Are you aware of the impending negative impact on Provider sustainability of rising interest rates?

Aged Care is unique in that the RAD system causes you to borrow short and invest long. This means that Providers are particularly vulnerable to the impact of rising interest rates on DAP revenue and the falling value of RADs. In this Insight, we outline the scale of the challenge and suggest tactics for Providers to minimise the impact of rising interest rates on their financial sustainability.


Managing Director

Over the last two years, we’ve been encouraging our clients to increase their focus on the income streams they can set, namely Additional Services and Accommodation charges. Many Providers have embraced Additional Services, and this income is making a valuable contribution to their bottom line.

At the recent ACSA National Summit, we were talking with a client who had engaged us to assist with their Additional Services offer. They confided with us that they had tried four times and failed to successfully implement their own program and how our approach had been an outstanding success. If you’re yet to fully adopt Additional Services, then we encourage you to contact James or Megan who will gladly share how we’ve helped many Providers access this valuable source of revenue.

Our top 3 takeaways from our
Additional Services Industry Insights Report:

It is no longer a new service offering
It creates a financially sustainable Consumer Directed Care offer
It is important to monitor and manage your program to reduce risk and maximise outcomes

Click here to view the report

Connection between
MPIR and Official Interest Rates

We’ve all heard about the first interest rate increase of 0.35% which was handed down on May 3 and more recently the 0.5% increase announced on June 7. With more rises predicted in the months ahead, are you aware of the connection between the MPIR and official interest rates? The MPIR is calculated with reference to 90-day Bank Accepted Bills published by the Reserve Bank of Australia (see here).

This means that it’s important for all Providers to be aware of and develop a response to the higher interest rate times that we are entering.

We know that as interest rates came down, RADs went up. This suggests that as rates increase, RADs will come down.

We show the likely impacts of interest rates in the following table:

Impact of Falling Rates ⬇Impact of Rising Rates ⬆
Paid out RAD can be replaced by a higher new RAD increasing RAD pool and liquidityPaid our RAD replaced by a lower new RAD reducing RAD pool liquidity
Income on excess RAD tends to decline and reduce the overall surplus
Rising market-based investments can positively impact surplus
Increasing yield on interest-based securities can positively impact surplus. Declining market-based investments can negatively impact surplus
Lack of RAD pricing policy tends to see RAD and DAP increases lag - long term negative for income and capitalLack of RAD pricing can see adjustments lag which may result in lower occupancy
Low RAD can unknowingly subsidise self-funded residents over supported residentsHigh RAD materially impacts affordability/DAP
RAD is a short-term loan fixed rate loan falling rates managed well can be positive for providers dependent on RADRising rates generally negative for providers dependent on RAD

Impact on Liquidity and Income

Providers who were unaware of the impact of falling rates and failed to adjust RADs upward experienced a reduction in accommodation income that contributed to declining surpluses or growing deficits. In an environment of rising rates, failure to adjust RAD will see higher DAP and a likely dip in occupancy rates.

To demonstrate the challenges facing Providers in the coming 1 -2 years, we calculated the impact of rising interest rates on RAD and DAP. We did this with reference to the equivalent RAD for the accommodation Supplement ($60.74) based on the current MPIR (4.07%).

At $60.74 per day and an MPIR of 4.07%, the equivalent RAD is $544,720.

From an economic perspective, this means that if your RAD is less than this, you should be prioritising supported residents over unsupported residents. It is also true that unless you can earn more than the MPIR (4.07%) on invested RAD, you should be prioritising DAP paying residents.

The table below shows the equivalent RAD and DAP you need to charge depending on whether you wish to maintain the current equality with the Supplement or the equivalent RAD as rates rise over a range of 2%, which is seen by many commentators as likely in the short term.

MPIREquivalent RAD Constant DAPImplied percentage reduction in RADAdjusted DAP
Constant RAD
Implied percentage increase in DAP
Current4.07%$ 544,720$ 60.74
5.00%$ 443,402-19%$ 74.6223%
5.50%$ 403,093-26%$ 82.0835%
6.00%$ 369,502-32%$ 89.5447%

Whichever way you look at this, it’s pretty scary.

If you want to maintain the RAD value, it implies an increase in DAP from $60.74 to $89.54 or up to 47%. We don’t see this happening with current vacancy rates and inflationary pressures in the economy.

If you want to maintain your DAP at the Accommodation Supplement rate, this implies a decline in your RAD from $544,720 to $369,502 or up to 32%.

This decline in RAD is likely to be far greater than most providers’ minimum liquidity amount.


Occupancy is a key driver of financial outcome, so even if you adjust your pricing to maintain the current position, the obvious question is:
What will a price increase of this amount in your DAP do to your vacancy factor?

If you accept that you cannot maintain your RAD, the question is:
What will this do to your liquidity and investment income?

If your current RAD/DAP is less than the supplement, the question is:
Will you use this as an opportunity to lift DAP to offset the negative impacts?

As we see it, there is a fourfold challenge confronting Providers:


Boost occupancy while


Managing the reduction in RAD at the same time as


Maximising the DAP you are earning and


Optimising the income from your excess RAD

ROAR to Success

We admit this will be a daunting prospect for many Providers, which is why Pride Living developed our Reimagine Occupancy Accommodation Revenue program. ROAR has three elements that are being successfully used by our clients to overcome all four challenges.

ROAR Elements:

Key Benefits:

→ Identifies strengths and weaknesses in your referrer channel management

→ Provides a systematic approach to measuring the effectiveness of your marketing and enquiry engagement teams

→ Builds influencing skills in your enquiry management team

→ Formalises priority resident profiles

Key Benefits:

→ Identifies the real return/cost of your current investment approach

→ Establishes robust minimum liquidity levels

→ Identifies true excess capital that can be invested to boost overall surpluses

→ Provides a mechanism for ongoing monitoring of investment performance

Key Benefits:

→ Sets a preferred level of RAD pool so you can focus on residents willing to pay the way you prefer

→ Provides an affordable alternative to full RAD for residents which allows you to maximise accommodation revenue

→ Single Payment Model that provides convenience and certainty to residents while eliminating collection activity and bad debt risk for providers

If you identify with the following scenarios, then it’s likely you could benefit substantially from our ROAR program:

Case Study:

In a recent case, we worked with a Provider to help them boost their occupancy.

Here are the key tasks we undertook:

  • Training for Sales and Reception teams on process, capability and customer experience
  • Maximised referrer channel effectiveness
  • Refined admission pack, client email communication and promotional material
  • Provided ongoing support with a help desk line and dashboard reporting

This is the dashboard result:

Using our Occupancy Boost program, this Provider has…

  • significantly increased engagement with its primary referrers,
  • is addressing the referrers where they are not getting strong referrals and
  • getting residents who are paying for their accommodation in the form that suits this Provider’s financing model.


If you’re concerned about the impact of rising interest rates on your sustainability or you’ve found a magic bullet, we’d love to hear from you!

If you'd like to learn more about how to boost your occupancy and accommodation income, contact Bruce Bailey on 0407 211 108 or email