by James Henry, Blue Harbor Senior Living Staff Counsel
While in-house marketing and sales are one method of attracting new residents, outside referral agencies are a useful tool for increasing senior housing occupancy—a crucial goal for all providers who want to financially operate as a successful business.
This article will provide some practical knowledge and tips on how to assess referral agencies and how to navigate the contract negotiation process with them.
What Are They?
Most of us have heard the advertisements where an organization offers to help your elderly loved one find senior housing at no cost to you. On its face, this promise is true. Referral agencies maintain large databases of senior living facilities categorized by, among others, levels of care, price and location, to help their clients find a community that will fit their needs.
What the seemingly altruistic referral agency advertisement fails to mention is that they charge the senior living facility up to 100% of the resident’s first month of rent and care fees for each move-in they secure (if the community has an active agreement with the referral agency). This is a major factor that needs to be evaluated by senior living operators before they contract with referral agencies.
The Benefits and Costs (quite literally) of Using Referral Agencies
- Pros
- Referral agencies typically specialize in senior living placement so they are well-versed with the needs and requirements of the industry
- The community will always have the final say in whether to admit a referred resident
- Cons
- Using referral agencies as a constant source of new residents presents high upfront costs
- Poorly negotiated referral contracts can expose your community to unnecessary and burdensome financial obligations
Contract Negotiation Tips
Fee Calculation. Consider removing care or rent charges in the referral fee calculation. Typically, the calculation is proposed as a percentage of those fees combined. Negotiating the agreement to only use one of those fees to calculate the referral fee will likely lower your overall outside cost for the move-in.
- Keep in mind that Texas and Oklahoma prohibit a referral fee based on a percentage of the care or services provided. These referral fees must be a flat-fee. Applicable law citations are below.*
Double-Billing. Consider the need to eliminate a notice requirement when a referral agency sends you a lead that your community already has in its system (from internal efforts or another referral agency). These provisions typically require the community to provide notice of a pre-existing lead or the community will be financially responsible to the agency for a move-in regardless of the prior contact. This can be an important piece of an agreement to negotiate to avoid the dreaded double-billing scenario (explained below). Outlined below is sample contract language for your review to further understand and navigate this scenario.
- Double-Billing Scenario: Your community has agreements with multiple referral agencies and is regularly receiving referral leads from these agencies. Your community receives and accepted a lead from Agency A last week. This week you receive the same lead from Agency B. Your community fails to notify Agency B of the pre-existing lead and the move-in occurs the following week. By the terms of the agreement, you may be financially responsible to both Agency A and Agency B to pay their respective referral fees, which is a costly mistake.
- Not Recommended Sample Referral Agency Contract Language: If client, their family or another referral agency/source contacts Facility regarding senior living or care at such Facility before the date that Agency first provided the referral Information of such person to Facility and if the Facility elects to reject the Agency referral information, to avoid incurring a fee for a related move-in, Facility must provide Agency with written notice of rejection within 5 business days of the initial date of Agency’s relevant referral alert. If Facility does not reject the referral information as stated above, then Facility will be deemed to have accepted the referral from Agency as if it were the first contact between the Facility and the prospective resident/family and, regardless of contrary facts, Facility agrees to pay Agency the associated move-in fee.
- Recommended Language: If, at the time of referral from Agency, a client is already an active admission prospect for Facility or a client has been referred to Facility by another referral agency or referral source, no referral fee is due Agency. Facility will promptly provide documentation evidencing this prior contact upon request by Agency.
Expiration. Consider including language in the referral agreement that places an expiration date on the leads provided by the referral agency. This can eliminate some potential payment obligation issues on certain leads that have not been active for an extended period of time. It also incentivizes referral agencies to act on the leads that they have presented. Furthermore, it might allow you to avoid another double-billing scenario if a referral agency presents a pre-existing lead that has been in the community’s system for some time and is able to secure a move-in.
Final Thoughts
It is important to recognize, whether your community is exclusively private-pay and especially if your community accepts public funds on behalf of residents to pay for rent or services, that all anti-kickback statutes should be considered before any referral arrangements are established.
Notably, this is addressed in a 2014 advisory opinion issued by the Department of Health and Human Services Office of the Inspector General. Most referral agencies are aware of these rules and some include language in their agreements that explicitly states they will not refer a potential resident whose source of payment for services would be, in whole or in part, provided by a federal health care program. Nonetheless, it is recommended you consult legal counsel before proceeding with establishing business relationships with referral agencies.
Also, be on the lookout for new legislation impacting referral agencies in your state. A bill was recently introduced in Oregon which would require referral agencies to receive certification from a state department and comply with specific regulations. This would be a major change for an industry that has largely operated with little regulatory oversight.
The information presented in this article is for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem.
* Oklahoma Statute Title 63, Chapter 1, Subpart D, Article 7, Section 1-742 (B), and Texas Occupations Code, Title 3, Subtitle A, Chapter 102, Section 102.007(10)
James Henry is Staff Counsel for Blue Harbor Senior Living. Blue Harbor is a national senior living management company based in Portland, Oregon.
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