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Aged Care Funding

Proposed changes to residential aged care funding

The rising cost of residential aged care along with other critical issues including an ever-burgeoning aged care population, the need for improved dementia care, and what is believed to be an outdated residential aged care funding model, have set the stage for a review of the Aged Care Funding Instrument (ACFI).

The Push For Funding Reform

Since 2017, the Australian Government has been examining options for a new funding tool and system to replace the ACFI – introduced in 2008. The Australian Health Services Research Institute (AHSRI) at the University of Wollongong was engaged to develop options and recommendations to help inform the design of future residential aged care funding models.

In its review it noted that residents entering aged care facilities are older and frailer compared to ten years ago – evidence that today’s industry leaders can vouch for. Elderly people are staying at home longer, with the average age of facility entry now 85 years of age, and an average residential period of less than two years.

The review deemed the ACFI no longer fit for purpose, with the Aged Care Funding Authority stating in its 2018 Annual Report that “there is a need for a more stable, more contemporary, more efficient and more effective funding tool and system which provides greater financial stability to both the residential aged care sector and the Government,” and that “a key element of any reform package should be a tool that accurately and objectively assesses the funding needs of residents.”

The Resource Utilisation and Classification Study

In 2018, the Commonwealth Department of Health, in consultation with AHSRI, examined the relative cost drivers in the aged care sector as part of a landmark Australian study known as the Resource Utilisation and Classification Study (RUCS). The RUCS report, released in March 2019, included the proposal of a new residential aged care funding model and system, known as the Australian National – Aged Care Classification (AN-ACC).

Former Minister for Senior Australians and Aged Care, Ken Wyatt, believes the proposed new model will be a ‘game changer’ for the sector, as it will be a different way of allocating funding for residential aged care. In the RUCS report, he stated it “will remove flaws in the ACFI, including the complex and time-consuming assessment process” as well as eliminating incentives not always found to be in the best interests of residents.

What does the proposed AN-ACC funding model involve?

One of the aims of the RUCS was to develop a casemix classification that recognises there are both shared and variable costs in aged care facilities – something ACFI doesn’t account for.

Essentially, the new payment system* comprises a fixed payment for shared-care costs, a variable payment for individual resident costs, and an adjustment payment for entry costs. This decision is supported by RUCS data, which indicated that close to 50% of staff time was spent delivering care tailored to the specific needs of the resident, while the remaining 50% was spent delivering shared care across all residents1

Under the AN-ACC, assessment for funding would be carried out independently from the assessment for care planning, meaning nursing homes will be required to take residents without knowing their cost classification.

AHSRI has proposed that external assessors should be credentialed registered nurses, occupational therapists or physiotherapists who have experience in aged care and have completed approved assessment training,2however some industry leaders are concerned with how successfully this will play out.

What impact will it have on the industry?

The Government believes that with better data based on objective measures of the needs of residents, it will be better able “to describe and to predict the changing needs and costs of the aged care sector into the future.”

Whilst greater financial stability and predictability are front and centre for the Government, there are numerous concerns from aged care industry leaders, including how ACFI subsidies and supplements, such as the Dementia and Cognition and Veterans’ Supplement, would interact (if at all) with the AN-ACC. In the AN-ACC consultation paper, the Government has acknowledged this, stating it is something that still needs to be considered2.

Furthermore, many industry leaders believe more funds need to be pushed towards attracting trained staff in dementia care – an area that has been underfunded for too long, resulting in poor clinical care for affected residents.

Overall, however, there seems to be support for change amongst industry leaders, and recognition that there is a need to adapt to the changing needs of our ageing population.


The new proposed model is based on six key design elements2

1. Resident assessment for funding to be separate from resident assessment for care planning purposes.

2. Assessment for funding purposes to be undertaken by external assessors capturing the information necessary to assign a resident to a payment class.

3. Assessment related to care planning to be undertaken by the residential aged care facility based on resident needs and underpinned by resident-directed care principles.

4. Provision of a one-off adjustment payment for each new resident that recognises additional, but time-limited, resource requirements when someone initially enters residential care. For example, time spent getting to know the resident and their family

5. A fixed price per day for the costs of care that are shared equally by all residents. This may vary by location and other factors. Examples of fixed care include general supervision in common areas and night supervision.

6. A variable price per day for the costs of individualised care for each resident based on their AN-ACC casemix class. For example, two residents may have cognitive impairment but one is mobile and the other is not. In the current ACFI system, cognition and mobility are each considered separately, but in the AN-ACC, they are considered in combination.

1Aged Care Policy and Regulation Division Department of Health (2017). An Alternative Funding Model for Residential Aged Care.https://agedcare.health.gov.au/sites/default/files/documents/07_2017/department_and_uow_combined_roadshow_presentation_final_050617.pdf

2Australian Government Department of Health (2019). Proposal for a new residential aged care funding model - Consultation Paper. Australian Government Department of Health.https://consultations.health.gov.au/aged-care-division/proposed-new-residential-aged-care-funding-model/