RUBY:

From Schwartz Media, I’m Ruby Jones. This is 7am.

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For decades, we’ve been warned about a crisis in Australia’s aged care sector.

Archival Tape -- Unidentified Man #1:

“There have been at least 18 major reports and inquiries into aged care since 1997.”

Archival Tape -- Unidentified Man #2:

“Successive governments have been missing in action.”

RUBY:

There have been stories, signs, and whistleblowers.

Archival Tape -- Melanie Whitely:

“My name is Melanie Whitely. I worked as a personal care assistant in aged care. I’m doing this interview today because the truth about aged care needs to come out so it can change.”

RUBY:

There have been government reports, investigations, and sanctions for homes.

Archival Tape -- Unidentified Woman #1:

“We begin tonight with a shocking case of alleged abuse at a Sydney aged care facility.”

Archival Tape -- Unidentified Man #1:

“A secret camera captures the moment an aged care worker repeatedly hits a dementia patient with a shoe at a home on Sydney’s Northern beaches.”

Archival Tape -- Unidentified Woman #2:

“The elderly were routinely strapped to chairs for hours at a time. It’s a shameful chapter in Australia’s history and a major reason the Royal Commission was launched.”

RUBY:

Then this year, coronavirus ripped through our aged care system.

Archival Tape -- Unidentified Man #1:

“A further five residents have lost their life to Covid 19 in the past 24-hours.”

Archival Tape -- Unidentified Woman #1:

“As the number of cases linked to aged care nears 800…”

Archival Tape -- Unidentified Man #2:

“She’ll buzz and it’ll be up to two hours before someone comes. It’s shocking.”

Archival Tape -- Unidentified Woman #2:

“Even though she’s got coronavirus?”

Archival Tape -- Unidentified Man #2:

“Yeah. That’s what I mean, she’s sort of just left there, left in your room, you know? Fend for yourself.”

RUBY:

In the first half of a special two part series, The Saturday Paper’s Rick Morton traces the problems in aged care to the Howard-era reforms, demanded by private, for-profit providers.

Archival Tape -- Unidentified Man #1:

“It can be said, commissioners, that the age care system we have in 2020 is not a system that is failing, it's the system operating as it was designed to operate. We should not be surprised at the results.”

RUBY:

This is part one, the disaster we should have seen coming.

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RUBY:

Rick, you've been reporting on Australia's aged care system for years now, so take me back and tell me where this all begins. What is the genesis of our aged care setup?

RICK:

Its origins lie in the changes made under the Howard government in the late 1990s. And the person at the center of this failed experiment is nursing home tycoon and Liberal Party donor Doug Morran.

RUBY:

Rick Morton is a senior reporter at The Saturday Paper.

RICK:

You know, Doug Morran is an extremely colorful character. He was close friends with Tony Abbott. He's kind of self-described as an arch conservative. And Moran boasted of his role in essentially designing the Howard government policy, which would throw open the doors to billions of dollars of private investment in the aged care system.

So what Moran really wanted was a deregulated aged care system so he could operate it for-profit. Theirs were already, I think, the largest nursing home operator, private nursing home operator in Australia at the time. But they saw a lot more out there for the picking. So the impacts of the changes lobbied for by Moran and others were sweeping.

These ushered in a 23 year failed experiment. You know, this was a live study of human patients that saw falling care standards, dramatic loss of professional skill and soaring profits.

RUBY:

So let's get into the specifics of those changes. Can you take me back to the Howard government's decision-making room in 1997. What does John Howard do?

RICK:

Well, going back all the way to the mid 1990s, John Howard is faced with this kind of aging tsunami and demographic cliff. And they were looking at the numbers and they knew that in a decade, two decades, three decades time, there wouldn't be the same tax base to support a fully functioning aged care system in Australia without significant reform.

Now, being of the ideological bent that they are, the changes that they wanted to push through that they believed would take this problem off their hands was pretty much complete deregulation.

So, they wanted to get rid of the overarching regulations that specified the level of care that needed to be offered in aged care homes and the amount of nursing staff that these nursing homes, these aged care homes needed to hire to look after residents.

Before John Howard's 1997 aged care changes, the number of registered nurse hours that a typical nursing home with 60 residents was funded for and received was 308 hours per week. Today, it's 168 hours in a week.

RUBY:

That's close to halved.

RICK:

Yeah, 308 to 168. So the year after that change, and this is one of the key elements of this policy, the requirement that one registered nurse had to be on duty at all times in a nursing home was removed. In 1998, that's gone.

So these clinical roles were essentially replaced or more than replaced by low paid, low skilled personal care workers, often migrants, who were given little to no support and faced language barriers in the workplace. So there's been an extra 20,000 personal care workers come into the system over the last twenty three years, but they're not nurses.

So basically, if you deregulate this thing, you can make a fortune by cutting back on quality and safety and staffing hours.

RUBY:

So, Rick, essentially what you're saying is these changes made it more lucrative for people like Doug Moran to run aged care facilities because they could spend less money on things like direct care and nurses. Is that right?

RICK:

That's exactly right. But that's kind of part of the equation. The people arguing for this policy, they wanted more.

So Doug Moran was particularly thrilled about the proposal at the time to introduce these kind of residential accommodation bonds, which are a lump sum payments provided from a resident's assets or the sale of their home, that nursing homes could use as interest free loans.

So essentially, what the, particularly the private nursing home sector wanted, was to keep the money, skim the interests of the top, use it however they saw fit, particularly to expand and build new facilities. And they wanted that in tandem with the fact that they could be deregulation across the sector and they didn't have to hire as many staff.

So that's you know, if you want a gold rush in aged care, that's exactly what it looks like.

But it was a huge election issue. Well, it's a huge political issue because all of a sudden you've got all these gray voters who, you know, you mention the sale of the family home...

Archival Tape -- Unidentified Woman #1:

“Well I think it’s frightening, I think you know? We worked all our lives for that, then for it to be taken away, it’s no good…”

RICK:

...And that is political kryptonite in this country.

Archival Tape -- Unidentified Woman #2:

“It would be a worry to me, yes, a big worry.”

RICK:

And Howard, for all his other faults, he was very good at reading those people. And he didn’t want to pick that fight. So that policy was ditched. Doug Morran was extremely unhappy. You know, here is a lifelong arch conservative, huge supporter of the Liberal Party. And he quits. He quits the Liberal Party in disgust because John Howard won’t do the one thing that he really, really, really wanted.

But it was actually, you know, not that long later, only a few years later, really, that it was a Labor government that implemented the very reforms that Moran was so desperate for.

RUBY:

We’ll be back in a moment.

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RUBY:

Rick, back in the ‘90s, John Howard deregulated the aged care system, which led to a boon for private operators. But they still wanted more. So tell me about what happened next.

RICK:

The next big change actually happened under the Gillard Labor government

Archival Tape -- Julia Gillard:

“I’m here today with Minister Butler to announce the government’s new policy on the future of aged care…”

RICK:

So things had ticked along kind of nicely, the nursing home sector, after Howard's reforms. Private providers were increasing their market share bit by bit every year.

But it was the Labor reforms that delivered what Howard never could. These vast sums of free money to providers.

Archival Tape -- Julia Gillard:

“You will be able to pay through a lump sum or a periodic payment or a combination of both, whatever you choose.”

RICK:

So the bonds that Howard wanted but never delivered, under the Labor's 2012 reforms, they were renamed Refundable Accommodation Deposits, or RADs. And residents could no longer negotiate their value. So the bonds were essentially based on the market value of property prices in whatever area the nursing home was in.

RUBY:

Right, and these bonds are essentially payments that residents make to live in an aged care home, that aged care companies can invest and earn interest on?

RICK:

Correct. So they can use that money pretty much however they want, to fund new capital investments, to build new nursing homes, to refurbish the one that you're in. Whatever interests they've earned on that money, if they've invested at the time, is theirs to keep. So the reason why bonds with such a critical part of the sector, particularly for the private providers like Doug Moran, was that it was essentially free money.

So the money flowed.

And the average value of accommodation bonds rose by about $100,000 dollars from 2012 to $318,000 last year. That’s the average value per person.

Archival Tape -- Unidentified Man #1:

“I’m faced with the fact I may have to pay a very substantial bond, a minimum of some $400,000, and it may be more.”

RICK:

So over the same period, you know, kind of in the past decade, the total pool of these bonds held by nursing home providers has more than doubled from $14.3 billion to more than $30 billion, $30 billion.

Archival Tape -- Unidentified Man #1:

“For me to obtain funds like that, indeed with most Australians of my age, they'd find that very difficult.”

Archival Tape -- Unidentified Man #2:

“What would that mean to you?”

Archival Tape -- Unidentified Man #1:

“Well, it would mean that my standard of living would drop again. Probably I could be forced to look for a Centrelink pension.”

RICK:

So these funds, now this is where it gets really interesting for the government. These funds are guaranteed by the Commonwealth should those providers go bust and fall over.

So essentially, the system has created billions of dollars in interest free loans. It's kind of a house of cards situation. It’s kind of a pyramid scheme.

RUBY:

So, Rick, what you're saying is the government is essentially subsidizing the property investment strategies of aged care homes, which are originally funded by the bonds that the residents themselves put up.

RICK:

Bingo. You got it.

So, you know, there's no clearer indication of how lucrative these changes, you know, Labor's 2012 reforms were to the system than what happened either side of their legislated start date on July 1, 2014.

So accommodation bonds, the sector knows they're coming. They begin legally on July 1, 2014.

And just a couple of months before that, in April, the aged care provider Japara became the first in Australia to be listed on the Australian Stock Exchange.

Archival Tape -- Unidentified Man #1:

“Japara Healthcare is a publicly listed company in Australia, we have 43 facilities throughout Australia…”

RICK:

It almost immediately beat its own initial public offering price.

Archival Tape -- Unidentified Woman #1:

“Japara Healthcare recorded a net profit of $28.8 million for the financial year.”

RICK:

And then you get Regis Healthcare, which is another mammoth operator, they list on the stock exchange in October.

Archival Tape -- Unidentified Woman #2:

“Shares in Regis Healthcare are trading 1.4 percent lower at $2.20…”

RICK:

And then finally, all in the same year, in December, Estia Health debuted on the ASX.

Archival Tape -- Unidentified Man #1:

“Aged care provider Estia Health has today released its first half profit numbers…”

RICK:

So by April 2015, the ASX is posting this material to its investment and finance newsletter spruiking, and I'm quoting here, “profit from aging population”.

So the benefits, according to Richard Lie from Stockradar who's writing for this ASX newsletter, include government inducements and major consolidation.

So he was kind of right as well, because for-profit providers now represent 49 per cent of all aged care operators. So that's the providers. And nowhere in the world do similar systems have as high a return on equity as in private Australian aged care operators. In fact, the top quarter of all private aged care companies in Australia have a return on equity that is almost four times higher than the best performers anywhere else in the world.

So, you know, Doug Moran is now dead. But this - this was the fulfillment of his dream: a highly lucrative, for-profit model of aged care that benefits operators at the expense of the elderly.

RUBY:

Okay, Rick, what does this privatized for-profit system that was put into motion by John Howard, but accelerated by Labor, mean for the elderly and for the care that they get?

RICK:

Well, it kind of means the attention was completely taken off them.

Private providers under this system with, you know, large nursing homes of 100 plus beds are the worst performing group in Australian aged care. Small facilities run by state governments, meanwhile, were consistently the best across a full range of quality indicators.

So this is from research that was, you know, commissioned by the Royal Commission from the University of Queensland. And it's quite damning. And we've got more research coming out for the Royal Commission, again, from the University of Wollongong, from Professor Kathy Egar, who found that the average Australian nursing home resident receives just 180 minutes of care each day.

So that ranks at the bottom of what is acceptable around the world. And in order to bring that from 180 minutes to between 242 and 264 minutes each day, which is considered good practice, not best practice, but good practice, would require an overall increase of thirty seven point two per cent in total care staffing.

And this is what I keep saying to people; It was always going to come undone. We didn't know that coronavirus was going to come. But here it is. And it could've been anything that brought down this system. It just happens to be a once in a 100 year pandemic. But it could've been anything, because this thing was so built to fail.

RUBY:

Rick, thank you so much for your time today.

RICK:

Thanks, Ruby. Thanks for having me, as ever.

RUBY:

Tomorrow on 7am, part two. Tony Abbott, Scott Morrison and the crucial change that supercharged a decline in standards.

RICK:

When Abbott made his changes in 2013, he didn’t actually cut the fund, he just redirected the wage increases back to the general funding pool for aged care providers. But under Morrison, the money vanished.

RUBY:

This is a special series on the collapse of the aged care sector, with The Saturday Paper’s senior reporter, Rick Morton.

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RUBY:

Also in the news today;

The Victorian Premier Daniel Andrews says the state's latest coronavirus numbers are "cause for great optimism and positivity".

There were 14 new cases confirmed in the state yesterday.

Meanwhile, NSW recorded two new cases, as well as its first death from COVID-19 since August.

And US President Donald Trump has said he’ll nominate a woman to replace the late Supreme Court Justice Ruth Bader Ginsburg next week.

Ruth Bader Ginsburg died on Friday, just weeks before the presidential election.

Democrats in the US insist that the decision on her replacement should wait until after the vote.

Trump’s decision will affect the ideological balance of the nine-member court, which is crucial to its rulings on the most important issues in US law, including gun control, abortion, healthcare and same-sex marriage.

I’m Ruby Jones, this is 7am see you tomorrow.

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