In order to compete in the new paradigm, aged care providers need to redesign their business to ensure the flexibility to rapidly adapt and meet consumer needs, writes Louise Greene.
The transition to a consumer empowered environment, where expenditure is allocated at the individual client level, will pose a significant challenge for a number of home care providers. Whilst an organisation may have operated a financially viable home care program the transition from a traditional welfare model to a consumer-based model will challenge this.
Package viability at the client level
To date, the focus of organisations and of program evaluation has been on the financial viability at the program level rather than at the individual package level.
As an example the Stewart Brown Aged Care Financial Performance Survey June 2013 shows significant returns are made in home care packages. At the program level the average return on CACPs packages was 5.1 per cent with the top quartile achieving 18.4 per cent.
For higher levels of care the average return on an EACH program was 14.6 per cent with those in the top quartile achieving 31.0 per cent; and the average return on an EACH D was 18.3 per cent with those in the top quartile achieving 34.3 per cent.
Impact of individual consumer budgets
In order to further investigate the impacts, in February 2014 The Ideal Consultancy undertook an in-depth review of the expenditure in 47 home care programs (representing over 2,100 individual packages). The programs were in both metropolitan and rural areas and included CACPS, EACH and EACH D packages. Daily expenditure at a client level was reviewed for a three-month period.
Nominally, the organisations in the sample targeted expenditure on direct care and services at 50 per cent of package value; most had the opportunity to increase expenditure within their organisation’s service purchasing policy. The analysis showed that many clients had expenditure well below the 50 per cent target enabling cross subsidisation.
Of greatest concern was the discovery that almost one third (32 per cent) of CACP clients exceeded the target expenditure level with 11 per cent of clients having expenditure above the value of the total package.
Similarly for high care clients, 42 per cent exceeded the target expenditure level, and 9 per cent exceeded the total package value. For EACH D clients, 55 per cent had expenditure above the target level, and 3 per cent exceeded the package value.
High expenditure was seen in both the metropolitan and rural areas and was the result of regular scheduled services rather than peaks in need.
Managing escalating care needs
Under a CDC model the funding available to an individual will be ‘capped’ within their Home Care budget; therefore the flexibility to increase services from the Home Care packages is lost. Where care needs exceed the available budget the consumer will need to access other funding (where available), consider self-purchasing of services, move to a higher level of care (if available) or move to residential care if their care needs can no longer be met in the home-based environment. Thus the length of stay on a care package may change.
Product differentiation and consumer choice
Placing control of available funds in the hands of consumers will significantly change spending patterns as people will seek the ‘best value’ options to meet their perceived needs. In the consumer empowered environment organisations will need to differentiate their products; some are strategically creating niche markets such as implementing unique service offerings and maximising use of technology.
This will be further driven by the requirement for consumers, where assessed as able, to contribute to the cost of their care. There is an emerging array of services targeted to older people requiring support and these may be considered more cost effective and be preferred by consumers. The challenge to providers will be to differentiate through value for money, expertise, empathy, technology, responsiveness, service quality and range of other factors.
The consumer directed environment brings transparency to costs with service charges and fee breakdowns provided as part of the monthly statement. This requires providers to rethink the way they deliver services and to reduce administrative costs.
The emergence of peer site reviews will enable consumers to benchmark operational efficiency.
Both the Stewart Brown and the Bentleys benchmarking studies highlight the need for efficiency and demonstrate that top quartile performers achieve efficiency in administration. The drive for efficiency will require investment in technology, improvements in workforce productivity, reduction of duplication and remote access to specialist services. The challenge will be to balance expense line reductions whilst simultaneously improving customer service and care.
Whilst consumers may accept that a provider is entitled to make a profit on their care package ultimately they will consider that this profit is derived from funds that would otherwise be directed to their care. For a consumer and their family ‘struggling’ to manage at home on a care package a profit margin above market interest rates will be unpalatable.
Diversification of home care providers
Home care has traditionally been the domain of the not-for-profit and government sectors. At 30 June 2013, 6.8 per cent of home care packages were operated by the private sector. The ageing population and the increased provision of home care packages make this attractive to home care providers. In the 2012 Aged Care Approvals Round, 27 per cent of packages were allocated to private providers. This diversification of providers will further drive innovation and change the competitive landscape.
Surviving and thriving
To meet the challenge of moving to a consumer focused environment providers need to redesign their business ensuring the flexibility to rapidly adapt and compete in the new paradigm whilst ensuring productivity is enhanced, consumer needs met and business viability assured.
The growth in organisations that manage this transition period will be positioned to thrive. Are you ready to seize the day?
Louise Greene is director of business improvement with The Ideal Consultancy.