Scaling up to survive: aged care NFPs seek mergers

A whopping 40 per cent of boards of not-for-profit aged care organisations have discussed a merger with another organisation in the past 12 months, and half of them believe it will happen, a new survey of company directors has found.

The primary reasons for merging are to ensure their organisation’s financial sustainability (52 per cent of cases) or because they have been approached by smaller aged care providers, according to the report by the Australian Institute of Company Directors (AICD).

The 2014 NFP Governance and Performance Study, launched on Thursday, is described by the AICD as the most comprehensive source of information on the governance of NFP organisations in Australia. For the first time, this year’s report has included an analysis of the issues faced by boards in the aged care sector.

The aged care specific findings are based on two focus groups and a survey of 135 non-executive directors and nine executives. Nearly a quarter of the directors worked with aged care organisations with income of $10 to $50 million while a third served organisations with income over $50 million.

Phil Butler, NFP manager for the AICD, said that while there were “murmurings” in previous surveys there was now “much louder noise” around mergers and collaborations.

Talk of mergers was markedly higher among aged care board directors; in the broader NFP sector 30 per cent had discussed mergers and 25 per cent of those expected it to happen, compared to 40 per cent and 50 per cent respectively in aged care.

Financial imperatives and the complex compliance requirements in the aged care sector were factors contributing to the push towards mergers and creating larger organisations which would be better able to cope, Mr Butler told Australian Ageing Agenda.

Faced with increasing expectations of boards, merged organisations could draw together a group of directors that would more fully understand the commercial realities of operating in the aged care sector, he added.

Call for clearer policy, simplified compliance

Aged care directors also spoke of their desire for the Federal Government to change its attitude to the sector and “to stop treating it as a problem that needs to be solved.”

They wanted recognition that, for the most part, Australia had world-class aged care services, most of which were provided by NFPs with significant experience and the capacity to offer more with the right support, the report said.

Directors in aged care commented most about the complexity of the system for all stakeholders. CDC was seen as a positive policy direction but there were concerns about how it would impact providers’ capacity to “bend service allocation at the front line to serve those most in need or deal with emergencies.”

This was a particular challenge for NFPs whose missions were values based, the report noted.

The aged care directors believed the future of services would  be driven by the effectiveness of government policy in regard to “setting more realistic expectations about entitlements, superannuation policies that result in a higher proportion of people having sufficient resources from retirement to death, and investment in an ‘ageing well’ program and preventative health.”

Aged care directors wanted the government to create stability in the policy and funding environment to enable providers to catch-up with current change and allow them to develop strategies, the report said.

They sought simplified policy, a reduction in reporting burden and streamlined accreditation standards. “In particular, they want standards that reflect the quality of life of aged people, not ‘44 measures that don’t mean anything at all.’

“They also believe that the government should be supporting the provision of low-cost finance to enable further investment in infrastructure to meet growing demand.”

One of the major cost drivers for those providing residential aged care was the cost of building or refurbishing existing facilities to meet expectations, the report noted. Despite this, many providers were in the process of finalising planning for or building of new aged care facilities.

Measuring effectiveness

Interestingly, the report noted that NFPs were grappling with the challenge of measuring how well they achieved their purpose, with only 50 per cent of directors reporting their organisation measured this effectively.

The report noted this was a greater challenge for certain sectors; while NFPs in education could measure student achievement and sporting bodies could measure participation, aged care and health organisations faced the challenge of measuring quality of life or wellbeing.

“I think what’s really important is that boards are having those conversations, around what particular measures work best,” Mr Butler said.  “I’m sure this will continue to evolve as the sector evolves.”