The Legalities & Ethics Of Layoffs In ABA
We are going to be talking about the legalities and ethics of layoffs and applied behavior analysis. I’m excited to dive in because we have an employment legal expert and attorney, Jackie, who counsels employers on employment-related issues and defense employment-related litigation. Jackie, it’s nice to have you. Thanks so much for joining us.
It’s nice to be here. Thanks for having me.
I’m sure you want to give some legal disclaimers around the fact that this is not going to be legal advice. It’s just your own opinion. Maybe we can start by telling us a little bit about yourself, your background, legal career, and we can dive in.
I came right out of law school, getting lucky with a job in the employment-related field. It wasn’t something I was looking for but as soon as I sunk my teeth into it, I found these HR issues mixed with litigation and the employee counseling part of it interesting. I spent the first few years of my practice at a large nationwide law firm and then switched over, as many attorneys do to another law firm a few years later and practiced there for a while. For the last few years, I have been in-house at three different companies in different stages of growth and M&A. I’ve always come in at times when they need a little bit of extra-legal support for their HR and talent teams. I’ve loved this practice and talking about it. Hopefully, I can be of some insight to you all.
It’s funny; Jackie and I know each other because we are neighbors. We live down the street from each other. Our daughters tend to do a lot of play dates. I got lucky that Jackie works for a Fortune 100 company. We have been talking about layoffs in general over the last few years. I feel like this is something that the industry has been struggling with. Hearing some of Jackie’s wisdom over the last couple of months, it felt like it would be a great opportunity to mix personal and work. Thank you again. Maybe we can jump in quickly. We are here to talk about the legalities of layoffs. After we are done here, we are going to talk a little bit about the ethics around it.
Can you tell us a little bit about sharing in your experience what are some of the drivers of layoffs within an industry? We are going to talk about what happened in the industry. I didn’t tell you what happened. I wanted to talk to you cold about the situation. I would love for you to talk a little bit about why layoffs happen. From a general perspective, it’s happening all across the United States. It’s not industry-specific now. Maybe jump in and give us your thoughts.
People always make jokes about employment lawyers. They are not the sexiest or most exciting type of law but it’s always needed because people are always hiring and firing. At least for me, it’s gone in seasons a little bit. I’ve seen things like a company doing a lot of merger and acquisition work. When you buy a new company, you will have to do some restructuring. That’s a sign of good economic times.
There’s some buying but there are layoffs related to those. I have certainly been part of those types of layoffs before. There are the layoffs that are happening now, which is an anticipation and a reaction to an economic downturn and general uncertainty globally in the world and even the value of the dollar, what the stock market is doing, and companies trying to have their workforce in some way match what their revenue looks like.
Obviously, the workforce is a huge component of your balance sheet. It’s a fast thing to be able to fix. That’s what I’ve seen working through. There’s also realizing how a company works best and having to restructure based on what’s making money and what’s not. Sometimes you might have layoffs in one sector of your company while you are hiring crazy in another. It can all happen at once. That’s why it’s always something on an employment lawyer’s mind because even if it’s not in the news, it’s happening, whether or not it’s enough to make people read about it.
Especially in our industry, there’s a lot of confusion around what is the model that works. In the therapeutic world, there are organizations experimenting with a virtual workforce. There are organizations experiencing clinic-based versus home-based. Those are different types of people who want to work at a clinic versus want to go into a patient’s home and work there versus want to sit behind their computer and do Telemedicine. There is a lot of confusion around which of these work and which of these we want to invest in.
We’ve certainly seen some organizations that are experimenting with one model, realizing it’s not working, and trying to shift to another. With that in mind, is it always a sign that the organization is in distress? You talked a little bit about M&A being a driver of that but do smaller organizations do layoffs? What have you found to be patterns across why these happen?
From maybe having seen so many of them, it could be in an M&A situation or a sign that the company has enough money to buy and the power to borrow. They are now taking an organization. If you absorb it, you are going to have some redundancies. That is very much a sign that a company is growing. I had that happen at a company that was pre-IPO and eventually IPO-ed. It was a part of our natural growth. Small companies do layoffs. They tend not to end up in the WARN reports that you can find on the state websites because they don’t trigger them.
Even getting to the question, “What is a layoff,” versus right-sizing or restructuring, under the law, they call it a mass layoff. It’s generally over 50 people, at least in California. If you have a small company and you lay off 10 people, that has a much bigger impact than a 500-person layoff at a 10,000-person company. I would argue that tells you more about what’s going on with one company versus the other because it can be a pocket of a bigger company versus an entire company. It depends.
Candidly, I’ve spoken about this within the organization and a little bit within the industry but transparently here at BHCOE, we had to go through a layoff activity as well. It was probably one of the most challenging things I had to do since COVID. There were a number of reasons for it. We are a pretty small organization, pretty lean but we had a new technology like a digital transformation we went through.
We anticipated some efficiencies when we rolled it out but didn’t realize how many efficiencies we would have. We realized that there was one department where we were staffed by double where we didn’t need all those people. There wasn’t enough work for them. As someone going through that, we have less than 40 employees. We had to do that. I totally agree. Sometimes it’s more painful for a small organization than for a larger organization to go through something like that.
Employees that maybe work at a larger organization have a mindset where they are not as shocked about it when it happens. Whereas when you work somewhere for longer or that’s smaller, it tends to feel more secure. Whereas at the end of the day, if you are an at-will employee, COVID has taught us anything when none of us are safe.
Jackie, I was wondering because we’ve seen a lot of criticisms and even some positive feedback, too. What are some of the considerations from a legal perspective that an organization should consider when doing layoffs?
I mentioned WARN. There’s a Federal version of the law that governs the type of notices that you have to give. Once you get beyond WARN, the thing that I have been focusing a lot on is adverse impact.The larger your organization is, and the larger layoffs are, the more you have to think about adverse impact on certain demographics. Click To Tweet
WARN is the Worker Adjustment and Restraining Notification Act.
The reason no employment lawyer will remember what it stands for is that it doesn’t mean anything but there’s a Federal version, and then there are state-specific versions. Especially, we think a lot about the ones in California and New York because they have different triggers. It governs what type of notice you need to give to your employees.
In California, for example, if you terminate more than 50 plus employees, I believe it’s in a 60-day rolling period. That’s regardless of the percentage of your workforce. You can have 10,000 employees in or outside of California, and then you have to give them 60 days’ notice of the termination. You have to give it in writing and have to tell them certain things. It’s a short laundry list of things.
In California, you also have to send notices to the government, which is how we all find out about the larger layoffs because you can look them up on the California Orange website. You could do the same in New York. New York has a lower threshold. It’s 25 employees but it has to hit a 33% of your workforce cap. It doesn’t give the employees anything other than notice.
A lot of employers choose to pay out the employees for that time instead of having them work 60 days. It’s not always feasible to give people notice and then have them stick around working for two months. I think of that as the paperwork. There’s not much there substantively to do there. Once you get past that, the larger your organization is, and the larger your layoffs are, you have to think about the adverse impact on certain demographics.
That could include anything from race or ethnicity. I’ve considered issues like what type of employee resource group or affinity group people are part of because that doesn’t always get caught up in a race. Are we adversely impacting people that are caregivers? Are we impacting people over or under 40? To make sure that when you look at the numbers, maybe the individual decisions were made in a vacuum. You put them all together. What have you done? Does the organization look similar before and after? A lot of what I’ve spent my time doing in the last few years thinking about reorgs is that you don’t want to lessen your diversity, equity, and inclusion inadvertently through a layoff.
I never thought about that. That’s an exercise that you will do. Let’s say a list gets put in front of you like, “These are the people considered for the layoffs,” so then you may go back to the executive team and say, “There are too many people of this particular background. You need to rebalance.” Is that how that works?
What I’ve found in groups that I’ve worked with is that you have to lay the groundwork in advance. Rather than saying, “Pick and pick in any way you want to pick who you are going to lay off,” you try to go to each group and create some strong objective criteria. We are going to reduce each of these departments, let’s say, by 5%. What is going to be the criteria? I’ve even gone as far as rating each employee to say, “How do they compare against one another? How do they meet each one of these criteria?” It can be criteria that are more hard skills. For me as a lawyer, it would be years of experience or strength of my background in places that I’ve worked.
It could also be cultural values. How strong are they showing up as a communicator? How are they leaning into the various values of the company? That can, at times when you see that there’s an imbalance, at least give you a framework to look at who’s on the bubble. You are not going to take somebody that scored super high and, because of their protected characteristic, their age or whatever it may be, lay them off instead of somebody else.
You at least acknowledge that there’s an additive value to people’s differing experiences and perspectives so that if you maybe have two people that are close, you consider keeping somebody that is going to make your department, group or company as diverse as it was before you started a layoff. 9 times out of 10, the data is showing you that things are okay because you’ve now laid the groundwork in creating criteria so that people aren’t just choosing people for layoff that don’t look or think like them because they’ve been forced to decide what it is that’s going to be required by this job, post-restructure, post-layoff.
I love what you are saying because, to me, what I hear you saying is you have to put in a lot of work before. These should not be quick decisions or made in haste or without a lot of thought to not just Federal Laws but various state-specific laws, and then all those other types of things. That leads us into the messaging part, Jackie. Can you talk to us about how you message these things in the right way or maybe some examples of where that has been done well or how a practice could best do that?
I was going to add that it’s such a personal thing. I have been reading about how CEOs handle it. There are a bunch of Harvard Business Review case studies about how people do risks. I’m eager to hear your perspective on this.
It’s hard because it’s breaking up with a group of people and not saying anything to them about it until it happens. Even at the most transparent of companies and the ones that lean in, I’ve seen that Airbnb had a transparent message but it was, of course, after the fact. It went into specifics that I thought were helpful. If I were an employee, that’s what I would want to read. If I was an investor, that’s also what I would want to read but they can’t put that out until all the decisions have been made, which often you can lay all the groundwork. In my experience, in the 11th hour, there are always some changes based on last-minute things.
People’s privacy, you can’t say anything to anyone until the day off. My general advice is you have to keep it small and quiet but then have a robust and transparent communication plan for once you’ve pulled the trigger and everyone has been noticed. My hat is off to the communications teams that I’ve worked with that have every contingency in place.
Once you start the layoffs, depending on how many are doing, people start talking to one another like the cat’s out of the bag, and you can only wait so long. Sometimes you have to put out a message after 50% of the conversations have been had. That’s terrible for the people that haven’t had those conversations yet. For people that don’t know if maybe they are going to be part of them, that waiting game is excruciating. It’s a tough balance.
Out of curiosity, I was looking up companies that announced major layoffs. It’s pretty crazy. Ford laid off 8,000 employees in July 2022. I was going to say Tonal and Peloton. The Peloton had this incredible growth during COVID, and then they laid off 2,000 people. Facebook or Meta, Twitter, Tesla, Spotify, Netflix, Coinbase. It’s a long list. I hear you say that, and I’m thinking about the fact that this is an economic phenomenon. You are dealing with a volatile market.
You are dealing with a fast-growing economy that got slowed down by the pandemic where people were holding on, and you are now seeing us prepare for a recession. It’s something that everyone is struggling through now. I agree that the messaging is tough in a small company. You can probably call each individual person and talk to them about it but how do you handle this in a digital world where everyone is on Zoom or you’re not in a physical office space? Is this a 500-person Zoom call? Is this a one-to-one meeting with every person?
I’ve seen it done both ways. I’ve seen situations where there’s no way to get to 50 people. You just have to have either one big meeting that’s going to be a Zoom call and then offer timeslots for anyone who wants to talk afterward. I’ve seen companies that are doing huge layoffs manage to get enough HR professionals together to do one-on-ones.
The Zoom piece of it is a double-edged sword because you can pop a meeting on some of these calendars and be more sure that they are going to see and attend it. I have also been part of a lot of contingency planning for people that are on vacation, on leave or have some other reason why you don’t think they are going to attend. In normal circumstances, you would probably be able to plan at least where they are in the world. Now, even with remote work, sometimes you are not even sure where somebody is working from. It’s a matter of how much work and resources you are able to put into it.
The best situation is always going to be a one-on-one where that employee can have their reaction, gather themselves, and then have a conversation with HR where all of those immediate scared questions start to come out. If this were to happen to me, I would want somebody there to explain, “What’s going to happen to my benefits? When do those end? When’s my last paycheck? What does COBRA costs?” All these how am I going to plan for the next few months kind of questions, which don’t happen on a 500-person Zoom call.
Maybe it makes sense to switch gears and talk a little bit about specifically what has been going on in this industry. I know you are in a different one. I can read you some headlines of what these articles have been saying. There’s a trade publication called Behavioral Health Business. It’s like the variety magazine of the entertainment industry. It talks about what’s going on and what the trends are. Some of the information in there is accurate. Some of it is based on social media and stuff that you always have to fact-check these articles.
There was one on July 18th, 2022, that said 360 Behavioral Health Card, which is the Center for Autism and Related Disorders, downsize as mass layoffs hit autism providers. It does cite a lot of social media posts for billing a sweeping trend of staff reductions across autism service providers. In both cases, the article cites the fact that the reimbursement rates from the payers that they have contracts with are unsustainable.
It required them to shut down certain locations. For card, for example, they shut down their entire Oregon operations because they were having some trouble with the funder in Oregon. They notified all the employees, according to this article, that all ten of its Oregon centers are going to be closed. It would be 156 layoffs. It wasn’t the WARN report. Obviously, that got picked up.
What’s unique about this is that typically in a large organization, these things happen. I remember when Peloton did their layoffs, I’m in LA, and I have a lot of colleagues who either know someone who worked at Peloton or worked at Peloton. My LinkedIn feed was blowing up with people being like, “I’m so sad. Today is my last day at Peloton. I love all the people.” I remember it being positive about the layoff situation. Here, my LinkedIn feed is like, “F these people.” It’s very negative. That’s one thing that’s going on. We are not even talking about the impact on the patients.
We have not gotten there. We are going to talk about that around the ethics piece. In one situation there, the allegations are that one of the large providers named LME, their soft bank-backed company, laid off a number of people with little notice. The allegation is no patients were notified ahead of time. They didn’t get therapy that day. In these cases, you are seeing a lot of animosity on social media.
Talk to us a little bit about the people element. Obviously, I care a lot about the patients that are impacted but these people oftentimes are hourly workers. They are not executives like you see sometimes in the layoff. They are not salaried people. There are people who are getting paid a living wage. That’s their livelihood. How have you seen people react to layoffs? What do you think is a natural reaction to this thing?
It’s how you handle it that changes the person’s perspective on the layoff. No matter how hard myself or any of my HR colleagues try, the way that you react to a layoff, if the layoff is done compassionately, it is more a reflection of your tenure and time at the company as a whole. People probably enjoyed working at Peloton when they did. When it was over, they felt like, “That was a wild ride. This will propel me into some other job.” Maybe they got a severance. Maybe some of those people didn’t feel that same burn, like, “How am I going to feed my kids tomorrow?” Maybe it was more like, “This is a different shift in my career.”
It’s probably how they felt about their work. Whereas maybe people who are more spiteful immediately as a result of the layoff also maybe didn’t feel as valued or respected throughout their time at those companies. That’s speculation but I’ve seen people be gracious about decisions that were hard to make. People didn’t want to see that person go. They have been so gracious about it. I’ve had other situations where the person could see the writing on the wall. If they weren’t going to be laid off in this layoff, they were going to be laid off for performance and other times. They are so mad.
I deal with all of the post-layoff demands and all these types of stuff that come up. It’s a reflection more of that person and of how they felt throughout their employment. Also, there has been such a tight labor market for the last few years that people have had their pick a little bit. The employees were in a position of power until it honestly felt like a month ago. It’s still a pretty tight labor market because the layoffs haven’t been absorbed. It’s a weird place where things have been happening so fast in the last few years that people are having whiplash from that as well.
What we’ve seen is there are these mass layoffs happening but to Sarah’s point, in certain locations, based on certain circumstances but then that same company may be hiring in another location. A lot of people are mad or confused and do not consider the market dynamics of what’s occurring. I have seen that going on, too. That creates an interesting dynamic for larger companies.
I agree about the feeling of what it was like working there. I don’t want to pretend the way we had to handle it. That organization was perfect by any means but I know we took the time to give people adequate notice. I personally tried to reach out to our network to place them in other roles for those who wanted it. Obviously, not everyone wanted it. Some people want to figure it out themselves but we did our best to do that, all things considered. It’s a lot harder when you are dealing with a high volume. The other part too that I don’t think you are aware of, Jackie, is that we’ve had a large amount of private investment come into our industry.
It used to be privately owned mom-and-pops that were mostly servicing this population. You had the likes of Blackstone, KKR, TPG, and SoftBank coming in. A lot of those organizations have brought in these career CEOs who’ve worked for Fortune 500 companies or these more corporate organizations. Some of the feedback that we have been seeing is more that they are handled a corporate layoff, not the small mom-and-pop cottage industry that it used to be. That’s the other part too is whether people like working somewhere or not. A lot of these executives are coming in and using the past experience to create a riff in a way that maybe isn’t speaking to the emotions of the people who are used to having a more personal touch.
When a company hires me, before they meet me and know the way I operate, I’m often a telltale sign of a new guard. Companies don’t have an employment lawyer in-house until that private equity money comes in, and they no longer want to see the types of compliance risks that a smaller organization was willing to take. I see that a lot. It can be handled. Regardless of private equity money, there’s always a place for compassion and personalization. We must remember that they can still do what’s needed to be done. It doesn’t have to look like an ambush all the time.
When I worked for an ABA company that was private equity back, I still said that about our families, about the services we provide. It doesn’t matter for private equity-backed or not. How we treat families should still feel personal, that we care, that they should feel that this is the only place that we own. What you are saying is the same. I love that because of what you are saying that everyone can do. That’s why it’s so meaningful.
We are all employees. The empathy is there. I think about it every day, unfortunately. I’m dealing with terminations of all different stripes. I’m constantly having a soul searching about what it is that I would want if I were in a particular situation.
I couldn’t agree more. It’s a good experience to have in your life to be terminated from a role personally. I don’t know, Jackie or Anna, if you have ever been. I have certainly been fired in my day.The best situation for a layoff is always going to be a one-on-one where the employee can have their reaction, gather themselves and then have a conversation with HR to address immediate questions. Click To Tweet
I have. In my first job as a hostess, I was fired two months in. It was terrible.
I have been fired. I do think it was a restaurant. I was working in a restaurant. It was a good call on their part. This is not my forte.
Personally, it was a great experience. I remember feeling like, “This is good.” It gives you a good insight into how it’s done, some growth areas for yourself, and some good feedback about how you can do things better. I have found it was one of the best things that ever happened to me. I’ve found people who’ve said they’ve gotten fired, and it’s one of the best things that’s ever happened to them because it allowed them to rethink their journey and figure out what they want to do. Not related to employment or law but my worry is with all these workforce reductions, as you have, all these people who were excited about servicing this population. We have a labor shortage.
You have all these kids with autism that can’t get treatment. You were having 500 employees who were dealing with this vulnerable population. They get fired. My worry is half of them probably don’t want to work in the industry anymore. They are sobered to the fact that like, “This isn’t for me. Let me switch career paths.” That’s my concern.
It hopefully can help people rethink where they want to work and what values exist in the company they are working for. You had individuals who were getting paid well above market value at some of the organizations that are doing layoffs. Getting an idea of you may have been chasing the shiny object versus going to an organization that may be paying at the market rate but the longevity may be a little bit longer, too.
Anna, do you have any other questions? This is a good update on our end. We are going to be talking shortly here about the ethics piece. We talked about the legalities. We are going to have Jon Krieger come on and talk a little bit about the market dynamics in the transaction space. We will hopefully get at this layoff situation from a couple of different angles in this episode. Thank you, Jackie, so much for your time, your insight, and expertise.
It was a pleasure.
I am excited. I have Jon Krieger with me from the Calex group to talk a little bit about some of the trends we’ve seen in the ABA market over the past few months. Jon, thanks so much for joining me.
It’s good to be here, as always.
The last time we had you on the show was in January of 2022. You were talking about what happened in the prior year. You told us a little bit about what the expectations would be for 2022. We are now sitting here looking in the rear-view mirror, thinking about the first half of 2022. We would love your take on what’s going on in the market now. What significant acquisitions have happened? What has the activity been like?
2021 was a record year for M&A in general. It was a high bar to live up to. When you take that in conjunction with the volatility in the overall financial markets that we see in the first half of the year, in particular in the credit markets, there has been a real slowdown in M&A. That has impacted the autism services sector as well as every other sector in the marketplace. There still has been a significant amount of consolidation in the space in the first half of 2022 with some relevant transactions. For example, ChanceLight sold its behavioral health business, which was a platform acquisition for a financial sponsor.
Enhanced Equity made a platform acquisition in the first half of the year as Investment 360 did in Cadence. We’ve seen a number of ad-ons from a lot of the larger platforms. For example, HealthPRO, Acorn, Hopebridge, LEARN, Stepping Stones, and Circle of Care have all been acquisitive in the first half of 2022. While you see somewhat of a slowdown relative to the same period in 2021, it still has been one in which we’ve seen a decent amount of activity in the space.
When I’m hearing you name all of those, those are all ones that I’m familiar with. It’s looking like around 9 transactions happen in the first quarter, maybe 3 in quarter two. Before we get into those trends and the slowdown that everyone is aware of, if you are a business owner or an executive, and you are not going through at sale, not private equity owned, and not going through a transaction, why should you care about the trends in the marketplace?
Trends in the marketplace, both on the operational side and then maybe you are referring to on the M&A side, are relevant to the extent as consolidation continues to occur in a nascent market. A lot of entrepreneurs are building businesses, as our sponsors who have made platform investments in the businesses are building businesses for future exits.
Understanding the cadence of the M&A markets and their interest is important. If you take a step back, what’s important for those people that you are mentioning to recognize is that there’s a lot of volatility going on now within all markets in general. The autism services space is not insulated from some of the challenges, such as the labor issues that are pervasive in every other sector across the economy.
What’s important to also recognize is that this is a sector that remains unique and highly attractive on many different levels as it relates to its scale, white space, demand drivers, growth factors, and overall secular tailwinds. They are all differentiated from most, if not all, other sectors throughout the economy. We are seeing this in the M&A markets as we speak in real-time. It’s important to recognize that as you look at the industry and how attractive it is from an investor standpoint and from an M&A standpoint, given a lot of those characteristics that are differentiated from most other markets.
Last time, we saw these few transactions in a quarter two of 2020 when COVID was at its height. What do you think is happening that’s making that slow down happen? Granted, there’s a general economic slowdown, cash is more expensive, and it’s harder to raise capital. Is it anything that’s indicative of the field or do you feel like it’s a broader economic reaction?
The primary driver is that. It’s the broader economics that is happening throughout the economy. As I alluded to before, the industry like every consumer or retail market, is somewhat challenged by the supply constraints within the market. If you take a step back and you look at how strong the demand drivers are in the space, it’s always resulted in a supply and demand imbalance that has only accelerated over the last few months, given the labor issues that every other market is experiencing. It has created somewhat of a difficult operating environment to meet the demand levels within the marketplace.
It’s resulted in a relatively nascent market. One is which is now slowly starting to define some winners and losers, highlight the importance of leadership teams and infrastructures, and the ability to recruit and retain a workforce and build a culture that people want to be part of. It’s a combination of economic factors in general. That’s the primary driver for the slowdown in the marketplace, a high bar from 2021, which was a record year of M&A, and then some of the supply logistic issues that this space and every other one is facing as well.
You are touching on an important point, which is that there’s this labor shortage that everyone is experiencing. How do you reconcile that labor shortage with a large number of organizations going through layoffs? You talked about the Investment 360 acquisition of Kadiant. I know Kadiant went through a round of layoffs. You have other organizations that were mentioned earlier in this episode that has been doing layoffs. How do you reconcile that, on one hand, we have a labor shortage, and then, on the other hand, you have organizations who are doing mass layoffs of their clinical staff?
That’s a good point. Therein lies the contradiction. You have these labor issues that are pervasive throughout the industry and the economy in general, yet you have companies laying off their labor supply. It highlights that the labor issues that are happening now are working themselves through the system. They are more temporary than then structural or systemic. Again, the difficult operating environment has raised a pretty bright light on companies, strategies, leadership teams, and the ability to operate in what is a somewhat complex marketplace.
Companies that didn’t necessarily have the right infrastructures, warrants or haven’t been built to meet the demand and undergo some of the cyclicality within the system haven’t navigated as well as others but it’s a good point. It’s illustrative of how important focus, leadership, and infrastructure are within this space. It’s pretty binary when you don’t have those things. It’s a much more difficult operating environment for people to navigate.
You are in a unique position because from your vantage point, you got to dig into each of these businesses that you help go through a transaction. You are in the nitty gritty. You get to see the financials. You open the hood and know what’s going on. What have you seen as the differentiators? You have organizations in similar regions of a similar scale who are not going through layoffs, and then you have others who are. What do you think are the determining factors across the two that are providing care to the same patients? Why are some organizations doing that and others are not?
The ones that you see that have momentum in this marketplace relative to others that don’t, you can attribute it to great leadership teams, experience within this space, and other multi-site verticals. Leadership, infrastructure investment, and the ability to build a culture where your providers want to work. Those companies have those characteristics, as well as a well-thought-out strategic plan, whether it’s building market density in certain areas.
It’s the focus that these companies have and the leadership that they are bringing to bear that has been a real differentiator and is helping to define and create a gap between those that don’t have it, perhaps are struggling and laying off employees now, and those that are capitalizing on those trends and accelerating their hiring trends to come out of this much stronger organization.
I agree with you about the leadership piece but do you also feel like there’s an approach to wage inflation that some organizations are leaning into and others? At some point, you had players coming in who are paying over the market price for clinicians and then finding down the road that those rates don’t sustain. The clinicians are the ones accepting it, going after the shiny object and saying like, “I’m getting paid $10 more than I would over here,” but now, they are going through layoffs because that rate doesn’t quite sustain. Are you noticing any of that as well? Do you feel like it’s based on the culture?
You see some of that as well. The more thoughtful organizations that have a well-thought-out comp structure and the ability to offer providers room to grow within an organization and be the provider of choice. A lot of these BPs and BCBAs, and RBTs have a lot of choices of where they could work. Having a well-thought-out culture, recruitment, retention, and comp strategy matter. Any time you are seeing it in the broader economy where you have a contraction of the labor force where demand exceeds supply, you will see some margin compression, whether that’s temporary or permanent remains to be seen. Those leading organizations, given the demand drivers in the space and the volume, can offset somewhat margin compression by being the provider of choice in differentiating themselves on many different levels. Not in particular but one that could be important is wages.
I appreciate your insight. I always have to ask you this whenever we talk. Feel free to let us know your thoughts here. Some of these transactions that are happening, are the multiples maintaining? What is the market looking like now? There’s one thing to say the transactions are continuing to happen, although slower. The big question a lot of business owners have is, are they driving value like they used to?
They are. There’s a scarcity value of market leaders. Those companies that have differentiated themselves are commanding multiples that are consistent with the history of this space and are attractive. If you look at companies that are trading now relative to where they traded years ago, I would say multiples remain consistent and attractive.
I would also say that buyers remain more focused on diligence and perhaps are a little bit more disciplined in their processes and deciding which processes to spend time in and which not to but I can tell you that there is a big cohort of investors that have and still have a strong thesis within this marketplace and are looking for differentiated platforms to underwrite and back.
Thank you so much, Jon, for coming on here. I always appreciate Calex Partners, giving us your insight about what’s going on in the industry. We will hope to have you back at the end of the year to do a wrap up of how we netted out for 2022.
It sounds good, Sara. Thank you for having me.
Ana, we had an awesome conversation with a knowledgeable attorney. We heard from Jon Krieger about market dynamics. I thought we could take some time to wrap this episode up by talking a little bit about the ethics piece around layoffs specific to clinical code and standards. We talked a lot about the legalities and some of the dynamics at play. I would ask you, as a parent, what’s on your mind understanding that these layoffs are occurring? Knowing the clinical world, what are your main concerns around some of these actions?
As a parent, when Ava was diagnosed, it was a struggle to get her access to care. There are still a lot of parents that are in that same situation on wait lists. For parents, it’s unsettling because maybe you are on three different wait lists or maybe you live in an area like I do where there’s no access to care, so you have to drive. When you start seeing things in the news or on Facebook that are going to contribute to potentially you, having to wait longer gets frustrating.
A lot of parents probably that’s what they are thinking about. “Does this mean I’m going to wait longer? Does this mean my child is never going to be able to access ABA services?” If you are a family who lost your clinician, trying to find a new provider is stressful after you’ve engaged with this clinician. It’s obviously, a personal therapy because if you are getting early intervention, you are talking about 30 hours of someone in your home.
You are building rapport with these people. You get comfortable with them. It’s funny because we spent all this time talking about the employee rights and things like that with the WARN Act. The clinical and ethical implications are more around access to care and continuity of care, and making sure that these patients are transitioned appropriately.The autism services space is not insulated from the labor issues that are pervasive in every other sector across the economy. Click To Tweet
If you are an organization that’s considering layoffs or someone who has, I know when I think about BHCOE standards, there are a number of standards that should be considered when conducting layoffs. We haven’t put out a formal position on this topic but I would say openly that our position is that BHCOE expects all accredited organizations to make decisions in line with our standards of excellence for ABA services.
There’s a good variety there. I don’t want to read all of them off word for word but Section A deals with ethics and professionalism. There are two items specifically. One is around the organization acting in the best interest of the patients that they serve at all times. The other one is acting honestly and responsively to promote ethical print practices of its staff and making sure that certified staff isn’t in a place where they are having to compromise their compliance with their ethical and professional requirements. Those two and on their own, are important to consider aside from the legal component of protecting employee rights.
That’s such a good point. What is BHCOE doing? I’m not so involved on the accreditation side with the evaluators and complaints that might come in through our hotline. Obviously, those can come from providers and parents. I know we have a specific process to respond to that. For everyone reading, what is our response to the layoffs? How do we respond to that?
On a broader level, our assumption is that organizations that are accredited are held to our standards. When something like this happens, it’s important that BHCOE enforces adherence to those standards that we’ve already evaluated organizations against. We are lucky. We have a robust compliance process to do that.
When BHCOE receives a compliance complaint to our compliance department when that comes in, we can either follow up with the complaint directly or if something public happens like, in the events, we can also choose to open an internal complaint against the organization. The department follows a strict set of guidelines around our disciplinary process to ensure that there’s equal consideration for the complainant and the organization. Our goal is to remediate any issues.
For example, if an investigation occurs and we found that the continuity of care or the transfer wasn’t done appropriately, the goal is to go back and ensure that the organization makes adjustments to ensure that the appropriate course was taken. The disciplinary process is meant to assist organizations in remedying those areas. The goal is not to slap anyone on the wrist.
The goal is to get them to compliance but depending on the severity of the complaint, the compliance department may bring the compliance concerns directly to the provider’s attention right away or they could process the complaint and bring it to our disciplinary review system. Our disciplinary review system consists of a disciplinary review committee. We call them our DRC. They are a group of independent BCBA-Ds who serve in a leadership role at our accredited organizations. Those individuals are part of organizations that have not no open compliance concerns themselves.
Typically, we reach out to the organization. We ask for supporting documentation to respond to the complaint. We then send that to our Disciplinary Review Committee and host a meeting with the DRC in which it’s a jury of peers, where they look at the response and determine the best course of action and whether there was an actual violation against the allegation.
In some cases, accreditation can be suspended or revoked. Revoked means that you are no longer a credited suspension usually have some course of action required that you are looking for an organization to make. In all of these cases, that’s why it’s so important that an accreditor has a compliance process in place.
I’m always grateful when something like this happens in the organization is accredited because if they are and handled everything perfectly, the organization has a way to point back to, “We had an independent review. We did what we needed to do correctly. If they were out of compliance, then there’s recourse for the families or the staff members. We are able to coach them to compliance.” It’s really win-win if the provider had no issues at all and handled everything perfectly. We will commend them on that. If they did find areas of remediation, then we assist them in getting to where they need to be.
Every time I hear the intricacies that go into accreditation is valuable to me. When I think about that again, from the parent perspective, if I’m a parent and I’m at an organization that maybe there are concerns or maybe other people are raising questions about, “If they are an accredited organization, I’m going to know that these things are being taken care of.” I love what you said about our goal is always to get people on the right path. That’s so critical.
Audits that I have been a part of in the past with the Department of Education and various things, are your best audits when your auditor is working with you to make sure that you know how to change things for the future. I love that. It’s fantastic. All of these things are so critical now for our field and our families.
Going back to some of the standards we look at, AO1 and AO4 are certainly the ones that are considerations but there are also standards related to the organization, making reasonable efforts to fulfill the therapy hours recommended by the patient clinical assessment or that they have clear discharge planning. The piece that’s important too is that you never want to put your clinical staff in a position where they are going against their ethics code. Most clinicians are held to the ethics code for behavior analysts. There are a couple of code items, 3.14, 3.15, and 3.16, that talk about facilitating continuity of service, appropriately discontinuing services, and appropriately transitioning services.
In all of these cases, you want to make sure that the clinicians that are employed by your organization are in a position to follow through on their ethical commitment to their patients. Make sure that they consider a number of factors when discontinuing the service or that they are making appropriate efforts to manage the transition like you are writing a written plan, you have target dates, and transition activities, all of that in place.
These are all the things that I’m looking forward to our disciplinary review committee to review and make sure that if any of these things weren’t done, those patients are appropriately remediated. If they were, then that’s great as well. It’s an unfortunate time for patients and staff members impacted by these things.
Sara, let me throw out at you a scenario because I’ve heard obviously the challenge now with bonding staff and the impact that’s having on everyone. If you have a situation where you are serving a family, and then you lose one of your RBTs, that’s serving that family, and you have no one to replace that RBT with. There’s this situation. It’s not like you have someone in your back pocket that you could say, “This RBT now takes those twenty hours.” To me, I think about those types of challenging situations that I know organizations are facing now. Literally, it’s a difficult situation to be in.
The kind of ethics code for behavior analysts sounds serious. It’s an ethics code. Ethics is a serious topic but any ethicist or ethical textbook will tell you that there are many gray areas in the code. We want to account for the fact that, in that case, you would magically have another RBT to replace that RBT. There’s no gap but that’s not the reality of how these things work. In all those cases, you want to make sure that you’ve demonstrated the effort to fill the gap and that you are working actively. Also, we have great webinars on this.
That’s why you also need an active funnel of the talent pipeline and why you need recruiting and hiring strength within your organization as a core competency. A big part of our accreditation standards looks at whether that exists within your organization because what you don’t want to do is essentially be caught with your pants down, where you have people leaving, and you are looking around, trying to figure out how do you backfill this. Most successful organizations constantly have an open pipeline of staff that they are hiring to account for some of these things.
That is such a key role in ABA organizations. It can be a role that is undervalued in the sense of having that consistent pipeline of RBTs and BCBAs is critical because there are a lot of turnovers. We have tons of data at BHCOE on that that can help organizations understand, from a data standpoint, how many clinicians you should be thinking about hiring month-over-month based on the data that you can see turnover, especially within that technician position. It’s interesting, the dynamics of what’s happening now.
It’s almost like a perfect storm with the combination of some of the Federal and State Laws related to Telehealth being changed and altered, not as flexible as they used to be or not covering certain codes that they used to. Obviously, with the resignation situation and all of that, it’s a challenging environment. I, for one, want to say I appreciate all the ABA organizations out there that are sticking it out for all of our families that need service. I know it’s a very hard time but I cannot say thank you enough to those organizations who are digging in.
I could not agree more. I know all of our organizations, in one shape or form, are struggling in some way. I’ve said this before, it’s a tough time to lead and manage people. There’s a lot of uncertainty. I feel the same way. It’s such an important job. Ana and I would love to hear from all of you. If you have any thoughts on the layoff situation that’s going on across the industry and globally, feel free to email us at TSR@BHCOE.org.
We would love to get your thoughts. We will read some of them out, maybe in the next episode. If you have anything that you want to share with us around what you might know about any of these situations, feel free to do that as well. We are always ears to the ground trying to figure out how we can help support organizations like yours. Thanks, Anna, for your time. It’s a tough conversation to have and an important one.
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About Jon Krieger
Jon Krieger is a Managing Director at Calex Partners. Prior to Calex, Mr. Krieger co-led the Healthcare Services M&A practice at Berkery Noyes for 10 years. Some of his notable transactions include the sale of the Center for Autism and Related Disorders (CARD) to Blackstone, the sale of Sage Care Therapy Services (ChanceLight) to The MENTOR Network (Civitas), the sale of ACES to General Atlantic, the sale of Proud Moments to Audax, the sale of Autism Learning Partners to FFL Partners, the sale of LEARN Behavioral to LLR Partners, the sale of Core Informatics to Thermo Fischer Scientific, the sale of Extension Healthcare to Vocera, the sale of AfterMath Claim Science to Equian (Optum), Gryphon Investors’ acquisition of LEARN Behavioral, and Golden Gate Capital’s acquisition of Invo. Mr. Krieger received a Master of Business Administration from Columbia Business School and a Bachelor of Arts from Clark University.