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Spin wont make 'high care' aged care sector sustainable

By Jeremy Sammut - posted Thursday, 17 July 2008

The Minister for Ageing’s attack on the Queensland Aged Care Alliance (The Courier-Mail, “Minister opens fire on age care - Attack stuns industry”, June 19, 2008) marks a new low in the history of aged care policy.

Justine Elliott, who is also member for Tweed Heads, is using spin to discredit the Alliance to avoid tackling the difficult political issues in her portfolio.

The residential (or “high care”) aged care sector faces serious short-term operational and long-term strategic challenges. These challenges stem from the inability of providers to levy accommodation bonds.


Accommodation bonds are financed by the sale of the residents’ homes, and are returned to their estate upon death, minus an administration charge. Bonds can currently be levied only for places in “low-care” facilities. This leaves the high care sector heavily dependent on federal government funding. In recent times, providers have been forced into debt to undertake redevelopments and meet tough government certification standards.

The biggest problem is that the industry lacks access to capital to develop new, modern, and expensive-to-construct facilities. The capital gap between existing and required capacity is an estimated $27 billion during the next decade alone. Unless the bond system is extended, providers will struggle to provide the quantity and quality of high care required to meet the coming tsunami of demand from ageing baby boomers.

The Queensland Alliance, which represents both for profit and non-profit high-care aged care providers, recently visited Canberra to discuss funding arrangements with the Rudd Government. Unfortunately, the accommodation bond question tends to lead to embarrassing scare headlines of the “government to rob old people of homes” variety. To manage its media coverage, the government is therefore desperate to keep the issue off the political agenda.

Hence, the Minister has not only claimed the federal government has ensured the viability of the high care sector by providing record levels of funding, but has portrayed the Alliance as collection of greedy and slack providers who are demanding greater government support to increase their huge profits and prop up their badly-run operations. If you believe the Minster, Queensland high care providers have worked an economic miracle, for they are not only the most profitable in the nation, but also among the most inefficient.

One hardly knows where to begin to address these contradictory claims.

The Minister says that Queensland providers will this year receive a record $1.2 billion in federal funding, an increase of 43.9 per cent over the last 10 years.


However, funding has been far outpaced growth in the real cost of providing high care. Exacting government regulations, the escalating cost of nurses’ wages, and spiralling interest rates and debt servicing costs means that over 40 per cent of high care providers now operate at a loss. Across the industry, profits fell by 30 per cent between 2005 and 2006.

The Minister’s extraordinary response to the deteriorating financial health of the sector is, on the one hand, to criticise Queensland high care homes for eaking out the highest profits in Australia - an average $10 return from the $134 government funding received per patient per day. An 8 per cent profit margin is hardly extravagant.

On the other hand, the Minister dismisses the sector’s overall financial woes by blaming the problems on inefficiency. Pointing to the 2004 Hogan report, which found the Queensland sector the second most inefficient in Australia, the Minister’s advice to unprofitable providers is to improve their practices. She says the top 25 per cent of properly managed providers are able to make money.

This is a red herring. The Hogan report found very little difference between the States. It did, however, find a big difference in average efficiency between for-profit providers and not-for-profit and far more inefficient government-run services. Hogan also found that for-profit homes (the majority of which remain family-run operations) were over-represented in the most efficient/best-practice group of providers. The crucial point is that recent performance trends make a nonsense of the Minister claims.

The latest industry survey shows a consistent decline in the performance of even the top performers in the sector, with profitability having fallen 17 per cent between 2004 and 2006. Returns on assets generated by for-profit providers have also halved to just more than 3 per cent (compared to about 3 per cent across the industry). If the rate of return is below the rate of inflation, you would be better off selling up and putting the money in the bank.

It is politically convenient to bash “greedy” and “slack” aged care “companies”, but spin won’t create a sustainable funding model. Given the high care sectors present un-viability and uncertain future, a government with a modicum of political courage and a degree of political skill should be able to convince the public that extending the accommodation bond system is overdue. Twice the Howard government squibbed this issue. The Rudd Government appears determined to do the same.

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About the Author

Jeremy Sammut is a Research Fellow at the Centre for Independent Studies. Jeremy has a PhD in history. His current research for the CIS focuses on ageing, new technology, and the sustainability of Medicare. Future research for the health programme will examine the role of preventative care in the health system and the management of public hospitals. His paper, A Streak of Hypocrisy: Reactions to the Global Financial Crisis and Generational Debt (PDF 494KB), was released by the CIS in December 2008. He is author of the report Fatally Flawed: the child protection crisis in Australia (PDF 341KB) published by the CIS in June 2009.

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