Purpose of the bills
1.1
The Aged Care Legislation Amendment (Improved Home Care Payment Administration No. 1) Bill 2020 (Bill No. 1) and Aged Care Legislation Amendment (Improved Home Care Payment Administration No. 2) Bill 2020 (Bill No. 2) amend the way in which providers of home care to older Australians receive government subsidies for that care.
1.2
The bills primarily amend the Aged Care Act 1997 (Aged Care Act) and Aged Care (Transitional Provisions) Act 1997 (TP Act) to:
change the payment of home care subsidies from being made to providers in advance, to being made in arrears upon lodgement of a claim at the end of each month (Bill No. 1); and
allow the Commonwealth to retain, on behalf of care recipients, any unspent subsidies in excess of services provided, to be drawn down in the future (Bill No. 2).
1.3
These amendments are part of the home care payment administration reforms first announced by the Commonwealth Government in the 2019–20 Budget, reflecting contemporary business practices and bringing the administration of payments in line with arrangements for other government programs.
Conduct of the inquiry
1.4
Pursuant to the adoption of the Selection of Bills Committee report, Bill No. 1 and the provisions of Bill No. 2 were referred to the Senate Community Affairs Legislation Committee (committee) on 12 November 2020 for inquiry and report by 27 November 2020.
1.5
The committee agreed to consider the two bills in a single inquiry, which it advertised on its website, and wrote to stakeholders inviting submissions by 19 November 2020.
1.6
The committee received four submissions, listed at Appendix 1 of this report.
Home care for older Australians
1.7
The Home Care Packages Program supports older people with complex care needs to live independently in their own home. Supports available through home care include help with cleaning and home maintenance, assistive technology, transport, personal care, and nursing and allied health care.
1.8
Home care packages are subsidised by the Commonwealth and the level of subsidy available is dependent on the level of care needed by the consumer. The level of annual subsidy payment currently varies from around $9000 at Level 1 (basic care needs) through to as much as $52 000 at Level 4 (high-level care needs). Supplementary funding is also available for certain services and care needs, such as for remote service providers and consumers with dementia and cognition care needs. These government subsidies, on average, represent around 96 per cent of a home care provider's income.
1.9
As at 30 June 2020, 142 436 older people were in receipt of a home care package provided by one of the 920 approved providers of home care services across Australia. This number is anticipated to grow significantly in coming years, with the Commonwealth Government committing $1.6 billion in the 2020–21 Budget to fund a further 23 000 home care packages from November 2020 onwards.
Current payment arrangements
1.10
Currently, home care providers receive a consumer's full entitlement of monthly subsidy payments regardless of the care services actually provided to the consumer in that month.
1.11
The subsidy payment is made to providers in two stages:
at the start of the month, an advance payment is made based on the amount received two months earlier; then
at the start of the next month, the provider lodges a claim for the actual subsidy due for the month and a reconciliation of funds takes place.
1.12
Any funds for the month that are not spent on care services are then held and managed by the provider to be drawn upon by the consumer at a later date.
1.13
As noted in the Explanatory Memorandum to Bill No. 1, this means that the Commonwealth Government is 'wholly reliant on an approved provider for accurate reporting and the reconciliation of funds', such as reporting the level of remaining unspent funds when a consumer ceases home care or when a consumer has had a period of temporary leave from the package.
Unspent funds
1.14
Unspent funds can accumulate for multiple reasons, such as consumers wanting to save a proportion of their funding for a major event or because not all funding was required during a given month, and can accrue over a long period of time.
1.15
Providers differ in their processes for holding these unspent funds, variously choosing to:
use these funds as part of their working capital; or
quarantine funds away from working capital, but use interest earned on the funds for various purposes; or
have the funds held in trust by a third party.
1.16
On average, 10 per cent of all subsidy payments are accruing as unspent funds and data from 2019 showed that the pool of unspent home care package funding held by providers was around $750 million. While this would equate to around $7000 per home care package consumer, providers report that their unspent funds are actually 'concentrated on a small number of consumers with very large balances'.
Initial proposal for payment reforms
1.17
In April 2019, the Commonwealth Government allocated $7.1 million in the 2019–20 Budget to 'improve payment administration arrangements for home care packages to address stakeholder concerns regarding unspent funds' and align these arrangements with other Government programs, such as the National Disability Insurance Scheme.
1.18
The new administration arrangements proposed in this measure constituted three distinct phases of reform:
Phase 1: Subsidies and supplements to be paid in arrears at the full rate of subsidy based on package level and days in care, through a monthly claim.
Phase 2: Payments to be based on invoices for services provided to consumers and unspent funds will be held by the Commonwealth Government.
Phase 3: New payments to be reduced by a portion of available (i.e. unspent) funds already held by the provider for that consumer, to allow the Commonwealth to accrue those funds instead.
Review by the Aged Care Financing Authority
1.19
In October 2019, the Minister for Aged Care and Senior Australians (minister), Senator the Hon Richard Colbeck, asked the Aged Care Financing Authority (ACFA) to examine the potential financial impact of the proposed payment reforms on providers of home care.
1.20
ACFA undertook consultation and received 43 submissions from home care providers, aged care peak bodies, carers and carer advocacy groups, individuals and payment management groups. It also engaged accountancy firm StewartBrown to conduct a financial analysis of the capacity for home care providers to manage the proposed changes.
1.21
ACFA published its findings in December 2019, outlining key issues raised in consultations and making recommendations to government about the implementation process to address those concerns.
Issues raised in consultations
1.22
The ACFA review considered stakeholder's comments across several key areas, including current payment arrangements, specific concerns about each of the three phases of the proposed changes to arrangements, and the possible impacts on the viability of some providers and on consumers.
1.23
Some of the key issues raised by stakeholders included:
ongoing problems with existing payment and reconciliation of funds using the current payment arrangements and Services Australia software systems, and whether these issues would continue under a new system;
the importance of having adequate cash flow to support ongoing business during transition from payment in advance to payment in arrears;
the time and expertise required to transition businesses to a model of invoices for services provided, including challenges in setting up new software to support that change;
return of accrued unspent funds to the Commonwealth, while preferred by some providers, would create significant problems for cash flow and administration for providers who may require these funds to support their transition to the new payment model;
viability of some providers, particularly smaller providers and those in regional and remote areas, could be threatened without adequate financial and business support during transition; and
the risk that providers leaving the sector due to the new payment model could have unintended consequences for consumers, such as lack of choice and availability of care packages in their area, or if the costs of transition were passed on in additional fees.
Recommendations
1.24
ACFA made seven recommendations for the implementation of the new payment administration model, relating to the timeframe for implementation, the importance of finalising details of the transition as quickly as possible, and ensuring support is made available to vulnerable providers through the transition to the new system.
1.25
Specifically, ACFA recommended that:
providers who may be financially vulnerable should be encouraged to access the government-funded business advisory service for aged care and home care providers;
providers in 'thin and difficult markets', such as in regional and remote areas, should have access to financial support to assist in transition; and
the proportional return of unspent funds proposed under Phase 3 should not occur, instead providers should have a choice to either return funds immediately or retain funds until they are drawn down by the consumer or when that consumer leaves home care.
Reform proposal following consultation
1.26
The Department of Health also held consultations with home care providers in November and December 2019 to gather feedback on potential non-financial impacts of the proposed reforms and how to ensure that changes would not affect care recipients.
1.27
This feedback, along with the ACFA report and findings, informed the development of the current bills. The proposed changes to payment arrangement will now be implemented in two phases:
Phase 1: Subsidies and supplements will be paid monthly in arrears, with no change to how providers hold or manage unspent funds.
Phase 2: Subsidies and supplements will be paid monthly in arrears only for actual services provided, with unspent funds to be held by the Commonwealth Government.
1.28
Phase 3 is no longer included in this new arrangements proposal. Instead, providers may elect under Phase 2 to return held unspent funds to the Commonwealth through a 100 per cent subsidy reduction until unspent funds are exhausted.
1.29
Transition support funding will be available through targeted grants to assist eligible providers to move to the new arrangements, and business advisory services are already available to aged care providers experiencing financial stress and concerned about their financial viability.
Provisions of the bills
1.30
The two bills under consideration implement the proposed changes to home care payment administration.
Bill No. 1
1.31
Bill No. 1, representing Phase 1 of the administrative changes, was introduced into the House of Representatives on 27 February 2020 and passed on 28 October 2020. It was introduced into the Senate on 9 November 2020.
1.32
It includes one schedule of nine items, amending the Aged Care Act and TP Act, which repeal provisions relating to the advance payment of home care subsidies and substitute new provisions for the payment of those subsidies in arrears.
Bill No. 2
1.33
Bill No. 2, supporting Phase 2 of the administrative changes, was introduced into the House of Representatives on 21 October 2020.
1.34
It includes one schedule in three parts amending the Aged Care Act, TP Act and A New Tax System (Goods and Services Tax) Act 1999. These amendments:
repeal and substitute new provisions relating to the calculation, invoicing and payment of home care subsidies for services provided in the payment period, including:
new provisions to allow the Commonwealth to manage any unspent home care subsidies and for providers to return existing unspent funds;
clarification that the provision of home care remains free of Goods and Services Tax;
update provisions relating to the variation of home care subsidy claims and management of previous claims; and
allow the Minister to make rules by legislative instrument to prescribe transitional arrangements for the amendments made by the bill.
Commencement
1.35
No specific dates for commencement have been included in either bill, with most key provisions set to commence on a day fixed by proclamation or six months from Royal Assent.
1.36
Although Phase 1 of the changes was initially proposed to commence on 1 June 2020, the minister announced in March 2020 that implementation would be placed on hold due to the COVID-19 pandemic. This delay was welcomed by the aged care sector.
1.37
As of October 2020, the Department of Health has indicated that the commencement of the new payment arrangements would be February 2021 for Phase 1 and September 2021 for Phase 2.
Financial impact
1.38
The changes proposed in the bills will be financed through the $7.1 million 2019–20 Budget measure detailed above and the Explanatory Memoranda do not outline any other financial impact on government expenditure.
1.39
However, further funding of $21 million over four years was also allocated in the 2020–21 Budget to address the delayed implementation of the changes and to provide transitional support for home care providers moving to the new payment arrangements.
Legislative scrutiny
1.40
The Senate Standing Committee for the Scrutiny of Bills (Scrutiny Committee) considered Bill No. 1 in April 2020 and made no comment on its provisions.
1.41
In its consideration of Bill No. 2 in November 2020, the Scrutiny Committee raised concerns about Item 16 of the bill, which includes a power for delegated legislation to modify primary legislation and can be applied retrospectively.
1.42
The Scrutiny Committee wrote to the minister seeking more detailed advice regarding the necessity of allowing 'rules made under item 16 to modify any Act or instrument' and whether the bill could be amended to:
… ensure that any modifications to primary or delegated legislation made by the rules, and the retrospective application of the rules, cannot operate to disadvantage any person.
1.43
The minister's response to that committee was not available at the time of reporting for the current inquiry.
1.44
The Parliamentary Joint Committee on Human Rights also considered both bills and made no comment on either.
Issues raised in submissions
1.45
Although all four submissions received by the committee expressed general support for the changes to home care payments proposed in the bills, submitters stressed the need for careful implementation of the new payments system to avoid any unintended consequences of the changes.
1.46
Issues raised by submitters tended to reflect concerns noted in the ACFA review of the proposed arrangements and largely related to the impact of the changes on consumers and ensuring a smooth transition for providers.
Impact on consumers
1.47
The Council on the Ageing (COTA) Australia welcomed the changes to home care payment administration, observing that the measures will improve accountability in the sector and support a more effective and better consumer experience in home care, but cautioned that:
Older Australians also need reassurance from government that these legislative changes will not result in fees and charges being significantly increased by providers to cover perceived or purported impacts on cash flow or administrative costs of the implementation of "payment in arrears".
1.48
In introducing the bills, government ministers confirmed that the proposed changes to the payment arrangements will not impact on consumer's access to their full subsidy entitlement or the treatment of consumer contributions.
1.49
The Department of Health's online guidance about the changes further outlines that consumers will continue to receive the same care and services from their provider, pay the same fees and still be able to change service provider.
1.50
Other submitters also observed that the changes to payment administration are likely to have a positive impact on consumers seeking to access new home care packages. Aged and Community Services Australia (ACSA) and Leading Age Services Australia (LASA), peak bodies for providers of home care and other aged care services, commented that the changes provide an opportunity for accumulated unspent home care funding to be diverted by the Commonwealth Government into additional home care places to support consumers.
Support for at-risk providers
1.51
Submitters raised similar concerns about transition support, especially for financially-vulnerable providers and providers of care in 'thin and difficult' markets, as were discussed during the ACFA review.
1.52
For example, the Federation of Ethic Community Councils of Australia (FECCA), which convenes the Positive Culturally and Linguistically Diverse Ageing Network, described the particular risks for ethno-specific service providers who operate in a market where 'both supply and demand are relatively low and variable', while LASA noted similar concerns about the viability of the provision of care in remote and very remote locations.
1.53
LASA further reported that, among its members, one in five home care providers already experienced a negative revenue position for their home care package program and that this would compound the financial pressures raised by transition to the new payment arrangements.
1.54
The Department of Health is currently undergoing a process of identifying and contacting services which will be eligible for transition support funding announced in the 2020–21 Budget, while business advisory services are already available to aged care providers concerned about their ongoing viability.
Communication and consultation with providers
1.55
In the lead-up to the new payment arrangements, the Department of Health is keeping providers up-to-date with the plans for the transition through the My Aged Care provider portal and aged care sector newsletters.
1.56
Submitters emphasised the importance of having clear and detailed information about the implementation of the new payment arrangements made available to providers ahead of the transition.
1.57
ASCA told the committee that it still has concerns about possible unintended consequences of the new payment arrangements, as transitional arrangements are not included in the bills and instead will be prescribed by the Minister in legislative instruments, the details of which have yet to be made available.
1.58
Similarly, FECCA submitted that there needs to be more transparency about the design of the new payment system and the granularity of detail that will be required in each payment claim invoice.
1.59
ACSA, LASA and FECCA all raised concerns about the capacity of provider and government software and business systems to manage the transition in operations, particularly in light of current and ongoing issues with the timeliness and accuracy of payment claim and reconciliation processes.
1.60
To address these concerns, submitters recommended that the Department of Health undertake further consultation and collaboration with the aged care sector ahead of the roll-out of the new payment arrangement next year, including:
holding further discussions with at-risk providers to ensure that available transition supports meet their needs;
clarifying the operations of the new payment system, including arrangements for transitional financial support and mechanisms to manage cash flow, particularly ahead of a home care package commencement;
offering a 'pilot program' to test the new payment system before full implementation; and
working with providers on scenarios for how the payment arrangement changes will work in practice.
Committee view
1.61
The Aged Care Legislation Amendment (Improved Home Care Payment Administration No. 1) Bill 2020 and Aged Care Legislation Amendment (Improved Home Care Payment Administration No. 2) Bill 2020 provide the framework for important changes to the administration of payments for home care package subsidies.
1.62
These changes will bring home care into line with other Government-funded programs like the National Disability Insurance Scheme, as well as modern business practices, by moving to a model of payments for actual services provided. These changes also reduce the burden on providers, who will no longer be responsible for the liability of managing unspent funds nor be required to undertake monthly reconciliations to adjust for underpayments and overpayments.
1.63
The committee notes the view among aged care stakeholders that further communication and consultation is needed to inform providers about the implementation of the new payment arrangements and the availability of transition support funding ahead of commencement.
1.64
The committee recognises that business advisory supports are already available to providers who have concerns about their viability under the new arrangements and that the Department of Health has begun to identify providers which will require additional transition support.
1.65
The committee is confident that the Department of Health will continue to work with home care providers in the coming months to ensure that this significant change to the administration of home care payments does not disadvantage any home care providers or reduce consumers' access to home care packages.
1.66
The committee recommends that the bills be passed.
Senator Wendy Askew
Chair