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Where has all the money gone? $20 billion a year in financials under the spotlight

Nearly $20 billion of government money goes into the provision of aged care each year, but where does it all go? and how is it spent?

It seems like we forgot to ask because, as the royal commission is now discovering, it turns out we don’t know.

The panel on ABC TV’s The Drum program discussed the topic and host Julia Baird put the question to Professor Jo Ibrahim.

“Well, I don’t think anyone really knows,” he replied.

He told his fellow panellists that he has no idea how many large providers make equally large profits whilst others “claim” to be near bankrupt. The system itself is morally bankrupt, he said, and it is hurting older people.

Ibrahim said the need for transparency in aged care funding is key; we need to be able to see to the cent where providers use their funding and how this impacts the residents.

A resident today could not see how much funding is allocated to them and what exactly this money did for them each year, and according to Ian Henschke – chief advocate for National Seniors Australia – “since 1997 it seems to be a free-for-all of de-regulation”.

Henschke, also on the panel, was referring to the 1997 Aged Care Act and said that the free market was not working for aged care and couldn’t, since the consumer in this case, older Aussies, can not up and leave a facility if it is not good enough.

Where Does the Money Go in Aged Care?

Professor Ibrahim says of federal aged care funding "I don't know where the money goes. But I see the impact of the care, the standard of care that's being provided is not adequate…An older Australian cannot find out how much money is allocated to them and of that money whether it was spent on them at the end of the year."Video via ABC The Drum #agedcare

Posted by Australian Nursing and Midwifery Federation on Tuesday, 15 September 2020

He bemoaned the tight relationship between the major parties and the major providers and their lobbyists.

“There are lobbyists in Canberra that work for these groups of people that are making the money and you don’t have to look too far to see the connections that run right through both governments. The donations that they make, they make political donations these companies to both Labor and The Liberal party,” he said.

“Up until July last year the former health minister for the Labor government, Nicola Roxon, was on the board of BUPA.

“Why would you have a government that joins with One Nation to stop people from knowing what the staffing level was in an aged care home if it wasn’t about money: it is all about money.”

The funding of aged care must be transparent, and Ibrahim argues that before we throw more money at the sector we need to account for what is already being spent.

Commission wants answers

Counsel assisting Peter Gray told the commissioners that to his surprise there is no way to say whether the current levels of funding available for providers for various forms of care is correctly calibrated to the costs of providing high-quality care.

“The current funding system does not seek to establish whether funding is matched to need or the costs of supplying the care that would meet need.

“Compounding this problem is the fact that the way in which funding levels have been indexed for inflation since the 1990s has meant funding has not increased from those levels lost in the mists of time, with real cost increases in service delivery inputs.

“In addition, the poor indexation method, indexation of residential care subsidies calculated through ACFI has been frozen on two occasions in recent years. There’s been other interventions by Government to reduce ACFI, ACFI revenues that is, such as 2016 recommendations of classification criteria. And, indeed, there were similar changes to classification criteria back in 2012 as well. Some providers achieve high profit margins while others are making losses under the same funding and regulatory framework,” he said.

The commission heard residential care providers receive $11.7 billion a year in federal subsidies and $12.4 billion in revenue, which includes residents’ contributions.

“Their annual reporting requirements do not adequately reveal how that money is used or what profit or loss is made in providing residential care services,” Gray said.

“Further, there is no specific requirement on residential aged care providers to spend any particular portion of that money on care.”

One issue brought to the commission was the way providers provide financial statements. Jason Ward, principal analyst at the Centre for International Corporate Tax Accountability and Research, says that looking into the financials of the sector is difficult because many providers do not provide any financial statements and most choose to file tier two financial statements, instead of tier one, which provides much more detail.

Ward told the commission that he believes there should be mandatory tier one reporting across the sector as well as an aged care standard in financial reporting for clarity and transparency.

“This is a sector that relies very heavily on Government funding and should be held to a higher standard of accountability because of that.

“And one specific example on that, I’ve come across reporting where most entities will report Government revenue as a separate line item but some of them don’t, and so the Government funding is actually lumped into a general revenue, mixed in with resident fees. These are not small entities but there’s different standards that they’re using across the board,” he said.

Ward also believes that all management level staff renumeration should be public knowledge so we can get a better sense of what is really being spent of staffing.

“In the way that labour costs are reported in the financial statements, key management is reported as one figure and in most cases it’s not even identifiable how many people key management includes.

“So I think if we want to have a clear reading on how much money is spent on direct frontline care and workers doing that frontline care provision, we need to have that separated out,” he said.

Peter Costello, Australia’s longest-serving treasurer, also appeared at the Sydney hearing and told the commission he does not agree with a proposed Medicare-style aged care levy.

He said the Medicare levy only accounted for 15 per cent of public health costs, while a petrol excise designed to fund roads was “overfunding”.

Mr Costello warned against raiding the $168 billion future fund, which matures this year, to inject money into aged care.

“This fund, not only is it deriving the Commonwealth income, but it’s on the balance sheet and this is where it adds real value,” he said.

“At a time when the Commonwealth is borrowing a lot of money, it’s got very few financial assets, this would be its biggest financial asset.”

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  1. I would be happy to show them where all the money goes. It is clearly in our audited report that goes to the government each year. I manage a not for profit community owned aged care home and we are currently running at a loss. I run around in my own (unpaid) time on weekends doing jobs for the home in order to save money where I can. I am offended at the implications of this story and the comments of people who appear on The Drum.

  2. Yes I can quite understand how managing a not for profit community aged care home out of Sydney could be running at loss.

    Nearly 3000 aged care providers in Australia and many homes owned by big company names who have many homes it is easy to see where the money goes.

    I know which home I would like to live in.

  3. Allan – agreed – so who collates all those reports we are required to submit – i would gladly trade report submission for a life

  4. The money situation in aged care provision is bad enough but the dictatorship is even worse. It is over a hundred years since women started the fight for equality and we are still far from it. The fight for equality for older people hasn’t even started. At this time of year conferences are being held on ageing- at times and places where older people have neither the money nor physical ability to attend. Those who do attend claim to be experts but only because they have read about it although they haven’t experienced it.
    In the recent crisis in two residences the people living there said they would have voted against lock down if they had been asked. The rest don’t seem to have been asked. Yet so many of them were made to suffer the ultimate sacrifice.
    Can we restrict the claim to expertise in ageing to those who have experienced it? It’s called democracy!

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