Aged Care – Where are company profits coming from?

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The constant justification of low pay used by aged care providers needs to be scrutinised. Providers are attempting to shift the ownership of low wage increases to the federal government, stating “aged care funding cuts” as the reason why wage increases are not up to community expectations, often below inflation and definitely below last the minimum wage increase of 3.3%.

Yes, it is true that aged care funding was reduced by $1.2 Billion over four years in the 2016-2017 Federal Budget on top of the $472.4 Million announced in the Mid-Year Economic and Fiscal Outlook 2015-2016. Like a goldfish hiding in their castle, looking blankly into space, providers forget to mention is the bonanza of money they have received since 1 July 2015.

Even the Aged Care Guild, that represent 20% of the industry beds through their members BUPA, Allity, Opal, Regis, Arcare, Estia, Bluecross, Japara and McKenzie, agree.

A key contributor to improved financial sustainability in the aged care sector was the reform of accommodation payments under Living Longer, Living Better (2012). The introduction of Refundable Accommodation Deposits (RADs), the removal of caps on daily charges in high care and allowing high-care residents to pay RADs has significantly increased the total lump sum accommodation pool in residential care.

The Living Longer Living Better (LLLB) aged care reforms have been an intentionally understated windfall for providers, especially the providers with high care places. They can now charge accommodations bonds (Refundable Accommodation Deposits or RADs) or receive a Daily Adjustment Payment (DAP). They even get to keep the RAD for a maximum period of 12 months after the resident has “departed”.

But wait, there’s more…

We, the taxpayer will also pick up the bill if the provider goes belly up (insert goldfish pun) and loses the residents’ deposit. There is no levy or scheme on the providers to pay for this taxpayer insurance. This is currently under review and of course, providers are unsupportive of any change. All this comes on top of a recent report that accused providers of manipulating resident choice of payment to their benefit.

What evidence do I have to support my argument that aged care worker pay packets are squeezed into provider profits? Let’s look at how much more money providers received and how much money aged care workers received over the same period.

Using government available statistics in 2014, before the LLLB reforms commenced, aged care was divided into high care places and low care places. The total number of high care places where the provider would now receive a Refundable Accommodation Deposit (RAD) or Daily Adjustment Payment (DAP) was 33,908 in New South Wales alone. So if we take a conservative approach and use the average RAD price in 2014-15 of $333,000, this translates to over $11 billion. The latest figures put the current total of RADs at about $20 billion Australia wide and that is expected to increase to $36 billion by 2025!

How much RADS are we talking about?

RAD
Allity – 2016 Financial Report $522,770,000
Estia – 2016 Financial Report $652,659,000
Opal – 2016 Financial Report $457,857,000
UnitingCare – 2015 Annual Report $819,033,000

So we’ve established that aged care providers now have a $hitload of new cash since 1st July 2015. However, this new money is only permitted to be spent on growth/renovations, invested or used for commercial loans (as permitted under Chapter 3A – Fees & Payments Part 3A Divisions 52N Aged Care Act 1997), which excludes wages /increased staffing or general operating expenses.

So what happens to the money made from the RADs? The Aged Care (Transitional Provisions) Act 1997 Chapter 4 – Responsibilities of approved providers, Subdivision 57 – F, Rights of approved providers states;

57‑18 Approved provider may retain income derived

(1)  An approved provider may retain income derived from the investment of an *accommodation bond balance in respect of an *accommodation bond paid to the approved provider.

They get to keep the investment income is what that means. In regards to the DAP, (currently calculated by RAD x 5.73% / 365), the Provider is guaranteed to receive a minimum return of 5.73%.

Using the RAD figures above, an interest of 5.73%, generates over $140,000,000 additional money for just these four providers. That’s called ‘funding boost’ in any other language other than aged care.

Return 5.78%
Allity $29,954,721
Estia $37,397,361
Opal $26,235,206
UnitingCare $46,930,591

What has happened to aged care wages in NSW since the introduction of the LLLB reforms

Aged Care Nurses Average Wage Increases in NSW 2015 2016
For Profit 1.9% 0.9%
Not-For-Profit 2.8% 2.6%
Minimum Wage Decision 3% 2.5%
Wage Price Index 2.4% 1.9%

Wage increases across the board have been poor, with the latest ABS release putting wage increases at about 1.9%. But as the table above shows, NSW aged care for-profit providers are having a laugh, using the aged care funding cuts in the 2016 federal budget as a reason for low wage increases. Even the NSW for-profit employer association walked away from negotiations (covering 60 agreements) in 2015 offering a slight 1.3% administrative increase. In 2016 they followed up with a 0% pay increase in 2016. This resulted in an average pay increase of a miserly 0.9% for 2016. Keep in mind, the For-Profit sector was a major beneficiary of the Living Longer Living Better reforms due to a high amount of their high care places, and therefore their new access to RADs.

It might be worth reminding the Minister for Ageing that the functions of the Aged Care Financing Authority (ACFA), set out in the Committee Principles, is to provide advice to the Minister on the aged care workforce in regards to revenue, cost and productivity movements and accommodation payments.

The continued strategy by aged care providers to cry poor due to funding cuts needs to be taken with a grain of salt. I’d remind them of the windfall they received in 2015, which has still not benefited staff’s wages, increased staffing for residents or the community.

Ben is an industry research officer

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