Aged care organisations seek viability

Aged care organisations are considering all their options as they attempt to navigate the new operational landscape. For almost all this will mean huge structural and operational change. Here, two providers tell Natasha Egan about the different paths they took, and offer advice following their strategic decisions.

Going niche: ECH Group

“We are planning to get rid of it all, we are exiting residential care,” says Rob Hankins, chief executive officer of ECH, of the organisation’s shift to focus exclusively on community-based services.

The strategic move is based on the board’s decision to find its niche in the evolving aged care marketplace and where, as a charity, it can add the greatest benefit to older people, he says.

“The board said we can continue spending a lot of resources looking after 1,200 people and detract from the 6,000 plus that we support [in the community]. Or we can put the resources from residential care into community care and housing and possibly reach out to eight, 10 or 12,000 people.”

As announced in April, ECH sold its 10 residential aged care centres in South Australia to Allity, which commenced operations 30 May, and in August ECH said  Regis Aged Care would take over its Darwin care centre.

Strategic decision-making process

The board came to the decision following a series of discussions beginning in the first half of 2013 analysing each of their three service components – housing, community aged care and residential aged care – from the perspective of impact for older people, quality, financial sustainability, and difference in the marketplace.

Hankins says they were confident of service demand, quality and sustainability in all three areas but not their point of difference in each.

The board determined ECH’s retirement housing model of small clusters scattered throughout the community for the affordable end of the market and community programs for people with moderate to fairly high levels of memory loss living with a carer who want to remain living at home as their dementia increases, both offer a niche focus.

However, it found their residential offering similar to other quality providers in the same market.

“Having come to that conclusion, the board said okay if we are going to make the biggest difference we can to the greatest number of older people we should focus on housing and community because that is where we will touch the greatest number of people.”

Following the decision Hankins says the board sought organisations of a similar mind as ECH in terms of values and service philosophy. They engaged consultants to help them identify a handful of fitting providers, which were also capable of a 1,200-bed transaction.

Other criteria including assurance residents would be looked after throughout the process and guarantees of ongoing employment for staff, weighed equally in the assessment process as the price, Hankins says.

Allity fit that bill and two of their five values match two of ECH’s three values, says Hankins adding they consider them a good partner to continue working with for their community clients who at some point may need residential care.

Impact on viability

Selling the residential business allows ECH to invest the money into research and development, which in the short term means a capital injection to build more housing, he says.

“The pros are we have some funds now that we can invest into creating a greater number of but also various models of housing with services that are fully adaptable to enable ageing in place.”

Hankins says long term, the board may choose not to recover the full cost of the investment but keep it as a sunk cost as part of its benevolence to provide affordable housing to people at the lower end of the wealth spectrum.

Lessons learnt:

Keep it private: Progressing the board’s strategic decision in a confidential way to ensure that residents and staff would not be affected by idle speculation was a challenge they worked very hard at, says Hankins, adding he believes they were successful.

Pick your partners well: He says if you’re going down a path of a strategic change or collaboration, know, understand and pick your advisors and the parties you want to work with well. “Your philosophies and your values need to align, otherwise it is hard work.”

Don’t tell the lawyers: Hankins jokes that ECH’s lawyers would love him for saying so, but he suggests parties directly involved do all the negotiation and the finalisation themselves rather than through lawyers, who can complicate things. “Lawyers are always there to protect their party’s interest and that is understandable. But sometimes the parties need to take a calculated thought-through risk approach to working to get a solution, and maybe wave some of the risk mitigation that legal provisions might come into, to achieve an outcome.”

Time: The magnitude of a transaction should never be underestimated, Hankins says. “It always takes longer than you think and it is always more complicated than you expect. But in the end, if you believe in something and you’re passionate about it, the time and the investment is worth it.”

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Managing a merger: KinCare

Since launching in 1992 as a nursing service in western Sydney with 16 clients, KinCare has grown to have a presence in every Australian state and the ACT, with over 1,650 staff providing more than one million hours of care in a year.

To get there, KinCare has gained experience in the acquisition game. It made its first in 2004, a small provider in the ACT, then in 2008-09 acquired Wesley Noakes in Sydney and Careforce in Melbourne. Most recently, in 2011, the KinCare Group bought Stanhope Nursing Service and Private Care.

Chief operating officer Therese Adami, who has been with the organisation for 13 years, says they refer to the Stanhope transaction as a merger rather than an acquisition.

Partly because they were slightly bigger than KinCare, she says, but importantly, because they had a number of strengths with their local leadership and service provision models.

“We felt that by purchasing Stanhope we could add value to the Stanhope business, but we could also add value to the KinCare business so together we were going to be stronger.”

Volume is one way to add strength, says Adami, because the bigger you are, the more you can put back into the business.

“You can invest in more sophisticated systems and you can attract the best people. It really gave us that opportunity to make sure we can have a really strong national direction.”

She says another is an increase in services they can offer existing clients through upselling or cross-selling where Stanhope had aged care packages and KinCare had HACC services.

Managing the change

In the short- to medium-term, it keeps you busy because you have to invest in a whole change management approach, Adami says.

“We had a good project management office. One of the key lessons is you have to keep a close eye on your existing business. For both the existing and new businesses, you need to have clear measures of success.”

The first thing to do is get all the data available to understand how the business is performing. And because you can’t do everything at once, you need to prioritise resources and outcomes, Adami says.

To keep people along the journey you have to have, and communicate clearly, a vision of the future entity because staff need to know the what, why and how they fit in, she says.

“It allows people to make decisions about where they want to be. You need to keep them up to date on what’s happening and why. You need to use a change management methodology which includes strong leadership and communication coming from management.”

KinCare used the ADKAR change methodology, which focuses on Awareness, Desire, Knowledge, Ability and Reinforcement.

Overall, Adami says the payback period is estimated at four-and-a-half years but given value and growth, it will end up being less than that.

Lessons learnt:

A good fit: It needs to be a good strategic fit for both the acquirer and the merged entity, Adami says. “There may be a benefit for doing that, such as we found that there were clients we could offer a broader range of services to.”

Value: It is imperative to know the value proposition including the actual and potential value for each business and the new entity, Adami says. That could be volume, key people in their organisation, markets you would like, extra services you could offer existing clients, or financial advantages, she says.

People power: “Never lose sight of the people,” Adami says. “The key element in this industry is the relationships between the staff and the client.” Clients are typically happy, which is why they stay with the service, so it important to maintain and enhance that value. And staff have been working successfully in their culture so it is equally important to continue to recognise that because when you make significant changes you need to understand the impact on them, she says.

Leadership: You need to be an energetic, focused and credible management team with the skills to lead to communicate the vision and keep people engaged in what that looks like, Adami says. “Don’t try this if you don’t have the desire to make it work. You have to believe in the vision so people come along with it. People love managers that are going to make them feel safe and secure. Otherwise they don’t want to stay and you really don’t want a lot of turnover.”