A leaked Ministry of Health document reveals that the majority of New Zealand rest homes could be overfunded for their pay equity costs by a total of more than $34 million per year. At the same time, around 100 rest homes are facing a shortfall in their pay equity settlement funding, with some on the brink of closure.

Startling new information leaked to INsite reveals that 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, which was prepared for the Ministry of Health’s Pay Equity Team on July 19, 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 year.

Meanwhile, 98 providers are destined for a pay equity funding deficit totalling $2.3 million per annum, yielding a net annual surplus of $32.1 million per annum.

The $2 billion Care and Support Workers (Pay Equity) Settlement Agreement came into force on July 1, lifting workers’ wages from an average of $16.58 an hour to $20.28. Aged care, home care and disability support providers are all being funded to meet their increased wage costs – although the three sectors are funded differently.

Rest home pay equity funding is based on the average number of care hours per resident per day across the entire sector. This averaging formula, jointly decided by representatives from the Ministry of Health,  the District Health Boards and the residential aged care sector, has proved controversial for the way it has produced “winners” and “losers” among rest homes, depending on whether facilities have been over or under funded to meet their increased wage costs.

The Ministry document identifies 66 aged care providers as ‘at risk’ on the basis that their pay equity funding falls more than two per cent short of their previous wage costs. These providers are spread across nearly every DHB in the country. Southern DHB has the most, with 11 ‘at risk’ providers.

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 now 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.

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.

Care Association New Zealand director Victoria Brown agrees the pay equity settlement has made life very tough for many smaller providers.

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

The underfunded rest homes are generally run by smaller providers, with 52 of the 66 providers reported as having fewer than 50 beds. As such, these rest homes lack the economies of scale to run such efficient staffing levels as larger providers, who often have the ability to cross-subsidise their aged care operation with their more profitable retirement village businesses. Smaller rest homes typically employ long-serving and highly trained care givers which means their wage costs have soared under the pay equity settlement, as the new pay rates reward length of service and qualification level.

The aged care funding formula is also based on rest home occupancy levels. Many aged care providers have found that the funding meets their costs if every bed is full, but quickly falls short if their occupancy levels drop.

Methven House has calculated a pay equity funding shortfall of $30,000 this year.

“We have long serving staff who deserved the pay increase of $6.00 per hour,” says Nurse Manager Elisabeth Heybrook, “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.”

Stott House is anticipating it will be $40,000 out of pocket.

“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 General Manager 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.”

At the recent NZACA conference in Rotorua, rest homes were advised on ways they could restructure their businesses to afford the increased wage costs. One suggestion was job splitting so an employee is paid a caregiver rate for caregiver tasks and the cheaper domestic rate for completing other roles like laundry or cleaning.

“Some people may prefer this to a total loss of job,” said NZACA consultant Judith Johnson.

The Ministry of Health is urging struggling providers to seek assistance from their District Health Boards. The DHB uses an interactive tool to determine the impact of pay equity on the provider’s business. Where pay equity is an issue the DHB will consider whether some transitional assistance may be appropriate. To date, 26 providers have been in contact seeking assistance from their DHBs.

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

“It is important to distinguish existing emerging sustainability issues from the impact of pay equity,” she says.

Many providers feel the Government is pushing for fewer, larger providers. The revelation that the “winners” are likely to be overfunded by millions of dollars only adds weight to this theory.

“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.

Manager of Lakeside Retirement Lodge 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.”

For an in-depth analysis of the consequences of the way residential aged care providers have been funded for pay equity, see this article.

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