Guide>Some serious considerations>DISCLOSURE STATEMENT

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The second most important document you will receive from a CCRC will be the disclosure statement; the most important document will be the contract since it is when you sign your life away.

What is a disclosure statement?

The disclosure statement is required by law to be given to the person with whom a CCRC contract is being entered at the time of or prior to the transfer of any money or other property to a provider by, or on behalf of, a prospective resident.

The disclosure statement delineates the rules, regulations, policies, and procedures of the CCRC. It states your responsibilities as well as those of the CCRC. It lists the services and amenities provided by the CRC and those that are not provided. It also includes copies of the application form, contracts/agreements for each level of care, and any other forms need for the signing of a contract or agreement.

What to look for

Lifetime guarantees in a disclosure document are dependent on the fiscal position of the CCRC. For well-established CCRCs, this may not be a concern but, before entering any contract or agreement, you should explore the solvency of the CCRC, it's financing, its relationships with other corporations, whether there is a non-profit (sometimes faith-related) funding source, and the experiences other residents have had in dealing with the CCRC. Request one before a tour is best to request a disclosure statement before a tour so you will be prepared with questions and you will be able to more closely compare the different CCRCs that you tour.

States require not-for-profit CCRC to file the statement with them each year and some states provide online access to them. This lets you analyze CCRCs without ever having to contact them. Copies of all current disclosure statements for CCRCs in the state of NORTH CAROLINA are available for viewing online on the North Carolina Department of Insurance website at:

The financial status of CCRC

One important part of the disclosure agreement is the CCRC’s audited financial statement. This is a detailed and complex document that indicates the financial health of the CCRC. It is not only expensive for residents to live in a CCRC, it is also expensive to operate a CCRC and the CCRC must keep its occupancy rate high to keep money coming in. Additionally, to attract new residents, the CCRC must constantly update and replace its facilities. A CCRC must also have adequate reserves to maintain operation during times of low occupancy and economic downturns,

There is no federal oversight of CCRCs, other than anti-discrimination laws. Some states regulate them in various ways, mainly protecting residents’ rights, not stepping in if there are solvency issues. Some communities are accredited by the Commission on Accreditation of Rehabilitation Facilities, which evaluates, but does not guarantee, a community’s financial health.

Key areas

There are certain key areas to concentrate on when reviewing a CCRC’s financial statement. 

Two major schedules to review are the:

• Statement of Financial Position (also referred to as the Balance Sheet). 
• Statement of Operations and Changes in Net Assets (also referred to as Income Statement). 

When reviewing these schedules, pay close attention to:

• Cash margin. A positive cash margin reflects the CCRC’s ability to cover its cash operating expenses with ongoing cash revenues. 
• Net operating margin. This ratio measures the core sustainable business of an organization and focuses on cash revenues and cash expenses related to resident services. Investment earnings, interest expense, and non-cash items are excluded. 
• Cash to debt ratio. This ratio is a common measure of an organization’s capital structure. A higher ratio reflects a better ability to withstand annual fluctuations in cash. 

Also, check out the:

• Cash Flow Statement. A third schedule you should review is the Cash Flow statement. It details the “ins” and “outs” of the cash accounts. One area to pay attention to is the Purchases of Property and Equipment, which is found in the Investing Activities section of the Cash Flow statement. Make sure that the CCRC is reinvesting in its infrastructure, not only for the benefit of its current residents but also for future residents. Occupancy is what keeps a CCRC in operation and having an up-to-date campus is a factor in attracting residents and maintaining a high occupancy rate. 
• Footnotes. At the end of all the main financial schedules, you will find the footnotes section, which contains a lot of useful information. Look for phrases like “waiver of default” or “forbearance agreement,” which signal that a community is negotiating with its creditors. 

Things to look for

• Too many expenses. If expenses exceed operating income as a historical pattern, the CCRC is at risk of becoming too dependent on amortized entrance fees or income from investments to meet its operating expenses, which might result in cutbacks in services. When investment income becomes too large a percentage of operating income, it can place the CCRC in a vulnerable position, especially in volatile economic times. Check the CCRC’s philosophy of investment, risk monitoring procedures, and performance of funds in which it is invested. 
• Not enough assets. CCRCs should maintain an excess of assets over liabilities. Check to see if the CCRC is deeply indebted. 
• Reserve funds. Reserve funds are another important indicator of the CCRC's financial planning and future financial viability; they should cover at least 6 months of operating expenses. Adequate reserves can cover unforeseen expenses and act as a restraint against high annual increases in monthly fees. 
• Look for any litigation. Some CCRCs have been sued for issues concerning level of care transfers, lack of closure protections and transition compensation, barriers to accessing food services, adverse impacts on quality of environment and services due to construction, excessively high annual rate increases, etc. Check with local and state governments to find out the status of any litigation against a CCRC and consider the potential impact that may have on future entrance fees and monthly rate increases. 
• Is the CCRC is part of multi-facility CCRC corporation? Standalone CCRCs might be more financially vulnerable than multi-CCRC corporations. Check the contract carefully for closure and relocation protections. Check for any plans for future mergers with other CCRCs. The location of each of the CCRCs in a multi-CCRC corporation might also be important if one facility closes and the other facilities are in an area that will not meet your needs.
  
  If the CCRC is part of multi-facility CCRC corporation, judge the CCRC in the context of the financial strength of other CCRCs within the same corporation; a corporation is only as strong as the weakest entity. What is the policy of the corporation in using funds from one CCRC to offset losses and shortfalls in other CCRCs in the corporation? Is this a common practice? What impacts might it have on services and on the performance of financially sound CCRCs within the corporation? 
• Look at the ownership structure. Prospective residents should examine the CCRC's ownership structure since problems at a parent company can mean problems for residents. In a 2010 review of CCRCs, the U.S. Senate Aging Committee found that parent organizations are "represented by a complex organizational maze" of for-profit and nonprofit entities. 
• How are monthly fees used? Some residents of both for-profit and nonprofit CCRCs are concerned about how the organization uses residents' fees. A parent organization may control how money is used across its operations, leaving CCRC residents wondering if their fees are really going toward services at their own facility. If the CCRC has a large parent company, speak with management and residents, and check out its annual report for details on its activities and future plans. 
• Bankruptcy. There have been cases of a few CCRCs declaring bankruptcy; however, most were operated for profit and were purchased by other providers without having to shut down. In these CCRC insolvencies, the lenders and investors were the ones most likely to suffer financial loss; the individual residents were mostly unaffected by the process. If a CCRC is forced into bankruptcy, residents may be considered unsecured creditors and could lose any refundable entrance fees. Or the facility may be bought out of bankruptcy by a new owner, resulting in service changes and other problems for residents. Not-for-profit CCRCs are usually backed by religious or fraternal organizations so they rarely, if ever, fail.
  
  In 2009, Devonshire at PGA National, a premier CCRC in Palm Beach Gardens, Fla., filed for bankruptcy. Also in 2009, Erickson Retirement Community underwent bankruptcy proceedings but in 2010 recovered as Erickson Living. Then in 2011, it bought out the Devonshire and made a part of Erickson Living. In both cases, residents were not affected. However, this is not always the case. Also in 2009, 170 people who lived in Covenant at South Hills in Lebanon, Pa. had their deposits disappear when the facility was sold in bankruptcy to Concordia Lutheran Ministries, which did not take on that liability. 
• Occupancy rate. The facility's occupancy rate is another key measure of its viability. Occupancy below 85% can be a cause for concern unless it's in a newer community that's filling up. Occupancy rates at some Erickson CCRCs were between 60% and 70% at the time of the company's bankruptcy filing. 

Make sure the CCRC is financially sound

Take your time reading the disclosure statement, and do not be pressured into signing any contract or agreement until you have had ample time to read and understand the information contained therein. If after reading the disclosure statement you are confused or have questions, ask for clarification.
Important

CRCC financial information is complicated. If you want to get a clear picture of a CCRC’s financial soundness, it is best to have an accountant or an attorney who specializes in senior services to review the documents.

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