Home care changes and challenges

This week Ideal has had the pleasure of being part of the ACSA Aged Care Finance Forum to talk about the challenges and changes in Home Care. We are happy to share this summary of the presentation with you and welcome you to contact us with any questions and comments.

Contact us if you would like a PDF version of this article.

Home care is a growing and increasingly competitive area of business for aged care providers. The population demographics, consumer preference to remain at home, increased proportion of aged care services being delivered in non-institutional settings, and the focus of the Aged Care Royal Commission on supporting older people to remain at home all support further growth of home-based services.

Responding to this there is increased interest from the private sector and significant growth in the number of home care Approved providers over the past five years. From 2016 to 2019 the number of Approved Providers of Home Care has doubled and private providers have grown market share by 20%.

Proposed changes to Home Care funding arrangements

In the 2019-20 Budget Paper 2 the government announced that payment arrangements would be improved to address concerns about unspent funds and to align home care funding arrangements with other programs, such as NDIS. See below for the three-phase implementation time table that was proposed. Consultation was sought from the Aged Care Financing Authority (ACFA), peak bodies and stakeholders.

The Bill to progress this is waiting to go before parliament. The implementation schedule remains unclear as the legislation has yet to come before parliament. Further details of the proposed changes to funding arrangements need to be made available.

Broadly the changes will be:

  • Payment in arrears from May 2020
  • Payment for services provided from April 2021
  • Unspent funds to be held by government

The proposed implementation timetable shows changes to funding from the payment that would be made in June when transition to payment in arrears would commence. Providers would receive their forward payment for May 2020 at the beginning of May and the May adjustment payment at the beginning of June. There would be no forward payment made for June. Based on this providers need to plan for a change to cash flow in June. If the legislation does not come before parliament soon the timing of this could be impacted.

The key message is irrespective of a change in the schedule for implementation, providers need to plan for a change in their cash flow. ACFA’s assessment[1] is ‘most providers should be able to accommodate the cash flow impact of Phase 1’ and that consideration needs to be given to providers in thin markets to support the transition to the new arrangements. However, given the significant financial challenges faced by a growing number of providers, particularly in their residential care programs, the interruption to cash flow may be underestimated.

The second phase of change is in April 2021 when providers would be paid for the services provided to consumers and the balance of the available funds would be held by the Commonwealth. Concurrently the Commonwealth proposes to change the arrangements for the management of ‘unspent’ funds; these would be returned to the Commonwealth, and held for future use by the consumer. The mechanism for this still needs to be clearly articulated. The arrangements for the management of the client contribution also need to be understood. ACFA, the peak bodies and providers have given feedback regarding the need for alternative arrangements and possibly options for the mechanism for returning or unspent funds.

The review of the proposed changes by ACFA and feedback from the Peak bodies highlights the technical difficulties and need to ensure robust accounting and business processes are in place at multiple levels prior to implementing these changes. Across the sector there is a very nervous feeling regarding the government’s capacity to manage a change of this nature and scale with many providers highlighting past challenges they have experienced in aged care and other related sectors. Feedback also calls for any changes to be implemented in line with the change in financial year. Again, the delay in the legislation being before parliament may challenge this.

Providers need to have a robust financial management system that enables timely account management and financial forecasting enables providers to plan for the changes. Service purchasing arrangements will need to include timely billing by third parties.

Unspent funds

Unspent funds refers to the proportion of the funds allocated to a consumer that are yet to be used and are being held by the provider for future use by that consumer; technically they become unspent funds when the person leaves the package and at which point the funds are accounted for the following month’s payment adjustment. However, the funds that have been allocated to the consumer and are yet to be spent by the consumer are generally referred to as unspent funds. The issue of unspent funds has grown.

There are over 118,000 people currently on a home care package [2]and each and every one of them has a unique needs and preferences about how to best make their package work for them and their circumstances. Given the long wait for a home care package at the person’s assessed level and the high proportion of people on a package below their assessed level it is curious that the amount of unspent funds continues to rise.

Factors contributing to ‘unspent’ funds’

That said there are some common themes that come through and suggestions as to how these could be addressed:

Assessment for a home care package is a blunt instrument and there may be variation in practice across the assessment teams. The ACRC and other consultations highlight variability in practice and the importance of having consistent practice across all assessment services.

Consumers may choose to save some funds as a contingency.  Arrangements for saving funds as a contingency for future need vary across providers. Some providers have a pre-set threshold amount and others negotiate with each consumer. The Stewart Brown data shows that 8 -12 % of consumers go on to spend these funds[3]. Holding a portion of funds for future use needs to be part of the collaborative planning and budgeting between the consumer and the provider.

Consumers choosing not to have a service because their preferred staff member(s) are not available or the service can not be scheduled or delivered to meet their need. Ideal’s survey of current and prospective consumers show the top three service characteristics valued by consumers are all related to service efficiency measured from the consumer’s perspective. Feedback from consumers through the ACRC and other forums highlights the frustration consumers (and families) have with changing staff and the dissatisfaction, uncertainty and vulnerability this brings.

Saving for a capital purchase such as a large piece of equipment. The growth in the number of people with high complex care needs cared for at home will see a sharp increase in the need for provision of specialist equipment. Given the average length of stay and turnover rate in home care packages saving home care package funds for the outright purchase of equipment may not be the most efficient use of funds and providers could look at alternate arrangements such as leasing.

Lack of consumer understanding of how to best use their package. This requires consumer education and upskilling of the case manager role to support people to understand how to use funds

Lack of innovation in services that address unmet need. This includes services focused on restoring and maintaining mobility, flexible respite and providing a range of transport options that enable community access particularly for socialisation and leisure

Addressing the potential impact of changes to management of ‘unspent’ funds

If the changes proceed as scheduled providers have 12 months to address the potential impact the changes to arrangements for ‘unspent’ funds would have on their business. This will vary depending on a number of factors including how ‘unspent’ funds are currently managed, the current of unspent funds at the individual consumer level, client turnover rate and the processes put into place for new clients.

It is important to remember that under the changed arrangements the ‘unspent’ funds still remain available to the consumer.

Key challenges home care providers face in the coming twelve months

The key challenges providers need to address in the coming twelve months are:

Focusing on pricing transparency and the need to demonstrate value to consumers through providing innovative, flexible consumer focused services

Continuing to innovate and develop services that meet consumer needs with particular focus on developing wellness and restorative programs and transport programs that enable consumers to use funds to purchase services that enhance their level of independence and participate in activities they enjoy

Developing their workforce to meet the needs of client group with increasingly proportion having complex needs

Meeting consumer preference of having a consistent care and support team who have the skills and knowledge to meet their needs and who are well looked after and supported by their employer

Enhancing workforce retention and satisfaction by having support programs in place and providing work life balance

Addressing the potential impact on changes to arrangements for unspent funds by having a clear understanding of each consumer’s barriers and enablers to using their funds

Developing a financial model that has the capacity to model revenue changes at the individual and program and organisational level.

In summary

The protected environment under which many providers developed their program is changing. Home care has experienced significant growth over the past five years and in line with consumer preference provision of home-based services will continue to grow. This growth attracts new competitors. Consumers have far greater choice about how their package is managed and this competitive pressure drives innovation and reshapes the market.

Changes to the funding arrangements will impact providers in different ways depending on their program scale, scope and how they have arranged their operations. Each provider needs to carefully assess the impact the proposed funding changes will have on their business operations and consider this in the broader context of their business.

In times of changes gathering insight can be very challenging because of dealing with more immediate concerns and risks. Ideal is a specialist advisory business bringing a unique mix of clinical and operational knowledge with business acumen and experience. Our role as advisors at this crucial time is to work with businesses in redesigning their offering to bridge the gap between where they currently site and where they want to sit in the future market.

[1] ACFA December 2019 Consideration of the financial impact on home care providers as a result of changes in payment arrangements

[2] Australian Government Department of Health December 2019 Home Care Packages program Data Report 1st Quarter 2019-20 (1 July – 30 September 2019)

[3] ACFA December 2019 Consideration of the financial impact on home care providers as a result of changes in payment arrangements