Five tips for tendering in the social domain: how can a care provider achieve realistic rates?

So what are realistic rates for care providers that operate in the social domain? That question has been hotly debated for quite some time now. It will remain a crucial issue for care providers in the coming years if they wish to continue to provide (and be able to provide) care in the social domain. Municipalities are in charge of procuring care under the Wet maatschappelijke ondersteuning (Social Support Act) and the Jeugdwet (Youth Act). The care that comes under those two acts is also known as the “social domain”. The fact that municipalities are exclusively responsible for care (and care procurement) follows from both the Social Support Act (Article 2.1.1) and the Youth Act (Article 2.6) . By law, all municipalities must ensure that their residents receive the care to which they are entitled (the duty of care). To that end, municipalities purchase care from care providers and must then offer them a realistic rate: hence the care procurement duty. To achieve a realistic rate for social support care, municipalities must apply the Social Support Realistic Price Decree. This applies not only to procurement procedures within the meaning of the Aanbestedingswet (Public Procurement Act), but also to open-house procedures. The Dutch Supreme Court confirmed this in late 2021. A (largely) similar Decree will be adopted for youth care. That Youth Care Realistic Price Decree is still in the works.

The Social Support Realistic Price Decree makes clear what municipalities must take into account in setting rates. But it does not prescribe how high the rate must be in a specific case. In practice, care providers regularly (and structurally) have to deal with low or inadequate rates that municipalities apply to their care. Timely litigation to challenge such inadequate or unrealistic rates is then often the only solution – and is often successful. A court ruled, for instance, that if a municipality opts to leave the level of rates to the tendering providers, it must still check whether the rates offered by a provider are realistic. In a youth care case brought by care provider Pluryn, the court found that the municipality had not made clear which specific cost elements were included in the rates. It had also been tardy in giving access to the relevant documents. In a case filed by mental healthcare and youth care providers in Limburg (including Mondriaan), the court found that the municipalities had not sufficiently demonstrated that the benchmark on which the municipalities had based the rates was representative. The court ruled that the hourly rate calculated by the municipalities was based on a wide range of assumptions of which it was insufficiently clear whether they were correct. In sum, courts adopt a critical stance in assessing whether a municipality is applying a realistic rate.

But municipalities also appear to be learning from the legal and other mistakes they have made in the healthcare procurement process. Partly in light of the aforesaid case law, municipalities can be said to be increasingly better prepared. Nevertheless, with some sound preparation it is still worthwhile for care providers in the social domain to successfully challenge (also in court) inadequate rates and other unfavourable conditions applied by municipalities. This blog addresses the lessons that care providers can learn from the recent developments in case law and provides five practical tips aimed at achieving better rates.

Municipality must set the rates with due care at all times

Municipalities have been in charge of youth care procurement since 2015. Many municipalities found it challenging to implement this new task, for instance because of financial bottlenecks. In 2019, a significant number of youth care providers successfully challenged the unrealistic rates offered by ten municipalities in the Haaglanden region (the “H10 Municipalities”) (see also here). According to the youth care providers, the rates were too low to cover their costs. The court found in their favour, as did the Court of Appeal. In the first instance it became apparent that the H10 Municipalities each time applied different definitions to the figures and percentages in substantiating the rates. That made a sound comparison of the figures impossible. The court also found that the H10 Municipalities had taken insufficient account of the regional and organisation-specific aspects that influence the cost price of youth care providers. The Court of Appeal also found that the H10 Municipalities had insufficiently demonstrated that they had set realistic cost-covering rates.

The case of the H10 Municipalities demonstrated that municipalities must be able to adequately substantiate why the rates they have set are realistic and cost-effective. Due care must be exercised in that regard. If a municipality fails to do so, it can be worthwhile for care providers to take timely legal action to challenge the inadequate rates.

Municipalities are getting better at substantiating their rates

This does not mean that legal action to challenge inadequate rates is always entirely successful. Municipalities are increasingly aware of their obligations in the care procurement process. For instance, they have started (more structurally) to organise consultation meetings before or during the procurement process. They are also engaging consultancy agencies to substantiate the level of the rates (see here and here, for instance) and are reporting in more detail on the manner in which the rates are set. In the case of the H10 Municipalities, the court ruled that it is primarily up to municipalities to substantiate and clarify that the requirements of the Youth Act are being met in setting the rates. The Court of Appeal confirmed this allocation of the burden of proof and added that it is subsequently up to care providers, if they disagree with the rates applied by municipalities, to explain why municipalities have failed to meet this obligation. In a case of care provider GGzE, on the other hand, the court merely ruled that care providers are under the burden of proof to demonstrate against this backdrop that a municipality is not applying realistic rates. It is then up to the municipalities to clarify how they arrived at the rates.

It can be difficult for a care provider to demonstrate this. GGzE ran into that problem when it litigated to achieve a realistic social care rate. GGzE argued that the municipality’s rate did not take account of the real-life practice in the sector. GGzE believed that the municipality had failed to exercise due care in setting the rates. GGzE was unsuccessful both in the first instance and on appeal. The Court of Appeal of Den Bosch set great store by the fact that the municipality had held several meetings with care providers, had commissioned a study by KPMG and later also a benchmark by another consultancy firm before setting the rates. According to the Court of Appeal, the municipality had therefore exercised due care. The Court of Appeal also noted that realistic rates do not have to be cost-effective for every provider, therefore including GGzE. According to the Court of Appeal, GGzE had insufficiently substantiated its criticism of the manner in which the collective bargaining agreement for the Nursing Homes, Care Homes and Home Care Sector and other principles had been applied by the municipality in setting the rates. The Court of Appeal found that GGzE should have substantiated why the rates were unrealistic, for example on the basis of an expert’s report. GGzE had not done so.

The court similarly ruled in favour of the municipality of Leeuwarden in a conflict with mental healthcare provider GGZ Friesland. GGZ Friesland believed that the municipality had insufficiently clarified how it had set the rates, and that it had set the rates on the basis of incorrect assumptions. The court disagreed. It took into account that the assumptions underlying the rates were partly based on an external study commissioned by the municipality. The municipality had also asked several care providers to provide input by organising market consultations and had sufficiently explained its choices.

In 2020, the court ruled in favour of the municipalities in a case in which care provider Meander challenged what it considered inadequate rates applied by a number of municipalities in the south of Limburg. Meander (which operates in the field of domestic help) believed that the municipalities had not conducted a thorough investigation and had not set a realistic cost price. The court found that if municipalities use a calculation tool in setting a realistic price, they must share the information and considerations on the basis of which the rates were set with the care providers. The court noted that the calculation tool serves as an aid and that it may be based on suggestions made by an external agency. That makes it possible to take regional and organisational differences into account and to provide customised solutions. The court also noted that, in principle, municipalities have discretionary powers in setting realistic rates. In this specific case, the court ruled that the municipalities had used the calculation tool correctly in setting the rates.

Not every municipal substantiation is correct: timely appeal by care providers worthwhile

Engaging external agencies and drawing up reports helps municipalities to demonstrate in court that the rates they apply are realistic. But that obviously does not mean that every study by a municipality or an external party is always correct or that the municipality can always use it successfully. It can be worthwhile for a care provider to make a timely and critical assessment of the study that the municipality wishes to conduct or that it puts forward to justify certain rates. Courts are (rightly) critical. It very recently became apparent (see also here) that this can lead to successful legal action. Social care provider Parnassia Groep (“PG”) and other social care providers believed that the municipality of Rotterdam had not followed a diligent and transparent procurement procedure. The court agreed. It found that the municipality had used a large number of external sources to justify its rates, but without making clear which sources had been used, at what time, for what purpose and to what extent. The sources on which the external agency engaged by the municipality had based its conclusions were also unclear. The court furthermore found that the studies and benchmarks on which the municipality had based its opinion varied significantly and were also somewhat dated (from 2014).

PG furthermore successfully argued that the overhead percentage applied by the municipality was also inadequate. It substantiated that argument on the basis of an investigation report of its own. Although the court noted that a municipality is not required to ensure that rates are cost-effective for each individual provider, PG and other litigating care providers represented 75% of the target group of tenderers. The court found that if 75% of the relevant providers cannot get by on the overhead percentage applied by the municipality, that percentage cannot be realistic. In earlier healthcare procurement disputes the court had also ruled in favour of care providers that represented a large part of the market (see here and here, for instance).

PG also convincingly argued that the travel time on which the municipality based its calculations was far too short. It was furthermore able to demonstrate that the sick leave percentage applied by the municipality dated from the 2016-2019 period. That percentage is significantly lower than the current average sick leave rate among the care providers surveyed by the municipality. The court found that the municipality should take account of the current situation in determining the sick leave percentage, which it had failed to do. The municipality had furthermore reduced the rate on the grounds that innovations by care providers should lead to cost savings. In the court’s opinion, the municipality had not demonstrated that those innovations did actually decrease the costs.

Plenty of opportunities for care providers: lessons learned

Municipalities are aware that, as healthcare procurers, they must be able to substantiate their rates in more detail. They appear to be increasingly able to argue in court why the rates they apply are realistic. They are commissioning external studies to that end more frequently than in the past. It is clear that municipalities have discretionary powers in setting rates and that rates need not cover the costs for each individual healthcare provider – only for the majority of care providers. But real-life practice in the sector must always be taken into account. That offers opportunities for care providers, since not every study or report adequately takes that practice into account. Moreover, if the assumptions underlying reports and studies are incorrect, the outcome is inaccurate or in any event open to criticism. The same applies to the data used in such studies and reports: garbage in is garbage out.

The ruling in the PG case also demonstrates that inadequate investigation – even if reports are submitted by municipalities – leads to a dressing down in court. Municipalities must at all times act transparently and with due care when setting social care and youth care rates. Survey reports must be used correctly. If care providers find that wrong assumptions are being made, incorrect principles are being applied, or incomplete, outdated or otherwise incorrect data are being used, they should sound the alarm as soon as possible. That can often be done in writing, by submitting questions or objections at the consultation meetings, filing prior information notice or objections, or possibly instituting preliminary relief proceedings (which is often necessary to avoid forfeiture of rights). Municipalities must always be able to clearly explain to care providers how the rates were set. If a municipality fails to do so, or to do so adequately, or if it is unwilling to change an approach that cannot lead to realistic rates, timely legal action (or the threat of such action) by a care provider is the best means of achieving realistic rates.

Finally, five practical tips for care providers that operate in the social domain:

  1. Adopt a proactive approach throughout the procedure. If possible, try to negotiate with the municipality before the contract is put out to tender.
  2. If you disagree with or have questions about the (current) call for tenders or procedure, present your questions in good time in the form of a prior information notice and consider drawing up a report. If necessary, then file a complaint or objection and possibly institute preliminary relief proceedings. Be mindful of deadlines to avoid forfeiture of rights.
  3. If you believe that the rates offered do not cover the costs, make sure that you can properly substantiate that argument. It may be useful to engage the services of an external consultancy firm for that purpose.
  4. Documentation saves the day: with a view to possible court proceedings, agreements and undertakings should be properly documented from an early stage and detailed records of discussions should be kept.
  5. Once a care provider has independently decided to take legal action against one or more municipalities, it may join forces with other care providers in such proceedings, provided that those care providers have also independently decided to litigate.

More information on the rights of care providers in healthcare sales and on how their trade associations can support them in that regard can be found at www.zorgcontractering.com

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Diederik Schrijvershof

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Leah Peeters

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