Tool helps providers get accommodation pricing right

An Australian developed formula that uses artificial intelligence is being launched this week to help aged care and independent living providers set fair accommodation fees.

The Ageing Equation director Safdar Ali developed the formula – called the RAD-Equation – over the last two years with input from aged care providers.

The tool uses interactive-mapping and applies complex algorithms to number crunch factors such as stock condition, ability to pay, room vacancy, room type and market conditions to calculate evidence-based accommodation fees that are transparent and fair for all parties, he said.

“Overcharging is not good because it can lead to occupancy problems and customer dissatisfaction. And the under charging is not good because you’re losing on revenue, which many providers are desperately needing at this point in time,” Mr Ali told Australian Ageing Agenda.

“The other reasons we went to great lengths to ensure this methodology is based on solid evidence is because we also had in mind for prices above $550,000, which we have to submit an application to the pricing commissioner for. One of the questions in that application is, ‘what is your logic or reason?’”

The sector knows it is crucial to set accommodation prices in line with market situation and people’s capacity to pay, otherwise thousands of older people will be unable to afford quality aged care, Mr Ali said.

Testing highlights over and underpricing

During testing of the tool, Mr Ali said a scan of more than 2,000 aged care rooms in New South Wales found 19 per cent were underpriced by up to $760,000, while 20 percent were overpriced by up to $777,000.

In Brisbane, a sample of 1,000 aged care rooms showed 19 percent are overpriced between $30,290 and $415,056, while 16 percent are underpriced between $30,184 and $196,392.

It appears that accommodation prices are currently largely based on guesswork and competitor observation rather than a set methodology, Mr Ali said.

“It’s a very risky approach because you don’t know whether you are overcharging or undercharging. And as we have seen over the last 12 to 16 months, the rapid increase in the property prices, has not been reflected in residential aged accommodation or your independent living,” he said.

“So there’s this potential revenue, which has been lost, and from the customer perspective, the methodology or their approach is not transparent. For example, if someone walks in and asks, ‘how did you come up with a particular amount?’ I don’t think many providers will be able to answer.”

The tool has been designed with flexibility to incorporate the changing market situation, such as property prices.

Tools to be demonstrated at free workshop

The RAD-Equation will be demonstrated and launched at a free technology workshop for providers of aged care and assisted and independent living services on 9 September in Brisbane.

The workshop will also include a demonstration of The Immersion-Equation, which is a virtual reality tool that can show potential residents what it will be like to live in a particular proposed property. Even before it’s constructed, said Mr Ali.

“We developed this tool in the second half of last year when there were strict travel rules and providers, and operators were facing challenges to complete their projects,” Mr Ali said.

“We thought if we provide an immersive experience, it would assist operators with cash flows by selling off-the-plan units but it would also encourage younger family members to get involved in the process of purchasing a retirement living property.”

Comment on the story below. Follow Australian Ageing Agenda on LinkedIn, X (Twitter) and Facebook, sign up to our twice-weekly newsletter and subscribe to our premium content or AAA magazine for the complete aged care picture.