RAD and DAP Strategy Under the New Aged Care Act: What Every CEO Must Know Before 2027

RAD and DAP Strategy Under the New Aged Care Act: What Every CEO Must Know Before 2027

Refundable Accommodation Deposits (RADs) and Daily Accommodation Payments (DAPs) have always been a double-edged sword for aged care providers. They provide capital — but they also create significant liquidity obligations that can destabilise even well-run organisations. Under the New Aged Care Act, the rules governing accommodation pricing, disclosure, and refund obligations are changing in ways that every CEO and finance leader must understand before 2027.

This is not a compliance exercise. It is a strategic finance question. How you price accommodation, how you manage RAD inflows and refunds, and how you model the cash flow impact of the new rules will determine whether your organisation enters the next regulatory era with financial strength or financial fragility.

What Is Changing Under the New Aged Care Act

The New Aged Care Act, which took effect in July 2024, introduces strengthened obligations around accommodation pricing transparency, resident choice, and refund timelines. The key changes with direct financial implications include:

• Accommodation price publication requirements: Providers must publish RAD and DAP prices on the My Aged Care website and keep them current. Failure to comply creates regulatory risk and can affect occupancy.
• Resident choice obligations: Residents must be offered a genuine choice between RAD, DAP, and combination payments. Providers who historically steered residents toward RADs to maximise capital inflows must review their practices.
• Refund timeline obligations: RAD refunds must be paid within 14 days of a resident's departure. For providers with high RAD balances and limited liquid assets, this creates a structural liquidity risk that must be modelled explicitly.
• Accommodation supplement changes: The accommodation supplement for residents who cannot afford the published price is being restructured. Providers with a high proportion of supported residents must model the revenue impact carefully.

The RAD Liquidity Risk Most Providers Are Not Modelling

The most significant financial risk in RAD management is not the refund itself — it is the timing mismatch between when refunds are triggered and when replacement RADs arrive. In a stable occupancy environment, RAD inflows from new residents roughly offset RAD outflows from departing residents. But this equilibrium breaks down when:

• Occupancy drops below 90% and new admissions slow
• A cluster of long-stay residents depart within a short period
• New residents choose DAP over RAD (reducing capital inflows)
• The organisation has used RAD funds for capital works that cannot be quickly liquidated

A 100-bed facility with an average RAD of $450,000 and 85% RAD uptake holds approximately $38.25 million in RAD obligations. If 10% of residents depart in a single quarter — not unusual in a high-acuity facility — the organisation faces $3.8 million in refund obligations within 14 days. Without a dedicated liquidity buffer or credit facility, this is a genuine solvency risk.

This is precisely the kind of scenario that aged care financial modelling must address — not as a theoretical exercise, but as a live cash flow management discipline.

RAD Pricing Strategy: Getting the Balance Right

RAD pricing is not simply a matter of setting a number and publishing it. It is a strategic decision that affects occupancy, capital availability, cash flow, and competitive positioning. The key considerations are:

Market Positioning

Your RAD price signals quality and positioning to prospective residents and their families. A RAD that is significantly below market may attract residents but signals lower quality. A RAD above market requires a clear value proposition — superior amenity, specialist care, location premium — that your marketing and admissions teams can articulate.

Capital Requirements

If your organisation has capital works planned — refurbishment, new wing, equipment upgrades — RAD inflows may be part of your funding strategy. But this creates a dependency: if occupancy falls or residents shift to DAP, your capital programme is underfunded. Any capital plan that relies on RAD inflows must include sensitivity analysis on RAD uptake rates and occupancy scenarios.

DAP Revenue Modelling

DAP is calculated as a percentage of the RAD (currently the Maximum Permissible Interest Rate, or MPIR, applied to the unpaid RAD balance). As interest rates have risen, DAP has become more financially attractive for providers — a resident paying full DAP on a $450,000 RAD generates approximately $27,000–$30,000 per year in accommodation revenue without the provider holding the capital obligation. Modelling the revenue impact of different RAD/DAP mix scenarios is essential for accurate budgeting.

The 13-Week RAD Cash Flow Model

Every aged care provider should maintain a rolling 13-week RAD cash flow model that tracks:

• Opening RAD balance by resident, with entry date and expected length of stay
• Projected RAD inflows from confirmed and pipeline admissions
• Projected RAD outflows based on resident acuity, length of stay, and historical departure rates
• Net RAD position week by week, with minimum liquidity threshold alerts
• Available credit facility headroom to cover shortfalls

This model should be reviewed weekly by the finance team and monthly by the CEO. It is a leading indicator of liquidity stress — not a lagging one. Providers who discover a RAD liquidity problem when refunds are due have already lost the ability to respond proactively. For a broader framework on cash flow management, see our guide on 13-week cash flow forecasting for aged care.

Bank Covenant Implications

Many aged care providers have bank facilities with covenants tied to RAD-related metrics — minimum liquidity ratios, maximum RAD-to-asset ratios, or specific requirements around RAD refund reserves. Under the New Aged Care Act's strengthened governance requirements, lenders are paying closer attention to accommodation liability management.

If your organisation has a bank facility, review your covenant schedule now. Identify any RAD-related covenants and model whether your current RAD position and projected cash flows keep you within covenant limits under stress scenarios. A breach triggered by a RAD liquidity event — even a temporary one — can have severe consequences for your financing arrangements. Our guide on bank covenant compliance for aged care providers covers the key metrics lenders monitor.

What the New Aged Care Act Means for Supported Residents

Providers with a high proportion of supported residents — those who cannot afford the published RAD and receive the government accommodation supplement — face a different set of financial challenges. The accommodation supplement is set by the government and does not increase with your published RAD price. As RAD prices rise with property values and construction costs, the gap between the supplement and the market price widens.

Under the New Aged Care Act, providers must not discriminate against supported residents in access to care or accommodation. This is both a legal obligation and a financial planning constraint. If your facility has a high supported resident ratio, your accommodation revenue per bed will be structurally lower than a facility with predominantly self-funded residents. This must be reflected in your financial model and your AN-ACC revenue optimisation strategy.

Strategic Actions for CEOs Before 2027

Based on the regulatory changes and financial risks outlined above, CEOs should prioritise the following actions before the end of 2026:

• Audit your RAD register: Ensure every RAD is accurately recorded, the refund obligation is correctly calculated, and the 14-day refund obligation is operationally achievable.
• Model your RAD liquidity position: Build or update your 13-week RAD cash flow model. Stress-test it against a 15% occupancy drop and a 30% shift from RAD to DAP.
• Review your RAD pricing: Benchmark your published RAD against comparable facilities in your market. Assess whether your pricing reflects your quality positioning and capital requirements.
• Review bank covenants: Identify any RAD-related covenants and model your headroom under stress scenarios.
• Engage your board: Ensure your board understands the RAD liquidity risk and has approved a minimum liquidity policy. This is a governance obligation under the strengthened standards.

RAD and DAP strategy is not a set-and-forget exercise. It requires active financial management, regular modelling, and board-level oversight. If your organisation does not have the financial leadership capacity to manage this complexity, a specialist fractional CFO for aged care can provide the expertise you need without the cost of a full-time executive.

Steven Taylor MBA CPA FMVA advises aged care providers on accommodation strategy, RAD liquidity management and financial governance, and has 18+ years in finance roles. To discuss your organisation's RAD strategy, contact CFO Insights.