The Aged Care Legislation Amendment (Improved Home Care Payment Administration No.1) Bill 2020 (“Bill”) was introduced to Parliament on 27 February 2020.
The Bill will change the way in which home care subsidies are paid to approved providers. Subsidies will go from being paid in advance (as is currently the case) to being paid in arrears.
According to the Explanatory Memorandum for the Bill, the current pool of unspent home care funds is around $750 million, with an average of $7,000 unspent funds per care recipient. The Bill is the Government’s response to this issue.
Whilst it was announced on 28 February 2020, that the first phase of implementation would start on 1 June 2020, it has since been announced (on 27 March 2020) that implementation will be placed on hold due to the current situation with coronavirus (COVID-19).
Nevertheless, the changes are still coming, and providers should be prepared.
What the Bill says
The Bill itself is quite unassuming. By introducing a shortchange to the Aged Care Act 1997 (Cth), it will:
- repeal section 47‑3, which currently states that a home care subsidy is payable by the Commonwealth in advance;
- retain a provision that for the purpose of obtaining payment of a home care subsidy, an approved provider must, as soon as practicable after the end of each payment period, submit a claim in approved form, along with any supporting information that is required (s 47-4); and
- insert a new provision that a home care subsidy is not payable in any payment period that a provider does not submit a claim (new s 47-1(1A)).
A ‘payment period’ remains defined in s 47-2 as a calendar month (or such other period as is set out in the Subsidy Principles).
The Bill gives effect to the first stage of reforms announced by the Government in the 2019‑20 Federal Budget, which aim to improve the administration of payment arrangements for home care packages. Further legislation implementing the second stage of reforms will be introduced at a later date. A third stage will then follow.
At the time of writing, the Bill has progressed as far as the House of Representatives. The commencement date will be either a date fixed by Proclamation (as yet unknown), or else 6 months and 1 day after the Bill receives Royal Assent. The indications are that each phase of the home care funding changes should commence at the start of a financial year (beginning 2020-2021), to minimise impacts on financial reporting.
Analysis – what the Bill means for providers
To understand the effect of the Bill on home care providers, we asked some questions of former aged care chief financial officer and now aged care consultant, Mr Nicholas Hopkin:
Q: Paying home care subsidy in arrears is intended to ‘introduce a more contemporary business practice into home care subsidy payment arrangements and bring these arrangements into alignment with other Government programs like the NDIS’. What is your experience with some of these other Government funding programs, for example NDIS?
A: NDIS is currently claimed in arrears. However, it can be claimed the day after the service is provided, and usually payment is received within 24 hours of the claim being lodged. Most NDIS providers submit their claim following approval of their payroll, which is usually on a fortnightly basis. Hence, NDIS providers only fund one payroll in the month. Unfortunately, under Phase 1 of the bill, by paying home care subsidies a month in arrears, home care providers will have to fund two payrolls in the month. They may be able to negotiate more favourable credit terms with their suppliers in relation to brokered items, but providers should realise that they have a social responsibility to all stakeholders.
Phase 2 of the bill suggests paying providers in arrears for services provided. This would mean that consumers unspent funds will be held by the government, but providers and consumers will have visibility of these balances, as is the current position within NDIS.
A major difference that exists between home care and NDIS is that under NDIS, the government have set prices for services delivered. This helps with the claiming process. In its current format, whereby each Home care provider can set their own prices, this would present a big challenge to the government in processing all the different provider claims. It does beg the question whether the Government are working towards a model where they set the home care prices like the NDIS.
Changes introduced by the Aged Care Legislation Amendment (Comparability of Home Care Pricing information) Principles 2019, such as the introduction of a standard format of pricing was a step in this direction.
Q: The Aged Care Funding Authority (“ACFA”) suggests that short-term cash flow shortfalls from the transition to payment in arrears could be covered by the drawdown of cash and liquid assets. Alternatively, other financing arrangements could be utilised, such as loans or equity injections. What do you make of this, and the conclusion that: ‘The overall financial performance of approved providers, other than the potential additional interest expense and possible foregone interest revenue on unspent funds, will not be materially impacted by the cash flow impact of the proposed changes to funding arrangements’?
A: LASA’s submission to the Aged Care Financing Authority (ACFA) indicated that over 80% of surveyed Home Care members would find Phase 1 of the change at least somewhat financially challenging. I believe this would be even higher and more severe for ACSA members. To understand the potential impact, providers should start to model how the introduction of Phase 1 would adversely affect their cash resources.
They should look at the worst case position if they placed one month of subsidies on the balance sheet as a debtor and reduce their cash accordingly (in some cases, providers receive income tested fees direct from the consumers, which reduces the amount of subsidies paid by the government. However, subsidies usually represent 96% of the funds paid to the provider).
Many providers on paper will look okay, but those who operate Residential Care facilities will need to understand whether they will be using accommodation bond money to fund the increased home care working capital requirement, which in its current state is not a permissible use of accommodation bonds.
Providers should also perform the same exercise to model the impact of Phase 2 of the Bill and assume worst case by reducing the unspent funds creditor and reducing cash accordingly. It is not a matter of if, but when the Government will introduce Phase 2. Judging by recent statistics that the average amount for unspent funds per consumer amounts to $7k, the potential impact of Phase 2 would be more severe than Phase 1, hence the Government are still working on timeframes and logistics.
It is however, reassuring to see that the Government announced on 27 March 2020 that they will be putting Phase 1 implementation of 1 July on hold, as a result of the coronavirus (COVID-19). The key is not to panic. Providers should ensure they have robust budgeting and forecasting models as well as the relevant month end actual reports to understand the true underlying performance of their home care business.
Q: To what extent do you think consumers will be adversely affected, as a result of the proposed changes:
A: On the upside, there will be more funds available and hence more packages available to consumers. The potential downside is that there will be a reduction in the number of providers and hence less choice for the consumers.
If you are an aged care provider preparing for the change to home care funding in arrears, please contact David McMullen at Panetta McGrath Lawyers, or Nicholas Hopkin - Director of Nick Hopkin & Associates.
Nick has developed a new way of measuring underlying financial performance for the home care business and residential care using standard costing and variance analysis, which could be of great benefit to your business.
Panetta McGrath Lawyers
(08) 9321 0522
Nick Hopkin & Associates
0404 364 466