What You Don’t Know Can Hurt You; Referral agents, referral fees and how it affects placement and costs
This article is about the business side of placing your loved one in a RCFE (residential care home for the elderly) by using a referral agent. The business side can feel uncomfortable because we are caring for the elderly not selling cars, but the reality is any business must profit to provide a viable ongoing program. Because referral fees have become so substantial, they greatly affect the profit margins of a RCFE. It is important to know what you don’t know because sizable sums of money are at play and all involved have a vested financial interest in a placement. What you don’t know about referral fees can put you at a disadvantage in finding and getting a loved one admitted to a top rated RCFE and the rents and preadmission fees you will pay in doing so. I advocate for referral fees to be transparent to families so they better understand the dynamics of getting a loved one placed in a residential care home.
Twenty years ago, when I opened my first RCFE there were a handful of referral agents. I visited doctor’s offices, church’s, rehab facility’s where elderly people needing care might be inquiring about what are options for care. This is how our residents found us, through brochures, business cards at viable locations, and referrals from families who have had a loved one in our care. We, RCFE owners, used referral agents rarely because they were too costly and not necessary to keeping our homes fully occupied. When a referral agent was used the service was free to the family but the RCFE owner paid a fee of 50% of the residents first month’s rent. It was a large expense so referral agents were used as little as possible.
In the last twenty years the senior industry has changed and grown tremendously. There is now more elderly needing placement, more assisted living options, more referral agents. Around 10 – 12 years ago A Place for Mom, a large national referral corporation, increased their fee to 100%+ of first month’s rent. Most referral agents followed this increase of rate and it created a flood of new referral business’s wanting to get a piece of that pie. This increase of referral agents doing full time marketing and visiting to md offices and rehabs created a situation where the doctors and rehabs started working directly with referral agents instead of with an RCFE owner. Because of this change most RCFE owners have become dependent on referral agents as a primary source of keeping their homes occupied. Most often, this is at the increased rate of 100%. It would seem obvious that those costs get passed to the families.
Referral Rates affect your family member being accepted in any given RCFE
Each potential client needs to be carefully evaluated by the RCFE owner to access if they can budget or afford to accept any given resident. What that means is the RCFE owner estimates the length of stay of a resident, the needs and services needed and the cost of the referral.
Families who will be placing their loved one for a short term stay whether by hospice or other reasons might be disadvantaged in being accepted by the best RCFEs. It could be said that it is bad business to accept a short term resident with a high referral fee. That could be a situation where a RCFE business was not earning any profit on a particular resident. Some referral agents think a 50% fee is a good deal on a short term resident but the truth is if a resident only stays one month or less, which can happen with hospice, you could be admitting a half pay resident who has full pay costs.
Additionally, if a RCFE owner has two families competing for the same room they might choose the resident with the lessor of a referral fee.
Meanwhile the family is completely unaware as to why their family member is not accepted in to a given RCFE.
A perhaps obvious fact but one not often thought about at the time is referral agents only show families RCFE’s they have negotiated a contract with. It is not necessarily all the homes that meet the family’s criteria. Many of the best RCFE’s negotiate for lower fees because they are in demand. If your agent does not reduce fees you might be missing out on your perfect RCFE.
The increase of referral fees has caused increased rents, increased admission fees and caused tighter budgets for things that directly affect quality of life and care
In these same years of increased referral fees there have been substantial increases in rents and admission fees. If you do the math you can see the fees are high and need to be offset in some way. An average rent for a RCFE in Orange County is $6000 per month although a range is $3000 – $10,000. I am not sure if fees can be justified at 100%. I asked that question years ago when fees increased. How many hours do most referral agents spend with a family to earn those fees?
Many RCFE owners are increasing admission fees to offset the cost of the referral fee. You will see this more and more. If a RCFE owner has a high turnover rate of residents per year 100% referral fees are not financially sustainable. You are essentially providing one months free rent for every new resident. And yes you can be sure those 100% fees affect quality of care all around. If you are financially struggling that will affect your disposable income for other things that directly affect resident care . Things like quality staff, quality food, activities and your overall program.
I also believe if referral rates were less, RCFE owners would be in a better position to negotiate or reduce rents or admission fees with potential residents. New people in the business don’t always question the higher rates because they don’t remember rates changing from 50% to 100% overnight with no justification. But many RCFE businesses are struggling to stay afloat. When families place their loved one in a RCFE they are looking for a permanent placement with a business that has a solid operation not one that is financially struggling.
Referral agents are a needed and good service. They provide a marketing service to the assisted living communities. They assist families through a very difficult and stressful time. They provide knowledge and save time.
Many RCFE owners including myself refer to each other to save on referral fees and to recap fees we have paid to referral agents. We do this at a reduced fee, usually %50, or no fee at all for hospice, short term, low income, veterans. We do this for good will to each other and the community. We do this to keep all costs down.
I would like the financial dynamics of placing a loved one in a RCFE or other community to be transparent. If I wanted my parent to have a particular placement I would like to be part of the whole discussion. Perhaps I would prefer to contribute to the referral fee rather than be denied for a reason I am not aware of. I would try for a win win win situation. The family gets the RCFE that matches their criteria, the RCFE is able to provide the care, the referral agent is paid for their time and work in introducing the family to the RCFE. Open communication would serve all.
What families need to know and understand is that each RCFE that accepts a new resident is also considering the dollars and cents of it. Each referral agent that refers to a RCFE is also considering the dollars and cents of it.
