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from today's Oz:

• The Australian
• 11:22AM September 5, 2016
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• SARAH-JANE TASKER
  
  Reporter
  Sydney
  @SarahJaneTasker
  

Estia Health and rival Japara Healthcare have slumped more than 20 per cent on the Australian market this morning after a government update to aged care fees.
Estia (EHE), already down more than 50 per cent this year as investors question its growth strategy, was down more than 21 per cent in early trade to $2.48, while Japara Healthcare (JHC) was 21 per cent lower at $1.61.
Regis Healthcare (REG) was also hit, down 14.8 per cent to $3.78, after analysts downgraded all the aged care stocks on the back of updated guidelines for charging additional fees in residential aged care.
The Department of Health outlined in its update on additional fees for aged care residents that they would not be supported by the legislation where the fee did not provide a direct benefit to the individual or the resident cannot take up or make use of the services, or where the activities or services subject to the fee were of the normal operation of an aged care home and fall within the scope of specified care and services.
“Based on over 30 conversations with listed aged care facility managers for Regis, Estia and Japara, and conversations with the senior management of the listed aged care companies, we understand that the capital charges of $15 per day charged by Regis, Estia and Japara are similar to those fees examples — and do not represent payment for any additional service,” Bank of Merrill Lynch analyst William Dunlop said.
“If that is correct, the Department of Health is saying that these types of fees would contravene Aged Care legislation.”

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Mr Dunlop warned that the Department of Health had noted that it was aware that an increasing number of providers were charging “capital refurbishment fees” and “asset replacement contributions”, which he said was the similar terminology used by Japara and Regis. He added that Estia called theirs “asset replacement fees”.
The analyst said in a client note that similarly described fees were on average $15 per day for all new non-concessional residents in listed aged care homes. Mr Dunlop said he understood that the fees had been implemented to help offset funding cuts to aged care funding instruments.
The government pays a fixed daily amount per person, with more funding available for residents who are judged to require more attention, using a system known as the aged-care funding instrument.
Estia Health has come under significant market pressure, its shares are off more than 50 per cent this year, on concerns about the high number of residents it has classified as needing the high care funding.
The latest scrutiny of additional fees it claims for residents will add further pressure to the struggling company.
On the fee issue, Mr Dunlop highlighted that operators must provide an itemised schedule of additional services charges to residents that is agreed up-front, so residents can see if prices charged for wine, outings, cable TV etc. are too high, thus shifting fees into additional services may prove challenging.
“Not for profit providers have stated they have not implemented similar fees due to legal advice, which is broadly consistent with the view taken by the Department of Health’s update,” he said.
“A layman’s reading of the Department of Health guidance and the referenced legislation clearly suggests these types of fees are not permissible under legislation.
“While litigation between for-profit providers and the government may ensue, and it may take some time for these fees to be removed by the listed operators, the Department of Health’s position gives not-for-profit providers an advantage.
“Further, we believe aged care financial planners could likely advise clients against paying a fee that contravenes the Government positions.”
Shares in Estia had slumped 22 per cent to $2.45 a share as of 10:20am (AEST).

http://www.theaustralian.com.au/bus...s/news-story/ce70240d4e3e2f7564299da6dd019a04