A discussion on the Aged Care Royal Commission

Intro:
Hello, and welcome to the CPA Australia podcast, your weekly source for accounting, education and career and leadership discussion.

Mark Broadhead FCPA:
Welcome to this CPA Australia podcast. My name is Mark Broadhead, and I am the deputy chairperson of the CPA not-for-profit committee. Today, I've got a very special guest, the senior partner of StewartBrown Chartered Accountants, Grant Corderory. And we're talking about a very pertinent subject in not-for-profit land, and that is the aged care royal commission, and what that is going to look like for us as finance professionals and how we can get ready.

Mark Broadhead FCPA:
I'd like to just introduce Grant before I give him the first question and Grant, I've known for many years now, as quite a luminary in the aged care world. And he's the head of Consulting division at StewartBrown, which includes business and governance reviews, specialised audits, financial forecasting, system implementation and strategic reviews and project assignments. Grant established the Audit and Aged Care division of StewartBrown in 1990, which is now the market leader in providing audit and insurance services and professional advisory and accounting services to the aged care community across Australia. Grant initiated the StewartBrown Aged Care Financial Performance Benchmark Service in 1993, which I personally had become very accustomed to, found it very useful, which has grown to become the dominant benchmarking service for the industry in Australia.

Mark Broadhead FCPA:
Grant has significant experience in the commercial sector as a result of a long secondment as the executive finance director for a large Australian and Southeast Asian Pacific importing company. But why I've invited Grant in today and why we're very excited to have him here, is because he's actually been quite involved in the aged care royal commission. So at the time of this interview is December 2020 and the aged care royal commission is finished and we're awaiting its report.

Mark Broadhead FCPA:
But Grant, my first question to you is, you've been quite involved in the royal commission. Could you tell us about that experience and how you found it?

Grant Corderory:
Well, thank you, Mark. And good morning to everyone and to CPA Australia that very much provide podcasts like this, and a lot of information to the finance sector. The royal commission was set up as a royal commission on quality and safety and it's almost an offshoot from what happened at Oakden, which is a mental health facility in South Australia, and that caused quite a bit of duress. And that then led to the royal commission, looking at quality and safety. So their first tranche that they set up was really having interviews and receiving lots of submissions from people who were involved in the sector more as a consumer. In other words, families talking about their elderly people who were in a residential aged care setting. And so the first tranche was very much that, where they concentrated on quality issues, quality failures. They did also move over to home care packaging, which is in-home care. But the focus was very much on residential care, which was quite an area of concern and very concerning in a whole lot of areas.

Grant Corderory:
So the royal commission at that point contacted us because they wanted to get some data about how is the financial affairs of the sector going, so they could see whether there was a direct link between financial funding or if there was a shortfall in funding and if that caused concerns as far as the staffing in residential aged care. And so we established quite a good rapport. We went to Canberra and met them a number of times with their data and was provided de-identified data, but fairly granular, so they could get a feel and really we felt that the first stage was more of a learning curve for them.

Grant Corderory:
The royal commission expanded what it was doing and their brief move beyond quality and care. Their first report, the interim report, which was headed Neglect, was obviously a very concerning report talking about in their view, from their research and submissions that there had been instances of poor care in residential aged care. Now that caused, of course, community concern. So it then expanded to this financial basis. And so when they did their fifth public hearings, it was very much focused on financial performance, prudential arrangements, and what likely was the future financial in residential aged care. So, they asked if I would do a witness statement, and I appeared on day one. Before that I probably had two, two hour sessions with the counsellors assisting and the solicitors assisting and also their data people.

Grant Corderory:
So they got a much greater understanding of the sector. And this is an opportunity for me to, I guess, identify to the commissioners, the two commissioners, as well as obviously the counsel assisting some of the financial issues that were there. I felt that their sessions had changed. The first part of the royal commission was much more provocative talking very much about quality. I think that they transitioned over the course of the journey to become much more expansive in reflecting the opinions of all stakeholders and all stakeholders aren't just the residents obviously, which are important, and the residents' families, but it's the staff, the workforce, it's the providers, it's the nurses federation, consumer groups. And I think that it ended up being a very large and all embracing royal commission, which I think is good as long as we can get some benefits from it.

Mark Broadhead FCPA:
They're really good opening comments. I really like how you unpackaged the fact that it's changed from initially those media reports to the prime minister's announcement of the royal commission. And then the fact that the royal commission did expand to consider all stakeholders, because it's such an incredibly large industry, I think 200,000 beds across the nation. And I know myself, I've been in the industry for about 11 or 12 years now, and as a CFO, I've noticed that funding typically goes up one to 2% and the costs go up three to 4%. And that's a pattern that's been going for many, many years now.

Mark Broadhead FCPA:
So whilst the royal commission can be seen as quite [inaudible 00:06:48] and bruising, it's good to see aged care on the front page of the newspapers and Australia having a national conversation about how they're going to look after our senior citizens. So from that, and from your involvement Grant, what are some of those key changes you can see coming for the aged care industry in relation to the response, what comes out of the royal commission? And also in relation to finance and CFOs, what should we be thinking about?

Grant Corderory:
Well, I think we're coming to a very interesting juncture in aged care. I think one of the key areas at the moment, aged care in Australia, we've got an ageing population. We live longer, we live healthier, but we also beget the onset of certain ageing related illnesses, such as dementia. Where aged care policy has really failed I think, in many respects, it's siloed at the moment. So when I say siloed, people could enter the aged care system or what they say, Commonwealth home support level, which is former HAC, and that's very low levels of care. It's normally home maintenance, gardening, and assistance around the home. They've also got in- home care, known as home care packages. And that's when you get assessed for pre-care levels one through four, and then based on the assessment, the funding and then the provider, an aged care provider provides those services to you in your in-home environment. And then of course we have residential aged care where it's much more institutionalised and care is provided in an aged care home.

Grant Corderory:
Now, sadly, those three areas are all distinct. Commonwealth home support is grant funded, home care packaging is subsidy funding, but not related to residential aged care, which has got a different funding instrument, currently called ACFI, the aged care funding instrument. And also retirement living is now moving into it. Now retirement living was aged 55 and over housing. But of course, now it's changed where people are moving into the lifestyle retirement living. And the average age of entry to retirement living is nearly 76 years in the for-profit sector, close to nearly 80 years in the not-for-profit sector. So people entering retirement living... I now call it seniors housing, later in their life. And they're expecting to remain in that, in retirement living for the remainder of their life, in the unit and have care delivered to them. That's the expectation. So we're now seeing that we've got to merge those four areas.

Grant Corderory:
So policy has been spasmodic because it's been related to each of those segments separately. Now, the council assisting gave 124 recommendations following all of the public hearings. And they go those recommendations to the two commissioners. I think 124 is far too many, but I'd like to focus on recommendation eight. Recommendation eight, which I think is a key one when we're looking at policy direction. It's recommending that the different areas be combined and consolidated. So persons entering aged care, they enter through one entry system. They get assessed. They might get assessed several times. And following that assessment, they might be suitable for funding for commonwealth home support. They might be suitable for funding for home care packages. Both of those are provided in- house. Or they might have funding to go into residential aged care. What this will mean is that we need to have one common funding all the way through, and also one common assessment all the way through, so we can assess people as their needs change.

Grant Corderory:
I think that if that recommendation came to fruition, that would change the whole policy direction, where we could now have a coordinated aged care system rather than a disjointed one as we have now. And that then allows us to focus on the funding, because it's clear that residential aged care in particular is underfunded and underfunded quite significantly, maybe to the tune of two to $3 billion a year. And home care packages, interesting, might be overfunded at a recipient level, but it's underfunded in total because we have people who've been assessed to receive home care and haven't got the funding so they can get it. So we need to understand how the funding works. And we also need to understand that in the future, it's not just government subsidies being the majority funding, but there has to be a consumer contribution, and we need to further understand how much that consumer contribution is. But if we get one common system of aged care, as recommendation eight of the council assisting, I think we have a really great step forward into having proper reform in the sector.

Mark Broadhead FCPA:
Yeah, that's great. If I could applaud over the microphone, I would. I just think that's really good insight, out of the whole 124 that you picked that one out. I know from experience and also looking at the industry, one of the complexities, particularly the not-for-profits is that they offer a one stop shop, where on the same site or in the same organisations, they've got retirement living, home care and residential aged care. And so the consumer comes on going, "Well, this is great. I've got this continuity of care, ageing in place." And planning ahead for that. And they may not know the fact that retirement living is under New South Wales legislation. And so you've got to have its own standalone contract. And the arrangement in relation to that is completely separate to residential aged care. And so to somehow combine them and to have that one gate where everyone goes through and they've got that continuity of care, just makes complete sense to me. So yeah. Fingers crossed that that will come back. Do you have a sense of the appetite to adopt that recommendation eight, Grant?

Grant Corderory:
Look, I do. It goes back again. Aged care's had many, many reform initiatives that haven't all come to fruition. Many reports. In 2011, the Productivity Commission, headed by professor Mike Woods came out with, I thought a very good report called Caring for Ageing Australians. And it really pointed a direction to more consumer choice and to more innovation. From that led to the Aged Care Roadmap, which many people in the sector were part of the committee to look at the road map and the future direction. Then in 2017 David Tune, who also chaired the committee of the Aged Care Roadmap, completed a fairly extensive, took a year and a fairly good report for the legislative review of the Aged Care Act. It again, it contained, I think, some very good recommendations. Now, for some reason we stalled. And then of course, then we led into the royal commission.

Grant Corderory:
Now, hopefully many of the initiatives that were set out in the Aged Care Roadmap, from the Productivity Commission report and into the Tune review, which have all been on the table now, combined for well over basically a decade, so it's not like we're having something new. So my sense is that hopefully the royal commission will then take those reports and reviews, combine them to what they've got, and then come out with a report of clarity.

Grant Corderory:
I think the appetite from both the government and the Department of Health's perspective and the quality agency is good. I think that they recognise that there is a disjointed sector at the moment. I feel that there is a strong mood within there, that if we can have a lot more clarity and a lot clearer vision of where we're going, I think that this will come to fruition. And I think that all stakeholders have had an opportunity through the royal commission to have their input. And I think that once that happens, we now have to have... I guess I'll use the word courage. We've got to have the courage of the government of the day to start enacting these reforms, with a clear timetable and a clear agenda.

Mark Broadhead FCPA:
Yeah, no thanks Grant. Earlier, you referred to two to $3 billion per year of underfunding. That's around 30 to $40 per resident per day, and I know that would make a good difference to providers to have that funding and to be able to put as much care at the bedside as possible. From my experience, the people in the industry are very good people. They love the residents and they're passionate about it. And to be able to be given more resources, to put more care at the bedside, is something that I think everyone would really, really welcome.

Mark Broadhead FCPA:
Grant, you've got a lot of experience in aged care. You've got a lot of experience with boards and executives. If you were sitting in front of your typical not-for-profit board or executive say, and they asked, what should we be focusing on right now? What would you say is some things that they, as aged care leaders should be turning their mind to, post COVID obviously. Hopefully COVID is behind us. Well, beginning to be behind us. I know we're still not out of the woods yet, but things are looking a bit better as of December. And what are some of the things that they should be turning their minds to right now?

Grant Corderory:
Well, that's a very good question, Mark. And I think that the boards have changed over the time, the not-for-profit boards, particularly. But even the, for-profit boards who have got the smaller, family type organisations, need to get a more balanced board together. I think the big thing that's going to change, is around governance. Now boards already know governance to a certain extent. And of course, CPA Australia, for example, and the Institute of Company Directors put out very good policy documents and governance, but in a not-for-profit board where many are voluntary members, it's very hard to have that direction from a board. So I think that the boards now really have to focus on several areas. Obviously they need to focus at the clinical aspects of providing care are being met. And I think they have to be an increased focus on boards to be able to ensure that the system's in place, that we're getting proper clinical governance and we're getting proper clinical results.

Grant Corderory:
From a financial performance, I think boards really need to in a sector that's now increasingly under financial pressure, I think there has to be a commercial aspect to it. Now there's a debate going on at the moment. Should aged care be nationalised and go back to the government? My response to that is that government aged care homes are the biggest losers of money in Australia. They represent well over a million dollars per home is a loss, which is an effect that's loss paid by the taxpayer. And it's a subsidy by another name. So it's not a matter of just thinking, "Oh, we'll nationalise it." It's a matter of saying, "How do we get a better non-government aged care sector?" Which of course accounts for about 96% of all aged care homes and 90% of all home care packages. To do that, I think boards have to have a commercial aspect to their financial affairs, recognising that aged care is no short term investment. It's a medium to long-term investment. So we've got to look at how do we get an appropriate return that's commensurate with a longer term investment.

Grant Corderory:
So I think they have to have clearer clarity on the financial performance and what are the conditions. So I think clinical, financial is very important. The other area that boards probably need to focus more on is, particularly in the case of residential care is on accommodation, the standard of accommodation, the style of accommodation, the cost, and whether that accommodation is meeting the community needs. So there's real specialty now required in the board.

Grant Corderory:
And the last one is the relationship between the executive, in this case, the CEO and the board, in a sense, it has to be almost a part of tension. Competitive tension is good, not to a point of having differences of opinion. I think the board needs to support the CEO particularly, and the CFO. But the CEO and the CFO also have to know that they've got a reporting role to the board members, and therefore it's important to keep both the board accountable, but also ensure that the boards aren't becoming too involved in the day-to-day operation because board of directors, directors is short for a board of direction and government, but the CEO also has to know that there's accountability to the board, which to then goes accountability to be it the shareholders or the members.

Grant Corderory:
So I think that boards now, voluntary boards, there's probably areas where they need to focus and say, "Is it appropriate to be voluntary? And if we are going to be voluntary because it's part of our mission." And I'm talking about the not-for-profit boards, is that we've still got to run it as if this was a commercial enterprise, rather than just being a mission-based enterprise. So the mission versus margin topic comes up very clearly. You need to identify it to understand it. So I think boards need to have a much greater focus on not just what's happening this year, but what's happening in five years time and what's happening in 10 years time, within their organisations.

Mark Broadhead FCPA:
Yeah, I know that's good. A lot of really good points there, Grant. I know I met with a group of aged care CFOs earlier this week, and we were talking about the difficulty around the fact that term deposits are now getting half of 1% and they're holding those monies as RADs, whereas accomodation, which is one of your points you drew out and the increased expectation of the community to provide more and more superior accommodation. The cost of refurbishment and depreciation is around four or 5%. So there's that delta that in five or 10 years time, it's going to be difficult to be able to manage that effectively. And I liked your other point about the clinical governance. I know what I'm hearing from accreditation visits and feedback from that, is that there needs to be really good systems between the information flows from the floor to the board and from the board to the floor. And I think-

Grant Corderory:
Yeah, absolutely. In fact, it's a good point you're raising there, Mark. When they have accreditation visits, often they have an exit interview from the quality agency. I think it's probably important that not only is the CEO and maybe the director of care or the care manager there, but I would think having a member of the board at the exit interview, would allow them to understand what the issues... If there are issues, and be able to report to the board independently, as well as jointly, what the CEO reports to the board.

Mark Broadhead FCPA:
Yeah. You also mentioned financial performance and the commercial aspect of the operation. Something that's quite topical at the moment and you hear a lot of, is additional services, where providers are charging fees for services over and above what's provided for in the Act and in funding. What is your sense on additional services and where do you see that heading? And what would you encourage not-for-profit finance leaders to do in relation to additional services?

Grant Corderory:
Well, look, additional services are a very difficult area. So, for those listening, this means that for your catering, cleaning, laundry, quality of your bed, quality linen and those aspects, if you can get additional service, which might be more choices of meals, or it might be some wine or beer with dinner, or it might be some technological additions, you can charge for them. Well the first, is that about 46% of residents in residential aged care are supported residents. They're financially supported residents. So effectively their only line of income comes from the aged care pension. And your everyday living cost, the basic daily fee, is 85% of the basic daily pension, single basic daily pension. So there's no real surplus money for that 46% to be able to pay for the additional service.

Grant Corderory:
The secondary area is that what are the basic levels of service that should be provided? And then of course, there's not a clear guideline or guidance in this area. So if you're wanting to charge an additional service, it's got to be additional to the basic, good service that you're providing in those everyday living services. So there's no definition about that. So therefore some providers who charge an additional service are now being held to account because they're saying, "Well, did you provide an additional better service than what you should have been providing and have all residents had the benefit, or have they used all these services?"

Grant Corderory:
So I think additional services, my view is we need to deregulate the basic daily fee and then move away from having individual additional services and say, "Look, this is the cost of providing. This is the fee we're charging to provide these services in this home." And then it's up to the provider then to determine who can pay and who can't pay, but ensure that all residents get access to those services. So I think it's much easier when you do it for a whole home rather than individually.

Mark Broadhead FCPA:
One more thing. Say if there's a not-for-profit executive or board listening to this podcast, and they've heard your response to the last question about governance, about clinical aspects, financial performance, accommodation, and all those requirements are on the board. One of the things that's evident in the Corporations Act is it draws no distinction for director's duties, whether you're a volunteer or not. And if someone's listening to this and go, "Gee, I think we need some maturity in our organisation." Where do you think they would start? What would you recommend they do, to embrace this and up their level of skill?

Grant Corderory:
Well, I think it should be contingent on all boards first, is to have an assessment, maybe an independent assessment, and there are various people who can do that. And even CPA Australia or Institute of Company Directors would be a good place to start. But to have an independent assessment, which would assess the relative skills of the board members, assess the board in total, as far as where they're going, what the issues are. Probably do a review of their minutes, a review of their meetings, have discussions and individual meetings with the board members. So I think the very first thing the board should do, is have that independent, not just self-reflection, but independent, where they can then get clear recommendations and guidance from that governance review. And then they can then sit back and say, "Okay, now what do we need to do?"

Grant Corderory:
And then from that, that'll also give clear guidance on what governance in boards is really like. Now, this will lead a little bit to concerns of some board members. Naturally they'll say, "Well look, we were doing this for the right reasons as a volunteer, but we don't know if we want to be having this sort of clear review of our performance." But I think that it's so important now for aged care boards to be on a much more commercial and a balanced board with a range of skills. So I think that all boards should regularly meet once a year or once every two to three years, have an independent review of how the going and are they meeting the board objectives and what's their succession planning and what their interaction with the executive is. And how well informed are they not just in how their organization's going, but how are they informed about how the aged care sector is going? Because board members need to have a range of skills, but a range of information available and prepared to read and understand what different aspects is happening in the sector.

Mark Broadhead FCPA:
I really liked that, Grant, the independent assessment. Someone just to come in and say, "This is what you should do, and this is the roadmap forward." I think that's a excellent way to start for anyone who's listening and maybe perhaps on their board, haven't had anything like that. I think that's a really good start.

Mark Broadhead FCPA:
Grant, some other trends you may have seen or think is going to happen in the future, do you think more consolidations, amalgamations, rationalisation. Where do you see the market heading in the next few years? And in aged care providers, I mean, I see some of the larger providers are starting to offload some of their sites. So what's some insights in relation to that?

Grant Corderory:
Yes, I think consolidation was on the cards for a while. And we saw quite a reasonable amount of consolidation from the years 2012 to about 2017. At the moment, one of the detriments of consolidation is the financial performance. It's not your financial viability and sustainability is not at the level that really encourages more investment into the sector. And this is a real issue that the government needs to address. So, if we can get a clear financial sustainability, that will help investment in the sector.

Grant Corderory:
The second thing is that consolidation is difficult when we look at the regional aspects. Many of the aged care homes that are struggling at the moment financially, are in regional areas. And often they've got characteristics of a regional area, being, they've got a smaller cohort of residents, a smaller cohort of staff available. Getting the right staff is very difficult and the normal costs of everyday costs are higher, needs of transport and travel.

Grant Corderory:
So I think that the government to address that, it's not a one size fits all type solution. If they can devote more money to the regional one, recognising that their characteristics are different, make them more viable, then I think we'll see more of the larger providers saying, "Yes, we will take on some of the regional ones because we want to keep those regional homes going."

Grant Corderory:
So, I think consolidation has stalled at the moment. You're quite right, Mark. We're seeing that some of the larger providers are actually offloading. I've noticed that Bupa recently, three of their homes, they've offloaded for their strategic reasons and all valid and good. I think we now have to get in a climate where it's the middle tier providers, the ones that have got, say four to eight to nine homes, they're the ones we should be thinking, how do they consolidate and get a few more homes?

Grant Corderory:
Because I think that if you've got somewhere between eight and 15 homes, you're starting to get to that size where you can be more efficient, particularly with spreading the corporate costs. So I think we need to focus on those ones, the providers that may have four or five or six homes, and see how investment and consolidation of some of the smaller providers, with them taking it over to get them to a larger size. Because big is not necessarily better. Having more than 20 homes or more than 30 homes doesn't guarantee you're going to do better than the smaller ones. I think there's a sweet spot for the large, and there's also a sweet spot for those medium size providers.

Mark Broadhead FCPA:
Yes. Yeah. I think they're really good comments. That sweet 10 to 15 homes is where you can get that rationalisation without being too big. I know some of the listed providers and some of the ones that have been sanctioned, some of the criticism has come is that, they'd just come back and been a bit too big.

Mark Broadhead FCPA:
Grant, I really appreciate all your insight today. If I could, just for the benefit of summarising it, just talk about some of the things you've unpackaged. Firstly, the royal commission in that they focused on just quality and safety, but really expanded its remit over the course of time. And that involved you being lucky enough to join in and share that incredibly important data, which I think was really well received and looked at closely.

Mark Broadhead FCPA:
So, on behalf of the industry, thanks very much for your contribution to have that really good data about how that's going on, because I think without the good data, there can't be great decisions.

Mark Broadhead FCPA:
Some of the other comments that I really liked was the recommendation eight and standardising the funding and the contractual arrangements for that one-stop shop where all those different providers that provisions of care, is put together. So it'll just make it a lot simpler for providers and also importantly, consumers.

Mark Broadhead FCPA:
And I loved what you were saying about the CFO and executive and boards that they should be focused on governance, governance training, the flow of information between the care floor and the board, getting a commercial aspect to their finance and making sure that they've got a strategy about their accommodation, and that they're looking to improve it as time goes on.

Mark Broadhead FCPA:
And then the last thing I loved was that boards should have an independent assessment on their performance and someone to come in and give them an assessment, and also a roadmap map forward.

Mark Broadhead FCPA:
So really great insights Grant. Very, very much appreciate your time. I think it will be very well received and gobbled up by our membership. And thank you very, very much.

Grant Corderory:
Thank you very much Mark, and it's a pleasure. And CPA Australia's got some very good initiatives that they're doing and always appreciate it to be able to assist in any way.

Mark Broadhead FCPA:
Thanks Grant. And thanks everyone for listening.

Grant Corderory:
Thank you everyone.

Outro:
Thanks for listening to the CPA Australia podcast. For more information on today's episode, please visit the show notes at www.cpaaustralia.com.au/podcast. Never miss an episode by subscribing to our podcast on Apple podcasts, Spotify or Stitcher.