Interested In a CCRC? Here Are Some Issues to Consider

DECEMBER 17, 2012 VOLUME 19 NUMBER 45
Wouldn’t it be nice if you could find a place to live for the rest of your life? That is, a place that is comfortable for active and engaged seniors, but with an assisted living component and even a nursing home — so that as you (or your spouse) required more care, you wouldn’t have to leave your complex, break off friendships and support systems, or face the uncertainties of future care needs? That’s the basic idea behind “continuing care retirement communities” (CCRCs), a relatively recent development in housing alternatives for seniors.

By most accounts (definitions can vary somewhat) the Tucson area has just three CCRCs in operation now. They are more common in other areas of the country, and there are likely to be more of them in Southern Arizona in coming years. Law Professor Katherine Pearson, who teaches at the Dickinson School of Law at Pennsylvania State University, explained the CCRC phenomenon for us, and gave us some tips on things to watch for:

Continuing Care Retirement and Life Care Communities (collectively referred to as CCRCs) are vibrant places, reminiscent of college campuses (minus the beer kegs and frat parties). Often, CCRCs serve as models for engaged living, with residents supporting each other through activities and social connections and management providing easy access to several levels of services and on-site health care.

The CCRC industry saw strong growth throughout the 1990s and early 2000s. One report in the 1980s estimated there were between 300 and 600 CCRCs operating in the United States, with a population of between 55,000 and 100,000. By 2009, the estimate was 1,860 CCRCs with a population in the region of 800,000. The 2008 economic recession and corresponding plunge in home prices, however, put the CCRC industry’s growth on “pause” – while also taking a toll on some recent entrants to the market.

In late 2012, as the real estate market begins to improve, operators, developers and financiers for CCRCS are hoping their market will regain strength.

For prospective residents, pricing structures are diverse and can be challenging for a layperson to analyze. They include a range of refundable, partially refundable, or non-refundable entrance fees, plus monthly and other periodic service fees. The market has both “for profit ” and “not-for profit” providers — and a few “hybrids” where for-profit developers or managers team with non-profit operators — adding to the challenge of evaluating the impact of pricing structures, especially with respect to concerns about how to predict increases in future service fees.

CCRCs have long attracted interest from academics, state regulators and federal legislators concerned about the soundness of any financial structure that combines large up-front “cash” and long-term service promises. The attention of regulators tends to peak during financial downturns, especially when large players in the industry file for protection of the bankruptcy courts, as occurred most recently in 2009-10 with the reorganization of Erickson Retirement Communities. Erickson was based in Maryland and had facilities in multiple states. Overall, the regulatory interest of outsiders tends to be episodic, responding to crises.

That is where residents are increasingly stepping onto center stage. Residents of CCRCs, the folks who can pay $100k, $500k or even a million in entrance fees, tend to be interested in how their money is spent — and why.

For a number of years, I have been listening to residents from CCRCs around the country, often as a guest in their homes or communities. From my discussions with residents, I have come to believe there are 7 core finance-related concerns shared by residents at CCRCs:

1. The right for residents to organize and advocate;
2. The right to be free from retaliation when pursuing their desires or rights;
3. The right to receive regular, accurate and detailed financial information that affects current and future operations at their CCRC (including, when appropriate, financial information about any parent organization);
4. The right to financial information in a form that is understandable to the majority of current and prospective residents (especially in a form that would permit comparability in the market place);
5. The right to an effective “resident voice” in financial decisions that may impact present and future stability of their community;
6. The means to enforce resident rights through reasonable process; and
7. The right of “affordable stability,” by which I mean reassurances that the fees residences have paid and will continue to pay, including any increases, will be affordable to them and will be only what is reasonably necessary to maintain the stability and success of their community.

Obviously CCRC operators and managers believe they are fully engaged in protecting such rights. And in the many top-notch CCRCS operating in the nation, that is very true. But even in the best run CCRCS, the trust of residents can be enhanced through greater transparency, including involvement of the residents in governance.

Recently I addressed a working group on CCRCs in the Commonwealth of Virginia. The group’s interest was motivated by concerned residents who want systemic answers to questions about finances, especially on how entrance fees should be used. As of December 2012, it appears that Virginia will work with stakeholders to keep a dialogue open that is responsive to the concerns of residents, although the industry may be able to avoid new laws or formal regulations. I think it is safe to say that Virginia residents will not be satisfied with superficial changes.

CCRCs that ignore or downplay residents’ requests for greater accountability may be overly paternalistic — or overly reliant on a shared interest in avoiding public discussions about any particular facility’s problems. Further, the many “strong” and “good” players in the CCRC industry should resist the temptation to ignore the attempts by weak players to hide their finances. There is a flaw in a theory of silence, especially if motivated by a concern that bad news for one is bad news for all; such a theory allows problems to fester and become dangerous to the larger industry. The internet has empowered residents to share information and stay abreast of common concerns and developments. More open, objective and understandable information about CCRCs is now critical to proper growth of the industry. Future residents need to understand there are strong, viable choices.

For more on how CCRCs and residents can work to build trust and stronger communities, you can read Professor Pearson’s written testimony before the Virginia Housing Commission’s Working Group on Continuing Care Retirement Communities. Regular readers of this newsletter may recall Prof. Pearson’s earlier contribution on a somewhat related topic: the so-called “filial support” laws still extant in many states.