5 years of financial loss: aged care at a glance

Article originally published on HelloCare (12/04/2023)

Business advisory firm, StewartBrown, has reaffirmed the grim financial reality for aged care providers in their latest Survey Report of the last financial year.

The six-month review reiterated the sector was still operating at a loss. Of 1138 residential care facilities, 63% weren’t making enough to break even, with workforce shortages and a declining occupancy rate cited as a particular concern.

“We’re seeing an increasing number of aged care homes running at an operating loss and a cash loss as well and if this continues for too much longer, we’re going to see potential home closures, more home closures than we’ve seen over the last few years,” Grant Corderoy, Senior Partner at StewartBrown, said in an ABC interview.

On average, residential aged care homes were operating at a loss of $15.98 per bed per day and the further decline in revenue ($10.31 per bed per day in December 2021) had been reduced through subsidised funding as of October 2022.

“The sector has had five, coming into six years of massive operating deficits. In 2022, it was about 1.4 billion dollars — I estimate about 1.7 billion dollars in 2023, and so if you have six years of losses, it’s aggregate to be over five billion dollars worth of losses,” Mr Corderoy said

“So what that has done, it’s eroded the capital base and also, because of financial performance, it’s ceased new investment.”

Further, the report details that providers are burning through funds by reaching out to recruitment and staffing agencies to keep up with staffing.

Agency staff represented $15.33 per bed per day, but in the December 2021 report, agency staff represented $6.52 per bed per day.

The audit notes that of the declining occupancy, down from 91.5% in 2021 to 90.8% in December 2022, the financial performance of Home Care Packages (HCP) as an alternative was not faring much better.

Of 66,703 HCPs, data from the StewartBrown survey found that operating surplus had decreased from $4.51 in December of 2021 to $2.54 in 2022 per client per day.

Across the industry, this means that the cost needed to offer adequate home care services, including technology and accessibility, is simply not worth it if the clients aren’t willing to pay for it.

These difficulties in providing home care for older Australians and the shrinking profit margins for providers have only been compounded by changing regulatory requirements which many providers weren’t aware of.

The 15% wage increase will be introduced on June 30 and may serve as a saving grace, as a high turnover rate and regulatory hurdles have led to a 3.72% annual decrease in Enrolled and Registered Nurses providing direct care per patient per day.

In January, the Aged Care Workforce Industry Council expressed their thoughts on the Fair Work Commission work value case, stating that 15% just wasn’t enough to keep the workforce alive and incentivised.

Commentary provided by StewartBrown recommends that in addition to subsidised funding to account for inflation and incentivise staffing, reforms should be introduced to the means-testing for funding aged care, including the recipient’s property (capped at $200,000 for the primary property) included in testing.

While subsidies are great in minimising the operating losses of residential facilities and maintaining revenue for home care providers, the 96% taxpayer-funded support needs recipients to contribute more towards care.

Reforms, such as the ‘Tune Review,’ which was the 2019 NDIS Act revision, can assist in an equitable market for aged care.