While reforms to improve the quality of aged care are welcome and necessary, the government must also consider how to properly resource providers to meet higher standards.

Against the backdrop of stagnant wage growth and record low unemployment, expectations were high for the Labor Government’s Jobs and Skills Summit. Discussion at the Summit traversed a wide range of workforce issues, including sustainable wage growth, skills and training, and migration. The primary objective of the Summit, however, was clear – to address widespread workforce and skill shortages. Although criticisms of the Summit include concerns about the event being a “union power grab” and lacking representation from the “Big Four” banks, the event has the potential to catalyse a re-shaping of the economy to address workforce shortages.

In no part of the Australian economy are workforce shortages more economically and socially significant than in aged care. Within the sector, staff are key to delivering safe and high-quality services to older Australians both in their homes and in residential aged care settings. Staffing costs make up a vast majority (around 70 per cent) of the operational costs for aged care providers. Yet, widespread understaffing was highlighted by the Royal Commission into Aged Care Quality and Safety as a key driver of neglect and quality failures. The Royal Commission made several key recommendations for increasing the skilled workforce in order to improve care in residential aged care homes. However, COVID-19 lockdowns, border closures and high sector turnover of staff have subsequently exacerbated workforce shortages and made it difficult for providers to recruit and retain sufficient permanent and qualified staff to deliver an appropriate level of care. Recent reports indicate that there is a current shortfall of 35,000 direct care staff in the sector.

Workforce shortages in aged care are likely to further intensify in the short term, as the passing of the Aged Care Amendment (Implementing Care Reform) Bill 2022 through both houses of the federal parliament is expected to substantially increase demand for qualified registered nurses within aged care homes. This package of reforms includes the requirement that aged care homes have one registered nurse on site and on duty for 24 hours a day, seven days a week. Additionally, residential homes will be required to provide a minimum staffing level of 200 minutes of total direct care and 40 minutes of registered nurse time per resident per day, from October 2022. With as few as 5 per cent of aged care homes currently meeting these staffing levels, this renews concerns about workforce shortages given reports that a further 110,000 direct care staff will be needed in the next decade.

Intensified workforce shortages are occurring as providers increasingly struggle to remain financially viable, prompting major concerns about the financial sustainability of the sector. A recent report by the UTS Ageing Research Collaborative (UARC) finds that 60 per cent of aged care homes are currently operating at a financial loss. In committing to increasing the capacity of the aged care workforce, the Australian Government recently proposed a 25 per cent wage increase to the Fair Work Commission for aged care sector workers. Although the government have committed to funding part of these wage increases, it is not yet known how much of the additional labour costs will be borne by providers. Further, it is not yet clear whether changes to the funding model for residential aged care with the introduction of the Australian National Aged Care Classification (AN-ACC) will lead to sufficient government support to fund the required increases in staffing.

Our new study at UARC highlights the critical social and financial trade-offs that providers experience in managing their workforce. Our study finds that investment by providers in the quality of their workforce comes at a steep cost to their capacity to generate financial returns. Consistent with the recommendations of the Royal Commission into Aged Care Quality and Safety, we used workforce skills (more registered and enrolled nurses) and stability (full time employees) as measures of a quality workforce. These workforce attributes are expected to improve quality of care services provided to residents. However, persistent workforce shortages and high staff turnover have made it difficult for providers to maintain a skilled and stable workforce.

With workforce shortages forcing providers to hire less skilled and more temporary staff, a costly investment in full-time staff who can provide continuity of care and quality of service should be rewarded. However, our research finds that this investment does not pay off for providers in terms of their financial performance. Instead, it is providers with a comparatively less skilled and less stable workforce, and who provide a poorer quality of care to residents, that have stronger financial returns. Providers with a more skilled and stable workforce provide higher quality care to residents but suffer from worse financial returns.

It is problematic that that a workforce must be both skilled and stable in order to provide higher quality of care because providers experiencing workforce shortages will often employ temporary workers (i.e., a less stable workforce) in order to increase their proportion of skilled staff. Our research shows that this strategy does not improve quality of care. Yet, this is a likely scenario that will be faced by many providers who will struggle to meet the Albanese Government’s requirement of minimum levels of registered nurses in aged care homes.

Discussion around skilled migration at the Jobs and Skills summit may well offer a short term solution to workforce shortage issues, but will be unlikely to address the significant scale of shortages in the sector. The Victorian Government’s announcement of free nursing degrees may also alleviate some of the medium term pressure, though it could also have adverse effects for other states. The bigger challenge, however, is for providers to maintain a quality workforce while remaining financially viable. This is a dilemma for the sector which is likely to persist for as long as it experiences ongoing staffing shortages.

Medium and long term action on workforce shortages in aged care needs to be formulated at the national level and, importantly, this conversation must involve aged care providers of all sizes and include rural and remote providers. For providers to meaningfully commit to higher staffing levels that improve quality of care, the financial disincentives to meet these requirements must be addressed. Measures to address this challenge demand a combination of direct financial incentives for providers and reforming the pricing of care services.

In the short to medium term, this could include a financial incentive scheme that rewards providers that commit to upskilling employees, maintaining a higher mix of skilled and permanent staff, and reducing turnover of permanent staff. In the longer term, broader sector reform is needed in allowing providers greater scope to price their care services to reflect their investment in the quality of their workforce, as well as increasing price transparency allowing consumers to compare prices across providers.

Overall, if progress is to be made on improving the quality care that is provided to older Australians, the government must take action to address workforce shortages in the long-term as well as incentivise, rather than compel, aged care providers to maintain a higher quality workforce.

Nelson Ma is a senior lecturer and researcher in financial accounting at the University of Technology Sydney (UTS). His research focuses on understanding how the drivers of financial performance impact the quality of financial statements prepared by publicly listed companies. Nelson has recently published a series of projects in aged care, analysing quality of care and the financial outcomes of different business and workforce models.

David Brown is Professor of Management Accounting at the University of Technology Sydney (UTS). His expertise is in the design and use of management and accounting systems to address behavioural, decision making and coordination problems in organisations. He is best known for his work on management control system packages (multi-system design). David has a detailed understanding of key issues within the aged care sector, particularly as these relate to the management practices of service provider organisations.