Senate Community Affairs Legislation Committee, , 7:11:15 to 7:35:50
Professor Michael Pervan from IHACPA explains the complex methodology for setting aged care prices. The discussion covers the reduction in expensive agency staff usage, the use of ABS and RBA indices, and the rising administrative costs per resident.
Topics: Health, Government spending
Speakers: Prof Michael Pervan, Senator The Hon Anne Ruston, Speaker 35, Unknown Speaker, Senator Ellie Whiteaker
I'm just wondering, do you have the 25-26 data?
Sorry, Senator Alex Abel, uh Secretary President Cash Horn and Marks Division. Can you just repeat that question for me?
So um in the department's own um age care um financial report, it it shows that um I've taken this out of the report uh that the um administrative costs in 21-22 were 43 dollars per resident per day, $50 in 24-25, sorry, 23-24, $54 in 24-25. I'm just wondering what was the 25-26 administrative cost per resident per day in resident care.
Are you quoting from the financial report on the Australian age care sector? So the 25-26 uh figures will be out uh in mid-next year. So at the moment that is the most recent reporting.
Mr. Pervan, do you have a sorry, Professor Purvin? Um have you made an assessment of the 25-26 administrative costs? Because I mean I'm assuming you would have had to given you made an assessment on the overall increase.
Thank you, Senator Professor Michael Pavan, Chief Executive Officer of the Independent Health and Aged Care Pricing Authority. Um thank you again, Senator. I was really hoping you would ask me some questions today.
Oh, I've got lots.
That's great. Um because yes, there has been a lot of feedback about uh the RACPA and some of it's been uh fairly toxic, I have to say. Uh and while all the explanations are all in the pricing advice that we publish and so on, um, I can understand when you're running a facility and um you're not getting the price that you expect that you're gonna have some feelings about that. It would just be nice if some of those feelings hadn't been communicated with our staff. I I I may not have any staff, Senator, but I have a lot of friends that like to work with me. Um I'll just go through in at a very high level how the price was built, uh, because yes, we did make an assessment of the administration costs for 2526 as part of the price build. Um earlier you raised the issue of using um data from 2324 and indexing it forward. We start the price build by using the most recent year of full data of complete data, and the most recent year of complete data that we had through the aged care financial report was 2324. Um we will then adjust that for multiple data sources. In the case of this year's price, uh page seven of the RAGPA pricing advice that we put on the internet has some 26 data sources, including the AGFA, and not one but five Fair Work Commission decisions. So we look at all of those costs that are in the ACFA, we adjust them for all of those data recognitions, and then to index them forward, we actually use a combination of three different indexes. And for Hansard, I'll read them in in detail. We use an adjusted version of the ABS or Australian Bureau of Statistics, total hourly rates of pay, excluding bonuses for private health care and social assistance wage price indexes. Uh we use Fair Work Commission annual wage review decision and the detail out of that, and the Reserve Bank of Australia wage price forecast to estimate future wage growth. Um, and then we index for non-labour costs such as administration using the consumer price index subgroups. So we use the best data and the best indices that we've got from agencies outside IHACPA to project what the costs are going to be going forward. Now I think there are a couple of special things about this price that are worth just touching on. Um partly because credit is due to the providers over the biggest one that had the impact. So the difference between 2324 and 2223 in the the costs was between those two years, we saw a dramatic reduction in the use of agency staff in residential care. So agency nurses, locum staff. Um, as you know, HR accounts for around 80% of the costs of these facilities. So when they reduce the cost of those staff down, it has a long-term impact on how we assess the costs and how we project them forward. An agency nurse will cost anywhere of between two and five times what a permanent employee will be.
So you're saying that was from 22, 23 to 2324?
Yeah, so what we saw, everyone expects the wages costs everywhere to go up year on year between 22, 23 and 2324. We actually saw those costs come down because of the significant reduction in agency staff.
But you were using 2324 data though, weren't you?
Yeah.
Yeah.
But that's that's remained consistent. That use of permanent staff instead of agency staff has been maintained. Now all credit to the providers because that's a far more efficient and my colleagues from safety and quality would agree, a far safer um employment model. Um it might have had something to do with the significant increases that the government funded uh coming out of the Fair Worker Commission decisions, which made permanent employment in resident care more attractive than it previously had been. But notwithstanding why it happened, it happened. And so indexing that forward got to a smaller increase than the previous year, where those in the reference year of 22-23, we were still seeing those higher labour costs. Um the other uh thing that's worth noting is that yes, while there are significant Fairwork Australia decisions that impact on this year's price, a lot of them were um in part worked into the price last year. So some of them are already locked in and loaded. And so it's not just a translation of 4.5% on last year's price. We've built the price new as we do every year, and that um mitigates against any risks of under or overpayment, and we've looked at the costs against all of those data sources, including the fair work decisions. Um I have sympathy for the providers who looked at that increase and at what they're expecting coming down the pipe. Um, but this is how the government's direction from way back in August 22 directs us to cast the price, which is to use actual costs of care, not projected, but actual, so we have to use in effect historical data and to build the price using the same approach as we do for hospitals. So that's what we do. The only difference between the two models is that in hospitals we've got 40 years of cost data, and so we can build our own index, which is very reliable. In the case of um uh aged care, we're only starting to collect that data, so we use multiple indices from the ABS Fair Work Commission and Reserve Bank of Australia.
So to that end, what does your methodology that you've just outlined indicate that the provider admin costs per person per day will be in the upcoming year? Or what did you predict them, project them to be in 25-26 and what are you projecting them to be in 26-27?
For a specific element like admin costs, I'll have to actually take that on notice. I'm sorry, Senator. I don't have that number with me.
Sure.
We will reconvene at 4.17 in 15 minutes.
Out come three.