Beyond the numbers with Grant Thornton: Listen now
The report agrees with the need for change to meet the emerging demand from an ageing population, including the need for further funding and noting the ‘boomer generation’ is generally wealthier than its predecessors.
The final report described twelve funding principles which fall into the categories of supporting older people as they age, equitable and sustainable funding, quality innovation, and transparency. These principles offer high level guidance for how recommendations and government actions could be realised.
Further details are provided in the 23 recommendations that accompany the principles, and concludes with discussion points to help clarify the recommendations. It is the latter where some detail is provided.
The final report should be commended. In a relatively short timeframe, many key issues impacting residential services, particularly around financial sustainability, have been evaluated.
The role of Refundable Accommodation Deposits (RADs) in the future. The recommendation that RADs are removed after certain preconditions are met, and not before an independent review scheduled to occur in 2030. We note from the work on the aged care sector’s capital model that RADs are vital to the capital structure of the majority of providers. We are pleased that RADs are not being removed in the immediate future, as was suggested in the media throughout the ACTFs process. There is further work to clarify what this means to providers, financiers and care recipients, but now there is time to fully consider the ramifications.
It is recommended that a range of fees, including ‘rental retention’ styled fees could be deducted from RADs. This will improve overall income of providers.
The relationship between RADs and Daily Accommodation Payments (DAPs) has been considered, with an examination of the Maximum Permissible Interest Rate (MPIRs) role in setting DAP prices, rather than the cost of delivering the accommodation. The ACTF commentary does not discuss the role of property markets in setting either RADs or DAPs, but looks at the cost analysis that supports accommodation supplement pricing. A cost recovery model is likely to suppress financial sustainability and investment. It is likely better for providers to develop ‘build-to-rent’ where yields reflect market conditions and viability. More details are required to understand the impacts of the recommendation.
The need for government support for low means participants will continue. This is a fundamental tenet of our egalitarian approach to health and aged care.
Consumer co-payments. It has been clear for some time that future consumers of aged care services are wealthier than their predecessors. The generous superannuation benefits established in the 1990s have enabled ‘baby boomers’ to accumulate far greater wealth than any generation before. However, this is not reflective of everyone in this generation and those that have very low means will need continued support from government sources. These circumstances have led the ACTF to recommend that those that can afford to pay from their own pocket should do so, at the same time maintaining a safety net for those that are unable to do so.
Any new system will recognise and support current arrangements though grandfathering provisions.
The maximum room price for residential homes has been set at $550,000 since 2014. Australian property prices have significantly increased since that time. The ACTF has recognised that the process for obtaining a price higher than $550,000 is both expensive and risky. The final report notes that $550,000 indexed since 2014 results in a price of $810,000. It recognises the 2017 Tune Review and suggests implementing the recommendations in that report on both current price and future indexing. This will reduce provider costs to apply for higher room pricing while significantly reducing risk. The result will be more efficient financial performance form room pricing and increased profitability.
The ACTF agrees with the need to introduce further innovations in the sector. In discussing innovation with providers, a key concern remains. The application of input controls over labour cost, specifically minimum care minutes, means that any benefits identified from innovations that improve care efficiency by care and nursing staff remain unrealised. Providers will need incentives to encourage them to invest in improvements that deliver efficiencies and benefits to care recipients. This will include incentives to provide reasonable economic returns on new facilities and service developments that are sustained over the long term. Uncertainty about constant change makes investments in innovation less appealing.
The introduction of the proposed Support at Home program has been considered. This is a staged implementation.
Home care and the Commonwealth Home Support Programme (CHSP). The proposed support at home program that combined the home care program and CHSP has been pushed out to allow for fundamental changes. The proposal is that home care and home support will move to a fee-for-services model, with clearly defined services. Consumers will be asked to co-contribute for these services, with the focus being on essential services in the areas of clinical supports, independence and everyday living. The financial impact of the proposed changes remains uncertain. However if the implementation of the service catalogue under the NDIS is any guide, service providers can assume that revenues will decline and logistics efficiency will be a key success factor.
Support at home in thin markets will continue to be funded through a block payment system.
Overall, the aim for the Support at Home program will be to provide consumers with greater choice and control, while ensuring ease of access, and better value for money for them and the government.
The ACTF has identified some general inclusions and exclusions to be considered in the development of Support at Home.
The ACTF has identified the key structures that will support aged care reforms. However, the final report does not address the mechanics of the reforms. There is also no indication that the Prime Minister or Cabinet agree and support the recommendations and are prepared to fund both the ongoing costs and the significant financial burden of the transition.
The final report is also silent on information that will allow care providers to model the financial impacts on their businesses to determine future viability and ongoing sustainability.
Questions remain on whether the ACTF commentary on RADs creates issues when the accounting standards are applied. Does this raise a contingent liability for the value of RADs given the recommendation to remove them in the future? What impacts will that have on providers now?
In October 2023, we submitted to the ACTF our report highlighting Key considerations for a capital model to support sustainability in the aged care sector. This report was developed in consultation with the sector, banks, and private equity firms to provide information regarding the capital model of the aged care sector for the ACTF’s consideration.
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