No one should be able to "buy quality" in elderly care when the NHS is not predicated on wealth, former Scottish First Minister Henry McLeish has said.
Mr McLeish said much of the problems were due to care homes having been "seen as an investment for entrepreneurs" during the 1980s and 90s.
He is leading a commission with Alzheimer Scotland that is taking an in-depth look at how aged care is delivered in the future.
He said the sector was too reliant on the "artificial environment" of large-scale care homes when smaller units and other models which allow for a greater degree of independent living could be considered.
"This has got to change," he said. "It requires a re-thinking of finance.
"When you look around some of the Nordic countries, what they are looking to move to is that unless the condition is extreme and requires either hospitalisation or residential care. The first priority should be to keep people where they are.
"You are carrying on independent living which means you provide a total support service for people to carry on as they have done.
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"You don't reach a juncture where the automatic response is 'well how much can we afford'," said Mr McLeish, who led the policy to introduce 'free' personal care in Scotland.
"There are examples in other parts of the world where you have a coterie of services that allow people to stay at home.
"It's not unrealistic. What is unrealistic is that we should interrupt peoples' lives and decide that for the latter part they have got to live in an environment that is alien to where they have been before.
"Some of us forget that people with advanced dementia are still living. They are still important, they are still vital.
"In human terms this would not only be radical and enlightening but it would also be humane.
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"As far as I'm concerned every care home should be a luxury home," added Mr McLeish.
"We have a situation where self-funders can buy quality and that is not something that substantiates the NHS. You shouldn't be able to buy quality of care at the expense of those who cannot afford to do that."
He said Scotland had the potential to lead the way in elderly care provision but said it was important to "start thinking about what you want" before introducing a new care service.
He said: "We are pleased that the government is looking at the prospects for an integrated care service. Clearly that's run into the quagmire of how we deliver it.
"You've got to start to think about what care you want before you start thinking about models.
"I'm a great believer in what happened during the Enlightenment when Scotland was ahead of England, ahead of Europe in terms of thinking, new ideas and innovation.
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"Quite frankly I'm concerned that in many areas [now] we are not," he said.
"No one as they move through life wants to be in an institution and in a completely artificial environment.
"Clearly, some people because of the nature of their condition some people have to be."
Mr McLeish is an ambassador for Alzheimer Scotland, which is campaigning to end the so-called 'dementia tax', an ambition that is backed by The Herald.
People in the advanced stages of the disease living in care homes require round-the-clock care, which the charity argues would be free on the NHS for cancer or heart disease patients.
Mr McLeish said he had recently met with Michael Matheson, Cabinet Secretary for NHS Recovery, Health and Social Care to discuss the issue and believes some inroads are being made.
"He's very interested in the work we are doing," said Mr McLeish.
"Advanced dementia is pure health but the government to date has not accepted that.
"So what we are arguing for is that this is classified as health and be free at the point of need.
"From what I gather the solicitors from Alzheimer Scotland and the government will be discussing the matter so I'm hopeful there is a way forward."
It comes after a dementia expert raised concerns that there is "no new money" to finance an ambitious new ten-year plan to tackle the disease in Scotland.
The Scottish Government launched its fourth dementia strategy earlier this month which prioritises improving diagnostic waiting times and support for those affected and their families.
The report notes that half of those who are entitled to post-diagnostic support are not receiving it.
The government acknowledges that patients are facing "significant" waiting times for assessment which means there are delays in accessing treatments that may slow the progression of the disease.
For many, accessing support and guidance about social care is "a confusing and inconsistent maze to be navigated".
Professor June Andrews, OBE, who is an expert in the care of older people, said it was of concern that the policy document talks of "identifying options for redirecting investment" to deliver the strategy.
She said: "That means there is no new money in a situation where we already know not enough is spent and the need is going to increase."
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