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Wednesday, 5 September 1984
Page: 450


Senator WALTERS(10.42) —Let us look at the history of nursing home fees when considering this disallowance motion as it may put everything in perspective. In 1972 the Government decided to regulate nursing home fees and to allow a return of 10 per cent profit on capital investment. We all know that at that time there was not the high rate of inflation that we have seen occur in this country from 1972 onwards. We also know that the 10 per cent profit has deteriorated since that time. As I have said, we know that a 10 per cent profit on capital investment was considered quite reasonable at that time. Nursing home owners were permitted to charge fees which would give them that profit on the valuation of their nursing homes. So when one had one's nursing home valued one was able to make a 10 per cent profit by charging one's patients these fees. The National Health Act required the Director-General of the Department of Health, when determining increases in fees, to 'have regard to costs necessarily incurred'. All that sounds very clear. The owners were permitted a profit of 10 per cent on the current valuation of their nursing homes and the Director- General, when determining increases, had to have regard to costs necessarily incurred. However, the Department of Health did not follow that legislation. Indeed, it chose to ignore the Act altogether. When determining fees the Department of Health did so in accordance with the guidelines it had set up of its own accord.

It has been said today that there were several court cases. On each of those occasions when the nursing homes took the Department of Health to court, the court came down in favour of the private nursing homes and against the Department of Health. But the Department of Health was not deterred; it kept on ignoring the Act and abiding by its guidelines. This matter reached the level of the High Court of Australia and again the decision came down in favour of the private nursing homes with the High Court saying that the Department was ignoring the Act. I believe that that was a very serious thing. If the people of Australia cannot rely on the departments of this Government to abide by the legislation set down; indeed, when they do not abide by it-we have court rulings saying that the Department of Health was acting in contravention of legislation which this Parliament passed-we have a very serious situation.

As a result-as I said, this has happened over a period of years-the previous Minister for Health, Mr Carlton, set up a working party to review the situation. The report of that working party came out just as the last election took place. So the incoming Government had the report of the working party but chose to ignore it. Instead of taking notice of the evidence gathered by the working party it decided to change the legislation and it brought in principles that were the same as the guidelines the Department was abiding by. I believe that that was quite irresponsible of the Government. The Government decided that it did not like the Court's decision and that therefore it would change the legislation and remove the requirement that the Director-General had to have regard to costs necessarily incurred. So we have these Nursing Home Fees Determination Principles which, as Senator Baume has already said, the Opposition is moving today to disallow.

Following that change, a case was brought against the Department by the Alexandra private geriatric hospital. Mr Justice Woodward, following the alteration to the legislation, was forced for the first time in any of the court decisions to find in favour of the Department. That was only because the law had been changed. I will read from Mr Justice Woodward's findings because I believe that it is very important to hear what he said. His Honour said:

The Department's attitude, as explained by its chief witness, Mr Tratt, is that in the case of nursing homes established before 1973 it continues to allow a profit element based on 10% of the historic costs of land and buildings-

That means that the Department says that any nursing home established before 1973 can today still have only a 10 per cent profit margin on the valuation of the nursing home in 1973. That is quite ridiculous. Mr Justice Woodward went on:

and 12.5% of other assets.

That is leaving out the basic valuation of the nursing home. His Honour said:

If the business is sold-

this is the Department's attitude-

along with the premises, the same figure will be allowed-on the basis that a change of ownership should not affect a patients' fees.

The Department says that if the nursing home that was established in 1973 is sold, the new owner cannot claim it as a new private nursing home and has to abide by the old profits. His Honour, still referring to the Department's attitude, continued:

If it is leased, the same allowance will be made irrespective of the rent actually paid, on the basis that a change of method of occupation should not affect those fees.

That is the patients' fees. We get to the situation that if the nursing home is leased and the lessee is paying far more rental than was paid previously, he still will not be able to have a profit greater than that of the previous owner. I think everybody in the community would understand that rentals have gone up since 1973. It is now 1984 and this situation is quite ridiculous. His Honour said:

In the light of this evidence there can be little doubt that the Department is taking a hard line with proprietors of established nursing homes.

In saying that, I believe, he was quite a master of understatement. He went on:

A new nursing home, by way of contrast, would have its fees fixed to include a profit element based on the notional fair rent of the premises, to be determined by the Department after valuation--

after today's valuation, the 1984 valuation-

together with a 12.5 per cent allowance for other assets. Such a nursing home would, of course, be much better off than the applicant--

the owner of the nursing home that was established before 1973-

because the valuation would have to be at current prices.

What justification could there possibly be for the Department allowing a nursing home set up today, at a 1984 valuation, to be so far ahead of a nursing home with a profit margin based on a 1973 valuation? It is a quite ridiculous situation. His Honour went on:

But its profits would in turn be eroded with the passage of time, and with inflation . . .

He pointed out that a new nursing home being set up now would have its profit margin frozen to the 1984 valuation and that in 10 or 20 years time we would find that those profits had been eroded by the passage of time and with inflation. He went on:

In the meantime the contrast only serves to highlight the unfortunate position in which the applicant--

the owner of the 1973 nursing home-

has been placed-through no fault of its own, unless a determination to give a good standard of nursing care can be described as a fault. The applicant's basic difficulty is that the poor level of profit it is allowed is not sufficient to cushion it against the losses sustained by its use of more staff than the Department will recognise. It is in this sense that the applicant's business is not viable or barely viable. It is certainly not making a profitable use of valuable assets.

His Honour pointed out very clearly that there is a grave injustice in the present guidelines that have been set down by the Department. As I said, historically the whole thing is out of date. The Government in 1972, when inflation was virtually non-existent, made a 10 per cent profit on the valuation of that time. We find that in the intervening 12 years these older nursing homes have reached a situation where, as His Honour said, the profits have been squeezed. What were the words he used? He said:

The Department seems to be squeezing the profits of private nursing homes just short of the point of causing the enterprise to fail.

He said that it was hard and quite unfair. I think that the following statement is also most important. He said:

. . . it is from the applicant's point of view quite unfair that it should have to accept a profit in 1984 that is little different from that which it was accepting in 1972.

I do not think that we expect any other area of business to collect in 1984 the same profits as it collected in 1972. I see no reason why the Government should have changed the legislation purely because the High Court of Australia and various other levels of court have come out saying that the nursing homes are acting incorrectly and in breach of the legislation. I am delighted that the Australian Democrats are joining us in this matter, and I hope that the Government will join with us in changing those iniquitous principles.