Funding the sector: How aged care interdependencies affect costs

The Australian Government’s Community Affairs Reference Committee has been undertaking an inquiry into aged care service delivery. The scope of the inquiry is centred on Support at Home reforms and the impacts of decisions by Government regarding delays in the implementation of this program. The Inquiry is due to report to the Parliament on 15 September 2025.

The terms of reference of the Inquiry cover many of the specific issues regarding reforms to the provision of care and support in the homes of older Australians. Whilst asking and answering questions regarding this element of the aged care system is important, taking a step back raises more fundamental questions about how decisions are made by the decision makers.

Notwithstanding numerous reviews and reforms, including the Royal Commission into Aged Care Quality & Safety, the aged care system has still yet to fully respond to the needs of the growing numbers of older Australians. Under the current reforms, based on the recommendations of the Royal Commissioners, the aged care system is in a state of transition, if not indeed, transformation.

However, even with all the changes, either realised or planned, there are factors at play that, until addressed, will continue to impact the quality, accessibility and viability of aged care services in Australia.

In essence, these factors relate to the system settings for, and the inter-dependencies between, Quality, Workforce and Funding.

Quality
There has been much debate and change over the past decade with regards to: aged care quality standards; the regulation of compliance with the quality standards; and the institutions and arrangements responsible for quality and safety in the aged care system.

Many issues have arisen regarding: the form of the quality standards (objective vs subjective); how effectively and consistently quality is assessed (or not); the value (or not) of rating tools; the costs to the system of compliance; the role/s of the regulator in assessing compliance and how it might support continuous improvement; and most importantly, the impact of quality standards on the practice of providing aged care services and the outcomes realised for older Australians.

Current reforms seek to address these issues. However, at this point in time, it is not clear to what degree these are being resolved. The point being that if we are not absolutely clear and consistent in determining what good quality is, how it is measured, and how it is regulated and funded, then the challenges being experienced will continue.

Workforce
In order to realise high quality, safe, person-centred care, we need to have a well-trained, well-remunerated, committed workforce. The current aged care workforce do their best to deliver quality care, often in challenging circumstances and with limited resources. As demand for services increases, so too does demand for workers. Notwithstanding the ‘A Matter of Care’ aged care workforce strategy (2018), we are still yet to see in practice an effective national approach to realising the required aged care workforce. This situation has been further exacerbated by the impacts of the COVID-19 pandemic on workers, as well as regulatory changes regarding care minutes and on-site Registered Nurse requirements. All this occurs against a backdrop of workforce shortages right across the ‘care economy’.

Funding
The funding of the aged care sector has not kept pace with the costs of delivering high-quality care, as well as the needs or expectations of older Australians and the wider community. The Royal Commission found that successive Governments reduced, in real terms, the funding available to meet demand and deliver quality services. Whilst the costs of delivering higher standards of care to increasing numbers of older Australians, many with higher care needs, continued to climb. It should be no surprise then that the aged care system experienced quality issues given the level of funding removed from the system. A review of aged care system financial reports prior to 2017 shows that, in a system where not-for-profit organisations make up around 60% of service providers, around one third of all approved providers of residential care services operate at a loss on an annual basis. However, since this time, following cuts to ACFI in 2016, the pandemic, and other issues, the number of all residential care service providers operating at a loss increased to two thirds. The impact of this trend of year-on-year inadequate funding levels and growing financial insecurity sees services not able to meet the current needs, let alone prepare for future demand. As the Royal Commissioners opined, this situation placed providers in an untenable situation of trying to deliver quality care whilst struggling to keep the doors open.

Inter-Dependencies
Whilst there are specific issues with regards to quality, workforce and funding, the inter-dependencies between these factors are stark. A high-performing, respected and sustainable aged care system needs to have alignment and synchronicity between the stated levels of quality desired, the workforce required to deliver this quality of care, and the financial resources to pay for all the costs of high-quality care.

My observation and experience is that, when addressing the issues of quality, workforce and funding, decisions have been taken somewhat in isolation of each other. This has resulted in the presenting issues regarding the outcomes experienced by older Australians receiving care and the people and organisations providing care.

Some examples include:

• Implementing care minutes and RNs 24/7 in residential care as a quality measure but not having an appropriate or effective strategy to ensure enough qualified workers are available to meet this compliance requirement. As a result, the demand for using ‘agency’ staff increased dramatically, with a subsequent and substantial increase in the associated costs, thereby placing further operational pressures on workers and increasing levels of financial distress on many services, most notably impacting services operating outside metropolitan areas.
• Implementing quality standards in isolation to modelling the costs required to meet new standards, and then having the true costs reflected in the funding subsidies for service providers. The aged care sector has made repeated calls for a ‘costing study’ to be conducted since the 1990s. Based on a Royal Commission recommendation, a step in the right direction sees the Independent Hospital and Pricing Authority expanding its remit to include aged care. At this point in time, however, it appears that this remit is limited to the ‘care’ subsidy, which does not fully account for all costs involved. Further, the outputs of the Pricing Authority’s calculations are in the form of advice to Government and may not necessarily result in funding level decisions that are commensurate with the true costs.

Australians deserve the best aged care system possible. Whilst improvements are underway through the current reform process, there is still more work to be done. Whilst inquiries by Government can look at specific issues and elements of aged care in Australia, managing decisions at the system level, taking full account of the inter-dependencies inherent between quality, workforce and funding, will provide a solid foundation upon which to build a better system for older Australians today and into the future.