Caring for Older Australians:  Outstanding issues in the Productivity Commission report

Grant Thornton made a series of recommendations for reconsideration after the release of The Productivity Commission’s draft report in January 2011. Most of our proposed changes were adopted in the final report. However, two important matters need to be addressed in the implementation process:

i) Support for the financially disadvantaged
The Productivity Commission’s draft report proposed that a residential aged care provider should be subsidised for the care of “supported residents” based on the cost of accommodating two residents per room. As illustrated in our response to the draft report, modern Australian aged care facilities have been built almost entirely as single room facilities and it is unlikely that these standards will change in the future.

The final report proposes a compromised position, suggesting that the accommodation supplements would be based on Building Certification Standards 1999, in which an average of 1.5 residents per room was required as a minimum. It is proposed that those that do not meet the 1999 standards would be provided a lower supplement. Providers would be able to reduce their minimum supported resident ratios (quotas) through negotiation with other providers in their region who could accept higher numbers of financially disadvantaged residents.

Because most modern facilities (and future facilities) will be built predominately with single rooms, providers that meet the benchmark standards would not be appropriately compensated for providing this level of accommodation for the financially disadvantaged. For those older facilities that don’t qualify, penalty rates would favour those with higher levels of density (multiple bed wards) which are more efficient to operate (and were cheaper to build). In both instances, there would be little financial incentive to support disadvantaged residents with quality accommodation.

In addition, the proposed scheme for “trading” supported resident ratio obligations would require brokering mechanisms that would be very difficult to manage and likely to result in unintended consequences that may marginalise the financially disadvantaged. Furthermore, the system would have to rely on planning mechanisms similar to the existing regional quotas that do not accurately determine support levels required in local communities.

While recognising there is a need for fiscally sustainable reform, it should be possible to retain and improve accommodation standards for all Australians regardless of their financial means. Rather then establishing  benchmarks based on the number of shared rooms, capital subsidies for supported residents should be based on a cost per room which is sufficient to accommodate residents in single rooms. This is likely to be set at a more modest capital cost than levels set for residents with financial means.

If the capital subsidies are adequate, providers will build new facilities within the constraints set while delivering privacy and dignity to all residents. Most importantly, operators of older facilities will be incentivised to redevelop their facilities and competitive pressures will remove the incentive to maintain older multi-bed wards.

In the short term, higher capital supplements will be attractive to established operators and therefore there would be no requirement to mandate supported resident ratios. The ratios should be monitored and where there is not adequate support for the financially disadvantaged in specific areas or regions, prices could be adjusted accordingly.

ii) Retirement living legislation
The Terms of Reference for the Productivity Commission’s Inquiry asked them to examine whether the regulation of retirement specific living options should be aligned more closely with the rest of the aged care industry.

The report correctly identified the potentially detrimental impact of increasing the regulatory burden on villages. However, the Commission’s deliberations on this topic were based largely on how the two sectors operate today, rather than giving more in-depth consideration to the impact of the major reforms presented elsewhere in the report. Our recent review of the New Zealand aged care industry revealed that in a less regulated supply and pricing environment, the line between residential care, community care and retirement living becomes increasingly blurred. In modern integrated villages, residents can move around care settings based on their service needs and preferences, with their subsidy entitlement moving with them.

The Grant Thornton/RVA Retirement Living Survey revealed a desire amongst Australian operators to replicate this model, and the implementation of the Commission’s recommendations would make this possible.

Unlike New Zealand, Australia has a three tiered government system. Facilitating choice between service settings will necessarily mean navigating between Commonwealth and State/ Territory regulations. This will also have important implications for the Commission’s (AACC) regulation of care services and accommodation bond prudential monitoring.

We believe that further planning and analysis should be undertaken to ensure that consumer choice and AACC powers are not diminished because of regulatory misalignment.