April 2, 2018; HomeCare Magazine
Employee ownership in the healthcare industry can help retiring business owners cash out while benefiting their communities, explains Katrina Kazda, a senior business strategist at the ICA Group writing for HomeCare Magazine.
As Kazda points out, employee ownership in the industry is not new. Indeed, the largest worker cooperative in the US “is Cooperative Home Care Associates (CHCA), a licensed homecare agency based in New York City that provides care to the elderly, disabled and chronically ill.” As NPQ has noted, the Bronx-based worker co-op employs 2,000 and “has been lifting working conditions and wages for decades.”
But replication proved difficult. A six-year effort in Boston had to shut its doors in 2000, partially for internal reasons, but largely due to cuts in Medicare reimbursement rates that affected the entire industry. It seemed, for quite some time, that even as CHCA and a few other worker co-ops flourished, employee ownership in home care would remain a niche player.
Now, however, change appears to be afoot. First, new worker co-ops are opening in the industry, such as Peninsula Home Care Cooperative. Based in Port Townsend, Washington, the business opened in February 2016. The co-op appears to be working. “As a [worker] cooperative, we do not feel the isolation that normally exists in the caregiving profession. The sense of family among our membership is tangible, practical and appreciated,” says Kippi Waters, one of the co-op’s co-owners. Nationally, there are now 10 caregiver-owned homecare cooperatives.
Kazda also points out a related, but different move in the industry that involves nonprofit ownership. Specifically, the owners of Moorestown, New Jersey-based Bayada Home Health Care, a large, privately-held home healthcare company, are gifting the company to a newly created nonprofit foundation that will be the organization’s majority owner, with the remaining ownership shared among family members and eligible employees. Anjalee Khemlani reports for New Jersey Biz that the “42-year-old company has now surpassed $1.2 billion in revenue and provides community care in 335 offices.” The conversion is expected to be completed in 2019.
More broadly, industry support for conversions to employee ownership seems to be growing, as the partnership between HomeCare Magazine and The ICA Group, a nonprofit that provides technical assistance to companies seeking to convert to employee ownership, illustrates. The two groups collaborated to survey homecare business owners about their succession plans. As NPQ covered last fall, business succession is a major challenge throughout the economy, as the Baby Boom retires, and employee ownership is increasingly seen as a way to ensure that community members retain jobs when business owners retire.
The HomeCare Magazine survey found similar results, namely that “nearly 50 percent of responding readers expressed a desire to sell their company within the next five years.” But, adds Kazda, “more than 50 percent of those same respondents either had no exit plan.” She points out that the dynamics of the industry speak to limited options for independent owners seeking to retire. As Kazda explains:
The ratio of business closures to business sales among independent firms operating for more than 25 years with 20 to 100 employees is 9 to 1…. Research by The ICA Group found that while 74 percent of all homecare companies with 20 to 100 employees are independently owned and operated, these firms account for only 16 percent of all companies sold since 2000. Simply put, investors ignore independent and family-owned homecare companies in favor of corporately owned companies, where buyouts and consolidations are rampant.
Kazda points out that survey respondents list their top three goals as being to: 1) maximize after-tax proceeds, 2) take care and recognize or reward employees, and 3) preserve the business’s legacy. “Converting companies to employee ownership,” Kazda concludes, “allows business owners the opportunity to accomplish all three.”—Steve Dubb