Opportunities for a new
aged care system

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PwC’s perspective on the aged care royal commission’s final report and its implications for aged care providers

The release of the Royal Commission into Aged Care Quality and Safety’s (aged care royal commission) final report signals the start of a vitally important reform journey, rather than its conclusion. Government, providers and the community are presented with an opportunity to work in partnership towards an aged care system we can all be proud of. This time, it is an opportunity not to be missed.

The royal commission’s recommendations are bold and wide-ranging. The federal government has responded with a significant $17.7 billion allocation to support the implementation or further investigation of 126 of the 148 recommendations under ‘five pillars’: home care; services and sustainability; quality and safety; workforce; and governance. While this is a substantial investment aimed at changing the sector and improving the quality of care, it is ultimately up to providers to transform the way aged care is delivered and experienced by older Australians and their families.

Australia’s population isn’t getting any younger. The final report includes projections showing that the number of Australians aged 85 years and over will grow from 2.0% of the population in 2018-19 to 3.7% in 2058, reflecting an increase of approximately 1 million people in this age bracket1. Fundamental reform is required to not only address the present day needs of the sector, but to adequately invest in its sustainability for the future.

Most aged care providers in Australia are deeply committed to the sector, however, there are structural issues presenting challenges to this commitment. And, the aged care royal commission has highlighted that the current system does not sufficiently protect our community from providers who in some cases do not meet the standards. While there are some great care experiences being provided to older Australians, the aged care royal commission’s final report shows there is a significant opportunity to improve the consistency and frequency of great care experiences across the sector.

In addition, the needs of our older Australians, particularly those with special needs and those from diverse backgrounds and cultures, have changed significantly in recent decades. Yet services remain inflexible, confusing and difficult to access.

The recommendations in the aged care royal commission final report, supported in most part by the federal government, provide a starting point from which we can design a new aged care system. The need for transformational change is clear and compelling. However, the change must be driven across the sector, with government, providers and consumers working in partnership. For their part, aged care providers have been presented with an opportunity, indeed an imperative, to transform their services in line with the themes emerging from the final report in order to meet the care needs of older Australians.

1 Royal Commission into Aged Care Quality and Safety, Final Report: Care, Dignity and Respect - Executive Summary, 2021 


A new direction for aged care in Australia 

The aged care royal commission’s findings are compelling, and the 148 recommendations in its final report are appropriately bold. While there is divergence between the commissioners in important areas, there is also strong agreement on the need for system-wide transformation. The recommendations can be summarised under the following key themes:

  • Establish a new system architecture which places people at its centre, including a new Aged Care Act, system governance and institutional arrangements.

  • Ensure the safety, quality and continuous improvement of care and experiences, including a general duty for providers, new quality standards, indicators and a star rating system.

  • Introduce a universal entitlement to an integrated, flexible and more comprehensive program of aged care services, based on assessed need rather than availability.

  • Expand programs and support for informal carers and promote the role of volunteers in the aged care system.

  • Develop services that better meet the aged care needs of Aboriginal and Torres Strait Islander people, including the establishment of a specific aged care pathway.

  • Improve access to aged care services for people in regional, rural and remote areas. Expand the multi-purpose service (MPS) program.

  • Improve access to healthcare through the introduction of new or expanded primary care programs and a specialist, multi-disciplinary outreach program for residential aged care.

  • Address the current inequities in accessing aged care for older people with disability so that they receive equivalent support to that which is available under the National Disability Insurance Scheme (NDIS).

  • Ensure that no younger people live in residential aged care from 2022 (under 45 years) and 2025 (under 65 years).

  • Develop a skilled and valued aged care workforce through comprehensive planning and regulation, improved remuneration, training and career pathways. Introduction of minimum staffing levels are recommended.

  • Comprehensively strengthen provider regulation and accountabilities, including new governance and reporting requirements, enforcement, prudential standards and financial oversight.

  • Increase investment in aged care research, technology and innovation, including the establishment of a national aged care data asset.

  • Introduce a new funding model that includes activity-based, casemix and block funding components - overseen by an independent pricing authority. Immediate funding measures are recommended to address current sustainability issues in the sector.

  • Phasing out of residential accommodation deposits (RADs) in favour of a more sustainable model of capital financing support for residential aged care.

  • Establishment of a new aged care financing system to fund these transformational reforms through a specific income tax levy.

Of particular note is the recognition by the commission that our aged care system often fails those most in need of care that responds to the holistic and individual needs of each person. Australia is a diverse nation comprised of culturally and linguistically diverse populations, and care needs to be personalised to better meet the needs of all elderly individuals.

The emphasis on better meeting the needs of Aboriginal and Torres Strait Islander people is welcomed. The impact of an inflexible and inequitable system on Aboriginal and Torres Strait Islander people and their communities is significant and the changes recommended by the royal commission will create opportunities for all aged care providers to deliver culturally appropriate services while also supporting the development of specialised services. The recommended appointment of an Aboriginal and Torres Strait Islander Aged Care Assistant Commissioner and establishment of a targeted workforce plan only go to underline the importance of ensuring that our First Australians have their needs met as they age. 

Of equal importance is the focus on people with diverse needs. Younger people with high care needs should not be limited to a life in residential aged care and it is imperative that older Australians with disabilities have equitable access to services no matter where they reside. Finding the right way to care for these populations has the potential to significantly improve their quality of life and aged care providers should do their best to support these outcomes.

The final report is just the beginning

Australia’s aged care sector has been the subject of more than 20 reviews in two decades, from the 2011 Productivity Commission inquiry into caring for older Australians, to the Living Longer Living Better reforms (2012) and the 2017 Aged Care Legislated Review.

The commission’s recommendations are bold and wide-ranging, but how and when will they be implemented? And how can consumers and the community be assured things have changed?

The federal government’s response to the aged care royal commission and the increased investment into the sector in the 2021-22 Federal Budget has provided some indication of the anticipated speed, direction and extent of reform. Providers and communities can now focus on what they can do both in the short and long term. Improving the current situation for older Australians hinges on providers seizing the opportunities of reform and translating them into better local services and more sustainable, successful organisations. If providers and the sector are not ready for change, policy and funding reform alone will not improve care and experiences for the community.

Below we introduce the key issues and opportunities providers will need to navigate to consistently deliver great care, operate sustainably and realise success in a new aged care system.

Five key elements that drive aged care provider transformation

1) Develop a dynamic strategy

A dynamic strategy is the first step towards provider transformation. Here, continuous scenario planning, strategy review and adjustment are all vital if providers are to respond rapidly to unexpected outcomes and opportunities. Even after the release of the commission’s final report, uncertainty around implementation still hangs over the sector. Agility will be key. Providers should craft an ambitious and compelling strategy, incorporating workforce buy-in, if they want to maximise impact and future-proof their vision.   

That’s not to say it will be easy. Many providers have been on a strategic ‘pause’ while waiting for the outcome of the royal commission, and this stasis has been coupled with the ongoing crisis management associated with the COVID-19 pandemic and the rising costs of service delivery. The fundamental, long-term strategic drivers in the aged care sector remain relatively unchanged; that is, growing demand and complexity, heightened and more diverse community expectations, and the disruptive impact of new technologies.

The question now is: To what extent will the new reforms shape the strategic options and pathways available to aged care providers?

As a start, significant changes in staffing requirements, funding reforms and compliance expectations will impact the viability of existing service models and growth assumptions. A focus on choice and flexibility for consumers will drive greater competition and the emergence of more specialised services. Providers will need to continue to evaluate market threats and opportunities, and consider their impact on strategic direction.

Aligned to strategy, players will also need to consider the role of mergers, acquisitions and partnerships. Accelerated provider consolidation will open up new growth opportunities and options for well-capitalised providers and new market entrants. Equally, this latest round of reform may mark the exit point for others.

Strategic disruption is expected. But a sound organisational purpose and mission will prove enduring.

2) Put people, experience and outcomes at the heart of aged care

During its hearings, submissions and witness statements the aged care royal commission witnessed the needs and expectations of older Australians and their families. Trust and safety are an essential starting point. But consistently delivering great aged care requires much more. Choice, relationships and fulfilment are equally important and a holistic approach to experiences and outcomes will be an expectation of a new aged care system.

The royal commission emphasised the need for a new approach to quality and safety, which is to be captured in new regulation and compliance expectations. This is especially relevant in high-risk areas such as managing challenging behaviours without the use of restraints, clinical governance and clinical care. Better access to primary and specialised healthcare services will also be an important step forward. Success, however, will require providers to move well beyond compliance, and a strategic, systems approach to quality and improvement is key if providers are to consistently deliver on community expectations. New skills, processes and systems are needed alongside cultural reform.

Put people, experience and outcomes at the heart of aged care

But aged care is about more than just safe clinical care. Care in this setting encompasses all aspects of health and wellness, including physical, mental, social and spiritual wellbeing. True transformation means placing each person, their family and carers at the heart of the way providers design, deliver and appraise services.

Providers must invest in understanding and delivering what matters to consumers. They will need to develop a structured approach to measuring experiences, including reviewing and evaluating the effectiveness of services, and then adapt service delivery based on these insights. In this way, providers will not only deliver better outcomes and experiences for care recipients, they’ll also be better equipped to compete in a more open aged care market. Consumer choice is set to be a powerful driver of success.

3) Equip your team for care, collaboration and change

PwC welcomes the commission’s focus on raising skill levels, qualifications and supply of the aged care workforce. However, its impact will take time to reach the frontline. Providers will continue to face intense competition when it comes to attracting and retaining talented carers and staff from an undersupplied and maldistributed workforce

And yet a high performing, engaged and skilled aged care workforce will be essential to providing quality, safe care. Providers have already led their teams through the triple impact of long-term funding pressures, an increasingly negative image of the sector, and the COVID-19 crisis. The recommendations of the aged care royal commission signal a significant cultural change for the sector and the way it recruits, engages and supports its workforce. Providers can help equip their people to navigate these changes by building a culture of care, diligence, safety and trust. 

While more prescriptive requirements for staffing levels and skills will be part of the reforms, successful providers will look beyond the minimum standard.

More broadly, changes to role design and staffing models should focus on a holistic, person-centred approach to care. Digital will be a powerful enabler of the aged care workforce of the future and leading providers will utilise technology to support and enable workforce development rather than simply as a means for transactional efficiencies. Providers should take advantage of the range of new funding opportunities for training to upskill their teams and offer fulfilling career pathways. 

Finally, seeking worker buy-in to organisational strategy and values so that employees can align behind a common ‘true north’ will help to motivate and engage the aged care workforce. Workforce insights are instrumental in strategy development as they reflect the experiences of clients, not to mention the experiences of frontline workers. By valuing workforce contributions in this way, providers can support workers’ health and wellbeing, while also delivering quality care to customers.

4) Align operations and finance with the new system 

Delivering better care and experiences must be sustainable. The royal commission has clearly articulated the need to ensure all stakeholders - consumers, providers and the government - are obtaining value from the future aged care system. The advent of new funding arrangements, such as the Australian National Aged Care Classification (AN-ACC), offers the potential to address this situation, but it requires providers to thoroughly understand their business and the implications of change.

Aged care providers can take some guidance from the acute care sector which has already transitioned to an activity based funding model. A new funding system, along with the additional, uncertain cost implications of staffing and compliance, means providers need to be able to quickly identify and respond to volatility in financial perfomance. This must be underpinned by a sound capital structure. The value of good data and systems will be accentuated, particularly in the management of staff costs and compliance.

Ensuring service support functions are optimised and efficient has always been vital to success. This is the case more than ever, as reforms drive changes in service delivery. Understanding the key risks associated with all elements of operations (e.g. care delivery, staffing and compliance obligations) will lead to optimal resource allocation.

Effective operations will deliver better care for the aged care sector

Organisational scale provides clear opportunities to drive efficient operations. Niche providers should re-evaluate opportunities to access the benefits of scale through partnerships, alliances and outsourcing arrangements. Aged care providers that identify ongoing profitability or liquidity issues in this environment should explore restructures including potential mergers, acquisitions or divestments that provide scale.

5) Optimise your environment

Place, accommodation and physical infrastructure have always played a key role in the aged care sector. Historically, accommodation options have been siloed by rigid funding arrangements and regulatory structures. We now have an opportunity to reimagine the environment for aged care, with a smooth spectrum from care at home, through residential living to specialist residential aged care, tailored to meeting the needs of individuals, their families and their carers. Despite exciting advances in technology, and expansions in home-based care, residential care for people needing high levels of care will continue to be central to the aged care system of the future.

Even so, a growing number of aged care homes are at risk of physical obsolescence, and current funding arrangements have constrained access to capital. Significant changes have been recommended by each commissioner to this aspect of the funding and regulatory environment, including the removal of refundable accommodation deposits (RADs). A key aspect of the Commonwealth response will be to address the need for access to capital, if the physical environment for aged care is to be transformed.

New investment in aged care infrastructure should optimise residents’ needs for amenity, flexibility and home-like environments. It should also make the most of the benefits of scale when it comes to safety, quality and affordability. Emphasis is now placed on greater choice and flexibility for consumers. Demand for new types of aged care infrastructure and extending existing models, such as clustered communities and group home accommodation, will challenge providers to think more innovatively about the future built form for residential aged care.

Digital solutions are the key to success

The aged care royal commission has shown the sector is lagging when it comes to digital transformation. Not only do digital tools support the operations of care organisations on a day-to-day basis, they also underpin each of the key elements that drive provider transformation. While there are some examples of digital innovation, the current funding environment has hampered scale-up. So too has a lack of capital investment.

The commission’s recommendations seek to address the root causes of underinvestment, and catalyse technology uptake through specific funding initiatives. Providers should reassess their digital strategies and their potential to deliver positive change for care recipients, as well as improved service and business performance for providers and funders.

An abundance of exciting technology is emerging for the aged care sector, such as the rapid introduction of virtual care (e.g. telehealth consultations) and widespread adoption of digital technologies to facilitate virtual communications. These technologies have the potential to directly and positively impact the aged care experience. Moreover, customer expectations have changed. The care recipients of today (and tomorrow) and their families are increasingly tech savvy and demand digital solutions in all aspects of their lives.

Digital investment shouldn’t be seen by providers as simply a response to quality and safety, but used as a key differentiator in attracting new customers, as it will go to the heart of the consumer experience.

At the same time, providers must get the basics right, and this means being guided by a prioritised digital strategy. Significant investment is needed in core infrastructure and systems to ensure safe care, compliance and sustainable businesses. Digital must be central to any new models of care in the community, and to the design of new accommodation options for people with more complex needs.

Trust, transparency and accountability at all levels

Trust, transparency and accountability are amongst the strongest themes to emerge from the aged care royal commission’s final report, though there are differing views on the form this will take. The recommendations for a new regulatory framework, overseen by new robust governance arrangements and prudential standards, will significantly raise the obligations on providers. Some providers will need to undergo significant governance reform, while leading aged care providers will already be exceeding many of these requirements.

Either way, establishing and sustaining compliance with the new regime will be one of the most pressing issues now facing providers. Special attention should be paid to financial, quality and risk management, as well as reporting. In many cases, an uplift in organisational capability, from people and culture, to systems and reporting, will be needed. Meeting the challenge of increased compliance requirements will also be closely linked to addressing the changes in safety and quality standards.

Ultimately, the buck stops with the board when it comes to ensuring governance is aligned and strengthened across provider organisations, with trust, transparency and accountability expected at all levels.

Starting on this journey

While the journey ahead is likely to be long for the aged care sector, success is achievable, so long as the experiences highlighted in the aged care royal commission’s hearings are learned from, and the recommendations brought to life. With the emerging regulatory and funding landscape now clearer, aged care providers can start to evolve now around human centred, insight driven and digitally enabled care. Planning for what is needed is critical to ensuring the right path is taken.

PwC understands the organisational ecosystem of aged care, residential care and in-home care, and can assist you as you start on your transformation journey. 

The aged care service of the future needs to meet growing expectations of a dynamic, digitally enabled and more efficient and effective care experience. This will require strong organisational alignment, well-informed governance, sustainable financial management, infrastructure that meet the needs of all and importantly, a greater focus on people and workforce experiences, and community expectations.

Contact us

Nicola Lynch

Nicola Lynch

Health & Education Industry Leader, PwC Australia

Tel: +61 425 147 707

James Hocking

James Hocking

Partner, M&A, PwC Australia

Tel: +61 409 203 163

Paul Lewis

Paul Lewis

Partner, Private, PwC Australia

Tel: +61 3 8603 3678