Royal Freemasons to purchase Council’s aged care facilities

Monash Council has decided to sell the Elizabeth Gardens and Monash Gardens aged care facilities and the Monash Gardens Village to Royal Freemasons.  This is a great outcome for the residents at the facilities.

After an exhaustive seven month process, Council has decided to sell because Royal Freemasons will be able to provide a superior level of service into the future compared to what Council currently provides.  If we did not have confidence that this was so, we would not have sold – it is as simple as that.

Royal Freemasons were selected through a rigorous and highly competitive process which involved a number of bidders from both private and not-for-profit backgrounds.  Right from the start, all Council was interested in was selecting the best possible provider that would offer the best possible care for the residents at the facilities regardless of whether they operate on a for profit or not-for-profit basis.  Following a detailed evaluation, Royal Freemasons – a not-for-profit and experienced aged care provider – is the provider which was unanimously recommended to Council by Council’s Evaluation Panel.  Council has deep conviction that Royal Freemasons will provide the best possible aged care into the future – and in fact, through its expertise and greater scale, it will be able to offer an enhanced level of care to what Council would be able to offer.  This is why Council has ultimately made the decision to sell.

While our decision to sell has been made on the basis of securing the best quality of care for residents into the future, our decision also has significant financial benefits for all Monash ratepayers.  As well as the net sale proceeds of $21,840,000 which Council will receive for the sale, this decision will save Council more than $1,000,000 every year in operating costs as we have been operating these facilities at a significant financial deficit for a number of years.  This means that as well as residents at the facilities receiving the highest quality care possible into the future, Monash ratepayers will also save millions of dollars at the same time.  This is a win-win outcome if ever I have seen one.

The table below presents a comparison between Monash Council and Royal Freemasons to assist with understanding Council’s decision and reasons for proceeding with the sale.  Below the table are some answers to some key questions about the sale.

 

Comparison table: Monash Council and Royal Freemasons

 

Consideration	Current: City of Monash	Future: Royal Freemasons
QUALITY OF CARE CONSIDERATIONS
Services provided to residents	A wide range of high quality services are currently provided by Council	RFM have committed to continue all services which are currently offered at MG and EG for at least the next 7 years. In addition, RFM will expand the service offering in a number of important areas
Physiotherapist services	Only limited physiotherapist services are currently provided (by an external contractor)	Dedicated physiotherapist services be introduced at MG and EG
Dietician services	Only limited dietician services are currently provided (by an external contractor)	Dedicated dietician services be introduced at MG and EG
Geriatrician	Council does not employ a geriatrician	RFM employ a Senior Geriatrician and a Chief Nurse who oversee clinical care practices
Activities	It is widely believed that MG and EG offers a really high quality activities program for residents	RFM have committed to continue all activities which are currently offered at MG and EG for at least the next 7 years
Continuity of staffing	Residents and family members have told us they rate the MG and EG staff extremely highly	RFM recognises this and intend to offer employment to a significant number of staff who currently work at the facilities
Meals	Prepared on site	Meals will continue to be prepared on site
Volunteers	MG and EG currently have a group of dedicated volunteers who assist at the facilities	RFM also have a large number of volunteers active across their sites. RFM is keen to see the current volunteers continue in their roles at the facilities
AGED CARE INDUSTRY CAPABILITY
Industry position	Council has become increasingly concerned about the highly complex and increasingly regulated aged care industry. Council has been concerned for some time that because it is not a specialist operator in the aged care industry, that it would not be able to continue to operate at the highest levels of best practice	RFM is a specialist aged care operator. They currently operate five residential aged care facilities and 10 independent living sites across Victoria
Scale	Council is a small aged care provider	RFM is considered a medium sized operator within the industry and has far better scale than Council does to secure higher quality care at the facilities into the future
ORGANISATIONAL CONSIDERATIONS
Organisational structure	Not-for-profit	Not-for-profit
History in aged care	26 years. The City of Monash commenced its residential aged care operations in 1988 (then the City of Waverley)	147 years. RFM has been providing aged care since 1867
Board	Council is comprised of 11 councillors elected from the community to manage 200+ council services	RFM has an expert and experienced board focused exclusively on aged care
Senior management	Council has an experienced and highly competent senior management team. However, residential aged care is just one of 200+ services which they manage so none of them can concentrate exclusively on the increasingly complex aged care industry	RFM has a similarly capable and talented management team however they are focused exclusively on the aged care industry and so are better positioned to respond to increasing complexity in the industry
Staff	Council employs an experienced and high quality team at MG and EG	RFM employs a similar group of high quality staff. RFM also intends to offer employment to a significant number of existing staff at the facilities
Financial position	Very sound ($15 million of debt)	Very sound (no debt)
LEGAL CONSIDERATIONS
Rights of residents	Residents have agreements in place with Council in relation to their care and accommodation	RFM has committed to honour the terms of these agreements so no resident will be impacted financially
Sanctions	Council has never had any sanctions imposed at MG or EG	RFM has never had any sanctions imposed at any of their facilities
LONG TERM OPERATIONS AT THE SITES
Security of operations at the sites	Council was deeply concerned about its capacity to continue to operate the sites into the future	RFM is committed to operating MG and EG at the sites for many years to come
Future investment	Council was uncertain of its ability to commit to future capital investment at the sites into the future	In the long term, RFM will consider expanding the aged care and retiring living services provided on the sites. RFM is committed to ongoing investment in the facilities to ensure they meet a high standard
Covenant at Monash Gardens	There is currently no requirement that residential aged care and retirement village living continues at MG	RFM has agreed to a covenant over the land at MG which will ensure the land can only be used for residential aged care and retirement village purposes
Arrangements at Elizabeth Gardens	The land on which EG is located is crown land (owned by the State Government). Council currently has a lease from the State Government to operate the existing facility for the existing purpose	The land will continue to be crown land. RFM is expected to enter into a similar lease agreement with the Victorian Department of Health in relation to the EG facility

 

Key questions answered

 

The following are some key questions and answers relating to the sale…

1. How did Council vote on this matter?

Council voted eight votes to two votes to support the sale.  There was one councillor who did not participate due to a conflicting personal interest in the matter.  This is an improvement on the vote at the October Council meeting when the Council voted five votes to four to proceed with the sale (with one councillor not participating due to declaring a conflict of interest and another councillor absent from the meeting).  I think it is telling that Cr Pontikis and Cr Paterson changed their position from October to now support the sale.  Both of these councillors have clearly been respected by key protest leaders, for example – see this post.  They both independently came to the conclusion in the last few weeks that Royal Freemasons was an excellent choice.  Cr Paterson made comments at the meeting that in October she voted against a sale because she did not think another provider could come close to providing the high quality service which Council provides, however, after thoroughly investigating Royal Freemasons over the past few weeks, she now believes that Royal Freemasons can and will provide the best level of care for residents in the future.  I hope that her change of position assists some people to gain confidence in the decision Council has reached.

2. Why did Council proceed with a sale even though there has been widespread opposition to a sale voiced over the past 7 months?

Council has decided to sell its aged care facilities to Royal Freemasons because we are convinced that Royal Freemasons will be able to provide a better quality of care to residents into the future.  We consider this decision is in the best interests of existing and future residents at the facilities.

3. Why has the Council not consulted on this matter?

We have.  For seven months we have been engaged in many conversations with many different stakeholders.  We have heard their views clearly and consistently.   Residents at the facilities and their family and friends have told us that they want the highest possible care into the future.  They have said this is their single biggest overriding concern.  While they have also consistently said they want Council to retain ownership of the facilities, they have made it clear that this is on the basis that they consider Council best placed to provide the best quality of care into the future.  As it has become clear to Council over the past few months that a higher quality of care into the future is available beyond Council, we have continued to keep an open mind.  This has been in line with the results of our consultation which has placed an emphasis on quality of care considerations.  However, consultation is not and has never been about simply going with the loudest voices.  Consultation is about providing avenues for input into important decisions which affect people.  It is about being open to hearing different opinions and then considering those opinions alongside other relevant information.  That is exactly what we have done in the past seven months.  It has been through the consultation we have undertaken, and the responses we have received from those in our community who have engaged in this process, which has led to tangible changes and refinements to our approach, including: identification of a need for a covenant to provide long term security of continuing operations, highlighting the importance of the activities program, identifying the desirability of meals being prepared on site and taking every step possible to minimise any changes to avoid transfer impacts.  We appreciate the feedback we have received.  It shaped our approach throughout the process and the value of the input we received is clearly seen in the superior outcome of the arrangements now entered into between Council and Royal Freemasons.

4. Why did Council not consider other options to selling the facilities?

We did.  We considered a range of alternatives to selling – all of the ones which have previously been mentioned as well as some others.  Ultimately, our view was that the best outcome for residents lay in either Council continuing to manage the facilities or in selling to an appropriate aged care specialist provider.  This is what we wanted to examine further through the Expression of Interest Process which we commenced at the end of June and ran in parallel with our public consultation on this matter.  That consultation highlighted and confirmed the strong desire of key stakeholders that Council ensure the best quality of care be secured into the future.  That is why we continued with a process which some people criticised extensively.  Ultimately, councillors were presented with a clear choice between a certain standard of care that could be delivered into the future by Royal Freemasons and a standard which could be provided by Council.  At least 80% of councillors were convinced that Royal Freemasons could provide a superior standard of care into the future.

5. What is going to happen to the staff at the facilities?

We recognise that the past seven months has been a difficult time for our staff who have handled the situation professionally and with a total focus on the care of residents.  Royal Freemasons have indicated it is their intention to offer employment to a significant number of staff who currently work at the facilities.  This is a great outcome – especially for residents and their families who have indicated they want as little change to day to day operations as possible.  It will be a matter for individual staff members to decide whether or not to take up these offers.   I hope as many as possible do.  Regardless of their preference though, all staff will be paid their entitlements by Council and every single staff member will be paid redundancy payments in accordance with the relevant Award.  I am told there are significant advantages for not-for-profit operators such as Royal Freemasons (which are not available to local councils) to offer very attractive salary packaging arrangements to their staff.  This opportunity will now be available to staff commencing employment with Royal Freemasons.

6. Is this a good financial outcome for Council?

Definitely, although our focus has been on quality of care for residents rather than finances.  Council will receive $21,840,000 from the sale which is a very good result for Council and Monash ratepayers.  Council has received a range of external advice (which is commercial-in-confidence) which confirms this.  In addition Council will save more than $1,000,000 each year into the future.  This is the money in our annual operating budget which we have been paying in recent years to subsidise the operations of the facilities.  Further, it was estimated that Council would have also needed to invest several million dollars in capital works in the short term and tens of millions of dollars in the medium term if Council was to continue operating the facilities.  This is substantial money which Council will now save and will be able to re-direct to other areas to benefit the community.

7. I heard a councillor at the Council meeting saying he thought this was a poor financial outcome for Council.  Is that accurate?

No.  The councillor stated that Council was making a $22 million profit on this sale and this could simply be deferred for 20 years and Council could continue to run the facilities with the current losses.  He has not properly understood the concept of profit.  Council will receive $21,840,000 for the sale of the assets (the MG and EG business assets and the MG land).  This is not a ‘profit’.  To work out the profit – although almost certainly, what would be a loss – what would need to be done is to go back to the beginning of Council’s aged care operations and work out exactly how much the operations cost to set up (such as the land costs, the building costs, the losses (or surpluses) from the annual operations), the annual capital costs and the appropriate adjustments over time for inflation.  This would then allow a discussion on a profit or loss from the sale.  The simple and indisputable fact is that Council was losing a significant amount of money every year on operating this particular service for the benefit of 165 people (as one of 200+ services we provide) and that the longer this situation continued, the bigger this financial burden was going to become for ratepayers.  However, and as noted several times above, this was not the key reason for selling: superior quality of care was the primary reason.

8. Are the proceeds going to be spent on a new library?

No – there has never been any intention for that.  The proposal for a new Glen Waverley library is probably still some time off but if it does ever comes to pass, it would be based on Council contracting with a developer in Glen Waverley (following a competitive process) for the developer to construct a public space in exchange for the developer being able to develop the rest of the land for commercial purposes.

9. So what will the proceeds from the sale be spent on?

While the net cash price is $21.8 million, once redundancy payments, other staff entitlements and selling costs are subtracted, the net sale proceeds for Council are expected to be about $14.5 million.  Council has not made any decision yet as to how this money will be used.  This will be determined in the future as Council budgets and projects are developed each financial year.  The proceeds realised from the sale will be held in Council’s cash reserves or appropriately invested in community services and capital works to benefit as many people as possible.

10. If Council receives $14.5 million from the sale, why can’t it just cut rates by this amount?

It is important to differentiate between a one-off capital amount (which the $14.5 million is) and the impact on the operating budget (which the current approximately $1 million aged care operating deficit is).  It is the operating side rather than a one-off capital injection that is relevant to any rates consideration.  The approximately $1 million per year which Council will save in future from no longer operating the facilities could conceivably be used to reduce the coming financial year’s rate increase.  In Council’s financial plan, Council has forecast rate increases in the coming years of 6%.  The impact of saving $1 million in future budgets from the aged care line item means that Council could conceivably look at a 5% rate increase next financial year rather than the planned 6% (a rate increase of 1% raises approximately $1 million).  However, as with any budget process, there are always some line items which have a positive impact on the budget (as the aged care operating subsidy disappearing will have) and others which have a negative impact.  Council already has lower rates than any other Council and in my view I think there are some capital works needs such as footpaths, drainage and roads which I think could do with a $1 million injection  over Council reducing next year’s rate increase by 1%.  However, this will be something which councillors will consider in detail during the coming budget process and which the community will be able to have a say on as well through the budget consultation process.