The accounting firm has released a 10-year retrospective that shows while the Government may be increasing aged care spending every year, the cash doesn’t go nearly as far as it used to – and National Head of Health and Aged Care, Darrell Price, says service failures are looming without intervention.

The first-of-its-kind report ‘Federal Budget: A 10-year retrospective’ pulls together data on Federal Budget allocation, expenditure, bills passed and GDP for 13 different sectors since 2010.

Health and aged care make up one of the biggest sections – but the results indicate that the gap between its contribution to GDP as a percentage and as a dollar value is narrowing.

Allowing people to pay more for services could raise $2.4 billion

The report concludes that better integration between aged care and healthcare is needed to improve outcomes for both consumers and providers.

While ACFI is currently limiting providers’ revenues, it points out that detaching the price points from ACFI – and allowing people to contribute more to their care – could raise $2.4 billion without any changes to taxes. The means tested fee does not go far enough.

Providers could be further incentivised to innovate their services through reduced regulation to make it easier for people to pay for what they can afford.

Without changes to the funding structure, the report warns that the sector will not be able to attract the significant investment required to improve facilities and services – with services likely to fail as a consequence.

Counsel Assisting recommendations an “opportunity lost”

He says their research shows that there has been a significant increase in investment over the years in a number of industries including real estate, construction, resources and knowledge industries.

But investment in aged care has dropped off – and with it, aged care’s contribution to Australia’s GDP –an unsustainable situation in the medium-term, he says.

Darrell forecasts that the Royal Commission recommendations will deliver increased spending in aged care – but says we need to consider now what aged care in Australia should look like.

He labels the Counsel Assisting recommendations – presented at the Royal Commission’s final hearing in October – an “opportunity lost”.

“There is no discussion of what the industry needs to look like, to what extent we need capital markets involved in order to stimulate and deliver the recommendations,” he said.

“There is also no discussion of the increased competition that the Productivity Commission has envisioned,” he added.

A clear design for the industry will give consumers far more insight into what they can expect of providers and other stakeholders in the delivery of services to them.

Design of the industry needs to be worked out before recommendations

Darrell says Productivity Commission research shows that market-based systems consistently deliver better outcomes for consumers.

“The (Counsel Assisting) recommendations are largely around outcomes for consumers,” he said. “They don’t talk about the market, how capital is going to move into and out of the sector and what sort of rivalry we want to create in the system – or not.”

He says this is an issue that providers, bankers and the wider industry really need to understand in order to start planning for the implementation of the Royal Commission outcomes.

“It’s all great stuff, but the industry design piece actually hasn’t been realised and that is the opportunity lost,” he concluded.

The Grant Thornton report indicates that private sector investment is the key to those sectors with the highest GDP – and Darrell agrees that private investment will similarly trend upwards in aged care.

Larger operators have the advantage in attracting capital

He acknowledges that larger operators have a greater ability to attract capital and more flexibility on the acquisition of services.

“They tend to focus on more competitive ways to attract consumers,” he said.

Darrell uses the case of a provider that increased its care hours through restructuring, though he added that Not For Profits would also take the same step.

“Fundamentally we need more capital in the sector to renew and refresh residents living the consumer space.”

This includes rural and remote areas in particular, he said, with more opportunities needed to encourage capital opportunities such as social investment bonds and tax incentives.

“But this was not a conversation in the recommendations,” Darrell reflects.

Profit can no longer be a “dirty word”

The Royal Commission also needs to consider the roles of Government and private contributions in funding the system, he added.

While there has been criticism of RADs in the evidence, Darrell says most providers he speaks to consider them a good way to attract capital and give consumers a degree of assurance.

If consumers cannot afford a lump sum payment, they can pay a DAP, he said.

To bridge this gap in funding, Darrell said there needs to be a strong commitment on a bipartisan basis to implement any reforms.

“We need to remove the concept from the national dialogue that profit is a dirty word,” he said.

“We need to ensure anyone who invests in aged care to create and delivers services has to be a reasonable return – and people need to understand what a reasonable return is. Otherwise investors will go elsewhere and there will be worse outcomes for consumers.”

May Budget the likely contender for funding boost

Darrell considers the May Budget to be the earliest time for a significant response from the Government.

He hopes to see a contribution that will give certainty to providers and consumers.

“I hope that it’s not just another group of Home Care Packages (HCPs) and actually deals with some of the structural issues and the rural and remote services that are really struggling.”

However, Darrell warns that the Government may need to include incentives for some providers to consolidate in its response.

“I don’t think consolidation is going to happen organically,” he said. “It will happen through residential failures which we don’t want so we need to structure a rational, effective way through to consolidation.”

Food for thought for the sector and Government – Grant Thornton says it will be sharing the report with the Minister for Aged Care and Senior Australians and the Minister for Health.