Residential aged care providers should be able to decide whether they charge a lump sum or a daily payment as part of strategies to manage prudential risk, according to advice provided to the government.
The federal government recently sought feedback on proposals for better managing prudential risk in residential aged care following a 2018 Federal Budget commitment to strengthen standards and limit the risk of provider financial failures and triggers of the Accommodation Payment Guarantee Scheme.
The discussion paper asked for feedback on nine key options recommended by the Ernst and Young Review and Tune Review, which include the introduction of specific liquidity and capital requirements, improved and more detailed reporting and increased disclosure.
In its submission to the consultation, aged care consultancy Pride Living said the suggested options would impose a heavy regulatory burden on all players while the real risk related to very few of them and the historical cost of failure was trivial in the context of the exposure.
The government’s liability for accommodation deposits is currently $24.7 billion and it has provided a total of around $43 million in refunds since 2006.
Pride Living managing director Bruce Bailey said requiring providers to have to have a certain amount of liquidity would not prevent provider failure or triggering the scheme.
“To trigger the scheme, someone has to become insolvent and go into liquidation. The cause of going in to liquidation is a sustained loss generating situation or a loss in value, and that is about the long-term sustainability issues, not about short term liquidity,” Mr Bailey told Australian Ageing Agenda.
He said their analysis showed the potential cost of provider failure could be significantly reduced with alternative policy responses that benefitted the viability and sustainability of the sector.
“A simple thing that would cost the government nothing is to allow providers to choose whether they take a refundable accommodation deposit (RAD) or a daily accommodation payment (DAP) rather than having that as an option for the resident.
“Providers who want to grow would take in a RAD and providers who don’t want to grow would take in a DAP and improve their sustainability,” Mr Bailey said.
That would allow places to still be built and at the same time increase the viability of the 84 per cent of providers who either can’t build because of the way the government allocates places or have no reason to grow due to demand, he said.
The policy around the RAD and DAP does not suit where the industry is today, said Mr Bailey, who added no other sector was as disempowered in how it could manage its balance sheet as the aged care sector was.
“Managing the balance sheet is what drives sustainability. You have to get return on equity and that means managing the amount of equity you have.
“But we have a government wanting to manage the equity at a national macro level and apply that to everyone when everyone’s situation is different.”
The public consultation closed on 15 March.
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