross margin is going to go from 36% to 20%. And by the way, your net margin on the bottom is 10%. That's all gone away. And so bigger companies are going to figure out how to systematize their business. And they will figure out how to work those margins.

And hopefully there'll be some margin left. But small companies that are in local markets that are doing primarily Medicaid, they're going to go away. The big loser is the consumer. Already, there are places in our country where there's not enough caregivers and enough companies to provide the care that's needed and that's authorized by the Medicaid program. And so that's just going to get worse. So there's already waiting lists for Medicaid home care. Those waiting lists are going to get longer. Authorizations are going to go to fewer

hours per client. It's going to be a catastrophe. The next catastrophe is going to be for the caregiver because the small little company that they love working for and they have a good relationship with and they're comfortable with is now going to be in financial difficulty and they've got to go change companies and they've got to now go work for one of these big companies that has put systems in place and shrunk the margins. And so you can see where this whole thing is going. I was just reading an article today or yesterday saying that many of the bigger players are moving forward with the presumption that this thing is never going to get executed. There's a

six-year ramp-up time. And by the time three or four years goes by, the legislators will figure out that this is a catastrophe waiting to happen and that they will change the rule. Remember, this didn't come about because of legislation. It came about because of regulation. And so the legislators can change that. That's a long answer to a short question. Well, you just answered my follow-up question right there, which was perfect, was how much weight does this carry today versus, you know, do, like you said, do these Medicaid providers take action? You know, I was going to say like freak out, like what do we do today versus, you know, what do we just kind of like reinforce in our business and kind of wait this one out a little bit. And it sounds like to your point, yeah, we've just got to kind of wait a little bit.

The big companies that are primarily Medicaid are obviously paying close attention to this. They're lobbying, they're working with their local legislators, they're working with their state and national associations to number one, understand the details of the regulation and number two, to put influence on probably much on the legislators. So one of my members sent me an email today and said, would you send me some data? He told me what he wanted. He's talking with his member of Congress next month, and he wants to go in prepared with the data that says, here's what's going to happen to the bottom line. And if that happens, companies are going to get out of the Medicaid business. So it's only when you have data and information.

But what we know from our work in communication and public speaking is that data points don't necessarily convince legislators. It's more about stories and it's about numbers of people that call up. So I think that as an industry, we're going to come together and share information and share data and develop a story and hopefully have a common message for legislators and regulators about the importance of home care and about how this rule is a bad idea. And I think that it's a bad idea that comes about around an important purpose, which is to take care of caregiver, is to help them have more money. And so if as a state, we give you $100, we want $80 to go to the caregivers and you get to keep 20. But the problem is if my company goes away, then the caregivers don't get any money or you have to

pay them directly. And of course, we know about the consumer directed care models in a variety of different states. And there's some things about that that really work, but there's also a high level of fraud and abuse in that. So this is not a simple issue, but it gets approached sort of as a simple issue of we'll just give, we'll mandate that home care companies give more money to their caregivers and everything will be fine. Well, we know it's not going to be fine. Yeah. Again, really well said. This one is so easy to spiral on, but I wanted to bring it up because it is so relevant. There's a lot of headlines around this and I think you brought up some really great points. I know we're almost at time, but I want to spend maybe two more minutes on this and then we'll get to those last one. We've got just a couple more minutes, people to bear with us. We just talked heavily about

Medicaid. In the survey, you referenced VA is on the rise. I think there's also a lot to be said around long-term care insurance. I want to just give you a minute to talk about some of the other payer sources that are influencing the market today. providing the greatest opportunity for growth. Number one was private pay. Number two was VA. Number three was long-term care insurance. Actually, Medicaid was number five. Number four was bank trusts and family trusts. Now, again, the respondents were 50% of the respondents have the majority of their revenue from private pay. And so obviously that's their focus. And what we know is that companies that are primarily focused on private pay don't really want to do Medicaid. And the companies that primarily do Medicaid have a hard time attracting private pay clients. So it's almost like they're two different businesses.

And so, again, we look at those opportunities. And long-term care insurance looks a lot like private pay in that the home care company and the consumer work out an agreement, and they file a claim with the long-term care insurance company, and the insurance company pays the consumer who then pays the home care company. With the Veterans Administration, there are similar kinds of situations where the company and the veteran work out an agreement, and they get the reimbursement from the Veterans Administration. There are some plans where it goes to the veteran who then pays for home care,

other plans that goes directly to the home care company. And there are different programs with different limits and different financial aspects to it. But what we saw 10 years ago was a lot of our members doing a fair amount of VA work. Lots of veterans needed care. Our members were caring for them. The processes and backend office systems at the Veterans Administration were really a mess. And our members were delivering the care, but they weren't getting paid. And so it's like, I'm doing, pick a number, 500 hours a week of care for veterans, but they owe me $600,000 and I've already paid my caregiver. So I can't keep doing this. And the VA has refined their systems. They've developed relationships with third-party payers to administer the payroll part of it. And so now members are getting, once they get into the system and get approved and

the cash starts flowing, it flows pretty regularly. So it's very different. The other thing is the Veterans Administration increased the reimbursement rates for veterans, and that varies geographically around the country. And so in some areas of the country, the VA rate is higher than the private pay rate. And there are lots of veterans out there and companies have developed relationships with the VA and with the third-party administrator and the system worked really well. And so we see a lot of positive things happening there. And we're big fans of that. One becomes veterans have with their life on the line to defend our country, we need to take care of them. And this is one way to do that. And they want to stay at home and we can care for them at home.

So let's make that VA benefit work to the advantage of the veteran and their family. So those are the kinds of things that we see happening. And so we've got those different revenue streams that are in alignment with private pay. And then we've got Medicaid, Medicaid waiver that are separate. And all the states are upside down on their Medicaid business, but yet the demand is there and the need is there and they're trying to figure out how to make it work. And there are companies that are doing very, very well providing services to Medicaid beneficiaries. I think this is one that we're going to just have to talk about every three to five years. And we are, it's just this, you know, payer sources is in flux. You know, I personally was surprised to

see VA second on that list, but you explained the why behind that, you know, it being a mess 10 years ago, they've really got their act together. There's processes in place. So it's, it shouldn't become as, as much of a surprise, but it is a little bit of a surprise to me, but a year from now, three years from now, five years from now, those could all be flip-flop again, as we see this 80-20 rollout, who knows what this will be. But I appreciate you kind of like breaking down each of those because there's a lot of factors. And earlier, you mentioned this call it of everyone that's listening to this diversification is such a independent decision. You know, there's a lot of really successful businesses in this industry that have owned their lane and private pay or Medicaid,

like you've talked about, and I've gone to the end of the earth and built really successful businesses without diversifying. And so there's no one right way. I personally worried that we talked maybe a little bit too much about diversification the last few years and everyone felt like they needed to diversify, but that isn't really true. You know, it's really dependent on the business and the operations and the structure and the staff and the model

to decide what's best for your business. But I think you just broke those down so well as to, you know, what the possibilities are with each of them, but it really is a decision at the owner level. Last topic here, there's, this is kind of an interesting one, but I really is a decision at the owner level. Last topic here. This is kind of an interesting one, but I wanted to throw it in here. You've told me, and we both know there's not as much data or this one isn't as straightforward as maybe the other trends that we've talked about,

but it is something that's top of mind for a lot of people. And so this fifth trend is private caregivers or the gray market as we hear it in headlines and read about it. I just wanted to get your take on what you're hearing from these top providers in the space. Are they concerned? What are they saying in regards to this? As you said, we don't have any data, but we have lots of anecdotal examples. And multiple anecdotes don't make data, but they give us multiple anecdotes. And many of our members have been talking about the perception that their biggest competitor is the independent caregiver, or as you said,

the gray market. And so we know that they're out there. We also have seen some examples of independent caregivers who have clients and they're as busy as they want to be. So they have a friend. And so they invite their friend to work with them and they take as busy as they want to be. So they have a friend and so they invite their friend to work with them and they take a piece of that. Pretty soon they've got a business that it's all under the counter and not visible and it may not be licensed. It's certainly not insured. And we're seeing a number of those little tiny under the counter gray market home care companies. And then you start moving into this sector that we call the registry model. And registries are companies that serve as building

the relationship between the client and the caregiver. And there are certain rules and regulations of what you can and can't do. And in some parts of the country, registries are very big, like in Florida and in the mid-Atlantic, Pennsylvania, Delaware, Maryland. In that region, there's a lot of registries. And so you have independent caregivers who work with the registry to be connected to families. And the registry handles the billing and some of the other back office pieces of it, but the things they cannot do. I think that the question is a good one. The answer is difficult because we don't know the magnitude of it. Anecdotally, we know that these independent caregivers, you know, if the bill rate

in a local market is $25 and you're paying your caregiver 12 or 13, these people will come in for 18 and make $5 more than they would for working with an agency. And the client gets their care $5 or $7 less than they would if they're going through the agency. So from an economic perspective, it makes sense. Then you have the issues of supervision and training and insurance and licensure and all of those pieces that make it a very complex issue. attention to their local market and to be talking with other home care company owners, to be talking with caregivers, to be talking with clients and asking questions to get a better sense of what's the magnitude of this challenge in our local marketplace. And you can only do that by asking questions and listening. You said the phrase that stood out to me, and I've heard it more the last few years, which is part of why I wanted to talk about this is agencies don't see other agencies

as their competitors. They see the private caregivers as their biggest competitors. And so that's why I think in recent years, this is becoming more of a topic to keep our eye on. And like you said, it really just starts at the local level, keeping kind of a pulse on what's happening to bring a full circle comes back to that recruitment and retention culture, building a business that attracts these all-star caregivers. And, you know, that can kind of omit the issue of these private caregivers. And so again, just to kind of bring that full circle, I think all of these topics tied together really well. This industry is in flux, which I think is probably

something that you and I both love about it. It is challenging, but no two days are the same. And what we're talking about today could be different in five years, could be the same in 10 years. It's just so, so fascinating. I just want to give you one minute here at the end to talk about your hopes and excitement for the future. Sometimes these trends can feel a little bit, you know, a little doom and gloom, a little bit pessimistic. You know, there are a lot of challenges and that may be where we tend to focus, but I want to give you a minute to talk about your hope and excitement for the future of this industry. The hope and excitement comes from two things. One is just the pure demographics that there's this huge number of older adults in America who need and want care, and they appreciate who we are and what we do. And then secondly, we have this growing

number of entrepreneurial leaders who want to grow successful companies, but want to do a company that makes a difference in the lives of their clients more so than, and again, there's nothing wrong with flipping burgers, but a lot of people are drawn to home care because they don't want to be burger franchise or car wash franchise or whatever. And so we have people who want and need care and appreciate caregivers. And we have entrepreneurial leaders who want to grow companies and who want to create a great place to work for their caregivers and who want to leave a lasting legacy of growing a company that has had an impact on their local community or on a larger region. And so I see great hope for the future. This industry is going to be around a long, long time.

I hate to use cliches, but the cream will rise to the top. The best leaders will grow, their businesses will grow, and they will continue to make a difference in the world. And we will continue to have a churn of people coming into the business and not figuring it out and not making it and not succeeding. And we'll see caregivers who come and go because their values are in a different place. But overall, we see owners and leaders and office team members and caregivers who are really committed to caring for older adults in their homes and they're building businesses and doing well economically and it works.

So I'm excited. I love being in it. I've enjoyed being in it. Part of the reason I keep going is because I believe in what we're doing and that we're making a difference. I love it. Thank you, Stephen. I couldn't agree more. I think we're all in it because we want better home care in this country and more importantly for our loved ones, for our neighbors and for ourselves in the future. We're all going to get to that age in life when we need to, you're going to, we're going to be at that crossroads of what kind of aging we want to witness ourselves. And so I couldn't agree more that we're all in it to better home care in this country and for our loved ones and for ourselves. So thank you so much, David. It's always a pleasure to be with you, to talk to you. I know you're a busy man with a busy schedule,

so I appreciate you giving us an hour. I do want to just call out, we do have Stephen back next week for another hour. Stephen has referenced data countless times in this conversation. As you can tell, it's a passion of his and he can speak really eloquently to how important data is in this industry. So next week, we're going to talk about what he's learned from this top 5% of the industry when it comes to communicating, implementing, and the sustainability of the right metrics. And so I think it's going to be another great session. Again, it's a topic that Stephen and I both love. So we're going to talk in depth about KPIs and about data. So Stephen, thank you for being here. And we'll look forward to seeing you again next week. Thank you, Miriam. It's been a pleasure and we'll see you all next week.

That's a wrap. This podcast was made by the team at CareSwitch, the first AI powered management software for home care agencies. If you want to automate away the menial of your day-to-day with AI so that you and your team can focus on giving great care, check us out at careswitch.com.