Direct care costs set to hinder financial progress, StewartBrown reports
Last updated on 11 July 2024
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Last December’s AN-ACC starting price increase continues to have a positive impact on residential care providers, yet significant staffing shortages – particularly Registered Nurses – threaten to derail much of the financial progress in the second half of 2024.
Key points
- The Aged Care Financial Performance Survey Sector Report for the March 2024 nine-month period shows an improvement in the operating results for residential aged care and a marginal improvement for home care
- Residential aged care homes experienced an average operating loss of $0.64 per bed day, a significant improvement from the previous year’s $15.73 loss
- The improvement is primarily due to an increase in the direct care margin from the AN-ACC subsidy
- Direct care staffing levels have increased to meet mandatory requirements, but staffing shortages, especially for registered nurses, remain a challenge
- In home care, increasing administration costs saw the profitability margin decline from 4.9% for Mar-23 to 4.5% for YTD Mar-24
Uncertainty affects sustainability
StewartBrown’s latest Survey drives the point home very early on, calling on the Government to release clear and unambiguous funding direction information soon, well before the new Aged Care Act is implemented.
They argue that the current reform process has slowed down, following in the footsteps of years of uncertainty. Future financial sustainability has been impacted by regulation, compliance and funding uncertainty.
Providers are closing in on a new Aged Care Act – destined for legislation by July 2025. However, there has been no public progress since the exposure draft and the Aged Care Taskforce recommendations were released. Home care providers are also in limbo, awaiting more information regarding the new home care program, Support at Home.
Uncertainty over providers being able to meet their expanding mandatory direct care minute requirements also lingers.
As StewartBrown revealed, residential aged care homes continued to benefit from last December’s AN-ACC price rise from $243.10 to $253.82. The operating loss of $0.64 per bed day (pbd) was a $15 improvement compared to 2023, while the operating loss of $218 per bed per annum was a $546 improvement.
All up, the direct care subsidy & supplements averaged $268.29 pbd for the nine months ending March 2024, a strong financial bedrock for residential care providers.
The big concern is that the sector still hasn’t reported average RN minutes above the 40-minute threshold with some rising agency usage rates resulting in more staffing expenses. Agency staff usage has been required the most for overnight shifts.
Positively, providers are averaging 38.59 RN minutes, the highest return so far. But as providers close in on their required RN minutes, any AN-ACC funding surplus will evaporate.
Losses are still a concern
Despite improvements, which still have the sector falling short of industry-wide profits, 50% of aged care homes continue to operate at a loss while 28% operate at an EBITDA (cash loss).
Losses continue to come from indirect care and accommodation costs, although both segments have made gains since 2023:
- The loss in indirect care has improved to $5.62 per bed day, a $1.88 improvement on March 2023
- Accommodation losses improved by $3.47 over the 12 months, moving from $13.63 to $10.16
- Altogether, operating results per bed per annum have jumped drastically, sitting at a loss of $218 in March 2024 compared to $5,219 in March 2023
Moving forward, StewartBrown forecasts a $1.30 pbd deficit for the 2023-2024 financial year. This a backstep from the March figures, highlighting just how much of an impact direct care costs will have as providers ramp up to meet their growing targets for October.
“It is apparent from this high-level analysis that even with the significant increase in direct care funding through AN-ACC and other initiatives, the overall results on average will still be a deficit,” the Survey stated.
“It is also clear that Providers will be restricted from channelling those additional funds into providing higher quality care services, including different models of residential care (small homes and dementia specific homes etc) and innovative solutions to care delivery that would come at a cost until sufficient funding is available to cover indirect care costs and the cost of providing accommodation.
“Of equal importance is that this low level of profitability will not be conducive to increased investment in the sector which is crucial.”