Sector sustains significant operating losses

Two-thirds of facilities surveyed report a financial shortfall, according to StewartBrown’s latest report.

Having surveyed 1,300 aged care homes, StewartBrown analysis has found the residential aged care sector to be in a critical position with two-thirds of facilities operating at a loss during the last financial year.

Representing almost half (49 per cent) of the country’s aged care homes, the 1,313 sites surveyed averaged a daily, per-bed shortfall of $14.67. That is worse than the average loss of $8.43 per bed day in 2020-21, when 58 per cent of homes made an operating loss.

Mark Butler

Responding to StewartBrown’s findings on ABC radio Tuesday, Minister for Health and Aged Care Mark Butler said: “The headline conclusions from this report are no surprise to a party that’s been saying this for two or three years: that the aged care sector was pushed into crisis by the former government.”

However, Mr Butler added that – while StewartBrown’s reports were a “really important part of the jigsaw puzzle” when it came to scrutinising the financial performance of Australia’s aged care sector – “listeners would expect me to make an independent assessment of this rather than just rely upon a report commissioned on behalf of aged care providers.”

Referring to the Australian National Aged Care Classification – the new sector funding model which came into effect on 1 October – Mr Butler said: “We’re confident [AN-ACC] will lift the level of funding per resident by about 10 per cent.”

Source: StewartBrown

The latest Aged Care Financial Performance Survey provides an overview of the financial performance of the aged care sector for the 12 months ended 30 June 2022.

“The survey continues to highlight the declining financial sustainability of the sector,” reads the report, “with residential aged care now remaining at a critical financial sustainability position for many providers.”

Analysing data supplied from 291 providers, the report finds the residential aged care sector has “sustained significant aggregate operating losses” for the last five years totalling an estimated $3.787 billion, with a deficit of $1.443 billion forecast for the 2022 financial year.

This, say the report’s authors, is due in large part to increased costs of providing direct care, declining occupancy levels, severe bushfires followed by flooding, and the Covid pandemic. “These losses have eroded equity and capital growth which has caused a considerable decline in investment into the sector.”

Source: StewartBrown

Findings at the organisational level include:

  • an average net before tax result of a $2.2 million loss per provider – a significant deterioration on the previous year, which recorded a surplus of $936,000
  • the average financial performance remains at “unsustainable levels” for many providers – FY22 results show that the operating result per provider was a loss of $3.1 million compared to a $1.8 million deficit for the previous financial year
  • the average cash profit (EBITDAR) was a small surplus of $607,000 – an insufficient amount for providers to maintain a standard of accommodation and care delivery, according to the report.

As the authors note, the figures exclude government-owned aged care facilities “which have a considerably worse financial result, lower occupancy and often a lower standard of accommodation.”

Workforce challenges

Meanwhile, across the residential aged care sector, “Staffing is at a severe shortage which impacts care service delivery.” The authors cite staffing as the “biggest challenge” facing the industry with considerable shortages being felt in all regions of Australia. “The ability to attract and retain staff has reached a critical stage,” say the authors.

Pointing to the recent Fair Work Commission wage increase of 5.2 per cent and the current work value case before the FWC, the authors say: “Whether these increases are sufficient on their own to attract additional staff is questionable, and other incentives and benefits may be required.”

Home care snapshot

Source: StewartBrown

Home care also faces “significant operating issues”. As with residential aged care, a workforce shortfall remains “the most crucial concern”.

This – coupled with a “complicated regulatory environment” – has seen the home care sector’s financial performance decline. Crunching data from 75,783 home-care packages, the year to June 2022 report recorded a surplus for providers of $3.98 per client a day, compared to $6.05 the previous year.

Emergency funding could bridge gaps

“Pressure point is likely to occur.”

A major issue for the sector as a whole, say the report’s authors, is that while major reforms are being implemented there will be a “lag period of some years” before financial performance improves. “This is where the pressure point is likely to occur, and short-term remedial assistance may be required.”

To avoid aged care home closures and reduced care delivery – especially in regional locations – the report’s authors recommend an emergency funding package to “ensure current viability” and to bridge the gap between now and when the impacts of the reforms kick in.

While the new federal government “has been very active” in considering and implementing reform of the aged care sector, the authors say, “a lack of a consistent strategy and agreement from all sector stakeholders has inhibited some of the significant reform that is required.”

The industry, conclude the authors, “needs to embrace reform and provide solutions and not just focus on funding issues.”

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Tags: Aged Care Financial Performance Survey, featured, mark butler, stewartbrown,

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