The iron triangle of aged care

Many years ago, when I was running my first small CD production business, I unwittingly stumbled across the ‘iron triangle of project management’. Many of my customers were creative musicians who had poured a lot of time and effort into recording their first album, they had booked a launch for their first ever CD release, but they didn’t actually have the CDs yet. These customers wanted everything done yesterday, they wanted it to be perfect, and they didn’t have a lot of money.

Iron triangle of project management

Time, cost, scope – the iron triangle of project management

I joked with my colleagues we should put a sign on the wall: ‘fast, cheap, good – pick any two.’ It was only many years later, working in the corporate world, I realised this was the essence of the ‘iron triangle of project management’.

Project quality can be determined by three factors: time, cost and scope. In any project something has to give, so you have to prioritise:

  • You can make it fast and you can have lots of features, but that usually costs a lot of money
  • You can have lots of features and make it cheap, but you might need to wait a bit longer to get it finished
  • You can get it done fast and cheap, but you probably need to cut back on the scope…
  • …and so on – you get the idea.

While, the ‘iron triangle of project management’ still applies in aged care, we also work within our very own ‘iron triangle of aged care’, which is a bit different. I’ve found this applies to community aged care in particular, but also disability services, residential care, and probably a few other types of government funded services.

Iron triangle of community care

Revenue, expenditure, compliance – the iron triangle of community care

Here, the points of the triangle are:

  • Revenue: which is set by the government through funding and subsidies
  • Expenditure: which is set by the government through the award; most aged care providers will tell you around 80-90% of their expenses are salaries, so the award pretty much determines their expenditure
  • Compliance: which is piled on by a number of government agencies; in aged care it’s Department of Social Services, Department of Health and Aged Care Quality and Safety Commission. These three agencies don’t necessarily talk to each other or coordinate the compliance burden in any way.

I floated the ‘iron triangle’ last year, at a CEO forum hosted by Grant Thornton and LASA, and a slightly mangled version made it through to the final report, Perspectives on the Future of Ageing and Age Services in Australia.

You will probably realise immediately, in a situation where revenue and expenditure are determined by outside forces, by definition, profitability is also pre-determined.

Just like the iron triangle of project management, something has to give. It’s not really sustainable to juggle all three points, revenue, expenditure and compliance. It’s a delicate balancing act, requiring constant compromises, and sometimes it goes wrong.

The Aged Care Roadmap, published in 2015, claims to be the Australian Government’s guiding document for the direction of aged care policy. It says:

The Aged Care Roadmap sets out the path to a system where people are valued and respected, including their rights to choice, dignity, safety (physical, emotional and psychological) and quality of life. They (together with their families and carers) will have access to competent, affordable and timely care and support services through a consumer driven, market based, sustainable aged care system. [original emphasis]

Note the emphasis the Roadmap places on the last three points: consumer driven, market based and sustainable. You will probably immediately recognise, any system where the government determines both revenue and expenditure is not market based. It’s also probably not sustainable or consumer driven.

The Roadmap lists key features of the aged care system of the future, two of which are:

Sustainable aged care sector financing arrangements where the market determines price, those that can contribute to their care do, and government acts as the ‘safety net’ and contributes when there is insufficient market response
Consumers will be primarily responsible for their accommodation and everyday living costs, as they have been throughout their lives. Providers will determine how much they expect consumers to pay for their accommodation/everyday living, and care/support costs. Government will set and publish reasonable prices it will pay on behalf of consumers who cannot afford to fully meet their own costs. Consumers’ lump sum payments will be protected.

Greater consumer choice drives quality and innovation, responsive providers and increased competition, supported by an agile and proportionate regulatory framework
Consumer protections will include core standards, compliance and an independent complaints mechanism, with providers required to meet core standards based on their registration category and scope of practice. Government will have a more proportionate regulatory framework that gives providers freedom to be innovative, whilst ensuring a safety net for consumers. Platforms will exist for providers to market their services, including by demonstrating the quality of what they deliver beyond these consumer protections. Consumers will drive quality and innovation by exercising choice as to which provider/s they use.

These are reasonable ideas, in theory, but they are not real.

Customers currently have an expectation their aged care needs will be fully funded by government. That’s the way it has been in the past. A common comment from a client might be something like this: “I’ve paid taxes my whole life, never relied on any sort of welfare, it’s only fair for me to be able to get something back, now I can’t work anymore.” If government seriously intends to move to a user-pays system, where providers determine price, it needs to communicate that change to the community. For obvious reasons, the government does not want to do that.

Similarly, the current Royal Commission into Aged Care Quality and Safety gives no indication at all of moving us to a “more proportionate regulatory framework that gives providers freedom to be innovative, whilst ensuring a safety net for consumers.” Although the Royal Commission is still in progress, so far the response from government has been more ad-hoc compliance decisions, made on the run, with no consultation, and rushed, poorly thought-through implementation, leading to perverse outcomes and incentives. I’d love this to change, but I’m not holding my breath…

So, what’s the solution? Well, the Aged Care Roadmap seems, on the face of it, a fairly reasonable plan. I’m sure the people who worked on it were smart people. And for it to work, ALL the elements must be in place. Politicians love to do this. Governments commission very smart panels of experts to spend months or years looking at thorny intractable problems and make recommendations. Then they try to cherry-pick only the recommendations that suit them, and ignore key parts of the solution, because they’re politically unpleasant or hard to implement.

In fairness, it’s not just governments. When I ran my own consulting firm, I found clients would also try to do this.

The solutions in the aged care space are well understood and have been out in plain sight for a long time. The iron triangle tells us, if we want a high quality aged care system, which is fast and responsive to people’s needs, we have to find a way to pay for it. We can wriggle around this uncomfortable truth all we want, but it won’t go away. We either need to get more money into the aged care system, or we need to accept a reduction in quality or longer wait times. We also need to remember the pressure for funding is increasing, because the proportion of elderly people needing care is growing faster than the proportion of workers paying taxes to cover the cost.

There are only a few ways to do address this funding squeeze: bring more user contributions into the system; divert government money away from something else; pay more tax; or some combination of the three. It’s as simple and as complicated as that. If you want to solve a hard problem, you have to be willing to make hard decisions and do hard work to make it stick.

What balance of time, cost and quality are we, as a community, willing to live with?

About Jonathan Smith

Turning strategy into reality
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