Providers could be charged new fee, as government liable for rising bonds

Aged care providers look increasingly likely to face a new charge to reflect the government guarantee on the mounting bond pool in aged care, with the reform roadmap calling for a review of current arrangements while a new analysis has highlighted the issue as a risk for providers.

Aged care providers look increasingly likely to face a new charge to reflect the government guarantee on the mounting bond pool in aged care, with the reform roadmap calling for a review of current arrangements while a new analysis has highlighted the issue as a risk for providers.

The value of bonds has risen 20 per cent – from $16.7 billion to more than $20 billion – since new rules governing how consumer pay for their accommodation in aged care were introduced on 1 July last year.

The head of the Aged Care Financing Authority (ACFA) Lynda O’Grady has already warned providers that they can expect greater scrutiny of their prudential arrangements.

While providers are the custodians of the $20 billion bond pool, the Federal Government ultimately bears financial responsibility, under the bond guarantee scheme.

In a new analysis of the sector’s sustainability, RSM has predicted the bond pool will further increase to $36 billion by 2025.

Given more than 20 per cent of providers were not generating a positive EBITDA (earnings before interest, taxes, depreciation and amortization) the risk of providers failing, and government subsequently having to pay out increased, the analysis concluded.

The Productivity Commission previously recommended the government charge providers a fee to reflect the costs of providing the guarantee on bonds, as did the Commission of Audit in 2014.

Coincidentally, the Aged Care Sector Committee’s roadmap for reform, also released yesterday, has called for the bond guarantee scheme to be reformed or replaced, based on the findings of the forthcoming review of the Living Longer Living Better reforms.

Bruce Bailey, partner with RSM, said that with the move towards deregulation of aged care it was counter-intuitive that government would continue to provide free security for providers when it had less control over how they operated.

“I think there’s been enough conversation around it that the expectation is there will be some change, and that change will mean shifting obligation from government back to the industry,” Mr Bailey told Australian Ageing Agenda yesterday.

Elsewhere, the RSM analysis also flagged possible changes to the higher accommodation supplement as another risk to the residential aged care sector.

“Given a significant portion of the sector has questionable long-term viability the government might move to shut off access” to the supplement, said the consultancy firm.

Previously there has been speculation about the long-term future of the higher accommodation supplement, following blow-outs in the dementia supplement. Both supplements were introduced under the Living Longer Living Better reforms.

Industry profitability in decline

Overall, the analysis concluded that despite improvement in operating performance in 2014, the industry was no more profitable now than it was in 2012.

“The profitability of the industry is declining,” it found, while the return on assets and equity also continued to decline.

The top performing quartile of providers had increased average EBITDA by only 3.8 per cent from 2012 to 2014, while all other quartiles had experienced declines. Significantly, providers in the bottom quartile had seen their performance decline by a staggering 143 per cent.

The analysis found that:

“In 2014 the bottom quartile of providers represented a drain of over $400 million or 31 per cent of industry EBITDA.”

In a discussion of demand and supply of aged care places, the analysis concluded that if current bed utilisation rates were maintained the rate of demand would be around 35,000 places above the government estimate.

“Based on currently available data we do not see a situation where supply will exceed demand in the near term. This is positive news at the investment level.”

While there had been increased interest in applying for new places, as witnessed in recent Aged Care Approval Rounds, this was yet to translate into more operational places, it noted. The operational percentage between allocated places and operational places fell from 90 per cent in 2011 to 85 per cent in 2015.

Read the RSM Aged Care Sustainability Review 2016 

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Tags: acfa, aged care bonds, aged-care-financing-authority, finance, lynda-ogrady, RSM Bird Cameron,

2 thoughts on “Providers could be charged new fee, as government liable for rising bonds

  1. If I apply for new Aged Care places in the next ACAR ,how long do I have to translate those places into operational places ?

  2. How can anyone make any sense of what is happening? We have the booming success of the big aged care chains on the share market and then the expensive leaked Bentley report which reveals that profits have risen by 40% and payment for staff fallen by 10%. Now we have this publicly released report claiming that the providers are in decline because they can’t make a profit…

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