Op ed: Questioning the reforms

In the government’s attempt to reform the sector, it also cast a negative light upon it, says Bupa Care Services’ Paul Gregersen.

Above: Paul Gergersen

Letter from Paul Gregersen: managing director of Bupa Care Services

The government asserts that in Year One (2012-13) of Living Longer. Living Better: “investment and building in the residential care sector will begin to increase, as providers seek to capitalise on future capital income streams”. A number of commentators are questioning whether this will truly happen.

The Prime Minister and the Minister for Mental Health and Ageing made a couple of interesting observations during [last] Friday morning’s press conference.

Firstly, the P.M. declared that: “40 percent of older Australians are forced into emergency fire sales of their homes in order to raise the money to pay for care, with bonds that can cost as much as $2.5 million, and bear no resemblance to the cost of accommodation”.

Most of Bupa’s 4,000 residents pay monthly for their accommodation. In fact, only 30 percent of our residents pay a bond which is very similar to the national trend. In truth, we don’t know what proportion of people sell their home before they come into residential care nor to the point, those selling their homes in a fire sale.

Moreover, this is irrelevant. The current regulation does not force anyone to sell their home. Every resident entering low care or extra service high care has a choice of paying a bond or a daily fee for their accommodation. There is absolutely no difference in choice for Australians between the current regulations and the new proposals in Living Longer. Living Better.

I wonder how many $2.5m bonds there are in the country? Certainly, the Productivity Commission found that the average bond deposit was circa $230,000 – less than one tenth of the figure quoted by Ms Gillard. The fact remains that there is a lot of public misconception about bonds; most people still do not realise that the vast majority of the bond is refunded at the end of the stay.

During the last few years, it has taken a concerted effort from a small number of providers to convince the Productivity Commission and government departments that bonds are not a bad thing; in fact they are a vital component of Australia’s successful aged care system. A reduction in the overall quantity and size of bonds will seriously undermine the sector if no replacement capital is forthcoming.

The key thing missing from our system today is transparency of pricing. What we need to do is publish the range of bond prices that Australians need to deposit when entering residential aged care, if they choose to pay this way. That’s all: let the customer decide.

Secondly, in May last year, on behalf of the government, the Department of Health and Ageing published a review of the industry’s funding tool, ACFI. The first key finding was that: “ACFI has been largely effective in better matching funding to the care needs of residents and improving support for those with the highest care needs”.

On Friday, Minister Butler remarked that: “there are some providers who have been unusually claiming levels of money that we don’t think they’re entitled to. And they may be unhappy that the jig is up”. No one can condone cheating but it is hard to believe that the situation has changed so drastically in 9 months since the review. Further, why is the whole industry seemingly being made to pay for a few?

The government acknowledges that the frailty of residents entering residential aged care has increased over the last decade. However, Minister Butler’s assertion on Friday 20 April was that higher funding subsidies were the result of unacceptable claiming behaviour.

At the core of this belief is that fact that “care subsidy revenue is exceeding growth in average care costs. This provides prima facie evidence that not all of the growth in funding in recent years has been the result of resident “frailty drift”, but is driven in part by claiming behaviour”.

What about productivity gains that providers have realised?

Over the last three years, Bupa has reduced the proportion of agency staff used in our facilities from seven percent to 0.5 percent of total employee costs. There have been huge benefits to residents seeing the same familiar faces and for colleagues who know and trust each other better.

Bupa has also committed significant investment in person centred care through training for our people. By better understanding our residents we have been able to engage more effectively with more residents and improve our productivity.

Further, electronic care planning, medication packing and distribution and other initiatives have all improved the productivity of operators.

For Minister Butler to conclude that growth in operating margins is primarily as a result of unacceptable claiming patterns fails to recognise productivity and efficiency progress being made by providers.

It is worth noting that Government subsidies aged care at approximately one fifth of the value of hospices and one tenth of the value of public hospitals. And yet, we all deal with older Australians who need specialist care and palliative care.

In addition, the independent regulator has overseen significant improvements in quality over the last ten years, with their gold standard being met by 95 percent of operators at the end of last year compared to 63.5 percent in 2000.

In the government’s language, the proposals in Living Longer Living Better are going to “improve the Aged Care Funding Instrument” by nearly $320 million over the next two years. Put another way, the Government plans to reduce ACFI monies by $320 million over the next two years before the introduction of greater user contributions from 1 July 2014. What impact is this going to have on the quality of residential services across our country, particularly from providers who are struggling with their financial viability?

I wonder why the Minister chose to blame the sector rather than recognise that the funding costs, whilst considerably less than other comparable parts of the health system are not sustainable in the medium and long-term.

It seems that many now have very good reason to question the viability of the sector. With the P.M targeting bond deposits and the Minister seemingly determined to punish the industry for the misdemeanors of a few, it seems highly unlikely that their vision of investment in the sector will begin immediately.

Read this letter on Bupa’s website by clicking here.

Tags: acfi, aged-care-funding-instrument, bupa, department-of-health-and-age, doha, health-and-ageing, julia-gillard, living-longer-living-better, mental, minister-butler, paul-gregersen, productivity-commission,

3 thoughts on “Op ed: Questioning the reforms

  1. Paul, a most realistic response to address the inaccurate and emotive Government rhetoric that has shrouded the clawback taken from the industry in so many areas. The residential industry is funding a significant part of the reforms and future capital viability is a future challenge.

  2. Thank you Paul for making clear that some of the reforms were already available under the old system. The only point I would like to challenge is your use of the word customer. From my work with residents I do not think they see themselves as customers – but people who need care at a vulnerable time in their lives. I worry, as I always have the term “customer” in a misnomer in residential aged care – because providers themselves are not sure what it actually means. When residents and their families have real choices then the term “consumer” may have more relevance – but at the moment real choice is really limited to a few lucky “customers”.

  3. Paul

    Your assertion that the reforms make no change in the power relationship between provider and care recipient with respect to the bond / periodic payment choice is, in my view, not completely accurate.

    Currently the prospective resident and provider must agree before entry as to which payment option will be chosen. Given the market power of the provider in this constrained supply system this agreement can hardly be called unbiased.

    In the new world the care recipient will not need to make this choice until after they have entered care and have security of tenure – transferrinf the power to them.

    Yes it is true in both systems that residents can chnage their mind after they enter and opt for the other choice – but this is not a realo ption for someone who hassold their house to pay for a ond to gain access – what is the point of their then saying I want to move to periodic payment (will they buy their house back?)

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