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45 per cent of facilities making a loss


The proportion of aged care facilities operating at a loss has increased by more than 11 per cent over 12 months with those in rural and remote areas faring the worst, StewartBrown’s year-end report on the financial performance of the aged care sector shows.

New data released by the accounting and benchmarking firm on Monday shows that 45.1 per cent of the 974 facilities surveyed recorded an operating loss (negative earnings before tax) and 21.2 per cent reported a cash loss (negative earnings before interest, taxation, depreciation, amortisation and rent) for the financial year ending June 2018.

That’s an increase from 33.9 per cent and 14 per cent of facilities respectively on the previous year in a trend of declining profits that is likely to continue, the 2018 Aged Care Financial Performance Survey Sector Report found.

The significant decline in facility operating profits is mainly due to expenses increasing at a much higher rate (4.7 per cent) than revenue (1.7 per cent), which can largely be attributed to the indexation freeze on subsidies and changes to the sector’s funding tool, the report said.

In line with recent trends, facilities in outer regional, rural and remote areas are more likely to make an operating loss (63.5 per cent) and cash loss (37.5 per cent) but metropolitan facilities are not immune to deteriorating financial performance.

In inner regional areas, 47.2 per cent facilities reported an operating loss and 22.4 per cent cash reported a cash loss while 41.5 per cent of facilities in the major cities reported an operating loss and 18 per cent recorded a cash loss.

Grant Corderoy

Grant Corderoy

StewartBrown senior partner Grant Corderoy said the decline in results was in line with forecasts made last September and highlights the difficulty for residential providers to make a positive change even when aware profits were likely to deteriorate.

“What providers can do to avoid [making a loss] and protect their profitability declining is very limited at the moment,” Mr Corderoy told Australian Ageing Agenda.

The report shows revenue is the most pertinent issue for residential providers and that the sector is under-funded, he said.

“The funding model needs to be looked at [and] we need to allow providers to increase their revenue through the basic daily fee and have more clarity around what additional fees they can charge,” Mr Corderoy said.

The other much-needed change to revenue is with accommodation pricing, which is still too low and something providers should address through consumer education, Mr Corderoy said.

“Accommodation should be charged commensurate to what the market is for accommodation.”

The home care sector has also experienced a decline in profitability over the last year (6 per cent) along with a growing amount of unspent funds (read Community Care Review’s report here).

StewartBrown’s report highlights that the future sustainability of the sector will be dependent upon the impact of impending reforms and initiatives.

Under current conditions StewartBrown is predicting that half of survey facilities will record an operating loss and a quarter will make a cash loss at the end of this financial year.

For facilities operating in outer regional, remote & very remote, two-thirds will make an operating loss and 43 per cent will make a cash loss, according to the forecast.

Sean Rooney

Increasing funding and deregulating the basic daily fee are the two most urgently needed reform initiatives to improve sustainability for residential providers, Mr Corderoy said.

Renewed calls for action

Leading Age Services Australia CEO Sean Rooney said the report was further evidence of the need for urgent short-term action on funding by the Government.

He reiterated calls made by aged care provider peaks in July for $675 million this financial year to respond to the gap between costs and subsidies in residential care and additional targeted support for struggling providers in regional and remote Australia.

Pat Sparrow

Aged & Community Services CEO Pat Sparrow said the survey provided a clear picture of the sustainability and viability challenges across the sector and particularly highlighted the acuteness of the situation for rural and remote providers.

“It’s been clear for some time that a different approach is required to ensure these services can continue to be delivered in local communities,” Ms Sparrow told Australian Ageing Agenda.

Residential results at a glance

  • $2.37 – the facility result (operating profit) per bed day for survey average, down from $9.39 in 2017
  • $30.26 – the facility result (operating profit) per bed day for facilities in top quartile, down from $37.26 in 2017
  • $6,760 – earnings before interest, taxation, depreciation, amortisation and rent (cash profit) per bed per year for survey average, down from $8,829 in 2017
  • $16,570 – earnings before interest, taxation, depreciation, amortisation and rent (cash profit) per bed per year for facilities in top quartile, down from $18,481 in 2017
  • 94.3 per cent – occupancy, slightly down from 94.6 per cent
  • 45.5 per cent – supported resident ratio, slightly up from 45.4 per cent

Access there report here.

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4 Responses to 45 per cent of facilities making a loss

  1. Ben October 17, 2018 at 3:11 pm #

    Stewart Brown’s report for listed aged care operators (Estia, Japara and Regis) have a combined profit before tax (or EBT) of $163.7 million for 2018 (http://www.stewartbrown.com.au/images/documents/FY18-Listed-provider-analysis.pdf ). paints a different picture though.

    I think the picture is not as dire as they make it. I’m a bit cynical where an employer accounting firm provides analysis on “Net Profit” figures including Amortisation and Depreciation. Maybe it’s the “Ageing in Place” coming back to bite the low care hostels not set up for high care residents and having to now upgrade their facilities.

  2. Jane Seaholme October 18, 2018 at 3:11 pm #

    https://www.change.org/p/mandate-aged-care-staff-resident-ratios-stop-the-neglect

    Probably best to get an independent accounting firm to to the analysis.

    Who continues to runs a business that’s not making money?? How many are closing down? I haven’t seen any residents wondering the streets!

  3. Barry October 18, 2018 at 4:16 pm #

    Aged Care should not be run for profit.

    Governments always commence these programs by saying “Private Enterprise will bring efficiencies and reduce costs’, did this work with the privatisation of power, gas or water? No these prices have and continue to increase significantly above CPI. So why will the Aged Care Sector be any different, the operators will increase prices, reduce services and staffing level and like all private businesses strive to increase profits.

    All Aged Care facilities should be run on a not for profit basis and all funds provided should be spent on providing care to the elderly residents not lining some investors pockets. Our elderly citizens should not be used to generate profits for private companies. I have spent many years work in and visiting people in Aged Care Facilities and once the focus became money and maximising funding the level of care began to fall.

  4. Austin Gibbs October 18, 2018 at 9:46 pm #

    The profit figure for some of the big players in the industry might look like a big number, but when you consider those listed companies have close to $5 billion in assets, that is a return on those assets of less than 0.5% (and falling).
    For smaller players, particularly those in regional areas, it is a bleaker picture. There are quite a few regions in Australia where house prices are actually falling, so providers have a resident leave and pay out their RAD of (say) $400,000, and then a new resident comes in with a RAD of only $300,000. That’s tough on cashflow!
    Places aren’t closing down (yet), but many are looking to be bought out or merge. It is also notable that many insurance companies and banks are also requesting new and updated valuations on their aged care clients, and in many cases revising down their facilities

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