BILL ANALYSIS
AB 1044
Page 1
Date of Hearing: April 21, 2009
ASSEMBLY COMMITTEE ON AGING AND LONG-TERM CARE
Bonnie Lowenthal, Chair
AB 1044 (Jones) - As Amended: April 14, 2009
SUBJECT : Continuing care retirement communities: contracts.
SUMMARY : Transfers the oversight and regulation of continuing
care contracts from the Department of Social Services (DSS) to
the California Department of Insurance (CDI). Specifically,
this bill :
1)Makes various findings and declarations including:
a) Continuing care retirement communities (CCRCs) are an
alternative for the long-term residential, social, and
health care needs of California's elderly residents and
seek to provide a continuum of care, minimize transfer
trauma, and allow services to be provided in an
appropriately licensed setting:
b) Because elderly residents often both expend a
significant portion of their savings in order to purchase
care in a CCRC and expect to receive care at their CCRC for
the rest of their lives, tragic consequences can result if
a CCRC provider becomes insolvent or unable to provide
responsible care;
c) The Legislature defines continuing care contracts in
terms of a promise of future provision of services which
are analogous to insurance products; and
d) CCRCs have long-term obligations and may have a
corporate or capital structure similar to insurance holding
company systems.
2)Specifies that CDI shall succeed to and be vested with all the
duties, powers, purposes, functions, responsibilities, and
jurisdiction of DSS regarding the regulation of continuing
care contracts for CCRCs.
3)Requires CDI to create a Continuing Care Contracts Branch
which will succeed to and be vested with the duties, powers,
functions, responsibilities, and jurisdiction of the former
Continuing Care Contracts Branch in DSS.
4)Specifies that all regulations, orders, and guidelines adopted
by DSS, including the former Continuing Care Contracts Branch
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in DSS, and any of its predecessors in effect immediately
preceding the operative date of this bill shall remain in
effect and shall be fully enforceable unless and until
readopted, amended, or repealed, or until they expire by their
own terms.
5)Specifies that any action by or against DSS pertaining to
CCRCs shall not abate but shall continue in the name of CDI
and CDI shall be substituted for DSS and any of its
predecessors by the court wherein the action is pending.
6)Requires that all books, documents, records, and property of
DSS pertaining to the functions transferred to CDI shall also
be transferred to CDI.
7)Requires that all unexpended balances of appropriations and
other funds for use in connection with any function or the
administration of any law transferred to CDI regarding the
Continuing Care Contracts Branch to be transferred to CDI for
the original purpose for which the appropriation was made or
the funds were originally available.
8)Specifies that no contract, lease, license, or any other
agreement to which DSS is a party to regarding CCRCs shall be
void or voidable by reason of the transfer in oversight to
CDI, but shall continue in full force and effect with CDI
assuming all of the rights, obligations and duties of DSS.
9)Requires that every officer and employee of DSS who is
performing a function transferred to CDI under this bill and
who is serving in the state civil service, with the exception
of temporary employees, to be transferred to CDI and that the
status, position, and rights of the transferred officers and
employees will not be affected.
10)Makes various changes in statute to substitute references to
DSS with CDI.
EXISTING LAW
1)Includes various definitions governing the interpretation of
codes covering CCRCs.
2)Requires DSS Community Care Licensing Division (CCLD) to
regulate activities relating to continuing care contracts that
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govern care provided to residents of a CCRC for the duration
of the resident's life or a term in excess of one year.
3)Establish rights to which a resident of a CCRC is entitled, in
addition to any otherwise applicable civil or legal rights,
benefits or privileges, including the right to live in an
attractive, safe and well maintained physical environment, and
the right to organize and participate feely in the operation
of resident associations.
4)Requires a CCRC provider to submit an annual report of its
financial condition, including full details on the status of
reserves and on per capita costs of operation for each CCRC
operated.
5)Requires a CCRC to disclose all of the following, among other
requirements, in a continuing care contract:
a) If real or personal properties are transferred in lieu
of cash, a statement specifying each item's value at the
time of transfer and how the value was ascertained;
b) The amount of the entrance fee;
c) In the event two parties have jointly paid the entrance
fee or other payment which allows them to occupy the unit,
the continuing care contract shall describe how any refund
of entrance fee is allocated;
d) The amount of any processing fee;
e) The amount of any monthly care fee;
f) For continuing care contracts that require a monthly
care fee or other periodic payment, disclosure regarding:
i) Regular rate of payment, timing of payment;
ii) A provision specifying how the provider will adjust
monthly care fees for the resident's support,
maintenance, board, or lodging, when the resident
requires medical care while away from the CCRC;
iii) A provision specifying whether a credit or allowance
will be given to a resident who is absent from the CCRC;
and,
iv) A statement of billing practices, procedures, and
timelines.
g) Changes in monthly care fees;
h) A provision requiring the provider to give written
notice to the resident at least 30 days in advance of any
change in the monthly care feels or in the price or scope
of any component of care or other services;
i) A provision indicating whether the resident's rights
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under the contract include any proprietary interests in the
assets of the provider or in the CCRC or both; and,
j) If the CCRC property is encumbered by a security
interest that is senior to any claims the residents may
have to enforce continuing care contracts, a provision
shall advise the residents that any claims they may have
under the continuing care contract are subordinate to the
rights of the secured lender.
6)Requires a CCRC to attach a copy of the current audited
financial statement to each continuing care contract and
requires that financial statement to include all of the
following:
a) A disclosure that the reserve requirement has not yet
been determined or met, and that entrances fees will not be
held in escrow;
b) A disclosure that the ability to provide the services
promised in the continuing care contract will depend on
successful compliance with the approved financial plan;
c) A copy of the approved financial plan for meeting the
reserve requirements; and,
d) Any other supplemental statements necessary to
accurately represent the provider's financial ability to
fulfill its continuing care contract obligations.
FISCAL EFFECT : Unknown.
COMMENTS :
CCRCs offer a long-term continuing care contract that provides
housing, residential services, and nursing care, usually in one
location, and usually for a resident's lifetime. Most, but not
all CCRCs provide three levels of care: independent living,
assisted living, and skilled nursing. A resident may begin in
the independent living setting, but move to a higher level of
care as his or her care needs change.
The entire CCRC is licensed as a residential care facility for
the elderly by the Community Care Licensing Division (CCLD) of
DSS, which has two branches that participate in the regulation
of CCRCs. The Senior Care Program monitors CCRC providers for
compliance with licensing laws and regulations regarding
buildings and grounds, accommodations, care and supervision of
residents, and quality of service. The Continuing Care
Contracts Branch (CCCB) is responsible for reviewing and
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approving applications to operate a CCRC and monitors the
ongoing financial condition of all CCRC providers and their
ability to fulfill the long-term contractual obligations to
residents. If a skilled nursing facility is operating on the
CCRC campus, it must be licensed by the Department of Public
Health.
Once a provider is issued a Certificate of Authority by CCCB to
enter into continuing care contracts, audited financial
statements and reserve reports must be submitted to CCCB on an
annual basis. Various financial reserve requirements are
mandated by the continuing care contract statutes. The reserves
help to assure that providers will have sufficient financial
liquidity to meet their ongoing business expenses, including
anticipated repairs and upgrades and unanticipated expenses from
fire or flood damage, increased costs, or reduced revenues.
Providers must show their compliance with the reserve
requirements each year and submit reports to CCCB with their
annual audited financial statements.
California currently has 79 CCRCs serving approximately 20,000
older adults. They largely offer services to persons who have
the means to invest a significant sum in an entrance or
admission fee. Theses fees commonly range into the hundreds of
thousands of dollars. According to CCCB, there are 15 CCRCs
which serve persons in lower income levels, the growth in the
industry is in the higher cost CCRCs.
According to the Commission on the Accreditation of
Rehabilitation Facilities, in order to provide housing, health
care, and other services to its residents, a CCRC must operate
on sound business practices. Income must be adequate to cover
expenses as well as provide for the future repair or replacement
of buildings and equipment.
The author contends that financial oversight differs
considerably from the bulk of the regulation that DSS is engaged
in and financial analysis is not a typical role for state social
services agencies to play. In many states with significant
numbers of for-profit CCRCs, including Florida and Arizona, the
finances of CCRCs are monitored by state departments of
insurance.
If DOI regulates CCRC finance, DSS will be free to pursue its
mission "to promote the health, safety, and quality of life of
each person in community care". DSS would no longer need to
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reinvent CDI's financial expertise, but would continue to ensure
the highest quality of services for residents.
Under existing law, CCRCs are required to allow prospective
residents to review a copy of the provider's annual report and
audited financial statements. In addition, before accepting a
deposit from a prospective resident, CCRCs must provide a
disclosure statement that includes their operating income,
operating expense, net income, interest expense, unrestricted
contributions, non-operating income or expense, net income or
loss, net cash flow, the average monthly service fees, the
percentage changes in the average fee from year to year, and
financial ratios for the three most recent years including the
debt-to-asset ratio, operating ratio, debit service coverage
ratio, and days cash-on-hand.
CCRCs are also required to make available to all residents a
financial statement of activities for the facility and consult
with their resident association during the budget process.
Finally, providers must furnish financial statements to the
resident association or its governing body and provide a copy of
the annual report to DSS with annual audited financial
statements.
In the event that DSS determines that a provider is in unsound
financial condition, the department has the statutory authority
to require the provider to take corrective measures. When a
provider fails to comply with the statutory requirements, DSS
may levy administrative fines, file liens on the property, seek
a court appointed administrator to take over operation of an
ailing community or take disciplinary action against the
provider.
The author argues that DSS is overly reliant on key indicator
projections by regulated facilities as opposed to third party
certifications as to the actuarial soundness of an entire
operator. While, DSS does require some CCRC providers to file
an actuarial report, it occurs only once every five years. The
first actuarial report after a facility opens is due after the
first fiscal year. This snapshot during initial occupancy, the
period of a facility's highest revenue, may not provide an
accurate guide to future costs. Unlike DSS, CDI already has a
regulatory regime that would provide better oversight of CCRC
finances, including reserve requirements, holding company
systems, dividend limits, and self dealing limits.
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Several states, including Arizona, Florida, Iowa, North
Carolina, and New York all require some level of oversight of
CCRC financing from the state department of insurance.
Aging Services of California opposes this bill and contends that
DSS is responsible for comprehensive oversight of the
residential and continuing care components of CCRCs. Because
this bill parses out the duties between DSS and CDI, it is
unclear how the bill would result in any cost savings,
efficiencies, or better oversight of CCRCs. According to Aging
Services of California, this bill simply adds another state
agency with differing interests and priorities to the task of
regulating communities.
Furthermore, this bill assumes that CCRCs should be overseen in
the same manner as large insurance companies. Aging Services of
California argues that CCRCs are unique in the senior living and
long-term care arena. The specialists with intimate knowledge
of all aspects of CCRC operations at DSS are best suited for the
task of comprehensive oversight. In addition, this bill was not
the result of any stakeholder input which seeks to make
extensive changes to the regulation of very complex entities and
that any change in this area should be a result of serious
discussion and analysis, which includes input from all
stakeholders.
Author's Statement
California's CCRC residents are increasingly at risk. Existing
California law does too little to protect them. Too often cash
is removed from facility-operator holding companies and sent to
unregulated out-of-state parent companies. The industry is now
facing the possibility of major revenue shortfalls. The CCRC
industry, particularly the recent rapid growth in the for-profit
sector, is dependent on a constant supply of new residents, a
supply which is far from certain, especially given the worst
housing crisis since the Great Depression.
My legislation addresses these problems at their root. CCRC
operators promise future benefits in return for up-front and
recurring fees. This is an insurance promise. The CCRC
industry should be regulated as an insurance product by the CDI.
CDI already regulates financial arrangements commonly found in
the CCRC industry. In addition, the CDI brings a wealth of
actuarial expertise and trained financial personnel that are not
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found in DSS. CDI is best suited to guide CCRC operators through
today's treacherous economy toward the fulfillment of the
"continuing care promise".
Prior and Related Legislation
AB 2550 (Steinberg), Chapter 129, Statutes of 2004, added to the
existing law requiring providers to maintain qualifying assets
as a liquid reserve in an amount equal to or exceeding the
amount required for debt service plus the operating reserve, to
increase the operating reserve required from 45 to 75 days net
operating expenses.
SB 1212 (Torlakson), Chapter 529, Statutes of 2006, required
that the annual financial report include full details on the
status of reserves, description, and amount of all reserves that
the provider currently designates and maintains, and on per
capita costs of operation for each continuing care retirement
community operated. SB 1212 initially included a detailed
definition of "reserves" for each CCRC but that language was
amended out prior to the bill's enactment.
AB 407 (Beall) imposes requirements on CCRCs in the event of the
facility's permanent closure. AB 407 is pending referral to
Assembly Appropriations.
AB 1169 (Ruskin) prohibits the transfer of revenue from resident
fees to other entities and from expenditure for any purpose
other than the benefit of the residents, and defines "reserves"
for annual financial reports. AB 1169 will be heard in this
Committee on April 21st, 2009.
This bill is double-referred to this Committee and Assembly
Health. The author's office has significant amendments that
will be taken in Assembly Health.
Policy Questions:
1)CCRCs are subject to oversight from DSS and for those who
offer skilled nursing services, the Department of Public
Health (DPH) as well. Does adding oversight by CDI increase
the fragmentation of administration of CCRC operations
disproportionate to the potential benefits of greater
financial oversight?
2)The DSS Continuing Care Contracts Branch is supported by funds
from the Provider Fee Fund, which is financed by annual
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licensing fees paid by providers. How will the division of
operations between DSS and CDI affect the distribution of
funds from the Provider Fee Fund and will each allocation be
sufficient to operate two distinct branches of oversight?
3)Given the complexities of dividing oversight between two or
three departments, how will this bill ensure adequate
communication and coordination between DSS, DPH, and CDI,
particularly given the potential penalties and revocation of
licensure for failure by a CCRC to remain fiscally-sound?
Suggested Technical Amendment:
1)Page 17, line 14-15 - retain the reference to Health and
Safety Code for violations of residents' rights.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
Opposition
Aging Services of California
Analysis Prepared by : Allison Ruff / AGING & L.T.C. / (916)
319-3990