He hosted members of the health select committee at Invercargill’s PSS Peacehaven rest-home on Monday.
"We’re not going to be able to tweak here and there and cost-cut our way through this challenge.
"It requires courageous transformational change," he said.
Members of the committee visited multiple Southland care facilities during the visit.
Aged Care Association chief executive Tracey Martin said the changes needed to be driven by the people who were actually doing the work, not theorists.
Multiple levels of assessment were consuming hospital resources in a bureaucratic system.
She believed moving the heavily focused clinical assessment process model to one performed on-site at care homes would allow patients to move through the system more efficiently and free hospital resources.
It was important for mindsets to move from clinical thinking to one focused on delivering a personal service, she said.
Mr Russell said it was important for the sector to remember care facilities were now homes for the residents.
"We work in their home, they don’t live in our workplace."
The lack of D6 level (specialised) dementia care beds across the nation needed to be addressed, he said.
In September, Mr Russell announced Peacehaven would be developing Southland’s only D6 level psychogeriatric dementia beds.
Ms Martin said a lack of D6 beds nationally alongside inadequate planning through Health New Zealand Te Whatu Ora had patients transferring from the North Island to access care in the South Island.
Moving a family member into care was often traumatic on all family members — especially for elderly couples, she said.
Being forced to place someone in care outside the city due to inadequate options added to the stress
Mr Russell said demand projections suggested it was an area "that we need to be investing in much more significantly now, in order to meet tomorrow’s demand".
Ms Martin favoured a potential capital grant fund for providers to enhance facilities that would be needed in the future.
Raising capital through the community was not a sustainable model, Mr Russell said.
Health select committee chairman Sam Uffindell said it was important for the committee to physically visit the regions to see what was happening in the neurological cognitive disorders aged care sector.
Sector funding models would also be reviewed, he said.
"We want to ... look at the best practices across New Zealand and also try to capture some of the international examples of funding models as well."
Improved aged residential care would "take significant pressure off health and hospital and specialist services".
"We know where the demographics are heading and that there is going to be a greater need right across aged care."
By Toni McDonald
