Breaking Down The Franchise-Franchisee Relationship Struggles At BrightStar Care

This article is a part of your HHCN+ Membership

The personal home care industry in the U.S. has generated both respect and notoriety over the last few years. With that, owners and operators are voicing a larger range of differing opinions than ever about what’s next for the industry.

This creates an intriguing issue in home care, where some of the industry’s largest providers are franchises. When the leader of a company sees the business of home care going one way, and a franchisee sees it going another way, that creates friction.

That friction isn’t unique to the home care industry, nor is it necessarily new to it. Franchise and franchisee partnerships sometimes become frayed. It’s the nature of the relationship. 


But those disagreements have become magnified at the crossroads where some of these organizations meet.

In one example, a franchisee coalition has filed a lawsuit against the franchise company BrightStar Care. In another, a coalition of franchisees convened to fight back against what they believe to be fraught recommendations and mandates from the franchise Home Instead, which is now owned by the home care technology platform Honor.

The riffs in each case are completely different from one another. But both represent some of the larger issues that the home care industry – and specifically franchises – will need to meet head on in the near-term future.


In this week’s exclusive, members-only HHCN+ Update – and in future ones – I plan to break down these disagreements and provide both the franchise and franchisee perspectives.

BrightStar Care’s perspective

Led by CEO Shelly Sun, the Chicago-based BrightStar Care is one of the most successful home care companies in the country. In addition to home care, it also provides medical staffing solutions and has senior living locations. Its network includes more than 365 locally owned and operated locations.

Sun is a future-thinking leader. What that means at this juncture is diving further into Medicare Advantage (MA) as a source of revenue.

Working with MA plans and beneficiaries is currently far from a gold mine for home care providers. The rates are low, the hours are unsteady, and scheduling is hard. But from Sun’s perspective, with over 50% of Medicare beneficiaries set to be MA plan holders in the coming years, working with those health plans is a short-term sacrifice for long-term gain.

She explained this thought process to me in May.

“We’re leaning very heavily into Medicare Advantage,” she said. “I think that’s going to be a big change in how home care must evolve over the next three to five years. We’ve benefited over the last 10 years, up until the change in Medicare Advantage, from consumers just coming to you through marketing or through hospital discharge, right? If 7 out of 10 new Medicare enrollees are enrolling in Medicare Advantage, and 50% of Medicare will be Medicare Advantage in the next 10 years, well, that means that every single enrollee that is accessing their benefits is going to start with hours of personal care being paid through the Medicare Advantage plan. Only those additional hours beyond that will be private pay.”

Sun has honed in on more than just MA, though. She also wants to get BrightStar Care into more skilled care, hospital-at-home models and tech-enabled home-based care in general.

In Sun’s eyes, that is all about increasing the serviceable market for the company. BrightStar Care began these initiatives in 2018 and 2019, but halted them temporarily during the pandemic to let franchisees deal with more pressing issues. Now, Sun wants to resume.

“We’ve really tried to get our franchisees heavily on board, including by cutting our royalty rate in half for part of the year in 2021 to stimulate interest and participation in Medicare Advantage,” Sun said.

The goal is to get all franchisees on board in the near-term future. But BrightStar Care is also increasing its company-owned footprint. This enables the company to both test these new initiatives on its own and pave a good path forward for franchisees that follow suit. It acquired eight of its own franchisee locations in August, followed by four more this week.

This brings its total of company-owned locations to 20. That could be 30, 40 or 50 “three or four years from now,” Sun said. But that would also require voluntarily exits from franchisees.

“The same kind of technology disruption that impacted Blockbuster, those are some of the same things we’re facing within health care,” Sun told me. “It’s not us bringing a lot of the changes, it’s the industry changing.”

With the feeling that the industry is changing, Sun and BrightStar Care have invested heavily in a few different areas on behalf of the entire company. Among those include multi-million dollar investments in advertising, the upgrading of technology, Joint Commission accreditation across the network and data collection.

The franchisee perspective

On Aug. 25, the BrightStar Owners Association (BOA) – which includes the majority of BrightStar franchise owners – announced that three of its franchisee members in California had filed a lawsuit against BrightStar Franchising.

As BrightStar Care was trying to implement the above-mentioned changes, a “call option” in the franchise-franchisee agreement became the point of contention. The BOA claims that the new 2022 franchise agreement is “unlawful under the California Franchise Relations Act (CFRA) and a violation of California’s Unfair Competition Law.”

“The call option gives the franchiser, at its sole discretion, the right to terminate the franchise agreement and acquire the franchisee’s assets at a predetermined price, that may be at less than fair market value and prevent resale in the open market,” BOA wrote in its press release announcing the lawsuit.

I asked Sun about the call option, and whether or not it was rare in franchising.

“It is rare, but I think the health care industry and the pace at which it’s changing is unique,” she said. “We have to influence franchisees to do certain things, there are things that are in their franchise agreements and operations manuals that they’re supposed to do, and not all franchisees do those. As we’ve begun a lot of conversations with potential organizations that we may want to align with in the future, the fact that we’re franchisee-owned scares them. I don’t think it has to, because I think franchisees have been given a sufficient enough roadmap. And now with [Paycheck Protection Program] and [Employee Retention Credit] money, they have the funding necessary to evolve and adapt their businesses at the local level.”

Sun says she still believes “wholeheartedly” in franchising because it is centered around locality and enables ties between one location and its community.

At the same time, the franchisees that are relying on BrightStar Care’s network feel blindsided by the call option, BOA President Mark Woodsum told me.

Woodsum serves four California territories as a BrightStar Care franchisee. He began his time as a BrightStar owner in 2015. Since then, his business has increased its revenue from $1.5 million to $8 million in revenue.

He told me he has enjoyed his time under the BrightStar Care umbrella, and still enjoys it. But the call option has forced his – and others – hand in terms of action from the BOA.

“This call option is pretty unique, and it’s a bit of a game changer,” he said. “We’ve never seen anything like it. And as franchisees, we invest our assets into this – many have their mortgages tied up in the cost of the business – so it’s a very big deal. Many of us are planning to do this for 10, 20, 30 years. So it’s really a life changing event for franchisees.”

Woodsum said he “understood” Sun’s thought process, especially if she was looking for her own exit strategy and to sell the company.

Still, he believes the call option “dramatically” changes how franchisees can sell their business, for the worse.

“The point is that when you sell franchises to us as owners, you’re making a certain promise about the future to us – because we’re making this investment – and so we have to be able to depend upon what that future is going to look like, to a certain degree,” Woodsum said. “So even though we respect her right to make certain decisions with what her future is going to be, she also has a certain responsibility to our futures, and that’s what this comes down to.”

The hope from both sides is to still resolve the issues “amicably” outside of court. But the franchisees want the call option out of the agreement.

While Sun doesn’t believe any home care company can completely revolve its business around MA right now, she does think investment in those beneficiaries is necessary to stay ahead of the curve.

Woodsum argues that he runs a private-pay, premium company – which he says was Sun’s vision when she started the company – and that while MA may be a future business line, it’s “simply not a model that works” right now.

“This doesn’t make us right, this doesn’t make Shelly wrong,” Woodsum said. “Right now, the vast majority of owners – 90-something percent of them – just don’t believe in that that vision of Medicare Advantage.”

Those are the two problems that make up the crux of the issue: the disagreement on MA, and then the call option.

“I can’t imagine buying in with this new call option, I wouldn’t buy into it,” he said. “I think BrightStar is an amazing organization. I love it. I love what I do. But I would never buy anything under this call option. [With it], I look at my sales options, and I’m thinking, ‘Geez, it’s going to be rough.’”

As of now, no significant movement has been made on either side over the last two months.

But Woodsum did say he has been contacted by owners from other franchisee organizations that say they have been experiencing similar troubles with their umbrella organizations.

“In an ever-evolving payer landscape, we believe the franchisees need to be evolving their businesses and meeting us where the brand needs to go,” Sun said. “We hope most do, and for those that don’t, we want to be as equally innovative and proactive as how we help some franchisees that don’t choose to adapt to have an off ramp that still monetizes them appropriately and lets them transition their business in a great way.”

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