Martin Taylor is chief executive officer of the New Zealand Aged Care Association (NZACA)

Premium Charging: Red Herrings and Reality

One of the most important debates for the future of aged care, and the country, is around premium charging and how the practice should continue to operate. While premium charging has been going on for decades, it has only recently attracted negative interest from district health boards (DHBs), which, in turn, are forcing the National Government into confirming where they stand on the issue.

Premium charging is the practice where a resident (or family) chooses to pay a fee over and above the subsidy rate for services not covered by the subsidy. For example, an ensuite is not covered by the subsidy and many residents choose to pay a fee for this accommodation option.

In terms of scope, it is worth pointing out only 30 per cent of all beds are considered premium, and while 61 per cent of facilities have some premium rooms, only 25 out of 700 are premium-only facilities.

As a practice, premium charging has been an option in the aged care sector for a long time. Recently, it was reconfirmed as appropriate by the last Labour government in 2006 when section s139(4) of the Social Security Act was reviewed. The relevant clause is as follows:

(4) Nothing in this section affects the liability of a resident assessed as requiring care to pay, under an agreement between the resident and a provider, for any services provided to the resident that are not contracted care services.

The question is: why are DHBs suddenly so concerned about facilities that charge premiums?

Their agitation is based on a belief that ‘some’ facilities are not meeting the Aged Related Residential Care (ARRC) contract because ‘some’ facilities are refusing to accept potential residents in premium rooms if they cannot pay the premium.

NZACA accepts the ARRC contract can be interpreted in this way. However, even if you accept the DHB contractual interpretation, there is still nothing to stop a provider offering an empty premium room to a potential resident on their waiting list who can pay, instead of a potential resident on their waiting list who cannot pay.

It is also worth noting the DHB contract with providers is not a ‘capacity contract’, which means a provider has total control on who they accept into their facility as the Government does not pay for empty beds – i.e. the financial risk of having an empty bed rests solely with the operator.

In reality, the DHB ARRC contractual compliance argument is a red herring. The issue is not about ‘some’ operators refusing to accept a subsidy resident in a premium bed, it is about a growing lack of beds in specific areas and DHBs not being able to discharge patients from their hospitals when and where they want and families having to travel further than they wish to find a suitable bed.

Fundamentally, the issue is about a lack of beds, which directly relates to how underfunded the aged residential sector has become. If operators could make a market-based return, then they would take the risk and borrow millions of dollars to build a modern facility to look after the elderly. Unfortunately, they cannot, so they do not.

The irony of this situation is the NZACA, DHBs, and the Government have already agreed in the Grant Thornton Aged Residential Care Service Review 2010 that the sector is underfunded and the financial returns are required to encourage the building of new beds.

Surprisingly, unlike other countries in the world, providers, funders and their political masters have had a meeting of the minds on these topics. Unfortunately, this meeting of the minds has not resulted in any fundamental policy shift from DHBs or the Government. Until this happens, the lack of appropriate beds in many regions will continue to create secondary issues such as premium charging.

The question is: will we ever move beyond arguing about red herring issues and address the fundamental cause?

Response from Chris Fleming

Chris Fleming is chief executive officer of the South Canterbury District Health Board and chair of DHB Shared Services Health of Older People Steering Group

It is disingenuous of the NZACA to ask a question as to “why suddenly DHBs are so concerned about facilities who charge premiums”. The district health boards have been discussing this issue with the sector for some time now and have recently been addressing how we should collectively bring this issue to a head, as there should be clear principles that are adopted across the country and not left provider by provider or DHB by DHB to determine.

The contract acknowledges that providers are able to charge for services that are not covered in the Aged Residential Care Contract. However, it has a series of conditions that must be met. Key conditions include:

1. You cannot require, as a condition of admission to, or residence in, a facility, that the subsidised resident or potential resident agrees to receive and pay for any additional services,

2. That the subsidised resident must have the choice of whether to receive any additional service, and

3. That the subsidised resident is also able to decide to receive or cease receiving any additional services at any time.

The issue that DHBs are becoming increasingly concerned about is the fact that some providers are not upholding these contractual obligations. As far as I am aware, contracts are there for a purpose; if people sign contracts and receive the benefits that come from the contract, they must also be prepared to live by the obligations that they impose. The next time I don’t like something that is in a contract I have signed, perhaps I should try the line “contractual compliance is a red herring”, and see where that gets me.

There are examples around the country where prospective residents have been told very clearly that all their “fully subsidised beds” are full, and that if they wish to be admitted, the prospective resident must agree to pay additional charges. I understand if there are two residents wishing to enter a facility at the same time and one is willing to pay for additional services and the other isn’t, it is likely the provider will select the potential resident willing to pay. However, this is not the issue we are dealing with. We are concerned that residents are being turned away simply because they do not wish to pay when there are beds remaining empty.

Providers are free to make their own determination as to how they configure and develop their facilities. They therefore need to assess their ability to attract enough people who are prepared to pay for additional services when they develop their facilities and their planning, rather than simply assuming they can ignore restrictions that are contained within their contracts.

The sector is also lobbying to allow premium-only facilities to develop, meaning that every resident wishing to move into a facility is required to pay additional charges. Once again, the Aged Residential Care Contract does not allow for this. If a provider wishes to develop a premium-only facility, they can. However, they need to be aware that in the current policy and contractual settings, the facility would not be eligible for the Aged Residential Care Subsidy funding.