Opinion: Aged care sector needs a leader and commitment

By Grant Corderoy, Senior Partner StewartBrown Chartered Accountants

The aged care sector is at a very important junction which will require leadership, vision and courage from all stakeholders, including the government, opposition parties, government agencies, community, workforce and providers.

The Royal Commission into Aged Care Quality and Safety delivered its final report “Care, Dignity and Respect” in February 2021 which included 148 Recommendations which effectively challenged the aged care sector to implement structural changes to ensure that elderly Australians had access to a standard of care that was equal to any in the world. 

In this context, Recommendation 25 has significant importance. This recommendation was to combine the existing, and somewhat disparate, aged care segments which includes CHSP, STRC, HCP and RAC to create a one program that is integrated, comprehensive, provides choice and flexibility. This one program should also interface with senior housing and disability services to provide greater coverage and service delivery.

The current government is focussed on addressing the community expectations that were highlighted in the last federal election cycle, and has a Minister in Anika Wells who is invested in the sector and driving the reform process through legislation together with the implementation of necessary reforms such as mandated direct care minutes, Star Ratings for providers, 24/7 registered nurses in residential aged care, and a Support at Home program. 

Similarly, the opposition spokesperson, Senator Ann Ruston is also an active participant, which leads to good governance and accountability. 

Typically, as with any community based sector, financial sustainability is an important component. Residential aged care is characterised by having high staffing levels (and associated costs) and capital (building and equipment) costs. The taxpayer provides over 75% of the funding for residential aged care and a greater percentage for community care. 

The recently released government report “financial report on the aged care sector” noted that government expenditure on the sector for the 2021‑22 financial year was $24.8 billion with the sector servicing 1.2 million care recipients.

The financial report also noted that the residential aged care sector operated at an aggregate deficit of $2.264 billion, which after allowing for one-off write back of bed licences, was still an operating deficit of $1.451 billion. This was also the fifth successive year of losses for the residential segment, and has led to an erosion of capital, less investment and an overall lack of financial confidence by providers and the community.

Whilst not as dramatic, the financial performance of the community aged care segments are also declining. This has created a juxtaposition whereby on one hand we need to ensure continual improvement in providing quality services, and on the other the ability to afford these services. 

The Aged Care Taskforce, another positive initiative by the government, is charged with a primary fundamental, but not easy task – to consider equitable methods to increase the funding envelope for aged care, whilst ensuring equity for all elderly persons, an inclusive safety net for those in financial need and to encourage innovation and investment in the sector. 

Increased funding can primarily come from two sources, the taxpayer and the consumer. Increased taxpayer funding requires consideration of increased taxes, be it a levy, via a higher GST rate or direct taxes. This will require an entire Government’s commitment, not the least being treasury.

Increased consumer contribution may be a more palatable and realistic option but will require greater education as to the costs of providing care, expectations as to the quality of improved care delivery, and ability of the consumer to meet increased contributions. It is likely that the increased funding envelope will be a combination of taxpayer funded and direct consumer funded. 

This brings us to the issue of understanding the cost components in delivery of care. With residential aged care, there are three distinct (and complimentary) care delivery streams: 

Direct Care – the clinical care that each resident receives in a home, and includes nursing and personal care, allied health among others. These costs are funded by the taxpayer through a care subsidy (AN-ACC) which represents over 96% of the funding required. 

Everyday Living – the daily services such as meals, cleaning, laundry and utilities that a resident receives or uses during their stay. This is funded by majority through a daily fee, calculated as being 85% of the single pension with an additional government adding to the supplement subsidy. Additional services may be available at an extra cost. 

Accommodation – the cost associated with living in an aged care home. This is a complicated mix of alternate methods to pay for this accommodation, involving a choice between daily accommodation payments, a fully refundable deposit that attracts no interest to the resident or a combination of both. Where a resident does not have the ability to pay, the government provides a subsidy to cover most of the daily payment. 

The issue, however, from a financial perspective, is that the actual cost for providing these services exceeds the revenue (subsidy plus consumer fees) by an average of over $15 per day, and up to $40 per day for some homes. this is not financially sustainable, with almost two thirds of homes operating at a loss. 

This is where leadership will be required from each of the stakeholders, and not just the Government. Understanding the cost components and what revenue is required to meet these is part of the solution.

The next part is for the community to accept the notion that they should co-contribute to the cost of receiving care, and in particular to the daily services such as everyday living and accommodation that they have paid for all their adult lives including if they are receiving funded care in their existing home. Commission is there’s still so much work to do in this space. 

StewartBrown is one of Australia’s top chartered accountancy firms. They are a leading provider of accounting, audit and financial advisory services, delivering service beyond numbers. www.stewartbrown.com.au