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Wednesday, 5 September 1984
Page: 452


Senator GRIMES (Minister for Social Security)(10.55) —Senator Walters's final words are rather amusing. We are asked to throw out and change some principles that she considers iniquitous. The principles and regulations codify a scheme that was introduced, as the honourable senator said, in 1972 by a conservative government. The principles were administered unchanged by conservative governments for eight of the past 12 years. I ignore the fact that Senator Walters, when referring to the period of conservative government, talked about the Department of Health being the villain, but when referring to the period of the Labor Government talked about the government being the villain. That is the sort of debating trick that we expect from Senator Walters. I remind Senator Walters that the principles were established under and administered by a government of which she was a supporter during eight of the past 12 years. It is absolute nonsense to talk about iniquitous principles as though they were something that the present Government had introduced.

I had better undertake some historical analysis of the type adopted by Senator Walters to put the matter into perspective. For the benefit of people who were not here in the 1970s, particularly since 1972, it is important to realise just what happened. The fact is that the current arrangements were developed and enacted under a Liberal-Country Party Government in 1972. The arrangements provided for significant increases in nursing home benefits and the introduction of controls over the number of nursing home beds that attracted benefits, the patients admitted to those beds and the maximum fees charged.

From the inception of the fee control arrangements, fees were increased to reflect increases in costs, but there was no general provision for profitability levels to be increased. However, proprietors could, and did, appeal to the Minister if they considered that in their case an increase in profitability was warranted. Throughout the period during which Senator Walters and her colleagues were in government they maintained that policy. It became increasingly clear during that time, however, that the whole question of nursing profitability needed to be examined and that anomalies needed to be redressed. We all knew that; the previous Government knew that; but it was all too hard.

I do not recall that Senator Walters, during all her time as a Government back bencher, breathed a word about that question and said anything about what she now considers to be iniquitous principles.

The matter was examined by advisory committees and successive consultancies were let, but all that action during all that time led to nothing. The Liberal- Country Party Government did not know where to go with the nursing home profitability question. Indeed, that Government had no real policy on age care and accommodation for the aged.


Senator Walters —What was the report of the working party and why did you ignore it?


Senator GRIMES —We are not ignoring that report. I am coming to that aspect. I am talking about the fact that, while Senator Walters has been a senator, she has never got up to say a word about that aspect. I have never heard Senator Walters speak about the iniquitous principles that the Liberal Government administered during eight of the past 12 years. Suddenly, in 1984, Senator Walters gets up in this place and says: 'This is terrible. The things we did during all that time were terrible. This horrible Labor Government has come in and actually codified the principles under which we administered this legislation'. Senator Walters's tears are crocodile tears, and I am pointing out that fact to people.

There were advisory committees and consultancies were let, but nothing was done . When the Labor Party came to office we had a clear age care policy, but we inherited the problems of nursing home funding that had been exacerbated by our predecessors' inactivity. The Government's policy objectives in relation to nursing home funding were clearly stated by my colleague, the Minister for Health (Dr Blewett), in his second reading speech on the National Health Amendment Bill 1983. He stated:

Existing nursing home benefits and deficit funding arrangements will be replaced by program grants paid to nursing homes. These program grants will be based on standard costs for the services delivered less the income received by the homes through standard patient contributions. The program grant system will take some time to develop. In the meantime the existing funding arrangements for nursing homes will be maintained.

The Minister continued:

In summary, the proposed changes will ensure that the Government is able to continue the application of policies and practices in nursing homes fees control , established and supported by successive governments, pending the introduction of the present Government's residential care program.

The particular change that would enable the continuation of the existing arrangements was the provision for the Minister to make the fee determination principles that are now the subject of this disallowance motion. It was the Government's objective in 1983 when the legislation was enacted, and it remains the Government's intention that there should be an orderly transition from the present funding arrangements to program grants. The principles that the Opposition seeks to disallow were developed in consultation with interested bodies, including the Nursing Homes and Private Hospitals Association of Australia. There is substantial agreement that the principles reflect existing policy. I add that the Nursing Homes Association did not endorse the approach to profitability reflected in the principles. Of course it did not, but I shall say more about that later. It is important to note that we have had negotiations and that those negotiations continue.

The need for nursing home fees to be determined in an orderly manner was recognised by Mr Justice Woodward, whose remarks have been quoted today. He recognised that aspect in the court case involving the Alexandra private nursing hospital when he said:

In an area as important as the calculation of profits for nursing homes there must necessarily be a substantial degree of uniformity of approach to questions of principle, or injustice as between nursing homes could become rife. It would create obvious difficulties if different delegates were to adopt different criteria in deciding when to depart from historic costs in order to allow much larger profits based on current valuations. There is much to be said for the view that exceptions to such a general rule should be made in a consistent and co-ordinated way by the Minister who is responsible to the Parliament for both the economic and equitable administration of the legislation.

The fee control principles will provide the basis for the high degree of conformity and the equitable administration of the legislation which Mr Justice Woodward said was needed. They will go some way towards satisfying one of the industry's longstanding complaints that there is, in fact, no consistency and no uniformity in setting fees either between or within States. The need for an orderly approach in taking nursing home financing decisions is of particular significance, as nursing home fees must be met either by taxpayers or patients. The Government's expenditure on nursing homes is now about $1,000m a year, so it is vital for the Government to consider responsibly the interests of patients, taxpayers and nursing home proprietors. To give the industry overly generous profitability would result in an enormous extra cost to the community, but that is not to say that the industry's legitimate profit aspirations should be ignored.

Although it is certainly true that the interests of the patients and taxpayers must be protected, it is equally true, as I have said, that proprietors have a right to earn a profit from their business. The reasons why people invest in a business and their expectations of what they want from the business are very complex, particularly in the nursing home industry. Investors may choose the nursing home industry for no other reason than the profit the business generates . Alternatively, they may seek the security of investment which Government regulation brings to the industry. They may also seek the capital gain on either the asset, the business, or both. Some enter the industry out of a sense of altruism but even then it could be argued that they deserve a fair level of profit on their investment and we do not argue with that principle at all.

Against this background I think it is very difficult to determine exactly what a fair level of profit is for the industry. The industry is protected; it is so protected that it is virtually riskless. Proprietors are almost guaranteed 100 per cent occupancy because of the limitations on bed numbers imposed by successive governments. Proprietors are assured of minimal bad debts and a regular cash flow because the majority of their income comes from either government benefits or payments from patient's pensions. Investment in the industry provides a source of employment for many proprietors or their families and there are intangible benefits which flow from owning and operating one's business.

There are a number of other factors which may influence the level of profitability of a nursing home such as the capital gearing or whether the home is freehold or leased. But the fact that the problem is complex does not mean that we should ignore it altogether as the present Opposition did when it was in government over the eight years I have referred to. As I said earlier, a number of half-hearted attempts, half-finished consultancies and half-baked ideas arose during that time but there was never any real attempt to address the difficult question of nursing home profitability, a question that Senator Walters and Senator Baume apparently now find, from the luxury of the Opposition benches, an easy question.

The present Government, within the first half of its first term in office, set up a working party of industry and departmental representatives to examine this complex question of profitability. It would certainly be going too far to suggest that there is complete agreement on how this question should be resolved but I am sure that the representatives of the Nursing Homes and Private Hospitals Association of Australia would agree that some progress has been made. The basic task of the working party is to identify realistic options for changes to the profitability policy which would be compatible with both the existing funding arrangements and the proposed residential care grants. The working party has already met twice and discussed a number of possible approaches and these are currently being further developed. It is expected that the final report will be put to the Minister for Health in the near future; in fact he expects it to be put to him in about a month.

The fact that this Government took the initiative in setting up the working party on profitability clearly came as a great surprise to the industry. After years of distrust and suspicion in its dealing with previous governments it certainly approached the working party with some caution and some scepticism. I think that is understandable given the treatment it received previously. I believe there is now a more trusting and productive basis and we can come to a reasonable understanding. The effect of the previous Government's activities on the industry can be gauged, I think, by the split produced within the industry and that is what this disallowance motion is all about. The national body with which the Government negotiates is the Nursing Homes and Private Hospitals Association of Australia. The previous Government's intransigence and the inability of that Association to gain any concessions in profitability cannot be discounted in the decision by Victorian nursing homes to break away from it and form its own group called the Private and Geriatric Hospitals Association of Victoria-the PGHAV.

I mention this matter for two reasons: Firstly, it shows what an effect the previous Government had on the industry and, secondly, the PGHAV has a significant role to play in this debate on this disallowance motion. It is the Private and Geriatric Hospitals Association of Victoria which has put the Opposition up to this disallowance motion. It is manipulating the Opposition to have these fee principles disallowed while the national body, with which the Federal Government negotiates, is taking the more constructive path of negotiating an amendment to the principles on profitability.

We have an industry which is split; we have a break-away group in one State. The group has broken way from the national body which has been negotiating with the Government and it has formed the PGHAV. I think anyone in this place who has received correspondence from these various groups will realise who has put the Opposition up to what it is doing and what it is about today. The PGHAV, having deprived itself of direct access to government by breaking away from the national body, has resorted to this confrontationist approach and it has found, of course, a ready ally in the current Opposition which seems to be intent on continuing the negative approach to this problem which it had when it was in government. For eight of the 12 years of the application of these principles the former Government did nothing or what it did do came to nothing. It built up this problem that we are facing now and it built up this atmosphere of distrust. Now, when the Government gets together with the national body, negotiates with the national body, establishes a working party which is about to report, codifies the principles awaiting the report of that working party so that we can get to grips with this real problem of profitability, along comes the Opposition determined to knock and determined to oppose everything that happens. It has no trouble in finding an ally in the Private and Geriatric Hospitals Association of Victoria.

It is true that the nursing home industry in Victoria has experienced a compression in profitability over the years but the fact is that the situation is not as dramatic as the PGHAV would have us believe. There are still many people seeking approval to build new homes and proprietors are able to sell their businesses at prices which include large components for goodwill. The amounts paid are known for 16 transactions completed in Victoria since 1 July 1983. The fact is that the goodwill per bed ranged from $2,144 to $8,500 and in only four cases was the goodwill figure below $5,500 per bed. I put it to honourable senators that that is hardly the description of an industry which the PGHAV claims has been driven to the brink of bankruptcy. Those are the ones we know about. People from the PGHAV have had much influence on what the Opposition is about here today. They have been attempting to influence all honourable senators in this place behind the back of the national body. They have been trying to undermine the reasonable negotiations of the national body by crying poor mouth in this place and talking about bankruptcy. I do not believe that the figures I have just quoted from 1 July 1983 add up to an industry which is about to go down the drain.

The real question is: What on earth does the Opposition seek to gain by disallowing the principles as it is trying to do today? There are nearly 50 principles providing for the setting of fees on a consistent basis that Mr Justice Woodward talked about and all of these principles could be lost because of a concern over one principle, important though that principle is, which relates to the return on investment. The disallowance of the principles will not of itself result in any change in profitability policy. However, it will result in more energy being devoted to disputation within the existing financing arrangements and to greater scope for inconsistent decision-making. Uncertainty for both proprietors and patients will be increased, and endeavours to introduce the new program grants arrangements will be made all the harder.

I emphasise that the Government introduced the fee principles only to enable existing policies to remain in place while the program grant arrangements are being developed. It is obvious that the complexities of the industry are such that we cannot move to a new system overnight. Some development work is already under way in relation to nursing home and hospital costs, and we will shortly commence a study into standards of care. But whilst this work is being done we need to continue the existing schemes on a fair and equitable basis, and the fee control principles hold out the only hope of allowing substantial progress towards residential care grants and an orderly changeover from one system to the other.

I have said before and the Minister for Health has said on many occasions that the Government accepts that some modification of the principle of profitability may be required and is working with the industry towards an acceptable solution of that problem. But to disallow all the principles because one requires amendment is counter-productive and, I suggest, puts us that much further away from a better scheme.

The actions that will be taken in this matter are as follows. The working party , to which I and other honourable senators have referred, will be asked to report as soon as possible. The Minister for Health expects that this working party will report in one month. The matter will then be considered by Cabinet as soon as practicable. The Minister for Health is well aware of the position of nursing homes with lower profitability and he will draw the Cabinet's attention to that matter.

In answer to Senator Macklin's question, we do not need legislation when the decision is made. We can amend the principles. This is what we are investigating . This is the matter that is under consideration. We do not need to introduce legislation. I can give an undertaking that this matter will be considered and decided as soon as possible, as soon as practicable. But it is a complex matter, as I have said. We shall do all that we can do to have the Government's decision finalised quickly. I cannot give the absolute guarantee requested by Senator Macklin, but I can give the guarantee that we shall act expeditiously. That fact that we have acted at all is a considerable advance over the previous Government 's approach. That Government was quite happy with these principles when in government-or, if it was not happy, it found it too hard to do anything about it . We have done something about it; we are in the process of doing something about it. In the meantime we need to have these principles codified in this way.

To throw the baby out with the bath water because we have been under pressure from one section of the industry which has broken away from its national body and has put pressure for some on the present Opposition would be a silly thing to do. For the Opposition to find principles iniquitous and to find that there is suddenly a need for urgent action this week, next week or the week after, having for eight years done nothing, smacks of hypocrisy. I urge honourable senators not to support this disallowance motion, for all the reasons I have stated, for all the reasons that the Minister for Health has stated, so that we can get on to providing a coherent and sensible system of aged persons accommodation in this country, so that we can establish the program grants that we wish to establish, and so that we can do this in an atmosphere that lacks the disputation, both inside and outside the courts, by which this area has been characterised in recent times.