The New Role For Procurement In Aged Care – Post Royal Commission

The final report of the Aged Care Royal Commission was released this week – Jonathan Dutton FCIPS looks at the role that procurement can play in advance of the PASA Aged Care Procurement Conference this August:

The final report of the Royal Commission into Aged Care was released this week with 148 recommendations for the government to consider, including some disagreement amongst the twin-commissioners about the best way to oversee and manage aged care in the future.

Regardless, one thing is clear – that standards of aged care across the sector must rise. Inevitably this will cost aged care operators. Not all are not-for-profit enterprises.

Many of the 2,7000 aged care homes in Australia are smaller for-profit businesses – often state-based and each operating just a handful of local homes. With no great scope for leveraging economies of scale, it’s possible that a wave of consolidation or collaboration could happen at some point in the near future.

One example mentioned as indicative but unacceptable in the Royal Commission hearings was of two Registered Nurses (RN) who worked a 12 hour night shift from 6 pm until 6 am looking after 72 aged patients. Some patients were not checked on at all during this shift.

Imagine new care standards changed night-shift policy with a recommended number of eight, six, or even four patients – whichever is considered to be the ideal nurse-to-patient ratio. This would be over the course of a nine-hour shift,  perhaps 9 pm- 6 am. That could mean nine nurses working nine hours (81 nursing hours) to support 72 patients in care, not two nurses working 12 hours (24 nursing hours). They would also be paid a premium night-time rate.

In other words, this represents a 330% rise in costs. Plus the costs of keeping seven more nurses on the payroll or, worse, using a nursing-agency. What this simple example illustrates is that costs are going to rise dramatically in certain aspects of aged care.

This was already inevitable post-COVID, as extra precautions must be taken to protect people against pandemics and other more simple viruses. The government cannot fund the increased costs of aged care indefinitely – tax levies or not.

The pressure will be on to cut costs elsewhere, especially on indirect costs. But this also brings efficiency to direct cost streams – usually the most expensive elements of patient care.

Many aged care operators have already started work. Some have hired procurement managers straight out of roles in larger procurement teams to bring their expertise to smaller-scale businesses.

Often, spend can be just tens of millions – say $50m up to $100m.  But a 10% saving on direct costs (certainly a 15% saving on previously unaddressed cost categories) can bring in millions of savings to be used elsewhere.

Will it be enough?  Can new efficiencies and new savings solve the problem of the cost of new standards? Personally, I doubt it. Leaving scope for more government support, more patient contribution, or more family support.

Indeed, the line “putting patients at the centre of the system” might even be code for “patients can choose their own level of care, support, and facilities and make-up the additional costs themselves.”

The UK Care Act of 2014 was a step in that direction.

The six principles of the UK Care Act are:

• Empowerment.
• Protection.
• Prevention.
• Proportionality.
• Partnership.
• Accountability.

Health sector suppliers in the UK seemed to have moved their offerings towards collecting multiple contributions to the cost of one person’s aged care, especially the IT sector.

In any case, the pressure is on. Procurement has a key role to play to make sure they get the best value for every dollar spent on aged care; and that all categories are properly addressed.

This August, PASA will run the 7th Aged Care Procurement Conference LIVE in Sydney on 11-12th August. The programme will be geared to helping procurement practitioners in the sector to achieve more. The vendors and exhibitors attending will be there to help as well, of course. Many have worked hard to contribute new ideas to help. In addition, the Aged Care Minister, Senator Richard Colbeck, has provisionally accepted an invitation to speak.