Fitch Reports Better 2004 for U.S. CCRC’s; Nursing Homes Still Tough

Better credit profiles for continuing care retirement communities (CCRC) in the United States can reportedly be attributed to improvements in investment returns, solid demand for CCRC facilities as baby boom generation retires, and better management practices, according to a new report by Fitch Ratings. However, the industry remains challenged by labor issues and insurance.

Furthermore, freestanding nonprofit nursing homes remain significantly challenged, already pressured by weak financial performance and reimbursement pressure from Medicare/Medicaid.

According to Fitch, CCRCs will benefit from improvements in the markets, which should result in improved investment returns and unit sales.

“Improved investment outcomes are likely to result in increased independent living unit sales, as seniors may not delay purchasing decisions due to large negative returns in their portfolios,” said Jim Mitchell, senior director, at Fitch Ratings. “Fitch does not expect the equity markets to yield negative returns in 2004, which should result in favorable investment outcomes for CCRC providers.”

The new report views labor-related issues for CCRCs as the main credit concern for the industry.

“Labor will continue to be a main credit weakness in 2004, however, the labor markets are beginning to show favorable traits that could result in reduced concerns in this area over the medium term,” added Mitchell. “Another major industry pressure to continue into 2004 includes rising insurance expenses, primarily professional liability and workers’ compensation.”

Fitch’s outlook for the freestanding non-profit nursing homes remains negative. Significant challenges, such as inadequate Medicaid reimbursement, rising insurance, labor and benefits expense and increased capital needs will continue to pressure already weak financial performance.

“Long-term stability in the nursing home sector will not occur without significant reform to the current reimbursement environment,” added Emily Wong, director at Fitch Ratings.

The rate of downgrades will reportedly continue to outpace upgrades but at a lower rate in 2004, while CCRC financial performance is expected to improve from 2003 results. “After three consecutive years with zero upgrades, the year could potentially yield some upward rating revisions,” said Mitchell.

The report ‘2004 Outlook for Continuing Care Retirement Communities and Nursing Homes’ can be found on the Fitch Web site at ‘www.fitchratings.com’ by linking to the ‘Public Finance’ sector and clicking on ‘Special Reports’.