Change is coming

FINANCE: Consumer directed care will challenge providers in a whole host of ways, from how they engage and interact with clients to how they cost and put a value on their services, writes Michael Roberts.

Financial analysis

The implementation of consumer directed care will challenge providers in a whole host of ways, from how they engage and interact with clients to how they cost and put a value on their services. Michael Roberts looks at the issues.

The impact on the aged community care sector of the implementation of consumer directed care (CDC) for people receiving packaged care at home is likely to be similar in extent to what occurred during other major reforms such as de-institutionalisation of mental health services in the 1990s, or implementation of activity based funding in acute health – it’s a really big deal.

If you aren’t already prepared, there’s only a very short time to get ready before the full implementation of CDC in July 2015.

Michael Roberts
Michael Roberts

The laudable intention of CDC is to provide a fundamentally different approach to how older people at home are empowered and how services for them are planned, managed and delivered. It’s different to previous models of community care from the perspectives of the underlying philosophy, the client-provider relationship, the range of services on offer, the competitive nature of the market, as well as a process perspective. CDC enables older people to determine their provider and the type of services and their level of involvement in care planning and organisation.

As is the case in all big reforms, some impacts on providers are immediately obvious; others less so and will play out over time. It’s like shaking a tree and seeing what fruit falls off. In addition to the numerous benefits to clients, CDC reforms will ensure there will be relentless pressure on provider arrangements, service costs, efficiency and outcomes. With increased competition and tightening margins there will be changes and casualties.

Is your team ready?

Services providers already operating in a consumer focused and directed way know that it takes a higher level of real dialogue and ongoing collaboration between themselves, clients and carers. The same applies to how they relate to potential new clients who are looking to enter the program. If there isn’t an increase in the level of genuine interaction and dialogue, it’s not really being consumer directed at all.

More people eligible for home care packages (HCP) are being advised by aged care assessment staff to shop around among providers to find an agency that fits their individual needs and wishes. Responding to “enquiries” rather than “referrals” takes a new approach to the client intake process. There’s now a marketing aspect to dealing with enquiries that hasn’t been there in the past. As one experienced service manager put it: “Intake staff must be able to clearly articulate the benefits and points of difference of their service.” If they can’t do this, potential clients will simply call the next provider on the list until they find an organisation that seems to meet their needs. We can’t assume that the conversion rate for these enquiries will be similar to the pre-CDC days where 90 per cent of referrals usually ended up as an admission. Based on our experience, the conversion rate of enquiries may be 25 per cent or lower. If potential clients or carers are ringing four or five agencies before committing to a particular provider, it follows that more time will be spent by agencies in liaising with them.

It’s more than just making a few more phone calls. Managing the ongoing interactions with clients and carers, and closely monitoring service delivery takes considerable time and effort. The conversations, visits and follow up actions are not quick and often need the attention of more experienced and skilled staff. From a resources and a skills perspective, it isn’t clear how well positioned most providers are to deal with this new style of operation and the resulting workload.

It’s fair to say that telephone call management and marketing skills are not always the hallmark of community care services. Potential clients won’t want to hear the usual tidal wave of aged care acronyms or be bamboozled by complex budget and eligibility problems. They will want to know in plain language what help you can provide and how you will work with them to do it. They will also have increased expectations that what is promised in the assessment and planning phase will actually be delivered. If it isn’t, they will – or they should – change providers.

Providers need to actively manage and monitor their performance in this area.

New business rules

Some providers have previously split packaged care revenue across multiple clients, i.e. they have taken on more individual clients than the number of packages they have been allocated. This enabled service delivery to be maximised across a larger client base and provided a ready-made waiting list of people with an ongoing care need who could be converted to full packages over time when vacancies arose. It’s hard to see how this practice can continue in a CDC world where there is fully transparent financial reporting of individual client budgets. Unspent funds will accrue for that individual client rather than being able to be diverted to spend on other clients, services or programs. For some providers this will be a major change.

The financial impacts from the accrual of individual HCP funds and the impact of returning some of the ex-client unspent funds and co-payments needs to be well understood, particularly as margins tighten.

How will people spend their money?

Many older people who are used to living on a fixed income are likely to be rather conservative in their spending choices. This will also apply to budgeting and spending on support services at home. A “spend the lot” approach to HCP budget isn’t likely to be seen as prudent, particularly in the case for those people who are still reasonably independent and at the lower end of the dependency scale. A care plan where a client chooses to spend a lower proportion of the available HCP budget can also potentially impact on the level of the funds in the budget to offset administrative and case management overheads.

What does case management mean?

In the past, a client’s experience of case management has not necessarily been one where there has ongoing close interaction. For some HCP Level 2 clients it has been be more of a “set and forget” approach where they meet the case manager in the assessment and planning phase, and then don’t hear from them again until months down the track, or at their annual re-assessment.

Currently, the main day-to-day contact for a client is with their direct care worker or the coordinator who rosters direct care staff and other services, not the case manager.  This fragmented approach to client engagement and care coordination needs a rethink and is not likely to work in the future.

Show me the money, show me the value

We’ve all experienced bill shock over electricity, bank or telecommunication charges. Under CDC every client will receive a monthly report outlining their income, categorised costs for the month and funds balance. The family and carers are also likely to run their eyes over the report. Charges for service and support, administration, case management and advisory services will be visible and open to criticism. In this era of financial transparency it could be difficult to convince clients that the case management, advisory and administrative charges on their monthly report are justified, particularly if there’s not been regular contact or an understanding of what needs to happen in the background to provide the service. Due to the high level of skills and experience required, case management is an inherently expensive service and costs have traditionally been amortised over the entire client group. Some clients need more, some clients need less. The swings and roundabouts approach to budgeting for care coordination and administrative costs won’t work anymore.

Budget scrutiny will also increase when clients personally contribute more of their own money via higher fees. This will also drive more focus on the value of what’s actually being delivered. Some not-for-profit community care agencies have historically struggled with the issues of how to negotiate and collect client fees. Talking about the financial aspects of care delivery with clients can be uncomfortable for some care coordination and liaison staff and they are often more comfortable discussing end-of-life issues with a client rather than discussing fees, charges and billing issues.

Providers need to be ready and prepared to answer difficult questions about the financial aspects of the service.

What’s the real cost?

The direct costs of care delivery tend to be well understood by providers. Indirect costs are another matter. For some not-for-profit providers, the administrative overhead costs are not easily allocated to any particular program when they provide a diverse suite of services or programs. An understanding of the actual total cost of service delivery that takes into account an appropriate share of finance, executive management, infrastructure, IT and HR is critical.

In the future, services have to cover all costs to remain viable. When pricing HCP services some providers only factor in the direct administration costs of the community care department and ignore the bigger picture of the total cost of service provision. In our experience, we have seen providers whose advertised price per service is significantly lower than the actual cost. This is obviously not sustainable. Established providers that operate a broad range of services are at a price disadvantage compared to new entrants to the HCP market because they also have large HR, finance, and other corporate services costs to cover.

In the past, some packaged care services have only been profitable because not all of the funds were expended, not because they were well managed and had competitive overhead and service delivery costs. Most unspent funds were retained to cover costs, cross-subsidise other services or provide a profit margin.

Ensuring that a higher proportion of funds are spent on direct services rather than overheads or retained profits is a clear objective of the reforms. The general perception that HCPs are highly profitable compared to other programs is likely to be challenged.

Who are you exactly?

In many cases the bulk of client services are delivered by third party providers while responsibility for the quality, safety and client outcomes reside with the HCP provider. That creates another dilemma. “Why should we take on all the financial and operational risks and responsibilities of providing packages when the third party subcontractors that provide the easier aspects of care delivery take most of the available margin?”

The level of reliance on third party subcontractors is often determined by whether the HCP provider has staff in the client’s local area. If using subcontractors makes the service less viable, providers will certainly rethink their geographic boundaries and use their own staff where possible.

The client’s main day-to-day relationship will often be with the individual staff delivering service.  The “brand” of the HCP provider can be meaningless if coordination and case management contact is infrequent and the client’s loyalty is much more likely to sit with the subcontracted direct care provider rather than the HCP provider. In this context, it is much simpler and more profitable to be a fee-for-service subcontractor than it is to be a HCP service provider. The proliferation of subcontracting providers and franchises is no surprise. How these factors will play out over the next few years in the aged community care provider market remains to be seen.

To paraphrase the TV series Game of Thrones: change is coming, better get ready.

Michael Roberts is senior health advisor, Victoria, at Grant Thornton. 

This article first appeared in the January 2015 Community Care Review.

Tags: budgets, cdc, community-care-review-slider, finance, grant-thornton, michael roberts,

1 thought on “Change is coming

  1. Excellent points have been raised here by Michael Roberts.
    Our college is at the forefront of this contemporary aged care platform, and have numerous evidence based training and resources to assist the industry to make the needed transitions.

    The resistance and resilience of the sector to engage the new way of delivering consumer directed care is staggering.

    Given that this is new and exciting for some and scary for others, there are specialists and experts that have been working hard in the background to develop the implementation sciences needed to make the transitions in care modeling a success.

    Throw the old skeletons out of the closet…….its time to fly in aged care and community services.

Leave a Reply

Your email address will not be published. Required fields are marked *