Articles

CONTINUING CARE RETIREMENT COMMUNITIES

Lois A. Nafziger, Esquire
High Swartz LLP
Norristown, PA 

INTRODUCTION

Continuing care communities have become an important and necessary alternative for long term residential, social and health maintenance needs for elderly citizens. In 1984 Pennsylvania passed the Continuing Care Provider Registration and Disclosure Act 40 Pa.C.S. §3201 et seq. The Act requires Certificates of Authority, provides regulations for Disclosure Statements, advertising, financial reserves, escrows and regulates residence agreements. These communities are regulated by the Insurance Commissioner.

I. DEFINITIONS

1. Continuing Care is defined as furnishing board and lodging together with nursing services, medical services or other health related services pursuant to an agreement effective for the life of the individual or for a period in excess of one year including mutually terminable contracts and in consideration of the payment of an entrance fee with or without other periodic charges 40 Pa.C.S. §3203.
2. Entrance Fee is an initial transfer to a provider of a sum of money or other property as full or partial consideration for acceptance of an individual as a resident in a facility. A fee which is less than the sum of the regular periodic charges for one year of residency will not be considered an entrance fee for the purposes of this Act.

II. DISCLOSURE STATEMENTS

1. At the time of, or prior to the execution of a contract to provide continuing care, the provider shall deliver a Disclosure Statement to the person with whom the contract is to be entered into. 40 Pa.C.S. §3207. The disclosure statement shall include, among other things, the following items:
   1. A statement of whether the provider is a partnership, corporation or other type of legal entity.
   2. Names and addresses of officers, directors, and trustees.
   3. The proposed manager of the facility, including the business experience of the person.
   4. A statement of whether the provider is or ever has been affiliated with a religious, charitable or other non-profit organization and the extent to which the affiliate organization will be responsible for the financial and contractual obligations of the provider.
   5. A description of all fees required of resident including the entrance fee and periodic charges if any. The description shall include the manner by which the provider may adjust periodic charges. If the facility is already in operation there shall be included tables showing the frequency and average dollar amount of each increase for the previous five years.
   6. The provisions that have been made or will be made to provide reserved funding or security to enable the provider to fully perform its contractual obligations including the establishment of escrow accounts, trusts, or reserve funds together with the names and experience of persons who will make the investment decisions.
   7. Certified financial statements of the provider including a balance sheet at the end of the two most recent fiscal years and income statements for the two most recent fiscal years.
   8. If operation of the facility has not commenced a statement of the anticipated source and application of the funds to be used in the purchase or construction of the facility including estimates of the cost of construction, a description of any mortgage loan or any other long term financing, and an estimate of the total entrance fees to be received prior to the commencement of the operation of the facility.

III. RESERVES AND RESERVE FUND ESCROW

1. Each provider shall establish and maintain liquid reserves in an amount equal to or exceeding the greater of:
   1. The total of all principal and interest payments due during the next twelve months on account of any mortgage loan or any other long term financing of the facility or
   2. 10% of the projected annual operating expenses of the facility exclusive of depreciation. 40 Pa.C.S. §3209.
2. The commissioner may require the provider to establish and maintain on a current basis, in escrow with a bank, trust company or other escrow agent, a portion of all entrance fees received by the provider in an aggregate amount not to exceed the total of all principal and interest payments due during the next twelve months on account of any first mortgage loan or any other long term financing of the facility. This section shall only be applicable when the commissioner has cause to believe that additional protection may be necessary to secure the obligation assumed under all resident agreements. 40 Pa.C.S. §3210.

IV. ENTRANCE FEE ESCROW

The provider must establish an interest bearing escrow account with a bank, trust company or other escrow agent approved by the commissioner. Any entrance fee or payments that are in excess of 5% of the existing entrance fee for the unit received by the provider prior to the date the resident is permitted occupy the living unit, shall be placed in the escrow account subject to release upon certain contingencies. 40 Pa.C.S. §3212.

V, RESIDENT AGREEMENT

1. Each agreement must be written in non technical language and easily understood by a lay person. 40 Pa.C.S. §3214.
2. Among other things the resident's agreement shall:
   1. Show the value of all subscriptions, fees or any other amounts paid or payable on behalf of the resident or residents.
   2. Specify all services which are to be provided to each resident and whether the items will be provided for a designated time period or life.
   3. Describe the health and financial conditions upon which the provider may have the resident relinquish his space.
   4. Describe the health and financial conditions required for a person to continue as a resident.
   5. Describe the circumstances under which the resident may be permitted to remain the facility in the event of financial difficulties.
   6. State the fees that will be charged if the resident marries and the terms concerning the entry of a spouse to the facility and the consequences if the spouse does not meet the requirements for entry.
   7. Provide that the agreement may be cancelled upon giving notice of cancellation of at least thirty days by the provider or the resident.
   8. Providing clear and understandable language the terms governing the refund of any portion of the entrance fee.

VI. RIGHT TO ORGANIZATION

1. Residents living in a facility holding a valid Certificate of Authority shall have the right of self organization. 40 Pa.C.S. §3215.
2. The Board of Directors shall hold quarterly meetings with the residents for the purpose of free discussion of subjects which may include income, expenditures, and financial matters as they apply to the facility and propose changes in policies, programs, and services.

VII. CIVIL LIABILITY

1. Any provider who enters into a contract for continuing care which does not have a Certificate of Authority under the Act shall be liable to the person contracting for such continuing care for damages and repayment of all fees paid to the provider. 40 Pa.C.S. §3217.
2. Liability under this section shall exist regardless of whether or not the provider had actual knowledge of the misstatement or omission. 40 Pa.C.S. §3207 (b).
3. The Act also provides for criminal penalties under certain circumstances 40 Pa.C.S. §3222.

THE REGULATIONS FOR THIS ACT CAN BE FOUND AT 31 PA CODE §151.1 ET SEQ.