Update on Aged Care Reforms – the competition is getting tougher

The aged care industry has undergone a significant number of reforms over the last 3 years which have had an impact on how aged care providers conduct their business.

The range of reforms can be summarised as follows:

• 2011, limit the use of accommodation bonds to permitted uses that reflected mainly capital expenditure.
• 2013, Living Longer Living Better Reforms introduced and first brought consumer directed care to home care.
• July 2014 the major component of the reforms came into operation related to removing the high care/low care distinction, providing caps and regulations on refundable accommodation deposits and separating the concept of accommodation from care in aged care.
• The reforms extended the degree of consumer choice and protection by allowing residents a period of 28 days to choose how to pay their accommodation payment.
• Early 2014, the government announced the removal of the payroll tax supplement paid to Aged Care providers on the basis it was felt that any subsidy paid to approved providers for payroll tax is a transfer of benefit from the State governments and therefore is a State government issue.
• June 2014 the Government removed the dementia supplement on the basis it was said the previous government had underestimated the level of demand and therefore the cost blow‑out was too great for the government to accommodate.
• In a recent address by the Assistant Minister Fifield, a suggestion was made that the government may also provide greater scrutiny of the higher accommodation supplement paid to providers to ensure no similar blow out occurred. This supplement is paid to encourage the redevelopment of facilities. Currently there is $1.67 billion of capital works in progress during 2013 which may be the subject of such supplement which would fall within a category of expenditure to be scrutinised.
• In 2015, consumer directed care will find its way into residential care.

All of the reforms have moved approved providers who had previously operated to an almost exclusively regulated industry to one that is now more open to competition and consumer choice.

The reforms have led to a focusing of aged care facilities to the higher levels of care particularly dementia and palliative care. They have also lead providers to look at alternative income and capital streams. Since the reforms were first announced in 2012, we have seen a greater movement of Aged Care providers to move into the retirement village space and reinvigorate a new form of serviced apartment offering in conjunction with their Aged Care offering.

Of particular note, the industry has seen the emergence of new operators and developments such as:

• Omega Communities, which is a retirement village operator from South Australia moving towards a more private low care nursing home structure,
• Mark Moran Vaucluse development, a serviced apartment model in conjunction with Aged Care facility,
• IRT Woolwich, comprising 10 lifestyle apartments collocated with a care centre but advertised towards care and support; and
• the recent announcement of the Presbyterian Aged Care Paddington development of a similar model.

The reforms have also seen an emergence of choice as to how accommodation payments are paid varying between lump sums (RADs) about 42% of the total payments, daily payments (DAPs) 35% and a combination of the two (RAD/DAP) about 24%.

These are in addition to the existing operators such as Seasons and Tall Trees and the other co located service offerings. Of note we have also seen the emergence of some supported or care offering in the Ingenia communities.

The Aged Care sector has also seen a significant degree of listing activity such as Japara, Estia Health and Regis. Such activity tends to suggest a great deal of support and interest in the Aged Care sector identifying the need to both accommodate and provide care for older Australians.

In the same recent address by Minister Fifield, there was a strong emphasis that consumer directed care would continue to be pressed not only in relation to home care packages but also residential care.

Aged Care is being steered towards caring for the highest levels of care in the form of dementia and palliative care, and away from the lower forms of care. What has been brought to focus from the reforms, the signals issued by Government and the results to date is the gap between lifestyle accommodation and accommodation environments that provide a level of support similar to what used to be low care.

The competition in aged care is forcing providers to look beyond their historical regulated range of service offerings. The Aged Care sector being most experienced and entrenched in the delivery of care services will undoubtedly make further and greater inroads in relation to delivery of care to aging Australians in all forms of accommodation.

When coupled with the withdrawal of supplements and the limitations on the ability to use accommodation bonds and refundable accommodation deposits, it is reasonable to conclude that the Aged Care sector will look to the retirement village model to develop more innovative accommodation/care products using RAD/DAP combinations to rival the historical lifestyle ‘user pays, one DMF contract model fits all’ size in retirement villages.

Whether Retirement Village operators respond to fill that gap or whether Aged Care providers continue to move faster will be seen over the next relatively short period of time. At the moment the aged care sector is moving faster than the retirement village sector.