Chapter 1: Introduction

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Chapter 1: Introduction

Terms of Reference

1.1 The matter was referred to the Committee on 13 February 1997 for inquiry and report by 15 May 1997. The reporting date was subsequently extended to 19 June 1997.

1.2 The complete terms of reference for the inquiry are:

Consequences for older Australians and their families arising from proposed changes announced in the 1996-97 Federal Budget to the funding of aged care institutions in Australia, with particular reference to:


Conduct of Inquiry

1.3 The inquiry was advertised in the Weekend Australian on 22 February 1997 and through the Internet. Submissions were invited from many parties with an interest in or associated with the provision of aged care services in Australia. Although the closing date for submissions was 21 March 1997, this deadline was subsequently extended. The Committee continued to receive submissions throughout the course of the inquiry, indicating the high level of interest in the inquiry and concern about the future of aged care services in Australia. The Committee received 118 submissions, which have been published in separate volumes and which may be obtained through the Committee Secretariat. A list of the organisations and individuals who made a submission to the Committee's inquiry are listed in Appendix 1.

1.4 The Committee held three days of public hearings, in Sydney on 23 April and in Canberra on 24 April and 5 May 1997 respectively. Witnesses who gave evidence at the public hearings are listed in Appendix 2. Additional information was tabled at the hearings and further evidence was provided to the Committee following the hearings in answer to questions taken on notice. This information is also listed in Appendix 1.

1.5 The Committee expresses its appreciation to those who made submissions, provided additional material, or gave evidence to the inquiry.


Outline of Aged Care Structural Reform package

1.6 In the 1996-97 Budget, the Government announced a major structural reform of residential aged care, scheduled to take effect on 1 July 1997.

1.7 The reforms were proposed against a backdrop of the increasing ageing of the population and the pressures this will impose on the community's ability to care for this sector of the population. In the next three decades, the proportion of the population aged sixty-five will grow from 11.2 per cent to over 19 per cent of the population from under two million Australians aged over sixty-five in 1991, to over five million in 2030. [1]

1.8 In 1994 Professor Bob Gregory reviewed the structure of nursing home funding arrangements and outlined options to address the deterioration in the nursing home capital stock. Professor Gregory's report documented major deficiencies in capital works and criticised the nursing home funding system as providing neither the funding nor the incentive for providers to maintain their buildings. The report estimated that ongoing funding of $125 million would be needed to allow a substantial level of immediate building and upgrading to address existing problems as well as providing a continuing provision to maintain the quality of the building stock. [2]

1.9 The report argued that there were a number of approaches to address the deterioration in the quality of nursing home building standards. The first option involved an expansion of the Government's capital funding program. Under this option, funds would be targeted at homes on a needs basis that required upgrading and replacement.

1.10 The second option involved changes to the recurrent funding system to provide nursing home proprietors with an incentive, and the means to, maintain building quality. Under this model, market forces would be applied to the industry so that nursing homes would have a stronger financial incentive to provide high quality accommodation. This would involve more flexibility in fee setting and in the financial accountability of nursing homes. [3]

1.11 The Government's announcement in the 1996-97 Budget responded to the financial situation outlined in the Gregory report. The Government adopted the approach that given the economic climate it would not be feasible to provide the substantial additional funding needed to upgrade and maintain the building standards of nursing homes. Instead, it adopted the approach that a user pays system in the form of accommodation bonds should be introduced with the necessary protections for financially disadvantaged people.

1.12 The reforms announced in the 1996-97 Budget are now being enacted principally through the Aged Care Bill 1997 and the draft Principles, which provide much of the administrative and operational detail underlying the changes. The Aged Care Bill replaces the provisions in the National Health Act 1953 and the Aged or Disabled Persons Care Act 1954 under which nursing homes and hostels are currently administered. [4] The major changes proposed in the Aged Care Bill seek to replace the existing nursing home and hostel systems with a single residential care system. The Government argues that `by removing the boundaries between hostels and nursing homes, the Bill addresses the increasing overlap in the level of dependency of residents in these two service types'. [5]

1.13 Related to the Aged Care Bill 1997 are the Aged Care (Consequential Provisions) Bill 1997 and the Aged Care (Compensation Amendments) Bill 1997. These Bills, together with the Principles, form a package to implement the aged care structural reforms announced in the 1996-97 Budget. The Consequential Provisions Bill establishes the transitional provisions and consequential amendments to move from the current legislative framework for aged care, to the new system proposed in the Aged Care Bill. The Compensation Amendments Bill inserts residential care and residential care subsidy into the Health and Other Services (Compensation) Care Charges Act 1995 and extends the coverage of the legislation to all residential care recipients after the Aged Care Bill comes into operation. [6]

1.14 The reforms announced in the 1996-97 Budget will introduce several major changes, including:

1.15 It is proposed that under the new single residential care system, nursing home operators will be able to charge new residents an accommodation bond which will be similar to the entry fee currently collected from hostel residents. The accommodation bond will be used to assist with the cost of improving and upgrading the physical standard of accommodation in nursing homes. There will be special provisions for financially disadvantaged people (concessional residents). [8] Before operators can become part of the new system they will need to obtain certification that their premises and services are of a standard appropriate to the needs of their aged residents. [9]

1.16 The introduction of accommodation bonds provides for a system of capital funds generation similar to that used in aged persons' hostels. Under the reforms it is therefore proposed to cease all capital funding of aged care residential facilities, with the exception of $10 million to be provided for special purposes such as to assist rural and remote facilities. In future, all capital works other than these, are to be funded from earnings from the collection and investment of accommodation bonds. [10]

1.17 In addition to the introduction of accommodation bonds, the reforms provide for a new system of assessing daily resident contributions through a system of income testing. The Government argued that `residents should make a fair and reasonable contribution to their daily living costs' while in residential care. [11] Currently, nursing home residents pay only a standard fee per day towards their living costs. Hostel residents pay `variable fees' which do not have an upper limit. Under the new proposals, residents of approved facilities will be required to contribute a percentage of their private income towards the cost of their residential care. [12]


Consultative process and implementation timetable

1.18 The Government's announcement of the Aged Care Structural Reform package in the 1996-97 Budget, laid out a vision and framework for the future and made a commitment to work closely with industry and consumers in developing the layers of detail to ensure the best possible system would be implemented from 1 July 1997.

1.19 The Government clearly saw the announcement as a framework, to be refined and developed in further consultation with consumers, carers and providers. [13] Four working groups with broadly based membership were established to develop `the layers of detail' required for the implementation of the new system. The working groups were to focus on specific aspects of the structural reform resident classification, quality assurance, building quality, and funding and other implementation issues. [14]

1.20 The Funding and Other Implementation Issues Working Group produced an initial report in January 1997. On 10 February the Minister for Family Services, the Hon Judi Moylan, responded to issues raised by the Working Group and publicly released the report. To date, no other of the four working groups have had a report publicly released.

1.21 The Minister also released on 10 February an exposure draft of the Aged Care Bill for public comment, to `assist the Government in finalising the legislation'. Comments on the exposure draft, which consisted of 96 Divisions in 325 pages were to be provided by 21 February 1997 a period of 11 days. The Aged Care Bill 1997 was subsequently introduced into the House of Representatives by the Minister on 26 March 1997.

1.22 On 21 April an exposure draft of Aged Care Bill 1997 Principles was released for public comments, which were to be provided by 15 May 1997. The exposure draft contained 18 Principles, together with an indication of a further 9 Principles which had not been drafted or would not be drafted at all at this stage.

1.23 On 26 May the Minister released further details of the proposed aged care arrangements including the new resident care classification and funding structure, and the concessional resident quota and subsidy. The Minister also announced that the commencement of the Aged Care Bill would be moved to 1 October 1997 to align the date with the implementation of income testing, a key component of the overall package. [15]

1.24 The Department of Health and Family Services (DHFS) emphasised the extensive nature of the consultation process involving consumer groups, industry groups and the unions. According to the Department the working groups have spanned all the elements of the proposed arrangements. DHFS indicated that the groups who have participated in the process `represent the huge majority of nursing home and hostel providers. They represent a vast number of consumers and through the ACTU, who have been represented on the broad working group, represent the majority of staff'. [16]

1.25 The Australian Council of Trade Unions (ACTU), which had nominal representation on the four working groups, was critical of the working group process. The ACTU commented that:

the limited role of the committees [working groups] was made clear at the outset. This was to merely fine tune and tinker around the edges of decisions already announced in the Budget. It was made clear to committee representatives that objections or fundamental concerns about the policy decisions were not to be addressed through this process. [17]

1.26 The Department has recognised `the significance of the reforms and their wide ranging impact on providers and consumers', and conceded that `in developing an implementation timetable it has been necessary to strike a balance between the desire for extensive consultation and meeting industry and consumer expectations of action to address serious and longstanding problems'. [18] DHFS advised the Committee that while there is an urgency about the reform process, measures are being taken to cushion the effect of change. These include staggering the movement of people to the new single classification instrument and not introducing accreditation until 1 January 1998. [19]

1.27 Although the Department regarded the consultative process as `extensive', many organisations expressed in evidence concern at the inadequate time allowed for comment on the draft Bill and Principles and the lack of detailed information that has been released on the reforms. Anglicare Australia epitomised this view indicating that it broadly supported the direction the Government is taking in aged care reforms, and welcomed the move to an integrated system of care and to increased self-funding by older people through the payment of accommodation bonds. However, Anglicare stated that `in our minds, the devil is in the detail the detail that we do not have and in the timing of the implementation of this major structural reform program'. [20]

1.28 Aged Care Australia (ACA) informed the Committee that it had `conscientiously and consistently supported the Government's endeavours to meet its goal of July 1 implementation We have been active in all its working parties and contributed significantly to that process. But simply we believe that we have run out of time'. ACA expressed concern at the inadequate response time for the draft Bill and Principles, but `more importantly than that, there are some real implementation issues that have yet to be resolved'. [21]

1.29 The ACTU also indicated that there had been `inadequate opportunities for consultation' within the organisations represented on the working groups. The community organisations involved, which rely on a minimum number of permanent staff, had real difficulty without additional resources in dealing with the amount and complexity of the material being considered. [22]

1.30 The NSW Aged Care Alliance referred to a public meeting held in Sydney on 7 April 1997 where the audience of over 650 mostly older people were extremely concerned about the reforms. Their concerns were heightened `by the fact that many important questions could not be answered, because the actual impacts of the changes, including the amount which will have to be paid as an “accommodation bond” are not yet clear'. [23]

1.31 The Committee discusses in this report major issues which are still unresolved or about which information is not yet, or has only just become, available. These include the prudential arrangements to protect residents' accommodation bonds, the funding levels attached to the Resident Classification Scale, the subsidy rate for concessional residents, and the number of Principles yet to be drafted.

1.32 Due to the uncertainty still surrounding a large number of issues, many of the groups affected by the proposed reforms requested that the implementation of the reforms be delayed until information concerning all the issues is available, outstanding problems and concerns have been resolved and all impacts of the proposed reforms have been fully explored and debated. [24] It should be emphasised that the delay being sought was not necessarily an expression of opposition to the reforms, rather it was to enable crucial details to be made available and understood, and for procedures to be implemented and necessary training undertaken to ensure a trouble-free transition to the new arrangements.



The Committee believes that while there are so many issues yet to be resolved and such widespread concerns still being expressed over aspects of the reforms and their implementation timetable, the commencement of the legislation should be delayed. The Committee notes that further information is becoming available on a progressive basis. Nevertheless, the Committee remains of the view that the information which has recently been made available and the manner by which it is being released provides insufficient time for its consideration by organisations prior to the scheduled commencement date. The Committee is also concerned at the Parliamentary difficulties in conducting an informed debate on the legislation without the benefit of having available all the details relating to the reforms and their operation.

Recommendation 1: The Committee recommends that the commencement date for the aged care structural reforms be delayed until 1 January 1998.

Recommendation 2: The Committee recommends that it monitor the operation of the Aged Care Bill 1997 following its enactment and review the implementation of the aged care structural reforms 12 months after the commencement of the Bill.

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[1] Steps to Better Care: Implementation of the Government's Residential Aged Care Structural Reform Package, Statement by the Minister for Family Services, 10 February 1997, p.1.

[2] Professor R.Gregory, Review of the Structure of Nursing Home Funding Arrangements:Stage 2, May 1994, p.5.

[3] ibid., pp.5, 79-80.

[4] Minister's Second Reading Speech.

[5] Aged Care Bill 1997, Explanatory Memorandum.

[6] Minister's Second Reading Speeches for the respective Bills. The Aged Care Income Testing Bill 1997, which was tabled in the Senate on 26 March 1997, establishes administrative procedures to support the implementation of the income testing arrangements in the reforms. With substantive income testing provisions being contained in the Aged Care Bill, the provisions in the Aged Care Income Testing Bill will therefore cease to operate once the Aged Care Bill is enacted.

[7] Aged Care Bill 1997, Explanatory Memorandum.

[8] For further details see Chapter 2.

[9] Submission No.94, pp.19-22 (DHFS).

[10] See Department of the Parliamentary Library, Proposed Changes to Institutional Residential Aged Care in Australia, March 1997, p.i.

[11] `Steps to Better Care', op.cit., p.4.

[12] DHFS, Fact Sheet 7: Income Testing.

[13] `Steps to Better Care', op.cit., p.2.

[14] Submission No.94, pp.31-2 (DHFS).

[15] Minister for Family Services, Media Release,`Aged Care Structural Reform Details Announced', 26 May 1997.

[16] Transcript of Evidence, pp.237-9 (DHFS).

[17] Submission No.79, p.2 (ACTU).

[18] Submission No.94, p.32 (DHFS).

[19] Transcript of Evidence, pp.292-3 (DHFS).

[20] Transcript of Evidence, p.76 (Anglicare Australia).

[21] Transcript of Evidence, p.136 (ACA). See also Transcript of Evidence, p.29 ( NSW COSCA).

[22] Submission No.79, pp.2-3 (ACTU).

[23] NSW Aged Care Alliance, Additional Information, 9 May 1997, p.1.

[24] Submissions No.38, p.28 (ACHCA); No.57, p.3 (Anglicare Australia); No.79, p.2 (ACTU); Transcript of Evidence, p.145 (ACA), p.178 (COTA); Resolution of Public Meeting called by NSW Aged Care Alliance, Additional Information (NSW ACA).