Can I negotiate the RAD with the aged care facility?

Can I negotiate the RAD with the aged care facility?

 

 

A client recently emailed us with a question about whether the Refundable Accommodation Payment (RAD) can be negotiated with the residential aged care facility. More specifically he was interested in finding out whether not-for-profit residential aged care facilities would accept a lower RAD based on the relative wealth of the resident.

The size (or amount) of the RAD is set by the aged care provider and will be based on a range of commercial factors such as the costs of construction, the specific target group it aims to provide services for, the size of the facility, and the cost of property in the suburb where it is located.

Whilst the accommodation price is quoted as a lump sum, the resident is given the option of paying the accommodation fee (or part of it) as a periodic payment. The periodic payment is called a Daily Accommodation Payment and is usually referred to as a DAP. If you chose to pay all or part of the RAD as a DAP, you will be charged a daily interest rate on the outstanding amount of the RAD. In a way this is like paying rent or interest on an unpaid loan.

The government sets the interest rate applied to convert the lump sum to a DAP. It is called the Maximum Permissible Interest Rate (MPIR) and at the date of writing, the MPIR is 6.22%. In summary then, the accommodation payment can be structured either as a lump sum or as a periodic payment or a combination of both.

In July 2014, new aged care reforms were introduced pertaining to costs of care. Since July 2014 all residential aged care facilities are required to publish their prices. Facilities are required to publish something called their maximum Refundable Accommodation Deposit on the Australian government myagedcare website and on their own website. Facilities are not allowed to charge an accommodation payment that exceeds the advertised price, but may agree to accept a lower RAD. This means that in some instances the resident can negotiate a lower amount.

Our experience has been that some facilities are more open to negotiating a lower RAD than others are. We have been successful in negotiating, on behalf of our clients, in some instance especially where our clients are offering to pay all their RAD as a cash payment. In these circumstances some facilities have been prepared to offer a 10% discount – effectively an incentive or reward for paying the RAD as a cash payment. For example if you say to the facility “We are prepared to pay the full RAD in cash; How much discount would you provide?” They may well provide a discount in such a situation. More often than not this is a simple business decision and not based on whether or not the facility is a not for profit entity. The decision will be based on how many vacancies they have, how long their waiting list is, and what their capital funding requirements are.

Follow Chris Nothling:

Aged Care Financial Adviser

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