Home closures likely as financial decline continues, says insider

The aged care sector could see up to 50 homes close over the next year and a half, according to an industry expert.   

Speaking to Australian Ageing Agenda following the release of the latest Aged Care Financial Performance Survey report, senior partner at StewartBrown Grant Corderoy said “there could be somewhere between 30 and 50 home closures on the cards over the next 18 months.”

Mr Corderoy’s grim prediction comes as the first three months of the 2022-23 financial year continue to highlight “the declining financial sustainability” of the sector, with residential aged care remaining at a “critical financial sustainability position” for the majority of providers.

The report – based on data obtained from 1,182 facilities across Australia – shows that 70 per cent of aged care homes operated at a loss from July-September 2022.  “Clearly, it’s putting a lot of pressure on providers,” said Mr Corderoy. “We might see some small providers fail – those with one or two homes.”

Although many providers will still have a reserve of resources, cash assets are diminishing, Mr Corderoy told AAA, meaning “they would all be considering how long they can keep under-performing homes viable.”

Pressure is also on the larger providers, added Mr Corderoy. While they might not fail, “they’re obviously still going to be very much looking at some homes they’re operating that are unviable and we’ll see home closures,” he said.

According to the 22-page report, the average results across aged care homes in all geographic sectors for the period was an operating loss of $21.29 per bed per day, compared to a $7.30 per bed per day loss in September 2021.

Possibly the greatest concern is in respect of the financial performance of the
bottom 75 per cent of facilities, say the report’s authors. “This should not be interpreted as any reflection on the standard of care delivered, but the dilemma that the sector faces.”

The graph below highlights a gap of $17.20 per bed per day from the average result.

Further reform needed

While the authors note that the Labor Government has shown “strong commitment” to implementing long-awaited reforms, more change is urgently needed, including:

• funding to increase staff remuneration, costs and benefits
• subsidy funding, including indexation, to directly correlate to the direct costs of care
• deregulation of the residential Basic Daily Fee
• structural enhancement of the accommodation pricing model
• regulated consumer contribution for home care based on ability to pay
• alternative home care funding model.

Speaking of residential aged care, Mr Corderoy told AAA: “The reforms that are really required are related to everyday living – which is catering, laundry, utilities and accommodation services. There needs to be a greater consumer contribution for those consumers that can afford to pay.”  

But the biggest aged care issue that needs to be addressed is staffing, said Mr Corderoy. Staff shortages not only impact the delivery of quality of care, but they also affect a provider’s finances. “They have to pay agency fees, which is a higher cost, or significantly more overtime.”

As the report shows, agency staffing alone represented a cost of $13.42 per bed per day, an increase of $7.48 per bed per day when compared to the September 2021 period.

Occupancy also remains a “major concern”, say the report’s authors, with the downward trend continuing – 91.3 per cent for September 2022 compared to 92 per cent in September 2021.

The combination of negative factors impacting the industry, say the report’s authors, will likely deter providers from investing further in the sector.

Home care: money going to waste

As with residential aged care, the home care sector has seen its financial performance declining with the current operating result showing a surplus of $3.56 per client per day, down from $4.90 per client per day in September 2021.

“This is not an adequate return based on the investment required and business risk to provide essential services to the elderly in a domestic home setting,” say the report’s authors.

Unlike residential aged care, which is underfunded, the majority of people accessing a home care package is receiving more funding than they require, said Mr Corderoy. This has led to an enormous amount of unspent funds: an average of $11,693 per home care recipient – about $2.4 billion in total. “That money is, in a sense, going to waste.”

There needs to be an overhaul of the home care funding model, said Mr Corderoy, “so that consumers are getting funded to the level they need, and that they’re not getting over-funded. That will allow funding for other consumers who don’t have access to [home care] packages.”

“Short-term remedial assistance may be required.”

Returning to the residential aged care sector, the underlying issue facing providers, say the report’s authors, is the lag period between the implementation of the reforms and the moment they begin to positively impact financial performance. “This is where the pressure point is likely to occur, and short-term remedial assistance may be required.”

To avoid home closures and reduced service delivery – especially in regional areas of Australia – the report’s authors suggests the government offer providers a funding sustainability package “to ensure current viability and allow for necessary funding reforms to be properly implemented.”

“The report is highlighting that the reform process for aged care has still got a way to go,” said Mr Corderoy. “I think that the reforms are good and positive – it will just take a little while to work its way through.”

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