Bankers not worried

Industry experts in law and finance say that while some questions about aged care reform recommendations remain unanswered, in general there is little to worry about.

Above: The audience for the panel discussion and presentation on the Productivity Commission report, hosted by Arthur Koumoukelis from Gadens lawyers.

By Stephen Easton

Despite the unknowns, the Productivity Commission’s (PC) aged care reform package is a positive step for the industry, according to a distinguished panel of aged care finance experts, including two of the industry’s most prominent bankers.

The finance panel was invited to the Sydney offices of Gadens Lawyers to field questions from the audience of industry members and from their host and moderator, Gadens partner Arthur Koumoukelis, who introduced proceedings with a presentation of his own take on the PC report.

The presentation highlighted several well-known issues of concern for aged care providers, and their potential outcomes, including the new rules for the use of accommodation bonds that take effect from 1 October.

Mr Koumoukelis described this as a “pretty significant shift” that would effectively begin the separation of accommodation from care, and force providers to rethink their operations along the lines favoured by the PC much sooner than many may have realised.

The removal of supply restraints on bed licenses and community care packages could, he suggested, lead the government to control demand by maintaining or strengthening needs assessment protocols.

“…In fact, it is likely that in order to control demand, regulation is likely to stay [at the level] where it is, if not higher, and that scheduled prices will be tightly controlled, so that there’s not an excess in demand,” Mr Koumoukelis said.

The experienced aged care lawyer summed up the logic that underpins the PC’s vision of how the sector should become, along with the concerns that linger in the industry around how gentle, or otherwise, those changes will be.

“If you look at [the logic] the Commission’s going on, choice and supply is key. Choice requires diversity of supply without loss of quality. [Uncapped] supply leads to competition, and the theory is that competition leads to lower prices.

“However, in an environment where the industry has been relying on high or significant levels of bonds, what happens when the bond levels are pushed down? How do you fill the void between the current level of bonds and a lower level of bonds? How do you replace it?  

“How do you deal with people moving from paying a bond to paying accommodation charges – which theoretically you, as approved providers, should be indifferent to?”

Many aged care providers, and the state and federal peak bodies that represent them, have previously confirmed they are not indifferent, but would prefer to receive accommodation bonds rather than periodic charges.

“The Commission’s statement is, this is an issue that will be faced by providers but it is a transitional issue, and one that will be sorted out over time,” Mr Koumoukelis said, before deferring to the panel to ask if this was “a fair assessment of the reality”.

Experienced auditor and lead partner of Deloitte’s senior living group, Helen Hamilton-James, largely agreed that it was and said that while some challenges existed, the reform recommendations were “a step in the right direction”.

Above: Helen Hamilton-James

“I think the key thing [for providers] to be successful is the transition, and I think there’s a lot of detail needed around that transition plan and how we actually to get to the outcome that’s recommended by the Productivity Commission,” Ms Hamilton-James said.

Richard Gates, head of ANZ Healthcare Lending, said the report heralded “a huge step forward from an industry perspective and a banking perspective”. But he also cautioned that while financially strong organisations would prosper in the new environment, others would not.

“In terms of the consequences of the report, I think we’ve got to be very, very careful in generalising,” Mr Gates said. “Everybody’s different; people with [strong] portfolios, who have shown they’ve got capital and shown they’ve got the capacity that they can redevelop, will do very well in this environment. Those who are constrained, haven’t got the track record and have got old assets … are going to struggle.”

Above, L-R: Richard Gates and Peter Jones.

Peter Jones, nabHealth’s aged care banker, said that he had listened to the concerns of his clients but had concluded that “in the end, the objective of the reforms is to sustain the industry into the future, so that’s got to be a positive thing”.

Tags: accommodation, bonds, caring-for-older-australians, finance, pc, productivity-commission,

1 thought on “Bankers not worried

  1. Mr Koumoukelis comments “. . .what happens when the bond levels are pushed down? . . . How do you deal with people moving from paying a bond to paying accommodation charges” are very easily answered by anyone with a basic understanding of cost of capital (not the domain of an experienced lawyer). The answer is simple: older Australians will be able to borrow at the CPI interest rate (say 2.75%) from the proposed credit scheme and pay a bond. Alternatively, they will withdraw their money from the proposed pension-protecting savings account and pay a bond. On a $200,000 bed, the daily interest cost they will be bear in this example is a mere $15 per day!!! The PC report is a very strongly positive document for the flow of fair bonds. Mr Koumoulkelis’s comments serve to create a concern that is not justified and take the sector off the only message to government it should be on: ‘implement the PC recommendations in full’.

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