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A. The Percentage Method
The percentage method assumes that the medical care portion
of entrance fees and monthly service fees is the same portion or
percentage as the CCRC’s medical expenses to total costs because
the sum of the fees over the resident’s lifetime is expected to
cover the costs of care for residents in a CCRC. Thus, the
percentage method generally involves analyzing each expense
category to determine what portion of each category’s total costs
is for medical purposes. In his report, Mr. Powell explained
that this allocation process is fairly straightforward for CCRCs
that provide medical care through stand alone detached units with
budgets separate from the nonmedical center or that purchase
medical services from a third party. However, most CCRCs that
Mr. Powell was familiar with (including Village West) do not make
this distinction in their budgets and operate on a blended basis
for the entire facility.
Under the percentage method, once total medical expenses are
determined, this amount is divided by the CCRC’s costs to
determine the medical expense allocation percentage. This
percentage is then multiplied by the total monthly fees collected
from ILU residents for the year to find the total medical costs
allocable to monthly fees revenue. This total is then divided by
the number of ILU residents to determine the portion of the fees
that is allocable to medical care.
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