Consultation Paper on the Pricing Framework for Australian Residential Aged Care Services 2027-28

Consultation questions

Abbreviations

1. Introduction

1.1 About IHACPA

The Independent Health and Aged Care Pricing Authority (IHACPA) is an independent government agency under the National Health Reform Act 2011 (NHR Act). IHACPA assists the Australian Government by providing evidence-based pricing and costing advice to inform government policy and funding decisions in aged care.

Under the NHR Act, we provide advice on annual aged care pricing and costing matters to the Minister for Health and Ageing, including:

• in relation to methods for calculating amounts of subsidies to be paid for aged care services
• conducting, or arranging for the conduct of, the collection and review of data, costing and other studies, and consultations for the purpose of providing aged care pricing and costing advice.

IHACPA’s vision is for a sustainable Australian care system that is accessible, resilient and delivers quality care outcomes for everyone. We use a consultative and data-driven approach to advise on and set fair pricing in the Australian health and aged care sectors, driving better outcomes.

We deliver our annual program of work through transparent consultation and collaboration with the Australian Government and state and territory governments, our advisory committees, residential aged care participants and their families, carers and representatives, residential aged care providers, other key stakeholders, and the public.

For more information about our work, visit our website.

1.2 About this consultation paper

We conduct annual public consultations to develop the pricing framework. This is to ensure our pricing methodology is informed by a broad range of stakeholders across the residential aged care sector.

The Consultation Paper on the Pricing Framework for Australian Residential Aged Care Services 2027–28 provides us with the opportunity to hear from the residential aged care sector. It enables you to share your views and help inform the pricing framework and our pricing advice to government.

The pricing framework is developed annually and outlines the principles, scope and methodology we use in developing pricing advice for residential aged care. The pricing framework supports transparency and accountability for residential aged care pricing by making the decisions and pricing principles we use publicly available.

Enquiries

If you have a question about this consultation, please contact us at submissions.ihacpa@ihacpa.gov.au.

All submissions will be published on IHACPA’s Engagement Hub, except where respondents have requested their submission be kept confidential due to commercial or other reasons.

Supporting documents

This consultation paper builds on IHACPA’s previous work. The following documents support this year’s consultation process:

• Consultation Paper on the Pricing Framework for Australian Residential Aged Care Services 2026–27
• Pricing Framework for Australian Residential Aged Care Services 2026–27
• Pricing Framework for Australian Residential Aged Care Services 2026–27 Consultation Report

1.3 IHACPA's pricing advice development process

IHACPA provides annual evidence-based pricing advice to inform government decisions on pricing of residential aged care and residential respite care services.

Our pricing advice will include:

• Australian National Aged Care Classification (AN-ACC) price and price weights for each AN-ACC class and base care tariff (BCT) category
• advice on the estimated gap between the cost of delivering everyday living services and related revenue received by residential care homes.

Informed by IHACPA’s pricing advice, government is responsible for determining and announcing the AN-ACC price (Figure 1). Where requested by government, IHACPA also provides advice on other elements of residential aged care pricing.

Figure 1: IHACPA’s residential aged care pricing advice development process

Areas in-scope for our pricing advice

Our residential aged care pricing advice considers the costs incurred by registered providers when delivering care to residents. Elements of care that are in-scope for the AN-ACC funding model are set out in Chapter 1, Division 8-150 and Division 8-155 of the Aged Care Rules 2025 (Aged Care Rules) (Figure 2) for residential care. This includes administrative costs directly related to care.

Advice on the everyday living cost gap considers the costs incurred by providers when delivering everyday living services to residents. In-scope items are listed in Chapter 1, Division 8-145 of the Aged Care Rules.

Figure 2: Areas in-scope for our pricing advice 2027–28

Areas out-of-scope for our pricing advice

There are areas outside the scope of our pricing and costing advice for residential aged care and residential respite care, as shown in Figure 3.

Figure 3: Areas out-of-scope for our pricing advice 2027–28

The role of the Department of Health, Disability and Ageing

The department is the aged care system governor and retains responsibility for aged care subsidies, supplements and grants, policy setting, broader aged care funding, and system management (Figure 4). These responsibilities are outside the scope of IHACPA’s pricing and costing advice.

Figure 4: Department Health, Disability and Ageing responsibilities

The role of the Aged Care Quality and Safety Commission

The commission is the national regulator of government-funded aged care services and responsible for a range of aged care functions outside the scope of IHACPA’s pricing and costing advice, as outlined in Figure 5.

Figure 5: Aged Care Quality and Safety Commission responsibilities

2. Pricing principles

IHACPA balances a range of Australian Government policy objectives when developing residential aged care pricing and costing advice. Our pricing principles underpin our commitment to government policy objectives, while providing transparency and evidence-based decision making on the development of the residential aged care pricing advice.

In response to feedback received in previous residential aged care public consultations, we have refined the pricing principles annually. Stakeholders were supportive of these refinements and advocated for further expansion of the administrative efficiency principle and increased level of specificity for the funding of culturally appropriate and trauma informed care for Aboriginal and Torres Strait Islander Elders.

We affirm our commitment of continuing to consult with Aboriginal and Torres Strait Islander peoples and organisations representing them. We are committed to engaging in data collections and the holding of data sets that reflects Indigenous Data Sovereignty.

We acknowledge the extensive feedback that has been provided on the pricing principles in our previous public consultations. We will consider future opportunities for review and refinement of the pricing principles bi-annually, as required due to regulatory reform, or changes to the Aged Care Act 2024. This ensures the principles continue to provide up-to-date and appropriate guidance for the development of our pricing advice.

Our residential aged care pricing principles are outlined in Figure 6.

Figure 6: The residential aged care pricing principles

• Overarching principles that articulate the policy intent behind the introduction of funding reform for aged care services.
  • Person-centred: Funding should be, as far as is practicable, based on characteristics of the people receiving care, rather than those of providers.
  • Access to care: Funding should support timely and equitable access to appropriate aged care services, for all those who require them.
  • Quality care: Care delivery should meet the standard of care required in government policy and legislation, reflect continuous improvement, support resident wellbeing, and deliver outcomes that align with community expectations.
  • Fairness: The Australian National Aged Care Classification (AN-ACC) funding model generated payments should be fair and equitable, based on resident needs, promote the provision of appropriate care to residents with differing needs, and recognise the cost variations associated with this care. Equivalent services should otherwise attract the same price across different provider types.
  • Efficiency: The AN-ACC funding model should facilitate the sustainability of the aged care sector over time and optimise the value of the public investment in aged care.
  • Maintaining agreed roles and responsibilities: The design of the AN-ACC funding model should recognise the complementary responsibilities of each government agency and department in the funding and management of aged care services. It should also recognise the role of providers in delivering aged care services and residents as contributors to their care.
• Process principles that guide the implementation of the AN-ACC funding model and any fixed funding arrangements.
  • Administrative efficiency: Funding arrangements should promote effective and efficient processes and should not unduly increase the administrative burden on aged care providers.
  • Stability: The payment relativities of the AN-ACC funding model should aim to achieve stability in the aged care sector over time.
  • Evidence-based: Funding should be based on best available information and reflect justifiable variations in costs.
  • Transparency: All steps in the development of pricing and costing advice should be clear and transparent.
• System design principles that articulate the detailed elements of the AN-ACC funding model design.
  • Fostering care innovation: Pricing of aged care services should respond in a timely way to the introduction of evidence-based, effective new technology and innovations in the models of care that improve resident outcomes and service efficiency.
  • Promoting value: Pricing should support innovative practices and systems that deliver efficient, person-centred care.
  • Promoting harmonisation: Pricing should facilitate best practice, person-centred provision of care in the appropriate setting.
  • Minimising undesirable and inadvertent consequences: Pricing should minimise susceptibility to gaming, inappropriate rewards and perverse incentives.
  • Using the AN-ACC funding model where practicable and appropriate: The AN-ACC funding model should be used for funding residential aged care services wherever practicable and compatible with delivering value in both outcomes and cost.

3. Australian National Aged Care Classification funding model

The Australian National Aged Care Classification (AN-ACC) funding model provides a meaningful way to relate resident care needs, residential care home location and service specialisation with the cost to deliver care to residents. AN-ACC funding is provided for aged care services and consistent with Australian Government policy, is not intended to support everyday living and accommodation expenditure.

More detailed information about the AN-ACC funding model can be found on the Department of Health, Disability and Ageing website.

3.1 AN-ACC daily basic subsidy

For a residential aged care resident, the AN-ACC daily basic subsidy is calculated in 2 stages (Figure 7):

First, the AN-ACC national weighted activity unit (NWAU) per resident per day is calculated. This includes adding together 2 components:

• the price weight for the resident’s AN-ACC class or respite class (AN-ACC class NWAU)
• the price weight for the base care tariff (BCT) category (BCT NWAU).

Figure 7: AN-ACC daily basic subsidy calculation

The AN-ACC class NWAU is based on the assessed AN-ACC class or respite class for each resident.

The BCT NWAU is dependent on service characteristics, such as location and specialisation. Service location is currently defined using the Modified Monash Model (MMM). The MMM measures remoteness and population size of areas on a scale of Modified Monash (MM) categories between MM1 (major city) and MM7 (very remote location).

Next, the AN-ACC NWAU is multiplied by the AN-ACC price to calculate the total AN-ACC daily basic subsidy.

The AN-ACC class subsidy is calculated per occupied bed day, and the BCT subsidy is calculated per occupied bed day for BCT4-7, and per operational bed day for BCT1-3. The funding received by the registered provider is pooled and used flexibly. This is guided by resident care plans and regulated by the Aged Care Quality Standards.

Residential respite funding comprises the BCT subsidy, which is the same as the BCT for permanent residents, and AN-ACC class subsidy according to their respite class.

One-off adjustment payment

In addition to the AN-ACC daily basic subsidy, providers are paid a one-off adjustment payment each time a permanent resident enters the home. This payment is to support providers to cover the additional costs incurred to transition a new resident into a residential care home.

Unlike permanent residential aged care, there is no one-off adjustment payment for respite care as these costs have been incorporated into the daily AN-ACC subsidy.

3.2 AN-ACC branching structure and classes

Classification of permanent and respite residents

The AN-ACC funding model includes the independent assessment of aged care residents using the AN-ACC assessment tool. The assessment outcome assigns an AN-ACC class to each resident based on the functional, cognitive and physical characteristics that drive the costs of their care (Figure 8).

Based on the outcomes of the assessment, residents are assigned one of 12 permanent classes or 3 respite classes. This does not include Class 1 – ‘admit for palliative care’, where residential care homes are instead required to undertake an independent medical assessment to determine eligibility for Class 1.

There are default classes for both new permanent and respite residents who do not have an existing AN-ACC class.

A registered provider (provider) may make a request of the department to reclassify a permanent resident.

Figure 8: AN-ACC branching structure and classes

Classification refinement

The refinement of AN-ACC branching structure and classes is the responsibility of the department. Classification refinement is standard practice and is necessary to capture and account for:

• improvements in data quality from activity and cost collections
• changes in cost and complexity profiles over time
• refinements to improve classification soundness.

In addition, classification refinement enables pricing to be more closely aligned to the care costs for residents in each group.

IHACPA will continue our commitment to support the department in any future classification refinement that it undertakes, providing evidence-based advice that ensures any refinements are mindful of data burden and considers funding model stability. We provide the department with stakeholder feedback to each public consultation which helps inform classification refinement decision making.

Guided by extensive feedback to our previous consultations, we continue to refine our data collections to consider the impact of cognitive impairment, mental health conditions and complex care needs in AN-ACC classes 2, 3 and 8 as well as palliative care in class 1.

3.3 Respite classes

We continue to understand the costs associated with the provision of respite care through our annual residential aged care cost collections. We will build on previous costing studies to refine methods, expand data coverage and improve our understanding of the cost drivers within residential care homes.

Feedback to previous public consultations and recommendations from our cost collections have suggested that there are cost differences associated between respite and permanent care classes. These cost differences in respite classes were further explored in the Residential Aged Care Cost Collection (RACCC) 2024–25 and found that respite care incurs higher and more variable daily costs, reflecting turnover frequency and episodic workload. Under the current cost collection methodology, administrative and care management costs are allocated evenly across residents regardless of respite or permanent status.

To ensure that our pricing advice reflects this variation, IHACPA seeks to understand the different resources required, such as, time, staff, equipment, transport and expenditure, in the delivery of respite care compared with permanent residents.

3.4 Other AN-ACC funding model considerations

Care minute targets

Care minute targets are the minimum amount of direct clinical and personal care per resident per day, delivered by registered nurses, enrolled nurses, personal care workers, or assistants in nursing.

The government sets the sector-wide care minute target as a benchmark for the aged care sector as a whole. From 1 October 2024, the sector-wide average target increased to 215 minutes per resident per day, including 44 minutes of registered nurse time. Providers are able to meet up to 10% of their registered nurse care minutes target with care time delivered by enrolled nurses. The government sets care minute targets at the service level based on the care minute requirements associated with each AN-ACC class, and each registered provider is required to meet their target on a quarterly basis.

The government funds registered providers through the AN-ACC funding model to cover the cost of delivering the required amount of care minutes to residents, including aged care worker wages. Regulation of the targets is the responsibility of the Aged Care Quality and Safety Commission, with the department responsible for regulating the accuracy of care minutes reporting.

From April 2026, part of the BCT funding for non-specialised services in MM1 shifted into a care minutes supplement, directly linking funding to compliance with care minute targets. Homes not meeting targets will receive less than the maximum funding.

IHACPA will continue to work closely with the department to assess and account for the impact of care minute targets on the development of our pricing advice.

4. Activity and cost data

IHACPA uses activity and cost data to develop our residential aged care pricing advice.

Under the AN-ACC funding model, financial data from registered providers of residential aged care is reported to the Australian Government through the Aged Care Financial Report (ACFR) and the Quarterly Financial Report (QFR).

Activity and cost data is also collected by IHACPA through annual cost collections.

We also consider additional data sources when developing residential aged care pricing advice. This includes data on the assessed AN-ACC classes of the residents, claims and payments data from Services Australia, as well as demographic and service data.

4.1 Aged Care Financial Report and Quarterly Financial Report

The ACFR captures information on income and expenses at a service level over a one-year period. Registered providers must report all labour and non-labour costs associated with the delivery of care, everyday living and accommodation services, along with administration costs.

The QFR is similar to the ACFR but excludes non-labour and administration costs and covers a 3-month period.

We continue to work with the Department of Health, Disability and Ageing to improve the timeliness and quality of ACFR and QFR data. This will ensure the data is optimal for use in the development of our pricing and costing advice. It also reduces the administrative burden on registered providers of approved residential care homes.

The department’s Data Quality Review Project will consider any potential refinements to the data reported in the ACFR and is expected to conclude by December 2026.

4.2 IHACPA’s cost collections

In addition to the ACFR, we also undertake annual cost collections from residential care homes. Cost collections are a resident level study of care delivery and resource use conducted over a defined period and with a sample of providers and residents. While they may not capture costs across the entire sector or over a full year, they provide detailed information on how care is delivered and the variation in care requirements and associated costs. This supports the development of robust pricing advice that reflects both the overall cost of care and the drivers of variation in care delivery.

The type of data collected includes:

• direct care time between staff and residents 
• cost of staffing and resources
• types of services delivered 
• administrative and clinical information about residents and providers.

Our cost collections continue to be refined to improve accuracy and enables our pricing advice to reflect changes in cost and care delivery models over time. Each cost collection builds upon the information and data collected from the previous collection. This improves our understanding of targeted areas, such as care related administration costs, allied health, indirect care time and respite services.

To ensure that our pricing advice reflects the variation in care requirements and costs across the diverse aged care sector, IHACPA seeks a representative sample of aged care residents and providers to participate in its cost collections.

The Residential Aged Care Pricing Advice 2027–28 will be informed by data collected through the Residential Aged Care Cost Collection (RACCC) 2024–25 and RACCC 2026.

Residential Aged Care Cost Collection 2024–25

Health Record Management System Data Integration Feasibility Study

As part of RACCC 2024–25, IHACPA undertook the Health Record Management System (HRMS) Data Integration Feasibility Study to explore more efficient and scalable ways of understanding the costs of residential aged care.

In addition, leveraging HRMS data may reduce reporting burden on providers and support increased participation and sector representation in future cost collections. Pending outcomes of the feasibility study, IHACPA may consider supplementing data collections with data from HRMS to address gaps in activity data. We seek to understand the unique resource utilisation associated with providing aged care services for underrepresented geographical locations, provider and service types.

We will continue to focus on improving participation and representation, to ensure our cost collections reflect the diverse range of activity and costs within the aged care sector. This ensures that our pricing advice reflects the variation in care requirements and costs across a diverse sector.

Allocation of administration costs

As part of RACCC 2024–25, IHACPA explored allocating overhead and administrative costs across the care, accommodation and everyday living streams. Findings demonstrated that the approach to allocating these administrative costs varies widely among providers.

Our Aged Care Pricing Policy sets out our methodology for the allocation of administrative expenses when calculating the residential aged care pricing advice.

The department is undertaking a review of the administration cost allocation methodology in residential aged care to assess whether current approaches appropriately reflect how providers incur and report administrative costs. We will continue to work closely with the department on the allocation methods of administrative costs to inform future pricing advice.

Allocation of costs for individual and shared care

For previous pricing advice, IHACPA assumed that direct care labour costs for registered nurses, enrolled nurses, personal care workers, assistants in nursing, allied health staff and recreational activities/lifestyle officers were split evenly between individual care and shared care. Individual care is primarily funded through the AN-ACC class subsidy while shared care is funded by the BCT subsidy.

As part of RACCC 2024–25, IHACPA collected data on the costs associated with direct care, indirect care and group activities. Feedback from participants indicated that not all time spent away from residents should be allocated proportionally based on captured time.

This highlights the need to investigate a more accurate allocation of labour costs between these components when calculating AN-ACC and BCT price weights.

We are seeking to understand the proportion of costs associated with direct and indirect care time that relate to individual and shared care, and the factors that may impact this allocation. These may include differences between morning, afternoon and night shifts, staff types, and whether a service provides specialised care.

Aged Care Costing Evidence-based Sampling Strategy

To supplement our cost collections, IHACPA is undertaking the Aged Care Costing Evidence-based Sampling Strategy (ACCESS) project to ensure cost collection data reflects the true cost of care, reduce bias and manage resource constraints effectively.

Our cost collection sampling strategies to date have been proportional and considered provider characteristics including size, location, jurisdiction, ownership type and service specialisations. Feedback from past cost collections have continued to show the need for a well-designed and representative sampling strategy.

4.3 Implementation of the Aged Care Act 2024

As part of broader funding and regulatory reforms to the aged care sector, government has indicated that it may request additional pricing and costing advice, and access to IHACPA’s data collections, to address other policy challenges. This includes the impact of the introduction of the Aged Care Act 2024 (Aged Care Act).

Stakeholder feedback through the Consultation Paper on the Pricing Framework for Australian Residential Aged Care Services 2026–27 noted the impacts of transitioning to the Aged Care Act, including increased administrative, compliance and reporting requirements, a new assessment process which may present a barrier to service use, and limitations to flexibility of care delivery.

We seek to understand cost pressures associated with implementation of the Aged Care Act.

5. Developing pricing advice

Our development of residential aged care pricing and costing advice is independent, transparent, evidence-based and consultative. It is based on services meeting the standards of care required by Australian Government policy and legislation. We recognise the need for registered providers to deliver services that specifically meet the strengthened Aged Care Quality Standards.

We provide pricing advice to support government decisions on the Australian National Aged Care Classification (AN-ACC) funding model.

The key elements of our pricing advice include: 

• the recommended AN-ACC price for residential aged care and residential respite care based on funding the cost of care 
• any recommended adjustments to the AN-ACC funding model, such as national weighted activity unit (NWAU) for each AN-ACC class and base care tariff (BCT) category 
• an estimation of the gap between the costs of delivering everyday living services and related revenue received by residential care homes.

To support the sector, we have established an Aged Care Pricing Policy, which outlines an indicative pricing cycle for the development of residential aged care pricing advice. We have also developed a fact sheet that provides a simple explanation of the methods and timings described in the Residential Aged Care Pricing Advice (RACCC) 2025–26.

5.1 AN-ACC pricing model development

Our residential aged care AN-ACC pricing model includes the following standard considerations, as outlined in Figure 9:

• data preparation to prepare a costed data set for modelling 
• modelling to determine the average cost for each AN-ACC class, respite class and BCT category and the average cost per NWAU 
• stabilisation to minimise year-on-year price weight movements within each AN-ACC class, respite class or BCT category 
• indexation to account for cost increases between the years of data collection and the pricing year 
• adjustments to the costed data set to account for known cost increases and costs covered by other funding sources.

Figure 9: Development of the AN-ACC pricing model

Specific detail on the pricing methodology, including indexation, can be found in the Residential Aged Care Pricing Technical Specifications, which are published alongside the Residential Aged Care Pricing Advice.

Indexation

IHACPA’s pricing advice is based on historical activity and cost data. Indexation is required to inflate underlying costs, so that they are aligned to the expected cost of care delivery in the relevant funding year. 

Our indexation method is reviewed and refined annually. It will be informed by stakeholder feedback, as well as relevant cost growth data through continuing cost collections and time series data collected in the Aged Care Financial Report (ACFR) and the Quarterly Financial Report (QFR).

Allied health

Allied health professionals play an important role in the restorative care of older Australians in residential care and residential respite care. Registered providers are funded for, and required to provide, allied health care services to residents who require them. The AN-ACC funding model allows residential care homes and allied health professionals to provide treatments to the resident that are most beneficial and consistent with their individual care plan. 

Although the AN-ACC funding model does not link specific allied health services to funding, our cost collections capture the costs of care provided by allied health professionals. This data reflects the distribution of allied health resource utilisation across different AN-ACC classes. In addition, the QFR outlines the difference in expenditure between allied health professions.

We note that providers are funded for and required to provide allied health services to residents in accordance with their obligations under the Aged Care Act 2024 and as outlined in the Aged Care Rules 2025 (Aged Care Rules). These costs are in-scope for IHACPA’s AN-ACC pricing advice, and our cost collections continue to recognise allied health costs. The AN-ACC funding model includes an incentive for reablement through the ability to retain the resident’s original AN-ACC class instead of having to be reassessed to a potentially lower AN-ACC class.

We will continue to review both resident and service level activity and cost data, through our cost collections and other relevant data sources. This will help us understand the cost to deliver allied health care and the impact on the development of our pricing advice.

We will continue to work with the Department of Health, Disability and Ageing in investigating allied health as a strategic priority.

Pricing adjustments for specialisation

AN-ACC daily basic adjustments refer to additional elements within the AN-ACC funding model that are intended to account for variations in the cost of delivering care within specialised groups, or to address unavoidable service factors.

The AN-ACC funding model considers the impact of providing 2 specialised services that significantly influence the costs to deliver care. These are identified by one of the following:

• Specialised Aboriginal and Torres Strait Islander status – the provision of specialised care to Aboriginal and Torres Strait Islander peoples in remote and very remote locations (Modified Monash categories 6 and 7) 
• Specialised Homeless status – the provision of specialised care to people with complex behavioural needs and social disadvantage associated with their background as a homeless person.

Eligibility is dependent on 50% of non-respite care residents within the residential care home meeting one of the 2 requirements listed above. The approved provider must also demonstrate experience in or capacity to provide the relevant type of specialised care.

Approved providers of residential aged care may apply to the department for a determination that a residential care home has Specialised Aboriginal and Torres Strait Islander status or Specialised Homeless status.

The AN-ACC – Specialised Status Guide for Residential Aged Care Providers published by the department provides further information on these programs.

While being related to resident characteristics, these additional costs are captured in the AN-ACC funding model through differential BCT categories at the service level. The adjustments provide block funding that is independent of actual specialised occupancy.

As part of IHACPA’s annual price advice we will continue to consider refinements for services that deliver specialised care. These refinements will be considered within the context of new and available cost and activity data. We acknowledge the extensive feedback provided on this subject through previous consultations and bespoke consultation with National Aboriginal and Torres Strait Islander Flexible Aged Care Program (NATSIFACP) providers.

5.2 Developing advice on the everyday living cost gap

In addition to providing advice on the AN-ACC price and related price weights, government has also requested separate advice on the everyday living cost gap. This advice relates to the gap between the cost of delivering required everyday living services (formerly known as required hotel services) and related revenue (everyday living cost gap).

Elements in-scope for our advice on the everyday living cost gap are outlined in the Aged Care Rules, with the exception of service maintenance costs, as per government advice.

The revenue received for everyday living services includes the basic daily fee (BDF) and the hotelling supplement. The BDF is a contribution from the resident and is set at 85% of the basic age pension. The hotelling supplement is a means-tested fee, with residents paying a contribution up to the maximum hotelling supplement amount and government paying the remainder.

Services provided as higher everyday living services are covered by the payment of a Higher Everyday Living Fee (HELF). We note the HELF amount is set by registered providers and is out-of-scope for our pricing advice on the everyday living cost gap.

Registered providers are required to complete an annual ACFR, which includes data items for the cost to provide everyday living services and the revenue received for related services. The current validated ACFR data does not separate the cost to provide everyday living services and higher everyday living services. This means we include all reported costs and revenue to calculate the cost gap (Figure 10).

Figure 10: Calculation of the everyday living cost gap

The specific methodology for calculating the everyday living cost gap can be found in the Residential Aged Care Pricing Advice 2027–28 Technical Specifications, which will be published alongside the Residential Aged Care Pricing Advice 2027–28.

6. Supplements and grants

The Australian Government has requested advice on whether additional residential aged care supplements and grants could be suitable for incorporation into the AN-ACC daily basic subsidy.

6.1 Supplements and grants

Separate to AN-ACC funding, the government pays a range of supplements and grants to registered providers to deliver aged care services.

The government pays supplements to help with:

• the cost of meeting specific care needs and 24/7 registered nurse care 
• some of the costs of delivering everyday living services
• accommodation costs, if residents can’t afford some or all of the cost.

The government also pays supplements to registered providers on behalf of each resident receiving government-subsidised aged care, to help with the cost of meeting specific care needs. These supplements can include:

• enteral feeding supplement
• oxygen supplement
• veterans’ supplement.

In addition, several government grant funding opportunities are available such as the Specialist Dementia Care Program (SDCP). Eligibility to apply and receive grant funding is clarified through guidelines available at the beginning of each grant round.

We will work with the Department of Health, Disability and Ageing, as the system governor, to continue to better understand the diversity of existing subsidies, supplements, and grants for residential aged care. We will also work with the department to identify opportunities to factor these payments into future pricing advice, where appropriate.

Specialist Dementia Care Program

The SDCP supports people with very severe behavioural and psychological symptoms of dementia who cannot be cared for in a mainstream residential aged care facility.

The SDCP provides specialised care for people:

• who live with very severe dementia complicated by physical aggression or other behaviours 
• whose residential care facility or carers cannot manage the behaviours, even with help from other services.

Oxygen and enteral feeding supplements

The oxygen supplement is available to registered providers to assist with the cost to support residents who have a medical need for continual oxygen therapy.

The enteral feeding supplement is available to registered providers to assist with the cost to support residents who have a medical need for prescribed enteral feeding.

Review of the Hotelling Supplement

Registered providers of residential care must deliver everyday living services to residents, as outlined in the Aged Care Rules 2025, which includes services such as cleaning, catering and laundry. Everyday living services are funded by the basic daily fee and the hotelling supplement.

The hotelling supplement was introduced on 1 July 2023 and was established to help meet the costs associated with delivering required everyday living services. It is set by government at a fixed rate per resident per day and is indexed once a year on 20 September to keep pace with cost-of-living changes. The hotelling supplement also considers decisions by the Fair Work Commission and includes funding to cover relevant award wage increases.

Government is seeking our advice on the differences in the cost to provide everyday living services based on location or resident-specific factors, as well as the potential impact of interactions between these factors. This may include, but is not limited to, consideration of:

• Modified Monash category
• assessed AN-ACC class of a resident 
• service size.

This review will take place over a multi-year project. The outcomes of the review will form the basis of any recommendations from IHACPA to government, which may include a proposed new structure, such as tiering, for the hotelling supplement.

Informed by our analysis and advice, government will make a policy decision whether the hotelling supplement could be funded using an alternative approach.

7. Priorities for future pricing advice

7.1 Thin markets and regional, rural and remote locations

Thin markets exist where there is a gap between the aged care needs of older people and the services available to them, including culturally safe or specialised care. This may create challenges in accessing appropriate care and services for culturally and linguistically diverse populations, Aboriginal and Torres Strait Islander peoples and regional and remote communities. 

The final report of the Aged Care Taskforce made several recommendations on the delivery of aged care services in thin markets, noting that some settings may require specialist funding arrangements.

As part of broader funding and regulatory reforms in the aged care sector, the Department of Health, Disability and Ageing is undertaking various reviews of thin markets. This includes consideration of the appropriateness of the Modified Monash Model as a remoteness measure and exploration of potential definitional changes to base care tariff categories. In addition, the department is developing a regional, rural and remote aged care policy framework and workplan. The scope of this work is outside of IHACPA’s remit and is intended for progression by the department.

The Australian Government currently provides block grant and subsidy funding to several aged care programs, including the Multi-Purpose Service Program (MPSP) and the National Aboriginal and Torres Strait Islander Flexible Aged Care Program (NATSIFACP).

Government has requested we assess the current funding models for the MPSP and NATSIFACP. IHACPA will work with the department on the delivery of these programs in thin markets. Informed by this analysis and advice, government will make a policy decision on any future funding arrangements for MPSP and NATSIFACP.

7.2 Safety and quality

The Aged Care Act 2024 (Aged Care Act) outlines the rights of older people to safe and quality care that values and supports their identity, culture and background. The residential aged care program aims to ensure that people who access aged care services funded by the government are treated with respect and have the quality of life they deserve.

The Aged Care Act includes a Statement of Rights to ensure older people are empowered to make decisions about their culture and identity respected and stay connected to their community. The Aged Care Act also identifies high-quality care, to encourage the delivery of person-centred, personalised and respectful aged care services.

IHACPA considers safety and quality in care delivery to be a longer-term objective in pricing. This is due to the complexities within the residential aged care sector and the remit of government for program and policy setting. If instructed by government, we will consider aged care policies developed by the department alongside the Aged Care Act when addressing safety and quality elements in our pricing advice.

We recognise the role of the Aged Care Quality and Safety Commission and the need for any future pricing considerations to complement and support the Commission’s role in the sector.

IHACPA will continue to engage with stakeholders through advisory committees, working groups and public consultations to determine priorities and develop recommendations for the future provision of safety and quality pricing adjustments.

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