IHACPA has admitted it still lacks complete cost data for 2024-25 and cannot assess provider viability under its current remit, despite widespread concerns about the sector's financial sustainability.
The Independent Health and Aged Care Pricing Authority has defended its methodology for calculating residential aged-care funding, despite acknowledging that its latest recommendation relies on actual cost data from 2023-24.
At Senate estimates yesterday, IHACPA chief executive Professor Michael Pervan confirmed that the authority had not yet received complete cost data for 2024-25, even though its latest pricing advice covers the period from October 2026 to September 2027.
The admission came under sustained questioning from opposition health and ageing spokesperson Senator Anne Ruston about the authority’s controversial recommendation to increase the Australian National Aged Care Classification (AN-ACC) price by just 2.55%.
The price rose from $295.64 to $303.19 per national weighted activity unit on 1 October, despite a 4.75% increase in award wages and mounting concerns about residential aged-care providers’ financial sustainability.
Professor Pervan confirmed that 2023-24 remained the most recent year for which IHACPA had complete sector-wide cost data.
Asked whether the authority had even received the 2024-25 figures, he replied: “No, not yet.”
Senator Ruston questioned how IHACPA could adequately test its indexation assumptions when the actual costs against which they would be measured were years behind.
Professor Pervan said the authority used multiple indices to estimate current costs and improve the accuracy of its pricing recommendations.
But he acknowledged that more recent data could eventually reveal that the recommended price had been inadequate.
“If the cost data is higher than the price that we were recommending to government, the government accepted, then that differential shows us that the price was wrong,” he said.
“But it’s two years late,” Senator Ruston responded.
The exchange exposed a central tension in the funding model: IHACPA must estimate the current cost of care from historical expenditure, but does not have an explicit mandate to assess whether providers can remain financially viable under the resulting price.
Professor Pervan acknowledged that the authority’s approach was constrained by government directions requiring its advice to be based on actual operating costs.
“We don’t provide advice on viability or on any of those broader issues that we’re discussing,” he said.
“We are directed to stay in our lane.”
Asked whether the methodology was too blunt to accommodate the enormous differences between residential aged care providers, Professor Pervan conceded that it was.
“It is a pretty blunt instrument, but that’s the instrument that we’re directed to produce,” he said.
The model must accommodate everything from large commercial operators with thousands of beds to tiny regional and remote facilities, despite their substantially different operating costs.
Senator Ruston questioned whether using historical costs from a sector already experiencing financial difficulties risked perpetuating those difficulties.
Professor Pervan acknowledged that the model was designed to constrain expenditure.
“So, yes, the model does put downward pressure on spending because it’s meant to,” he said.
He stressed, however, that IHACPA could adjust its methodology where evidence demonstrated that particular costs were not being adequately captured.
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The authority’s pricing recommendations exclude profit margins because, Professor Pervan explained, they are not considered operating costs under the government’s pricing framework.
He acknowledged that providers needed margins to support investment, building improvements and expansion, but said those considerations fell outside IHACPA’s cost-based pricing remit.
Professor Pervan also revealed that IHACPA had checked the unexpectedly low 2026-27 price calculation multiple times and engaged an independent agency to verify its mathematics.
He accepted responsibility for the difficulty providers had experienced understanding the methodology, acknowledging that the published technical documents were not readily accessible to people running aged-care homes.
“I haven’t done my job, I think, in providing a more accessible communication,” he said.
The 2.55% increase prompted a furious response from providers when it was announced, with Ageing Australia describing it as unacceptable and warning that 62% of residential aged-care homes were operating at a loss.
Providers argued that the increase failed to reflect wage rises, regulatory obligations and other operating pressures.
IHACPA’s calculation began with average 2023-24 costs of $252.14 per national weighted activity unit, adjusted for mandatory care minutes and indexed forward to estimate the cost of delivering care in 2026–27.
Professor Pervan said the authority was continuing to review its methodology and examine concerns about administrative costs, including competing approaches to allocating those costs between care, accommodation and everyday living.
But any changes would still have to comply with the government’s direction that pricing advice be based on actual costs.
The authority also confirmed that its recommendation to retain the hotelling supplement at $22.15 per resident per day was based on its own cost analysis, rather than a government instruction to freeze the payment pending a review.
Professor Pervan acknowledged that the current hotelling arrangements did not adequately reflect differences between large and small providers or metropolitan and regional facilities.
IHACPA and the department are examining whether a tiered supplement could better account for those differences.