Avoiding grey hairs from aged care reform

Aged care service providers face a mass of regulatory reforms and a fast approaching baby boomer retirement time bomb. To avoid more grey hairs, Nichola Clark says directors need to go back to basics and review their strategies.

There’s a meteor heading towards Australia. It’s about 20 years from hitting, but its course is inevitable and will take more than Clint Eastwood or any other Hollywood space cowboys to break it up. And, it is guaranteed to land with a sonic boom. The questions are: what exactly does this mean for us, how ready are we and how can we turn this into an opportunity?

The glorious “baby boom”, a product of post-war love and migration, saw a surge of over five million Australians born between 1946 and 1964. The avant-garde baby boomers are now reaching retirement age and the tidy demographic triangle is soon to breach its geometric boundaries.

Patrick Reid MAICD, CEO of Leading Age Services Australia, expands: “There are over 1,000 people a week in Australia turning 65, which means that by 2042 almost a quarter of the population will be 65 or over. That’s a big curve of baby boomers coming through.”

A recently released Productivity Commission Report suggests the retirement age should be raised to 70 to avoid a budgetary crisis. Nevertheless, Reid warns the biggest users of healthcare, the 85 and over age group, is also set to quadruple.

“There’s half a million people in that group at present and by 2050, there will be two million. So you’re looking at an escalation in aged care costs, increased accommodation and service varieties. Services available will also have to improve to satisfy the needs and expectations of this demanding group.”

Reid warns that, at the same time, tax revenues will decline. “At the moment, there are five tax payers for every pensioner and by 2040 there will only be 2.5 tax payers for every pensioner. Therefore, the income is being reduced dramatically for the government. This is coupled with a steep increase in costs. We will see a lot more emphasis on services in the home to reach these demands.”

The other pressing issue is the looming workforce and skills shortage.

Community Services and Health Industry Skills Council CEO Rod Cooke FAICD (Twitter @CSHISC) says: “In addition to the huge wave of baby boom retirees needing aged care, the average aged care worker is 47 years old. So in 20 years, the existing workforce itself will become clients rather than carers – a double whammy. Over the next 20 years, the forecast is that we will need an extra 800,000 carers.”

After more than a decade of reports calling for reform of Australia’s aged care system, including a flagship report from the Productivity Commission in 2011, Caring for Older Australians, the Gillard government announced much needed policy changes in April 2012. Called Living Longer Living Better (LLLB), these aged care reforms were passed into law in June 2013.

The five-year LLLB reforms flag shifts in the industry towards care in the home, improved navigation through a new aged care gateway and a consumer-driven market with a co-contribution structured aged care. There are also changes in what aged care providers can charge for accommodation and new supplements in areas like dementia and veterans’ care.

With a change of government during the early stages of implementing the changes, all eyes are now on the Coalition government to see how it leads the aged care reforms and how much of the LLLB will be “tweaked”.

So far, we have seen an immediate shuffle, with aged care no longer a cabinet position and its alignment moved to the Department of Social Services from the previous Department of Health and Ageing.

Gillian McFee FAICD, a non-executive director of RSL Care, believes the latter change is  positive. “It’s no longer about sickness and poor health, but about wellness, connection and social inclusion,” she says.

The second major change is the Coalition’s quick step to terminate the LLLB’s Workforce Supplement on the basis that it “didn’t guarantee improved pay and conditions for all aged care workers”. 

The Coalition government has promised to reallocate the $1.2 billion assigned to the supplement within aged care.

But what the Coalition is unlikely to change is the gradual shift in regulation to a consumer-based market approach, a direction outlined in its pre-election policy for Healthy Life, Better Ageing, which promises to streamline administrative processes and cut red tape.

Until now, McFee says, the aged care system has been highly regulated. The Commonwealth government regulates almost every aspect in terms of demand, supply, price and quality. “What we’re starting to see now is an appetite for some changes to regulation, particularly on the supply side. We’ve seen this in other industries, such as childcare,” she says.

The most recent move by the Coalition has demonstrated another step towards deregulation and a competitive market, with Assistant Minister for Social Services, Mitch Fifield, announcing it will cut red tape for residential aged care providers by simplifying the pricing system that begins next financial year, while ensuring consumers receive transparent information on accommodation prices.

Julie Green FAICD, a non-executive director and business consultant who specialises in aged care and infrastructure, says deregulation and transparency are welcome changes for the industry. “Any reduction in red tape in setting prices is welcome and this will increase transparency in pricing,” says Green.

“The Minister’s comments are in line with pre-election promises, which will reduce the administrative burden of service providers and allow more funds to be directed to resident care.

“However, there is still uncertainty as to the detail of the subordinate legislation that  underlies the five aged care Acts passed under the Labor government.

“There are concerns about the lack of certainty of future income streams of aged care service providers. There will be a loss of retention income and a trend towards Daily Accommodation Payments (DAPs), away from the Refundable Accommodation Deposits (RADs) or traditional accommodation bonds.

“This will affect the cash flow of not-for-profits (NFPs) in particular, which will need to borrow for the first time to build the new accommodation required to cater for the ageing population.”

One of the most pertinent changes is the removal of the classification of “high” and “low” care – not in terms of clinical classification, but in a financial sense. Set to be introduced in July 2014, the change allows for an upfront accommodation payment to be applied to all residents and it will be means tested based on their assets.

SwanCare Group Inc chairman Julian Keys GAICD (Twitter @JK_Ideas) says: “This will change the financial arrangement. Previously in low-care, we were able to take bonds of $200-$300,000 on which we earned interest and charged a fixed monthly retention amount, with the balance refunded when a resident left.

“High-care, on the other hand, has always been paid for on a daily accommodation rental basis. The government is deregulating the system so that residents can either pay a bond or pay rent for both low-care or high-care. Such changes will have a significant effect on our financial modelling.”

McFee adds: “Once people are assessed for eligibility, they notionally hold the dollars and can decide who provides those services to them and in what setting – whether it be at home, in a retirement village or some other setting. This is a huge shift in the industry.”

As McFee expands, organisations will no longer be able to rely so much on government funding, but will have to derive their revenue from other means. She notes that this has already been seen overseas and means redefining the business model around the consumer and new business opportunities that enable people to live well through the ageing process.

In this time of rapid change, Cooke says: “Boards need to have a real grip on their financial affairs – where their income comes from, where their profit comes from, and whether they can afford to invest.

“They also need to be clear on which direction they are going to go, such as in-home, residential, full spectrum or dementia.”

Green warns that aged care boards – in particular, smaller NFPs that constitute by far the majority of aged care providers – need to understand the macro picture and take action now, if they are to weather the changes.

“The worst thing a board can do is not take action,” she says. “Service providers don’t have to be ‘big’ to be smart. They just need to understand their core purpose and have a good strategic plan.”

Aged care providers and their boards should firstly understand the needs of their future baby boomer customers, who have very different traits from past generations. Green describes them as an “underlying force” and says: “Many have more money, are more demanding and have more choice. They also want to be active, independent and live at home for as long as possible and if they need support, direct how that happens and who provides it.”

Boards need to recognise these key trends and change their services accordingly.
For instance, Keys says: “We are prepared for people staying at home for as long as possible and therefore, we are changing our structure.

“We are adapting our low-care facilities to make more room for more high-care residents who are requesting care later than previous generations when they are more frail and have more complex needs. With that comes the need for workforce planning and training of highly skilled staff and a higher staff-to-resident ratio.”

At the same time, Green says the shift in emphasis to care in the home opens up a feast of opportunities for organisations for “services” to the door.

Cooke explains: “We will see a much greater overlap of services and integrated types of care as the elderly demand an ‘in-hospital’ experience at home with doctors, massage, occupational therapists and such going to the home.”

These are changes that technology will play a major part in. At the other extreme, with those going into care being more high-care, Green says there is also the market for aged care providers to offer “niche” or specialist services, such as those tailored specifically for people with dementia.

She believes there are opportunities to amalgamate, acquire and develop alliances or simply share services to increase revenue or reduce costs – for example, by sharing or merging “back office” services.

“At Shepparton Villages, we are now providing food services to other aged care providers in the region,” she adds.

Keys concurs. “We foresee a lot of consolidation in the NFP sector. We are planning on consolidation, focusing on a 10km radius around our main site so we can manage sites efficiently,” he says.

“With the reforms, the focus has to become more around sales and marketing, brand awareness and strategic positioning of the organisation, as well as overall governance.”

Keys believes it is also important to back this up with an investment in efficient IT, accounting and HR systems and the right staff in business development and business analysis, as well as strong management.

Providers will also need a clear understanding around business performance and management reporting.

Cooke says there has unfortunately been a reputation for leaders and management to be either standard or quite poor across the aged care sector.

“Boards need to look at the leadership and its management skills and make sure that in this changing consumer environment they are able to deliver the services required to ensure the organisation survives,” he says.

To navigate the reforms and changes in aged care, getting the board right is imperative.

“To lift board capability, you should approach recruitment to the board as you would any other employee, with an astute selection process and induction,” says Keys.

Reid says directors need to educate themselves on the industry and reforms and understand their role on the board.

In addition to being comfortable with the CEO, management and staff, “the board also needs to ensure there is the right mix around the table and that the board’s skill base, knowledge and strategic management is strong enough to weather the changes and take advantage of any opportunities”.

However, Reid warns that wherever there are opportunities there are also risks.

“Boards need to think about the risks inherent in the reforms and changes the sector is facing. And, when it comes to big opportunities, they need to consider how they access and manage these. They also need to be careful that where they provide multiple services they don’t overstretch themselves and make sure all their responsibilities are covered.

“We are dealing with a vulnerable sector in society and there needs to be the right balance between regulation and providing the best care possible.”

“At this time, every board needs to go back to basics and review strategy,” says Cooke.

“They need to look at their purpose and rationale for being and to examine what they may become in the future. Organisations need to be very adaptable and robust to cope with existing and emerging change, whatever that may be.

“I can’t tell you what aged care will look like in five years, but I know it will be very different, and I can tell you it will be different again in 10 years.”

To avoid more STRESS directors should:

Take action now
Have a real grip on their organisation’s financial affairs
Recognise the organisation’s core purpose
Have a clear strategy for the future
Understand their organisation’s risks and how these are being managed
Understand their customers and how they are changing
Ensure the organisation has strong leadership and management skills  
Plug any gaps in the board’s skills and experience mix

Directors Social Impact Study

The 2013 Directors Social Impact Study, conducted by Curtin University on behalf of Company Directors, identified many of the issues discussed in this article. As Australia’s largest not-for-profit (NFP) directorship survey (2,132 responses), its findings have had a significant effect on policy and the practice of NFP boards.

The findings included:

The average monthly time commitment for an NFP director has increased from 20 hours per month in 2012 to 27 hours in 2013.

76 per cent of organisations made a board professional development investment in 2013.

Reducing red tape and administrative burden should be a priority for governments.

Professor David Gilchrist, research team leader and director of the Curtin NFP Initiative at Curtin University, believes 2014 will be a challenging year for all NFP directors, but those serving organisations in human services will find it increasingly complex. “Fundamental things like reporting on outcomes rather than outputs and responding to person-centred care and individualised funding will test organisations and boards in 2014,” he says.