Lenny Verkhoglaz has had to cut the hours of about a dozen of the people he employs at his home healthcare agency.
He's also raised rates for clients using live-in caregivers by about 25%.
Some of Verkhoglaz's clients have left in response.
“It was a complete shock to a lot of our clients,” said Verkhoglaz, co-founder and CEO of Executive Care, based in Hackensack, N.J. “We wrote them several letters explaining that this was coming down, but when it finally hit, no one was happy.”
Indeed, industry leaders say a new rule meant to help workers who fall under certain exemptions to federal labor laws appears to be hurting them and their clients. Many home healthcare agencies say they are cutting hours and rescheduling employees to avoid paying overtime, and to avoid paying for travel time, all mandated under the new rule.
The rule is having perhaps the most dramatic impact on companies that provide live-in care, with some of those companies eliminating 24/7 services.
Employee advocates, however, say the rule, which only applies to workers employed by third parties such as agencies, will help workers and the industry in the long run, and they are working to smooth the transition in the meantime.
Home healthcare agencies started paying their employees higher wages in recent months, after U.S. Supreme Court Chief Justice John Roberts refused a request (PDF) from the industry to delay the ruling. The Supreme Court has not yet decided whether to hear the case.
In November, shortly after the ruling went into effect, Home Care Pulse conducted a survey of 444 home care providers. The company does research for the home care industry and helps them measure client satisfaction.
Nearly 68% of those who responded to the survey said they had cut caregiver hours to avoid overtime. More than 55% said they were rescheduling cases to avoid paying overtime. And more than half said they were raising fees to cover the additional costs.
Home care providers take issue mainly with the requirements to pay overtime and to pay for travel time between clients. Most providers were already paying at least minimum wage. The rule is affecting providers in some states more than others. More than a dozen states already required overtime pay for in-home care workers before the rule went into effect, according to the Department of Labor.
Abby Marquand, director of policy research with the Paraprofessional Healthcare Institute, and other advocates are pushing states to boost their Medicaid funding to cover the additional costs.
Some states, such as California, New York and Ohio already have bumped up their funds. Marquand said she believes states will firm up their plans in coming months, as they move through their budget appropriations processes.
“Across the county there are just not enough home care workers willing to do these jobs as they're currently structured,” Marquand said. “It's a pretty shortsighted response to do something that might limit the capacity of your current workforce.”
Twelve states recently filed a brief with the Supreme Court urging it to hear the case concerning the new rule, saying it imposes an unfunded liability on states.
As for the portion of the industry that relies on private-pay clients rather than Medicaid, Marquand said the potential damage to them has been overblown.
Some segments of the private-pay sector of the industry have 30% to 40% profit margins, she said.
“The idea that there is no wiggle room in the business model to accommodate this rule, it just seems questionable,” Marquand said.
JC Weber, director of customer experience at Home Care Pulse, said, however, that the company's research shows those profit margins to be closer to between 15% and 20%.
“The biggest thing is, it will cut into their profit as a company, which then kind of affects their ability to put money back into the company to invest,” Weber said.
Companies that provide live-in care, however, may be suffering the most, industry leaders say.
More than 18% of those who responded to the Home Care Pulse survey said they were no longer providing live-in services because of the rule.
“We're seeing those businesses shutting down or moving to a model where they're employee recruitment services, rather than employing people through a home care company,” said William Dombi, a vice president for law at the National Association for Home Care and Hospice.
Phil Bongiorno, executive director of the Home Care Association of America, said some of its member companies are small businesses with slim margins that can't handle paying live-in workers minimum wage and overtime.
“Our concern is, what will clients do if they can't afford to use our services?” Bongiorno said.
Verkhoglaz said he believes the few clients he's lost are now “going underground,” employing people who are undocumented or untrained.
He said it's difficult for companies like his to simply absorb the costs, even though he relies on mostly private-pay clients.
“Everything is going up,” he said of his agency's costs, “so for a company to absorb additional overtime or payroll costs is tremendous.”