Aged Care Profiteering? A Detailed Analysis

Further to our Media Release explaining our position on the media claims in relation to the alleged Aged Care rorting. We’re here to help you cut through the hysteria the media has caused by providing a more informed analysis of the data. So let’s take a look at the facts and some alternative views and explanations than what has been published.

In this article we discuss:

  • Why the data being used by the media is inappropriate as a base for claims of profiteering
  • Alternative reasons for increasing profit including the deregulation of accommodation pricing and the increasing frailty of residents entering Aged Care.
  • Why it makes sense that costs aren’t yet increasing in proportion to profit due to the political climate and looming legislative changes (such as the reduction in the CHC subsidy in July 2016) providing an uncertain future for Aged Care.
  • Why profit isn’t ‘evil’ and is in fact what the Government should be hoping for the Aged Care industry to attract talent and investment.
  • The new penalties associated with false claiming and why you don’t need to be worried if you do the right thing.

THE FACTS

The media is using two sources for their claims; The 2014-2015 Report on the Operation of the Aged Care Act 1997 and The Bentley’s Aged Care survey. While this survey is a very interesting and valuable insight into our industry, it is not appropriate to be basing policy decisions on, nor was it intended this way. The main reason the study should not be used for these purposes is that it is not an comprehensive representation or cross section of the industry for a few reasons.

Firstly, it is a study of just over 5% of the industry and uses different participants each year. It is unlikely that a sample of just over 5% can accurately reflect all the categories affecting the financial performance of Aged Care Facilities, as provided in the report ‘Factors influencing the financial performance of Residential Aged Care Providers’ (June, 2015) in any year and it is even more unlikely that the mix of participants that vary each year would reflect the same mix each year, thereby being unsuitable to track trends overtime.

The Factors influencing the financial performance of Residential Aged Care Providers listed in the report are as follows:

  • Location (Metro, Regional or Rural where different factors affect profitability, including availability of services and supply/demand)
  • Size of the facility (Larger facilities have better economies of scale)
  • Ownership type (Private, Not-for-Profit and State Government where restrictions are based on some classes)
  • Resident Classification Type – i.e. higher care needs correlates with higher profitability

If, however, we are to take the survey as representative of the industry as a whole, it by no means implies that the industry is ‘profiteering’ or ‘rorting’ the Aged Care funding system. Heath Shonhan of Bentleys instead attributed the substantial rise in profit to three factors; a one-off increase of 2.4 per cent in government subsidies, free market pricing of accommodation deposits and a rise in the average frailty of residents. So the media’s take on the data is ‘interesting’ to say the least.

So, assuming we are taking the results as representative of the industry, let’s explore some alternative evidence based factors that explain the data.

INCREASING PROFIT

Why is profit increasing?

Free Market Pricing

According to the data, the average profit before interest and tax increased from $12.32 per resident per bed day in 2014 to $17.20 in 2015. One of the most important factors attributed to the increasing profit is the deregulation of resident accommodation payments. This government initiative was intended to open the market up to more competition, thereby adjusting the pricing system.

In his speech to the Committee for Economic Development the previous Assistant Minister for Social Services, Senator Mitch Fifield stated ‘residential care accommodation prices are starting to reflect other accommodation prices in the neighbourhood – as indeed it should, given it is an accommodation purchase’ (11th November 2014). The government was well aware that market deregulation would result in increased accommodation payments, as they intended to have the costing more in line with free market costs. The Aged Care Pricing Commissioner set the maximum refundable accommodation deposit (RAD) amount at $550,000. The average bond as noted by the Bentleys Survey is well-below this threshold. Additionally, deregulation of accommodation payments widened the scope of residents who were able to pay a bond or RAD. It is therefore reasonable that the average price of a RAD would increase as a per resident ratio.

People are staying at home longer and their care needs are increasing

The increasing frailty of the residents in aged care facilities is a result of both increasing life expectancy and government initiatives to keep people out of residential aged care longer. The average age of new entries into residential aged care is 82 for men and 84 for women, with most residents staying an average length of just under 3 years (2014-2015 Report on the Operations of the Aged Care Act 1997).

In the 2014-2015 Report on the Operations of the Aged Care Act 1997 they noted ‘The increased availability of home care, transition care and respite care has a significant effect in delaying entry into residential care.’ This is reflected in the increasing ratios of HACCP and declining residential care ratios as part of the July 2014 reforms, to decrease the costs of residential aged care on the government as home care is substantially less costly. The report also noted that the majority of elderly who receive ACATs wait between 1-9 months after receiving the assessment to enter an aged care facility likely increasing their care needs in that time period.

So why aren’t organisations spending more?

On the costing side of the equation we can see that wages are slow to adjust to any change in the top line, which is common in an industry that has been doing it tough and has a degree of uncertainty – it doesn’t just take profit to increase wages, you need stability and the confidence in future profit. There have not been any major increases to wages for Aged Care workers in the past financial year. Outside of any effect current EBAs will have, this is likely to change in the future as increasing profit margins will allow for a push to increase wages, thereby increasing costs in the future and decreasing profit margins.

The uncertainty of future political climate, and future legislative changes that are looming (such as the reduction in the CHC subsidy in July 2016) is providing an uncertain future for Aged Care. Continued threats against Aged Care Funding will only serve to discourage investment in the industry, and provide difficultly in strategic thinking and decision-making in the future.

Is profit as evil as the media says?

No! Profit does two things for the industry, it attracts better quality investors into the industry thus increasing competition and standards, as well as allowing facilities to re-invest profits to ensure better facilities and care. It is crucial that the industry continue to expand in order to meet future demand for Aged Care places.

The ‘2014-2015 Report on the Operations of the Aged Care Act’ shows a clear increase in building work and refurbishment of Aged Care facilities which was helped along by building and refurbishment incentives:

  • The proportion of aged care facilities completing any building work (new building to accommodate new or transferred aged care places) in the year increased from 12.05% in 2013-2014 to 19.55% in 2014-2015.
  • Upgrading work (renovation or refurbishment) during the year increased from 9.31% to 16.44% in 2014-2015.

This can be partially attributed to the stability of funding resulting from a larger bond pool (from increased refundable accommodation deposits). This is supported by increasing stability of legislation post-July 2014 for accommodation payments.

TIME ON CARE DECREASING?

There have been many claims that as the ‘Fat Cats’ sit back and count their profit dollars, they are also decreasing time spent on care. The most likely factor for care time reduction is the lack of available appropriate aged care workers, especially Registered Nurses. There is a huge shortage of RNs, largely in regional and rural areas but also in metro areas. The NSW Legislative Council noted in their comments that ‘there is a shortage of RNs practising in aged care’ (Report 32 – Registered nurses in NSW Nursing Homes – 29 Oct 2015). Furthermore, they noted in the issue of skills shortages that they made recommendations for programs and incentives to encourage RNs to work in Aged Care.

It has been consistently acknowledged by both the government and the industry that there is a skills shortage in the Aged Care industry, and that it will continue to worsen as demand increases. Health Workforce Australia (HWA) estimating that there will be a shortage of over 100,000 nurses by 2025 (Health Workforce 2025 Doctors, Nurses and Midwives – Volume 1 March 2012), in all heath industries. This is worsened in the Aged Care industry as they struggle to attract and retain workers due to both the nature of the work and the low pay conditions.

RORTING THE SYSTEM

Many claims have recently surfaced accusing Aged Care Providers of ‘rorting’ the ACFI system. This comes in response to the Minister for Aged Care Sussan Ley announcing “a stronger compliance regime” including fines of $10,800 per offence for aged care providers “caught making repeated false claims under the ACFI.” It is necessary to note here that the Minister was not likening all false claims to fraudulent claims as much of the media would have lead us to believe. The fines will be limited to providers who “had been caught making multiple, deliberate false claims, not genuine one-off mistakes.” As there had previously been limited punishment for fraudulent claims we welcome the deterrent in the industry to provide fraudulent evidence. However, the continued complexity of the ACFI system will mean that some mistakes will continue to occur, and these Providers will not be punished.

Many of the reports have also failed to mention that while there have been substantial downgrades in funding (11.5% in 2014-2015), 9% of those downgraded classifications were appealed. This resulted in 37% confirming the decision, 48% went back to the original classification and 14% providing new decisions (2014-2015 Report on the Operation of the Aged Care Act 1997). This highlights that the error margin for ACFI audits is not small, and therefore the reliability of these statistics does need to some extent be questioned. Additionally, 1% of the audits completed actually resulted in increased funding classifications.

Additionally, this is not the first year in which the increase in ACFI has not been entirely reflected in the governments estimates for real growth attributed to frailty (ACFI Monitoring Report – June 2015). Therefore, it is more likely that the government is not projecting entirely correctly, which could also be due to the increased use of Home Care and increasing life expectancy as discussed below.

We don’t believe these statistics represent anything other than a reminder that you need to be fully across your ACFI function. To learn more about what you should be looking for when choosing an ACFI expert to work with – see our article on working with consultants.

Kelly Kelly Fawcett – Supplement Recovery Manager

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Provider Assist - Victoria Kelly, Chief Operating Officer Victoria Kelly – Chief Operating Officer

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