Profits down for all aged care providers

The former government’s decision to freeze ACFI rates has hit all Australian aged care providers including those in the top 25 per cent, new figures show.

Aged care providers across the board have taken a hit to their balance sheets this last financial year indicating the top performers and average operators alike have been affected by the 2012 freeze of the care subsidy rate.

Accountancy firm Stewart Brown’s 2013 Aged Care Financial Performance Survey, which involved 710 residential aged care facilities, found facilities on average turned a profit of $5.29 per bed per day for the 2013 financial year, down from $8.24 for the same period the previous year.

The average EBITDA (earnings before interest, taxes, depreciation, and amortization) declined to $6,573 per bed per annum from $7,621 in 2012, while the overall EBITDA, including investment, fundraising and other income averaged $6,884 per bed per annum compared to $7,994 for the 2012 financial year.

The report also shows that resident daily fees and government care subsidies rose by substantially less (3.5 per cent) in 2013 than in the previous five years as a result of the freezing of the ACFI subsidy rates at the 2012 level.

stewart brown report

Stewart Brown director David Sinclair said the results show it has been been a tough year for all Australian residential aged care providers.

“The government’s decision to freeze the subsidy rates, the ACFI rates, has certainly hit everybody in the industry. All providers, whether they are in the top 25 per cent or an average operator from a performance perspective, have been affected,” Mr Sinclair said.

While the past couple of years’ surveys show the gap between the benchmark groups and the average has been widening, indicating the benchmark groups just continue to do better, this year their results have also declined, he said.

He continued:

“No matter how good they managed the place, the results in most cases were worse off than in the previous financial year.”

Another concerning result was less facilities made a profit at all this year, Mr Sinclair said.

“There was a greater proportion of providers that had a negative EBIDTA than the previous couple of years and the return on income is still not really sustainable for a large number of facilities,” he said.

The survey results show facility income averaged $201.48 per bed day compared to $196.65 in June 2012, with a return on income of 2.6 per cent in 2013, down from 4.25 per cent June 2012.

Tipping point

The survey also indicates the number of hours work per resident per day has on average increased this year whereas it had been declining in the previous couple of years, Mr Sinclair said.

This is the other reason for the facility result declining and indicates expected productivity gains could be reaching a tipping point, Mr Sinclair said.

The government indexes its subsidies by COPO (Commonwealth Own Purpose Outlays), rather than by the CPI [consumer price index] because it expects some sort of productivity saving, he said.

“The subsidy is expecting productivity savings but if you are adding hours to your roster then you are going to add to cost and that is not going to be met by the increased level of subsidy.

“There has to be a tipping point where you have got to provide certain levels of care to meet certain standards and maybe that tipping point has been reached,” he said.

Looking ahead

Mr Sinclair said facility result would probably improve in the current year as the subsidy rates went up again with benchmark groups more likely than the others to bounce back because they were well-managed.

“It will just be interesting to see whether those tipping points have been reached. In other words, whether there is still the ability to make significant productivity savings that the government seeks every year through its indexation methods.”

However, Mr Sinclair said some facilities were battling.

“There is probably going to be more mergers and so forth because it is going to be harder for the smaller providers to meet their compliance obligations,” he said.

Compliance and administration in residential facilities is a huge cost now, Mr Sinclair said.

The report shows that the average amount spent on administration and other support services in 2013 was $28 a day compared to $24 a day on feeding the residents, he said.

Stewart Brown will be holding briefings in capital cities in the coming weeks. People interested in attending can register via the news and events section of Stewart Brown’s website.

Read more about the survey’s results: StewartBrown’s June 2013 Financial Performance Survey Results


Tags: acfi, administration, copo, costs, david sinclair, finance, residential-aged-care, stewart-brown,

1 thought on “Profits down for all aged care providers

  1. The Stewart Brown survey overall result is is adversely affected by the dismal financial performance of a large church based provider in Queensland. Further, the survey is largely constituted by not for profit providers and does not reflect the excellent financial performance of 30%+ of the sector constituted by the for-profits which in the course of five to ten years with deregulation of places may be expected to comprise 90%+ of beds.

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