Note: This is an in-depth analysis of how the pay equity settlement is affecting the residential aged care sector. For a shorter article on the key issues, please visit here.  

Startling new information leaked to INsite reveals that of an analysis of 366 residential aged care providers, nearly three-quarters (268) will be funded a total estimated surplus of $34.4 million per annum for the purposes of pay equity. The analysis, prepared for the Ministry of Health Pay Equity Team on 19 July, shows of these providers, several are set to receive in excess of $1 million, with one provider estimated to receive a surplus of just under $8 million per annum.

The analysis shows of the 366 providers, 98 are heading for a funding deficit totalling $2.3 million per annum, yielding a net annual surplus of $32.1 million per annum. The data shows that at present there are 66 providers identified as ‘at risk’, on the basis that their pay equity funding falls more than two per cent short of their previous wage costs.

New Zealand Aged Care Association (NZACA) chief executive Simon Wallace says the NZACA have challenged the accuracy of the figures in the Ministry’s document and has sought independent evaluation of the analysis. They are still awaiting the results of this.

He describes the information as “early stage analysis” and the estimated surpluses are likely to be lower due to certain factors that have had an impact on the numbers since they were calculated. These factors include international nurses working as caregivers rising to pay band Level 3, annual leave accrual, confusion around declaration of vacancies and staffing backfill calculations. Wallace also believes the provider estimated to receive an $8 million surplus is not credible and is “an absolute outlier”.

“There are more ‘at risk’ providers than the 66 mentioned in the report. I’ve spoken to more than one hundred members who are struggling,” he says.

However, the Ministry of Health has not been able to provide INsite with any updated estimates about the way rest homes have been funded. Ministry of Health Director Service Commissioning Jill Lane says the Ministry does not hold information on the impact of decisions made by Careerforce regarding equivalency of worker qualifications on each provider.

While the Ministry of Health has always been clear there would be ‘overs’ and ‘unders’ as a result of the way the pay equity settlement was funded in the residential aged care sector, these ‘at risk’ providers will take little comfort from the news that the funding has been so skewed towards other providers in the sector.

Caregivers – the beating heart of pay equity

One thing providers do take comfort from is that thanks to the pay equity settlement, their caregivers now have their work recognized and adequately remunerated.

The settlement means that as a society we can breathe a little easier knowing that some of our most under-valued workers are now getting paid what they deserve. Before the settlement, the average wage was $16.58. Now it’s $20.28, a 22 per cent increase.

It’s going to cost us $2 billion but we’ve done the right thing. We’ve finally resolved that tricky pay equity issue. Now let’s all move on with our lives.

Except the problem is, many aged care providers are struggling to move on. The way providers have been funded to afford the wage increases brought about by the pay equity settlement has meant that some are severely out of pocket, while others have been significantly overfunded.

For many of those adversely affected, the only path to sustainability is to restructure their businesses, which ultimately affects the caregivers – the very people the settlement was supposed to help.

Desperate measures

Caughey Preston Rest Home closed its doors in August this year. They are one of several rest homes to close in recent months as a result of the financial pressures faced by the sector. For some providers, the funding shortfall from the pay equity settlement has been the final straw. For others, however, the challenge is now to work within the new parameters to ensure they stay open.

Talk of redundancies is no longer hypothetical. Providers are engaging the services of employment lawyers to help with the tricky and thankless job of restructuring.

Manager of Lakeside Retirement Lodge Rob Winstanley paints a grim picture of how the pay equity settlement has affected staffing levels at his facility.

Lakeside had 13 caregivers – six at Level 4, two at Level 3 and five unqualified. The funding received equated to 14 per cent of the Level 4 caregiver wage increases, which is funding of less than two Level 4 caregivers.

“We have already lost the two Level 3 caregivers and given notice to another two Level 4 staff. These are to be replaced with unqualified inexperienced staff. We may have to lose another two Level 4 caregivers if we are not funded properly.”

The pay equity settlement was supposed to help leverage the caregiver role by encouraging and rewarding training, qualifications and experience. Now it seems Level 4 caregivers are to be avoided, due to their expensive price tag.

Winstanley reflects that the ‘winners’ must be the rest homes with few or no Level 4 caregivers.

“At the aged care meetings that I attend, it is becoming clear that they will not be employing Level 4 caregivers,” he says.

Care Association New Zealand (CANZ)’s Victoria Brown confirms this is happening in many facilities around the country.

“What some providers have been doing is cutting hours and re-jigging staffing so that the most qualified are moved out – and isn’t that ridiculous when we need our most qualified?”

Providers at the recent New Zealand Aged Care Association (NZACA) conference in Rotorua spoke of similar measures. Some are limiting training; others are changing job titles to ones that don’t require a Level 3 or Level 4 qualification.

There was even a session at the conference devoted to this topic. Consultant Judith Johnson talked about differentiating staff roles and capabilities. She suggested that many elements of the caregiver role could be done by hospitality staff, such as laundry, cleaning, making beds and so on. This approach could potentially bring significant savings over time, she said.

Johnson said it comes down to looking closely at each role. As diversional therapists come under the agreement, employing an ‘entertainment co-ordinator’ or ‘diversional therapist assistant’ could be a cheaper alternative.

Johnson suggested job splitting as another way providers could look to afford the increase. So a caregiver with a Level 4 qualification might be paid at the Level 4 rate for half of their shift, and at the hospitality staff wage rate for the other half, reflecting the time spent on caregiver duties and the time spent on domestic duties.

“Some people may prefer this to a total loss of job,” she explained.

Keeping within the law

Union E tu’s Assistant National Secretary John Ryall confirmed that while such approaches are possible, providers need to be careful not to exploit their workers.

“Aged residential care providers can adopt a “Fordist” approach of having distinct cleaning, laundry or catering workers separate from the caregiving role and this might work in very big facilities, but the union is opposed to employers who simply want to change the name of care worker to “home assistant” and then think they will avoid the wage payments under the law.”

Ryall points out that under the new Care and Support Workers (Pay Equity) Settlement Act the definition of a care and support worker is very wide and is defined as any employee other than a regulated employee who primarily carries out care and support services that sustain a resident’s “maximum level of participation in everyday life”. Ryall says that in the context of a rest home, this means anyone who has direct contact with a resident is included.

“If they are totally doing cleaning, working in a kitchen or a laundry that is separate from the resident then they are not care and support workers, but otherwise they are,” he says.

“Care workers may agree to lower their pay rates, split their role or do something else to please their employer. However, the Care and Support Workers (Pay Equity) Settlement Act sets minimum wages for the care and support sector and any agreement can be overridden if at any time six years later the employee wants to challenge their pay rate.”

Employment lawyer Geoff O’Sullivan clarifies that under the new legislation, employers are obligated to support caregivers complete their training to climb up the levels, and consequently the pay scale.

“You can’t stop employees doing more training,” he told providers.

A lack of compliance from employers on this could lead to a personal grievance for unjustified disadvantage. Personal grievances are very expensive and to be avoided, he added.

John Ryall agreed.

“There is no way around this and the union will support any care worker whose employer is refusing to support them to access level 4.”

The problem with how rest homes have been funded

How did we end up in a situation where caregivers are striving for Level 4, yet rest homes can’t afford to employ them? A situation where some rest homes are set to pocket millions, while others are forced to restructure and take drastic measures to survive?

Many point to the method in which the residential aged care sector has been funded to meet the costs of the settlement as a key factor.

Each of the three sectors involved in the settlement exercised a different way to fund their providers’ increased costs. The disability and home support sectors based funding on providers’ actual data, while the residential aged care sector devised a funding formula based on an averaging mechanism.

The Joint ARRC (Age-Related Residential Care) Steering Group, comprising representatives from the NZACA, CANZ, Ministry of Health and District Health Boards (DHBs) were tasked with working out the best way to fund the sector’s increase in wages. From information collected from the industry through a survey conducted at the beginning of 2016, they averaged the number of care hours per resident per day across the four categories of care. This produced the funding rates of $9.41 per day per rest home bed, $13.92 for hospital level care beds, $14.21 for dementia beds and $16.18 for psychogeriatric beds.


In a perfect world, the funding would meet the increased wage costs of every provider. However, averages, by their very nature, mean that while some providers will receive funding that meets their costs, others will not receive enough and others will receive too much. The Ministry of Health were clear from the outset that there would be ‘unders’ and ‘overs’ as a result of the way it was funded.

Sure enough, after the averaging funding formula came to light, many providers did their sums and pronounced that they would be underfunded – severely, in some cases – to meet the costs of pay equity.

The NZACA acted swiftly on behalf of worried providers, outlining these concerns in their submission to the Select Committee on 29 May. This seemed slightly incongruous given the NZACA were one of the parties involved in the steering group that devised the averaging formula. However, as it points out in its submission, “NZACA assisted with the collection of data to enable the [Ministry of Health] to arrive at these figures. NZACA participated in this exercise in good faith and with the objective of assisting officials to arrive at a workable and practical mechanism, however, we would not have anticipated the application of this daily average.”

Victoria Brown says CANZ was concerned over the “concept of winners and losers”.

“At the time there was talk of winners and losers but the quantum and the mechanics of this was unknown,” says Brown. “When asked about this CANZ was told that providers who were paying relatively high rates of pay would be part of the ‘winners’ whereas those who were paying the minimum or slightly above would form part of the ‘losers’. There was no discussion of the possible consequences or repercussions of this averaging formula or the extent to which it could affect viability.”

CANZ wanted providers to be paid what the actual amount was each week, and no more than this – like the home support sector. However, she says there was “very little discussion on another vehicle”.

“It was mentioned that the home care people were going to be paid by “actuals” but it was thought this would be impossible for aged care as it would be too complex,” she said.

Brown says the consequences of the averaging formula were not discussed within the steering group, nor was it likely anyone knew what the outcomes would be at that stage. NZACA chief executive Simon Wallace agrees the full consequences could not have been foreseen.

However, Ministry of Health’s Jill Lane says the pros and cons of the formula were discussed by the group. She also indicates that aged care representatives played a more direct role in negotiations than they have suggested.

“Aged care provider representatives decided to use their existing national contract negotiation framework. In those discussions with DHB representatives, they considered the pros and cons of building pay equity increases into the bed-day price. It was jointly decided to proceed on that basis,” says Lane.

Labour’s health spokesperson Dr David Clark says the funding should have been based on actual, not averaged data to avoid what he describes as “a crazy situation” that is seeing smaller providers fighting for survival.

“This could have been avoided if the Minister of Health had dug into this before the settlement. There are some pretty clever algorithms and some pretty clever people out there,” said Clark.

So who are the ‘overs’?

These consequences have now begun to emerge, with the revelation of estimated net overfunding of a staggering $32.1 million. The analysis obtained by INsite does not give any specific details about those in receipt of surplus funding.

Providers in the ‘winners’ or ‘overs’ camp are generally thought to be those who have the ability to cross-subsidise their aged care operation with profits from their retirement village businesses. This allowed these integrated operators to pay above the industry average wage, which meant that when the pay equity settlement came along, they could pass on a smaller portion of the pay equity funding to their employees in order to meet the new wage rates. This, coupled with efficient staffing systems, meant larger integrated operators were likely to be in a better position than most to absorb the impacts of the pay equity settlement.

However, Ryman Healthcare –the prototypical large integrated operator – claims it hasn’t been overfunded.

“We’ve received what we need to cover the settlement,” says chief executive Gordon McLeod. “The settlement addressed significant underfunding of caregiver pay, so we welcomed it.”

One large aged care provider, who has shared their situation on the condition of anonymity, says they had initially calculated they would be about $200k better off on Year 1, based on a caregiver payroll in the order of $2.8 million. This reflected the benefit of their “efficient staffing model” that allowed them to use fewer hours than the industry average, achieved through investing in systems and processes.

However, the provider soon realised their calculations did not take account of the shortfall in holiday pay compensation, the heightened obligations for training costs, and the lack of any certainty in funding caregiver pay-rate inflation, with individual pay levels shifting automatically on each 1 July anniversary and with each qualification stepping stone.

“On balance I suspect we are slightly ahead of the game,” the provider said.

And the ‘unders’?

The information obtained by INsite indicates there are 66 providers assessed as ‘at risk’, as the deficit in their pay equity funding is more than two per cent of their previous wage costs. These providers are spread across nearly every DHB in the country. Southern DHB has by far the most, with 11 ‘at risk’ providers.

However, Simon Wallace says there are many more than this who are on the brink of closure, including some who initially thought they would be in surplus.

The ‘unders’ are typically thought to be smaller providers. The data shows that of the 66, 52 have less than 50 beds. Only five have more than 50 members of staff.

‘Unders’ generally have long-serving and highly trained staff – in other words they are likely to have a high proportion of Level 3 and 4 staff.

The data also confirms this, showing that 51 per cent of pay equity funding for ‘at risk’ providers supports caregivers at Level 3 or 4 pay bands, compared to 35 per cent for all providers.

‘Unders’ are also thought to generally lack the economies of scale to run such efficient staffing levels as their larger counterparts.

“Where there are facilities with a lot of health care assistants with high number of hours worked then the impact is higher,” says Victoria Brown. “Add in a highly qualified staff and this increases the impact. Add in a single vacancy and this compounds the problem.”

General manager of Stott House Chris Sanders says her facility is among the ‘unders’.

“At the first pass we calculated that we were ‘under’ funded by the Pay Equity Deal to the extent of $20,000 per annum. This has ballooned since with the ‘after implementation’ changes to eligibility criteria leaving us approximately $40,000 per annum out of pocket.

Nurse Manager at Methven House Elisabeth Heybrook says their funding falls short by $30,000.

“We have long serving staff who deserved the pay increase of $6.00 per hour,” she says, “But the funding is far from sufficient .We are a small charitable rest home with no further income than receiving from the residents fees, private or subsidized.”

However, it isn’t just the small and not-for-profit providers who have been hit hard.

One of the larger providers, Oceania Healthcare is feeling the effects as well.

Chief executive Earl Gasparich says the pay equity settlement has cost Oceania several hundred thousand dollars and this is before the full impact of the increased annual leave liability and the unexpected decision by Careerforce regarding overseas nursing qualifications.

“The unfunded component of the equal pay settlement, as well as the cost of the minimum wage increase on 1 April, has been a considerable additional expense borne by the company over the last four months,” he says.

“We have empathy for smaller and stand-alone care providers who have been disadvantaged by the “averaging” approach that the Government took to determine the increase in funding required.”

Is the funding formula flawed?

In essence, the funding formula for aged care is fair. To fund the actual difference between providers’ old wage rates and the new wage rates under pay equity, would ultimately penalise those providers who paid their staff better in the first place.

However this observation ignores the different factors contributing to those providers’ abilities to pay their staff better – cross-subsidisation being the obvious example. Aged care providers operate in very different environments, ranging from large-scale corporate integrated providers, through to multi-site profitable companies, through to not-for-profit operators, through to small stand-alone rest home-level facilities. Some operate in large urban areas, others in isolated rural regions. Some serve a wealthy demographic, while others cater for lower socioeconomic areas.

In theory the averaging formula was a feasible and fair way to attempt to level the playing field across so many different types of providers. However, in practice, it has disadvantaged many providers. Pay equity funding arguably is not the right vehicle to rectify the imbalances that exist within the sector. The funding review of the sector could not come at a better time to look at these issues in more depth.

Even so, many believe the averaging formula is fundamentally flawed. For starters, it appears to disadvantage those rest homes with long-serving and highly trained staff.

St Andrew’s Village in Auckland is one facility that has strived over many years to create a well-trained and stable workforce. Consequently they expect to be bit hit hard by the settlement, losing over $200,000 in the first year alone.

“Quite simply, the funding model didn’t cater for situations where the vast majority of an operator’s employees were eligible to receive the top two new pay rates,” states chief executive Andrew Joyce.

The other big problem is that it is linked to occupancy levels. Many providers worked out that they just about broke even or were slightly over-funded if they had a full house of residents. However, 100 per cent occupancy is not realistic for many.

As Glenbrook Rest Home’s owner Peter Mathyssen quickly worked out, at 100 per cent occupancy the additional funding almost covers his extra wages, however at 80 per cent, there is a shortfall of $11,500.

“Settlement funding to providers through a set amount per bed day is fundamentally flawed. It makes the level of funding dependent on the occupancy rate, which has nothing to do with wage costs. Our wage bill does not change whether we have 100 per cent or 80 per cent occupancy.”

Manager of Shalom Aged Care Chris McFarlane agrees.

“We are only lightly overfunded because we are full; if we are one bed down for more than a week we will be slightly underfunded. If we were two beds down we would be worse off.”

Add to the mix staff progressing through the levels, and leave entitlements, and McFarlane says they are unlikely to break even over the course of the year.

Some providers have speculated that if the funding formula had worked to a slightly lower occupancy rate of around 85-90 per cent, most of the ‘unders’ would be okay.

Victoria Brown agrees pay equity funding should not have been linked to occupancy levels.

“At the time we also thought that as it was a bed day rate that ALL beds would be paid and not the occupied ones only. With a vacancy rate at about 85 per cent around the country there are serious numbers of empty beds in mostly the smaller facilities. This has seriously impacted on the smaller provider. Even now after so many meetings the Ministry has no real idea of why what has happened has happened – they are quite non-plussed by it all.”

In fact, Brown believes the whole exercise has revealed that the Ministry of Health really did not understand the nuances of the sector, particularly around the different types of contracts in aged care. By way of example, she points out the confusion that has arisen over the fact that many mental health clients reside in aged care.

The impact of RN equivalency

Fair or not, the residential aged care funding formula has been impacted by factors that Simon Wallace says they could not have foreseen.

A mere three days after the new pay equity legislation came into play, industry training organisation Careerforce announced that qualified nurses from the Philippines, India, South Africa, Australia and the UK employed as care and support workers were assessed as having equivalency to the Level 3 New Zealand qualification.

This amounted to a sudden and unanticipated leap in wage costs for many providers as these workers jumped to the Level 3 pay bracket. It also meant providers faced training costs for these employees to complete two additional cultural competency unit standards to take them to Level 4, which in turn is accompanied by another swift jump up the pay scale.

Wallace says the sector has been completely blindsided by Careerforce’s decision.

However, Careerforce says it was tasked by the Care and Support Workers (Pay Equity) Settlement Act to assess the equivalency.

The earliest drafts of the legislation outline that equivalent overseas qualifications would be taken into account as Level 2, 3 or 4 qualifications for the purposes of pay equity.

The NZACA contested this clause early on through its Select Committee submission suggesting that “it would be preferable to either rule out all overseas qualifications making it necessary for staff to obtain a NZQA qualification, similar to the nursing industry approach”.

The NZACA’s suggestion was ignored and the sector was left feeling angry that it wasn’t consulted by Careerforce and the Ministry of Health about the timing of the change.

“Providers still carry an inordinate amount of grief about this,” says Wallace.

Around a third of the aged care workforce are migrant workers. Matters aren’t helped by the timing of the immigration policy changes, which will see migrant caregivers sent back to their home countries for a one-year stand-down period after three years in New Zealand. Providers are clinging to the possibility of a review of the ANZSCO skills classification system at the end of the year which could exempt these workers from the stand-down policy.

The impact of leave

Leave entitlements is the other area that appears to have been neglected in the initial funding formula. Providers recently completed a leave liability data collection tool to help determine the costs associated with this, but many have found the resulting funding does not meet their costs in this area.

A survey recently conducted by the Home and Community Health Association revealed providers in the home support sector would face a $4.2 million shortfall in annual leave funding alone.

Rest home providers are experiencing similar shortfalls.

Andrew Joyce, chief executive of St Andrews Village points out several problems with the way the leave liability tool calculates how much funding is needed to cover leave entitlements. The tool systematically excludes employees who received penal rates as part of their 52 week average, and includes days in lieu.  It also caps the maximum entitlement at 160 hours, which is equivalent to four weeks’ annual leave for a person working a standard 40 hour week. As Joyce points out, the reality in aged care is that there is no such thing as a standard 40 hour week, with most of his staff working between 40 and 48 hours per week.

Are the pay rates fair?

Some providers have also expressed concern that the new pay rates have been based solely on experience and qualification levels, rather than the nature of the caregivers’ work.

They argue that it doesn’t seem fair that those working in dementia or hospital level care are paid the same as those working on the same pay band in rest home level care. Some facilities have found their rest home caregivers’ pay rates leap-frogging those of their colleagues working in the dementia unit, purely because of time in the job. Similarly, staff output and commitment to the job is also unrecognised in the new pay rates.

“This sends the wrong message and is actually unfair. As we are slightly worse off as a result of the pay increases our hands are tied with respect to further remunerating those who perhaps deserve a little further acknowledgement,” says one provider, who wishes to remain anonymous.

It is a similar story in the home support sector. Home and Community Health Association (HCHA) chief executive Julie Haggie says they have a large number of support workers who, owing to their length of service, are on the Level 4 pay bracket, yet are unwilling to do the training.

She says there is also a problem with relative wages, with support workers now earning more than co-ordinators, many of whom started out as support workers.

Providers in both sectors are also feeling the pressure to pay their nursing staff more, as the new caregiver and support worker pay rates are now rivalling those of their enrolled and registered nurses.

“In an historically underfunded sector this is very scary stuff, especially as we need to consider the relativity of nurses pay alongside this because we can’t, in all conscience, pay caregivers more than enrolled and registered nurses,” says Chris Sanders.

“It would be interesting to know if those who were paid ‘over’ have given the ‘over’ money to their profit margins? I hope they’ve used it – as we cannot, for obvious reasons – to help the nurses or other low-paid workers such as cleaners and laundry workers in their employ.”

Certainly a net surplus of $32.1 million could be put towards increasing the pay of many workers falling outside of the pay equity agreement. Although, it could be argued that if the providers in receipt of the surplus have been paying their workers above the industry average prior to pay equity, the surplus is not really a surplus after all, but a rebalancing exercise.

What is the Ministry of Health doing about it?

In the first instance, the Ministry of Health organised funding to be provided three months in advance to employers, with audits then carried out to ensure the funding – particularly for smaller employers – is sufficient to meet the legislative commitments under the Care and Support Worker (Pay Equity) Settlement Act.

The purpose of this advance payment was essentially, as one DHB explained to a provider, “to provide employers with an opportunity to review their current models”.

In her address to the NZACA conference, Associate Minister of Health Nicky Wagner acknowledged the strain pay equity has placed on providers and the fact that it has forced many “to make adjustments to their operation”.

She made it clear that DHBs are expected to respond to any concerns providers have around their sustainability. This message was reinforced by National’s Simon O’Connor who recommended people “hammer hard” to their DHBs.

The Ministry receives regular updates on how many providers have contacted their DHB and the status of these discussions. To date, 26 providers have been in contact seeking assistance from their DHBs.

The Ministry has created an interactive tool that providers can use to determine the impact (if any) of pay equity on their business. When a provider meets with their DHB the tool can help determine whether pay equity, rather than other factors – like occupancy, for example – may be the reason for financial issues.

“It is important to distinguish existing emerging sustainability issues from the impact of pay equity,” says the Ministry’s Jill Lane. “DHBs will already have processes in place for dealing with sustainability issues. Aged residential care providers and DHB funders need to work closely together at an individual level where there are concerns for provider viability and service continuity.

“If we see problems, the Ministry will work in partnership with providers, DHBs and Ministers to resolve them.”

Where pay equity is an issue the DHB will determine whether some transitional assistance may be appropriate while a provider adjusts on a case by case basis. The Ministry has indicated that it may take into consideration the special characteristics of a facility, such as one that serves an isolated rural community, or one that serves an ethnic population.


The problem is that DHBs run independently. How can providers be assured their DHB will address their concerns with any degree of consistency?

With Capital & Coast District Health Board recently admitting that it has been running at a loss for 20 years, providers in that area might have little hope in seeking any financial respite from the DHB. However, contrary to what many think, pay equity funding is held by the Ministry of Health and not the DHBs, even though the DHBs are the first port-of-call for providers.

Victoria Brown says the Ministry has provided a lot of information and they have been very pleasant and obliging to work with. But she says the DHB solution is of little comfort to providers.

“The DHBs have made it clear that they have no interest in supporting providers to stay afloat,” she said. “They may give temporary financial assistance if beds are needed in an area. The Ministry has said it is not their problem – the DHBs are where providers have to go for help. So really we have no help from anyone.”

The Ministry says lessons from the implementation of pay equity will be considered as part of the aged care sector funding review, which is now underway.

Oceania’s Earl Gasparich says the review can’t come soon enough.

“[Pay equity] further demonstrates the inadequate levels of funding that the aged care sector receives to care for New Zealand’s elderly.  A review of the funding model is urgently required to address this.”

Future contracts with aged care providers are expected to reflect the outcome of the review. There is a possibility that the next contract round might see a change to the pay equity funding mechanism.

However, Simon Wallace says the funding model review is unlikely to address pay equity funding shortfalls emerging in the short-term.

Do rest homes need to change their business models?

The Ministry’s three-pronged approach in helping address the concerns of providers – the advance payments; the go-to-your-DHB solution; and the funding review – seems to pivot around providers changing their business models to meet the new realities of operating facilities under pay equity.

“What is particularly galling is that providers are being blamed as if it is their business model that is flawed,” says Brown. “It is really the last straw after a miserable few years where costs are increased and moved to the providers to deal with and absorb.”

It is true that many aged care providers were already struggling before the pay equity settlement.

The 2010 Aged Residential Care Service Review by Grant Thornton confirmed that the cost of providing rest home and dementia services results in the lowest financial returns. It stated that the most efficient-sized facility is 80 beds plus, while half the sector operates facilities of 50 beds or less.

The other threat for many providers is the weakening demand for rest home-level care as older people are assessed as requiring residential aged care only when they have very high needs and co-morbidities. Consequently it makes it hard for rest home-level providers in some areas to control occupancy levels.

“The current trend of reducing demand for rest home care is expected to continue, however, phasing it out would require new, alternative care arrangements,” said Minister Wagner.

As discussed, many providers are already making changes to the way they run their business – and their employment structures in particular – to accommodate pay equity. Worryingly, the focus on sustainability has the potential to distract providers from delivering quality care to their residents.

Is the Government pushing for fewer providers?

The Ministry of Health says it doesn’t want to see providers close, and is doing what it can to help those facing sustainability issues. Yet it is unlikely the Ministry will go to lengths to save businesses that are unsustainable.

The feeling of the sector is that the Ministry is ultimately pushing for fewer, larger providers. This would certainly mirror the approach taken in other areas of healthcare, like home support and rehabilitation services.

If the Government wanted to maintain the status quo within the aged care sector, surely it would have looked to fund the pay equity settlement based on actual provider costs. But by choosing a formula that has averaged industry data, it appears to be favouring larger providers that run efficient businesses, to the detriment of other – and in many cases, smaller – providers in the sector.

“I have to say I am not confident for the future of charitable, rural and small facilities and wonder if fewer providers are exactly what the Ministry of Health is looking for,” says Chris Sanders.

Rob Winstanley agrees.

“If I were a conspiracy theorist, I would say that this is to put pressure on small operators, leaving the way open for the corporates.”

CANZ is worried that families will start to overlook smaller facilities for fear of them closing.

“Some families are asking providers if they are going to stay in business over this. If this is extrapolated it could mean that DHBs may point this out to families and the overall effect could mean that potential residents go to the larger providers and again this will worsen the outcome for the smaller facilities,” says Brown.

“If the small places close there will be potentially no standard rooms left and there will be potentially only rooms that charge a premium – and not everyone can afford this.”

Where to from here?

The worrying thing is that for many providers, the situation is only going to get worse.

“Even more concerning is how this is going to go over the next four years – if we are underfunded now will this be underfunded moving forward? Five lots of $40,000 underfunding equals $200,000 over the next stages,” says Chris Sanders.

What options does the Ministry have? Some have suggested increasing the rates of funding. Others have suggested funding at 90 per cent of occupancy. Others still want to see the averaging formula thrown out and replaced with an actuals-based funding mechanism.

For now the Ministry is persisting with the averaging formula, and is attempting to help those ‘at risk’ providers. The funding review will provide a timely opportunity to take a look at whether the aged care sector has been funded appropriately for the purposes of pay equity.

The pay equity settlement is a good thing – but it is fast becoming tarnished by the way it has been implemented.


    • Good point and thank you for making it. Many providers are finding it uncomfortable that the pay rise has not extended to domestic staff or RNs, as it is creating some tension in the workplace. The problem is, for many providers, the funding is not covering the pay increase for caregivers, leaving nothing left for increasing wages of other employees.

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