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Software misfire at heart of dispute between BrightStar, ‘zee


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A tech platform meant to allow franchisees to offer skilled nursing services isn’t working for one pair, they say, and they’re suing BrightStar. The dispute highlights the need for due diligence as healthcare gets more complex.

Franchisees in Arizona have filed a misrepresentation lawsuit against BrightStar, alleging the software provided by the Gurnee, Illinois-based healthcare company falls short of promises made during the franchise sales process. 

Attorneys for BrightStar are asking the lawsuit be dismissed, because the franchisees filed it too late and because disclaimers in their franchise agreement disallow such lawsuits in the first place.

In April 2010, Steve Evans and Candice Brainard opened a BrightStar franchise they call Starcatcher, in North Glendale, Arizona; they opened a second unit in October 2011 in nearby South Glendale. Evans said during an interview he has a master’s degree in social work and Brainard is a registered nurse. 

“We started exploring franchises because we always wanted to run a skilled-care business and BrightStar was one of the few franchises that support that format. Everyone we spoke to, from their franchise salesperson to company CEO Shelley Sun, told us they were experts in skilled care, that their Athena Business System software did everything we needed it to do to run a skilled-care business, and that BrightStar franchisees in Phoenix already had contracts with managed-care agencies.”

What they discovered

Evans said he and Brainard attended a BrightStar discovery day event in early 2010 where “the ABS software was touted as the best in the industry,” but not demonstrated. They returned to Arizona, hired an attorney with franchise experience to review their franchise agreement, signed it and opened for business. 

Starcatcher, Evans said, sends nurses, physical therapists and occupational therapists into patients’ homes to provide services ordered by physicians and paid for by managed-care companies, such as Blue Cross Blue Shield and United Healthcare. “ABS never created the electronic claims forms we needed to submit our billing,” he said. “We feel we were totally misled.”  

On October 8, the franchisees, represented by J. Michael Dady of Dady & Gardner of Minneapolis, filed a lawsuit in U.S. District Court in Arizona, claiming “negligent misrepresentation” and asking BrightStar to rescind the couple’s contracts and pay attorneys’ fees and damages. 

On November 26, BrightStar, represented by Faegre Baker Daniels of Minneapolis, filed a motion to dismiss the lawsuit, claiming Starcatcher is not protected by the Illinois franchise law nor the Arizona Consumer Fraud Act cited in the complaint, and that deadlines to file complaints under those laws had long expired. 

The motion further states the franchise agreements signed by Evans and Brainard contain disclaimers stating BrightStar and its affiliates will not be liable for any  damages, including, “without limitation, any damages associated with loss of use, interruption of any business, loss of data or loss of profits” in any way relating to ABS or its use. 

Offers of help

In an interview, Thom Gilday, BrightStar’s president and COO, said, “We made numerous offers to send technical accountants or whoever else was needed to Starcatcher’s offices to turn this around. But every offer was denied. We do have other franchisees using ABS to do skilled-care business with Blue Cross Blue Shield.”

Faegre attorney Brian Schnell, who recently served as BrightStar’s president before returning to the law firm, added the disclaimers are a standard part of franchise contracts that involve software “just as they are with commercial programs like Microsoft Office. Franchisors don’t want to be open to legal disputes with folks who don’t know how to operate their systems.”

Evans disputes the claim that he and Brainard turned down all offers of help and said many representatives from BrightStar corporate did visit Starcatcher, but could not solve their problems. “We’ve been on conference calls with corporate and other franchisees who are also disgruntled,” he said. Dady said he was preparing a response to the motion to dismiss and he expected to file before the end of 2013.

The Starcatcher v. BrightStar lawsuit shows how complex healthcare franchising can be. In a recently released report, Ed Teixeira, president of FranchiseKnowHow in Stony Brook, New York, notes that only 10 percent of the more than 17,000 private-duty agencies in the United States now provide skilled nursing services. (Gilday says BrightStar derives 16 percent of its revenue from skilled care.) 

“Due to the complexity of regulations, administration and reimbursement pertaining to skilled home-care services, it’s not surprising that franchisors have chosen to adhere to the non-skilled home care segment,” Teixeira writes.

As the Affordable Care Act goes into effect next year, the need for skilled care will increase and more franchisors are expected to add it to their services. Teixeira’s report notes that home-care franchisees venturing into skilled care will require Medicare certification and must comply with federal and state regulations. 

Future home healthcare franchisees must exercise additional scrutiny in analyzing franchise offerings. Jack Armstrong, CEO of the FranNet network of franchise brokers said, “If software is critical to the operation of my franchise, I’d want to know it works before I write a check. In a case like this one, the prospective franchisees should have visited the offices of existing BrightStar franchisees offering skilled-care services.”      

Evans said, “We had never been in the business of buying a franchise before and we assumed everything we were being told was true. We didn’t even know the right questions to ask.” 

In a statement, Gilday wrote, “BrightStar, as a franchisor, has invested $2.8 million in the technology for our franchisees over the past three years, driving continuous improvements for our franchisees’ unit level economics that result in higher margins and lower staff expense ratios (validation that the technology is working).” 

 

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