July 1 this year will bring a fundamental change to residential aged care (formerly called “nursing homes”). The change will put the person receiving aged care in control by allocating the funding to them rather than an aged care bed.

Previously residential aged care beds, and the funding that flowed to them, were allocated through a process called the Aged Care Approvals Round (ACAR). The ACAR restricted the number of aged care places across regions based on government set ratios. From July 1, aged care providers won’t need to have allocated places to deliver aged care.

Enabling retirement village residents to receive residential aged care in the village could help the many residents forced to leave a village to receive more care.Credit: Getty

This move to a “places to people” approach is expected to bring a raft of benefits for aged care providers and those seeking residential aged care. For providers the restrictions around how many people they can provide care to will be lifted, giving them freedom to offer as many aged care beds as they choose, where they choose.

Removing the supply constraints of the ratios is expected to see senior Australians have greater choice around which aged care home they choose, with decisions based on quality rather than availability, it will make it easier to move from one home to another.

Adopting a “power to the people” approach to the supply of residential aged care is anticipated to create greater competition, drive innovation and improve the quality of care.

This freeing up of the aged care market is not without risk. As part of the ACAR process in deciding which providers were allocated beds the government would review the applications with consideration to the providers experience and compliance history.

While a new compliance regime is being proposed as part of the new legislation, it will place more reliance on consumers to do their homework when choosing an aged care home.

There is also a very real risk is to the federal budget (and by extension taxpayers) with the delivery of aged care based on need, if the number of people seeking aged care increases significantly the cost could blow out.

While competition normally drives better outcomes for consumers around quality and price, in thin markets such as regional and remote areas the freeing up of the aged care market may lead to the provision of residential aged care becoming unviable and aged care homes closing down.