Uncapping the daily care fee is the best option for boosting the declining revenue of residential aged care organisations, an aged care consultant tells AAA.

Grant Corderoy, senior partner with aged care accountancy and benchmarking firm StewartBrown, said the current funding and revenue arrangements were making it “very tight” for the majority of residential aged care providers.

The only real opportunity available today is to make a surplus through the aged care funding instrument, but any potential to do that is reduced by freezes on the indexation of ACFI and facilities under staffing squeezes, he said.

This makes the Tune Review recommendation to allow providers to charge a higher daily fee “critical to residential facilities to allow an increase in revenue,” Mr Corderoy told Australian Ageing Agenda.

Facilities can offer additional optional services today and while some are providing those, many especially in the not-for-profit sector are not, he said. 

Mr Corderoy was speaking to AAA last week following his presentation on financial sustainability for the aged care sector at the recent SA Care Revenue Symposium in Adelaide, the first event in a national series underway by Aged and Community Services Australia.

He said StewartBrown benchmarking data of over 950 facilities showed facilities were losing $43 per bed per day on the gap between a resident’s daily living expenses and the revenue received from the basic daily fee.

The daily fee, which covers everyday living costs, is set at 80 per cent of the single pension and currently $49.42.

The Tune Review recommended changes to the basic daily fee including a requirement for providers to charge a minimum fee while allowing them to charge a higher fee to non-low means residents, with fees in excess of $100 to be approved by the pricing commissioner.

As previously reported, aged care peaks ACSA, Leading Age Services Australia, the Aged Care Guild and Catholic Health Australia have given their support to allow providers to charge a higher daily fee to wealthier seniors, although CHA argued the higher fee should still be capped.

The Federal Government flagged in its December mid-year budget update that it would respond to the 38 recommendations of last year’s review of aged care by David Tune in the 2018-19 Budget to be handed down in May.

Implementing an uncapped fee

If the government does legislate to deregulate the daily fee, Mr Corderoy said there were still decisions to be made by facilities on how that would be implemented.

Facilities may rightly ask “if we’re providing these services now, how do we suddenly charge more? If 40 per cent of residents on average are supported have they got the revenue base to increase the fee?” he said. “No provider wants a two-tiered system.”

Mr Corderoy suggested “the fix going forward” was for facilities to provide a range of services over the duration of a resident’s stay.

“Early on this might be meals and recreation, later on it might lean towards end of life and palliative care,” he said.

Providers advised to consider bonds

Last Wednesday providers were told they could double their investment return for a little additional risk at a briefing in Adelaide, also hosted by ACSA.

Justin McCarthy of fixed-income brokers Mint Partners said there was some potential for raising additional revenue by investing in bonds.

For most aged care providers, much of their excess cash or investments are in term deposits, which are yielding about 2.5 per cent as interest rates keep coming down, Mr McCarthy said.

At the briefing, he advised participants on the bond market and options for taking money out of term deposits and putting it into bonds.

“For almost the same risk or a very marginal increase in risk, providers at present could double their return – to about 5 or 5.5 per cent,” he told AAA.

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  1. The biggest problem for residents is they don’t receive a return on their lump sum payments. If facilities continue to “encourage” lump sums, they should start paying the residents a return on their investment – for example the rate of the 90 day bank bill.

    Far better would be everyone pays daily for their accommodation. Increase the interest rate calculated on the cost of accommodation to a level which would service the debt level of providers. Residents could use existing cash reserves, or sell the former home, invest the return and be able tp pay all the other daily costs.

    Opt-in opt-out of additional services and have the capacity to pay.

  2. Uncapping the basic daily fee is not a solution. Every resident should continue to be funded equally for basic care. The big issue is the accommodation payment or contribution lump sum being regarded as an asset even though it doesn’t generate any income for the resident. The government needs to stop moving the goalposts in regard to accommodation deposits and remove them from the asset assessment equation. Residents choosing to pay daily accommodation fees means the facility has a consistent income stream at a much higher equivalent interest rate than investing lump sum deposits can provide. Note also that facilities are bound to pay 3.75%pa for a lump sum from when the resident exits until it is paid out – this is unfair with investment interest rates at much lower rates.

  3. You’re absolutely correct, CC. This was more bad policy; the uniformed advising the clueless.

    We should be very careful about accountants defining care models and the increasing trend of aiming for benchmark performance.

    It’s a race to the bottom. Regardless of how cleverly they massage the data, its just comparing apples to the entire fruit shop. (are all facilities really built and operated the same way?)

    Nobody wants to acknowledge that aged care is a failed market. Instead, they just cry poor and gullibly employ metrics such as ‘Care Result’ (a meaningless target that has nothing to do with care) to ask for more taxpayer dollars.

    Ludicrously, things have devolved to the point where even the Minister is guided by the benchmark results. Excellent work, Ken. An accountant’s the first person I’d be consulting about the care of my elderly parents.

    We’re getting further and further away from where we should be.

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