Price Shock

People hate additional service fees but is anyone in aged care listening?

Several residential aged care providers have recently introduced new additional service fees into their offering.

Estia has always provided aged care on an extra service fee basis but have recently moved to additional service fees which have now been rolled out to most of its aged care portfolio.  Allity is introducing additional services to many of its homes including an eye-watering $50 per day at its Carinya home at Myrtle Bank.  Meanwhile, Regis’ stunning Kingswood home has a $46 per day Club Services Fee which will likely be replicated at its redeveloped home at Burnside.

Residents are obliged to agree to the additional services at such homes if they wish to accept the offer of permanent residential care.  The service typically provides the resident with access to higher standards of food, accommodation and hotel-type services (but not for care).  Some examples include: Foxtel; wifi; expanded lifestyle program; weekly outings; and expanded dining menu options.

Before we rush to judgement, it should be noted that the rationale for the introduction of such fees was in response to recent federal government budgets that have steadily reduced the revenue of aged care providers through a reduction of funding of the Aged Care Funding Instrument (ACFI).  This is the primary source of revenue an aged care provider receives for providing care to a resident.  In Senexus’ view, these budgets have been devastating as they cannot but have an impact upon front line care.

Aged care providers have only two possible responses to the erosion of revenue – generate more revenue from the client, which is what they are attempting to do, and/or cut costs, which is undoubtedly occurring and inevitably means a reduction in payroll.

Nevertheless, aged care providers are failing the consumer on two main fronts.  Firstly, additional service fees cannot be mandatory – that applies to Extra Service Fees where a room (or a whole home) has been granted extra service status by the Department of Health.  However, good luck receiving an offer from an aged care provider if you indicate that you do not wish to receive additional services!

Secondly, additional services are required to be offered on an individually itemised and costed basis, not grouped as a single additional services offering.  Additional services should read like an á la carte menu but this is not how the offer is currently presented.  Feedback from our clients indicates that they will willingly accept a fee-for-service model.  They perceive it as being fair and reasonable.  Such a model would give providers the flexibility to seek additional revenue while allowing residents and their families to choose from a range of service options based on their preferences but also protect them from paying fees for services that they do not receive a direct benefit from.  To be successful, aged care providers must provide genuine value to their residents.

Feedback from our clients indicates that they will willingly accept a fee-for-service model.

Based upon our experience of placing hundreds of clients into aged care it is evident that they reject the value proposition of the current model of additional services and resent being forced to pay for services they do not use.  People only choose an additional services offer if there is no alternative.

The typical profile of a resident in aged care has changed dramatically over the last ten years.  Residents are now older and frailer and their average length of stay is shorter.  This means that residents are often not physically able to take advantage of many of the features and services that are associated with an additional services fee.  This trend is only set to continue and must call into question the value proposition of the additional services model and hence, its viability within the residential aged care business model.

This very question is being answered by our clients through their choice of residential aged care provider.  Not a single client has chosen an aged care home where additional services fees have been introduced.  On every single occasion, our clients have chosen the aged care home that does not require an additional services fee, even when this meant that they paid a higher RAD (which they are often quite happy to do, capable of doing, and financially better off for doing).  Our clients report that the promotion of additional service fees lacks transparency and that they failed to see what value they were receiving for this additional expense.  All in all, it does little to improve the reputation and image of the industry in the eye of the broader community.

The key differentiator in today’s aged care market is not additional services that are rarely used, but rather, a reputation for what should be the industry’s core competency – high quality aged care.

This failure to understand and respond to consumer preferences stems, in my mind, from a failure by the industry to identify the true source of the value it creates.

In this increasingly competitive aged care market many providers are seeking to establish their point of differentiation through their additional service offerings.  However, as I have outlined above, this is not what the market is seeking, demanding, or valuing.  Experience with our clients suggests that the key feature they are seeking is an aged care home they can trust to provide consistent, high quality care for their loved one.  Consumer confidence in the residential aged care sector is low, plagued by abuse scandals and countless anecdotes of poor care standards and many people feel, with justification, apprehensive about placing a loved one into residential care.  Their primary, and often only, interest is that their loved one be well cared for and treated with dignity and respect.  The key differentiator in today’s aged care market is not additional services that are rarely used, but rather, a reputation for what should be the industry’s core competency – high quality aged care.  Such a reputation is peace-of-mind that the many families will happily pay for.

David Coluccio is principal with Senexus, an Adelaide consultancy that specialises in leading families through the complexities of the aged care system.

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