How to make a buck from aged care
Yesterday at Retirement World, a panel discussed something retirement village operators want to know: how do you make money from aged care?
By Stephen Easton
Leaders from three major aged care providers explained to retirement living operators how they keep their residential facilities in the black: strong leadership, financial oversight and building expertise in core areas.
The panel was part of yesterday’s ‘aged care day’ at Retirement Communities World Australasia, a three-day conference and trade show held in Sydney.
Cynthia Payne, CEO of private sector provider SummitCare, told the audience there were no easy answers; organisations needed strong, effective leadership and to focus on “a comprehensive strategy with multiple sub-strategies”.
Ms Payne said each facility’s financial performance must be carefully scrutinised against a range of key performance indicators like EBITDA (earnings before interest, tax, depreciation and amortisation), per resident, per day.
Looking at EBITDA is a popular way of measuring profitability rather than cash flow, particularly for businesses with large, expensive assets like aged care providers.
“The second thing I look at is salaries and wages, with on-costs including contracted labour,” she said. “The big one is wages as a percentage of operational costs.”
CEO of non-profit organisation Warrigal Care, Mark Sewell, agreed it was necessary to keep a watchful eye on each location’s bottom line result, and added that care managers at Warrigal were kept in the loop about how their facility is performing, “and adjust their rosters accordingly”.
Mr Sewell had bought designs for modern, adaptable accommodation from a Western Australian non-profit provider, after being tasked with reinventing the whole organisation, and said the recently built facilities were around the break-even mark at the moment and on the way to profitability.
“We paid a lot but got enormous value,” he said. “We built what was touted by the minister at the time as the most profitable aged care facility to build – working from previous ideas is critical.”
Mr Sewell said that in his organisation, the oldest facilities performed the best but warned that “the heyday of residential care is gone,” with older Australians demanding higher quality, consumer-directed care.
Agreeing with an earlier comment from Cynthia Payne, he also highlighted the need to identify core areas of business and outsource others.
“Gardening is our core business. Residents want to know they can talk to the gardeners about what they’re doing…but lawn mowing is something anyone can do.
“We know what we should take control over and become experts in, and what we should outsource to people who can deliver that in a low unit-cost way.”
Wendy Starkey, general manager of people and culture at for-profit provider Blue Cross, said their facilities had “done very nicely” in terms of profits in recent years, and strongly agreed with Ms Payne that good leadership in core areas was the key.
“Employing people who know how to earn a dollar is very important, people who understand the basic principles of finance,” she said. “You also have to make the hard decisions, and invest in moving people on who are not on the same path as you’re on.”
In terms of core business areas, Ms Starkey emphasised the importance of building expertise and leadership in occupational health and safety, with a view to reducing incidents, dealing with those that do occur quickly and effectively, and getting employees back to work as soon as possible.
