Aged residential care seems to me to have become the government’s forgotten sector, the industry that provides a vital social service that doesn’t get the recognition it deserves. It is difficult to recall the last time the minister responsible for aged residential care was in cabinet or the last time the serious funding issues facing aged residential care in New Zealand was in the public eye.

As we all know, this problem is not going away with 35,000 people currently in aged care, and in 13 years’ time that number is estimated to increase to 58,000 as more of the Baby Boomer generation move into aged residential care. I’m sure that if this crisis was happening in a sector related to children and young people it would have been resolved many, many years ago.

Whilst the industry has an exceptionally capable national lobbying body in the NZ Aged Care Association (NZACA), I think it is time for someone who has been in the aged care industry for a long time, and has seen the changes at a grass roots level, to give the public a perspective of what is really happening in this critical industry. It is significant that Government got out of providing aged residential care in the 80s and 90s because it was costing them a fortune and they weren’t particularly good at it.

I have been in the industry for nearly 25 years and over the last 5-10 years it has become significantly more difficult for aged care providers to even remotely make ends meet. The reason is simple – underfunding – and that underfunding, in my view, is entirely due to a lack of knowledge and concern from successive governments.

It is impossible to make ends meet when you have a business model where the government determines your income and then forces massive cost increases onto you, especially if that Government then doesn’t fund you or allow you as a provider to increase your income to cover those additional costs.

Let me explain …

Provider income

The DHB (read Ministry of Health/Government) determines the fee levels for residents in residential care whether they are private payers or subsidised. Realistically, providers have little or no negotiating power as to increases, as there is only one purchaser for their services (the DHB). In essence the DHB typically “negotiates” a CPI or less increase on a take it or leave it basis. The real cost increases for residential care are not the CPI (Sept 18 Full Year 1.9%) but the Statistics Department Aged Care Price Index (Sept 18 Full Year 9.1%), an immediate shortfall of 7.2% per annum.

Provider Costs

  1. The staff costs in a residential care facility are now one way or another pretty much determined by the government, not by the provider. Cases in point:
    • Carers’ wages are determined by the pay equity legislation introduced by the previous National Government. These are inadequately funded – remembering the NZACA was not invited to the negotiating table when the legislation was formulated.
    • If you want to retain your registered nursing staff, registered nursing wages are now largely determined by the recent DHB/NZ Nurses Organisation MECA agreement. The DHBs are “funding” this with a 0.43% boost to aged residential care providers, which by my calculations will contribute about 15% towards the actual increased registered nursing wage bill.
    • The minimum wage increase of 7.8% has never been adequately funded.

Of course in all these cases the government makes a windfall gain from additional PAYE and GST.

  1. Add to these other significant costs foisted on operators such as the resident interRAI assessment tool, which has moved the cost of resident assessments from the DHB to the operator without any recompense for the staffing required to do this job.
  2. Then add into the mix the fact that the level of resident acuity has decreased dramatically over the last decade or so. This is due to many factors, not least of which is increased Government funded home support which often increases the age and frailty of residents entering aged care facilities. This has meant that the assessment system rules have been altered to counter the fact that there are now too many residents getting into higher levels of care and faster than the DHB can manage within their financial budgets – not the DHBs’ fault but unfortunate and hardly resident focused! Our staffing levels have risen over the last decade by more than 30% to cope with these changes and our staffing costs have increased as a percentage of income from 72% in 2010 to 90% in 2019. Not a sustainable model!

If nothing changes, the industry will soon only be populated by large corporates and large charitable organisations and that will dramatically reduce resident choice. The remaining smaller providers who have not already closed down or been sold to corporate operators will cease to exist if the funding issue is not resolved right now. Maybe that is the Government strategy – to reduce the number of providers to a level where they only need to negotiate with a small number of large providers?

I am raising this issue in the hope that the current government will properly address the problem and seek a satisfactory resolution with providers, not simply palm them off as has so frequently happened in the past. I know that the funding model is being reviewed, but this will not resolve any of the immediate issues. Forgive me for being sceptical, but in my time there have been two funding model reviews undertaken and neither resulted in any change.

What needs to be done to resolve this crisis is for the government to recognise there is a crisis and then for it to pay a proper share of the care costs by increasing its contribution (ie achieved by significantly increasing the funding level and then topping up rest home level care as it now does for hospital and dementia care).

Mark Rouse is the General Manager of a medium-sized trust-owned and -run retirement village in Waikanae on the Kapiti Coast.


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