Nursing homes unsustainable

Above: Cam Ansell, head of aged care services at accounting firm Grant Thornton.

By Stephen Easton

A new report confirms what many in the aged care sector have been saying for quite some time – building and running a new nursing home is not a viable proposition because current funding arrangements are out of date.

Accounting firm Grant Thornton analysed of the cost of building a new facility to modern standards – with single rooms and ensuite bathrooms – and found revenue available to for-profit operators fell short of that cost by about $62 per bed, per day.

Not-for-profit operators, who make up 67 per cent of the industry, were still around $46 short of their daily operating costs for each resident.

The figures are based on a facility that would stand for 25 years and a “very conservative” land value of $300 per square metre, according to the Grant Thorton’s head of aged care services, Cam Ansell.

Actual land values in metropolitan areas are about $100 per square metre higher, according to data from the Urban Development Institute, although Mr Ansell stressed that the report’s findings did not mean all nursing homes were losing money.

“This [data] does not apply across the whole sector,” Mr Ansell said. “Older facilities built prior to 2000, many of which have shared rooms, are smaller than the ones in this survey.

“It’s not saying that the entire sector is not profitable; it’s just about the ones built in the last ten years to the modern standard, … which are obviously more expensive to build than the facilities we built 10 to 20 years ago.

“… They’re the standard form of residential aged care facilities and it’s not viable to build them.”

According to Mr Ansell, the report backed the Productivity Commission’s recommendations to deregulate aged care pricing and remove restrictions on the supply of bed licenses, which is currently managed through the yearly Aged Care Approvals Round (ACAR).

In the most recent ACAR, residential aged care operators did not apply for all of the bed licenses on offer – a situation described as “on-the-ground evidence of what’s happening in the sector” by the CEO of industry peak body Aged Care Association of Australia (ACAA), Rod Young.

The ACAR result also demonstrated the effects of the funding shortfall found in the new report, Mr Young said, and affirmed the urgent need for reform to remove the “out-of-date regulation which inhibits the provision of new services designed to meet client need”.

The new report was commissioned by a consortium of aged are providers and state and federal industry peak bodies that represent a huge proportion of the industry between them.

Members included ACAA along with their larger counterpart, Aged and Community Services Australia (ACSA), as well as ACAA South Australia, ACAA NSW, Aged & Community Care Victoria, Catholic Health Australia (CHA) and Australian Unity.

“The study’s purpose was to present independent evidence on the funds needed to deliver quality services by modern aged care homes that provide predominantly single-room accommodation with ensuite bathrooms,” a joint statement from the group said.

“Despite overwhelming demand for this form of service, investment in modern services has slowed dramatically because of the considerable costs of building and operating them.”

CHA chief Martin Laverty pointed out that current regulations limit accommodation payments for high care facilities to $32 per day. 

“The study finds the actual cost of accommodation is more than double that amount,” Mr Laverty said. “This funding shortfall is not sustainable.” 

ACSA’s acting CEO, Rob Hankins, repeated a the industry’s near unanimous demand that the government include a commitment in the 2012 Budget to begin implementing the Productivity Commission’s reform directions.

Last weekend, aged care industry leaders launched the Australians Deserve to Age Well campaign, which brings together almost 30 peak consumer groups, providers, unions and health professionals to get behind the push for aged care reform.