then a new partnership offer recently launched by Honor Technology, Inc. may be right for you.
At a recent conference for Healthcare at Home sales executives, Honor's Randy Allen described his company's transformation from failed home care provider to an entirely new business model, the "Honor Care Network." If they haven't invited you to join it yet, they will soon.
"We thought we could 'uberize' home care," the Sales VP confessed to the group of sales executives. "Everyone laughed at us and it turned out they were right! But we were the last ones to get the joke."
He went on to describe Honor's Plan B, backed by $115 million in venture capital. "We realized that the one thing we had gotten good at with our staff management technology was managing agency operations." Plan B is a partnership arrangement in which Honor take over operations for other people's agencies and pay them a percentage to become essentially Honor's sales staff.
"What we were not good at was home care sales," Allen explained. "We don't have the embedded relationships that you have in your community." The new business model has them leveraging not only technology but also those relationships with referral sources that established home care providers can bring to the table. With the inherent advantages of these symbiotic partnerships, Honor is building out a network of shared staff and centralized back office functions.
We spoke with Honor Technology Inc. president Nita Sommers to flesh out what Allen told the sales conference group. In the Network, Honor takes over billing, reporting, payroll, and scheduling, recruiting and training staff. The partner agency is responsible only for patient/client census. It continues under its original company name and brings referral sources and hospital and ACO partnerships to the Network. In-home caregivers wear ID badges that display the partner's name followed by "Powered by Honor Care."
For this, partners are paid between 10 and 20 percent of revenues, depending on how successfully the agency owner negotiates the arrangement. To date, the model has found willing partners in California, Texas, New Mexico, and Arizona, with plans to expand across the country.
Sommers also told us that the Network can, when it becomes large enough in a market, load balance care staff. The concept sounds something like a remnant of Honor's initial model. "Agencies face two problems from the current caregiver shortage," she told us. "Sometimes they cannot find enough qualified workers to fill a need but that need might be a temporary census spike. At other times they do not have enough work to keep people on full-time. If that nurse or aide has a child in college or is a single mom, she can't go a week or two making half as much money, so she leaves for a job at a hospital or to flip burgers or drive for a ride share company."
When Honor's network includes several home care agencies in the same city, Sommers continued, they can keep those workers employed full time by moving them from agency to agency, wherever that day's need might be. The same technology that was originally used in the attempt to "uberize" home care is ironically now deployed to keep home care workers from driving for Uber.
We asked her about logistical problems are addressed, such as the need to teach non-skilled, low-income workers to use several different computer systems in order to work efficiently for different agencies. "We expect that our partners will not need an EMR anymore, so we have the mobile staff use the computer system we built."
The mention of low-income workers forced us to ask how Honor plans to use wages to compete for scarce in-home staff. "We are aiming at the 50th percentile in each market," president Sommers replied.
Not everyone is as enthusiastic about HonorHealth's Plan B as Sommers and Allen are. We spoke with two agency owners who have been approached to join the Honor network. One, a longtime owner of a successful and still growing agency with services across the Medicare, Medicaid, Insurance, Private Pay spectrum is in his mid-60's. The other is a nurse just starting her own business for the first time. Both requested we do not identify them so that they could speak freely.
The older of the two has owned businesses in real estate and other sectors in addition to home care. He was offered 15% of revenue. After listening carefully to Honor's proposal, he decided to turn it down. He was concerned about losing the brand identity he had nurtured for decades, about losing control of his company's reputation for quality care and fair treatment of employees — e.g. he began to pay overtime long before the Department of Labor told him he must — and about giving away equity should he one day decide to sell his company.
"They are basically taking over your entire operation and paying you 15% of the gross as a sales commission. So you go from business owner to having a job. The identity of the company they are buying ultimately goes away and "Powered by Honor" eventually becomes just "Honor." The more I think about it, their model essentially is buying the agency, not paying a dime, and financing the acquisition with their 15% commission. I was concerned that they would be marketing their own business but giving the impression that it is still being operated locally, while in fact the operations are being done in Los Gatos [California, the Bay Area suburb where Honor is headquartered]. I predict this business model will not survive."
The younger business owner, speaking to us through a third-party, described the arrangement rather severely as well.
"I learned that Honor's new model is to basically swindle their home care agency partners out of the equity value of their agencies in 'joint venture' arrangements. In short, Honor agrees to provide all of the back office operations and employ the caregivers in order to serve the home care agency's clients. The agency owner, in turn, receives a percentage of revenue in exchange for winning referral sources and clients, while Honor receives 90% of the revenue.
"This arrangement appeals to some home care agency owners who become overwhelmed with the operational aspects of their business. For example, I spoke with an owner who is a former nurse (not a businessperson) who ran an agency with about 100 clients. The agency turned a modest profit of around 5% of revenues. The idea of not having to worry about her back office operations, to focus only on winning clients and referral sources, really appealed to her. Honor took over all of the back office operations and caregiver management, and freed the owner to focus on what she enjoys while taking home the same amount of money each year. So far, it sounds good, right? But there is a catch.
"The catch is that while the owner continues to get the same 'take home pay' each year, this nurse did not understand that Honor had basically captured the equity value of her agency. Home care agencies typically sell for about 1x revenue, and so she had millions of dollars of equity value in her agency.
"With Honor owning the back office operations and the caregiver workforce, there is nothing for an acquirer to buy. Honor acquires the bulk of the equity value of that agency by virtue of capturing rights to 90% of revenue, and by virtue of owning all of the delivery capabilities. She did not understand these aspects. Her initial response was that 'joint ventures' have been done in many industries, and joint ventures are just new to home care."
We ran these comments by Ms. Sommers, whose response was cordial and upbeat. "First of all, we are looking for partners who plan to be in business for another 8-10 years. With regard to the equity they retain, we think they will be able, when they are ready to sell, to find a buyer who also wants just that sales portion of the home care business. It will be similar to buying a franchise business; you own the local portion but not the entire enterprise."
If you are in California, Arizona, New Mexico, or Texas, you may have been approached by an Honor Care Network representative already. If you are located elsewhere, you will be approached eventually. What will inform your decision whether to join the network? The advantages we have outlined here? Or the words of the skeptics? Perhaps we have given you a few tools to help you make that decision.
©2018 by Rowan Consulting Associates, Inc., Colorado Springs, CO. All rights reserved. This article originally appeared in Tim Rowan's Home Care Technology Report. homecaretechreport.com One copy may be printed for personal use; further reproduction by permission only. firstname.lastname@example.org