Moving into a Continuing Care Retirement Community (CCRC) like Woodcrest Villa or Calvary Homes is often the culmination of many years of careful planning. People eagerly anticipate the lessening of home maintenance responsibilities, as well as the opportunity to make new friends and experience the benefits of living in community. Residents determine where to move after considering the CCRC’s location, amenities, reputation, cost, and the availability and style of housing accommodations. But there is one area that is often overlooked: the financial health of the CCRC.
The Importance of a CCRC’s Financial Strength
Unfortunately, not all CCRC’s are alike when it comes to their financial foundation. CCRC’s are buffeted by many negative “winds” including insufficient government reimbursement for health care costs, rising wages, a challenging staffing environment, inflation, and the increasing costs of debt and construction. In addition, the senior living market in Lancaster, PA is very competitive, which can make it difficult for a CCRC to maintain the occupancy levels needed for financial stability.
These factors have resulted in financial challenges for some CCRC’s. Nationally, many CCRC’s have or are considering merging with other organizations just to survive. Some have even closed, often because they waited too long to find a suitable partner. For those CCRCs who merge, joining another organization brings with it the chance that the parent organization will change the culture and services of the CCRC that made it attractive to residents. In addition, a merger can sometimes result in alterations to the terms of a resident’s relationship to the CCRC.
Most non-profit CCRCs make a commitment to care for their independent living residents through their continuum of care which includes independent living, rehabilitation, personal care, and skilled nursing services. This commitment even includes the potential future inability of residents to pay for their care. In other words, when independent living residents outlive their financial resources, these CCRCs maintain their commitment to provide the care the residents need through financial assistance such as benevolent care—this, of course, assumes the residents’ financial resources haven’t been depleted for inappropriate reasons such as gifting. Sadly, some CCRCs may be unable to honor this commitment if they do not have sufficient financial resources.
What Should Prospective Residents Ask About the CCRC’s Financial Health?
It is very important then that prospective residents obtain information about the financial health of the CCRC they are considering joining. But where can this information be found and what are the important questions to ask?
CCRCs are required by the State of Pennsylvania to issue an Annual Disclosure Statement. The Annual Disclosure Statement is available to the public and contains helpful information. Each of the CCRCs you are considering joining will provide you with a copy of their Annual Disclosure Statement as part of the sales process and/or upon your request.
The Annual Disclosure Statement contains financial statements from the prior two years. Even if you are not a trained accountant, there are important data points you should review. Here are some of the most important items to consider:
Statement of Operations
The Statement of Operations tells the story of how the CCRC performed in the prior two years. A quick comparison of how the numbers change from one year to the next may indicate trends that deserve further exploration.
- “Operating Income (Loss)” – This number indicates how the operations of the CCRC performed. A positive number means the CCRC’s revenues exceeded expenses.
- “Other Income (Expense)” – CCRCs will have other sources of income and expense that are not part of the general operations. These other sources are listed in “Other Income (Expenses)”. Typical sources include: interest and dividends from investments, realized gain/loss on investments sold, and fundraising (unrestricted contributions).
- “Revenues and Gains in Excess of (Less Than) Expenses” – This number results from adding the “Operating Income (Loss)” to the “Other Income (Expenses)”. A positive number means the CCRC generated net revenues that can be reinvested for organizational growth, while a negative number means that the CCRC must reduce accumulated net assets to cover the loss.
Summary: A CCRC is performing well when it has positive Revenues and Gains in Excess of Expenses.
But the Statement of Operations only tells the most recent story of a CCRC’s performance. For a summary of the entire financial position of the CCRC, we look at the Balance Sheet.
Balance Sheet
- “Total Assets” – This is a summary of Current Assets, Assets Whose Use is Limited, Long Term Investments, Property and Equipment (net of depreciation), and other resources. An important consideration is whether the “Total Assets” increased (positive trend) or decreased (negative trend) from the prior year.
- “Total Liabilities” – This is a summary of Current Liabilities, Long-Term Debt and other obligations. Here too, the trends from one year to the next are important. An increase in “Total Liabilities” could be of concern, while a decrease is often a favorable outcome. Another important consideration is the amount of debt, especially Long-Term Debt. Having debt in and of itself is not of concern; however, too much debt could signal a problem.
- “Net Assets” – “Net Assets” is the difference between “Total Assets” and “Total Liabilities”. It is always best that this number be positive and increasing year-to-year.
Summary: A CCRC is performing well when its “Net Assets” grow year-to-year.
There are several important financial ratios that can be calculated from the Statement of Operations and Balance Sheet data that will provide a full picture of the financial health of the CCRC. The CCRC will often provide a resource person to review its financial statements with you if you wish to better understand its financial condition before you decide to move to the community.
The Role of Entrance Fees and Monthly Fees
Prospective residents are sometimes surprised by the level of financial resources needed to qualify for residency in a CCRC. After reading this blog, we trust you better understand why the financial health of the CCRC is critical for it to meet its care obligations to residents. It is the entrance fees and monthly fees that provide most of the financial resources of the CCRC. The resources provided by residents, combined with the careful and professional stewardship provided by the administration and Board, ensure that the high-quality care you are expecting will be there when it is needed.
Conclusion
We believe the financial stability of a CCRC is an important consideration when deciding which community to join. When you conduct your financial due diligence, look for evidence that the CCRC is strong financially and can provide the services you’ve been promised when you need them. Doing so will give you the peace of mind you are looking for and that you deserve.