MAX ROBINS, Deputy Chair of the New Zealand Aged Care Association and Chief Executive of CHT Healthcare Trust says the pay equity funding formula used to fund the residential aged care sector is “far more complex than a simple statement that there are winners and losers and therefore the methodology is unfair”. Here, he outlines the funding methodology.
The method for determining the price adjustment for Pay Equity required an assessment of current wage rates, calculation of the number of care hours per resident per day and mapping the distribution of the workforce across qualification levels and service length.
The wage rate used in the model was the median wage rate as surveyed in December 2015 adjusted for two increases in the minimum wage and fee increases between December 2015 and July 2017.
The distribution of caregivers across qualification levels and the distribution across length of service categories used in the model were deduced from an NZACA survey and reflected the actual proportion of staff in each group across the sector.
Colmar Brunton Research surveyed the sector and used the number of residents by service category on the survey day and the total caregiver hours on that day to calculate the hours per resident per day. The model applied the median care hours per resident per day.
There has been criticism of the use of the median and of applying the increased revenue through the bed day price, as that method produced ‘winners and losers”. The median was used as it is not distorted by outliers in the way an average is distorted.
It is difficult to see what alternative model could have been used. Unlike homecare, there is not a one to one relationship between resident numbers and staffing level and occupancy and service mix change constantly.
The maximum private contribution is determined by the Social Security Act as being the rest home price applying in the local territorial authority. It would not be possible for rest home prices to be different within a TLA without a change to the Social Security Legislation, and if there was a change, it is difficult to see what alternative would solve the funding discrepancy.
To totally compensate each provider for the actual costs would have required an adjustment every time resident numbers or mix changed, every time a caregiver went up a step on the scale, every time a caregiver terminated their employment and a new caregiver was appointed or a process that took account of all of those changes for the previous period and adjusted the payment each period.
If compensation is not practicable at an individual provider level it would be difficult to build a model that would be fair to all providers other than that based on the median. There are many permutations of circumstances that would have to be taken into account. Just because one cost driver is high does not necessarily mean that all cost drivers in the facility are high.
One provider may have been paying higher wage rates prior to the settlement, have lower staffing ratios, more qualified staff and fewer long serving staff and so on.
The complexity can be further illustrated by comparing three scenarios:
- Provider one may have been paying all their staff on the minimum wage prior to settlement. Their costs of the settlement will be high because the gap between what they were paying and what they are required to pay is higher than a provider that was paying near the median wage level. Is it fair for a provider who has been paying below the sector median to receive more compensation to bring their revenue up to the level of their increased costs?
- Provider two has put considerable effort into training and has a far greater proportion of their staff on the top steps of the equal pay scale. This results in their revenue increase being below their costs. Is it fair for that provider to be disadvantaged?
- Provider three has been paying wages well above the sector median. This means that their increased costs are less than the increase in revenue. Is it fair to disadvantage that provider because they have always had comparatively high wage rates?
In summary, the issue is far more complex than a simple statement that there are winners and losers and therefore the methodology is unfair. In the long term the price paid should not vary between providers simply on the basis of their costs. However, with a change as large as this, there should be a transition period so that providers are not hit with a sudden increase in cost and no time to make adjustments.