Inside our rest homes: Retirement centres aim for top dollar to help fund care

By Martin Johnston, Simon Collins

Today the Health Ministry starts posting full audits of rest home care online. In the second of a five-part series, Simon Collins and Martin Johnston examine the peculiar business model for our 32,000 old people in care.

Vic and Olive Williams feel their lives have improved since they moved in with their daughter, Sharon de Haas (right). Photo / Alan Gibson
Vic and Olive Williams feel their lives have improved since they moved in with their daughter, Sharon de Haas (right). Photo / Alan Gibson

Long-term care for elderly New Zealanders is becoming a byproduct of the property development business.

The big companies that now dominate aged care say they can't make enough profit out of the standard subsidies for residential care alone.

Their business model depends on charging "premium rates" to those who can afford to pay for ensuite bathrooms and other extras, and cross-subsidising care beds out of the more profitable business of retirement villages.

"You cannot build a rest home without a retirement village. You cannot survive without that cross-subsidy," says Aged Care Association chief executive Martin Taylor.

"No one has built a stand-alone, premium or non-premium, facility in 10 years without a retirement village."

Associate Health Minister Jo Goodhew points to four facilities that have opened or been extended since 2008 without retirement villages attached. But Mr Taylor says two actually are in retirement villages and the other two are only extensions or refurbishments where the operators already owned the land.

Ryman Healthcare chief executive Simon Challies says his firm alone, one of the biggest companies on the New Zealand sharemarket, has built 75 per cent of the 2000 new aged-care beds built since 2007 - all as part of an integrated package Ryman offers its retirement unit investors, with pools and bowling greens.

Moreover, he says, 75 to 80 per cent of residents in Ryman's care facilities pay premium charges, so the company can pay caregivers' wages that are "well ahead of the sector".

"Premiums are only allowing us to provide a higher standard of facility and pay our staff a little more," he says. "They are still going nowhere near an adequate return on capital."

This commercial approach to care of our oldest people contrasts strangely with the medical model driving public hospital care for the rest of us. We have stumbled into it by accident rather than design, as successive cost-cutting governments seeking to clear long-stay geriatric wards in public hospitals extended rest home subsidies first to charities, from 1951, and then to private investors a decade later.

Unfortunately there are reasons to doubt that we have got it right.

Vic and Olive Williams, 85 and 83, count themselves lucky to have got out of Ryman's Bob Owens Retirement Village in Tauranga, which opened in April last year. Mr Williams was in its rest home and Mrs Williams was in its hospital from late last year until they moved out two months ago to stay with their daughter, Sharon de Haas.

Read the full report from the Health and Disability Commissioner on the Edmund Hillary Retirement Village here.

They felt they lost control of their own lives. "They make you get out of bed, you are not allowed to stay in bed," says Mr Williams, who has had heart problems.

He has had an aversion to rice ever since his military service in Japan after World War II, and this was noted on his care plan, but he was served rice regardless.

He is allergic to morphine, also noted in his care plan, yet night staff gave him medication containing it.

He spent time on the hospital floor every day with his wife and took part in the exercises offered there. But Mrs Williams, who had suffered several strokes, could not do them.

Since Mrs de Haas brought her parents home, her mother has improved to the point that she can give herself a biscuit and hold her special cup.

Mr Challies tells a different version.

"Vic did stay in bed quite often if he wanted to," he says. "The only person that would have encouraged him to get up earlier is the doctor."

Mr Williams should have been offered an alternative to rice and should not have been given "a single dose of cough medicine that contained a small amount of morphine".

But he says a physiotherapy aide gave Mrs Williams tailor-made exercises nearly every weekday because she couldn't do the group exercises.

In general, as at Bob Owens, corporate care homes are often on upper floors of retirement villages. They may be spacious and comfortable, but they often have limited links to the outside world of the kind that keep older people active and contributing to families and communities.

"There's no access to outside, there's no grass," says Age Concern Hamilton manager Gail Gilbert. "It reminds me of a kennel where they are stacked on top of each other."

The best remaining charitable homes, such as Elizabeth Knox in Epsom which has 200 volunteers, have a constant flow of visitors from local schools and the community. But even the best corporates, such as Bupa, owned by the British United Provident Association, say volunteers are "a challenge".

Alone among the major corporates, Bupa publishes clinical quality indicators for all its facilities on its website along with often critical comments from its surveys of residents and families. Managing director Grainne Moss says some Bupa homes do involve local schools, but she is wary of too many volunteers. "I would love to do a big volunteer programme, but I'm worried that the Government might then say to me, 'You can achieve all this, so if we want we're going to cut your funding'."

But the same kind of problem already exists with the cross-subsidy from retirement villages. Successive governments have been understandably reluctant to raise care subsidies when they see the money going to companies like Ryman, which received $67 million in taxpayer-funded care fees last year, paid $14 million in tax and made a net profit of $137 million including tax-free capital gains on its retirement units.

(Capital gains on occupation rights when retirement units change hands are not taxed because the underlying physical asset is not sold).

The cross-subsidy covers the cost of care for village residents, who get priority if they need to move into the on-site rest home or hospital.

But the other problem with this business model is that many older people either don't want, or can't afford, to live in retirement villages.

Most occupation rights are priced below prevailing local house prices so older people who own their own homes can afford the upfront cost.

But a Treasury paper in June reported that home ownership in the 65-plus age group fell in the four years to 2007-08 from about 72 per cent to 67 per cent for couples, and from 65 per cent to 59 per cent for singles.

Retirement villages also charge fees averaging $124 a week, according to a Consumer NZ survey in February - too costly for many of the 40 per cent of the 65-plus age group whose only income is from NZ Super.

At present 4.2 per cent of the 65-plus group, including 9.4 per cent of those 75-plus, live in retirement villages. Numbers are growing rapidly but are likely to remain a small minority, leaving most dependent on finding other ways to fund aged care.

The Government pays $129 a day for every subsidised resident in a rest home, $181 a day for dementia care and $215 a day for hospital-level care in Auckland - lower elsewhere.

A 2010 study by consultants Grant Thornton found these rates easily covered operating costs at current staffing levels and pay rates, but fell well below what would be required to pay off the cost of a new facility including land, construction costs, a 12.1 per cent annual return on capital and 28 per cent company tax.

Ms Goodhew points to a 25 per cent rise in residential aged care funding since 2008-09, including $100 million extra for dementia care since 2011.

But the Grant Thornton estimates suggest funding for dementia care still needs to rise by 16 per cent to $211 a day, hospital care by 10 per cent to $237 a day and rest home care by 42 per cent to $182 a day in Auckland to make it worth building a new stand-alone care home at 2010 prices.

Taxpayers pay 56 per cent ($928 million) of the $1.66 billion total cost of aged residential care. Residents themselves pay the other $730 million, including their entire superannuation income apart from a personal allowance of $42.64 a week if their assets are below $215,000.

Premium charges for ensuite bathrooms and other services, typically $10 to $20 a day, may fill part of the gap.

But that still leaves a hole which Mr Taylor puts at "more than $500 million" a year, to be met by taxpayers and/or residents, if new care homes are to be built without the need for cross-subsidies.

Different care

Rest homes and hospitals: Residential care for people who can no longer live independently.

Retirement villages: Property developments mainly comprising apartments and villas for older people who still live independently. A retirement village often includes a rest home and/or hospital.

Are you or someone in your family thinking about moving into a rest-home? The Herald has compiled this guide for you to consider before you make your choice.

- NZ Herald

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