RUBY:

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

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Today, the second part in our special feature on aged care.

Hundreds of aged care centres are facing financial collapse, as the crisis in the sector takes its toll.

Archival Tape -- Unidentified Woman #1:

“Nearly 200 nursing homes that are housing 50,000 Australians are reportedly operating at a high risk of insolvency.”

RUBY:

Documents tendered to a Royal Commission reveal many more facilities are on the brink, and the whole system could tumble.

The root of the crisis lies in reforms made decades ago to supercharge the sector’s privatisation.

Archival Tape -- Unidentified Woman #2:

“BUPA gets nearly half a billion dollars from the Australian taxpayer, as well the money you receive from elderly Australians to keep your focus, how on earth did you lose your focus?”

RUBY:

Yesterday, we heard about a system of accommodation bonds, in which residents have paid billions of dollars to secure their care - used by private providers for property investments, and guaranteed by the taxpayer.

In the second half of this special two-part series, The Saturday Paper’s Rick Morton investigates what happened to the aged care sector under the leadership of Prime Minister Tony Abbott and Treasurer Scott Morrison.

This is part two: The Mess of Morrison’s Making.

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RUBY:

Rick, yesterday we talked about how the Howard government set up the privatised framework for our aged care system, a framework that was then further entrenched by the last Labor government. So what happened next? What happened when Tony Abbott came to power?

RICK:

So by the time the Coalition came to power in late 2013, the aged care system was, you know, it already resembled a Rube Goldberg machine. So if any single element in this astonishingly complex artifice failed, then the whole thing would break down. And so the system, you know, it's already dangerously out of balance - It met its new chaperone in Tony Abbott.

Archival Tape -- Tony Abbott:

“We do need better aged care systems. Most of us have had aged relatives in aged care institutions of one sort or another…”

RICK:

And in both timing and temperament, the two were almost uniquely mismatched.

Archival Tape -- Tony Abbott:

“I’ve certainly had both of my grandparents in aged care institutions. They’re good. But we want them to be better.”

RICK:

Abbott had been prime minister for only a matter of days when in September 2013, he hit pause on this brand new $1.4 billion workforce compact for nursing homes that had been legislated by the outgoing Labour government.

Archival Tape -- Tony Abbott:

“Essentially, our policy will be about reducing the paperwork that aged care providers face, because if they’re spending less time doing bureaucracy, they’ll have more time and more money to spend on providing better care.”

RICK:

So over four years, the programme would have delivered a down payment on wage increases for care workers and registered nurses. But Abbott canned it, and the money that was saved, the $1.4 billion, was returned to the general aged care budget, which private providers, all the outsource nursing homes, were ecstatic about because it gave them even more control of financing.

So we had that first. And then in mid 2014, just six months after this workforce reform was killed off, the assistant minister for Aged Care, Mitch Fifield, torpedoed the Dementia and Severe Behaviour Supplement. And more than 25,000 people were being supported by this supplement. The unmet demand for dementia services in aged care facilities was huge. But the reason this thing was axed by Fifield was because it had been oversubscribed.

So rather than deal with the estimated cost of that care, which blew out to $110 million, Senator Fifield centralised dementia support in these severe behaviour response teams at a total cost of just $14 million a year.

So this decision was, well, you know, was far from ideal, but it didn't really change the fundamentals of how aged care was funded or delivered. That would happen the next year, when Scott Morrison became Treasurer.

RUBY:

Hmm ok, so tell me about what Scott Morrison did?

RICK:

Morrison had been in his new job just three months when he delivered his first mid-year economic update in December 2015 as Treasurer.

Archival Tape -- Scott Morrison:

“It’s a matter of getting a program under control and ensuring the right eligibility requirements are set around that program…”

RICK:

Morrison as Treasurer booked a $472 million saving to be redirected by the government ‘to repair the budget and fund policy priorities’; that's their words.

Archival Tape -- Scott Morrison:

“That’s what targeting and keeping measures as tight as possible does: it helps the people who need it the most, and ensures that there’s no expenditure in that program…”

RICK:

The money was shaved from the aged care funding instrument by pretty much redrawing the boundaries for how providers can claim complex health care under the funding instrument. And the next year Morrison raided the same aged care funding instrument again. This time he found a further $1.2 billion in savings. And that money was also redirected by the government to repair the budget and fund other priorities, that was written in the budget papers.

So this was a real departure from previous government. So when Abbott made his changes in 2013, he didn't actually cut the fund. He just redirected the workforce and the wage increases back to the general funding pool for aged care providers.

RUBY:

But the money was still staying in aged care, essentially?

RICK:

Correct. Correct. The money stayed in the aged care system. In fact, it stayed directly with the subsidy for providers. But under Morrison, the money vanished.

RUBY:

Right. Okay. So there was in total $1.7 billion that was taken out of the aged care budget when Scott Morrison was Treasurer. What was the effect of that, Rick?

RICK:

It was enormous. It was huge. A registered nurse - you know, she's got more than 30 years experience and she didn't want to be named, but she does work across this entire sector in kind of consulting roles - and she told me that this was the move, the policy change that brought the aged care sector to its knees. Those were her words.

Such an intervention would have been difficult to absorb at any time in the aged care sector. It's a lot of money. But the timing of the Morrison savings was particularly sharp. Labor's reforms had unleashed this explosive growth in investment in the aged care sector accommodation bonds, private providers had flooded the market, and the system relied on this complex web of both private funding through these bonds and resident fees and government subsidies.

So Morrison's budget cuts acted like a concrete block on a racetrack.

RUBY:

We'll be back in a moment.

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RUBY:

Rick, in 2016 when Scott Morrison was Treasurer, he reduced the funding that was available to the aged care sector. Funding that they were relying on to fulfil their main function of providing aged care services, so tell me about the impact of that decision.

RICK:

Yes. So the decision kind of tipped the entire system into crisis. Suddenly, a whole sector that relies on outside investment - because the government doesn't fund all of these extra bells and whistles - isn't an attractive investment option, because even the basic subsidy was being pared back by the government, being shaved or being cut, it was being slashed.

By mid 2010s, with the aged care sector almost entirely reliant on this government funding for general revenue, providers were also raking in tens of billions of dollars worth of accommodation bonds. These bonds are paid by residents, and they were being used to fund capital works, whether that's building an entire new nursing home or refurbishing an old one.

So on the one hand, the sector was operating on government funding to meet their operating costs, but on the other hand, they were making profit for their shareholders or their directors by investing the money residents themselves paid in the form of bonds.

This dynamic created something of a death spiral because they are inextricably linked. So when the bond started to dry up because of a range of reforms, including funding changes that allowed older Australians to stay in their own homes for longer, the whole thing kind of tipped out of balance. So basically, this privatised system that had been designed by successive governments had the rug pulled out from under it.

RUBY:

Right. So you're saying that for different reasons, both government subsidies and the bonds that the aged care sector relied upon, both started to dry up at the same time. And that's where we come to this position that you're calling a death spiral?

RICK:

Yeah, it's um...it's a bad state of affairs. And there are so many moving parts to this, but they're all linked. And most importantly of all, quality declined. And we know that the landmark Four Corners investigation really highlighted how bad this was.

Archival Tape -- Unidentified Woman #1:

“An investigation into the state of aged care across Australia. Five months ago, we asked you, the audience, to tell us about your experiences with aged care. We received more than 4,000 responses from families, staff, and industry.”

RICK:

There was, you know, awful slop being served to residents at a minimum six dollars a day for food that just looks completely inedible.

Archival Tape -- Unidentified Woman #2:

“I think families think that they’re getting their loved one looked after. I think that they think that they’re paying for that to happen. And in reality it’s just not.”

RICK:

We've got poor hygiene, people who are not getting washed properly or they're rationing continence pads.

Archival Tape -- Unidentified Woman #3:

“Her world, it was black and she couldn’t hear, and she could smell that there was faeces next to her, and she knew she had to press a button, of which she was scared to do because she didn’t know the response that she would get from the staff member that would come.”

RICK:

Neglect abuse is a feature of this system; it is not an outlier. And that's the system that was created.
And that report, in addition to kind of other media pressure, ultimately formed the Royal Commission because Scott Morrison had previously not really come to the table on that, and it was him that announced it.

Archival Tape -- Scott Morrison:

“We discussed this together as a cabinet, and we decided that it was necessary to move forward with a Royal Commission into the Aged Care sector…”

RICK:

We've now been watching this royal commission unfold and they've been examining this sector in more detail, in more detail. And thanks to them, we know how bad things are.

You know, it's not to say we didn't know at the time, but it has reconfirmed, I guess, our assessment of the sector because anyone who's had a loved one in aged care knew about this. But what we didn't know and what the royal commission didn't know, even, was that things were about to become a whole lot worse.

RUBY:

Worse how?

RICK:

Well, I mean, we already know from the consultants in the Department of Health that at least 140 aged care providers are on the brink of collapse.

The Department of Health actually got a consultant in at the start of this year, Gary Barnea. He’s a member of the Aged Care Financing Authority, which is a government agency. And they asked him to look at how much of the sector is actually under stress at the moment. And, you know, his report showed the effects of this meddling because he identified a bunch of providers that were at - and this is their word - ‘extreme imminent risk of failure’. Approximately 50 aged care providers, that's one per week, are likely to walk away from delivering services due to financial stress in 2020. That modelling was handed in in February this year before a single nursing home went into lockdown. And, you know, there's no denying that Covid subsequently has had a huge impact.

And there's a separate piece of work that was done in the department by Ansel Strategic that looked at how much had providers themselves lost in accommodation. Ansel Strategic estimated by earlier in August, actually, just a couple of weeks ago, that $1 billion has already been lost across the aged care sector in Australia as of July. By January they forecast that figure to climb to $2.6 billion.

And we are really starting to see this house of cards collapse. Remember: top-heavy, bonds at the top, government funding being cut at the bottom, not rising to meet costs. Those two things acting together are extremely powerful forces.

RUBY:

Wow. Ok. So where does that leave the Federal government then? Because they have oversight over the aged care sector and they also guarantee those bonds that the sector uses and relies upon… so will the Commonwealth intervene if these centres do start to topple?

RICK:

Well, they're trying to figure out what it will do. And there was a nugget of information from the Royal Commission last week that shows the Commonwealth lawyers actually confirmed to the enquiry that the Department of Health and the Department of Treasury actually arranged these urgent meetings with major financial institutions. So, you know, banks and lenders, to say, well, what do we need to do? And, you know, their words were there were: ‘discussions as to whether the institutions thought government intervention would be required and in what circumstances.’

Because the important thing to remember here is that the governments are the ultimate guarantor of those $30 billion in bonds. That little nugget - about the Treasury and Health meeting with the banks and the financial lenders - that’s the first time the public has heard anything about how close this government has already come to having to bail itself out of its own mess.

And I think time's up. The government has to do something. And there is a budget soon, so it will be interesting to see what they do.

RUBY:

Is the system fixable at this point, Rick? It seems like the structural problems run so deep that it's almost an impossible feat, now?

RICK:

That's my view. I mean, I think the whole thing needs to be razed to the ground personally. And even, you know, Brendan Murphy, who is now the secretary of the Department of Health, gave evidence at the royal commission on Friday, and he essentially said that, in fact, these were his words: ‘there needs to be a fundamental reset of the aged care sector. It needs significant redesign’. The thing that got us here has been tinkering at the edges.

This thing has been a Frankenstein’s monster of policy, essentially, because it is such a big task to redo the whole thing. So no government, really, since Howard, has had the appetite to make any wholesale changes, But we can't keep going down that track. You know, we can't have a bolt-on system anymore because there's no coherence and none of the different parts talk to one another. And that's the core of the issue. I mean, funding is one thing, but there's no way of knowing where any of that money goes. So, you know, we really do need to start from scratch, I think.

RUBY:

Rick, thanks so much for talking to me today.

RICK:

Thanks for having me, Ruby. Always a pleasure.

RUBY:

That was part two of The Grey Pyramid Scheme, our special investigation into aged care. If you haven’t already, you can go back and listen to part one. And read Rick Morton’s reporting for this series at thesaturdaypaper.com.au.

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RUBY:

Also in the news today…

A new leak of secret bank reports have revealed that millions of dollars in transactions flowing through Macquarie Bank and the Commonwealth Bank were flagged as potentially dirty money by overseas institutions.

The leak, published by the International Consortium of Investigative Journalism, has raised fresh concerns about Australia’s money laundering regulations.

The Commonwealth Bank settled a case brought on by regulators over previous suspicious transactions for $700 million in 2018.

And New Zealand is winding back its Covid-19 restrictions, despite three mystery cases being reported in Auckland.

The city will remain on level two restrictions, with caps of 100 on social gatherings, while the rest of the country will have no limits on domestic travel or gatherings.

I’m Ruby Jones, this is 7am. See ya tomorrow.

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