BILL ANALYSIS �
SENATE HUMAN
SERVICES COMMITTEE
Senator Jim Beall, Chair
BILL NO: AB 1751
A
AUTHOR: Bloom
B
VERSION: June 15, 2014
HEARING DATE: June 24, 2014
1
FISCAL: Yes
7
5
CONSULTANT: Sara Rogers
1
SUBJECT
Continuing care retirement communities
SUMMARY
This bill requires Continuing Care Retirement Community
(CCRC) providers to make specified financial statements
available to residents on a quarterly basis, rather than
semi-annually. Additionally, this bill requires CCRC
providers that have governing bodies in the state to
include at least one resident, or two residents if the
facility has more than 21 members, as voting members of the
facility's governing body. This bill requires that
providers whose governing bodies administer multiple CCRCs
shall provide specified information to the residents'
association of any facility that does not have voting
representation on the governing body. Additionally, this
bill provides that the residents' association or a
committee of residents shall nominate prospective residents
for the governing body's approval, as specified.
ABSTRACT
Continued---
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Existing law:
1.Provides for the licensure and regulation of Continuing
Care Retirement Communities (CCRCs) by the California
Department of Social Services (CDSS) to enact minimum
requirements to protect the wellbeing and financial
security of residents of CCRCs. (HSC 1770 et seq.)
2.Establishes the Residential Care Facilities for the
Elderly Act, which requires CDSS to license and regulate
RCFEs as a separate category within the existing
community care licensing structure of CDSS. (HSC 1569 et
seq.)
3.Provides for the regulation and licensure of skilled
nursing facilities by the California Department of Public
Health (CDPH). (HSC 1250 et seq.)
4.Requires a CCRC provider to hold a certificate of
authority from CDSS permitting the provider to contract
for the provision of continuing care, including medical
care, in which a resident over the age of 60 has paid in
advance for more than one year for that care. (HSC
1771.2)
5.Provides that the components of care provided by the
facility must be separately licensed as otherwise
required by state law, including Residential Care
Facilities for the Elderly and Skilled Nursing care. (HSC
1771.5)
6.Requires CCRCs to encourage the formation of a residents'
association by interested residents who may elect a
governing body, to provide space, post notices, and
provide assistance as needed. (HSC 1771.7)
7.Requires the governing body of the provider, or a
designated representative, to hold semi-annual meetings
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with community residents, and to hold resident meetings
at least 30 days prior to any planned monthly care fee
increase. (HSC 1771.8)
8.Requires a provider to make a facility financial
statement of activities available to the resident
association, comparing actual costs to budgeted costs
broken down by expense category. (HSC 1771.8 (f))
9.Requires a provider to accept at least one resident to
participate as a non-voting member of the provider's
governing body, or if the provider operates multiple
communities to elect to have one non-voting resident for
each community or to allow residents to elect a
representative for every three communities it operates.
(HSC 1771.8 (i))
10.Requires CCRC providers to submit an annual financial
report to CDSS, as specified (HSC 1790).
This bill:
1.Increases, from semi-annually to quarterly, the frequency
that CCRC providers must make a financial statement of
activities available to residents, comparing actual costs
to budgeted costs broken down by expense category.
2.Requires providers to include a written explanation of
all significant budget variances in the financial
statement of activities.
3.Requires providers to conspicuously post annual reports
on their Internet websites, within 10 days after being
submitted to CDSS.
4.Requires providers to include at least one resident, or
two residents if the facility has more than 21 members,
STAFF ANALYSIS OF ASSEMBLY BILL 1751 (Bloom)
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as voting members of the facilities governing body, upon
the next vacancy or next regularly scheduled selection of
the governing body occurring on or after January 1, 2015.
5.Grants an exception to providers that have no governing
body in the state from the above requirement, and
requires those providers to appoint a select committee of
its governing body members to meet with residents prior
to any regularly scheduled governing body meeting at each
of its facilities and to ensure that the opinions of
residents are relayed to all governing body members of
the provider.
6.Requires providers whose governing bodies administer
multiple communities to provide the same notice of
meetings, packets, minutes and other materials to the
residents association of any facility that does not have
voting representation on the governing body.
7.Provides that the residents association or a committee of
residents shall nominate prospective residents for the
governing body's approval, as specified.
8.Strikes statutory references to the fulfilled requirement
that CDSS provide specified recommendations and written
guidelines available to residents and providers by 2003.
FISCAL IMPACT
An Assembly Appropriations Committee analysis states there
are minor, absorbable costs to CDSS to oversee
implementation of these new CCRC requirements.
BACKGROUND AND DISCUSSION
According to the author, seniors opting to reside in CCRCs
pay hundreds-of-thousands of dollars to buy into CCRCs,
often selling their homes and using their life savings to
pay entry fees in exchange for a lifetime of residency and
care. Additionally, the author states that financial
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difficulties at CCRCs can lead to the postponing or
abandonment of repairs or maintenance, unexpected increase
in monthly fees, loss of the resident's refundable entry
fee, or unexpected charges for previously free services.
The author states that this bill will ensure residents are
represented on provider boards, allowing such boards to
better serve the interests of each CCRC and its residents.
Continuing Care Retirement Community model
CCRCs have been likened to long-term care insurance, with
seniors paying large entry fees ranging from $50,000 to
more than $2 million, in exchange for access to a range of
levels of care services, including independent living,
assisted living and skilled nursing care intended to meet
the care needs of residents over a specified period of time
as they age. A portion of the entrance fees, between 90 and
50 percent typically are subject to refund upon the death
of the resident, or if the resident opts to leave the
community. Some facilities offer life care contracts
through which a facility agrees to care for the resident
for the remainder of the resident's life, regardless of
whether the resident outlives his or her financial
resources.
In addition to entrance fees, residents pay monthly fees,
which may be held constant as the resident ages and needs
increase, or may increase as the resident needs increasing
levels of care. Such monthly fees range widely from $500 to
$9,000 a month for independent living, between $3,000 and
$7,000 for assisted living, and upwards from $7,000 to
$17,000 per month for skilled nursing.
There are currently 95 facilities certified as CCRCs in
California, 75 of which are nonprofit, frequently operated
by religious or philanthropic organizations, and 20 of
which are for-profit. There are eight nonprofit
multiple-facility providers and 1 for-profit
multiple-facility provider (Emeritus).
Regulatory Structure
CCRCs are required to file an application for a "Permit to
Accept Deposits/Certificate of Authority" with the
Continuing Care Contracts Branch of CDSS. In addition,
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facilities that operate an assisted living level of care
are required to have those facilities licensed by CDSS as
Residential Care Facilities for the Elderly (RCFEs).
Facilities operating a skilled nursing level of care must
have those facilities licensed by the Department of Public
Health.
Required Annual Reports
Providers are required to submit an annual report to CDSS
describing the facility's financial condition within four
months after their fiscal year end. The reports are
required to consist of audited financial statements and
required reserve calculations, evidence of fidelity bonds
(insuring against dishonest employee conduct) as well as
additional information. This includes a certification, if
applicable, that reserves for prepaid continuing care
contracts, statutory reserves, and refund reserves are
being maintained; details on status, description, and
amount of all reserves maintained, and on per capita
operation costs; disclosure accumulated or expended funds
for identified purposes, as specified; details of any
increase in monthly care fees, including the basis for
determining the increase, and the data used to calculate
the increase; the auditor's opinion as to compliance with
applicable statutes, and any other information CDSS may
require.
Providers are also required to submit a "Key Indicators
Report" disclosing key financial ratios and other key
indicators within 30 days following the submission of each
annual report. Additionally, CCRCs that have contracts
promising to provide care without substantially increasing
monthly fees as needs increase must submit an actuarial
study to CDSS every five years regarding the actuarial
financial position of the facility.
Required Reserves
CCRC providers are required to maintain a liquid reserve a
reserve for long-term debt obligations that must be equal
to the sum of the prior fiscal year payments for the
following:
(1) All regular principal and interest payments paid by the
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provider for fully amortizing long-term debt. If a provider
has incurred new long-term debt during the immediately
preceding fiscal year, the required reserve is 12 times the
provider's most recent monthly payment on the debt.
(2) Facility rental or leasehold payments, and any related
payments such as lease insurance.
(3) Any debt that provides for a balloon payment. If the
balloon payment debt was incurred within the immediately
preceding fiscal year, the required reserve is 12 times the
provider's most recent monthly payment on the debt.
Additionally, CCRCs are required to maintain a liquid
reserve for operating expenses in an amount that equals or
exceeds 75 days' net operating expenses, as defined.
CCRCs offering a refundable contract are required to
maintain a reserve for refunds, held in a trust fund.
Providers are permitted to invest up 70 percent of the
refund reserves in the real estate that is used to provide
care and housing for the residents where they reside
(limited to 50 percent of the providers' net equity in the
real estate). The required amount of the reserve is
calculated using a statutorily established formula based on
life expectancy for the residents and the portion of the
entry fee that is refundable.
Financial Stability of CCRCs
Earlier this year, residents of a Palo Alto CCRC (Vi at
Palo Alto) filed a class action lawsuit against the
provider and its parent company which states that the
facility maintained no financial reserve intended to pay
for expected refunds (in violation of state law) and that
nearly $200 million dollars had been passed to a parent
corporation in Chicago that has no liability to pay for
refunds if the provider is unable to refund entrance fees.
Additionally, the lawsuit alleges that the provider
improperly included charges in the resident's increasing
monthly fees that include certain taxes, earthquake
insurance and marketing costs that are not attributable to
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the residents.<1>
This class action lawsuit has many similarities to a 2007
lawsuit against the Vi La Jolla which stated that the
facility had improperly transferred $85 million in entrance
fees to the parent company, leaving the facility unable to
pay refunds, and leading to unnecessary increases in
monthly fees and decreases in the quality of care. The
lawsuit was settled leading to a $2,270,000 lump-sum
payment to residents ($1.4 million of which was paid as
attorney's fees), a 3 percent ceiling on monthly fee
increases and other improvements to the availability and
quality of care.<2>
Many CCRCs maintain the refund reserve in the form of
real-estate investments, including the property where
residents are cared for. Refunds then are paid to residents
who leave by reselling the apartments or cottages, or by
bringing in new entrance fees. However, the recent
recession is blamed for causing the bankruptcies of 6 to 8
CCRCs nationally and caused serious financial hardship in
others as many prospective residents were unable to sell
their homes to finance the entrance fees. Additionally, a
large portion of the required reserves are permitted to be
invested in real estate, the value of which plummeted,
leading to additional financial instability in many
facilities.
Residential Care Facilities for the Elderly
There are approximately 8,000 Assisted Living, Board and
Care, and Continuing Care Retirement homes that are
licensed as RCFEs in California. These residences are
designed to provide homelike options to residents who need
some help with activities such as cooking, bathing, or
getting dressed, but do not need continuous, 24-hour
assistance or nursing care.
-------------------------
<1>
http://www.naccrau.com/Library/ViLitigation2014/Documents/co
mplaint.pdf
<2>
http://www.lawconger.com/images/images/Short/Judgment%2010-3
-2008.pdf
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Industry Concerns
The California Association of CCRCs (CACCRC), an industry
organization representing for-profit CCRC providers states
that many of its members are "closely held corporations"
that do not have governing bodies of the type envisioned by
this bill, but instead are Limited Liability Corporations,
or sole proprietorships controlled by a small number of
individuals or investors. According to CACCRC, it would not
be appropriate to require resident representation in
decision-making for these closely held private entities
that are controlled by individuals who have in many cases
invested their entire life savings into the facility.
CACCRCs letter to oppose the bill unless amended states AB
1751 is "especially problematic to providers whose
governing bodies do not resemble the types of large boards
of directors that typically serve as the governing bodies
of not-for-profit corporations. Requiring a resident as a
"voting board member" may work well within a non-profit
structure, where the resident member is one of 21 (or more)
board members, however this proposal poses a practical
problem when working within a for-profit structure. When
the provider of a continuing care retirement community is a
closely held corporation, a small partnership, a Limited
Liability Company, or other similar configuration, the
"governing body" often consists of a small number of people
who are investors in the entity. In many cases, placing a
resident with a voting right in the pool of a few owners
would give them a sizable percentage of the voting power to
a private company, giving them say equal to an owner. AB
1751 is just not practical with regard to for-profit
entities and would essentially hand control of a private
company to the resident council - a "regulatory taking" of
a private organization."
Additionally, CACCRC states that there are currently
numerous systems, policies and procedures and committees by
which a resident can influence operations of the CCRC
Community. The letter states that formal, lengthy Resident
Surveys by a third party company are performed ever third
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year and cover resident views on every management
department within the resident community. The survey also
attempts to measure the overall quality of life within the
community (and written resident comments are solicited).
Comparisons are made to previous years' results. The survey
results are then broken down and provided to the Director
of each department who in turn is required to address
deficiencies with an action plan.
COMMENTS
The provisions of this bill establish certain requirements
on CCRC providers that operate solely in California, and
provide an exception to those providers that do not have a
governing body in state. The author intends further
amendments to address concerns of CACCRCs that provide a
further exception to for-profit providers that are a
"closely held corporation." Staff notes that these
amendments may create a substantial disparity between
requirements imposed on non-profit providers as compared
with for-profit or out-of-state providers.
PRIOR VOTES
Assembly Floor 52 - 23
Assembly Appropriations 11 - 5
Assembly Aging and Long Term Care 5 - 2
POSITIONS
Support: California Advocates for Nursing Home Reform
California State Retirees
Consumer Federation of California
National Association of Social Workers
Oppose: California Association of Continuing Care
Retirement-
Communities
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