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As pricing moves closer to the actual cost of delivering care and hotel services, methodological issues relating to the treatment of administrative costs, payroll tax, care minutes and additional services revenue are having a significant impact on the capacity of the sector to invest in improving the supply and quality of services, Bolton Clarke has told the Independent Health and Aged Care Pricing Authority.
The largest independent not-for-profit provider has shared its submission to the recent IHACPA 2027–28 Residential Aged Care Pricing Framework consultation following last week’s widely unwelcome announcement about residential aged care funding.
The government announced it will increase the Australian National Aged Care Classification price by 2.55 per cent and keep the hotelling supplement unchanged, despite wage increases, inflation and more than three in five providers operating at a loss.
The pricing methodology issues could be costing residential aged care providers close to $20 per resident per day in funding, said Tim Hicks, Bolton Clarke executive general manager of policy and external relations.
“The issues identified in this submission suggest a downside impact on funding that could approach $20 per resident per day, principally from incorrectly assigning administrative costs, but also from excluding payroll tax costs, failing to account for the buffer that is required to consistently meet care minute targets, and treatment of additional services revenue – which IHACPA’s advice this year suggests may actually have an even larger downside impact,” Mr Hicks told Australian Ageing Agenda.
“IHACPA’s mandate from the government is not to allow for any surplus in its pricing advice. This means that any downside error in pricing has serious consequences for the sector, particularly given current efforts to increase investment to address the shortage of aged care beds.”
Key issues, recommendations
In its submission, Bolton Clarke said the allocation of administration and overhead costs is the most significant methodological issue with the current pricing framework.
“The practical effect is to understate the cost of care while overstating the hotel services gap,” Bolton Clarke said. “IHACPA should revise its allocation methodology so that administration costs are allocated according to underlying cost drivers.”
This recommendation is one of eight from Bolton Clarke and is worth $9.85 to $12.30 per resident per day, the provider said.
Another, worth $3.50 per resident per day, calls on IHACPA to “incorporate a staffing buffer when modelling the costs of providers below their care minute targets.”
It responds to the current pricing framework incorrectly assuming providers can staff to care minute targets with little or no margin for operational variation.
“IHACPA adjusts the cost base by inflating staffing costs to the target level, but does not appear to recognise the additional staffing generally required to achieve that target consistently in practice.”
Other issues raised by Bolton Clarke include:
- respite funding does not reflect the cost of care
- the classification system does not reflect significant drivers of care costs, such as bariatric care, complex behaviours and complex healthcare needs
- residential aged care has fewer opportunities than Australia’s public hospital funding system to give technical input into pricing decisions.
Bolton Clarke’s submission outlines eight recommendations across the categories of costing, classification and process.
Costing
- revise the allocation of administration and overhead costs to better reflect the activities that drive those costs (worth around $9.85 to $12.30)
- include payroll tax within the efficient cost base used to determine AN-ACC pricing (worth at least $3.97 per resident per day)
- incorporate a staffing buffer within pricing assumptions to reflect the workforce required to consistently achieve care minute requirements (worth around $3.50 per resident per day)
- adjust the treatment of additional services and similar revenue sources to recognise a reasonable provider margin rather than fully netting off all revenue against hotel costs (worth around $0.65 per resident per day).
Classification
- review the treatment of respite care to better reflect admission-related costs and reduced bed utilisation
- expand evidence collection on residents with complex care needs, including bariatric care, complex behaviours and high-intensity clinical support requirements.
Process
- establish more formal mechanisms for provider participation in pricing and costing methodology development
- provide provisional pricing advice earlier in the budget cycle and update final prices as additional information becomes available.
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