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Aged Care Financing Authority Discussion Paper on Accommodation Payments

As you are aware, I have recently been appointed to Chair the new Aged Care Financing Authority (the Authority). The Authority has been established to provide transparent, independent, advice to the Government on pricing and financing issues in aged care. This is a new and important function which should provide the sector, consumers and the Government with greater clarity on the financial factors impacting residential aged care, and the options for addressing them.

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Dear Aged Care Provider,

As you are aware, I have recently been appointed to Chair the new Aged Care Financing Authority (the Authority). The Authority has been established to provide transparent, independent, advice to the Government on pricing and financing issues in aged care. This is a new and important function which should provide the sector, consumers and the Government with greater clarity on the financial factors impacting residential aged care, and the options for addressing them.

All members of the Authority are aware of the high hopes you hold for our work and are looking forward to contributing to the future success of the industry. The Authority has met twice since we were established on 1 August 2012, and will be meeting again in early September.

Minister Butler has released an Interim Operating Framework for the Authority, which sets out a number of issues on which he would like recommendations. While some of these deadlines are tight, the Framework does attempt to balance the need for investment certainty with the need for appropriate consultation with the aged care sector. You have already received a request from us for feedback on the definition of ‘significant refurbishment’, and the Authority appreciates the many contributions we have received to date.

Today I am writing to you on behalf of the Authority to seek your feedback on Accommodation Payments. The Minister has asked that we provide him with recommendations on the following issues by 31 October 2012:

• the methodology 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:
  • 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;
  • 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;
  • how ‘efficiency’ should be defined and determined, to take account of the unavoidably higher cost structures faced by some aged care providers;
  • 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;
  • 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; and
• the appropriate methodology to ensure Lump Sum Accommodation Payments and Periodic Accommodation Payments are financially equivalent for providers.

I have attached for your consideration a brief discussion paper on these issues, which includes a number of questions for your consideration. These are important issues and any feedback you have would be appreciated by the close of business on 24 September 2012.

Yours sincerely

Authorised for Electronic Distribution

Lynda O’Grady
Chair
Aged Care Financing Authority
31 August 2012

Discussion Paper - Accommodation Payments

Submissions due 24 September 2012

Introduction

This paper seeks feedback on a number of issues relating to accommodation payments in residential aged care.

Background

On 20 April 2012, the Prime Minister, the Hon Julia Gillard MP, and the Minister for Mental Health and Ageing, the Hon Mark Butler MP unveiled a comprehensive 10 year package to reshape aged care. It will build a better, fairer, sustainable and nationally consistent aged care system to meet the social and economic challenges of the nation’s ageing population. The Government recognises the need for fundamental reform of the aged care system in order to ensure that it continues to provide high quality care and can respond to future challenges. Information on the comprehensive reform package can be found on the

“Living Longer, Living Better.” website at www.agedcareaustralia.gov.au.

A new Aged Care Financing Authority (the Authority) has been established, which will provide independent advice to the Minister for Mental Health and Ageing on pricing and financing issues. The Authority has an independent Chair, and comprises a committee of members with expertise in provision of aged care services, consumer and worker representation and finance, as well as Government representatives. In completing its responsibilities the Authority is required to ensure that its advice is evidence based, its operations are transparent and it consults widely with the aged care sector, the finance sector and consumers (or their representatives) as appropriate. The Interim Operating Framework (IOF) for the Authority can be found on the “Living Longer, Living Better.” website at www.agedcareaustralia.gov.au.

Outline of consultation process

The Authority will be consulting with aged care organisations, aged care homes, interested members of the public and other interested parties.

In addition, the Authority will be engaging independent professional consultants to address the issues within a structured framework. The feedback and reports from consultants will be considered by the Authority when formulating its recommendations to the Minister. The consultation process will be coordinated by the Authority’s Secretariat based in the Department of Health and Ageing.

Feedback is requested by 24 September 2012.

Current arrangements

Under the current arrangement, residents who enter an aged care home for low level care or for high level extra service care have the choice of paying for their accommodation though either:

• A lump sum payment (an accommodation bond);
• An equivalent daily payment (periodic payment); or
• A combination of both.

Residents who enter an aged care home for high level care, and who can afford to, are required to pay for their accommodation through a capped daily charge.

New arrangements

As part of the Living Longer, Living Better package, from 1 July 2014, new residents will have greater choice in how they pay for their accommodation, with the option of paying either a fully refundable lump sum payment, a periodic payment, or combination of both. Also from 1 July 2014, the Australian Government will significantly increase the maximum level of the accommodation supplement it pays in respect of care recipients who cannot meet their own accommodation costs. This will apply to aged care homes that were built or significantly refurbished since the announcement of the aged care reforms on 20 April 2012. The maximum level of the accommodation supplement will increase from $32.58 per day (currently) to an estimated $52.84 per day. The Authority has already sought feedback on the appropriate definition of significant refurbishment, and is now seeking feedback on how accommodation payments should be set.

Feedback sought

The Authority has been asked to provide recommendations to the Government by
31 October 2012 on the following issues:

• the methodology to govern the level (or levels) of the accommodation payments that an Approved Provider can levy on residents for entry to an aged care home from 1 July 2014; and
• the appropriate methodology to ensure Lump Sum Accommodation Payments and Periodic Accommodation Payments are financially equivalent for providers.

As part of this the Authority will provide advice on:

• 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;
• 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;
• 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;
• how ‘efficiency’ should be defined and determined, to take account of the unavoidably higher cost structures faced by some aged care providers; and
• 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.

The Authority is therefore seeking your feedback on the above issues. In providing comments you may wish to consider some or all of the questions in Attachment A.

How to provide input

In order to have your feedback considered it needs to be submitted by 24 September 2012.

Feedback can be submitted by email to ACFA.Secretariat@health.gov.au

or by post to
ACFA Secretariat
MDP 550
GPO Box 9848
CANBERRA ACT 2601

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