Residential aged care: Proposed alternative models for allocating places

The strength of the current arrangement for consumers is that bed licences will be allocated to the regions where there is a greater need (based on the current allocation process used to determine where places will be allocated).

In addition, the current model allows for socially disadvantaged groups to be properly catered for by placing conditions on the issue of new places. This group is potentially disadvantaged under the alternative model.

The current model works well but does require refinements and enhancements.

Overall the current model allows certainty to providers that they can construct a new facility in a particular geographic region knowing they have bed licences allocated.

In terms of capital funding, the financiers also have greater security as they have the underlying property and the bed licences as security.

In discussions with the banking community they also favor the existing model for the reasons outlined above.

In the absence of the current model there will be a significant drop in capital investment in the construction of the residential aged care facilities as operators will not be able to build with certainty and financiers will be reluctant to lend to operators to construct a facility as the only security available to the financiers will be underlying property and not the bed licenses. In addition, projecting cash flows will be less certain making it more difficult to secure capital funding.

The current model does need to be refined with the following changes:
1. Bed licences should be allocated to operators and not speculators.
2. A condition of the bed licence allocation is that the operator must own and operate the facility for a minimum of 2 years.
3. To encourage construction of facilities in regional areas, the Federal Government should consider incentives for those regions (eg a 2 year payroll tax exemption to a provider who constructs in a regional / remote area).
4. Before beds are allocated to an operator, a milestone plan needs to be agreed to with the Department. Failure to comply with the milestone plan will result in a forfeiture of the bed licences. An operator will be able to appeal a decision to rescind a licence due to extenuating circumstances (eg council delays in approvals)
5. Any bed licences rescinded will be available for immediate issue to another operator (once again on the assumption a milestone plan is agreed to)

1. One problem under the current model is the delays by council in approving plans but this problem would exist under either model.

2. Another problem with the current model is operators being issued with licences and not activating them in a timely basis. This can be dealt with my requiring a milestone plan that needs to be agreed and followed. Also the handback provision mentioned above will also ensure that beds are activated as soon as possible.

The evidence of point 1 above is demonstrated through our own experience.

The evidence of point 2 is based on approximately 13% of allocated places yet to be constructed or opened (based on the data shown in the Discussion Paper and the Legislative Review of Aged Care 2017)

The design principles outlined in the Discussion Document are appropriate

Another design model that should be considered is a modified version of Model 1:

This Model (Model 3) should be based on the existing ACAR model however, operators should be able to apply at anytime for bed licences to construct an aged care facility in a particular area . The Department can then consider that application (application for a number of bed licences and region) and make a determination based on consumer feedback, consumer demand etc.

The paper outlines three improvements to the current model namely:
1. reduce location controls on the distribution of residential aged care places;
2. reduce the number of non operational residential aged care places to maximise the availability of places to consumers; and
3. improve the administration for ACAR and places management processes

We fully support the above 3 suggested improvements. These measure will significantly enhance the current model to the benefit of consumers.

1. By reducing the location controls, more facilities will be constructed which will give consumers more choice. Certain measure would need to be included to ensure appropriate measures to ensure residential facilities are constructed in remote and regional areas

2. As outlined above, ACAR can be modified to require an operator to set out a milestone plan that needs to be agreed with the Department. Failure to deliver on the milestone plan will result in the licences been cancelled or handed back.

3. Finally bed licences should be allocated to operators not speculators and a requirement of a licence issue is that the operator must construct the facility within x years of being issued and must operate the facility for a minimum of 2 years post completion of the facility.

This model can ensure or encourage of access to residential places if appropriate Federal Government incentives are provided to encourage operators to construct facilities in those thin markets. Similar to the initiatives to encourage health professionals to rural and remote regions, similar incentives could be used to encourage operators to construct and operate in remote and regional areas.

Under the current model, the Government can ensure that the vulnerable cohorts are looked after by ensuring that the licences are issued with conditions attached that requires that these sections of the community are looked after.

If you compare to the alternate model wherein the licence is issued to the consumer, the fact that a vulnerable cohort is issued with a particular licence will not of itself ensure that are going to receive greater attention.

N/A

no further comments

no further changes

Modification to the existing model will have a very positive impact on us as an operator as we will be able to commence construction in the regional areas which (to date) we have not been able to get bed allocations granted. In the absence of being issued with bed licences, we cannot obtain the requisite bank funding to commence construction.

A very positive outcome as more homes will be able to be constructed which will provide consumers with greater choice.

None that come to mind

As this model is already in place, these changes will be regarded as enhancements, so the risks and disruptions will be minimal. The benefits will be maximised immediately.

When compared to Model 2, this model will have significant risk and cause significant disruption to operators, financiers and the consumers. (see later responses)

These can be implemented immediately and result in a smooth transition.

Other than information sessions, there will not be a need for significant support or enablers

We do not support Model 2. This will have a significant negative impact on existing operators who are already under significant stress due to low profitability and other changes within the industry. Based on the slides presented at the consultation forum, 45% of operators are operating at a negative NPBT. Also return on assets is only running at 1.2% which will not encourage new capital to the industry .

These stats will not improve under model 2 but will in fact get worst

The establishment of the queue will be extremely disadvantageous to consumers especially given they are at the later stages of their life and cannot afford the time to be placed in a queue.

When you compare this with the existing model where their are increased vacancy rates. Places are available at the moment if a resident requires a place.

This is not currently working in home care so I cant see it working in aged care.

We dont support a queue system. Consumers deserve better than this. But if you had to have criteria it would have to be based on the consumers that have the higher need.

Agree otherwise consumers will hold onto places. Once issues with a place the consumer should take up the place within 6 months otherwise they lose the place.

We dont support the model or the queue arrangement.

They have all available information to select a home at the moment so no additional information required.

As the place will be allocated to the consumer with special needs, there is no guarantee that they will find a place that will cater for their requirements. Compare with the case of Model 1 where the operator will be required to provide care for these special needs as this would be a condition of the allocation of the place.

As an existing provider, model 2 would have a significant impact.

Our bed licences (that we have acquired through acquisition) would now have nil value and this would result in us needing to refinance the business as the only security that the bank could rely on is the underlying property and not the bed licence. This would have a significant impact on LVRs and in the case of some operators, result in them breaching bank covenants and going out of business.

We would not undertake any further developments of new facilities as financiers will be more reluctant to finance operators as operators would only be able to provide the underlying property as security.

We would continue to provide the same level of high quality care as we provide now. A change in the model will impact on the operational cashflow and capital funding for the homes and in turn directly impact care, even though that is not what we wish to see happen. Simply, if there is less capital funding and operational cashflows available, there is going to be a direct and negative impact upon the care provided, not just by us but by all operators. The initiative we take to ensure our home remains competitive and attractive would not change

No we would not as we could not afford to complete the cost of construction, provide subsidised care and remain sustainable

The main support to existing operators would be in relation to dealing with the significant erosion in the capital value of their investment with their bed licences now having no value. This will have a major detrimental impact on operators (some will go out of business despite being good operators) which will provide less choice for consumers.

The existing ACAR system provides a significant role in being able to obtain capital financing . For many operators, in the absence of ACAR and being issues with places, capital finance will NOT be available.

First and foremost, existing licences need to have a value to an operator under Model 2, In the absence of this, there will be significant disruption to existing operators.

Existing licences in the hands of operators need to be preserved !

Under Model 2, the problem of adequacy of services in RRR areas will increased. Operators will not construct in RRR areas without more certainty that there will be an adequate supply of consumers in that area.

Model 2 will not assist here.

Isnt that ACAR?

Model 2 will have a significant negative impact on us as an operator as there will be a significant reduction in the capital value of our investment which will impact current banking arrangements and future banking arrangements.

This will also apply to other operators with a consequence that they may be forces out of business.

Highly negative without any associated improvement to the consumer.

It will cause significant angst between operators and financiers in terms of current funding and also future funding.

Not sure

Not sure

We have never received a capital grant so cant comment

Not sure. Safe to say Model 2 will have significant disruption to both financiers, consumers and operators. For us, we would potentially sell down most of our homes or indeed exit in full as the significant loss of capital value as a result of bed licences having no value (bed licences that we have purchased at prevailing levels of market value over the past 11 years) and in turn such a significant capital loss, even if staggered over a couple years would be too significant to survive. We would not be alone in this outcome as many private and not for profit operators have the same financial matrix as we do. Therefore, we could not minimize the risks and disruption and we would be forced to exit from the industry causing great uncertainty for our residents (the consumer), their families and all of our 1,100 staff.

As long as possible if this was to be implemented as operators would need to refinance, i.e 5 to 10 years, government backed / guaranteed otherwise the banks will not be willing to bare the financial risk of a drastically reduced security (loss of bed licence value), even government capital funding stepping into the place of the financiers if the bed licence value is written down to nil.

n/a

Preserve ACAR with the refinements which are outlined in prior responses including the refinements outlined on page 17 of the discussion document.

We strongly support maintaining the existing ACAR with the modifications outlined in the Model 1 discussion. In an industry that is under significant financial stress, a change to Model 2 will cause a significant disruption to consumers, operators and financiers.

In our view Model 1 (with the refinements) allows for greater consumer choice . Model 2 will not provide greater consumer choice for the reasons outlined in prior responses.