Report on the Impact of the 1 July 2014 Financial Reforms on the Aged Care Sector s1

Report on the impact of the 1 July 2014 financial reforms on the aged care sector

January 2015 Report

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Introduction

This is the Aged Care Financing Authority’s (ACFA’s) January report on the impacts of the 1July2014 financing reforms.

This report provides an update on previous reports by including an analysis of the sixth round of data concerning accommodation payments (covering the month ending 31December 2014), collected through ACFA’s survey of aged care providers. It also includes an analysis on occupancy and admissions data collected by the Department of Social Services (DSS). To complement the data collection, ACFA has also continued to engage with sector representatives, providers and DSS to obtain information and feedback on the impact of the reforms.

Future reports will be on a quarterly basis until 31 December 2015 with the next report to cover the period ending 31 March 2015.

This report is split into three parts:

·  Part 1 – Accommodation Payments

·  Part 2 – Access to Care

·  Part 3 – Support for the sector and consumers in transition

Key Findings

Accommodation Payments – Key Findings

·  Lump Sum Refundable Accommodation Deposits/Contributions (RADs) remain the preferred method of making accommodation payments, with a share of 41% (declining from 42% in November 2014).

·  Periodic Daily Accommodation Payments/Contributions (DAPs) remain the second preferred method of making accommodation payments, with a share of 35% (same as in November).

·  About 23% (same as in November 2014) of residents chose to pay a combination payment with RAD and DAP components.

Consumer choice of accommodation payment – July to December 2014

·  The month of December recorded a monthly increase of 1.9% from November in the overall pool of lump sum accommodation payments held and receivable.

·  RADs[1] have consistently offset the accommodation bonds paid out for departing residents in each month after July 2014.

·  The overall pool of lump sum accommodation payments held or receivable grew by 7.0% between 30June 2014 and 31 December 2014.

·  A projection using the average monthly growth rate of about 1.45% between July 2014 and December 2014 reveals that, lump sum payments would increase by about $3.0billion this financial year over last financial year.

·  ACFA notes that there is a high level of consistency between the November survey and the December 2014 survey. Even though the November and December 2014 surveys may be considered as the most reliable, given the checks and balances put in place to rectify errors noted in the October and November 2014 reports, the actual growth amount needs to be treated with caution as this is based on a voluntary survey and there may be underlying bias in responses and other data quality issues.

Lump sums held and receivable

2. Access to Care

This report includes high level data on admissions and occupancy levels in residential care sourced from preliminary departmental data.

As noted in previous reports, there was a spike in overall admissions to residential care pre 1 July 2014 – in May and June – followed by lower than usual admissions in July and August2014. Fewer permanent admissions were also evident in July, August and September2014 (about 200 more respite care admissions than permanent care admissions for every 1,000 permanent care admissions).

The ratio of respite care admissions to permanent care admissions showed significant fluctuations over the past 17 months (see table below). Results from October, November and December 2014 indicate these ratios may be trending back to normal.

Ratio of Respite Care Admissions to permanent Care Admissions

Between October and December 2014, the number of permanent admissions showed signs of returning to levels at par with the pre May 2014 levels. The spike in permanent admissions in May and June (305 less respite admissions than permanent care admissions per 1,000 permanent admissions) and the trough in permanent admissions in July, August and September 2014 (200 more respite admissions than permanent care admissions per 1,000 permanent admissions) has seen the total number of residents return to the same levels as seen in the first few months of 2014 with around 172,000 permanent residents.

The number of respite admissions was unusually high between July and September 2014. There is usually a mid–year increase in the number of respite residents which tapers off towards the end of the calendar year. Due to the 1 July 2014 changes this peak was significantly amplified. The drop between September and December 2014 (especially that in November 2014) respite care admissions is an indication that the number of respite admissions may eventually taper down to its pre–May 2014 trends. The number of respite residents still remains higher than the long-term trend.

Trends in admission to residential care

ACFA will continue to monitor these impacts in coming months to determine the extent to which issues are transitional or permanent in nature. ACFA notes that the Department of Human Services (DHS) has advised the sector that additional resources have been directed towards reducing administrative delays in means testing assessments. This may already be having an impact on the number of respite care admissions which is displaying a fluctuating but long-run declining trend. It is however still too early to draw any conclusions, with both the permanent care admissions and the respite care admissions indicating a short-run rise in December.

Occupancy in residential care had a slight decline in the first quarter of 2014–15. This has since remained nearly steady, with December showing signs of growth (see table below). In 2014-15, home care occupancy was fairly stable up to November 2014 (fluctuating between a maximum of 88.92% in July and August 2014 and a minimum of 87.83% in November2014). December 2014 however recorded a drop from 87.83% in November2014 to 83.43%. This drop is attributable to the Aged Care Approvals Round (ACAR) release of places and hence an increase in the denominator (or available places), with no corresponding increase in the numerator (occupied places) and hence a decline in the occupancy.

Average Occupancy Trend

3. Support for the sector

The Transitional Business Advisory Service continues to provide support for providers with the transition to the new accommodation payments arrangements. Relevant departments have also been updating and distributing additional information materials to clarify reform implementation issues. DHS has made available a dedicated phone line for persons concerned over delays in means testing assessments and allocated additional resources to reduce delays in issuing assessments.

ACFA notes that delivery of transitional business advisory services (TBAS) to residential aged care providers will end on 30 June 2015. TBAS was put in place to assist providers to prepare for and manage the transition to the new accommodation payments arrangements. Uptake of TBAS has been lower than expected. The Department has communicated the end of TBAS to providers through the regular reform newsletter and through content on the Department’s website.

Part 1. Accommodation Payments

Introduction

The following section monitors the impact of the new accommodation payment arrangements.

Figure 1 describes the changes to the accommodation payment arrangements.

ACFA has identified two primary areas of focus for monitoring the impacts of the accommodation payment arrangements.

The first is the overall change in lump sum payments held or receivable by providers. As can be seen from Figure 1, people that would have previously entered care with an agreement to pay a lump sum accommodation bond now have the flexibility to choose how they pay for their accommodation (RAD, DAP or combination) after moving into care when they have security of tenure. If incoming residents have a preference for DAPs, this could potentially leave providers who have thin equity, where the capital infrastructure is largely funded by bonds, potentially exposed to liquidity problems if there is an outflow of lump sum accommodation payments. On the other hand, around a quarter of residents who would have formerly been limited to paying by periodic payment, now have the option to pay by lump sum. This is likely to see an increase[2] in the overall amount of lump sum payments held by the sector.

The second is the overall change in the price that providers can now receive for providing accommodation. The pricing regime has been significantly deregulated. For many providers there is potential uplift in accommodation prices, particularly for those previously providing non–extra service high care. The new arrangements give people entering care more transparency in what is on offer and they can use this information to better choose accommodation that suits their needs. Further, the higher accommodation supplement for new and significantly refurbished homes will provide a better return for eligible providers choosing to take supported residents.

ACFA will monitor both of these impacts. The currently available data is collected through a survey of providers and focuses on lump sum payments (the first area of focus outlined above). The results of this survey are considered in the following section. As more data becomes available ACFA will expand its monitoring to both areas of interest.

Observations

Prior to 1 July 2014 there were concerns expressed by the sector that there would be a ‘flight from bonds’. ACFA has monitored this situation through the accommodation payment survey and by seeking feedback from the sector. Both aspects of this monitoring indicate that, at this stage, this concern has not been realised and in fact there has been a continued growth in lump sum payments.

The growth in lump sums held and receivable is consistent with earlier modelling undertaken by KPMG on behalf of ACFA. This modelling projected that the lump sum pool held by providers would increase by around $3.0 billion in 2014–15. Between June and December2014, the survey results indicate that the lump sums held and receivable has increased by $1.235 billion.

Progressive average monthly growth rate between July and December 2014 (about 1.45 per cent) was higher than the progressive average monthly growth rate between June and December 2014 (about 1.14 per cent) because there was a dip in the lump sum pool in July compared to June 2014. If the monthly growth rates of 1.45 per cent were to be maintained, the lump sum pool is projected to increase by $3.0 billion, respectively, in 2014–15 over 2013–14.

The change in lump sums is not uniform across the sector. Services predominantly providing extra–service care recorded a decrease of 7.9% between June 2014 and December 2014. Also services predominantly providing mixed–service care recorded no growth between June 2014 and December 2014. All other sectors of interest recorded a positive growth in the same period.

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Figure 1: Change in accommodation payment arrangements

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Survey of residential care providers

This report presents data collected from residential aged care providers through a monthly voluntary survey. Residential aged care providers were invited to participate in a voluntary survey that collected information on the choice of accommodation payment method and the changes in the lump sum accommodation payments held and receivable. Survey forms were sent to all providers, with responses submitted to a third party who de–identified the results before providing them to ACFA.