By Jack Cumming

Visitors to the National Continuing Care Residents Association (NaCCRA) booth at the LeadingAge Annual Conference received a follow-up email headlining a paper provocatively titled, “CCRCs from 2010 To 2019 ― A Missed Opportunity.” Recently, NaCCRA has followed the advocacy lead of LeadingAge and its provider agenda. So I was curious about what the “missed opportunity” might be.

It was a bit tricky to get to a copy of the paper (NaCCRA has it behind a paywall), but with a little effort, I was able to access it. After reviewing the history of CCRCs over the past decade, the paper advocates stronger financial, accounting, and fair-contract standards. This is a departure from LeadingAge’s advocacy, which led me to contact friends to try to learn the backstory. Here’s what I found.

Resident Perceptions

NaCCRA’s Board is comprised solely of CCRC residents from communities in several states. At a meeting not long ago, the Board learned that one of its members was in the process of leaving his community and forfeiting much of his entrance fee because he (and his wife) were unhappy about finances and management’s responsiveness to resident interests and needs. The Board Chair then asked each of the members to answer the question: “Would you suggest that any of your children or good friends move into a CCRC today?”

Reportedly, the discussion was lively, and the answers are recorded in the paper. One Board member volunteered to write the first draft. Every Board member contributed to the paper. The paper is a carefully researched, thoughtful, consensus document reflecting the thinking among the CCRC residents comprising the Board. I am not a Board member and did not participate in the discussions or in the writing of the paper.

Entry Fees Are Unsecured Equity Investments

The first, and perhaps most important conclusion, of the paper is “Residents, as unsecured investors, have no say and are given little, if any, consideration in the issuance of accounting standards and practices. Residents are expected to put up the equity to secure the bonds and pay the principal and return on the bonds. Residents are, otherwise, expected to have no say on the use or accounting of their entry fees.”

That means that, if prospective residents want the promised protections and benefits, they must agree to invest large sums with no expectation from that investment. It is an “at-risk” equity investment just like any speculative equity investment in a corporation. Except that where most corporations are answerable to their equity investors, not-for-profit entry fee CCRCs are not. Question: Should entry fee contracts be regulated by the Securities and Exchange Commission?

NaCCRA Conclusions

The key other takeaways are best summarized as follows by the authors themselves:

“With concern, NaCCRA Board Members took note of the not-for-profit, entry-fee CCRC industry loss of market share. Board Members reflected on what we, as residents, see as the reasons for the loss of market share with the hope that the not-for-profit CCRCs will take note and change their ways. The modest growth by not-for-profit, entry-fee CCRCs is related to:

  1. “Failure to provide financial security for the substantial entry fees paid by elderly residents.
  2. “A failure of the passive approach to regulation of CCRCs recommended by the U.S Senate Special Committee on Aging and as implemented by states.
  3. “Issuance of Residency and Care Agreements and financial statements that are beyond comprehension by many, if not most, well-educated residents.
  4. “Trend of CCRCs moving away from Life Care (Type A contracts) and onsite skilled nursing.
  5. “Failure to recognize the interests of residents who have made CCRCs their homes and who provide the CCRCs with equity funding.

“NaCCRA recommends not-for-profit CCRC managements accept effective regulation to protect residents. And plain-English financial and contractual documents intended to inform residents. Contracts that convey equity ownership in return for entry fees and that convey control of the CCRC to residents, and embrace no-entry-fee senior living facilities because they are here to stay.”

Likely Response

That’s an ambitious program that the industry through its trade associations, notably LeadingAge, is likely to ignore or resist. The idea of cooperative or condominium ownership with management by fee-paid professional operating enterprises, e.g. Life Care Services, An LCS® Company, is one that is more likely to appeal to for-profit providers than to the not-for-profit, tax-exempt enterprises that originated the CCRC industry and that have preponderated up to now.

The big question is whether it is a model that consumers will want and embrace. The test will come if one or more future-oriented organizations take the initiative to test these principles in the marketplace. NaCCRA also suggests a regulatory approach. State-level regulation has worked well for the insurance industry with interstate uniformity achieved through the National Association of Insurance Commissioners. Central to that regulatory approach is statutory accounting which imposes independent government accounting standards to balance the consumer interest in contract fulfillment with industry affirmation of growth needs.

The CCRC industry has resisted financial and contract regulation. So it’s not surprising that both finances and contracts now favor corporate interests over consumer interests. For instance, binding arbitration clauses are typically mandated by providers in the contracts of adhesion that new residents are required to accept. CCRC accounting, too, puts short term managerial interests before the long-term contract fulfillment interests of the residents. No one likes to be required to conform to statutory or regulatory dictates. So it’s unlikely that the regulatory path will give consumers a trustworthy entry-fee-funded CCRC industry.

Looking Forward

From a marketing and consumer perspective, that resistance to effective regulation and principled accounting seems unfortunate. It is likely that CCRC market share will continue to drop as long as many long-term, respected residents share the kind of experience that the NaCCRA Board has now documented. The most likely path forward is that enterprising organizations will begin to cater more directly to the consumers they now serve and to the demographically growing number of prospective consumers they may be able to attract. That forward path is likely to include changes like those NaCCRA enumerates. It may also begin to relax the age-restrictions that have made senior living communities increasingly no more than luxury care homes for the frail, failing, and dying.