As the home care industry becomes more complex and competitive, large franchisors see a growing opportunity to turn existing, independent businesses into franchise locations.
Cincinnati, Ohio-based FirstLight Home Care and Gurnee, Illinois-based BrightStar Care are two examples of national franchise companies pursuing this avenue for growth.
“In the last 12 months, we’ve really gotten serious about it,” Bill McPherson, executive director of franchise development for FirstLight, told Home Health Care News. As of the end of 2017, there were more than 160 FirstLight locations, with another 90 awarded and in the process of opening, in 34 U.S. states.
Over the last several years, independents have found it more difficult to compete against franchise companies for several reasons, McPherson believes. Affordable Care Act insurance mandates have increased benefits costs, while changes in labor law have added additional pressures. Other changes—such as a recent move allowing Medicare Advantage plans to cover non-skilled in-home care—are putting independents at a disadvantage to players with greater scale, technological resources, and the sophistication to negotiate with insurers.
No conversions have been officially signed yet, but FirstLight has a few in the pipeline, according to McPherson. The company is targeting two to three this year, and is aiming for about 40 new franchise owners in total for 2018. Initially, FirstLight had a larger target for conversions but scaled that back, in the interest of ensuring success right off the bat.
“We have to have home runs and get these right,” McPherson said.
Getting these right will depend in large part on identifying existing businesses that are a good fit for FirstLight. Service excellence, measurable results, and a focus on finding and keeping the right caregivers are three of the main criteria that McPherson and his team are looking for.
As for what FirstLight would bring to the table in a conversion, McPherson emphasizes three ways that an independent operator would benefit. Help with recruiting and retaining caregivers is top of the list.
“That’s the biggest challenge in the industry, bar-none,” he said. “It’s typically 60% to 70% turnover each year. At FirstLight, in the last four years, our retention is about 85%, which is unheard of.”
The other two key differentiators: FirstLight’s proprietary technology platform—which is already being tweaked to handle Medicare Advantage billing—and the deep industry experience of the leadership team.
The conversion finances would have to make sense for the independent as well—starting to pay franchise fees and royalties is no small matter. FirstLight is basically cutting the initial franchise fee in half for conversions, and there would be a phase-in on the royalty, depending on the sales revenue of the independent. The bigger the book of business, the longer it would be before full royalties take effect.
As for where conversions might take place, the Pacific Northwest is one area of particular interest, but the company is looking nationwide at territories and ZIP codes that are not already exclusive to existing FirstLight franchisees.
“It really comes down not so much to the market for us but the right fit, the right person,” McPherson said.
Seeking an edge
BrightStar Care is also pursuing conversions as a way to increase its scale across the country. On April 1, it completed a conversion deal by acquiring HomeChoice Senior Care—the largest independent home care operator in the Des Moines (pictured above), Cedar Rapids and Iowa City metro markets—for an undisclosed sum. BrightStar has more than 330 locations, and provides non-medical and medical home care.
When BrightStar first approached her last spring, HomeChoice owner and Executive Director Koleene Herlocker was skeptical.
“My initial reaction was, no, we’re successful and I can do this on my own, and I don’t have to pay franchise [fees],” Herlocker told HHCN.
Still, she knew that being part of a franchise system could offer advantages, because she previously owned several Sylvan Learning franchises. Plus, she was seeing the influx of new competition in the home care space and knew that it was going to become harder to stand out.
“We continued to have conversations, and as I got to know BrightStar, I realized they did offer a unique advantage that no other franchise system I looked at offered,” Herlocker said.
That advantage is the skilled care and the fact that a registered nurse oversees the care plan for every client. In addition, HomeChoice will go through the process to gain Joint Commission accreditation, which is required of all BrightStar operations and provides another differentiator from the competition.
In addition, being in the BrightStar system could help with staffing challenges, Herlocker believes, due to additional learning opportunities and the chance to join as a non-skilled caregiver and then advance into medical roles. There will also be the chance now for people to transfer to other BrightStar locations across the United States, opening up further options.
HomeChoice and BrightStar also match up well in terms of current practices and company culture.
“On the home care side, we’re not making significant changes,” Herlocker said. “The big thing will be hiring that nurse and a higher level of skilled employees.”
Because HomeChoice is a well-regarded brand and BrightStar has not been active in Iowa, the company will be co-branded for a period of time before transitioning fully to BrightStar.
As for financial considerations, Herlocker calculates that by becoming a BrightStar, the agency will beat the competition and gain revenue to more than offset the new franchise fees.
“Just like in any business decision, being part of a franchise is not a guarantee of anything, you can’t automatically be guaranteed success,” she said. “I just feel it gives us that competitive edge.”
Look for more independent owners to take the calculated risk and become a franchise player in the coming years.
“I only see the industry growing and more competition coming in, so I do think what BrightStar is doing in Iowa is an example of what we’re going to see more and more,” Herlocker said. “It’s really hard to come into an established market with major competitors and start from the ground up.”
Written by Tim Mullaney