New pay rules force homecare agencies to re-think business model
A new federal rule extending greater workplace pay protections to home health and personal care workers is forcing homecare agencies to raise rates, re-think their business models, and could lead to consolidation across the industry, experts say.
The U.S. Labor Department's so-called Home Care Final Rule officially took effect Nov. 12, requiring third-party homecare employers, commonly known as homecare agencies, to pay their live-in and hourly employees overtime and minimum wage, as prescribed under the federal Fair Labor Standards Act. Previously, there had been an exemption for those workers for nearly four decades.
The change is most disruptive to homecare agencies that provide live-in, around-the-clock care, because their workers are eligible for the most overtime pay. In one week, for example, an agency-employed caregiver living full-time with a client could rack up more than 100 hours of overtime, which now must be paid at time-and-a-half.
As the new rules take effect, homecare agencies' profits are taking a hit and the industry is responding in a variety of ways.
Some agencies are phasing out live-in services, while many are rearranging worker schedules in an attempt to avoid paying overtime. That can be a tough fix, said Julianne Roth, owner of West Hartford-based Companions for Living and president of the Connecticut Homemaker & Companion Association, because many live-in workers want to work a lot of hours to make extra money. Additionally, swapping out aides every few days for dementia clients can lead to confusion.
Scheduling tweaks alone, Roth said, won't be enough to avoid the impact of the higher costs so her business and many other agencies have already raised rates.
"We had no choice," said Roth, who said profit margins in the homecare industry are thin. "So far we're doing OK."
Meanwhile, experts predict the new rules could lead to industry consolidation over the next few years.
"If margins go down low enough, that could drive consolidation," said Sami Asaad, a Hartford employment attorney with McCarter & English who represents homecare companies.
Bill Simione, president of Hamden's Simione Healthcare Consultants, agrees.
"The new rules will eat into the margins of these agencies," Simione said. "I do think you'll see some consolidation or affiliation happening probably within the next two to three years. That's just going to be inevitable based on top-line pressures these organizations are going to feel."
Roth said she understands both sides of the debate, which is now all but settled unless the U.S. Supreme Court decides to review the labor department's decision to extend overtime pay to homecare workers. It's a legal battle that began shortly after the government published the new rule two years ago.
Roth said her live-in employees deserve adequate compensation. Some make around $50,000 per year, she said.
"In no way have we ever considered that the work our staff does is unimportant or not worth compensating," Roth said. "The problem is overtime for those who provide live-in care. It becomes unaffordable to the senior."
Like in any industry, homecare prices vary, but generally range between $200 and $300 per day, according to court filings and industry sources. Last week, in response to the rule change, the state's Medicaid program raised the daily rate it pays homecare agencies for live-in care from $182 to $225, according to the state Department of Social Services.
New rules spur new biz model for Berlin provider
While homecare agencies are scrambling to come up with ways to mitigate the impacts of the new rules, a Berlin company has settled on a new option for homecare clients.
For 25 years, Euro-American Connections & Homecare has been operating both a traditional homecare agency, which directly employs its workers, and what's known as a registry.
A registry is a referral service that vets independent contractors for homecare clients. Those contractors remain exempt from overtime laws, as long as they are properly classified according to labor regulations.
Regulators' scrutiny of misclassified employees has become an increasing concern for registries and other businesses alike, so last month, Euro-American launched a new program that offers a way for patients and their families to take advantage of a remaining overtime exemption — one that no longer applies to third-party companies — by employing their live-in caregivers directly, according to Tom Falik, Euro-American chief operating officer and president of the Connecticut Association of Homecare Registries, which has 10 members.
While the patient would employ the caregiver, Euro-American would handle payroll, tax withholding, insurance paperwork and other administrative back-office functions that most families can't handle.
Falik said the service would cost about the same as Euro-American's current agency service, which will remain, though round-the-clock services will move into the new program. Approximately 30 clients are expected to roll into the new program soon, he added.
Overall, Falik said more homecare providers might consider a registry model. He said several providers have called him to talk about joining the registry association, even though some agencies have criticized registries for having less responsibility for their caregivers.
Shifting from an agency model to a registry model is doable, but smaller agencies will have a harder time, he said. And agencies must be careful.
If a registry is found to be supervising the workers it refers, labor regulators could deem it to be a "joint employer" responsible for paying overtime, he said.
If there is to be M&A activity in the homecare space in the years ahead, Euro-American may be one of the companies helping to drive it.
"Once we get all the kinks out and this thing's going well, we're hoping to expand the program," he said. "We don't know if it would be through acquisition, licensing or franchising. But we think it's a program that could definitely have a wider audience."
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