Reforms always have “unintended consequences” and having to change provider behaviour is as an important part of the reform process as is changing consumer behaviour, writes Mark Sheldon-Stemm.
The changes that are coming in July 2014 to aged care are likely to affect both consumer and aged care provider behaviour in regard to what payments are made when a consumer enters a residential aged care facility, including their payment for accommodation. The changes introduce an option to pay a Residential Accommodation Deposit (RAD), previously known as the bond, or a Daily Accommodation Payment (DAP), previously the accommodation charge, based on the consumer’s choice and means. These two options will be available to all classifications of residents (high and low care) and the incoming resident will have 28 days to decide how they wish to pay.
The change to the accommodation payment system has come about in an effort to introduce choice and competition into the market, which existed, in a limited fashion, in the past. In talking to a number of residential aged care providers there is still a view that the new reforms set prices, which they must adhere to. This is correct in some sense, but in the area of accommodation payments the setting of prices is controlled through setting an upper limit. This gives the provider a choice to set their RAD and DAP at whatever levels they wish, within the limits, but they are required to justify these through stating the type of accommodation on offer. It is not the open market.
Beware the dangers
A provider can set their RAD and DAP at different levels and provide a combination of both or just one RAD or DAP amount on offer, thereby giving the prospective resident choice. The danger for providers is that this form of competition exposes them, to a greater level, to the various consumer laws and operations of the Australian Consumer and Competition Commission, or the ACCC as it is commonly referred to. Providers have always been subject to this through the current bond system (not setting prices amongst themselves in an area), but the level of competition will increase with the introduction of the RAD and DAP.
It is important that providers do not engage in any form of “price fixing” within their area or region. This would be through setting RAD and DAP at the same levels, thereby giving the consumer no real choice in terms of price between providers. I think the risk of this is fairly low, but for those tempted in this new world of a limited “open market” of accommodation pricing, the best answer is to not engage in the conduct.
The second issue, which may come out of a lack of knowledge more than anything, is the decision by the prospective resident as to how to pay. In offering the choice of payment as a RAD or DAP comes the possibility that they may choose a DAP over the RAD and therefore the provider’s “bond pool” may decrease, affecting their liquidity levels (more income, but less cash on hand).
The problem to highlight here occurs in the situation where the prospective resident’s only asset is their house and they are required to sell the house in order to pay a RAD instead of a DAP. This has been normal practise in the past when residents in low care sold their house and paid a bond. However, under the new reforms the act of selling the house to pay for a RAD is likely to incur additional care fees (if the house is sold for more then $144,500). The provider must inform the prospective resident of this, and yes, there is an understanding that this is likely to influence their decision as to whether to pay a RAD or DAP, but disclosure of this fact must be made and the prospective resident must understand the consequences. Failure to do so will not only incur the wrath of the resident and probably their families, but can also be construed as a form of misleading and deceptive conduct, exposing the provider to possible action from the ACCC.
Reforms always have “unintended consequences” and perhaps this is one of them and having to change provider behaviour is as an important part of the reform process as is changing consumer behaviour.
So, when operating in this “new space” just make sure your RAD and DAP don’t get you nabbed.
Mark Sheldon-Stemm is a Director at Research Analytics.
This article first appeared in the November-December edition of Australian Ageing Agenda.
