Maryann Curry and Malcolm Pittendrigh - The Salvation Army Aged Care Plus
Overview of proposed changes to the Aged Care Act 1997 and
related legislation
SUBMISSION TO THE DEPARTMENT OF HEALTH AND AGEING
December 2012
The Salvation Army Aged Care Plus (TSAACP) is one of the largest faith based aged care
providers in Australia, operating 17 residential centres with 1484 residential licenses, 416
independent living units and 55 community care packages complemented by some HACC
funded programs across New South Wales, Queensland and the Australian Capital Territory. The
Salvation Army Aged Care Plus annual operating income is just under $100m, including $58m
in government funding and interest income from $72m of bonds. The Salvation Army Aged Care
Plus has over 1060 employees and hundreds of volunteers to support its mission in caring for the
older Australians. This service is complemented by other social programs conducted by The
Salvation Army targeting marginalised older Australians who are ineligible for Commonwealth
funded programs such as homeless people, those living in squalor, drug rehabilitation and those
isolated through dislocation from their family.
The Salvation Army Aged Care Plus Contact:
Ms Maryann Curry, Deputy Chief Executive Officer (Operations) 02 9779 9416.
Maryann.curry@aue.salvationarmy.org
Mr Malcolm Pittendrigh, Deputy Chief Executive Officer (Corporate Services) 02 9779 9416.
Malcolm.pittendrigh@aue.salvationarmy.org
Introduction
The Salvation Army Aged Care Plus is pleased to respond to the invitation of the Department of
Health and Ageing regarding the proposed changes to the Aged care Act 1997 and related
legislation.
TSAACP has made comment in regards to the financial implications of the proposed legislative
changes. A number of examples are given, and questions posed. TSAACP believe that a number
of these issues require further information and clarification if the changes proposed are to be
viewed as acceptable to providers in the aged care sector.
TSAACP has provided relevant commentary in regards to the various components of the
proposed legislative changes. Please note that TSAACP has elected not to provide comment on
all proposed changes contained within the overview of proposed changes.
Financial Arrangements for residential care and home care packages
Removing the high/low care distinction to provide greater choice and ensure funding is based on
assessed care needs
Consistent with the Government’s commitment to increase consumer choice and ensure that
funding is commensurate with care needs, the legislation will be amended to remove the
distinction between care recipients approved for high level residential care or low level
residential care.
Care recipients will continue to be approved as recipients of residential care based on an
assessment of their care needs; however, the approval will be for residential care without any
distinction between whether the person requires a low level of residential care or a high level of
residential care.
The effect of this is that:
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care recipients will be able to access the level of care that they need at their time of entry
into residential care rather than being limited by their approval
all approvals of care recipients for residential care will become non-lapsing (unless they
are expressly time limited). This reduces the need for re-assessment if a person does not
immediately enter care after being approved as a recipient of residential care.
TSAACP Response
Overall, TSAACP agree with the above. However, the review of provisions listed within the
Quality of Care Principles 1997 specifically Specified Care and Services will have a major
impact on the operations of Residential Aged Care Services. Whilst it is acknowledged that
collaboration with relevant stakeholders has commenced there is a requirement to further analyse
the proposed changes from a broader public forum. It is acknowledged that there will be
opportunity for further public consultation, however the details of this consultation need to be
considered and opportunity provided to submit response to the proposed changes once these have
been developed by the consultation group.
TSAACP acknowledges that the removal of high and low care distinctions provides a centric
model of care that is highly individualised to the individual care recipient’s needs. The links to
Specified care and Services have been established; however there are also intrinsic links to the
current funding model in terms of high and low care classification which also requires
consideration in light of changes to Specified care and Services as outlined in the Quality of Care
Principles 1997.
Choice in relation to amenities and services
Currently there is little scope for care recipients to purchase additional amenities and services,
partly because of the way the list of specified care and services operates for high care and low
care residents.
From 1 July 2014, it is proposed that:
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approved providers of residential care will continue to be able to offer care on a dedicated
‘extra service basis’. The arrangements relating to new applications for extra service
status and the granting of extra service status will remain largely the same. Applications
for extra service status will continue to be competitively assessed. The key differences
are:
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providers will be able to apply for extra service status not just for an entire service or
distinct part of a service (as they can currently) but also for extra service status for one or
more rooms in the service. This increases flexibility and also potentially provides a
greater range of choice for the care recipient
the fees for extra service will be approved by the new Aged Care Pricing Commissioner,
a role currently undertaken by the Department. For administrative efficiency the
assessment of applications for extra service status will continue to be managed in parallel
with the Aged Care Approvals Round (ACAR)
while care recipients who enter into a dedicated extra service place from 1 July 2014 will
be required to pay the agreed extra service fee, there will no longer be an additional 25%
charge that is recovered by the Government.
all services will be able to offer additional amenities such as increased entertainment
choices on an opt-in opt-out basis and charge a fee to be agreed with the resident. While
providers currently have this option, the practical effect is limited, due to lack of clarity
in the existing schedule of specified care and services.
TSAACP Response
Previous reform information in regards to Extra Services has indicated that this service would no
longer be available. The current proposal provides conflicting information in relation to the
provision of extra services from a residential aged care perspective. It is noted that the provision
of extra services will continue to be through a competitive application process. Under the new
reform arrangements all pricing is published within the public domain and regulated through the
Aged Care Financing Authority (ACFA). Given the additional safeguards in place through the
new finance authority the competitive process for the application of additional amenities and
services provides an additional layer of regulatory burden. The Government needs to consider
the application and assessment process of extra services under the new reform measures given
that an extensive component of the current application process is in relation to protection
measures regarding pricing arrangements. Clarification needs to be provided between the scope
of the application process and the regulatory requirements of ACFA.
The proposal indicates that the fees for extra service will be approved by the new Aged Care
Pricing Commissioner. Given the role of ACFA as an independent pricing authority this should
have the responsibility for the regulation of all related pricing for the Aged care Sector moving
forward, inclusive of extra services fees.
Care Subsidy Reduction / Annual and lifetime caps
The maximum care subsidy reduction is capped by:
■the actual care costs (that is, the sum of the basic subsidy amount and the primary
supplements). The care subsidy reduction cannot be greater than the sum of the basic subsidy
amount and the primary supplements
■the annual cap. If the annual care subsidy reduction exceeds the annual cap ($25,000 for
residential care indexed annually), the care subsidy reduction is zero and no means tested care
fee is payable until the anniversary of the care recipient’s date of entry to care
■the lifetime cap. If the lifetime care subsidy reduction exceeds the lifetime cap ($60,000
indexed), the care subsidy reduction is zero and no means tested care fee is payable by the care
recipient for as long as they receive Government subsidised care.
TSAACP Response
With the capping of the maximum care subsidy from an annual and lifetime perspective there is
concern regarding the monitoring processes for a care recipient who chooses to move across
multiple Aged care providers for their care package. There needs to be be greater explanation
and consideration of the tracking processes in relation to the annual and lifetime cap and
consideration of how this will be reported to approved providers. Additionally there is question
of if the Commonwealth will automatically subsidise the costs of care deficits when the relevant
cap has been reached for the acre recipient. Failure to meet ongoing costs of the care subsidy
post the contribution of the care recipient places approved provider operations at significant risk.
Accommodation supplement
The accommodation supplement is the amount the Government contributes towards the cost of a
care recipient’s accommodation.
The maximum amount payable by the Government will be influenced by three factors:
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the status of the building in which the residential care service is operated
the service’s supported resident ratio, and
the financial means of the care recipient.
Service Status
If the service meets the criteria for a post 20 April 2012 newly built or significantly refurbished
service (as defined in Principles), the approved provider will be eligible for the maximum
amount of accommodation supplement applicable to the care recipient (based on the means of
the care recipient).
For example, the maximum rate of the accommodation supplement from 1 July 2014 will be
$52.84 per day or $19,234 per annum (estimated July 2014 rates). The maximum daily rate of
the accommodation supplement that is applicable to the aged care service depends upon several
factors:
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services that are built or are significantly refurbished (as defined in Principles) on or after
20 April 2012 and which meet the post-end July 1999 building requirements set out in the
Principles, will receive the maximum amount of accommodation supplement of $52.84
per day (estimated July 2014 rates) for each eligible care recipient
other services that meet the post-end July 1999 building requirements set out in the
Principles will receive $32.58 per day (March 2012 rates) for each eligible care recipient
services that meet the building certification requirements set out in the aged care
legislation, but that do not meet the post-end-July 1999 building requirements, will
receive $27.39 per day (March 2012 rates) for each eligible care recipient
services that do not meet the building certification requirements set out in the aged care
legislation will receive no accommodation supplement.
TSAACP Response
The criteria for newly built or significant refurbished services continues to pose significant
impacts for approved providers given the arbitrary date of 20 April 2012 will pose impact on
services which have commenced building prior to this date who are currently ineligible.
TSAACP has invested over $150m between 2006 – 2012 in order to provide state of the art
buildings to meet the changing needs of the ageing population and this has resulted in an
inability to access the additional supplements on offer. There are significant numbers of
approved providers who are being financially disadvantaged as a result of this regulation that
will impact on the further ability to provide financially sustainable services in a changing
environment. TSAACP recommends that the definition be examined for all approved provider
eligibility with the added ability for the Aged care Pricing Commission to receive requests which
a e assessed on an individual basis for approved providers.
If the arbitrary date of 20th April 2012 is not reviewed, it is reasonably foreseeable that many
NFP’s like The Salvation Army will significantly reduce their concessional/ supported resident
ratio’s due to being financially disadvantaged to the tune of some $20,00 prpd. Whilst this is
definitely not a preferred option for our organisation the practical financial realities are such that
we will be pressured to make this change as multimillion dollar loans need to be repaid. As such
the unintended consequence could be a significant reduction in concessional/ supported places
for resident’s right across Australia where organisations have invested considerable capital funds
for new and refurbished facilities prior to April 2012.
There are concerns raised in regards to the assessment of building certification requirements and
the impact of eligibility for additional supplements. There is a lack of specificity regarding the
assessment process and this causes concern in regards to meeting eligibility criteria.
The proposed changes indicates that
If a 30 June 2014 care recipient moves to another aged care service (within 28 days of leaving
the first service), the residential care subsidy payable in respect of that person will continue to be
calculated in accordance with the methods and calculators as at 30 June 2014. The care recipient
can elect, however, to be subject to the new rules which apply in respect of a new entrant on or
after 1 July 2014.
The proposed changes indicate that this option is available to the consumer only and is not
available for the approved provider. Given the significant changes if the option of choice is made
available to the consumer, there should be the ability to charge all new residents entering a
facility (regardless of their case history) in accordance with the new pricing arrangements from
July 2014.
Means tested care fee
The means tested care fee is the same amount as the care subsidy reduction. In other words, the
care recipient’s assets and income are calculated and compared to the accommodation
supplement.
If the relevant means tested amount is:
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less than the maximum amount of daily accommodation supplement, then the means
tested care fee is zero
equal to or greater than zero, but less than the sum of the basic subsidy amount and all
primary supplements (i.e. the relevant means tested amount is less than the care costs),
then the means tested care fee is the relevant means tested amount
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greater than the sum of the basic subsidy amount and all primary supplements (i.e. the
relevant means tested amount is greater than the cost of care) then the means tested care
fee is the sum of the basic subsidy amount and all primary supplements. The effect of this
is that the maximum a person can pay in means tested care fee is the total cost of their
care.
If the care recipient does not provide adequate information to enable the relevant means tested
amount to be determined, the means tested care fee is the sum of the basic subsidy amount and
all primary supplements.
TSAACP Response
As a result of the reduction in care subsidy the onus is now on the approved provider to have
responsibility for collecting the means tested fee from the care recipient. The Commonwealth has
reduced the funding arrangement resulting in additional fees being sourced directly from the care
recipient placing additional burden of risk on to the approved provider. This results in the
provider, by implication of the ruling, becoming responsible for collecting additional funding
directly from the acre recipient and being exposed to additional financial risk if in the event the
care recipient is unable to pay the fees required.
Accommodation Bonds, Charges and Payments TSAACP Response
The future of Accommodation bonds, charges and payments and their importance for providers,
investors and commercial lenders is critical. There is no doubt that bonds cannot simply be
eliminated as a source of funding for the given the amount currently held as accommodation
bonds by providers.
Determining what should be included in calculating a periodical payment amount in lieu of a
lump sum bond is not particularly difficult. However, there are significant variations surrounding
what rates/discounts should be applied. The following components would be included;
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an allocation to compensate for retentions,
an appropriate interest expense (on the basis that capital will be borrowed rather than
invested and probably at a higher rate given the greater risk) and an investment benefit or
cost of interest forgone
A component for a heightened probability of bad debts/late payment of fees.
The first simply entails determining a daily/weekly/monthly charge equivalent to the current
annual retention drawdown on accommodation bonds.
The second is influenced by the source of the replacement lump sum capital - commercial debt or
investment. If it were commercial debt, the appropriate rate would probably be the standard
overdraft rate. An implied investment return would be impacted by the factors discussed in the
previous section.
Finally, exchanging a lump sum held by a provider as a "guarantee" of payment of all amounts
owing for a periodical payment, represents an increased risk - the higher the payment and the
greater the number who pay it, the more the risk increases. An analysis would have to be
undertaken based on bad debt experience with appropriate projections applied.
There is however a more significant issue; the use of lump-sum bonds by residents to pay extra
service fees which they could not otherwise afford. This voluntary practice is becoming more
prevalent and is proving popular with residents who are traditionally asset rich and income poor.
It allows residents who have sold their home, to utilise a larger than usual bond to fund the
provision of extra service at their choice.
Some extra service facilities offer this drawdown as part of the normal bond amount while others
request a higher bond as compensation. Whilst new arrangements may not necessarily disturb
this practice, it is important to understand the implications of offering a periodical payment as an
alternative option. The calculation would be complex and would have to occur on an individual
basis following negotiation with an incoming resident as to their intent. It is vital to preserve this
flexibility as it provides much greater choice for residents and the extra service sector is the
fastest growing specialised accommodation choice in the wider residential aged care market.
In respect of retention, there was no variation amongst those surveyed. All regard retentions as
an important component of operational income which is included for interest coverage, EBITDA
and financial return calculations. If retentions are no longer to be charged, then daily fees must
be adjusted accordingly or, as with the ACFI changes, more providers will find themselves in
breach of loan covenants entered into without contemplation that such an important change to
funding would occur.
A cooling off period similar to that which exists in residential real estate contracts is not in and
of itself a particular concern for ACP provided that there are strong protections around a
provider’s right to set a fee whether via accommodation bond or periodical payment. Whilst
residents may elect to choose a different method of payment, it is important providers have
certainty in setting fees according to the services and accommodation provided.