Bill d’Apice
1 October 2011

Productivity Commission Report on Aged Care

Bill d’Apice


Tel: 02 9233 9013

Mob : 0411 825 814



Charities and Not-For-Profits


Corporate and Commercial

Pro Bono and Corporate Social Responsibility

The Productivity Commission Inquiry into Caring for Older Australians released early August is recommending a fundamental redesign of the aged care system, the central feature of which is an entitlement to care and support based on assessed need, supplemented by greater individual choice of care setting and service provider.

The major elements for the proposed system, which would be implemented over time, are as follows:

  • Removal of the current restrictions on the number of residential places and community packages, and removal of the residential high/low and extra service distinctions.
  • Creation of a single integrated system of care entitlements for residential and community aged care.
  • Individual choice whether the care entitlement is used at home or in an aged care home, and choice of service provider.
  • Regional Gateway Centres to simplify access by providing information and initial care coordination, undertaking assessments of need, approving entitlements to approved services, and arranging assessments by Centrelink of financial capacity to make co-contributions.
  • Modest co-contributions for personal care and nursing costs based on overall wealth (with a maximum limit on co-contributions), and individual responsibility for accommodation costs and everyday living expenses, with safety nets for those with limited means and special needs groups.
  • Market based accommodation prices for non supported residents, with flexibility to pay by daily rent or accommodation bond lump sum.
  • Flexibility to purchase additional services and higher quality accommodation.
  • A Government-backed equity release scheme, the Aged Care Home Credit Scheme for payment of care co-contributions and accommodation and living expenses for those who do not wish to sell their principal residence.
  • An Australian Age Pensioners Savings Account for those who have sold their principal residence to pay care co-contributions and accommodation and living expenses, while keeping the proceeds of sale exempt from the age pension income and assets test.
  • An independent regulatory body, the Australian Aged Care Commission (AACC) to transparently recommend to Government the regional price of care entitlements and a basic standard of accommodation for supported residents, and the price of care for certain special needs groups. The same body would also be responsible for the regulation of the quality of age care services, including accreditation and complaints review.

The reforms have the potential to underpin the viability of the sector and support the expansion of services that will be needed. A care entitlement system and the removal of regulatory restrictions on the number of community care packages and residential bed licences will enable greater individual choice of care services and accommodation, and give service providers greater flexibility to be more responsive to individual preferences.

An approved provider would be able to choose whether they provide care packages or residential care or both and the number of packages and beds they will provide.

Providers would also be able to diversify in response to this greater flexibility, including the capacity to provide certain sub-acute and restorative care/reablement services. There would be greater opportunities for service integration across residential and community care, including respite, and greater opportunities for innovation in seniors housing as a result of the portability of care entitlements and the impetus given to age appropriate housing through the Pensioners Savings Account.

There are some industry concerns that removal of rationing and allowing greater consumer choice may lead to increased financial risks for some residential providers (especially low care) due to increased competition from community care and between residential care providers, and may result in a potential fall in business valuations and a dilution of balance sheet strength for those providers who have booked a value for their licences.

Cash flows will not be affected, and bank support for a project will hinge, not on the value of bed licences, but the business plan, projected cash flows and balance sheet strength.

Enabling residential providers to set market based daily rentals and equivalent accommodation bond lump sums across all their accommodation options will expand the capacity to attract bond capital and better meet borrowing commitments. Whether the Government backed Aged Care Home Credit Scheme and Australian Age Pensioners Savings Account influences consumers away from bonds to daily rental remains to be seen.

The rental option may be more attractive to residents who choose not to sell their home and for some self funded retirees. Initial modelling on the cost comparison of rental and bonds indicates the bond lump sum is a more attractive option.

The reform changes will herald a new era for aged care, with a range of different services and residential aged care facilities flourishing. Smaller residential aged care facilities may emerge, thus enabling smaller land footprint home size styles. The removal of restrictions on the rationing of aged care places and choices for consumers to a more open aged care system may challenge some smaller providers.

Rather than posing greater difficulties for Parish based aged care services and for Congregations the proposed reforms should create opportunities not possible under the current regulatory and rationed system.

The establishment of a proper basis for the setting of care subsidies will be of benefit to providers instead of the current financially constrained system that has no basis in cost. In addition, the Commission’s recommendation that the accommodation subsidy for Supported Residents be set at the average regional cost of providing a basic standard of accommodation based on the Building Certification standard of 1.5 beds per room will improve the accommodation income for Dioceses and Congregations.

The Federal Budget 2012 will likely be the first time we know what the Government will plan to do in terms of adopting the reforms and the implementation timetable for them.

Latest Firm Published Insights