Commercial Disputes and Insolvency
Industry Focus - Turning choice into opportunity
“Nobody spends somebody else’s money as carefully as he spends his own”
Milton Friedman, 1976 Nobel Laureate in Economic Sciences
Introduction
Businesses that wish to survive (or thrive) in a consumer-driven climate should pay close heed to Friedman’s remarks. His
views form the bedrock of economic liberalisation and are increasingly reflected in various services from transport (Uber) to
accommodation (Airbnb).
The disability and aged care sectors are also not immune from these trends (nor should they necessarily desire to be). As
the National Disability Insurance Scheme (NDIS) is rolled out across Australia we are now truly beginning to understand its
impact on the profitability of service providers. Those providers who are more resilient and prepared for the challenges that
NDIS is throwing at them will survive (and even thrive).
On 27 February 2017 the aged care sector followed suit with the implementation of phase 1 of the home care reforms, which
gives consumers of aged care services unprecedented freedom in the way they access, and switch between, home care
providers.
The purpose of this article is to provide a broad context for and overview of these reforms, and the challenges and
opportunities they provide for aged care service providers.
From ‘ad hoc’ reforms to an open market
Australia’s aged care system has been regarded as the product of a series of ‘ad hoc reforms’ and for many years was highly
controlled, often resulting in a misallocation of resources, waiting lists, and poor quality. Nevertheless, since the introduction
of Australia’s Old Age Pension payments in 1909, the last 120 years have also reflected a trend towards cheaper community
care and the introduction of home based, specialised and consumer-driven programs.
In 2011, the Productivity Commission Inquiry Report, Caring for Older Australians found that the aged care system suffered
key weaknesses, including a high regulatory burden, lack of timely access to care, and limited consumer choice.
In 2011-12 more than half a million Australians aged 65 or older reported needing assistance with core activities, with total
expenditure that year sitting at $12.5 billion. 1 By 30 June 2022, it is predicted that 64,200 additional home care packages
will have been released to support aged care consumers to continue living in their homes. 2
In 2014, the case for reform and a best practice system was made clear in Aged care in Australia: Part I – Policy, demand
and funding. 3 The paper highlighted that one fifth of Australians aged over 65 years said they needed care, and estimates
suggest that half of men and two thirds of women aged over 65 years will need formal aged care in their remaining lifetime.
Australians aged over 85 years are projected to increase from two per cent of the population to anywhere between three
and nine per cent by 2050. And by 2050, public aged care expenditure (currently around $15 billion, including informal
care support) is projected to rise from 0.8% of GDP to 1.8-2.2%. Also in 2014, the Aged Care Financing Authority (ACFA)
reported that the residential care sector will need to build approximately 76,000 additional places over the next decade, such
expansion estimated to require a $31 billion investment.
The case for change is clear.
1 CEPAR Research Brief, ‘Aged care in Australia: Part I – Policy, demand and funding’, 2014/01, http://www.cepar.edu.au/media/127442/aged_care_in_australia_-_part_i_-_web_
version_fin.pdf.
2 Aged care reform: A summary of the Government’s Living Longer Living Better aged care reform package (April 2012).
3 Australian Research Council, The University of Sydney, Australian National University and UNSW.
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Commercial Disputes and Insolvency
The road to reform
Last year, public consultation regarding the implementation arrangements for home care reforms revealed that consumers
sought more economic empowerment, supports and safeguards in order to exercise choices that best suited their aged care
needs. At the same time, providers expressed concern about the loss of business certainty and the potential impact on
financial viability that such choice would bring. 4
This process has resulted in the Aged Care Legislation Amendment (Increasing Consumer Choice) Act 2016, including
amendments to various other acts, with effect from 27 February, the aim of which is to provide higher quality and more
innovative services through increased competition. 5
The notable changes are:
1. Planning and allocation – Funding for home care packages will now attach to the consumer, as opposed to attaching
to ‘home care places’ which were previously allocated to providers through the Aged Care Approvals Round (ACAR).
‘Home care places’ are now abolished.
2. Portable funding – Funding is now portable. This change reflects one of the key amendments to the aged care User
Rights Principles 2014, which grants consumers the right ‘to choose the approved provider that is to provide home care
to him or her, and to have flexibility to change that approved provider if he or she wishes.’ This means they can take their
funding wherever they go, such flexibility likely to be utilised most commonly by consumers who move to another area
or whose provider is no longer meeting their goals and needs.
3. Unspent home care amounts – When a consumer switches providers, the amount of home care subsidy, supplements,
and home care fees paid for the period of care to a provider by the client that have not yet been spent or committed for
the care, will now move with the consumer to their new provider.6 This was not previously the case. The arrangements
apply to funds accumulated since 1 July 2015, and also permit the Commonwealth to recover its portion of unspent
amounts. If the client leaves home care altogether (for example, where they enter permanent residential aged care or
pass away), the unspent amount must be returned to the Commonwealth and the client (or their estate). New sanctions
will apply to providers who fail to properly manage unspent home care amounts.
4. New national prioritisation framework – The reforms will now assign home care packages to consumers based on their
relative needs and circumstances (i.e. levels 1, 2, 3, or 4) which aim to make the system more efficient and equitable.
5. Simplified provider criteria – The reforms will simplify the criteria used to determine suitability to become an approved
home care provider, principally:
a. approved provider status will no longer lapse after two years if the provider does not hold an allocation of places
(as ‘home care places’ are now abolished);
b. approved providers of residential care and flexible care will be able to ‘opt-in’ to also provide home care, without
having to submit a separate application;
c. providers will no longer be restricted to the number of home care places they can offer. 7
Despite the new arrangements, there will be no changes to the Consumer Directed Care principles,8 the current fee and
income testing arrangements for consumers, or the claiming process for providers through the DHS. Also, the total number of
home care packages will continue to be capped in line with the aged care planning ratio and forward estimates.
4 Increasing Choice in Home Care – Stage 1: Discussion Paper Feedback, Summary Report, 2016
https://agedcare.health.gov.au/sites/g/files/net1426/f/documents/02_2016/summary_report_of_stakeholder_feedback_on_discussion_paper.pdf.
5 https://agedcare.health.gov.au/increasing-choice-in-home-care.
6 Although ‘exit amounts’ may be included by providers in their agreements with clients (subject to disclosure and transparency conditions), to be retained by that provider when
the consumer switches, such amount reflecting the administrative costs associated with the switch.
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2.
Commercial Disputes and Insolvency
Future impact for business
These reforms (which will be reviewed in 2021-22) are part of ongoing and significant reform agenda, the ultimate aim
of which is a Single Quality Framework: an ‘end-to-end, market-based system within the sector, where competition, and
ultimately the consumer drives quality.’9 The existence of robust search and compare tools, already widely used in other
service sectors, is one of many examples of structures being set up to foster such competition and choice.
This agenda will increasingly empower aged care consumers which, in turn, will apply increasing pressure on existing and
new aged care providers to cut costs, improve services, and stand out from the crowd.
Although Government funding for home care services is limited there is no restriction on the fees a service provider may
charge over and above the Government funded amounts. A 2015 report prepared by Aged Care Financing Authority, Factors
Influencing the Financial Performance of Residential Aged Care Providers, explained that there are many opportunities for
smart providers to adopt strategies that could improve financial performance. 10
There is no doubt that consumers will demand that high quality, reliable, consistent and innovative services be delivered
(whether Government funded or not). A service provider who delivers this offering to their clients and whose business
model is adaptable and efficient will be well placed to succeed under the new regime.
Relevantly, aged care consumers might need to be incentivised differently to users of open-market services in other sectors
(such as transport, accommodation and travel). According to some health experts in the industry, many aged care consumers
display ‘consumer inertia’ and find it difficult, or are unwilling, to conduct the research necessary to compare providers and
make better choices. Accordingly, the full impact of these changes on service providers may not be immediate, and operators
are likely to have a reasonable opportunity to ensure their business is well prepared.
Additionally, these reforms present an opportunity for advisors who have service provider clients to encourage them to
objectively review their business model and to take steps to make any necessary adjustments to ensure their business will be
able to survive the new market conditions.
It is an exciting time for ageing Australians who need this reform, but also for businesses in this space that actively seek to
improve their service offering and that plan, position themselves well and, if necessary, restructure their existing business
models to ensure they can withstand the changing market conditions. For some, the changes to aged care funding will be a
source of concern, for others this will present an exciting opportunity.
A webinar will be hosted and livestreamed by the Commonwealth Department of Health on 28 March 2017 to discuss the changes to Home
Care. It is free and open to all. There will be a Q&A with the Department as well. See: https://agedcare.health.gov.au/news-and-resources/
webinars
7 Providers should inform themselves about the detail and obligations that flow from the changes as the above is only a summary.
8 CDC requires providers to set out an individualised budget and issue monthly income and expenditure statements, which provide transparency over what budget is available and
how funds are spent.
9 https://agedcare.health.gov.au/quality/single-quality-framework-focus-on-consumers.
10 A report on home care providers specifically will be considered in a later report by the ACFA.
Joanne Hardwick
Partner
T: 03 9605 0949
E: [email protected]
www.millsoakley.com.au
Joel Lazar
Law Graduate
T: 03 9605 8033
E: [email protected]
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