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Aged care sector’s transition prompts major decisions for providers and government

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Aged care sector’s transition prompts major decisions for providers and government

“In the middle of every transformation there is the perception of failure.”

This observation, articulated by a wise colleague, manifests itself in many contexts. Right now it applies to the aged care system as it grapples with the necessary changes highlighted by the Royal Commission into Aged Care Quality and Safety.

In their Interim Report, delivered in October 2019, the Commissioners found that aged care in Australia fails to meet the needs of older, vulnerable, citizens. “It does not deliver uniformly safe and quality care, is unkind and uncaring towards older people and, in too many instances, it neglects them,” the commissioners said.

But we must keep in mind that the system is in the midst of a transformation that has the potential to vastly improve it.

This transformation began before the Royal Commission began its work. It was prompted by the rapid rise in the number of people needing care, the increasingly sophisticated lifestyle needs and preferences of those older people and the shortage of suitably skilled aged care workers. Many aged care service providers were already looking for ways to improve outcomes for older people.

Historically, government and providers acting with good intent set aged care rules that tended to favour residential aged care providers and limited the government’s fiscal risk. In doing so, they paid too little heed to the preferences and rights of consumers, who were expected to be compliant.

But things are changing. The consumer revolution that is empowering consumers to seek bespoke products that best meet their needs is transforming aged care. Older people and their carers expect to receive support without long waiting times and to be able to choose who will provide support, and where, when and how it will be provided. They are also looking for greater continuity in who provides that support – in other words, to be able to develop an ongoing relationship.

Care is moving from institutions to the community

A major feature of the ongoing transformation is the shift in the primary locus of long-term care. Large-scale institutional settings are being replaced by home and community-based care as well as non-institutional residential settings, including retirement villages and smaller care homes.

Growing availability of home care packages is enabling the change; government home care subsidies of up to $50,000 a year are available to people depending on their circumstances. Unfortunately, though, pent-up consumer demand is overwhelming supply, leading to community frustration about the length of the waiting list for home care packages and slowing down the transformation. Consumers are making clear they want to avoid institutional care for as long as they can.

As aged care consumers become more empowered, and concerned by stories of neglect, they are seeking greater professionalism from the workforce. No qualification is legally required to be a paid aged carer in Australia, and more than seven in 10 aged care workers hold only a Certificate III VET qualification and work as personal carers.

The Royal Commission has foreshadowed lifting skills across the sector, with commensurate increases in pay. If implemented, this will inevitably lead to greater costs for government and providers, which will undoubtedly be passed on to consumers.

Amid this transformation, residential aged care providers are encountering falling occupancy and wage cost increases that outpace the indexation of government subsidies. With the government regulating consumer charges, these operators are having their margins squeezed. Some will battle to stay profitable and be forced into closure or mergers. For many home care providers, the benefits of participating in a growing market are offset by the intense competition and significant burden associated with complex and costly administration.

Critical questions loom for providers and the government

As consumers and the Royal Commission explore options for improving the aged care system, aged care providers and the government face some critical decisions.

Providers are deciding how much to invest in existing models. They may justify new developments on the basis that these will out-compete many older facilities, which are most susceptible to market changes. They may also adapt their building designs and operating models to differentiate their offerings and will explore how to increase consumer contributions. It is not known if previous assumptions about demand, cash flow and profitability will hold during and after the transformation.

These are the critical questions for aged care providers:

  1. How do we invigorate our existing residential aged care models to achieve acceptance by consumers and overcome the progressive decline in industry occupancy rates?
  2. How do we apportion our investment between enhancing existing models and developing alternative models of care and accommodation?
  3. How can we increase the proportion of revenue contributed by consumers to offset the reducing share of revenue provided by government subsidies?
  4. What level and type of specialisation by customer grouping will we pursue as the market matures and the requirement for differentiation increases?
  5. How can we use technology to improve productivity and quality of life, and empower consumers?

For government, the critical decisions are how much it needs to invest in additional subsidies to support the diminishing profitability of existing residential aged care services. It also needs to consider the relative quantum and timing of investment in community-based care, and what level of additional consumer contributions should reasonably be expected from older people in need of care, perhaps consideing their ability to pay.

These are the critical questions for government:

  1. How does government apportion its expenditure between sustaining relatively expensive traditional residential aged care services and the growth in less expensive home care services?
  2. How can demand from consumers for aged care services be reduced or delayed through the promotion of wellness strategies?
  3. How can consumer contributions be expanded in a politically acceptable way?
  4. What market, regulatory and funding structures and levers should be used in different contexts (such as metro/rural/regional/ remote and for groups of people with special needs) to assure access, consumer choice, skilled workforce and quality of care?
  5. How can the productivity of home care services be increased to address the large shortfall in supply?

Overall, the challenge for government is to manage a transformation that achieves better outcomes for consumers and a more efficient system, while not disrupting a service vital to many very vulnerable older people.

The Royal Commission is due to deliver its final report in November this year. It is likely that its conclusions will align with the broad sentiments in the interim report. Regardless of the detail of the report, the future trends in aged care are becoming clear.

How aged care providers and governments respond to these questions will determine whether older Australians receive the care and support they need and desire.

Get in touch to discuss how Nous can guide you through the key decisions you need to make.

An edited version of this article was published in Aged Care Insite.

Published on 4 March 2020.

 

Tags: aged care, ageing