The Financial Management Services (FMS) industry has seen tremendous growth in the last decade due to an increasing demand for in-home services and support across our country. More than ever before, recent world events like the COVID pandemic emphasized the value and importance of being able to age in your preferred location like your home, surrounded by those you love the most. As the demand increases, new companies are constantly emerging looking for a way to take advantage of the industry trends and make money off those who need the services the most.
So, why does FMS ownership matter?
Well, first, it’s important to understand one of the most critical components of a solid FMS company and that is capital! As an FMS, one of your most primary responsibilities is funding caregiver payroll for self-directed programs on behalf of the state. With this responsibility, some providers will fund the company directly with their own cash or assets available while others utilize large lines of credit and loans creating massive debt. When securing enough capital becomes difficult, FMS will often look to sell a portion of the business to an investment firm, such as a venture capitalist, to provide the necessary financial resources they lack. Other FMS companies may be so much in debt that they are forced to restructure to avoid bankruptcy. Such restructuring may lead to having to give corporate ownership away.
When an FMS has a large portion or even majority of the ownership held by a financial backer, the main focus is always profit. Though they inject the capital and cash needed for payroll, quality is often lost, and corporate culture focused on user experience is deteriorated in favor of a culture focused on getting rich quick. Expense upgrades and changes to software to keep up with the everchanging landscape of the health care industry are often denied unless they can prove an immediate return on investment.
In these ownership structures, care to the individuals on the program and the State/MCO relationships that depend on a quality FMS partnership are directly impacted by a lack of personal touch, out sourced and out of country call centers and extensive wait times for follow up to issues. The people who need the services to stay alive are often left to deal with people who have no industry experience or knowledge of the services.
The focus of venture capitalists or debt consolidations is immediate return on investment – in other words, getting business at all costs. In the FMS world, we are seeing a race to the bottom on price, despite increasing costs. While this may be good for the payors at first glance, many FMS companies backed by VC are unable to operate at such a cost, particularly when they have to pay off their investors, in addition to their ongoing operations cost.
In turn, states and Managed Care Organizations often see an immediate renegotiation of price, which is unfair to vendors who quoted an all-inclusive price on the front-end. Additionally, states and MCOs see endless requests for change orders, often for routine activities, such as minimum wage increases, in order to meet the needs of their participants. The initial low prices that may have been procured in the bidding process often end up costing way more to get the exact service and products that a state/MCO needs. Shareholders in public companies are often focused on current earnings, which can exert tremendous pressure to increase earnings in the short term to increase the value of their stock.
This can frustrate an executive management team that has a long-term vision and lead to turnover. Such turnover is expensive because the companies, in time, lose their best resource – human capital and knowledge base. Self-direction is a complicated landscape, sitting at the cross-section of complex and sometimes conflicting federal and state labor laws, often-overlooked and not-well-understood areas of the tax code, and Medicaid regulations, which differ from state to state. More than ever, that expertise is what a good FMS will provide. Unfortunately, the FMS industry is shifting away from that model and towards a profit-at-all-costs model, eroding away quality service.
Anyone looking to partner with an FMS provider should look closely at company ownership and ensure their needs and values align with the values of the company leaders.
The Palco Advantage
Palco, Inc. has provided FMS services since 1999, giving us a quarter-century of industry experience with the same majority leadership in place the entire time! Palco is a minority owned, women-led corporation in the process of completing the certification for a Women-Owned Small Business (WOSB). Palco has not merged, acquired, or changed control of company ownership in the last ten years. We consider this a benefit for our partners and employees across the country. Unlike publicly traded companies, we have complete authority over operational decisions and therefore mitigate shareholder expectations and interference. We are not vulnerable to hostile takeovers and dramatic shifts in culture that change the client experience. Our focus is on the good work, partner satisfaction, member engagement, and Palco worker retention. Palco partners such as states and MCOs have access to Palco leadership to help enhance their program, build on best practices, and create solutions to business problems in an ever changing landscape.
Palco ownership is comprised of Larry Paladino, CFO and Alicia Paladino, CEO, who together bring 70 years of experience working with accounting and Medicaid long-term care waiver programs. Both Larry and Alicia, are CPAs and are actively engaged in company operations, they are bound by the codes of professional ethics related to financial integrity. Alicia is a nationally recognized industry expert with a deep understanding of Medicaid funded self-directed programs, Department of Labor Fair Labor Standards Act (FLSA), and federal and state tax and accounting rules surrounding in-home care. As both a licensed attorney and a certified accounting professional, her company leadership and vision are the platform for growth and expansion across the nation.
Palco’s partners know that when they choose to retain Palco as a partner the same corporate structure will remain throughout the life of the contract.
If you would like a free copy of our competitor analysis, email firstname.lastname@example.org
by Mark Biviano
Chief Operating Officer