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62–691 PDF 2010

S. HRG. 111–769 

CONTINUING CARE RETIREMENT COMMUNITIES 

(CCRCs): SECURE RETIREMENT OR RISKY 

INVESTMENT? 

HEARING 

BEFORE THE

SPECIAL COMMITTEE ON AGING 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

WASHINGTON, DC 

JULY 21, 2010 

Serial No. 111–21 

Printed for the use of the Special Committee on Aging 

( 

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html 

SPECIAL COMMITTEE ON AGING 

HERB KOHL, Wisconsin, Chairman 

RON WYDEN, Oregon 

BLANCHE L. LINCOLN, Arkansas 

EVAN BAYH, Indiana 

BILL NELSON, Florida 

ROBERT P. CASEY, Jr., Pennsylvania 

CLAIRE McCASKILL, Missouri 

SHELDON WHITEHOUSE, Rhode Island 

MARK UDALL, Colorado 

KIRSTEN GILLIBRAND, New York 

MICHAEL BENNET, Colorado 

ARLEN SPECTER, Pennsylvania 

AL FRANKEN, Minnesota 

BOB CORKER, Tennessee 

RICHARD SHELBY, Alabama 

SUSAN COLLINS, Maine 

GEORGE LeMIEUX, FLORIDA 

ORRIN HATCH, Utah 

SAM BROWNBACK, Kansas 

LINDSEY GRAHAM, South Carolina 

SAXBY CHAMBLISS, Georgia 

DEBRA WHITMAN, Majority Staff Director 

MICHAEL BASSETT, Ranking Member Staff Director 

(II) 

C O N T E N T S 

Page 

Opening Statement of Senator Herb Kohl ............................................................. 1 

Opening Statement of Senator Bob Corker ........................................................... 3 

Opening Statement of Senator Al Franken ........................................................... 54 

PANEL OF WITNESSES

Statement of Alicia Cackley, Director, Financial Markets and Community 

Investment, U.S. Government Accountability Office, Washington, DC ........... 4 

Statement of Kevin McCarty, Insurance Commissioner, Florida Office of Insurance Regulation, Tallahassee, FL .................................................................. 14 

Statement of Charles Prine, Resident of Concordia of the South Hills CCRC, 

Mount Lebanon, PA ............................................................................................. 29 

Statement of Katherine Pearson, Professor, Dickinson School of Law, Pennsylvania State University and Director, Elder Law and Consumer Protection 

Clinic, University Park, PA ................................................................................. 34 

Statement of David Erickson, Vice President of Legal Affairs, Covenant Retirement Communities on Behalf of the American Association of Homes 

and Services for the Aging, Skokie, IL ............................................................... 48 

APPENDIX 

Alicia Cackley’s Responses to Senator Kohl’s Questions ...................................... 67 

Summary of Committee Investigation Report by the Aging Committee Majority Staff ................................................................................................................. 69 

Testimony Submitted for the Record by B’nai B’rith Housing, Inc. .................... 82 

Testimony Submitted by Susanne Matthiesen, M.B.A., Managing Director, 

Aging Services and Continuing Care Accreditation Commission CARF 

International ......................................................................................................... 85 

(III) 

(1) 

CONTINUING CARE RETIREMENT 

COMMUNITIES (CCRCs): SECURE 

RETIREMENT OR RISKY INVESTMENT? 

WEDNESDAY, JULY 21, 2010 

U.S. SENATE, 

SPECIAL COMMITTEE ON AGING, 

Washington, D.C. 

The committee met, pursuant to notice, at 1:32 p.m. in room SD– 

106, Dirksen Senate Office Building, Hon. Herb Kohl (chairman of 

the committee) presiding. 

Present: Senators Kohl [presiding], Franken, and Corker. 

OPENING STATEMENT OF SENATOR HERB KOHL, CHAIRMAN 

The CHAIRMAN. Good afternoon. We thank you all for being here. 

Today, we are going to take a look at continuing care retirement 

communities, or CCRCs. CCRCs offer three types of senior housing 

in one location, so that older residents can move from one to the 

other as their need for care increases throughout retirement. 

These communities allow seniors to stay among friends and near 

their spouse during the aging process, and for that reason, they 

have grown in popularity over recent decades. 

The number of older adults living in CCRCs has more than doubled between 1997 and 2007 and now totals 745,000 seniors living 

in over 1,800 CCRCs. With the boomer generation retiring, we can 

only expect this number to grow. 

Over the past year, our committee has taken a look at the financial stability of the typical CCRC business model. In most cases, 

new residents must pay a large deposit in order to join a community. These deposits often represent their life savings or their children’s inheritance. In return, residents can generally expect to 

move within the community as their long-term care needs grow 

and, in some cases, to receive their deposit back if they decide to 

move away. 

Through our investigation, we found that CCRCs are particularly 

vulnerable during economic downturns. Slow real estate markets 

can drive down occupancy levels in independent living units, which 

are the main source of profit for these retirement communities. Occupancy levels for five prominent CCRC companies we questioned 

have, indeed, dropped in the past 3 years, leading to financial difficulties for some. The result is often an increase in the monthly 

fees, a reduction in the services and amenities provided, or both. 

Disturbingly, we have seen instances where seniors had to file 

lawsuits to keep their CCRC services from being cut back or reVerDate Nov 24 2008 14:59 Dec 21, 2010 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 H:\DOCS\62691.TXT SAG PsN: JOYCE
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duced. Residents may feel forced to put up with these situations because most of their assets are tied up within the CCRC. This is especially true in a stagnant economy, when financial distress can 

cause long delays in receiving refundable entrance fees, or, as one 

of our witnesses experienced, the loss of one’s refundable deposit 

altogether. 

One CCRC company refunded several sizable deposits only after 

getting a letter of inquiry from this committee. While this represents an extreme scenario, the fact is that many CCRCs who advertise their entrance fees as ‘‘100 percent refundable’’ will only 

repay them if and when they can line up a new tenant. 

In some States, such as California, CCRCs are granted up to 10 

years to repay full or partial refunds. Such a delay can be devastating to an older couple who has their life savings tied up in a 

CCRC deposit. 

To supplement our investigation, we asked GAO to survey CCRC 

regulatory oversight nationwide. As you will hear, they found considerable variation in State regulations, with 12 States having no 

CCRC-specific regulations at all. Consumer safeguards and protections regarding disclosure, asset reserves, and escrow requirements 

vary widely, and only 17 States require CCRCs to submit studies 

that assess their long-term viability. 

In terms of the industry’s internal policing, GAO found that only 

16 percent of CCRCs are voluntarily accredited by the Continuing 

Care Accreditation Commission. That is an astonishingly low number. The fact is that while CCRCs are a good residential option for 

many retirees, entering into an agreement with one can pose financial risk. 

Our investigation has found many CCRC ownership structures to 

be very complex and that financial troubles at any level can have 

real consequences for individual residents. Evaluating such a 

transaction can be quite challenging for the average consumer 

without professional assistance. 

Today, our committee is releasing a summary of findings from 

our investigation, which outlines the financial health of the five 

companies that we questioned, as well as their disclosure policies 

regarding entrance fees and transitions of care. We also included 

several helpful resources for consumers and CCRC providers. 

Finally, we are calling on State regulators to beef up their oversight. Every State should be requiring proof of their long-term viability from CCRCs and ensuring transparency and strong consumer 

protections for residents. As part of our report, the committee has 

developed our own checklist for State regulators who wish to expand or improve their oversight of CCRCs, and we urge them to 

put it to use. 

Moving forward, we hope to increase both consumer protections 

and consumer awareness with regard to CCRCs. If these companies 

are going to take the life savings of seniors, they need to be able 

to guarantee that they will be around to provide the lifetime of care 

that they promise. 

We would like to thank our witnesses today for speaking with us 

on this important issue. I am very pleased that Senator Corker was 

able to take just a few minutes away from his other responsibilities 

to stop here and make some brief comments. 

3 

OPENING STATEMENT OF SENATOR BOB CORKER 

Senator CORKER. I will be very brief. Mr. Chairman, I thank you 

for your efforts leading this committee and certainly for asking for 

this study. 

I know we have some great witnesses today, certainly one telling 

a personal story that always affects us and certainly brings home 

some of the challenges that exist. So I thank you for that. 

We have Chairman Bernanke in just a few minutes in the Banking Committee. With the economic situations being what they are, 

I am going to step out, and I will not hear the testimony. But I 

want to thank you for coming and say that, my dad actually lives 

in a facility that uses this model with Alzheimer’s, and I appreciate 

you bringing up these issues. 

I know there is a study that has been done. I would say to our 

witnesses that sometimes we need to be careful what we ask for, 

OK? State regulation, it appears to me in some cases, certainly 

needs to be enhanced. We regulate insurance companies at the 

State level and have had some pretty good success there. Sometimes us at this level getting involved, again, be careful what you 

ask for. 

So, hopefully, States themselves will pick up the pace. I don’t 

know what the outcome ultimately will be, but I certainly appreciate my staff will certainly be here during this hearing. I thank 

you again for being here. 

Again, Mr. Chairman, your vigilance in continuing to look at 

issues where individuals, in many cases unbeknownst to them, end 

up in situations that certainly damage them. 

We thank you all for being here. 

The CHAIRMAN. Thanks a lot, Senator Corker. 

Now I will introduce our panel. Our first witness today will be 

Alicia Cackley. She is the Director of the Financial Markets and 

Community Investment team at the U.S. Government Accountability Office, GAO. There she manages research and program evaluation on issues such as consumer protection, financial literacy, the 

Recovery Act, as well as homelessness. 

Next, we will be hearing from Kevin McCarty. He is the Commissioner of the Florida Office of Insurance Regulation, where he oversees Florida’s insurance market and is responsible for company solvency and market investigations. As Commissioner, Mr. McCarty 

has focused his efforts on senior protection. He is also the Vice 

President of the National Association of Insurance Commissioners. 

Next, we will be hearing from Charles Prine. Mr. Prine is a resident of a CCRC himself in Mount Lebanon, PA. That CCRC declared bankruptcy in 2009. During the bankruptcy, Mr. Prine 

served as the chairman of the unsecured creditors association, and 

he is now a resident’s advocate on the board of the new CCRC 

owner. 

Then we will be hearing from Katherine Pearson. She is a Professor of Law at Pennsylvania State University’s Dickinson School 

of Law, where she teaches law and aging policy. Ms. Pearson directs the Penn State’s Elder Law and Consumer Protection Clinic, 

and she is coauthor of a forthcoming book on protection of older 

adults against financial exploitation. 

4 

Finally, we will be hearing from David Erickson. He is the Vice 

President of Legal Affairs for Covenant Retirement Communities in 

Chicago. He will be speaking on behalf of the American Association 

of Homes and Services for the Aging, where he helped developed 

the resource for providers to improve their disclosure and transparency practices. 

We thank you all for being here today, and now, Ms. Cackley, we 

will start with you. 

ALICIA CACKLEY, DIRECTOR, FINANCIAL MARKETS AND COMMUNITY INVESTMENT, U.S. GOVERNMENT ACCOUNTABILITY 

OFFICE, WASHINGTON, DC 

Ms. CACKLEY. Good afternoon. 

Mr. Chairman, I am pleased to be here today to discuss continuing care retirement communities, or CCRCs. As a growing population of older Americans seeks options for ensuring that their assets and income in retirement will cover the cost of their housing 

and healthcare needs, some may choose to enter a CCRC, which 

aims to provide lifelong housing, household assistance, and nursing 

care in exchange for a sometimes sizable entrance fee and ongoing 

monthly fees. 

However, CCRCs are not without risk. My testimony today is 

based on our June 2010 report, which is being publicly released 

today and addresses four issues—first, how CCRCs operate and 

what financial risks are associated with their operation and establishment; second, how State laws address these risks and what is 

known about how adequately they protect CCRCs’ financial condition; third, risks that CCRC residents face; and fourth, how State 

laws address these risks and what is known about their adequacy. 

In summary, we found that CCRCs can benefit older Americans 

by allowing them to move among and through independent living, 

assisted living, and skilled nursing care in one community. They 

offer a range of contract types and fees that are designed to provide 

long-term care and transfer different degrees of the risk of future 

cost increases from the resident to the CCRC. 

However, developing CCRCs can be a lengthy, complex process, 

and CCRCs, like other businesses, face a number of risks, both during their development and after they become operational. While 

few CCRCs have failed, challenging economic and real estate market conditions have negatively affected some CCRCs’ occupancy 

and financial condition. 

With respect to financial oversight of CCRCs, according to a 

broad industry study, 12 States and the District of Columbia do not 

have CCRC-specific regulations, meaning an entity in one State 

may be subject to such regulations while a similar entity in another State may not. The eight States we reviewed in detail varied 

in the extent to which they ensured CCRCs addressed financial 

and operational risks, and some focused more on long-term viability than others. 

According to industry participants, actuarial studies can help 

CCRCs plan for contractual obligations and set appropriate housing and care prices. Without them, they noted, a CCRC may appear 

financially stable in the short term, yet still face threats to longterm viability. 

5 

We found that only three of the eight States we reviewed required an actuarial study at regular intervals, and one State, Florida, analyzes CCRC financial trends. This lack of a long-term focus 

in some States creates a potential mismatch with residents’ concerns over their CCRC’s long-term viability. 

While CCRCs offer long-term residence and care in the same 

community, residents can still face considerable risk. For example, 

CCRC financial difficulties can lead to unexpected increases in residents’ monthly fees. 

While CCRC bankruptcies or closures have been relatively rare 

and residents have generally not been forced to leave in such cases, 

should a CCRC failure occur, it could cause residents to lose all or 

part of their entrance fee, which may amount to hundreds of thousands of dollars. For example, residents of one CCRC in Pennsylvania, who we will hear from later, lost the refundable portion of 

their entrance fees in 2009 when the facility became insolvent and 

was sold to a new operator. 

Residents can also become dissatisfied if CCRC policies or operations fall short of expectations or there is a change in arrangements they thought were contractually guaranteed, such as charging residents for services that were previously free. In addition, 

residents also face the risk of being transferred involuntarily from 

one level of care to another or of not being able to obtain assisted 

living or nursing care onsite. 

Most of the States we reviewed take steps to protect the interests 

of CCRC residents, such as requiring the escrow of entrance fees 

and mandating certain disclosures. However, not all States review 

the content of contracts, and the States we reviewed varied considerably in the type of financial and other disclosures they required. 

While some CCRCs voluntarily exceed disclosures and protections required by their State’s regulations, such variation and regulation means that consumers in some States may not receive the 

same protections as those in others. 

In closing, we found that CCRCs can benefit older Americans by 

helping ensure access to housing and healthcare in a single community as they age. However, choosing to enter a CCRC is not 

without significant financial and other risks. 

Further, the stress that recent economic events may have placed 

on CCRC finances underscores the importance of regulators being 

vigilant in their efforts to monitor CCRCs’ long-term viability and 

protect consumers. Such efforts will only become more important as 

the number of older Americans grows. 

Mr. Chairman, this concludes my prepared statement. I would be 

happy to answer questions. 

[The prepared statement of Ms. Cackley follows:] 

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The CHAIRMAN. Thank you very much, Ms. Cackley. 

Mr. McCarty. 

KEVIN MCCARTY, INSURANCE COMMISSIONER, FLORIDA 

OFFICE OF INSURANCE REGULATION, TALLAHASSEE, FL 

Mr. MCCARTY. Thank you, and good afternoon, Mr. Chairman. 

My name is Kevin McCarty. I am the Insurance Commissioner 

of the State of Florida, a State with a substantial population of 

older Americans. 

The decision to join a continuing care facility represents a substantial investment on the part of their own personal assets of our 

seniors, and Florida takes its responsibility to protect their seniors 

very seriously. In fact, Florida statutes provide for our residents of 

our senior facilities a bill of rights intended to ensure that residents are continually treated with dignity and respect. 

Florida’s regulatory framework emphasizes four fundamental 

areas. Firstly, verifying that CCRC owners and management are 

competent, trustworthy, and responsible. Second, we ensure that 

the relevant information that is important in decisionmaking is disclosed to the residents of the communities. Third, we are ensuring 

that the project is in full compliance with Florida’s stringent licensing requirements. Last, but certainly most importantly, providing 

a thorough financial oversight to ensure that the continuing care 

facilities are there for the long term and that they continue to provide a home for Florida’s seniors. 

To determine professional competency and trustworthiness the 

Office of Insurance Regulation requires each officer, director, 

owner, or manager to submit a biographical affidavit, a legible fingerprint card, and an independent investigation background report. 

This biographical information applies to any new officer and director and management of an existing CCRC, as well as a new facility. 

These rigorous requirements ensure that the people of Florida are 

guaranteed not to have people of questionable moral character in 

a position to harm our seniors. 

It is very important that prospective and existing residents have 

sufficient and relevant information on a facility available to them. 

Florida statutes require numerous disclosures, including, but not 

limited to a summary of the facility’s ownership interests, their 

plans for expansion of their operations, rules and regulations governing the facility and, of course, a copy of the bill of rights, and 

a summary of the most recent examination conducted by our office. 

Since the viability of a CCRC is primarily governed by the number of people in occupancy, it is imperative that the facility demonstrates sufficient demand for a facility prior to placing a consumer’s funds at risk. Florida accomplishes this objective by requiring a prospective provider to submit an independent feasibility 

study with its application for licensure. 

With respect to financial oversight, each facility is required to 

file an annual financial report, audited financial statements, and 

provide a liquid reserve calculation which ensures financial resources to pay in the future. Each facility has an assigned analyst 

within our office who reviews all financial submissions in great detail. 

15 

Our office may require a facility that has experienced a declining 

financial trend to submit to more frequent reports, actuarial studies, submit a corrective action plan to address any of their financial 

problems. All CCRCs are subject to periodic onsite examination by 

the Office of Insurance Regulation, and the office may also examine 

a CCRC at any time at the office’s discretion. 

A facility that has more significant problems may be subject to 

our onsite management and, ultimately, may be subject to suspension of their certificate of authority. 

One of the new developments we are seeing in Florida is a trend 

toward CCRCs at home, also called CCRCs without walls. This new 

concept usually has a limited number of independent living facilities. Most of these CCRCs at home residents would live at home 

but eventually move to the facility when they had additional assisted living or nursing care services required. 

This has been a provider reaction to the steep drop in the housing market when people are reluctant or unable to sell their homes 

for market value or what they think their properties are worth. We 

have one proposed facility which currently received the provisional 

certificate of authority to pursue funding a project of this type. 

It is important to note that the office staff is in constant contact 

with a variety of stakeholders through the Florida Continuing Care 

Advisory Council. This council consists of three resident members, 

three executive directors of facilities, and four professionals familiar with the industry. Each year, our office hosts a meeting with 

the council to address industry needs, trends and conditions, and 

the regulatory environment for our seniors. 

In conclusion, it has been almost 20 years since we had a failure 

in Florida, which is perhaps the greatest testament to our regulatory success. OIR continues to monitor ongoing trends in the 

CCRC industry as these entities adapt to changing economic circumstances. 

Mr. Chairman, that concludes my prepared remarks, and I 

will be happy to answer any questions. 

[The prepared statement of Mr. McCarty follows:] 

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The CHAIRMAN. Thanks very much, Mr. McCarty. 

Mr. Prine. 

CHARLES PRINE, RESIDENT OF CONCORDIA OF THE SOUTH 

HILLS CCRC, MOUNT LEBANON, PA 

Mr. PRINE. My name is Chuck Prine. I want to thank the committee for providing this opportunity to explain what happened at 

the Covenant, where the residents lost a total of more than $26 

million in refundable deposits. 

Like most of the residents, my wife and I selected this community primarily because of the reputation of its sponsor, B’nai B’rith, 

which promoted itself as a leading operator of senior living facilities throughout the United States. It later became apparent that 

B’nai B’rith’s actual experience was primarily in Government-financed low-income rental facilities and that it had no experience 

whatsoever in building and operating life-care facilities. 

Furthermore, B’nai B’rith did not invest a penny of its own 

money in this venture, but rather set up a nonprofit corporation, 

which financed the construction and operation through a bond 

issue and bank loans. B’nai B’rith’s stated plan was to draw out of 

the financing and operation a development fee of $1 million and a 

licensing fee equal to 50 percent of the quarterly net income. 

Almost from the very start, it became apparent that the Covenant was in trouble. Its occupancy rate did not meet expectations. 

The cost of the building exceeded estimates by several million dollars. Constant repairs were required. Real estate taxes had been 

grossly underestimated. 

All of the board of the dummy corporation set to run this facility 

were either B’nai B’rith International directors or employees. However, many of them never set a foot in the building. They refused 

repeated requests for a meeting with the Residents Council. 

They allowed the escrow fund of resident deposits to be used to 

make up for lack of other income to pay the various bills. They became delinquent in real estate taxes and finally defaulted on their 

debt service. Eventually, the bond holders demanded that B’nai 

B’rith take some drastic action to solve the problem, but B’nai 

B’rith refused to put any of their funds into the situation. 

Under a State act passed some 25 years ago, the Pennsylvania 

Insurance Department had the right to step in and appoint a trustee to take over the facility, but it refused to take this step. In 2009, 

the bond holders commenced a mortgage foreclosure action in State 

court. That action could have resulted in us being put out on the 

street. 

Eventually, we landed in Federal bankruptcy court, where the 

bond holders and bank lenders refused to consider any kind of resolution in which the residents would receive a single penny. The 

Residents Council and the Unsecured Creditors Committee did play 

a role, however, in the selection of a new buyer. We were able to 

facilitate a sale in which the new owner agreed to honor our existing residency agreements with our life-care provisions, but with the 

total loss of our deposits. 

Based on our experience, I would like to make four recommendations for consideration in any legislation which might be put 

30 

together to protect senior citizens from losing their life savings in 

questionably financed life-care projects. 

One, senior housing facilities, which are financed in part by the 

use of interest obtained from the investment of refundable deposits 

from residents, should be required to place these funds in a true 

escrow account held by a trustee with the proviso that the principal 

could not be utilized for operating expenses or other purposes. 

Two, every project should include a minimum of 30 percent of its 

financing coming from a cash investment of the sponsor/owner organization. The primary purpose should be to provide guaranteed 

lifetime care for residents rather than a financial program to provide a high return for speculative investors and lenders. 

Three, the boards of directors of life-care facilities should include 

at least 33 percent residents. In effect, the residents should be 

players, not just pawns in the game. 

Four, there should be in each State a single responsible governing agency, as opposed to responsibilities split among various 

State agencies. In Pennsylvania, licenses must be obtained from 

the Department of Insurance, the Department of Public Health, 

and the Department of Welfare. None of these agencies now has 

total control, and they do not have, either individually or collectively, sufficient staff and budget to supervise and regulate the facilities properly. 

Not in any sense to diminish the loss our residents have suffered, 

I am happy to report that our current residents are very pleased 

with the operation under our new identification, Concordia of the 

South Hills, which is owned by the Concordia Lutheran Ministries 

of Pittsburgh. I might point out that Concordia of South Hills put 

up $15 million of their own money in cash to buy our community. 

There is no debt at all on the facility at this time. 

Not only that, they went a step further and voluntarily gave us a $1 million endowment fund to help cover the potential losses of 

somebody in the assisted living or nursing who ran out of money 

to pay their bills. 

I thank you very much for this opportunity. I would be happy to 

offer some other ideas about why Concordia has been successful 

and what could be done, but thanks for the opportunity to speak 

at this point. 

[The prepared statement of Mr. Prine follows:] 

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The CHAIRMAN. Thank you, Mr. Prine. 

Ms. Pearson. 

KATHERINE PEARSON, PROFESSOR, DICKINSON SCHOOL OF 

LAW, PENNSYLVANIA STATE UNIVERSITY AND DIRECTOR, 

ELDER LAW AND CONSUMER PROTECTION CLINIC, UNIVERSITY PARK, PA 

Ms. PEARSON. Thank you very much. 

I am glad to be here as well, and it is hard to follow Mr. Prine 

because he is so eloquent in speaking on behalf of his situation and 

other residents. 

I feel I am also here on behalf of residents. As the Director of 

an Elder Law and Consumer Protection Clinic at Penn State University’s Dickinson School of Law, I have had opportunities for several years to speak with residents of CCRCs not only in Pennsylvania, but around the country, as I have become more interested 

in this venture. 

I am a fan of CCRCs. I would like them to be there when I am 

ready for this form of living. Therefore, when I am speaking today, 

I am speaking on behalf of residents. But I am also hoping that the 

industry is going to be as healthy as it can be. 

About 6 years ago, I was approached by a group of residents at 

a CCRC—not Mr. Prine’s CCRC, actually another one. They were 

concerned about an expansion plan at their particular facility. They 

felt that it was economically not feasible. 

As with many CCRC resident groups, this was a pretty sophisticated group of residents and they had crunched some numbers, and 

the numbers didn’t look very good. So, I asked them, ‘‘Have you approached the management of your facility?’’ They had, and they 

were not satisfied with the information they were getting in response. I asked whether they had approached the Department of 

Insurance, the regulating agency in their State. They said they also 

had done that, and they had received no substantive response. 

Well, that intrigued me. What was the role of State regulation? 

So, I went to that same department and started asking some questions. 

What I discovered was that in that particular State, annual reports were filed and then stacked in a dusty closet and never 

opened. I found reports that the seal had never been broken on, 

and that said to me, well, there is something about regulation that 

is not working here, and particularly in this particular circumstance. 

I ended up writing an article about it. In response to the article, 

I talked more to State regulators. One of the State regulators said, 

‘‘You know, we feel we have done a great job.’’ I think on many respects that the State had had a good track record with CCRCs. But 

the State regulator said that in our State, we have had a few financial insolvencies. We have been able to solve it without formal action. 

I said that is great news. What criteria were used to decide 

whether there was a problem? What criteria were used to solve the 

problems? How did you make it better? The problem was there was 

no collective information about that, no collective information about 

what were standard practices, what were good practices, and what 

35 

were poor practices. So that began to concern me about what do we 

mean by State regulation? 

As I have talked to CCRC residents around the country, I repeatedly hear that they want financial transparency that is more than 

just disclosures, that also involves actuarial testing, if you will. I 

think that as a result of that, what I am calling for in my testimony, and I elaborated in greater detail in my written testimony, 

I am calling for a national residents’ bill of rights on behalf of residents of CCRCs. 

I think it is time to give some real meat to their ability to get 

useful, transparent information. I think the industry as a whole 

would be helped by that. The industry is served by transparency, 

and I think the industry with greater transparency can achieve 

greater health. So, I don’t think the industry should be frightened 

by the idea of a residents’ bill of rights. 

So that is what I am asking for, and I am happy to respond to 

questions about that particular item. 

Thank you very much, Senator Kohl, Senator Franken. 

[The prepared statement of Ms. Pearson follows:] 

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The CHAIRMAN. Thank you very much, Ms. Pearson. 

Mr. Erickson. 

DAVID ERICKSON, VICE PRESIDENT OF LEGAL AFFAIRS, COVENANT RETIREMENT COMMUNITIES ON BEHALF OF THE 

AMERICAN ASSOCIATION OF HOMES AND SERVICES FOR 

THE AGING, SKOKIE, IL 

Mr. ERICKSON. Thank you, Chairman Kohl and members of the 

committee. 

I am here testifying on behalf of American Association of Homes 

and Services for the Aging and Covenant Retirement Communities. 

Covenant Retirement Communities has 12 CCRCs in 8 States serving over 5,000 residents. Our primary contract has an entry fee 

and provides for modified life care. 

Most of our residents choose a 2 percent per month declining refund option. We also offer 90 percent refunds, but less than 10 percent of our residents choose this option. We also offer full life-care 

contracts in two communities. 

Let me begin by saying that Covenant Retirement Communities 

is not connected in any way to Covenant at South Hills. We happen 

to share the word ‘‘covenant’’ in our name, but beyond that, there 

is absolutely no connection. 

We are, of course, very aware of the significant loss that the residents of Covenant at South Hills suffered from failure of that community. That bankruptcy, indeed any bankruptcy in our industry, 

is something we take very seriously. 

CCRCs exist for one reason—to serve the needs of our residents. 

Anytime we fail to do that, it is a failure we collectively bear. We 

deeply regret that it happened. 

There are nearly 1,900 CCRCs across the country. The vast majority remain financially strong and viable. We recognize that a 

small number of CCRCs are vulnerable, especially those that 

opened during the recession or are single-site campuses, and those 

are being carefully monitored by our lenders. 

Notwithstanding the situation at Covenant at South Hills, there 

are relatively few CCRCs which have faced payment defaults or 

filed bankruptcy. Even in those rare cases, the CCRCs have done 

so without adverse impact to the financial security of their residents. The Covenant at South Hills was clearly an exception. Fortunately, the residents did retain their right to remain at the 

CCRC under new ownership and did not have to move. 

Without question, the weak economy has impacted CCRC occupancies, particularly CCRCs located in regions of the country hardest hit by declining housing values. That said, occupancy rates of 

CCRCs overall continue to exceed those of free-standing assisted 

living communities, nursing homes, and even free-standing independent living retirement communities. 

The ability of CCRCs to actually weather the economic storm as 

well as they have speaks volumes for the strong preference seniors 

have for a continuum of care lifestyle. Not coincidentally, the typical CCRC reports that resident referrals are the strongest source 

of leads. 

I would like to briefly comment on two reports recently produced 

by a CCRC task force which I had the honor of chairing. It was 

49 

formed earlier this year and was comprised of leading experts in 

the CCRC operations, tax-exempt bond financing, and legal and 

regulatory requirements. 

The first report is ‘‘Continuing Care Retirement Communities: 

Suggested Best Practices for CCRC Disclosure and Transparency.’’ 

The second report is entitled ‘‘Today’s Continuing Care Retirement 

Community: The Strengths of This Popular Senior Living Model, 

Its Stress Points and Challenges, and Outlook for Tomorrow.’’ Both 

of these reports have been supplied to the committee. 

CCRCs are an important option in living arrangements for seniors. Over the decades, CCRCs have successfully offered a continuum of care highly desired by seniors. The vast majority are financially stable and provide a style of living which emphasizes 

healthy aging, have numerous options of living and financial arrangements to meet a variety of consumer preferences, and promote an active and engaged lifestyle. 

Unlike the housing market or equities market, where large numbers of seniors have had their portfolios affected, the vast majority 

of CCRCs have provided security and care for seniors who will 

know where they will live and receive care usually for the rest of 

their lives. CCRC residents have moved into communities where 

they have chosen a lifestyle that provides comfort for their families, 

who will not have to worry about what will happen to Mom and 

Dad as they age. As the ‘‘CCRC Story’’ reports, a common sentiment among CCRCs residents is that they wished they would have 

moved to the CCRC sooner. 

CCRC providers recognize the importance and the need for effective State regulatory oversight of CCRCs. But we also believe the 

regulatory framework has to maintain a balance to provide adequate consumer protection without unreasonably restricting growth 

and development of CCRCs. 

There is certainly a place for reasonable requirements, including 

disclosure requirements, capital reserves, and protections of refundable entry fees. However, if these requirements become too 

prescriptive, expansion of existing CCRCs and development of new 

ones will be slowed or halted, and seniors will lose the opportunity 

to move into a living environment they clearly prefer. 

Excessive regulatory restrictions could also prevent CCRCs from 

offering the varieties of living arrangements that consumers seek. 

Similarly, requirements related to the operating and governance 

structure should be reasonable. For example, many CCRC sponsoring organizations, often not-for-profit religious and fraternal organizations, recognize a need in their local community for the types 

of services a CCRC provides, but lack the expertise to develop and 

operate the CCRC. 

Third-party developers and operators fill this need, but that 

doesn’t mean that the not-for-profit sponsor isn’t an active partner 

in the operations of the CCRC. In fact, if you look at most of these 

types of operational structures, you will find an active and involved 

board of trustees. 

Thank you for this opportunity to testify on behalf of CCRC providers across the country. We are proud of our longstanding history 

in serving seniors and stand by and ready to assist the efforts of 

this committee in any way we can. We will continue to work colVerDate Nov 24 2008 14:59 Dec 21, 2010 Jkt 000000 PO 00000 Frm 00053 Fmt 6633 Sfmt 6633 H:\DOCS\62691.TXT SAG PsN: JOYCE
50 

laboratively with State regulators to support strong and effective 

State regulations and oversight. 

[The prepared statement of Mr. Erickson follows:] 


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54 

The CHAIRMAN. Thank you very much, Mr. Erickson. 

We are joined today by Senator Franken from Minnesota to 

make what comments you would wish. 

STATEMENT OF SENATOR AL FRANKEN 

Senator FRANKEN. Thank you, Mr. Chairman, and thank you for 

holding today’s hearing on this important issue to seniors in Minnesota and across the country. 

I want to thank all of the witnesses for testifying today. 

One of the biggest challenges facing Minnesotans today is figuring out how to make sure that they will have the services and 

the supports that they need to maintain the quality of life as they 

get older. For many Minnesotans, this means being able to live at 

home, maintain their independence, and be with their families. 

But there are a lot of options for long-term services and supports 

out there, and it can be hard to know just which one to choose. 

This is especially the case when you don’t know what your health 

needs or your spouse’s health needs may be in the future. 

Continuing care retirement communities are an attractive option 

for some seniors because they offer the opportunity to stay in their 

communities, even as their long-term care needs change. In many 

cases, these communities can provide the security and stability 

that many seniors are looking for. 

But it is critical that seniors have access to all the information 

that they need to decide whether a continuing care retirement community is right for them, like information about the owners and 

the managers of the community and what financial risk there may 

be. It is also important that seniors have a voice and can play an 

active role in decisions about their care. 

Thank you for your testimony. I read it last night, and I am looking forward to hearing your answers to questions as to how we can 

better enable seniors to be informed consumers and active decision 

makers when it comes to their long-term care options. 

Thank you all for being here today again and for sharing your 

expertise. 

Thank you. 

The CHAIRMAN. Thank you very much, Senator Franken. 

Ms. Pearson, when you talked about a bill of rights, would you 

expand on that a little bit? 

Ms. PEARSON. Yes. I think I have spent some time thinking 

about this. In essence, what we are talking about is when often the 

people who know best what the problems might be are the residents in a particular facility. When they want more information, 

sometimes there is a bit of stonewalling that goes on. 

So I think what I am really talking about is a financial bill of 

rights, the ability to get more information when they feel it is necessary. There needs to be somebody to hear when they speak and 

when they want that information. Right now, that would be the 

State regulators. 

So if a particular percentage of residents at a facility went forward to a State regulator and said we need more information about 

this particular topic, that percentage would trigger that actuarial 

inquiry. So I think what I am really talking about is a financial 

bill of rights. 

55 

The CHAIRMAN. That would give the residents or the potential 

residents what kind of information? 

Ms. PEARSON. I think part of the challenge here is that as each 

facility adapts with time, adapts to financial circumstances with 

time, they get creative with their financing. I think that one of the 

things that happens is the residents begin to get a sense of that. 

They see, for example, the use of contract management coming 

in, cutbacks in services, things like that, and they end up wanting 

to know what are the reasons for that, where is the money going? 

You know, the financial fees that we have paid, does it really have 

to be this way? 

So I think that particularly with respect to actuarial soundness, 

when that type of inquiry comes about, the States could require a 

projected type of actuarial study and not simply what goes on in 

most States, unlike Florida. Florida does better at this. Most States 

simply require a point in time financial report, rather than an actuarial study. 

The CHAIRMAN. All right. Mr. McCarty, how many of these facilities do you have in Florida? 

Mr. MCCARTY. We have 73 licensed facilities in our State that 

cover the contracts A and B as described in the GAO report, where 

anytime you have to put up cash up front for the facility, it has 

to be regulated by the Office of Insurance Regulation. We share 

that responsibility with the Agency for Healthcare Administration, 

which does the quality control to ensure the quality of services, and 

the Department of Financial Services, which handles our complaints. That covers 30,000 residents in Florida. 

The CHAIRMAN. Is it fair to say that Florida’s CCRCs are under 

your supervision? 

Mr. MCCARTY. Yes, they are under my supervision. 

The CHAIRMAN. Do you regard that as being important? 

Mr. MCCARTY. I believe it is a critical part of my responsibility 

and my mission to protect the solvency of the CCRCs. Yes, sir. 

The CHAIRMAN. So you would recommend that CCRCs across the 

country should be regulated, based upon your experience in Florida? 

Mr. MCCARTY. Based upon my experience in Florida, we have 

had a long tradition, since 1953, of regulation of CCRCs. That has 

been certainly accelerated in the 1970’s and 1980’s. I think that we 

have a very strong bias in our State for protecting what we believe 

are very vulnerable citizens, and we think that if you are protected 

in Florida, you should be protected in every State. 

I certainly support what Ranking Member Corker has said about 

how a State-based regulatory system is a good system, and I think 

you can harmonize a State-based regulatory system with some minimum standards that may be established by the Congress. If, in 

their wisdom, they choose to establish those standards, you could 

use the Medicare supplement insurance model as one where you 

task the National Association of Insurance Commissioners, who are 

the experts in this area, to come up with national standards that 

States would have to abide by. 

That may be one way of achieving those consumer protections 

with the least intrusion on the States’ sovereignty. 

56 

The CHAIRMAN. How many of the residents of CCRCs in Florida 

or what percentage of the residents pay an upfront fee? 

Mr. MCCARTY. Well, all of the ones pay an upfront fee that are 

going into our facilities. 

The CHAIRMAN. They all do? 

Mr. MCCARTY. They all do. 

The CHAIRMAN. Some, many of them move out, have a change of 

idea, change of lifestyle? 

Mr. MCCARTY. Yes. 

The CHAIRMAN. Are there difficulties in getting the refund back? 

Mr. MCCARTY. Refunds are governed by—governed under Florida 

law. They generally receive their refunds within 120 to 200 days. 

The CHAIRMAN. So you have not experienced difficulty in getting 

their refunds back to those who decide to move away? 

Mr. MCCARTY. No. Again, we have a very broad regulatory 

framework that looks at required minimum reserves. We require 

companies to escrow that money to protect that money in the event 

the consumers choose to exit and go to another facility. 

The other thing I think is very important is, as a previous speaker has addressed is providing information and not just disclosure, 

general disclosure, but provide meaningful financial information. 

We understand that our elderly population is a vulnerable population, but they are also very intelligent. If you provide uniform 

input data points where they can readily compare one facility to 

another facility, we need to give them the tools to make those kinds 

of comparisons. 

The CHAIRMAN. Good. Well, Mr. Prine, you didn’t have that experience in Pennsylvania, did you? 

Mr. PRINE. No, we did not. The information that is provided to 

the State of Pennsylvania is reviewed, I am sure, to some degree. 

But I don’t think it is studied to the extent of really trying to take 

it all apart and see why it works or why not and project what 

would happen in the future. 

One of the problems with all of these facilities is they may look 

good theoretically on paper, but this is a kind of business where 

if you get behind in the flow of income from new people coming in, 

if a place is slow to rent up, it starts to lose ground immediately. 

The taxes don’t stop. The monthly bond payments don’t stop. 

Finally, you have to look around for other sources of funds. What 

happened in our situation is they immediately tapped, in effect, the 

residents’ deposits and started using them. Even that couldn’t 

catch up with how far behind they started to fall. 

When we tried to get the State insurance department to intervene, they did meet with us. Mr. Johnson, the insurance commissioner for Pennsylvania, did come over to the Covenant. He explained very carefully that they never had a facility in the State 

of Pennsylvania ever go through a bankruptcy and close down, and 

he was sure things would work out in the long run and just be patient. 

Well, they didn’t work out in the long run. They just kept getting 

worse and finally got so bad that the bond holders ultimately 

forced a sale. But I would like to point out one thing about the new 

people that moved in, which shows the difference in the way a 

place could be operated poorly and a place could be operated well. 

57 

The new people put up cash to buy the place. They eliminated 

completely the $4 million a year in interest payments that were a 

noose around the neck, really, of the previous facility. They put 

their own money into it. They have a policy which is far different 

from using the residents’ deposits. They put the deposits aside in 

an account. 

Interestingly enough, if the value of that account, because of 

what it is invested in, decreases, they put more money in to keep 

it up to a balance that is equal to the potential deposit pay out. 

If they had to—if everybody at once left, they would still be able 

to return the deposits. This is an extremely conservative way of operating but it is the only really safe way to prevent this possible 

kind of disaster occurring elsewhere. 

The CHAIRMAN. What happened to the fees? Did you say $26 million? What was that number? 

Mr. PRINE. Twenty-six million dollars of resident deposits were 

lost completely. We didn’t get one penny of that back. 

The CHAIRMAN. So that was a disaster. 

Mr. PRINE. That is the life savings of a lot of people. This ranged 

from somewhere about $90,000 to $300,000 per apartment. 

The CHAIRMAN. That is a disaster. 

Ms. Cackley, is that tremendously unusual? Do you have any 

way of indicating whether or not it is a problem across the country, 

or is it something that occurred as a sign to us never to see it happen again, but it doesn’t happen hardly at all? 

Ms. CACKLEY. It does not happen often, as best we have been 

able to tell. But it is certainly a disaster, and it is a risk that is 

of concern and needs to be paid attention to as we move forward. 

As more CCRCs come into existence, as our population ages and 

demand for such facilities increases, it is certainly something that 

is a concern and needs to be prevented in the future as well. 

The CHAIRMAN. I suppose you would assure us or tell us with 

some level of certainty, Mr. McCarty, that that kind of a situation 

is most unlikely in Florida because of the regulation and oversight 

that you have? 

Mr. MCCARTY. I would say that is generally true, sir. I believe 

that to be the case. I think that ensuring that you have close scrutiny of the financial statements and so that you can use your financial analyst to evaluate trends and conditions before they become 

a problem. 

One of the things that we have been successful doing in Florida 

is identifying problems early on so that we can take a number of 

corrective action plans as necessitated by the financial condition of 

the company. That most oftentimes is bringing in a new purchase 

or acquisition, and that only works if you get involved in that process early enough in the deterioration of the financial condition of 

the company. 

I can’t predict what will happen in the future, and we certainly 

have some unique challenges today with the collapse of the marketplace. Many Floridians have purchased homes that are worth far 

less today than they were a few years ago. So, that is putting a tremendous—a lot of stress on new people moving into facilities. So, 

we still need to see how that is going to pan out. 

58 

But companies have been resourceful. They have been moving to 

providing other services where they can make profits, but they also 

are moving toward fee-for-service and rental beds, which augment 

the bottom—the balance sheet for the company. 

The CHAIRMAN. Before we turn to Senator Franken, Mr. Prine, 

do you want to make a comment? 

Mr. PRINE. Yes. One thing that I think would be very interesting—and it sort of follows up on the comments of some of the 

others here—is if the statements that these facilities produce would 

really show how much of the residents’ deposit is still in the account and how much has been spent. I mean, this goes on, and 

they don’t fold up necessarily, but they could be way behind. 

If they had a run that several people moved out at once, they 

might have trouble immediately being able to pay everybody off 

and actually couldn’t pay everybody off because they have used 

some of those deposits for other purposes. 

There is only one safe way to do this, and that is to lock the deposits up. This is nothing wrong with using the interest of those 

deposits. That is the purpose of this type of financing. If you have 

$26 million, you get over $1.5 million in interest or something like 

that to operate the place. But then you shouldn’t be allowed to dip 

into the principal. 

When the principal goes way down, of course, the amount of interest that they are getting on it goes way down. So it keeps going 

further down. If you have very many people move out—and of 

course, in some places, they don’t pay until somebody else moves 

in. We had a lot of people that moved out, and 2 or 3 years later, 

they still hadn’t received a penny and never did get a penny of 

what they expected when they moved out. 

There might have been good reasons for them to move somewhere else, to go somewhere where their kids lived or some other 

reason. This wasn’t just a matter of dissatisfaction or something. 

Things happen in people’s lives that they might have to change 

where they want to live. 

But the refund money ought to be there, and it ought to be guaranteed that it is there. 

The CHAIRMAN. Yes. Senator Franken? 

Senator FRANKEN. Thank you, Chairman Kohl. 

Commissioner McCarty, have you ever had a CCRC fold in Florida? 

Mr. MCCARTY. Yes. 

Senator FRANKEN. You have? 

Mr. MCCARTY. It was 18 years ago. 

Senator FRANKEN. OK. You know, it seems to me that when seniors put up a deposit to receive services in a continuing care retirement community, they expect that it will follow through as promised to provide them with services when they need them, and I just 

think that is a reasonable expectation. 

It sounds, from Mr. Prine’s experience, that there was no disclosure to the residents of what was going on. What, Commissioner, 

can we do to strengthen disclosure requirements so that seniors 

understand the financial risks that they may be taking on? 

Mr. MCCARTY. Well, I think some of the members who have testified today touched on some of those concerns. I think it is critically 

59 

important that the contracts be reviewed so that they are clear and 

unambiguous as to the terms and conditions. The contract should 

spell out very specifically in clear, plain language how the refunds 

are calculated and how the monies will be retained. 

I think there ought to be requirements to ensure that monies are 

escrowed and in an appropriate fashion so that there are still sufficient funds to run the facility, but that there is some guarantee 

that in a return or refund that those monies are available. 

I think you need to have, again, as I stated before, a full complement that involves appropriate licensing, strict standards on 

how money is to be handled, disclosing to consumers information 

about their bill of rights and protection of them in the facility, but 

also their financial rights with regard to information about the financial standards and have appropriate resources on the State regulatory system to analyze the information that comes in. 

Obviously, if you are getting financial trends, actuarial reports, 

or financial statements that are not reviewed and analyzed in the 

context of other facilities and trends and conditions, that information is not particularly useful. That information is necessary for 

you to have early detection. So early detection leads to early intervention to prevent future insolvencies. 

Senator FRANKEN. Ms. Pearson, the culture of long-term care is 

changing. I think that is the word they use, ‘‘culture.’’ As more options become available to seniors, I think the whole point is that 

the seniors play an active role in deciding how, when, and where 

they receive their care. 

For example, there is a nursing home in Perham, MN, now 

where if a resident wants to stay up and watch a Twins game, he 

or she stays up and watches the Twins game. Then if he or she 

wants to sleep late, they sleep late. Everything isn’t dictated by the 

meal, you know, breakfast at 6:30, lunch at 11, dinner at 4. I think 

sometimes we forget how important it is for people to decide, to 

make their own decisions on how they are living. 

I was wondering about the boards, the governance of long-term 

care facilities. What do you think about Mr. Prine’s proposal to require a certain percentage of CCRCs, CCRCs’ board of directors to 

be made up of residents? 

Ms. PEARSON. I am in favor of it. One of the things that the very 

first group of residents that contacted me asked me about was 

whether or not they could be on boards. Their particular facility 

was taking the position that there was a conflict of interest for residents to be on governing boards, which is kind of ironic in a way. 

Certainly, other States have found that it is possible to have residents on boards and that it works quite well. It becomes a way of 

providing transparency of information, and it also eliminates one of 

the qualities that some residents have complained to me about— 

that notion that now that you are older, don’t worry your graying 

head about how this facility is run. We will take care of it for you. 

Well, these people are dynamic people. They don’t like that paternalistic attitude, understandably so. One of the ways to do it is 

to provide residents a voice on the governing boards, and I think 

many healthy CCRCs do that. In fact, I think perhaps, Mr. 

Erickson, your CCRCs provide a governing board. 

Senator FRANKEN. Could this be part of your bill of rights? 

60 

Ms. PEARSON. It certainly could be. 

Senator FRANKEN. OK. Mr. Prine, speaking of transparency, in 

your testimony you mentioned you felt that the Covenant community was misrepresented to you. 

Mr. PRINE. The Covenant community was misrepresented to us. 

The Concordia community that owns the place now was very 

clearly represented to us because the president of that organization 

came and talked to our residents before they acquired it and wanted to be very sure that he had our support. He promised that they 

would have—the people we would have a voice on the board and 

things like that. 

Whereas, when I indicated that there was misrepresentation that 

may have occurred with the Covenant people, a lot of that has to 

do with the way they marketed the place. They put their name out 

in front on their promotion material B’nai B’rith. Under the sign 

on the front of our building, it said ‘‘B’nai B’rith Senior Living 

Community.’’ 

Yet, when it came down to trying to deal with the B’nai B’rith 

people, they had a wall up there, and they said, no, you have got 

to deal with Covenant of South Hills, Inc. Well, the Covenant of 

South Hills, Inc., had seven directors, and all seven of them were 

employees or directors of B’nai B’rith. Yet they never met in our 

building. They never would meet with our Residents’ Council. 

We had limited communication. I had a couple of phone conversations with people, and there always was some sort of evasive 

answers of questions that I asked. I never felt I was getting to the 

bottom of anything. We just felt completely left out of it. 

One of the problems is that when an organization like this promotes itself, particularly church-related organizations, there is a 

tendency on the residents’ or the customers’ part, you might say, 

not to question. I mean, you don’t go question the clergy of your 

particular denomination or whatever it may be about things, about 

how a place is operated or for example. That is not something that 

people usually do. They think in terms, well, this is B’nai B’rith, 

and they advertised and promoted all the experience they had had 

internationally in housing and so forth. 

But in the fine print, in the disclosure statement, the big, thick 

document, it does say somewhere in there that they had never run 

an assisted living—or they had never run a continuing care community themselves before. But everything else was promoted with 

the idea that they are the most experienced housing people in the 

country, and this is just going to be a wonderful thing. 

There are many, many people—the people that are most seriously concerned about this are the people with strong religious affiliations who came in there because they thought B’nai B’rith 

would never let them down. 

Senator FRANKEN. Well, that is a Shonda, as we say. 

Mr. Erickson, in your testimony just now, you said you were kind 

of worried that regulatory requirements could impede the growth 

of the industry. But it sounds like what Mr. Prine’s example shows 

us is that there does need to be regulation. Do you agree with the 

GAO finding that actuarial studies can provide information on 

long-term viability? 

61 

My question is how could anyone say it is unreasonable to require these communities to conduct regular studies and provide 

this basic information to residents? 

Mr. ERICKSON. Yes, the providers support strong State regulations to protect residents, and we believe that, in turn, produces 

resident satisfaction and helps the industry on the whole. 

With respect to your question about actuarial studies, one of the 

things that we put in the disclosure paper, that is the group that 

I chaired, in there as an area to be disclosed to prospective residents or applicants to a CCRC is the actuarial information, if it is 

applicable. Some of the CCRCs are the extensive care type of 

CCRCs where they have the contracts that provide for minimal increases of monthly fees as they progress through from assisted living to skilled nursing care. Those types of facilities are more heavily dependent on actuarial studies. 

Other CCRCs are the type where they have a modified contract 

where there is a limited amount of healthcare benefit for residents 

that progress to the assisted living and also skilled nursing care. 

Those types of facilities do not need as extensive actuarial studies. 

So we believe—in the group that I chaired, we did discuss actuarial studies in quite detail, and we believe that they can be helpful for CCRCs to ensure—— 

Senator FRANKEN. They are helpful, but not required? 

Mr. ERICKSON. Yes. But not required because there are so many 

different models of CCRCs that to have one specific type of actuarial requirement, it might not fit the needs for the various types 

of providers that are out there. 

Senator FRANKEN. Well, in your answer to me when I asked 

about regulation here, you said State regulation. What if a State, 

like, say, oh, I don’t know, Pennsylvania, say, for example—I don’t 

know why I came up with that—didn’t provide regulation? 

Mr. ERICKSON. There are 12 States that do not regulate CCRCs, 

and within those States, the providers—there is third-party oversight of the providers through the financing agreements that they 

enter into. So, within the financing agreements, there are reserves 

that are often required by the lenders. There is reporting requirements to the lenders and also ratios that providers must meet. 

So, in the typical situation, there is a high level of lender involvement within a CCRC. In addition to that, several CCRCs have chosen to be rated by the rating agencies, and that provides another 

area of third-party oversight to the CCRCs. 

Senator FRANKEN. Those are the ones that have chosen voluntarily. 

Mr. ERICKSON. Right. Yes. 

Senator FRANKEN. Well, we know how that works out sometimes. 

Ms. Cackley, as you noted in your testimony, State regulations 

of these retirement communities may vary widely, and as Mr. 

Erickson just said, many States don’t regulate CCRCs at all. What 

are your recommendations for Federal policies that could protect 

consumers from some of the risks that were highlighted today? 

Ms. CACKLEY. GAO isn’t making any specific recommendations at 

the Federal level right now. While we found—we found the possibility of risk for CCRCs and residents, we did not see a significant 

number of insolvencies or other problems. So we don’t have a large 

62 

effect to point to. What we do point to is the concern for the future 

and the need for States to be vigilant. 

So, right now, we are suggesting that States need to be paying 

attention. We certainly point to sort of the fundamentals of regulation that include things like licensing, like disclosures, ongoing 

monitoring, and then the actuarial analysis is certainly something 

that we are suggesting is important. 

As Mr. Erickson said, there are some facilities that don’t have fee 

structures that include the healthcare needs being the responsibility of the CCRC. They are still the responsibility of the resident. 

But for those facilities where the fee structure is what we consider 

either type A or type B, those are definitely situations where an 

actuarial study will help the CCRC understand what their obligations are going to be in the future and that they definitely need to 

be planning for. 

Senator FRANKEN. But for now, you are not suggesting any Federal regulation? 

Ms. CACKLEY. No, sir. 

Senator FRANKEN. Well, thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you very much, Senator Franken. 

Mr. McCarty, in Florida, are all those upfront fees kept separate 

and kept in escrow, kept in reserve? 

Mr. MCCARTY. Parts of it. It is not all kept in reserve. Part of 

it is used after the establishment. One hundred percent of the 

money is kept in escrow as they do a demonstration on whether or 

not there is a feasibility study, and then part of that reserve is released on the issuance of a full certificate of authority. 

But the ongoing concern, the companies have to maintain a full 

year of payments on their debt, and they have to maintain 15 percent of their operating cost. So that they have money so they don’t 

dip into their reserves. 

The CHAIRMAN. If you could tweak that in any way, Mr. Prine, 

do you think that is reasonable? 

Mr. PRINE. I still would like to get back to the point that I believe and that it would be interesting if you could have an investigation by the GAO about all this. So what percentage of the deposits that totally could be due do the owners actually have on 

hand at any given time to pay? 

The CHAIRMAN. That is a good question. 

Well, you are from the GAO, Ms. Cackley. What can you tell us 

about that? 

Ms. CACKLEY. Sir, we didn’t look at all CCRCs across the country. We did detailed work in eight States. But I don’t—off the top 

of my head, I couldn’t tell you what the answer is to that question. 

I can certainly look into it, ask my staff to get me the information 

and get it back to you. 

The CHAIRMAN. OK. Mr. McCarty, do you want to make a comment on that? 

Mr. MCCARTY. I just want to go back to something that was said 

before. One of the things we want to make sure of is that we don’t 

over-saturate the market. The way for these facilities to succeed is 

to ensure that they have a high occupancy rate. 

63 

If we are going to create a regulatory framework, one of the 

things we have to ensure is that a facility is able to demonstrate 

up front before construction that they are able to sell the units before construction begins. Because a recipe for disaster is to construct more facilities than you have demand for those facilities, and 

that is what causes the problem. 

One of the conditions preceding any regulatory framework is to 

ensure that a feasibility study is done and actual contract sales are 

made to ensure—and those monies are put 100 percent in escrow 

so if we decide not to go through with it, all the monies are returned. But unless and until we control the numbers of those facilities, you can’t guarantee that they are all going to be viable. 

The CHAIRMAN. That is a good point. But it is also true, isn’t it, 

that markets do decline, even when they are operating, as they 

have now in the last several years, right? 

Mr. MCCARTY. Yes, they have in the market, and they have to 

respond to that. Particularly, the housing. That is a new wrinkle 

in this because it is making it harder for people to do. As I said 

before, some ways to deal with that is to go from a continuing care 

contract with upfront money to a fee-for-service rental bed. 

The CHAIRMAN. Now, Mr. Erickson, do you think this ‘‘accredited’’ is a big thing? There are only 16 percent of these CCRCs that 

are accredited. Do you regard that as serious or just an evolving, 

developing phenomenon? 

Mr. ERICKSON. We think it would be helpful for the providers on 

the whole that there is a higher number of accredited facilities. The 

company that I represent, all 12 of our facilities are accredited. The 

accreditation process is very rigorous, and it requires every 5 years 

for all aspects of the operations of the CCRC to be reviewed by 

peers. 

So, just last year, we had all of our facilities reaccredited. I will 

say that it is an expensive process. I estimate that it cost our organization at least $100,000 to go through that process in terms of 

the time of our staff to prepare all the reports that were required 

for the accreditation process. But I believe it gives the consumers 

and also our residents a sense of that our facilities are financially 

strong. 

The CHAIRMAN. Would you include that in your bill of rights, Ms. 

Pearson? 

Ms. PEARSON. I think I would. In fact, I think Mr. Erickson’s example reminds me of something that happens in Pennsylvania. 

Pennsylvania, by statute, has an every fifth year requirement that 

the State come in and take a look at the books of the facility. What 

that really amounts to is a checkbox exercise. Somebody is paid to 

come in and review the books. It takes time to do it. But they are 

not—they have no financial sophistication when they do it. 

So it is something that is a cost to the facility. They are charged 

for that every fourth or every fifth year review, but it produces no 

useful information, as opposed to something like what Mr. Erickson 

just described, which is also expensive but provides useful information. 

The CHAIRMAN. That is interesting. So you both believe that 

every institution across the country should belong or should be acVerDate Nov 24 2008 14:59 Dec 21, 2010 Jkt 000000 PO 00000 Frm 00067 Fmt 6633 Sfmt 6633 H:\DOCS\62691.TXT SAG PsN: JOYCE
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credited, which would mean that they have to go through a periodic 

examination. Is that right? 

Ms. PEARSON. I guess what I am saying is that there should be 

periodic examination. Whether that is part of the industry accreditation process—— 

The CHAIRMAN. Right. 

Ms. PEARSON [continuing]. Or part of a State regulatory process. 

The CHAIRMAN. Right. You would agree with that, Mr. McCarty? 

Mr. MCCARTY. Absolutely. There is no substitute for ongoing 

analysis on an ongoing basis and then onsite examinations. We 

provide onsite examinations every 3 years for unaccredited, every 

5 years for accredited. But more importantly, because we watch 

trends on a quarterly and annual basis, and any change in that, 

we exercise our discretion to go onsite at will. 

The CHAIRMAN. That is great. 

All right. Any other comments, folks? This has been very useful. 

You have brought a lot of information and experience to the table 

here, and we will follow up. 

Yes, go ahead, Mr. McCarty. 

Mr. MCCARTY. I just wanted to emphasize a point that I made 

earlier, and I think Senator Franken made the same remark as 

about the culture. An important part of this is not just creating a 

regulatory framework and creating—all of that is important. An 

important part of this is to do an outreach to the senior communities, to establish advisory councils in each of these facilities so 

that these people in these facilities have a real voice and communication not only with the facility, but to their regulator. 

One of the things—and having representation on the board is 

critical for people to feel they are being heard and having representation and not put in the sense where ‘‘don’t worry, we are going 

to take care of your needs.’’ Creating a culture of outreach where 

there is bilateral communication among and between the parties 

and also as evidenced in our consumer complaints. 

If we have problems in a facility, we send people to the facility 

to see what we can do to reconcile those problems. We have had 

22 complaints in 7 years, which I think is a remarkable testimony 

to the fact that in addition to a strong solvency regime, you have 

to have a people outreach program as well. 

The CHAIRMAN. That is good. Any other comments from any of 

the panelists? Mr. Prine? 

Mr. PRINE. I would like to second that comment about the resident involvement. We have found in our own experience a vast difference between the previous management and the current management in terms of responsiveness to our Residents’ Council. 

The current management has a representative of the senior staff 

attend our resident council meetings and hear the comments that 

people make right from their own voices at that meeting. Likewise, 

we are able to report back by having a representative of our residents on the board of the governing body. It is a two-way street, 

and it is working so far extremely well. 

It is very reassuring to the residents to see this going on and to 

feel much more comfortable because they see the senior management in the building. Our new board of directors, even though the 

parent facility is 45 minutes away, the board has its meetings in 

65 

our building, and the people see them coming in. Last time we had 

an open house, there were several board members there at the 

open house, greeting people that were coming in to look at the facility. 

This idea, the whole focus of all these facilities should be on the 

services that is being provided to the residents. That is what they 

are there for. It should not have to be so focused on the financial 

manipulations that go on to make some of these things work or not 

work. 

I mean, that has to be worked out. But when you look at this 

bond issue, for example, that we had in our facility, the facility 

cost, including the architect’s fees and so forth, $32 million to 

build. The bond issue was $62 million. What does that other $30 

million go to? 

Well, you have got all sorts of things—funded interest on the 

bond. So, in other words, they are borrowing money right from the 

start to pay themselves back, $9 million of that. Debt service reserve fund, another $5 million. Development costs, well, $5 million. 

That was for fees that went back to the people who were building 

the place, paying themselves development fees and so forth. It shouldn’t take a $62 million bond issue to build a $30 million 

building. If they did it for cash or a substantial portion of cash, the 

interest rates would have been a lot less, and there would have 

been a lot less chance of failure. 

The CHAIRMAN. Right. What did Senator Franken say, a Shonda? 

Is that what he said? Do you know what ‘‘Shonda’’ means? 

Mr. PRINE. I don’t understand. 

The CHAIRMAN. It is a shame. It is a true shame. Let us hope 

that it is an example that is publicized so well that it doesn’t happen again. Your being here to talk about it is very instructive and 

very important. We thank you. 

Mr. PRINE. Thank you. 

The CHAIRMAN. We thank you all for being here. 

Ms. CACKLEY. Thank you. 

The CHAIRMAN. Thank you so much. 

[Whereupon, at 2:48 p.m., the hearing was adjourned.] 

(67) 

A P P E N D I X 

MS. CACKLEY’S RESPONSE TO SENATOR KOHL’S QUESTION ABOUT ENTRANCE FEE

REFUND PRACTICES

Mr. Prine stated that his former B’nai B’rith CCRC used residents’ entrance fees 

to keep their CCRC financially afloat, but eventually went bankrupt and was unable 

to pay entrance fee refunds it contractually owed residents. This resulted in a $26 

million loss for residents. He suggested that CCRC providers should be required to 

hold entrance fees in escrow and only be able to use the interest from those funds. 

He also asked if it was known what percentage of the funds that residents had paid 

as refundable entrance fees were available to pay those refunds. 

To answer this question, it is important to understand 1) how CCRCs generally 

pay for entrance fee refunds and what states generally require in terms of escrowing 

funds, and 2) whether setting aside funds for refunds or completely escrowing refund amounts is practical or possible for CCRCs. 

With respect to making refunds, many CCRCs stipulate in their contracts with 

consumers that entrance fee refunds to residents’ or their heirs will be made when 

the unit in question is resold and a new entrance fee is received. As a result, the 

source of entrance fee refunds comes not from liquid assets held by CCRCs, but by 

new entrance fees paid by incoming residents. CCRCs do not need to have enough 

cash on hand to pay all potential refunds at one time, and CCRCs generally do not 

have set-asides specifically for refund purposes. 

Many states we reviewed have requirements to escrow resident deposits during 

the construction phase before residents move in, and escrow entrance fees once the 

CCRC is operational. These are aimed at ensuring the stability of a CCRC during 

construction and startup, as well as once CCRCs become operational and begin to 

provide services set out in contracts with residents. Six of the 8 states we reviewed 

required that CCRCs escrow consumer deposits or entrance fees received. These 

funds can be used by CCRCs for operational purposes, but are generally not released to the CCRC until certain benchmarks—such as a percentage of facility completion or long-term financing committed—are met. 

As additional protection, many, but not all, states we reviewed also required 

CCRCs to maintain financial reserves. According to regulators, the primary purpose 

of reserves is to ensure some time exists for a CCRC to address financial issues 

when distress occurs, but are not intended to ensure the long-term viability of 

CCRCs. Reserves can be used for debt service payments, paying operating expenses, 

or dealing with other contingencies. While some states may require specific reserves 

for facility repair and replacement, operating costs, or debt service, we did not see 

in the course of our work specific states requirements for CCRCs to set aside reserves for meeting entrance fee refunds. Table 3 of our report provides a summary 

of state actions to protect CCRC residents’ deposits and fees. 

With respect to question 2, completely escrowing entrance fees, or the refundable 

portion of entrance fees, may not be practical or financially possible for CCRCs. The 

general business model for CCRCs involves using entrance fee deposits for facility 

operations, including debt service payments, provision of residential and health care 

services, and facility repair and replacement. The feasibility of constructing and operating CCRCs would not be possible if CCRCs had to set aside and keep liquid 

enough funds to pay all refunds in full when due. 

With respect to Mr. Prine’s question, a central issue is whether a CCRC is able 

to pay the refundable portion of residents’ entrance fees. In the regular course of 

business, the answer would depend on a CCRC’s ability to sell vacated units—something that would be very difficult to measure. If one wanted to know whether a 

CCRC could refund the deposits in the event of a liquidation, as was the case with 

Mr. Prine’s CCRC, one would need to determine if a CCRC’s assets were equal to 

or greater than its liabilities. Liquidation is really only relevant after a CCRC’s financial condition has significantly deteriorated, so it is likely that at the point liVerDate Nov 24 2008 14:59 Dec 21, 2010 Jkt 000000 PO 00000 Frm 00071 Fmt 6601 Sfmt 6601 H:\DOCS\62691.TXT SAG PsN: JOYCE
68 

abilities would greatly outweigh assets. Whether the residents would actually maintain or receive their refundable deposit would generally depend on the ability find 

a buyer for the CCRC and that buyer’s willingness to assume the refund obligations. 

Again, this would be very difficult to measure. 

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