The government admits aged-care costs have ballooned by nearly $2 billion, but has kept quiet on the real reasons why — and there is evidence that some nursing-home operators are ripping off the system.

The government last week trumpeted its victory in winding back the private healthcare rebate, which it says would have cost taxpayers $5 billion this year. But in the same week, the Department of Health and Ageing admitted that its budget is expected to blow out by $1.9 billion, due to a surge in the spending on aged care.

Department officials admitted to the blowout, and said they were carrying out "validation exercises" to assess the "unexpected" growth. A brief news article also quoted evidence to a Senate Estimates hearing that the leap in costs "was due to the higher frailty rate of many of the people using the aged-care system".

"Evidence suggests growth in reported care requirements is being driven largely by provider claiming behaviour, rather than genuine changes in frailty."

But documents obtained by The Global Mail reveal another explanation for the jump in costs: The department has caught nursing-home operators scamming the multi-billion dollar public-subsidy system, by exaggerating the needs of their residents.

And though its officials have not said so publicly, the department has been prompted by the findings to target providers they believe are likely to have engaged in cheating.

The department's internal figures show that increased outlays are "largely going towards greater profitability and not increased care costs," according to a memorandum dated December 2, 2011. The memo was prepared for the Ageing Consultative Committee, which includes providers, unions and other interest groups, who work with government to oversee the industry.

And the memo directly contradicts the department's public stance:

"Evidence suggests growth in reported care requirements is being driven largely by provider claiming behaviour, rather than genuine changes in frailty," it says.

It goes on to call the costs "unsustainable" and urges the group to help rein in the "inappropriate claiming".

Experts told The Global Mail that the memo raised questions about the transparency of the aged-care system.

"If there's fraudulent claiming going on, and gaming, then it's clearly wrong," says Merrilyn Walton, professor of medical education at the University of Sydney, and a former New South Wales Health Care Complaints Commissioner. "It seems to me that the department needs to have a much tighter regulatory function around the funding model."

The fund in question is called the Aged Care Funding Instrument, which determines how federal subsidies are allocated to aged-care providers. Each new resident undergoes a detailed assessment of their needs - from the complexity of their medical conditions, to whether they can move around without assistance, and to how well they can understand what is going on around them. The scheme attempts to match funding to those needs.

The memo suggests nursing homes have been bumping up their profits by falsely filling out the assessment and exaggerating their residents' needs.

The memo comes to light at a time when the federal government is considering controversial proposals that would dramatically change the way Australia funds aged care. Many say the proposals - outlined in a June 2011 Productivity Commission report into aged-care funding - would result in a boost to profits for all aged-care providers, including those caught rorting the system.

"The memo highlights the importance of there being transparency in the system," says Michael O'Neill, chief executive of National Seniors Australia, an advocacy group for people over the age of 50. "There needs to be much greater transparency and accountability of expenditure within aged care."

Until now, evidence of companies making questionable claims on the public funding scheme has remained anecdotal. In filling out its subsidy forms, one Melbourne nursing home reportedly described its difficulty managing the "physically threatening" behavior of a 77-year-old male resident who turned out to have been unable to move any part of his body other than his eyebrows. The same home also reportedly described a 76-year-old woman as "constantly physically agitated" even though her surprised family said the woman's multiple sclerosis meant she could only move one hand.

The document obtained by The Global Mail shows that these incidents are not isolated but rather part of a widespread problem within the system that experts described as "serious".

A staffer for the federal minister for mental health and ageing, Mark Butler, told The Global Mail that the department is trying to get to the bottom of higher-than-expected claims. In an emailed statement, Butler said, "The growth in demand for aged-care services and how we finance this growth is a key focus of our deliberations regarding aged-care reforms."

The department declined to make anyone available to speak with The Global Mail, and did not answer our questions about how widespread the rorting has become. Nor would it answer questions about which facilities have been identified as likely to have incorrectly charged the Commonwealth. In an emailed statement, spokeswoman Kay McNiece told us the department is, "working with industry and stakeholders to understand this growth."

“It seems to me that the department needs to have a much tighter regulatory function around the funding model.”

As Boomers Grey, Costs of Aged Care Set to Soar

If demographics are destiny, Australia can expect the costs in caring for our ageing population to grow over the coming decades. The boomers are not just greying: they're living longer, and their chronic health conditions often require more complex and expensive care. By 2050, about a quarter of all Australians will be 65 and older. Today, seniors make up less than 15 per cent of the total population, according to official numbers. Unless the government takes action, experts and policy-makers worry that future generations will bear the crippling burden of paying to support their elderly parents.

Already the federal government spends billions in aged-care subsidies. Last year the outlay was $11 billion - more than twice what the government says the controversial private healthcare rebate was set to cost taxpayers this year. Of that, $8 billion went to "residential care facilities" - which includes nursing homes, hostels and other forms of accommodation for the aged - according to government figures. That amount is anticipated to increase at the same time as the number of informal carers decreases, which experts say will put an unsustainable burden on taxpayers.

Faced with the looming funding shortfall, the government in April 2010 asked the Productivity Commission to come up with some proposals on how to pay for aged care in the future.

The commission's June 2011 report, Caring for Older Australians, laid out a framework for a radical rethinking of the system of funding aged care. Taken together, its proposals would unleash market forces on an industry whose funding has historically been highly regulated. Government would no longer determine how many new nursing-home beds to make available. Instead, that decision would be handed over to the companies and organisations that run the homes.

It would free up all nursing homes to demand large lump sums called "accommodation bonds," dismantling the current distinction between "high-care" facilities, which cannot charge bonds, and "low-care" facilities, which can. If the proposal were approved, all homes could charge the bond. And for the first time - in addition to paying for accommodation charges - people would be expected to contribute to their own care costs, up to a lifetime maximum of $60,000.

The proposals also would give people more flexibility to receive care at home, allowing them to stay there longer. The commission suggested establishing a centralised office - a so-called "Gateway" - to assess a person's needs, a measure intended to simplify the system and make it easier for people to access their entitlements.

And for the first time, the means test would include a person's primary residence in calculating how much he or she should contribute toward the cost of aged care. Currently, the primary residence is excluded.

The proposals rest on what the commission believes is a shift in community values, according to a commission official who spoke on condition of anonymity.

"There's a community sentiment to accept more responsibility for paying for your accommodation costs and care costs," the official said. "Why, just because you get old, should the government pay for your accommodation?"

In fact, many Australians already contribute to the costs of their aged-care accommodation, often through bonds. Providers can use these interest-free, unsecured loans for things like covering the costs of developing new facilities or paying for other long-term debts. The average bond was $230,000 in 2009-10, according to government numbers. But some facilities demand "super-bonds," a colloquial term for very high bonds that can reach upwards of $1 million.

While a significant portion of the bond must be returned to the resident's family or estate after that person has passed away, for many people, the only way to pay an upfront bond is to sell the family home - a result that consumer groups say is unpopular with the majority of their members.

“Why, just because you get old, should the government pay for your accommodation?”

"They don't like it, but there's a very reluctant acceptance of an inevitability they have to do it," says Michael O'Neill, of National Seniors Australia.

In response to this problem, the Productivity Commission has recommended a way for people to access the value of their home without having to sell it when they need to move into an aged-care facility. Called a "reverse mortgage," the mechanism allows people to take out a loan, using their home as security.

"An individual's principal residence is in many cases today, and certainly in the future, the main source of wealth for people," the commission official says. "So access to that - whether that be through a periodic payment, a weekly or monthly charge, or access to it for a lump sum to pay a bond - is today and in the future the most likely source of wealth that older people can draw on."

Reverse mortgages already are available on the private market, but they come with high interest rates and are often limited to a small percentage of the value of a home, according to Kevin Conlon, head of SEQUAL, the industry group that represents reverse mortgage lenders. Under the commission's plan, interest would be pegged to the consumer price index, and would be more easily available.

The commission official told The Global Mail that aged-care providers need an incentive to build more and better homes.

"Our whole report is predicated on a return to profitability for aged care, because if people can't earn a profit, then the supply won't be there," the official said.

“People will choose different types of accommodation. Some will go for basic accommodation, nothing fancy. Other people will go for different things. They will say, ‘I want the widescreen TV and gold-plated taps.’”

Some leaders in the aged-care sector have welcomed the commission's idea, and believe that freeing up the billions of dollars of assets locked in people's homes will encourage nursing homes to compete for the extra dollars, and improve quality across the board.

Ian Yates, chief executive of the Council on the Ageing, a national advocacy group for seniors, says the proposed system would let the organisations that run nursing homes decide on their accommodation fees, and open the industry to market forces.

"The thing about bonds today is that they don't have to bear any relationship to the costs of the care you're being provided," he says. That's led to inequities, with elderly people with the same assets being charged radically different rates, depending on what homes decide to charge, he told The Global Mail.

He says one of the biggest complaints he hears from consumers is that fees are not transparent. Under the proposed system, facilities would be forced to publish their rates, allowing consumers to compare them with other homes. They would also be compelled to publish more information about the quality of care they can offer.

Yates, whose organisation has contracted with government to run community consultations about aged-care reform, says the new system would give consumers more power.

"People will choose different types of accommodation," Yates says. "Some will go for basic accommodation, nothing fancy. Other people will go for different things. They will say, 'I want the widescreen TV and gold-plated taps.'"

“If you have an industry that games the system as it is, and you free up the ability of aged-care providers to set their own prices, they will certainly game that as well, and prices will go up.”

Some experts, however, warn that the commission's proposals would catapult Australia to the extreme of market-based systems when it comes to funding aged care, which they say could actually harm consumers.

"We'd be the only country in the world using accommodation bonds as the main funding mechanism for all residential aged care," says Michael Fine, professor of sociology at Macquarie University, who has published articles on aged care.

He says Australia currently operates like many other comparable systems - such as Denmark, Sweden and Scotland - where most of the money for aged care comes out of general revenue from taxes. By relying more on private payments, the proposed scheme would create a system more like that of the United States, which he characterises as inequitable.

"The United States has a very good system for the wealthy, a very difficult system for the middle class, and a very poor system for the poor," he says. In the US, the wealthy buy high-quality care, often staying in the community or moving to residences that resemble gated communities for the aged. But elderly people who cannot afford to pay for their own care often endure poor services, he says.

Some advocates warn that a free-market approach is unsuitable for aged care, because unlike normal markets, consumers of aged care are especially vulnerable. "The push around consumer choice or a greater role for the consumer in the marketplace in some ways is a bit of a nonsense," says O'Neill, of National Seniors Australia.

Many people going into nursing homes suffer dementia, or other conditions that impede their ability to make complicated decisions, says O'Neill. That puts them at a great disadvantage when dealing with sophisticated companies that are adept at navigating the system. Likewise in many cases, families confronted with big decisions at a time of great stress, such as the sudden deterioration of their elderly relative's health, he says.

"The consumer's power in this market will be very, very limited," says O'Neill.

That's led to some unease about the role of the profit motive in aged care. While stressing that not-for-profit and state-run aged-care facilities also have had their share of problems, Paul Versteege, policy coordinator at the Combined Pensioners and Superannuants Association of NSW, says that by their very nature, for-profit companies face a tension in the field of aged care.

"Company law is quite clear about what the priority of a company is," Versteege says. "It is to look after the interests of shareholders, and that is expressed in dollars and not the happiness and well-being of the people the company might look after."

Versteege says the fact that providers already have been caught abusing the system to increase their profits should sound warning bells about handing them more freedom to charge fees.

"If you have an industry that games the system as it is, and you free up the ability of aged care providers to set their own prices, they will certainly game that as well, and prices will go up," Versteege says.

The government is currently considering the Productivity Commission's recommendations, but would not say when it will announce its response.

Joel Tozer has previously worked as a casual employee at Combined Pensioners and Superannuants Association.

16 comments on this story

by Roxane February 22, 2012 @ 3:33am: Firstly, stop referring to these facilities as Nursing Homes. They stopped having the moral right to call themselves such when they got rid of most of the nurses. Years ago these facilitis were funded under a CAM and SAM model, where CAM money had to be spent on staff providing care and SAM on other services such as food and cleaning. Then the government caved into pressure from the industry and changed the funding model to RCI, of which the current funding model is derived from. This model left the facility able to spend the money where it saw fit and the amount of money they got was dependant on how much care the residents required. When this happened nursing staff numbers were reduced. Then those reduced numbers were replaced with less skilled staff, to the point now where almost all care is provided by Personal Care Attendants whose level of training is a joke. Food was also affected, both in size and quality. Cleaning was mostly subcontracted out and occured less frequently as a result. In my experience it is the remaining Registered Nursing staff, generally operating in a managerial role rather than a caring role, who fill out these funding instruments - a difficult task given they have little to no contact in care provision with the residents. If they exaggerate the care requirements I would suggest it is in a desperate attempt to keep what's left of staffing numbers, food quality, and cleaning from deteriorating any further. And now, to pay for this abysmal level of care, our elderly have to now hand over hundreds of thousands of dollars. Disgusting. I don't practice in aged care anymore. It was soul destroying. They are just holding cells for our elderly who are forced to live horrendous lives for years because we don't have the guts to overturn rediculous laws that make euthanasia or assisted suicide illegal. We keep paying a fortune for GP's visits when those GP's don't even see the residents, just transcribe medication sheets and disappear. Don't demand Nurse Practioners in Gerontological Nursing be employed to save the cost of sending residents off to hospital for minor things that could be managed on site if there were Nurses present to provide the care. I could go on and on about so much this article did not reveal about what is wrong with aged care, but, sadly, despite calling these facilities Nursing Homes the author did not seek the views of the one profession that works at the coal face everday still - but soon to be extinct. Then god help us all because there will be no-one left, on the inside, to advocate for these vulnerable people in our society.

by Michael February 22, 2012 @ 8:25am: Aged Care should never be positioned anywhere near the zone of profit. We have seen how private corporations (including church-based businesses) abuse the systems for the sake of sustaining middle and senior management strata at the expense of the actual care of the aged. This article might not be about care, but rather the financial and government structure beneath it, but nevertheless it omits any analysis of Aged Care processes. This is typical, because the process of Aged Care is always the last issue in this debate, where it should be the primary, foreground issue. Big business is rubbing its hands together as the Baby Boomers enter their retirement, seeking ways to capitalise. Reverse Mortgages are a societal evil and I would advise people to consider them as an absolute last resort.

by jane February 22, 2012 @ 10:49am

I believe that the management of the home my mum was in, all received a $5000 bonus if their funding ( for thirty more beds) application was approved.

The management also went away to a flash b &b to fill in the funding application, while the residents are being fed chicken nuggets and mushrooms from a can and sitting in rooms with no air con....what a disgrace!

by Dr Ralph Hampson February 22, 2012 @ 10:53am: This is a fantastic piece on the aged care sector in Australia and the challenges it faces. Joel has teased out the tensions of a system under much strain, and how this can result in practices that are questionable.

It also highlights that there is a reluctance to change the system - for while everyone in sector - has supported the directions of the Productivity Commission's report - in this sector action will speak louder than words!

If our community wants action to provide older people with the system they deserve ... then journalists like Joel need to keep the momentum up in this area - as for all of us it is too easy to believe (falsely) that old age will never get me!

by Alan February 22, 2012 @ 11:03am: It is becomiong quite apparent that unscrupulous operators currently see government as a cash cow. This article, the BER and Pink Batts programs are current examples. Perhaps it may be advantageuous that government,s when costing their plans and programs, also cost in a team of experienced investigators in each State to actively seek out such rorters. There are large numbers of retired and ex-detectives in each State who would do this job admirably. A few "scalps" in each State would bring the scammers back to reality and honest in behaviour. Why? There is a certainty at this time that you can rort the system and not get caught. Change the perception of being caught out with a few rorters before the courts and you prevent some people engaging in this type illegal of behaviour. State and the AFP do not have the resouces and it may not be high on their priorities. The creation of investigators in each program may cost $5m to implement for each., but the return on the investment in detection and prevention would be a hundredfold. Or simply create an Independent Commisson Against Corruption. Unless the model is changed the rorts will continued, whoever is in power.

by Ross February 22, 2012 @ 3:13pm: Very one-sided report partly informed by a person with an axe to grind. You completely ignore the NON-PROFIT sector of residential aged care who work off the smell of an oily rag and who provide excellent quality care in 99.99% of instances.

by Roy February 22, 2012 @ 3:59pm: is it not possible for the government to provide a very basic care package for various levels of need? And if clients wish to have extra care and facilities then they go to a private provider, and pay the difference? With the private provider setting the packages and prices by market forces?

by ivorytickler February 22, 2012 @ 4:27pm: "Why, just because you get old, should the government pay for your accommodation?" Because my dear PC, yer average aged punter has paid taxes all their working life.

It's not as if they have the luxury of selling a public assett (Telstra floats) to pay for a cushy retirement or rort the system under corporate legislation to make life easier in their twilight years.

by Libby February 22, 2012 @ 4:28pm: Management Attitude is all in aged care.

Having had a mother buy into "for Profit" aged care - same organization, but in two different facilities, we soon found that the quality of care depends largely upon the facility manager. The first one she was in she, as a coeliac was told (on more than one occasion) that there was no dinner for her. And they couldn't find a doctor who would visit, we had to collect Mum (who was very frail) and take her to a doctor's surgery to wait her turn with the others. And when we queried what was happening there were always excuses made by the manager. There's more, but I won't go on. We were furious of course and at first opportunity moved her but as her money was tied to an organization, it had to be one of their facilities. Fortunately we found one with a manager with very different attitudes and we quickly observed that our mother was being well taken care of.

But she would not have ever needed to go into care if the medical profession hadn't actively encouraged her to have a pacemaker installed at the age of 90 because we were looking after her in her own home until then. The pacemaker kept her alive long enough for us to be unable to manage her needs at home any longer. I'm still angry about that.

Just one more point: it's popular for articles and politicians to talk about the "ageing population" and how the country won't be able to afford aged care because of the population bulge. But have a look at the Bureau of stats website and you'll find that the bulge is in the 30-40 age group - even up to 2035 (check out their interactive model at

by Rob February 22, 2012 @ 5:01pm: I work in Aged Care and Aged Care is a place I will want to stay away from if I can. The services are degrading and as another comment said the people being cared for are often fed chicken nuggets and little else.

If I require help I would rather stay in my own home and have services come to me. Suprisingly this is much cheaper than full time Aged Care.

In Aged Care you are lucky to see your doctor as they generally have a number of patients at each facility and they visit once a week if you are lucky and churn the patients through like sausages.

Many working in Aged Care say "'I'd rather be sent down the back paddock and shot than enter an Aged Care institution.

by billie February 22, 2012 @ 7:36pm: Mum worked as a physiotherapist in state run aged care in the 1960s. She often had patients who had been medicated til bed ridden in private homes who transferred to public hospital when their money ran out.

I have been told that the average length of stay in a Victorian nursing home is 4 months, that the average patient weighs 60 kg upon admittance and 40 kg 3 months later.

It's time the Department of Health named and shamed the scoundrels, alteratively legalise euthanasia

by Harry February 23, 2012 @ 5:45am: The Global Mail should also look into bonds, which are another source of abuses. The nursing home keeps the bond (and more importantly the interest earned) after the death of a resident until probate is sorted out, which can be many months if not years. This is a ripoff of the first order.

by Noel February 25, 2012 @ 6:28pm: The problem with requiring people to sell their homes to fund their aged care - an eminently sensible policy - is not so much with the people going into aged care but with their children who are hoping to inherit. One of the great untold stories - children sweating on an inheritance - is the reason why previous efforts to reform aged care funding have run into problems. That is where much of the opposition comes from and was the reason the Howard Government's proposals along these lines got torpedoed. Ironic really, given that the average stay in aged care is less than two years - people die.

by Pauline February 28, 2012 @ 8:47am: I am currently employed in the aged care industry as an AIN (assistant in nursing). I have experienced three different workplaces: one owned by an association, another by a church, and I hang on the one with private ownership. No one is perfect. In my own experience, the one owned and run by a church looks impressive from the outside but is the most undesirable: that I would not sleep there at night, because nearly 100 residents are left in the hands of only two personal carers between 10 pm and 7 am. Perhaps the Aged Care Accreditation Agency has to work harder for a start.

by Ian Yates, Chief Executive, COTA Australia March 2, 2012 @ 5:11pm: It is most unfortunate that such a serious issue as long overdue consumer driven reforms of the aged care system should get lost in an article that contains so many errors and so much confusion. Especially since The Global Mail was provided with a wealth of accurate factual information in its research for this story.

Many of the comments on this story attest that there are serious and real issues of quality in the current provision of aged care. These are issues that COTA has addressed through engagement with many thousands of older Australians over recent years. They informed our submission to the Productivity Commission Inquiry which in turn picked up many of our proposals in its recommendations.

The Global Mail has failed to report to its readers that Productivity Commission recommendations would ensure that every year many thousands of older Australians would be able to receive appropriate and adequate support and care that is not available to them now.

It is also disappointing that the story contains inaccuracies and misrepresentations regarding both the ACFI increases and proposed user chargers. This includes comments attributed to me which I corrected to the authors prior to publication but which were not corrected in the published article. The article confuses payments for accommodation and fees for care, and incorrectly says that people would for the first time have to contribute to care costs. They do contribute now but on a most inequitable basis.

Disappointing that such a crucial issue should be so poorly presented, apparently influenced by the blinkered, frequently misrepresentational, and isolated campaign being waged by one group - with which one of the writers was associated.

by Combined Pensioners and Superannuants Association March 15, 2012 @ 10:37am: CPSA is responding to the story 'Your Twilight Years Are Ripe for the Picking', which provoked an angry response by Ian Yates, CEO of COTA Australia, where he points the finger to the CPSA's aged care campaign as informing the story and dubbing that campaign “...blinkered, frequently misrepresentational [sic], and isolated ...".

Apart from Mr Yates’ angry and intemperate language, what strikes CPSA in this comment is that Mr Yates fails to respect the right of others to have a different opinion from his, ignoring that Australia’s largest seniors group National Seniors, with an actual membership of 250,000 as opposed to COTA’s actual membership of less than 50,000, is not part of NACA and has criticised the Productivity Commission’s aged care reform proposals along similar lines as CPSA.

To put the record straight, CPSA supports a social insurance approach to the funding of aged, disability, general health and dental care, but recognises that this approach should have been taken decades ago. For aged care, social insurance is only a long-term option.

Short to medium term, a progressive approach should be taken to levying co-contributions for care costs, i.e. those with more assets should pay more than those with less assets. The home, being a vital factor of people’s sense of security, should be excluded from the means test for care cost co-contributions. Few pensioners live in million dollar homes.

Rather than making people who go into a nursing home gradually hand over their home equity to aged care providers, people should be able to buy a nursing home place that they or their heirs can later sell, just like a unit in a retirement village can be sold.

Finally, nursing homes are not the way of the future. The future for residential aged care lies in clustered residential development, using universal design principles and enabling independent living and the effective and efficient delivery of community aged care. The Productivity Commission has considered none of this and that is the main reason their report should be junked.

The Global Mail

The Global Mail: By Joel Tozer, Sharona Coutts February 22, 2012