Chapter 4
Current funding levels and expected quality service provision outcomes
Older persons should be able to enjoy human rights and
fundamental freedoms when residing in any shelter, care or treatment facility,
including full respect for their dignity, beliefs, needs and privacy and for
the right to make decisions about their care and the quality of their lives.
Principle 14 of the United Nations Principles for Older
Persons
Introduction
4.1
The overwhelming majority of residential and community aged care
providers who participated in the inquiry held that that the current funding
levels for both residential and community aged care are inadequate and do not
reflect the real costs of providing high quality care.[1]
It was argued that this is impacting adversely on the provision of quality care
and, indeed, on the viability of providers and thus on the availability of
sufficient aged care services in the long term.
4.2
This chapter considers current funding levels and whether they are
sufficient to meet the expected quality service provision outcomes. It explores
the financial performance of aged care providers, staffing issues and capital
funding.
Common concerns of residential and community aged care providers
4.3
Many witnesses stated that the aged care sector was in 'crisis' and that
financial losses in the sector would see the closer of beds and the inability
of the sector to meet the demand in the future through the provision of new and
expanded facilities. Mr Gerard Mansour of Aged and Community Care Victoria
stated:
...there is no doubt whatsoever that our industry is just like
a rubber band that is stretched near its limit. Our industry is increasingly
concerned about how well we will be able to cater for our ageing population.
This concern over recent years has moved to a real fear that we now face an
impending crisis.[2]
4.4
Mr Martin Laverty of Catholic Health Australia (CHA), while not
supporting that the sector was currently in crisis, however commented that 'if
we do not make changes to capital and operational subsidies today and if we do
not revise the opportunity for consumer contributions to their care we will in
fact have that potential problem in the years ahead of us'.[3]
4.5
The committee heard evidence that not only residential care but also
community care was facing difficulties. According to Aged and Community Care
Victoria, providers of Community Aged Care Packages are:
..."stretched" in their capacity to respond
adequately to the needs of their clients due to funding levels, inability to
access HACC services at subsidised rates and poor integration between programs.[4]
4.6
Mr Greg Mundy of Aged and Community Services Australia commented that 'our
aged-care system is close to being broken and we need to find some fixes for
some longstanding issues'. Mr Mundy argued that the current funding levels are
insufficient and pointed to three principal reasons to support this claim:
One is that, over the last decade or more, the amount of
service that we have been able to provide to each of our residents and each of
our community care clients has steadily declined...
Secondly, we have problems in competing for staff with the
state operated health system. We cannot match the wages that they pay in that
system, so recruitment and retention of staff is always an issue. The third
aspect is that we do have great difficulty nowadays putting new high-care
residential facilities on the ground. It is very difficult to make those
projects come out cash-flow positive.[5]
4.7
Submitters also pointed to recent surveys of the sector, principally the
Grant Thornton survey, as further indicators of the poor financial performance
of aged care providers.
4.8
Mr Mundy went on to comment that the indexation formula, particularly in
relation to wages, used by the Commonwealth is contributing to these
difficulties. He commented that: 'It has been not a sudden development but a
steady development over a long period of time that the value of the Commonwealth's
subsidies for care has not kept pace with the cost of providing that care...So
there has been a steadily widening gap between what it costs us to provide
services and what the subsidies will cover.'[6]
4.9
Ms Mary Murnane, the Department of Health and Ageing, responded to these
comments and noted that while some providers 'find the going very hard indeed
for a variety of reasons', those reasons are not because of current funding
levels. The funding levels have been substantially increased and the 'gross
amounts that are spend on aged care are very great indeed'.[7]
Ms Murnane also stated:
I would not say that there is a current and present crisis.
There are certainly some organisations, some homes, that are in difficulty, and
we are dealing with those...
The claims that we are regarding very seriously indeed are
the claims about capital need into the future. As Mr Stuart said, we do listen
carefully to industry. We have forums where we speak with industry groups, and
those forums are not acrimonious; they are respectful where there is a
respectful exchange of views. I think I have made clear that as to a crisis, we
would say no. There is not a present crisis. Aged care is a key policy of
government. We know that the numbers of people seeking support in extreme old
age are going to increase and we are of course looking at that. We are
particularly examining very proactively the claims that are made about capital
needs into the future.[8]
4.10
Ms Murnane concluded:
We are not complacent, but we are not seeing signs that there
is a crisis across the industry and across the provision of aged care now. That
does not mean we are complacent, but that would be our reading of the evidence.[9]
4.11
Mr Andrew Stuart of the Department of Health and Ageing also commented:
The industry continues to deliver care every night to about
175,000 older Australians. Insolvency in this industry is extremely rare. The
care continues to be delivered at a quality that is appropriate against the
accreditation and certification standards. I do not see a crisis in delivery in
care in residential care in Australia.[10]
Financial performance of aged care providers
4.12
A substantial number of aged care service providers raised concerns
regarding their financial stability and sustainability. According to The
Bethanie Group, recent reports indicate that up to 40 per cent of aged care
facilities are not performing at breakeven levels.[11]
The Aged and Community Services Association of NSW & ACT cited a 2008
financial performance survey to highlight that 57 per cent of residential aged
care services in NSW are currently operating at a deficit.[12]
4.13
Other providers have faced substantial reductions in their surpluses.
UnitingCare Australia noted that the Conditional Adjustment Payment (CAP) has
been a 'critical revenue source' enabling it to continue to achieve a small
surplus on residential operations and avoid losses in the four years that it
has been implemented. However, UnitingCare Australia highlighted that even with
the CAP, its agencies surpluses on residential aged care have fallen from $12.8
million in 2004–05 to $0.7 million in 2007–08. According to UnitingCare,
had the CAP not existed, these organisations would have incurred serious losses
in providing residential aged care aggregating $16.25 million over this period:[13]
The downward trend reflects factors such as increased
resident acuity coupled with inability to access bonds from high care
residents, input cost increases at a rate greater than income indexation,
increasing compliance costs and rising repairs and maintenance costs as
building stock deteriorates.[14]
4.14
According to the Grant Thornton Australia survey, the most common
explanation for the declining financial performance was that 'staff and general
care costs were escalating faster than increases in Government subsidies'.[15]
Other witnesses also pointed to consumer demand for single room ensuite
facilities.
4.15
Mr Stuart, the Department of Health and Ageing, responded that capital
investment in the sector has been strong recently, with building commencements
having increased since 2001 and having plateaued in March 2007. Mr Stuart also
noted that returns per resident for efficient providers, defined as the top quartile,
increased between 2006–07 and 2007–08.[16]
The department also commented that net funding growth has been 8 per cent
resident.[17]
Surveys of the aged care sector
4.16
Many witnesses pointed to the results of recent surveys as indicating
the poor financial performance of the aged care sector. In particular, they
pointed to the October 2008 Grant Thornton Australia Aged Care Survey which
reported that providers of residential aged care services are 'experiencing low
and deteriorating financial returns' at a time when there is unprecedented
demand for high care services. The survey reported an average return on
investment of approximately 1.1 per cent.
4.17
The survey revealed concerns regarding the viability of both small and
large operations, many of whom were incurring unsustainable losses. It found
that the average earnings of aged care service providers before interest,
taxation, depreciation and amortisation (EBITDA) in 2008 was $2,934 per bed per
annum, a decline from $3,211 in 2007.[18]
The survey also commented that older, institutional facilities with shared
rooms consistently out-performed modern, single-room facilities which are most
preferred by consumers. Grant Thornton Australia continued:
Modern high care facilities with single bedrooms reported the
worst results, averaging $2,191 compared to $4,233 per bed achieved in older
facilities with shared rooms. This represents an average return on investment
of approximately 1.1% for modern, single bedroom facilities.[19]
4.18
However, Grant Thornton Australia noted the following:
The survey revealed that earnings achieved in dated,
institutional facilities were almost double those achieved in the modern
facilities that meet consumer demand for privacy, dignity and comprehensive
care.[20]
4.19
The Department of Health and Ageing responded to evidence in relation to
the surveys. Citing two surveys (not including Grant Thornton Australia), Dr David
Cullen from the department provided evidence that returns were higher in
2007–08:
Both of the benchmarking studies of the industry, which have
been conducted for many years, that is, the Stewart Brown survey and the James Underwood and Bentley's MRI survey, show that the returns of providers in the 2007–08 year
were higher than the 2006–07 year.[21]
4.20
Mr Stuart also commented that the general purpose financial reports that
the department receives from all aged-care providers show a general improvement
in financial performance to 2007–08.[22]
4.21
According to Dr Cullen, the Bentley's survey of 2007–08 established that
single-bed operators made up 51 per cent of the top quartile.[23]
Moreover, Dr Cullen stated that the Bentley survey demonstrated that 'efficient
providers of single-bed facilities and of shared facilities make the same level
of return'.[24]
4.22
However, a joint statement of James Underwood & Associates, Stewart
Brown Business Solutions and Grant Thornton Australia submitted to the
committee emphasised contrary findings:
Our research confirms that modern, single-room High Care
services make very poor or negative returns on average. These returns are far
below the returns achieved in older, shared-room High Care services.
In our opinion, modern, single-room High Care services –
other than those with extra service approvals – are not viable under current
funding and regulatory arrangements.[25]
4.23
Ms Murnane responded to this comment:
What we have been saying is that, apart from the Grant
Thornton data, when we looked at the Bentleys data and the Stewart Brown data,
what we found was an agreement that there is an increase in revenue. They are
making a different point.[26]
4.24
Grant Thornton Australia stated that the 'overwhelming majority' of
those residential aged care facilities in the top quartile are 'either extra
service facilities – so they are able to get bonds in high care – or they are
older institutional facilities with multi-bed wards':
So just looking at the top quartile and accepting that as
being the benchmark to which everyone performs takes away from the fact that
the majority of those operating in the top quartiles will be delivering a
service that is not desired by the consumer.[27]
4.25
Dr Cullen also commented on the Grant Thornton survey and noted that the
results are an average across the industry. However, he stated that the other
two surveys, whilst also publishing an average result, make the point that it
is far more appropriate to look at the result achieved by the top quartile of
providers. These providers are doing the best that they can with the revenue
which is made available to them, and those returns are far higher and are
increasing. Dr Cullen concluded:
What the top quartile shows you is what an efficient provider
can achieve. The entire industry could be efficient if it wished to be. If the
entire industry behaved efficiently, like the top quartile does, it would be
able to achieve the result, and then the average result across the industry
would be the average result achieved by the top quartile.[28]
4.26
Dr Cullen also stated that there are different types of providers in the
sector ranging from small businesses for profit with perhaps one or two homes
to large not-for-profit organisations. With the small business operator, the
owner is the director and the partner is the director of nursing. They pay
themselves wages, provide cars and perhaps accommodation out of the business
but 'at the end of the day on their tax sheet they show either a very bare
profit, a breakeven, or perhaps even a loss'. On the other hand, a not-for-profit
aged care home has no need to make a surplus and may provide additional
services. Dr Cullen also commented that among the larger players in the industry
a number engage in financial transfers between related entities, such that the
aged care provider or a number of aged care homes owned by a particular
structure will make a loss, but there is another entity elsewhere, perhaps even
offshore, that makes substantial profits by providing management services to
those entities. Dr Cullen concluded:
These are anecdotal representations of different parts of
this sector and how it is that providers can be at once solvent and not looking
like closing down, very stable, continuing to run efficient care, meeting
accreditation requirements and at the same time there is significant data in
the industry showing a lot of breakeven-type activity.[29]
4.27
The department provided the committee with a comparison of the three
surveys. This is produced in appendix 3.
4.28
Much of the debate concerning research findings in relation to the
financial position of residential aged care providers centred around the
definition of a 'single-bed facility'. Grant Thornton Australia stated that its
working definition was that of a facility with more than 70 per cent single-bed
rooms and that:
As such, modern facilities with predominantly single rooms
and "a few doubles" would be included in the definition of
"single bed facilities".[30]
Aged Care Approval Round
applications and plans for expansion
4.29
Witnesses commented that there is evidence that providers are ceasing to
bid for beds under Aged Care Approval Round (ACAR) rounds and are ceasing to
invest in the new provision of services either by refurbishing their existing
facilities or building new ones. In addition, a number of the new aged care places
allocated by the Australian Government are unused or have been returned.[31]
It was argued that this indicated the poor state of the sector.
4.30
It was noted for example, that for the first time, there was an
under-subscription for residential aged care licenses in the 2007 ACAR in
Western Australia and Tasmania.[32]
Ms Anne-Marie Archer of the Aged Care Association commented that in 2008 there
was a shortfall in bed allocations nationally and only 67 per cent of beds were
available were allocated.[33]
The Aged Care Association Australia WA and Aged and Community Services WA also
stated that there are thousands of beds currently 'offline' for reasons
including decommissioning and provisional allocation without construction.
According to the organisations this has occurred in Western Australia for two
reasons: first, the cost to build is prohibitive; and second, the daily funding
is not adequate.[34]
4.31
UnitingCare Australia indicated to the committee that it would not be
proceeding with a major development in Melbourne. Although the Victorian
Government had provided land to build a 90-bed residential aged care facility
to help relieve the pressure on the hospital system, financial analysis
revealed that UnitingCare Australia would lose $20 million over 20 years if it
went ahead with the facility. UnitingCare Australia noted that that was based
on operating at the Stewart Brown benchmarks. However, UnitingCare Australia had
concluded that 'we cannot pay for that capital when that is how much we would
lose over 20 years, so we will not do that.'[35]
UnitingCare Australia also commented that no-one in its network with the exception
of one small facility applied for residential places in the latest ACAR round
because 'we do not believe it is sustainable'.[36]
4.32
Of the consequences, Ms Anne-Marie Archer of the Aged Care Association
Australia WA noted:
This lack in demand for services is going to have an enormous
long-term impact on the ability of this state to deliver services in the
future, as there are time delays from allocation to actually implementing and
developing these services.
Some of the delays in the provision of these services can be
partially attributed to the areas around zoning and development applications—in
some cases up to years—and this can have a huge impact upon providers’ business
cases in regard to construction costs et cetera, but the major impediment is
the funding that is provided for the development of infrastructure. Currently,
the per bed rate allocation of funding, as you learnt before, is $109,000.
Unfortunately, in WA, with our construction costs, to date providers are
receiving construction quotes of in excess of $200,000, and it is—as the WA
Department of Health indicated—three times that amount, if not more, in the
regional areas.[37]
4.33
Mr Greg Mundy of Aged and Community Services Australia highlighted the
significance of the under-subscription for licences:
...I think we are now getting to the point where, when
aged-care providers are not bidding for free resources from the Commonwealth
government that they can put on their balance sheet, at no cost to themselves,
then I think that should be a really, really powerful warning sign. We now have
four jurisdictions in Australia—Western Australia, Tasmania, the ACT and the Northern Territory—where people are not taking these free gifts from the Commonwealth
government to put on their balance sheet. The figures in Queensland and New South Wales are not actually that much better. Those states will also be
undersubscribed outside the south-east corner of Queensland and outside Sydney. So I think that is actually a very powerful warning sign to us.[38]
4.34
The department argued that building activity in the sector did not
support the argument that the sector was under strain. Dr Cullen commented that
the level of building activity in the industry is higher now than at any stage
in the decade since aged care construction statistics have been collected and
concluded 'that would tend to indicated that providers are more willing to make
investments in care now, just on the pure statistics, than they have been at
any time in the past'.[39]
4.35
The department noted that capital investment (a trailing indictor) has
been strong with building commencements having increased since 2001, and then
reached a plateau in March 2007 at about $342 million per quarter. Lead
indicators also show that growth is strong. Between July 2007 and December 2008
building approvals have averaged around $100 million in approvals per month.[40]
4.36
The department also pointed to planned and completed building activity.
The 2007–08 survey of aged care homes undertaken by the department indicated
that 18,700 places were being planned for construction or upgrading. It noted
that 'while there is a slight decline from the planned places from the 2006–07
survey, it is still three times the number of additional residential places
delivered by completed building work in 2007–08 and over two and half times
that to be delivered by building work in progress at 30 June 2008'. The
department concluded that 'thus the planned work will form a significant
pipeline of building activity in coming years'.[41]
4.37
Dr Cullen commented:
As long as people are willing to enter the industry and
build, then you can make a judgment that the return must be sufficient. We have
provided a great deal of evidence to you to show that people are entering and
building in the industry. You must be able to conclude, from the fact that all
of that construction activity has occurred, that the rational beings who
undertook that construction activity must have made a judgment that the return
was sufficient for them to undertake that activity.[42]
4.38
Mr Stuart went on to state:
We are listening to the sector. We are watching aged-care
place applications. We are interested in all of those indicators but we also
have this data that shows increases in funding in recent years, return growing
faster than cost, eight per cent growth in funding into this current financial
year, and aged-care providers have over the last decade substantially rebuilt
the aged-care sector at funding levels lower than they are currently in real
turns.[43]
4.39
TriCare commented on the use of Australian Bureau of Statistics (ABS)
data concerning increased building activity for residential aged care
facilities. TriCare stated:
Our research confirms that there is no specific measure of
government funded residential care facilities and no conclusion which can be
reached in relation to government funded residential aged care construction via
ABS data.[44]
4.40
TriCare went on to state that is have been informed by the ABS that:
-
there is no specific designation for Commonwealth funded
residential aged care facilities;
-
currently, the ABS relies on information from local authorities
as to the purpose of the construction – it does not validate this to any
significant extent and cannot be certain of what facilities are included; and
-
generally, the ABS believes that the aged care grouping includes
facilities where nursing or personal care and/or meals and/or resident common
areas are part of the service/accommodation mix on offer.
4.41
TriCare concluded that the building statistics encompasses retirement
village development and construction of which is surging 'given the lack of
government restrictions on capital funding mechanisms in that sector'.[45]
4.42
Given the conflicting views on the construction statistics, the
committee sought advice from the ABS. The ABS commented that it uses the
Functional Classifications of Buildings (FCB) for a range of ABS publications
including building activity and construction work done. For these collections
the function of the completed building is generally determined at the time the
building approval is lodged. The definition of aged care facilities (including
nursing homes) states that they are buildings used in the provision or support
of aged care facilities, excluding dwellings such as retirement villages.
4.43
The ABS concluded that it was not in a position to make comment on the
claims made in the various submissions. Neither the Building Approvals
collection nor the Building Activity Survey collect information on the source
of the funding on any project. However, the ABS does classify a building by
sector of ownership.[46]
Construction costs
4.44
Many submitters commented on the increase in costs for the construction
of aged care facilities. The issues identified included the increase in costs
in areas where there is competition from other sectors, high costs associated
with geographical location particularly remoteness and a shift in consumer
expectation towards single room ensuite accommodation. The issues of costs in
rural and remote areas is canvassed in Chapter 6. The following addresses the
general issue of construction costs.
4.45
In evidence, providers indicated that construction costs per bed ranged
up to $180,000. Some costs were higher due mainly to remoteness. According to Grant
Thornton Australia, the average anticipated building costs for new facilities
was $176,000 per bed excluding land costs, which is a substantial increase from
between $74,000 and $85,000 per bed in 2003. Of the increase, Grant Thornton
Australia noted:
The increase represents both a change in the cost of
construction as well as changing expectations of consumers.[47]
4.46
The shift towards single ensuite rooms was highlighted by many witnesses
as having a major impact on funding and resources. The Aged Care Association
Australia commented:
There is no doubt that the current funding methodology has
failed to recognize that there is a significant cost in both constructing and
operating residential care as single room en suited services. The current
subsidy for the industry is based on meeting a clinical service need and a
certain standard of hotel service but does not include any assessment of
additional staffing costs of operating single room services each with separate
bathroom and toilet.[48]
4.47
However, the aged care sector saw the shift toward single-room ensuite
accommodation from multi-bed wards as a cost burden for the industry. According
to Mr Young of Aged Care Association Australia (ACAA):
In a number of the reports that are before you, particularly
the work that Grant Thornton did, they have looked at the difference between
single-room, ensuite accommodation and multibed wards often without ensuites.
The returns that you get on those different types of accommodation run at about
two to one, which is quite significant. The whole industry has or is moving to
a single-room, ensuite framework, and that is considerably more expensive to
operate. There is nothing in any of the subsidy reform processes that we have
looked at for the last nearly 20 years now—other than the lump sum
contributions in hostels—to actually reflect that changing cost burden for the
industry.[49]
4.48
The department indicated that its survey of aged care facilities had
shown a median cost of construction of $150,000 per place. Some 58.6 per cent
of projects were completed for less than $155,000 per place, while some 14.8
per cent of projects cost more than $200,000 per place. The department
concluded that the latter were constructed as 'extra service aged care homes or
to a design specification well in excess of the current aged care building
certification standards'. The department also noted that many facilities were
built for less than the median cost and these included single room ensuite
facilities:
Many of the aged care homes with construction costs below
$150,000 per place were also for design specification in excess of the current
aged care building certification minimum standards, including many developments
entirely composed of single room ensuites.[50]
4.49
Mr Stuart commented that the Australian Government does not require
single-bed facilities with ensuites. Mr Stuart went on to state:
The Australian government policy requires for new buildings
to achieve certification an average across the facility of 1.5 residents per
room. That ratio permits two-thirds of the residents to be in double rooms and
one-third to be in single rooms. The certification requirements also allow
existing buildings to be renovated to still include some four-bed
accommodation, provided it is not a sweeping refurbishment, in which case we
expect them to meet the requirements for new buildings. I would submit that the
industry has been, perhaps to its credit, substantially exceeding the
requirements that are set in the government’s certification guidelines.[51]
Potential impact of the global
financial crisis
4.50
The department commented that the aged care sector is 'relatively (but
certainly not completely) sheltered from the effects of the global financial
crisis'. The department pointed to the sector's income stream which is almost
completely underwritten by government; resident contributions in residential
aged care are further underwritten by the pension system; and by aged care
supplements and consumer demand for aged care is not expected to decrease very
significantly as a result of the global financial crisis.[52]
4.51
Mr Stuart, Department of Health and Ageing, went on to comment:
The other aspect is that the department adopts a risk based
approach to compliance monitoring. We use a range of information sources, like
complaints data, prudential returns and information coming in from other
sources—media even—to identify where there may be emerging compliance risks.
We also, in looking at that, try to identify whether there
might be emerging financial risks. Similarly, we have been engaging more
closely with the financial sector—the major banks—to talk to them about
emerging developments in the sector and their attitudes to financing. At any
point in time we will have at least a few approved providers about whom we may
have concerns of varying degrees. There are currently one or two approved
providers whom we are in discussions with on their financial position and we
are providing some assistance to via consultancy services and the like to look
at their operations with a view to identifying strategies to improve their
situation.[53]
4.52
However, providers stated that they were feeling the impact of the
financial crisis. UnitingCare Australia for example, stated that its investment
income had fallen.[54]
Mr Glenn Bunney of Sundale Garden Village commented that non-operational
income had 'virtually disappeared overnight'. There had also been investment
write-offs and the disappearance of interest income and, at the same time, the
effective interest rates that are being charged by banks have not dropped.[55]
4.53
Mr Andrew Sudholz of Japara Holdings commented that the global financial
crisis has seen lending practices change dramatically:
The banks are not lending as much, they are retreating from
the industry or they are suffering from the global financial crisis. Thirty
billion dollars of construction property funding is going to come out of our
domestic market and be paid back to the global banks over the next 12 months.[56]
Conclusion
4.54
The committee received contradictory evidence in relation to the
financial wellbeing of the aged care sector, and therefore the preparedness of
the sector to meet growing demand. On one hand, providers argued that the
sector is in crisis, or at the very least facing a crisis in the near future.
On the other hand, the Department of Health and Ageing argued that there are
significant government resources going into the sector and that there is
evidence of increasing returns for providers and other indicators of strong
financial viability including the level of building approvals.
4.55
The committee notes the arguments put by the department to support its
view. However, in relation to the use of building activity as an indicator of
the strength of the sector, the committee is of the view that the present
building activity is likely driven by past allocations of beds rather than new
allocations.
4.56
The committee considers that at the heart of the matter is the question
of methodological approach and definitions of key terms. In the previous
chapter, the committee has addressed the need for nationally consistent aged
care data.
4.57
The committee also recognises that there is a need to establish a clear
understanding of the financial status of aged care providers. This in turn
requires insight into the funding status and needs of such providers and in
this regard, the committee heard evidence of the need to establish a benchmark
of care costs.
4.58
The committee also considers that, given the contradictory evidence and
the emerging demands on the aged care sector as a result of the ageing of the
population, a 'stress test' of the sector be undertaken to test the resilience
of the sector. Such a test would measure the financial wellbeing of the sector
and help to establish whether the sector is in crisis and whether it is in a
position to meet future needs.
Recommendation 9
4.59
The committee recommends that the Department of Health and Ageing
undertake a 'stress test' of the aged care sector in order to measure the
sector's financial wellbeing.
Costs associated with accreditation, regulation and compliance measures
4.60
The Aged Care Standards and Accreditation Agency is responsible for
accreditation under the Aged Care Act 1997 and applies four
accreditation standards with 11 expected outcomes per standard:
-
management systems, staffing and organisational development;
-
health and personal care;
-
resident lifestyle; and
-
physical environment and safe systems.[57]
4.61
A number of both residential and community aged care providers were
concerned with the overall increase in cost burdens associated with new
regulations and compliance measures within the aged care sector. According to a
number of providers, the pressure on them to meet such demands implies the
diversion of staff away from meeting care needs of clients to that of
administration associated with compliance. Baptist Community Services of NSW
& ACT as one case in point, noted:
The administrative load on staff is estimated to have
increased by 50% over the past three years. Data from the Stewart Brown Aged
Care Survey 2008 indicates that administration costs in residential aged care
are now only just below the costs of feeding residents.[58]
4.62
Of these pressures, the Share & Care Community Service Group noted:
There is pressure on all HACC providers to meet escalating demand
within existing resources...The increase in quality standards, expectations of
accountability and transparency, requirements for continuous consumer feedback
and the massive increase of staff time to implement, monitor and evaluate all
these items is in no way presently reflected in the funding. Whilst Share &
Care agree these governance and operational measures are essential, there has
been no increase in funding to compensate for the additional hours all these
processes necessitate.[59]
4.63
The Aged and Community Services Association of NSW & ACT identified
the range of increasing demands on the industry:
Funding for aged care services is further impacted by
government policy increasing demands such as police checks, compulsory
reporting, increased validation of residential care funding claims, increased
accreditation visits and food safety standards and mandatory food safety
programs. These costs have to date been absorbed totally by the industry.[60]
4.64
The ACCV noted that there are increasing costs involved in demonstrating
that facilities are compliant because of an increase in the number of contact
visits and documentation required under the Complaints Investigation Scheme (CIS).
ACCV stated that there is a duplication of paperwork:
Accreditation has raised the bar each time increased
resources are required, as well as extra time to respond to this. As regulatory
paperwork requirements extend above and beyond the ACFI in documenting care,
there is a regular 'double up' in documents, assessments and records.[61]
4.65
The Shire of Kojonup highlighted the difficulties for smaller providers
in covering the additional costs of administrative and compliance measures.
Detailing the experience of the Springhaven Aged Care Hostel, a 22-bed low care
facility, the Shire noted:
In 2005 surveyors from the Aged Care Standards and
Accreditation Agency Ltd advised management that our facility would not meet
future accreditation requirements if it did not move from an overnight sleep
over (on call) arrangement, to 24 hour stand up shifts. This was despite no
change in the number of beds or the average RCS since the previous
accreditation process.
In 2007 the agency further advised that they believed there
needed to be more staffing to handle administration. Between the new shifts and
additional staff, required by the accreditation agency to meet the standards,
and the increase in staff costs, the total staffing has increased from $441,000
in June 2005 to $568,000 in June 2008. This represents a 28% increase in costs
without any increase in funding.[62]
4.66
The Department of Health and Ageing maintained that measures are being
implemented to respond to the burdens associated with new regulations and
compliance measures including an 'eBusiness strategy'.[63]
However, concerns were raised that there remained little recognition of the
time, cost and resource constraints on providers to fulfil such demands. Ms
Anne-Marie Archer of the Aged Care Association Australia WA informed the
committee:
One of the biggest complaints we get
from staff in the industry is the level of compliance et cetera insofar as it
relates to the excessive documentation...The amount of time that they actually
spend doing the documentation is time taken away from care, and that amount of
documentation is increasing.[64]
4.67
Ms Lin Hatfield Dodds of UnitingCare Australia highlighted the tension
between the compliance burden and meeting care needs:
The tragedy is the burden of administration and compliance on
our care staff. All of us want better quality of life outcomes for the people
we are providing services to. That is the motivator for a very punitive
compliance burden we carry. It means that our care staff are diverted from
care. There is a very perverse outcome in terms of real quality of life
outcomes for Australians.[65]
4.68
Whilst providers recognised the need for regulatory and compliance
regimes, concerns focused on the rigidity of the system. Mr Martin Laverty of
Catholic Health Australia argued in this regard:
We think there should be a greater opportunity for incentives
for good performance balanced with the requirement for strong accreditation
standards. But we have swung too far in favour of heavy compliance rather than
looking at innovation and incentives for good provision of quality care.[66]
4.69
Mr Rod Young of the ACAA expressed a similar view:
In respect of compliance and overregulation, we believe that
the accreditation agency has shifted from its educative and support function.
As an industry we have been highly supportive of the whole accreditation
process to achieve and maintain quality in the industry, but we feel that the
balance between compliance, regulation and quality improvement in the industry
has shifted too far to the compliance framework.[67]
4.70
Ms Hatfield Dodds of UnitingCare Australia shared the same concern:
The need for regulatory controls is not disputed. We are
absolutely committed to a transparent system that ensures that all citizens get
the care they need and that all taxpayers can see where their money is going,
but our current system of regulation is expensive and cumbersome and has
perverse outcomes in terms of quality of life and priorities for staff time and
effort. We believe the purpose of a regulatory system should be to support the
policy intent of legislation, protect citizens and ensure accountability. We
need clear guidelines both as providers and consumers for identification and
management of risks and clear indicators of quality of life. We need a
respectful and cooperative working relationship between the department and
providers built on recognition of the negative impacts of regulatory and
accreditation and complaint systems that are built on negative determinants.[68]
4.71
Similarly, Mr Bryan Dorman of the ACAA also highlighted:
My objective in my organisation is to have 24seven
continuous improvement. But we still have this punitive process where you are
either wrong or you are right. There is no value adding. There is no
educational component to it all. We are ready for a next-generation compliance
process. The next generation is where the staff engage with getting better at
what they are doing and the system works in favour of that, not just whether
you are good or bad. There are a lot of other industries that work it very
effectively. There is no reason why it would not work in our space.[69]
4.72
Such views are consistent with those of the Productivity Commission. In
its 2008 report on aged care services, the Productivity Commission noted that:
Over coming decades, pressures on the demand-side of the aged
care market are expected to accentuate a number of weaknesses in the current
policy framework, including:...inefficiencies arising from excessive government
regulation...[70]
4.73
Dr Lynn Arnold of Anglicare Aged Care Association South Australia
affirmed that in addition to the difficulties involved in regulation itself,
the federal and state regulatory burdens conflict:
We are not asking for a deregulated approach, we are simply
asking for a re-examination of the array of regulations, if you like,
micro-regulatory reform, that will prevent regulations conflicting with each
other and actually result in the outcome that they ostensibly seek not being
able to be achieved. We do have examples of that between state and federal
regulations that make the working environment not able to provide for the
aspirations of residents because of conflict between the two.[71]
4.74
Ms Derryn Wilson of the Municipal Association of Victoria identified
initiatives in place between councils to address the challenges of meeting the
administrative requirements:
In some regions the bigger councils supported the smaller
councils by sharing their paperwork and working together. In a few instances
the state also paid for a support worker consultant to go and work alongside a
small group and help them get their processes in place, and they also provided
some general education and training in the area.[72]
4.75
Mr Stuart of the Department of Health and Ageing commented that the aim
of the ACFI was in part to reduce paperwork:
...the government, in introducing the ACFI, had several
objectives, one of which was a radical reduction in paperwork and nurse time.
We are getting a lot of feedback to the effect that that is certainly being
experienced.[73]
Conclusion
4.76
The committee considers that compliance measures are essential in the
aged care sector. The committee acknowledges that the concerns of aged care
providers in relation to accreditation are not grounded in a belief that the outcomes
for residents in aged care facilities should be watered-down.
4.77
The committee appreciates that meeting regulatory obligations including
accreditation standards is creating tension for providers who must balance the
administration requirements with meeting care needs of clients. The compliance
regime is a particular impost on smaller providers. For these reasons, the
committee recommends that a review of costs and resources (borne by providers)
required to meet such measures is undertaken. In addition, the committee
considers that there is a need to identify and implement more cost effective
measures of meeting compliance measures and to put in place support for smaller
providers in relation to the compliance regime. It believes that the
recommended advisory taskforce in association with the Department of Health and
Ageing could undertake such a review.
Recommendation 10
4.78
The committee recommends that the Department of Health and Ageing, in
association with the suggested taskforce, undertake a review:
-
to identify the costs and resources required to meet new
regulation, accreditation and compliance measures with a view to rationalising
the administrative processes as required; and
-
to identify more cost effective means of meeting the requirements
of the compliance framework.
Recommendation 11
4.79
The committee recommends that the Department of Health and Ageing
implement measures, including additional funding, to assist smaller providers
to meet the requirements of the compliance framework.
Reduction in the provision and quality of services
4.80
Of particular concern to providers was the issue of the provision and
quality of services within the aged care sector. Many witnesses commented that
the quality and quantity of services has diminished and that this was further
evidence of the crisis within the sector.
4.81
Witnesses argued that present funding arrangement, including the
indexation formula, are impacting adversely on provider viability and service
provision. For example, Bromilow Home Support Services stated that there has
been a reduction in services hours provided to clients and commented that 'it
is impossible for service providers to maintain consistency in the service
levels provided to clients form one year to the next when subsidy levels
continue to fall in real terms'.[74]
Aged and Community Services Australia (ACSA) commented that the hours of
service per client has declined in both residential and community care,
reducing the quality of life of clients and increasing the risk of more
intensive and expensive interventions being required. According to the ACSA,
the impact is most acute in high care residential care as ageing in place tends
to mask the same phenomenon in low care.[75]
4.82
Aged and Community Services SA & NT commented that not only were
there less after hours service provision and a loss of real hours of direct
care, but also a loss of diversity, loss of matching and 'cherry picking' of
waiting lists.[76]
Anglicare noted that the rationing services impacts particularly on older
people with limited means and limited alternative supports.[77]
4.83
The Australian Medical Association took the view that older Australians
in residential aged care facilities 'do not have access to medical care equal
to the standard enjoyed by the rest of the population' and that the Australian
Government, as the funder of aged care, should 'provide specific funding to
approved aged care providers to enable them to secure appropriate medical care
and supervision on an ongoing basis for their residents'.[78]
4.84
The Committee’s attention was drawn to innovative models of health
service provision within aged care facilities to secure more holistic tracking
of the health status of residents and their subsequent treatment.[79]
Such models may benefit in the medium term from demonstration funding to
explore their efficacy.
4.85
Mr Stephen Teulan of UnitingCare Australia commented:
Given what is happening with the lack of indexation of
subsidies, if we look at residential care but particularly community care,
which has not had the benefit of the conditional adjustment payment, the
additions to the subsidy in recent years, what is impacting there is that
providers are just providing fewer services under the same packages to the
community than they were previously because when salaries are going up at four
to five per cent and the subsidy increase is two per cent there is no choice.
The people who lose out in the community are those who receive the services.
They just receive less.[80]
4.86
Other witnesses also supported the view that the service purchasing
capacity of a Community Aged Care Package (CACP) had diminished.[81]
The ACSA maintained since 1995 funding has resulted in packages less able to
meet assessed needs.[82]
Perth Home Care Services held the same view, detailing the decline in the
service purchasing capacity of CACP program:
Our own experience is that since...2000 a CACP package was
able to provide an average of seven hours per week with the capacity to
increase to 10 hours per week for short periods of increased need. In 2008 this
has reduced to five hours per week with limited capacity to increase hours to
seven per week for increased need.[83]
4.87
Aged and Community Care Victoria (ACCV) held that the 'failure of
funding levels to match identified care needs now fundamentally threatens the
capacity of the industry to continue to provide its high standard of care'.[84]
4.88
A similar sentiment was also expressed by AMANA Living, which stated
that the disparity between the amount of funding provided by Commonwealth, and
the actual cost of aged care services (in this case residential care), will
have negative long term consequences if the problem is not addressed:
While the Commonwealth funds residential aged care to the
tune of $114 per day (Minister Elliot's own data), an acute care bed costs $1,000
per day. The future lack of adequate residential care provision will impact
very seriously on the already overstretched acute health system with serious
ramifications for older people and for the overall cost of providing care.[85]
Workforce issues
4.89
One of the key issues of concern amongst aged care providers in relation
to their financial position and thus ability to provide quality services is
that of the recruitment and retention of staff. The difficulties in retaining
aged care staff in a context in which the sector is unable to match let alone
compete with the wages and conditions offered by other sectors was highlighted
in evidence.[86]
It was recognised, moreover, that the growing complexity and diversity of care
needs require specialised nurses and other qualified professionals which
further impacts on expenditure and the nature of care provided.
Recruitment and retention of
profession nursing and aged care staff
4.90
A substantial number of submitters raised concerns regarding the
challenges of recruiting and retaining professional nursing staff in
residential aged care facilities. Citing statistics from the Australian
Institute of Health and Welfare, the Australian Nursing Federation (ANF) stated:
At the same time as there are growing numbers of residents
and their dependency is also increasing the numbers of registered and enrolled
nurses employed in aged care has fallen from 38,633 in 1995 to 34,021 in 2005 a
decline of 4,602. Over the same time the number of residential aged care places
has increased from 134,810 in 1995 to 161,765 an increase of 26,955.[87]
4.91
The Aged Care Standards and Accreditation Agency (ACSAA) reported in
August on staffing issues within aged care facilities found to be
non-compliant:
Among those homes found to be non-compliant in 1.6 Human
resource management, it was found that a significant proportion did not
maintain appropriate numbers and types of staff, with many of them not being
able to ensure that staff skills and qualifications were the right fit for the
work required and to reflect their residents' needs.[88]
4.92
The ACSAA went on to state that:
...in homes where workloads are unrealistic, or where staff are
unqualified, poorly trained or poorly deployed, then process malfunctions will
occur across a wide range of expected outcomes.[89]
4.93
The ANF highlighted in its submission that the work of 'registered and
enrolled nurses is progressively being substituted by unlicensed carers, which
now represent the bulk of the workforce providing aged care services'.[90]
Yet, recent evidence suggests a correlation between skills mix and patient
outcomes. Citing a 2007 Australian study which reinforced findings of a number
of international studies, the ANF noted that
...[a] skill mix with a higher proportion of registered nurses
produced statistically significant decreased rates of negative patient outcomes
such as decubitus ulcers; gastrointestinal bleeding; sepsis; shock;
physiologic/metabolic derangement; pulmonary failure; and failure to rescue.
The study found one extra registered nurse per day would
reduce the incidence of decubitus ulcers by 20 per 1000 patients, of pneumonia
by 16 per 1000 patients, and of sepsis by 8 per 1000 patients. Patients are
also less likely to fall and suffer injury as registered nursing home hours
increase.[91]
4.94
A number of providers held that the ACFI had 'skewed' funding towards
high residential care at the expense of low care funding which was creating
dependence on specialist nursing services. In Western Australia, as one case in
point, 72 per cent of all new admissions were of persons into high residential
care requiring a high concentration of nurses.[92]
4.95
According to other evidence, problems in recruiting and retaining
professional nursing staff also extended to care workers. The Australian
General Practice Network (AGPN) highlighted that there was a workforce shortage
affecting all care providers including personal care workers, general
practitioners and allied health professionals as well as nurses.[93]
4.96
The Liquor, Hospitality and Miscellaneous Union (LHMU), whose members
comprise approximately 75 per cent of the aged care workforce, stated that
there was an annual turnover of direct care workers of 25 per cent.[94]
Citing a 2008 National Institute of Labour Studies report, the LHMU noted that
the high turnover rate was related not only to low remuneration but also work
conditions. According to the report, 26 per cent of personal carers felt that
they were able to spend sufficient time with residents whilst 36 per cent did
not fell under pressure to work harder and 43 per cent found their job more
stressful than they imagined.[95]
Conclusion
4.97
The committee acknowledges the concerns of providers in relation to the
recruitment of professional nursing and other aged care staff and recognises
that the issue must be addressed if the sector is to meet growing demand on its
services in both the immediate and longer term. For this reason, the committee
holds the view that the issue of staffing requirements must be considered in
the recommended overarching review of the aged care sector. This will enable
immediate and longer term projections in terms of staffing requirements and
complement work currently undertaken to address aged care workforce challenges.
Recommendation 12
4.98
The committee recommends that the issue of professional nursing and
other aged care staffing requirements be considered in the overarching review
of the aged care sector.
Wages
4.99
A considerable number of submissions highlighted the problems with nurses'
wages which, according to some evidence, are at least 10 per cent below that of
equivalent staff in the acute care sector with some submitters commenting that
the difference was up to 20 per cent.[96]
According to Murchison Community Care, this disparity remains despite wage
increases of 4 per cent a year for the past 6 years.[97]
Aged and Community Service Australia stated that wage levels for aged care
staff continue to lag behind those paid by other employers in the same labour
market, further exacerbating the difficulties experienced in recruiting and
retaining skilled staff.[98]
4.100
Mr Dave Kelly, Secretary of the Liquor, Hospitality and Miscellaneous
Union, made the following comments in relation to wages:
I have got a rate down there at the bottom for zookeepers.
The LHMU also has the privilege of negotiating on behalf of staff at the Perth
Zoo. A zookeeper under the EBA that we have negotiated with the state
government gets $27, almost $28, an hour. I do not provide that just for a bit
of humour: it is serious. This is what we pay people to care for animals at the
Perth Zoo. What we pay staff to care for the elderly is significantly less. You
would have to ask yourself, 'What does that say about the value that we
attribute not only to the staff but to the elderly?'[99]
4.101
In a 2008 report on aged care services, the Productivity Commission commented
on wages in the sector and noted:
It is not uncommon for nurses employed in aged care to be
paid at least 10 per cent less than their peers in the acute care sector
for performing similar or equivalent work. For nurses in most settings, there
has been a general trend, over the last 10 years, to adopt enterprise
bargaining agreements and move away from award wage structures...the median real
wage gap between aged care nurses on enterprise based agreements and those
working in public hospitals has been maintained since 2005. As a result of the
comparatively low wages in aged care, registered and enrolled nurses continue
to be attracted to other parts of the health and community care sectors.[100]
4.102
The Valley View Aged Care Facility also raised the issue of disparity
between nursing staff salaries in the private and public sectors:
Salary sacrificing in public and not for profit sectors
leaves the private sector at a severe disadvantage. The private sector is
expected to provide the same standard of care as the not for profit and public
sectors without being about to provide wage parity for the top quality nursing
staff due to lack of finances.[101]
4.103
Wages account for a large proportion, 70 to 80 per cent, of total costs
for aged care providers. According to the Darlingford Upper Goulburn Nursing
Home, 87 per cent of its non-negotiable expenditure comprises staffing costs.[102]
Similarly, Havilah Hostel stated that wages contribute up to 80 per cent of
operating costs.[103]
The House Group of Companies commented that the high turn over of nursing staff
required the use of nursing agency staff and led to the expenditure of more
than $750,000 on agency casual staff in 2007 which 'had a serious effect not
only on the stability of our organisation and quality of care, but also on our
profitability'.[104]
4.104
Providers argued that funding was insufficient for the wage gap to be
closed. Mr Martin Laverty of Catholic Health Australia commented that changes
need to be made to either the fringe benefits tax concessions or the care
subsidies aged care providers received in order to provide parity with the
acute sector.[105]
UnitingCare Australia highlighted that the National Aged Care Alliance
estimated in 2006 that $250 million per annum was required to achieve and
maintain comparable wages and working conditions with the acute health sector.[106]
4.105
Mr Rod Young of the Aged Care Association pointed to the Productivity
Commissions 2007 report and noted that the report 'accepted an industry
estimate that the cost of putting aged care in a position to pay wages similar
to those in the acute hospital sector would be a oneoff payment of $450
million and an annual additional payment of $100 million to maintain parity
between the two systems'.[107]
4.106
However, the ANF argued that there is capacity in the sector to improve
wages. The ANF noted for example, that in 2005 the NSW Industrial Relations
Commission awarded a significant pay increase (23 per cent) to nursing staff in
aged care which bought wages close to parity with the public sector. While
providers argued an incapacity to pay, the Commission stated that 'we consider
that nothing the employers have put regarding their capacity to pay would
prevent an increase in wages for nurses in the aged care industry that achieves
fair and reasonable pay rates that properly reflect the work value of nurses'.
The ANF concluded that 'to our knowledge the pay increases did not result in a
comprehensive collapse of the sector in NSW causing nursing homes to close as
was the dire prediction of the provider'.[108]
4.107
The ANF went on to comment that the wages gap has developed between aged
care nurses and nurses in other sectors is a consequence of enterprise
bargaining agreement outcomes:
While the content of federal safety net awards covering
nursing staff in both the acute and aged care sectors remains broadly
comparable, enterprise bargaining outcomes have let to significant differences
in remuneration levels. The difference is primarily due to the inability to
secure comparable enterprise bargaining outcomes to those in the acute sectors.[109]
4.108
The ANF also noted that Commonwealth funding initiatives implemented
since 2002 to enhance the capacity of aged care employers to offer competitive
salaries were not tied to wages and that 'much of the money was used for other
purposes'. According to the ANF:
The parlous state of bargaining in the sector has led to an
inability of employers to fully complete in the labour market and they have
struggled to recruit and retain nurses and other health professionals.[110]
4.109
The Productivity Commission noted that despite Commonwealth initiatives wage
differences between the aged care and acute sectors have not narrowed. The
Commission concluded that there were two main reasons for this: first, the
extra funding is broadly similar to funding increases in the acute care sector;
and second, there is no requirement on aged care providers to direct the extra
funding towards paying higher wages to their workers.[111]
4.110
The ANF stated of a possible solution:
It is recommended that a nursing occupational award covers
all health sectors including aged care. Bargaining mechanisms need to be
strengthened and stringent accountability requirements be placed on the
providers to show that funding is expended on care in such a manner that
provides for commensurate wages and conditions.[112]
4.111
In response to such concerns and suggestions, Dr Cullen of the
Department of Health and Ageing argued of the salaries paid by the top quartile
of aged care providers:
I know of some of the providers. I know their enterprise
bargaining agreements and I know that they are generous compared with the award
and at a benchmark of what is done elsewhere. I do not want to be misquoted.
There is no evidence that I am aware of, and I do not believe any evidence has
been given to the committee, that the top quartile achieved that by cutting
costs.[113]
Conclusion
4.112
The committee acknowledges that the Department of Health and Ageing has
undertaken a number of initiatives to attract professional staff. The committee
also recognises that the issue of attracting and retaining adequate aged care
staff (including that of professional nursing staff) is complex and that there
is no single solution. It therefore calls on the suggested advisory taskforce
in consultation across the sector to identify the key challenges in relation to
staffing and to identify a range of methods of address, particularly in rural
and remote areas.
Recommendation 13
4.113
The committee recommends that the Department of Health and Ageing, in
association with the suggested taskforce, review aged care staffing challenges
and identify methods of address, with particular focus on staffing requirements
in rural and remote areas.
Capital funding of residential aged care facilities
4.114
A number of aged care providers highlighted the lack of capital funding
available to ensure that the sector is able to provide the services required in
the future. Whilst accommodation bonds and charges provide aged care facilities
with a capital stream to upgrade and maintain buildings, some providers may not
attract sufficient residents who pay accommodation payments. For this reason,
the costs of capital works are covered by an ongoing program of targeting
capital assistance for such providers.
4.115
According to the department, in 2007–08, $45 million in capital
assistance was allocated under the Capital Grants for Residential Aged Care
program to assist providers of residential care to improve and upgrade 30 aged
care homes, of which 80 per cent of the funding was provided to services
in rural and remote areas:
Of this, $12.5 million was allocated as Residential Care
Grants, to support fire and safety related improvements and other works
required for accreditation and certification, as well as the construction of
new accommodation. The remaining $32.5 million was provided through the
Regional and Rural Building Fund to assist rural and regional aged care homes
to upgrade the quality of their buildings or to expand, thereby increasing
access to aged care places for rural communities.[114]
4.116
In addition, the 2008–09 Budget included a measure to provide $300
million in zero real interest loans to assist in expanding the availability of
residential aged care beds. Such loans are available to build or expand aged
care facilities in non-metropolitan regions where there is a shortage of beds
for permanent and respite care. According to the department, the loans will
provide up to an addition 2,500 aged care beds in areas of need. Loan
recipients will pay interest at a rate equal to the Consumer Price Index.[115]
Zero Real Interest Loans are administered through two rounds with $150 million
worth of loans distributed in the first round in April 2008 allocating 1,348
aged care beds and 107 community care places in areas of high need.[116]
4.117
For providers not entitled to capital grants or zero real interest loans,
capital funding is derived from the accommodation charge, currently a maximum
of $26.88 per resident per day or where residents enter low care only, the
retention and interest derived from a refundable accommodation bond.[117]
Many residential high care providers maintain that as they have to pay more for
their capital than the bond system in low care, they have lower rates of
return. In addition to this, their staff costs are higher because high care
demands a greater number of nurses and other care staff than low care.[118]
4.118
A number of providers maintained that funding levels were inadequate and
as a consequence, construction of new high care facilities and redevelopment of
existing high care facilities was non-viable.[119]
According to Aged and Community Services Australia, current payments for
capital purposes do not cover the costs of expanding residential care
facilities, particularly high care, and to meet contemporary standards.[120]
Similarly, Japara Holdings stated:
Firstly, new aged care facilities (high care) are not being
built because the cost of building new high care facilities far exceeds the end
value, based on current government funding arrangements.
Secondly the cost of upgrading older style existing high care
facilities to best practice standards and 2008 compliance is significant,
however as no additional revenue is obtained to provide a return on this
capital expenditure, Approved Providers cannot under take these essential
upgrades.[121]
4.119
The Western Australian Government recognised the establishment of a
viable capital funding stream for infrastructure as the primary difficulty
regarding aged care funding:
Since the introduction of the Aged Care Act 1997, the
residential age care sector has been troubled by the inability to establish a
viable capital funding stream to finance the construction of new facilities or
upgrade and maintain existing facilities in order to operate.
Concomitant to this problem is the absence of a planning
and/or monetary mechanism to quickly operationalise beds leading up to
three-year time lapses between allocation and operationalisation.[122]
4.120
Villa Maria, Murchison Community Care Inc and Capcare maintained that
they utilise their capital funding to contribute to operational costs, leaving
the respective provides to source additional funding for the development and
maintenance of the building and its infrastructure.[123]
According to Villa Maria, this requirement typically resulted in the facility
going into a 'deficit position'.[124]
4.121
The position of many providers in relation to capital funding is
contextualised by the Aged and Community Services Association of NSW & ACT:
The current capital and operational funding levels do not
adequately take into account current economic variables such as building
maintenance, wages, petrol etc. The inability to charge bonds in ordinary high
care (nursing home) and the capping of the accommodation charge significantly
impacts on capital funding streams. Currently a bond with the interest and
retention amount far exceeds the worth of a daily accommodation charge. Many
approved providers have recently put expansion plans on hold as the capital
costs of providing new places as well as the ongoing maintenance of buildings
and amenities are exceeding current funding.[125]
4.122
A Grant Thornton Australia 2008 survey of 700 nursing homes and hostels
throughout the country recognised increasing costs of construction and low
returns as the principal impediments to the re-development of aged care
facilities whilst noting that much of Australia's building stock remains dated:
Providers of residential aged care
services are experiencing low and deteriorating financial returns at a time of
unprecedented demand for high care services. This is particularly the case for
the modern, single room facilities most preferred by consumers. Older,
institutional facilities with shared rooms consistently outperformed new
services. These results reveal a lack of incentive to renovate old facilities,
or to build new ones, representing a threat to the viability of the residential
aged care sector.[126]
4.123
Of the consequences, the survey noted:
The regulatory and pricing framework now threatens the
viability of the aged care sector by suppressing incentives to invest in modern
aged care infrastructure. This decline in investment severely limits choice for
consumers of aged care services.[127]
4.124
Mr Stephen Teulan, UnitingCare Australia, informed the committee that
the organisation's return on investment is currently under 2 per cent and that
as a consequence there is little incentive to recreating services or rebuilding
services in the future and 'what will happen in the absence of anything else is
that people will not apply for new places; they will not build and the services
available to Australian community will diminish'.[128]
4.125
Mr Rod Young of the ACAA emphasised the need for urgency in addressing
capital funding needs:
But there is no doubt, given the current trends in the
industry, that repairing the capital capability for residential high care is
certainly an absolutely urgent priority. If you look across the industry and
talk to providers, the number of them who are completing construction work that
is in train but who have clearly indicated they will not continue to invest any
more until there is restitution to some sort of financial viability is
alarming. In my opinion, we will see an almost total halt in the industry over
the next two years if that is not repaired. So you would have to say that is
fairly urgent; nonetheless, the operating income for the industry, given the
current level of returns, is of almost equal importance. However, I think
capital needs to be addressed as the first priority.[129]
4.126
According to the ACAA, during the 2007–08 financial year, $1.45 billion
was spent by the industry on building works.[130]
At the same time, a 2007 analysis by PricewaterhouseCoopers cited in a number
of submissions to this inquiry established that on conservative assumptions
regarding capital costs, the capital raising capacity of the industry is likely
to be under-funded by as much as $5.7 billion in capital over the next 12
years.[131]
Yet the Grant Thornton Australia survey established that 44 per cent of
Australia's aged care facilities are more than 20 years old.[132]
However, according to the body:
Many operators have deferred or abandoned plans for the
redevelopment of their aged care services because of the level of investment
required and low returns generated from facilities that meet preferences.[133]
Conclusion
4.127
The committee received evidence and submissions from aged care providers
and stakeholders from all parts of Australia which put a similar view: that the
aged care sector is facing difficulties with the level of funding that it
receives. That level is viewed as being inadequate to provide the services
required, to meet increased costs such as wages and to implement the expansion
needed to meet future demand. The Department of Health and Ageing's evidence
did not accord with the provider's view of the sector. The committee considers
that given the importance of the issues raised, that it is time for an all
encompassing review, as recommended by the committee, to be undertaken.
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