What is indexation?
Applying indexation to an approved RAD (or equivalent daily amount) means adjusting it in line with inflation.
Section 29 of the Fees and Payments Principles 2014 (No 2) sets out how and when you may index an approved RAD.
The legislation requires you to use the All Groups Consumer Price Index (CPI) as the measure of inflation.
Who can apply indexation
Residential aged care providers can apply indexation to approved RADs.
You do not need approval from the Aged Care Pricing Commissioner to do this.
When you can apply indexation
You can apply indexation on approval anniversary dates.
For example, if the date of your approval letter is 21 April 2019, you can apply indexation on each of the following dates:
- 21 April 2020
- 21 April 2021
- 21 April 2022
You can only apply indexation for the current year. If you do not apply indexation for one or more years, you cannot catch up by applying indexation retrospectively.
After 4 years, you need to re-apply for a new approval.
If we approved your RAD with conditions, use the date of the letter titled ‘Satisfaction of Conditions’.
When you can charge the indexed amount
You can only charge the indexed amount to residents who enter care on or after the day that you applied indexation.
How to apply indexation
- Go to All Groups CPI on the Australian Bureau of Statistics (ABS) website
- Click on ‘Selected Tables – Capital Cities’
- Use the index numbers in the last column of the table (weighted average of 8 capital cities)
- Use this formula: (most recent index number / previous index number) x approved RAD
The most recent index number is the index number for the most recent completed quarter before the latest anniversary date.
The previous index number is the index number for the most recent completed quarter before the previous anniversary date.
The Commissioner approves your application for a RAD of $700,000 on 15 February 2019. You index your amount on 15 February 2020.
The most recent index number is the index number for the December 2019 quarter, which is 116.2.
The previous index number is the index number for the December 2018 quarter, which is 114.1.
You use the formula to calculate the indexed amount:
(116.2/114.1) x $700,000 = $712,883 (rounded to the nearest dollar)
From 15 February 2020, you advertise a RAD of $712,883.
You can charge this maximum amount to any new resident who enters your care on or after 15 February 2020.
When index numbers are available
If your approval date falls early in a new quarter, you may have to wait a while for the ABS to release the index number for the most recent quarter.
The quarters end in:
The ABS releases index numbers for each quarter on the last Wednesday of the following month (depending on public holidays).
You can use the indexation calculator to work out the indexed RAD amount for your current approval year.
The calculator uses index data from the Australian Bureau of Statistics (ABS) website. You will need to enter your RAD approval date and current RAD amount.
If you have any questions, please contact us.