Aged care is big business

Australians have for years been educated about their financial old age. It’s time now to focus on something closer to home: retirement living. Those in good health can expect to stay at home and enjoy themselves. For those with a chronic disease or who suffer an injury or stroke, the choices of where and how to live can be more restricted, writes John Kelly, CEO Aged & Community Services Australia.
Aged care in Australia is big business. The Federal Government spent $13.3 billion on aged care in 2012-13, an increase of 6.1 per cent on the previous year. Home care packages allowed 82,668 people to remain in their home, 226,042 people had permanent residential aged care and respite care was given to 48,182, allowing their carers to take a well-earned break. About 1 million Australians use community care services.
By 2020, Australia will need 82,000 new aged care beds and more than 1.4 million will be utilising community care. To meet this demand for aged care beds there will need to be 2.25 new 100-bed residential aged care facilities opened each and every week over the next seven years.
Not only is the number of people requiring aged care services going to grow significantly, their needs will be more complex. For example - an estimated 269,000 Australians currently live with dementia and this is expected to grow by about another 120,000 by 2020 (115,700) and to 1.3 million by 2050.
The Aged Care Financing Authority (ACFA) presented the former Government with its inaugural Report on the funding and financing of the Aged Care Sector which looks at the impact of aged care financing arrangements on sector viability, access to quality care, the aged care workforce and sustainability. These four areas are of immense interest to ACSA and have been the subject of research for our annual Policy Forum, which is held in Melbourne each year.
The Inaugural Report points out that there are 1,054 residential aged care providers operating a total of 2,716 aged care services (homes) providing a total of 182,663 aged care places (beds):

• of the 2,716 homes 74 per cent are high care, 24 per cent mixed care and 2 per cent low care;


• of the 182,663 places 77 per cent are high care, 22 per cent mixed care and 1 per cent low care;


• 60 per cent of services are run by not-for-profit organisations, 30 per cent by for-profit and 10 per cent by state government;


• 58 per cent of providers are city based, 38 per cent are regional based and 4 per cent are in both city and regional areas; and


• 63 per cent of providers operate single homes, 29 per cent between 2 and 6 homes, 8 per cent operate 7 or more homes.

The Inaugural Report states that the Federal Government provides about 71 per cent of total funding to residential aged care providers. This is made up predominantly of funding through the Aged Care Funding Instrument (ACFI) (almost 80 per cent) and additional funding through various supplements.
The next most significant funding source is resident care fees making up 25 per cent of total funding, followed by revenue from accommodation payments (regular accommodation payments and retention amounts drawn down from accommodation bonds) at about 4 per cent of total funding.
Lump sum accommodation bonds (now Refundable Accommodation Deposits –RADs) are not recorded as revenue funding, but play a significant role in the financial arrangements of the sector. Providers can earn interest from these RADs (offsetting interest on borrowings) or use them as a source of capital financing.
There are major changes ahead as the new accommodation payment system is implemented from July 2014. Consumer choice is expected to bring competition to the market.
Consumers will have an option to pay a Residential Accommodation Deposit (RAD) which was previously known as the bond, or a Daily Accommodation Payment (DAP), previously called the accommodation charge, based on their choice and their means.
The incoming resident will have 28 days to decide how they wish to pay, and there is every chance that no two residents of a facility will pay the same combination of RAD and DAP. Upper limits have been set and providers must justify the charges by stating the type of accommodation on offer.
The Aged Care Pricing Commissioner, Kim Cull, will have to approve a RAD or daily payment equivalent, above $550,000. This is expected to cover about five per cent of consumers. Ms Cull has been receiving applications since February.
Recent financial analysis, prepared for the Aged Care Financing Authority (ACFA) by KPMG, reports that only 70 per cent of providers were making a surplus in 2011-12, and 16 per cent had a negative EBITDA. That indicates that 30 per cent of aged care providers made a loss or just broke even. Of particular concern are the small standalone services and those in regional, rural and remote areas which are predominantly provided by not-for-profits.
Current federal government funding of residential aged care is about $122 per bed per day to provide a vast array of services, in comparison a hospital bed in the acute sector is funded at about $1500 a day.
In order for not-for-profit aged care providers to be able to provide care and support and deliver on their mission they need to make surpluses so they have funding for capital expenditure to develop the services frail older Australians will require into the future and in locations that are not financially viable for for-profit providers.
To compound the looming problem, the proportion of working age people is projected to fall, with only 2.7 people of working age to support each Australian aged 65 years and over by 2050 (compared to 5 working aged people per aged person today and 7.5 in 1970). Population growth is projected to slow to an average annual rate of 1.2 per cent over the next 40 years, slightly lower than the 1.4 per cent average annual rate of growth in the previous 40 years.
This means there will be fewer people paying taxes to fund aged care, and less people in the working population to provide the care and support services required. These demographic changes are also borne out in a Productivity Commission Research Paper, An Ageing Australia: Preparing for the future, released on 21 November 2013.
74%
High Care
24%
Mixed Care
2%
Low Care
The Inaugural Report: Of the 2,716 homes 74 per cent are high care, 24 per cent mixed care and 2 per cent low care;

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“There are major changes ahead as the new accommodation payment system is implemented from July 2014. Consumer choice is expected to bring competition to the market.”

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On this basis, ACSA is arguing that there should be no reduction on any budgetary programmes in the aged care sector. Instead, we have offered suggested areas of savings for Government, a number of burdensome regulatory processes that duplicate other mechanisms already in place or do not add value for aged care stakeholders or Government. These would provide cost savings for government and aged care providers.
To provide vital aged care services-now and into the future-we need a community debate to determine how we best fund and meet the needs of those who require aged care services in a sustainable manner for both the aged care sector and taxpayers
About the ACSA Federation
Aged and Community Services Australia (ACSA) is the leading national peak body for aged and community care providers and represents church, charitable and community-based organisations providing housing, residential and community care and home support services to older people, younger people with a disability and their carers. About 700,000 older Australians depend on care and support provided by ACSA members in the metropolitan, regional, rural and remote regions across Australia.
ACSA operates within a federated structure of state associations which are independently incorporated and to whom mission-based providers belong as members. The state associations are members of the ACSA national body.
The ACSA Federation is made up of the following members:

• Aged and Community Services Association of NSW & ACT (ACS NSW&ACT)


• Aged and Community Services SA & NT (ACS SA&NT)


• Aged and Community Services Tasmania (ACS Tas)


• Aged and Community Services Western Australia (ACS WA)


• Aged and Community Services Australia Victoria (ACSA Vic)


• Aged and Community Services Australia Queensland (ACSA Qld)

ACSA provides direct representation for providers in Queensland and Victoria through Board membership and the ACSA National Policy Forum and Council.
Mission-based and not-for-profit (NFP) aged care organisations are charged with responsibility for providing services to those most in need. They deliver about 65 per cent of aged care services and about 85 per cent of all community aged care in Australia. These organisations are visible and highly accessible in the community resulting in the public relying on NFPs for service, support and care. The public has an expectation that NFPs will provide for them.
As a result NFPs have the confidence of the community at large and trust derived from that accessibility. There is also an ever increasing expectation by governments that the NFP sector will deliver programs and services on their behalf as a means of maximising efficiencies.
As the population continues to age, ACSA recognises the need to make the aged care system more responsive, flexible and affordable by creating a balance between individual responsibility for aged care services, affordability for taxpayers and a safety net for those who require such services.
Adj Prof John G Kelly AM has been involved in the health and aged care sectors for 35 years and joined Aged & Community Services Australia as CEO in early 2012.
Since then he has been responsible for moving the ACSA National office to Canberra and the hiring of new staff, redeveloped the Queensland and Victorian business ASC models, the growth in the National Partner program and the expansion of SAGE Tours.
ACSA has been deeply involved in the aged care reform process initiated by the previous Labor Government and continues its involvement under the current Coalition Government. John has been invited to join a new Federal Ministerial advisory committee.
Before starting his own law firm, John was a partner at top 10 law firms for over 10 years, after spending his first 15 years in clinical and management positions in health care.
He is a former Commonwealth Aged Care Commissioner and is President of the Nursing & Midwifery Council of NSW. John has been a Director and Chair of a number of health, not-for-profit and national membership entities. John became a Member of the Order of Australia in the Queen’s Birthday Honours List in 2009.