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Trend of loss-making facilities continues


The results for the nine months ending 31 March 2018 indicate the financial performance of residential aged care facilities is continuing to deteriorate, StewartBrown’s new quarterly benchmarking report shows.

Aged care accountancy and benchmarking firm StewartBrown’s survey of more than 911 residential aged care facilities found results are continuing their downward trend due to this financial year’s freeze on indexation for care subsidies, the January 2017 changes to the Aged Care Funding Instrument and escalating direct care costs.

The latest analysis found that 43 per cent of facilities reported a loss on their overall facility earnings before tax (EBT) for the nine-month period, which is up from 41 per cent at the half-year mark and 34 per cent for the previous financial year.

As with the last quarter, 21 per cent of facilities reported a loss on their earnings before interest, taxation, depreciation and amortisation (EBITDA) this quarter, which is up from 16 per cent of facilities for the previous financial year, according to the report, which was released this week.

StewartBrown senior partner Grant Corderoy said the deterioration in performance from June 2017 has continued in the March quarter with more than four in 10 facilities continuing to run at a loss.

“The expectation is that there will be a further deterioration in performance in the June 2018 quarter,” Mr Corderoy told Australian Ageing Agenda.

Mr Corderoy said EBT was considered a more important measure than EBITDA because it showed the “real surplus or loss”.

What happens to financial performance next financial year depends in part on the level of indexation applied to residential care subsidies from 1 July, he said.

The level of indexation will be known in late June, Mr Corderoy said.

In response to these latest results Mr Corderory said providers needed to look at how they could maximise their revenue outside of ACFI.

“The big message for providers is now to look for other revenue lines. Predominantly they can come from two sources; providing optional services and increasing their accommodation pricing.”

He said it was unfortunate that last month’s Federal Budget didn’t allow for the deregulation of the basic daily fee as many had hoped and been recommended by the Tune Review.

“Even without the deregulation [of the basic daily fee], all providers can provide additional or optional services and we think providers need to focus on that. They really need to focus on how they can improve their revenue,” Mr Corderoy said.

Survey findings

For the survey average, at March 2018:

  • funding per bed per day was $172, slightly up from $171.85 at June 2017
  • direct care costs plus allocation of workers compensation and quality and education costs increased by 3.8 per cent to $139.61 per bed per day, up from $134.46 in June 2017
  • occupancy was 94.06 per cent, slightly down from 94.64 per cent at June 2017
  • the average refundable accommodation deposit was $348,019, up from $320,254 last financial year

For facilities in the top quartile, at March 2018:

  • funding per bed per day was $176.95, up from $173.48 at June 2017
  • direct care costs increased by 7.3 per cent to $119.80 per bed per day, up from $111.70 in June 2017.
  • occupancy was 96.3 per cent, consistent with 96.4 per cent at June 2017
  • the average refundable accommodation deposit was $353,198, up from $352,619 last financial year

Access the report here.

Related coverage

New data shows more facilities in the red

Provider groups call for an ‘adjustment payment’

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7 Responses to Trend of loss-making facilities continues

  1. Russell D. Egan June 20, 2018 at 11:24 am #

    I met with Ken Wyatt recently to explain to him that the ACFI cuts are having a devastating effect on the aged care industry. The cuts are having a far greater impact on revenue than was expected. Minister Wyatt is sympathetic to the case, but the cuts are dictated by Treasury. The government is only interested in cutting expenditure in the areas of least resistance. Aged care providers are treated like indentured servants who can have the rules changed arbitrarily and funding cut to do the same work. It is a complete betrayal of trust and confidence.

    There is no other industry in Australia that would tolerate this – look at the public outrage that resulted from freezing Medicare rebates for GPs and the resulting Mediscare campaign. Our peak bodies are ineffective and a more serious response is warranted akin to industrial action. The government takes for granted that no matter the level of abuse, providers will submissively carry on.

    The homecare industry for all its positives is cannibalising residential aged care and as a result vacancy rates are increasing, compounding the struggle to reach break even.

    The very viability of the industry is now at risk and the government will shortly be looking at mass failure of facilities that can no longer underwrite operating losses. Maybe that is why they have activated the bond insurance levy? Is the government already preparing for this failure?

  2. Michael June 20, 2018 at 4:09 pm #

    StewartBrown’s figures relate primarily to nonprofits, many of whom try to put staffing and care above profitability. They are likely to forgo profits in order to maintain staffing. They cannot be used as a guide to the behaviour of those who decide not to disclose.

    What we need from industry and government is accurate transparent verifiable information from all Australian nursing homes on how they are spending our money and what their staffing levels are.

    Both the Quality Agency and The Department have denied responsibility for problems in care and instead indicated that the responsibility lies with the provider in this marketplace.

    For at least 200 years we have known that the interests of businessmen differ from those of the community and their members. We know that they cannot be trusted to do what we want unless we hold them to it. What is happening in aged care is a reminder of this truth.

    Since the earliest times it has been families and community (ie local communities, and each one of us) that have been responsible for the care of our vulnerable fellow citizens. If we accept that then both governments and the businesses that provide care are our agents. Both should be directly accountable to us. Instead they have chosen to ignore us. We have no idea how they are spending our money, or any real information about the care they are providing.

    We have every reason to be angry about this. It is time to put a stop to it. That means no more money until we can see how it is being spent and what we are getting for our money. The longer the delay in doing this the angrier the community is going to get and with good reason.

    It is time for industry and government to start talking to us about mechanisms that we can use to hold them accountable to us in our communities.

  3. Peter Stewart June 20, 2018 at 8:19 pm #

    Everyone is expressing the need for many funding. The reality is that 60% of consumers will need to contribute, whilst Government will be required to meet the other 40%.

    How can we do that –

    1) Refundable Accommodation Deposits must be removed and all residents with the capacity to pay will do so on a daily basis.

    2) The $22b held by facilities will be replaced on a cash flow basis, just like any other industry with a banking relationship.
    .

    2) The rate of payment will require an increase in the MPIR, to a level whereby the cash flow will meet the servicing levels required by lenders to the industry.

    3) Non-supported residents would be able to access equity in their former if and when their liquid capacity is reduced.

    4) For residents liquidating their former home, monies realised from the sale could obtain an income to help service their daily requirements.

    5) Residents would only pay for additional services for which they receive – an opt-in and opt-out system. This is going to be the biggest headache for providers over the next 12 months.

    6) The means tested guidelines will need revision as they were prepared with very little forecasting, and should have new thresholds with higher percentages, similar to the concept of PAYG.

    7) Annual and lifetime capping should be increased or removed.

    8) Government has to come to the party.

    We are currently working with policies set many years ago, in an industry removed from today’s needs.

  4. Country carer June 22, 2018 at 12:22 pm #

    Not-for-profit is just that – with break even being the goal. No surprises in this report. Why do the multinationals receive government funding without being required to disclose exactly how the funds are acquitted? Shouldn’t ALL providers be on a level playing field?

  5. Graeme Croft June 23, 2018 at 1:12 am #

    Thats a totally stupid niaive statement Country Carer. !!
    Would you invest your private money or allow your superfund to invest your savings in a company that didnt provide a dividend ??
    Not for profits dont have to pay any tax on surpluses even though they directly compete with the for profit sector in identical fee charging regimes and direct their surpluses tax free into often religious or self interest activities of no benefit to aged care resudents.
    NFP ‘s get FBT free salary relief for employees, dont pay payroll tax equivalent to at least 5-6% of salaries, dont pay any state government transfer duties on land acquired for such developments.
    Yes lets start to get a level playing field !!

  6. Michael June 24, 2018 at 3:16 pm #

    Well said Country Carer but you missed out on ‘transparently’ and accountably. It is our communities that rally around and put pressure on providers and governments. We need to know exactly what is happening to the elderly in our communities and how our money is being spent if we are to do that. Instead we are pushed aside and left in the dark.

  7. Ellie June 25, 2018 at 11:10 am #

    Hi Graeme,
    It’s not your ‘private money’ which should be used to make you a profit… it is money provided by the Commonwealth on behalf of the taxpayer which should ultimately provide quality care for people in their homes. I find it a bit gross that a private company funnels its taxpaying obligations elsewhere at the expense of providing good quality care for their clients. Maybe because they worked out the only shortcuts you can take are reducing staff… which are the biggest impacts on quality care.

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