The Positive Impact of New Wage Protections on Home Health Agency Bottom Lines

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In January 2016, the Department of Labor (DOL) officially extended federal wage protections to home care workers under the Fair Labor Standards Act, entitling them to the federal minimum wage, time-and-a-half pay for overtime, and pay for time spent traveling between clients. Predictably, lobbyist groups working on behalf of home care agencies have petitioned the Supreme Court to upend the new regulation. Their petition currently sits in limbo while the eight-member Court delays its’ consideration (presumably in fear of an unproductive 4-4 voting split while awaiting the confirmation of a ninth Justice). In the interim, those hoping for a review should consider the positive impacts of the new regulation and the opportunities it presents.

While on the surface this unfunded government mandate hurts home health agencies struggling to offer care within already slim Medicaid reimbursement margins, there is also a business case for increasing wages. First, increased wages will help entice new workers to the field, enabling agencies to care for more patients. Presently the median hourly wage for home care workers is $9.38[1], compared to the median for refuse collectors at $15.52 and parking enforcement workers at $16.99. While caregivers are often driven by a passion for their work, relatively low wages force many to look elsewhere. With higher pay, agencies should see an immediate impact on their ability to recruit new employees and increase revenue through improved bandwidth.

Second, better compensation will also impact the quality and scope of candidates who might consider home health work, helping agencies provide better care. Quality caregiving is a nuanced endeavor requiring technical skills and emotional intelligence; the ability to, for example, clean a patient after a bout of incontinence and then accompany them to an important meeting with their accountant. Often those with this unique pairing of skills are found outside of the traditional “system” of home care workers. Higher wages can help attract these nontraditional, but well aligned candidates onto the caregiver landscape.

Finally, better wages reduce costly turnover for agencies. While the full cost of employee turnover is difficult to measure, direct costs are conservatively estimated at $2,500 per front line employee[2]. There are also heavy indirect costs to consider. A lack of caregiver consistency is disengaging to the patient and often results in the use of another provider.

In addition to the immediate benefits of a larger, more qualified and more consistent employment base for their clients, the impact of more tenured staff and additional revenue may also allow agencies the luxury of incorporating technology platforms to help eliminate antiquated and costly operational practices, better preparing them for future increases in volume due to demographic shifts.

Each of these potential impacts of the DOL’s recent actions should contribute to the regaining of profit margins lost. While these countervailing measures may still fall short of fully insulating agencies from the pain of this regulation, they should be considered alongside any reasoned criticism of the rule.

Jeffrey Grossman and Sean Greer are managing partners of the Commonwealth Care Group, a concierge home health service provider which pays caregivers wages double the Federal minimum.