Casemix funding is designed to promote efficiency and equity across services.

It refers to the use of classifications that bundle resident care into clinical and service cohorts that require similar resources. 

It is an interesting paradigm for Government to be applying.

Casemix funding assumes that people’s needs can be grouped, whereas the Royal Commission is calling for an individualised rights-based approach.

These two approaches would appear to conflict.


Casemix funding is a method of allocating funds based on the activities performed in residential aged care, and on the types and numbers of residents (Activity Based Funding – ABF).

Funding is allocated based on the relative cost of resident care and can reward improved performance and efficiency.

There are three basic requirements to the casemix model:

  • classifying residents
  • counting the number of residents under care
  • costing of resident care


Residents would be classified into Diagnosis Related Groups (DRGs).

DRGs classify residents who have similar conditions and require similar levels of resource use. 

Hospital examples are hip replacement, knee replacement, Pneumonia, Heart surgery and rehabilitation. For RAC, the groupings will likely be along care needs lines – incontinence, dementia, behaviours etc.


Initial costings have been carried out and providers will likely be expected to maintain an activity and costing system.

This cost data would be reported to the Department for ongoing analysis and comparison and would likely be used to cost future services.

If the full Casemix approach is applied, funding could also depend on the number of residents in a facility. 


“AN-ACC Version 1.0 comprises 13 classes and explains 50% of the variance in the cost of individual resident care. There is a fivefold variation in cost between the least and most expensive AN-ACC class. The statistical and clinical performance of AN-ACC is considered more than sufficient for it to be adopted in a funding context. AN-ACC is underpinned by a clinical assessment instrument that can be completed by an external clinical assessor. The staff time data collected in this study indicated that close to 50% of staff time was spent delivering care tailored to the specific needs of the resident, while the remaining 50% was spend delivering shared care across all residents. This supports a payment model that includes a fixed per diem price for the costs of shared care and a variable price per day for the costs of individual resident care”. 

AN-ACC Report.


There are some obvious challenges in what is proposed.

A flat rate of funding does not adequately track cost variation with time and across levels of severity within a DRG.

Even at 50% of the overall funding, this can still be a financial risk to providers.

Providers will therefore need to keep a close overview of this to ensure those with higher inputs are balanced against residents with lower needs (within the same DRG). 

Secondly, some aged care organisations will have more complex residents and as a cohort will require a higher level of on the ground expertise and resources, which will not be recognised by the model.