In the 2002-03 budget, the Australian Government announced funding for a review of pricing arrangements in residential aged care. The review, conducted by Professor Warren Hogan, examined long-term financing options for the aged care sector with consideration of the level and quality of care required by older Australians into the future and taking into account issues of equity of access. It considered the improved care outcomes required from providers under accreditation and the underlying cost pressures faced by the industry, including movements in nurses' and other wages, and increases in workers' compensation and other insurance premiums. The approach taken by Hogan in addressing the aims of the review was to discuss aged care service provision in terms of demand for aged care, the cost of aged care and the supply of aged care services, recognising that these overlap and interact.

The prevalence of disability provides an indicator of the potential demand for residential aged care; and dementia has been found to be the greatest single contributor to burden of disease due to disability at older ages, as well as the greatest single contributor to the cost of care in residential aged care. Therefore, to inform the review by Professor Hogan, the Department of Health and Ageing commissioned the Australian Institute of Health and Welfare in mid-2003 to investigate the extent to which health and aged care service use can be associated with dementia. This report presents the findings of these investigations, examining the prevalence of dementia in the Australian population, the current patterns of service use by people with dementia and the costs associated with this use.