For-Profit Corporations Enter the Licensed Private Senior Housing(Yuryo Rojin Home)Sector in Droves

By Masako Osako, Ph.D
(Member of ILC-USA Project Advisory Committee)

Introduction

The private senior housing sector is growing rapidly in Japan. The number of senior housing facilities meeting government criteria for care-providing private senior homes ( "yuryo rojin home," "licensed private senior housing," or "LPSH") jumped from 350 in 2000 to 1,144 in 2005. This increase is attributable in large part to a provision in the Long-Term Care Insurance (LTCI) Law of 2000 that made it possible for the elderly living in a LPSH to benefit from the insurance. The revision also helped LPSH to attain a degree of financial stability, because it is now reimbursed by the LTCI for the insurance eligible services it offers to its resident elderly. Approximately 75% of owners of LPSH are for-profit entities including major corporations in a variety of industries. LPSHs in Japan resemble assisted living facilities in the U.S. in terms of function and financial operations but are differentiated from their US counterparts by being required to meet the Japanese government's specification as to unit size and services offered (Inoue, 2005).

Overview of Long-term Care Facilities in Japan

The large majority of long-term care facilities in Japan are operated by governmental units or social welfare foundations (shakai fukushi hojin) as shown in the chart below. LPSH currently represents about 13% of available elderly housing in terms of the number of residents cared for. However, this sector has been growing rapidly for the last six years, and the trend is expected to continue. Demand for LPSH is reportedly strong, partly because there is a long waiting list for government operated long-term care facilities (see table below) and partly because affluent elderly are looking for high quality facilities. Many LPSH units specifically cater to upper income seniors. However, compared to other types of senior housing, the occupancy rate of LPSH is moderate at 72%, which is partly attributable to the fact that many LPSH were recently opened.

Source: Ministry of Health, Labour and Welfare
Note: 2004 is the latest year for which data are available from the Ministry.

Dominance of For-Profit "Entities among LPSH Owner/Operators

As of August 2005, there were a total of 1,398 LPSH facilities. Of these 76.2% are owned/operated by for–profit entities, while the rest are owned/operated by social welfare foundations (shakai fukushi hojinn) (14.2%) or others, including foundations and cooperatives.

What accounts for this active interest in senior housing on the part of for-profit corporations? Being keenly aware of the impact of population aging, in the last five years, many Japanese corporations entered the senior housing market as part of their business diversification strategies. Participating industries range widely from utilities, real estate, and insurance to manufacturing. Some acquired or established joint ventures with senior housing management companies, while others started their own operations from scratch. These ventures into the senior housing market often met another need. As part of the corporate restructuring that took place throughout the 1990's, a large number of Japanese corporations had to dispose of non-core facilities, such as employee dormitories and resort houses. Conversion of these properties into senior housing units was considered a desirable solution.

A small number of corporations, including Toyota Motor Corporation, entered the senior housing market with a somewhat different motivation. They viewed the move as a human resource measure. For instance, in 2005, Toyota announced the construction of a senior housing facility with the primary beneficiaries being their retirees and employees' aging parents.

Examples of Licensed Private Senior Housing Facilities

As shown by the examples below, it is possible to identify three types of licensed senior housing facilities by the type of contract between the facility and the resident. (Fujiwara 2006). In the life care type facility (shuushinn riyouken houshiki), which is most common, residents pay an initial deposit (commonly $200,000 to $500,000) plus monthly fees for management, meals, utilities and care (co-payment). In these facilities, each resident has the right to reside in the facility for life. On the other hand, in the rental facility model (tatemono chintai hoshiki), similar to a common commercial apartment, each resident pays rent and monthly fees. Lastly, in the life-rental model,a variation of the rental facility model, a tenant has a right to rent the unit until his death. While the purpose of this contract is to guarantee older persons stability in his living arrangement, this type of contract is still uncommon. LPSH can be also devided into several types by the nature and extent of services available for residents.

Is Senior Housing a Viable Business for For-Profit Corporations?

The growth of LPSH appears to meet Japanese elderly's diverse needs. But do these ventures meet the needs of for-profit entities? It is still too early to make a definitive evaluation, but market competition appears keen among operators. According to the MHLW survey, occupancy rates for LPSH have ranged between 70% and 74% since 2000. In another nation-wide survey of senior housing operators conducted by Community Network Association, 54% responded that it is a challenge to maintain satisfactory occupancy levels in their facilities (Inoue 2005). The national survey of LPSH providers by MHLW (2004) reports the average gross margin (before tax) was at 4.9%, but no information is publicly available about the number of facilities in the red.

Regulatory oversight

In view of the proliferation of LPSH facilities, Japanese regulators are keenly aware of the importance of regulatory guidelines and oversight. The 2006 revision of the Elderly Social Welfare Law (Rojin Fukishiho) includes several new provisions regarding the handling of residents' deposits, disclosure requirements, and other matters. New provisions include:

• Residents' deposits should be segregated from the general operating funds of the facility owner. Additionally, each facility must disclose to all prospective and current residents the formula to be used for deposit reimbursement in the case of departure, death, etc. Each facility must also set aside in a segregated account the lower of (1) 5 million yen or (2) the amount due to residents based on the said formula for departing residents.
• Municipal governments are required to disclose on their websites data obtained from LPSH operators in regards to (a) basic information (staffing, fees, facility characteristics, available services, etc.) and (b) any results of their surveys regarding the availability of care manuals and written records of the residents' use of services at each facility.
• Prefecture governments' right and responsibility, when deemed necessary, to inspect these facilities and to publicly disclose any problems noted.

The 2006 revision of the LTCI also addresses the issue of excessive market competition that could negatively affect the well-being of residents. The revised law contains a new provision similar to the certificate of need requirements in the U.S. Each prefecture in Japan estimates its needs for long-term care units in its 3-year long-term care support plan. Each prefecture government then has the right to decline any application if its area's needs for licensed senior housing units are already being met (Ono 2006).

References (in Japanese)

• Ono, Nobuo, "Current condition and challenges of LPSH industry," NLI Research Institute Report, 2006.
• Fujiwara, AKIHIRO" Spotlights on LPSH business: Kobe Steel, Sekomu, and others enter the business," Fujisankei Business , September 9, 2006.
• Sumitomo Trust and Banking co. Ltd. Monthly Research Bulletin," Growing licensed private housing sector," November 2004.
• Inoue, Yosuke, "Management of for-profit senior housing business," Best Value, September 2005, Value Management Institute, Inc. Best Value Vol.10.
• Waifu Editorial Staff, How to Select a Senior Housing Facility that Would Not Go Bankrupt, Minerva Publishing, 2000.

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