The 2016-2017 Budget and What it Means for the Aged Care Sector





The Turnbull Government recently made a 1.2 billion dollar cut to the healthcare industry, which will present several challenges to Australia’s ageing population and for the people who care for them. Heavier strain is placed on aged care providers because more Australians are dependent on these services than ever before. Higher demand will require well-trained staff to fill the gap. Thus, human capital will be a key area for aged care businesses looking to thrive in the new market conditions. Specifically, the assessment of talent in the aged care industry presents hidden opportunities to maximise a competitive advantage in an environment where cost cutting and limited budgets are the norm.

More demand:

The Department of Social Services states that over 15 per cent of Australia’s population is aged 65 years or more (3.5 million people); this number is projected to rise to 19 per cent by 2034. This means, in the coming decades, there will be 416 million Australians who may require aged care services. According to Professor Hugo, one of Australia’s most distinguished demographers, Baby Boomers entering retirement are 8 times more likely than the previous generation to have three or more health problems. Specifically, dementia is one major factor which highlights the need for a highly skilled workforce. Along with high demand and a more highly skilled workforce, the model of delivery itself is changing.

A new model of service means a new business approach:

The aged care sector is approaching another milestone. This milestone requires a reassessment of the service delivery model, as well as who will be delivering these services in the future. The need for complex care is increasing, partially due to those over 65 not having access to the National Disability Insurance Scheme (NDIS). This may place aged care providers between government, economic uncertainty, and rising community expectations.

Tim Binstead wrote, “according to Leading Age Services Australia (LASA), 38 percent of aged care providers were already not viable due to budget cuts”. As a result of market consolidation, independent aged care providers may be forced to close down, exit the industry or lower their standards of care.

The cuts push the industry into a customer-centric business model i.e. the Consumer Directed Care Model (CDC). The CDC model puts more power in the hands of individuals when it comes time to decide which services they wish to use. Part of this approach is the My Aged Care System, which has received 136.6 million dollars in funding, in spite of cuts to other areas within the industry.

Aged care providers are now presented to ‘customers’ in a standardised format on the My Aged Care website. The My Aged Care System may be of little help, because aged care providers will now need to stand out in a ‘marketplace’ in order to drive revenue growth, rather than relying on reduced government backing.

Aged care providers cannot compromise in terms of food standard, levels of service, facilities and staff. Finding ways to curb expenditure and gain a competitive advantage requires a growth in the skilled workforce along with differentiation through customer experience.

The updated formula may consist of: revenue from new patient/client referrals based on superior patient/client experience, provided by skilled and compassionate staff. One of the most significant ways to impact this customer experience is to attract highly competent staff, and most importantly, improve the methods used to select them in the first place.

For example:

“The 2012 workforce survey found that three quarters of aged care homes and half of community services reported skill shortages in one or more occupations, with the three main reasons being a lack of specialist knowledge, slow recruitment, and geographical location. In rural and remote areas, providers reported difficulty in filling positions across all occupations.”

Currently, there is a workforce shortage and the low suitability of potential employees may exacerbate this issue. The Department of Education, Employment and Workplace (2012) have reported an average of 1.8 suitable applicants per registered nurse vacancy in residential aged care, and only 1.6 suitable applications for every personal care worker vacancy. On top of this, it is estimated the aged care workforce will need to quadruple by 2050 to accommodate the demands of the ageing population. The new challenge for aged care providers is identifying workers with specialist skills. This is the key to maximising a skilled workforce, while minimising costs associated with employee on-boarding and retention. The recruitment challenge will require a re-evaluation of recruitment and selection methods to ensure every hiring decision has a positive impact on the business.

The biggest (hidden) opportunity for aged care providers:

The most important metrics with regards to staff are commonly not measured at all, or if so are inaccurate or incomplete, which means they can’t be improved. Metrics such as staff turnover, time-to-hire, cost-per-hire, and quality of hire are present areas that can be improved dramatically and have enormous impacts on the business.

Identifying competent people is the best place to start. For an industry that is facing strong budget cuts, is consumer focused, and judged mainly on the quality of care, these factors are likely to control the outcome of most aged care providers. Research shows that the cost of a bad hire in health care is between $10,000, to $60,000 per nurse, depending on the nurse specialty[1], so making mistakes with hiring is a cost that can’t be tolerated.

Research into hiring shows that, at a conservative estimate, there is a 40% difference in the quality of output between an average hire and a great hire, when measured in dollar value of output.[2] These figures have an enormous impact on the organisation long-term, especially considering number of employees hired and the length of time they stay with the organisation.

The assessment of skills for carer roles, especially nursing, has traditionally been undertaken by trained interviewers, however, the expense and time involved in personnel selection makes it a very costly process. The traditional application form, resume and cover-letter process takes time to sort through and can be extremely unreliable in predicting future successful performance. This process leaves huge potential for human error and hiring mistakes.

To assess whether staff will be able to cope with the demands of aged care we need to assess the attributes of high-performers in the industry. When we look at the high-performers, we find that few of these attributes can be accurately identified in a traditional face-to-face interview. Personality, including specific personality factors, proves to be one of the keys to predicting job performance in the aged care industry. Specific personality attributes accurately highlight whether an individual will provide average or negligent levels of care, or whether they will provide excellent care, to consequently improve the growth of a service business.

To highlight the impact of personality in a service based business such as the healthcare industry, here is an example: The one factor that dictates whether a malpractice claim is filed or not, is not whether a patient has been given negligent medical care, but how well the patient feels they’ve been treated by the healthcare professional.[3] If bedside manner is the difference between a lawsuit being filed or not, the ability to identify capable staff to provide excellent client care, is a crucial investment that an aged care provider can make.

We would be most interested in what challenges (or opportunities) you see in the current budget, and how you see this changing aged care in the future?

Please email me at gd@psychpress.com.au – we would love to discuss different perspectives.

What’s next?
Next time, we’ll be talking about how personality affects the quality of your staff and which metrics you can measure to identify who is predisposed to do well in providing aged care service and who may be unsuited.


We hope our perspective may be useful in managing current challenges in the industry.



[1] LJ Hayes, et al., ‘Nurse Turnover: A Literature Review’, International Journal of Nursing Studies, vol.43, 2006, 237 - 263
[2] FL Schmidt & JE Hunter, ‘The Validity and Utility of Selection Methods in Personnel Psychology: Practical and Theoretical Implications of 85 Years of Research Findings’, Psychological Bulletin, vol.124, no. 2, 1998, 262-274
[3] M Gladwell, ‘Blink : The Power of Thinking Without Thinking’, Time Warner Book Group, New York, 2005

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