Additional $320m not enough to improve sector’s bottom line

The financial performance of residential aged care facilities has declined further despite this year’s one-off funding boost, a new industry report shows. 

Data released by accounting and benchmarking firm StewartBrown shows the average net profit in 2018-19 was $2.11 per bed per day, or $728 per bed per year, down from $2.37 in 2017-2018 even after the federal government’s 9.5 per cent or $320 million funding boost.

Without the subsidy, and in real terms, the average result per bed per day is a loss of $2.62, according to the 2019 Aged Care Financial Performance Survey of 1,012 residential aged care facilities.

StewartBrown senior partner Grant Corderoy said even though the one-off subsidy boost helped, the sector still performed worse than the previous year.

“The fact that we haven’t been able to achieve the same results as 2018 with this one-off grant indicates that the residential sector in particular is moving into a dangerous area from the point of view of its viability,” Mr Corderoy told Australian Ageing Agenda.

The sector’s poor performance is mainly due to costs increasing faster than income. For example, revenue from the Aged Care Funding Instrument is increasing by 2.9 per cent but ACFI services costs are going up 6.2 per cent, the report said.

While all geographic areas are experiencing a decline in financial performance, rural and remote locations are particularly under pressure, with almost three quarters operating at a loss (74 per cent).

Without additional funding or a change to the funding model, the sector will experience a further significant decline, Mr Corderoy said.

“If we continued on where we were now, we’re going to see a fairly alarming deterioration in the results, and we think that it will cause quite considerable distress in the sector.

“We project that if we continued like we did now with no funding increase and we keep the funding at exactly the same levels, in 2021, 60 per cent of all aged care homes will be running at a deficit,” Mr Corderoy said.

More than just another one-off subsidy boost is needed to improve the sector’s financial performance, he said.

There needs to be funding solution that ensures and improves care quality, which has a lot to do with direct care staffing, and allows providers to become more financially secure, Mr Corderoy said.

“We need a new funding model, and I always point out, it’s not just government funding. Consumers need to increase… their contributions and co-contributions to aged care as well.”

Stakeholders call on government to act now

Leading Age Services Australia CEO Sean Rooney said the report confirmed what the sector has been saying. He called for government to act urgently.

“Our members have been warning of potential withdrawal of services, staff cuts and reduced services to residents and care recipients unless something changes,” Mr Rooney said.

“Meeting the needs of older Australians is an issue of national importance. Ongoing financial pressure undermines the sector’s ability to provide the services that older Australians need and deserve,” he said.

Aged and Community Services Australia CEO Patricia Sparrow said the report highlighted the particularly dire situation of rural and remote providers.

“We’re calling for more than bandaid grants and one-off funding injections with a permanent $10 increase in the rural and remote supplement. We don’t need a royal commission to tell us the situation for aged care is ‘not okay’ in the regions and requires urgent action,” Ms Sparrow said.

“What’s more is that if things continue as they are, we run the risk of seeing a similar situation in metropolitan [homes] and home care also.”

Aged Care Workforce Remote Accord chair Chris Hall said the results indicated the urgent need for support to relieve financially stressed remote service providers.

“This data confirms what we see every day. A worsening situation in remote areas, where the viability of service provision is seriously at risk,” said Mr Hall, CEO of Juniper Aged Care.

“The risk to viability is such that the survey also finds substantial and appropriate funding initiatives need to progress during the royal commission period, rather than delaying until their findings and recommendations are tabled,” Mr Hall said.

Other key residential care findings

• 44 per cent – proportion of facilities that reported an operating loss, compared to 54 per cent without the subsidy boost, and 45 per cent in 2018
• 20 per cent – proportion of facilities that reported a cash loss, compared to 24 per cent without the subsidy boost, and 21 per cent in 2018
• $30.69 – average per bed per day profit for top quartile facilities, compared to $25.72 without the subsidy boost, and $30.26 in 2018
• $7,164 – cash profit per bed per year for survey average, compared to $5,531 without the subsidy boost, and $6,760 in 2018
• “A return of $5,531 per bed per annum is unlikely to be sufficient to refurbish or replace infrastructure when the time comes, nor to attract the necessary capital to grow the sector,” the report said.
• $17,020 – cash profit per bed per year for top quartile facilities, compared to $15,269 without subsidy boost, and $16,570 in 2018.

Comment below to have your say on this story

Subscribe to Australian Ageing Agenda magazine and sign up to the AAA newsletter