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ELIZABETH:

From Schwartz Media, I’m Elizabeth Kulas, this is 7am

Major providers in the aged care sector have been propped up by a government bailout. Cuts made by Scott Morrison as Treasurer have left half the industry unprofitable and, without reform, they will not be able to continue operating. Rick Morton on the nursing homes that became too big to fail.

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“The aged care sector has been under scrutiny after a series of scandals, and they have ranged from cost-cutting and staff shortages, to neglect and abuse.”

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“One whistleblower described miserable conditions that she likened to a prison.”

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What the peak medical body is saying; this is too long, we need action now.”

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“The current system is at best national embarrassment, at worst a national disgrace.”

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ELIZABETH:

Rick, before we get into the details of this story, I just want to clarify; the aged care sector is on the edge of a major collapse.

RICK:

That’s right, I mean, we've never been in this position before as a nation and we've now got a kind of a set of events and a set of circumstances from policy to funding to profit that have seen a lot of providers, big and small, skate really close to collapse.

ELIZABETH:

RICK MORTON is a senior reporter with The Saturday Paper.

RICK:

So, the biggest providers control tens of thousands of beds in nursing homes around the country. And we're at a point now where they cannot be allowed to collapse, because there is nowhere to put those people.

ELIZABETH:

So Rick, knowing all of that, I get the feeling that this is sort of a story where we should go back to the beginning, which in this case is where, or when?

RICK:

I do love a beginning. The modern age care system as we know it now is built upon John Howard and his reforms in 1997.

John Howard, building on it a lot of piecemeal programs over the two decades before he got there, decided that he really wanted to open up the sector to more private investment because even back then, which is, you know, more than two decades ago, they could see the writing on the wall when it came to the demographic cliff that the nation was about to fall off in terms of ageing.

ELIZABETH:

Did that work?

RICK:

I mean investment flew in to the sector after that, but from a very low base. I mean we're still talking only, you know, a few billions of dollars which I know is still a lot of money but compared to what it is today, it was way off the mark.

The real switch didn't get flicked until 2012 when Labor's Aged Care Minister Mark Butler managed to get through the Living Longer Living Better reforms and what he managed to do with what Howard always wanted to do, which was abolish the difference between low and high care and aged care and that meant that nursing home providers could charge whatever accommodation bond they wanted at whatever value the market could bear.

So just a super quick explainer, bonds are lump sum payments. They used to be about forty thousand dollars but now they're anywhere up to one point five million or more. Once you go into a home you pay that amount. And the aged care provider is allowed to use the interest from that lump sum that sits on their books to fund capital investment, so they can expand, buy other providers, grow, get bigger, faster, stronger etc. So once that capital was unlocked we've now seen a doubling in the value of accommodation bonds in the system to almost 30 billion dollars today.

ELIZABETH:

So let’s get this straight, an individual going into a nursing home can be charged up to a million and a half dollars just for the bond on their bed?

RICK:

Yes, but the bonds that they get, it's against the law to use that money to provide nursing care.

ELIZABETH:

So, in other words, people pay all this money through those bonds and the aged care providers cannot use that to provide care?

RICK:

No, the only thing they can use to provide care are; one, the, what we call are the aged care funding instrument, it's called ACFI. So that is government taxpayer funding according to a level of need for each resident that a nursing home provider has.

And then what we've got now is a gap. So the government subsidy is increasing by about one point four per cent each year. The costs at a minimum in the aged care, not just for the big fighters but for everyone are increasing by about 6 per cent.

ELIZABETH:

Huge gap.

RICK:

It's a massive gap. And there is nowhere else for them to move.

ELIZABETH:

So what happens after Labor opens up the aged care market further in 2012?

RICK:

So within two years of those reforms, three major companies list on the Australian Stock Exchange. Japara was in April, and then we've got Regis in October, and Estia which launched on the stock exchange in December of 2014. And I spoke to one very senior industry source who's been in the game for decades and he said to me, you know, that was the moment that should have rung alarm bells in the Department of Health. I mean, these providers, as soon as they listed, their shareholders demand growth. They demand growth every year in revenue, growth and profit, growth in size, in footprint, in the number of beds they operate. And that growth cannot slow down because as soon as it does, then we've imperilled the very future of these major providers. And that's the problem.

ELIZABETH:

And are these companies paying big dividends to shareholders to begin with?

RICK:

Yeah, well since 2015 these providers have paid around half a billion dollars in dividends back to their shareholders. Which is, you know, exactly how big business on the share market operates, right? Except, more than 70 percent of their revenue in every case comes from the taxpayer. It's a weird industry and it's not a real market in that sense because they live and die by the government funding subsidy, and they live and die by government regulations, and the slightest change in either of those things can threaten their future.

So that is the subsidy that the government has shaved two billion dollars from in the last four years, right? The only other contribution they can get towards a person's care is a co-contribution from the consumer that is not the bond, and typically it's about 87 percent of the aged pension rate. So almost all of the care funding comes from the taxpayer.

ELIZABETH:

So in your mind, Rick, what happens when the government, when Morrison as Treasurer, cut that 2 billion dollars out of the sector?

RICK:

So, the moment that happened, I mean he did it in two kind of big cuts in the December economic update of 2015 and then in the budget of 2016. The moment this 2 billion dollars comes out of the system, they're not getting that money from anywhere else. There's no way for them to recoup that cost. So the moment this happened, liquidity in the sector took a nosedive, and it took more than one or two years for that to kick in. So, the biggest change was 2016, and in 2018 was when we really started to see how badly this had affected, not just the biggest operators, but a lot of the small and medium sized ones as well. And the department was giving briefing note after briefing to the two ministers in charge at the time, which was health minister Greg Hunt and aged care minister Ken Wyatt saying, we have turned more than half of all providers into losers under these measures.

ELIZABETH:

And when you say losers, Rick, essentially you mean they’re no longer profitable and that puts the whole sector on the brink.

RICK:

It does, and at the same time that Scott Morrison denied very publicly to me, actually, he was calling the aged care Royal Commission. And I was in Canberra at Parliament House, and I asked him, I'm like, you know, if things are so dire as you say (and they are), why would you take that money from the sector when clearly they need it? And you're going to have to put it back at some point because I imagine the Royal Commission will recommend that. And he flat out denied that it was a cut. He said, no we didn't. And I remember being in that budget lockup and I remember very vividly thinking this is a lot of money to go missing.

ELIZABETH:

We'll be right back.

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ELIZABETH:

So Rick, we're talking about the aged care sector and the effects of increased privatisation that have left many of these companies on the brink of collapse. What's the government doing about it now?

RICK:

So the government knew that they had a problem late last year, and they knew that almost 50 percent, you know, providers had started losing money in the system. The problem is, they haven't acted that fast. So that Greg Hunt went in finding, he managed to get $320 million for all aged care providers, and so each provider will get their share of that $320 million. But then, that's it. So when that figure was announced, nobody could work out how the government came to that calculation. You know, what were the inputs? Had they done any assessment on whether this was enough? Until a few people who I have spoken to who sat down with some senior finance types and they realised that this number was pretty much the bare minimum that the federal government needed to provide to stop some of the largest providers not sinking so far into being cash strapped that the cost of borrowing more money became more expensive. And so the government knew that this had to be done as a bare minimum. But again, it's a stay of execution, it is not a structural fix.

ELIZABETH:

And this is akin to what happened with the global financial crisis and our relationship to banks, in the sense that a lot of these organisations too big to fail?

RICK:

Correct.

ELIZABETH:

How big are these companies?

RICK:

That's a good question. So you know, the three biggest ones on the Australian Stock Exchange, they've got about two billion dollars of aged care accommodation bonds between them. So they're huge and they control between twenty and thirty five thousand aged care places just between the top three. If you take the eight largest members of the aged care Guild, which is a very specific industry group that represents the biggest private providers that control, you know, close to 50, 60 thousand places. If they all fell over it once, there are only ninety thousand hospital beds in Australia. You know, the system is not built to handle a collapse of that magnitude.

ELIZABETH:

So you're telling me that these big providers are the same size as something like a third of the Australian hospital system?

RICK:

Correct. It's about a third to half of the Australian public hospital system. I mean, these are massive enterprises and and they have become this big because previously, conditions in the market were favourable to them. As my source said to me, it's a pyramid scheme. The growth cannot stop and the moment it does, you imperil the whole project. And so we're now looking at a system that some of the most vulnerable people in Australia rely on, and it has never been more important for it to grow. But they're not, they're actually declining.

ELIZABETH:

And that's because the focus is on growth of profits and growth in a number of places available in the quality of care?

RICK:

Correct. I mean, and that is, according to many people, very clearly at odds with the mission of launching on the stock exchange. I mean, the mere fact of being publicly listed means that they have an obligation to shareholders above and beyond any of the other incidental obligations to their residents.

ELIZABETH:

So Rick, if the government's propping up these businesses, are they also regulating them?

RICK:

They are, although some people would argue about the quality of that regulation because of the same necessity that these things stay open, right? Take Bupa, for example. Bupa is one of the largest private companies in Australia offering aged care. It is not listed on the stock exchange, but it is a multinational that is headquartered in London. And at the moment, more than one third of its 72 facilities are subject to sanctions and serious risk notices. So the Department of Health has the ultimate backstop here by saying, you have actually endangered people's lives and health. And typically in these situations, it means people are developing really horrible bedsores that can become infected, things like that. But Bupa haven't been shut down, and I spoke to quite a senior source in the coalition government who said to me, well, there's a reason for that, it's because they can't, they can't afford to shut them down. They have to keep them open because Bupa is massive.

ELIZABETH:

Because what happens if a provider did fall over, what would that look like?

RICK:

We've actually got a really clear example of that. In July this year, a nursing home called Earl Haven in Nerang on the Gold Coast collapsed overnight

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Serious questions are being raised over why residents at a Gold Coast nursing home were left to fend for themselves and ultimately evacuated from their home in the middle of the night.”

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“Workers were ordered to walk away, taking patient records, furniture, even drugs and pharmaceuticals.”

RICK:

The Queensland State Government had to send a crisis evacuation team of 100 doctors and paramedics to this facility to rescue the patients. Because, they were stuck, they were essentially made homeless overnight. And now this is 100 patients and that was that was a big enough task, but the biggest providers have thousands.

ELIZABETH:

And so what are the government's options for reform here?

RICK:

So, the government has spent a bit of time on this one. They've done this massive study through the University of Wollongong called the Resource Utilization and Classification study. I mean, ideally this would align the actual cost of caring for different types of residents with the funding. So, they've done this study, they're going to trial it in a few months at the end of this year. But that's, again, going to take quite some time. Beyond that, nothing. We're going to get the Royal Commission interim report at the end of this month. It'll probably be released publicly in very early November. They've been a very clever commission and they have listened quite strongly to all of the testimony and evidence. And I wouldn't be surprised if they actually told the government that they needed to boost funding massively right now, because we can't wait for the final report. And so that means we've got a very interesting situation, then, where the government will be tested come May next year when it's time for the next budget about whether they come rise to meet that challenge.

ELIZABETH:

It's sort of wild because you have a policy shift in 2012 and then less than seven years later you have an entire sector that's gone into chaos.

RICK:

It's a tough one because, you know, none of these decisions on their own or in isolation were bad decisions, necessarily. I mean, neither Howard nor Labor in 2012 had much choice. I mean, the cost of aged care to the budget was growing far and beyond what the budget was able to bear. And, you know, there were people going into care who were getting taxpayer subsidies who were worth millions and millions of dollars. And I'm of the view personally that, you know, in a nation like ours, our safety net should be targeted so that the money's there for those who need it the most. So Howard started that, and Labor tried to finish it. But what none of them could have foreseen then was what other changes further down the line would do to that system.

It’s the best of bureaucratic good intentions but sometimes all the pieces interacting together actually can cause unintended consequences that nobody could have foreseen.

ELIZABETH:

Rick, thank you so much.

RICK:

Thank you so much Elizabeth. Bye.

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ELIZABETH:

Elsewhere in the news:

Environmental activists have begun a week of protests across all of Australia’s major cities as part of the global Extinction Rebellion movement. Named the “Spring Rebellion”, protestors are demanding more action on climate change. The protests are set to last until Sunday, and in Melbourne, are expected to cause significant disruptions across the CBD.

And The White House has said Turkey will soon invade northern Syria, with White House press secretary Stephanie Grisham saying that US troops will quote, “no longer be in the immediate area.” The announcement has raised fears for the fate of US allied Kurdish fighters in the region. It is not yet clear if US troops will be completely withdrawn.

This is 7am, I’m Elizabeth Kulas. See you Wednesday.

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