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CCRC Accounting and Contract Issues:
Know the Truth or Face the Consequences

By Lillian L. Hyatt, M.S.W., and a Resident of a CCRC


Excerpted from the Winter 2006 The CANHR Advocate newsletter

Seniors considering buying into a CCRC should heed the ancient warning, “Buyer beware,” or face the consequences of their failure to investigate the contractual and financial underpinnings of their chosen CCRC. Since each contract involves hundreds of thousands of dollars, seniors should consult an accountant as well as an attorney before signing. Besides checking the fine print regarding entrance fee refund conditions and conditions for terminating the contract, watch out for corporate management’s claims of large cash reserves of millions, without disclosing huge debts borrowed to do capital improvements. If a major disaster occurred–an earthquake or fire–new residents could not be admitted, and the CCRC would lose millions of dollars in entrance fees needed to maintain its financial viability. Borrowing to repair the damage then becomes difficult, if not impossible.

Multi–site CCRC providers can obscure individual facility losses by aggregating revenue across all sites. Take a hard look at the provider’s bottom line by checking the audited consolidated financial statement. Does the particular facility that you are interested in have revenues that exceed costs; if so, how is the “profit” used? Are there other facilities that are losing money? How are these losses covered? Does the provider have designated reserves for rehabilitation, new construction or disasters?

For non–profit providers, ask for the salaries of the top two or three executives and for the overall compensation for executives’ and managers’ salaries – how do these compare with other providers? How many consultants are hired and at what cost; and how many functions—food service, security, etc.—are outsourced? Does the provider have any ownership relationship with these companies?

Watch out for some costly surprises. For example, in 2004 a California non–profit owner of several CCRCs informed the residents, “ Each of our Life–Care communities was built in the 60’s and they are now 35–40 years old. Several major upgrades must take place to keep these buildings safe, comfortable and marketable . . . The cost of all these capital improvement projects totals $52.5 million.” The provider then proposed the upgrades be paid for with a $43 million loan, increased entrance fees, and contributions from residents. An aggressive fund raising campaign was launched with the goal of raising $3 million from residents. The implication was that if residents did not make “voluntary” contributions their monthly care fees would be raised considerably to cover the cost of servicing the larger debt. Prior to signing a contract, newer residents in these facilities were not informed about this debt. Always ask about future plans for rehabilitation and new construction and its impacts on fees. Also consider the impact on the security and serenity of community life.

Prospective residents must be wary before signing a Continuing Care Contract. As part of the contract, the resident may be required to waive the legal right to have disputes between the resident and the provider decided in court. Many CCRCs require that a resident agree to binding arbitration or waiving the right to sue for punitive damages in cases of injury or abuse. The consequences of signing away these rights are often explained to the new residents as really protecting residents, since it prevents a resident from collecting enormous damages the repayment of which would cause a rise in all residents’ monthly care fees. Many people will sign this contract because they are fearful of not being accepted into a facility if they do not agree. Other applicants, even after reading the words “waiver” and “arbitration” – and against the advice of their attorney! – will sign the contract anyway. They think, “It could happen to somebody else, but not to me.” Given the small fortune at risk for each resident or couple, caution is a necessity. Buyer beware!