After four years attempting to disrupt the senior home care space, San Francisco startup HomeHero is throwing in the towel, taking its team and remaining capital and focusing on a whole new (and so far unannounced) healthcare venture. Founder Kyle Hill took to Medium to pen a long post detailing the challenges the startup faced that ultimately led to that decision. Among them, a detrimental change to employment law and some harsh realities about working with hospitals.
"Almost exactly one year ago, HomeHero lost its core identity when we were effectively forced to terminate our working relationships with 95 percent of our 1099 caregivers and required to adopt an inferior employment business model," Hill wrote. "In the process, HomeHero also lost a majority of its competitive differentiators in price, speed and scalability that allowed us to be so disruptive in 2014 and 2015, and it had nothing to do with competition."
HomeHero's pitch was to bring transparency to the home health market, using an online platform to match families with caregivers and give them information ahead of time. But while part of the way the company competed with legacy players was its software interface, part of it was that it hired care workers as 1099 contract employees. Hill says this allowed them to charge families using the service 30 to 40 percent less than the industry average, and to pay workers 25 percent more than the industry average.
In October 2015, a ruling by the Department of Labor held that home care workers would now be subject to the Fair Labor Standards Act, requiring them to be W2 employees and to be paid more for overtime. The result, not just for HomeHero but for the industry as a whole, was disastrous, Hill contends.
"I’ve heard this ruling described by industry veterans as the 'death of the live-in care', a classic example of regulation having huge unforeseen consequences on the same people it’s intended to protect," he wrote.
Hill thinks that the end result of this is that only the very wealthy will be able to afford home care at the $25 per hour that companies now have to charge, and that lower-income families will continue, as most already do, to hire their caregivers on the sly.
"Today, I would estimate 60 percent of transactions in the home care industry occur under the table, as caregivers are sourced through Craigslist, Care.com or within families and social networks," he wrote. "Home care agencies are left fighting for the top 40 percent of the market which can only be won by leveraging personal relationships and high-touch interactions — including field marketers, home safety auditors and care coordinators — all things that do not scale well for technology companies."
For HomeHero, after converting to W2 relationships, the company's best hope was to sell not to users directly but to hospitals, who can afford higher rates under value-based payment schemes if they prove to reduce readmissions. HomeHero joined Cedars-Sinai's accelerator and had several successful hospital pilots, but found that value-based payment had not reached the point where anyone was willing to turn a pilot into a scaled deployment.
"The seemingly logical thing to do after winning a pilot of this size is to ramp up spend, start hiring in the new city and design technology sprints to support the new contract," Hill wrote of one experience. "However, it became evident that this particular health system, like many others we were talking to, 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. It became evident that most of our pilots were being constructed solely for case studies and had slim chances of turning into sustainable contracts. We were still going to be reliant on private pay for the foreseeable future. This gentle realization was the straw that broke the camel’s back."
The company is now transitioning all of its clients to other local home care agency and preparing to take its remaining team and capital and invest in a new healthcare venture. Hill wasn't too forthcoming on the details of the new direction, but it will be focused on "promoting health and wellness in the home" and it will leverage HomeHero's "unique experience and technology IP". But Hill leaves behind him some striking lessons for anyone still trying to disrupt home care and for digital health startups in general.