Los Angeles-based Home Hero announced Friday that it is discontinuing operations of its home care business.

In an impassioned blog post, founder and CEO Kyle Hill said the Department of Labor’s decision to require home care workers to be treated as W-2 employees and receive overtime benefits was primarily to blame. Hill also noted that several pilot programs with health systems failed to materialize into revenue-bearing contracts.

“One danger working with large health systems on pilots is being dragged out in the middle of an ocean and abandoned,” Hill wrote. “[Health systems] had a genuine desire to conduct pilots to prove the actuarial value of home care, but there was no long-term financial incentive to pay for home care in the same capacity.”

Since launching in 2013, Home Hero has received $23 million in investment funding, including $20 million in Series A financing.

“With significant capital left in the bank, we made the difficult and heart-wrenching decision to shut down all home care operations, transition our clients to local home care agencies and start executing on an entirely new business venture,” Hill said.

Our Take: Hill’s post is a must read. Home Hero’s story is a compelling narrative, and like the literary arc, is a tale about the rise and fall of a hero.

Initially, Home Hero was able to leverage technology to its advantage. As Hill points out, the company was able to scale very quickly when it was all about the technology and not about employing caregivers. They were paying good (contract) wages and were able to undercut their competitors by 30-40 percent, according to Hill.

But after converting his contract salesforce to full employment—and by then many of his competitors offered a tech-savvy experience too—Home Hero was just like everybody else, competing for relationships at the local level. Because at its heart it is a tech company, dependent on scalability, rapid growth and eventual sale, it eventually threw in the towel..

Here is Hill reflecting on the downside of full employment: “From any angle, the W-2 model is not very attractive. The switch to W-2 would increase our caregiver onboarding costs by 10X. The additional costs of payroll taxes, overtime, paid sick leave, minimum wage regulations, benefits and health insurance, unemployment tax, workers comp insurance, and potential for lawsuits in a highly litigious industry put us in heavy handcuffs. We would also be forced to implement a 4-hour minimum and raise our prices by 32% — much closer to industry average.”

There is something galling about the point he’s making here. In other words, he was being forced to do what every other employer does: train people, pay taxes, give paid sick leave, pay workers' comp, etc. Those are costs of doing business. Leaving aside the overtime exemption rule—which has caused many problems for in-home care companies and the families they provide services to—the truth is that Home Hero had a competitive advantage by not employing anybody.

One very important point is not to be missed. We know from experience that some in-home care providers have successfully and profitably made relationships with hospitals and health systems work. While this failure may have been the final straw for Home Hero, industry leaders should not be daunted by this opportunity for growth.

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