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

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

November 2014 Report

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Introduction

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

This report updates previous reports by including analysis of the fourth round of data with respect to accommodation payments (covering the month ending 31October), 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 the DSS to obtain information and feedback on the impact of the reforms.

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

1.Accommodation Payments – Key Findings

• In October, Lump Sum Refundable Accommodation Deposits/Contributions (RADs) continued to be the preferred method of making accommodation payments , with a share of 44% (representing 3% greater share than that of September).
• The second most preferred method of making accommodation payments was the Periodic Daily Accommodation Payments/Contributions (DAPs), with a share of 32% (representing 3% lesser share than that of September).
• About 25%(a growth of 1% over September) of residents chose to pay a combination payment with a RAD and DAP components.

Consumer choice of accommodation payment – July to October 2014

• The month of October recorded a monthly increase of 0.6% 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 2.3% between 30June2014 and 31October2014.
• ACFA notes that while the lump sum pool growth is likely to be directionally correct, 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 (including bonds receivable at 30 June 2014 of $3.2 billion)

2.Access to Care

This report includes high level data on admissions and occupancy levels in residential care sourced from preliminary departmental data. ACFA will continue to build on this analysis in future reports as more detailed data and analysis become available. It will take some time to build a suitably robust data set on care entry trends against income and wealth.

As mentioned in previous reports, there was a spike in overall admissions to residential care pre 1 July 2014 – in May and June – followedby lower than usual admissions in July and August. An increase in respite admissions and fewer permanent admissions was also evident in July and August.

In September and October 2014, the number of permanent admissions showed signs of returning to levels at par with the pre May 2014 levels. The spike in admissions in May and June and the trough in July and August has seen the total number of residents return to the same levels as seen in the first few months of 2014 with around 170,000 permanent residents.

The number of respite admissions remains relatively high. 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 changes this peak was significantly amplified. The drop in October respite admissions is an indication that the number of respite admissions will taper down in the next couple of months.

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 reduce the temporary usage of respite care while waiting for an assessment prior to entering permanent residential care.

Occupancy in residential care and home care have been nearly constant, with an insignificant decline.

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. The DHS has made available a dedicated phone line for persons concerned over delays in means test assessments and allocated additional resources to reduce delays in issuing assessments.

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 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 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 prongs 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 directional 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 October, the survey results indicate that the lump sums held and receivable has increased by $0.442billion. This is below what would be expected from the KPMG modelling, but there is not yet sufficient data to make a reliable projection.

As reported last month, the increase in lump sums is not uniform across the sector. There has been a continued decrease in lump sums held and receivable for a small number of services predominantly providing extra-service care and low care (7.2% and 9.5% respectively since June).

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Figure 1: Change in accommodation payment arrangements

• Paid by Accommodation Bonds
• Residents enter either Low care and extra–services care
• Price capped at total assets of resident less minimum asset amount.
• Can be paid by lump sum, periodic payment, or combination - method agreed before entry.
• A retention amount of up to $331 per month for up to five years
• Paid by Accommodation Charge
• Residents enter non–extra service high care
• Periodic payment only
• Price set by regulationcapped at $34.20 per day

• The asset test restricted the amount that a supported resident could be asked to pay with the Government topping this up with an accommodation supplement.
• The accommodation payment methods were accommodation bonds for partially-supported people entering low care and an accommodation charge for those partially-supported people entering high care.
• Government contribution capped at $34.20 per day.

• 104,000 (approx 60%) non-supported
• 73,000 (approx 42%) Bond payers
• $15.4 billion (approx) bond pool
• The average accommodation bond agreed with a new resident in 2013-14 was $296,404
• 47,000 (approx 27%) non-supported residents paying by accommodation charge

• All incoming residents pay under the same accommodation payment arrangements.
• Providers set maximum accommodation price
• Prices over $550,000 ($99.90 per day) to be agreed by Pricing Commissioner.
• Provider and resident agree accommodation price at entry (not related to residents assets).
• Resident has 28 days to decide method of payment.Options are:
• Refundable Accommodation Deposit (RAD);
• Daily Accommodation Payment (DAP); or
• A combination of DAP/RAD (with resident determining the proportional split).
• No regulated retention however residents paying by combination can agree to a non–refundable DAP component being drawn from RAD.

• All incoming supported residents pay under the same accommodation contribution arrangements.
• The provider receives the same amount for all residents when accommodation contribution and accommodation supplement are added together.
• Providers of new or significantly refurbished facilities are eligible for total payment for accommodationat the same level as the higher accommodation supplement ($53.04 per day).

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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.

The survey to date has collected data on:

1. the numbers of accommodation bonds held and their value at 30 June 2014;
2. the numbers of bonds/RADs held and their value at the end of July, August, September and October 2014;
3. the numbers of RAD, DAP and combination payment options chosen by residents in July, August, September and October 2014.

Survey forms covering October were received from 1,019 services (70,539 places). The results for October 2014 cover less than half of the sector (37% of services; 37% of places). Consistent and comparable results for all the months from June 2014 to October2014 cover about a third of the sector (33% of services; 32% of places).

Choice of accommodation payment and changes to the lump sum

pool

Key findings are summarised below at aggregate level and by various sector segments. Further detail is provided at Attachment A.

Aggregate results for total sector

• In October, the proportion of residents choosing to pay by RADs (44%) continued to dominate all accommodation payments.
• About a quarter of residents chose to pay a combination payment with a RAD and DAP component.
• There was an increase in the total lump sums (bonds and RADs) held or receivable of about 0.6% or approximately $119million in October over September.
• There was an increase in the total lump sums (bonds and RADs) held or receivable of about 2.3% or approximately $442million from 30 June to 31October.

Geographical analysis

RADs are more favoured in major cities than other geographic areas.

Table 1: Survey coverage – October 2014

Figure 2 Consumer choice of accommodation payment by location

Table 2: Lump sums value growth by service location – October 2014

Service ownership analysis

The proportion of people choosing to pay a RAD increased in all ownership segments.

Table 3: Survey coverage by ownership type – September 2014

Figure 3: Consumer choice of accommodation payment by ownership type

Table 4: Lump sums value growth by ownership type – September 2014

Care type[4] analysis

The impact of accommodation payment choices is likely to vary between providers by the type of care traditionally offered, noting that former low care places would have been characterised by payment of lump sum bonds prior to 1 July 2014 and (non–extra service) high care facilities by daily accommodation charges. In August, RAD was the preferred method of making accommodation payments across all former care types (see Figure 3B). However in September and October, DAP and combination payments were the preferred payment types in low care.

Table 5: Survey coverage – October 2014

Figure 4: Consumer choice of accommodation payment by previous care type classification

Table 6: Lump sums value growth – October 2014

Facility size analysis

The proportion of residents choosing to pay by DAPsdecreased betweenSeptember andOctober across all service size categories, the reverse to what happened between August and September. RADs recorded growth in medium sized services only. Half of residents entering large services chose to pay by RAD

Table 7: Survey Coverage – October 2014

Figure 5: Consumer choice of accommodation payment by facility size

Table 8: Lump sums value growth by facility size – October 2014

Provider size analysis

The growth in the value of lumps sums held and receivable grew most rapidly for single-home providers and remained nearly flat for medium and large providers. Interestingly though, medium and large providers had experienced a growth of around 2.5% and 2.4%, respectively in September.

Table 9: Survey Coverage – October 2014

Figure 6. Consumer choice of accommodation payment by provider size