Aged care beyond COVID-19: keeping ahead of the curve

21 July, 2020

By Richard Ainley, Cassandra Michie and Nicola Lynch

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The aged care industry faces special challenges as Australia looks to the uncertainty of future waves of COVID-19 and the need for sustained vigilance. For aged care residents and their families, the health impacts of the disease itself have been complicated by the consequences of social distancing, alongside greater difficulties in accessing other health and wellbeing needs.

The aged care industry must continue to navigate an uncertain journey through the pandemic, coupled with responding to the final recommendations stemming from the Royal Commission into Aged Care Quality & Safety (now pushed back to February 2021). Success will require providers to be agile and remain vigilant to COVID-19 - supporting aged care residents, families and staff - while simultaneously adjusting operating models and response strategies. 

Operational pressures and strategic uncertainty for the aged care industry

At its outset, leading aged care providers proactively responded to the COVID-19 pandemic, preparing for the propagation phase well before the first cases were detected. This included developing response plans and business continuity measures, increased infection control measures, and expanding on-site supplies of key personal protective equipment. The initial response has been largely successful, but how will it be maintained?

While the propagation scenarios remain uncertain, a comprehensive and sustainable response needs to consider the different stages the pandemic is likely to progress through towards resolution and the attendant impacts which must be managed. The following three-stage scenario for the aged care industry sets out the impacts in terms of residents, staff, operational, financial and strategic impacts.

Three-stage scenario for COVID-19 impact on aged care

Stage Propagation
0-9 months
Post peak
9-18 months
Post pandemic
18-36 months
  • Community transmission

  • Rising case rates

  • Local/regional outbreaks

  • Peak demand on health system

  • Increased social distancing measures

  • Slowing case rates

  • Risk of secondary peaks and countermeasures

  • Progressive removal of social distancing measures

  • Ongoing risk of local outbreaks

  • Treatment and/or vaccine

  • Stabilised case rate or eradication

  • Managed through routine healthcare

Impact
Resident and family
  • Isolation

  • Wellbeing impact

  • Hospitalisation and/or fatalities

  • Reduced isolation

  • Wellbeing impact

  • Hospitalisation and/or fatalities

  • Improved access to non-COVID-19 healthcare

  • Return to life as usual

  • Improved awareness of infection control/protection

Staff
  • Acute personal and workplace stressors

  • Absence and illness

  • Mental health risks

  • Chronic personal and workplace stressors

  • Mental health risks

  • Workforce recovery

  • Staffing stability

Operational
  • Crisis management

  • Facility isolation

  • Supply chain failures

  • Falling occupancy

  • Risk of reputational damage

  • Recovery management

  • Progressive removal of facility isolation

  • Supply chain normalised

  • Low occupancy

  • Risk of reputational damage

  • Service as usual

  • Improved infection control capability

  • Full access to facilities

  • Recovering occupancy

Financial
  • Additional staffing costs

  • Additional supply chain costs

  • Declining Aged Care Funding Instrument (ACFI) revenue

  • Declining Refundable Accommodation Deposit (RAD) / Daily Accommodation Payment (DAP)

  • Additional staffing costs

  • Low ACFI revenue

  • Declining RAD/DAP

  • Normalised staffing costs

  • Recovered ACFI revenues

  • Uncertain RAD/DAP recovery

  • Accessing government financial support such as the workforce retention model

Strategic
  • Introduction of government supports

  • Volatile market

  • Declining property values

  • Postponed developments, acquisitions

  • Royal Commission reports

  • Scaling back of government supports

  • Declining property values

  • Uncertain market recovery

  • M&A activity associated with financial pressures

  • Implementation of Royal Commission recommendations

  • Funding and regulatory change

  • Possible acceleration of market consolidation

  • Uncertain property recovery and changes in models of care

From crisis management to a new normal

Having navigated an initial crisis response, providers must now consider how to sustain their organisations under a protracted period of social distancing, heightened infection control vigilance and a broader economic downturn. It is conceivable that the aged care industry will be amongst the last to fully resume normal operations. Indeed, it is likely that the aged care industry will be substantially different by the time the pandemic is declared over.

A successful road through and then out from COVID-19 requires providers to reassess their operational and strategic context. While there is no ‘one size fits all’ solution for this journey, both large and small providers must each consider similar questions. 

Evolve operating models

Operating models need to be sustainable under current conditions for an extended time period. Aged care providers should be alert to opportunities for service improvement and business sustainability while continuing to manage risk and support residents, families and workforce.

Resident and family experience

The initial health concerns, anxieties and fears of COVID-19 are compounded by the growing burden of physical distance from loved ones. This is exacerbated by the uncertainty and confusion that exists about how and when restrictions might be lifted.

In a time of uncertainty and heightened anxiety, providers have the ongoing challenge of keeping residents and their families informed and at ease as the pandemic progresses.

Increased use of virtual meeting platforms has been warmly welcomed by families and assisted in addressing the risk of social isolation for residents. While well received, the increased use of technology has required upskilling for some staff, families and residents in a short timeframe.

As physical distancing restrictions are relaxed, providers must have robust processes in place to facilitate visits, whilst upholding strict infection control and resident safety protocols. The use of screening and declaration tools, pre-booking of appointments and ongoing communication and education for families is imperative to create a safe and sustainable living environment for residents.

As Australia enters the next stage of the pandemic, providers should consider and reflect on the following:

  • What does our customer feedback data tell us about resident and family concerns/needs to date? What did we do well and what can we improve?
  • What innovations can be embedded to overcome physical distancing issues and are these sustainable post-COVID-19?
  • Do we have robust processes in place to facilitate the safe recommencement of face-to-face visiting?
  • What can we do to re-balance our focus on other non-COVID-19 health and wellbeing activities, to allow residents to reconnect better with each other, their families and community?
  • How equipped do our staff and residents feel using technology and could we extend training and support to residents’ families?

People and culture

The intensity of recent months in preparing and responding to the crisis is likely to be taking its toll on many staff, compounded by the personal pressures of the broader economic and social environment. 

COVID-19 has impacted the day to day activities of aged care workers. The ever changing nature of the pandemic has highlighted the need to continually provide staff with access to timely and appropriate ‘next steps’ information. 

As some services move into the post-peak phase of the pandemic, there is a continuing need for staff to be vigilant while trying to regain some sense of normality. Providers will be required to pre-empt staff needs and ensure on-going training and education is in place.

The pandemic has magnified training and capability gaps of aged care workers. These gaps relate specifically to use of personal protective equipment; speaking up for resident safety; recognising and responding to clinical deterioration; infection control; and heightened mental health risks for residents with reduced family contact and pandemic concerns. This has prompted the need for innovative approaches to training, including the use of virtual training sessions and development of online education toolboxes. 

Providers who have empowered their staff to be a part of the change have benefited from practical responses to COVID-19. Scenario-based planning has allowed providers to identify driving forces and critical uncertainties to develop plausible next steps, should the pandemic have further negative impacts on their organisation. 

Providers should consider and reflect on the following: 

  • What new supports do our people need for this next stage of the pandemic?

  • How can our leaders enable a shift in focus from crisis management to change and improvement? 

  • What training and capability gaps have emerged and how will they be addressed?

  • Do we have alternative workforce options to address capacity gaps (e.g. from other health providers)?

Service and business processes

Additional tasks, changed processes and resource requirements have been deployed as part of the initial response. Other activities have been stopped altogether. Adversity is likely to have also created positive changes and innovations that now need to be embedded.

Disruption creates opportunities for growth and innovation, often shining a spotlight on issues and opportunities for improvement.

Long standing industry recommendations like increased digitisation and access to technology remain an ongoing focus. Investment in these recommendations is necessary to create a solid foundation for innovative and effective care solutions. Funding reform may assist in releasing funds for technological advances in residential aged care, however the focus could potentially be delayed due to the impact of COVID-19. 

Many business processes such as procurement and inventory management have been stress-tested during this period. For some it has highlighted deficits in key processes, and complacency in contracted procurement with long-standing suppliers. 

Providers should consider and reflect on the following:

  • Has our crisis response identified opportunities to improve efficiency in ‘service as usual’ processes?

  • Are there more efficient or effective ways to manage social distancing requirements?

  • How can we use technology to reduce workloads and costs associated with COVID-19 management?

Financial management

The additional costs of providing aged care amid COVID-19 are likely to be present until the pandemic is resolved, or may even become standard post-pandemic. However, the funding is unlikely to protect some providers from the dual impact of falling occupancy and RAD values. Early withdrawal of current funding supports will heighten this challenge.

Demand drivers have negatively affected occupancy in the industry over the past five years and are expected to continue to have a negative effect for residential aged care services. These include:

  • Generational change and greater resistance to living in institutional aged care settings

  • An increased proportion of government funded home care

  • Substitution through innovation of alternatives to funded residential aged care, such as assisted living and private aged care environments

  • Medical advances deferring entry to residential aged care

COVID-19 has placed increased pressure on two of the five core financial viability drivers for residential care: occupancy and staff rosters. 

Some providers have reported a downturn in new residents wanting to enter care, resulting in declining occupancy which has affected the total ACFI paid as well as RAD and liquidity balances. Many services have also increased staffing levels to provide additional support and to ensure all additional requirements and resident needs are being met. The remaining three performance drivers (i.e. number of beds; ACFI levels; and RAD pricing) have been affected too, although to a lesser extent and for fewer providers.

The Aged Care Royal Commission has not yet interrogated issues relating to the Commonwealth funding of services. However, themes arising throughout the hearings so far suggest that there are significant concerns about the financial viability of the sector and its ability to consistently provide safe, high quality care that meets consumer and resident needs.

In this heightened period of uncertainty, financial planning for the future is now absolutely critical. Providers need to consider medium to long-term capital budgets requirements, as well as their more immediate operational budget needs. Refurbishment plans and asset replacements should be planned out well in advance to smooth the cost burden for when these need to occur. Proactive steps will allow for considered improvements to keep up with changing consumer expectations and needs.

Providers should consider and reflect on the following: 

  • How does the new outlook following the COVID-19 pandemic impact our cash flow forecasts and finance requirements?

  • What other measures are needed to establish sustainability until resolution of the pandemic?

  • Can we now adjust our rosters back to pre-COVID-19 levels?

  • Do we have contingencies in place to manage a reduction in occupancy and RAD in-flows?

  • Are we accessing the available government support?

Governance and risk management

Crisis management teams and risk controls are likely now well established. The additional costs of COVID-19 and impact of lower occupancy levels are better understood. There is opportunity to reassess the outlook and scenario plan over a longer timeframe, while re-focusing on previously deferred priorities.

In the wake of SARS and MERS outbreaks, the UK’s health department sought to create and maintain a stockpile of essential PPE to ensure that the system, as a whole, was adequately prepared against future outbreaks. While stockpiles were created, failures in ongoing governance and complacency in control, monitoring and oversight in the years since left them with a shortfall. When facing the COVID-19 crisis, they found the stockpile was depleted, and the much of essential PPE that remained had expired, was unusable or required further testing to ensure its safety. This resulted in delays, further contributing to shortages as opposed to overcoming them. 

Closer to home, some aged care providers have conceded that their pandemic response plans were either not sufficient or were non-existent. Lapses and non-compliance with existing infection control processes and procedures covering contractors, internal and external staff, as well as movement of personnel both within and between facilities were highlighted as major contributing factors to ‘hot spot’ clusters in both NSW and Tasmania. 

Regardless of initial levels of preparedness, the current situation has seen providers develop or augment robust pandemic management plans. Providers have responded with the creation of Outbreak Management Teams (OMT) which include both executive and operational members. Other providers have enacted COVID-19 specific roles which sit within existing quality and clinical governance and people and culture teams.

The process of integrating newly developed management plans, updated procedures and infection management protocols within existing governance frameworks will no doubt be undertaken by all service providers in some form. It is imperative that these newly integrated processes be diligently monitored and sustained overtime to ensure that past failures are not repeated. 

Providers should consider and reflect on the following:

  • When, and how, should our crisis management response be transitioned into our governance frameworks?

  • Are we maintaining sufficient focus on non-COVID-19 risks? 

  • In particular, how do we continue to provide our Executive and Board with ongoing confidence that our business as usual system of controls continues to operate effectively, particularly in relation to safety and quality?

  • What practices will we embed and sustain over time and how do we plan to track and monitor this?

Innovation is emerging from adversity

Australia’s citizens, and its health system, have used innovation in response to the COVID-19 crisis. Many of these innovations have already arrived in aged care and are likely to stay.

Digital arrives in aged care

The rapid introduction of telehealth consultations and a proliferation of iPads to overcome social distancing constraints are just two examples of the extent digital has been at the centre of the aged care response to COVID-19. While the technology is not new, it took a crisis to gain traction and there is now no going back. Virtual health and wellbeing through digital tools will now be a core element of connecting residents, families, staff and healthcare professionals.

More care at home

Community attitudes and consumer choices are likely to shift more strongly towards community-based aged care. With continued increases in the supply of home care packages, complemented by a health system that is becoming more adept at virtual health and in-home care, staying at home for longer will be a possibility and a strong choice for more of Australia’s elder citizens. As a greater proportion of care shifts to the community, providers will need to re-evaluate their position in, and across, the ageing continuum of care and support. 

More home-like residential aged care

Heightened concern regarding the inherent infection risk of large, traditionally-designed aged care facilities will heighten interest in alternatives. The clustered domestic model of residential aged care, typically involving a home-like environment for up to eight residents, offers quality of life and health benefits. Notably this model involves more space per resident, fewer residents in close contact and fewer changes in staff.

Re-think future scenarios

Many providers have paused or are reviewing growth strategies, due to the combination of Royal Commission uncertainty and COVID-19 impact. Yet in a crisis new strategic options and opportunities will emerge. Providers with strong balance sheets and an agile strategy will be ready to benefit from the current situation where declining property and construction costs, and heightened merger/acquisition activity will yield new opportunities for those able to think innovatively and move quickly. 

What’s next for aged care?

The journey ahead for the aged care industry remains uncertain, complicated by long standing operational pressures and the prospect of major and much-needed reforms arising from the Royal Commission into Aged Care Quality & Safety. Success in this environment requires providers to evolve their operating models to sustain expected quality care under difficult circumstances, foster innovation and remain alert to rapidly emerging strategic opportunities.

Contact us

Richard Ainley

Partner, Health Practice, PwC Australia

Cassandra Michie

Partner, PwC Australia

Tel: +61 2 8266 2774

Nicola Lynch

Partner, PwC Australia

Tel: +61 08 9238 3064

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