Nick Hopkin, now an independent financial consultant to the aged care sector, was CFO of WA-based St Ives Group for seven years, where he took revenue from $20 million to $73 million and the number of home care packages from just under 500 to 1,579.
He told the ACSA summit in Melbourne this week that the main impact of the home care pricing reforms that came into force this year will be felt from next July, and providers need to be ready to innovate if they want to weather the impact of the changes.
Under the changes, administrative costs have been removed as a separate item, business costs have to be factored into the cost of care and services, package management has been introduced as a stand-alone item and providers must not charge more than a “reasonable amount” for package management, business or subcontracting costs.
Providers are also required to publish pricing information on the My Aged Care portal.
Community Care Review spoke to Mr Hopkin on the sidelines of the conference about how providers can meet the upcoming challenges.
CCR: Why is financial innovation important for home care providers right now?
NH: With pressure on margins and changes to home care pricing, it’s going to put more pressure on providers, as well as the need to truly understand what’s happening with the financials.
You can see a lot of providers are struggling. They haven’t got the right tools and they’re running a bit blind. The problem with budgets is once you do them, the assumptions are out the window, so you’ve got to really be testing the assumptions monthly, you can’t wait for the quarterly cycle. You’ve got to be agile.
What impact will the new transparency and comparison requirements have on providers?
NH: It’s going to drop your margin because they’re removing admin fees, which for some providers is really a great profit centre and I know it was used to recover business costs. The new rules say that you’ve got to recover that into your direct care rate, but those costs have got to be reasonable.
So what’s going to be happening is you’re going to be losing margins. You’re going to have to be pushing more direct care hours through your business, you’re going to have to be innovative in your approach for the client to actually purchase more direct care hours.
What can providers do in practical terms to address some of the challenges?
NH: What businesses needs is a new measure, because if you can measure it you can manage it. Traditional methods of accounting just don’t work. The definition of insanity is doing the same thing and expecting different results. If you think your budget assumptions are still holding true and they’re not, you’re not going to hit your budget numbers by doing what you’re doing.
What’s the scenario if providers fail to innovate?
NH: There’s only so much they can sustain. A lot of it is about your reputation and getting packages. Finance is only part of it, you obviously need a great reputation and quality alongside it, it’s not just all about the numbers. But certainly you need to be sustainable and really get to the root cause and say ‘hang on, if I keep doing what I’m doing I’m not going to generate enough profit’. You can actually make a decision early about whether you’re going to stay in the market. Doing nothing isn’t an option.
What have we learned about financial innovation from the introduction of consumer directed care in 2015?
NH: What I’ve learnt is that you can’t rely on anything, you’ve got to question assumptions. With hindsight I thought we could predict some of the behaviours but I got it wrong. I don’t have a crystal ball, but I can say that from 1 July 2020, challenges are coming your way. So you’ve got to start thinking about it before it’s too late.