PRIOR, Mr Graeme, Chief Executive Officer, Hall and Prior Aged Care Organisation

TAYLOR, Mr Geoff, Director, Aegis Aged Care Group

Committee met at: 08:40

CHAIR ( Senator Moore ): The Senate Community Affairs Legislation Committee is now commencing its first hearing into the Living Longer Living Better legislative package. Committee proceedings are protected by parliamentary privilege and it is unlawful for anyone to threaten or disadvantage a witness on account of evidence given to the committee. Such action be treated by the Senate as contempt. It is also a contempt to give false or misleading evidence to a committee.

The committee naturally prefers to hear most evidence in public but under our resolutions witnesses have the right to request to be heard in private session. It is important that witnesses give the committee some notice of that so that we can make it work. If a witness objects to answering a question the witness should state the ground on which the objection is taken and the committee will determine whether it will insist on an answer having regard to the ground which is claimed. That is very rare. If a committee determines to insist on an answer, a witness may request that the answer be given in camera and such a request may also be made at any other time. Information on parliamentary privilege and the protection of witnesses and evidence has been provided. I now invite each of you to make an opening statement and then we will go to questions.

Mr Taylor : I have prepared a submission, which is to highlight some of the issues that I believe we as providers and also the care recipients will have problems with in the new legislation. As I understand it, the legislation is to provide more user pays, to encourage people to stay at home and to provide incentives for providers to build new facilities.

In my view, the legislation is biased towards the paying for your accommodation by daily accommodation payments rather than by refundable accommodation deposits. It is more restrictive on providers than current legislation. I believe this is because there is, as there has always been, a lack of trust in providers to do the right thing, which is not based on anything that is well founded. And it does not provide providers with encouragement to build because there is a lot of uncertainty still with it. A part of that uncertainty is because the principles have not been provided to us to follow on from the legislation. I think it should be amended in accordance with some of the issues raised in my submission.

CHAIR: Have you prepared something supplementary to your submission that highlights those points you want to table?

Mr Taylor : No, I am assuming that you would go through the submission—

CHAIR: We have.

Mr Taylor : and ask me about the points I have raised.

Mr Prior : I have a prepared statement; am I able to read it?

CHAIR: Absolutely, yes.

Senator FIERRAVANTI-WELLS: It would be good if you could table it, as well. If you wanted to give it to us and maybe we could get copies that would be helpful.

CHAIR: Do you want the document before Mr Prior reads it into the record, Senator?

Senator FIERRAVANTI-WELLS: That would be helpful, because all he is going to do now is read it on the record, I assume.

CHAIR: Mr Prior, I don't want to put you at a disadvantage, but Senator Fierravanti-Wells has requested we get copies beforehand. Senator, I do not think we can do that, because the person who does the copying is not in the room at the moment. I do apologise. Mr Prior, would you read it into the record, and at the end of your reading we will table it.

Mr Prior : With the attachments?

CHAIR: Yes.

Mr Prior : Thank you for the opportunity to present to your committee on important legislation that will have a significant impact on aged care in Australia. I have been involved in aged care for over 20 years and can honestly say that I have never been more excited by the future of our industry.

Hall and Prior Aged Care is a private aged-care provider in Western Australia and New South Wales. We provide care to 1,200 people in 19 care homes and one community-care setting. The majority of people in residential facilities have very high care requirements and are typically pensioners; of our current case load 64 per cent of our residents are supported residents. Our services encompass the full spectrum of care, including hostel-level care, nursing-home care, very high care, palliative care, respite care, dementia-specific care and extra-care services. We also provide a specialist homeless and Indigenous care program. As a group we employ 1,400 people from a diverse range of professions including registered nurses, enrolled nurses, personal carers, hospitality staff, allied health, dietitians, speech pathologists, chefs, practitioners of nursing and admin and finance staff. Our operations are managed by the executive management team of over 60 people in Perth and Sydney.

The legislation under consideration has been a long time in development. It has been formed through a number of inquiries and investigations. The aged-care industry has been able to and has indeed contributed to this process. The proposed legislation has thus been well researched and well informed. In its proposed form it will significantly change the aged care industry for the better well into the future. It is my opinion that the legislation should be supported and passed through both houses of parliament. However, legislation is only a broad framework for the reform process. Much of the detail is still to be outlined in the relevant principles, guidelines and determinations. Until this detail is clarified the full impact of the changes cannot be properly assessed. With this legislation reform program a primary concern at this stage is to ensure that the most vulnerable older people in our community are protected and are able to access high-quality aged care when they need it. The industry has been underfunded for many, many years. The introduction of the ACFI made the first steps to addressing this issue and this legislation will provide certainty to providers and the industry in general. This legislation is an important step towards the implementation of the recommendations of the Productivity Commission.

I will briefly mention some of what I consider to be the key aspects of the proposed legislation. The most important thing today is to discuss the Workforce Compact. The current aged-care workforce is very fragile and needs to be developed. In Western Australia during the period 2006 to 2008 we had tremendous pressures to attract and retain quality aged-care staff. Population demographics inform us that the demand for aged-care services will continue to increase and it is estimated that an additional 600,000 staff will be required to meet the workforce requirements in coming years. The industry will only be able to attract this number of employees if it can compete and offer genuine value propositions for staff. Currently the workforce has poor purchasing power. It is generally poorly paid and indiscriminate in remuneration. This can be evidenced by some organisations being able to offer fringe benefits tax concessions, such as salary sacrificing, while others cannot. The current salary sacrifice arrangements enable some aged-care providers to offer up to $16,000 of free tax income to employees. This provides an unfair playing field and in my view is an injustice.

As an employer of over 1,400 employees with an annual wages bill of over $60 million per year, we do support the Workforce Compact. We have been a long supporter of union based enterprise agreements and have recognised the valuable part employees play in aged care. Since 2005, we have increased the wage of carers by 40 per cent and of nurses that are registered, division 1 nurses, by 46 per cent. This represents effective annual increases of salary of between 5.4 and 6.3 per cent respectively per annum. Over the same time period, COPO, the Commonwealth own purpose measurement of indexation, has averaged an increase of 1.9 per cent per annum.

Under the existing legislation framework in Western Australia, our forecast earnings profile will deteriorate by approximately $800,000 over the next six years and in New South Wales by over $200,000. Thus the impact on our group before the Workforce Compact is approximately negative $1 million. This reduction will occur if the existing current operational funding and expenditure processes continue, namely, revenue continuing to increase by 1.8 per cent per annum.

Our high-level analysis of the Workforce Compact has indicated that it will be cost neutral to us in both WA and New South Wales after taking into consideration all employee entitlements and oncosts. This assumes the workforce supplement continues beyond the 2016-17 financial year. It will be cost neutral to us as we have a very high level of resident acuity and already pay wages well above the margin for the relevant award rates. We do, however, appreciate that this will not be the case for all providers, particularly those providers that have residents with low-care requirements and who are currently paying award rates. So, in summary, we thus support the Workforce Compact and we feel it will invigorate the aged-care workforce.

Accommodation payments and bonds: it is our opinion that the proposed change to accommodation payments via the daily payment or lump sum bond will be generally good; however, we do have a number of possible concerns. Briefly, there is some confusion as to whether the value of any lump sum payment will be exempt from the residents' calculations for means testing. We do believe the lump sum payment should not be included in this calculation. There is also potential that the removal of the bond retention amount will result in higher bond prices, which will make up for lost revenue. From an economics viewpoint this will certainly be the case. We need to ensure that this will not leave residents unable to pay accommodation bonds, particularly those on low-income levels. Generally, caution needs to be exercised to ensure that there is no freezing out of residents with low incomes. The government’s undertaking to pay accommodation fees for residents with low-income means is supported.

CHAIR: I am just going to cut in to see how much more you have to put in.

Mr Prior : Two pages.

CHAIR: Can I get an idea of what the issues are, rather than just having you read that out.

Mr Prior : That is fine.

Senator FIERRAVANTI-WELLS: Mr Prior, the object of having this is for you to provide submissions beforehand—

CHAIR: Senator, I am more than capable of actually talking through the general things. Mr Prior, if you can just tell us what the issues are, then we will go into questions.

Mr Prior : Sure. Accommodation supplement, pricing authority, pensioner concessional residents, the homeless Indigenous issue and the agency.

CHAIR: Okay. We will get a copy of that and everything in your statement will be on the record. I feel Mr Taylor would have similar issues around some of those areas, so rather than just read it through we will go to questions. There seem to be great similarities in many of the submissions. If there is an issue raised that senators would like to ask about, I would ask that they come in on that issue at the same time.

Senator SIEWERT: Maybe we should start with the Workforce Compact and go through those issues.

CHAIR: Sure.

Senator SIEWERT: Mr Prior and Mr Taylor, you seem to have different opinions on the Workforce Compact. Can we work through what the difference of opinion is and why. I am not saying one is right and one is wrong, but you obviously have different opinions and it is an issue that is going to keep coming up, so we might as well air some of those issues now.

Mr Taylor : My view about the compact is, firstly, it was not agreed with the industry. The only people who have agreed have been the minister and the unions. I think that it is unfair. I looked at the average wages paid in each state, and Western Australia is six per cent above South Australia, Victoria and Queensland and about two per cent above New South Wales. For our group, we are about six per cent above the WA average. So there is a significant difference between the wages that we pay and the Fair Work Australia awards. Our registered nurses are nearly 50 per cent higher than the FWA awards. Our ENs are about 20 per cent, and all of our carers and other staff are around nine to 10 per cent higher.

To say that we should increase our wages by 2.75 and then, before, we are entitled to start to look at claiming the one per cent cap. To say that you have got to pay 2.75 and then you have got to pay another one per cent on top of what we already pay to get the cap is totally unfair, when you have got other states that are paying significantly lower—and even the award rates. It is not an incentive for us to take up the one per cent cap, because the numbers just do not work. You are saying, 'You need to pay out around four per cent extra to get one per cent'. It is just not logical when you take it on top of the fact that we had no COPO indexation last year. The government will say, 'Yes, we did,' that it went up by 1.6, but we reduced ACFI by 1.6 so you did get an indexation increase. But the fact is: the numbers are that we did not get one. We paid our staff an extra three per cent last year, except for our registered nurses, who got an extra 3.5 per cent. To say that you need to pay above what you are already paying before you have a chance of getting the one per cent cap is just not fair. There have got to be some levels that you have to achieve in order to get the one per cent. If you are already at that, and that is what you are doing, then you should automatically get it.

Senator SIEWERT: Do you have a response to that?

Mr Prior : Not particularly.

Senator SIEWERT: It sounds like you are both paying above aware here in Western Australia—

Mr Prior : That is correct. Almost identical pay rates.

Senator SIEWERT: Why don't you have the same problems? I am not trying to set you up. I am just trying to get in my head what is going on here.

Mr Prior : I have got a view, Senator, and I think my colleague has a view. Honestly, what it boils down to is: what is the difference? We both have EBAs in place; we have had EBAs in for some time. In Western Australia it is extremely difficult to compete against the tradeable goods sector, which we do. We have no choice in that. As I mentioned in my submission, between 2003 or 2004 and 2008, we were under tremendous pressure even to provide care, let alone find staff. We have had an agenda since 1998 to try to negotiate with unions sensible outcomes, and today we have the same agenda. We would like to negotiate new EBAs starting from July 1 this year. I have been asked to comment on the workforce compact as it is currently drafted. The current draft of the bill, to me, should it go through, has a neutral impact on our organisation. That is the evidence I am giving today.

I do share Geoff's views entirely that the level of remuneration that we are paid by the Commonwealth government to meet staff outcomes in Western Australia is very different from the rest of the country. We operate 400 beds in New South Wales; it is a different world entirely. We have the EBAY in New South Wales but there are different pressures at play.

CHAIR: Mr Taylor, is your organisation outside WA?

Mr Taylor : No, we are only in Perth.

CHAIR: From your comment 'largest in WA' I was not sure whether you had places outside WA. But you operate entirely within here. Mr Prior, you have just pointed out the difference between interstate activities, and I think that is an important issue.

Mr Prior : We operate 800 beds in WA and we have a large operation in Albany. We have about 400 beds in Sydney, so we do have experience. We can compete economically in different environments.

Senator SIEWERT: Mr Taylor, you do not think your organisation is going to be in the same position where there will be a neutral outcome from the Workforce Compact? It will actually cost your organisation?

Mr Taylor : I just think it is not fair in that we already pay very high wages and then we have to go another level up to get the one per cent. We should already be entitled to it with what we do. As Graeme said, we are negotiating our EBA at the moment and the wage rate increases will be above three per cent. But then we have to increase them another one per cent above that in order to get the cap, when we are already paying higher wages. The formula for it should be different. There has to be a ground zero where they say: if you're above this, you are automatically entitled to it.

CHAIR: Shall we go to bonds?

Senator FIERRAVANTI-WELLS: Mr Taylor in his submission made some particular points which have not perhaps been picked up in other submissions. Mr Taylor, I would like to take you to the value of a person's assets. You make points in your submission, which I would just like to particularly ask you to elaborate on. One is the issue here of the explanatory memorandum, page 63, subsection 44-26. On page 3 of your submission you refer to the fact that the explanatory memorandum states: 'This is consistent with current treatment of accommodation bonds.' That statement is not true.

Could you just elaborate on that and then on the impact that that will have?

Mr Taylor : Currently, people can be income tested and the income testing is based on their income. If they move from their house and they pay a bond, the bond that they pay is not included as an asset for the income-tested calculation. The basis for that is that you are moving from one type of accommodation to another type of accommodation so that the bond that you pay is a payment for your accommodation. It is not earning any income and therefore it does not have an income-deeming rate applied to it. So it is not included as an asset. With the proposed legislation, the proceeds of the house are then deemed to be an asset and that includes any lump some that you pay. So it is contrary to the existing legislation. In Western Australia our bonds are typically around $250,000 up to $400,000, maybe a bit more, but generally they are in the $250,000 to $350,000 mark. In the eastern states they are up around $600,000, $700,000. The effect of it will be very significant on people when they are means tested, based on an asset that is really still their home. So it is inequitable.

Senator FIERRAVANTI-WELLS: I am also conscious of time. If you could elaborate a little bit more on the point that you pick up there about the potential penalisation of a facility for not achieving its regional ratio.

Mr Taylor : Originally, when beds were allocated around Australia, the comment was made that you should be looking to meet the regional ratio, but I assume that the number of concessionals in an area was looked at based on all of the facilities in the area. Then the rules changed where, with an allocation, they said that if the regional ratio is 21 per cent, that you should have 21 per cent concessionals in your facility.

Mathematically, this is not possible. We argued this at the introduction of the Aged Care Act in 1997. If the government is saying that to get the full concessional supplement you need to have more than 40 per cent concessionals, it is not possible for everybody to have 40 per cent concessionals when there is only 21 per cent out there. So you are controlled by what other providers do. In some areas within a region there might be a lot more than 21 per cent concessionals—there might be 30 per cent or 40 per cent—but in other pockets of that region there might be very few. So to tie it down to particular facilities—and nothing has been enforced on that to this stage—is a problem.

We do not know what is being said about the 40 per cent concessional ratios—supposedly that is in the principles—and it will probably continue on as it is now.

Senator FIERRAVANTI-WELLS: But we do not know that, Mr Taylor.

Mr Taylor : We do not know. All I am flagging here is: please do not force something on providers in terms of meeting regional ratios unless you are going to say to all facilities in a region, 'You can only have 21 per cent concessionals. If there are more than that you cannot accept them because somebody else needs them.'

Senator FIERRAVANTI-WELLS: That is right.

Mr Taylor : It is a bit of a ludicrous situation. The government's monthly payment summary forms have the concessional numbers for every facility. They can press a button and it will tell them if a region is meeting their ratio. As I said, if the region is not meeting the ratio and there is a demand, the government could then talk to providers and say: 'We have concessionals who cannot get into facilities. Your ratio is below the regional ratio. You should be looking to take more on.' But if you are going to somehow bring in penalties when the regional ratio is being met then that is inequitable.

CHAIR: Mr Prior, do you have any comments on that issue?

Mr Prior : We operate 13 facilities in WA. All but one meets the ratio.

CHAIR: The 40 per cent?

Mr Prior : That is correct. Of the six in New South Wales only one meets the ratio. I have sat in meetings with departmental officials at various times over the last 12 years on this issue. It seems to be an issue that has suffered from an inability to get more traction around the equities or inequities of this issue. I do, to a certain degree, share Geoff's view.

CHAIR: You have the same concern about exactly how it is going to be implemented and about what is going to be in the principles. Is that a shared situation?

Mr Prior : It is an issue that could lead to the failing, in some cases, of a facility. Your cost structures are set—they are so high—and your funding from the Commonwealth is under very tight formulas and under extreme scrutiny the whole time. This is an area where a facility could fail at some time in the future if it falls beneath 40 per cent and it gets penalised. That happens all the time.

Senator FIERRAVANTI-WELLS: Mr Taylor, can I just ask you about your reference to the Trade Practices Act. Could you elaborate on that. It is a very unusual circumstance. Mr Ansell has said, in his Grant Thornton paper:

We can think of no other circumstance where it is considered commercial or equitable to allow a person to take possession of property without agreeing the terms of payment.

That is the principle as they put it, and that has certainly been supported by other submitters. But I move to your point about the clause and its uncommercial nature and probable potential contravention of the Trade Practices Act. Could you elaborate on that.

Mr Taylor : I just threw the Trade Practices Act in to get your attention—

CHAIR: I think it worked!

Mr Taylor : without having read it!

Senator FIERRAVANTI-WELLS: You can argue it.

Mr Taylor : It is uncommercial. We are talking about residences here. If you are looking at a residence with a view to moving in there you have to make a decision on whether you are going to rent it or buy it before you move in. You do not make that decision after you have moved in. This is where the great uncertainty will come from for the industry. It is a huge concern for the banks and providers and, if the government wants us to build more facilities, they cannot give us uncertainty and say, 'Don't worry about it, it will all work out fine.' The big problem is if we were starting from scratch, with no bonds, in aged care, then we could work with it; but the fact is there is $12 billion in bonds out there. As I said earlier, the legislation is biased toward people paying a daily accommodation payment rather than a lump sum, so it is not only the new people coming in to new facilities, it is new people coming in to existing facilities. If they are not making a decision on whether they are going to pay a lump sum or a daily payment until four weeks after they have moved in, and you have a bond to repay to someone going out, then you have a problem. It is just not commercial to have people making that decision four weeks after they move into a facility.

The reality is that most people—98 per cent—will make that decision before they go in. They know what they want to do. They will be shown what the choices are and given all the information and from that they will make that decision. Most people will be wanting to make that decision before they go in. The other thing that is inequitable about it is the fact that there are many people who come in and pay their bond upfront. They want to pay it on the day they come in, to set and forget—'Right, that's out of the way.' If you say to them, 'You cannot pay a bond for the first 28 days', they are going to say, 'But I'm going to be paying you nearly seven per cent interest; I am only earning three per cent from the bank. That means I am losing money in that first month while I wait until I can make a lump sum payment to you.' That is why my suggestion is that, instead of saying that we cannot ask them to pay or they must not pay a lump sum in the first 28 days, we add to that 'unless mutually agreed between the care recipient and the provider'—because many people want to make that decision and clear it all up at the start.

There will only be a small amount of them, but the amount that people might have to pay could be up to $6,000 for that month. That is a lot of money. I guess if they can pay the lump sum they can pay the $6,000 but there will be situations where we end up with bad debts because we do not know what people's means testing amounts will be; they will have said, 'Yes, we will pay this daily accommodation payment and daily care fees but all Mum's got is a house. We've got to sell the house or find the money from somewhere to make these payments. Give us some time.' There will be some unscrupulous families who will play it to their advantage and not pay. Then you will be chasing them. Our only right of recourse is if the fees are unpaid for 42 days. You can then ask them to leave but you have to find them somewhere else to go. You are in a no-win situation because you will have these people there who will not pay and cannot be asked to leave. Who else is going to take them if the reason you want to move them on is because they are not paying their fees? It is just inequitable to do this.

It is a fine thing to say, 'Okay, give people 28 days to make that decision.' In some cases where you have people coming into aged care urgently, yes, that might be helpful; but in most cases people do not need to urgently come into aged care. It is a transition that occurs and when they get to that point they have had time to sort out their financial affairs and they can make that decision beforehand.

Senator FIERRAVANTI-WELLS: In terms of one of the issues, this government has made much of the fact that you can now pay a daily fee or an accommodation bond or a combination of both. But that has always been the case, Mr Taylor, has it not? This is a situation that has existed for quite some time. Isn't the issue more around the fact that some providers are demanding to know about people's assets, which is not what they should be doing but are? Regrettably the two issues have now found themselves merged. Good providers, Mr Taylor, are not asking people what their assets are—and they should not be—but some are. Do you think that this is the sledgehammer to crack the nut in circumstances where the alternative could have been simply to enforce the existing requirements—making sure that providers are not demanding to know what people's assets are before negotiating a bond or other payment requirement?

Mr Taylor : The current legislation says you need to leave people with $43,000 in assets, so the legislation is not good. To me, as far as they go, the changes to the legislation bringing in pricing—you advise people what the bond and daily payment is and advertise it—are all very good. Having a list of what you are providing and so on that is available is right.

The pricing rules they are bringing out are good. The fact they are in three tiers is just bureaucratic nonsense. Market forces always prevail when it comes to what people pay and that is how it should be. You advertise what your bond levels and daily accommodation payment levels are and if people come and have a look at your facility and think they are reasonable fees, then they will come in; if they think they are too high, then they will not. The fact that we are doing away with allowing providers to charge a bond—that is, the person's assets minus $43,000—is a good thing. It is probably not a huge number, but maybe 10 or 20 per cent might have been doing that. Yes, it is using a sledgehammer to crack a walnut, as far as that goes, but the simple change to bring in the pricing rules is all that was needed. To bring in the three tiers and not just let market forces prevail is not right.

Senator FIERRAVANTI-WELLS: One last question, if I may, on the conclusion of your submission. In the end, you make the point about cherry-picking—effectively we have seen the government pick up only about five or six per cent of the Productivity Commission's recommendations and then add a bit more that was not there. Do you think that overall, given your years of experience, all this is going to reduce viability even further in the sector and most especially here in Western Australia? Secondly, is all we are going to see another wave of regulation and an already difficult circumstance, particularly here in Western Australia, made even more difficult by the increased regulation that these bills will bring in?

Mr Taylor : Probably not. There are two parts to residential aged care. One is the accommodation, and I believe that allowing either lump sums or daily accommodation payments at all levels is the right thing. It has worked with extra service and low care, and the reason it is essential to bring it into high care is the fact that most low care people are now being encouraged to stay at home, whether that is good for them or not. I think in a lot of cases where people are encouraged to stay home they would be much better off in a high-quality aged care facility, but anyway, that is that part of it. The other problem that we have, as far as viability, is where the government is looking to reduce ACFI and saying that the industry has been rorting the systems when we have validations all the time. If we are rorting the system the validators should have found that rorting and it should be showing up in the figures.

Senator FIERRAVANTI-WELLS: The monthly figures that you get paid—

Mr Taylor : Yes. The reason that the funding has gone up is because the acute-care needs of the residents has gone up. The low-care people are staying at home with community-care packages, which means that we are getting people who are more acutely ill when they come in; they are coming in at higher levels. This means that we need more staff to look after those people and more funding to pay for the wages. Viability will very much depend on what happens with ACFI funding in the future. The residential side will work fine as long as the uncertainty is cleared up, but the care funding needs to be sorted out. The government has said that they will not do a cost of care. We know why—because it will show that the cost to industry is far greater than the funding that we get.

You have not asked about the means testing. I have a big problem with the means testing. Why is the maximum $25,000 for residential aged care when it is $10,000 for home care? If your means testing is going towards your care costs, then it should be the same at home as it is in residential aged care if the subsidy levels are the same. If the subsidy levels are higher in residential, sure, you can pay some more.

The other thing about it is that they say you pay up to a maximum of $25,000. Be got a lot of assets, you could pay that $25,000 in four months not 12 months and, as I have said in my submission, don't kill the golden goose or don't think that residents can pay whatever you determine. They cannot pay the means-tested higher daily accommodation payments or lump sums and the daily care fee. There are limits on these things and what this is encouraging or will force people to do where they do not have the assets or think that it is too expensive, is stay at home getting the wrong type of care for what they need. It will discourage people from going into residential aged care, and that is something that providers see as well. We work on occupancy levels of 95 or 96 per cent, but if you are discouraging people from going into aged care because it is too financially expensive, then our occupancy levels are going to drop and it is a fine line between making a profit and not making a profit when 75 per cent of your income is going on wages. You cannot put staff off just like that. So that side of it needs to be looked at. I think that the $25,000 should be determined as a daily maximum figure, which I think is about $68, and not have it that you could pay $200 a day as a means-tested amount if that is what you your care fees are. It is just totally unreasonable.

CHAIR: Mr Prior, do you have any comments to make on that?

Mr Prior : Which particular part?

CHAIR: I would think that you could make comment on the three questions that Senator Fierravanti-Wells raised before we go to other senators.

Mr Prior : On the last question about sustainability, it is certainly our view that the total contents of the five bills will add to the viability of the sector in our experience. The particular bill around what the government wants to do with zoned housekeeping is the government's business. We have nothing to say about that. As to the workforce compact, as I mentioned in my submission that is neutral as far as we are concerned. As to the high-level modelling, we do not have the benefit of all the guidelines yet but we believe that the workforce compact is the right thing to do.

The concern I do share with Mr Taylor is around this whole issue of the cooling-off period of 28 days. I think that the industry has had no discussions whatsoever and that this is something that the government has come to a position on with the consumers. That is okay, that is their business, but the reality is that it could have quite a serious impact on what banks and boards of management of providers may decide for making very large investments today in the aged-care sector. To deliver a new bed in Western Australia costs over $300,000—including the land and all the costs of construction and fit-outs—which is a very large figure. And the government now wants to introduce a bill that can question the capital viability of that.

Casting my mind back to 1996, the bill sat in the department's offices for a long time because of a nervousness around this exact issue: capital viability of the sector. Many large church charities, and providers with large bond-holdings, are very nervous about the consequences of this particular part of the bills. Once they get passed, I don't think any government in the future will change them, because there will be effects for the consumers.

CHAIR: Thank you. Senator Siewert?

Senator SIEWERT: Thank you. Before I start I want to seek leave to table a letter from Minister Butler in response to some questions that I asked. I particularly want to do that now because Mr Taylor was part of the group that was talking to me, after which I wrote to the minister to raise some issues. So I would like to table that.

CHAIR: There being no objection, leave is granted.

Senator SIEWERT: Thank you. Mr Taylor, I don't expect you to have read it—I only gave it to you moments before—so I don't expect you to be able to answer questions on it now. But would you mind responding to the letter later, in a written form? You can now, but I would like to give you some time to see whether some of the answers have resolved any of your questions—or raised more.

CHAIR: We will have to do that later, because of the time, but we would appreciate that, Mr Taylor. Mr Prior, if you have questions arising from the document—which is now public, it having been tabled—we would really like to hear back from you as to whether any of those statements from the government raise more questions or not.

I know Senator Furner wants to talk about the agency, but if you have any questions, Senator Siewert.

Senator SIEWERT: I particularly wanted to go back to this issue of the means testing and the $25,000 cap. I am trying to understand what consequences that has both for providers and for residents. I get the issue around the $10,000 and the $25,000. Could you articulate the impacts this has for providers—it will obviously have impacts for consumers—just so I can get it set in my head?

Mr Taylor : There are two issues for us. One is, as I said, that it will increase vacancies because it will make it harder for people to come in. Care recipients will need to get their heads around the fact that they need to provide more towards their own care than they do now. For some people, that is not going to be a problem. But for a lot of people, where their only asset is a house, the fact that they need to sell the house—or, if they don't want to sell their house, they will need to get rent to provide them with the money to pay for their daily accommodation and the means-tested amount is going to be a problem for them. The families will also have a problem with that. Maybe in 10 years' time people will be much more used to the user-pays system at the level that this is, but I think that $25,000 is a big figure. Say somebody has a million-dollar house—in some of the upper areas it doesn't need to be a good house to be worth a million dollars—and they have lived there for 50 years, and just got their pension, they won't understand that they suddenly have to pay maybe $100 a day as a means-tested fee as well as—

Senator SIEWERT: Isn't it the case that, if you are a full pensioner, this does not apply?

Mr Taylor : The way they have worded it is that your house comes in at a value of $144,500, which is where the asset test stops and this means-testing kicks in. So, if you have $1 in the bank, you will pay a means tested fee. That is why they brought in the house value as $144,500: it means that, for the purpose of paying means tested fees in aged care, you are not a concessional anymore.

Senator McKENZIE: How many houses in Australia are worth $144,000 these days in Perth?

Mr Taylor : I do not know of any. But that is the reason it has been brought in there. When I say that people do not have anything else besides their house, they might have $10,000, $20,000, $30,000 or $40,000 in the bank, so they are going to be paying means tested fees on that and they will be paying the daily accommodation payment, which is fine. For people who have other investments, they will be paying a much larger proportion of the means tested fees. I cannot give any examples, but I foresee that there will be lots of issues with it. What the government will do, as they do with income tested fees, is reduce subsidies by that amount and then we have to collect the means tested amount from the resident. That just means that we will have more people who find it difficult to pay the fees and we will have more bad debts to deal with. It will be a problem. I do not know what the government is forecasting the means testing amount will bring in, but whenever governments estimate what a new tax will do it usually brings in double, triple or quadruple what they say. So, whatever they have estimated it will be and how it will reduce the ACFI funding that they are paying out, I am sure that the figure will be much larger.

CHAIR: Have we had evidence of the current rate of bad debts in the industry?

Mr Taylor : Fairly small. I can only say from our group's perspective that it is maybe one or two per cent.

CHAIR: Is that data kept?

Mr Taylor : That we keep?

CHAIR: No—given to the government. Do you say that data is purely commercial data for each individual provider?

Mr Taylor : Yes.

CHAIR: Is it commercial-in-confidence?

Mr Taylor : No.

CHAIR: It is interesting because you made the point about bad debts. Perhaps in a supplementary answer you could provide us—if you choose to—with your current bad debts rate. That would be really useful to make a comparison.

Mr Prior : I could make a few comments now. It is a very, very low number. It would be in the order of $80,000 per annum, with a turnover of $100 million.

CHAIR: Is that similar for you, Mr Taylor?

Mr Taylor : Yes, I would say so.

CHAIR: So, in the current situation, it is at that level, but you are saying that this new program could lead to a higher number of bad debts.?

Mr Prior : For the years I can remember, it never really rates as a significant revenue risk at all.

CHAIR: I have not heard the issue of bad debts raised before in any of our aged-care inquiries, but we were not looking at this thing in particular. It has never been an issue in previous discussions.

Mr Prior : From our experience, when you get a bad debt, which does happen, it is a very large number. For whatever reason, the family or the resident will not pay or cannot pay or refuses to pay. Over six to eight months, it can climb to a very large amount of money—$30,000 to $40,000. That is what becomes quite emotive. It is not the regularity; it is simply a one-off occurrence—

CHAIR: Size.

Mr Prior : yes—that becomes quite a difficult issue for everyone involved. You simply cannot ask a resident to leave, so you take it on the chin and move on.

Mr Taylor : The reason it will be an issue here is that previously it was only income tested. It was based on your income. Now it is based on your assets, including accommodation bonds. It is going to make a very big difference. Where the income tested amount the government received before might have been—I have no idea what that figure is—say, $300 million, I would think it would now be $1 billion or maybe more. That is $1 billion that we have to collect, and that was previously a much lower figure. It will have a big ramification.

Senator FIERRAVANTI-WELLS: Taking the next step, assuming that is the case—the government extending the bond guarantee so that it will now levy—potentially you will now see providers under this system becoming debt collectors in that sense and putting greater pressure on them. The ultimate step for some of them will be reduced viability and then going into liquidation, for which, under the proposed changes, the whole industry will now pay. So you can see what is going to happen—you are then going to have a lot more providers having to share not only their own burden but also the burden of those that go under.

CHAIR: I would imagine the question there is: do you agree both of you agree with Senator Fierravanti-Wells's statement?

Mr Prior : If I understand correctly, Senator, you are perhaps critical of this. Is that a fair comment?

Senator FIERRAVANTI-WELLS: No. I am just asking you for an opinion. All of a sudden the government is introducing a bond guarantee. The bond guarantee system is going to change. Whereas before the government was the one that would ultimately pick up the tab if a provider went down, now everyone is going to be levied. To take Mr Taylor's scenarios to the next step, we are going to force providers to deal with a greater number of debts and some of them are not going to be able to deal with those debts, so the next step for them will be liquidation. Potentially, we could see a greater number of providers going into liquidation and the whole industry having to pay for that, because they will be levied with that $1 million, $2 million, $3 million, $5 million or whatever the amount is.

Mr Prior : The industry will have to continue to mature. It will have to work with government on equal terms and not always rely upon the government for everything it does. All of the viable industries I have worked in have taken responsibility, as much as they have been able to, for their own actions. Moving to a self-regulated or jointly regulated capital management strategy to me makes sense.

Mr Taylor : The levy has always been in place. What is being done now is just a continuation of that. It is just that the industry has never been levied for the defaults that there have been in the past. The government is entitled to levy us based on the bonds that we hold. In answer to the question, if providers go into liquidation and they owe bonds and are not able to pay them back then those bonds will be paid from the guarantee fund. The liquidator will then be getting proceeds to cover the bonds from the sale of the facilities. If facilities do not have bonds and they go into liquidation, there is no obligation on the government or the industry to pay levies for them. It is another thing that brings uncertainty into the industry—that is all. It makes it riskier if you have the potential for losses coming from residents not paying their fees.

Senator FURNER: I have some questions around the agency. Starting with you, Mr Prior, in your submission you contend that there is a need for greater transparency in this area. One of the submitters, Queensland Nurses Union, contends that there is a practice, which I am aware of, of staff, for example, not being present on accreditation days. How do we improve transparency around those sorts of issues? Do you have a view on that?

Mr Prior : Not particularly. I think the move by the government to effectively make the agency a body of governments is a positive step overall. Anything that enhances the quality of care across the whole sector and anything that really changes our need to be far more accountable are positive things for stakeholders. When it comes to those sorts of practices, I would say that they are in an extreme minority. Nurses, in my experience, are very accountable people and very professional people. They will speak up when things are not going according to plan. If there is a presence of registered nurses running the care program and the governing care program in facilities, you will generally get a higher standard of governance and care outcomes.

Senator FURNER: Notwithstanding the fact that they could be an EN or an AIN, as opposed to an RN, that person could be the same position of being scrutinised by the agency about particular practices that they have seen in the workplace. It is not just RNs I am focusing on; I think there are other staff—for example, there could be kitchen staff or cleaners—who may see certain practices that do not meet the standard of accreditation and who therefore should be able to identify problems in the system in particular workplaces.

Mr Prior : That is exactly right. We run 24-hour nursing coverage seven days a week. All of our facilities are run by registered nurses—Division 1 nurses. That is the leadership we believe works in aged care. We have tried everything else, Senator, we have tried the lot. You name it, we have tried it in the last 20 years. I do not think carers have the understanding or the desire to run aged-care facilities or to deal with the agency and Commonwealth authorities. It really should be handled by very experienced people because it is a very experienced endeavour we are dealing with these days. Those are my thoughts.

Senator FURNER: Mr Taylor, do you have any views in this particular area?

Mr Taylor : I gather you are saying that staff who are a problem are asked not to be there on the day of the accreditation.

Senator FURNER: No, not staff that are a problem, staff that are willing to speak out and are therefore subsequently rostered off on the day of accreditation.

Mr Taylor : I have never heard of that happening. We always have more staff on when the accreditation people are there, you know, to answer all their questions and so on. All staff have the opportunity to come in and speak to the agency. Even if they are people who are stirrers, they have their opportunity.

Senator FURNER: How does that process work? How do all staff have that opportunity?

Mr Taylor : Any staff member that wants to come and talk to the agency about what is happening in the facility is allowed to come and speak to them.

Senator FURNER: So do you roster extra staff on, if they are presenting themselves as wanting to speak to the agency on the particular accreditation date—

Mr Taylor : What I am saying is that if it is staff members who are not the day staff on the days that the agency are there, then they can come in of their own free will and talk to the agency if they have issues about the facility. If the staff who are on want to talk to the agency, then they can go and talk to them.

Senator FURNER: How often has that occurred, that staff willingly present themselves on their days off to come and talk to the agency?

Mr Taylor : I do not know but I would think that probably most times some people want to come in and tell the agency what they think, both good and bad.

Senator FURNER: But you do not know. You said you do not know, but you believe it does happen.

Mr Taylor : Yes.

Senator FURNER: That seems a contradiction to me

Mr Taylor : What, that they would come in?

Senator FURNER: You said you do not know, but they may come in.

Mr Taylor : Well, I do not know the facts, but I do know that people come in to talk to the agency because they have that opportunity. I know that they do come in. But I do not know to what degree.

Senator FIERRAVANTI-WELLS: Senator Moore, can I in fairness to the witness also state that if the agency come on an unannounced accreditation visit, then whoever is there is there, whether they are rostered or not rostered, and therefore it is not really up to the provider on that occasion. Somebody might be rostered off or on, but the provider does not know about the visit. I think that is something that needs to be said for the record.

CHAIR: Yes, that is a different type of visit. Senator Smith and Senator McKenzie: do you have any questions? We are in your home town, Senator Smith.

Senator SMITH: Mr Prior, in your submission you talk about a risk that could emerge. It goes to the issue of bad debts and viability: to quote page four of your opening statement you say that, 'generally caution needs to be exercised to ensure that there is no freezing out of residents with low incomes'. Further on, on the following page you say that you are concerned that some of the changes to accommodation payments may 'inadvertently discourage providers from caring for pensioners'. Is that a view that is shared by others that you have been speaking to in the industry?

Mr Prior : I do not know. I have read some of the submissions to your inquiry and it seems to be a bit of a theme. This issue is very important to us and has been for 20 years. One of the reasons the department have been 'rusted on', if I can use that expression, to retaining a 41 per cent threshold is for this exact reason—that is, to make sure that there are beds available for people who have access issues around financial viability. If these bills get passed and the government starts to 'incentivise', for want of a better expression, and we can charge up to $50 per day, then some pensioners will not be able to afford that. This is the departure point in Commonwealth policy: up until now, largely the Commonwealth department have ensured, with all governments, that they would match almost dollar for dollar accommodation payments for a concessional resident supplement, so no freezing out. This is a departure point taking place, and I do not know what the outcome is going to be.

Senator SMITH: Does it mean that some people may choose—'choose' is not the right word, but some people might find themselves living at home longer, not because that is where the care is best provided to them but because of that financial limitation that they face? Could we get an underclass of older Australians trapped in their homes because the system does not accommodate them in residential aged care anymore? Is that a real risk?

Mr Prior : It is not just a risk. If you talk to directors of nursing today, if I could bring into this room directors of nursing who deal with the 'coalface', for want of a better expression, this is the No. 1 issue they will raise with you today. When you have two people who are on pensions, they are living in their little home they have had for 30, 40 or 50 years, they are invariably married, they have no-one else around, the disincentive to go into care is extreme and it happens today all of the time. They will not leave that home because the loss of one pension means the home collapses and whoever is left behind ends up a complete mess. When I talk to those directors of nursing who look after the people in the pension territory, for want of a better expression, that is what they tell me every day of every week of the year.

Senator SIEWERT: That is happening now?

Mr Prior : Right now.

CHAIR: Exactly, and no change.

Mr Prior : Right now; no change. In my submission, I put it to you that this is the No. 1 issue, I believe, we face as a community today.

Senator SIEWERT: Does this bill make that worse or better? Or it doesn't?

Mr Prior : It does not change it; it does not address this as a very important issue.

Senator SIEWERT: It is not addressing this issue.

Mr Prior : This is a very, very important issue, senators; more important, in my view, than anything else.

Senator SIEWERT: It is not addressing that threshold that people need to overcome to actually go into residential care?

Mr Prior : That is right. In very simplistic terms: if Geoff and I are pensioners and we couple up, we live together, we will receive about $19,000 per annum. If we pool our money, we have $40,000 to run our little house and our little car; the seniors card pays for our transport and everything else. If I fall very ill, then the last thing I want to do is be a burden on Geoff, but he is left behind and my pension goes to the aged care provider and our household will collapse.

Senator SIEWERT: Despite the fact that there are supposedly—I use 'supposedly' not in a subjective way, but there are supposed to be protections built in around the partner remaining in the home, so the very fact that you are taking one of the pensions away is in itself a barrier?

Mr Prior : Correct; it is an enormous barrier. It is alive today. It is our experience that the husband or the male will not burden the wife, and vice versa. It is even worse at the DVA.

CHAIR: Until crisis.

Mr Prior : That is exactly right. What happens there, of course, is that my acuity as the male rises—as we all know, that is what happens—and my wife will care for me, but then she will fall into trouble herself. She goes to hospital, I die, and the whole thing is a mess. So, if this can be addressed somehow, I would encourage senators to address it.

Senator SIEWERT: So how would you recommend—

Senator McKENZIE: Sorry, can I just ask a question. My understanding of this conversation and our evidence thus far was that these bills actually exacerbate incentivising staying in the home, rather than the current situation.

Mr Taylor : They encourage you to stay home even if it is not in your best interests.

Senator McKENZIE: More than the current system? That was my understanding from the evidence we have received thus far.

CHAIR: That is an interpretation.

Senator McKENZIE: No, just this morning's evidence—

CHAIR: Yes, that is an interpretation that is out there. It is identifying an issue and what could happen, yes. We are running out of time rapidly.

Senator SIEWERT: I think I will put some questions on notice—

Senator McKENZIE: Yes, I will too around viability supplements and also, for both your organisations—I know you are New South Wales and WA and WA solely—the proportion in regional areas and the difference between low and high care, because you are both quite supportive of combining that into one care type.

Mr Prior : Totally.

Senator McKENZIE: I would appreciate some evidence on that.

CHAIR: We are particularly interested in the regional impact. I know that both of your submissions have touched on it, but if there is anything you would like to add about the rural and regional impact—and also we note, Mr Prior, your comments in your submission about Aboriginal and Torres Strait Islander care, but—

Senator McKENZIE: Additionally, given the projected increase of use of aged-care facilities, how are the incentives to build new facilities or significantly upgrade your facilities catered for under this arrangement? I would appreciate some comments on that.

CHAIR: Thank you both so much. You have already provided a great deal of evidence and effort to us, and we have just asked you to do more, but I know that both of you, through the ongoing process, know that that is part of the gig. We do appreciate it greatly. Thank you very much.

Mr Prior : Thank you.

Mr Taylor : Thanks for your time.