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Last Updated: 4/29/2011 10:38:54 AM

As important as it is to plan ahead for the need for long-term care, things often don't happen that way. A senior falls and breaks a hip or has a stroke, and suddenly there is a scramble to find a nursing home or other long-term care facility. To meet a growing demand and lured by fast money, so-called elder care referral services to help in such situations have sprung up around the country, exploding into a multimillion-dollar although unregulated industry.

Most offer consumers their services for free, but there is a hidden price: nursing facilities and other adult care homes typically pay the referral service a sizable commission for any placement. In Washington state, for example, the facilities generally pay the placement agencies the equivalent of one month's rent, on average about $3,500.

This means that the service steers seniors to facilities they contract with, often without regard to the facility's quality. In an investigative report last year, the Seattle Times found that placement companies in Washington state had referred seniors to facilities that had documented histories of substandard care, including "residents with dementia locked in rooms to prevent wandering; mentally ill adults drugged into submission to control behavior; and bed-bound seniors abandoned without assistance for up to 16 hours."

Industry Leader Viewed As Lucrative Investment

The nation's largest senior-placement firm is A Place for Mom, a Seattle-based company that contracts with 18,000 elder care facilities in 45 states. Financial analysts estimate the private company has revenues of $50 million a year.

A Place for Mom has embraced a Web-based business model that is becoming increasingly popular among such companies. Consumers looking for an elder care facility in a particular area fill out an online form and are quickly contacted by one of 450 referral "advisors" working out of home offices.

Without any personal contact with the senior or the family, the adviser offers a list of referrals to selected adult homes, assisted living facilities or other institutions, and at the same time sends information about the senior to the facilities. If the senior ends us entering one of the facilities, A Place for Mom collects a commission, averaging about $3,500 in Washington state, according to the Seattle Times, with about $650 going to the adviser.

But the advisors refer consumers only to facilities that have agreed to pay A Place for Mom a commission. "[W]hen I asked them about a home that I heard about but did not see on their site they redirected to others," a commenter on the Web site alarm:clock, which covers technology startup companies, wrote in 2009 in reference to an article on A Place for Mom.

According to the Seattle Times expose, "A Place for Mom has on its referral list dozens of homes with histories of substandard care, including homes currently on probation for abuse or neglect violations."

But elder referral is big business. In July 2010, the Wall Street global equity firm Warburg Pincus bought a majority stake in A Place for Mom, seeing great growth potential.

One State Cracks Down

In response to the Seattle Times investigation, Washington is about to become the first state to rein in these previously unregulated businesses. The legislature has passed a bill requiring referral companies to meet minimum standards, including that they clearly disclose to seniors and their families their fees and terms of service upfront and that they maintain at least $1 million in liability insurance coverage. Washington state's governor Chris Gregoire is expected to sign the measure.

According to the Times, lawmakers in at least a dozen states are studying the bill as a model for change. Although the legislation was supported by many placement companies, consumer advocates and adult home owners, A Place for Mom aggressively opposed the measure, including "spreading distortions about the bill," according to the Washington state ombudsman's office, as quoted by the Times.

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