The home care sector has experienced a more than six per cent decline in profitability over the last year as providers continue to accumulate a growing mountain of unspent funds, a key financial report has found.
Home care revenues fell by an average of 6.1 per cent, underpinning an overall reduction in profitability of 29.8 per cent, the StewartBrown Aged Care Financial Performance Survey found.
The report, analysing data from over 24,952 home care packages across Australia for the financial year ending June 2018, was released on Monday.
If found the current amount of unspent funds came to an average amount of $6,000 per client, compared to $4,255 last financial year.
That reflected a sizable decrease in revenue utilisation from 92.3 per cent in 2017 to 86.68 per cent in 2018, leading the report’s authors to warn that profitability would continue to suffer and that an improvement in revenue utilisation “must be a major priority for FY19”.
Senior partner Grant Corderoy said the average decline was consistent even among the sector’s best financial performers. He said it was being driven by pricing pressures caused by increased competition, the rise in CPI and the increase in unspent funds, estimated at up to $400 million nationally.
An ACFA report released last August put that figure at $329 million.
“This money is sitting in the balance sheets of providers when it could be utilised by the 121,000 clients in the national priority queue,” Mr Corderoy told Community Care Review. “It means provider profitability is really affected.”
The increase in unspent funds meant lower package revenue, which was also translating into a reduction in the hours of direct care per client, the report said.
Sink or swim, providers warned
Mr Corderoy said providers needed to look at pricing, service delivery and business models if they wanted to survive in the new competitive environment.
“We’ve had a significant increase in the number of providers in the last year and we are not consequently increasing the number of packages, so I would say clearly these profits aren’t sustainable to support that many providers.
“There’s more new providers than there are available packages and that squeeze is a forcing prices down. It is going to affect sustainability and we will see some providers fail because there’s not enough profit in it.”
According to the report, the number of approved home care providers has increased by 373, or 75.2 per cent, since June 2016. However the number of packages has only increased by 17.57 per cent (to 84,971) since February 2017.
The report says the current aged care funding model is under “significant strain”.
It concludes that the aged care sector requires “significant investment”, considering the national queue has increased by over 32,500 since June 2017.
“What the survey highlights is that the financial performance of the aged care sector is experiencing significant challenges due to a continued decline in profitability in both residential and home care and this creates challenges for the long-term financial sustainability of the sector,” the report says.
Home care at a glance
- Unspent funds per client $5,984 (up $1,729)
- Revenue per client per day: $4.48 (down 6.1 per cent)
- Operating result surplus per client per day: $3.77 (down $1.60)
- Direct service costs: up $1.30 per client per day
- Staff hours per client per week 6.69 hours (down .47 per cent)
- Number of home care providers: 869 (373 more than in 2016)
- Increased home care funding
- Transparent pricing
- Clarity and flexibility in service delivery
- Enhanced auditing and compliance measures
- Clarity in use of unspent funds
- Consumer education
- Integration of CHSP and HCP
(Source: StewartBrown Aged Care Financial Performance Survey Sector Report FY18)
You can access the report here.
Read more: Providers sitting on $329m in unspent funds