The Future of Aged Care in Australia: A Call for Evidence Based Policy

Richard Baldwin

Richard is a fellow of the Australasian College of Health Management. He is the current treasurer of the NSW State Branch Council of the Australasian College of Health Management.

The latest Intergenerational Report (Treasury 2015), like its predecessors in 2010 and 2007, predicts that the expansion of the population aged over 65 years will result in an increase in Australian Government expenditure on aged care from 0.9 per cent of GDP in 2014-15 to 1.7 per cent of GDP in 2054-55. Not surprisingly both the previous and current Governments have pursued a reform agenda to manage this expected future cost which has been largely driven by the need to change funding models and increase consumer choice. On 17 June 2015 the Assistant Minister for Social services, the Hon, Mitch Fifield, announced the latest policy reform; an end to the Australian Government’s planned allocations of aged care places to community service providers (Fifield 2015 Press Release). This means that from February 2017, funding allocations for home care packages (aged care services to people living at home) will be made directly to individuals, thus enabling these consumer to drive, rather than chase supply. It is clear that the government’s intention is to introduce similar reforms to the residential aged care section, which accounts for $10 billion of the $14 billion spent on the aged care program (Social Services 2014).

The Aged Care Act 1997 and Regulations empowers the appropriate Australian Government Minister to control almost every aspect of the aged care industry, which is predominately supplied by non-government providers. Currently the Department of Social Services controls the supply of aged care services using an annual, population-based planning and allocation process whereby a fixed number of home and residential ‘approved places’, in specific locations, are allocated to ‘approved’ service providers. Only approved places attract government funding. The aim of this policy over the past 30 years has been to ensure that services are more or less evenly geographically across Australia; and this has been largely successful. Although government policy has not, in the past, indicated a preference for the mix of ownership types and size of facilities in the same way as the policy on distribution, arguably, as the government has controlled supply, the structure of the current industry is also the result of this allocation practice.

This consumer focused reform is the first real step toward the marketization of the aged care industry announced previously by the current Assistant Minister for Social Services (Fifield 2014). However, while potentially providing the consumer with more choice it effectively reduces the Government’s control over the structure of the aged care industry (patterns of location, ownership and size of facilities). Consequently, a key issue for public debate is what impact these reforms will have on the structure of the industry and will these structural changes impact the quality of care provided to future consumers, particularly the most vulnerable consumers in the residential aged care sector.

To inform the public debate there are two questions that need to be addressed. The first question asks if recent trends in the industry are likely to continue following the introduction of current and future reforms. This question can be addressed by an analysis of past and predicted industry trends. The second relates to the evidence on the strength of the relationship, if any, between industry structure and the quality of care and outcomes for consumers. This can be addressed with an examination of the international research literature. This will allow a determination of whether structural factors in the Australian industry are trending in the direction supported by the evidence.


Current trends in the Australian residential aged care industry

Not-for-profit operators provided about 57% of all beds in Australia in 2014 (down from 62% in 2004) and for-profit providers about 37% (up from 29% in 2004). Industry observers have suggested that the for-profit sector is better placed than the not-for-profit sector to take advantage of the current and expected future market based reforms. Hence for-profit providers can be expected to continue to expand as a proportion of the sector.

The patterns of ownership differ significantly by location, with for-profit facilities largely absent outside major cities and inner regional areas. Consumers outside major cities and inner regional locations rely on not-for-profit and state government providers. This distribution of services suggests insufficient competition across large parts of Australia to enable a market based system to operate effectively. Consequently, we may see the emergence of a two tiered system in Australian aged care based on economic and geographical factors, with market based mechanisms operating in major cities and inner regional locations and different mechanisms operating in outer regional and remote locations. Senator Fifield (2014) has acknowledged this possibility. The emergence of a two tiered system of aged care in Australia should be a focus for wide public debate around equity issues that may emerge for consumers based on where they live.

There is also growth in the average size of facilities in Australia driven by both a substantial decline in the number of small facilities and a significant increase in the number of large facilities (over 100 beds). This reduces choice for consumers who may prefer smaller facilities, which may provide higher quality of life and more individualised care than larger services. Whereas larger facilities may be better equipped to provide more complex care.

A small number of large provider organisations, both for-profit and not-for-profit have emerged across Australia over the past decade. Some of these may be on-track, over the next decade, to reach the size of organisations found in the international literature to be associated with poorer quality of care.


The evidence for a relationship between structure factors and quality of residential aged care

The relationship between quality and structural factors is now generally accepted in both the wider health and aged care industries and supported by a wide and robust literature. The structural factors of most interest in research on aged care include the ownership type of provider (for-profit, not-for-profit or government), the size of the organisation providing aged care services and the size of facilities. It is interesting to note that geographical location, the key structural policy objective of past Australian governments has not been shown to be particularly relevant in relation to quality.

The most researched structural factor is ownership as it is a predictor of other factors that may influence quality such as staffing levels, organisational culture and financial performance. While nearly all providers in Australia and overseas meet minimum standards of regulatory compliance, and there are examples of excellent and poor quality in all ownership types, most research studies using large samples have reported that residents in not-for-profit facilities enjoy better quality of care and have better outcomes than those in for-profit facilities. Methodologically this research is challenging and while not universal it remains consistent across countries and over time. The evidence on indicators of financial performance tends to favour the for-profit sector.

The research also suggests that when larger facilities are compared with smaller facilities, smaller facilities are more likely to provide better care. Facilities with fewer than 100 beds tend to produce more favourable results, than those with more than 100 beds. While other factors such as ownership (which in turn influences staffing, management culture and income) may have a greater impact on quality than facility size, the number of beds in a facility is arguably harder to change than the ownership, staff, managers or fees charged.

USA studies have found that homes owned by the largest aged care providers (those with 10,000 beds or more) tended to have higher failure rates of regulatory compliance per home and these violations tended to be more serious than those of smaller organisations. Larger organisations have also been found to focus on profit maximisation, rather than on quality outcomes, and to provide lower nursing staff to resident ratios than do smaller providers.

Although limited, recent research in Australia supports the international findings, in particular that for-profit residential aged care services have a lower nurse to resident staffing ratio than not-for-profit services and for-profit services are more at risk of failing to achieve minimum standards in Australia.


The need for wider public debate

These findings suggests that changes to the structure of the aged care industry could have an impact on future quality and therefore should be the topic of wide public debate. The lesson from other countries is that a new industry structure may emerge that was not debated, not intended and, in hindsight, not desired. While there has been wide consultation in the industry related to the increase in consumer directed demand for aged care and greater choice, both of which appear to have strong support, there has been less debate over the structure of the industry that may emerge in the future as a consequence of these reform. This debate should be around the community’s acceptance of the trade-offs to be made between choice, cost and quality. Other issues that emerge from the reduction of the Government’s control on supply relate to the geographical distribution of services, and the future size of facilities and provider organisations that may emerge. There is also a need for wider community debate on whether the Australian community is comfortable with policies that will allow, and even encourage, for-profit operators to emerge as the dominant type of aged care providers.

Follow us
Why the EPBC Act Does Not Need a Review, it Needs Replacing (by @Global_Garden0) @UCIGPA?
Does COVID-19 Change the Debate about Democracy? Read our new blog post by @MarkEvansACT @ProfStoker who are lookin?
Interesting reading on implications for the ACT Budget from #Coronavirus, by Jon Stanhope and Khalid Ahmed today:?
The latest #BlackLivesMatter protests highlight how American policing falls short of its charge, by @KoehlerJA?
New by Jon Stanhope and Khalid Ahmed: Should Auditor-General audit Annual Budget? @UCIGPA?
NEW: Are We becoming Digital Slaves? Why Online 'Privacy' is a Misnomer - by Mick Chisnall @UCIGPA?