As the aged care royal commission has exposed, the sector had problems well before COVID-19 infections spread and hundreds died in facilities nationwide.
The COVID-19 pandemic has wrought unprecedented upheaval for many sectors of business and the community more generally, but aged care facilities and those who work and live there have been among the most severely affected.
Even before the pandemic hit, the sector was beset by stagnant government funding and increasing care costs, while the Royal Commission into Aged Care Quality and Safety has detailed instances of poor care and neglect since it was established in October 2018.
The arrival of the virus earlier this year and its spread through the community has compounded the commission’s negative findings in the harshest of terms, with residential aged care facilities in Victoria and NSW suffering a series of outbreaks and a disproportionate number of deaths.
According to the royal commission’s COVID-19 special report, by mid-September, 629 of the 844 people in Australia who had died from the virus were living in aged care homes.
In Western Australia, meanwhile, there have been no COVID-19 deaths in aged care facilities, rather, there has been a surge in developments of aged care homes to meet the ongoing demand for beds, with SwanCare's Ningana among those to open this year.
Providers in WA told Business News they were worried about the threat of a second wave of COVID-19, but had learned from watching what had unfolded in NSW and Victoria.
“One of the things we have learned from Victoria is you have to be very decisive and you have to act very quickly, and the communication has to be upfront and really relevant to the situation, so we have developed some really good communication plans.
“We have got a really good action plan, we have developed an internal emergency response COVID specialist team, which will take over the operations if indeed we do get an outbreak.”
SwanCare’s recently opened Ningana facility has 124 suites, with 32 beds left unfilled to be used for quarantine space in the event of an outbreak.
“In the event we do get residents who get COVID, we can isolate them very quickly, quarantine them and hopefully we can move them into hospital,” Mr Francis said.
This is above the pre-pandemic national average of 89 per cent, however, and above the state’s average of 90 per cent, as calculated by the Aged Care Financing Authority for the 2018-19 year.
“While we are still above the national average in terms of occupancy, it has dropped across the nation,” Mr Francis said.
“It is something that is a bit of a worry, looking ahead, but that’s just the way it is at the moment.”
The Ningana facility had nearly reached its pre-COVID-19 occupancy goal, he said, despite opening during the height of the lockdown in April.
“Given the constraints that COVID would have placed on any organisation opening up a care facility in that period of time, we have exceeded our expectations and … are sitting at about 55 residents in there today,” Mr Francis said.
“Our goal was to have 60 by the end of the year.
“We are not sure if it’s because it’s a brand new facility and that’s why people are attracted to it, or it’s just that there is demand out there and you just have to have the right product to attract.”
However, he said Ningana’s popularity had meant demand for its other three care facilities had fallen away slightly.
“I think that’s because people are probably shopping around a bit because there is a bit more supply available,” Mr Francis told Business News.
“Also, I think some people are delaying their entry into residential care, preferring to source home care services.”
Aegis Aged Care Group executive manager marketing and operations Kevin Brimblecombe said occupancy in the company’s residential facilities was around 97 per cent before the pandemic, but dropped to 95 per cent in March.
“The occupancies have now basically recovered to the pre-COVID levels, [but they are] not quite there yet,” Mr Brimblecombe told Business News.
“The recovery slope, it was quite slow on the decline, but it’s actually slightly slower coming back out, and that’s probably coupled with the public watching cautiously what’s going on in Victoria.”
Among the new facilities to open this year are Hall & Prior’s Karingal Green Health & Aged Care Community, and Opal Aged Care’s Treeby Parklands.
Aegis has its own developments in the pipeline, and will increase its number of beds from 2,578 to 3,004 by February next year, cementing its position as the state’s largest provider, according to Business News Data & Insights.
In addition to its expansion of Banksia Park in Kwinana, which will provide an additional 55 beds, the 134-bed Aegis Shorehaven facility is set to open in November, followed by Shoreline in North Coogee in early 2021 (237 beds).
Rosewood Care Group, ranked the 28th largest aged care organisation on Data & Insights, is building a $72 million aged care development in West Perth to accommodate 152 people.
In an effort to redefine aged care in the current climate, the facility will be a smart building: residents will be monitored without the use of closed circuit TV, back-of-house robotics will play a major role, and room configurations will be available to accommodate people who don’t necessarily fit the criteria of the Aged Care Act.
“It’s a smart building that incorporates the latest technology in knowing where residents are and what their movements are,” Rosewood chief executive Mario Zulberti told Business News.
“The robots will work 24-7 distributing all manner of things, including food, to the various depots around the facility.”
The facility would offer flexible options, with 15 room configurations for couples, he said.
“Married couples, one could be under the Aged Care Act, and the other one could be a retired person … we have a number of rooms, which we call switch rooms, where we just remove the central walls and convert one ensuite into a kitchenette,” Mr Zulberti said.
He said Rosewood included these new technologies to ensure its facility remained competitive.
“That’s where we are pitching at the moment, trying to find a new vision for aged care,” Mr Zulberti said.
While a number of aged care developments are nearing completion, Aegis’s Mr Brimblecombe said development would slow over the next few years due to uncertainty emerging from the royal commission findings.
“I would say that there would be not many people looking to build any facilities right now until a new reform agenda is clearly articulated,” he said.
Mr Brimblecombe said that, as it took three to five years for projects to get off the ground, WA could be waiting until 2026 before a new pipeline of developments emerged.
“I think what you might see is the current development pipeline is hitting the ground at the moment and opening, you might see that slow now in the next couple of years while everyone digests the change, which is actually going to potentially create another bed shortage down the track.”
Mr Brimblecombe said WA currently had the lowest ratio of operational beds to people of any state or territory. In its annual report, ASX-listed aged care provider Regis Aged Care said investment in new homes had slowed due to the lack of certainty around the royal commission, and the company had paused several projects in development.
In the Regis report, chair Graham Hodges wrote that the temporary challenges of COVID-19 and consumer sentiment should not mask the longstanding issues that continued to threaten the sustainability of the sector.
“As the Aged Care Financing Authority had repeatedly reported, profitability in the sector has continued to decline over the past four to five years with costs increasing annually at substantially higher rates than funding,” Mr Hodges wrote.
“The community is calling for more staff and better facilities, and additional funding will be required to enable providers to meet community expectations around the level of care.
“All this points to the need for reform of the funding environment and we, like many others, await the recommendations of the royal commission with anticipation.”
In 2020, ACFA’s ‘Eighth report on the Funding and Financing of the Aged Care Sector’ found 42 per cent of residential providers reported a loss in 2018-19.
Accounting firm StewartBrown calculated an even higher proportion (60 per cent of aged care homes) recorded an operating loss for the nine months to March 2020.
It said the average costs of providing everyday living services exceeded revenue by $8.72 per bed per day, on average, leaving providers out of pocket.
Funding for aged care comes from both the government and the individual.
The government pays a portion of a person’s pension (if applicable) to the organisation to cover normal living costs, and also provides extra funding depending on a person’s care needs and the complexity of the care needed.
Residents are means tested, with some required to co-contribute to their daily costs.
All residents are asked to pay a refundable accommodation deposit (RAD), a lump sum paid to the provider, which is returned to the person when they leave the facility, or a daily accommodation payment (DAP), paid regularly and not refundable.
Money acquired from RADs can only be put in the bank, used to pay for maintenance or used to build new facilities.
Azure Capital joint managing partner Adrian Arundell, who has worked on aged care mergers and acquisitions including Bethanie Aged Care’s recent acquisition of Berrington Care Group, said aged care providers used RADs to ensure they had the capital to build new facilities.
However, in recent years, fewer people had been willing to pay the upfront RAD because property prices had decreased.
In the 2020 financial year, according to Regis, 31 per cent of its incoming residents paid RADs compared to 33 per cent in 2019, which it said was in line with industry trends.
Mr Arundell told Business News this meant aged care homes had struggled to pay out outgoing residents, as new residents brought less capital with them when they moved in.
“Weak property prices put pressure on the funding model because the new residents aren’t as well able to pay the bond that the outgoing resident needs,” Mr Arundell said.
“This is the issue around how much capital do the operators of aged care have on their balance sheet to sustain big outflows for RADs, for departing residents, when incoming residents are either wanting to pay a lower RAD or they are wanting to pay a DAP.”
He said decreasing RADs could potentially exacerbate a shortage of beds in WA in the future.
Adrian Arundell says weak property prices have put pressure on the sector’s funding model.
As well as decreasing RADs, the sector has been battling with increasing costs and lagging government funding.
In its ‘Financing Aged Care’ report, the royal commission found additional government funding was needed to ensure aged care organisations could provide adequate care, and that costs were only increasing with an ageing population.
“Because of the one-size-fits-all approach to funding, typically government doesn’t take into consideration the needs geographically, culturally or indeed in terms of clinical complexity that’s going to be relevant or right for a particular individual or a particular situation,” Professor Gilchrist said.
“The second thing that’s really important to remember is that, by and large, the budget for aged care, as it is for health and disability services, is based on historical budget allocations and the availability of funds to support it, as opposed to coming back and looking at the cost of service delivery.”
In the federal budget announced in early October, the government increased funding to aged care by $2.2 billion, $1.6 billion of which was for home care packages.
The royal commission published a paper last month outlining possible new ways to fund aged care in Australia.
‘Financing Aged Care’ broadly considers three options: minimal change to the current system; a social insurance model; or private financing arrangements.
The first option would support the current system, with future funding needs to be met by increasing taxes or increases to co-contributions.
Research from the Caring Futures Institute at Flinders University, undertaken as part of the royal commission, surveyed 10,315 people and found 61 per cent of taxpaying respondents were willing to pay an additional 1.4 per cent per year of income tax to ensure all Australians had adequate access to aged care facilities.
The second option, the social insurance model, which is common in other countries, could finance aged care through the introduction of a compulsory social insurance scheme.
It might work in ways similar to compulsory contributions for superannuation through the superannuation guarantee or for healthcare via the Medicare levy.
Using private insurance and financial products to pay for aged care is used to some extent in France, the US, Germany, Israel and Spain, but it is not a common method of funding, with a 2011 OECD study finding it provided only 0.9 per cent of aged care funding overall.
Options include private aged care insurance, private aged care gap cover (similar to how the existing private and public health systems work in Australia) or tax deductions for people who make longterm investments in aged care.
Professor Gilchrist said it didn’t matter which system was chosen, as long as it met the needs of the individuals.
“I’d like to start there and work backwards; how can I do that?
“Whereas the direction they [the royal commission] are going in at the moment is very well-intentioned, they are trying to fix the things that are wrong, without realising that the whole thing is buggered and you are just wasting your time trying to fix these little things.”
Mr Ansell said he believed that, given the royal commission’s large remit and the additional work it did investigating the pandemic in Victoria, there was little chance of long-lasting meaningful change to the sector in its current form.
Given expectations of the baby boomers, a root and branch overhaul would be more valuable. He said baby boomers wouldn’t accept institutionalised or rationed services when they entered the aged care system.
“At the moment, we are dealing with consumers who are grateful … for having services that are relatively inexpensive or almost free,” Mr Ansell said.
“The next generation are my parents and they are not grateful, they have really, really high expectations.
“They are the architects of consumer choice and they are not going to be told what they can or can’t do with their money.
“If we spend the next five years trying to fix the system we have got, we will be wasting a huge amount of time and money because in five years’ time my parents will be in it and they will want none of it.”