Aged-care system on life support

Providers say the industry will collapse without urgent reform.

Scott Morrison and Ken Wyatt talk to recipients of in-home care. Picture: Kym Smith.

In May this year, softly spoken Aged Care Minister Ken Wyatt met the owner of a nursing home and privately conceded funding freezes worth more than $1.2 billion in 2016 were hurting the sector but, according to one man in the room, added: “These things are controlled by Treasury.”

While Wyatt denies this categorically, the vignette of life inside the land of labyrinthine aged-care policy gives some insight into a tension that has existed between government, consumers and providers for more than a decade. The tension arises in much the same way siblings grow together: they need one another but each can be insufferable in their own way.

Here is that hierarchy, in brief.

Older Australians need someone to care for them as they live longer and their own children have kids later in life. The federal government needs for-profit and not-for-profit providers to do the work it doesn’t want to do while the providers themselves rely on the taxpayer for about 70 per cent of their revenue, most of which directly funds nursing and personal care in homes.

In his meeting, Wyatt is referring to a funding freeze for the Aged Care Funding Instrument in the 2016 budget, which has remained in place for almost 2½ years.

So while Scott Morrison correctly notes total aged-care funding rose $1bn a year under the Coalition, that is due to creating more places under home and residential care.

The component of the budget that subsidises the greatest cost of delivering nurses and personal support for those existing and new places hasn’t grown at all. The effect on the sector is particularly potent now, given the ALP tinkered with the same funding instrument in 2012 for a $1.6bn budget saving.

 

The arithmetic is simple: the population is growing older, the number of places are expanding but medical and care subsidies are not growing.

According to respected industry accountants Stewart Brown: “ACFI residential care subsidies are now cumulatively increasing at a lower rate than the costs of providing direct care.”

In its submission to the federal government’s Aged Care Workforce Strategy Taskforce — commissioned by Wyatt — Stewart Brown says ACFI and supplement funding has risen by 78 per cent in the decade to last year but direct care costs have risen by 88 per cent in the same period. “This will create further financial tension and risk the potential of reducing staffing hours to attempt to remain fin­ancially viable.”

Not surprisingly, there is disagreement about just why the ACFI was frozen in the 2016 budget. The federal government was spooked by a huge rise in claims, particularly for the highest daily rate for complex healthcare. This subsidy was for particularly high-needs residents with complicated pain-management regimes, chron­ic skin conditions or intensive medication requirements.

Some of the bigger private providers had been rorting the subsidy and had whole teams of people on staff whose only job was to maximise the severity ratings of residents to get the top daily rate.

What the government didn’t have, however, was evidence that this practice was widespread. Many of its reports into the issue actually found evidence that some aged-care operators had been under-claiming.

The review report released quiet­ly last year by Wyatt found the huge rise in ACFI projections over the forward estimates was because of a combination of factors.

Partly, people are older and more frail when they enter residential aged care and so their needs are much higher than they have been before. This, providers say, ought to have been obvious.

“There were specialised ACFI co-ordinators established in most organisations which led to better management and co-ordination of claiming reviews which resulted in a reduction in the number of facilities that were under-claiming,” the review says.

“No fee if no ACFI funding gain” consultancies sprang up, and these were “successful at significantly improving average ACFI funding levels, particularly with existing residents who had not been reappraised for some time”.

“There was significant growth in the proportion of private providers in the sector (from 2012) who have been historically more efficient at generating the best ACFI claim possible,” the report says.

But increasing claims and rorting are not the same thing. How many providers have been prosecuted, such as in the family daycare sector, for fraudulently claiming taxpayer money through the ACFI? Precisely zero.

Untangling what is and isn’t legitimate is nearly impossible because the government put off a study into the actual cost of care. As staff numbers are spread ever more thinly and operator models that allow quality care become squeezed year on year, the government has kept a funding tool — the ACFI — when it has no idea if it comes even close to covering the true cost of care.

A study into those costs is under way and is due to report in December, just months ahead of the likely federal election.

“We have to be honest as a nation, and in a bipartisan way, and actually ask ourselves: how much does this cost? Because we haven’t done that in about 22 years,” HammondCare chief executive Stephen Judd tells The Australian.

“We need to do that again and work backwards from there. The government and in particular the Treasury might not like what we find.”

HammondCare is a Christian charity provider with annual revenue of $300 million. Unlike many other providers, its operations are diversified and residential aged-care services make up about 40 per cent of the outfit. Even so, those services are “struggling a little bit” because this is the pointy end of the aged-care mission. Costs are higher, facilities harder to open, regulations — appropriately — more strict.

“We would be losing money on some of those services and not losing money on others,” Judd says.

Financial viability is not just rhetoric, either. The numbers are alarming.

In its analysis of sector performance, Stewart Brown told government 21 per cent of facilities were making a loss on earnings before interest, tax, depreciation and amortisation and 41 per cent were making a loss on earnings before tax. These figures are up more than 5 per cent and 7 per cent respectively in just six months to December.

“The effect of the reduced facility performance as a result of the combination of the COPE (Commonwealth Own-Purpose Expenses) freeze, amendments to the ACFI scoring matrix, ACFI downgrades and increased costs has resulted in many facilities moving into an increasingly financially vulnerable position,” its submission says.

Why does this matter at all? Because without providers there is no aged-care sector and the government knows this.

This may explain why the compliance regime in aged care has been so weak, even after providers are caught doing the wrong thing time and time again.

Take just one case, the Aurrum Kincumber nursing home on the NSW central coast.

Aurrum Kincumber was re-accredited for six months on November 13 last year after failing to meet 11 standards. Just one week later, however, it was the subject of a serious risk notice for lax standards that placed residents at immediate risk of serious harm.

In March this year, however, the service was re-accredited for another year to May next year. Just two months later it has been the subject of another serious risk decision for “persistent” issues relating to skin tears and wounds among residents.

In the past financial year just 12 aged-care services had their accreditation cancelled for good. Aurrum Kincumber was not one of them.

The Prime Minister has called a royal commission into the quality of care and abuse in the sector because of a “disturbing and alarming” rise in such serious risk notifications in the past year. They have soared 177 per cent.

But regulators are reluctant to close these services at all because where else are the elderly meant to go, particularly in regional Australia? It’s a Faustian bargain with some of the worst performers in the sector.

This is not a strand of Coalition ideology, nor Labor, but one of government machinery, which does not have an answer.

“I used to pay my personal care and hotel staff over-award up to 5 per cent but I have had to absorb these over-award payments and revert to the award minimum, otherwise we would be running at a loss,” another aged-care provider tells The Australian.

“Furthermore, with each fall in ACFI claiming now I cut staffing levels. This is the only possible response to falling ACFI claims which is how care staff are funded. I do not want to take these steps, I hate doing it but I am fighting for survival.”

This provider, who did not wish to be named, says he has no doubt the ACFI is being rorted “on an industrial scale” by larger operators but criticised the response of successive governments to turn the tool into a blunt instrument.

“The government, instead of increasing their ACFI compliance efforts by targeting the highest claimants, decided to increase the criteria of ACFI claiming rules,” the operator says.

“This is making it harder for every provider to claim the appropriate rate for their residents.”

This leads to a larger problem for the future of the system.

The Aged Care Financing Authority last year estimated the sector needed to build an additional 83,500 places across the next decade at a cost of $35bn. This isn’t home care with its low overheads. These are bricks-and-mortar facilities for residential aged care, and that takes time and money.

Stewart Brown says just upgrading existing facilities — two-thirds of which are more than 20 years old — would cost even more than $35bn.

Non-profit and for-profit providers are asked to fund this in “large part through borrowings from financial institutions”.

On that note, another aged-care provider had lunch with high-ranking bankers recently and recounts the look of surprise on their faces when they checked how much money had been lent to aged-care operators.

“Their eyes went wide, like, how much?” the provider says.

Another added: “Aged care is no longer a viable industry.”

“Anyone who has invested in a listed aged-care provider has destroyed their superannuation savings,” he says.

“The government’s arbitrary policy from the hip has now made the industry unviable, and it is only a matter of time as the government keeps adding one stone at a time, that individual providers will be sanctioned out of business, close down or become insolvent.

“The government has created an almighty storm which is about to hit.”

The royal commission will uncover horrific stories of abuse and neglect but the government is already in possession of reams of its own reports it has commissioned through years that form a chorus of evidence.

When the money dries up, older Australians suffer.