residents' learning center

CCRC Financial Standards and Model Laws

The public is entitled to an assurance that Continuing Care contractual promises made can be kept and that they will be honored by providers. Because Entrance Fees are paid at inception, but many benefits only come due later in life, a high degree of trust is implicit in the arrangement. This requires financially sound organizations that manage their finances appropriately.

Financial practices should match the consideration required from residents to the benefits that the residents are promised in return. It is inappropriate that the large investments that residents are induced to make in Entrance Fees are used to provide financial security to passive investors in debt securities and that residents are placed at risk of loss.

The industry today largely adheres to Generally Accepted Accounting (GAAP) as promulgated by the American Institute of Certified Public Accountants (AICPA) and codified by the Financial Accounting Standards Board.  CCRC accounting is prescribed differently from that for that of other industries and that is a violation of the consistency principle which is fundamental to sound accounting. 

The prescribed accounting also departs from the matching principle since there is no requirement that revenue recognition be matched to the contractual and other obligations that the revenues are intended to fund.  There is a need for a Statutory Accounting Standard so that financial provisions better ensure that CCRC promises made can be kept.

In addition to unmatched accounting valuation standards, accounting for certain "refund" liabilities is questionable.  Some "refunds" at death or withdrawal are made contingent on a successor resident paying an Entrance Fee at least as great as the amount of the refund. 

Current GAAP accounting allows funds subject to call as refund obligations to be taken into income which can leave the organization financially vulnerable and unable to meet its refund liabilities.  The AICPA rationalization for this surprising practice is that "In those situations, the CCRC's own funds will never be used to make the refunds to the prior resident; instead, the CCRC is effectively facilitating the transfer of cash between the successor resident and the prior resident." (AICPA Submission at #68).

 

 

 

 

 

 

 

 

 

 

 

 

NaCCRA Web Site

http://www.naccra.com

Model Financial Guarantee

Model Financial Responsibility

Model Standard Valuation

Model Financial Viability and Rehabilitation

Model Prepaid Medical Reserve

Model Nonforfeiture

Even under current GAAP practices the importance of a "Negative Net Asset Position" is often minimized, implying that an excess of Liabilities over Assets is not conclusive evidence of impairment.

Cash from Entrance Fees is used to carry such "impaired" CCRCs to the detriment of the residents who expect such funds to be used to fulfill the Continuing Care Contracts in which they have invested. 

This can impact resident assurances that they will later receive deferred services or that their investment will be "refunded" upon their death or withdrawal.  This minimizing of the devastating significance of  "Negative Net Asset Positions" is irresponsible. 

Today's CCRC GAAP accounting is not adequate to assure residents that their Entrance Fee and other investments in CCRCs will be handled with the same level of stewardship that is common in other businesses involving multi-year commitments

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