Sep 23, 2020

Government’s aged care funding freeze created “impossible situation”, royal commission hears


The Royal Commission into Aged Care Quality and Safety wrapped up its hearings into ‘Funding, financing and prudential regulation’ on Tuesday, with counsel assisting criticising the government for freezing payments to providers, making it difficult for them to deliver an appropriate standard of care. 

In his concluding remarks, Peter Gray QC, said aged care providers are being “stretched beyond their limits” by a funding system that gives priority to government coffers.

The “trend” of “expenditure constraints” imposed by the Australian government were “most acute” during “those rather dramatic events concerning indexation pauses”, Mr Gray said.

The cost of providing aged care is rising faster than the rate of indexation the government is using to increase payments to providers, Gray said.

As a result, providers are being “squeezed” and must “choose between financial viability and providing the level of care that’s the minimum standard required to support their residents”.

It’s an “impossible situation”, he said.

“Added to that”, Mr Gray said there have been two periods during which the government “paused or froze” the indexation of ACFI, first in 2012/13 and then again in 2016/17. 

The Department of Health has acknowledged the “serious financial implications” of those pauses, Mr Gray said. But the department said the freezes occurred because providers were overclaiming through ACFI. The freeze was intended to “bring growth [in costs] more in line with estimated sustainable funding levels”, Mr Gray said.

Secretary of the Department of Health, Brendan Murphy said the freezes were “justified” on the basis there was overclaiming. 

But Mr Gray said he could not see a “reasonable connection” between the freezes and overclaiming because the freezees were applied across the board, not just to the providers believed to be overclaiming.

“The freezing of indexation created a challenge for every provider, not just those who may have been the subject of the allegations of overclaiming by the Department,” he said.

“Every provider” was then left with the challenge of trying to provide “the expected quality of aged care with less and less money to do so.” 

“If there was overclaiming, then the appropriate response would’ve been investigation and, subject to the results of any such investigations, targeted sanctions action against particular providers found to have been overclaiming,” Mr Gray suggested.

The government could have used regulatory tools to investigate or chosen to educate the industry about the issue. 

“Instead, the Department’s position was in effect a form of collective sanction, and this was inappropriate,” Mr Gray told the royal commission.

A more “rational explanation” for the ACFI freeze was “simply that the Australian Government was unwilling to meet the rising costs of the system it had set up,” he said.

“When Dr Murphy said that the huge increase in costs at the time would’ve certainly placed an unexpected fiscal pressure on the government… [he] was tacitly acknowledging that fiscal motivations were at the heart of the action taken by the government,” Mr Gray said.

“This fiscally driven decision seriously affected and continues to have seriously affected the financial performance of providers, putting pressure on the quality of residential aged care.” 

Current funding levels are inadequate to deliver the quality of aged care we would like, Mr Gray said. 

Mr Gray said the Department of Health is “on notice”, and may wish to make responding submissions to the commission.

The important point “is not to repeat the mistakes of the past”, but to establish a “lasting solution” that “restores trust and instils confidence”, Mr Gray said. 

“Confidence on the part of the community, so that we can all prepare for old age and for our loved ones’ old age without fear of the future. Confidence on the part of providers so that proper investment is encouraged. And confidence on the part of government in accountability for the expenditure of public money on proper purposes. Confidence on the part of a dedicated and skilled work force and confidence from all that high-quality and safe care will be the result now and on into the future,” Mr Gray said.

The royal commission also heard the royal commission is considering recommending an independent pricing authority that would revolutionise aged care funding by setting subsidies and caps on prices.

Mr Gray said there has also been strong support for means testing for aged care services, and more work needs to be done to consider the value of the family home in this regard.

The commission is still working on proposals for the financing of the aged care system, and will present its findings to the commissioners in about a month’s time.

The royal commission will hand down its findings in February 2021.


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