Australia: Aged Care Reform – Living Longer, Living Better – Anywhere you like

On 20 April 2012, the Federal Government responded to the Productivity Commission's review of the aged care system in 2011 and released a package of reform initiatives designed to reshape this system. When viewed as a whole, the reforms are intended to change the emphasis from 'aged care' to 'aged living', which means choice and flexibility for the consumer.

The reforms will not only affect current participants in the aged care sector, namely approved providers and lenders, but will also be relevant to the growing number of retirement village operators who find more of the residents living in their villages receiving some form of government care support.

In terms of timing, the reform package will be rolled out over five years commencing on 1 July 2012.

Stay at home longer

The headline aspects of the reforms that are designed to encourage people to stay at home longer have been extensively reported. These reforms include:

• increasing the number of Home Care packages from approximately 60,000 to 99,669;
• increasing the use of Consumer Directed Care packages;
• streamlining the range of Home Care packages currently available into a more consistent range of services and packages designed to assist and enhance prevention and reablement, that is being able to stay at home longer;
• from 1 July 2013 introducing a new range of Home Care packages;
• from 1 July 2014 introducing revised assets and income means testing to have people contribute to their cost of care, however care recipients already in the system will not be affected and won't have to pay more than they already do;
• introducing an annual cap on care fees of $25,000 with a lifetime cap of $60,000. This will again be means tested with the prospect that costs paid under Home Care packages may be counted towards the lifetime cap; and
• introducing a new Dementia Supplement to provide $164.3 million worth of assistance to Home Care and residential care recipients.

To achieve this objective, the reforms look to align the services focusing on prevention and reablement and undertake an extensive review of these programs. Priority areas of review are meals on wheels, transport services, home modifications and home maintenance.

It would appear logical that a review of these areas may lead to a tightening of care criteria which, when coupled with increased care recipient contribution, may make the alternative of living in a retirement village rather than a residential aged care facility more attractive. That in turn raises the question for a retirement village operator of how to access such funding and what services, if any, are provided as general or optional services.

Residential care

Approved providers face the most significant change in their business model as a result of the reforms. However, these reforms still need to be considered and viewed in the context of the recent reforms to accommodation bonds that came into effect on 1 October 2011.

The reforms which will all generally take effect from 1 July 2014 will have the following effects:

• removing the distinction between high care and low care – this would ordinarily translate to the payment of accommodation bonds across all levels of residential care;
• allowing residents the choice to pay an accommodation bond in a lump sum or by periodic payment, or a combination of both;
• removing the retention amounts deducted from accommodation bonds from 1 July 2014;
• requiring approved providers to seek approval from the new Aged Care Financing Authority for the level of the accommodation payment that they charge;
• requiring approved providers to insure any lump sum accommodation bonds;
• introducing a cooling off period for residents entering care;
• allowing greater scope for the provision of 'extra services' to residents;
• capping care costs as outlined above;
• means testing of accommodation contributions; and
• providing closer scrutiny of care subsidies paid through greater evidence based and auditing information to overcome the 'unusual' levels of claiming under the current ACFI.

What does this mean for the business of being an approved provider? The alternative business streams of 'extra services' and periodic payments tend to make the approved provider's business more of a 'cashflow' business rather than one of a 'lump sum accommodation bond' recipient. This will give rise to issues of securing payments, tighter resident contracts, bad debts and other operational matters, which to date some approved providers have never had to deal with.

Lenders

From the perspective of a lender, the reform package coupled with the current reforms to accommodation bonds means that the typical operating approved provider entity with a separate facility land holding entity will be under some pressure. If subsidies are linked more closely to the individual through packages such as Consumer Directed Care, then the certainty of payment may be compromised. Similarly, how the lifetime cap works for people transitioning from Home Care packages to residential care and how much the Federal Government will continue to pay after the lifetime cap is met remains unclear.

There is no mention of allocated places in the reform package documentation. There is, however, mention that the effect of the reforms is to essentially increase the allocation from about 113 per 1000 people to about 130 per 1000 people. On that basis, it would appear that the concept of allocated places remains in place for the time being.

Implementing change

The reforms are real and to make them happen the Federal Government will by 1 July 2012 begin the process by establishing an Aged Care Reform Implementation Council to drive the implementation and further development of the reforms.

To assist and advise on matters of pricing and funding of aged care, including setting accommodation payment levels, there will be an Aged Care Financing Authority.

An Aged Care Gateway will be established to provide a clear pathway for care. As a first step, a new My Aged Care website and call centre will be established from 2013 to provide consumers with an integrated information point to navigate the aged care system.

There will also be a new Australian Aged Care Quality Agency that will replace the current Aged Care Standards and Accreditation Agency.

Is that it?

The reforms set out above are only part of the package. There are additional measures canvassed including reforms to address greater workforce participation in this sector that has grown to be one of the largest employers as an industry group in Australia.

Further, the reforms must be viewed through the prism that the emphasis is on prevention and reablement of the ageing population and in that regard, participants in the industry should take that into consideration when designing their businesses.

The emphasis on seamless progression of a person through the aged care system tends to support the argument that the Federal Government is looking to reduce the level of disruption through changes in accommodation that comes with ageing under the current system. It could be argued that the concept of 'Apartments for Life' that has been discussed for some time may now be coming to the fore.

Gadens Lawyers is able to advise and assist approved providers, village operators, lenders and new participants looking to enter the aged care and retirement village industries to understand how these reforms may impact their business.

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This report does not comprise legal advice and neither Gadens Lawyers nor the authors accept any responsibility for it.