ADVICE ON ACCOMMODATION PAYMENTS
INTRODUCTION
The Minister for Mental Health and Ageing has requested that the Aged Care
Financing Authority (the Authority) provide him with recommendations on:


the methodology to govern the level (or levels) of accommodation payments that
an Approved Provider can levy on care recipients 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.
THE AUTHORITY’S RECOMMENDED METHODOLOGY
The Authority recommends the establishment of a methodology that allows for the
consideration and tailoring of an appropriate pricing regime by reference to three
broad price levels. The proposed arrangements are summarised in the table below.
The detailed recommendations commence on page three.
Price
Category
Level
1
Periodic
Payment
Lump Sum
Equivalent1
Combination example
50%Periodic
Payment/50% Lump Sum
Prices agreed between providers and residents
subject to:
Up to the level
of the
government
accommodation
supplement
(currently $50
per day)
Up to
$238,845
$24.81 periodic per day
and $120,000 lump sum
(equivalent to $238,845
lump sum)
Full publication of current prices.
Complaints process available if proposed pricing not
set on reasonable basis.
Also note that the upper threshold of Level 1 is
equivalent to the maximum of Government
accommodation support where those with low
means have their accommodation payment paid in
full or part by Government (as a periodic
accommodation supplement),2 and the level a
provider will receive in Accommodation Supplement
(March 2012 prices) for eligible residents in a facility
that is newly built or has undergone a significant
refurbishment from 20 April 2012. Lower prices
apply for existing facilities that have not been
significantly refurbished
1
Calculated as follows: Periodic payment divided by the current maximum permissible interest rate of
7.62%, then multiplied by 364 (26 fortnightly payments).
2
Residents that are eligible for this supplement are not required to pay more than $50 per day, with
part or all of this $50 paid by the government. Note that prices are in March 2012 dollars.
1
Price
Category
Level
2
3
Periodic
Payment
Lump Sum
Equivalent1
Combination example
50%Periodic
Payment/50% Lump Sum
Prices agreed between providers and residents
subject to:
Greater than
Level 1 and up
to the periodic
payment
equivalence of
the 95th
percentile of
lump sum
payments
(currently
$104.67 per
day)
Over
$238,845
and up to
$500,000
$52.19 periodic per day
and $250,000 lump sum
(equivalent to $500,000
lump sum)
Full publication of current prices.
Greater than
Level 2
Over
$500,000
$78.29 per day and
$375,000 lump sum
combination (equivalent
to $750,000 lump sum)
Full publication of current prices.
Complaints process available if proposed pricing not
set on reasonable basis.
Prices must be pre-approved by Government
authority.
The following table illustrates some price points
Price
Category
Periodic
Payment
Lump Sum
Equivalent3
Combination example
50%Periodic
Payment/50% Lump Sum
Level
2
$75 per day
$358,268
$33.04 periodic per day
and $200,000 lump sum
combination
This price point demonstrates the costs to a resident
who agrees to an accommodation payment of $75
per day, equivalent to a lump sum accommodation
payment of $358,268.
3
$125 per day
$597,113
$62.03 periodic per day
and $300,000 lump sum
combination
This price point demonstrates the costs to a resident
who agrees to a (Government approved)
accommodation payment of $125 per day,
equivalent to a lump sum accommodation payment
of $597,113.
3
Calculated as follows: Periodic payment divided by the current maximum permissible interest rate of
7.62%, then multiplied by 364 (26 fortnightly payments).
2
RECOMMENDATIONS (FROM 1 JULY 2014)
The detailed recommendations are presented under three headings:
A. Pricing – Periodic Payments and Lump Sum Equivalents
B. Provider Certainty
C. Consumer Discretion and Protection
These may be summarised as follows:
A. Pricing – Periodic Payments and Lump Sum Equivalents
1.
2.
3.
4.
Methodology
Definitions
Level 1 – Detail
Level 2 - Detail
B. Provider Certainty
5. Lump Sum Equivalency – MPIR
6. Level 3 - Detail
C. . Consumer Discretion and Protection
7. Pricing mutually agreed between Provider and Resident
8. Pricing published by Provider
9. Comparative pricing published by government on a central internet site
10. Right of complaint in relation to Level 1 and 2 pricing by Resident prior to
agreement
11. Absolute resident discretion as to mode of Accommodation Payment
A. Pricing –Periodic Payments and Lump Sum Equivalents
1. The Authority recommends the establishment of a methodology that allows
for the consideration and tailoring of an appropriate pricing regime by
reference to three broad price levels. This regime references Daily Periodic
Payments and provides for Lump Sum Equivalency translation based on the
current interest rate used in Aged Care legislation (the maximum permissible
interest rate or MPIR).
3
2. The Authority recommends these price levels be:
Level 1 – Prices up to the level of the maximum Government accommodation
supplement ($50 per day from 1 July 20144, or lump sum equivalent).
Level 2 – Prices between Level 1 and an upper threshold based on the 95th
percentile of lump sum accommodation payments for the most recently
available year of data ($104.67 per day5) or lump sum equivalent).
Level 3 – Prices above the Level 2 threshold.
3. The Authority recommends the following for Level 1 prices:
 The Authority recommends the upper threshold for Level 1 prices be
set at the maximum level of the Government’s accommodation
supplement. This would be $50 per day or $238,8456 if the resident
chose to pay by lump sum payment.
 This threshold is a clear marker indicating the maximum level of
Government accommodation support for low income residents.
 The Authority notes that residents with very low means will be
eligible for the full Government accommodation supplement
(maximum $50 per day from July 20147) and so will have their
accommodation payment paid by Government.
 The Authority notes that residents with limited means (those eligible
for a part Government accommodation supplement) will contribute
in part to their accommodation payment (while receiving a part
Government accommodation supplement). The combined amount of
the Government accommodation supplement and the resident’s
contribution cannot exceed the maximum Government
accommodation supplement payable for the individual.
4. The Authority recommends the following for Level 2 prices, with a review
after three years:
 The Authority recommends that the upper threshold for Level 2 prices
be set annually by the Minister by determining the 95 th percentile of
4
The $50 is in 2012 prices
The $104.67 is in 2012 prices
6
The $50 and $238,845 are in 2012 prices
7
The $50 is in 2012 prices
5
4


lump sum accommodation payments for the most recently available
year of data and determining the periodic payment equivalent of that
amount.
The Authority will review the upper threshold on an annual basis and
advise the Minister of the effectiveness of the current arrangements.
The Authority notes this would give a periodic payment of $104.67
per day and a lump sum accommodation payment of approximately
$500,000 if the resident chose to pay by lump sum payment, based on
the most recently available year of data (2010-11).
B. Provider Certainty
5. The Authority recommends that the current interest rate (the maximum
permissible interest rate or MPIR) used in Aged Care legislation for
determining the equivalence of periodic and lump sum payments be
maintained. In addition, consistent with the Government’s decision to no
longer allow retention amounts, the formula should no longer refer to
retention amounts and should ensure that no amount of insurance costs
relevant to a lump sum accommodation payment is included in an equivalent
periodic payment calculation.
6. The Authority recommends the following arrangements for Level 3 prices:
That Level 3 prices would be required to be pre-approved by the relevant
Government authority.
Guidelines should be established, in consultation with industry and consumer
groups, to provide clarity on the requirements to be met to obtain approval
of Level 3 prices. The guidelines should determine a set of criteria that would
be considered in assessing applications including the quality of the
accommodation offered, location of the rooms within the facility, location of
the facility itself, local land and housing prices, construction costs relevant to
the facility, and any other relevant factors including reference to provider or
facility specific cost and price factors.
5
Once a Level 3 price is approved by the Government authority, the approval
should remain valid on an ongoing basis for a “Prescribed Period8” provided
the price does not increase by more than a “Prescribed Factor9”. “Prescribed
Period” and Prescribed Factor” to be published in legislation.
C. Consumer Discretion and Protection
The Authority recommends the following arrangements.
7. All pricing and mode of payment for unsupported residents would be agreed
between the provider and resident having relevant information about, for
example, the different modes of payment, the refund of lump sum
accommodation payments and any allowable deductions.
8. Providers will be required to publish all current prices (in the form of periodic
payments and lump sum accommodation payments) for all room types in
advance - over the internet and in documentation provided to prospective
residents and their families from 1 July 2014. Providers cannot charge more
than the published price. Residents and providers can agree charges less than
the published prices.
Providers should be encouraged to adopt this approach voluntarily from
1 July 2013.
9. The Authority recommends that prices be published on a central internet site
that allows consumers to readily compare prices from different providers.
10. The Authority recommends that individuals considering entering an aged care
home should have a right to complain to the relevant Government authority
before they agree to a price if they consider the prices a provider is proposing
to charge have not been set on a reasonable basis.
To provide a high level of certainty, guidelines should be established in
consultation with industry and consumer groups to provide clarity on when
prices would be considered to have been not set on a reasonable basis.
8
A period no less than 5 years – to be confirmed in legislation
9
An index to apply to amendment of all prices on an annual basis
6
Providers would be required to amend any pricing that has not been set on a
reasonable basis.
The Authority notes that providers who engage in unconscionable conduct
with regard to pricing are subject to the provisions of the Competition and
Consumer Act 2010.
11. The Authority notes that residents will be provided with absolute discretion
in deciding the method of Accommodation Payments, ie by Periodic
Payments or Lump Sum paid in advance. While agreement to the
accommodation payment amount for each payment mode will be required
before entry, the choice of payment mode may be made at any time within a
“cooling off” period. The Authority recommends that the “cooling off” period
be renamed the “choice of payment method period” to better reflect its
objective and be limited to 28 days.
7
EXECUTIVE SUMMARY
Setting accommodation payments
The Authority considers its recommendations allow for an efficient, sustainable and
equitable system to develop which provides appropriate flexibility and safeguards
for consumers and certainty for providers while limiting regulatory costs.
The Authority considers there are grounds for placing appropriate price safeguards
on the system to protect residents while constraints on the supply of aged care
services remain in place.
The Authority’s suggested framework provides a flexible system which takes into
account the protections afforded to residents with low means in the Level 1 price
range, proposes a significant improvement in information and price transparency to
aid consumers (supported by a complaints process if prices have not been set on a
reasonable basis), and provides an additional safeguard of pre-approval of prices
above a deemed upper threshold.
At the same time the suggested framework provides flexibility for the market to
operate and adapt without imposing unreasonable regulatory costs. The Authority
considers that the continued use of the maximum permissible interest rate for
determining equivalence of lump sum and periodic payments is appropriate, as it
broadly reflects the treatment of a lump sum payment as unsecured finance which it
considers is the most appropriate treatment.
Advice on the impact of removing retention amounts, insurance and cooling off
period
The Authority notes the significant amount of feedback from consultation that the
removal of retention amounts will result in providers increasing the amount of lump
sum accommodation payments to compensate. A number of submissions also
indicated that in low home value regions it may not be possible to compensate for
the loss of retentions through increased lump sums.
The Authority notes the significant amount of feedback from consultation that
imposing insurance requirements on lump sum accommodation payments will result
in providers seeking to recover the cost of insurance from residents. The Authority
also notes that the broad reforms proposed under the Living Longer Living Better
reforms and the regime for accommodation payments proposed by the Authority
provide scope for industry to adjust for these impacts.
8
The Authority considers there is substance to the significant industry concerns that
the new requirements for insurance may impose costs on industry and consumers
that could perhaps be reduced and that there is benefit in exploring alternative
mechanisms which may mitigate these concerns while still meeting policy objectives.
The Authority considers the impact of the ‘cooling off’ provisions on accommodation
payments will be limited, but does suggest the ‘cooling off’ period be renamed the
‘choice of payment method period’ to better reflect its objective and be limited to 28
days. The Authority confirms that parties would agree the prices under the payment
options before entry with the resident having the flexibility to make a choice of
preferred payment option during the period.
Advice on rates of return and efficiency
The Authority notes that comments received from the consultation process highlight
the difficulty in determining what would be an appropriate rate of return and how to
assess efficiency across the industry as a whole, given the diverse structures, location
and services provided by the industry. The Authority intends to examine these issues
further in the context of providing its general advice on such issues to the Minister in
May 2013, as required under the Authority’s Operating Framework.
9
INTRODUCTION
As part of the Living Longer, Living Better package, from 1 July 2014, the distinction
between high and low care will be removed, allowing consistent accommodation
payment arrangements to apply for all new residents. All new residents will have
greater choice in how they pay for their accommodation, with the option of paying a
lump sum payment, a periodic payment, or combination of both.
The Minister for Mental Health and Ageing has requested that the Aged Care
Financing Authority (the Authority) provide him with recommendations on a
methodology for setting the maximum level(s) of accommodation payment a
provider can charge and ensuring lump sum and periodic payments are financially
equivalent for providers.
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. The objective of the package is to 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.
As part of the Living Longer, Living Better package, from 1 July 2014, the distinction
between high and low care will be removed, allowing consistent accommodation
payment arrangements to apply for all new residents. New residents will have
greater choice in how they pay for their accommodation, with the option of paying 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 from 20 April 2012. The maximum level of the
accommodation supplement will increase from $32.76 per day (currently) to an
estimated $52.84 per day (2014 prices).
10
Current Situation
In low care and extra service care the level of accommodation payments is
negotiated between providers and residents. Regulation is limited to requiring that
any bond charged leaves the resident with at least approximately $40,000 in assets.
Bonds are refundable but providers are able to deduct retention amounts of up to
$3,876 per annum.
In high care, bonds cannot be charged. A periodic accommodation charge can be
levied but this must not exceed the maximum level of the accommodation
supplement (currently approximately $32 per day).
The Government pays an accommodation supplement for those with low assets of
up to approximately $32 per day.
Under the Living Longer Living Better reforms
The high care / low care distinction will be removed, allowing lump sums and
equivalent periodic payments to be charged for all new residents with Government
continuing to pay an accommodation supplement for those with limited means.
ACFA is charged with providing advice to Government on how accommodation
payments should be set.
ADVICE REQUIRED FROM THE AUTHORITY
The Authority is required to provide recommendations to the Government by
31 October 2012 on:

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:
o 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;
o 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;
11

o how ‘efficiency’ should be defined and determined, to take account of the
unavoidably higher cost structures faced by some aged care providers;
o 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;
o 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.
CONSULTATION PROCESS
In order to inform itself of the views of the sector and to assist in its deliberations
the Authority distributed a discussion paper to relevant stakeholders.
The ‘Discussion paper: Accommodation Payments’ (Attachment A) was distributed by
email on 1 September 2012 and uploaded onto the Authority’s webpage located on
the Department of Health and Ageing website on 6 September 2012. Feedback was
requested by 24 September 2012.
The groups that the discussion paper was distributed to were:







aged care homes;
approved providers of residential care (for profit and not for profit);
aged care stakeholders (peaks and industry groups);
religious and charitable organisations;
consultants;
government departments; and
financiers with ongoing involvement in the aged care industry.
In addition, independent professional consultants were engaged to provide advice
on an appropriate methodology for setting accommodation payments and financial
equivalence of lump sum and periodic payments, and on issues relating to
appropriate rates of return for providers and efficiency. The consultants’ reports can
be found in Attachments B and C. The feedback received from the consultation and
reports from consultants were considered by the Authority when formulating its
12
recommendations. The consultation process was coordinated by the Authority’s
Secretariat based in the Department of Health and Ageing.
There were 38 unique responses received in response to the discussion paper. A
summary of the results is given in the ‘Report on submissions received on the
accommodation payments discussion paper’ (Attachment D).
The Authority then published ‘Draft Recommendations’ on the internet on Thursday
8th November 2012 and alerted stakeholders and sought feedback on the proposed
draft recommendations by Wednesday 21st November, 2012.
Views from consultation
A predominant theme from submissions was that Government should not have a
detailed role in setting accommodation payments and that the approved provider is
best placed to determine the level of accommodation payments, as they can best
take into account a range of factors including the facility’s location, amenities and
condition alongside factors relating to the resident’s individual circumstances and
preferences. Submissions predominantly put forward the view that market forces
should play the key role in determining the level of accommodation payment with
prices accordingly negotiated between the provider and resident.
A number of submissions noted that if price controls are to apply they should do so
only while administrative constraints on the supply of age care services are in place.
More specific issues raised in consultation included the difficulties in setting
accommodation payments in isolation without also taking into account other issues
that affect industry financing and funding (such as insurance, ACFI, accommodation
supplement eligibility).
In addition, feedback included that pricing frameworks should be published, easily
accessible and understandable by the public and that systems for accepting and
processing consumer concerns and complaints be upgraded.
Options put forward for setting accommodation payments
While submissions generally did not support detailed Government involvement in
the setting of prices, the most common suggestions if the Government was to be
involved was to set a high threshold only, above which providers could apply (to
Government) for approval for higher prices and/or to link the accommodation
payment level to median house prices.
13
It was also suggested that a number of other factors could be taken into account,
such as:








building costs (and how they vary with location);
the amenities and condition of the facility;
the type of room offered (ensuite, number of beds);
the resident’s capacity to pay;
how the resident wishes to pay (e.g. drawdown of periodic payments from a
lump sum paid in advance);
the mix of supported and non-supported residents in the facility;
allowing continuation of cross-subsidisation; and
regional factors.
Retention amounts, cooling off and insurance
Consultation feedback was that removing retention amounts and imposing the
requirement to insure lump sum accommodation payments will increase the costs of
providing aged care services and that such increases are likely to be transferred to
residents. Some submissions also indicated that in low home value regions it will be
difficult to increase lump sums sufficiently to make up for the loss of retentions.
Feedback on the cooling off period focussed on the resultant commercial uncertainty
and possible bad debt risks of long payment decision periods.
Method for determining equivalence
Consultation favoured the continuation of the current methodology of determining
equivalence of periodic and lump sum accommodation payments (LSAP), however
there were a significant number of submissions which favoured use of the higher
weighted average cost of capital or cost of debt as the conversion factors. These
options were carefully considered and rejected because of the substantial variation
in debt/equity profiles, ownership profiles and debt profiles and associated interest
premiums.
14
CONSIDERATIONS
The Authority considered all submissions on the matter. In undertaking its
deliberations the Authority had regard to a number of key factors including:





encouraging continued investment in the aged care sector;
allowing flexibility in accommodation payments to account for the diversity in
type of accommodation, location and structure of approved providers, and
issues such as the loss of retentions and the introduction of insurance
requirements;
providing appropriate consumer protection;
simplicity for both providers and residents; and
keeping regulatory and compliance costs to a minimum;
Methodology to govern the level of accommodation payments that an
Approved Provider can levy on residents for entry to an aged care home
The majority of submissions that accepted the need for some regulation of prices
advocated simplicity, suggesting a high threshold, below which prices were not
required to be approved but above which providers could apply for approval for
higher prices.
In addition to a other variants (including median house prices and percentile of
bonds), the consultant’s report proposed a reference price model in which a
geographic market-specific ‘reference’ price to guide consumers is calculated, based
on the efficient costs of building an aged care facility, and a competitive return on
capital, at a given standard for two types of room. In areas where there may not be a
competitive market, the reference price could form the regulated price.
Taking into account the considerations outlined in the dot points above, the
Authority considers that its suggested framework:



provides a flexible system which takes into account the protections afforded
to residents with low means in the Level 1 price range;
proposes a significant improvement in information and price transparency to
aid consumers (supported by a complaints process if prices have not been
set on a reasonable basis); and
provides an additional safeguard of pre-approval of prices significantly above
the average.
At the same time the suggested framework provides flexibility for the market to
operate and adapt without imposing unreasonable regulatory costs.
15
The Authority also considers there is merit in further exploring whether a reference
price model would be practical and cost efficient to establish, noting that it could
also provide an additional useful source of information, including to inform the
setting of accommodation prices for supported residents and underpin decision
making with respect to submissions for approval of Level 3 prices and complaints
based on claims of unreasonable pricing with full visibility to comparable facilities.
Setting the thresholds for the price levels
The Authority was mindful of concerns over the potential for very large bonds to be
paid. Accordingly, it was guided by the distribution of new bonds in 2010/11, which
showed that only 5% of bonds exceeded $500,000 (refer Attachment E). Setting
Level 3 prices, and hence the requirement for pre-approval, at this lump sum
payment equivalent level would protect against the risks of very high price charges,
while still allowing flexibility in the market.
The Authority did not consider that choosing this threshold would lead to rising
prices given the other protections recommended to ensure reasonable pricing. It
also noted that average prices for new bonds of around $250,000 currently reflected
market dynamics. It is considered that it was not likely that prices would rise towards
the $500,000 threshold as this would require an increase in price of almost double
current average market prices which the market would not bear (refer
Attachment F). It also noted that the likelihood of prices rising to cluster around the
threshold would have instead been much more likely if the threshold was set closer
to the average, rather than double the average.
It was noted by the Authority that from 1 July 2014 there may be a number of factors
impacting the 95th percentile, including the potential for providers to reduce higher
accommodation charges to remain below the threshold, the unknown value of
accommodation payments that may be received from residents who would have
entered high care, the loss of income from retentions, the additional cost of
insurance and any change in the mix of lump sum and periodic accommodation
payments.
If in the future the restriction on the supply of aged care services is reconsidered,
this would also necessitate a review of the regulation of accommodation prices for
non-supported residents.
16
The Authority also noted that there is essentially an existing category up to the level
of government accommodation support for residents of low means, who will have
their accommodation payments capped at no higher than $50 per day.
Consumer protection measures
The Authority considers it of significant importance that prices for accommodation
be clear, transparent and readily understood by consumers. The recommendations
to require publishing of prices, both periodic and lump sum and for all room types, in
advance over the internet and via a central internet site where consumers can
compare prices, will significantly improve consumer understanding and access to
information. Allowing for complaints to be made where proposed prices have not
been set on a reasonable basis will add a further consumer safeguard. The Authority
will further examine whether a ‘reference price guide’ could be developed to provide
further information to assist consumers in their decision making.
As well as access to information to assist their choices, consumers will have a
reasonable period after entering care to finalise their choice of payment mode.
The Authority considers these measures together will greatly assist consumers in
making choices and ensure price setting is undertaken on an open and reasonable
basis.
The appropriate methodology to ensure Lump Sum Accommodation Payments
and Periodic Accommodation Payments are financially equivalent for providers
Submissions highlighted the importance of achieving financial equivalence for
providers in accepting lump sum payments or periodic payments. They also noted
the need to consider the effect on providers of a potential increase in the number
and/or proportion of residents choosing periodic payments. The Authority notes,
however, that there will also be a larger pool of potential lump sums.
A number of submissions supported using the existing method of determining
equivalence through the Maximum Permissible Interest Rate (MPIR), while others
proposed using an interest rate specifically applicable to provider debt or the pre-tax
Weighted Average Cost of Capital (WACC) instead.
There was a wide range of views in submissions from industry in relation to the
appropriate rate to use when calculating equivalence of payments. On balance, the
Authority felt that the existing method provided the most appropriate and simplest
outcome and is broadly reflective of LSAP treatment as unsecured finance which it
considers appropriate.
17
Impact on Accommodation Payments of retention amounts, cooling off and
insurance
Submissions from industry overwhelmingly identified that the loss of retention
amounts and imposition of insurance requirements on lump sum accommodation
payments will result in providers seeking to increase the amount of lump sum
accommodation payments to compensate for the loss of retentions and recovering
the cost of insurance from the resident.
The Authority considers there is substance to industry concerns that the new
requirements for insurance may impose costs on industry and consumers that could
perhaps be reduced and that there is benefit in exploring alternative mechanisms
which may mitigate these concerns while still meeting policy objectives.
The term ‘cooling off period’ does not accurately reflect the true purpose of that
period and would be better renamed to ‘choice of payment method period’. That is,
the parties would agree the prices under the payment options before entry, with the
resident having the flexibility to make a choice of preferred payment option during
the period. The Authority noted that while this period allows for residents to make
informed choices, it also provides a degree of uncertainty around levels of capital for
providers. The Authority further noted that until a decision is made by the resident,
the equivalent periodic payment must be paid.
The Authority considers that the choice of payment method period should be
28 days.
Rates of return on equity and operations, and efficiency
Industry submissions and consultants’ reports highlighted the difficulty in
determining rates of return and efficiency across an industry with diverse structures,
locations and services tailored to the needs of distinct populations. Submissions
provided a number of different methodologies incorporating both financial and
non-financial factors and a wide range of required rates of return.
The Authority will examine this matter further in the context of its May 2013 advice
to Government on broader financing issues for the sector.
18