What went wrong with Aged Care?

The definite turning point in the quality and the humanity of Australia’s care of the elderly was the Aged Care Bill 1997 (Cth), introduced as part of the Howard Government’s 1996 Budget measures. It was a huge failure.

It started with John Howard

The bill is still responsible for havoc in the Aged Care sector, and creating a distinctly new group of players in our economy.

It was a curiously hollow and unsophisticated Bill, which did not even bother to hide its malicious intent. Each of the recommendations was ‘loaded’ against the elderly, and the Opposition of the time was ineffective in their efforts to mitigate the harm of the Bill, even if they had wanted to. It was led by Kim Beazley, and he was powerless at the best of times, let alone when he faced Howard’s massive majority.

The private (for profit) sector has six big players, who do what ‘for profits’ do; they maximise profits, usually at the expense of their customers – tick. They feed on their smaller competitors – tick. They amass market power – tick. They become too big to fail – tick. They refuse even basic accountability, although they are massively subsidised by taxpayers – tick. That subsidy currently sits at over 70% of revenue.

The worst part is that the governments of the day, (and both sides have been at fault) continue to believe that corporates are better at delivering value for money. This belief endures, even though successive Governments have watched as the sector’s performance declined, while their revenues increased. So there is no recognisable corporate ‘wizardry’ being exercised, there are only tax avoidance measures, increased fees and reduced costs, which apparently can include starving their residents. And they continue to sting the Government.

What did the Act change?

The proposed changes in the 1997 Act were to consolidate funding arrangements for the then separate nursing home and hostel sectors, and provide for a single residential care system to determine the level of Australian Government subsidy for each resident.

They outlined a greater reliance on resident contributions to the cost of care, including through a system of accommodation bonds, and residential care benefits subject to income testing. They also proposed a relaxation of previous regulatory requirements, such as tight financial acquittal requirements, and their replacement by a ‘lighter-touch’ accreditation approach. https://agedcare.royalcommission.gov.au/sites/default/files/2019-12/background-paper-8.pdf

This grab-bag of ‘nothing regulation’ was the jackpot. It satisfied the neo-liberals, by making the system essentially ‘user-pays’; it consolidated the two areas of accommodations into one bite-sized chunk for the private equity groups, waiting on the sidelines; and best of all it really did use the term “lighter touch accreditation approach”, which just really means no oversight. (You have to love the euphemism team who drafted this Bill. Fun fact: euphemism: a mild or indirect word or expression substituted for one considered to be too harsh or blunt when referring to something unpleasant or embarrassing.)

Is this the reason for the Royal Commission?

There are so many issues which affect the Aged Care system that we needed another Royal Commission. That is because although we have had several in the last twenty plus years, no government has felt constrained to follow their recommendations, and so we are stuck with the ideologically driven mismatch of profit-takers and neglected frail clients.

We wonder why the sector refuses to countenance proper, honest auditing of their work, or their costs. We must wonder anew as to why the stewards of our taxpayer dollars do not insist. It is our parents’, and our grandparents’, lives at stake here. According to Professor Joe Ibrahim, Head of Monash University’s Health Law and Ageing Research Unit, residential aged care facilities (RACFs) are currently not required to disclose how many staff they have, nor how they spend government funding.

It is hard to understand how a responsible Government can sit idly by and allow itself to be rorted so spectacularly. It took me about an hour to research some of the areas where the sector has attracted the most criticism. And yet Matthias Cormann, Scott Morrison and Josh Frydenburg have all been robbed blind, even as they were apparently ‘on duty’, protecting the revenue. Perhaps their attention wandered, as they had to keep watch on the unemployed, who are always plotting some form of chicanery.

The sector appears to be hugely profitable, and to pay very little tax. Although how would we know? They keep their operating costs secret, so we know their revenue, but not their costs, so not their profit. According to the ATO, the total combined income of all for-profit aged care providers was just over $5 billion in 2015–16, with a total profit of $529.3 million and after tax profit of $402 million.

Companies can use various accounting methods to avoid paying tax. One method is when a company links (staples) two or more businesses (securities) they own together, each security is treated separately for tax purposes to reduce the amount of tax the company has to pay. Aged care companies are known to use this method as well as other tax avoiding practices.

Another practice is by ‘renting’ their aged care homes from themselves (one security rents to another) or by providing loans between securities and shareholders. Tax Avoidance by For Profit Aged Care Companies Australia Report 2018

The big players

Bupa, Australia’s largest for-profit aged care provider made over AU$ 663m in 2017. Over 70% (AU$ 468m) of this was from government funding.

Opal, the second largest for-profit company had a total income of AU$ 527.2m in 2015-16 (76% Government funding).

Allity had total income of $315.6 million, 67% of which came from government funding

Japara had a total revenue of AU$ 275.5m in 2018, 72% (AU$ 198.7m) of which came from government funding.

In FY2018, Estia had a total revenue of AU$ 266.8m, 74% (AU$197.3m) of which came from government funding.

In 2018, Regis had total revenues of AU$ 280.5m, 71% (AU$ 198.2m) of which came from government funding.

As a basic principle, companies that receive millions of government subsidies must be held to a higher standard of transparency and must be publicly accountable. The fiasco which is the Aged Care sector has been sold off to profiteers, and we get what you would expect. If you don’t pay attention, they exploit the system, and the aged suffer.

The system is way too important to leave in the hands of companies, whose first allegiance is to their shareholders. We need to re-build a strong public sector, augmented by not for profits. Throw away the neo-liberal playbook. It just sows misery.

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Mark Buckley is a writer based in regional Victoria. He has a particular interest in politics, history and ethics in public life. He blogs at www.askbucko.com

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