Courage needed to tackle looming aged care bed crisis

Friday, 28 March 2025

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New Zealand’s shortage of aged care beds will escalate into a full blown crisis if funding issues are not addressed and retirement village operators restrict their facilities to residents only.

Stats NZ projects the proportion of people aged 65-plus will reach 20% of the population by 2028, and the ageing population is boosting demand not just for retirement homes but also for aged care.

Currently about 35,000 people aged over 65 are in an aged care facility, while about 80,000 receive in-home support services.

The Aged Care Association’s most recent industry profile put the number of aged care beds at 41,063 nationwide in late 2023.

But a lack of capacity in the public health system means many elderly people are referred for care in private rest homes and retirement villages, and the situation is not expected to ease.

A report produced from the first phase of Health NZ’s ongoing review of the aged care sector found that if historic building rates continued, there could be a shortage of almost 12,000 beds by 2032.

Summerset has estimated the number of beds needed will be double the 41,000 level in about 15 years.

Now, rising costs and funding pressures have left large retirement village operators, such as Summerset and Ryman Healthcare, scaling back their aged care facility building.

And recently, Summerset sent shockwaves through the wider sector when chief executive Scott Scoullar announced the company is considering restricting its care centres to residents only.

If it decides to do so, people referred from the public health system will no longer be accepted into Summerset’s 28 villages with rest home and hospital level care.

Scoullar says the country underfunds aged care, and there is a big gap between the funding Summerset receives and the cost of running their care centres.

“Our problem is that we have about $350 million worth of aged care facilities, and we generate about $2.7m from them. That’s a less than 1% return on assets.

“We are not expecting to generate high returns, but we are just breaking even, and if you include office costs and other expenses, we are probably running the care centres at a loss,” he says.

“How do we justify that to our shareholders? How do we explain putting their money into something that generates that level of returns? The math just doesn’t work.”

It is also difficult to justify the situation to Summerset residents who pay fees and feel they are subsiding the care of non-residents, he says.

“We need to focus on our residents. If the Government can’t provide a funding cap we can work with, it’s better for us to downsize and provide first access and better care for our residents.”

Scoullar says the company does not want to go down this path, and realises it means a bigger burden will be placed on the public system, but it can not see any other option at this point.

“An increase in government funding would make a difference, if it led to returns that were justifiable. But currently we are not even close to that.

“If large operators collectively announce they are going to reduce bed capacity because of this issue, they might build half of what was planned. So where are the beds that will be needed going to come from?”

Retirement Villages Association president Graham Wilkinson agrees with Scoullar. He says there are simply not enough aged care beds being built to cater to demand.

The larger operators used to build big aged care facilities, but funding shortfalls mean it is no longer economic to do so, and they are having to shrink the size of what they provide, he says.

“There needs to be a reset of the whole funding model. If the Government doesn’t have any money, the only party that can pay are the residents, so it will have to become more of a user pay system.

“Currently, if you are a millionaire, then while you pay an initial amount (the maximum contribution) which is the rest home rate, the Government pays the top up for hospital or dementia or any increased assessment.

“Hence for a hospital assessed resident, the millionaire pays $200 per day and the Government pays circa $150 per day. Why does Government pay the $150?”

Any change to the funding system needs political courage to address because it requires thinking about how to get additional money, and potentially that involves people paying more, Wilkinson says.

“But it appears the minister may be interested in increasing the amount of home-based support people can get and delaying the entry into aged care facilities.

“Not only are there question marks over the risk factors in that, but it is a short-term solution, and will just delay the coming tsunami a bit longer.”

Most people are still going to end up needing to move to a facility when they get really unwell, he says.

“Only some will be able to get into a facility, and many may only be able to afford hospital, and that fills up desperately needed beds in the public health system.”

Australia’s aged care crisis led to a Royal Commission of Inquiry, and their government is now working through the inquiry’s recommendations to overhaul their model.

Minister for Seniors Casey Costello recently visited Australia to consult with aged care sector representatives and trans-Tasman operators, and to see if aspects of their system could work in New Zealand.

She says the Australian system involves greater complexity and compliance, and she would prefer it if costs could be reduced for New Zealand’s sector.

The issues around aged care and the funding model have been known for some time, are complex and will not be solved overnight, she says.

“Everyone I meet with in aged care is committed to providing great service, but the ‘system’ of care doesn’t work as it should – it operates on best efforts and people finding different funding streams.”

Costello says she is committed to improving the system and its funding to ensure New Zealanders age well, and is working on the framework and policies to support that.

She wants to stabilise the sector in the short-term and build a future model with better continuity of care across all the services an older population may need.

That means primary, home and community services, residential aged care and respite services, specialist dementia and psychogeriatric services, and hospital services.

She says she is waiting to see the conclusions of the Heath NZ review and the Select Committee Inquiry into Aged Care before making any decisions.

“Nothing’s off the table at this stage,and that includes getting a sector working group together to ensure changes are practical and have the desired outcome.

“But we have a responsibility to spend taxpayers’ money wisely and any decisions around aged care need to consider cost along with sustainability.”

Costello adds that retirement villages play an important role in the sector and have been responsible for most of the recent investment in new facilities.

“I want this to continue but, ultimately, the approaches by listed companies around how to utilise their facilities are decisions for them.”

Aged Care Association chief executive Tracey Minister says the listed companies are just one part of a diverse sector, but if the beds they provide are taken out of the pool it will have a big impact.

Currently about 70% of Summerset’s care beds have someone from the public health system in them, for example, she says.

“So if they, and other operators cut back on building and start to reserve their beds for residents,and with many smaller operators struggling to stay open, how many beds will really be available in the aged care system, especially in places like Wairoa and Reefton.”

A situation was likely to develop where if someone has enough money to buy into a village, they might be OK if they needed care, she says.

“But if you can’t afford to buy into one, and even the not-for-profits are introducing ORAs [Occupation Right Agreements] and premiums now, you might struggle to access residential care.”

Martin is also waiting to see the outcome of the review and the inquiry, but says her members need something which works for the sector and the Government, and gets better outcomes for older people.

She would like the minister to get a co-working group set up with a delivery model, and some recognition from Health NZ that the sector needs a reasonable annual uplift in funding.

“But this Government has tightened up on funding across the board, and there is no indication the minister is making a Budget bid.

“About four years ago Australia’s situation was worse than New Zealand’s, but the reform of their system is positioning them for the future, and the same can be done here too if there is the will.”

There are some glimmers of hope, as Health NZ has become more willing to work with the sector, and there is a growing cross-party understanding of the issues and the need for consensus, she says.

“The minister does say the right things, but we would like to see some action because the 50-year wave of the ageing population is coming, and we are not ready for it.”