Better health and ageing for all Australians

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Aged Care Financing Authority Revised Operating Framework - November 2012

The Aged Care Financing Authority will provide independent advice to the Government on pricing and financing issues, informed by consultation with consumers, and the aged care and finance sectors. The Interim Operating Framework sets out the responsibilities of the Aged Care Financing Authority.

PDF printable version of Aged Care Financing Authority Operating Framework November 2012 (PDF 381 KB)

Objectives

1. The Australian Government’s objectives for the aged care financing arrangements are to:
  • support access, quality care, flexibility and choice for care recipients including those with special needs and living in rural and remote areas;
  • recognise that accommodation is essentially a personal responsibility, so that care recipients with sufficient means should pay a reasonable price corresponding to the value of the accommodation services that they receive, with appropriate safeguards for people who are marginalised, disadvantaged or have modest means;
  • enable efficient aged care providers to:
    • provide quality care for their care recipients, while being appropriately rewarded for the operational risks inherent in operating an aged care business; and
    • make a return on investment that is sufficient to ensure that investment will continue to be made in the aged care industry at the rate needed to meet the demand for services;
  • ensure that the cost of aged care remains sustainable for the Australian taxpayer;
  • support a stable and skilled workforce that can meet the growing demand for aged care services;
  • minimise the regulatory burden placed upon aged care providers;
  • maximise competition while ensuring appropriate consumer protection; and
  • ensure that the availability, affordability and quality of aged care services meet the broader community’s expectations.
2. The new financing regulatory arrangements are being established to:
  • provide independent advice to the Government on pricing and financing issues across the aged care sector, which achieves an appropriate balance between the objectives of the aged care financing arrangements set out in paragraph (1) above; and
  • ensure that care recipients of services funded through the Aged Care Act 1997 receive value for:
    • the Accommodation Payments they pay to their Approved Provider; and
    • any fees they pay to their Approved Provider for additional amenities or services not covered by the relevant Schedule of Specified Care and Services.

Roles and responsibilities

3. This section sets out the roles and responsibilities of the various parties with respect to:
  • Determining pricing policy and subsidy rates;
  • Providing independent advice to the Minister for Mental Health and Ageing on pricing policy;
  • Approving the fees that aged care providers are permitted to levy, where those fees are regulated by the Aged Care Act 1997; and
  • Ensuring consumers are informed and supported.

Determining pricing policy and subsidy rates

4. The Minister will determine pricing policy across the aged care sector, including subsidy rates and the regulation of fees, based on the advice of the Aged Care Financing Authority (the Authority) and in line with the aged care legislation.

Providing independent advice to the Minister on pricing policy

5. The Authority1 will provide advice to the Minister by 31 May each year on:
  • the impact of the aged care financing arrangements on access to quality care, sustainability, industry viability, and the aged care workforce, including an analysis of revenue, cost and productivity movements in the aged care sector, to inform the Minister’s annual review of pricing policy across the sector;
  • the level, and impact on access to care, sustainability, industry viability, and the aged care workforce, of any Accommodation Payments that are levied by Approved Providers for entry to residential aged care; and
  • the level, and impact on access to care, sustainability, industry viability, and the aged care workforce, of any additional amenity fees for additional services that are levied by Approved Providers for aged care services.
6. The Authority will also consider, and make recommendations to the Minister on, any other matters referred by the Minister to the Authority for consideration, within the timeframes set down by the Minister.
  • The matters which the Government intends to refer to the Authority for review are listed at Schedule A.
  • Other matters which the Government considers emanate from advices and consultation undertaken in accordance with Schedule A or from the legislative process outlined in Schedule B.
7. The Department of Health and Ageing (the Department) will act as secretariat to the Authority and will assist the Authority in undertaking its responsibilities as set out in paragraphs (5) and (6) above by undertaking or commissioning research and analysis as requested by the Authority.

Approval of the level of regulated fees

8. Under the new aged care financing regulatory arrangements, three new matters will be subject to legislatively based determination:
  • whether the refurbishment of an aged care home that is completed on or after 20 April 2012 is a ‘significant refurbishment’ for the purposes of determining whether an Approved Provider is eligible to receive the higher level of the Accommodation Supplement from 1 July 2014 in respect of the aged care home;
  • the level (or levels) of Accommodation Payment that can be levied from 1 July 2014 by an Approved Provider on care recipients for entry to an aged care home; and
  • the appropriate methodology to ensure Lump Sum Accommodation Payments and Periodic Accommodation Payments are financially equivalent for providers.
9. The Authority will be asked to provide advice on how these matters should be implemented in the aged care legislation by 21 September 2012 for the first matter and 31 October 2012 for the other two matters, including advice on any necessary safeguards for approved providers (for example review rights).

10. The interim arrangements that will operate pending the passage of the relevant legislation are set out in Schedule B.

Ensuring consumers are informed and supported

11. The Department will be responsible for:
  • providing timely, user friendly and transparent information to older Australians, and their carers, on the fees and charges that care recipients may be asked to pay in aged care services, through the My Aged Care website and other channels;
  • handling complaints from aged care recipients about fees and charges; and
  • taking compliance action against Approved Providers that are funded through the Aged Care Act 1997 and that do not comply with their Approved Provider responsibilities with respect to fees and charges.

Membership and Operations of the Authority

Membership

12. The Authority shall be constituted as follows:
  • Two Independent members:
    • Independent Chair; and
    • Independent Deputy Chair.
  • Six Expert Members with substantial experience and significant standing in:
    • the provision of aged care services, with particular expertise in relation to the not-for-profit sector;
    • the provision of aged care services, with particular expertise in relation to the for-profit sector;
    • the provision of debt finance to the aged care sector or similar sectors;
    • the provision of equity investment to the aged care sector or similar sectors;
    • the representation of the interests of consumers; and
    • the representation of the interests of workers.
  • Two Government Representatives from:
    • the Department of Health and Ageing; and
    • the Treasury.
13. Members are appointed by the Minister for such period of time as the Minister determines.

14. Members are appointed for their expertise and not as formal representatives of organisations or sectors.

15. Appropriate conflict of interest provisions will be put in place to ensure that members of the Authority, or their employers, cannot gain an advantage from the information that they receive as a member of the Authority.

Operations of the Authority

16. In undertaking its responsibilities the Authority will ensure that:
  • Its advice is evidence based. To this end, the Authority may:
    • ask the Department to undertake or commission relevant research and analysis; and
    • consider relevant research and analysis provided by other parties.
  • Its operations are transparent.
    • any recommendations it makes to the Minister under paragraphs (5) and (6) above, together with the analysis and assumptions on which the recommendations are based, are published on the My Aged Care web site within 28 days of providing the recommendations to the Minister.
    • The Authority will publish any research commissioned.
    • The Authority will publish an annual report on its operations.
  • It consults widely with the aged care sector including approved providers and industry associations), the finance sector and consumers (or their representatives) as appropriate. To this end, members may, in undertaking their responsibilities, confer with, or seek assistance from, any person or body.
  • It undertakes its responsibilities in a timely fashion.

Schedule A – Matters Referred to the Authority for Consideration

A1) The following matters related to the operations of the Authority are referred to the Authority for consideration under paragraph (6) of the Interim Operating Framework, for report by:
a) 21 September 2012 – advice on appropriateness of the interim definition of the level of refurbishment required for an aged care home to be eligible for the higher level of the Accommodation Supplement (‘the significant refurbishment criteria’) (paragraphs B3 to B5 of Schedule B refer).

b) 30 September 2012 – advice on the Authority’s Interim Operating Framework2.

c) 31 October 2012 – advice on the methodology – as set out in paragraph (B9) in Schedule B – to govern the level (or levels) of the Accommodation Payments that an Approved Provider can levy on care recipients for entry to an aged care home from 1 July 2014, including advice on:
  1. i) the Rate of Return on Equity for efficient providers in the residential aged care sector necessary to ensure that investment will continue to be made in the aged care industry at the rate needed to meet the demand for services;
  2. ii) the Rate of Return on Operations for efficient providers in the residential aged care sector necessary to ensure Approved Providers are appropriately rewarded for the operational risks inherent in operating an aged care business;
  3. iii) how ‘efficiency’ should be defined and determined, to take account of the unavoidably higher cost structures faced by some aged care providers;
  4. iv) how the level (or levels) of Accommodation Payments for aged care homes should be set – for example, by establishing benchmarks and bands for different sorts of aged care home with applications for variation on an exception basis – and whether these issues should be considered at the provider or at the aged care home level.
  5. v) the impact of removing retention amounts on accommodation bonds, the cooling off period for a resident to decide the method for paying their accommodation payment, and the requirement to insure lump sum accommodation payments.3
d) 31 October 2012 – advice on the appropriate methodology to ensure Lump Sum Accommodation Payments and Periodic Accommodation Payments are financially equivalent for providers4.

A2) The following matters are also referred to the Authority for consideration under paragraph (6) of Interim Operating Framework, for report by:

a) 30 June 2012 – advice on cost effective options to improve the collection of the appropriate financial data from aged care providers to allow the Authority to undertake costing and pricing analysis and to assist providers to benchmark their operations against other providers.

b) 31 December 2013 – advice on the financial implications of any changes to the Schedule of Specified Care and Services in residential aged care.
c) 31 December 2013 – advice on cost neutral mechanisms to ensure access to care for supported residents, including reviewing the efficiency, effectiveness, and appropriate level of:
  1. the supported resident ratio for each aged care planning region; and
  2. ii) the ‘40 per cent’ rule for the Accommodation Supplement.
d) 31 December 2014 – advice on the response of Approved Providers to the recalibration of the basic subsidy levels for Home Care Packages that is scheduled for 1 July 2013 to ensure that service delivery levels are not adversely affected.

e) to inform the five year review of the Living Longer Living Better reforms – advice on longer term options to support a stable and skilled workforce that can meet the growing demand for aged care services.

Schedule B – Approval of the Appropriate Level of Accommodation Payments

B1) The Government recognises that Approved Providers, investors and financial institutions require sufficient certainty around the aged care financing arrangements that will operate from 1 July 2014 in order to make investment decisions in the period up to 1 July 2014.

B2) Subject to the introduction of the necessary amendments into, and their agreement by, the Parliament, the Government intends that interim arrangements set out below will be recognised by the long term arrangements.

Interim arrangements – Significant refurbishment criteria

B3) The Government intends to draft amendments to the Residential Care Subsidy Principles 1997 as soon as possible to provide for a higher level of the Accommodation Supplement to apply (from 1 July 2014) in respect of aged care homes that commence operations or that are significantly refurbished on or after 20 April 2012, provided that those homes meet the post-end-July 1999 building requirements set out in the aged care legislation.

B4) The Government intends to include a definition of ‘significant refurbishment’ in the Residential Care Subsidy Principles 1997 based on the following.

A refurbishment is a ‘significant refurbishment’ if it meets the following criteria:

a) the refurbishment includes changes, updates, upgrades or other improvement that mean that the aged care home after refurbishment is different either in form, quality or functionality than before refurbishment; and

b) the costs of the refurbishment are on capital account – that is, they are either capitalised as structural improvements where they are integral to the structure or depreciated if they relate to fixtures, fittings or anything removable intact5; and

c) the refurbishment requires approval by a building authority as a major refurbishment.

B5) The Authority will be asked to review this definition and to report to the Government by 21 September 2012.

Interim arrangements – Determining the level (or levels) of the Accommodation Payments that an Approved Provider can levy on care recipients for entry to an aged care home

B6) The Government intends to announce before 1 December 2012, based on the advice of the Authority, the methodology that will be used to determine the level (or levels) of the Accommodation Payments that a residential aged care provider can levy on care recipients for entry to an aged care home, including the way in which these determinations will be initiated.

B7) The Government recognises that the actual cost of supplying aged care accommodation will vary considerably depending upon location and the quality of the building stock. The Government expects that the Authority will take these matters into account in providing its advice to the Government.

B8) It is the Government’s intention that the final legislative arrangements will provide appropriate price protections to aged care providers who have undertaken investments based on these interim arrangements.

B9) However, to assist aged care providers who wish to make investment decisions prior to the legislative framework being in place, the Government indicates that, subject to the advice of the Authority, it considers that the methodology that should be used to determine the level (or levels) of the Accommodation Payments that a residential aged care provider can levy on care recipients for entry to an aged care home should take into account:

a) all factors impacting on the cost and value of the accommodation services offered, including:
  1. design, development, construction, land and refurbishment costs, including regional and site specific variations in these costs;
  2. the Debt/Equity structure of the approved provider’s balance sheet (or of a ‘typical’ provider’s balance sheet depending on the approach taken by the Authority);
  3. the Cost of Debt faced by the approved provider (or of a ‘typical’ provider depending on the approach taken);
  4. the rate of Return on Equity for efficient operators that has been determined by the Minister, based on the advice of the Authority, as appropriate for the residential aged care sector; and
  5. relative value considerations for differential accommodation offerings within the aged care home;
b) all factors impacting on the provider’s revenue stream from Accommodation Payments and Supplements and operational surpluses/deficits, including:
  1. the Rate of Return on Operations for efficient operators that has been determined by the Minister, based on the advice of the Authority, as appropriate for the residential aged care sector;
  2. the expected occupancy rate of the aged care home over its lifetime, including regional variations; and
  3. the likely total cash flow from Accommodation Supplements and Accommodation Payments over the lifetime of the aged care home, taking into account lower occupancy during the ramp up periods and down periods due to refurbishment, and the likely mix of fully supported, partially supported and non-supported residents;
c) any evidence as to the ‘market’ price for equivalent accommodation services;
d) any difference in costs to providers that may arise from lump sum payments as opposed to periodic payments, including the costs of insuring lump sum bonds;
e) the impact of the proposed Accommodation Payment arrangements for the aged care home on access to care, given the economic profile of the catchment area of the aged care home, including access to care for:
  1. fully supported residents;
  2. partially supported residents; and
  3. inon-supported residents, particularly those with limited financial means;

      4. f) other relevant factors that the Approved Provider may wish the Authority to consider, including the provider’s operations in other aged care homes;
      g) transition issues, including the practical impact on approved providers whose Accommodation Payments may result in lower accommodation revenue than currently; and
      h) any policy or procedural directions of the Minister.

      1 - Under item 5 advice will include consideration in regard to special needs groups including rural and remote services, the homeless, Indigenous Australians and people of Culturally and Linguistically Diverse background.
      2 - The Government intends to provide the Authority with its final Operating Framework before 1 November 2012.
      3 - The Government intends to announce, based on the advice of the Authority, the methodology that will be used to determine the level (or levels) of the Accommodation Payments that an Approved Provider can levy on care recipients for entry to an aged care home, including the way in which these determinations will be initiated, before 1 December 2012. These arrangements will require amendment of the Aged Care Act 1997.
      4 - The Government intends to announce, based on the advice of the Authority, the methodology that will be used to ensure that to ensure that Lump Sum Accommodation Payments and Periodic Accommodation Payments are financially equivalent for providers, before 1 December 2012. These arrangements will be legislated through amendment to the Aged Care Act 1997.
      5 - Routine repairs, the maintenance of premises (such as painting, plumbing, electrical work or gardening) and the replacement of furniture are not refurbishments and would be expected to be funded through the operational budget of the service.


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