The residential sector has likely reached “the fiscal cliff” with almost two-thirds of homes operating at a loss, the latest financial report from industry benchmarking organisation StewartBrown says.

The home aged care sector is also experiencing “significant operating issues” with staffing remaining the crucial concern for the whole sector, according to the StewartBrown March 2022 Aged Care Financial Performance Survey of 1,282 aged care facilities, 58,314 home care packages and 285 organisations.

Like last quarter’s report, the results continue to highlight the declining financial sustainability of the sector and StewartBrown is calling for emergency funding to avoid home closures, and for structural funding reform.

The survey for the nine-month period ending March 2022 shows the residential aged care sector is at “a critical financial sustainability position” with 64 per cent of homes operating at a loss and an average operating loss of $12.85 per resident per day across all homes. That’s despite the daily fee supplement of $10 per bed day.

“After five years of significant aggregate operating losses in the residential aged care sector, structural funding reforms including care recipient co-contribution are essential.”

StewartBrown is predicting that losses will continue to grow in the last three months of this financial year to reach $15.59 per resident per day by the end of June 2022. “It seems a very reasonable proposition that residential aged care has now reached the fiscal cliff,” the report’s authors said.

Residential operating result including end of financial year forecast Source: StewartBrown

Occupancy, which fell to 91.4 per cent in March 2022, remains a major concern and the combination of negative factors has eroded essential investment from new and existing providers, the report found.

“Aged care workers need a significant pay rise but without additional support, aged care providers will be unable to attract more workers.”

It also shows that key financial indicators have deteriorated further including the indexation increase of 1.1 per cent, which is offset against the Superannuation Guarantee Scheme increase of 0.5 per cent, workforce award increases from 1.75 per cent to 3.5 per cent, and rising inflation.

“It is the opinion of StewartBrown that after five years of significant aggregate operating losses in the residential aged care sector, that structural funding reforms including care recipient co-contribution are essential. However, to avoid closure of homes and reduced service delivery, especially in regional locations, an emergency funding package needs to be delivered in the short term to ensure current viability and allow for the necessary funding reforms to be properly implemented,” the author’s said.

In home care, staffing issues coupled with a complicated regulatory environment have seen providers’ financial performance stagnate, the survey found.

The operating result has fallen to a surplus of $4.29 per client per day, down from $5.67 a year before. Revenue utilisation has declined to 85.5 per cent of available package funding while unspent funds have risen to an average $10,690 for every care recipient, according to the report.

Residential aged care March 2022 results snapshot. Source: StewartBrown

Providers call for indexation rise

Peak body Aged & Community Care Providers Association said the results confirmed the feedback from providers about increasing financial pressure.

Paul Sadler

Many providers could be forced to leave aged care unless there is additional funding to allow them to meet the increasing costs of providing quality care and support, said ACCPA interim chief executive officer Paul Sadler.

“It is clear that aged care workers need a significant pay rise but without additional support, aged care providers will be unable to attract more workers and to realise improvements in the quality of care,” Mr Sadler said in a statement.

An indexation adjustment to increase subsidies and legislation to introduce an independent pricing authority as recommended by the aged care royal commission are two solutions to the immediate problem ACCPA has raised with the Albanese Government, he said.

The royal commission found the Australian Government’s approach to indexation inadequate as it failed to keep up with real cost increases over many years. The former government rejected the royal commission recommendation to raise subsidy indexation levels, which has further widened the gap between income and expenses.

“We are expecting an even bigger gap this year between the increase in wage costs and indexation unless the government adopts the royal commission recommendations 110 and 111 to increase indexation,” Mr Sadler said.

Call to tweak funding reforms

Across the whole aged care sector, StewartBrown is calling for the funding reform agenda to clearly articulate each specific area to be addressed. It recommends the strong consideration of the following additional financial reforms:

  • funding to increase staff remuneration and benefits
  • subsidy funding to directly correlate to direct costs of care, particularly staff
  • regulated consumer contribution for home care and CHSP based on ability to pay
  • deregulation of residential Basic Daily Fee
  • structural enhancement of residential accommodation pricing model
  • increased capital grants for rebuilding and refurbishment
  • alternate home care funding model.

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