ACFA report shows shift in accommodation payment choices

Daily payments were preferred over lump sums to pay for residential aged care accommodation in 2016-17, the first time since the 2014 reforms, the sixth Aged Care Financing Authority report shows.

Daily payments were preferred over lump sums to pay for residential aged care accommodation in 2016-17, the first time since the 2014 reforms, the sixth Aged Care Financing Authority report shows.

The proportion of residents choosing daily accommodation payments (DAP) increased for the second year running to 40 per cent in 2016-17 up from 35 per cent and 33 per cent in 2015-16 and 2014-15 respectively.

At the same time the proportion choosing refundable accommodation deposits (RAD) fell from 43 per cent and 41 per cent in 2014-15 and 2015-16 respectively to 38 per cent in 2016-17.

The proportion of residents choosing a RAD and DAP combination also fell, to 22 per cent in 2016-17 from 24 per cent for the previous two years.

ACFA said the impact of the changes was not yet significant but that it would continue to monitor the situation, noting provider concerns following the 2014 reforms about “a possible flight” from lump sum payments.

The 2014 reforms to accommodation pricing arrangements included providers being able to charge lump sum payments to any eligible resident as opposed to just those in low care or receiving extra services.

Providers are now required to publish the maximum price for their rooms and residents can choose to pay a RAD, an equivalent DAP or combination of the two.

Lump sum accommodation deposits held by providers continues to grow and was $24.8 billion at June 2017, up from $21.9 billion at the same time in 2016 and $15.6 billion when the reform commenced.

ACFA said while this amount could increase along with the number of non-supported residents, the rate of growth could potentially slow down if residents continued to prefer DAPs over RADs.

Financial performance

The report found that 68 per cent of providers achieved a net profit in 2016-17 compared to 69 per cent in 2015-16, and total profits in the sector fell to $1,006 million in 2016-17 from $1,063 million in previous financial year.

The financial performance of not-for-profit providers improved overall with the average Earnings Before Interest Tax Depreciation and Amortisation (EBITDA) per resident per year increasing by $1,219 in 2016-17 to $11,408.

However, the EBITDA per resident per year dropped marginally from $13,908 in 2015-16 to $13,316 in 2016-17.

While the financial performance was broadly stable in 2016-17, ACFA said there were concerns over declining results in 2017-18 as a result of changes to the Aged Care Funding Instrument and indexation freeze as reflected in the quarterly reports of industry benchmarking and accountancy firm StewartBrown.

Residential funding and financing challenges

In response to the decline in the financial performance of residential facilities along with other challenges highlighted in the report, ACFA has included a new chapter outlining the roles of Government, providers and consumers in achieving a financially viable and sustainable residential aged care sector.

Ensuring there is an ongoing equity of access for consumers and a more effective funding tool and system are among the challenges the government must address, the report said.

“There is a need for a more stable, more contemporary, more efficient and more effective funding tool and system which provides greater financial stability to both the residential aged are sector and the government,” the report said.

ACFA said the review underway of the current funding tool was timely and that indexation settings should be considered alongside the review of funding options.

Providers need to look at internal operations to ensure they are delivering care effectively to residents and be increasingly responsible and flexible, ACFA said.

“The changes taking place in the sector as it moves towards a more consumer driven market-based system will continue to challenge traditional business and workforce models. Providers will need to be increasingly responsive and flexible,” the report said.

ACFA said there is also a need for wider recognition that sustainable aged care funding means that consumers who can afford to make greater financial contributions towards their everyday living expenses and care costs will need to do so.

Government spending in aged care

  • $17.1 billion in 2016-17 and expected to be $18.6 billion in 2017-18
  • $11.9 billion for residential care
  • $2.4 billion for home support
  • $1.6 billion for home care
  • $1.3 billion for flexible and other aged care

The aged care workforce

  • Over 366,000 paid workers in aged care
  • 68,000 volunteers in aged care
  • 25 per cent have been in the sector for over 14 years

Access to aged care services

  • 239,379 permanent residential care recipients, up from 234,931
  • 59,228 residential respite recipients, up from 56,852

Residential aged care sector

  • 902 aged care providers operated 200,689 places
  • Residential care places are going up while the number of providers is gradually going down
  • Generated $17.8 billion revenue
  • Total expenses of $16.8 billion
  • $4.5 billion contributed by residents

Capital investment of providers

  • Total assets of $45 billion, up from $40.7 billion
  • Total liabilities of $33.7 billion, up from $29.8 billion

Access the full report here.

Read Community Care Review’s coverage of ACFA’s report on the home care sector here.

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Tags: acfa, aged-care-financing-authority, Earnings Before Interest Tax Depreciation and Amortisation, ebitda, finacnce, slider, stewartbrown,

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