FINANCIAL REALITIES OF CONTINUING CARE
RETIREMENT COMMUNITIES (CCRC’s)
Issues Briefing Paper presented to Board of Trustees – March 2006
The financial models for a CCRC are complex and multifaceted. In this issues briefing paper the different
aspects of a CCRC are described and the conclusion suggests some financial ratios that may be helpful
targets for the Manor Board to track.
Health Center (Nursing):
This is described in detail in the white paper titled “Financial Realties of the Health Center”.
Assisted Living (A.L.):
In Pennsylvania this area of care is licensed as Personal Care. The terms are interchangeable. The
Assisted Living area of a CCRC provides light-to-medium assistance for residents who, in most cases, are
no longer able to live independently. These services include three meals a day as well as assistance with
dressing and medication administration, if needed.
Funding in Assisted Living is primarily private pay, meaning the resident pays a daily rate for their care.
The annual costs in Assisted Living range from a low of $36,135 to a high of $47,450 for a single room.
Two room suites cost an additional $15,000 annually.
Benevolent care is provided in Assisted Living for residents who have spent down their funds to $2,000.
This benevolent care currently totals $130,000 per year in Assisted Living. The number of A.L. residents
receiving benevolent care is likely to increase due to the rate increases of recent years; higher rates mean
faster “spend down” for our residents.
Admissions in A.L. typically are required to have assets and income that would last for five years. Some
A.L. facilities accept residents with little or no funds. These residents may qualify for some governmental
assistance to pay their monthly bill. The Manor seldom has residents that would qualify for this
assistance.
Members of the Lititz Moravian Congregation may qualify for Assisted Living funds through the
Church’s Good Samaritan Fund. Moravian widows or maiden ladies may qualify for financial assistance
through the Moravian Fund for Aged Women (this fund was turned over to Moravian Manor to manage in
the early 1990’s).
Residential Living (Independent Living):
Moravian Manor has three contract types as outlined below. There is no limit to the number and types of
plans that may be created and marketed; thus the many different options among communities.
Prepared by: David Swartley
Last Edit: 2/15/2016
FINANCIAL REALITIES OF CONTINUING CARE
RETIREMENT COMMUNITIES (CCRC’S)
Page 2 of 6
Entrance fee revenue in Residential Living is not recorded as income by the contract provisions. Rather,
revenue is recorded using life expectancy tables over the life of the resident, which makes the accounting
of Residential Living income consistent from community to community. The bottom line is that turnover
is advantageous to communities after the entrance fee has been contractually earned (in the Manor’s case
50 months). This is a key cash flow component for all CCRC’s.
 Plan I: This plan is a no refund plan. If an Residential Living resident pays an entrance fee of
$100,000, 2% is amortized (earned) by Moravian Manor per month of residence. This means that
after 50 months there is no refund given if the unit is released (thus management’s comments that
turnover is necessary and financially advantageous).
 Plan II: This plan has a minimum guaranteed refund of 60%. However, the fee to enter
Moravian Manor under Plan II is 33% higher than the Plan I price. The tradeoff is that the
incoming resident will receive 60% of their entrance fee as a refund upon the resale of the
respective unit. No interest is paid on the 60%.
 Plan III: This plan is a rental arrangement. The entrance fee for Plan III is 50% of the Plan I
fee and an additional monthly charge is added to the bill above the typical monthly service fee.
This plan is seldom used; the plan is advantageous for an incoming resident who is older and does
not expect to be in the unit very long.
During the initial Garden Court Apartment sales period, resident choice for Plan I and Plan II split about
50/50. The ideal financial situation is for an incoming resident to choose Plan I and be “up in years.” In
this case, the Manor has no refund to pay back after 50 months and will have a unit to resell in a shorter
period of time.
Plan I and Plan II are designed to be equal, assuming the resident stay is twelve years and the interest
earned on the additional funds is approximately 7%. Obviously, in a low interest rate environment, Plan
II is less attractive to the Manor and more attractive to incoming residents.
Plan III is primarily a marketing option, but can be attractive to the incoming resident if they are confident
their stay in residential living is brief. In general, the best deal for the resident is generally financially
detrimental to the Manor.
There are numerous contract types among competing facilities. This makes comparing facilities difficult,
as each community has different contract terms (reference Nicole Michael’s white paper on the
competitive environment in which the Manor operates).
Prepared by: David Swartley
Last Edit: 2/15/2016
FINANCIAL REALITIES OF CONTINUING CARE
RETIREMENT COMMUNITIES (CCRC’S)
Page 3 of 6
There are three types of Residential Living contracts that are recognized by Pennsylvania Insurance
Department. All communities that “sell” entrance fee contracts must be registered with the Insurance
Department. The three plans listed below are differentiated by the access to health care services and the
associated fees.
 Type A is a Life-Care contract. Under Type A contracts, upon admission to Residential Living,
the monthly rate never changes regardless of the level of care. The Residential Living monthly
fees are greater than other types of contracts, but in essence one is buying an insurance contract.
Facilities that attempt Type A contracts should be very large. (Willow Valley is an example of
this type of contract.) Smaller facilities cannot be “actuarially sound” in to providing this type of
contract.
 Type B is a Modified contract. Type B contracts typically guarantee a certain number of days in
the facility’s Health Center for no additional charge. (Homestead Village is an example of a
provider that has Type B contracts, offering up to 15 days of care in the Health Center for no
additional charge.)
 Type C is a “Fee for Service” contract. Type C contracts are strictly daily charge types of
arrangements; there is no preferential treatment to the CCRC’s Independent Living population
(other than preferred admission to the Health Center or Personal Care areas). Moravian Manor is
an example of a Type C facility, as are most of our competitors (including LutherCare, Brethren
Village, Mennonite Home and Pleasant View.)
Moving into the future, the challenge will be creating “equity ownership” plans. While currently not
popular in South Central Pennsylvania, the concept of the incoming resident owning the residence and
having a deed to the property is gaining momentum nationally. This scenario places the facility in more
of a management company mode.
Expense Detail
Service industry expenses are concentrated in labor and benefits. The graph below shows that during
2005, Moravian Manor spent 65 cents of every one dollar on wages and benefits. This number was
actually higher before the Garden Court project. The added depreciation and interest along with a less
labor intensive revenue source reduced this from 70 cents for every dollar to 65 cents. On the table
appearing on the next page, the pink bars (light bars for black and white copies) represent the labor
related expenses for 2005.
Health Insurance and Workers Compensation insurance have been areas of concern and adjustment
over the past two years.
Our wage growth has also slowed due to consolidation of positions over the past three years.
Prepared by: David Swartley
Last Edit: 2/15/2016
FINANCIAL REALITIES OF CONTINUING CARE
RETIREMENT COMMUNITIES (CCRC’S)
Page 4 of 6
ilit
y
Li
ab
on
er
ty
&
ns
i
p.
Pe
Pr
op
rs
C
om
od
Fo
W
or
ke
s
till
itie
A
U
FI
C
er
es
t
.
In
t
In
s
th
n
ea
l
H
ia
tio
ec
O
th
D
ep
r
W
ag
er
$7,500 $6,881
$7,000
$6,500
$6,000
$5,500
$5,000
$4,500
$4,000
$3,500
$3,000
$2,500
$1,885
$2,000
$1,157
$1,500
$824 $719 $525
$511 $488 $422 $330 $217
$1,000
$500
$0
es
Thousands
Moravian Manor Expense
Financial Ratios:
How does one measure the financial success of a CCRC? Some communities are taking advantage of
available financial benchmarks and, as a Board/management tool, the Board measures their CCRC’s
progress toward these benchmarks.
On the next page are several possible financial ratios and the median benchmarks for accredited
CCRC’s. Ratio analysis can provide a very quick snapshot of where a facility is positioned as well as
provide information on targeting goals for the future. Consideration should be given to using ratio
analysis as a measuring tool from year to year.
The ratios for Moravian Manor shown on the following page show remarkable improvement from
2004 to 2005. For each ratio, the report gives the best and worst results as well as the 25th, 50th and
75th percentiles.
Prepared by: David Swartley
Last Edit: 2/15/2016
FINANCIAL REALITIES OF CONTINUING CARE
RETIREMENT COMMUNITIES (CCRC’S)
Ratio
Description
Net Operating Margin
Days Cash on Hand
Debt Service Coverage
Long-Term Debt to
Assets
Page 5 of 6
25%
50%
75%
Percentile
Percentile
Percentile
44.870%
-5.160%
1.100%
7.990%
27.170%
-0.180%
14
199
332
490
1239
115
More days
-1.02
1.57
2.35
3.98
116.94
1.78
Higher %
98.25%
53.75%
39.12%
23.74%
0.00%
41.00%
Lower %
Worst
Moravian
What is
2005
Better
Best
Higher %
Business Segments:
An analysis of the Manor’s three main operational areas in 2005 shows a modest surplus in nursing and in
personal care.
Including interest expense, Residential living lost money since most of the interest expense of the Manor
is allocated to Residential living.
The Health Center generated a small profit, which includes designated interest revenue as well as the bed
tax revenue.
The total 2005 Operating Deficit was ($25,000). This exceeded our budget projections by $700,000. It
would appear that the key to the future is having quality accommodations that will assist in keeping a
healthy census. The challenge to the future will be to find capital to upgrade the Health Center.
On the next page is a chart that shows the financial detail of the three main business segments. While
many of the expenses are direct expenses, the Board should understand that for many expense categories
there are allocations that must be made. Administration, utility, marketing and maintenance costs are the
expense categories that must be allocated.
Prepared by: David Swartley
Last Edit: 2/15/2016
FINANCIAL REALITIES OF CONTINUING CARE
RETIREMENT COMMUNITIES (CCRC’S)
Revenue Description
Daily & Monthly Fees
Garage Rental
Entrance Fee Amortization
Medicaid Prior Year Settlement & Bed Tax
Medicaid Write-off
Benevolent Assisted Living Write-off
Ancillary
Interest Transferred for benevolence
Other services (Daycare, etc)
Total Revenue
Expense Description
Administration
Nursing
Therapy
Chaplaincy
Community Life/Social Services
Activities
Housekeeping
Laundry
Dietary
Maintenance Other
Utilities
Real Estate Taxes
Depreciation
Maintenance Wages
Marketing
Daycare Expense
Accommodating Services:
Total Operating Expense
Total Surplus Before Interest Expense
Interest Expense Allocation
Prepared by: David Swartley
Independent
Living
$858,487
$21,835
$865,850
Page 6 of 6
Health
Center
$8,792,446
Assisted
Living
$2,295,172
Other
Services
$272,533
($786,580)
($119,263)
$957,294
$158,902
$1,746,172
$9,394,595
$2,175,909
$68,365
$23,100
$898,391
$4,820,864
$265,363
$18,900
$78,005
$173,050
$496,881
$146,179
$950,545
$115,966
$153,474
$0
$415,102
$245,343
$65,045
$224,598
$657,390
$0
$8,085
$25,000
$30,538
$87,685
$16,242
$468,179
$57,118
$65,775
$0
$177,901
$105,147
$16,261
$7,400
$18,425
$49,897
$161,518
$175,642
$185,670
$98,417
$564,805
$142,081
$121,844
$451,330
$451,330
$116,803
($62,787)
$211,628
$1,617,164
$129,008
$430,989
$296,276
$9,139,385
$255,210
$122,114
$1,939,919
$235,990
$165,212
Last Edit: 2/15/2016
$265,644
$185,686