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The PC's draft report - the devil is in the detail

By Julie McStay17 Dec 2010

Aged Care Association Australia, Hynes Legal and PKF Chartered Accountants and Business Advisors have been working together to assist ACAA to develop a formal response on behalf of the aged care industry to the Productivity Commission’s (PC) draft recommendations. To develop this response ACAA, Hynes Legal and PKF (together with ACQ, ACAA-NSW and ACCV) held a series of forums across the eastern seaboard to gather the industry’s views on the PC’s draft recommendations.

Nearly 300 providers and industry stakeholders attended the forums. Providers seem generally supportive of most of the concepts proposed, but there remains a level of uncertainty about a number of elements of the proposed reforms and how they will interact. In this article Julie McStay (Partner, Hynes Legal) and Julie Hough (Partner, PKF) have set out the principal concerns identified by attendees.


At a global level the financial and funding recommendations of the PC seek to re-engineer the aged care system in to a continuous supply of consumer directed care.

The underlying economic approach is to change the status quo from a supply restricted regime to a demand driven system dictated by the number of senior Australians who are eligible to receive care, whether in the community or in residential care.

The draft recommendations provide that the entitlement to care would be granted in a voucher-style arrangement which accumulates in a building block approach to meet an individual’s increasing need and frailty. The reform package is intended to be delivered over the next 2-5 years.

Summary of funding recommendations

We have prepared a summary of the key funding recommendations proposed in the PC’s draft recommendations which include:

  • Funding of aged care should be in accordance with the following principles:
    • accommodation and everyday living expenses should be the responsibility of individuals, with a safety net for those of limited means;
    • health services should attract a universal subsidy, consistent with Australia’s public health care funding policies;
    • individuals should contribute to the cost of their personal care according to their capacity to pay, but should not be exposed to catastrophic costs of care.
  • Removing the regulatory restriction on the number of community care places and residential bed licences over a 5 year period.
  • Removing the distinction between high care and low care places.
  • Adopting separate policy settings for the following major cost components of aged care:
    • care (both personal and health);
    • everyday living expenses; and
    • accommodation.
  • Removing the regulatory restrictions on accommodation payments, uncapping the accommodation charge, and abolishing retentions on accommodation bonds.
  • Introducing a system which provides care recipients with flexibility for payment of their accommodation payments. The draft recommendations provide for the establishment of two financial products to support care recipients:
    • An Australian Pensioners Bond scheme to allow aged pensioners to contribute proceeds from the sale of their primary residence. The bond is exempt from the assets test and income deeming rate, and can be drawn on to fund living expenses and care costs.
    • A Home Equity release scheme to assist older Australians meet their aged care costs, whilst retaining their primary residence. This scheme allows withdrawals of funds to an agreed limit with repayment when the underlying property is sold.
  • Removing the restrictions on additional services and discontinuance of extra service bed licences so that each care recipient may access additional services according to their ability to pay.
  • Introducing a prescribed scale of co-contributions for care which would be consistently applied across all settings anticipated to be between 5% and 25% of the cost of care.
  • Providing that accommodation payments will be determined by a comprehensive means test based on income and assets, including the family home.
  • Introducing the following protections for care recipients:
    • quotas for concessional residents to be maintained at current levels, but subject to being tradable within regions for up to 2 years and to a tender process at the 5 year timeframe;
    • introducing a level of accommodation support for concessional residents that will be equivalent to a shared room with shared facilities; and
    • introducing a lifetime stop loss limit for care recipients who incur catastrophic costs of care.

Provider reaction

While providers welcomed the potential for increased user pays recurrent funding, there was far less certainty surrounding the capital funding recommendations.

In all of the 3 forums held along the eastern seaboard, providers raised concerns regarding the perceived disincentives for consumers to pay lump sum accommodation bonds in favour of periodic payments for their accommodation. This effect is brought about by the operation of the proposed Pensioner Bond scheme, which is intended to exclude the proceeds of sale of the family home in calculating pension entitlements, yet be flexibly structured towards periodic draw downs, indexed to the CPI and government guaranteed.

Providers saw little scope for the Pensioner Bond scheme to be limited to the deposit of only excess funds after the payment of an accommodation bond, particularly as consumers have the choice of lump sum or periodic payment, or a combination of both.

This implication, coupled with downward pressure on the average size of accommodation bonds raised significant doubt amongst providers that the PC’s recommendations would deliver the large scale capital funding boost needed by the sector.

Providers perceived that bank borrowing arrangements for construction debt is likely to be considered a higher risk by lenders, notwithstanding lump sum bonds would be available on all residential aged care places. Indeed some providers acknowledged that in striving to reach a balance between bank debt repayments and sufficient lump sum resident funding, there may be a need to discount bonds in a deregulated market place.

Providers also indicated that clarification is needed from the PC on the following topics:

  • a better definition of the expected cost of supply models underpinning the accommodation, daily living and care policy settings;
  • a rationale for setting the suggested benchmark for supported residential care at a 2 share room with shared facilities; and
  • the intended structure of the new funding instrument needed to underpin the concept of continuous care delivered across all settings.

Regulatory scheme

The PC proposes that within 2 - 5 years the Australian Seniors Gateway Agency (Gateway Agency) will be established as a statutory authority independent of the Department of Health and Ageing (DOHA). The Gateway Agency will operate as a 'one stop aged care shop'  to provide information, assessments, care coordination and care referral services. The Gateway Agency is proposed to be administered by a system of regional hubs. These hubs would be operated by the Gateway Agency or could be operated on a contract basis by government or non government agencies.

Summary of regulatory scheme recommendations

The PC has recommended that a 'building block approach' be used to determine entitlement levels across community and residential care.

A new assessment instrument, the 'Aged Care Needs Assessment Instrument', is proposed to identify care and support needs and will be linked to the Government’s set of schedule fees. This assessment is intended to replace:

  • assessments for low level care currently undertaken by providers funded under HACC;
  • ACAT assessments; and
  • initial ACFI assessments undertaken by providers for people entering residential care.

The PC has considered a number of models for the new funding instrument but appears to favor a combination of:

  • a community ACFI with supplements and supports for specific needs; and
  • the existing residential ACFI with its supplements.

To separate the policy arm of Government from the regulation and supervision of aged care, the PC has also recommended the establishment of the Australian Aged Care Regulation Commission (AACRC). The AACRC will be independent of DOHA.

Its key functions will include:

  • a compliance and enforcement arm to regulate quality and investigate non-compliance across all types of aged care to be administered by the Aged Care Standards and Accreditation Agency (ACSAA);
  • a pricing arm to monitor prices charged to consumers, the costs of care and advise Government on prices, subsidies and the rate of indexation;
  • a complaints handling and review arm which will assume the role currently undertaken by the CIS; and
  • a data collection and dissemination arm.

Provider reaction

While providers acknowledge the efficiency and consistency issues within the current system, they expressed a general reluctance to endorse the concepts proposed without clarification of a number of issues.

In relation to the Gateway Agency further clarity will be sought in relation to:

  • the proposed interaction with the existing GP network;
  • the proposed operators of the regional hubs and the multi disciplinary teams and if those services are to be contracted out how potential conflict issues will be addressed;
  • the extent to which any new assessment introduced will adopt current ACFI processes;
  • whether assessments conducted by the Gateway Agency will be as comprehensive as initial ACFI assessments currently undertaken by providers;
  • the mechanisms that will be available to providers to challenge assessments undertaken by Gateway Agency;
  • how consistency will be achieved in the quality of assessments conducted across the regional hubs;
  • the proposed role of the regional hubs in case management services; and
  • the proposed accountability measures for the Gateway Agency and regional hubs including prescribed time lines to undertake assessments.

In relation to the AACRC, further clarity will be sought in relation to:

  • the methods proposed to be adopted to address issues of quality and transparency that currently exist within the ACSAA;
  • whether it is proposed that a risk based approach to compliance and enforcement be adopted within the AACRC;
  • the proposed enforcement tools; and
  • the proposed policy in relation to audits, support contacts and unannounced visits.

Moving forward

Written submissions are due in response to the PC’s draft report by 21 March 2011. While the concepts seem very promising, the devil will be in the detail.