Residential aged care providers are feeling “horror and disgust” as they learn that the Government’s pay equity funding won’t cover their costs, leaving many facilities with no choice but to consider redundancies and closure. By JUDE BARBACK.

Behind the celebrations of a hard-won pay increase for caregivers are many anxious employers who fear that the cost of higher wages will lead to job losses and rest home closures around the country.

As the Care and Support Worker (Pay Equity) Settlement Bill is rushed through, the finer details of the pay equity funding formula for residential aged care providers has emerged, revealing a shortfall in funding for many rest homes around New Zealand.

The draft legislation refers to the funder paying additional amounts “towards offsetting the additional costs faced by the employer as a result of this Act”, which back-tracks from the Government’s earlier stated intention to fully fund the pay equity settlement.

Venting concerns

At last week’s pay equity information session in Hamilton, Cecily Munro, director of Munro Resthomes Ltd. described the feeling among providers as one of “horror and disgust”.

The session, one of several to be held in the main urban centres around New Zealand, provided employers with a forum to share some of their concerns.

Providers who had done the sums before attending the meeting had calculated that they would be forced to pay an additional $60k to $100k per year, above and beyond the funding allocated from the Government to cover the increased wages.

Among the providers to speak up was Sylvia Casella, manager of Te Aroha Community Hospital, whose articulate summary of the concerns facing small, rural providers like them was met with applause.

“I agree point blank that caregivers should be paid more. But there has to be a pragmatic approach to this,” she says.

Her concern is that many facilities, particularly those operated by small, rural providers, are going to struggle to afford these wage increases, even with the extra Government funding.

Why will some providers be out of pocket?

At the conclusion of the negotiations for the pay equity settlement, aged care provider representatives decided to utilise the existing national contract negotiation framework and entered into discussions with DHB representatives using that framework.

“Those discussions included consideration of the pros and cons of building the pay equity increases into the bed-day price and it was jointly decided to proceed on that basis,” says Ministry of Health Deputy Director of Service Commissioning Keriana Brooking.

Consequently, the funding formula decided for residential aged care is based on average care hours per resident, employees’ average level qualifications and average years of experience.  It works out to be an increase of $9.41 per night per rest home bed across the board and $13.92 for hospital level care beds.

Smaller facilities – many of whom are run by welfare, trusts or religious based organisations – are unable to take advantage of the economies of scale available to larger providers and will typically provide above average care hours per resident per day. They will also tend to have less staff turnover and more qualified and experienced staff than the average. It is these smaller facilities – already struggling with ever-increasing compliance costs – that stand to lose out under this formula.

Victoria Brown, co-founder of Care Association New Zealand (CANZ) an organisation that represents around 100 providers, attended the A21 meeting at which the decision was made and says there was no agreement on the figures.

“There wasn’t agreement. The funding formula has been imposed on the sector. The model is so flawed, it’s ridiculous,” she says.

She is strongly opposed to the averaging mechanism that has been used and says the suggestion that there will be resulting “winners and losers” is “nothing short of insulting”.

Cecily Munro believes this averaging mechanism creates inequities within the sector and could potentially threaten the viability of some providers.

“The majority of providers will be within cooee, but some will be well outside the bell curve – particularly the small, rural rest homes,” she says.

A good example is Glenbrook Rest Home, a 22-bed facility in Waiuku, owned and operated by Peter Mathyssen. Like Casella, Mathyssen fully supports the “long overdue” pay increase for caregivers. However, he says the viability of smaller rest homes like his will be further eroded as a result of the policy.

By his calculations, Glenbrook will suffer considerable financial strain if it operates at anything less than 100 per cent occupancy. At 100 per cent occupancy the additional funding of $9.41 per bed day almost covers the extra wages, yielding a net result of -$148.23. At 95 per cent there is a shortfall of $4k, at 85 per cent nearly $8k and at 80 per cent a staggering $11,500.

Mathyssen argues that the funding should be based on a more realistic break-even point of 80 per cent occupancy, not 100 per cent, to ensure that smaller providers are not disadvantaged.

“This is not good, nor fair. Why are we as a provider expected to partly fund this settlement?” he asks.

“When this settlement is enforced from the top onto us, then it is no more than reasonable that it comes fully financed, not leaving a shortfall to be absorbed by already struggling smaller providers. This is not equity.”

Casella agrees.

“When you are a smaller facility, you can’t control your occupancy levels, and you can’t offset those additional costs,” she says.

But even larger aged care organisations, particularly those that don’t offer retirement village living as well, are also anxious about how the government’s funding formula will affect them. Among them is Radius Care.

“We anticipate that funding could be an issue down the track and question what we have been led to believe by the government which is that pay equity will have zero effect on the provider,” says Radius Care chief financial officer, Stuart Bilbrough.  “For example, we don’t feel government has addressed how the reimbursement of the increased cost of annual leave accrual will be met.”

Large corporate providers that offer a mix of independent retirement village living and residential aged care, like Ryman Healthcare, Oceania, Metlifecare and Summerset, are inevitably protected from any additional costs, due to their economies of scale and their ability to cross-subsidise from their profitable retirement village operations.

Te Aroha Community Hospital is the antithesis of a Ryman facility. By stark contrast, it is a 43-bed hospital/rest home in the rural Waikato town of Te Aroha. Operated on iwi land and run by a community charitable trust, the hospital’s only income is from the Government and the little interest it gets from its investment.

Casella says providers like hers will have to look very carefully at how they operate and how they are structured as a result of the new policy. For her, it will mean increasing efficiency and flexibility. Some staff might not get their preferred shifts, for example.

Other providers, however, will have no choice but to make redundancies, reduce staff hours or to consider closing, she says.

Casella doesn’t believe New Zealand providers would consider compromising their quality of care.

“I don’t think it will result in facilities cutting corners. I certainly hope not,” she says.

The NZACA’s position

The New Zealand Aged Care Association (NZACA) echoes the fears of Casella, Mathyssen and others and has gone in to bat for smaller providers like them. Although the NZACA assisted the Ministry in calculating the funding formula by supplying employee data, it did not anticipate the Ministry’s application of a daily average on a “no exceptions basis”.

The NZACA’s submission to the Health Select Committee on the Care and Support Worker (Pay Equity) Settlement Bill discusses the “new reality” that has emerged for smaller rest homes as they realise that actual funding will fall short of the Government’s stated intention to “fully fund” the settlement.

“In the past few weeks, the NZACA has been contacted by a number of its members who say they will post significant operational losses and for some this will mean they may have to close their doors. They have said they will need to make staff redundant, cut back staff hours or close, outcomes that are surely counter to this settlement,” states the submission.

The NZACA gives several examples of this “new reality”: rest homes in Taranaki and Wellington and a 26-bed facility with expertise in dementia care are all considering closure following the details of the pay equity settlement, while a larger 80-bed facility in Hamilton is considering redundancies.

“The pending closures, reduction in staff hours and redundancies will be hard felt in smaller communities and rural areas where rest homes provide sustainable and meaningful employment for people that might not otherwise have jobs.

“And, from a resident perspective, it will reduce options for care and force some of our older and vulnerable citizens to move outside their communities and away from their friends and families to find suitable rest home care.”

The NZACA has recommended a number of changes to the draft legislation, chief among them that the funder must meet the increased costs of the employers.

Next steps

Union E tū has accused the NZACA of “fear-mongering about job loss and reduced hours in the Select Committee”.

“We would hope that ACA would now put its energy into ensuring the restoration of relativities, delivering the training and support needed to ensure staff progress up the scale and working with the unions to entrench and support the settlement,” says E tū spokesperson, Alastair Duncan.

However, NZACA chief executive Simon Wallace says the Select Committee was “very receptive” to their members’ concerns.

“They were concerned to hear of closures, staff being made redundant and carer hours being cut back.”

CANZ’s Victoria Brown says she finds it frustrating that the NZACA has the appearance of going in to save the day with the Select Committee, when the averaging formula was essentially their doing.

In any case, the Select Committee requested Wallace provide more information on the funding shortfall and how it will affect providers.

The Committee has now gone into committee for the rest of the week and is expected to report back on Tuesday 6th June.

The fate of many rest homes around New Zealand rests on the legislation being changed.

Worryingly, the Ministry of Health says that any shortfall in funding could be addressed in the upcoming residential aged care funding model review.

“This [funding] decision explicitly recognised that a uniform price increase would result in ‘overs and unders’. As a result, the parties have agreed that there will be a funding review to look at ways in which this problem can be addressed,” says Deputy Director of Service Commissioning Keriana Brooking.

However, the funding model review is only just about to get underway. Any action resulting from the review will be over a year away.

“It’s not going to solve the immediate issues that are on the table right now,” say Wallace.

And even then, the funding model review is unlikely to address pay equity funding shortfalls emerging in the short-term. It is, as Wallace argues, “an entirely different piece of work”.

So, what should smaller providers do if they find themselves facing closure as a result of any pay equity funding shortfall?

The Ministry’s answer is to go to the District Health Boards.

“If a smaller rest home believes that they are so severely disadvantaged by the negotiated bed-day rate that their viability is threatened then they should raise those concerns with their DHB,” says Brooking.

Rest homes around New Zealand will be hoping they don’t have to take those steps. They won’t have to wait too long to find out. Implementation of the pay equity settlement is hurtling ahead at break-neck speed, with the legislation to be passed by the end of June.



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