Sector finances at ‘lowest point’, says report

A government report shows the aged care sector’s profits were in the doldrums during 2021-22.   

Released this week by the Department of Health and Aged Care, the latest Financial Report on the Australian Aged Care Sector – FRAACS – shows residential aged care operated at a loss of $2.264 billion – or $32.97 per resident per day.

“The financial performance of the residential aged care sector has been declining since 2016-17 and has likely reached its lowest point in the 2021-22 financial year,” say the report’s authors.

Only 31 per cent of residential aged care providers proved profitable in 2021-22 – down 15 per cent on the previous year.

The poor result was attributed to a loss of $14.86 per resident per day for the accommodation funding stream – which included a loss of $813 million in bed license amortisation – and a loss of $6.37 for Covid-related expenses.

As the authors note: “The $813 million bed license amortisation loss is a result of the removal of the Aged Care Approvals Round and the need for providers to readjust the treatment of bed licences as intangible assets. The impact of bed license amortisation will not be ongoing post 1 July 2024, when residential aged care places will be allocated directly to older people, rather than providers.”

For residential aged care providers, profitability pressures were demonstrated by negative average earnings – before interest, tax, depreciation and amortisation – of $46 per resident per year.

“While this decrease followed a trend in recent years, the decrease was greater in 2021-22 than all previous years,” say the report’s authors. “This decrease can be likely attributed to a large increase in Covid-19 expenses and increasing labour costs across all expense categories.”

Occupancy rates also had a significant impact on provider profitability. In 2021-22, FRAACS shows occupancy rates had fallen to an average of 86.2 per cent – a result also exacerbated by the pandemic.

“The occupancy rates across 2021-22 continued to be impacted by Covid-19 as preferences for older Australians entering residential aged care changed during this time,” say the authors.

Home care

While the home care sector remained profitable during the 2021-22 financial year, provider profitability decreased. In 2021-22, EBITDA per home care recipient per year was $1,232 – down from $1,792 in 2020-21. This equates to $2.78 per care recipient per day – down from $4.29.

“Over the last five years up until 2021-22, there has been an increase in the number of people accessing home care packages, and therefore Australian Government funding for home care has also increased,” say the report’s authors. “However, there has been an increase in the percentage of providers operating at a loss, and a reduction in earnings per recipient for all provider types, most significantly for regional providers.”

Meanwhile, the total amount of unspent funds – the sum of the Home Care Account Balance held by Services Australia on behalf of the recipient and the unspent funds held by providers – was, as of 30 June 2022, $2.3 billion, up on the 30 June 2021 amount of $1.7 billion.

“We expect to see improvements in sector financial performance.”

Despite yet another set of grim figures for the sector to digest, the report’s authors are optimistic that finances will improve over time.

“In future FRAACS reports, we expect to see improvements in sector financial performance as a result of key aged care reforms which have come into effect following the 2021-22 financial year.”

These include: 

• the implementation of the Australian National Aged Care Classification funding model, which commenced on 1 October 2022
• an additional 9,500 home care places in 2023-24
• the expanded role of the Independent Health and Aged Care Pricing Authority, which will ensure care funding moves in line with the costs of delivering care
• funding for higher wages for aged care workers
• additional investment into nursing and care.

“The residential aged care sector has already seen improvements since the commencement of the AN-ACC funding model on 1 October 2022 as shown through the second quarterly financial snapshot for 2022-23,” say the authors. “The department will continue to monitor the financial performance of the sector through the Quarterly Financial Report and publish this financial performance in the QFS.”

The report’s authors also point to the Aged Care Taskforce, which was established in June 2023 to provide funding advice to the government. “Improving the system to ensure long-term sustainability for the future of aged care remains a priority for the Australian Government,” they say.

It will need to be a priority. As the authors themselves acknowledge: “Within a decade, there will be more people aged over 65 years than under 18 living in Australia for the first time in history … Australia will need a fair and equitable aged care system to be sustainable for the long-term and meet the needs of an ageing population.”

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