ACFI Review Report

ACFI Modelling: Summary Findings
Background
The Aged Care Funding Instrument (ACFI) is the mechanism used to allocate Government funding to meet the care needs of permanent residents living in Commonwealth approved residential aged care facilities.
First introduced in March 2008, ACFI is described as a resource allocation instrument that focuses on key areas of care need as a basis of appropriating funding for residents. ACFI measures core care needs that are required on a regular basis. These aspects are then used to measure the average cost of care in longer stay environments.
Based on the differing resource requirements of individual residents, ACFI is primarily intended to deliver funding to the financial entity providing the care environment.
Reductions in the funding of aged care were first formally signalled in the Mid-Year Economic Fiscal Outlook (MYEFO 2015). Cutbacks to ACFI, totalling close to $1.2 billion over the next four years, were announced as part of Scott Morrison’s 2016-17 Federal budget in May 2016 in order to bring the ACFI funding back into the budgeted growth trends.
UnitingCare Australia engaged Ansell Strategic to undertake an analysis of the impacts of the proposed funding changes. With the support of Aged & Community Services Australia and Catholic Health Australia, a comprehensive survey has been conducted with input from Not-for-Profit providers across the country.
Participants of the survey submitted details of their current claims and have contributed feedback on the implications to their services and the people they care for. The information has been used to model the financial and qualitative impacts of the funding changes on the Not-for-Profit sector and the industry as a whole.
The findings have been used to present recommendations on the establishment of more sustainable funding models for the future.
Findings
Responses were submitted from over 500 homes, providing detail of over 21% of the total number of permanent residents in residential aged care.
The study revealed that the effects of the budget cuts will be long lasting. Whilst the changes to the tool will only affect new or reassessed residents, we anticipate that the vast majority of residents will be affected by the change within three years. The current average length of stay in permanent residential care is less than 35 months. The reassessment of residents due to prolonged hospital stay, extended leave or changes in care requirements will inevitably increase the turnover of grand-parented claims to the reduced rates beyond our projections.
The financial impact of the funding cuts on providers will undermine the viability of the sector.
Data from the Aged Care Financing Authority (ACFA) detailed that the average EBITDA margin for not-for-profit facilities is only 10% and the average profit is $7,680 per bed per annum. At least 25% of the sector are currently making a loss with the lowest performing quartile reporting an average EBITDA loss of $8,866 per bed per annum.
The cutbacks will result in substantial decreases in revenues (an average decrease of 11%) and will result in operating losses for increasing numbers of not-for-profit providers.
Conclusion
The analysis demonstrates that the proposed funding cuts would have a devastating impact on aged care providers, particularly those caring for highly vulnerable people with complex care needs.
The study also demonstrates that the financial impacts of the changes are materially greater than originally projected by the Commonwealth. As the DoH is currently in caretaker mode leading up to the Federal Election, we are unable to determine whether the margin is a result of error or is an intentional strategy to curtail future projected subsidy growth.
We also recognise the budgetary challenges created by the ageing population for Government. The Commonwealth projects a $3.8 billion blowout on ACFI spending over the next 5 years.
These challenges to providers and Government reflect the change in the physical demands of residents in residential aged care settings and the advancement of home care services in Australia. It is also a reflection of the maturity of ACFI which was introduced over 8 years ago. In combination, the aged care sector is managing an unsustainable system in which:
- The ACFI mechanism does not accurately allocate resources based on contemporary resident need. This may result in core activities not being funded and creates potential wastage of resources directed towards lower priority activities that do attract funding; and
- Increasing frailty among the resident population is creating an escalating burden on the taxpayer because of the funding regime which is heavily subsidised by Government.
The Living Longer, Living Better legislation has provided some scope to address inequities within the system and facilitate greater levels of contributions from consumers toward their care. However, the increasing resident dependency levels makes it difficult to achieve balance under the current system. The result is that the 2016 Budget cuts will fall directly upon providers of the care, with no avenues to recover the losses from residents, other than cutting their services.
Obviously, decreasing clinical support for residents with escalating complex care needs in not going to be sustainable. The funding instrument and the wider system must now change.
To address the problem, the system will need to be reengineered to ensure:
- Funding allocations are more accurately reflective of the client needs;
- Clear guidelines are developed to clarify the delineation of taxpayer funded services to those that require co-contributions from consumers, or supplements from Government;
- Residential aged care and home care funding instruments are combined or aligned to facilitate a seamless continuum; and
- Remaining supply limitations on aged care series are progressively relaxed to facilitate greater responsiveness to demand from providers and more choice for consumers.
The funding cuts have renewed calls for a comprehensive cost of care study, similar to the research undertaken recently in New Zealand. While this research greatly assisted in the reallocation of funding to emerging areas of client need in New Zealand, the Australian Government will be nervous about the political implications, including the need to address any potential funding shortfall identified.
However, the assessment of relative resourcing for different aged care activities can meet the allocation objective without exposing funding shortfalls. The overall objectives would be to determine the physical needs being addressed in contemporary residential aged care settings and the level of resources committed to addressing those needs.
This will facilitate discussion on priority resource allocations for residents with a diverse range of needs and in a variety of circumstances.
Next Steps
With the evolution of home care, and the deregulation of supply from February 2017, it is timely to consider the integration of residential aged care and home care funding systems. With the emergence of innovative models in home care and retirement living, the harmonisation of funding models will enhance consumer choice and provider responsiveness to need.
As consumers become responsible for contributing greater levels of their own resources toward their care, the aged care sector will become more competitive and innovative.
It will be in this environment that savings will be found for taxpayers in the medium to long term. It will also require investment in change in the short term. We recommend:
- The proposed funding cuts should be deferred until the Commonwealth has given greater consideration to the impact of the changes to residents, providers and aged care workers as outlined in the full report;
- A taskforce should be established to review the cause of the budget deficits, deficiencies and inequities inherent in the current system and develop a long term sustainable solution;
- Undertake a comprehensive review of aged care services and the level of resources allocated to core areas of need. Establish clear guidelines to clarify the delineation of taxpayer funded services to those that require co-contributions from consumers, or supplements from the Government; and
- Develop a new funding instrument for aged care, covering both the residential and home care environments that will facilitate greater balance on investment between providers, consumers and taxpayers.
To access the detailed findings and modelling analysis from the survey you can download the full version of the article provided at the link to your right.