Health reform pressures nudged at least some new growth in hospital and nursing home operations of continuing-care retirement communities last year.
In building integrated health networks that meet community needs, some hospital and nursing home systems are adding CCRCs to their service mix.
But industry experts don't foresee unbridled growth in hospital and nursing home ownership or management of CCRCs because housing the elderly is a very different business from providing acute- and long-term-care services. Healthcare systems are more likely to vertically integrate by adding nursing home or assisted-living services, experts said.
The number of CCRCs operated by hospitals and nursing home chains continues to rise at a slow pace. In recent years, CCRC growth has leveled off as access to capital tightened up.
Survey results. The 96 systems responding to MODERN HEALTHCARE's 1994 Multi-unit Providers Survey said they owned or operated 526 CCRCs in 1993-a 6% increase from the previous year. Secular not-for-profit systems reported owning or managing 10% more CCRCs in 1993 for a total of 106. For-profit systems reported the next largest gain with 217 CCRCs, an 8.5% increase, followed by Catholic systems with 79 CCRCs, up 5%. Other religious facilities operated 123 CCRCs, a 4% increase, and public systems reported no change, with one CCRC.
The 526 CCRCs in the survey had a total of 61,895 independent-living units, 12,369 assisted-living beds and 20,360 nursing home beds. CCRCs offer congregate living for the functional elderly and provide healthcare services on campus or through contractual arrangements.
A report last year by the American Association of Homes and Services for the Aging and Ernst & Young estimated that there are some 1,000 CCRCs operating nationally.
Development difficulties. Obtaining capital to develop or acquire CCRCs remains a challenge. "With the recent increase in interest rates, it's become even more difficult," said Ed Lister, managing director in the public finance department of Legg Mason Wood Walker in Baltimore.
The average project costs more than $200,000 per unit, said Joan Annett, senior vice president and national director of long-term-care finance in the Walnut Creek, Calif., office of Ziegler Securities. That figure includes construction, land, marketing, development and other costs associated with building a new CCRC. However, systems with strong financials are better positioned to enter the CCRC business.
"I think many of the hospitals whose credit is pretty good are getting approached by CCRCs," said Edward C. Merrigan, vice president of healthcare and higher education at Fitch Investors Service. As healthcare providers strive to broaden the services they offer, "CCRCs will be an item in that diversified strategy," he said.
That's the strategy that Humility of Mary Health Care System in Lorain, Ohio, is pursuing. In January, the Catholic healthcare system began managing Laurel Lake Retirement Community, an independently operated CCRC in Hudson. Humility of Mary's board of trustees is expected to vote this month to assume sponsorship of the CCRC, giving the system control over the budget and board.
Built in 1989, Laurel Lake was financed through the sale of $55 million in tax-exempt bonds. It has 291 apartments, 75 skilled-nursing beds and 16 assisted-living beds. But the residential units were slow to fill up, leaving the operators short on cash to pay the bonds, said Sister Frances Flanigan, president and chief executive officer of the three-hospital system.
In February, the CCRC had $12 million in principal and interest payments due. "When they realized that they would need a white knight*.*.*.*they started shopping around," Sister Flanigan said.
Humility of Mary agreed to provide a $6 million loan and a letter of credit for $4 million, which were used to refinance a portion of the debt, in exchange for a management contract. The 7.1% interest rate secured in the refinancing replaced bonds financed at rates ranging from 9% to 10.5%.
"For us it's an opportunity to diversify," Sister Flanigan said.
Longtime CCRC operators continue to make improvements to better serve their communities.
Morton Plant Hospital System in Clearwater, Fla., which has operated its Bayview Gardens CCRC for eight years, just received approval to build a new 120-bed nursing home on campus. That will cost $5.5 million to $6 million, said Duane T. Houtz, the system's president emeritus. The system also plans to convert at minimal cost 60 of the CCRC's 380 independent-living apartments to assisted-living units, he said.
"The hospital has been expanding its focus not just to be a hospital provider but to be a healthcare provider to the community," Mr. Houtz said.
New challenge. Meanwhile, CCRC operators in states such as Florida and California are confronting a new challenge: coordinating CCRC healthcare packages with benefits provided to the growing number of residents in Medicare HMOs. Medicare HMOs are attractive because the elderly don't have to pay deductibles and copayments and generally get a richer benefits package at no extra cost.
However, some elderly residents don't realize that their HMO doesn't necessarily contract with the CCRC's nursing home, according to retirement industry leaders. So a resident who requires the kind of short-term nursing-home stay covered by Medicare may be sent to an HMO-affiliated nursing home miles from the CCRC campus.
Diann Bradley, director of regulatory affairs at the Florida Association of Homes for the Aging, said HMOs have not been interested in contracting with CCRCs because the communities' nursing homes cater to their own residents, representing a relatively small portion of HMOs' total enrollment. Florida certifies 74 CCRCs with 28,000 residents. It's not known exactly how many CCRC residents belong to HMOs, but enrollment is as high as 25% in some communities, Ms. Bradley said.
Working with HMOs. To ensure that residents get to use CCRC nursing homes, the association is seeking an amendment to a pending healthcare package in Florida. The amendment says an HMO enrollee's primary-care physician "must refer" the patient to the retirement facility's skilled-nursing facility or home health agency "if the physician finds that it is in the best interest of the patient."
In addition, the facility would be required to meet the HMO's criteria with regard to quality of care, utilization, referral authorization, risk assumption, use of its network and other contractor requirements. In exchange, the retirement center would accept the HMO's usual contract rate of payment.
But Richard Dorff, executive director of the Florida Association of HMOs, said the amendment could increase the cost of healthcare by forcing HMOs to do business with providers that may not be as cost efficient and quality-minded as its contracting facilities.
In Southern California, where Medicare HMOs are more prevalent, "We stopped the problem before it occurred" by talking with local HMOs about how to work together, said Myrna Gordon, a spokeswoman for Woodland Hills, Calif.-based Pacific Homes, which operates five CCRCs.