Residential aged care: Proposed alternative models for allocating places

ACAR controls the location bed licences are allocated, with the intention of providing sufficient bed capacity for consumers, based upon the demography of a location. ACAR achieves this purpose, but the secondary effect is reduced competition in the location, which limits consumer choice and does not motivate exiting providers to improve their offering.
Bed licences allocated to unprofitable locations, such as rural and remote areas, hold limited appeal to investors, who rightly expect a reasonable return on their investment, so thin markets will remain a challenge unless inducements are offered.

ACAR gives existing providers protection from competition in a location deemed to have sufficient beds per head of aged population. Conversely this reduces choice for consumers who may be forced to choose a facility that does not ideally meet their preference or needs.

Consumers want to live close to their network of friends and family that have been built up over a lifetime, so prefer to move into facilities in their immediate location.
Our experience shows this is within six kilometers of their current home.
With the huge growth projected in the aged population, there is an urgent need for new facilities in these metropolitan areas. ACFA estimate 88,110 new beds are needed over the next decade.
ACAR has a focus on current demand that doesn’t take into account the protracted time to obtain council consents and to build new facilities, which will take on average 4-5 years to come to fruition.
This means bed licence allocations are limited, creating uncertainty that future developments will be supported, which is likely to have an impact upon investment decisions during feasibility studies and to deter lenders.
In the long term if the build rate continues to decline consumers will be limited for choice or have the prospect of sitting on lengthy wait lists as experienced in Home Care currently.
Quality providers with a proven track record of consumer satisfaction are effectively being locked out of areas that are not currently provisioned to meet the projected growth.
There is a need for a deregulated model to allow companies willing to invest in meeting the future needs of aged Australians, to do so unhindered.

Limiting bed licences has created scarcity, inflating their perceived value, and driving active trading with the price per licence now exceeding $80,000. This is a huge upfront capital investment for a licence that was often gifted to the original recipient.
Licences bought on market are not readily available and often have limitations in how, or where, they may be used. This creates uncertainty over the number of bed licences that may be acquired, forcing providers to build in the hope they will receive the bed licences needed to fill the beds they have built.
With the time delay between ACAR rounds investors are faced with the probability of lost revenue whilst they hope to obtain licences for the beds they have built, or the holding cost of bear land awaiting an allocation of bed licences. These sums quickly mount into the millions, so are not insignificant when considering whether to invest in Aged Care.

Protected from competition and guaranteed occupancy, there is little motivation for the industry to evolve in the way consumers are demanding and the Royal Commission is advocating.
ACFA reporting shows clear evidence that reinvestment in upgrading existing facilities is declining, with drops in the last three consecutive years, from 15% (2014-15) to 5% (2017-18).

Deregulation would bring the sea change required to drive quality improvement and for consumers interests to be truly bought to the forefront. Providers would be incentivised to improve their offering to ensure they retain existing consumers and attract new one.

Funding is interlinked with ACAR as the desire to invest in the sector is motivated by a realistic return on investment. With 45% of providers reporting negative EBITDA and significant re-investment required to refurbish older facilities, it is inevitable businesses will fail. Consideration needs to be given to uncapped fees to drive re-investment and innovation, with the consumer deciding the value of the offering.

These issues are occurring on a national level and inhibiting providers who have the desire to invest. The current long-term outlook for residential aged care is pessimistic without an easier pathway for new investment.

Although the demand for residential aged care places is increasing, only a small portion of the applications seeking support for new developments are supported in metropolitan areas.
Ryman has acquired 11 sites in Melbourne and invested significant sums to purchase bed licences but will continue to face uncertainty and delays in building the beds desperately needed to meet projected growth in the aged population.

Our preference is model 2, which offers deregulation allowing providers to invest in building facilities that must excite prospective consumers to ensure their success, and motivating providers to continually seek feedback from consumers to ensure their offering remains relevant and attractive.
The sector needs private investment to meet the projected consumer growth and deregulation facilitates this, ACAR does not.
Uncapped fees funded by a co-contribution from the consumer should also be considered as part of the solution to meeting consumer demands and raising the bar on the quality of service delivered.

The deregulation proposed offers the best outcome for consumers and providers.

As a consumer I will enjoy life in a Residential Aged Care facility that is motivated to provide me the best of care in the best environment, because if they don’t, I will vote with my feet and find another provider who will meet my expectations.
I am comfortable comparing offerings to ensure I am getting the best value for money and prepared to pay a rate based upon the value of the offering.
I am pleased new facilities are being built in my community as they offer me more choice and viable options to consider, that will allow me to remain in the location that I have lived in for most of my life.

As a provider I can now build new state of the art facilities designed to meet the consumer’s preferences. I have certainty of the number of care beds I will build, so can complete a feasibility study to determine a cost effective scale, and once the facility is built, I will be driven to fill the beds. I know that my offering must be competitive, my care better than my opposition, and that I need an edge on my competitors, so I will innovate.
I am also conscious that my resident population is constantly being refreshed so if I don’t keep my facility in top condition and my offering relevant to prospective new residents, then I will not attract their patronage. I equate this to the drive large Hotel chains have, to keep their offering fresh and relevant to their consumers in a competitive environment.
We have made a significant investment in Victoria with two villages completed and another 9 sites purchased pending building consents. For more than thirty years we have provided a continuum of care under a model where we co-locate our Retirement Village and Residential Aged Care offering on the same site, so our residents can truly age in place.
This model was developed to meet consumer preference, with many couples first entering an apartment knowing that one partner has failing health, but with a burning desire to remain together. They have comfort in the knowledge that as their needs change, they can transition into our care center but remain together within the same village.
Under the current ACAR model we have no certainty that we will be able to provide the beds we wish to build to offer the continuum of care intrinsic in our model and that consumers desire. We have had limited success in ACAR rounds, where we have sought bed licences for our new developments and have built beds that we are not licensed to occupy. This creates uncertainty that we will be allocated enough beds licences to build to a financially viable scale, and to service our resident population of the Retirement Village. Our care center generally offers 120 care beds, providing a mixture of High, Low & Dementia care. Due to the extended time frame between ACAR rounds and the prospect we will not receive the desired allocation, we are forced to buy licences on market, which are trading for $80,000 - $90,000 per licence. Licences are limited in both numbers and where or how they can be used, and we are generally paying large sums for a licence that is non-operational and was allocated for free. We are making this investment knowing that ultimately a bed licence may hold no intrinsic value in future. This poses a significant upfront cost that is a deterrent when considering whether to invest in a market already showing a poor return on investment.

Deregulation would solve these problems and ultimately provide consumers with a better quality, in a beautiful facility located in their neighbourhood.

I believe queuing is unlikely if unused places are returned to the funding pool as has been proposed; and if future funding keeps pace with the growth in the population aged in their eighties.
On the figures provided 119,638 places were allocated for residential aged care in the last financial year, and only 61,997 consumers were admitted, leaving a potential 57,641 places to be returned to the pool.
Respite care funding offers interim support whilst a permanent place is sought, which would further alleviate any likelihood of a queue forming.
Declining occupancy in the sector would suggest that if a consumer is approved for funding, then they should be able to find a place.

I believe priority should be given based upon urgency of need and availability of alternative cost effective (non-Hospital admission) support.
Respite funding can be used as an interim support whilst a permanent place is sought but the capped number of days could be lifted to provide flexibility for a provider and consumer to extend their stay if mutually agreeable.
This would provide cost effective care whilst a consumer waits for a permanent place to be allocated.

I agree with the philosophy of use it or lose it, so that funding is allocated to those most in need and not held by consumers already receiving Home Care who may not have a true desire to move to residential care.
Considering most consumers enter permanent residential care within 9 months of being allocated a place, I believe the consumer should be encouraged to sign an agreement with a residential care provider to move into care within six months of receipt of their place. If they do not meet this time frame then they could be given an extension of 3 months in which to enter care, or the place will be returned to the pool. This provides ample time to find a care provider and a buffer if the consumer does not complete the task within 6 months.

If a place is withdrawn because the consumer does not move into residential care within a specified time frame, then the consumer should be able to re-joins the queue based upon their needs. If the level of support required to manage their needs warrants Hospital admission or other high cost of care, then an ACAT assessor should be able to escalate entry to Residential Care.
This would minimise additional government cost whilst ensuring the consumers safety.
Respite care could be used in the interim, pending re-allocation of a permanent place.

I believe the myagedcare navigators will provide good assistance to consumers selecting their preferred provider, but that they should also be supported by a family member with a vested interest in the quality of their care.

A set of quality indicators bench marked against desired standards that were publicly available, would provide transparency, and be beneficial for consumers and providers in raising the bar on the services offered.
The UK star rating system for care is a concept that would be readily understood in relation to quality of service and accommodation, as used to class Hotels.

Special funding or grants should be attributed to consumers with special needs or dementia.
The Aged Care Quality Standards set baseline requirements, but more intensive resourcing required to manage challenges such as behavioural issues, should be funded appropriately. The funding would incentivise providers to ensure sufficient places are available for this cohort.
Consumers with limited capacity to pay would still have bed opportunities based upon reported diminishing occupancy levels (90% ave) driving providers to consider all potential residents.

Having operated in New Zealand’s deregulated market for many years, we are used to consumers ultimately determining the value of our offering. They choose the best proposition amongst strong competition. As a provider this we must be competitive and constantly innovating to keep abreast of consumer preferences.
We have adopted the same competitive model for the Australia market, so it is unlikely our business model would change significantly if a decision was made to deregulate, but we would be open to considering change.
Funding underpins our scope to innovate, so an uncapped fee structure linked to the consumers perceived value of our offering, would ensure continuous improvement and the positive evolution of the sector.

In a deregulated market the consumer is king, we would be driven to create a service offering that not only met but exceeded consumer expectations, to gain a competitive edge.

We have worked under a deregulated market in New Zealand for many years so can attest to the continual innovation competition drives. This is evidenced by some of our recent projects focused upon improving the consumer experience:

We developed myRyman, an intuitive care app that runs on a tablet in each resident’s care room, brings their care plan to life with care checklist to
complete, that is linked to intuitive automated triggers that prompt interventions based upon clinical safety benchmarks. Data is collected and graphed in real time ensuring we deliver on our care promise. The app won the top prize in the Innovation of the Year Residential Care Model category at the Asia Pacific Eldercare Innovation Awards in Singapore in May this year. It has helped Ryman to become a standout leader in Ministry of Health care audit results, becoming the gold standard of the industry.

The care environment is a key consideration in consumer choice, so we are driven to constantly reinvest in keeping our facilities in top order or changing them to improve service delivery.
Recently we invested in changing our meal service, encompassing a redesign of our kitchens, dining rooms and delivery methods, plus enhanced choice of meal options. Consumers choose their preference then meals are plated in the kitchen to remove noise from the dining space and for better control of quality, visual appeal, portion size, and to ensure special dietary requirements are met. Meals are then delivered to dining rooms in convection hot boxes to maintain optimal temperature (hot & cold). A training programme for serving staff was provided to improve their understanding of dining etiquette and improve the dining room ambiance. The result was greatly improved consumer satisfaction.

It is easy to see how deregulation lights a fire under providers to give consumers what they desire.

To drive innovation and differentiation in services and accommodation, requires more funding. With 45% of providers operating at a loss, it is hard to imagine they will be driven to invest more to innovate. It is more probable, as the recent LASA survey indicated, that they will either reduce services or join the exodus of 235 (21%) other providers that have left the sector since 2011.

With baseline care requirements delivered to the expectations outlined in the Quality Standards, there is then room to enhance service offerings to cater to consumers desires, but only if these enhancements are paid for.
There is an opportunity for an uncapped fee structure where consumers privately pay to receive the level of service they desire and can afford.
They would decide the value proposition and choose the level of participation they desire, much the same as they would choose a hotel. An IBIS will give you everything you need (meet the quality standards), Novotel will offer more variety, service and a modicum of luxury, but if you want true luxury you would choose the Hilton.
Under this model all three options would meet your basic care needs, but the luxury model would offer you a truly memorable experience in an aspirational environment.

Based upon recommendations in the Tune review to discontinue ACAR for Residential Care places, some banks have already indicated they attribute no value to bed licences and many large providers have already removed them from their balance sheets assuming they will hold no intrinsic value in future.
I don’t believe banks attribute any value to bed licences when making capital financing decisions. They are more interested in bankable value: the long term viability of a business, their reputation and their cash flow.
However, the restriction of bed licences the ACAR process poses to new developments, creates uncertainty about what can be built during feasibility studies, so could prove problematic for capital financing.

Investment is driven by a return on investment and certainty of long term viability. With the current poor return on investment, which is primarily driven by under funding of residential aged care, the sector is less appealing.
Lenders will expect an increase in compliance costs mandated by the outcome of the Royal Commission, which will worsen returns.

ACFI is not delivering funding in line with the increased cost to provide the care consumers need. In the 2017-18 financial reporting shows expenses increased 5.3% but revenue only increased 1.7%, leaving a funding deficit.
In addition, the increases in Home Care packages, means consumers are coming into residential care later, and with much higher acuity, demanding additional staffing and nursing expertise to manage their needs. ANMF are advocating a 50% care staff ratio, which is not supported under current funding.
QLD government has mandated 3.65 hours per resident per day in their 16 aged care facilities, which would be wonderful to offer residential care consumers if funding supported this level of care.

If fees were uncapped, where a consumer pays based upon the value they receive, it would offer more scope to charge a rate commensurate with the service provided. The consumer would pay the additional cost through an increased co-payment.
As suggested in the Tune report, means testing could include the full value of the family home and annual & lifetime caps could be lifted.

Conditions could be attributed to demonstrated experience/ expertise or training undertaken to evidence capability and suitability.
The financial viability of the entity should also be a consideration, a highly leveraged start up new to the sector would pose a risk to residents if the business failed.

We can only see a positive benefit for our organisation and the consumer.

Deregulation would allow our plans to build nine new facilities in Melbourne to progress without uncertainty about whether we will be successful in future ACAR rounds or may need to endure the financial burden of buying bed licences, at a current market rate of more than $80,000 each.
We feel we offer exceptional care in an environment that consumers love, so we would welcome a competitive market, as would consumers.

I believe deregulation combined with an open fee structure would be the seed to ensuring the long term viability of residential aged care.
It will drive investment and innovation in the sector, which will ultimately benefit the consumer with greater choice and an enhanced service offering.

It is probable those facilities already struggling (45% with negative EBITDA) will be faced with a decision over whether to stay or leave the sector as competition for consumers heats up, but this is already a reality under the current bed allocation method.
With relatively low occupancy in the sector and deregulation encouraging building activity, consumers from facilities who close could be accommodated by other providers in the same location or surrounding areas.
For newly developed villages it is possible they could take large numbers of consumers due to bed availability, which would accelerate their fill rate, so it is probable they would honour existing fee arrangements to ease the transition.

Deregulation on its own will not ensure the long term viability of the residential aged care sector, this change would need to be supported by uncapping fees so that providers can confidently invest in the knowledge that they will receive a realistic return on their investment.
This will drive innovation and a desire to create a high quality care environment that exceed consumer expectations, in an effort to secure their business.

As new facilities open, they have scope to offer higher levels of respite care in early stages. With no cap on the number of bed days providers could offer, it would be easier to provide respite care to a larger group of consumers.

Respite is seen as a ‘try before you buy’ options, as evidenced in research that suggests it is the primary funding used before entry into permanent residential care. This is encouraging for providers, so it is unlikely there will be any reluctance to accommodate respite care consumers.

Respite care funding could be reviewed to reflect the intensive investment in time to induct a new consumer, with little return for this investment if the consumer only stays for a short period.

I believe extra services status sound be removed and fees uncapped, so that consumers decide the value of the providers offering.
In a competitive market, providers will be driven to constantly innovate and improve to entice new consumers.
Uncapped fees could be linked to initiatives to create transparency around a provider’s offering. A star rating could be linked to the providers level of attainment of key quality criteria, which is bench marked against industry norms, so excellence of service could be easily evidenced, and the value associated with this level of service better determined.

I believe implementation should not be delayed at the expense of consumers.
The Royal Commission is evidence that Australian’s are crying out for better quality care and living conditions.
New developments take years to come to fruition, so even if ACAR was removed tomorrow, in favour of deregulation, I see no immediate change to the sector.
Businesses are failing already as they struggle to provide cost effectively care, ACAR has no bearing on their long term viability, and neither would a move to deregulation.
I feel that concerns that revolve around the impact of competition in the sector are unfounded, competition already exists, but deregulation, if linked to more equitable fees, would be the impetus to drive the paradigm shift that consumers and providers in the aged care sector are desperate to see eventuate.
Suggestions that capital financing will increase if bed licences loss their intrinsic value seem unfounded based upon feedback from bankers.
I see only benefits to providers and consumers in a deregulated market with providers hungry to please prospective consumers.

I see a decision upon whether to move to a deregulated model taking a relatively short period.
If deregulation becomes the preferred model, then providers with development plans should be given immediate approval to build the bed numbers they have planned, as evidenced in council submissions. It is likely these developments will take years to be built but this would give certainty to those who have shown a willingness to invest, and significantly aid them to deliver the beds ACFA has flagged are needed over the next decade (88,110), in the interest of consumers.
There will be some new builds already under construction with a probability of delivery within 12-24 months, but the greater majority will have a longer delivery horizon, so the immediate impact on the market will be minimal.

I believe a summary of the most prevalent concerns raised in the consultation should be shared with providers and reasoning for any decision made in relation to these concerns.
Webinars and stakeholder forums could be hosted to explain planned changes and implementation time frames.

The cornerstone to the long term viability and aspirational evolution of aged care, is uncapped fees, with consumers choosing their level of co-contribution for an enhanced service offering.
The Aged Care Quality Standards outline the minimum requirement to ensure all consumers get the best of care, but uncapped fees would allow providers to innovate and enhance offerings to deliver a new level of excellence in aged care, with consumers determine the value they place on a premium service and making a co-contribution.
Imagine a future where residential care facilities offered the level of hospitality and luxury experienced in five star hotels, where our meals were served in a restaurant quality environment and our chefs won awards for culinary excellence. Where the final days of consumers lives were filled with memorable and quality experiences of the highest standards, not in mediocrity.
This would create differentiation between offerings but as evidenced in hotel chains there would fierce competition between providers at all levels. You can still get your needs fulfilled in an Ibis, Novotel or Hilton but the difference would be the level of luxury you choose to experience.
The pursuit of excellence would lift the entire sector and over time improve the service offering at all levels.

We believe deregulation achieves the best outcome for consumers in creating a competitive environment and improved quality, whilst also providing certainty to providers considering whether to invest in residential aged care.