Factors of financial sustainability in Aged Care
December 17, 2024 | AN-ACC
By Simon Lee, Business Development Manager
I left my job working in aged care in October of 2022.
It was a pivotal month for the industry, and not just because I left to go and work for an RTO, but because that was the month that AN-ACC finally came into effect.
There had been months of fevered debate about what this would mean to bottom lines and staffing ratios. Would this be transformational? The silver bullet, to make hitherto struggling services rise above the line of sustainability and long-term profitability. Would the new care minutes regime be workable, and what would missing these targets mean for providers struggling to find staff and fill rosters?
Coming back to work with aged care providers nearly two years later as a BDM for Mirus Australia, it appears that many are still wrestling with these same questions.
Undoubtedly, understanding AN-ACC, which is the largest individual funding mechanism we have, is imperative. Some providers (not yours I’m sure) still have a little of the ACFI mentality, where we are constantly looking for opportunities to maximise the funding, by assessing residents at the top of the AN-ACC scale, whilst haemorrhaging staff costs to meet the requirements to care for those residents.
So, in today’s environment, a major priority should be understanding how the case mix of residents’ effects not just incoming revenues, but our staff costs. Every single service has a unique profile and understanding that, in terms of AN-ACC funding versus cost of delivery, is vital.
Changes coming down the line, whenever they may come, will only make this more important. Decision making based upon clear data, shared across care staff and administration/management teams, can maximise service viability and resident outcomes.
Whilst AN-ACC adherence and roster planning working in conjunction, are key, they are not the only levers providers can pull upon. Accommodation and lifestyle services also have a significant part to play in the overall funding mix and can make the difference when assessing overall operational budgets.
RAD Pricing
RADs need to be constantly under review. Auditing the value of the built environment against competitive offerings and local market demographics is an area where we could see providers taking a bolder stance.
In my experience it is not the necessarily services with the shiniest taps and chandeliers that have the longest waiting lists. It is those services where you walk in, and the atmosphere is homely, and the staff are visible. These, intangible things have value to people and should be considered when benchmarking against other options available.
Incoming residents, particularly those with property assets, are not as sensitive to RAD pricing as they once may have been. Also, we should remember that the published RAD is the “maximum” and should we need to offer tactical discounting to meet occupancy challenges we can do this at our own discretion.
From January 1st 2025, the maximum chargeable Refundable Accommodation Deposit (RAD) without prior approval from the Independent Hospital and Aged Care Pricing Authority (IHACPA) will increase to $750,000—and for the first time, this cap will be indexed on the 1st of July each year. Providers will also be permitted to retain 2% of the RAD annually for up to five years, from 1 July 2025, totalling a maximum of 10% for any given resident. With sector wide increases in occupancy, this presents an opportunity to review and potentially increase non-care revenue.
It is very likely that we will see upward movement in all room categories and pricing levels. This may also be a reaction to some providers potential loss of “Additional Services” revenue, which will be affected by the introduction of HELF from July 2025. This is likely to have major implications for non-care related recurring revenue.
Concessional Resident mix
If your resident mix includes less than 40% concessional over a calendar month (excluding respite and extra services residents), then the funding for those residents is reduced by 25%.
Again, local demographics and the local competitive market, will inform the strategy that each individual site should take in relation to this. However, if you are sitting at 30% to 39% of concessional residents and you’re not prioritising them for admission, you might have room to be more efficient.
As an example, a 50 bed (significantly refurbished or newly built on or after 20 April 2012) service with 19 fully supported residents will achieve an accommodation subsidy for the full month (30 days) of $29,132.70, or $1,533.30 per resident. However, should you have 20 fully supported residents, the accommodation subsidy would be $40,884.00 or $2,044.20 per resident.
Additional Services
This has been a hot potato for many over the last few years, however, there is a growing industry wide acceptance of additional services to fund improved resident lifestyle outcomes.
There are big changes coming in July 2025 which will have major implications for providers who have adopted an approach of bundling services and making them part of the overall accommodation offer. It will no longer be possible to make this a mandatory requirement of admission and there will be thresholds protecting people of lower means. The maximum daily payment will also be capped.
There is more detail to come, however there are 3 main changes to non-care related fees. The last one, HELF, will directly impact the additional services programs and extra services offer that many providers have at present.
- A new means tested contribution to the Hotelling Supplement will be introduced for new residents from 1 July 2025. The contribution will only apply to residents who can afford to pay their full accommodation costs. The means test will require a contribution of 7.8% of assets over $238,000 and 50% of income over $95,400, up to a limit of the daily Hotelling Supplement ($12.55 per day on 20 September). The government will pay the provider the difference between a resident contribution and the full Hotelling Supplement. It will also continue to pay the full Hotelling Supplement to providers for residents who are not required to contribute.
- A new means-tested Non-Clinical Care Contribution will be introduced from 1 July 2025 and the current means tested care fee will be abolished for new residents. This contribution will be for non-clinical care costs such as bathing, mobility assistance and lifestyle activities. The contribution will only apply to residents who can afford to pay the full Hotelling Supplement contribution and will be capped at 4 years. The means test will require a contribution of 7.8% of assets over $502,981 and 50% of income over $131,279 up to a daily limit of $101.16. The government will fully fund all clinical care costs. It will also pay the difference between a resident’s non-clinical care contribution and their non-clinical care costs.
- A new optional Higher Everyday Living Fee will be introduced from 1 July 2025, replacing Additional Service Fees and Extra Service Fees for new residents. The Higher Everyday Living Fee will allow residents to purchase goods and services that are of a higher quality than the standard provided and also goods and services that are not required to be provided such as pay TV, hairdressing, and alcohol. Consumer protections will apply to the Higher Everyday Living Fees including a cooling off period and regular reviews of whether services can still be used. Existing residents who pay an Additional Service Fee or Extra Service Fee would be gradually transitioned to the Higher Everyday Living Fee.
Sales & Commercial Reality Training
One of the first questions I asked to a group of aged care service managers, in my first week in aged care was “what does the word sales mean to you”. The answers were not complimentary.
Understandably, selling was seen as incongruent within the aged care arena. It had connotations of second-hand car salesperson and the perspective that there were winners and losers.
My view is that sales in the context of aged care is about having “conversations with a purpose”.
That means understanding what your service can deliver and what you do well and being proud to extol the virtues of that. It also means being honest and genuine about what you cannot provide and ensuring that any promises made are delivered.
When potential residents and their families present at an aged care service they are often confused and have a range of negative emotions and connotations about what life in a care environment will be like. It is incumbent on us to listen to people’s needs and concerns, addressing their situation and offering a solution that works for them.
Very often managers are tasked with answering admissions enquiries, when they have an extensive list of tasks that might trump these important conversations. Prioritising, as they must, the urgent tasks that they need to address within the home environment.
I would urge providers where possible to treat admissions as a defined skills and practice within the organisation, so that enquiries receive the attention and empathy that they deserve.
Most importantly, engage and nurture those referrers in your area. Be they hospital discharge planners, social workers, GP’s or allied health workers, referrals from these trusted sources are invaluable to long term success.
If you have any additional questions, please don’t hesitate to email me at simon.lee@mirus.group. I’d be happy to assist you.