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ROYAL COMMISSION: Lacking regulation and future funding changes

The Royal Commission into Aged Care Quality and Safety held seven days of hearings, running from 14-18 and 21-22 of September, covering how the aged care funding system developed, regulation issues around spending and what potential funding mechanisms would be more appropriate.

Former Prime Minister Paul Keating suggested a longevity levy and a post-debt system like in higher education to the Commission. [Source: Aged Care Royal Commission]

Senior Counsel Assisting Peter Gray QC, says in his opening statement, "The topic is large and technical. Funding is vitally important, not only because it's critical to capability to provide aged care but also because the way it is administered can have a profound effect on quality."

The Commission had big-name witnesses on the stand, including former Prime Minister, Paul Keating, and former Federal Treasurer, Peter Costello AC.

Foundations of aged care

In front of the Commission and discussing the foundations of the aged care system was former Prime Minister Paul Keating. He described the move towards providing more low care cost options for older people in the 1980s.

He explained that the creation of superannuation was meant to take the pressure off of the age pension and off public financing of aged care.

Mr Keating added that superannuation allowed older people to be in a better position to support themselves and do things that make life worth living while allowing them to stay independently at home for longer.

Now that a lot of older people are living into their 90's and 100's, Mr Keating suggested a longevity levy. A national insurance system from the Commonwealth would ensure everyone over 80 would have income support, aged care and accommodation.

"In other words, the Commonwealth sort of picks you up at age 80 or 85, because by that stage most people's retirement superannuation balances will have run down and we are going to live longer," explains Mr Keating.

"The idea [older people are] all going to be sharp at 85 or 90, really, the superannuation balances are working out where it plays with the aged persons accommodation or the pension is, of course, not likely to be the case for many people.

"So, therefore, I have believed that the retirement system should morph into an aged care system, a long aged care system…"

He also expressed concern over the issues with home care service provision and how some people have to wait months to receive a relevant Home Care Package (HCP).

Mr Keating's solution was to suggest a post-debt system, like the higher education's HECs (Higher Education Contribution Scheme).

"If we were to move and think in aged care of a post-paid system, the Commonwealth could then advance as loans to every aged Australian, so much as to meet their needs in support services to stay at home or alternatively, in care accommodation," states Mr Keating.

"Therefore, their bricks and mortar assets or their superannuation, if they've got residual superannuation assets or cash or other investments, in other words, upon the death of the aged person, the Commonwealth account would then receive a credit from the estate.

"We're not forcing anyone out of their home in old age, we're not obliging aged persons to negatively mortgage their home, you're not asking members of families to chip in and pay for their relatives in their accommodation or their care, and so I think such a system has a lot of advantages."

Reporting and prudential requirements

A recently highlighted problem through an independent report provided to the Royal Commission is that aged care providers have very limited financial reporting requirements when providing spending data to the Department of Health (DOH).

For instance, home care providers do not need to report to the Government what goods and services are provided through the Home Care Package subsidies the Commonwealth funds. 

Similarly, aged care facilities have no requirements to spend a certain amount of money on care or services. Just like providers have no mandates on staffing levels or time of contact between staff and care recipients, they just need to be described as having "adequate and appropriately skilled" staff.

Senior Counsel Assisting Mr Gray says, "In the report produced by BDO [Australia] for the Royal Commission, it's clear that despite the pressures that approved care providers have faced, some are managing to earn sufficient profit margins to provide significant returns on their investment.

"And if adequate care is being provided, then no criticism can be made of such returns. However, the evidence identified in the Interim Report on substandard care and neglect suggests that on a system-wide basis, the current system is not well designed to ensure adequate care is provided."

BDO Australia, who created the recent report on profitability and viability in the aged care sector, was represented by Andrew Fielding, National Leader of Business Restructuring at BDO, and Fahim Khondaker, Partner, Data Analytics and Insights at BDO.

They explained to the Commission the findings of the reports, including lack of reporting requirements around Refundable Accommodation Deposit (RAD) transferrals to other third party entities.

Mr Khondaker explained there was lack of transparency around returns and losses made from the funds that were with related entities, there is no visibility around who is supporting who in these agreements, the profitability and viability of providers are not as transparent so it's unclear if aged care is an insolvency risk, and there is also a lack of transparency around the actual transaction between these parties.

Another issue they found was that a related entity has no obligation, like an approved aged care provider does, to provide quality aged care services.

Future financial systems in aged care

The Commission investigated the best stable, long-term financing systems that would better fund the aged care system in the future.

Appearing before the Commission to provide their opinions was Managing Director and Chief Executive Officer (CEO) of Regis, Dr Linda Mellors; CEO and Managing Director of Estia, Ian Thorley, and Director of Aged Care at Catholic Health Australia, Nick Mersiades.

Dr Mellors told the Commission that she agreed that the funding shortfalls in aged care has impacted staffing levels in aged care facilities around the country.

"I think the things that we can see in the data is that staffing costs have increased as a proportion of total costs but operators have taken measures to reduce staffing costs as a result of the inadequate funding," says Dr Mellors.

She explained that this can be seen either through overall staffing numbers on the floor of an aged care facility or through switching higher cost staff with lower cost staff, for example, replacing enrolled nurses (ENs) with personal care assistants.

Mr Thorley says he is looking forward to funding and financing reforms in the sector to address the decline in sustainability of aged care providers.

"I think there's an urgent issue and it's a pressing issue, and that is to ensure that there's adequate funding to provide the level of high quality and safe care that the community expects of residential aged care," explains Mr Thorley.

"I think, more broadly, though, there is a range of performance that needs to be undertaken for broader sector sustainability. I don't for one moment think that more Government funding is going to provide a resilient and robust residential aged care sector going forward."

Mr Mersiades told the Commission that the current funding system for aged care is not sustainable, which is resulting in organisations having a succession of losses.

He believes the creation of an independent pricing authority would assist in administering a new funding system that can increase the number of staff and skills-mix so aged care providers can meet the community expectations around quality care.

Royal Commission has finished the last of its scheduled hearings.


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