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