Unspent Funds: an avoidable problem
A federal government’s consultation paper has determined that unspent funds will need to be returned to the government. Where does this leave providers?
Some home care providers are about to reap the unpleasant consequences of poor management, poor insight and poor delivery of essential services to their client consumers, writes DAVID POWIS.
The recent release of the Federal Government’s Consultation Paper – improving home payment arrangements has determined that unspent funds will need to be returned to the government, which has caused the industry to question how it let itself get into a situation where the outcome of this decision will surely be a financial win for the government and a significant loss for the provider and consumers.
Home care has traditionally been funded by the Government based on an independent ACAT assessment for each approved consumer. This consumer-based subsidy plus additional supplements to meet other targeted areas, when combined with a co-contribution from the consumer, has been deemed sufficient to meet the cost of the care provision. Where financially able, consumers have been charged an additional income-tested fee (ITF), which reduced the government subsidy allocated.
In addition, like most government funded programs, the subsidy arrangement has always erred on the side of underfunding rather than overfunding, obviously meant to ensure providers are obliged to operate effectively and efficiently while minimising costs, thus allowing recovery of overheads and an operating surplus to be achieved.
What is being proposed is a fundamental and extremely significant change in the funding model.
To date, the government has provided this funding “in advance”, which reduced the need for working capital, thus reducing the need for providers to generate working capital from other sources.
The following industry drivers have resulted in the prospect of an infinitely worse arrangement, financially:
- Provider misunderstanding of government policy and treasury thinking, which led to the belief that government will allow providers to retain and use unspent funds that had been allocated for the provision of care.
- Providers misleading themselves that they are in control of their business and therefore in charge of the business model that delivers services to their respective clients. The truth is that providers are in place to provide an alternative to the more costly and inefficient system of government delivering those services. The government has retained absolute control over how the arrangement will work and how providers will comply.
- Providers negotiating and determining service models with their clients, irrespective of whether it meets departmental and/or government expectations on how programs are to be delivered.
- Providers delegating broad decision-making powers to junior employees and/or lower level management personnel without appropriate checks and balances. Poor business decisions made in the name of compassion can have far reaching consequences, often at the lethal expense of the business they represent.
Where to from here?
The industry needs to respond effectively to the Consultation Paper and in addition, undertake a full review of current practices to determine whether providers are:
- providing the appropriate services to consumers based on independent ACAT assessments of needs and desired outcomes.
- driving current business practices at the correct level of management, with delegation being monitored carefully.
- adopting a professional approach to the calculation of their pricing model since 1 July 2019, based on sufficient financial knowledge and an understanding of impacts on future viability.
- able to successfully operate home care businesses without the current level of “unspent funds” being available as working capital to the business.
- investigating how their business and financial plans will be impacted if future funding is provided in arrears, only on services delivered, as opposed to in advance.
- charging consumers an appropriate level of co-contribution to allow the service to operate effectively in the absence of “unspent funds”, that being the reason some providers have not charged consumers the full co-contribution.
- implementing staff education programs to adequately train staff and ensure that decisions are made at the appropriate levels of management.
- using sufficiently sophisticated computer systems and programs that will let them know the extent of these issues and assist them to monitor corrective action.
The extent of negative impacts on providers will depend on what preparatory action and forward planning are undertaken now to restructure operational models. It is recommended that at risk providers seek support and good advice on how best to proceed.
The Department may agree to minor amendments such as funding for capital purchases, but any significant variation from what is proposed in the outline is unlikely, based on historical departmental policy changes.
In conclusion, what is being proposed is a fundamental and extremely significant change in the funding model. To call it “…improving home care payment arrangement” can only be described as an attempt at humour in an effort to allay any fear or suspicion by the industry that its ongoing funding arrangement is about to undergo a cataclysmic change.
* David Powis is an industry aged care consultant and Managing Director at e-Tools Software.
An interesting take on the proposed funding process changes. As a very “hands on” owner and Manager of an Approved Home Care Provider I have a few comments to make:
In our case, significant Unspent Funds have accumulated only where Clients simply refuse to use a major part of their entitlement. In some instances they are “saving” funds for a specific high cost item. In other instances they are saving funds in anticipation of greater need for services in the future. In some instances there is no clear reason at all – they simply refuse to spend the funds. Care Plans are negotiated with our Clients but in the end, under Consumer Directed Care principles – the Client can make these decisions and cannot be compelled by the Provider to act otherwise. The Provider “Fact Sheet” on “Managing Unspent Funds” issued by the Department a year or two ago provided no solutions to this problem.
Our Client unspent funds are kept scrupulously separate from our own operational funds – via use of a third party Trust Fund service. When a Client exits a Package all unspent funds are returned to the Government and the Client or Client’s estate in the correct proportions. I would think any Provider who has retained and kept unspent funds for their own use would be in serious breach of their obligations – but it has been of great interest to me to observe that there is no actual oversight or audit of Providers in this respect – something I find both remarkable and disturbing.
The article is correct in saying that the proposed change would be fundamental and serious. At present we can invoice for our services on a weekly basis if we choose to do so and recoup all costs of delivery with minimal delay. Under the proposed changes we will have to bear all costs for at least a month – and then claim back from DHS. This will greatly increase our cash flow delay and at least quadruple the working capital required for us to stay solvent. In our case we can manage that – though other Providers may well be in great difficulty.
However we are not all confident that DHS will have systems and processes capable of processing these claims in a rapid and error free manner. The current claiming system is very simple and effective. The proposed changes will necessitate a more complex system. Any major delay in processing of claims will certainly force a percentage of Providers into insolvency.
The Aged Care Royal Commission has already – in my view correctly – highlighted high Package Management and Case Management Fees as a flaw in the current system, greatly reducing the value of the HCP system to the Clients of high fee Providers.
The proposed process for slowly running down unspent fund balances held by Providers will be clumsy and has additional complications. It will require more complex accounting at Provider level. It is likely that the Claims process will also complicate our Administration. My prediction is that all Providers will face increased costs for Home Care Package Management. Most Providers will pass those costs on in the form of increased Package Management fees. Some may also increase their charge out rates in an attempt to price in the increased risks which the new system poses.
The changes will “free up” the current unspent funds – but at the cost of reduced value to the Clients who rely on a Home Care Package for vital support.
The desire of Treasury to put the current “Unspent Funds” to work is entirely understandable and justified, but the proposed process for achieving it is flawed. If implemented in the form proposed, the benefits will be outweighed by the increased Administrative costs and the reduced value to Home Care Package Clients (that is – the majority who do need and use their full Package) as those Packages are further consumed by Package Management fees and higher charge out rates.
The changes being proposed are a significant challenge for Home Care organisations, and the proposed timetable is going to be very difficult for a number of providers. The Royal Commission has been looking at why some organisations perform well for consumers and others poorly within the same funding model. The risk in forcing Balance Sheet adjustments of this size in this period of time is that it will see good service providers forced out of the industry in favour of organisations with financial flexibility.
By our calculation, the proposal is to remove 4-6 months of funding from Home Care organisations’ Balance Sheets progressively over about 2 years and commencing in less than 8 months. This is in the context of organisations spending considerable sums of money on two Royal Commissions (Aged Care and Disability), transforming their business models (requiring substantial IT and restructuring investment), rolling out new quality standards, and having no insight yet regarding changes to the CHSP service in June 2022.
It is inconceivable that this won’t have a significant impact on the consolidation of the industry, in favour of organisations with financial flexibility (ie those that are most profitable, have large balance sheets or for-profits with access to external funding). It will also create a large distraction to management teams that are struggling to deliver high-quality services in challenging environments.
Many of the challenges we have in the Home Care industry are resolvable by organisations, but we desperately need some clear air to focus our leadership teams on our customers, rather than a constant stream of significant changes to policy that cause us to focus too much time on corporate issues.