The solution to aged care funding is clear: it must be transparent

If all happy families are the same and every unhappy family is unhappy in its own way, the opposite can be said about social services.

Health and social care that produces good outcomes can be organised and funded in a range of ways.

Systems that perform poorly, on the other hand, share a unique and common feature: they are designed to serve providers and intermediaries, not the health and wellbeing of individuals and communities.

It’s never put this way, of course, and it may even be that those designing these systems truly believe that markets, freed from burdensome oversight and regulation, will generate the best care in the most efficient manner.

Markets are a good servant but a poor master. They only work under certain conditions — chief among these transparency and good information. It’s therefore interesting that opacity and a lack of consumer information is also a feature of poorly performing systems.

While the best example remains the United States’ health system, the Australian aged care royal commission has — despite leaving a lot unsaid — made it clear that the industry is an example of market failure and, frankly, policy vandalism.

Its final report said the approach of successive governments since 1997 “has generally been that the market will take care of itself without the need for monitoring and management by the government” — that government should get out of the way and let the private sector do its thing.

While this may be true for the fruit and veg trade or the restaurant business, complex, expensive services that exhibit large information (and power) asymmetries between providers and consumers are a completely different ballgame.

Unsurprisingly, the report found that based on a range of measures of quality and residents’ outcomes, government-run residential aged care providers perform better than private — especially for-profit — providers.

Not that this stopped the privates amassing huge profits — profits that have invariably come at the expense of unnecessary suffering, poor health outcomes and, in some cases, premature deaths.

A complete overhaul is needed, starting with — as proposed — a new act that enshrines high-quality aged care as a right, much more funding, and regulation that provides oversight and promotes innovation.

Much greater transparency on performance and on funding will be critical.

We need to know how providers perform

Providers must be compelled as part of their accreditation and funding to regularly supply data on their practice and performance.

These data should include staff ratios, use of interventions like restraints and sedatives, and adverse outcomes such as infections, falls and pressure sores. They should also include outcomes and experiences — good and bad — reported directly by residents and their families. This should include complaints as well as regularly reporting health-related quality of life.

This data should be published and benchmarked against sector-wide averages for two key reasons.

First, to signal problems with service quality and identify places of excellence for mutual learning and research. In healthcare and other industries, feeding back data on performance has been shown to stimulate service-level improvement and innovation through “self-accountability” if coupled with good management practices.

Second, such information can help consumers make more informed decisions and answer the fundamental question in any market exchange: will I get my money’s worth?

Just like listed companies and superannuation funds, aged care providers must be required to publish truthful and timely information on their performance.

But to be effective, performance data needs to be adjusted for residents’ age, frailty and health status, and regular audits will be needed to minimise cheating. These mechanisms are common in healthcare, and there’s no reason they can’t be deployed in aged care.

Reform will be impossible without financial transparency

Both commissioners recommended, albeit in different ways, an independent price-setting authority for aged care.

This is a good proposal. It can make funding flows more transparent and, if done well, can link funding with service quality and outcomes. But what would such an agency do?

The Independent Hospital Pricing Authority performs this function for Australian public hospital services. Every year it crunches cost and activity data provided by every public hospital in the country to calculate how much it costs to treat various conditions and deliver various interventions based on their complexity and the health status of the patient. These “prices” are then used to pay hospitals under the national activity-based (or “casemix”) funding model.

The price of a heart transplant is about $128,000, for example, while treating a typical case of bronchitis or asthma costs $1609 if the patient has no other health problems. If they do, the price rises to $4114.

Casemix has benefits and drawbacks. It promotes economic efficiency but also rewards more activity — meaning that other objectives like appropriateness, quality and equity rely on other levers.

Replicating this approach in aged care would be challenging for three main reasons.

First, the authority’s prices reflect the national average. The prices are “efficient” because quality and efficiency of hospital care are already pretty good. In most cases, the mean provides a decent benchmark.

The same cannot be said of aged care. Substandard care and funnelling money to owners and shareholders appears to be the norm, so costs calculated by pooling national data would be meaningless and potentially damaging.

An aged care pricing body would therefore need to adopt a more investigative approach such as “best practice pricing”. Here providers who demonstrate good quality and outcomes (best practice) would be identified, and their cost and activity data used to calculate how much providing high-quality aged care should cost — both in residential and home-based settings.

It’s safe to say that this figure will be higher than what the industry spends per resident on average, especially given the final report finding that smaller residential care services (fewer than 30 beds) deliver better care than larger providers.

Second, aged care is fundamentally different from a hospital admission, which is short and based on a specific diagnosis or intervention. This promotes an itemised price list that underpins the casemix model.

An aged care admission is the opposite. Its duration is indefinite and must cater to a recipient’s medical and social needs over time, which would all need to be bundled into a “price”, most likely for a period, not an item, of care.

This is not insurmountable. “Bundling” various services along a patient’s entire cycle of care into one payment is becoming more common in health systems across the world. But it greatly relies on reliable and timely data — another reason to bolster data collection and reporting.

Ensuring good data on costs and activity is the third challenge.

The authority covers only public hospitals, whose data are complete, consistent and rigorously audited. To function effectively, an aged care pricing body would need data for all providers — public and private. The latter are notoriously opaque about their finances. Extracting accurate, complete information from them will not be easy.

Reforming Australian aged care will not be simple. It will be impossible without mandating complete transparency and information from all providers. Only this will ensure that the aged care industry serves us, not the other way around.

Are you outraged by how the private aged care industry lacks transparency? Let us know by writing to letters@crikey.com.au. Please include your full name to be considered for publication in Crikey’s Your Say section.