In June of 2010, the United States Government Accountability Office (GAO) presented their report “Continuing Care Retirement Communities Can Provide Benefits, but Not Without Some Risk” to the Chairman of the Special Committee on Aging of the United States Senate. This report addressed four key issues:

•    How CCRC’s operate and what risks are associated with those operations;
•    How state laws address these risks and how they protect the CCRC’s financial condition
•    What risks the residents of a CCRC face
•    How state laws address the risks of the resident and the adequacy of those laws.

The GAO was quick to point out what we know to be true, which is that older Americans benefit from the CCRC structure which allows them to move through independent living, assisted living and skilled nursing care in one community. This large range of services comes at a high operational cost and that the CCRC is exposed to a number of risks which can ultimately translate to higher resident fees or, in the case of failure, loss of entrance fees or life lease payments. While there have been few CCRC failures, the current economic climate of shrinking margins, decreased charitable donations and depressed real estate values has negatively impacted some CCRC’s occupancy rates and financial condition. In Kansas, the added constraint of the 10% Medicaid cut back has taken the CCRC from just making it to tapping into lines of credit and reserve accounts and looking at staffing cuts and increases in other resident fees.

The GAO studied 8 states with varying levels of CCRC statutory provisions. These states’ statues varied widely in the way they addressed long term viability. Most states required the CCRCs to maintain some level of financial reserves and required the CCRC to annually submit audited financial statements. Only four states required additional information to assess the CCRC’s long term viability and only three states actually conducted financial examinations. Some states require CCRCs to perform actuarial studies at regular intervals. These actuarial studies can help the CCRC plan for contractual obligations and set appropriate price structures. Without long term focus, a CCRC may be financially stable in the short term but there may be threats to the long term viability.

While the GAO did not recommend specific action in this report, it clearly states that certain states take more steps to protect the interest of the CCRC residents. Many states already require the escrow of entrance fees and improve disclosures in the resident contracts including a disclosure of all fees and a history of fee increases.

With the uncertainty of the impact of the new health care laws, the struggling economy and the aging population, today’s CCRC will be faced with challenges unlike ever before which typically gives rise to new state oversight and increased public scrutiny. The key is to have an active and knowledgeable Board of Directors and experienced management with access to accurate, timely financial information on which to base their decisions. SS&C has the expertise, industry understanding and commitment to help you weather the challenging environment. Please contact Michele Hammann at 785.856.5480 for more information on the GAO report and its impact on your Organization.