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Beyond the headlines: a closer look at the sector’s finances


Contrary to media reports of big profits for providers, the rate of increase to costs of care is greater than the increased ACFI subsidies being received, while the current accommodation results are not financially sustainable, writes Grant Corderoy. 

The aged care sector has recently been stung by media claims of substantial increases in profits, reduced care hours delivery and rorting of ACFI claims.

This has coincided with the media release from Minister for Aged Care Services Sussan Ley further highlighting alleged incorrect ACFI claiming and warning of reduced ACFI subsidies due to supposed budget blowouts.

It is important to now have a much closer look at the financial issues affecting the residential aged care sector.

The Living Longer Living Better reforms provided a clear distinction between ‘care’ and ‘accommodation’ revenue and expense steams, which was consistent with the Productivity Commission recommendations. These revenue streams need to be analysed separately.

The ‘care’ result directly relates to the provision of care, and the revenue is highly regulated and directly based on the frailty of residents, with the exception of optional services. The care result increased by 16 per cent from FY14, however this is still lower than the FY12 and FY11 results. It must be remembered that the ACFI subsidies encourage the admission of residents with increased levels of frailty to residential facilities, due to direct care expenditure amounting to only 77 per cent of ACFI funding.

In relation to direct care services provided, these are by majority variable in nature. In FY15 the ACFI subsidies covered on average 77 per cent of the costs of direct care expenses. Total care income (ACFI, Daily Care Fee, optional and extra services) as a percentage of direct care costs have intersected for the past three fiscal years, confirming that the increased costs of care is greater than the increased ACFI subsidies being received (see table below).

Accordingly, the resulting effect of reducing the ACFI subsidies in real terms will have a major negative effect on the sector, particularly as the bottom 50 per cent of the sector had a care loss of $5.18 per bed day for FY15.

StewartBrown chart

Source: StewartBrown Aged Care Financial Performance Survey

The majority of direct care costs are in relation to the provision of nursing and related care delivery. Care hours delivered for FY15 increased by 4.4 per cent in FY15, which is as anticipated due to increased resident frailty.

The remaining care expenditure includes hotel services (catering, cleaning and laundry), utilities and administration. The majority of these expenses are fixed by nature and not related to resident frailty.

Hotel services have increased cumulatively by 46 per cent since 2007 as compared to CPI (22.6 per cent) and COPO/COPE (19.8 per cent). Utility costs have increased by 97 per cent since 2007 and administration costs by 74 per cent.

The fundamental issue is: how are the providers expected to make up this difference in such a regulated revenue regime?

The ‘accommodation’ result directly relates to the revenue and expenses in regards to the residential aged accommodation provided. Resident frailty does not determine accommodation revenue and government subsidies are only provided for supported and partially supported residents.

Accommodation revenue is directly related to accommodation pricing, and the mix between RADs, DAPs, combination RADs/DAPs and supported subsidies. Accommodation expenditure is the cost of providing this accommodation, including repairs, maintenance, depreciation, insurance and bond interest paid.

The average accommodation result for the FY15 fiscal year was $0.03 per bed day. This was after building depreciation expense of $9.46 per bed day, which we believe is largely understated given that the average length of time between major building internal refurbishments (to maintain market acceptability) is probably somewhere between 10 to 12 years. The current accommodation results are not financially sustainable.

Ultimately, as with any industry sector, the ongoing financial viability for residential aged care is essential to ensure continued quality service provision.

Analysis and future decisions around the financial sustainability relating to residential aged care will be of continuing increasing importance in our society, and accordingly deserves significant involvement from all stakeholders.

All figures quoted in this article are taken from the StewartBrown Aged Care Financial Performance Survey –2015 Financial Year Report, released in October 2015.

Grant Corderoy is senior partner, aged care and community services, StewartBrown, a chartered accountancy firm. 

Want to have your say on this story? Comment below. Send us your news and tip-offs to editorial@australianageingagenda.com.au 

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13 Responses to Beyond the headlines: a closer look at the sector’s finances

  1. Tony Rolfe January 13, 2016 at 3:28 pm #

    The crucial words in this article are …

    “Hotel services have increased cumulatively by 46 per cent since 2007 as compared to CPI (22.6 per cent) and COPO/COPE (19.8 per cent). Utility costs have increased by 97 per cent since 2007 and administration costs by 74 per cent.

    The fundamental issue is: how are the providers expected to make up this difference in such a regulated revenue regime”

    I suspect that many journalists and the majority of potential consumers have no idea of how the financial situation in aged care is so controlled by the Australian Government and subject to such unrealistic expectations by the Australian community.

    This latest assessment by StewartBrown is a timely and balanced comment which is essential reading by all with any interest in aged care in Australia.

  2. Wendy Rocks January 13, 2016 at 4:47 pm #

    I have also written to the Minister, Susan Ley (my local member) independently in regard to the scurrilous Fairfax articles and also in support of Grant Corderoy’s response, but it is disappointing and predictable that I haven’t had a reply and that there has been no balanced further publishing by the media.

  3. Raymond Harris January 14, 2016 at 8:35 am #

    I also have corresponded with my local member in relation to the SMH article’s of the 1st & 7th January also the charge of rorting I have been advised that my correspondence has been forwarded onto the Minister for comment. If Wendy’s predicament is amplified then we also will be disappointed at the silence and lack of response from the Minister. These negative comments do nothing to enhance the current confidence our communities have in the provision of the aged and it would be gratefully appreciated – the Ministers reassurance, confidence and support in the Industry.

  4. John Kelly January 14, 2016 at 9:01 am #

    Thanks Grant for providing some balance and objectivity to this ongoing discussion.
    One further point that ought to be added is to comment on the Government’s media release dated 16 December 2015, where they claim that they may recover $60M over the next 4 years attributed to alleged “incorrect or false” claims. In FY 16/17, the Government expects to recover $20.8M from “incorrect or false” claims. To put this in perspective for the FY 16/17 on an ACFI spend of $10.59B in FY 14/15, this amounts to a risk level of 0.2%.

    Adj Prof John G Kelly AM
    Chief Executive Officer
    Aged & Community Services Australia

  5. Dr Sarah Russell January 14, 2016 at 10:20 am #

    I agree, Grant Corderoy: misrepresenting profitability in the media does not enhance a meaningful dialogue between the key stakeholders.

    My opinion piece, The aged care gravy train (The Age, January 9th), was published in response to Tom Allard’s article, Nursing home profits soar as patient care declines (The Age, January 1st). Before writing my Op Ed, I checked that the statistics cited in Tom’s article were correct.

    As Bentleys Chartered Accountants’ report is not publicly available, I phoned Heath Shonan, senior accountant at Bentleys Chartered Accountants, who undertook the analysis. Heath was on holidays so I spoke with his PA. I asked for a copy of the report. I was told that a copy of the report cost $2,900 plus GST.

    Rather than buy the report, I asked an accountant at Bentleys Chartered Accountants’ the following questions about the survey:
    1. Were the figures correctly cited in Tom’s article?
    2. How many aged care facilities participated in survey?
    3. How were these aged care facilities selected (i.e was it a representative sample)?

    I was told that the figures in Tom’s article were correctly cited. However, I was told that only 160 aged care facilities were included in the study. This was a small sample (approximately 8%). I was also told that providers of the 160 aged care facilities volunteered to complete survey. It was therefore not a representative sample.

    Based on this information, I concluded that the study from Bentleys Chartered Accountants is a small and biased sample.

    Fortunately, a letter from Cameron O’Reilly, chief executive, Aged Care Guild, was published in The Age in which he stated ACFA’s report “showed variations in financial outcomes” (Letters, The Age 8th January). This letter alerted me to the Aged Care Financing Authority’s reports.

    Despite different opinions regarding the average levels of profit in aged care facilities, letters in mainstream newspapers are unequivocal. These letters have invariably described poor standards of care. They can no longer be dismissed as a “one-off incident”. There have simply been too many “one-off incidents”, including my own.

    Since the publication of my opinion piece, I have received numerous emails of support from people who either work in an aged care facility (Managers, Nurses, PCAs) or people who know someone living in an aged care facility. There have also been numerous supportive online comments on The Age website.

    It seems clear that key stakeholders have competing interests: some key stakeholders (residents and their relatives, staff and managers) want high-quality care while others (owners, accountants, CEOs) focus on profitability. This conflict was evident in Cameron O’Rielly’s letter to The Age. He stated: “recent reforms to the aged-care sector have unleashed clear improvements in regulation, infrastructure, technology, training and consumer choice”. He failed to mention standards of care.
    My hope is that the different stakeholders in the aged care sector are able to work together to ensure that older people receive the care they deserve.

  6. Raymond Harris January 14, 2016 at 11:35 am #

    Dr Sarah Russell’s all embracing statement (owners, accountants, CEO’s) focus on profitability.(I don’t know about owners) but is like saying all Italians are members of the Mafia and that our social conscience is not a consideration.. Sarah I’m a CEO of a NFP with 40 years working in the Health, Indigenous, Drug & Alcohol and Social Welfare sectors and have always put the objects of the program first and I may add that I will continue to do so and adding that the vast majority colleagues known to me share the same ideals.

  7. Pip Carter January 14, 2016 at 12:50 pm #

    Comments in the paper of recent times surrounding providers over claiming on the ACFI has been blown, I feel out of complete proportion. Maybe the Government is wanting to meet their budget so the Age Care industry and the residents who reside therein in will be easy targets as has been the case in the recent past by other Governments of the day. I will be writing to our local members both Kevin Hogan MP and Justine Elliott MP as the boundaries have not been defined yet. I hope that I get a response from the Minister much quicker than Wendy Rocks has from the Minister Susan Ley. Is this a hidden agenda or back door way to claim back money from the aged vulnerable to meet the Governments budget needs. Who knows, if it walks like a duck and quacks like a duck it must be a duck!!
    In regards to comments made by Dr Sarah Russell who states CEO’s focus on profitability, I can say that I am a CEO of an Aged Care facility and while I have to naturally watch the bottom line my board and I over the past fourteen years that I have been here have on many occasions refused to cut staff, or take measures which affects care of the residents to make a profit. They have on many occasions looked at other measures or rode the bad periods out to ensure residents care is maintained at a high level while the Government of the day has put the squeeze on us with their cuts.Our aim has been and will always be to put the care of the residents first, can the Government say the same thing, I wonder!!The ACFI system is a convoluted process and one that needs to be addressed. There are many providers our there who would not even be claiming the correct amount due to the difficulty of the ACFI process, so how many residents are being affected because of this. I would make an assumption a million dollars plus are not been claimed due to the ACFI process. Make the ACFI claiming process simple so all aged care facilities get the appropriate funding for the type of care each resident requires. This would be fair for all facilities large or small, no question on what is being claimed is corrected or incorrect and NO reason for the Government of the day to use overfunding of the Aged Care industry to prop up their budget each time it is withering on the vine.

  8. Dr Sarah Russell January 14, 2016 at 3:59 pm #

    Dear Raymond and Pip

    I apologise for my sweeping statement about CEOs

    By way of explanation (but not excuse), I have been overwhelmed by the response to my Opinion Piece in The Age. In addition to the online comments on the Age website, I have been inundated with emails and phone calls. Several CEOs have emailed me their Letters to the Editor and Opinion Pieces that were not published in The Age. These pieces have focused solely on profits in aged care facilities.

    It is understandable that CEOs have focused on profits in their correspondence with me, given that they believe that profits were exaggerated in recent newspaper articles.

    In my reply emails to those CEOs who have contacted me, I have written: “I am sure we are all working to ensure older Australians who live in an aged care facility have the best possible quality of life”.

  9. Raymond Harris January 14, 2016 at 5:07 pm #

    Thank you Sarah. Go the Blues — “its TIME”.

  10. Raymond Harris January 15, 2016 at 6:35 am #

    Thank you Sarah I agree that the vast majority of us are working for the same ideals and purpose, As a NFP we are not obsessed with profits and the main focus is quality of care and my board will accept a breakeven unfortunately not always achievable – we are one of the 34%.

    The debate on profits should not escape the inequities that exists in that our grass roots staff are not that well remunerated.lets face it not in the game for the money.

    If the press want a positive story they won’t have too go to far come and visit Regional Australia.

  11. Pip Carter January 15, 2016 at 10:33 am #

    Sarah I really appreciate your apology. I echo Ray Harris comments our NFP organisation like many are there to ensure that the residents receives the quality care they need. let us all keep working towards ensuring the Government see’s that adequate funds are put aside to give the quality care that the aged person needs to enjoy their life whether it be in their home or residential care.

  12. Wendy Rocks January 15, 2016 at 10:42 am #

    Thank you Sarah for your apology. I fully realise that bad things happen in aged care and that there are instances on any one day when things could be done better as far as care is concerned; however, I would remind Dr. Harris also that articles such as hers can equally be a lightning rod for the disaffected. This should not be discounted in the number of emails etc referred to as expressing concern about care.
    There are many complex reasons for care workers to be disaffected; it is true that there certainly are those providers out there who keep staffing at a minimum, which is not something I would ever support and I know many, many of my colleagues have the same principles; care staff work very hard, assuming responsibility for that which their pay scales (and current funding) do not satisfactorily reward them; nor do their qualifications at certificate level 3 (or less) adequately prepare them. Why is this so? Well at least part of the answer is that we in our society do not value ageing and have not required our decision makers up to this time, to regard their care as a specialty, which it is and has been for some time, rather than a ‘care’ situation. I could go on, but I also wanted to make another point.

    I make no secret of the fact that optimising income is an important and essential part of management ability in aged care management; in our case, staffing has followed both the acuity and needs of residents, and as income has increased, so has staff numbers and mix. I also make no secret of the fact that I consider the whole talk about ‘making a profit’ incredulous- what is wrong with making a profit, when any organisation (and I don’t speak of Private organisations, although this also applies in some degree to them), needs to ensure its capital stock is state of the art, and when necessary, replaced; technological advances are accommodated, and the measures that one needs to implement to attract and retain quality staff need to be afforded.

    Please can we move away from a pretense that ‘profit’ is some sort of dirty practice in the provision of ‘not for profit’ aged care. Not For Profit just means that any profit goes into improving the business

  13. CHI ZHANG July 7, 2016 at 3:00 pm #

    Sarah, I don’t think your apology is acceptable, because clearly you continue to publish articles that criticize aged care facilities and their providers being too “profit” focused and not providing quality care. In your most recent articles, you suggested that for both the for-profit and not-for profit sector, ‘ACFI documentation appears to have become a creative writing exercise’, this clearly shows your lack of understanding of the process and requirements. You are clearly not familiar with the running of an aged care facility. You also suggested that providers exaggerate residents’ care needs, which is a horrible accusation. Providers are offering their services to provide quality care, but they also understand that helping facilities to continue to receive their funding is essential to the ongoing operation of those facilities.

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