AS CPSA said at the time the aged care reforms were announced, they will lead to a financial bonanza for aged care providers and a two-class nursing home system. That two-class system and bonanza are now taking shape.

Key to this is two aged care reform measures:

  1. First, by abolishing the distinction between high care and low care nursing homes, aged care providers were given the ability to charge all residents bonds and accommodation payments regardless of their care needs.
  2. Second, aged care providers were given the power to charge bonds and accommodation payments at the rate the market would bear.

As a result, the average bond shot up from $296,000 to $333,000[1] in the space of twelve months, from June 2014 to July 2015.

One rule in aged care funding didn’t change. It’s the rule which says that the proportion of concessional residents in a nursing home must be at least 40%. Concessional residents are residents unable to pay for their accommodation in full or in part.

If a nursing home has less than 40% concessional residents, the nursing home gets penalised through the amount it receives in accommodation supplements.

Nursing homes receive an accommodation supplement for each concessional resident of about $54 a day if the home has been refurbished or is new. For older homes that amount is about $34 a day.

But if a nursing home is under the 40% mark for concessional residents, the accommodation supplement for every concessional resident it houses is slashed by a quarter.

So, $54 a day becomes $40 a day, a difference of $14.

$34 a day becomes $26 a day, a difference of $8.

For example, a nursing home with 100 residents, of which 39 are concessional, pays a hefty penalty as a result, it would seem.

Multiply 39 by 360 (aged care subsidies are calculated on the basis of 360 days in a year) and multiply that by $14 (for a new home) or $8 (for an old home). The annual penalty is in the $112,000 to $199,000 respectively.

This seems to be very good consumer protection. Nursing homes are going to make sure they meet that 40% requirement. Right?


Because every nursing home resident can now be charged a bond and because that bond can be as high as the market will bear, nursing homes have quietly started to ignore the 40% rule. And why wouldn’t they?

Going back to our example, if a (new) nursing home can get revenue of, say, $28,000 a year from a bed by charging a bond, why would it settle for roughly $20,000 or less by giving that bed to a concessional resident?

And as the penalty in the form of a lower accommodation subsidy is applied to each concessional bed that a nursing home does have, the more a nursing home breaks the 40% rule, the lower the total penalty. A nursing home that decided to have no concessional residents at all would not be penalised a single dollar!

Japara Healthcare[2] is a provider which appears to have caught on to the potential of breaking the 40% rule. Japara runs more than 3,200 nursing home beds, of which about 1,100 are currently occupied by concessional residents.  

Japara’s concessional residents’ rate for 2015 is 34.7%, down 4.7% from 2014, when it was 39.4%.

The 2014/15 financial year was the first year in which nursing homes could charge anyone a bond (regardless of the level of care they needed) and also set the price of bonds.

Before that, bonds could only be charged where people entered a nursing home as a ‘low care’ resident.

During 2013/14 17.3% of permanent nursing home residents were ‘low care’[3] which provides an indication of the limited scope nursing homes had to preference bond paying new entrants over new concessional entrants.

2013/14 was the last year where nursing homes were struggling to fill beds with bond paying residents. It was the last year in which concessional entrants were a nursing home’s bread and butter.

2014/15 marks the beginning of an era in which nursing homes can compete for bond paying residents at the expense of concessional residents.

Japara’s nursing homes are mainly located in regions in which supported resident ratios do not exceed 20%.

Japara has plenty of scope for reducing its concessional bed rate through attrition of current concessional residents in the next couple of years.

The supported resident ratio was established to shore up access to the residential aged care system by concessional residents.

Nursing homes can be placed under sanctions for non-compliance with the applicable supported resident ratio. 

If the Australian Government continues not to enforce compliance with the 40% concessional residents rule, the shortage of nursing home places for concessional residents will likely continue to increase at an alarming rate.

  • [1] Aged Care Financing Authority, Third report on the Funding and Financing of the Aged Care Sector July 2015.
  • [2] The estimates and calculations related to the operations of Japara Healthcare in this article are based on information published by Japara Healthcare.
  • [3] 2013 – 2014 Report on the Operation of the Aged Care Act 1997, Department of Social Services.

Source: Nursing home bonanza - CPSA, 1 Oct 2015